Transportation Angel Notes

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TRANSPORTATION NOTES
GENERAL CONSIDERATIONS
PUBLIC UTILITIES
1987 PHILIPPINE CONSTITUTION
Section 11. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such
citizens; nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in
the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the Philippines.
Section 17. In times of national emergency, when the public interest so
requires, the State may, during the emergency and under reasonable terms
prescribed by it, temporarily take over or direct the operation of any privatelyowned public utility or business affected with public interest.
Section 18. The State may, in the interest of national welfare or defense,
establish and operate vital industries and, upon payment of just
compensation, transfer to public ownership utilities and other private
enterprises to be operated by the Government.
Section 19. The State shall regulate or prohibit monopolies when the public
interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.
TWO IDEAS CONVEYED BY THE PROVISIONS ON PUBLIC UTILITY
1. It is a partly nationalized business endeavor
2. It is viewed with public interest
MA. ANGELA AGUINALDO
A PUBLIC UTILITY IS A PARTLY NATIONALIZED BUSINESS

ENDEAVOR
Public utilities may only be operated by Filipino citizens or

corporations, associations, partnerships organized and constituted
under the laws of the Philippines, and wherein at least 60% of the
capital stock or paid-up capital is owned by Filipinos
Another aspect of this idea is that the participation of foreign

investors shall be limited to their proportionate share, and all the
executive and managing officers of such corporation or association
must be citizens of the Philippines
The constitution reserves part of ownership of public utilities to

Filipinos
Fully-nationalized, as given by the Constitution: mass media,

exercise of profession
A PUBLIC UTILITY IS A BUSINESS ENDEAVOR VIEWED WITH PUBLIC
INTEREST
The issuance of a franchise, certificate or any other form of

authorization is needed for the operation of a public utility
Franchise granted is subject to the condition that can be amended,

altered, or repealed by the Congress when common good so
requires
The State may temporarily take over
The State may permanently acquire vital industries and private

enterprises
The State shall regulate or prohibit monopolies

WHAT IS A PUBLIC UTILITY?
May fall under those enumerated in Section 13 (b) in CA 146

1
REPUBLIC V. MANILA ELECTRIC COMPANY

391 SCRA 700
FACTS:
MERALCO filed an application with the ERB for the increase of its rate
schedules, which included application for provisional increase pending
decision of the same agency. ERB allowed the provisional increase and
referred the matter to the COA.
The COA consequently made a
recommendation that income taxes should not be included by MERALCO in
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its operating expenses. Likewise, the COA recommended that net average
investment method should be used by the company in the valuation of its
properties. The ERB adopted this recommendation, ordered MERALCO to a
lower increase than applied for, and ordered as well for the company to
adopt the net average investment method. This was however overturned by
the CA.
HELD:
The regulation of rates to be charged by public utilities is founded upon the
police powers of the State and statutes prescribing rules for the control and
regulation of public utilities are a valid exercise thereof. When private
property is used for a public purpose and is affected with public interest, it
ceases to be juris privati only and becomes subject to regulation. The
regulation is to promote the common good. Submission to regulation may be
withdrawn by the owner by discontinuing use; but as long as use of the
property is continued, the same is subject to public regulation.
In regulating rates charged by public utilities, the State protects the public
against arbitrary and excessive rates while maintaining the efficiency and
quality of services rendered. However, the power to regulate rates does not
give the State the right to prescribe rates which are so low as to deprive the
public utility of a reasonable return on investment. Thus, the rates prescribed
by the State must be one that yields a fair return on the public utility upon the
value of the property performing the service and one that is reasonable to
the public for the services rendered.
Income tax as operating expense cannot be allowed in rate-determination
process
The ERB correctly ruled that income tax should not be included in the
computation of operating expenses of a public utility. Income tax paid by a
public utility is inconsistent with the nature of operating expenses. In general,
operating expenses are those which are reasonably incurred in connection
with business operations to yield revenue or income. They are items of
expenses which contribute or are attributable to the production of income or
revenue. As correctly put by the ERB, operating expenses "should be a
requisite of or necessary in the operation of a utility, recurring, and that it
redounds to the service or benefit of customers."
Clearly, by its nature, income tax payments of a public utility are not
expenses which contribute to or are incurred in connection with the
production of profit of a public utility. Income tax should be borne by the
taxpayer alone as they are payments made in exchange for benefits
received by the taxpayer from the State. No benefit is derived by the
customers of a public utility for the taxes paid by such entity and no direct
contribution is made by the payment of income tax to the operation of a
public utility for purposes of generating revenue or profit. Accordingly, the
burden of paying income tax should be Meralco's alone and should not be
shifted to the consumers by including the same in the computation of its
operating expenses.
The usage of net average investment method is not unreasonable
The ERB did not abuse its discretion when it applied the net average
investment method. The reasonableness of net average investment method
is borne by the records of the case. In its report, the COA explained that the
computation of the proportionate value of the property and equipment in
accordance with the actual number of months such property or equipment is
in service for purposes of determining the rate base is favored, as against
the trending method employed by MERALCO, "to reflect the real status of
the property."36 By using the net average investment method, the ERB and
the COA considered for determination of the rate base the value of
properties and equipment used by MERALCO in proportion to the period that
the same were actually used during the period in question. This treatment is
consistent with the settled rule in rate regulation that the determination of the
rate base of a public utility entitled to a return must be based on properties
and equipment actually being used or are useful to the operations of the
public utility.
2
DAVID, ET. AL. V. GLORIA ARROYO, ET. AL.

GR 171396, 3 MAY 2006
FACTS:
th
The president issued PP1017, on the advent of the 20 EDSA People Power
Anniversary. This was allegedly due to the incessant activities staged by the
activists and opposition, who sought the downfall of the present
administration. The president ordered in said proclamation the cancellation
of all activities related to the celebration of the EDSA anniversary, as well as
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rally permits. This notwithstanding, rallies were still staged. This led to the
warrantless arrests of many as well as the take-over of two pro-opposition
newspaper companiesDaily Tribune and Malaya. Together with other
petitions assailing the constitutionality of PP 1017 and GO5, it was averred
that the take-over the newspaper companies constituted censorship and
prior restraint.
HELD:
Generally, Congress is the repository of emergency powers, such as the
taking over of public utilities. This is evident in the tenor of Section 23 (2),
Article VI authorizing it to delegate such powers to the President. Certainly, a
body cannot delegate a power not reposed upon it. However, knowing that
during grave emergencies, it may not be possible or practicable for
Congress to meet and exercise its powers, the Framers of our Constitution
deemed it wise to allow Congress to grant emergency powers to the
President, subject to certain conditions, thus:
(1) There must be a war or other emergency.
(2) The delegation must be for a limited period only.
(3) The delegation must be subject to such restrictions as the Congress may
prescribe.
(4) The emergency powers must be exercised to carry out a national policy
declared by Congress.
Section 17, Article XII must be understood as an aspect of the emergency
powers clause. The taking over of private business affected with public
interest is just another facet of the emergency powers generally reposed
upon Congress. Thus, when Section 17 states that the "the State may,
during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest," it refers to Congress, not the
President. Now, whether or not the President may exercise such power is
dependent on whether Congress may delegate it to him pursuant to a law
prescribing the reasonable terms thereof.
PUBLIC SERVICE LAW (CA 146)
SECTION 13.
xxx
(b) The term "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, railroad, street railway, traction railway, sub-way motor
vehicle, either for freight or passenger, or both with or without fixed route and
whether 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 railways, marine repair shop, [warehouse] wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power water supply and power, petroleum, sewerage system, wire
or wireless communications system, wire or wireless broadcasting stations
and other similar public services: Provided, however, That a person engaged
in agriculture, not otherwise a public service, who owns a motor vehicle and
uses it personally and/or enters into a special contract whereby said motor
vehicle is offered for hire or compensation to a third party or third parties
engaged in agriculture, not itself or themselves a public service, for operation
by the latter for a limited time and for a specific purpose directly connected
with the cultivation of his or their farm, the transportation, processing, and
marketing of agricultural products of such third party or third parties shall not
be considered as operating a public service for the purposes of this Act.
3
ALBANO V. REYES
175 SCRA 224
FACTS:
A public bidding was conducted for the management and operation of the
Manila International Container Terminal. Seven consortia of companies
submitted their respective bids and consequently, the bidding committee
recommended the award to be given to ICTSI. Subsequently, two petitions
were filed questioning the regularity of the bidding conducted. One of the
allegations forwarded was that since MICT is a public utility, prior franchise
from the legislature is needed.
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HELD:
A review of the applicable provisions of law indicates that a franchise
specially granted by Congress is not necessary for the operation of the
Manila International Container Port (MICP) by a private entity, a contract
entered into by the PPA and such entity constituting substantial compliance
with the law.
Thus, while the PPA has been tasked, under E.O. No. 30, with the
management and operation of the Manila International Port Complex and to
undertake the providing of cargo handling and port related services thereat,
the law provides that such shall be "in accordance with P.D. 857 and other
applicable laws and regulations." On the other hand, P.D. No. 857 expressly
empowers the PPA to provide services within Port Districts "whether on its
own, by contract, or otherwise" [See. 6(a) (v)]. Therefore, under the terms of
E.O. No. 30 and P.D. No. 857, the PPA may contract with the International
Container Terminal Services, Inc. (ICTSI) for the management, operation
and development of the MICP.
Even if the MICP be considered a public utility, or a public service on the
theory that it is a "wharf' or a "dock" as contemplated under the Public
Service Act, its operation would not necessarily call for a franchise from the
Legislative Branch. Franchises issued by Congress are not required before
each and every public utility may operate. Thus, the law has granted certain
administrative agencies the power to grant licenses for or to authorize the
operation of certain public utilities. (See E.O. Nos. 172 and 202)
As stated earlier, E.O. No. 30 has tasked the PPA with the operation and
management of the MICP, in accordance with P.D. 857 and other applicable
laws and regulations. However, P.D. 857 itself authorizes the PPA to
perform the service by itself, by contracting it out, or through other means.
Reading E.O. No. 30 and P.D. No. 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.
In the instant case, the PPA, in the exercise of the option granted it by P.D.
No. 857, chose to contract out the operation and management of the MICP
to a private corporation. This is clearly within its power to do. Thus, PPA's
acts of privatizing the MICT and awarding the MICT contract to ICTSI are
wholly within the jurisdiction of the PPA under its Charter which empowers
the PPA to "supervise, control, regulate, construct, maintain, operate and
provide such facilities or services as are necessary in the ports vested in, or
belonging to the PPA." (Section 6(a) ii, P.D. 857)
The contract between the PPA and ICTSI, coupled with the President's
written approval, constitute the necessary authorization for ICTSI's operation
and management of the MICP. The award of the MICT contract approved by
no less than the President of the Philippines herself enjoys the legal
presumption of validity and regularity of official action. In the case at bar,
there is no evidence which clearly shows the constitutional infirmity of the
questioned act of government.
4
TATAD V. GARCIA
243 SCRA 436
FACTS:
The DOTC planned to construct LRT 3. Special technical teams were
formed to evaluate the project. Coincidentally, the BOT law was signed into
law, which provided for two arrangements, BOT and BT. Upon the passage
of the law, modifications were made to the prequalification proceedings.
Five groups forwarded their interests to undertake the project but it was only
EDSA LRT consortium which was said to have complied with the
requirements. DOTC recommended the award to be made to the consortium
but was informed that the prequalification procedure wasn't the bidding
process contemplated by the BOT law. in light of this, amendments were
made to the agreement with the consortium, which proposed a BLT
arrangement. Later on, amendments were made to the BOT law.
The petition mainly rests on the question of whether a foreign corporation
can own a public utility.
HELD:
What private respondent owns are the rail tracks, rolling stocks like the
coaches, rail stations, terminals and the power plant, not a public utility.
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While a franchise is needed to operate these facilities to serve the public,

they do not by themselves constitute a public utility. What constitutes a
public utility is not their ownership but their use to serve the public.
The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise before
one can own the facilities needed to operate a public utility so long as it does
not operate them to serve the public.
The right to operate a public utility may exist independently and separately
from the ownership of the facilities thereof. One can own said facilities
without operating them as a public utility, or conversely, one may operate a
public utility without owning the facilities used to serve the public. The
devotion of property to serve the public may be done by the owner or by the
person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of
the facilities used to serve the public can be very well appreciated when we
consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them
themselves.
While private respondent is the owner of the facilities necessary to operate
the EDSA. LRT III, it admits that it is not enfranchised to operate a public
utility. In view of this incapacity, private respondent and DOTC agreed that
on completion date, private respondent will immediately deliver possession
of the LRT system by way of lease for 25 years, during which period DOTC
shall operate the same as a common carrier and private respondent shall
provide technical maintenance and repair services to DOTC. Technical
maintenance consists of providing (1) repair and maintenance facilities for
the depot and rail lines, services for routine clearing and security; and (2)
producing and distributing maintenance manuals and drawings for the entire
system.
Private respondent shall also train DOTC personnel for familiarization with
the operation, use, maintenance and repair of the rolling stock, power plant,
substations, electrical, signaling, communications and all other equipment as
supplied in the agreement. Training consists of theoretical and live training
of DOTC operational personnel which includes actual driving of light rail
vehicles under simulated operating conditions, control of operations, dealing

