Transpo Cases1

A. WHAT IS A COMMON CARRIER?
- Persons, corporations, firms or associations engaged in the business of

carrying or transporting passengers or goods or both, by land, water, or air,
for compensation, offering their services to the public. (Art. 1732, Civil
Code).
- 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
vs. Court of Appeals, No. L-47822, December 22, 1988)
B. CHARACTERISTICS OF A COMMON CARRIER
Art. 1732 of the Civil Code avoids any distinction between one whose
principal business is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity (sideline).
It also avoids a distinction between a person or enterprise offering

transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis.
Article 1732 does not distinguish between a carrier offering its services
to the general public, that is the general community or population, and
one who offers services or solicits business only from a narrow
segment of the general population.
A person or entity is a common carrier even if he did not secure a

Certificate of Public Convenience
The Civil Code makes no distinction as to the means of transporting,

as long as it is by land, water or air.
The Civil Code does not provide that the transportation should be by
motor vehicle.
A person or entity may be a common carrier even if he has no fixed

publicly known route, maintains no terminals, and issues no tickets.
Undertakes to carry for all people indifferently and thus is liable for
refusal without sufficient reason (Lastimoso vs. Doliente, 3 SCRA ,
[1961]);
Cannot lawfully decline to accept a particular class of goods for

carriage to the prejudice of the traffic in these goods;
No monopoly is favored (Batangas Trans. vs. Orlanes, 52 Phil. 455);
Provides public convenience.
C. TESTS WHETHER A PARTY IS A COMMON CARRIER OF GOODS:

It must be engaged in the business of carrying goods for others as a
public employment and must hold itself out as ready to engage in the
transportation of goods generally as a business and not as a casual
occupation;
It must undertake to carry goods of the kind to which its business is
confined;
It must undertake to carry by the method by which his business is
conducted and over its established roads; and
TRANSPORTATION LAW: Lawrence Jeffrey Delfin, Flerida Emma Manglicmot, Mark Joseph Mupas,
Melanie Pascua, Gilbert Ricaforte, Renato Segubiense Jr., Katleen Grace Serrano, Mary Jane Timbang
The transportation must be for hire. (First Philippine Industrial Corp. v.

CA, 300 SCRA 661, [1998)
Test whether a party is a common carrier
FIRST PHILIPPINE INDUSTRIAL CORP. VS. COURT OF APPEALS
(101 SCRA 661, 1998)
Facts: Petitioner is a grantee of a pipeline concession under R.A. No. 387, as
amended, a contract, install and operate oil pipelines. The original pipeline
concession was granted in 1967 and renewed by the Energy Regulatory
Board in 1992.
Sometime in January 1995, petitioner applied for a mayors permit with
the Office of the Mayor of Batangas City. However, before the mayors permit
could be issued, the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code. The respondent City Treasure assessed a business
tax on the petitioner amounting to P956,076.04 payable in four installments
based on the gross receipts for products pumped at GPS-1 for the fiscal year
1993 which amounted to P181,681,151.00. in order not to hamper its
operations, petitioner paid the tax under protest in the amount of P239,
019.01 for the first quarter of 1993.
On June 15, 1994, petitioner filed with the RTC of Batangas City a
complaint for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition
and collection of the business tax on its gross receipts violates Sec. 133 of
the Local Government Code; (2) the authority of cities to impose and collect
a tax on the gross receipts of contractors and independent contractors
under Sec. 141(e) and 151 does not include the authority to collect such
taxes on transportation contractors for, as defined under Sec. 131(h), the term
contractors excludes transportation contactors; and (3) the City Treasurer
illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid.
Traversing the complaint, the respondents argued that petitioner
cannot be exempt from taxes under Sec. 133 (J) of the Local Government
Code as said exemption applied only to transportation contractors and
persons engaged in the transportation by hire and common carriers by air
land and water. Respondents assert that pipelines are not included in the
term common carrier which refers solely to ordinary carriers as trucks,
trains, ships and the like. Respondents further posit that the term common
carrier under the said Code pertains to the mode or manner by which a
product is delivered to its destination.
Issue: Whether or not the petitioner is a common carrier so that in the
affirmative, he is not liable to pay the carriers tax under the Local Government
Code of 1991?
Held: Petitioner is a common carrier.
A common carrier may be defined, broadly, as one who holds himself
out to the public as engaged in the business of transporting persons or
property from place to place, for compensation, offering his services to the
public generally.
Article 1732 of the Civil Code defines a common carrier as any

person, corporation, firm or association engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
The test for determining whether a party is a common carrier of goods
is:
1. He must be engaged in the carrying of goods for others as a public
employment, and must hold himself out as ready to engage in the
transportation of goods or persons generally as a business and not as a
casual occupation.
2. He must undertake to carry goods of the kind to which his business is
confined;
3. He must undertake to carry by the method by which his business is
conducted and over his established roads; and
4. The transportation must be for hire.
D. Cases:
1. DE GUZMAN VS. COURT OF APPEALS (168 SCRA 612)
Facts: Cendena was a junk dealer and was engaged in buying used bottles
and scrap materials in Pangasinan and brought these to Manila for resale. He
used two 6-wheeler trucks. On the return trip to Pangasinan, he would load
his vehicles with cargo which various merchants wanted delivered to
Pangasinan. For that service, he charged freight lower than regular rates.
General Milk Co. contacted with him for the hauling of 750 cartons of milk. On
the way to Pangasinan, one of the trucks was hijacked by armed men who
took with them the truck and its cargo and kidnapped the driver and his
helper. Only 150 cartons of milk were delivered. The Milk Co. sued to claim
the value of the lost merchandise based on an alleged contract of carriage.
Cendena denied that he was a common carrier and contended that he could
not be liable for the loss it was due to force majeure. The trial court ruled that
he was a common carrier. The CA reversed.
Issue: Whether or not Cendena is a common carrier?
Held: Yes, Cendena is properly characterized as a common carrier even
though he merely backhauled goods for other merchants, and even if it was
done on a periodic basis rather than on a regular basis, and even if his
principal occupation was not the carriage of goods.
Article 1732 makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity. It also avoids making a distinction
between a person or enterprise offering transportation services on a regular
or scheduled basis and one offering service on an occasional, episodic or
unscheduled basis. Neither does it make a distinction between a carrier
offering its services to the general public and one who offers services or
solicits business only from a narrow segment of population.
2. PLANTERS PORDUCTS VS. CA (226 SCRA)
Facts: Planters Product Inc. purchased from Mitsubishi international
corporation metric tons of Urea fertilizer, which the latter shipped aboard the
cargo vessel M/V Sun Plum owned by private respondent Kyosei Kisen
Kabushiki Kaisha. Prior to its voyage, a time charter-party on the vessel
respondent entered into between Mitsubishi as shipper/charterer and KKKK
as ship owner, in Tokyo, Japan.
Before loading the fertilizer aboard the vessel, (4) of her holds were
presumably inspected by the charterers representative and found fit to take a
load of urea in bulk. After the Urea fertilizer was loaded in bulk by stevedores
hired by and under the supervision of the shipper, the steel hatches were
closed with heavy iron lids. Upon arrival of vessel at port, the petitioner
unloaded the cargo pursuant to the terms and conditions of the charter-party.
The hatches remained open throughout the duration of the discharge.
Upon arrival at petitioners warehouse a survey conducted over the
cargo revealed a shortage and the most of the fertilizer was contaminated
with dirt. As such, Planters filed an action for damages. The defendant argued
that the public policy governing common carriers do not apply to them
because they have become private carriers by reason of the provisions of the
charter-party.
Issue: Whether or not the charter-party contract between the ship owner and
the charterer transforms a common carrier into a private carrier?
Held: A charter party may either her be time charter wherein the vessel is
leased to the charterer, wherein the ship is leased to the charterer for a fixed
period of time or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter party provides for the hire of the vessel
only, either for a determinate time or for a single or consecutive voyage.
It is therefor imperative that such common carrier shall remain as such,
notwithstanding the charter of the whole or part of the vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the charter includes both ship
and its crew as in bareboat or demise that it becomes a private carrier.
Undoubtedly, a shipowner in a time or voyage charter retains in possession
and control of the ship, although her holds may be the property of the
charterer.
3. CALVO V. UCPB GENERAL INSURANCE (G.R. NO. 148496 MARCH 19,
2002)
Facts: Petitioner Virgines Calvo, owner of Transorient Container Terminal
Services, Inc. (TCTSI), and a custom broker, entered into a contract with San
Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical
fluting paper and 124 reels of kraft liner board from the port area to the
Tabacalera Compound, Ermita, Manila.
The cargo was insured by
respondent UCPB General Insurance Co., Inc.
On July 14, 1990, contained in 30 metal vans, arrived in Manila on
board M/V Hayakawa Maru. After 24 hours, they were unloaded from
vessel to the custody of the arrastre operator, Manila Port Services, Inc.
From July 23 to 25, 1990, petitioner, pursuant to her contract with SMC,
withdrew the cargo from the arrastre operator and delivered it to SMCs
warehouse in Manila. On July 25, the goods were inspected by Marine Cargo
Surveyors, reported that 15 reels of the semi-chemical fluting paper were
wet/stained/torn and 3 reels of kraft liner board were also torn. The
damages cost P93,112.00.
SMC collected the said amount from respondent UCPB under its
insurance contract. Respondent on the other hand, as a subrogee of SMC,
brought a suit against petitioner in RTC, Makati City. On December 20, 1995,
the RTC rendered judgment finding petitioner liable for the damage to the
shipment. The decision was affirmed by the CA.
Issue: Whether or not Calvo is a common carrier?
Held: In this case the contention of the petitioner, that he is not a common
carrier but a private carrier, has no merit.
Article 1732 makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who
does such carrying only as ancillary activity. Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e.,
the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinction. (De Guzman
v. CA, 68 SCRA 612)
Te concept of common carrier under Article 1732 coincide with the
notion of public service, under the Public Service Act which partially
supplements the law on common carrier. Under Section 13, paragraph (b) of
the Public Service Act, it includes:
x x x 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, and 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 and 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, icerefrigeration 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. x x x
4. FABRE VS. CA (259 SCRA 426 G.R. NO. 111127, JULY 26, 1996)
Facts: Petitioners Engracio Fabre, Jr. and his wife were owners of a Mazda
minibus. They used the bus principally in connection with a bus service for
school children which they operated in Manila. It was driven by Porfirio Cabil.
On November 2, 1984 private respondent Word for the World Christian
Fellowship Inc. (WWCF) arranged with the petitioners for the transportation of
33 members of its Young Adults Ministry from Manila to La Union and back in
consideration of which private respondent paid petitioners the amount of
P3,000.00.
The usual route to Caba, La Union was through Carmen, Pangasinan.
However, the bridge at Carmen was under repair, so that petitioner Cabil, who
was unfamiliar with the area (it being his first trip to La Union), was forced to
take a detour through the town of Ba-ay in Lingayen, Pangasinan. At 11:30
that night, petitioner Cabil came upon a sharp curve on the highway. The road
was slippery because it was raining, causing the bus, which was running at
the speed of 50 kilometers per hour, to skid to the left road shoulder. The bus
hit the left traffic steel brace and sign along the road and rammed the fence of
one Jesus Escano, then turned over and landed on its left side, coming to a
full stop only after a series of impacts. The bus came to rest off the road. A
coconut tree which it had hit fell on it and smashed its front portion. Because
of the mishap, several passengers were injured particularly Amyline Antonio.
Criminal complaint was filed against the driver and the spouses were
also made jointly liable. Spouses Fabre on the other hand contended that
they are not liable since they are not a common carrier. The RTC of Makati
ruled in favor of the plaintiff and the defendants were ordered to pay jointly
and severally to the plaintiffs. The Court of Appeals affirmed the decision of
the trial court.
Issue: Whether the spouses Fabre are common carriers?
Held: Petition was denied. Spouses Fabre are common carriers.
The Supreme Court held that this case actually involves a contract of
carriage. Petitioners, the Fabres, did not have to be engaged in the business
of public transportation for the provisions of the Civil Code on common
carriers to apply to them. As this Court has held: 10 Art. 1732, Common
carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land,
water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as "a sideline").
Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such
distinctions.
5. TATAD VS. GARCIA (241 SCRA 334, GR. NO. 114222. APRIL 6, 1995)
Facts: DOTC planned to construct a light railway transit line along Edsa.
EDSA LRT Corporation, Ltd., a foreign corporation was awarded the contract
to build, lease and transfer the said light railway.
The said award was questioned by the petitioners on the basis that a
foreign corporation cannot own the EDSA LRT III, a public utility as it violates
the Constitution.
Issue: Whether or not an owner and lessor of the facilities used by a public
utility constitute a public utility?
Held: EDSA LRT Corporation, Ltd. Is admittedly a foreign corporation duly
incorporated and existing under the laws of Hong Kong. However, there is no
dispute that once the EDSA LRT III is constructed, the private respondent, as
lessor, will turn it over to DOTC as lessee, for the latter to operate the system
and pay rentals for the said use.
What private respondent owns are the rail tracks, rolling stocks, rail
stations, terminals and the power plant, not a public utility. While a franchise
is needed to operate these facilities to serve the public, they do not
themselves constitute a public utility. What constitutes a public utility in not
their ownership but their use to serve the public.
The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise before
one can own the facilities needed to operate a public utility so long as it does
not operate them to serve the public. In law, there is a clear distinction
between the operation of a public utility and the ownership of the facilities
and the equipment used to serve the public.
6. FISHER VS. YANGCO STEAMSHIP (31 PHIL 1)
Facts: The complained alleges that plaintiff is a stockholder in Yangco
Steamship
Company, the owner of the large steam vessels, duly licensed to
engage in the coastwise trade of the Philippine Island; that on or about June
10, 1912, the directors of the company, adopted a resolution which was
thereafter ratified and affirmed by the stockholders of the company expressly
declaring and providing that the classes of merchandise to be carried by the
company in its business as common carrier do not include dynamite, powder
or other explosives, and expressly prohibiting the officers, agents an d
servants of the company from offering to carry, accepting for carriage or
carrying said dynamite, powder or other explosives.
Issue: Whether the refusal of the owner and officer of a steam vessel, to
accept for carriage dynamite, powder or other explosives for carriage can be
held to be a lawful act?
Held: The traffic in dynamite gun powder and other explosive is vitally
essential to the material and general welfare of the inhabitants of this islands
and it these products are to continue in general use throughout the
Philippines they must be transported from water to port to port in various
island which make up the Archipelago.
It follows that a refusal by a particular vessel engage as a common
carrier of merchandise in coastwise trade in the Philippine Island to accept
such explosives for carriage constitutes a violation.
The prohibition against discrimination penalized under the statute,
unless it can be shown that there is so Real and substantial danger of
disaster necessarily involved in the courage of any or all of this article of
merchandise as to render such refusal a due or unnecessary or a reasonable
exercise or prudence and discreation on the part of the ship owner.
7. LOADSTAR SHIPPING VS. CA (315 SCRA 339, 1999)
Facts: On November 19, 1984, loadstar received on board its M/V
Cherokee bales of lawanit hardwood, tilewood and Apitong Bolidenized for
shipment. The goods, amounting to P6,067, 178. Were insured for the same
amount with the Manila Insurance Company against various risks including
Total Loss by Total Loss of the Vessel. On November 20, 1984, on its way to
Manila from the port of Nasipit, Agusan Del Norte, the vessel, along with its
cargo, sank off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with loadstar which, however, ignored the same.
As the insurer, MIC paid to the insured in full settlement of its claim, and the
latter executed a subrogation receipt therefor. MIC thereafter filed a complaint
against loadstar alleging that the sinking of the vessel was due to fault and
negligence of loadstar and its employees.
In its answer, Loadstar denied any liability for the loss of the shippers
goods and claimed that the sinking of its vessel was due to force majeure.
The court a quo rendered judgment in favor of MIC., prompting loadstar to
elevate the matter to the Court of Appeals, which however, agreed with the
trial court and affirmed its decision in toto. On appeal, loadstar maintained
that the vessel was a private carrier because it was not issued a Certificate of
Public Convenience, it did not have a regular trip or schedule nor a fixed
route, and there was only one shipper, one consignee for a special crago.
Issue: Whether or not M/V Cherokee was a private carrier so as to exempt it
from the provisions covering Common Carrier?
Held: Loadstar is a common carrier.
The Court held that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and
this public character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled. Further, the bare
fact that the vessel was carrying a particular type of cargo for one shipper,
which appears to be purely co-incidental; it is no reason enough to convert
the vessel from a common to a private carrier, especially where, as in this
case, it was shown that the vessel was also carrying passengers.
Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a
narrow segment of the general population.
8. FIRST PHILIPPINES INDUSTRIAL CORP. VS. CA (300 SCRA 661)
Facts: Petitioner is a grantee of a pipeline concession under R.A. No. 387, as
amended, a contract, install and operate oil pipelines. The original pipeline
concession was granted in 1967 and renewed by the Energy Regulatory
Board in 1992.
Sometime in January 1995, petitioner applied for a mayors permit with
the Office of the Mayor of Batangas City. However, before the mayors permit
could be issued, the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code. The respondent City Treasure assessed a business
tax on the petitioner amounting to P956,076.04 payable in four installments
based on the gross receipts for products pumped at GPS-1 for the fiscal year
1993 which amounted to P181,681,151.00. In order not to hamper its
operations, petitioner paid the tax but under protest in the amount of P239,
019.01 for the first quarter of 1993.
On June 15, 1994, petitioner filed with the RTC of Batangas City a
complaint for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer.
Traversing the complaint, the respondents argued that petitioner
cannot be exempt from taxes under Sec. 133(J) of the Local Government
Code as said exemption applied only to transportation contractors and
persons engaged in the transportation by hire and common carriers by air
land and water. Respondents assert that pipelines are not included in the
term common carrier which refers solely to ordinary carriers as trucks,
trains, ships and the like. Respondents further posit that the term common
carrier under the said Code pertains to the mode or manner by which a
product is delivered to its destination.
Issue: Whether the petitioner, an oil pipeline operator is a common carrier,
and therefore exempted from paying local taxes?
Held: Yes. Petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as any
person, corporation, firm or association engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
A common carrier may be defined, broadly, as one who holds himself
out to the public as engaged in the business of transporting persons or
property from place to place, for compensation, offering his services to the
public generally.
The test for determining whether a party is a common carrier of goods
is: 1. He must be engaged in the carrying of goods for others as a public
employment, and must hold himself out as ready to engage in the
transportation of goods or persons generally as a business and not as a
casual occupation; 2.He must undertake to carry goods of the kind to which
his business is confined; 3. He must undertake to carry by the method by
which his business is conducted and over his established roads; and 4. The
transportation must be for hire.
Based on the above definition and requirements, there is no doubt that
the petitioner is a common carrier.
9. HOME INSURANCE VS. AMEARICAN STEAMSHIP (23 SCRA 24)
Facts: The Consorcio Pesquero del Peru of South America shipped jute bags
of Peruvian fishmeal through SS Crowborough, consigned to San Miguel
Brewery, Inc. The cargo, which was insured by Home Insurance Company,
arrived at the port of Manila and was discharged to the lighters of the Luzon
Stevedoring Corporation. When the same was delivered to the consignee,
there were shortages amounting to P 12, 033.85, prompting the latter to pay
against Luzon Stevedoring Co.
Because the others denied liability, Home Insurance paid San Miguel
the insurance value loss. This cost was brought by the former to recover
indemnity from Luzon Stevedoring and the ship owner. Luzon Stevedoring
raised the defense that it deliver with due diligence in the same from the
carrier. Mexican Steamship Agencies denied liability on the ground that the
charter party referred to in the bills of lading, the charter, not the ship owner,
was responsible for any loss or damage of the cargo. Furthermore, it claimed
to have exercised due diligence in stowing the goods and as a mere
forwarding agent, it was not responsible for losses or damages to the cargo.
Issue: Whether or not the stipulation in the charter party to owners nonliability was valid as to absolve the American Steamship from liability loss?
Held: The Civil Code provision on common carriers should not be applied
where the carrier is not acting as such but as a private carrier. The stipulation
in the charter party absolving the owner from liability for loss due to the
negligence of its agent is void only if the strict public policy governing
common carriers is applied. Such policy has no force where the public at
large is not involved, as in the case of a ship totally chartered for the use of a
single party.
10. SAN PABLO VS. PANTRANCO (153 SCRA 199)
Facts: The Pantranco South Express, Inc., hereinafter referred to as
PANTRANCO is a domestic corporation engaged in the land transportation
business with PUB service for passengers and freight and various certificates
for public conveniences (CPC) to operate passenger buses from Metro
Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO
through its counsel wrote to Maritime Industry Authority (MARINA) requesting
authority to lease/purchase a vessel named MN "Black Double" "to be used
for its project to operate a ferryboat service from Matnog, Sorsogon and Allen,
Samar that will provide service to company buses and freight trucks that have
to cross San Bernardo Strait. In a reply of April 29,1981 PANTRANCO was
informed by MARINA that it cannot give due course to the request.
PANTRANCO nevertheless acquired the vessel MN "Black Double" on
May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of
Transportation (BOT) through its counsel, that it proposes to operate a ferry
service to carry its passenger buses and freight trucks between Allen and
Matnog in connection with its trips to Tacloban City. PANTRANCO claims that
it can operate a ferry service in connection with its franchise for bus operation
in the highway from Pasay City to Tacloban City "for the purpose of continuing
the highway, which is interrupted by a small body of water, the said proposed
ferry operation is merely a necessary and incidental service to its main
service and obligation of transporting its passengers from Pasay City to
Tacloban City. Such being the case there is no need to obtain a separate
certificate for public convenience to operate a ferry service between Allen and
Matnog to cater exclusively to its passenger buses and freight trucks.
Without awaiting action on its request PANTRANCO started to operate
said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered
PANTRANCO not to operate its vessel until the application for hearing on Oct.
1, 1981. In another order BOT enjoined PANTRANCO from operating the MN
"Black Double" otherwise it will be cited to show cause why its CPC should
not be suspended or the pending application denied.
Epitacio San Pablo (now represented by his heirs) and Cardinal
Shipping Corporation who are franchise holders of the ferry service in this
area interposed their opposition. They claim they adequately service the
PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked
the legal opinion from the Minister of Justice whether or not a bus company
with an existing CPC between Pasay City and Tacloban City may still be
required to secure another certificate in order to operate a ferry service
between two terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the effect that there
is no need for bus operators to secure a separate CPC to operate a ferryboat
service.
Thus on October 23, 1981 the BOT rendered its decision holding that
the ferryboat service is part of its CPC to operate from Pasay to Samar/Leyte
by amending PANTRANCO's CPC so as to reflect the same.
Cardinal Shipping Corporation and the heirs of San Pablo filed
separate motions for reconsideration of said decision and San Pablo filed a
supplemental motion for reconsideration that were denied by the BOT on July
21, 1981. Hence, San Pablo filed the herein petition for review on certiorari
with prayer for preliminary injunction seeking the revocation of said decision,
and pending consideration of the petition the issuance of a restraining order
or preliminary injunction against the operation by PANTRANCO of said ferry
service
Issue: Whether or not the ferry boat is a common carrier?
Held: Considering the environmental circumstances of the case, the
conveyance of passengers, trucks and cargo from Matnog to Allen is certainly
10
not a ferryboat service but a coastwise or interisland shipping service. Under

no circumstance can the sea between Matnog and Allen be considered a
continuation of the highway. While a ferryboat service has been considered
as a continuation of the highway when crossing rivers or even lakes, which
are small body of waters separating the land, however, when as in this case
the two terminals, Matnog and Allen are separated by an open sea it can not
be considered as a continuation of the highway.
The contention of private respondent PANTRANCO that its ferry
service operation is as a private carrier, not as a common carrier for its
exclusive use in the ferrying of its passenger buses and cargo trucks is
absurd. PANTRANCO does not deny that it charges its passengers
separately from the charges for the bus trips and issues separate tickets
whenever they board the MN "Black Double" that crosses Matnog to Allen.
Nevertheless, considering that the authority granted to PANTRANCO is to
operate a private ferry, it can still assert that it cannot be held to account as a
common carrier towards its passengers and cargo. Such an anomalous
situation that will jeopardize the safety and interests of its passengers and the
cargo owners cannot be allowed.
Thus the Court holds that the water transport service between Matnog
and Allen is not a ferryboat service but a coastwise or interisland shipping
service. Before private respondent may be issued a franchise or CPC for the
operation of the said service as a common carrier, it must comply with the
usual requirements of filing an application, payment of the fees, publication,
adducing evidence at a hearing and affording the oppositors the opportunity
to be heard, among others, as provided by law.
E. DISTINCTIONS BETWEEN
CARRIER
Common Carrier
As to passengers
Holds himself out for all
indiscriminately.
COMMON
CARRIER AND
PRIVATE
Private Carrier
people Contracts with particular individuals
or groups only.
As to required diligence
Requires extraordinary diligence.
Requires only ordinary diligence.
As to state regulation
Subject to regulation.
Not subject to regulation.
As to stipulation on limiting liability

Parties may not agree on limiting the Parties may agree on limiting the
carriers liability except when provided carriers liability, provided not
by law.
contrary to law, morals or good
customs.
Presumption as to fault and negligence
Presumption of fault or negligence No fault or negligence is presumed.
applies.
As to laws applicable on damages
Law on common carriers.
Law on obligations and contracts.
F. GOVERNING/ APPLICABLE LAW
A. Transportation by Sea
1.
Coastwise
Civil Code (Arts.1732-1766) primary law
11
Code of Commerce suppletory law

Note: Carriage of Goods by Sea Act inapplicable even if the parties
expressly provide for it.
Carriage from Foreign Ports To Philippine Ports
Civil Code primary law
Code of Commerce all matters not regulated by the Civil
2.
Code.
3.
Carriage of Goods by Sea Act (COGSA) suppletory to

the Civil Code.
Carriage from Philippine Ports To Foreign

Ports-laws of the country to which the goods are to be transported.
B. Land Transportation
a.
Common Carriers
Civil Code (Arts.1732-1766) primary law
Code of Commerce suppletory law

b.
Private Carriers
Object merchandise
Code of Commerce primary law
Civil Code suppletory law
C. Air Transportation
1.
2.
Domestic Transportation
Civil Code
Code of Commerce
International
Transportation
Warsaw
Convention
While the Warsaw Convention has the force of law in the

Philippines, it does not have an exclusive enumeration of a carriers
liability for contractual breach or absolute limit of liability. It does not
preclude the operation of the Civil Code and other laws.
The liability of the carrier for the loss, destruction or deterioration of

goods transported to the Philippines from a foreign country, is
primarily governed by the Civil Code not by the Warsaw Convention
which applies only to simple loss of baggage.
There Is International Transportation When:
1. The place of departure and the place of destination are within the
territories of two high contracting parties, regardless of whether or
not there was a break in the transportation or transshipment.
2. The place of departure and the place of destination are within the
territory of a single contracting party if there is an agreed stopping
place within a territory subject to the sovereignty, mandate or
authority of another power, even though the power is not a party to
the convention. (Mapa v. CA, 275 SCRA [1997])
High Contracting Parties

Signatories to the Warsaw Convention and those which subsequently
adhered to it.
In National Development Co. vs. CA (164 SCRA 593). The law of the
country to which the goods are to be transported governs the liability of the
common carrier in case of loss, destruction or deterioration (Art. 1753, NCC)
XXX The liability of the carrier is governed primarily by the Civil Code and in
all matters not regulated by the said Code, the rights and obligations of
12
common carriers shall be governed by the code of Commence and by special

laws (Art. 1766 NCC). Hence, the COGSA /a special law is merely
supppletory to the provisions of the Civil Code. The place of destinations
whose law shall be deemed to be the governing law in so far as the liability of
common carrier is concerned refers to the place of ultimate destination not
an agreed stopping place. This is particularly true in so far as the warsaw
convention used the term to determine the country where the suit against the
international carrier should be filled. (Santos III vs. NorthWest Orient Airlines,
210 SCRA 256
Cases:
SAMAR MINING CO., INC. VS. NORDEUTSCHER LLOYD (132 SCRA 529)
Facts: Samar Mining imported 1 crate optima welded wire (amounting to
around USD 424 or PhP 1,700) from Germany, which was shipped on a
vessel owned by Nordeutscher Lloyd (M/S Schwabenstein). The shipment
was unloaded in Manila into a barge for transshipment to Davao and
temporarily stored in a bonded warehouse owned by AMCYL. The goods
never reached Davao and were never delivered to or received by the
consignee, Samar Mining Co.
CFI ruled in favor of Samar Mining holding Nordeutscher Lloyd liable.
However, defendants may recoup whatever they may pay Samar Mining by
enforcing the judgment against third party defendant AMCYL.
Issue: Whether Nordeustscher Lloyd is liable for the loss of the goods as
common carrier?
Held: No. At the time of the loss of the goods, the character of possession of
Nordeutscher Lloyd shifted from common carrier to agent of Samar Mining
Co.
The Bill of Lading is serves both as a receipt of goods and is likewise
the contract to transport and deliver the same as stipulated. It is a contract
and is therefore the law between the parties. The Bill of Lading in question
stipulated that Nordeutscher Lloyd only undertook to transport the goods in its
vessel only up to the port of discharge from ship, which is Manila. The Bill of
Lading further stipulated that the goods were to be transshipped by the carrier
from Manila to the port of destination Davao. By unloading the shipment in
Manila and delivering the goods to the warehouse of AMCYL, the appellant
was acting within the contractual stipulations contained in the Bill of Lading.
Article 1736 of the Civil Code relives the carrier of responsibility over
the shipment as soon as the carrier makes actual or constructive delivery of
the goods to the consignee or to the person who has a right to receive them.
Under the Civil Code provisions governing Agency, an agent can only
be held liable in cases where his acts are attended by fraud, negligence,
deceit or if there is a conflict of interest between him and the principal. Under
the same law an agent is likewise liable if he appoints a substitute when he
was not given the power to appoint one or otherwise appoints one that is
notoriously incompetent or insolvent. These facts were not proven in the
record.
EASTERN SHIPPING LINES INC.
COURT (150 SCRA 463)
VS.
INTERMEDIATE APPELLATE
Facts: Sometime in or prior to June 1977, the M/S Asiatica, a vessel operated
by petitioner Eastern Shipping Lines Inc., loaded at Kobe, Japan for
13
transportation to Manila loaded 5,000 pieces of calorized pipes valued at