with emergencies, collection, counting and securing cash from the fare
collection system. Personnel of DOTC will work under the direction and
control of private respondent only during training. The training objectives,
however, shall be such that upon completion of the EDSA LRT III and upon
opening of normal revenue operation, DOTC shall have in their employ
personnel capable of undertaking training of all new and replacement
personnel. In other words, by the end of the three-year construction period
and upon commencement of normal revenue operation, DOTC shall be able
to operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which
likewise includes the project cost, cost of replacement of plant equipment
and spare parts, investment and financing cost, plus a reasonable rate of
return thereon.
Since DOTC shall operate the EDSA LRT III, it shall assume all the
obligations and liabilities of a common carrier. For this purpose, DOTC shall
indemnify and hold harmless private respondent from any losses, damages,
injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the
EDSA LRT III on account of the defective condition of equipment or facilities
or the defective maintenance of such equipment facilities.
In sum, private respondent will not run the light rail vehicles and collect fees
from the riding public. It will have no dealings with the public and the public
will have no right to demand any services from it.
5
PAL V. CAB
270 SCRA 538
FACTS:
Grand Air applied with the CAB for the issuance of a Certificate of Public
Convenience and Necessity. Notice for hearing was issued by the agency.
Here comes PAL, which alleges the lack of jurisdiction of CAB to entertain
the application or rule upon it. PAL further alleges that a legislative franchise
is prior needed for the issuance of the CPCN. Private respondent on the
other hand, following pronouncements of earlier cases, allege that no
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legislative franchise is anymore needed with respect to air transportation

before a CPCN be issued.
HELD:
Many and varied are the definitions of certificates of public convenience
which courts and legal writers have drafted. Some statutes use the terms
"convenience and necessity" while others use only the words "public
convenience." The terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed together.
Both words modify each other and must be construed together. The word
'necessity' is so connected, not as an additional requirement but to modify
and qualify what might otherwise be taken as the strict significance of the
word necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which the
existing facilities do not adequately afford. It does not mean or require an
actual physical necessity or an indispensable thing.
The use of the word "necessity", in conjunction with "public convenience" in
a certificate of authorization to a public service entity to operate, does not in
any way modify the nature of such certification, or the requirements for the
issuance of the same. It is the law which determines the requisites for the
issuance of such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the
operation of domestic transport services, has delegated to the said body the
authority to determine the capability and competence of a prospective
domestic air transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-legislative body,
with unbridled authority to choose who should be given authority to operate
domestic air transport services.
TRANSPORTATION
TRANSPORTATION, DEFINED.
One whereby a certain person or association of persons obligate

themselves to transport persons, things, or news from one place to
another for a fixed price
Section 13. (a) The Commission shall have jurisdiction, supervision, and
control over all public services and their franchises, equipment, and other
properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of the public force: Provided, That public services owned
or operated by government entities or government-owned or controlled
corporations shall be regulated by the Commission in the same way as
privately-owned public services, but certificates of public convenience or
certificates of public convenience and necessity shall not be required of such
entities or corporations: And provided, further, That it shall have no authority
to require steamboats, motor ships and steamship lines, whether privatelyowned, or owned or operated by any Government controlled corporation or
instrumentality to obtain certificate of public convenience or to prescribe their
definite routes or lines of service.
(b) The term "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, railroad, street railway, traction railway, sub-way motor
vehicle, either for freight or passenger, or both with or without fixed route and
whether 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 railways, marine repair shop, [warehouse] wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power water supply and power, petroleum, sewerage system, wire
or wireless communications system, wire or wireless broadcasting stations
and other similar public services: Provided, however, That a person engaged
in agriculture, not otherwise a public service, who owns a motor vehicle and
uses it personally and/or enters into a special contract whereby said motor
vehicle is offered for hire or compensation to a third party or third parties
engaged in agriculture, not itself or themselves a public service, for operation
by the latter for a limited time and for a specific purpose directly connected
with the cultivation of his or their farm, the transportation, processing, and
marketing of agricultural products of such third party or third parties shall not
be considered as operating a public service for the purposes of this Act.
PUBLIC NATURE
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(c) The word "person" includes every individual, co-partnership, joint-stock

company or corporation, whether domestic or foreign, their lessees, trustees,
or receivers, as well as any municipality, province, city, government-owned
or controlled corporation, or agency of the Government of the Philippines,
and whatever other persons or entities that may own or possess or operate
public services. (As amended by Com. Act 454 and RA No. 2677)
the immediate cancellation of the certificate without the necessity of any

express action on the part of the Commission.
Section 14. The following are exempted from the provisions of the preceding
section:
The foregoing is likewise applicable to any extension or amendment of

certificates actually in force and to those which may hereafter be issued, to
permit to modify itineraries and time schedules of public services, and to
authorizations to renew and increase equipment and properties.
(a) Warehouses;
(b) Vehicles drawn by animals and bancas moved by oar or sail, and
tugboats and lighters;
(c) Airships within the Philippines except as regards the fixing of their
maximum rates on freight and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of the National
Government or by any government-owned or controlled corporation, except
with respect to the fixing of rates. (As amended by Com. Act 454, RA No.
2031, and RA No. 2677 )
Section 15. With the exception of those enumerated in the preceding
section, no public service shall operate in the Philippines without possessing
a valid and subsisting certificate from the Public Service Commission known
as "certificate of public convenience," or "certificate of public convenience
and necessity," as the case may be, to the effect that the operation of said
service and the authorization to do business will promote the public interests
in a proper and suitable manner.
The Commission may prescribe as a condition for the issuance of the
certificate provided in the preceding paragraph that the service can be
acquired by the Republic of the Philippines or any instrumentality thereof
upon payment of the cost price of its useful equipment, less reasonable
depreciation; and likewise, that the certificate shall be valid only for a definite
period of time; and that the violation of any of these conditions shall produce
In estimating the depreciation, the effect of the use of the equipment, its
actual condition, the age of the model, or other circumstances affecting its
value in the market shall be taken into consideration.
Section 16. Proceedings of the Commission, upon notice and hearing. - The
Commission shall have power, upon proper notice and hearing in
accordance with the rules and provisions of this Act, subject to the limitations
and exceptions mentioned and saving provisions to the contrary :
(a) To issue certificates which shall be known as certificates of public
convenience, authorizing the operation of public service within the
Philippines whenever the Commission finds that the operation of the public
service proposed and the authorization to do business will promote the
public interest in a proper and suitable manner. Provided, That thereafter,
certificates of public convenience and certificates of public convenience and
necessity will be granted only to citizens of the Philippines or of the United
States or to corporations, co-partnerships, associations or joint-stock
companies constituted and organized under the laws of the Philippines;
Provided, That sixty per centum of the stock or paid-up capital of any such
corporations, co-partnership, association or joint-stock company must belong
entirely to citizens of the Philippines or of the United States: Provided,
further, That no such certificates shall be issued for a period of more than
fifty years.
(b) To approve, subject to constitutional limitations any franchise or privilege
granted under the provisions of Act No. Six Hundred and Sixty-seven, as
amended by Act No. One Thousand and twenty-two, by any political
subdivision of the Philippines when, in the judgment of the Commission,
such franchise or privilege will properly conserve the public interests, and the
Commission shall in so approving impose such conditions as to construction,
equipment, maintenance, service, or operation as the public interests and
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convenience may reasonably require, and to issue certificates of public

convenience and necessity when such is required or provided by any law or
franchise.
maintenance of the same and when the financial condition of the said public
service reasonably warrants the original expenditure required in making and
operating such extension.
(c) To fix and determine individual or joint rates, tolls, charges,

classifications, or schedules thereof, as well as commutation, mileage,
kilometrage, and other special rates which shall be imposed observed and
followed thereafter by any public service: Provided, That the Commission
may, in its discretion, approve rates proposed by public services
provisionally and without necessity of any hearing; but it shall call a hearing
thereon within thirty days, thereafter, upon publication and notice to the
concerns operating in the territory affected: Provided, further, That in case
the public service equipment of an operator is used principally or secondarily
for the promotion of a private business, the net profits of said private
business shall be considered in relation with the public service of such
operator for the purpose of fixing the rates.
(i) To direct any railroad, street railway or traction company to establish and
maintain at any junction or point of connection or intersection with any other
line of said road or track, or with any other line of any other railroad, street
railway or traction to promote, such just and reasonable connection as shall
be necessary to promote the convenience of shippers of property, or of
passengers, and in like manner direct any railroad, street railway, or traction
company engaged in carrying merchandise, to construct, maintain and
operate, upon reasonable terms, a switch connection with any private
sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of the
Commission, such connection is reasonable and practicable and can be out
in with safety and will furnish sufficient business to justify the construction
and maintenance of the same.
(d) To fix just and reasonable standards, classifications, regulations,

practices, measurement, or service to be furnished, imposed, observed, and
followed thereafter by any public service.
(e) To ascertain and fix adequate and serviceable standards for the
measurement of quantity, quality, pressure, initial voltage, or other condition
pertaining to the supply of the product or service rendered by any public
service, and to prescribe reasonable regulations for the examination and test
of such product or service and for the measurement thereof.
(f) To establish reasonable rules, regulations, instructions, specifications,
and standards, to secure the accuracy of all meters and appliances for
measurements.
(g) To compel any public service to furnish safe, adequate, and proper
service as regards the manner of furnishing the same as well as the
maintenance of the necessary material and equipment.
(h) To require any public service to establish, construct, maintain, and
operate any reasonable extension of its existing facilities, where in the
judgment of said Commission, such extension is reasonable and practicable
and will furnish sufficient business to justify the construction and
(j) To authorize, in its discretion, any railroad, street railway or traction

company to lay its tracks across the tracks of any other railroad, street
railway or traction company or across any public highway.
(k) To direct any railroad or street railway company to install such safety
devices or about such other reasonable measures as may in the judgment of
the Commission be necessary for the protection of the public are passing
grade crossing of (1) public highways and railroads, (2) public highways and
streets railway, or (3) railways and street railways.
(l) To fix and determine proper and adequate rates of depreciation of the
property of any public service which will be observed in a proper and
adequate depreciation account to be carried for the protection of
stockholders, bondholders or creditors in accordance with such rules,
regulations, and form of account as the Commission may prescribe. Said
rates shall be sufficient to provide the amounts required over and above the
expense of maintenance to keep such property in a state of efficiency
corresponding to the progress of the industry. Each public service shall
conform its depreciation accounts to the rates so determined and fixed, and
shall set aside the moneys so provided for out of its earnings and carry the
same in a depreciation fund. The income from investments of money in such
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fund shall likewise be carried in such fund. This fund shall not be expended
otherwise than for depreciation, improvements, new construction, extensions
or conditions to the properly of such public service.
expressly exempted from the jurisdiction of the Commission, either totally or

in part, by the provisions of section thirteen of this Act.
Section 19. Unlawful Acts. - It shall be unlawful for any public service:
(m) To amend, modify or revoke at any time certificate issued under the
provisions of this Act, whenever the facts and circumstances on the strength
of which said certificate was issued have been misrepresented or materially
changed.
(n) To suspend or revoke any certificate issued under the provisions of this
Act 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 this Act: Provided, That the Commission, for good cause, may
prior to the hearing suspend for a period not to exceed thirty days any
certificate or the exercise of any right or authority issued or granted under
this Act by order of the Commission, whenever such step shall in the
judgment of the Commission be necessary to avoid serious and irreparable
damage or inconvenience to the public or to private interests.
(o) To fix, determine, and regulate, as the convenience of the state may
require, a special type for auto-busses, trucks, and motor trucks to be
hereafter constructed, purchased, and operated by operators after the
approval of this Act; to fix and determine a special registration fee for autobuses, trucks, and motor trucks so constructed, purchased and operated:
Provided, That said fees shall be smaller than more those charged for autobusses, trucks, and motor trucks of types not made regulation under the
subsection.
xxx
Section 18. It shall be unlawful for any individual, co-partnership,
association, corporation or joint-stock company, their lessees, trustees or
receivers appointed by any court whatsoever, or any municipality, province,
or other department of the Government of the Philippines to engage in any
public service business without having first secured from the Commission a
certificate of public convenience or certificate of public convenience and
necessity as provided for in this Act, except grantees of legislative franchises
expressly exempting such grantees from the requirement of securing a
certificate from this Commission as well as concerns at present existing
(a) To provide or maintain any service that is unsafe, improper, or

inadequate or withhold or refuse any service which can reasonably be
demanded and furnished, as found and determined by the Commission in a
final order which shall be conclusive and shall take effect in accordance with
this Act, upon appeal of otherwise.
(b) To make or give, directly or indirectly, by itself or through its agents,
attorneys or brokers, or any of them, discounts or rebates on authorized
rates, or grant credit for the payment of freight charges, or any undue or
unreasonable preference or advantage to any person of corporation or to
any locality or to any particular description of traffic or service, or subject any
particular person or corporation or locality or any particular description of
traffic to any prejudice or disadvantage in any respect whatsoever; to adopt,
maintain, or enforce any regulation, practice or measurement which shall be
found or determined by the Commission to be unjust, unreasonable, unduly
preferential or unjustly discriminatory in a final order which shall be
conclusive and shall take effect in accordance with the provisions of this Act,
upon repeal or otherwise.
(c) To refuse or neglect, when requested by the Director of Posts or his
authorized representative, to carry public mail on the regular trips of any
public land transportation service maintained or operated by any such public
service; upon such terms and conditions and for a consideration in such
amount as may be agreed upon between the Director of Posts and the public
service carrier of fixed by the Commission in the absence of an agreement
between the Director of Posts and the carrier. In case the Director of Posts
and public service carrier are unable to agree on the amount of the
compensation to be paid for the carriage of the mail, the Director of Posts
shall forthwith request the Commission to fix a just and reasonable
compensation for such carriage and the same shall be promptly fixed by the
Commission in accordance with Section sixteen of this Act.
Section 20. Acts requiring the approval of the Commission. - Subject to
established limitations and exceptions and saving provisions to the contrary,
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it shall be unlawful for any public service or for the owner, lessee or operator
thereof, without the approval and authorization of the Commission previously
had (a) To adopt, establish, fix, impose, maintain, collect or carry into effect any
individual or joint rates, commutation, mileage or other special rate, toll, fare,
charge, classification or itinerary. The Commission shall approve only those
that are just and reasonable and not any that are unjustly discriminatory or
unduly preferential, only upon reasonable notice to the public services and
other parties concerned, giving them a reasonable opportunity to be heard
and the burden of the proof to show that the proposed rates or regulations
are just and reasonable shall be upon the public service proposing the same.
(b) To establish, construct, maintain, or operate new units or extend existing
facilities or make any other addition to or general extension of the service.
xxx
(e) Hereafter to issue any stock or stock certificates representing an increase
of capital; or issue any share of stock without par value; or issue any bonds
or other evidence of indebtedness payable in more than one year from the
issuance thereof, provided that it shall be the duty of the Commission, after
hearing, to approve any such issue maturing in more than one year from the
date thereof, when satisfied that the same is to be made in accordance with
law, and the purpose of such issue be approved by the Commission. (f) To
capitalize any franchise in excess of the amount, inclusive of any tax or
annual charge, actually paid to the Government of the Philippines or any
political subdivision thereof as the consideration of said franchise; capitalize
any contract for consolidation, merger or lease, or issue any bonds or other
evidence of indebtedness against or as a lien upon any contract for
consolidation, merger, or lease: Provided, however, that the provisions of
this section shall not prevent the issuance of stock, bonds, or other evidence
of indebtedness subject to the approval of the Commission by any lawfully
merged or consolidated public services not in contravention of the provisions
of this section.
(g) To sell, alienate, mortgage, encumber or lease its property, franchises,
certificates, privileges, or rights or any part thereof; or merge or consolidate
its property, franchises privileges or rights, or any part thereof, with those of
any other public service. The approval herein required shall be given, after
notice to the public and hearing the persons interested at a public hearing, if
it be shown that there are just and reasonable grounds for making the
mortgaged or encumbrance, for liabilities of more than one year maturity, or
the sale, alienation, lease, merger, or consolidation to be approved, and that
the same are not detrimental to the public interest, and in case of a sale, the
date on which the same is to be consummated shall be fixed in the order of
approval: Provided, however, that nothing herein contained shall be
construed to prevent the transaction from being negotiated or completed
before its approval or to prevent the sale, alienation, or lease by any public
service of any of its property in the ordinary course of its business.
(h) To sell or register in its books the transfer or sale of shares of its capital
stock, if the result of that sale in itself or in connection with another previous
sale, shall be to vest in the transferee more than forty per centum of the
subscribed capital of said public service. Any transfer made in violation of
this provision shall be void and of no effect and shall not be registered in the
books of the public service corporation. Nothing herein contained shall be
construed to prevent the holding of shares lawfully acquired. (As amended
by Com. Act No. 454.)
(i) To sell, alienate or in any manner transfer shares of its capital stock to
any alien if the result of that sale, alienation, or transfer in itself or in
connection with another previous sale shall be the reduction to less than
sixty per centum of the capital stock belonging to Philippine citizens. Such
sale, alienation or transfer shall be void and of no effect and shall be
sufficient cause for ordering the cancellation of the certificate.
6
Y TRANSIT V. NLRC
226 SCRA 508
FACTS:
Yujuico Transit mortgaged its 10 buses to DBP to be able to secure a loan
from the latter. With the authorization of the board, the company president
entered into a dacion en pago to settle its obligations. After the buses were
relieved of the mortgage, the same were sold to Y Transit. In the meantime,
Yujuico Transit was held liable in a labor case and levy was made to the
buses. Y Transit opposed the same averring that it owned the buses
already. However, private respondents argue that the transfer was void as
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BOT approval was not sought. The private respondents were sustained. In
the end, levy was reinstated over the buses.
HELD:
The law really requires the approval of the Public Service Commission in
order that a franchise, or any privilege pertaining thereto, may be sold or
leased without infringing the certificate issued to the grantee. The reason is
obvious. Since a franchise is personal in nature any transfer or lease thereof
should be notified to the Public Service Commission so that the latter may
take proper safeguards to protect the interest of the public. In fact, the law
requires that, before approval is granted, there should be a public hearing
with notice to all interested parties in order that the commission may
determine if there are good and reasonable grounds justifying the transfer or
lease of the property covered by the franchise, or if the sale or lease is
detrimental to public interest. Such being the reason and philosophy behind
this requirement, it follows that if the property covered by the franchise is
transferred, or leased to another without obtaining the requisite approval, the
transfer is not binding against Public Service Commission and in
contemplation of law, the grantee continues to be responsible under the
franchise in relation to the Commission and to the public.
There being no prior BOT approval in the transfer of property from Yujuico
Transit Co., Inc. to Jesus Yujuico, it only follows that as far as the BOT and
third parties are concerned, Yujuico Transit Co., Inc. still owned the
properties. and Yujuico, and later, "Y" Transit Co., Inc. only held the same as
agents of the former.
REQUISITES FOR GRANT OF CERTIFICATE

1. Applicant must be a citizen of the Philippines, or a corporation,
association or partnership constituted and organized under the laws
of the Philippines, 60% at least of the stock or paid-up capital is
owned by Filipinos
2. The applicant must prove that the operation of the public service
proposed and the authorization to do business will promote the
public interests in a proper and suitable manner
3. The applicant is financially capable of undertaking the proposed
service and meeting the responsibilities incident to its operations
(otherwise he will not be allowed to operate since it is something he
wouldnt be able to sustain)
PRIOR OPERATOR RULE
The first licensee will be protected in his investment and will not be
subjected to a ruinous competition
It is not the laws policy for the PSC to issue a CPC to a second
operator to cover the same field and in competition with a first
operator who is rendering sufficient, adequate, and satisfactory
service, and who in all things and respects is complying with the
rules and regulations of the Commission
Criticized because it allegedly fosters monopolies: no, since this is

made in pursuant to the power of the State to regulate
CERTIFICATE OF PUBLIC CONVENIENCE
Authorization to operate a public service issued by the Public

Service Commission, for which no franchise is required by law
This is merely a license or privilege and this can be forfeited when

the grantee fails to comply with his commitments
May represent property rights to the extent that if the rights which
any public utility is exercising pursuant to lawful orders of the Public
Utility Commissioner has been invaded by another public utility, in
appropriate cases actions may be maintained by the complainant
public utility
CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY
HELD:
Authorization to operate a public service for which a franchise is

required by law
RAYMUNDO V. LUNETA MOTOR

58 PHIL 389
FACTS:
Guzco Transit purchased from Luneta Motors buses for its operations, for
which it promised to pay through promissory notes with chattel mortgage.
Upon failure to pay, action was filed Guzco and attaching therein the buses
in question. The notice of garnishment was served as well to the PSC. In
the meantime, the certificates of public convenience and necessity were sold
by Guzco to Raymundo but still, the same were subject to attachment.
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The Public Service Law, Act No. 3108, as amended, authorizes certificates
of public convenience to be secured by public service operators from the
Public Service Commission. (Sec. 15 [i].) A certificate of public convenience
granted to the owner or operator of public service motor vehicles, it has been
held, grants a right in the nature of a limited franchise.
The rule tested the liability of property to execution by determining if the
interest of the judgment debtor in the case can be sold or conveyed to
another in any way. Now the Public Service Law permits the Public Service
Commission to approved the sale, alienation, mortgaging, encumbering, or
leasing of property, franchises, privileges, or rights or any part thereof (sec.
16 [h]), and in practice the purchase and sale of certificates of public
convenience has been permitted by the Public Service Commission. If the
holder of a certificate of public convenience can sell it voluntarily, there is no
valid reason why the same certificate cannot be taken and sold involuntarily
pursuant to process.
Certificates of public convenience secured by public service operators are
liable to execution, and the Public Service Commission is authorized to
approve the transfer of the certificates of public convenience to the execution
creditor. As a consequence, the decision brought on review will be affirmed,
with costs against the appellant.
In the instant case, the evidence is conclusive that the Batangas

Transportation Company operated its line five years before Orlanes ever
turned a wheel, yet the legal effect of the decision of the Public Service
Commission is to give an irregular operator, who was the last in the field, a
preferential right over a regular operator, who was the first in the field. That
is not the law, and there is no legal principle upon which it can be sustained.
So long as the first licensee keeps and performs the terms and conditions of
its license and complies with the reasonable rules and regulations of the
Commission and meets the reasonable demands of the public, it should
have more or less of a vested and preferential right over a person who seeks
to acquire another and a later license over the same route. Otherwise, the
first license would not have protection on his investment, and would be
subject to ruinous competition and thus defeat the very purpose and intent
for which the Public Service Commission was created.
It does not appear that the public has ever made any complaint the
Batangas Transportation Company, yet on its own volition and to meet the
increase of its business, it has applied to the Public Service Commission for
authority to increase the number of daily trips to nineteen, thus showing a
spirit that ought to be commended.
9
BATANGAS TRANSPORTATION V. ORLANES

52 PHIL 455
FACTS:
Batangas Transportation has been for five years operating its bus line in the
province of Batangas as well as in the province of Tayabas, prior to Orlanes.
Orlanes filed an application for the issuance of the certificate of public
convenience, and requested for the operation in a fixed schedule. The
company filed an application to this petition by Orlanes, averring therein that
it had been operating for five years in the Province of Batangas, and likewise
alleged that its operations is sufficient to cater to public convenience.
Nevertheless, the Commission issued the permit and certificate to Orlanes
notwithstanding the existence of a prior operator.
HELD:
SAN PABLO V. PANTRANCO

153 SCRA 199
FACTS:
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 M/V
"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 on the basis that the run was already adequately
serviced and that additional tonnage cannot be accomodated.
This
notwithstanding, the company still pushed through with the purchase of the
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vessel and wrote a letter to the BOT applying to approve its operations. Not
being able to wait however for BOT to reply, it started operations and was
reprimanded to stop until the scheduled hearing. San Pablo and Cardinal
Transportation entered their respective opposition, alleging that they have
adequately serviced PANTRANCO with the ferry off their buses. However,
in the end, the Commission ruled that the operation o the ferry boat was part
of the CPC of PANTRANCO.
HELD:
We are not unmindful of the reasons adduced by the Commission in
considering the motorboat service between Calapan and Batangas as ferry;
but from our consideration of the law as it stands, particularly
Commonwealth Act No. 146, known as the Public Service Act and the
provisions of the Revised Administrative Code regarding municipal ferries
and those regarding the jurisdiction of the Bureau of Customs over
documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted we
have the impression and we are inclined to believe that the Legislature
intended ferry to mean the service either by barges or rafts, even by motor or
steam vessels, between the banks of a river or stream to continue the
highway which is interrupted by the body of water, or in some cases to
connect two points on opposite shores of an arm of the sea such as bay or
lake which does not involve too great a distance or too long a time to
navigate But where the line or service involves crossing the open sea like
the body of water between the province of Batangas and the island of
Mindoro which the oppositors describe thus "the intervening waters between
Calapan and Batangas are wide and dangerous with big waves where small
boat barge, or raft are not adapted to the service," then it is more reasonable
to regard said line or service as more properly belonging to interisland or
coastwise trade.
This Court takes judicial notice of the fact, and as shown by an examination
of the map of the Philippines, that Matnog which is on the southern tip of the
island of Luzon and within the province of Sorsogon and Allen which is on
the northeastern tip of the island of Samar, is traversed by the San
Bernardino Strait which leads towards the Pacific Ocean. The parties admit
that the distance between Matnog and Allen is about 23 kilometers which
maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by
respondent PANTRANCO to 2 hours according to petitioners. As the San
13
Bernardino Strait which separates Matnog and Allen leads to the ocean it
must at times be choppy and rough so that it will not be safe to navigate the
same by small boats or barges but only by such steamboats or vessels as
the MV "Black Double.
Considering the environmental circumstances of the case, the conveyance
of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry
boat 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 ferry boat 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. Respondent
PANTRANCO should secure a separate CPC for the operation of an
interisland or coastwise shipping service in accordance with the provisions of
law. Its CPC as a bus transportation cannot be merely amended to include
this water service under the guise that it is a mere private ferry service.
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 MV "Black Double" that crosses Matnog to Allen, PANTRANCO
cannot pretend that in issuing tickets to its passengers it did so as a private
carrier and not as a common carrier. The Court does not see any reason
why inspite of its amended franchise to operate a private ferry boat service it
cannot accept walk-in passengers just for the purpose of crossing the sea
between Matnog and Allen. Indeed evidence to this effect has been
submitted. What is even more difficult to comprehend is that while in one
breath respondent PANTRANCO claims that it is a private carrier insofar as
the ferryboat service is concerned, in another breath it states that it does not
thereby abdicate from its obligation as a common carrier to observe
extraordinary diligence and vigilance in the transportation of its passengers
and goods. 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.
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Such an anomalous situation that will jeopardize the safety and interests of
its passengers and the cargo owners cannot be allowed.
10
PAL V. CAB
Supra
Caveat of the decisionthis decision brings to a blur the question on when it