P256,039.00 which was consigned to Philippine Blooming Mills Co, Inc. and
7 cases of spare parts valued at P92, 361.75 consigned to Central Textile
Mills. Both sets of goods were inured against marine risk for their stated value
with respondent Development Insurance and Surety Corp.
In the same vessel, 2 containers of garment fabrics were also loaded
which was consigned to Mariveles Apparel Corp worth $46,583. The said
cargoes were consigned to Nisshin Fire and Marine Insurance. Another
cargo loaded to the vessel was the surveying instruments consigned to Aman
Enterprises and General Merchandise and insured against respondent Dowa
Fire & Marine Insurance for $1,385.00.
On the way to Manila, M/S Asiatica caught fire and sank. This resulted
to the loss of the ship and its cargoes. The respective Insurers paid the
corresponding marine insurance values and were thus subrogated to the
rights of the insured.
The insurers filed a suit against the petitioner carrier for recovery of the
amounts paid to the insured. However, petitioner contends that it is not liable
on the ground that the loss was due to an extraordinary fortuitous event.
Issue: Whether the Civil Code provisions on Common Carriers or the
Carriage of the Goods by Sea Act will govern the case at bar?
Held: The law of the country to which the goods are to be transported
governs the liability of common carrier in case of their loss, destruction or
deterioration. The liability of petitioner is governed primarily by the Civil Code
however, in all matters not regulated by the Civil Code, the Code of
Commerce and Special Laws will govern with respect to the rights and
obligations of the carrier. Therefore COGSA is suppletory to the provisions of
the Civil Code.
G. GOVERNMENT REGULATION
Case/s
KMU LABOR CENTER VS. GARCIA (239 SCRA 386)
Facts: On June 26,1990, Secretary of DOTC, Oscar M. Orbos issued
memorandum circular No. 90-395 to then LTFRB, Chairman Remedios A.S.
Fernando allowing provincial buses operators to charge passengers within a
range of 15% above and 15% below, the LTFRB official rate for a period of
one (1) year. On December 5, 1990 private respondent PBOAP filed an
application for fare rate increase to P0.085 and again it was reduced to
P0.065 per kilometer rate. The application was opposed by the Philippine
Consumer Foundation Inc. that the proposed rate were exorbitant and
unreasonable and that the application contained no allegation on the rate o
return on December 14, 1990. Public respondent LTFRB granted the fare rate
increase on March 16, 1994. Petitioner KMU filed a petition before the LTFRB
opposing the upward adjustment of bus fares, it was dismissed for lack of
merit, hence this petition.
Issue: Whether or not the Provincial Bus Operators has the power to reduce
and increase fare rated based on the circular order issued by the LTFRB?
Held: Supreme Court held that the authority given by the LTFRB to the
provincial bus operators to set a fare range over and above the authorized
existing fare is illegal and invalid as it is tantamount to an undue delegation of
legislative authority, Potestas delegata non delegari protest what has been
delegated further delegation of such power would indeed constitute a
14
negation of the duty in violation of the trust reposed in the delegate inandated
to discharged it directly. Furthermore rate fixing or making is a delicate and
sensitive government function that requires dexterity of judgment and sound
discretion with the settle goal at arriving at a just and reasonable rate
acceptable to both public utility and the public.
1. REGISTERED OWNER RULE
GELISAN VS. ALDAY (154 SCRA 388)
Facts: Bienvenido Gelisan and Roberto Espiritu entered into a contract where
the former hired the truck of Gelisan for the purpose of transporting goods at
the price of P18.00. It is also agreed that Espiritu shall bear and pay all
losses and damages attending the carriage of the goods to be hauled by him.
Benito Alday, a trucking operator, had a contract to haul the fertilizers of the
Atlas Fertilizer Corporation from Pier 4, North Harbor, to its Warehouse in
Mandaluyong. Alday met Espiritu at the gate of Pier 4 and the latter offered
the use of his truck with the driver and helper at 9 centavos per bag of
fertilizer. The offer was accepted by plaintiff Alday and he instructed his
checker Celso Henson to let Roberto Espiritu haul the fertilizer. Espiritu made
two hauls of 200 bags of fertilizer per trip. The fertilizer was delivered to the
driver and helper of Espiritu with the necessary way bill receipts, Exhibits A
and B. Espiritu, however, did not deliver the fertilizer to the Atlas Fertilizer
bodega at Mandaluyong.
Subsequently, plaintiff Alday saw the truck in question on Sto. Cristo
St. and he notified the Manila Police Department, and it was impounded by
the police. It was claimed by Bienvenido Gelisan. As a result of the
impounding of the truck according to Gelisan and that for the release of the
truck he paid the premium of P300 to the surety company.
Benito Alday was compelled to pay the value of the 400 bags of
fertilizer, in the amount of P5,397.33, to Atlas Fertilizer Corporation so that, on
12 February 1962, he (Alday) filed a complaint against Roberto Espiritu and
Bienvenido Gelisan with the CFI Manila
Bienvenido Gelisan, upon the other hand, claimed that he had no
contractual relations with the plaintiff Benito Alday.
Issue: Whether Gelisan being a registered owner is responsible for
damages?
Held: The Court has invariably held in several decisions that the registered
owner of a public service vehicle is responsible for damages that may arise
from consequences incident to its operation or that may be caused to any of
the passengers therein. The claim of the petitioner that he is not able in view
of the lease contract executed by and between him and Roberto Espiritu
which exempts him from liability to third persons, cannot be sustained
because it appears that the lease contract, adverted to, had not been
approved by the Public Service Commission. It is settled in our jurisprudence
that if the property covered by a franchise is transferred or leased to another
without obtaining the requisite approval, the transfer is not binding upon the
public and third persons.
Bienvenido Gelisan, the registered owner, is not however without
recourse. He has a right to be indemnified by Roberto Espiritu for the amount
that he may be required to pay as damages for the injury caused to Benito
Alday, since the lease contract in question, although not effective against the
public for not having been approved by the Public Service Commission, is
valid and binding between the contracting parties.
15
BENEDICTO VS.CA (187 SCRA 547)

Facts: Private respondent Greenhills Wood Industries Company, Inc. a
lumber manufacturing firm in Dagupan City, operates a sawmill in Maddela,
Quirino.
In May 1980, private respondent bound himself to sell and deliver to
Bluestar Mahogony, Inc. 100,000 board feet of sawn lumber with the
understanding that the initial delivery would be made on 15 May 1980. To
effect its first delivery, private respondents resident manager in Maddela,
Dominador Cruz, contracted Virgilio Licuden, the driver of a cargo truck to
transport its sawn lumber to the consignee Blue Star in Valenzuela, Bulacan.
This cargo truck was registered in the name of petitioner Ma. Luis Benedicto,
the proprietor of Macoven Trucking, business enterprise engaged in hauling
freight, with the main office in B.F. Homes, Paraaque.
On 15 May 1980, Cruz in the presence and with the consent of driver
Licuden, supervised the loading of 7,690 board feet of sawn lumber with
invoice value of P16, 918.00 aboard the cargo truck. The cargo never
reached Blue Star.
Issue: Whether the registered owner is liable even though the vehicle have
been transferred to another person?
Held: Supreme Court held that the prevailing rule on common carrier makes
the registered owner liable for consequences flowing from the operations of
the common carrier, even though the specific vehicle involve may already
have been transferred to another person. This doctrine rest upon the principle
that in dealing with the vehicles registered under the Public Service Law, the
public has the right to assume that the registered owner is the actual or lawful
owner thereof.
The prevailing doctrine on common carriers makes the registered
owner liable for consequences flowing from the operations of the carrier, even
though the specific vehicle involved may already have been transferred to
another person. This doctrine rests upon the principle that in dealing with
vehicles registered under the Public Service Law, the public has the right to
assume that the registered owner is the actual or lawful owner thereof. It
would be very difficult and often impossible as a practical matter, for members
of the general public to enforce the rights of action that they may have for
injuries inflicted by the vehicles being negligently operated if they should be
required to prove who the actual owner is. The registered owner is not
allowed to deny liability by proving the identity of the alleged transferee. Thus,
contrary to petitioners claim, private respondent is not required to go beyond
the vehicles certificate of registration to ascertain the owner of the carrier.
Clearly, to permit a common carrier to escape its responsibility for the
passengers or goods transported by its proving a prior sale of the vehicle or
means of transportation to an alleged vendee would be to attenuate
drastically the carriers duty of extraordinary diligence.
2. KABIT SYSTEM
Case/s:
SANTOS VS. SIBUG (104 SCRA 520)
Facts: Petitioner Adolfo Santos was the owner of a passenger jeep, but he
had no certificate of public conveyance for the operation of the vehicle as a
public passenger jeep. Santos then transferred his jeep to the name of Vidad
so that it could be operated under the latters certificate of public
16
convenience. In other words, Santos became what is known as kabit

operator. Vidad executed a re-transfer document presumably to be registered
it and when it was decided that the passenger jeep of Santos was to be
withdrawn from kabit arrangement.
On the accident date, Abraham Sibug was bumped by the said
passenger jeep.
Issue: Whether the Vidad is liable being the registered owner of the jeepney?
Held: As the jeep in question was registered in the name of Vidad, the
government or any person affected by the representation that said vehicle is
registered under the name of the particular person had the right to rely on his
declaration of his ownership and registration. And the registered owner or any
other person for that matter cannot be permitted to repudiate said declaration
with the objective of proving that the said registered vehicle is owned by
another person and not by the registered owner.
Santos, as the kabit, should not be allowed to defeat the levy in his
vehicle and to avoid his responsibility as a kabit owner for he had led the
public to believe that the vehicle belongs to Vidad. This is one way of curbing
the pernicious kabit system that facilitates the commissions of fraud against
the traveling public.
LITA ENTERPRISES VS. IAC (129 SCRA 464)
Facts:
Spouses Nicasio Ocampo and Francisca Garcia (private
respondents) purchased in installment from the Delta Motor Sales
Corporation five (5) Toyota Corona Standard cars to be used as taxi. Since
they had no franchise to operate taxicabs, they contracted with petitioner Lita
Enterprise, Inc., through its representative Manuel Concordia, for the use of
the latters certificate of public convenience for a consideration of P1, 000.00
and a monthly rental of P200.00/taxicab unit. For the agreement to take
effect, the cars were registered in the name of Lita Enterprises, Inc. The
possession, however, remains with spouses Ocampo and Garcia who
operated and maintained the same under Acme Taxi, petitioners trade name.
A year later, one of the taxicabs, driven by their employee, Emeterio
Martin, collided with a motorcycle. Unfortunately the driver of the motorcycle,
Florante Galvez died from the injuries it sustained.
Criminal case was filed against Emeterio Martin, while a civil case was
filed by the heir of the victim against Lita Enterprises. In the decision of the
lower court Lita Enterprises was held liable for damages for the amount of
P25, 000.00 and P7, 000.00 for attorneys fees.
A writ of execution for the decision followed, 2 of the cars of the
respondents spouses were levied and were sold to a public auction.
On March 1973, respondent Ocampo decided to register his taxicabs
in his own name. The manager of petitioner refused to give him the
registration papers. Thus, making spouses file a complaint against petitioner.
In the decision, Lita Enterprise was ordered to return the three certificate of
registration not levied in the prior case.
Petitioner now prays that private respondent be held liable to pay the
amount they have given to the heir of Galvez.
Issue: Whether or not petitioner can recover from private respondent,
knowing they are in an arrangement known as kabit system.
17
Held: Kabit system is defined as, when a person who has been granted a
certificate of convenience allows another person who owns a motor vehicle to
operate under such franchise for a fee. This system is not penalized as a
criminal offense but is recognized as one that is against public policy;
therefore it is void and inexistent.
It is fundamental that the court will not aid either of the party to enforce
an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both trial and appellate courts to
have accorded the parties relief from their predicament. Specifically Article
1412 states that:
If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed: when the
fault, is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the others
undertaking.
The principle of in pari delicto is evident in this case. the proposition is
universal that no action arises, in equity or at law, from an illegal contract; no
suit can be maintained for its specific performance, or to recover the property
agreed to sold or delivered, or damages for its property agreed to be sold or
delivered, or damages for its violation. The parties in this case are in pari
delicto, therefore no affirmative relief can be granted to them.
TEJA MARKETING V. IAC (148 SCRA 347)
Facts: Pedro Nale bought from Teja Marketing a motorcycle with complete
accessories and a sidecar. A chattel mortgage was constituted as a security
for the payment of the balance of the purchase price. The records of the
Land Transportation Commission show that the motorcycle sold to the
defendant was first mortgaged to the Teja Marketing by Angel Jaucian though
the Teja Marketing and Angel Jaucian are one and the same, because it was
made to appear that way only as the defendant had no franchise of his own
and he attached the unit to the plaintiff's MCH Line. The agreement also of
the parties here was for the plaintiff to undertake the yearly registration of the
motorcycle with the Land Transportation Commission. The plaintiff, however
failed to register the motorcycle on that year on the ground that the defendant
failed to comply with some requirements such as the payment of the
insurance premiums and the bringing of the motorcycle to the LTC for
stenciling, the plaintiff said that the defendant was hiding the motorcycle from
him. Lastly, the plaintiff also explained that though the ownership of the
motorcycle was already transferred to the defendant, the vehicle was still
mortgaged with the consent of the defendant to the Rural Bank of Camaligan
for the reason that all motorcycle purchased from the plaintiff on credit was
rediscounted with the bank.
Teja Marketing made demands for the payment of the motorcycle but
just the same Nale failed to comply, thus forcing Teja Marketing to consult a
lawyer and file an action for damage before the City Court of Naga in the
amount of P546.21 for attorney's fees and P100.00 for expenses of litigation.
Teja Marketing also claimed that as of 20 February 1978, the total account of
Nale was already P2, 731, 05 as shown in a statement of account; includes
not only the balance of P1, 700.00 but an additional 12% interest per annum
on the said balance from 26 January 1976 to 27 February 1978; a 2% service
charge; and P546.21 representing attorney's fees. On his part, Nale did not
dispute the sale and the outstanding balance of P1,700.00 still payable to
Teja Marketing; but contends that because of this failure of Teja Marketing to
comply with his obligation to register the motorcycle, Nale suffered damages
18
when he failed to claim any insurance indemnity which would amount to no

less than P15,000.00 for the more than 2 times that the motorcycle figured in
accidents aside from the loss of the daily income of P15.00 as boundary fee
beginning October 1976 when the motorcycle was impounded by the LTC for
not being registered. The City Court rendered judgment in favor of Teja
Marketing, dismissing the counterclaim, and ordered Nale to pay Teja
Marketing On appeal to the Court of First Instance of Camarines Sur, the
decision was affirmed in toto. Nale filed a petition for review with the
Intermediate Appellate Court. On 18 July 1983, the appellate court set aside
the decision under review on the basis of doctrine of "pari delicto," and
accordingly, dismissed the complaint of Teja Marketing, as well as the
counterclaim of Nale; without pronouncements as to costs. Hence, the
petition for review was filed by Teja Marketing and/or Angel Jaucian.
Issue: Whether the defendant can recover damages against the plaintiff?
Held: Unquestionably, the parties herein operated under an arrangement,
commonly known as the "kabit system" whereby a person who has been
granted a certificate of public convenience allows another person who owns
motor vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government. Abuse of this
privilege by the grantees thereof cannot be countenanced.
The "kabit system" has been identified as one of the root causes of the
prevalence of graft and corruption in the government transportation offices.
Although not out rightly penalized as a criminal offense, the kabit system is
invariably recognized as being contrary to public policy and, therefore, void
and in existent under Article 1409 of the Civil Code. It is a fundamental
principle that the court will not aid either party to enforce an illegal contract,
but will leave both where it finds then. Upon this premise it would be error to
accord the parties relief from their predicament.
3. BOUNDARY SYSTEM
Case/s:
MAGBOO V. BERNARDO 7 SCRA 952
Facts: Urbano and Emilia Magboo are the parents of Cesar Magboo, a child
of 8 years old, who lived with them and was under their custody until his
death on 24 October 1956 when he was killed in a motor vehicle accident, the
fatal vehicle being a passenger jeepney owned by Delfin Bernardo. At the
time of the accident, said passenger jeepney was driven by Conrado Roque.
The contract between Roque and Bernardo was that Roque was to pay to
Bernardo the sum of P8.00, which he paid to Bernardo, for privilege of driving
the jeepney, it being their agreement that whatever earnings Roque could
make out of the use of the jeepney in transporting passengers from one point
to another in the City of Manila would belong entirely to Roque. As a
consequence of the accident and as a result of the death of Cesar Magboo in
said accident, Roque was prosecuted for homicide thru reckless imprudence
before the CFI Manila. Roque was sentenced to 6 months of arresto mayor,
with the accessory penalties of the law; to indemnify the heirs of the
deceased in, with subsidiary imprisonment in case of insolvency, and to pay
the costs. Pursuant to said judgment Roque served his sentence but he was
not able to pay the indemnity because he was insolvent. An action was filed
by the spouses Magboo against Bernardo is for enforcement of his subsidiary
liability. The trial court ordered Bernardo to pay the. Bernardo appealed to the
Court of Appeals, which certified the case to the Supreme Court on the
ground that only questions of law are involved.
19
Issue: Whether or not an employer-employee relationship between the

jeepney operator and the driver?
Held: An employer-employee relationship exists between a jeepney owner
and a driver under a boundary system arrangement. The features which
characterize the boundary system - namely the fact that the driver does not
receive a fixed wage but gets only the excess of the amount of fares collected
by him over the amount he pays to the jeep-owner, and the gasoline
consumed by the jeep is for the amount of the driver - are not sufficient to
withdraw the relationship between them from that of employee and employer.
Consequently, the jeepney owner is subsidiary liable as employer in
accordance with Art.103, Revised Penal Code.
II. CONTRACTUAL EFFECTS
A. CAUSE OF ACTION
1. FABRE VS. CA 259 SCRA 426 (G.R. NO. 111127, JULY 26, 1996)
Facts: Petitioner and his wife were owners of a minibus. They used the bus
principally in connection with a bus service for school children which they
operated in Manila and was driven by Porfirio Cabil. His job was to take
school children to and from the school. Sometime during November private
respondent WWCF arranged with petitioners for the transportation of 33
members of its ministry form Manila to La Union and back in consideration of
which private respondent shall pay petitioners the stipulated amount. On the
day of the trip, several members of the ministry came in late, hence, the
departure was delayed. On the may to La Union, the minibus caught an
accident causing damages and injury to several passengers particularly
Amyline Antonio. Apparently, the driver was unable to see a sharp curve
ahead of time for him to be able to avoid the mishap. A criminal complaint was
them filed against the driver, while defendant spouses were also made jointly
liable.
Issue: Whether or not defendant spouses failed to exercise diligence of a
good father of the family?
Held: Court ruled that defendant spouses were negligent in the exercise of
their duties as owners of the minibus for it was clearly established by
evidence that said vehicle was not properly check if it was fit for the long trip.
Moreover, defendants were also negligent in the selection and supervision of
their employee, particularly, the driver, who was only used to driving short
distances.
2. AIR FRANCE VS CARRASCOSO (18 SCRA 155)
Facts: Plaintiff, a civil engineer, was a member of a group of 48 Filipino
pilgrims that left Manila for Lourdes on March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized
agent, Philippine Air Lines, Inc., issued to plaintiff a "first class" round trip
airplane ticket from Manila to Rome. From Manila to Bangkok, plaintiff
traveled in "first class", but at Bangkok, the Manager of the defendant airline
forced plaintiff to vacate the "first class" seat that he was occupying because,
in the words of the witness Ernesto G. Cuento, there was a "white man", who,
the Manager alleged, had a "better right" to the seat. When asked to vacate
his "first class" seat, the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his dead body; a
commotion ensued, and, according to said Ernesto G. Cuento, "many of the
Filipino passengers got nervous in the tourist class; when they found out that
Mr. Carrascoso was having a hot discussion with the white man [manager],
20
they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to give
his seat to the white man" and plaintiff reluctantly gave his "first class" seat in
the plane after being threatened that he will be thrown out of the plane if he
does not oblige. The captain of the plane, when asked to intervene, refused
to do so.
Issue: Whether or not there was bad faith on the part of Air France, petitioner,
entitling Rafael Carrascoso, respondent for moral and exemplary damages as
against the petitioner?
Held: The court held in favor of the respondent, Carrascoso.
The responsibility of an employer for the tortious act of its employees
need not be essayed. It is well settled in law. For the willful malevolent act of
petitioner's manager, petitioner, his employer, must answer.
A contract to transport passengers is quite different in kind and degree
from any other contractual relation. And this, because of the relation which an
air-carrier sustains with the public. Its business is mainly with the traveling
public. It invites people to avail of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation attended with a public
duty. Neglect or malfeasance of the carrier's employees, naturally, could give
ground for an action for damages.
Passengers do not contract merely for transportation. They have a
right to be treated by the carrier's employees with kindness, respect, courtesy
and due consideration. They are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such employees.
So it is that any rule or discourteous conduct on the part of employees
towards a passenger gives the latter an action for damages against the
carrier.
The court held that the judgment of the Court of Appeals does not
suffer from reversible error. CA decision affirmed.
3. TIU VS. ARRIESGADO G.R. NO. 138060, SEPTEMBER 1, 2004
Facts: At about 10:00 p.m. of March 15, 1987, the cargo truck marked
"Condor Hollow Blocks and General Merchandise" bearing plate number
GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City.
Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck
passed over a bridge, one of its rear tires exploded. The driver, Sergio
Pedrano, then parked along the right side of the national highway and
removed the damaged tire to have it vulcanized at a nearby shop, about 700
meters away. Pedrano left his helper, Jose Mitante, Jr. to keep watch over the
stalled vehicle, and instructed the latter to place a spare tire six fathoms away
behind the stalled truck to serve as a warning for oncoming vehicles. The
trucks tail lights were also left on. It was about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D Rough Riders passenger bus with plate number
PBP-724 driven by Virgilio Te Laspias was cruising along the national
highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus
was also bound for Cebu City, and had come from Maya, Daanbantayan,
Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and
Felisa Pepito Arriesgado, who were seated at the right side of the bus, about
three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspias saw the stalled truck,
which was then about 25 meters away. He applied the breaks and tried to
swerve to the left to avoid hitting the truck. But it was too late; the bus
21
rammed into the trucks left rear. The impact damaged the right side of the bus
and left several passengers injured. Pedro Arriesgado lost consciousness and
suffered a fracture in his right colles. His wife, Felisa, was brought to the
Danao City Hospital. She was later transferred to the Southern Island Medical
Center where she died shortly thereafter.
Respondent Pedro A. Arriesgado then filed a complaint for breach of
contract of carriage, damages and attorneys fees before the Regional Trial
Court of Cebu City, Branch 20, against the petitioners, D Rough Riders bus
operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The
respondent alleged that the passenger bus in question was cruising at a fast
and high speed along the national road, and that petitioner Laspias did not
take precautionary measures to avoid the accident.
The petitioners, for their part, filed a Third-Party Complaint against the
following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII),
petitioner Tius insurer; respondent Benjamin Condor, the registered owner of
the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They
alleged that petitioner Laspias was negotiating the uphill climb along the
national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and
normal speed. It was further alleged that the truck was parked in a slanted
manner, its rear portion almost in the middle of the highway, and that no early
warning device was displayed. Petitioner Laspias promptly applied the
brakes and swerved to the left to avoid hitting the truck head-on, but despite
his efforts to avoid damage to property and physical injuries on the
passengers, the right side portion of the bus hit the cargo trucks left rear.
HELD: The rules which common carriers should observe as to the safety of their
passengers are set forth in the Civil Code, Articles 1733, 1755and 1756. It is
undisputed that the respondent and his wife were not safely transported to the
destination agreed upon. In actions for breach of contract, only the existence of such
contract, and the fact that the obligor, in this case the common carrier, failed to
transport his passenger safely to his destination are the matters that need to be proved.
This is because under the said contract of carriage, the petitioners assumed the
express obligation to transport the respondent and his wife to their destination safely
and to observe extraordinary diligence with due regard for all circumstances. Any
injury suffered by the passengers in the course thereof is immediately attributable to
the negligence of the carrier. Upon the happening of the accident, the presumption of
negligence at once arises, and it becomes the duty of a common carrier to prove that
he observed extraordinary diligence in the care of his passengers. It must be stressed
that in requiring the highest possible degree of diligence from common carriers and in
creating a presumption of negligence against them, the law compels them to curb the
recklessness of their drivers. While evidence may be submitted to overcome such
presumption of negligence, it must be shown that the carrier observed the required
extraordinary diligence, which means that the carrier must show the utmost diligence
of very cautious persons as far as human care and foresight can provide, or that the
accident was caused by fortuitous event. As correctly found by the trial court,
petitioner Tiu failed to conclusively rebut such presumption. The negligence of
petitioner Laspias as driver of the passenger bus is, thus, binding against petitioner
Tiu, as the owner of the passenger bus engaged as a common carrier.
B. EXTRAORDINARY DILIGENCE
REQUIREMENT OF EXTRAORDINARY DILIGENCE
Common Carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence on the vigilance
over goods and for the safety of the passengers transported by them
according to all the circumstances of each case. (Art. 1733, Civil Code)
Coverage
22
1.
2.
Vigilance over goods (Arts. 1734-1754)

Safety of passengers (Arts. 1755-1763)
Passenger - A person who has entered into a contract of carriage, express or

implied, with the carrier. They are entitled to extraordinary diligence from the
common carrier.
Persons Not Considered As Passengers
1.
One who has not yet boarded any part of a vehicle regardless of
whether or not he has purchased a ticket;
2.
One who remains on a carrier for an unreasonable length of
time after he has been afforded every safe opportunity to alight;
3.
One who has boarded by fraud, stealth, or deceit;
4.
One who attempts to board a moving vehicle, although he has a
ticket, unless the attempt be with the knowledge and consent of the
carrier;
5.
One who boarded a wrong vehicle, has been properly informed
of such fact, and on alighting, is injured by the carrier; or
6.
One who rides any part of the vehicle which is unsuitable or
dangerous or which he knows is not designed or intended for
passengers.
RULES ON PRESUMPTION OF NEGLIGENCE:
A. In the Carriage of Goods:
In case of loss, destruction and deterioration of goods, common carriers
are presumed to be at fault or have acted negligently, unless they
prove that they exercise extraordinary diligence.
In the transport of goods, mere proof of delivery of goods in good order
to a carrier and the subsequent arrival of the same goods at the place
of destination in bad order makes for a prima facie case against the
carrier.
B. In the Carriage of Passengers:
In case of death or injury to passengers, common carriers are presumed
to be at fault or have acted negligently, unless they prove that they
exercise extraordinary diligence. .(Art. 1755,NCC)
The court need not make an express finding of fault or negligence of
common carriers. The law imposes upon common carriers strict
liability, as long as it is shown that there exists a relationship between
the passenger and the common carrier and that injury or death took
place during the existence of the contract.
The common carrier is not an absolute insurer against all possible risks
of transportation or travel. (Pilapil vs. CA et al, 180 SCRA 546)
Doctrine of Proximate Cause is NOT applicable to contract of carriage
The injured passenger or owner of goods need not prove causation to
establish his case. The presumption arises upon the happening of the
accident. (Calalas v. CA, 383 SCRA, [2002])
DEFENSES OF COMMON CARRIERS
General Rule: Common carriers are responsible for the loss, destruction or
deterioration of the goods.
Exceptions: The same is due to any of the following causes only:
a. Flood, storm, earthquake, lightning or other natural disaster or calamity;
b. Act of public enemy in war, whether international or civil;
c. Act or omission of the shipper or the owner of the goods;
d. The character of the goods or defects in the packing or in the containers;
e. Order or act of competent authority. (Art.1734, Civil Code)
The above enumeration is exclusive. If not one of those enumerated
23
is present, the carrier is liable. (Belgian Chartering and Shipping, N.V.

v. Phil. First Insurance Co.,Inc., 383 SCRA, 2002)
The exceptions in Art 1734 must be proven whether the presumption of
negligence applies. Common carriers are bound to observe
extraordinary diligence in the vigilance over the goods transported by
them. They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. To
overcome the presumption of negligence in case of loss, destruction or
deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. There are, however, exceptions to
this rule. Article 1734 of the Civil Code enumerates the instance when
the presumption of negligence does not attach. (Delsan v. Trans.
American Home Insurance, August 15, 2006)
a. Caso Fortuito / Force Majeure