is needed to secure a franchise from Congress. Before, when it is a CPCN,
a legislative franchise is a mandatory requirement. However, with this case,
it imports that no franchise is anymore needed.
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
PRIVATE NATURE; RIGHTS AND OBLIGATIONS OF PARTIES INTER SE
ARISING FROM TRANSACTIONS RELATING TO TRANSPORTATION
ABSENT A TRANSPORTATION CONTRACT
12
11
TEJA V. IAC
148 SCRA 347
FACTS:
Nale purchased from Teja Marketing a motorbike with a side car. He
accordingly gave a downpayment and promised to pay the balance in 60
days. However, he failed to pay the balance and asked for an extension of
one year. Still, he was not able to pay. An action for sum of money and
damages was filed and though Nale didn't deny that he owed Teja Marketing
money, he alleged that the latter failed to register the chattel mortgage and
motor vehicle yearly with the LTC. The trial courts sustained Teja Marketing
and dismissed the counterclaim, ordering Nale top pay the balance of the
purchase price. However, this was reversed by the Court of Appeals on the
ground that there was a illegal transaction involved. The transaction that
transpired was that of a kabit system, prohibited by law.
LARA V. VALENCIA
104 PHIL 65
FACTS:
Lara was an inspector of the Bureau of Forestry. The defendant is engaged
in the business of exporting logs from his lumber concession in Cotabato.
Lara went to said concession upon instructions of his chief to classify the
logs of defendant which were about to be loaded on a ship anchored in the
port of Parang. The work Lara of lasted for six days during which he
contracted malaria fever. On a later date, Lara who then in a hurry to return
to Davao asked defendant if he could take him in his pick-up as there was
then no other means of transportation, to which defendant agreed, and in
that same morning the pick-up left Parang bound for Davao taking along six
passengers, including Lara.
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.
The pick-up has a front seat where the driver and two passengers can be
accommodated and the back has a steel flooring enclosed with a steel
walling of 16 to 17 inches tall on the sides and with a 19 inches tall walling at
the back. In the middle Lara sat on a bag. Before leaving Parang, defendant
invited Lara to sit with him on the front seat but Lara declined. It was their
understanding that upon reaching barrio Samoay, Cotabato, the passengers
were to alight and take a bus bound for Davao, but when they arrived at that
place, only one alighted and the other passengers requested defendant to
allow them to ride with him up to Davao because there was then no available
bus that they could take in going to that place. Defendant again
accommodated the passengers.
Although not outrightly penalized as a criminal offense, the kabit system is

invariably recognized as being contrary to public policy and, therefore, void
When they continued their trip, the sitting arrangement of the passengers
remained the same, Lara being seated on a bag in the middle with his arms
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15
on a suitcase and his head cove red by a jacket. Upon reaching Km. 96,
barrio Catidtuan, Lara accidentally fell from the pick-up and as a result he
suffered serious injuries. Valencia stopped the pick-up to see what
happened to Lara. He sought the help of the residents of that place and
applied water to Lara but to no avail. They brought Lara to the nearest place
where they could find a doctor and not having found any they took him to St.
Joseph's Clinic of Kidapawan. But when Lara arrived he was already dead.
From there they proceeded to Davao City and immediately notified the local
authorities.
HELD:
It therefore appears that the deceased, as well his companions who rode in
the pick-up of defendant, were merely accommodation passengers who paid
nothing for the service and so they can be considered as invited guests
within the meaning of the law. As accommodation passengers or invited
guests, defendant as owner and driver of the pick-up owes to them merely
the duty to exercise reasonable care so that they may be transported safely
to their destination. Thus, "The rule is established by the weight of authority
that the owner or operator of an automobile owes the duty to an invited guest
to exercise reasonable care in its operation, and not unreasonably to expose
him to danger and injury by increasing the hazard of travel. This rule, as
frequently stated by the courts, is that an owner of an automobile owes a
guest the duty to exercise ordinary or reasonable care to avoid injuring him.
Since one riding in an automobile is no less a guest because he asked for
the privilege of doing so, the same obligation of care is imposed upon the
driver as in the case of one expressly invited to ride" (5 Am. Jur., 626-627).
Defendant, therefore, is only required to observe ordinary care, and is not in
duty bound to exercise extraordinary diligence as required of a common
carrier by our law (Articles 1755 and 1756, new Civil Code).
ARISING FROM A TRANSPORTATION CONTRACT
REGULATION OF THE TRANSPORTATION INDUSTRY
administrative entity of the Executive Branch of the government in the

promotion, development and regulation of dependable and coordinated
networks of transportation and communication system, as well as in the fast,
sale, efficient and reliable postal, transportation and communication
services.
To accomplish such mandate, the Ministry shall have the following
objectives:
1. Promote the development of dependable and coordinated networks of
transportation and communication systems;
2. Guide government and private investment in the development of the
country's inter- model transportation and communication systems in a
most practical, expeditious, and orderly fashion for maximum safety,
service, and cost effectiveness;
3. Impose appropriate measure so that technical, economic and other
condition for the continuing economic viability of the transportation and
communication entities are not jeopardized and do not encourage
inefficiency and distortion of traffic patronage;
4. Develop an integrated plan for a nationwide transmission system in
accordance with the national and international telecommunication
service requirement including, among others,radio and television
broadcast relaying, leased channel services and data transmission;
5. Guide government and private investment in the establishment,
operation and maintenance of an international switching system for
incoming and outgoing telecommunication services;
6. Encourage the development of a domestic telecommunication industry
in coordination with the concern entities particularly, the manufacture of
communications/ electronics equipment and components to complement
and support as much as possible, the expansion, development,
operation and maintenance of the nationwide telecommunications
network;
7. Provide for a safe, reliable and efficient postal system for the country.
AIR
AIR TRANSPORTATION OFFICE
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS

EO 125. SECTION 4. Mandate. The Ministry shall be the primary policy,
planning, programming, coordinating, implementing, regulating, and
EO 125. SECTION 12. Bureau of Air Transportation. The Bureau of Air

Transportation, as reorganized herein, shall have the function of developing,
ATENEO LAW 2010
16
formulating and recommending plans, policies, program, projects, standards,

specification and guidelines related to Air Transportation including air space
utilization, air traffic control and aeronautics communication and information
services, aircraft and air navigational facilities, services, maintenance and
operations. For such purposes, it shall, with the approval of the Minister:
1. Establish and prescribe rules and regulations for the inspection and
registration of aircraft's;
2. Establish and prescribe rules and regulations for the issuance of
licenses to qualified airmen;
3. Establish and prescribe rules and regulations for the enforcement of
laws governing air transportation, including the penalties for violations
thereof, and for the deputization of appropriate law enforcement
agencies in pursuant thereof;
4. Determine, fix and/or prescribe charges and/or rates pertinent to the
operation of public air utility facilities and services except in cases where
charges or rates are established by international bodies or associations
of which the Philippines is a participating member or by bodies or
associations reorganized by the Philippine Government as the proper
arbiter of such charges or rates;
5. Administer and operate the Civil Aeronautics Training Center;
6. Perform such other function as may be provided by law.
RA 776, Section 25. Organization of the Civil Aeronautics Administration.
The Civil Aeronautics Administration shall be under the Administrative
supervision and control of the Department of Commerce and Industry. The
Civil Aeronautics Administration shall have one Chief and one Deputy Chief
who shall be known as "Administrator" and "Deputy Administrator",
respectively.
SECTION 10. Powers and duties of the Board.

(A) Except as otherwise provided herein, the Board shall have the power to
regulate the economic aspect of air transportation, and shall have the
general supervision and regulation of, the jurisdiction and control over, air
carriers, general sales agents, cargo sales agents, and airfreight forwarders
as well as their property, property rights, equipment, facilities, and franchise,
in so far as may be necessary for the purpose of carrying out the provisions
of this Act.
xxx
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter 4 of this Act, to issue, deny,
amend, revise, alter, modify, cancel, suspend, or revoke, in whole or in part,
upon petition or complaint, or upon its own initiative, any temporary
operating permit or Certificate of Public Convenience and Necessity;
Provided, however, That in the case of foreign air carriers, the permit shall
be issued with the approval of the President of the Republic of the
Philippines.
(2) To fix and determine reasonable individual, joint or special rates, charges
or fares, which an air carrier may demand, collect or receive for any service
in connection with air commerce. The Board may adopt any original,
amended, or new individual, joint or special rates, charges or fares proposed
by an air carrier if the proposed individual, joint, or special rates, charges for
fares are not unduly preferential or unduly discriminatory or unreasonable.
The burden of proof to show that the proposed individual, joint or special
rates, charges or fares are just and reasonable shall be upon the air carrier
proposing the same.
CIVIL AERONAUTICS BOARD

SECTION 5. Composition of the Board. - The Civil Aeronautics Board shall
be composed of the Secretary of Transportation and Communications or his
designated representative as Chairman, the Assistant Secretary for Air
Transportation of the Department of Transportation and Communications as
Vice-Chairman, the Commanding General of the Philippine Air Force* and
two (2) members to be appointed by the President of the Philippines. They
shall hold office at the pleasure of the President.
In fixing rates, charges, fares under the provisions of this Act, the Board
shall take into consideration, among other factors:
(a) The effect of such rates upon the movement of traffic;
(b) The need in the public interest of adequate and efficient
transportation of persons and property by air carriers at the lowest
cost consistent with the furnishing of such service.
(c) Such standards respecting the character and quality of service
to be rendered by air carriers as may be prescribed by or pursuant
to law;
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(d) The inherent advantages of transportation by aircraft; and

(e) The need of each air carrier for revenues sufficient to enable
such air carrier, under honest, economical, and efficient
management, to provide adequate and efficient air carrier service.
(3) To authorize any type of charters whether domestic or international and
special air services or flight under such terms and conditions as in its
judgment public interest requires. Notwithstanding the existence of bilateral
air agreement, the CAB is authorized to grant any foreign airline increase in
frequencies and/or capacities on international routes when in its judgment
the national interest requires it, provided that the utilization of the increase
frequencies and capacities is not more than thirty days. All grants of
frequencies and/or capacities shall be subject to the approval of the
President.
(4) To approve or disapprove increase and/or decrease of capital, lease,
purchase, sales of aircraft of air carrier engaged in air commerce;
consolidation, merger, purchase, lease and acquisition and control of
operating contracts between domestic foreign air carriers, or between
domestic air carriers or any person engaged in any phase of aeronautics.
(5) To inquire into the management of the business of any air carrier and, to
the extent reasonably necessary for such inquiry, to obtain from such carrier,
and from any person controlling, or controlled by, or under common control
with, such air carrier, full and complete reports and othe informations. Such
reports shall be under oath whenever the Board so requires.
(6) To require annual, monthly, periodical, and special reports from any air
carrier, to prescribe the manner and form in which such reports shall be
made, and to require from any air carrier specific answers to all questions
upon which the Board may deem information to be necessary. Such reports
shall be under oath whenever the Board so requires. The Board may also
require any air carrier to file with it any contract, agreement, understanding
or arrangement, or a true copy thereof, between such air carrier and any
other carrier or person, in relation to any traffic affected by the provisions of
this Act.
(7) To prescribe the forms of any and all accounts, records, and memoranda
of the movement of traffic, as well as of the receipts and expenditures of
17
money, and the length of times such accounts, records and memoranda
shall be preserved: Provided, that any air carrier may keep additional
accounts, records, or memoranda if they do not impair the integrity of the
accounts, records, or memoranda prescribed or approved by the Board and
do not constitute an undue financial burden on such air carrier.
(8) To require each officer and director of any air carrier to transmit a report
describing the shares of stock with any persons engaged in any phase or
other interest held by such air carrier of aeronautics, and the holding of the
stock in and control of, other persons engaged in any phase of aeronautics.
SECTION 11. Nature, terms and conditions. - Certificate of Public
Convenience and Necessity is a permit issued by the Board authorizing a
person to engage in air commerce and/or transportation, foreign and/or
domestic. No person shall engage in air commerce unless there is in force a
permit issued by the Board.
No general sales agent, cargo sales agent or airfreight forwarder shall
engage in any of the activities mentioned in Section 3 paragraphs (jj), (kk)
and (ll) respectively, unless there is in force a permit or any other form of
authorization issued by the Board.
Any permit may be altered, amended, modified, suspended, canceled or
revoked by the Board in whole or in part, upon complaints or petition or upon
the Boards initiative as hereinafter provided, whenever the Board finds such
action to be in the public interest.
There shall be attached to the exercise of the privileges granted by the
permit, or amendment thereto, such reasonable terms, conditions, or
limitations as, in the judgment of the Board, the public interest may require.
No permit shall confer any proprietary, property, or exclusive right in the use
of any air space, civil airway, landing area of government air navigation
facility.
The permit shall, among others specify the terminal and intermediate points,
if any, between which the air carrier is authorized to operate the service to
be rendered, the time of arrival and departure at each point, and the
frequency of flights. Provided, that no change in routes, rates, schedules or
frequency nor supplemental or additional flights to those covered by an air
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18
commerce permit or franchise shall be affected without prior approval of the