Requisites:
a. Must be the proximate and only cause of the loss;
b. Event independent of human will;
c. Occurrence makes it impossible for debtor to fulfill the obligation in a
normal manner;
d. Obligor must be free of participation in, or aggravation of, the injury to
the debtor; and
e. Impossible to foresee or impossible to avoid.
o Fire is not considered a natural disaster or calamity as it arises
almost invariably from some act of man or by human means unless
caused by lightning or by natural disaster or calamity. It may even
be caused by the actual fault or privity of the common carrier.
(Eastern Shipping Lines Inc. vs. IAC, 150 SCRA 469, [1987])
o Mechanical defects are not force majeure if the same was
discoverable by regular and adequate inspections. (Aquino T. &
Hernando, Notes and Cases on the Law on Transportation and
Public Utilities, , R.P. 2004 ed. p.120-122)
B. Act of God
Requisites:
1. The common carrier must have exercised extraordinary diligence
before, during and after the time of the accident;
2. The event must be unforeseen or even if it can be foreseen, it cannot
be avoided;
3. There must have been no undue delay on the part of the common
carrier;
4. The proximate cause must not be committed by the common carrier.
Fortuitous event must be established to be the proximate cause

of the loss. (Asia Lighterage and Shipping, Inc. v. CA, et al., 409
SCRA, [2003])
Exemption to Liability From Natural Disasters or Calamities:

1. The natural disaster must have been the proximate cause of the loss.
2. It must have been the cause of the loss.
3. The common carrier must have exercised due diligence to prevent or
minimize the damage or loss before, during and after the natural
disaster.
4. The common carrier has not negligently incurred delay in transporting
the goods.
24
C.
Acts of Public Enemy In War

Requisites:
1. The act of the public enemy must have been the proximate and only
cause of the loss; and
2. The common carrier must have exercised due diligence to prevent or
minimize the loss before, during or after the act causing the loss,
deterioration or destruction of the goods (Art. 1739, Civil Code)
D. Act or Omission of the Shipper or Owner of Goods

1. The act or omission of the shipper/owner must have been the sole and
proximate cause of the loss. This is an absolute defense.
2. Contributory Negligence: partial defense. (Art. 1741, Civil Code )
Doctrine of Contributory Negligence
Failure of a person who has been exposed to injury by the fault or

negligence of another, to use such degree of care for his safety and
protection as ordinarily prudent men would use under the
circumstances. (Rakes v. Atlantic, Gulf and Pacific Co., 7 Phil. 359
[1907])
The common carrier shall be liable even 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. 1741, Civil Code)
E. Character of the Goods or Defects in the Packing or in the Container

That the loss, destruction or deterioration was caused by the character
of the goods or the faulty packing or containers.
Even if the damage should be caused by the inherent defect/character
of the goods, the common carrier must exercise due diligence to
forestall or lessen the loss. (Art. 1742, Civil Code)
o
The rule is that if the improper packing is known to the carrier or his
employee or is apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for the
resulting damage. (A.F. Sanchez Brokerage Inc. vs. C.A., 447
SCRA 427, [2004])
E. Order or Act of Public Authority
The common carrier is not ipso facto relieved from

liability due to the loss, destruction or deterioration of goods caused by
public authority.
Requisites:
The common carrier must prove that the public authority has the power
to issue the order for the seizure or destruction of the goods.
The common carrier must exercise extraordinary diligence to prevent or
minimize the loss, destruction or deterioration of he goods at the time
of the accident.
o
Said public authority must have the power to issue the order (Article
1743, Civil Code). Consequently, where the officer acts without legal
process, the common carrier will be held liable. (Ganzon v. CA 161,
SCRA 646 [1988])
Cases:
25
REPUBLIC VS. LORENZO SHIPPING LINES (7 FEBRUARY 2005)

Facts: The Republic of the Philippines signed an agreement through the
Department of Health and the Cooperative for American Relief Everywhere,
Inc. (CARE) wherein it would acquire from the US government donations of
Non-Fat Dried Milk and other food products. In turn, the Philippines will
transport and distribute the donated to the intended beneficiaries of the
country. As a result, it entered into a contract of carriage of goods with the
herein respondent. The latter shipped 4,868 bags of non-fat dried milk from
Sept-Dec 1988. The consignee named in the bills was Abdurahman Jama,
petitioners branch supervisor in Zamboanga City. Upon reaching the port of
Zamboanga, respondents agent, Efren Ruste Shipping Agency unloaded the
said milks. Before each delivery, Rogelio Rizada and Ismael Zamora both
delivery checkers of Efren Ruste requested Abdurahman to surrender the
originals of the Bill of Lading. However, the petitioner alleged that they did not
receive anything and they filed a claim against the herein respondent. The
petitioner contended that the respondents failed to exercise extraordinary
diligence.
Issue: Whether the respondents failed to exercise extraordinary diligence
required by law?
Held The surrender of the Bill of Lading is not a condition precedent for a
common carrier to be discharged of its contractual obligation. If the surrender
is not possible, acknowledgment of the delivery by signing the receipt
suffices. The herein respondent did not even bother to prevent the resignation
of abdurhaman Jama to be utilized as a witness.
CENTRAL SHIPPING CO. VS. INSURANCE CO. (SEPTEMBER 20, 200,
121 SCRA 769)
Facts: On July 25, 1990 at Puerto Princesa, Palawan, the petitioner received
on board its vessel, the M/V Central Bohol, 376 pieces of Round Logs and
undertook to transport said shipment to Manila for delivery to Alaska Lumber
Co., Inc. The cargo is insured for P3, 000, 000.00 against total lost under
respondents MarineCargo Policy.
After loading the logs, the vessel starts its voyage. After few hours of
the trip, the ship tilts 10 degrees to its side, due to the shifting of the logs in
the hold. It continues to tilt causing the captain and the crew to abandon ship.
The ship sank.
Respondent alleged that the loss is due to the negligence and fault of
the captain. While petitioner contends that the happening is due to monsoons
which is unforeseen or casa fortuito.
Issue: Whether or not petitioner is liable for the loss of cargo?
Held: From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence over the goods
they transport, according to all the circumstances of each case. In the event
of loss, destruction or deterioration of the insured goods, common carriers are
responsible; that is, unless they can prove that such loss, destruction or
deterioration was brought about -- among others -- by "flood, storm,
earthquake, lightning or other natural disaster or calamity." In all other cases
not specified under Article 1734 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence.
26
The contention of the petitioner that the loss is due to casa fortuito
exempting them from liability is untenable. Petitioner failed to show that such
natural disaster or calamity was the proximate and only cause of the loss.
Human agency must be entirely excluded from the cause of injury or loss. In
other words, the damaging effects blamed on the event or phenomenon must
not have been caused, contributed to, or worsened by the presence of human
participation. The defense of fortuitous event or natural disaster cannot be
successfully made when the injury could have been avoided by human
precaution.
The monsoon is not the proximate cause of the sinking but is due to
the improper stowage of logs. The logs were not secured by cable wires,
causing the logs to shift and later on the sinking the ship. This shows that
they did not exercise extraordinary diligence, making them liable for such
loss.
SWEET LINES INC, VS. CA (121 SCRA 769)
Facts: Herein private respondents purchased first-class tickets from petitioner
at the latters office in Cebu City. They were to board M/V Sweet Grace bound
for Catbalogan, Western Samar. Instead of departing at the scheduled hour of
about midnight on July 8, 1972, the vessel set sail at 3:00 am of July 9, 1972
only to be towed back to Cebu due to engine trouble, arriving there on the
same day at about 4:00 pm. The vessel lifted anchor again on July 10, 1972
at around 8:00 am. Instead of docking at Catbalogan (the first port of call), the
vessel proceeded direct to Tacloban. Private respondents had no recourse
but to disembark and board a ferry boat to Catbalogan. Hence, the suit for
breach of contract of carriage.
Issue: Whether or not the mechanical defect constitutes a fortuitous event
which would exempt the carrier from liability.
Held: No. As found by the trial court and the Court of Appeals, there was no
fortuitous event or force majeure which prevented the vessel from fulfilling its
undertaking of taking the private respondents to Catbalogan. In the first place,
mechanical defects in the carrier are not considered a caso fortuito that
exempts the carrier from responsibility. In the second place, even granting
arguendo that the engine failure was a fortuitous event, it accounted on for
the delay of departure. When the vessel finally left the port, there was no
longer any force majeure that justified by-passing a port of call.
EASTERN SHIPPING LINES VS. CA 234 SCRA 7
Facts: On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under a bill of lading. The shipment was
insured under plaintiff's Marine Insurance Policy. Upon arrival of the shipment
in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to
be in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received
the shipment from defendant Metro Port Service, Inc., one drum opened and
without seal. On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the consignee's warehouse.
The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake.
Plaintiff contended that due to the losses/damage sustained by said
drum, the consignee suffered losses totaling P19, 032.95, due to the fault and
27
negligence of defendants. Claims were presented against defendants who

failed and refused to pay the same. As a consequence of the losses
sustained, plaintiff was compelled to pay the consignee P19, 032.95 under
the aforestated marine insurance policy, so that it became subrogated to all
the rights of action of said consignee against defendants.
Issue: Whether or not a claim for damage sustained on a shipment of goods
can be a solidary or joint and several, liability of the common carrier, the
arrastre operator and the customs broker?
Held: The common carrier's duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for
their acceptance by, the person entitled to receive them (Arts. 1736-1738,
Civil Code). When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it
liable (Art. 1735, Civil Code). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in
Article 1734 of the Civil Code, are exclusive, not one of which can be applied
to this case.
As to The question of charging both the carrier and the arrastre
operator with the obligation of properly delivering the goods to the consignee,
the legal relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman while the relationship between the
consignee and the common carrier is similar to that of the consignee and the
arrastre operator. Since it is the duty of the arrastre to take good care of the
goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the carrier. Both the
arrastre and the carrier are therefore charged with the obligation to deliver the
goods in good condition to the consignee. A factual finding of both the
Supreme Court and the appellate court was that there was sufficient evidence
that the shipment sustained damage while in the successive possession of
appellants. Accordingly, the liability imposed on Eastern Shipping Lines, Inc.,
the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.
LA MALLORCA VS. CA (G.R. NO. L-20761, 27 JULY 1966, 17 SCRA 739)
Facts: Plaintiffs, husband and wife, together with their three minor daughters
(Milagros, 13 years old, Raquel, about 4 years old and Fe, 2 years old)
boarded the Pambusco at San Fernando Pampanga, bound for Anao,
Mexico, Pampanga. Such bus is owned and operated by the defendant.
They were carrying with them four pieces of baggage containing their
personal belonging. The conductor of the b us issued three tickets covering
the full fares of the plaintiff and their eldest child Milagros. No fare was
charged on Raquel and Fe, since both were below the height which fare is
charged in accordance with plaintiffs rules and regulations.
After about an hours trip, the bus reached Anao where it stopped to
allow the passengers bound therefore, among whom were the plaintiffs and
their children to get off. Mariano Beltran, carrying some of their baggage was
the first to get down the bus, followed by his wife and children. Mariano led
his companion to a shaded spot on the left pedestrian side of the road about
four or five meters away from the vehicle. Afterwards, he returned to the bus
in controversy to get his paying, which he had left behind, but in so doing, his
daughter followed him unnoticed by his father. While said Mariano Beltran
28
was on he running board of the bus waiting for the conductor to hand him his
bayong which he left under one its seats near the door, the bus, whose motor
was not shut off while unloading suddenly started moving forward, evidently
to resume its trip, notwithstanding the fact that the conductor was still
attending to the baggage left behind by Mariano Beltran. Incidentally, when
the bus was again placed in a complete stop, it had traveled about 10 meters
from point where plaintiffs had gotten off.
Sensing the bus was again in motion; Mariano immediately jumped
form the running board without getting his bayong from conductor. He landed
on the side of the road almost board in front of the shaded place where he left
his wife and his children. At that time, he saw people beginning to gather
around the body of a child lying prostrate on the ground, her skull crushed,
and without life. The child was none other than his daughter Raquel, who was
run over by the bus in which she rode earlier together her parent.
For the death of the said child, plaintiffs comment the suit against the
defendant to recover from the latter damages.
Issue: Whether or not the child was no longer the passenger of the bus
involved in the incident, and therefore, the contract of carriage was already
terminated?
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 between him and the petitioner remained
subsisting. The relation of carrier and passenger does not necessarily cease
where the latter, after alighting from the car aids the carriers servant or
employee in removing his baggage from the car.
It is a rule that the relation of carrier and passenger does not cease the
moment the passenger alights from the carriers vehicle at a place selected
by the carrier at the point of destination but continues until the passenger has
had a reasonable time or a reasonable opportunity to leave the carriers
premises.
The father returned to the bus to get one of his baggages which was
not unloaded when they alighted from the bus. Raquel must have followed
her father. However, although the father was still on the running board of the
bus awaiting for the conductor to hand him the bag or bayong, the bus started
to run, so that even he had jumped down from the moving vehicle. It was that
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 carriers agent had
exercised the utmost diligence of a very cautious person required by
Article 1755 of the Civil Code to be observed by a common carrier in the
discharge of its obligation to transport safely its passengers. The driver,
although stopping the bus, nevertheless did not put off the engine. He started
to run the bus even before the conductor gave him the signal to go and while
the latter was still unloading part of the baggage of the passengers Beltran
and family. The presence of the said passengers near the bus was not
unreasonable and they are, therefore, to be considered still as passengers of
the carrier, entitled to the protection under their contract of carriage.
ABOITIZ SHIPPING CORP. VS. CA (179 SCRA 95)
Facts: On May 11, 1975, Anacleto Viana boarded M/|V Antonio from
Occidental Mindoro bound for Manila. Upon arrival on May 12, 1975, the
passengers therein disembarked through a gangplank connecting the vessel
to the pier. Viana, instead of disembarking through the gangplank,
disembarked through the third deck, which was at the same level with the
29
pier. An hour after the passengers disembarked, Pioneer stevedoring started

to operate in unloading the cargo from the ship. Viana then went back,
remembering some of his cargoes left at the vessel. At that time, while he was
pointing at the crew of the vessel to where his cargoes were loaded, the
crane hit him, pinning him between the crane and the side of the vessel. He
was brought to the hospital where he died 3 days after (May 15). The parents
of Anacleto filed a complaint against Aboitiz for breach of contract of carriage.
The trial court ruled in favor of the plaintiffs. Then both Aboitiz and
Pioneer filed a motion for reconsideration, upon which the trial court issued an
order absolving Pioneer from liability but not Aboitiz. On appeal, CA affirmed
the trial court ruling. Hence, this petition.
Issue: Whether or not Viana is still considered a passenger at the time of the
incident?
Held: Yes. The La Mallorca case is applicable in the case at bar.
The rule is that the relation of carrier and passenger continues until the
passenger has been landed at the port of destination and has left the vessel
owners dock or premises. Once created, the relationship will not ordinarily
terminate until the passenger has, after reaching his destination, safely
alighted from the carriers conveyance or had a reasonable opportunity to
leave the carriers premises. All persons who remain on the premises a
reasonable time after leaving the conveyance are to be deemed passengers,
and what is a reasonable time or a reasonable delay within this rule is to be
determined from all the circumstances, and includes a reasonable time to see
after his baggage and prepare for his departure. The carrier-passenger
relationship is not terminated merely by the fact that the person transported
has been carried to his destination if, for example, such person remains in the
carriers premises to claim his baggage.
The reasonableness of the time should be made to depend on the
attending circumstances of the case, such as the kind of common carrier, the
nature of its business, the customs of the place, and so forth, and therefore
precludes a consideration of the time element per se without taking into
account such other factors.
Where a passenger dies or is injured, the common carrier is presumed
to have been at fault or to have acted negligently. This gives rise to an action
for breach of contract where all that is required of plaintiff is to prove the
existence of the contract of carriage and its non-performance by the carrier,
that is, the failure of the carrier to carry the passenger safely to his
destination, which, in the instant case, necessarily includes its failure to
safeguard its passenger with extraordinary diligence while such relation
subsists.
BRINAS VS. PEOPLE (125 SCRA 687)
Facts: In the afternoon of January 6, 1957, Juanito Gesmundo bought a train
ticket at the railroad station in Tagkawayan, Quezon for his 55-year old
mother Martina Bool and his 3-year old daughter Emelita Gesmundo. The two
were bound for Lusacan in Tiaong, Quezon.
They boarded the train of Manila Railroad Company at about 2pm.
Upon approaching Barrio Lagalag at 8pm, the train slowed down and the
conductor, accused-appellant, Clemente Brinas, shouted Lusacan, Lusacan!
The old woman walked towards the train exit carrying the child with
one hand and holding her baggage with the other. When they were near the
30
door, the train suddenly picked up speed. The old woman and the child
stumbled from the train causing them to fall down the tracks and were hit by
an oncoming train, causing their instant death.
A criminal information was filed against Victor Milan, the driver,
Hermogenes Buencamino, the assistant conductor and Clemente Brinas for
Double Homicide thru Reckless Imprudence. But the lower court acquitted
Milan and Buencamino. On appeal to the CA, respondent CA affirmed the
decision.
Issue: Whether or not the CA erred in ruling the accused-appellant was
negligent?
Held: There was no error in the factual findings of the respondent court and in
the conclusion drawn from the findings.
It is a matter of common knowledge and experience about common
carriers like trains and buses that before reaching a station or flagstop they
slow down and the conductor announces the name of the place. It is also a
matter of common experience that as the train or bus slackens its speed,
some passengers usually stand and proceed to the nearest exit, ready to
disembark as the train or bus comes to a full stop. This is especially true of a
train because passengers feel that if the train resumes its run before they are
able to disembark; there is no way to stop it as a bus may be stopped.
The appellant was negligent because his announcement was premature and
erroneous, for it took a full 3 minutes more before the next barrio of Lusacan
was reached. The premature announcement prompted the two victims to
stand and proceed to the nearest exit. Without said announcement, the
victims would have been safely seated in their respective seats when the train
jerked and picked up speed. The proximate cause of the death of the victims
was the premature and erroneous announcement of petitioner-appellant.
GACAL VS. PAL (183 SCRA 189, G.R. NO. 55300 MARCH 16, 1990)
Facts: Plaintiffs Franklin Gacal, his wife and three others were passengers of
PAL plane at Davao Airport for a flight to Manila, not knowing that the flight,
were Commander Zapata with other members of Moro National Liberation
Front. They were armed with grenades and pistols. After take off, the
members of MNLF announced a hijacking and directed the pilot to fly directly
to Libya, later to Sabah. They were, however, forced to land in Zamboanga
airport for refueling, because the plane did not have enough fuel to make
direct flight to Sabah. When the plane began to taxi at the runaway of
Zamboanga airport, it was met by two armored cars of the military.
An armored car subsequently bumped the stairs leading inside the
plane. That commenced the battle between the military and the hijackers,
which led ultimately to the liberation of the planes surviving crew and
passengers with the final score of ten passengers and three hijackers dead.
Issue: Whether or not hijacking is a case fortuito or force majeure, which
would exempt an aircraft from liability for, damages to its passengers and
personal belongings that were lost during the incident?
Held: In order to constitute a caso fortuito that would exempt from liability
under Art 1174 of the civil code, it is necessary that the following elements
must occur: (a) the cause of the breach of obligation must be independent of
human will; (b) the event must be unforeseeable or unavoidable; (c) the event
31
must be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner; (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
Applying the above guidelines, the failure to transport the petitioners
safely from Davao to Manila was due to the skyjacking incident staged buy
the MNLF without connection to the private respondent, hence, independent
of will of PAL or its passengers.
The events rendered it impossible for PAL to perform its obligation in a
normal manner and it cannot be faulted for negligence on the duty performed
by the military. The existence of force majeure has been established thus
exempting PAL from payment of damages.
PILAPIL VS. CA 180 SCRA 546
Facts: On September 16, 1971, Jose Pilapil boarded defendants bus
bearing No. 409 at San Nicolas, Iriga City at about 6:00PM. Upon reaching
the vicinity of the cemetery of the Municipality of Baao, Camarines Sur, on the
way to Naga City City, an unidentified man ( a bystander) hurled a stone at
the left side of the bus, which apparently hit petitioner above his left eye. He
was then immediately brought by private respondents personnel to the
provincial hospital in Naga City.
Issue: Whether or not the nature of the business of a transportation company
requires the assumption of certain risks and the stroking of the bus by a
bystander resulting in injury to petitioner-passenger is one such risk from
which the common carrier may not exempt itself from liability?
Held: The Supreme Court held that while the law requires the highest degree
of diligence from common carriers in the safe transport of their passengers
and creates a presumption of negligence against them, it does not however,
make the carrier an insurer of absolute safety of its passengers. A tort,
committed by a stranger which causes an injury to a passenger does not
accord the latter a cause of action against the carrier. The negligence for
which a common carrier is responsible is the negligent omission by the
carriers employees to prevent the tort from being committed when the same
could have been foreseen and prevented by them. Further, it is to be noted
that when the violation of the contract is due to the willful acts of strangers, as
in the instant case, the degree of care essential to be exercised by the
common carrier for the protection of its passenger is only that of a good father
of the family.
COMPANIA MARITIMA VS COURT OF APPEALS AND VICENTE
CONCEPCION (162 SCRA 685)
Facts: Vicente Concepcion is doing business under the name of
Consolidated Construction. Being a Manila based contractor, Concepcion had
to ship his construction equipment to Cagayan de Oro. On August 28, 1964,
Concepcion shipped 1 unit pay loader, 4 units of 6x6 Roe trucks, and 2 pieces
of water tanks. The aforementioned equipment was loaded aboard the MV
Cebu, which left Manila on August 30, 1964 and arrived at Cagayan de Oro
on September 1, 1964. The Reo trucks and water tanks were safely unloaded
however the pay loader suffered damage while being unloaded. The
damaged pay loader was taken to the petitioners compound in Cagayan de
Oro.
Consolidated Construction thru Vicente Concepcion wrote Compania
Maritima to demand a replacement of the broken pay loader and also asked
for damages. Unable to get a response, Concepcion sent another demand
32
letter. Petitioner meanwhile, sent the damaged payloader to Manila, it was

weighed at San Miguel Corporation, where it was found that the payloader
actually weighed 7.5 tons and not 2.5 tons as declared in its bill of lading. Due
to this, petitioner denied the claim for damages of Consolidated Construction.
Consolidated then filed an action for damages against petitioner with the
Court of First Instance of Manila. The Court of First Instance dismissed the
complaint stating that the proximate cause of the fall of the payloader which
caused its damage was the act or omission of Vicente Concepcion for
misrepresenting the weight of the payloader as 2.5 tons instead of its true
weight of 7.5 tons. On appeal, the Court of Appeals, reversed the decision of
the Court of First Instance and ordered the plaintiff to pay Concepcion
damages. Hence this petition.
Issue: Whether or not the act of respondent Concepcion of misdeclaring the
true weight of the payloader the proximate and only cause of the damage of
the payloader?
Held: No, Compania Maritima is liable for the damage to the payloader. The
General rule under Articles 1735 and 1752 of the Civil Code is that common
carriers are presumed to be at fault or to have acted negligently in case the
goods transported by them are lost, destroyed, or had deteriorated. To
overcome the presumption of liability for the loss destruction or deterioration
common carriers must prove that they have exercised extraordinary diligence
as required by Article 1733 of the Civil Code.
Extraordinary Diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and follow the required
precaution fro avoiding damage or destruction of the goods entrusted to it for
safe carriage and delivery. It requires common carriers to render service with
the greatest skill and foresight and to use all reasonable means to ascertain
the nature and characteristics of goods tendered for shipment and to exercise
due care in the handling and stowage including such methods as their nature
requires.
The Supreme Court further held that the weight in a bill of lading are
prima facie evidence of the amount received and the fact that the weighing
was done by another will not relieve the common carrier where it accepted
such weight and entered it in on the bill of lading. The common carrier can
protect themselves against mistakes in the bill of lading as to weight by
exercising extraordinary diligence before issuing such.
SERVANDO VS. PHILIPPINE STEAM NAVIGATION CO.(117 SCRA 832)
Facts: Bico and Servando loaded on board the FS-176 the following cargoes:
1.528 cavans of rice and 44 cartons of colored paper, toys and general
merchandise. Upon the arrival of the vessel, the cargoes were discharged,
complete and in good order to the warehouse of the Bureau of Customs. At
2:00 pm of the same day, a fire of unknown reasons razed the warehouse.
Before the fire, Bico was able to take delivery of 907 cavans of rice. The
petitioners are now claiming for the value of the destroyed goods from the
common carrier.
The Trial Court ordered the respondent to pay the plaintiffs the amount
of their lost goods on the basis that the delivery of the shipment to the
warehouse is not the delivery contemplated by Article 1736 of the New Civil
Code, since the loss occurred before actual or constructive delivery. The
petitioners argued that the stipulation in the bills of lading does not bind them
because they did not sign the same. The stipulation states that the carrier
shall not be responsible for loss unless such loss was due to the carriers
33
negligence. Neither shall it be liable for loss due to fortuitous events such as
dangers of the sea and war.
Issue: Whether or not the carrier should be held liable for the destruction of
the goods
Held: No. There is nothing on record to show that the carrier incurred in
delay in the performance of its obligation. Since the carrier even notified the
plaintiffs of the arrival of their shipments and had demanded that they be
withdrawn.
The carrier also cannot be charged with negligence since the storage
of the goods was in the Customs warehouse and was undoubtedly made with
their knowledge and consent. Since the warehouse belonged and maintained
by the Government, it would be unfair to impute negligence to the appellant
since it has no control over the same.
DSR SENATOR LINES VS. FEDERAL PHOENIX 7 OCTOBER 2003
Facts: Berde plants, Inc. delivered 632 units of artificial trees to C.F. Sharp
and Company, Inc., the General Sip Agent of DSR- Senator Lines, a foreign
shipping corporation, for transportation and delivery to the consignee, Al-Mohr
International Group, in Riyadh, Saudi Arabia. Sharp issued an international
bill of landing for the cargo, with a stipulation that the port of discharge for the
cargo was at the Khor Fakkan port and the port of delivery was Riyadh, Saudi
Arabia.
On June 7, 1993, the vessel left Manila for Saudi Arabia with the cargo
on board. When the vessel arrived in Khor Fakkan Port, the cargo was
reloaded on board DSR-Senator Lines feeder vessel, however while in transit,
the vessel and all its cargo caught fire.
Consequently, Federal Phoenix Assurance paid Berde Plants
corresponding to the amount of the insurance for the cargo. In turn, Berde
Plants executed in its favor a Subrogation Receipt.
Federal Phoenix demanding payment on the basis of the subrogation
receipt. C.f. Sharp denied any liability that such liability was extinguished
when the vessel carrying the cargo was gutted by fire. Thus, Federal Phoenix
filed a complaint for damages against DSR-Senator Lines and C.F, Sharp.
Issue: Whether or not there was a breach of contract of carriage.
Held: Fire is not one of those enumerated under Article 1734 of the Civil
Code to wit,
Art. 1734, Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:
1. Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
2. Act of the public enemy in war, whether international civil;
3. Act or omission of the shipper or the owner of the goods;
4. The character of the goods or defects in the packing or in the
containers;
5. Order or act of competent public authority.
6. Common carriers are obliged to observe extraordinary diligence in the
vigilance over the goods transported by them. Accordingly, they are
presumed to have been at fault or to have acted negligently of the
34
goods are lost, destroyed or deteriorated. In those cases where the

presumption is applied, the common carrier must prove that it
exercised extraordinary diligence in order to overcome the
presumption.
SARREAL VS. JAPAN AIRLINES (117 SCRA 832)
Facts: On September 14, 1979, the petitioner purchased in Bangkok from
private respondent Japan Air Lines (JAL) ticket no. 131-4442-517-368, having
various foreign destinations from Bangkok and back to Bangkok.
On or about June 23, 1980, he was in Los Angeles, USA with his
business representative Atty. Pol Tiglao, and Luis Espada, the boxing
manager of World Flyweight Boxing Champion Hilario Zapata. They were
negotiating a possible match between the latter and the winner of the "
Netrnoi Vorasing - Brigildo Caada" main event fight which was scheduled on
July 4, 1980 in Manila. This agreement was to be confirmed by the petitioner
through overseas call in Manila on or before July 2, 1980.
The petitioner then flew from Los Angeles to Tokyo arriving thereat on
June 26, 1980.
At the Narita Airport Office, the petitioner inquired if there was a JAL
flight from Bangkok to Manila on July 2, 1980. He explained to a lady
employee of JAL that he had a very important business in Manila on July 2,
1980. He also told her that if he could not take a flight from Bangkok to Manila
on that date, he would not be going to Bangkok anymore.
The JAL lady employee looked into her scheduled book put a stamp on
the petitioner's ticket and told him not to worry because she has endorsed his
JAL ticket to Thai International leaving Bangkok on July 2, 1980 for Manila.
Relying on the assurance of the lady employee, the petitioner then
proceeded to Bangkok.
However, in the morning of July 2, 1980, when the petitioner was about
to board the said Thai International, he was not allowed to board the said
plane through it had available seats because he was told that his ticket was
not endorsable.
Since the petitioner failed to reach Manila by July 2, 1980, Espada
cancelled his transaction with the petitioner and decided to have the
champion fight in Japan instead.
This led the petitioner to file an action for damages with the Regional
Trail Court (RTC ), Pasay City against private respondent JAL premised on
the breach of contract of carriage.
Issue: Whether or not the assurance of an airline employee, not evidenced
by any hard proof, is sufficient as an assurance of a passenger securing his
seat?
Held: The petitioner is said to be a well-traveled person who average two
long trips to Europe and two trips to Bangkok every month since 1945. He
claims to have used practically all the airlines but mostly Philippine Airlines
whenever he travels abroad in connection with his occupation as international
boxing matchmaker and manager of world-champion boxers.
Certainly, a man of such stature was aware of the restrictions carried
by his ticket and the usual procedure that goes with traveling. The petitioner
35
ought to know that it was still necessary to verify first from Thai International if
they would honor the endorsement of his JAL ticket or confirm with the airline
if he had a seat in the July 2 flight.
The court finds no justification for the relief prayed for by the petitioner.
He has failed to show that the findings of the respondent court are not based
on substantial evidence or that it conclusions are contrary to law and
applicable jurisprudence.
VASQUEZ VS. COURT OF APPEALS (138 SCRA 553)
Facts: MV Pioneer Cebu left the port of Manila and bounded for Cebu. Its
officers were aware of the upcoming typhoon Klaring that is already building
up somewhere in Mindanao. There being no typhoon signals on their route,
they proceeded with their voyage. When they reached the island of Romblon,
the captain decided not to seek shelter since the weather was still good. They
continued their journey until the vessel reached the island of Tanguingui,
while passing through the island the weather suddenly changed and heavy
rains fell. Fearing that they might hit Chocolate island due to zero visibility, the
captain ordered to reverse course the vessel so that they could weather out
the typhoon by facing the strong winds and waves. Unfortunately, the vessel
struck a reef near Malapascua Island, it sustained a leak and eventually sunk.
The parents of the passengers who were lost due to that incident filed
an action against Filipinas Pioneer Lines for damages. The defendant
pleaded force majeure but the Trial Court ruled in favor of the plaintiff. On
appeal to the Court of Appeals, it reversed the decision of the lower stating
that the incident was a force majeure and absolved the defendants from
liability.
Issue: Whether of not Filipinas Pioneer Lines is liable for damages and
presumed to be at fault for the death of its passenger?
Held: The Supreme Court held the Filipinas Pioneer Lines failed to observe
that extraordinary diligence required of them by law for the safety of the
passengers transported by them with due regard for all necessary
circumstance and unnecessarily exposed the vessel to tragic mishap. Despite
knowledge of the fact that there was a typhoon, they still proceeded with their
voyage relying only on the forecast that the typhoon would weaken upon
crossing the island of Samar. The defense of caso fortuito is untenable. To
constitute caso fortuito to exempt a person from liability it necessary that the
event must be independent from human will, the occurrence must render it
impossible for the debtor to fulfill his obligation in a normal manner, the
obligor must be free from any participation or aggravation to the injury of the
creditor. Filipina Pioneer Lines failed to overcome that presumption o fault or
negligence that arises in cases of death or injuries to passengers.
GATCHALIAN V DELIM AND CA 203 SCRA 126
Facts: Gatchalian boarded the respondents Thames minibus at San
Eugenio, Aringay, La Union bound of the same province. On the way, a
snapping sound was suddenly heard at one part of the bus and shortly
thereafter, the vehicle bumped a cement flower pot on the side of the road,
went off the road and fell into a ditch. Several passengers including the
petitioner was injured. They were taken into an hospital for treatment. While
there, private respondents wife Adela Delim visited and paid for the
expenses, hospitalization and transportation fees. However, before she left,
she had the injured passengers including the petitioner sign an already
prepared Joint Affidavit constituting a waiver of any future complaint.
However, notwithstanding this document, petitioner filed an action Ex
36
Contractu to recover compensatory and Actual Damages. Private respondent

denied liability on the ground that it was an accident and the Joint which
constitutes as a waiver. The trial court dismissed the complaint based on the
waiver and the CA affirmed.
Issue: Whether or not the private respondent has successfully proved that he
exercised extraordinary diligence.
Held: The court held that they failed to prove extraordinary diligence. After a
snapping sound was suddenly heard at one part of the bus, the driver didnt
even bother to stop and look f anything had gone wrong with the bus. With
regard to the waiver, it must to be valid and effective, couched in clear and
unequivocal terms which leave no doubt as to the intention of the person to
give up a right or benefit which legally pertains to him. In this case, such
waiver is not clear and unequivocal. When petitioner signed the waiver, she
was reeling from the effects of the accident and while reading the paper, she
experienced dizziness but upon seeing other passengers sign the document,
she too signed which bothering to read to its entirety. There appears
substantial doubt whether the petitioner fully understood the joint affidavit.
JUNTILLA VS FONTANAR (136 SCRA 624)
Facts: Herein plaintiff was a passenger of the public utility jeepney on course
from Danao City to Cebu City. The jeepney was driven by driven by defendant
Berfol Camoro and registered under the franchise of Clemente Fontanar.
When the jeepney reached Mandaue City, the right rear tire exploded causing
the vehicle to turn turtle. In the process, the plaintiff who was sitting at the
front seat was thrown out of the vehicle. Plaintiff suffered a lacerated wound
on his right palm aside from the injuries he suffered on his left arm, right thigh,
and on his back.
Plaintiff filed a case for breach of contract with damages before the
City Court of Cebu City. Defendants, in their answer, alleged that the tire blow
out was beyond their control, taking into account that the tire that exploded
was newly bought and was only slightly used at the time it blew up.
Issue: Whether or not the tire blow-out is a fortuitous event?
Held: No. In the case at bar, the cause of the unforeseen and unexpected
occurrence was not independent of the human will. The accident was caused
either through the negligence of the driver or because of mechanical defects
in the tire. Common carriers should teach drivers not to overload their
vehicles, not to exceed safe and legal speed limits, and to know the correct
measures to take when a tire blows up thus insuring the safety of passengers
at all tines.
NECESSITO VS. PARAS (104 PHIL 75)
Facts: On January\y 28, 1954, Severina Garces and her one year old son,
Precillano Necesito boarded passenger auto truck bus of the Philippine
Rabbit Bus Lines at Agno, Pangasinan.
After the bus entered a wooden bridge, the front wheels swerved to the
right. The driver lost control, and after the wrecking the bridge wooden rails,
the truck fell on its right side into a creek where water was breast deep. The
mother, Severina was drowned and the son Precillano was injured.
Issue: Whether or nor the carrier is liable for manufacturing defect of the
steering knuckle?
37
Held: It is clear that the carrier is not an insurer of the passengers safety. His
liability rest upon negligence, that his failure to exercise utmost degree of
diligence that the law requires.
The passenger has neither choice nor control over the carrier in the
selection and use of the equipment and the appliances in use by the carrier.
Having no privity whatever with the manufacturer or vendor of the defective
equipment, the passenger has no remedy against him, while carrier usually
has. It is but logical, therefore, that the carrier, while not an insurer of the
safety of his passengers, should nevertheless be held to answer for flaws of
his equipment if such cause were at all discoverable.
C. DEFENSE/S
Cases :
EASTERN SHIPPING LINES INC.
COURT (150 SCRA 463)
VS.
INTERMEDIATE APPELLATE
Facts: Sometime in or prior to June 1977, the M/S Asiatica, a vessel operated
by petitioner Eastern Shipping Lines Inc., loaded at Kobe, Japan for
transportation to Manila loaded 5,000 pieces of calorized pipes valued at
P256,039.00 which was consigned to Philippine Blooming Mills Co, Inc. and
7 cases of spare parts valued at P92, 361.75 consigned to Central Textile
Mills. Both sets of goods were inured against marine risk for their stated value
with respondent Development Insurance and Surety Corp.
In the same vessel, 2 containers of garment fabrics were also loaded
which was consigned to Mariveles Apparel Corp worth $46,583. The said
cargoes were consigned to Nisshin Fire and Marine Insurance. Another
cargo loaded to the vessel was the surveying instruments consigned to Aman
Enterprises and General Merchandise and insured against respondent Dowa
Fire & Marine Insurance for $1,385.00.
On the way to Manila, M/S Asiatica caught fire and sank. This resulted
to the loss of the ship and its cargoes. The respective Insurers paid the
corresponding marine insurance values and were thus subrogated to the
rights of the insured.
The insurers filed a suit against the petitioner carrier for recovery of the
amounts paid to the insured. However, petitioner contends that it is not liable
on the ground that the loss was due to an extraordinary fortuitous event.
Issues:
1. Whether the Civil Code provisions on Common Carriers or the Carriage of
the Goods by Sea Act will govern the case at bar?
2. Whether or not the common carrier has the burden of proof to show its
compliance with the diligence required by law, which is extraordinary
diligence?
Held:
1. The law of the country to which the goods are to be transported governs
the liability of the common carrier in case of their loss, destruction or
deterioration. The liability of petitioner is governed primarily by the Civil Code
however, in all matters not regulated by the Civil Code, the Code of
Commerce and Special Laws will govern with respect to the rights and
obligations of the carrier. Therefore COGSA is suppletory to the provisions of
the Civil Code.
38
2. YES. The Common Carrier has the burden to prove that it exercised
extraordinary diligence required by law. The Court is of the opinion that fire
may not be considered a natural disaster or calamity. This must be so as it
almost arises 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 lightning or by
other natural disaster or calamity. However, petitioner failed to discharge the
burden of proving that it had exercised the extraordinary diligence required by
law and therefore cannot escape liability for the loss of the cargo.
GANZON VS. CA (161 SCRA 646)
Facts: Gelacio Tumambing contracted the services of Mauro B. Ganzon to
haul 305 tons of scrap iron from Mariveles, Bataan, to the port of Manila on
board the lighter LCT "Batman." Pursuant to this agreement, Mauro B.
Ganzon sent his lighter "Batman" to Mariveles where it docked in 3 feet of
water. Then, Gelacio Tumambing delivered the scrap iron to Filomeno Niza,
captain of the lighter, for loading which was actually begun on the same date
by the crew of the lighter under the captain's supervision. When about half of
the scrap iron was already loaded, Mayor Jose Advincula of Mariveles,
Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The
latter resisted the shakedown and after a heated argument between them,
Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing. The
gunshot was not fatal but Tumambing had to be taken to a hospital in
Balanga, Bataan, for treatment. After sometime, the loading of the scrap iron
was resumed. But on 4 December 1956, Acting Mayor Basilio Rub,
accompanied by 3 policemen, ordered captain Filomeno Niza and his crew to
dump the scrap iron where the lighter was docked. The rest was brought to
the compound of NASSCO. Later on Acting Mayor Rub issued a receipt
stating that the Municipality of Mariveles had taken custody of the scrap iron.
Tumambing instituted with CFI Manila an action against Ganzon for
damages based on culpa contractual. The trial court rendered a decision
absolving Ganzon from liability. On appeal, however, the appellate court
reversed and set aside the decision appealed. Hence, the petition for review
on certiorari.
Held: Now the petitioner is changing his theory to caso fortuito. Such a
change of theory on appeal we cannot, however, allow. In any case, the
intervention of the municipal officials was not In any case, of a character that
would render impossible the fulfillment by the carrier of its obligation. The
petitioner was not duty bound to obey the illegal order to dump into the sea
the scrap iron. Moreover, there is absence of sufficient proof that the issuance
of the same order was attended with such force or intimidation as to
completely overpower the will of the petitioner's employees. The mere
difficulty in the fullfilment of the obligation is not considered force majeure. We
agree with the private respondent that the scraps could have been properly
unloaded at the shore or at the NASSCO compound, so that after the dispute
with the local officials concerned was settled, the scraps could then be
delivered
in
accordance
with
the
contract
of
carriage.
D. DURATION OF RESPONSIBILITY OR LIABILITY OF COMMON
CARRIERS
A. IN CASE OF GOODS
START: From the time that the goods are delivered to the common carrier.
(Article 1736, Civil Code. Cia Maritima vs. Insurance Co. of America)
TERMINATION: When the goods are delivered, actively or constructively, by
the carrier to the consignee/person who has the right to receive them, or the
39
consignee/person who has the right to receive them has been informed of the
arrival of the goods and the consignee had reasonable time to remove such.
(Article 1736 and 1738, Civil Code)
The liability remains in full force and effect even when they are
temporarily unloaded or stored in transit unless the shipper or owner made
use of the right of stoppage in transitu. (Article 1737, Civil Code)
WHEN RIGHT OF STOPPAGE IN TRANSITU IS EXERCISED:
It is the right of the unpaid seller who has parted with his goods to stop
its delivery while in transit when the buyer of the goods is or turns insolvent.
(Article 1530, Civil Code)
The common carrier who holds the goods becomes the warehouseman
or ordinary bailee and the contract is terminated when such right is exercised.
Requisites:
1. Unpaid seller (Article 1525, Civil Code);
2. Goods must be in transit (Article 1531, Civil Code);
3. The seller must either actually take possession of the goods sold or
give notice of his claim to the carrier or other person in possession
(Article 1532 [1], Civil Code);
4. The seller must surrender the negotiable document of title, if any,
issued by the carrier or bailee (Article 1532[2], Civil Code);
5. The seller must bear the expenses of delivery of the goods after the
exercise of the right (Article 1532[2], Civil Code); and
6. The buyer is in a state of insolvency or becomes insolvent.
B. IN CASE OF PASSENGERS
START: The carrier is bound to exercise utmost diligence with respect to
passengers the moment the person who purchases the ticket (or a token)
from the carrier presents himself at the proper place and in a proper manner
to be transported. Such person must have bona fide intention to use the
facilities of the carrier, possess sufficient fare with which to pay for his
passage, and present himself to the carrier for the transportation in the
manner provided. (Vda. De Nueca v. Manila Railroad Company, CA, G.R. No.
31731, January 30, 1968)
It is the duty of carriers of passengers to stop their conveyances for a
reasonable length of time in order to afford passengers an opportunity to
board and enter, and they are liable for injuries suffered by boarding
passengers resulting from the sudden starting up or jerking of their
conveyances (Dangwa Transportation Co., Inc. vs. CA, 202 SCRA [1991])
TERMINATION: Until the passenger has, after reaching his destination,
safely alighted from the carriers conveyance or had a reasonable opportunity
to leave the carriers premises. (La Mallorca v. CA, 17 SCRA 739 [1966])
A person by stepping and standing on the platform of a bus, is already
considered a passenger and is entitled to all rights and protection pertaining
to such conventional relation (I.d.).
E. RULES ON PASSENGERS BAGGAGE
1. Baggage in the custody of the passengers or their employee:
That baggage, while in transit will be considered as necessary deposits. The
common carrier shall be responsible for the baggage as depositaries,
provided that notice was given to them or its employees and the passengers
took the necessary precautions which the carrier has advised them relative
to the care and vigilance of their baggage.
40
2. Baggage not in personal custody, but in that of a Carrier

Carrier who has in its custody the baggage of a passenger to be carried like any other goods is
required to observe extraordinary diligence. In case of loss or damage, the carrier is presumed
negligent. As to the other baggage, the rules in Article 1998 and 2000 to 2003 of the Civil Code
concerning the responsibility of hotel-keepers shall be applicable. (Art.1733-1735, Civil Code)
Case/s
QUISUMBING VS. CA
Facts: Norberto Quisumbing, Sr. and Gunther Leoffler were among the of ...
(PAL's) Fokker 'Friendship' PIC-536 plane in its flight of November 6, 1968
which left Mactan City at about 7:30 in the evening with Manila for its
destination.
After the plane had taken off, Florencio O. Villarin, a Senior NBI Agent
who was also a passenger of the said plane, noticed a certain 'Zaldy,' a
suspect in the killing of Judge Valdez, seated at the front seat near the door
leading to the cockpit of the plane. A check by Villarin with the passenger's
ticket in the possession of flight Stewardess Annie Bontigao, who was seated
at the last seat right row, revealed that 'Zaldy' had used the name 'Cardente,'
one of his aliases known to Villarin. Villarin also came to know from the
stewardess that 'Zaldy' had three companions on board the plane."
Villarin then scribbled a note addressed to the pilot of the plane
requesting the latter to contact NBI duty agents in Manila for the said agents
to ask the Director of the NBI to send about six NBI agents to meet the plane
because the suspect in the killing of Judge Valdez was on board (Exh. 'G').
The said note was handed by Villarin to the stewardess who in turn gave the
same to the pilot.
After receiving the note, which was about 15 minutes after take off, the
pilot of the plane, Capt. Luis Bonnevie, Jr., came out of the cockpit and sat
beside Villarin at the rear portion of the plane and explained that he could not
send the message because it would be heard by all ground aircraft stations.
Villarin, however, told the pilot of the danger of commission of violent acts on
board the plane by the notorious 'Zaldy' and his three companions.
While the pilot and Villarin were talking, 'Zaldy' and one of his
companions walked to the rear and stood behind them. Capt. Bonnevie then
stood up and went back to the cockpit. 'Zaldy' and his companions returned to
their seats, but after a few minutes they moved back to the rear throwing ugly
looks at Villarin who, sensing danger, stood up and went back to his original
seat across the aisle on the second to the last seat near the window. 'Zaldy
and his companion likewise went back to their respective seats in front.
Soon thereafter an exchange of gunshots ensued between Villarin
and 'Zaldy' and the latter's companions. 'Zaldy' announced to the passengers
and the pilots in the cockpit that it was a hold-up and ordered the pilot not to
send any SOS. The hold-uppers divested passengers of their belongings.
Issue: Whether or not Pal is liable for damages against the passengers for
loss caused by the robbers on board?
Held: It is illusive to assume that had these precautions been taken, the
hijacking or the robbery would not have succeeded. The mandatory use of the
most sophisticated electronic detection devices and magnetometers, the
imposition of severe penalties, the development of screening procedures, the
compilation of hijacker behavioral profiles, the assignment of sky marshals,
and the weight of outraged world opinion may have minimized hijackings but
all these have proved ineffective against truly determined hijackers. World
experience shows that if a group of armed hijackers want to take over a plane
41
in flight, they can elude the latest combined government and airline industry
measures. And as our own experience in Zamboanga City illustrates, the use
of force to overcome hijackers, results in the death and injury of innocent
passengers and crew members. We are not in the least bit suggesting that
the Philippine Airlines should not do everything humanly possible to protect
passengers from hijackers' acts. We merely state that where the defendant
has faithfully complied with the requirements of government agencies and
adhered to the established procedures and precautions of the airline industry
at any particular time, its failure to take certain steps that a passenger in
hindsight believes should have been taken is not the negligence or
misconduct which mingles with force majeure as an active and cooperative
cause.
BRITISH AIRWAYS VS. CA (285 SCRA 450)
Facts: On April 16, 1989, Mahtani is on his way to Bombay, India from
Manila. His trip was Manila-Hong Kong via PAL and then Hong Kong-India
via British Airways. Prior to his departure, he checked in two pieces of
luggage containing his clothing and other personal effects, confident that the
same would be transferred to his BA flight.
Unfortunately, when he arrived in India, he discovered that his luggage
was missing.
The RTC awarded Mahtani damages which was affirmed by CA.
Issue: Whether or not in a contract of air carriage a declaration by the
passenger is needed to recover a greater amount?
Held: American jurisprudence provides that an air carrier is not liable for the
loss of baggage in an amount in excess of the limits specified in the tariff
which was filed with the proper authorities, such tariff being binding on the
passenger regardless of the passengers lack of knowledge thereof or assent
thereto. This doctrine is recognized in this jurisdiction.
The inescapable conclusion that BA had waived the defense of limited
liability when it allowed Mahtani to testify as to the actual damages he
incurred due to misplacement of his luggage, without any objection.
It is a well-settled doctrine that where the proponent offers evidence
deemed by counsel of the adverse party to be inadmissible for any reason,
the latter has the right to object. However, such right is a mere privilege
which can be waived. Necessarily, the objection must be made at the earliest
opportunity, in case of silence when there is opportunity to speak may operate
as a waiver of objections.
F.LIABILITY OF SUCCESSIVE AIR CARRIERS
KLM ROYAL DUTCH AIRLINES VS CA (65 SCRA 237)
Facts: Spouses Mendoza approached Mr. Reyes, the branch manager of
Philippine Travel Bureau, for consultation about a world tour which they were
intending to make with their daughter and niece. Three segments of the trip,
the longest, was via KLM. Respondents decided that one of the routes they
will take was a Barcelona-Lourdes route with knowledge that only one airline,
Aer Lingus, served it. Reyes made the necessary reservations. To this, KLM
secured seat reservations for the Mendozas and their companions from the
carriers which would ferry them throughout their trip, which the exception of
Aer Lingus. When the Mendozas left the Philippines, they were issued KLM
tickets for the entire trip. However, their coupon for Aer Lingus was marked
on request.
42
When they were in Germany, they went to the KLM office and obtained
a confirmation from Aer Lingus. At the airport in Barcelona, the Mendozas and
their companions checked in for their flight to Lourdes. However, although
their daughter and niece were allowed to take the flight, the spouses
Mendozas were off loaded on orders of the Aer Lingus manager, who
brusquely shoved them aside and shouted at them. So the spouses
Mendozas took a train ride to Lourdes instead.
Thus, they filed a complaint for damages against KLM for breach of
contract of carriage. The trial court decided in favor of the Mendozas. On
appeal, the CA affirmed the decision. Hence, KLM brings this petition to the
Supreme Court. KLM cites Art 30 of the Warsaw Convention, which states:
the passenger or his representatives can take action only against the carrier
who performed the transportation during which the accident or delay
occurred. Also, KLM avers that the front cover of each ticket reads: that
liability of the carrier for damages shall be limited to occurrences on its own
line.
Issue: Whether or not KLM is liable for breach of contract of carriage?
Held: The applicability of Art. 30 of the Warsaw Convention cannot be
sustained. The article presupposes the occurrence of delay or accident. What
is manifest here is that the Aer Lingus refused to transport the spouses
Mendozas to their planned and contracted destination.
As the airline which issued the tickets, KLM was chargeable with the
duty and responsibility of specifically informing the spouses of the conditions
prescribed in their tickets or to ascertain that the spouses read them before
they accepted their passage tickets.
The Supreme Court held that KLM cannot be merely assumed as a
ticket-issuing agent for other airlines and limit its liability to untoward
occurrences on its own line.
The court found, that the passage tickets provide that the carriage to
be performed therein by several successive carriers is to be regarded as a
single operation.
FRANCISCO ORTIGAS, JR. VS. LUFTHANSA GERMAN AIRLINES
(G.R. NO. L-28773 JUNE 30, 1975)
Facts: Direct appeals of both parties plaintiff, Francisco Ortigas, and
defendant Luthansa German Airlines, from the decision of the Court of First
Instance of Manila Branch Y, condemning the defendant to pay plaintiff the
amount of P100,000 as moral damages, P30,000 as exemplary or corrective
damages, with interest of both sums at the legal rate from the
commencement of this suit until fully paid, P20,000 as attorneys fees and the
costs for the former failure to comply with its obligation to give first
accommodation to (the latter) a (Filipino) passenger holding a first class
ticket, aggravated by the giving of the space instead to a Belgian and the
improper conduct of its agents in dealing with him during the occasion of such
discriminatory violence of its contract of carriage.
Issue: Whether Lufthansa is liable for damages?
Held: The court said that when it comes to contracts of common carriage,
inattention and lack of care on the part of the carrier resulting in the failure of
the passenger to be accommodated in class contracted for amounts to bad
faith and fraud which entitles the passenger to the award of moral damages in
43
accordance with the 2220 of the Civil Code. But in the instant case, the
breach appears to the graver nature, since the preference given to the
Belgian passenger over plaintiff was done willfully and in wanton disregard of
plaintiffs rights and his dignity as a human being and as a Filipino, who may
not be discriminated against with impunity, as found by the court below what
worsened the situation of Ortigas was that Lufthansa succeeded in keeping
him as its passenger by assuring him that he would be given first class
accommodation at Cairo, the next station, the proper arrangements therefore
having been made already, when in truth such was not the case. Although
molested and embarrassed to the point that he had to take nitroglycerine pills
to ward off a possible heart attack, Ortigas hardly had any choice, since his
luggage was already in the plane. To his disappointment, when the plane
reached Cairo, he was told by Lufthansa office there that no word at all had
been received from Rome and they had no space for him in first class. Worse,
similar false representations were made to him at Dharham and Calcutta. It
was only at Bangkok where for the first time. Ortigas was at last informed that
he could have a first class seat in the leg of the flight, from Bangkok to Hong
Kong. This Ortigas rejected, if only to make patent his displeasure and
indignation at being so inconsiderately treated in the earlier part of his
journey. In the light of all foregoing, there can be no doubt as to the right of
Ortigas to damages, both moral and exemplary. Precedents we have
consistently adhere to so dictate.
CHINA AIRLINES VS. CHIOK (23 JULY 2003)
Facts: Daniel Chiok purchased from China Airlines a passenger ticket for air
transportation covering Manila-Taipei-Hong Kong-Manila. The said ticket was
exclusively endorsable to PAL.
Before Chiok his trip, the trips covered by the ticket were prescheduled and confirmed by the former. When petitioner arrived in Taipei, he
went to CAL to confirm his Hong Kong- Manila trip on board PAL. The CAL
office attached a yellow sticker indicating the status was OK.
When Chiok reached Hong Kong, he then went to PAL office to confirm
his flight back to Manila. The PAL also confirmed the status of his ticket and
attached a ticket indicating a status OK. Chiok proceeded to Hong Kong
airport for his trip to Manila. However, upon reaching the PAL counter, he was
told that the flight to Manila was cancelled due to typhoon. He was informed
that all confirmed flight ticket holders of PAL were automatically booked for
the next flight the following day.
The next day, Chiok was not able to board the plane because his name
did not appear on the computer as passenger for the said flight to Manila.
Issue: Whether or not CAL is liable for damages?
Held: The contract of air transportation between the petitioner and
respondent, with the former endorsing PAL the segment of Chioks journey.
Such contract of carriage has been treated in this jurisprudence as a single
operation pursuant to Warsaw Convention, to which the Philippines is a party.
In the instant case, PAL as the carrying agent of CAL, the latter cannot
evade liability to respondent, Chiok, even though it may have been only a
ticket issuer for Hong Kong- Manila sector.
III.
CODE
OF
COMMERCE
PROVISIONS
ON
OVERLAND
TRANSPORTATION (*Unless otherwise indicated, reference is to Code of
Commerce)
44
ARTS. 349 379, CODE OF COMMERCE

BILL OF LADING
The written acknowledgment of the receipt of goods, and the
agreement to transport them to a specific place to a person named or to his
order. It is not indispensable for the creation of a contract of carriage.
(Compania Maritima v. Insurance Co. of North America 12 SCRA 213 [1964])
Two-fold Character of a Bill of Lading:
1.
It is receipt of the goods to be transported; and
2.
It constitutes a contract of carriage of the goods.
Functions:
1.
Best evidence of the existence of the contract of
carriage of cargo (Art. 353 Code of Commerce);
2.
Commercial document whereby, if negotiable,
ownership may be transferred by negotiation; and
3.
Receipt of cargo.
Limitations as to the Carriers Liability:
A stipulation in the Bill of Lading limiting the liability of the carrier to an
agreed valuation unless the shipper declares a higher value and pays a
higher rate of freight is valid.
However, the carrier cannot limit its liability for injury to, or loss of,
goods shipped where such injury or loss was caused by its own
negligence.
o
The surrender of the original bill of lading is not a condition precedent

for a common carrier to be discharged of its contractual obligation. If
surrender of the original bill of lading is not possible, acknowledgment
of the delivery by signing the delivery receipt suffices. (RP v. Lorenzo
Shipping, February 7, 2005)
Kinds of Bill of Lading:

1. On Board - issued when the goods have been actually placed aboard the
ship with very reasonable expectation that the shipment is as good as on
its way.
2. Received - one in 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.
3. Negotiable - one in which it is stated that the goods referred to therein will
be delivered to the bearer or to the order of any person named therein.
4. Non-Negotiable - One in which it is stated that the goods referred to
therein will be delivered to a specified person.
5. Clean One which does not indicate any defect in the goods.
6. Foul One which contains a notation thereon indicating that the goods
covered by it are in bad condition.
7. Spent One which covers goods that already have been delivered by the
carrier without a surrender of a signed copy of the bill.
8. Through One issued by the carrier who is obliged to use the facilities of
other carriers as well as his own facilities for the purpose of transporting
the goods from the city of the seller to the city of the buyer, which bill of
lading is honored by the second and other interested carriers who do not
issue their own bills.
9. Custody One wherein the goods are already received by the carrier but
the vessel indicated therein has not yet arrived in the port.
10. Port One which is issued by the carrier to whom the goods have been
delivered, and the vessel indicated in the bill of lading by which the goods
45
are to be shipped is already in the port where the goods are held for
shipment.
On-Board Bill of Lading v. Received for Shipment Bill of Lading:
An On Board Bill of Lading is one in which it is stated that the goods
have been received on board the vessel which is to carry the goods. An on
board bill of lading is issued when the goods have been actually placed
aboard the ship with every reasonable expectation that the shipment is as
good as on its way. It is, therefore, understandable that a party to a maritime
contract would require an on board bill of lading because of its apparent
certainty of shipping as well as the seaworthiness of the vessel which is to
carry the goods. (Magellan Mfg.,etc. v. Court of Appeals, 201 SCRA 116117[1991])
A Received for Shipment Bill of Lading is one which it is stated that
the goods have been received for shipment without specifying the vessel by
which the goods are to be shipped. Received for shipment bills of lading are
issued wherever conditions are not normal and there is insufficiency of
shipping space. (Magellan Mfg., etc. v. Court of Appeals,201 SCRA 116)
OBLIGATIONS OF THE CARRIER
A. Duty to Accept the Goods
General Rule: A common carrier cannot ordinarily refuse to carry a
particular class of goods.
Exception: For some sufficient reason the discrimination against the
traffic in such goods is reasonable and necessary. (Fisher vs. Yangco
Steamship Co. 31 Phil 1 [1915]).
Instances when the carrier may validly refuse to accept the goods:
1. Goods sought to be transported are dangerous objects, or substances
including dynamite and other explosives;
2. Goods are unfit for transportation;
3. Acceptance would result in overloading;
4. Contrabands or illegal goods;
5. Goods are injurious to health;
6. Goods will be exposed to untoward danger like flood, capture by
enemies and the like;
7. Goods like livestock will be exposed to disease;
8. Strike;
9. Failure to tender goods on time.
In case of carriage by railway, the carrier is exempted from liability if
carriage is insisted upon by the shipper, provided its objections are
stated in the bill of lading.
o However, when a common carrier accepts cargo for shipment for
valuable consideration, it takes the risk of delivering it in good condition
as when it was loaded. (PAL vs. CA, 226 SCRA 423 )
B. Duty to deliver the goods
Not only to transport the goods safely but to deliver the same to the
person indicated in the bill of lading. The goods should be delivered to the
consignee or any other person to whom the bill of lading was validly
transferred or negotiated.
o
TIME OF DELIVERY
Stipulated in Contract/Bill
of Lading
Carrier is bound to fulfill the
contract and is liable for any
delay; no matter from what
No stipulation
1.
2.
Within a reasonable time.