Civil Aeronautics Board. In so far as the operation is to take place within the
Philippines, the permit shall designate the terminal and intermediate points
only insofar as the Board shall deem practicable, and otherwise shall
designate only the general route or routes to be followed.
CIVIL AERONAUTICS AUTHORITY (RA9497)
explicitly authorizes CAB to issue a "temporary operating permit," and

nothing contained, either in said section, or in Chapter IV of Republic Act No.
776, negates the power to issue said "permit", before the completion of the
applicant's evidence and that of the oppositor thereto on the main petition.
Indeed, the CAB's authority to grant a temporary permit "upon its own
initiative," strongly suggests the power to exercise said authority, even
before the presentation of said evidence has begun.
Moreover, we perceive no cogent reason to depart, in connection with the
commercial air transport service, from the policy of our public service law,
which sanctions the issuance of temporary or provisional permits or
certificates of public convenience and necessity, before the submission of a
case for decision on the merits. The overriding considerations in both
instances are the same, namely, that the service be required by public
convenience and necessity, and, that the applicant is fit, as well as willing
and able to render such service properly, in conformity with law and the
pertinent rules, regulations and requirements.
12
13
No carrier shall abandon any route, or part thereof for which a permit has
been issued, unless upon findings by the Civil Aeronautics Board that such
an abandonment is uneconomical and is in the public interest.
SECTION 12. Citizenship requirement. - Except as otherwise provided, in
the Constitution and existing treaty or treaties, permit authorizing a person to
engage in domestic air commerce and/or transportation shall be issued only
to citizens of the Philippines.
PAL V. CAB
23 SCRA 992
FACTS:
Fairways petitioned the CAB for authority to operate its scheduled and nonscheduled domestic flights. Upon hearing, it was granted provisional
authority to which PAL opposed. Fairways was sustained.
HELD:
The first ground is devoid of merit. Section 10-C(1) of Republic Act No. 776,
reading:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue,
deny, amend, revise, alter, modify, cancel suspend or revoke, in whole or in
part, upon petitioner complaint, or upon its own initiative, any temporary
operating permit or Certificate of Public Convenience and Necessity;
Provided, however, That in the case of foreign air carriers, the permit shall
be issued with the approval of the President of the Republic of the
Philippines....
PAL V. CAB
270 SCRA 538
FACTS:
PAL sought the annulment of the issuance of a temporary operating permit
to Grand Air by the CAB. Grand Air has filed a petition for the issuance of a
Certificate of Public Convenience and Necessity and upon compliance
prayed for the issuance of the temporary permit. Mainly it alleges that Grand
Air shouldnt be granted any temporary operating permit absent any
legislative franchise to operate. PAL also alleged that the CBA had illegally
exercised jurisdiction over the matter due to the same reason.
HELD:
There The Civil Aeronautics Board has jurisdiction over GrandAir's
Application for a Temporary Operating Permit. This rule has been
established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics
Board, promulgated on June 13, 1968.[12] The Board is expressly
authorized by Republic Act 776 to issue a temporary operating permit or
Certificate of Public Convenience and Necessity, and nothing contained in
the said law negates the power to issue said permit before the completion of
the applicant's evidence and that of the oppositor thereto on the main
petition. Indeed, the CAB's authority to grant a temporary permit "upon its
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19
own initiative" strongly suggests the power to exercise said authority, even
before the presentation of said evidence has begun. Assuming arguendo
that a legislative franchise is prerequisite to the issuance of a permit, the
absence of the same does not affect the jurisdiction of the Board to hear the
application, but tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.
Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With the
growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency towards the delegation of
greater powers by the legislature, and towards the approval of the practice
by the courts. It is generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency, and to this
extent, the power to grant franchises has frequently been delegated, even to
agencies other than those of a legislative nature. In pursuance of this, it has
been held that privileges conferred by grant by local authorities as agents for
the state constitute as much a legislative franchise as though the grant had
been made by an act of the Legislature.
The trend of modern legislation is to vest the Public Service Commissioner
with the power to regulate and control the operation of public services under
reasonable rules and regulations, and as a general rule, courts will not
interfere with the exercise of that discretion when it is just and reasonable
and founded upon a legal right.
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a
reading of the pertinent issuances governing the Philippine Ports Authority,
proves that the PPA is empowered to undertake by itself the operation and
management of the Manila International Container Terminal, 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.
Given the foregoing postulates, we find that the Civil Aeronautics Board has
the authority to issue a Certificate of Public Convenience and Necessity, or
Temporary Operating Permit to a domestic air transport operator, who,
though not possessing a legislative franchise, meets all the other
requirements prescribed by the law. Such requirements were enumerated in
Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a
legislative franchise is an indispensable requirement for an entity to operate
as a domestic air transport operator. Although Section 11 of Article XII
recognizes Congress' control over any franchise, certificate or authority to
operate a public utility, it does not mean Congress has exclusive authority to
issue the same. Franchises issued by Congress are not required before
each and every public utility may operate. In many instances, Congress has
seen it fit to delegate this function to government agencies, specialized
particularly in their respective areas of public service.
LAND
LAND TRANSPORTATION OFFICE
SECTION 13. Bureau of Land Transportation. The Bureau of Land
Transportation is hereby created and shall have the functions of developing,
formulating and recommending plans, programs, policies, standards,
specifications and guidelines pertaining to land transportation. For such
purposes, it shall, with the approval of the Minister:
1. Establish a prescribe rules and regulations for routes, zones and/or
areas of particular operators of public land services;
certificates of public convenience for the operation of public and land
transportation utilities and services such as motor vehicles, trimobiles,
and railroad lines;
3. Establish and prescribe rules and regulation for the inspection and
registration of public and land transportation facilities such as motor
vehicles, trimobiles, and railroad lines;
licenses to qualified motor vehicle drivers, trimobile drivers, motor
vehicle conductors, train engineers and train conductors;
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5.
6.
7.
8.
Establish and prescribe the corresponding rules and regulation for the
enforcement of laws governing land transportation, including the
penalties for violation thereof, and for the deputation of appropriate law
enforcement agencies in pursuance thereof;
Determine, fix and/or prescribe charges and/or rates pertinent to the
operation of public and land utility facilities and services except in cases
where charges or rates are established by international bodies or
association of which the Philippines is a participating member or by
bodies or association recognized by the Philippine Government as the
proper arbiter of such charges or rates;
Establish and prescribe the rules, regulations, procedures and
standards for the accreditation of driving schools;
Performs such other functions as may be provided by law.
LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD

(LTFRB)
EO 202. Sec. 1. Creation of the Land Transportation Franchising and
Regulatory Board. There is hereby created in the Department of
Transportation and Communications, the Land Transportation Franchising
and Regulatory Board hereinafter referred to as the "Board".
Sec. 2. Composition of the Board. The Board shall be composed of a
Chairman and two (2) members with the same rank, salary and privileges of
an Assistant Secretary, all of whom shall be appointed by the President of
the Philippines upon recommendation of the Secretary of Transportation and
Communications. One (1) member of the Board shall be a member of the
Bar and shall have engaged in the practice of law in the Philippines for at
least five (5) years, another a holder of a degree in civil engineering, and the
other a holder of a degree in economics, finance or management both with
the same number of years of experience and practice.
Sec. 3. Executive Director and Support Staff of the Board. The Board shall
have an Executive Director who shall also appointed by the President of the
Philippines upon the recommendation of the Secretary of Transportation and
Communications. He shall have the rank, salary and privileges of a
Department Service Chief. He shall assist the Board in the performance of
its powers and functions.
20
The Board shall be supported by the Technical Evaluation Division, Legal

Division, Management Information Division, Administrative Division and
Finance Division.
Sec. 5. Powers and Functions of the Land Transportation Franchising and
Regulatory Board. The Board shall have the following powers and functions:
a. To prescribe and regulate routes of service, economically viable
capacities and zones or areas of operation of public land transportation
services provided by motorized vehicles in accordance with the public land
transportation development plans and programs approved by the
Department of Transportation and Communications;
b. To issue, amend, revise, suspend or cancel Certificates of Public
Convenience or permits authorizing the operation of public land
transportation services provided by motorized vehicles, and to prescribe the
appropriate terms and conditions therefor;
c. To determine, prescribe and approve and periodically review and adjust,
reasonable fares, rates and other related charges, relative to the operation of
public land transportation services provided by motorized vehicles;
d. To issue preliminary or permanent injunction, whether prohibitory or
mandatory, in all cases in which it has jurisdiction, and in which cases the
pertinent provisions of the Rules of Court shall apply;
e. To punish for contempt of the Board, both direct and indirect, in
accordance with the pertinent provisions of, and the penalties prescribed by,
the Rules of Court;
f. To issue subpoena and subpoena duces tecum and summon witnesses to
appear in any proceedings of the Board, to administer oaths and
affirmations;
g. To conduct investigations and hearings of complaints for violation of the
public service laws on land transportation and of the Board's rules and
regulations, orders, decisions and/or rulings and to impose fines and/or
penalties for such violations;
h. To review motu proprio the decisions/actions of the Regional Franchising
and Regulatory Office herein created;
i. To promulgate rules and regulations governing proceedings before the
Board and the Regional Franchising and Regulatory Office: Provided, That
except with respect to paragraphs d, e, f and g hereof, the rules of procedure
and evidence prevailing in the courts of laws should not be controlling and it
is the spirit and intention of said rules that the Board and the Regional
Franchising and Regulatory Offices shall use every and all reasonable
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21
means to ascertain facts in its case speedily and objectively and without
regard to technicalities of law and procedures, all in the interest of due
process;
j. To fix, impose and collect, and periodically review and adjust, reasonable
fees and other related charges for services rendered;
k. To formulate, promulgate, administer, implement and enforce rules and
regulations on land transportation public utilities, standards of measurements
and/or design, and rules and regulations requiring operators of any public
land transportation service to equip, install and provide in their utilities and in
their stations such devices, equipment facilities and operating procedures
and techniques as may promote safety, protection, comfort and convenience
to persons and property in their charges as well as the safety of persons and
property within their areas of operations;
l. To coordinate and cooperate with other government agencies and entities
concerned with any aspect involving public land transportation services with
the end in view of effecting continuing improvement of such services; and
m. To perform such other functions and duties as may be provided by law, or
as may be necessary, or proper or incidental to the purposes and objectives
of this Executive Order.
Sec. 6. Decision of the Board; Appeals therefrom and/or Review thereof.
The Board, in the exercise of its powers and functions, shall sit and render
its decisions en banc. Every such decision, order, or resolution of the Board
must bear the concurrence and signature of at least two (2) members
thereof.
The decision, order or resolution of the Board shall be appealable to the
Secretary within thirty (30) days from receipt of the decision: Provided, That
the Secretary may motu proprio review any decision or action of the Board
before the same becomes final.
Sec. 7. Creation of Regional Franchising and Regulatory Offices. There shall
be a Regional Franchising and Regulatory Office in each of the
administrative regions of the country which shall be headed by a Board
Regional Manager having the rank, salary and privileges of a Department
Assistant Regional Director. The Regional Franchising and Regulatory
Offices shall hear and decide uncontested applications/petitions for routes,
within
their
respective
administrative
regions:
Provided,
That
applications/petitions for routes extending their respective

jurisdictions shall be heard and decided by the Board.
14
territorial
KMU LABOR CENTER V. GARCIA

239 SCRA 386
FACTS:
Certain orders and circulars of the DOTC and LFTRB are being assailed for
its unconstitutionality and illegality. These pertain to, but not limited to the
following-- (a) authorize provincial bus and jeepney operators to increase or
decrease the prescribed transportation fares without application therefor with
the LTFRB and without hearing and approval thereof by said agency in
violation of Sec. 16(c) of Commonwealth Act No. 146, as amended,
otherwise known as the Public Service Act, and in derogation of LTFRB's
duty to fix and determine just and reasonable fares by delegating that
function to bus operators, and (b) establish a presumption of public need in
favor of applicants for certificates of public convenience (CPC) and place on
the oppositor the burden of proving that there is no need for the proposed
service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but
also of Sec. 20(a) of the same Act mandating that fares should be "just and
reasonable." It is, likewise, violative of the Rules of Court which places upon
3
each party the burden to prove his own affirmative allegations.
The
offending provisions contained in the questioned issuances pointed out by
petitioner, have resulted in the introduction into our highways and
thoroughfares thousands of old and smoke-belching buses, many of which
are right-hand driven, and have exposed our consumers to the burden of
spiraling costs of public transportation without hearing and due process.
HELD:
On the fare-ranging scheme
Legislature delegated to the defunct Public Service Commission the power of
fixing the rates of public services. Respondent LTFRB, the existing
regulatory body today, is likewise vested with the same under Executive
Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order
authorizes LTFRB "to determine, prescribe, approve and periodically review
and adjust, reasonable fares, rates and other related charges, relative to the
operation of public land transportation services provided by motorized
vehicles."
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22
In the case at bench, 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 potest. What has been delegated
cannot be delegated. This doctrine is based on the ethical principle that such
a delegated power constitutes not only a right but a duty to be performed by
the delegate through the instrumentality of his own judgment and not through
the intervening mind of another. A further delegation of such power would
indeed constitute a negation of the duty in violation of the trust reposed in
the delegate mandated to discharge it directly. The policy of allowing the
provincial bus operators to change and increase their fares at will 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.
By its terms, public convenience or necessity generally means something

16
fitting or suited to the public need. As one of the basic requirements for the
grant of a CPC, public convenience and necessity exists when the proposed
facility or service meets a reasonable want of the public and supply a need
which the existing facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of
fact that must be established by evidence, real and/or testimonial; empirical
data; statistics and such other means necessary, in a public hearing
conducted for that purpose. The object and purpose of such procedure,
among other things, is to look out for, and protect, the interests of both the
public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the
condition that after full-dress hearing and investigation, it shall find, as a fact,
that the proposed operation is for the convenience of the public.
WATER
On the presumption of public need

While adopting in toto the foregoing requisites for the issuance of a CPC,
LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet
incongruous and contradictory policy guideline on the issuance of a CPC.
The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public
need. The presumption of public need for a service shall be deemed in favor
of the applicant, while the burden of proving that there is no need for the
proposed service shall be the oppositor's.
The above-quoted provision is entirely incompatible and inconsistent with
Section 16(c)(iii) of the Public Service Act which requires that before a CPC
will be issued, the applicant must prove by proper notice and hearing that the
operation of the public service proposed will promote public interest in a
proper and suitable manner. On the contrary, the policy guideline states that
the presumption of public need for a public service shall be deemed in favor
of the applicant. In case of conflict between a statute and an administrative
order, the former must prevail.
SECTION 14. Maritime Industry Authority. The Maritime Industry Authority is

hereby retained and shall have the following functions:
1. Develop and formulate, plans, policies, programs, project, standards,
specifications and guidelines geared towards the promotion and
development of the Maritime Industry, the growth and effective
regulation of shipping enterprises, for the national security objectives of
the country;
2. Establish, prescribe and regulate routes, zones and /or areas of
operation of particular operators of public water services;
3. Issue certificates of public convenience for the operation of domestic
and overseas water carriers;
4. Register vessels as well as issue certificates, licenses or documents
necessary or incident thereto;
5. Undertake the safety regulatory functions pertaining to vessels
construction and operations including the determination of manning
levels and issuance of certificates competency to seamen;
6. Enforce laws, prescribe and enforce rules and regulation, including
penalties for violation thereof, governing water transportation and the
Philippine merchant marine with the aid of other law enforcement
agencies;
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23
7.
8.
9.
10.
11.
12.
13.
Undertake the issuance of licenses to qualified seamen and harbor, bay

and river pilots;
Determine, fix and/or prescribe charges and/or rates pertinent to the
operation of public water transport utilities, facilitate all services except
in cases where charges or rates are established by international bodies
or association of which the Philippine is a participating member or by
bodies or association recognized by the Philippine Government as the
proper arbiter of such charges or rates;
Accredit marine surveyors and maritime enterprises engaged in
shipbuilding, ship repair, ship breaking, domestic and overseas
shipping, ship management and agency;
Supervise the Philippine Merchant Marine Academy as recognized
herein in accordance with its charter, the provision hereof and
applicable laws, rules and regulation under the chairmanship of the
maritime administrator;
Issue and register the Continuous Discharge Book of Filipino Seamen;
Establish and prescribe rules and regulation, standards and procedures
for the efficient and effective discharge of the above functions;
Perform such other function as may now or hereafter be provided by the
law.
COMMON CARRIERS
IN GENERAL
DEFINITIONS; ESSENTIAL ELEMENTS