Carrier is bound to forward them in
the 1st shipment of the same or similar
46
cause it may have arisen.
goods which he may make to the point of

delivery. (Art. 358 Code of Commerce)
Effects of delay:
1. Merely suspends and generally does not terminate the contract of
carriage.
2. Carrier remains duty bound to exercise extraordinary diligence.
3. Natural disaster shall not free the carrier from responsibility (Art.1740,
Civil Code)
4. If delay is without just cause, the contract limiting the common carriers
liability cannot be availed of in case of loss or deterioration of the goods
(Art.1747, Civil Code)
C. Duty to exercise extraordinary diligence
o Inquiry may be made as to the nature of passengers baggage, but
beyond this constitutional boundaries are already in danger of being
transgressed. (Nocum vs. Laguna Tayabas Bus Co., 30 SCRA 68)[this
doctrine is not applicable to aircrafts because of Section 8 of AntiHijacking Law (RA 6235)]
RIGHT OF CONSIGNEE TO ABANDON GOODS
Instances:
1. Partial non-delivery, where the goods are useless without the others (Art.
363, Code of Commerce);
2. Goods are rendered useless for sale or consumption for the purposes for
which they are properly destined (Art. 365, Code of Commerce); and
3. In case of delay through the fault of the carrier (Art. 371, Code of
Commerce).
NOTICE OF DAMAGE
Requisites for Applicability:
1. Domestic/inter-island/coastwise transportation
2. Land/water/air transportation
3. Carriage of goods
4. Goods shipped are damaged (Art. 366, Code of Commerce)
Rules:
a. Patent damage: shipper must file a claim against the carrier immediately
upon delivery (it may be oral or written)
b. Latent damage: shipper should file a claim against the carrier within 24
hours from delivery.
o These rules do not apply to misdelivery of goods. (Roldan vs. Lim
Ponzo)
o The filing of notice of claim is a condition precedent for recovery.
Purpose of Notice: To inform the carrier that the shipment has been
damaged, and it is charged with liability therefore, and to give it an
opportunity to make an investigation and fix responsibility while the matter is
fresh.
Prescriptive Period
Not provided by Article 366. Thus, in such absence, Civil Code rules on
prescription apply.
If despite the notice of claim, the carrier refuses to pay, action must be
filed in court.
1. If no bill of lading was issued: within 6 years
2. If bill of lading was issued: within 10 years.
COMBINED CARRIER AGREEMENT
General Rule: In case of a contract of transportation of several legs, each
47
carrier is responsible for its particular leg in the contract. (Art. 373, Code of
Commerce)
Exception: A combined carrier agreement where a carrier makes itself liable
assuming the obligations and acquiring as well the rights and causes of action
of those which preceded it.
ARTICLE 366 (COC)
SECTION 3(6) (COGSA)

Applicability
1. Domestic/inter1.
International/overseas/f
island/coastwise
oreign (from foreign country to
transportation.
Philippines).
2. Land, water, air transportation.
subject to the rule on
3. Carriage of goods.
Paramount Clause
4. Maritime transportation.
2. Water/maritime
transportation
3. Carriage of goods
Notice of damage
1. Filing of notice of claim for the
1. Filing of a notice of claim for the
damages is a condition
damages is not a condition
precedent
precedent
2. 24-hour period for claiming
2. 3-day period for claiming latent
latent damage.
damage.
Prescriptive period
None provided; Civil Code
One year from the date of delivery
applies.
(delivered but damaged goods), or
date when the vessel left port or from
the date of delivery to the arrastre
(non-delivery or loss).
MANNER OF RECOVERY FROM DAMAGES OF GOODS
Inter-Island if goods arrived in damaged condition:
1. If damage is apparent, the shipper must file a claim immediately; or
2. If damages are not apparent, he should file a claim within twenty-four
hours from delivery.
The filing of claim under either (a) or (b) is a condition precedent for
recovery.
If the claim is filed, but the carrier refuses to pay, enforce carriers
liability in court by filing a case:
1. Within six (6) years, if no bill of lading has been issued; or
2. Within ten (1) years, if a bill of lading has been issued.
Written demand within twenty-four (24) hours is necessary only when the
package does not show exterior signs of damage but when there are exterior
signs of damage, a verbal claim made immediately is sufficient compliance
with law. (Mapaso Goldfields v. Compania Maritima [CA], 2 OG 307)
Payment of the transportation charge precludes the presentation of any

claim against the carrier.
Overseas where goods arrived in a damaged condition from a foreign port

to a Philippine port of entry:
a.
Upon discharge of goods, if the damage is apparent, claim should be
filed immediately; or
b.
If the damage is not apparent, claim should be filed within three days
from delivery.
The filing of notice of claim is not a condition precedent for recovery.

However, an action must be filed within one year from discharge. If
48
there is no delivery action should be filed from the day of the goods
supposed delivery.
Where there was delivery to the wrong person, the prescriptive period
is ten years because there is a violation of contract, and the Carriage
of Goods by Sea Act (COGSA) does not apply to cases of misdelivery.
Doctrine of Connecting Carriers

The original carrier that entered into the contract of carriage shall be liable for
damages caused by its connection carrier. (Art. 373 Code of Commerce)
IV. ADMIRALTY AND MARITIME COMMERCE
ARTS. 573 - 869, CODE OF COMMERCE
Characteristics of Maritime Transaction:
1. REAL - similar to transactions over real property with respect to effectively
against third persons which is done through registration as shown by the
limitation of the liability of the agents to the actual value of the vessel and
the freight money; and the right to retain the cargo and embargo and
detention of the vessel; and
2. HYPOTHECARY - the liability of the owner is limited to the value of the
vessel itself (Doctrine of Limited Liability).
o The real and hypothecary nature of maritime law simply means that the
liability of the carrier in connection with losses related to maritime
contracts is confined to the vessel, which stands as the guaranty for their
settlement. (Aboitiz Shipping Corp. vs. General Accident Fire and Life
Assurance Corp. 217 SCRA 359)
PREFERENCE OF CREDITS
Mortgage of a vessel properly registered becomes preferred mortgage
lien which shall have priority over all claims against the vessel in an
extrajudicial foreclosure for:
1. Credit in favor of the public treasury;
2. Judicial costs of the proceedings;
3. Pilotage and tonnage charges and other sea and port charges;
4. Salaries of depositaries keepers of the vessel;
5. Captain and crews wages;
6. General average;
7. Salvage, including contract salvage;
8. Maritime liens arising prior in time to the recording of the preferred
mortgage;
9. Damages arising out of tort; and
10. Preferred mortgage registered prior in time.
MERCHANT VESSEL
Vessel engaged in maritime commerce, whether foreign or otherwise.
Constitutes property which may be acquired and transferred by any of the
means recognized by law. They shall continue to be considered as
personal property. (Arts. 573, 585 Code of Commerce)
o Susceptible to maritime liens such as for the repair, equipping and
provisioning of the vessel in the preparation of a voyage, as well as
mortgage liabilities, in satisfaction of which a vessel may be validly
arrested and sold. (Ship Mortgage Decree of 1978)
DOCTRINE OF LIMITED LIABILITY (HYPOTHECARY RULE)
General Rule: The liability of shipowner and ship agent is limited to the
amount of interest in said vessel such that where vessel is entirely lost, the
obligation is extinguished. (Luzon Stevedoring v. Escano, 156 SCRA
49
169[1987]). The interest extends to:

1. The vessel itself;
2. Equipments;
3. Freightage; and
4. Insurance proceeds. (Chua v. IAC, 166 SCRA 183[1988])
Exceptions: When not applicable;
1. The voyage is not maritime, but only in river, bay or gulf.
2. In case of expense for equipping, repairing or provisioning of the vessel.
3. In case the vessel is not common but a special carrier.
4. In case the vessel would totally sink or get lost by reason of the ship
owner or ship agents fault.
5. When the injury to or death of a passenger is due either to the fault of the
ship owner and the captain.
6. When the vessel is insured (to the extent of the insurance proceeds); or
7. In workmens compensation claims. (Yangco v. Laserna 73 Phil. 330)
When shipowner was equally negligent, it cannot escape liability by

virtue of the limited liability rule (Central Shipping Co. vs. Insurance
Co. of N. America, G.R. No. 150751. September 20, 2004)
The limited liability doctrine applies not only to the goods but also in
all cases like death or injury to passengers. (Heirs of Amparo Delos
Santos vs. CA, 186 SCRA 649)
If the vessel is not entirely lost, the hypothecary nature will not apply,
unless the shipowner or the ship agent abandons the vessel.
When Applicable:
1. Civil liability for indemnities in favor of third persons which arise from
the conduct of the captain in the care of the goods which the vessel
carried. (Art. 587, Code of Commerce)
2. Civil liability arising from collisions. (Art. 837, Code of Commerce)
3. Unpaid wages of the captain and the crew if the vessel and its cargo
are totally lost by reason of capture or shipwreck. (Art. 643, Code of
Commerce)
Rules on Principle of Limited Liability of the Shipowner and Ship Agent
o Where the shipowner or ship agent validly exercised his right of
abandonment of the vessel with all her equipment and the freightage
earned during the voyage, the abandonment amounts to an offer to the
injured party of the value of the vessel, of her equipment, and the freight
money earned during the voyage. (Phil. Shipping Co. v. Garcia-Vergara
96 Phil 201)
o
In consequence of the limited liability rule, the shipowners property, other

than his vessel and freightage earned during the voyage, cannot be
made to answer for his liability arising from the collision with other
vessels. (Phil. Shipping Co. v. Garcia-Vergara, G.R. No. L-1600, June 1,
1906)
This is not to say, however, that the limited liability rule is without
exceptions, namely: (1) where the injury or death to a passenger is due
either to the fault of the shipowner, or to the concurring negligence of the
shipowner and the captain. (Phil. Am. Gen. Insurance Co., Inc. v. CA, 273
SCRA 649,271 [1997]); (2) where the vessel is insured; and (3) in
workmens compensation claims. (Monarch Insurance Co., Inc. v. CA,
333 SCRA 71 [2000])
50
Contrary to the theory that the limited liability rule has been rendered
obsolete by the advances in modern technology, which considerably
lessen the risks involved in maritime trade, this Court continues to apply
the said rule in appropriate cases. (Monarch Insurance Co., Inc. v. CA,
333 SCRA 71 [2000])
ABANDONMENT
Abandonment of the vessel is necessary to limit the liability of the
shipowner. The only instance were abandonment is dispensed with is when
the vessel is entirely lost (Luzon Stevedoring vs. CA 156 SCRA 169[1987]).
o
Satisfaction of Claims Under the Limited Liability

1.
All claims should be collated before they can be satisfied from what
remains of the insurance proceeds and freightage at the time of the loss;
2.
No claimant should be given preference over the others.
Execution of judgment in earlier completed cases, even those already final
and executory, must be stayed pending completion of all cases caused by
the subject sinking. (Aboitiz Shipping v. Gen. Accident Fire and Life
Insurance, 217 SCRA 359 [1993])
Abandonment; Who May Exercise
1. Shipowner
2. Ship agent
However, in cases of co-ownership of a vessel, its part owner may

exempt himself from liability by the abandonment. (Art. 590, Code of
Commerce)
A charterer cannot make an abandonment as the charterer cannot be
regarded as being in the place of the owner or agents in matters relating
to the responsibility pertaining to ownership and possession of the vessel.
(Yueng Sheng Exchange v. Urrutia, 12 Phil. 747[1909])
Instances when the Shipowner or Agent May Exercise the Right to

Abandon Vessel:
1. For civil liability to 3rd persons arising from the conduct of the captain in the
vigilance over the goods which the vessel carried.
2. For the proportionate contribution of co-owners of the vessel to a common
fund for the acts of the captain.
3. For civil liability incurred by the shipowner in case of collision.
4. In case of leakage of at least of the contents of a cargo containing
liquids; and
5. In case of constructive loss of the vessel.
Requisites for Abandonment in Maritime Commerce
1.
Actual relinquishment of claim of ownership;
2.
Constructive total loss (loss, injury or expenses suffered should be
more then of the value of the thing abandoned);
3.
Abandonment must be neither partial nor conditional;
4.
Abandonment done within reasonable time after receipt of reliable
information of constructive total loss;
5.
Explicit notice to the insurer, whether orally or in writing, specifying the
cause of abandonment;
6.
If notice done orally, a written notice must be given within 7 days from
such oral notice.
Persons Participating In Maritime Commerce
1. Shipowners and ship agents
2. Captains and masters of the vessel
3. Officers and crew of the vessel
51
4. Supercargoes
5. Engineer
SHIPOWNERS AND SHIP AGENTS
Shipowner (proprietario) - Person who has possession, control and
management of the vessel and the consequent right to direct her navigation
and receive freight earned and paid, while his possession continues.
Ship Agent (Naviero) - Person entrusted with provisioning and representing
the vessel in the port in which it may be found; also includes the shipowner.
(Chua Hek Yong vs. IAC, 166 SCRA 183)
Not a mere agent under civil law; he is solidarily liable with the ship owner.
Powers and functions of a Ship Agent:

1. Capacity to trade;
2. Discharge duties of the captain, subject to Art.609;
3. Contract in the name of the owners with respect to repairs, details of
equipment, armament, provisions of food and fuel, and freight of the
vessel, and all that relate to the requirements of navigation;
4. Order a new voyage, make a new charter or insure the vessel after
obtaining authorization from the shipowner or if granted in certificate of
appointment.
Civil Liabilities of the Shipowner And Ship Agent
1. All contracts of the captain, whether authorized or not, to repair, equip and
provision the vessel; (Art. 586, Code of Commerce)
2. Loss and damage to the goods loaded on the vessel without prejudice to
their right to free themselves from liability by abandoning the vessel to the
creditors. (Art. 587, Code of Commerce)
3. Indemnities in favor of third persons arising from the conduct of the
captain in the care of the goods loaded in the vessel;
4. Damages suffered by a third person for tort committed by the captain; and
5. Damages in case of collision due to fault or negligence or want of skill of
the captain.
Duty of Ship Agent to Discharge the Captain and Members of the Crew
If the seamen contract is not for a definite period or voyage, he may
discharge them at his discretion. (Art. 603, Code of Commerce)
If for a definite period, he may not discharge them until after the
fulfillment of their contracts, except on the following grounds:
- Insubordination in serious matters;
- Robbery;
- Theft;
- Habitual drunkenness;
- Damage caused to the vessel or to its cargo through malice or
manifest or proven negligence. (Art. 605, Code of Commerce)
CAPTAINS AND MASTERS
They are the chiefs or commanders of ships.
The terms have the same meaning, but are particularly used in
accordance with the size of the vessel governed and the scope of
transportation, i.e., large and overseas, and small and coastwise,
respectively.
Nature of Position of Captains and Masters (3-Fold character):
1. General agent of the shipowner;
2. Technical director of the vessel;
52
3. Representative of the government of the country under whose flag he

navigates.
Qualifications of Captain and Masters:
1. Filipino citizen;
2. Legal capacity to contract;
3. Must have passed the required physical and mental examinations required
for licensing him as such. (Art. 609, Code of Commerce)
Inherent powers of Captains:
1. Appoint crew in the absence of ship agent;
2. Command the crew and direct the vessel to its port of destination;
3. Impose correctional punishment on those who, while on board vessel, fail
to comply with his orders or are wanting in discipline;
4. Make contracts for the charter of vessel in the absence of ship agent.
5. Supply, equip, and provision the vessel; and
6. Order repair of vessel to enable it to continue its voyage. (Art. 610, Code
of Commerce)
Duties of Captains:
1. Bring on board the proper certificate and documents and a copy of the
Code of Commerce;
2. Keep a Log Book, Accounting Book and Freight Book;
3. Examine the ship before the voyage;
4. Stay on board during the loading and unloading of the cargo;
5. Be on deck while leaving or entering the port;
6. Protest arrivals under stress and in case of shipwreck;
7. Follow instructions of and render an accounting to the ship agent;
8. Leave the vessel last in case of wreck;
9. Hold in custody properties left by deceased passengers and crew
members;
10. Comply with the requirements of customs, health, etc. at the port of arrival;
11. Observe rules to avoid collision;
12. Demand a pilot while entering or leaving a port. (Art. 612, Code of
Commerce)
No liability for the following:
1. Damages caused to the vessel or to the cargo by force majeure;
2. Obligations contracted for the repair, equipment, and provisioning of the
vessel unless he has expressly bound himself personally or has signed a
bill of exchange or promissory note in his name. (Art. 620, Code of
Commerce)
Solidary Liabilities of the Ship Agent/Shipowner for Acts Done by the
Captain towards Passengers and Cargoes
1. Damages to vessel and to cargo due to lack of skill and negligence;
2. Thefts and robberies of the crew;
3. Losses and fines for violation of laws;
4. Damages due to mutinies;
5. Damages due to misuse of power;
6. For deviations;
7. For arrivals under stress;
8. Damages due to non-observance of marine regulations. (Art. 618, CoC)
OFFICERS AND CREW
1. Sailing Mate/First Mate
2. Second Mate
3. Engineers
4. Crew
53
No liability under the following circumstances:

1. If, before beginning voyage, captain attempts to change it, or a naval war
with the power to which the vessel was destined occurs;
2. If a disease breaks out and be officially declared an epidemic in the port of
destination;
3. If the vessel should change owner or captain. (Art. 647, Code of
Commerce)
Sailing Mate/First Mate: Second chief of the vessel who takes the place of
the captain in case of absence, sickness, or death and shall assume all of his
duties, powers and responsibilities. (Art. 627, Code of Commerce)
Second Mate: Takes command of the vessel in case of the inability or
disqualification of the captain and the sailing mate, assuming in such case
their powers and responsibilities. (Third in command)
Engineers: Officers of the vessel but have no authority except in matters
referring to the motor apparatus. When two or more are hired, one of them
shall be the chief engineer.
Crew: The aggregate of seamen who man a ship, or the ships company.
Hired by the ship agent, where he is present and in his absence, the
captain hires them, preferring Filipinos, and in their absence, he may take
in foreigners, but not exceeding 1/5 of the crew. (Art. 634, Code of
Commerce)
Just Causes for the Discharge of Seaman While Contract Subsists
1. Perpetration of a crime;
2. Repeated insubordination, want of discipline;
3. Repeated incapacity and negligence;
4. Habitual drunkenness;
5. Physical incapacity;
6. Desertion. (Art. 637, Code of Commerce)
Rules in Case of Death of a Seaman
The seamans heirs are entitled to payment as follows:
1. If Death Is Natural:
a. compensation up to time of death if engaged on wage;
b. if by voyage - half of amount if death occurs on voyage out; and full, if
on voyage in;
c. if by shares - none, if before departure; full, if after departure;
2. If Death is Due to Defense of Vessel - full payment;
3. If Captured in Defense of Vessel - full payment;
4. If Captured Due to Carelessness - wages up to the date of the capture.
(Art. 645, Code of Commerce)
COMPLEMENT OF THE VESSEL
All persons on board, from the captain to the cabin boy, necessary for the
management, maneuvers, and service, thus including the crew, the sailing
mates, engineers, stokers and other employees on board not having specific
designations.
Does not include the passengers or the persons whom the vessel is
transporting.
SUPERCARGOES
Persons who discharge administrative duties assigned to them by ship
agent or shippers, keeping an account and record of transaction as required
in the accounting book of the captain. (Art. 649, Code of Commerce)
54
PILOT
A person duly qualified, and licensed, to conduct a vessel into or out of
ports, or in certain waters.
The term generally connotes a person taken on board at a particular

place for the purpose of conducting a ship through a river, road or
channel, or from a port.
Master pro hac vice (for the time being) in the command and
navigation of the ship.
Liability of Pilot
General Rule: On compulsory pilotage grounds, the Harbor Pilot is
responsible for damage to a vessel or to life or property due to his negligence.
Exceptions:
1. Accident caused by force majeure or natural calamity provided the pilot
exercised prudence and extra diligence to prevent or minimize damages.
2. Countermand or overrule by the master of the vessel in which case the
registered owner of the vessel is liable. (Sec.11, Art.III Philippine Ports
Authority Administrative Order 03-85)
DESERTION
An act by which a seaman deserts and abandons a ship or vessel before
the expiration of his term of duty without leave and without intention to return.
(Singa Ship Management Phils. v. NLRC 276 SCRA 201[1997])
CAUSES OF REVOCATION OF VOYAGE
1. War or interdiction of commerce;
2. Blockade;
3. Prohibition to receive cargo at destination;
4. Embargo;
5. Inability of the vessel to navigate. (Art. 640, Code of Commerce)
Terms:
1. Interdiction of Commerce A governmental prohibition of commercial
intercourse intended to bring about an entire cessation for the time being
of all trade whatever.
2. Blockade A sort of circumvallation of a place by which all foreign
connection and correspondence is, as far as human power can effect it, to
be cut off.
3. Embargo A proclamation or order of a state, usually issued in time of
war or threatened hostilities, prohibiting the departure of ships or goods
from some or all the ports of such state until further order.
Vessels
LOPEZ VS. DURUELO 52 PHIL 229
Facts: On February 10, 1927, plaintiff Augusto Lopez was desirous of
embarking upon the interisland steamer San Jacinto in order to go to Cebu,
the plaintiff embarked at the landing in the motorboat Jison which was
engaged in conveying passengers and luggage back and forth from the
landing to the boats at anchor.
As the motorboat approached San Jacinto in a perfectly quiet sea, it
came too near to the stern of the ship, and as the propeller of the ship had not
yet ceased to turn, the blades of the propeller strucked the motorboat and
sank it at once. As it sank, the plaintiff was thrown into the water against the
propeller, and the revolving blades inflicted various injuries upon him. The
plaintiff was hospitalized. He filed a complaint seeking to recover damages
from the defendant. The defendant however alleged that the complaint does
not have a right of action, a demurrer was submitted directed to the fact that
55
the complaint does not allege that the protest had been presented by the
plaintiff, within twenty-four hours after the occurrence to the competent
authority at the port where the accident occurred as provided for Article 835 of
the Code of Commerce.
Issue: Whether the motorboat Jison is a vessel provided for by Article 835 of
the Code of Commerce?
Held: The word vessel as used in the third section of tile IV, Book III of the
Code of Commerce, dealing with collisions, does not include all ships, craft or
floating structures of any kind without limitation. The said section does not
apply to minor craft engaged in a river and bay traffic.Therefore, a passenger
on boat like the Jison, 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.Article 835 of the Code of Commerce does not
apply.
1. Nature and characteristic of Maritime transactions, Arts. 585, 587
RUBISO VS. RIVERA (27PHIL72) G.R. No. L- 11407 October 30, 1917
Facts: The counsel of plaintiff brought a suit alleging that his clients were the
owners of the pilot boat named Valentine, which has been in bad condition
and on the date of the complaint, was stranded in the place called Tingly, of
the municipality of Battings. The defendant Rivera took charge or took
possession of the said boat without the knowledge or consent of the plaintiff
and refused to deliver it to them, under the claim that he was the owner
thereof. The refusal on the part of the defendant has caused the plaintiff
damages because they were unable to derive profit from the voyages for
which the said pilot boat was customarily used. The defendant, on the other
hand, alleged that they purchased the subject pilot boat. The plaintiff alleged
that the sale on behalf of the defendant Rivera was prior to that made at
public auction to Rubio, but the registration of this latter sale was prior to the
sale made to the defendant.
Issue: Whether or not, the plaintiff still has the better right over the subject
vessel?
Held: Under the Code of Commerce, Art 573 provides:
Merchant vessels constitute property that may be acquired and
transferred by any of the means recognized by law. The acquisition of a
vessel must be included in a written instrument, which shall not produce any
effect with regard to third persons if not recorded in the commercial registry.
The requisite of registration in the registry of the purchase of a vessel
is necessary and indispensable in order that the purchasers rights may be
maintained against a claim filed by third person. It is undeniable that Riveras
right cannot prevail over those acquired by Rubiso in the ownership of the
pilot boat, thought the latters acquisition of the vessel at public auction was
subsequent to its purchase by the defendant, Rivera.
LUZON STEVEDORING CORPORATION VS. COURT OF APPEALS
(156 SCRA 169)
Facts: A maritime collision occurred between the tanker CAVITE owned by
LSCO and MV Fernando Escano (a passenger ship) owned by Escano, as a
result the passenger ship sunk. An action in admiralty was filed by Escano
against Luzon. The trial court held that LSCO Cavite was solely to blame for
the collision and held that Luzons claim that its liability should be limited
under Article 837 of the Code of Commerce has not been established. The
56
Court of Appeals affirmed the trial court. The SC also affirmed the CA. Upon
two motions for reconsideration, the Supreme Court gave course to the
petition.
Issue: Whether or not in order to claim limited liability under Article 837 of the
Code of Commerce, it is necessary that the owner abandon the vessel
Held: Yes, abandonment is necessary to claim the limited liability wherein it
shall be limited to the value of the vessel with all the appurtenances and
freightage earned in the voyage. However, if the injury was due to the ship
owners fault, the ship owner may not avail of his right to avail of limited
liability by abandoning the vessel.
The real nature of the liability of the ship owner or agent is embodied in
the Code of Commerce. Articles 587, 590 and 837 are intended to limit the
liability of the ship owner, provided that the owner or agent abandons the
vessel. Although Article 837 does not specifically provide that in case of
collision there should be abandonment, to enjoy such limited liability, said
article is a mere amplification of the provisions of Articles 587 and 590 which
makes it a mere superfluity.
The exception to this rule in Article 837 is when the vessel is totally lost
in which case there is no vessel to abandon, thus abandonment is not
required. Because of such loss, the liability of the owner or agent is
extinguished. However, they are still personally liable for claims under the
Workmens Compensation Act and for repairs on the vessel prior to its loss.
In case of illegal or tortious acts of the captain, the liability of the owner
and agent is subsidiary. In such cases, the owner or agent may avail of
Article 837 by abandoning the vessel. But if the injury is caused by the
owners fault as where he engages the services of an inexperienced captain
or engineer, he cannot avail of the provisions of Article 837 by abandoning the
vessel. He is personally liable for such damages.
In this case, the Court held that the petitioner is a t fault and since he
did not abandon the vessel, he cannot invoke the benefit of Article 837 to limit
his liability to the value of the vessel, all appurtenances and freightage earned
during the voyage.
YANGCO VS. LASERNA (73 PHIL 330)
Facts: On the afternoon of May 26, 1927, the steamer SS Negros left the port
of Romblon on its return trip to Manila. Typhoon signal no. 2 was then up and
in fact, the passengers duly advised the captain before sailing. The boat was
overloaded. After 2 hours of sailing, the boat encountered strong winds and
rough seas between the islands of Banton and Simara. While in the act of
maneuvering, the vessel was caught sidewise by a big wave which caused it
to capsize and sink. Many of the passengers died on the mishap. Civil actions
were instituted in the CFI of Capiz, the petitioner sought to abandon the
vessel to the plaintiffs in three cases.
Issue: Whether the shipowner or agent is liable for damages for the
consequent death of its passengers notwithstanding the total loss of the
vessel?
Held: The petitioner is absolved from all complaints.
Under Article 587 the ship agent shall also be civilly liable for
indemnities in favor of third persons which arise from the conduct of the
captain in the vigilance over the goods which the vessels carried; BUT he
57
may exempt himself therefrom by abandoning the vessel with all her
equipment and the freight he may have earned during the voyage.
Whether the abandonment of the vessel sought by the petitioner in the
case was in accordance with the law or not, is immaterial. The vessel having
totally perished, any act of abandonment would be idle ceremony.
NO VESSEL, NO LIABILITY.
MANILA STEAMSHIP CO. INC. VS. INSA ABDULHAMAN (100 PHIL 32)
Facts: Insa Abdulhaman together with his wife and five children boarded M/L
Consuelo V in Zamboanga City. The said ship was bound for Siokon under
the command of Faustino Macrohon. On that same night, M/S Bowline Knot
was navigating from Marijoboc towards Zamboanga.
Around 9:30 to 10:00 in the evening of May 4, 1948, while some of the
passengers of the M/L Consuelo V were then sleeping and some lying down
awake, a shocking collision suddenly occurred. The ship that collided was
later on identified as the M/V Bowline Knot. M/L Consuelo V capsized that
resulted to the death of 9 passengers and the loss of the cargoes on board.
The Court held the owners of both vessels solidarily liable to plaintiff
for damages caused to the latter under Article 827 of the Code of Commerce
but exempted defendant Lim Hong To from liability due to the sinking and total
loss of his vessel. While Manila steamship, owner of the Bowline Knot was
ordered to pay all of plaintiffs damages.
Petitioner Manila Steamship Co. pleads that it is exempt from any
liability under Article 1903 of the Civil Code because it had exercised the
diligence of a good father of a family in the selection of its employees,
particularly the officer in command of the M/S Bowline Knot.
Issue: Whether or not petitioner Manila Steamship Co. is exempt from any
liability under Art. 1903 of the Civil Code?
Held: NO. Petitioner is not exempted from liabilities. While it is true that
plaintiffs action against petitioner is based on a tort or quasi delict, the tort in
question is not a civil tort under the Civil Code but a maritime tort resulting in
a collision at sea, governed by Articles 826-939 of the Code of Commerce.
Under Art. 827 of the Code of Commerce, in case of collision between two
vessels imputable to both of them, each vessel shall suffer her own damage
and both shall be solidarily liable for the damages occasioned to their
cargoes. The shipowner is directly and primarily responsible in tort resulting in
a collision at sea, and it may not escape liability on the ground that exercised
due diligence in the selection and supervision of the vessels officers and
crew.
VASQUEZ VS. CA (138 SCRA 553)
FACTS: The litigation involves a claim for damages for the loss at sea of
petitioners respective children after the shipwreck of MV Pioneer Cebu due to
typhoon Klaring in May of 1966. When the inter-island vessel MV Pioneer
Cebu left the Port of Manila in the early morning of May 15, 1966 bound for
Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo
and a four-year old boy, Mario Vasquez, among her passengers. The MV
Pioneer Cebu encountered typhoon Klaring and struck a reef on the southern
part of Malapascua Island, located somewhere north of island of Cebu and
subsequently sunk. The aforementioned passengers were unheard from
since then.
58
Due to the loss of their children, petitioners sued for damages before
the Court Instance of Manila. Respondent defended on the plea of force
majeure, and extinction of its liability by the actual loss of the vessel. After
proper proceedings, the trial court awarded damages. On appeal, respondent
Court reversed judgment and absolved private respondent from any liability.
Hence, this Petition for Review on Certiorari.
Issue: Whether the shipowners liability is extinguished despite of the loss of
the ship?
Held: With respect for the private respondents submission that the total loss
of the vessel extinguished its liability pursuant to Article 587 of the Code of
Commerce as construed in Yangco vs. Laserna, 73 Phil. 330 (1941), suffice it
to state that even in the cited case, it was held that the liability of the
shipowner is limited to the value of the vessel or to the insurance thereon,
Despite the total loss of the vessel therefore, its insurance answers for the
damages that the shipowners agent may be held liable for by reason of the
death of its passengers. Judgment of the CFI reinstated.
ABUEG VS. SAN DIEGO (77 PHIL 32)