Article 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.
ELEMENTS OF COMMON CARRIER OPEN FOR DISCUSSION:
(1) Persons, corporations, associations or firms
(2) Engaged in the business of carrying or transporting
(3) For compensation
(4) Publicthe same public term employed in public utilities
PERSONS, CORPORATIONS, ASSOCIATIONS, OR FIRMS, WHAT DOES

IT ENTAIL?
Important for suability

PUBLIC, WHAT DOES IT MEANS
Engenders the same notion with public utilities
Not confined to privileged individuals, but is open to the indefinite

public
Doesnt have to make reference to all the people in a given

population as long as the offer to provide the service is made
indiscriminately whether to a certain section of the population or the
whole populace
One of the tests: public may enjoy it by right or only by permission?
It is connected with the conduct of offering (see US v. Tan Piaco) or

mode of doing it
FOR COMPENSATION, MEANING
When he holds himself to the public as he holds business for

compensation and not for free
ENGAGED IN CARRYING OR TRANSPORTING, MEANING.
De Guzman v. Court of Appeals: 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;
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 it 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.
IMPORTANT!!!
Burden of proof upon the one who alleges the other is a common
carrier
15
US V. TAN PIACO
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24
40 PHIL 853
FACTS:
The appellant rented two automobile trucks and was using them upon the
highways of the Province of Leyte for the purpose of carrying some
passengers and freight; that he carried passengers and freight under a
special contract in each case; that he had not held himself out to carry all
passengers and all freight for all persons who might offer passengers and
freight.
He was charged consequently for violating the Public Utility Act for operating
a public utility without authorization from the Commission. In settling this
issue, it should be determined if appellant was operating a public utility.
HELD:
Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694,
provides that: "The Public Utility Commission or Commissioners shall have
general supervision and regulation of, jurisdiction and control over, all public
utilities. . . . The term 'public utility' is hereby defined to include every
individual, copartnership, association, corporation or joint stock company,
etc., etc., that now or hereafter may own, operate, managed, or control any
common carrier, railroad, street railway, etc., etc., engaged in the
transportation of passengers, cargo, etc., etc., for public use."
Under the provisions of said section, two things are necessary: (a) The
individual, copartnership, etc., etc., must be a public utility; and (b) the
business in which such individual, copartnership, etc. etc., is engaged must
be for public use. So long as the individual or copartnership, etc., etc., is
engaged in a purely private enterprise, without attempting to render
service to all who may apply, he can in no sense be considered a
public utility, for public use.
"Public use" means the same as "use by the public." The essential feature of
the public use is that it is not confined to privilege individuals, but is open to
the indefinite public. It is this indefinite or unrestricted quality that gives it its
public character. In determining whether a use is public, we must look
not only the character of the business to be done, but also to the
proposed mode of doing it. If the use is merely optional with the
owners, or the public benefit is merely incidental, it is not a public use,
authorizing the exercise of the jurisdiction of the public utility commission.

There must be, in general, a right which the law compels the power to give to
the general public. It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest. The true
criterion by which to judge of the character of the use is whether the
public may enjoy it by right or only by permission.
For all of the foregoing reasons, we agree with the Attorney-General that the
appellant was not operating a public utility, for public use, and was not,
therefore, subject to the jurisdiction of the Public Utility Commission.
16
HOME INSURANCE V. AMERICAN STEAMSHIP

23 SCRA 24
FACTS:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at
Chimbate, Peru, 21,740 jute bags of Peruvian fish meal through SS
Crowborough, covered by clean bills of lading. The cargo, consigned to San
Miguel Brewery, and insured by Home Insurance Company arrived in Manila
and was discharged into the lighters of Luzon Stevedoring Company. When
the cargo was delivered to consignee San Miguel Brewery Inc., there were
shortages causing the latter to lay claims against Luzon Stevedoring
Corporation, Home Insurance Company and the American Steamship
Agencies, owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the
consignee the insurance value of the loss, as full settlement of the claim.
Having been refused reimbursement by both the Luzon Stevedoring
Corporation and American Steamship Agencies, Home Insurance Company,
as subrogee to the consignee, filed against them.
HELD:
A perusal of the charter party referred to shows that while the possession
and control of the ship were not entirely transferred to the charterer, the
vessel was chartered to its full and complete capacity. Furthermore, the,
charter had the option to go north or south or vice-versa, loading, stowing
and discharging at its risk and expense. Accordingly, the charter party
contract is one of affreightment over the whole vessel rather than a demise.
ATENEO LAW 2010
As such, the liability of the shipowner for acts or negligence of its captain
and crew, would remain in the absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable
for loss or damage to the goods caused by personal want of due diligence
on its part or its manager to make the vessel in all respects seaworthy and to
secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph,
however, exempts the owner of the vessel from any loss or damage or delay
arising from any other source, even from the neglect or fault of the captain or
crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..
The Civil Code provisions 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 would be 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.
17
DE GUZMAN V. CA
168 SCRA 612
FACTS:
Upon gathering sufficient quantities of such scrap material, respondent
would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip
to Pangasinan, respondent would load his vehicles with cargo which various
merchants wanted to be delivered to differing establishments in Pangasinan.
For that service, respondent charged freight rates which were commonly
lower than regular commercial rates.
On the relevant date, he was contracted for the shipping of packaged milk
but these did not make it to their destination for the trucks were hijacked on
the road. Consequently, petitioner sought recovery of the value of the milk,
interest, damages amongst others. He alleged that being a common carrier,
respondent should have exercised extraordinary diligence.
25
HELD:
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.
So understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code.
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such back-hauling was
done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that fee frequently fell
below commercial freight rates is not relevant here. Absent any CPCN, a
certificate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also
complied with the requirements of the applicable regulatory statute
and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound
public policy; that would be to reward private respondent precisely for failing
to comply with applicable statutory requirements. The business of a common
carrier impinges directly and intimately upon the safety and well being and
property of those members of the general community who happen to deal
with such carrier. The law imposes duties and liabilities upon common
ATENEO LAW 2010
26
carriers for the safety and protection of those who utilize their services and
the law cannot allow a common carrier to render such duties and liabilities
merely facultative by simply failing to obtain the necessary permits and
authorizations.
Note: the court was wrong when it rendered Cendana as a common carrier.
It was wrong also for the court to rely on article 1745 since this provision
provides for prohibited stipulations.
WHAT ARE THE ARGUABLE CONSEQUENCES OF THE DECISION IN
DE GUZMAN AND SUBSEQUENT CASES?
(1) Shangri-La hotel may be argued to be a common carrier since it
provides transportation services to those who lodge in their hotel
(2) Asian hospital may likewise be considered as a common carrier
because it furnishes its patients ambulance service to and from the
hospital
(3) A person who owns a jeepney which is kept in his garage for 364
days a year and uses it just once to bring his family to a trip, and
correspondingly, allows other people to have a free ride to Cubao,
may be considered as a common carrier.
18
BASCOS V. CA
221 SCRA 318
FACTS:
Cipriano entered into a hauling contract with Jibfair Shipping Agency for the
hauling of soy bean meal to a Pure Foods warehouse. In turn, the former
entered into a subcontract with petitioner. Petitioner failed to deliver the
cargo and subsequently Cipriano was asked to pay for the amount of the
undelivered soya bean meal. Cipriano in turn sought reimbursement from
petitioner.
HELD:
The test to determine a common carrier is whether the given undertaking
is part of a business engaged in by the carrier which he has held out to
the general public as his occupation rather than the quantity or extent
of the business transacted. In this case, the petitioner herself has made
the admission that she was in the trucking business.
19
PLANTERS PRODUCTS V. CA
226 SCRA 476
FACTS:
Petitioner ordered from Mitsubishi International urea fertilizer. The latter in
turn shipped the same through a vessel owned by another. The two parties
entered into a charter party which included some agreements regarding
inspection, loading/unloading, among other concerns. When the shipment
arrived and petitioner had it surveyed, it was discovered there was deficiency
and that some were contaminated with dirt. Planters filed a complaint
consequently with the resident agent of KKKK, the ship owner. The
respondent denies liability on the ground that provisions on common carriers
isnt applicable as they have become private carriers through the operation
of the charter party.
HELD:
A "charter-party" is defined as a contract by which an entire ship, or
some principal part thereof, is let by the owner to another person for a
specified time or use; a contract of affreightment by which the owner of a
ship or other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration
of the payment of freight. Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased
by the owner in part or as a whole, to carry goods for others; and, (b)
charter by demise or bareboat charter, by the terms of which the whole
vessel is let to the charterer with a transfer to him of its entire command and
possession and consequent control over its navigation, including the master
and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period
of time, or voyage charter, wherein the ship is leased for a single voyage. In
both cases, the charter-party provides for the hire of vessel only, either for a
determinate period of time or for a single or consecutive voyage, the
shipowner to supply the ship's stores, pay for the wages of the master and
the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art.
1732 of the Civil Code. The definition extends to carriers either by land, air or
water which hold themselves out as ready to engage in carrying goods or
transporting passengers or both for compensation as a public employment
ATENEO LAW 2010
27
and not as a casual occupation. The distinction between a "common or

public carrier" and a "private or special carrier" lies in the character of
the business, such that if the undertaking is a single transaction, not a
part of the general business or occupation, although involving the
carriage of goods for a fee, the person or corporation offering such
service is a private carrier.
Article 1733 of the New Civil Code mandates that common carriers, by
reason of the nature of their business, should observe extraordinary
diligence in the vigilance over the goods they carry. In the case of private
carriers, however, the exercise of ordinary diligence in the carriage of goods
will suffice. Moreover, in the case of loss, destruction or deterioration of the
goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. On the
contrary, no such presumption applies to private carriers, for whosoever
alleges damage to or deterioration of the goods carried has the onus of
proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business,
operates as a common carrier, transporting goods indiscriminately for all
persons. When petitioner chartered the vessel M/V "Sun Plum", the ship
captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly
then can we charge the charterer, a stranger to the crew and to the ship,
with the duty of caring for his cargo when the charterer did not have any
control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the
determination of the course of the voyage and other technical incidents of
maritime navigation were all consigned to the officers and crew who were
screened, chosen and hired by the shipowner.
It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one
or more persons, provided the charter is limited to the ship only, as in
the case of a time-charter or voyage-charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a
common carrier becomes private, at least insofar as the particular voyage
covering the charter-party is concerned. Indubitably, a shipowner in a time or
voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer.
20
FABRE V. CA
259 SCRA 426
FACTS:
Petitioners were the owners of a minibus which they used as school service
for students, mostly those who studied in St. Scholastica Manila. They
employed a driver who drove the minibus in its school services. On a
relevant date, WWCF hired the services of the petitioners for transportation
from and back to Manila, going to La Union. The bus left late and since one
of the roads to be passed through was under repair, a different route was
taken by petitioner driver. And since he was unfamiliar with the route he was
taking, and the road being slippery due to the rains, he wasnt able to notice
a sharp curve till it was too late. This resulted to numerous injuries to his
passengers and likewise, to the vehicle.
HELD:
Petitioners argue that they are not liable because (1) an earlier departure
(made impossible by the congregation's delayed meeting) could have a
averted the mishap and (2) under the contract, the WWCF was directly
responsible for the conduct of the trip. Neither of these contentions hold
water. The hour of departure had not been fixed. Even if it had been, the
delay did not bear directly on the cause of the accident. With respect to the
second contention, it was held in an early case that:
[A] person who hires a public automobile and gives the driver directions as to
the place to which he wishes to be conveyed, but exercises no other control
over the conduct of the driver, is not responsible for acts of negligence of the
latter or prevented from recovering for injuries suffered from a collision
between the automobile and a train, caused by the negligence or the
automobile driver.
As already stated, 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.
ATENEO LAW 2010
28
As common carriers, the Fabres were found to exercise "extraordinary

diligence" for the safe transportation of the passengers to their destination.
This duty of care is not excused by proof that they exercise the diligence of a
good father of the family in the selection and supervision of their employee.
As Art. 1759 of the Code provides:
Common carriers are liable for the death of or injuries to passengers
through the negligence or willful acts of the former's employees
although such employees may have acted beyond the scope of their
authority or in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.
21
FIRST PHILIPPINE INDUSTRIAL CORPORATION V. CA