Facts: The M/S San Diego II and the M/S Bartolome, while engaged in
fishing operations around Mindoro Island on Oct. 1, 1941 were caught by a
typhoon as a consequence of which they were sunk and totally lost. Amado
Nuez, Victoriano Salvacion and Francisco Oching while acting in their
capacities perished in the shipwreck.
Counsel for the appellant cite article 587 of the Code of Commerce
which provides that if the vessel together with all her tackle and freight money
earned during the voyage are abandoned, the agent's liability to third persons
for tortious acts of the captain in the care of the goods which the ship carried
is extinguished; article 837 of the same code which provides that in cases of
collision, the ship owners' liability is limited to the value of the vessel with all
her equipment and freight earned during the voyage (Philippine Shipping
company vs. Garcia, 6 Phil., 281), and article 643 of the same Code which
provides that if the vessel and freight are totally lost, the agent's liability for
wages of the crew is extinguished. From these premises counsel draw the
conclusion that appellant's liability, as owner of the two motor ships lost or
sunk as a result of the typhoon that lashed the island of Mindoro on October
1, 1941, was extinguished.
Issue: Whether the liability of the shipowner is extinguished by the total loss
of the ship?
Held: The provisions of the Code of Commerce invoked by appellant have no
room in the application of the Workmen's Compensation Act which seeks to
improve, and aims at the amelioration of, the condition of laborers and
employees. It is not the liability for the damage or loss of the cargo or injury
to, or death of, a passenger by or through the misconduct of the captain or
master of the ship; nor the liability for the loss of the ship as result of collision;
nor the responsibility for wages of the crew, but a liability created by a statute
to compensate employees and laborers in cases of injury received by or
inflicted upon them, while engaged in the performance of their work or
employment, or the heirs and dependents and laborers and employees in the
event of death caused by their employment. Such compensation has nothing
to do with the provisions of the Code of Commerce regarding maritime
59
commerce. It is an item in the cost of production which must be included in

the budget of any well-managed industry.
It has been repeatedly stated that the Workmen's Compensation Act
was enacted to abrogate the common law and our Civil Code upon culpable
acts and omissions, and that the employer need not be guilty of neglect or
fault, in order that responsibility may attach to him and that shipowner was
liable to pay compensation provided for in the Workmen's Compensation Act,
notwithstanding the fact that the motorboat was totally lost.
Doctrine of Limited Liability, Art. 587
ABOITIZ SHIPPING VS. GENERAL ACCIDENT FIRE AND LIFE (GR NO.
100446 JANUARY 21, 1993)
Facts: Petitioner is a corporation engaged in the business of maritime trade
as a carrier. As such, it owned and operated the M/V P/ ABOITIZ, a common
carrier that sank on voyage from Hong Kong to Manila. Private respondent
GAFLAC is a foreign insurance company pursuing its remedy as a subrogee
of several cargo consignees whose respective cargo sank with the said
vessel and for which it has priory paid. The sinking of vessel gave rise to
filling of suit to recover the lost cargo either by shippers, their successors-ininterest, or the cargo insurers like GAFLAC as subrogees. The sinking was
initially investigated by the Board of Marine Inquiry, which found that such
sinking was due to fortuitous event.
Issue: Whether or not the doctrine of limited liability is applicable to the case?
Held: The real an hypothecary nature of maritime law simple means that the
liability of the carrier in connection with losses related to maritime contracts is
confined to the vessel, which is hypothecated for such obligations or which
stands as the guaranty for their settlement. It has its origin by reason of the
conditions and risks attending maritime trade in its earliest years when such
trade was replete with innumerable and unknown hazards since vessels had
to go through largely uncharted waters to ply their trade. Thus, the liability of
the vessel owner and agent arising form the operation of such vessel were
confined to the vessel itself, its equipment, freight and insurance, if any, which
limitation served to induce capitalist into effectively wagering their resources
against consideration of the large attainable in the trade.
AMERICAN HOME ASSURANCE VS. CA (208 SCRA 343)
Facts: On or about June 19, 1998, Cheng Hwa Pulp Corp. shipped 5,000
bales of bleached kraft pulp from Haulien, Taiwan on board SS Kaunlaran
(owned by National Marine Corporation). The shipment was consigned to
Mayleen Paper, Inc. which insured the same with American Home Assurance
Co. On June 22, 1998, the shipment arrived in manila and was discharged
onto the custody of the Marina Port Services, Inc. However, upon delivery to
Mayleen Paper Inc., it was found that 122 bales had either been damaged or
lost with the value of P61, 263.41.
Mayleen Paper Inc, duly demanded indemnification from NMC but was
not heeded. Mayleen then sought recovery from American Home Assurance,
the insurer, which was adjusted to P31, 506.75. As subrogee, American Home
then filed a suit against NMC for the recovery of the said amount. NMC filed a
motion to dismiss on the ground that there was no cause of action based on
Art 848 of the Code of Commerce which provides that claims for averages
shall not be admitted if they do not exceed 5% of the interest which the
claimant may have in the vessel or in the cargo if it be gross average and 1%
of the goods damaged if particular average, deducting in both cases the
60
expenses of appraisal, unless there is an agreement to the contrary. NMC

contended that based on the allegations of the complaint, the loss sustained
in the case was P35, 506.75 which is only .18% of P17.420.000.00, the total
value of the cargo.
The trial court dismissed the case for lack of cause of action. American
Home then filed a petition for certiorari with the Court of Appeals which later
dismissed as constituting plain errors of law. Hence, this petition.
Issue: Whether or not the law on averages applies when there is negligence?
Held: NO. Common carriers cannot limit their liability for injury or loss of
goods where such injury or loss was caused by its own negligence. Otherwise
stated, the law on averages under the Code of Commerce cannot be applied
in determining liability where there is negligence. It is reasonable to conclude
that the issue of negligence must first be addressed before the proper
provisions of the Code of Commerce on the extent of liability may be applied.
Instead of presenting proof of the exercise of extraordinary diligence as
requires by law, NMC filed its motion to dismiss, hypothetically admitting the
truth of the facts alleged in the complaint to the effect that the loss or damage
to the 122 bales was due to the negligence or fault of NMC.
PHILIPPINE HOME ASSURANCE VS. CA (257 SCRA 468)
Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern
Explorer in Kobe, Japan, a shipment for carriage to Manila and Cebu freight
prepaid and in good order and condition. While the vessel is off Okinawa,
Japan, a small flame was detected on the acetylene cylinder located in the
main deck level. As the crew was trying to extinguish the fire, the acetylene
cylinder suddenly exploded sending a flash of flame throughout the
accommodation area, thus causing death and severe injuries to the crew and
instantly setting fire to the whole superstructure of the vessel. The incident
forces the master and the crew to abandon the ship. Thereafter, SS Eastern
Explorer was found to be constructive total loss and its voyage was declared
abandoned. Several hours later, a tugboat under the control of Fukuda
Salvage Co. arrived near the vessel and commenced to tow the vessel for the
port of Naha, Japan.
After the fire was extinguished, the cargoes which were saved were
loaded to another vessel for delivery for their original of port of destination.
ESLI charged the consignees several amounts corresponding to additional
freight and salvage charges. The charges were all paid by Philippine Home
Assurance Corporation (PHAC) under protest for and in behalf of the
consignees. PHAC, as subrogee of the consignees, thereafter filed a
complaint before the Regional Trial Court of Manila, Branch 39, against ESLI
to recover the sum paid under protest on the ground that the same were
actually damages directly brought about by the fault, negligence, illegal act
and/or breach of contract of ESLI.
In its answer, ESLI contended that it exercised the diligence required
by law in the handling, custody and carriage of the shipment; that the fire was
caused by unforeseen event; that the additional freight charges are due and
demandable pursuant to the Bill of Lading, and that salvage charges are
properly collectible under Act. No. 2616, known as the Salvage Law.
The trial court dismissed the PHACs complaint and ruled in favor of
ESLI. The court said that the Supreme Court has ruled in Erlanger and
Galinger vs. Swedish East Asiatic Co., Ltd., 34 Phil. 178, that three elements
are (1) a marine peril (2) service voluntary rendered when not required as an
61
existing duty or from a special contract and (3) success in whole or in part, or
that the service rendered contributed to such success. The court said that the
above elements are all present in the instant case. Salvage charges may thus
be assessed on the cargoes saved from the vessel. As provided for in Section
13 of the Salvage Law, The expenses of salvage, as well as the reward for
salvage or assistance shall be a charge on the things salvaged or their value.
In Manila Railroad Co. vs. Macondray Co., 37 Phil. 583. It was also held that
When a ship and its cargo are saved together, the salvage allowance should
be charged against the ship and the cargo in the proportion of their respective
values, the same as in the case of general average Thus, the
compensation to be paid by the owner of the cargo is in proportion to the
value of the vessel and the value of the cargo saved.
On appeal to the Court of Appeals, respondent court affirmed the trial
courts findings and conclusion; hence, the present petition for review before
this Court on the following error, among others:
Issue: Whether or not the respondent Court erroneously adopted with
approval the Trial Courts conclusion that the expenses or averages incurred
in saving the cargo constitute general average?
Held: On the issue whether or not respondent court committed an error in
concluding that the expenses incurred in saving the cargo are considered
general average, we rule in the affirmative. As a rule, general or gross
averages include all damages and expenses which are deliberately caused in
order to save vessels, its cargo or both at the same time, from a real and
known risk. While the instant case may technically fall within the purview of
the said provision, the formalities prescribed under Article 813 and 814 of the
Code of Commerce in order to incur the expenses and cause the damage
corresponding to gross average were not complied with. Consequently,
respondent ESLIs claim for contribution from the consignees of the cargo at
the time of the occurrence of the average turns to naught.
The Court reversed and set aside the judgment of the respondent court
and ordered respondent Eastern Shipping Lines. Inc. to return to petitioner
Philippine Home Assurance Corporation the amount it paid under protest in
behalf of the consignees.
SALVAGE LAW (ACT NO. 2616)
Provides a compulsory reward to those who save cargo by requiring the
owner of the property to give a reward equivalent to the maximum of 50% of
the value of the property saved.
SALVAGE (Two Concepts)
1. Service 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 or secure.
2. Compensation allowed to persons by whose voluntary assistance a ship at
sea or her cargo or both have been saved in whole or in part from
impending sea peril, or such property recovered from actual peril or loss,
as in cases of shipwreck, derelict or recapture.
Requisites:
1. Valid object of salvage; valid object of salvage; that the vessel is
shipwrecked beyond the control of the crew or shall have been
abandoned;
2. Object must have been exposed to marine peril (not perils of the ship);
3. Services rendered voluntarily (neither an existing duty nor out of a preexisting contract);
62
4.
Services are successful, total or partial.
Subjects of Salvage:
1. Ship itself;
2. Jetsam goods which are cast into the sea, and there sink and remain
under water;
3. Floatsam or Flotsam goods which float upon the sea when cast
overboard;
4. Ligan or Lagan goods cast into the sea tied to a buoy, so that they may
be found again by the owners (Diaz, Notes on Transportation Law, p.173).
Persons Who Have No Right to a Reward for Salvage:
1.
Crew of the vessel saved;
2.
Person who commenced Salvage in spite of opposition of the Captain
or his representative;
3.
In accordance with Sec. 3 of the Salvage Law, a person who fails to
deliver a salvaged vessel or cargo to the Collector of Customs.
DERELICT
A ship or her cargo which is abandoned and deserted at sea by those who
are in charge of it, without any hope of recovering it, or without any intention
of returning to it.
Rules on Salvage Reward
1. The reward is fixed by the RTC judge in the absence of agreement or
where the latter is excessive. (Sec. 9, Act No. 2616)
2. The reward should constitute a sufficient compensation for the outlay and
effort of the salvors and should be liberal enough to offer an inducement to
others to render services in similar emergencies in the future.
3. If sold (no claim being made within 3 months from publication), the
proceeds, after deducting expenses and the salvage claim, shall go to the
owner; if the latter does not claim it within 3 years, 50% of the said
proceeds shall go to the salvors, who shall divide it equitably, and the
other half to the government. (Secs. 11-12, Act. No 2616)
4. If a vessel is the salvor, the reward shall be distributed as follows:
a. 50% to the shipowner;
b. 25% to the captain; and
c. 25% to the officers and crew in proportion to their salaries. (Sec. 13,
Act No. 2616)
5. Expenses incurred in the salvage must be shown to be necessary and
reasonable in amount before they will be allowed to the salvors.
CONTRACT OF TOWAGE
A contract whereby one vessel, usually motorized, pulls another, whether
loaded or not with merchandise, from one place to another, for a
compensation. It is a contract for services rather than a contract of carriage.
BARRIOS VS. GO THONG & CO. (7 SCRA 535)
Facts: Honorio Barrios was the captain and master of the MV Henry I
operated by William Lines, Inc. which plied the route from Cebu to Davao
City. On its voyage on May 1, 1958 the MV Henry I intercepted an SOS
signal from the MV Don Alfredo owned and operated by Go Thong & Co.
Responding to the SOS, Henry I approached the Don Alfredo and found out
that the Don Alfredo was suffering from engine failure. After agreeing to
assist the disabled ship, the crew of Henry I attached tow lines and
proceeded to tow the Don Alfredo heading towards the port of Dumaguete
City. The following morning, they encountered a sister ship of Don Alfredo,
the MV Lux. Upon the request of the captain of the Don Alfredo, the crew of
the Henry I released the towlines and continued on their voyage.
63
After the incident, Barrios as captain of MV Henry I claimed entitlement

to compensation under the salvage law which was opposed by Go Thong and
Co. who claimed that what occurred was only mere towage.
The trial court dismissed the claim.
Issue: Whether the rescue of the MV Don Alfredo should be classified as a
salvage, thus entitling Barrios et al. to reward?
Held: No. Not all the requisites were present for the rescue to be considered
as salvage under the law.
The claim of Barrios is anchored on the provisions of the Salvage Law
that stipulates that a ship that is lost or abandoned at sea is considered as a
derelict and the proper subject of salvage. A ship in a desperate condition
with passengers and persons on board but who are unable to do anything for
their own safety may be considered a quasi-derelict.
Further, the Salvage Law provides that those assisting in saving a
vessel in its cargo from shipwreck shall be entitled to a reward. There are
three elements that are necessary for a salvage claim:
1. the existence of a marine peril
2. service is voluntarily rendered when not required as an existing duty or
a special contract; and
3. success in whole or in part, or that the service rendered contributed to
such success.
It is therefore imperative to establish whether the MV Don Alfredo was
exposed to any form of marine peril when it was assisted by the MV Henry I.
The Supreme Court however noted that the nature of its disability and the
circumstances surrounding it could be construed as a marine peril as
contemplated in the Salvage Law. When the engine failure occurred the seas
were calm and the weather was clear. In fact the ship did not drift too far from
the location where its engines failed. Further, the captain and crew of the MV
Don Alfredo did not find it necessary to jettison the vessels cargo as a safety
measure. Therefore the MV Don Alfredo cannot even be considered as a
quasi derelict.
Although the service of the defendant did not constitute as salvage, it
can be considered as a quasi contract of towage. However in a contract of
towage, only the owner of the towing vessel is entitled to remuneration. It is
noteworthy that the owner of MV Henry I, William Lines, Inc., already waived
its claim for compensation.
SPECIAL CONTRACTS OF MARITIME COMMERCE
1. Charter party
2. Bill of lading
3. Contract of transportation of passengers on sea voyages
4. Loan on bottomry
5. Loan on respondentia
6. Marine insurance
A. CHARTER PARTY
A contract by virtue of which the owner or agent binds himself to transport
merchandise or persons for a fixed price.
A contract by which an entire ship, or some principal part thereof is
let/leased by the owner to another person for a specified time or use.
(Planters Products, Inc. vs. CA, 226 SCRA 476)
64
Parties to a charter party:

1.
Ship owner or ship agent; and
2.
Charterer
Form of Charter Party
1.
Must be in duplicate
2.
Signed by the contracting parties, and when either does not
know how or is unable to do so, by two witnesses at his request. (Art. 652,
Code of Commerce)
Contents of Charter Party Agreement
Besides the condition freely stipulated, it shall include the following:
1.
Kind, name and tonnage of the vessel;
2.
Her flag and port of registry;
3.
Name, surname and domicile of the captain;
4.
Name, surname and domicile of the ship agent, and if the latter
should make the carter party;
5.
Name, surname and domicile of the charterer, and if he states
that he is acting by commission, that of the person for whose account he
makes the contract;
6.
Port of loading and unloading;
7.
Capacity, the number or tons or weight, or measure which they
respectively bind themselves to load and transport, or whether it is the
total cargo;
8.
Freightage to be paid;
9.
Amount of primage to be paid by the captain;
10.
Days agreed upon for loading and unloading;
11.
Lay Days and extra lay days to be allowed and the rate of
demurrage.
Classes of Charter Party:
1.
Bareboat Or Demise
The charterer provides crew, food and fuel. The charterer is liable as if he
were the owner, except when the cause arises from the unworthiness of
the vessel. The shipowner leases to the charterer the whole vessel,
transferring to the latter the entire command, possession and consequent
control over the vessels navigation, including the master and the crew,
who thereby become the charters servants. It transforms a common
carrier into a private carrier.
2. Contract of Affreightment A contract whereby the owner of the vessel

leases part or all of its space to haul goods for others.
Kinds of Contract of Affreightment:
a.
Time Charter vessel is chartered for a fixed period of
time or duration of voyage.
b.
Voyage or trip charter the vessel is leased for one or
series of voyages usually for purposes of transporting goods for
charterer.
Requisites of a Valid Charter Party
1.
Consent of the contracting parties
2.
Existing vessel which should be placed at the disposition of the shipper
3.
Freight
4.
Compliance with Art. 652 of the Code of Commerce
Clauses Which May Be Included In a Charter Party
1. Jason Clause
A stipulation in a charter party that in case of a maritime accident for
which the shipowner is not responsible by law, contract or otherwise, the
65
cargo shippers, consignees or owners shall contribute with the shipowner

in general average.
2. Clause Paramount or Paramount Clause
A clause in a charter party providing that the COGSA shall apply, even
though the transportation is domestic, subject to the extent that any term
of the bill of lading is repugnant to the COGSA or applicable law, then to
the extent thereof the provision of the bill of lading is void.
Rights and Obligations in a Charter Party
A.
1.
2.
3.
4.
5.
6.
7.
B.
1.
2.
3.
4.
5.
Of the Owner or Ship Agent:

If the vessel is chartered wholly, not to accept cargo from others;
To observe represented capacity;
To unload cargo clandestinely placed;
To substitute another vessel if load is less than 3/5 of capacity;
To leave the port if the charterer does not bring the cargo within
the lay days and extra lay days allowed;
To place in a vessel in a condition navigate; and
To bring cargo to nearest neutral port in case of war or
blockade. (Art.669-678, Code of Commerce)
Of the Charterer:
To pay the agreed charter price;
To pay freightage on unboarded cargo;
To pay losses to others for loading uncontracted cargo or illicit
cargo;
To wait if the vessel needs repair;
To pay expenses for deviation. (Art. 679-687, Code of
Commerce)
Rescission of a Charter Party

A.
At Charterers Request:
1. By abandoning the charter and paying half of the freightage;
2. Error in tonnage or flag;
3. Failure to place the vessel at the charterers disposal;
4. Return of the vessel due to pirates, enemies or bad weather;
5. Arrival at a port for repairs.
B.
At Shipowners Request:
1. If the extra lay days terminate without the cargo being placed
alongside the vessel;
2. Sale by the owner of the vessel before loading the charterer.
C.
Fortuitous causes:
1.
2.
3.
4.
5.
War;
Blockade;
Prohibition to receive cargo;
Embargo; and
Inability of the vessel to navigate.
PRIMAGE: Bonus to be paid to the captain after the successful voyage.

DEMURRAGE: The sum fixed in the charter party as a remuneration to the
owner of the ship for the detention of his vessel beyond the number of days
allowed by the charter party for loading or unloading or for sailing.
DEADFREIGHT: The amount paid by or recoverable from a charterer of a
ship for the portion of the ships capacity the latter contracted for but failed to
occupy.
66
LAY DAYS: Days allowed to charter parties for loading and unloading the
cargo.
EXTRA LAY DAYS: Days which follow after the lay days have elapsed.
BILL OF LADING
Written acknowledgment of receipt of goods and agreement to transport
them to a specific place to a person named or to his order. (Compania
Maritima v. Insurance Comp. of North America, 12 SCRA 213)
The consignee and the shipper who accepts a bill of lading even
without signing are bound by the terms and conditions thereof. (Keng
Hua Paper Products v. CA 286 SCRA 257[1998])
Acceptance of the consignee is implied if he claims reimbursement for
missing goods and files a case based on the bill of lading. (Belgian
Overseas Chartering v. Phil. First Insurance, 383 SCRA 23 [2002])
USUAL FORMS OF CONSUMMATING CONTRACTS

1. C.O.D collect on delivery
If the goods are marked C.O.D., the carrier acts for the seller in
collecting the purchase price. The buyer must pay for the goods before
he can obtain possession. C.O.D. terms do not prevent title from
passing to the buyer on delivery to the carrier where they are solely
intended as security for the purchase price.
2. C.I.F. cost, insurance and freight
They signify that the price fixed covers not only the cost of the goods,
but the expense of the freight and insurance to be paid by the seller up
to the point of destination. Title passes to the buyer at the moment of
delivery to the point especially named.
3. F.O.B. - free on board
At the place of destination
Seller must pay the freight since the contract states free on board till
destination.
4. F.A.S. - free alongside ship
The property passes as soon as the goods are delivered aboard the
carrier or alongside the vessel, and that the buyer as the owner of the
goods is to bear all expenses after they are so delivered. (De Leon,
Comments and Cases on Sales, 2002 Edition, page 234)
TRANSSHIPMENT OF GOODS
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.
LOAN ON BOTTOMRY
Loan made by shipowner or ship agent guaranteed by the vessel itself and
repayable upon arrival of vessel at destination.
LOAN ON RESPONDENTIA
Loan taken on security of cargo laden on a vessel and repayable upon
safe arrival of cargo at destination.
Common Elements of Loans on Bottomry and Respondentia:
1.
The captain may not borrow on bottomry or respondentia
except on his own interest or portion thereof, otherwise, the contract is
void;
2.
These contracts must at least be in writing, otherwise,
they cannot be the basis of judicial action. In order to affect third persons
67
3.
4.
5.
6.
7.
and entitle it to preferential credit treatment, the contract should be

inscribed in the certificate of registry and seconded in the registry of
vessels;
Should the goods upon which the money is taken not be
the risk, the contract shall be considered a simple loan;
More recent loans are preferred than prior loans;
The usury laws are inapplicable to these contracts;
Exposure of security to marine peril;
Obligation of the debtor conditioned only upon safe arrival
of the security at the point of destination.
Who may Contract

1. Bottomry: the owner; if owner is absent captain.
2. Respondentia: only the owner of he cargo.
Bottomry or Respondentia
1. Not subject to Usury Law.
2. Liability of the borrower is
contingent on the safe arrival of
the vessel or cargo at
destination.
3. The last lender is a preferred
creditor.
Ordinary Loan (Mutuum)

1. Subject to Usury Law
2. Not subject to any contingency
(absolute liability).
3. The first lender is a preferred
creditor.
When Loan On Bottomry Or Respondentia Regarded As Simple Loan

1.
Lender loaned an amount larger than the value of the object due to
fraudulent means employed by the borrower. (Art. 726, Code of
Commerce)
2.
Full amount of the loan is not used for the cargo or given on the goods
if all of them could not have been loaded, the balance will be considered a
simple loan. (Art.727, Code of Commerce)
3.
If the effects on which the money is taken is not subjected to any risk.
(Art.729, Code of Commerce)
The parties to a loan, whether ordinary or maritime, may agree on any rate
of interest (CB Circular 905); provided the same is not contrary to law,
morals, good customs, public order or public policy (Art. 1306, Civil Code)
Obligation on Bottomry Loan is Extinguished when:

1.
The loss of the vessel is based on the risk agreed upon; and
2.
Risk occurred during the voyage.
HYPOTHECARY NATURE OF BOTTOMRY AND RESPONDENTIA
General Rule: The obligation of the borrower to pay the loan is extinguished
if the goods given as security are absolutely lost by reason of an accident of
the sea, during the voyage designated, and if it is proven that the goods were
on board.
Exceptions:
1. Loss due to inherent defect;
2. Loss due to the barratry on the part of the captain;
3. Loss due to the fault or malice of the borrower;
4. The vessel was engaged in contraband;
5. The cargo loaded on the vessel be different in from that agreed upon.
RISKS, DAMAGES AND ACCIDENTS IN MARITIME COMMERCE
1. Averages
2. Arrival Under Stress
3. Collision
68
4. Shipwreck
A.
AVERAGE
An extraordinary or accidental expense incurred during the voyage
order to preserve the cargo, vessel or both, and all damages
deterioration suffered by the vessel from departure to the port
destination, and to the cargo from the port of loading to the port
consignment. (Art. 806, Code of Commerce)
in
or
of
of
CLASSES OF AVERAGES:
1. Gross or General Average
2. Particular or Simple Average
Where both vessel and cargo are saved, it is general average; where
only the vessel or only the cargo is saved, it is particular average.
o
Expenses incurred to refloat a vessel, which accidentally ran

aground, in order to continue its voyage, do not constitute general
average. Not only is there absence of a marine peril, common
safety factor, and deliberateness. It is the safety of the property,
and not the voyage, which constitutes the true foundation of
general average. (A. Magsaysay, Inc. vs. Agan, 967 Phil 504
[1955])
Gross or General Average

Includes all damages and expenses, which are deliberately caused in
order to save the vessel and/or its cargo from real and known risk
resulting in a common benefit. These expenses and damages shall be
borne ratably among all those having interest in the vessel and cargo at
the time of the occurrence of the average. (Art. 806, 808, 811 Code of
Commerce)
Requisites of Gross or General Average:
1.
Common danger;
2.
Deliberate sacrifice;
3.
Success; and
4.
Proper formalities and legal steps.
Particular or Simple Average
Damages and expenses that do not inure to the common benefit or are
not the result of a deliberate sacrifice. These expenses and damages are
borne by those who suffer them. (See Art. 806, 807-810 Code of
Commerce)
The owner of the goods who gave rise to the expense or suffered the
damage shall bear this average.
Goods Not Covered By General Average Even If Sacrificed
1.
Goods carried on deck. (Art. 855, Code of Commerce)
2. Goods not recorded in the books or records of the vessel. (Art. 855[2],
Code of Commerce)
3. Fuel for the vessel if there is more than sufficient fuel for the voyage.
Jettison - the act of throwing cargo overboard in order to lighten the
vessel.
Order of goods to be cast overboard:
1. Those which are on the deck, preferring the heaviest one with the least
utility and value;
2. Those which are below the upper deck, beginning with the one with
69
greatest weight and smallest value. (Art. 815, Code of Commerce)
Jettisoned goods are not res nullius nor deemed abandoned within
the meaning of civil law so as to be the object of occupation by
salvage.
In order that the jettisoned goods may be included in the gross or
general average, the existence of the cargo on board should be proven
by means of the bill of lading. (Art. 816, Code of Commerce)
Under the York-Antwerp Rules, deck cargo is permitted in Coastwise
Shipping but prohibited in Overseas Shipping.
1. If deck cargo is located with the consent of the shipper on overseas
trade, it must always contribute to general average, but should the
same be jettisoned, it would not be entitled to reimbursement
because there is a violation of the York-Antwerp Rules.
2. If the deck cargo is located with the consent of the shipper on
coastwise shipping, it must always contribute to general average
and if jettisoned would be entitled to reimbursement.
Domestic
Deck cargo is allowed
With shippers consent
General average
Without shippers consent
Captain is liable
International
Deck cargo is not allowed
Particular average
Captain is liable
B.
ARRIVAL UNDER STRESS

The arrival of a vessel at the nearest and most convenient port instead of
the port of destination, if during the voyage the vessel cannot continue the
trip to the port of destination, due to:
1. Lack of provisioning;
2. Well-founded fear of seizure, of privateers or pirates; or
3. An accident of the sea disabling the vessel to navigate. (Art. 819,
Code of Commerce)
In such arrival the captain must file a protest which is merely a disclaimer.
When NOT Lawful

1. Lack of provisions due to negligence to carry according to usage and
customs;
2. Risk of enemy not well known or manifest;
3. Defect of vessel due to improper repair; and
4. Malice, negligence, lack of foresight or skill of captain.
Who Bears Expenses
General Rule: The shipowner bears all the expenses for arrival under stress.
Exception: When arrival under stress is unlawful, the ship owner also
answers for damages to the owners of the cargo and the passengers.
1.
The shipowner or ship agent is liable in case of unlawful arrival under
stress. But they shall not be liable for the damages caused by reason of a
lawful arrival.
2.
The captain shall be liable for damages caused by his delay if after the
cause of the arrival under stress has ceased he should not continue the
voyage.
It is the duty of the captain to continue the voyage without delay after the
cause of the arrival under stress has ceased failing in such duty renders
him liable. However, in case the cause has been risk of enemies, there
must first be an assembly before departure. (Art. 825, Code of
Commerce)
70
C.
COLLISION
The impact of two moving vessels.
Zones of Time in the Collision of Vessels:
a. 1st zone all time up to the moment when risk of collision begins;
b. 2nd zone time between moment when risk of collision begins and the
moment it becomes a practical certainty; and
c. 3rd zone time when collision has become a practicable certainty to
the point of actual impact.
Allision - Impact between a moving vessel and a stationary one.
Rules on Collision of Vessels
1. The collision may be due to the fault, negligence or lack of skill of the
captain, sailing mate, or any other member of the complement of the
vessel. The owner of the vessel at fault may be liable for losses or
damages. (Art. 826, Code of Commerce)
2. The collision may be due to the fault of both vessels. Each vessel shall
suffer its own losses, but as regards the owner of cargoes both vessels
shall be jointly and severally liable. (Art.827, Code of Commerce)
3. If it cannot be determined which vessel is at fault, each vessel shall
also suffer its own losses and both shall be solidarily liable for losses
or damages on the cargoes. (Art. 828, Code of Commerce)
4. The vessels may collide with each other through fortuitous event or
force majeure. In this case, each shall bear its own damage.
5. Two vessels may collide with each other without their fault by reason of
a third vessel. The third vessel will be liable for losses and damages.
(Art. 831, Code of Commerce)
6. A vessel which is properly anchored and moored may collide with
those nearby, by reason of storm or other cause of force majeure. The
vessel run into shall suffer its own damage and expense. (Art. 832,
Code of Commerce)
Nautical Rules to Determine Negligence
1. When two vessels are about to enter a port, the farther one must allow
the nearer to enter first; if they collide, the fault is presumed to be
imputable to the one who arrived later, unless it can be proved that
there was no fault on its part.
2. When two vessels meet, the smaller should give the right of way to the
larger one.
3. A vessel leaving port should leave the way clear for another which may
be entering the same port.
4. The vessel which leaves later is presumed to have collided against one
which has left earlier.
5. There is a presumption against the vessel which sets sail in the night.
6. There is a presumption against the vessel with spread sails which
collides with another which is at anchor and cannot move, even when
the crew of the latter has received word to lift anchor, when there was
no sufficient time to do so or there was fear of a greater damage or
other legitimate reason.
7. There is a presumption against an improperly moored vessel.
8. There is a presumption against a vessel which has no buoys to
indicate the location of its anchors to prevent damage to vessels which
may approach it.
9. Vessels must have proper look-outs or persons trained as such and
who have no other duty aside therefrom. (Smith Bell v. CA 197 SCRA
201)
Nautical Rules as to Sailing Vessel and Steamship
71
Where a steamship and a sailing vessel are approaching each

other from opposite directions, or on intersecting lines, the steamship
from the moment the sailing vessel is seen, shall watch with the
highest diligence her course and movements so as to be able to adopt
such timely means of precaution as will necessarily prevent the two
boats from coming in contact.
2.
The sailing vessel is required to keep her course unless the
circumstances require otherwise.
1.
Error in Extremis
Sudden movement made by a faultless vessel during the third zone of
collision with another vessel which is at fault during the 2nd zone. Even if
such sudden movement is wrong, no responsibility will fall on said
faultless vessel. (Urrutia and Co. v. Baco River Plantation Co., 26 Phil.
632)
Rules on Liability in Collision and Allision
Consequential Damages Covered:
1. Damages caused to vessel
2. Damages caused to the passenger
3. Damages caused to the cargo
Rule:
1. One vessel at fault
Vessel at fault is liable for damage caused to the vessel,
passenger, and cargoes of both vessels. (Art. 826, CoC)
2. Both Vessels At Fault
Each vessel must bear its own loss, but as to the other damages,
the passenger and cargoes, they shall be both solidarily liable. (Art.
827, CoC)
3. Vessel at fault not known
Each vessel must bear its own loss, but both shall be solidarily
liable for losses and damages on the cargoes. (Art. 828, CoC)
Doctrine of Inscrutable Fault
In case of collision where it cannot be determined which between the
two vessels was at fault, both vessels bear their respective damage,
but both should be solidarily liable for damage to the cargo of both
vessels.
4. Third vessel at fault
The third vessel will be liable for all the losses and damages. (Art.
831, Code of Commerce)
5. Fortuitous event/force majeure
No liability. Each party shall bear its own loss. However, due
diligence must be exercised by the carrier to lessen the damages
before, during, and after the impact (Art. 830, Code of
Commerce).
The doctrine of res ipsa loquitur applies in case a moving vessel
strikes a stationary object, such as a bridge post, dock, or navigational
aid. (Far Eastern Shipping v. CA, 297 SCRA 301; Luzon Stevedoring
vs. CA, 156 SCRA 169)
Doctrine of Last Clear Chance and Rule on Contributory Negligence

cannot be applied in collision cases where both vessels are at fault
because under Art. 827 of the Code of Commerce, both vessels shall
suffer its own loss, and at the same time shall be solidarily liable for the
damages to the passenger and cargoes of both vessels.
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In case of collision, there must be a maritime protest to recover

collision damage; in such a case, the marine protest is a condition sine
qua non and not merely a disclaimer unlike in the arrival under stress
or shipwreck.
MARITIME PROTEST
It is a written statement made under oath by the captain of a vessel after
the occurrence of an accident or disaster in which the vessel or cargo is lost
or damaged, with respect to the circumstances attending such occurrence, for
the purpose of recovering losses and damages.
Excuses for not filing protest: 1) where the interested person is not on
board the vessel; and 2) on collision time, need not be protested. (Art.
Maritime Protest is applicable in the following cases:

1. Collision (Art. 835, Code of Commerce);
2. Arrival under stress (Art. 612(8), Code of Commerce);
3. Shipwrecks (Arts. 612(15), 843, Code of Commerce);
4. Where the vessel has gone through a hurricane or when the captain
believes that the cargo has suffered damages or averages (Art. 624, Code
of Commerce).
Pre-Requisites for Recovery:
1.
Maritime protest should be made within 24 hours before the competent
authority at the point of collision or at the first port of arrival, if in the
Philippines; and to the Philippine consul, if the collision took place abroad.
(Art. 835 Code of Commerce)
2.
The lack of protest does not prejudice
such action to recover in
respect to damages caused to persons or cargo whose owners were not
on board the vessel or who were not in a condition to make their wishes
known. (Art. 836 CoC)
D.
SHIPWRECK
It is the loss of the vessel at sea as a consequence of its grounding, or
running against an object in sea or on the coast. It occurs when the vessel
sustains injuries due to a marine peril rendering her incapable of
navigation.
If the wreck was due to malice, negligence or lack of skill of the captain, or
because the vessel put to sea was insufficiently repaired and equipped;
the owner of the vessel may demand indemnity from said captain. (Art.
The rules on collision or allision, as may be pertinent, can equally apply to

shipwrecks
LITONJUA SHIPPING VS. NATIONAL SEAMEN BOARD (176 SCRA 189)

Facts: Petitioner Litonjua is the duly appointed local crewing Managing Office
of the Fairwind Shipping Corporation ('Fairwind). The M/V Dufton Bay is an
ocean-going vessel of foreign registry owned by the R.D. Mullion Ship
Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the Dufton Bay
was in the port of Cebu and while under charter by Fairwind, the vessel's
master contracted the services of, among others, private respondent Gregorio
Candongo to serve as Third Engineer for a period of twelve (12) months with
a monthly wage of US$500.00. This agreement was executed before the
73
Cebu Area Manning Unit of the NSB. Thereafter, private respondent boarded
the vessel. On 28 December 1976, before expiration of his contract, private
respondent was required to disembark at Port Kelang, Malaysia, and was
returned to the Philippines on 5 January 1977. The cause of the discharge
was described in his Seaman's Book as 'by owner's arrange".
Shortly after returning to the Philippines, private respondent filed a complaint
before public respondent NSB, which complaint was docketed as NSB-133177, for violation of contract, against Mullion as the shipping company and
petitioner Litonjua as agent of the shipowner and of the charterer of the
vessel.
Issues: Whether or no the admiralty law as embodied in the Philippine Code
of Commerce fastens liability for payment of the crew's wages upon the ship
owner, and not the charterer.
Held: The first basis is the charter party which existed between Mullion, the
shipowner, and Fairwind, the charterer. In modern maritime law and usage,
there are three (3) distinguishable types of charter parties: (a) the "bareboat"
or "demise" charter; (b) the "time" charter; and (c) the "voyage" or "trip"
charter. A bareboat or demise charter is a demise of a vessel, much as a
lease of an unfurnished house is a demise of real property. The shipowner
turns over possession of his vessel to the charterer, who then undertakes to
provide a crew and victuals and supplies and fuel for her during the term of
the charter. The shipowner is not normally required by the terms of a demise
charter to provide a crew, and so the charterer gets the "bare boat", i.e.,
without a crew. Sometimes, of course, the demise charter might provide that
the shipowner is to furnish a master and crew to man the vessel under the
charterer's direction, such that the master and crew provided by the
shipowner become the agents and servants or employees of the charterer,
and the charterer (and not the owner) through the agency of the master, has
possession and control of the vessel during the charter period. A time charter,
upon the other hand, like a demise charter, is a contract for the use of a
vessel for a specified period of time or for the duration of one or more
specified voyages. In this case, however, the owner of a time-chartered
vessel (unlike the owner of a vessel under a demise or bare-boat charter),
retains possession and control through the master and crew who remain his
employees. What the time charterer acquires is the right to utilize the carrying
capacity and facilities of the vessel and to designate her destinations during
the term of the charter. A voyage charter, or trip charter, is simply a contract of
affreightment, that is, a contract for the carriage of goods, from one or more
ports of loading to one or more ports of unloading, on one or on a series of
voyages. In a voyage charter, master and crew remain in the employ of the
owner of the vessel.
It is well settled that in a demise or bare boat charter, the charterer is
treated as owner pro hac vice of the vessel, the charterer assuming in large
measure the customary rights and liabilities of the shipowner in relation to
third persons who have dealt with him or with the vessel. In such case, the
Master of the vessel is the agent of the charterer and not of the shipowner.
The charterer or owner pro hac vice, and not the general owner of the vessel,
is held liable for the expenses of the voyage including the wages
VALENZUELA HARDWOOD VS. CA (30 JUNE 1997,274 SCRA 643)
Facts: On January 16, 1984, plaintiff entered into an agreement with Seven
Brothers Shipping corporation whereby the latter undertook to load on board
its vessel M/V Seven Ambassadors 940 Lauan round logs for shipment from
Isabela to Manila. On January 20, plaintiff insured the cargo with South Sea
Surety and Insurance for two million pesos. However on January 25, 1984,
the M/V Seven Ambassador sank, resulting in the loss of petitioners logs.
74
Pursuant to the loss, petitioner filed a claim with South Sea Surety and
Insurance for the insured amount of the logs, but the latter refused, denying
liability under the policy. Petitioner likewise filed a formal claim against Seven
Brothers Shipping Corporation for the value of the lost logs, but the latter
likewise denied their claim.
The trial court found for the plaintiff, holding South Sea and Seven
Brothers liable for the loss. On appeal, the Court of Appeals affirmed in part
the decision of the trial court. The Court of Appeals affirmed the liability of
South Sea Surety and Assurance but exonerated Seven Brothers, stating that
the latter is a private carrier therefore the provisions on common carriers is
not applicable to their contract. Hence the present appeal.
Issue: Whether or not respondent Court of Appeals committed a reversible
error in upholding the validity of the stipulation in the charter party executed
between petitioner and Seven Brothers exempting the latter from liability of
loss arising from the negligence of its captain.
Held: The decision of the Court of appeals is correct. The contract between
petitioner and Seven Brothers is one of Private Carriage hence the provisions
on common carriage do not apply. In a contract of private carriage parties are
free to stipulate that the responsibility for the cargo rests solely in the
charterer, such stipulations are valid because they are freely entered into by
the parties and the same is not contrary to law, morals, good custom, public
order or public policy.
SWEET LINES VS. CA (121 SCRA 769)
Facts: Herein private respondents purchased first-class tickets from petitioner
at the latters office in Cebu City. They were to board M/V Sweet Grace bound
for Catbalogan, Western Samar. Instead of departing at the scheduled hour of
about midnight on July 8, 1972, the vessel set sail at 3:00 am of July 9, 1972
only to be towed back to Cebu due to engine trouble, arriving there on the
same day at about 4:00 pm. The vessel lifted anchor again on July 10, 1972
at around 8:00 am. Instead of docking at Catbalogan (the first port of call), the
vessel proceeded direct to Tacloban. Private respondents had no recourse
but to disembark and board a ferry boat to Catbalogan. Hence, the suit for
breach of contract of carriage.
Issue: Whether or not the mechanical defect constitutes a fortuitous event
which would exempt the carrier from liability?
Held: No. As found by the trial court and the Court of Appeals, there was no
fortuitous event or force majeure which prevented the vessel from fulfilling its
undertaking of taking the private respondents to Catbalogan. In the first place,
mechanical defects in the carrier are not considered a caso fortuito that
exempts the carrier from responsibility. In the second place, even granting
arguendo that the engine failure was a fortuitous event, it accounted on for
the delay of departure. When the vessel finally left the port, there was no
longer any force majeure that justified by-passing a port of call.
TRANS-ASIA SHIPPING VS. CA (254 SCRA 260)
Facts: Plaintiff (herein private respondent Atty. Renato Arroyo) bought a ticket
from herein petitioner for the voyage of M/V Asia Thailand Vessel to Cagayan
de Oro from Cebu City. Arroyo boarded the vessel in the evening of
November 12, 1991 at around 5:30. At that instance, plaintiff noticed that
some repair works were being undertaken on the evening of the vessel. The
vessel departed at around 11:00 in the evening with only one engine running.
75
After an hour of slow voyage, vessel stopped near Kawit Island and
dropped its anchor threat. After an hour of stillness, some passenger
demanded that they should be allowed to return to Cebu City for they were no
longer willing to continue their voyage to Cagayan de Oro City. The captain
acceded to their request and thus the vessel headed back to Cebu City. At
Cebu City, the plaintiff together with the other passengers who requested to
be brought back to Cebu City was allowed to disembark. Thereafter, the
vessel proceeded to Cagayan de Oro City. Plaintiff, the next day boarded the
M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of
the defendant.
On account of this failure of defendant to transport him to the place pf
destination on November 12, 1991, plaintiff filed before the trial court a
complaint for damages against the defendant.
Issue: Whether or not the failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage a breach of its
duty?
Held: Undoubtedly, there was, between the petitioner and private respondent
a contract of carriage. Under Article 1733 of the Civil Code, the petitioner was
bound to observed extraordinary diligence in ensuring the safety of the private
respondent. That meant that the petitioner was pursuant to the Article 1755 off
the said Code, bound to carry the private respondent safely as far as human
care and foresight could provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. In this case, the Supreme
Court is in full accord with the Court of Appeals that the petitioner failed or
discharged this obligation.
Before commencing the contact of voyage, the petitioner undertook
some repairs on the cylinder head of one of the vessels 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 at sometime after it had run its
course, in conked out. Which cause the vessel to stop and remain adrift at
sea, thus in order to prevent the ship from capsizing, it had to drop anchor.
Plainly, the vessel was unseaworthy even before the voyage begun. For the
vessel to be seaworthy, it must be adequately equipped for the voyage and
manned with the sufficient number of competent officers and crew. The
Failure of the common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code.
Carriage of Goods by Sea Act (Commonwealth Act. No. 65; Public Act
No. 521, 74th US Congress)
Domestic Trade: Civil Code and Code of Commerce applies.
Foreign Trade: COGSA applies.
The Civil Code and the Code of Commerce is suppletory to COGSA in the
carriage of goods from foreign ports to the Philippines.
The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for loss, destruction or
deterioration of the goods. (Art 1753, NCC)
The Civil Code is the primary law on goods that are being shipped from a
foreign port to the Philippines. However, COGSA remains to be a
76
suppletory law for international shipping.

For COGSA TO BE APPLICABLE, the transportation must be:
1.
Water/maritime transportation;
2.
for the carriage of goods; and
3.
overseas/international/foreign (from foreign port to
Philippine port).
It can be applied in domestic sea transportation if agreed upon by the

parties. (Clause Paramount or Paramount Clause)
Amount of Carriers Liability

Under the Sec. 4(5), the liability limit is set at $500 per package or
customary freight unit unless the nature and value of such goods is
declared by the shipper. This is deemed incorporated in the bill of lading
even if not mentioned in it. (Eastern Shipping vs. IAC, 150 SCRA 463)
NOTE: Art.1749 of the Civil Code applies to Inter-Island Trade.
Notice of Damage
a. Patent Damage: shipper should file a claim with the carrier immediately
upon delivery
b. Latent Damage: shipper should file a claim with the carrier within three
days from delivery.
The filing of a notice of claim is not a condition precedent.
PRESCRIPTIVE PERIOD
1.
Coastwise or within the Philippines
When to file a claim with carrier condition precedent if goods arrived
in damaged condition, claim must be filed by the shipper within the
following period otherwise recovery is barred:
a. Immediately if damage is apparent; or
b. Within 24 hours from delivery if damage is not apparent.
When to file a case in court prescriptive period:
a. Within 6 years, if no bill of lading has been issued; or
b. Within 10 years, if bill of lading has been issued.
2.
International carriage from foreign port to the

Philippines (Carriage of Goods by Sea Act)
When to file a claim with carrier not condition precedent.
a. Upon discharge of goods, if the damage is apparent, claim should be
filed immediately; or
b. If damage is not apparent, claim should be filed within 3 days from
delivery.
When To File A Case In Court

Within a period of 1 year from discharge.
Under the COGSA, suits for loss or damage to the cargo should be
brought within one year after:
1. Delivery of the goods; or
2. The date when goods should have been delivered.
The one-year prescriptive period is suspended by:

1. The express agreement of the parties;
2. The filing of an action in court until it is dismissed.
The one-year period shall run from delivery of the last package and is not
77
suspended by extrajudicial demand. Reasons:

1. Matters affecting transportation of goods by sea should be decided at
the shortest time possible.
2. The Civil Code does not apply to a special law like COGSA.
The insurer exercising its right of subrogation is bound by the one-year

prescriptive period. However, it does not apply to the claim against the
insurer for the insurance proceeds because the claim against the insurer
is based on contract, it expires in 10 years.
The period does not apply to
conversions or misdeliveries. It
contemplates a situation where no delivery at all was made because the
goods had perished, gave out of commerce, or disappeared in such a way
that their existence is unknown or cannot be recovered. It starts from
delivery to the arrastre operator, not consignee. A stipulation reducing the
one year period is null and void but a written agreement to suspend it is
valid.
The rule applies in cases of collision, but it starts not from the date of
collision, but when the goods should have been delivered had the cargoes
been saved.
Section 3(6) of the COGSA provides:

Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier of his agent at the port of discharge
or at the time of the removal of the goods into the custody of the person
entitled to delivery by the carrier of the goods as described in the bill of lading.
If the loss or damage is not apparent, the notice must be given within three
days of delivery.
Said notice of loss or damage may be endorsed on the receipt of the
goods given by the person taking delivery thereof. The notice in writing
need not be given if the state of the goods has at the time of their receipt,
been the subject of joint survey or inspection.
The carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the
goods or the date when the goods should have been delivered; provided,
that, if a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or prejudice
the right of the shipper to bring suit within one year after the delivery of the
goods or that date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier
and the receiver shall give all reasonable facilities to each other for
inspecting and tallying the goods. (Belgian Overseas Chartering and
Shipping N.V. v. Philippine First Insurance Co., Inc. 383 SCRA 23
[2002])
As stated in the same provision, a failure to file a notice of claim within
three days will not bar recovery if it is nonetheless filed within one year.
(Vitug, Pandect of Commercial Law and Jurisprudence, 3 rd ed., 1997, p.
333)
This one year prescriptive period also applies to the shipper, the
consignee, the insurer of the goods or any legal holder of the bill of
lading. (Filipino Merchants Insurance Co., Inc. v. Alejandro, 145 SCRA
42)
In Loadstar Shipping Co., Inc. v. CA (315 SCRA 339), the SC ruled that a
claim is not barred by prescription as long as the one year period has not
78
lapsed. (Belgian Overseas Chartering and Shipping N.V. v. Philippine

First Insurance Co., Inc. 383 SCRA 23 [2002])
TACKLE TO TACKLE RULE
The shipper shall be responsible for the goods the moment it passes through
one side of the ship for the purpose of loading until it passes through the
other side for discharging. There are two tackles involved in the operation;
one for loading, the other for unloading.
ANG VS. AMERICAN STEAMSHIP AGENCIES (19 SCRA 631)
Facts: Yau Yue Commercial Bank of Hongkong agreed to sell 140 packages
of galvanized steel durzinc sheets to Herminio Teves for $32,458.26. Said
agreement was subject to the following terms: the purchase price should be
covered by a bank draft which should be paid by Teves in exchange for the
delivery to him of the bill of lading to be deposited with honking and Shanghai
Bank of Manila; that Teves would present said bill of lading to carriers agent,
American Steamship Agencies which would then issue the permit to deliver
imported articles to be presented to the Bureau of customs to obtain the
release of the articles.
Yau Yue shipped the articles aboard S.S. Tensai Maru owned by
Nissho Shipping Co., of which the American Shipping is the agent in the
Philippines.
When the Articles arrived in manila, Honkong Shanghais Bank notified
Teves of the arrival of the goods and requested for the payment of the
demand draft. Teves, however, failed to pay the demand draft. So, the bank
returned the bill of lading and the demand draft to Yau Yue which endorsed
the bill of lading to Domingo Ang.
Despite his non-payment, Teves was able to obtain a bank guarantee
in favor of the American Steamship Agencies, the carriers agent. Thus, Teves
succeeded in securing a permit to deliver imported articles from the
carriers agent, which he presented to the Bureau of Customs, that released
the said articles to him.
Subsequently, Domingo Ang claimed the articles from American
Steamship, by presenting the indorsed bill of lading, but he was informed that
it had delivered the articles to Teves. Ang filed a complaint in the Court of First
Instance of Manila against American shipping agencies, for having wrongfully
delivered the goods.
The American Steamship filed for a motion to dismiss, citing the
carriage of Goods by Sea Act, section 3 paragraph 4, which states: in any
event, the carrier and the ship shall be discharged from all liability in respect
to loss or damage unless suit is brought within one year, after delivery of
goods or the date when the goods should have been delivered.
Thus, the lower court dismissed the action, on the ground of
prescription.
Issue: Whether or not the Carriage of Goods by Sea Act Section 3,
Paragraph 4, applies to the case at bar?
Held: The provision of the law speaks of loss or damage. But there was no
damage caused to the goods which were delivered intact to Herminio Teves.
As defined by the Civil Code and as applied to section 3, paragraph 4,
of the Carriage of Goods by sea Act, loss contemplates a situation where no
79
delivery at all was made by the shipper of the goods because the same had
perished, gone out of commerce, or disappeared that their existence is
unknown or they cannot be recovered. It does not include a situation where
there was indeed delivery, but delivery to the wrong person.
The applicable rule on prescription is that found in the Civil Code,
either: ten years for breach of contract or four years for quasi-delict. In either
case, the plaintiffs cause of action has not yet prescribed. Thus, the case is
remanded to the court a quo for further proceedings.
MERCHANTS INSURANCE COMPANY VS. ALEJANDRO
(145 SCRA 42)
Facts: Plaintiff Choa Tiek Seng filed a complaint against the petitioner before
the then Court of First Instance of Manila for recovery of a sum of money
under the marine insurance policy on cargo. Mr. Choa alleged that the goods
he insured with the petitioner sustained loss and damage in the amount of
P35, 987.26. The said goods were delivered to the arrastre operator E.
Razon, Inc., on December 17, 1976 and on the same date were received by
the consignee-plaintiff.
Petitioner disclaims liability and imputes against plaintiff the
commission of fraud. A similar complaint was filed by Joseph Benzon Chua
against the petitioner for recovery under the marine insurance policy for cargo
alleging that the goods insured with the petitioner sustained loss and damage
in the sum of P55,996.49. The goods were delivered to the plaintiff-consignee
on or about January 25-28, 1977.
Petitioner filed third-party complaints against private respondents for
indemnity, subrogation, or reimbursement in the event that it is held liable to
the plaintiff.
The private respondents, carriers Frota Oceanica Brasiliera and
Australia-West Pacific Line
alleged in their separate answers that the
petitioner is already barred from filing a claim because under the Carriage of
Goods by Sea Act, the suit against the carrier must be filed within one year
after delivery of the goods or the date when the goods should have been
delivered
Petitioner contended that provision relied upon by the respondents
applies only to the shipper and not to the insurer of the goods.
Respondent judge dismissed both third-party complaints.
Issue: Whether or not the one-year period within which to file a suit against
the carrier and the ship, in case of damage or loss as provided for in the
Carriage of Goods by Sea Act applies to the insurer of the goods.
Held: The coverage of the Act includes the insurer of the goods. Otherwise,
what the Act intends to prohibit after the lapse of the one-year prescriptive
period can be done indirectly by the shipper or owner of the goods by simply
filing a claim against the insurer even after the lapse of one year. This would
be the result if we follow the petitioner's argument that the insurer can, at any
time, proceed against the carrier and the ship since it is not bound by the
time-bar provision. In this situation, the one-year limitation will be practically
useless. This could not have been the intention of the law which has also for
its purpose the protection of the carrier and the ship from fraudulent claims by
having "matters affecting transportation of goods by sea be decided in as
short a time as possible" and by avoiding incidents which would
"unnecessarily extend the period and permit delays in the settlement of
questions affecting the transportation."
80
In the case at bar, the petitioner's action has prescribed under the
provisions of the Carriage of Goods by Sea Act. Hence, whether it files a
third-party complaint or chooses to maintain an independent action against
herein respondents is of no moment.
MAYER STEEL PIPE CORP. VS. CA (19 KIME 1997)
Facts: Hongkong Government Supplies Department henceforth, Hong Kong
contracted petitioner Mayer Steel Pipe Corp to manufacture and supply
various steel pipes and fittings from August to October 1983, Mayer shipped
the said items to Hong Kong. Prior to shipment the items were insured
against all risks with respondent South Sea Surety and Insurance Co. and
Charter Insurance Corp for $212,772.09 with South Sea and $149,470 with
Charter.
Petitioners jointly appointed Industrial Inspection Inc as 3 rd party
inspector to examine the items to see if they were in accordance with the
contract. They certified it as such prior to shipment. However, when they
reached Hong Kong it was revealed that a substantial portion was damaged.
Petitioners now claim for damages against the respondents for indemnity
under the insurance contract.
Respondents paid part of the petitioners demand but declined the rest
claiming that the insurance surveyors report allegedly showed that the
damage was a factory defect and hence not covered by the insurance
policies. The lower court ruled in favor of the petitioner finding the damage not
caused by manufacturing defects. It also noted that the insurance contract
insured against all risks or all causes of conceivable loss or damage save
those caused by fraud or intentional misconduct. At the court of appeals the
CA found the all risks provision covered the damage endured but set aside
the decision because the complaint had been bared by prescription. Sec 3(6)
of the COGSA specifically bared it because it had been more than 1 year
since the damage had been done before the demand was made.
Held: The cause of action had not yet prescribed.
Ratio: Sec 3(6) of the COGSA covers only the liability of the carrier
which is extinguished if no suit is brought within a period of one year.
However, the liability of the insurer is not extinguished because the COGSA
governs the relationship between carrier and shipper, and consignee and
insurer. It defines a contract of carriage. The relationship at bar is properly
governed by the Insurance code. Thus the CAs finding of prescription as per
the COGSA is overturned.
SHEWARAM VS, PAL (17 SCRA 606, (1966)
Facts: A PAL ticket, on the reverse side, stated in fine print that if the value of
baggage is not stated, and the baggage is lost, the maximum liability of PAL is
P100.00 if value in excess of P100.00 is stated, PAL will charge extra
because PAL is being held liable for an amount exceeding P100.00.
Shewaram, a Hindu from Davao, boarded a PAL plane for Manila. Among his
baggage was a camera with P800.00 and it was lost. PAL offered to pay
P100.00. Shewaram wanted full payment of P800.00.
Issue: Whether the limited liability rule shall apply in the case at bar?
Held: The limited liability rule shall not apply. Since this is a stipulation on
qualified liability, which operates to reduce the liability of the carrier, the
carrier and the shipper must agree thereupon. Otherwise, the carrier will be
81
liable for full. PAL is fully liable (for full) because Shewaran did not agree to
the stipulation on the ticket, as manifested by the fact that Shewaram did not
sign the ticket. Ticket should have been signed.
ONG YUI VS. CA (91 SCRA 223)
Facts: On august 26, 1967, Ong Yiu was a fare paying passenger of
respondent PAL from Mactan, Cebu to Butuan City wherein he was scheduled
to attend a trial. As a passenger, he checked in one piece of luggae, blue
maleta for which he was issued a claim ticket. Upon arrival at Butuan City,
petitioner claimed his luggage but it could not be found. PAL Butuan sent a
message to PAL Cebu which in turn sent a message to PAL Manila that same
afternoon. PAL Manila advised PAL Cebu that the luggage has been
overcarried to Manila and that it would be forwarded to PAL Cebu that same
day. PAL Cebu then advised PAL Butuan that the luggage will be forwarded
the following day, on scheduled morning flight. This message was not
received by PAL Butuan as all the personnel had already gone for the day.
Meanwhile, Ong Yiu was worried about the missing luggage because it
contained vital documents needed for the trial the next day so he wired PAL
Cebu demanding delivery of his luggage before noon that next day or he
would hold PAL liable for damages based on gross negligence. Early
morning, petitioner went to the Butuan Airport to inquire about the luggage but
did not wait for the arrival of the morning flight at 10:00am. which carried his
luggage. A certain Dagorro, a driver of a colorum car, who also used to drive
the petitioner volunteered to take the luggage to the petitioner. He revelaed
that the documents were lost. Ong Yiu demanded from PAL Cebu actual and
compensatory damages as an incident of breach of contract of carriage.
Issue: Whether or not PAL is guilty of only simple negligence and not gross
negligence?
Whether the doctrine of limited liability doctrine applies in the instant
case?
Held: PAL had not acted in bad faith. It exercised due diligence in looking for
petitioners luggage which had been miscarried. Had petitioner waited or
caused someone to wait at the airport for the arrival of the morning flight
which carried his luggage, he would have been able to retrieve his luggage
sooner. In the absence of a wrongful act or omission or fraud, the petitioner is
not entitled to moral damages. Neither is he entitled to exemplary damages
absent any proof that the defendant acted in a wanton, fraudulent, reckless
manner.
The limited liability applies in this case. On the presumed negligence of
PAL, its liability for the loss however, is limited on the stipulation written on the
back of the plane
Ticket which is P100 per baggage. The petitioner not having declared a
greater value and not having called the attention of PAL on its true value and
paid the tariff therefore. The stipulation is printed in reasonably and fairly big
letters and is easily readable. Moreso, petitioner had been a frequent
passenger of PAL from Cebu to Butuan City and back and he being a lawyer
and a businessman, must be fully aware of these conditions.
V. PUBLIC SERVICE ACT (COMMONWEALTH ACT NO. 146)
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, and done for general
business purposes, any common carrier or public utility, ice plants, power and
water supplies, communication and similar public services. (Sec. 13b, CA
146)
82
The Public Service Commission created under the Public Service Law has
already been abolished under P.D. No. 1 and other issuances. It has been
replaced by the following government agencies: LTO; LTFRB; ATO; BOE;
NTC; NEA; ERB; NWRC; CAB; and Marina.
Three-Fold Purpose:
1. To protect the public against unreasonable charges and poor,
inefficient service;
2. To protect and secure investments in public services;
3. To prevent ruinous competition.
AUTHORITY TO OPERATE PUBLIC SERVICES
General Rule: No public service shall operate without having been issued a
certificate of public convenience or a certificate of public convenience and
necessity.
Exceptions:
1. Warehouses;
2. Animal drawn vehicles and bancas moved by oar or sail;
3. Airships, except for the fixing of maximum rates for fare and freight;
4. Radio companies, except for rates fixing;
5. Public services owned or operated by the government, except as to rates
fixing;
6. Ice plants; and
7. Public markets.
PUBLIC UTILITIES
- Privately owned and operated business whose services are essential to the
general public.
A foreigner can own a public utility. The right to operate a public utility
may exist independently and separately from the ownership of the
facilities thereof. One can own facilities without operating them as
utility, or conversely, one may operate a public utility without owning
the facilities used to serve the public.
The Constitution requires a franchise for the operation of public utility