300 SCRA 661
FACTS:
Petitioner was granted a pipeline concession by the government under the
Petroleum Act. It applied for a mayors permit on a relevant date but before
it was entertained, it was required to pay for local taxes based on its gross
receipts. Petitioner claims that it is exempted from payment, given that it is
one given a concession under the Petroleum Act. Respondent on the other
hand, alleges that the petitioner is not a common carrier to be exempted
from local and business taxes.
HELD:
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.
Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods

is:
1. He must be engaged in the business of carrying goods for others as
a public employment, and must hold himself out as ready to engage in
the transportation of goods for person generally as a business and not
as a casual occupation;
2. He must undertake to carry goods of the kind to which his business
is confined;
3. He must undertake to carry by the method by which his business is
conducted and over his established roads; and
4. The transportation must be for hire.
Based on the above definitions and requirements, there is no doubt that
petitioner is a common carrier. It is engaged in the business of transporting
or carrying goods, i.e. petroleum products, for hire as a public employment. It
undertakes to carry for all persons indifferently, that is, to all persons who
choose to employ its services, and transports the goods by land and for
compensation.
22
ASIA LIGHTERAGE V. CA
409 SCRA 340
FACTS:
Better Western White Wheat was shipped on board a vessel for delivery to
consignee General Milling Corporation. The latter contracted the services of
petitioner to deliver the goods to its warehouse upon arrival. The goods
arrived and were loaded in petitioners barge. The transport of the goods
was suspended due to news of an incoming typhoon. Thereafter, several
mishaps happened to the barge. It developed a list, then it almost sank
completely twice during its voyage. It consequently filed marine protests for
the same. General Milling wrote to petitioner regarding the goods which
obviously was destroyed during the whole voyage. It sought indemnity from
the insurance company and the latter then sought indemnity from the
petitioner. Petitioner alleged that it wasnt a common carrier, among others.
HELD:
In the case at bar, the principal business of the petitioner is that of lighterage
and drayage and it offers its barges to the public for carrying or transporting
goods by water for compensation. Petitioner is clearly a common carrier. In
ATENEO LAW 2010
29
De Guzman, we considered private respondent Ernesto Cendaa to be a

common carrier even if his principal occupation was not the carriage of
goods for others, but that of buying used bottles and scrap metal in
Pangasinan and selling these items in Manila.
common carrier. Its simple covenant was to only make travel arrangements
in their behalf. And as such, it is not bound under the law to exercise
extraordinary diligence in the performance of its obligations, as petitioner
claims.
Therefore, petitioner is a common carrier whether its carrying of goods is

done on an irregular rather than scheduled manner, and with an only limited
clientele. A common carrier need not have fixed and publicly known routes.
Neither does it have to maintain terminals or issue tickets.
This notwithstanding, there is no finding of concurrent negligence from

respondent agency. Evidence shows that there was indeed due diligence on
its part in making the necessary arrangements for petitioner. It was through
petitioners own fault and negligence that she incurred any injury.
To be sure, petitioner fits the test of a common carrier. The test to determine
a common carrier is "whether the given undertaking is a part of the
business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of
the business transacted." In the case at bar, the petitioner admitted that it
is engaged in the business of shipping and lighterage, offering its barges to
the public, despite its limited clientele for carrying or transporting goods by
water for compensation.
NATURE OF BUSINESS; POWER OF STATE TO REGULATE

Art. 1765. The Public Service Commission may, on its own motion or on
petition of any interested party, after due hearing, cancel the certificate of
public convenience granted to any common carrier that repeatedly fails to
comply with his or its duty to observe extraordinary diligence as prescribed in
this Section.
24
23
CRISOSTOMO V. COURT OF APPEALS

409 SCRA 528
PANTRANCO V. PSC
70 PHIL 221
FACTS:
FACTS:
Crisostomo engaged the services of Carnival Tours to facilitate her travel
and booking needs to join a tour called the Jewels of Europe. She was duly
assisted and was given a discount, since her niece was an employee in said
agency. When her niece delivered the pertinent travel documents to her,
she was informed that her flight was on a Saturday. Without checking her
documents, she proceeded only to find out she was a day late for her flight.
She then complained against the agency who told her she could avail of
another tour upon payment of an additional fee. She did so and when she
returned from her tour, she demanded for reimbursement from the agency of
the difference in amounts between her prior booked tour and the tour she
actually took. She wasnt reimbursed and she was then prompted to file the
complaint.
HELD:
The travel agency is not an entity engaged in the business of transporting
either passengers or goods and is therefore neither a public or private
HELD:
The National Assembly, by virtue of the Constitution, logically succeeded to
the Congress of the United States in the power to amend, alter or repeal any
franchise or right granted prior to or after the approval of the Constitution;
and when Commonwealth Acts Nos. 146 and 454 were enacted, the
National Assembly, to the extent therein provided, has declared its will and
purpose to amend or alter existing certificates of public convenience.
Upon the other hand, statutes enacted for the regulation of public utilities,
being a proper exercise by the state of its police power, are applicable not
only to those public utilities coming into existence after its passage, but
likewise to those already established and in operation.
This right of the state to regulate public utilities is founded upon the police
power, and statutes for the control and regulation of utilities are a legitimate
ATENEO LAW 2010
30
exercise thereof, for the protection of the public as well as of the utilities
themselves. Such statutes are, therefore, not unconstitutional, either
impairing the obligation of contracts, taking property without due process, or
denying the equal protection of the laws, especially inasmuch as the
question whether or not private property shall be devoted to a public and the
consequent burdens assumed is ordinarily for the owner to decide; and if he
voluntarily places his property in public service he cannot complain that it
becomes subject to the regulatory powers of the state.
but only to extra-contractual obligations or to use the technical form of

expression, that article relates only to culpa aquiliana and not to culpa
contractual.
The contract of defendant to transport plaintiff carried with it, by implication,
the duty to carry him in safety and to provide safe means of entering and
leaving its trains (civil code, article 1258). That duty, being contractual, was
direct and immediate, and its non-performance could not be excused by
proof that the fault was morally imputable to defendant's servants.
NATURE AND BASIS OF LIABILITY

26
Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in
Articles 1755 and 1756.
25
CANGCO V. MRR
38 PHIL 767
FACTS:
This is the same Torts case wherein when Cangco alighted from the train, he
slipped from the platform due to some melons negligently placed therein. He
suffered serious injuries due to the accident and filed a case against MRR.
HELD:
It is important to note that the foundation of the legal liability of the defendant
is the contract of carriage, and that the obligation to respond for the damage
which plaintiff has suffered arises, if at all, from the breach of that contract by
reason of the failure of defendant to exercise due care in its performance.
That is to say, its liability is direct and immediate, differing essentially, in
legal viewpoint from that presumptive responsibility for the negligence of its
servants, imposed by article 1903 of the Civil Code, which can be rebutted
by proof of the exercise of due care in their selection and supervision. Article
1903 of the Civil Code is not applicable to obligations arising ex contractu,
ISAAC V. A.L. AMMEN

101 PHIL 1046
FACTS:
Isaac was a passenger in one of Ammens buses transversing the AlbayCamarines Sur route. During the voyage, the bus collided with another
motor vehicle which caused Isaac to severe his arm. He underwent serious
medical treatment and as a result thereof, he filed a complaint against the
bus company.
HELD:
From the above legal provisions, we can make the following restatement of
the principles governing the liability of a common carrier: (1) the liability of a
carrier is contractual and arises upon breach of its obligation. There is
breach if it fails to exert extraordinary diligence according to all
circumstances of each case; (2) a carrier is obliged to carry its passenger
with the utmost diligence of a very cautious person, having due regard
for all the circumstances; (3) a carrier is presumed to be at fault or to
have acted negligently in case of death of, or injury to, passengers, it
being its duty to prove that it exercised extraordinary diligence; and (4)
the carrier is not an insurer against all risks of travel.
The question that now arises is: Has defendant observed extraordinary
diligence or the utmost diligence of every cautious person, having due
regard for all circumstances, in avoiding the collision which resulted in the
injury caused to the plaintiff?
The evidence would appear to support the above finding. Thus, it appears
that Bus No. 31, immediately prior to the collision, was running at a
ATENEO LAW 2010
31
moderate speed because it had just stopped at the school zone of

Matacong, Polangui, Albay. The pick-up car was at full speed and was
running outside of its proper lane. The driver of the bus, upon seeing the
manner in which the pick-up was then running, swerved the bus to the very
extreme right of the road until its front and rear wheels have gone over the
pile of stones or gravel situated on the rampart of the road. Said driver could
not move the bus farther right and run over a greater portion of the pile, the
peak of which was about 3 feet high, without endangering the safety of his
passengers. And notwithstanding all these efforts, the rear left side of the
bus was hit by the pick-up car.
27
FORES V. MIRANDA
105 PHIL 266
FACTS:
Miranda was a passenger in a jeep owned by Fores. Since the jeep was
driving at excessive speed and it lost control while crossing a bridge, it
collided with the bridge wall causing the passengers, one of whom was
Miranda, serious physical injuries.
HELD:
It is also suggested that a carrier's violation of its engagement to safety
transport the passenger involves a breach of the passenger's confidence,
and therefore should be regarded as a breach of contract in bad faith,
justifying recovery of moral damages under Art. 2220. This theory is
untenable, for under it the carrier would always be deemed in bad faith, in
every case its obligation to the passenger is infringed, and it would be never
accountable for simple negligence; while under the law (Art. 1756). the
presumption is that common carriers acted negligently (and not maliciously),
and Art. 1762 speaks of negligence of the common carrier.
The action for breach of contract imposes on the defendant carrier a
presumption of liability upon mere proof of injury to the passenger; that latter
is relieved from the duty to established the fault of the carrier, or of his
employees, and the burden is placed on the carrier to prove that it was due
to an unforseen event or to force majeure (Cangco vs. Manila Railroad Co.,
38 Phil., 768, 777). Moreover, the carrier, unlike in suits for quasi-delict, may
not escape liability by proving that it has exercised due diligence in the
selection and supervision of its employees (Art. 1759, new civil code;
Cangco vs. Manila Railroad Co., supra; Prado vs. Manila Electric Co., 51
Phil., 900).
28
PHIL. RABBIT V. IAC

189 SCRA 159
FACTS:
On Christmas eve, passengers were on board a jeepney. The jeepneys
right rear tire suddenly cut loose causing the jeep to take a sharp and swift
u-turn to the opposite lane of the road. This was evinced by the skid marks
on the road. As it made the sharp u-turn to the opposite side, petitioners
bus bumped the jeepney. This caused the death and serious physical
injuries of the passengers of the jeep.
HELD:
The principle about "the last clear" chance, would call for application
in a suit between the owners and drivers of the two colliding vehicles.
It does not arise where a passenger demands responsibility from the
carrier to enforce its contractual obligations. For it would be inequitable
to exempt the negligent driver of the jeepney and its owners on the ground
that the other driver was likewise guilty of negligence.
In this case, evidence shows that the bus driver could not be held liable for
the deaths and serious physical injuries of the jeepneys passengers. He
could not have foreseen the sharp u-turn made by the jeepney when its right
rear tire got loose. It shows as well that the bus was traveling at an
expected speed in the highway.
29
LRTA V. NAVIDAD
397 SCRA 75
FACTS:
This is the same Torts case wherein there was an altercation between a
drunk passenger and a security guard which eventually led to the untimely
demise of the passenger when he fell in the tracks and got hit.
HELD:
The law requires common carriers to carry passengers safely using the
utmost diligence of very cautious persons with due regard for all
ATENEO LAW 2010
32
circumstances. Such duty of a common carrier to provide safety to its

passengers so obligates it not only during the course of the trip but for
so long as the passengers are within its premises and where they
ought to be in pursuance to the contract of carriage. The statutory
provisions render a common carrier liable for death of or injury to
passengers (a) through the negligence or wilful acts of its employees or (b)
on account of wilful acts or negligence of other passengers or of strangers if
the common carriers employees through the exercise of due diligence could
have prevented or stopped the act or omission. In case of such death or
8
injury, a carrier is presumed to have been at fault or been negligent, and by
simple proof of injury, the passenger is relieved of the duty to still establish
the fault or negligence of the carrier or of its employees and the burden shifts
upon the carrier to prove that the injury is due to an unforeseen event or to
force majeure. In the absence of satisfactory explanation by the carrier on
how the accident occurred, which petitioners, according to the appellate
court, have failed to show, the presumption would be that it has been at fault,
an exception from the general rule that negligence must be proved.
The foundation of LRTAs liability is the contract of carriage and its obligation
to indemnify the victim arises from the breach of that contract by reason of
its failure to exercise the high diligence required of the common carrier. In
the discharge of its commitment to ensure the safety of passengers, a carrier
may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of
carriage.