but it does not require a franchise before one can own the facilities
needed to operate a public utility. (Tatad vs. Garcia, 243 SCRA 436)
FRANCHISE AND CERTIFICATE OF PUBLIC CONVENIENCE

The trend is not to require a legislative franchise. However, even if
there was already a delegation of authority to a specific administrative agency
to issue certificates of public convenience, it does not follow that a legislative
franchise is no longer necessary. It would still depend on the enabling law
creating or authorizing the administrative body, which may still require a
legislative franchise. A certificate of public convenience is not necessary for
the issuance of a legislative franchise.
Certificate of Public Convenience: An authorization issued by the
appropriate government agency for the operation of public services for which
no franchise, either municipal or legislative, is required by law, e.g., common
carriers.
Certificate of Public Convenience And Necessity: An authorization issued
by the appropriate government agency for the operation of public service for
which a prior franchise is required by law; e.g. telephone and other services.
A Certificate of Public Convenience or a Certificate of Public
83
Convenience and Necessity constitutes neither a franchise nor a contract,

confers no property right, and is a mere license or a privilege. The holder of
said certificate does not acquire a property right in the route covered thereby.
Nor does it confer upon the holder any proprietary right or interest or
franchise in the public highways. Revocation of this certificate deprives him of
no vested right. New and additional burdens, alteration of the certificate, or
even revocation or annulment thereof is reserved to the State. (Luque vs.
Villegas, 30 SCRA 408).
FRANCHISE
Is a special privilege and its terms and conditions are specifically
prescribed by Congress. Thus, the manner of granting the franchise, to whom
it may be granted, the mode of conducting the business, the character and
quality of the service to be rendered and the duty of the grantee to the public
in exercising the franchise are defined in clear and unequivocal language by
the legislature. These conditionalities are made more stringent when the
franchise involves the operation of a game played for bets, such as jai-alai,
which is conceded as a menace to morality. Franchises are granted in accord
with this universal principle. (Del Mar v. PAGCOR 358 SCRA 775)
An authority or permit is a license or provisional authority granted to a
public utility to operate as an implementation of a legislative enactment. In
fine, an authority or permit is a detailed implementation of a legislative
franchise. (U.S. v. Almond 6 Phil. 309)
Conditions that Must Concur in the Grant of Certificate of Public
Convenience and Certificate of Public Convenience and Necessity:
Applicant must be a citizen of the Philippines or a corporation or entity
60% of the stock or paid-up capital of which is owned by such citizens;
Applicant must prove public necessity;
Applicant must prove that the operation of the public service proposed
and the authorization to do business will promote the public interest on
a proper and suitable manner;
Applicant must have sufficient financial capability to undertake the
proposed services and meeting the responsibilities incident to its
operation.
Primordial considerations are public interest, necessity and convenience.
Grounds for Revocation/Cancellation of the Certificate of Public

Convenience:
Where the holder is a mere dummy;
Where the operator ceased operation and placed his buses on
storage;
Where the operator abandons totally the service. clear
Under section 16 (n) of Public Service Act, the power of the Commission to
suspend or revoke any certificate may only be exercised whenever the holder
thereof has violated or willfully and contumaciously refused to comply with
any order, rule or regulation of the Commission or any provision of the Act.
General Rule: Prior notice and hearing.
Exception: When it is necessary to avoid serious and irreparable damage or
inconvenience to the public or private interest, in which case, a suspension
not more than 30 days may be ordered, prior to the hearing.
Powers Requiring Notice and Hearing
84
Issuance of Certificate of Public Convenience or Certificate of Public

Convenience and Necessity;
Fixing of rates, tolls, and charges;
Setting up of standards and classifications;
Establishment of rules to secure accuracy of all meters and all measuring
appliances;
Issuance of orders requiring establishment or maintenance of extension of
facilities;
Revocation, or modification of Certificate of Public Convenience or
Certificate of Public Convenience and Necessity;
Suspension of Certificate of Public Convenience or Certificate of Public
Convenience and Necessity, except when it is necessary to avoid serious
and irreparable damage or inconvenience to the public or private interest,
in which case, a suspension not more than 30 days may be ordered, prior
to the hearing.
Powers Exercisable Without Prior Notice and Hearing

Investigation of any matter concerning public service;
Requiring operators to furnish safe, adequate, and proper service;
Requiring public services to pay expenses of investigation;
Valuation of properties of public utilities;
Examination and test of measuring appliances;
Grant of special permits to make extra or special trips in territories
specified in the certificate;
Uniform accounting system and furnishing of annual reports;
Compelling compliance with the laws and regulations.
ACTS REQUIRING PRIOR APPROVAL
Establish and maintain individual or joint rates;
Establish and operate new units;
Issue free tickets;
Issue any stock or stock certificates representing an increase of capital;
Capitalize any franchise in excess of the amount actually paid to the
Government;
Sell, alienate, mortgage or lease property, certificates or franchise
UNLAWFUL ACTS OF PUBLIC UTILITY COMPANIES
Engagement in public service business without first securing the proper
certificate;
Providing or maintaining unsafe, improper or inadequate service as
determined by the proper authority;
Committing any act of unreasonable and unjust preferential treatment to
any particular person, corporation or entity as determined by the proper
authority;
Refusing or neglecting to carry public mail upon request.
PRIOR OPERATOR RULE
- The rule allowing an existing franchised operator to invoke a preferential
right as against a second operator within the authorized territory as long as he
renders adequate and economical service.
Purpose: To prevent ruinous and wasteful competition in order that the
interests of the public would be conserved and preserved.
The policy is not to issue a certificate to a second operator to cover the same
field and in competition with a first operator who is rendering sufficient,
adequate and satisfactory service. The prior operator must first be given an
85
opportunity to improve its service, if inadequate or deficient.

The granting of preference to an old operator applies only when said operator
has made as offer to meet the increase in traffic or demand for service and
not when another operator, even a new one, has made the offer to serve the
new line or increase the service on said line. The rule of preference protects
only those who are vigilant, in meeting the needs of the traveling public.
PROTECTION OF INVESTMENT RULE
The Law aims to protect not only the public, but the operations as well.
It is the governments duty to protect the investment of the operators of public
utilities from unfair, unjustified and ruinous competition.
PRIOR APPLICANT RULE
Presupposes a situation when two interested persons apply for a
certificate to operate a public utility in the same community over which no
person has as yet granted any certificate. If it turns out, after the hearing, that
the circumstances between the two applicants are more or less equal, then
the applicant who applied ahead of the other, will be granted the certificate.
REGISTERED OWNER RULE
The registered owner of a certificate of public convenience is liable to the
public for the injuries or damages suffered by third persons caused by the
operation of said vehicle, even though the same had been transferred to a
third person.
The registered owner is not allowed to escape responsibility by proving that a
third person is the actual and real owner
Reason: It would be easy for him, by collusion with others or otherwise, to
transfer the responsibility to an indefinite person, or to one who possesses no
property with which to respond financially for the damage or injury done.
(Erezo, et al. vs. Jepte 102 Phil 103]
A registered owner is the lawful operator insofar as the public and third
persons are concerned; consequently, it is directly and primarily responsible
for the consequences of its operation. In contemplation of law, the
owner/operator of record is the employer of the driver, the actual operator and
employer being considered as merely its agent. The same principle applies
even if the registered owner of any vehicle does not use it for public service,
(Equitable Leasing Corp vs. Suyom, 388 SCRA 445 [2002]], or otherwise
stated, to privately-owned vehicles.
RATE-FIXING POWER
The rate to be fixed must be just, founded upon conditions which are fair and
reasonable to both the owner and the public.
A rate is just and reasonable if it conforms to the following

requirements:
One which yields to the carrier a fair return upon the value of the
property employed in performing the service; and
One which is fair to the public for the service rendered.
Exceptions to Kabit system:
When neither of the parties to the pernicious kabit system is being held
liable for damages.
When the case arose from the negligence of another vehicle in using
the public road to whom no representation or misrepresentation as
regards the ownership and operation of passenger jeepney was made
86
When the riding public was not bothered or inconvenienced at the very
least by the illegal arrangement. (Lim vs. CA, 373 SCRA 394)
The policy, which prohibits the Kabit System, may also be applied to vessels
and aircrafts that are covered by certificates of public convenience and
necessity. Persons who do not have such certificates cannot circumvent the
law by using the certificate of another. (Sec. 23, Public Service Act)
BOUNDARY SYSTEM
Features:
The driver does not receive a fixed wage but gets only the excess of
the receipt of the fares collected by him over the amount he pays to the
jeep owner.
The gasoline consumed by the jeep is for the account of the driver.
These two features are not sufficient to withdraw the relationship between the
owner and the driver from that of employer and employee. The jeepney owner
is subsidiarily liable as employer in accordance with Art.103 of RPC (Magboo
vs. Bernardo, 7 SCRA 952)
KILUSANG MAYO UNO LABOR CENTER VS GARCIA
239 SCRA 538 (1994)
Facts: The Kilusang Mayo Uno Labor Center (KMU) assails the
constitutionality and validity of a memorandum which, among others,
authorize provincial bus and jeepney operators to increase or decrease the
prescribed transportation fares without application therefore with the LTFRB,
and without hearing and approval thereof by said agency.
Issue: Whether or not the absence of notice and hearing and the delegation
of authority in the increase or decrease of transportation fares to provincial
bus and jeepney operators is illegal?
Held: Under Section 16 (c) of the Public Service Act, as amended, the
legislature delegated to the defunct Public Service Commission the power of
fixing the rates of public services. LTFRB, the existing regulatory body today,
is likewise vested with the same under Executive Order 202.
The authority given by the LTFRB to the bus operators to set fares over
and above the authorized existing fare is illegal and invalid, as it is
tantamount to undue delegation of legislative authority. Under the maxim
potestas delegate non delegari potest what has been delegated cannot be
delegated.
The policy allowing provincial bus operators to change and increase
their fares would result not only to a chaotic situation but to an anarchic state
of affairs. This would leave the riding public at the mercy of transport
operators who may increase fares, every hour, every day, every month or
every year, whenever it pleases them or whenever they deem it necessary to
do so. Furthermore, under the Section 16 (a) of Public Service Act, there must
be proper notice and hearing in the fixing of rates, to arrive at a just and
reasonable rate acceptable to both the public utility and the public.
PHILIPPINE AIRLINES, INC. VS. CIBIL AERONAUTICS BOARD
(270 SCRA 538)
Facts: Grand Air applied for a Certificate of Public Convenience and
Necessity with the Civil Aeronautics Board (CAB). The Chief Hearing Officer
issued a notice of hearing directing Grand Air to serve a copy of the
87
application and notice to all scheduled Philippine Domestic operators. Grand

Air filed its compliance and requested for a Temporary Operating Permit
(TOP). PAL filed an opposition to the application on the ground that the CAB
had no jurisdiction to hear the application until Grand Air first obtains a
franchise to operate from Congress. The Chief Hearing Officer denied the
opposition and the CAB approved the issuance of the TOP for a period of 3
months. The opposition for the TOP was likewise denied. The CAB justified
its assumption of jurisdiction over Grand Airs application on the basis of
Republic Act 776 which gives it the specific power to issue any TOP or
Certificate of Public Convenience and Necessity.
Issue: Whether or not the CAB can issue a Certificate of Public Convenience
and Necessity or TOP even though the prospective operator does not have a
legislative franchise?
Held: Yes, as mentioned by the CAB, it is duly authorized to do so under
Republic Act 776 and a legislative franchise is not necessary before it may do
so, since Congress has delegated the authority to authorize the operation of
domestic air transport services to the CAB, an administrative agency. The
delegation of such authority is not without limits since Congress had set
specific standard and limitations on how such authority should be exercised.
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.
Thus, the Board should be allowed to continue hearing the application,
since it has jurisdiction over it provided that the applicant meets all the
requirements of the law.
TATAD VS. GARCIA (243 SCRA 436, GR. NO. 114222. APRIL 6, 1995)
Facts: DOTC planned to construct a light railway transit line along Edsa.
EDSA LRT Corporation, Ltd., a foreign corporation was awarded the contract
to build, lease and transfer the said light railway.
The said award was questioned by the petitioners on the basis that a foreign
corporation cannot own the EDSA LRT III, a public utility as it violates the
Constitution.
Issue: Whether or not an owner and lessor of the facilities used by a public
utility constitute a public utility?
Held: EDSA LRT Corporation, Ltd. Is admittedly a foreign corporation duly
incorporated and existing under the laws of Hong Kong. However, there is no
dispute that once the EDSA LRT III is constructed, the private respondent, as
lessor, will turn it over to DOTC as lessee, for the latter to operate the system
and pay rentals for the said use.
What private respondent owns are the rail tracks, rolling stocks, rail
stations, terminals and the power plant, not a public utility. While a franchise
is needed to operate these facilities to serve the public, they do not
themselves constitute a public utility. What constitutes a public utility in not
their ownership but their use to serve the public.
The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise before
one can own the facilities needed to operate a public utility so long as it does
not operate them to serve the public. In law, there is a clear distinction
between the operation of a public utility and the ownership of the facilities
and the equipment used to serve the public.
88
ALBANO VS. REYES (175 SCRA 264)

Facts: On April 20, 1987, the PPA ( Philippine Ports Authority ) Board
adopted its Resolution No. 850 directing PPA management to prepare the
Invitation to Bid and all relevant documents and technical requirements
necessary for the public bidding of the development, management and
operation for the MICT ( leasing as well as to implement this project.
Respondent Secretary Reyes created a 7 man Special MICT Bidding
Committee charged with all bid proposals.
After evaluation of the seven companies that submitted bids, the
committee recommended the award of the contract to ICTSI for having
offered the best technical and financial proposal. However, before the MICT
contract could be signed, 2 cases were filed against respondents which
assailed the legality and regularity of the bidding. But on May 18, 1988, the
President of the Philippines approved the proposed MICT Contract with
specific directives on the part of the PPA and the contractor ICTSI.
Meanwhile, Rodolfo Albano, the petitioner filed a petition assailing the
award of the MICT contract to ICTSI claiming that the former is a public utility
and therefore needs a legislative franchise before it can legally operate as a
public utility, pursuant to Article 12, Sec 11 of the 1987 Constitution.
Issue: Whether or not the MICT needs a legislative franchise from Congress
to legally operate as a public utility?
Held: NO. EO No. 30 dated July16, 1986 provides for the immediate recall of
the franchise granted to the Manila International Port Terminals Inc., and
authorize the PPA to take over, manage and operate the Manila International
Port Complex at North Harbor, Manila and undertake the provision of cargo
handling and port related services thereat, in accordance with PD 857 and
other applicable laws and regulations.
Sec. 6 of PD 857 otherwise known as the Revised Charter of the PPA
provides as one of the corporate duties of the PPA is to provide services
( whether on its own, by contract, or otherwise ) within the Port Districts and
the approaches thereof including but not limited to
As stated above, PPA has been tasked under EO No. 30, with the
management and operation of the Manila International Port Complex in
accordance with PD 857 and other applicable laws and regulations.
However, PD 857 itself authorizes the PPA to perform the service by itself, by
contracting it out, or through other means. Reading EO No. 30 and PD 857
together, the inescapable conclusion is that the lawmaker has empowered the
PPA to undertake by itself the operation and management of the MICP or to
authorize its operation and management by another by contract or other
means at its option. The latter power having been delegated to the PPA, a
franchise from Congress to authorize an entity other than the PPA to operate
and manage the MICP becomes unnecessary.
Therefore, PPAs act of privatizing the MICT and awarding the Contract
to ICTSI are wholly within its jurisdiction under its Charter which empowers
the PPA to supervise, control, regulate, construct, maintain, operate and
provide such facilities necessary in the ports vested.
LITIMCO VS. LA MALLORCA (18 MAY 1962)
Fact: Tomas Litimco filed a petition with the Public Service Commission
praying for the authority to operate a bus service between Manila and Malolos
via Sta. Isabel using 10 buses. Several operators filed their opposition
however none of them submitted their evidence to support their opposition.
The petition was then submitted for decision.
89
However, La Mallorca, another bus operator, moved for the re-opening

of the case claiming that if the petition of Litimco was to be granted it would
work to its prejudice. The motion was granted but when requested to present
evidence to support its opposition, La Mallorca moved for postponement only
to file its own application to operate the same line.
The PSC approved the application of La Mallorca from which Litimco
appealed.
Issue: Whether the award of the franchise in favor of La Mallorca was
proper?
Held: No. The Supreme Court held that since there was no doubt that Litimco
was the first to apply for the service in the territory in question and its financial
capability was proven, its application should be granted. The Court pointed
out that if an applicant is qualified financially, and is able to undertake the
service, he should be given the preference as a matter of fairness and justice.
The priority in the filing of the application for a certificate of public
convenience is, other conditions being equal, an important factor in
determining the rights of the public service companies. It is only in cases
when the incapacity or incapability of the first applicant is established may the
other applicants be considered.
HALILI VS. CRUZ (27 JUNE 1968)
Facts: Herein respondent filed, on September 19, 1961, with the Public
Service Commission an application, praying for the grant of a certificate of
public convenience to operate, under PUB denomination, ten buses between
Norzagaray (Bulacan) and Piers (Manila).
Petitioner, in his opposition alleged, substantially, that he was an
operator of a bus service on the line applied for, enumerating at the same
time the other lines he operated which were traversed by the route mentioned
in respondent's application; that his service, as well as that of other bus
operators on the route, was more than adequate to meet the demands of the
traveling public; that the grant of the application would merely result in
wasteful and ruinous competition, and that the respondent was not financially
capable of operating and maintaining the service proposed by him.
The Public Service Commission rendered a decision on February 13,
1963, granting a certificate of public convenience to respondent Ruperto Cruz
to operate ten buses under PUB denomination of the line Norzagaray
(Bulacan) - Piers (Manila) passing through the routes for.
It is the above-mentioned decision of the Public Service Commission
that is now sought to be reviewed by this Court. Petitioner contends that:
1. "The finding of the Public Service Commission that there was a public need
for the operation by respondent of ten buses on the line Norzagaray
(Bulacan) - Piers (Manila) is not supported by the evidence;
2. "The Public Service Commission erred when it did not recognize the fact
that petitioner-appellant was rendering sufficient and adequate service on the
line in question; and
3. "The Public Service Commission erred in failing to give petitioner-appellant
the right of protection to investment to which petitioner-appellant is entitled."
In support of his first two contentions petitioner argues that the 500
passengers found by the Commission as commuting daily from Norzagaray to
90
Manila could easily be accommodated in the buses of existing operators; that

the existing operators were authorized to operate 31 buses which made
around 100 round trips a day; that since a bus could accommodate about 50
passengers, the existing authorized services could easily accommodate not
only the 500 but even 5000 passengers a day. Petitioner also asserted that
the Commission failed to consider that 200 of the 500 commuters worked in
the Republic Cement Factory located at Norzagaray and so there were really
only 300 commuters daily traveling on the Norzagaray - Manila line. Petitioner
further claimed that the new terminal proposed in the application was not
based on actual need, because there were no importing firms, or business
establishments, or manufacturing concerns, in Norzagaray, whose employees
had to make trips to the piers at the south harbor in Manila. On the question
of public necessity, petitioner pointed out that the evidence presented by the
respondent consisted only of the testimony of two witnesses who did not
make any formal or systematic study of the movement and frequency of
public utility buses, so that their testimonies were based only on casual
observations. On the other hand, as petitioner pointed out, the oppositors
presented five witnesses, two of whom made meticulous, systematic and
daily observations on the line applied for.
Petitioner likewise asserted that public necessity did not require the
operation of the ten buses applied for by the respondent because of the fact
that on December 20, 1961, the Public Service Commission granted to herein
petitioner, in Case No. 61-5807, authority to operate only 10 buses on the line
Norzagaray - Manila, even if he had applied for 20 buses; and that out of the
many applications to operate buses from Paradise Farms (Bulacan) to
Manila, only 10 buses were authorized.
Issue: Whether or not preference over common carriers interest will prevail
over public convenience?
Held: The decision of the Public Service Commission is affirmed.
"While it is the duty of the government as far as possible to protect
public utility operators against unfair and unjustified competition, it is
nevertheless obvious that public convenience must have the first
consideration. . . ." The public convenience is properly served if passengers
who take buses at points in one part of a line are able to proceed beyond
those points without having to change buses. On this point this Court said:
"It is the convenience of the public that must be taken into account,
other things being equal, and that convenience would be effectuated by
passengers who take buses at points in one part of a line being able to
proceed beyond those points without having to change buses and to wait the
arrival of buses of a competitive operator. We can perceive how under such
conditions one public utility could gain business at the expense of a rival."
Certainly the Public Service Commission has power to grant a
certificate of public convenience to a new operator, and the old operator
cannot with reason complain that it had not been given opportunity to improve
its equipment and service, if it is shown that the old operator has not placed in
the service all the units of equipment that it had been authorized to operate,
and also when the old operator has violated, or has not complied with,
important conditions in its certificate. 13 In the instant case, it has been
shown that petitioner had not operated all the units that it was authorized to
operate.
91

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A. WHAT IS A COMMON CARRIER?

- Persons, corporations, firms or associations engaged in the business of

It also avoids a distinction between a person or enterprise offering

A person or entity is a common carrier even if he did not secure a

The Civil Code makes no distinction as to the means of transporting,

A person or entity may be a common carrier even if he has no fixed

Cannot lawfully decline to accept a particular class of goods for

No monopoly is favored (Batangas Trans. vs. Orlanes, 52 Phil. 455);

Provides public convenience.

C. TESTS WHETHER A PARTY IS A COMMON CARRIER OF GOODS:

The transportation must be for hire. (First Philippine Industrial Corp. v.

Article 1732 of the Civil Code defines a common carrier as any

Held: Yes. Petitioner is a common carrier.

not a ferryboat service but a coastwise or interisland shipping service. Under

Requires only ordinary diligence.

Not subject to regulation.

As to stipulation on limiting liability

Code of Commerce suppletory law

Carriage of Goods by Sea Act (COGSA) suppletory to

Carriage from Philippine Ports To Foreign

Civil Code (Arts.1732-1766) primary law

Code of Commerce suppletory law

While the Warsaw Convention has the force of law in the

The liability of the carrier for the loss, destruction or deterioration of

High Contracting Parties

common carriers shall be governed by the code of Commence and by special

transportation to Manila loaded 5,000 pieces of calorized pipes valued at

BENEDICTO VS.CA (187 SCRA 547)

convenience. In other words, Santos became what is known as kabit

when he failed to claim any insurance indemnity which would amount to no

Issue: Whether or not an employer-employee relationship between the

Vigilance over goods (Arts. 1734-1754)

Passenger - A person who has entered into a contract of carriage, express or

The above enumeration is exclusive. If not one of those enumerated

is present, the carrier is liable. (Belgian Chartering and Shipping, N.V.

a. Caso Fortuito / Force Majeure

Fortuitous event must be established to be the proximate cause

Exemption to Liability From Natural Disasters or Calamities:

Acts of Public Enemy In War

D. Act or Omission of the Shipper or Owner of Goods

Failure of a person who has been exposed to injury by the fault or

E. Character of the Goods or Defects in the Packing or in the Container

E. Order or Act of Public Authority

The common carrier is not ipso facto relieved from

REPUBLIC VS. LORENZO SHIPPING LINES (7 FEBRUARY 2005)

negligence of defendants. Claims were presented against defendants who

pier. An hour after the passengers disembarked, Pioneer stevedoring started

letter. Petitioner meanwhile, sent the damaged payloader to Manila, it was

goods are lost, destroyed or deteriorated. In those cases where the

Contractu to recover compensatory and Actual Damages. Private respondent

2. Baggage not in personal custody, but in that of a Carrier

ARTS. 349 379, CODE OF COMMERCE

The surrender of the original bill of lading is not a condition precedent

Kinds of Bill of Lading:

Within a reasonable time.

cause it may have arisen.

goods which he may make to the point of

SECTION 3(6) (COGSA)

Payment of the transportation charge precludes the presentation of any

Overseas where goods arrived in a damaged condition from a foreign port

The filing of notice of claim is not a condition precedent for recovery.

Doctrine of Connecting Carriers

169[1987]). The interest extends to:

When shipowner was equally negligent, it cannot escape liability by