Art. 1755. A common carrier is bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.
LAWS APPLICABLE
Art. 1766. In all matters not regulated by this Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by
special laws.
Art. 1753. The law of the country to which the goods are to be transported
shall govern the liability of the common carrier for their loss, destruction or
deterioration.
COMMON CARRIER OF GOODS
LIABILITY AND PRESUMPTION OF NEGLIGENCE
CLASSES OF COMMON CARRIERS

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.
ATENEO LAW 2010
33
or defects
packing or
containers
Extraordinary
diligence
Presumption of
negligence
Passenge
rs
Goods
Damage
Deteriorati
on
DEGREE
OF
NEGLIGENCE
PRESUMPTION
OF
NEGLIGENCE
WHEN
DOES
PRESUMPTION
OF
NEGLIGENCE
DOESNT ATTACH
Destructio
n
Death
Injury
CARRIAGE OF
GOODS
Extraordinary diligence
CARRIAGE OF
PASSENGERS
Extraordinary diligence
Loss,
deterioration,
damage
Flood,
storm,
earthquake, lightning,
or
other
natural
disaster
Death or injury
Act of public enemy in

war,
whether
international or civil
Act or omission of the
shipper or owner of
goods
None
MAY
COMMON
CARRIER BE STILL
HELD LIABLE OTHER
THAN BREACH OF
CONTRACT
OF
CARRIAGE?
in
in
the
the
Order
or
act
of
competent authority
Yes,
under
jurisprudence,
the
following
circumstances may prompt liability on the part of
the common carrier
Delay
Rude conduct (Zulueta v. Pan America)
Article 20 and 21
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 or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of
the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733.
The character of goods
ATENEO LAW 2010
34
Art. 1756. In case of death of or injuries to passengers, common carriers are

presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed in Articles
1733 and 1755.
instituted an action in a court of law against the petitioner to recover the

value of the oil lost while these consignments were in the court of
transportation, it would, upon the facts appearing before us, have been
entitled to judgment.
30
From this it is apparent that the mandamus prayed for cannot be granted. It
is a rule of universal application that a petition for extraordinary relief of the
character here sought must show merit. That is, the petitioner's right to relief
must be clear. Such cannot be said to be the case where, as here, a
presumption of responsibility on the part of the petitioner stands unrefuted
upon the record.
YNCHAUSTI STEAMSHIP V. DEXTER

41 PHIL 289
FACTS:
Petitioner filed for mandamus against the government for payment of its
shipping fees for the shipment of mineral oil. The government withheld
payment on the ground that there was loss of one or two of its caskets.
31
HELD:
In section 646 of the Administrative Code it is provided that when
Government property is transmitted from one place to another by carrier, it
shall be upon proper bill of lading, or receipt, from such carrier, and it shall
be the duty of the consignee, or his representative, to make full notation of
any evidence of loss, shortage, or damage, upon the bill of lading, or receipt,
before accomplishing it. It is admitted by the petitioner in the agreed
statement of facts that the consignee, at the time the oil was delivered, noted
the loss in the present case upon the two respective bills of lading. The
notation of these losses by the consignee, in obedience to the precept of
section 646 of the Administrative Code, is competent evidence to show that
the shortage in fact existed. As the petitioner admits that the oil was received
by it for carriage and inasmuch as the fact of loss is proved in the manner
just stated, it results that there is a presumption that the petitioner was to
blame for the loss; and it was incumbent upon the petitioner in order to
entitle it to relief in the case to rebut that presumption by proving, as is
alleged in the petition, that the loss was not due to any fault or negligence of
the petitioner.
The mere proof of delivery of goods in good order to a carrier, and of their
arrival at the place of destination in bad order, makes out a prima facie case
against the carrier, so that if no explanation is given as to how the injury
occurred, the carrier must be held responsible. (4 R. C. L., p. 917.) It is
incumbent upon the carrier to prove that the loss was due to accident or
some other circumstance inconsistent with its liability. (Articles 361-363,
Code of Commerce.) Indeed, if the Government of the Philippine Islands had
MIRASOL V. DOLLAR
53 PHIL 125
FACTS:
Plaintiff was the owner and shipper of goods of books from New York. He
sought the shipment of the books to Manila through engaging the services of
defendant. A bill of lading included a clause limiting defendants liability but
the same wasnt signed by defendant or otherwise known to him. Upon
arrival of the books, it was in bad order, prompting plaintiff to file an action
against defendant for damages.
HELD:
The defendant having received the two boxes in good condition, its legal
duty was to deliver them to the plaintiff in the same condition in which it
received them. From the time of their delivery to the defendant in New York
until they are delivered to the plaintiff in Manila, the boxes were under the
control and supervision of the defendant and beyond the control of the
plaintiff. The defendant having admitted that the boxes were damaged while
in transit and in its possession, the burden of proof then shifted, and it
devolved upon the defendant to both allege and prove that the damage was
caused by reason of some fact which exempted it from liability. As to how
the boxes were damaged, when or where, was a matter peculiarly and
exclusively within the knowledge of the defendant and in the very nature of
things could not be in the knowledge of the plaintiff. To require the plaintiff to
prove as to when and how the damage was caused would force him to call
and rely upon the employees of the defendant's ship, which in legal effect
would be to say that he could not recover any damage for any reason. That
ATENEO LAW 2010
35
is not the law.

Shippers who are forced to ship goods on an ocean liner or any other ship
have some legal rights, and when goods are delivered on board ship in good
order and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both allege and
prove that the goods were damaged by the reason of some fact which legally
exempts him from liability; otherwise, the shipper would be left without any
redress, no matter what may have caused the damage.
In the final analysis, the cases were received by the defendant in New York
in good order and condition, and when they arrived in Manila, they were in
bad condition, and one was a total loss. The fact that the cases were
damaged by "sea water," standing alone and within itself, is not evidence
that they were damaged by force majeure or for a cause beyond the
defendant's control. The words "perils of the sea," as stated in defendant's
brief apply to "all kinds of marine casualties, such as shipwreck, foundering,
stranding," and among other things, it is said: "Tempest, rocks, shoals,
icebergs and other obstacles are within the expression," and "where the peril
is the proximate cause of the loss, the shipowner is excused." "Something
fortuitous and out of the ordinary course is involved in both words 'peril' or
'accident'."
EXEMPTION FROM LIABILITY
NATURAL DISASTER
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
Art. 1739. In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the proximate and only
cause of the loss. However, the common carrier must exercise due diligence
to prevent or minimize loss before, during and after the occurrence of flood,
storm or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods.
The same duty is incumbent upon the common carrier in case of an act of
the public enemy referred to in Article 1734, No. 2.
Art. 1740. If the common carrier negligently incurs in delay in transporting
the goods, a natural disaster shall not free such carrier from responsibility.
Art. 361, Code of Commerce. Merchandise shall be transported at the risk
and venture of the shipper, unless the contrary was expressly stipulated.
Therefore, all damages and impairment suffered by the goods in
transportation, by reason of accident, force majeure, or by virtue of the
nature or defect of the articles, shall be for the account and risk of the
shipper.
The proof of these accidents in incumbent on the carrier.
ELEMENTS FOR THE EXEMPTION OF NATURAL DISASTER TO
APPLY
(1) The natural disaster is the proximate and only cause of the loss,
deterioration, and destruction
(2) The carrier exercised due diligence to prevent or minimize loss
before, during or after the occurrence of the natural disaster or
calamity
a. The carrier isnt allowed to just fold his hands by virtue of
the natural disaster
(3) The carrier must not have negligently incurred in delay in
transporting the goods
a. As a general rule, delay is punished and looked at by law
as a kind of breach
b. Cf. Article 1169
32
TAN CHIONG V. YNCHAUSTI

22 PHIL 153
FACTS:
Tan Choing engaged the services of defendant for the shipment of cases of
general merchandise. However, it is alleged that the merchandise was
almost lost for the failure of defendant to ship the same.
ATENEO LAW 2010
36
HELD:
The general rule established in the first of the foregoing articles is that the
loss of the vessel and of its cargo, as the result of shipwreck, shall fall upon
the respective owners thereof, save for the exceptions specified in the
second of the said articles.
These legal provisions are in harmony with those of articles 361 and 362 of
the Code of Commerce, and are applicable whenever it is proved that the
loss of, or damage to, the goods was the result of a fortuitous event or of
force majeure; but the carrier shall be liable for the loss or the damage
arising from the causes aforementioned, if it shall have been proven that
they occurred through his own fault or negligence or by his failure to take the
same precautions usually adopted by diligent and careful persons.
In the contract made and entered into by and between the owner of the
goods and the defendant, no term was fixed within which the said
merchandise should be delivered to the former at Catarman, nor was it
proved that there was any delay in loading the goods and transporting them
to their destination. From the 28th of November, when the steamer Sorsogon
arrived at Gubat and landed the said goods belonging to Ong Bieng Sip to
await the lorcha Pilar which was to convey them to Catarman, as agreed
upon, no vessel carrying merchandise made the voyage from Gubat to the
said pueblo of the Island of Samar, and with Ong Bieng Sip's merchandise
there were also to be shipped goods belonging to the defendant company,
which goods were actually taken on board the said lorcha and suffered the
same damage as those belonging to the Chinaman. So that there was no
negligence, abandonment, or delay in the shipment of Ong Bieng Sip's
merchandise, and all that was done by the carrier, Inchausti & Co., was what
it regularly and usually did in the transportation by sea from Manila to
Catarman of all classes of merchandise. No attempt has been made to prove
that any course other than the foregoing was pursued by that firm on this
occasion; therefore the defendant party is not liable for the damage
occasioned as a result of the wreck or stranding of the lorcha Pilar because
of the hurricane that overtook this craft while it was anchored in the port of
Gubat, on December 5, 1908, ready to be conveyed to that of Catarman.
33
MARTINI V. MACONDRAY
39 PHIL 934
FACTS:
Martini engaged the services of defendant for the shipment of several cases
of chemical products from Manila to Japan. Under the bill of lading, the
goods shall be carried on deck entirely at the shippers risk. When the
shipment arrived in Japan, it was damaged. Plaintiff sought recovery of
damages from defendant.
HELD:
The defendant company cannot be held liable.
Where a cargo is shipped with the owners consent, on the deck of the
vessel upon a bill of lading exempting the ship owner from liability for
damage, the risk of any damages resulting from the voyage must be borne
by the owner.
34
EASTERN SHIPPING V. IAC

150 SCRA 463
FACTS:
M/S Asiatica was a vessel owned by petitioner, which loaded carolized lance
pipes consigned to Phil. Blooming Mills and cases of spare parts, this time
consigned to Central Textile Mills. Likewise, cartons of general merchandise
and garments, and surveying instruments were loaded. On the way to
Manila, the ship caught fire and sank. This resulted to the loss of all the
cargo shipped therein.
HELD:
As the peril of the fire is not comprehended within the exception in Article
1734, supra, Article 1735 of the Civil Code provides that all cases than those
mention in Article 1734, the common carrier shall be presumed to have been
at fault or to have acted negligently, unless it proves that it has observed the
extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers,
have proven that the transported goods have been lost. Petitioner Carrier
has also proved that the loss was caused by fire. The burden then is upon
Petitioner Carrier to proved that it has exercised the extraordinary diligence
required by law.
ATENEO LAW 2010
37
The evidence of the defendant did not show that extraordinary vigilance was
observed by the vessel to prevent the occurrence of fire at hatches numbers
2 and 3. Defendant's evidence did not likewise show he amount of diligence
made by the crew, on orders, in the care of the cargoes. What appears is
that after the cargoes were stored in the hatches, no regular inspection was
made as to their condition during the voyage. Consequently, the crew could
not have even explain what could have caused the fire. The defendant, in
the Court's mind, failed to satisfactorily show that extraordinary vigilance and
care had been made by the crew to prevent the occurrence of the fire.
respondent. Surely, meeting a typhoon head-on falls short of due diligence

required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel
broke that caused its sinking and the total loss of the cargo upon reaching
the Pasig River, it was no longer affected by the typhoon. The typhoon then
is not the proximate cause of the loss of the cargo; a human factor, i.e.,
negligence had intervened.
ACT OF PUBLIC ENEMY
xxx (2) Act of the public enemy in war, whether international or civil;
And even if fire were to be considered a "natural disaster" within the

meaning of Article 1734 of the Civil Code, it is required under Article 1739 of
the same Code that the "natural disaster" must have been the "proximate
and only cause of the loss," and that the carrier has "exercised due diligence
to prevent or minimize the loss before, during or after the occurrence of the
disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
35
ASIA LIGHTERAGE V. CA
Supra
HELD:
n the case at bar, the barge completely sank after its towing bits broke,
resulting in the total loss of its cargo. Petitioner claims that this was caused
by a typhoon, hence, it should not be held liable for the loss of the cargo.
However, petitioner failed to prove that the typhoon is the proximate and only
cause of the loss of the goods, and that it has exercised due diligence
before, during and after the occurrence of the typhoon to prevent or minimize
the loss. The evidence show that, even before the towing bits of the barge
broke, it had already previously sustained damage when it hit a sunken
object while docked at the Engineering Island. It even suffered a hole.
Clearly, this could not be solely attributed to the typhoon. The partlysubmerged vessel was refloated but its hole was patched with only clay and
cement. The patch work was merely a provisional remedy, not enough for
the barge to sail safely. Thus, when petitioner persisted to proceed with the
voyage, it recklessly exposed the cargo to further damage.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as
force majeure to escape liability for the loss sustained by the private
Art. 1739. In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the proximate and only
cause of the loss. However, the common carrier must exercise due diligence
to prevent or minimize loss before, during and after the occurrence of flood,
storm or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods.
The same duty is incumbent upon the common carrier in case of an act of
the public enemy referred to in Article 1734, No. 2.
ACT OR OMISSION OF SHIPPER
xxx (3) Act of omission of the shipper or owner of the goods;
Art. 1741. If the shipper or owner merely contributed to the loss, destruction
or deterioration of the goods, the proximate cause thereof being the
negligence of the common carrier, the latter shall be liable in damages,
which however, shall be equitably reduced.
CHARACTER OF GOODS, ETC.
xxx (4) The character of the goods or defects in the packing or in the
containers;
Art. 1741. If the shipper or owner merely contributed to the loss, destruction
or deterioration of the goods, the proximate cause thereof being the
negligence of the common carrier, the latter shall be liable in damages,
which however, shall be equitably reduced.
ATENEO LAW 2010
38
Article 366, Code of Commerce. Within the 24 hours following the receipt of
the merchandise a claim be brought against the carrier on account of
damage or average found therein on opening the packages, provided that
the indications of the damage or average giving rise to the claim cannot be
ascertained from the exterior of said packages, in which case said claim
would only be admitted on the receipt of the package.
After the periods mentioned have elapsed, or after the transportation
charges have been paid, no claim whatsoever shall be admitted against the
carrier with regard to the condition in which the goods transported were
delivered.
36
GOVERNMENT V. YNCHAUSTI
40 PHIL 219
FACTS:
The government shipped through Ynchaustis vessel, roofing tiles, to Manila.
Upon delivery of the tiles to the consignee of the government, the tiles were
found to be damaged. The tiles in this case were admittedly of fragile nature
and were shipped in bundles, without any protective covering. The question
arises regarding the alleged negligence of the carrier in shipping the tiles.
HELD:
Under the provisions of article 361 the defendant, in order to free itself from
liability, was only obliged to prove that the damages suffered by the goods
were "by virtue of the nature or defect of the articles." Under the provisions of
article 362 the plaintiff, in order to hold the defendant liable, was obliged to
prove that the damages to the goods by virtue of their nature, occurred on
account of its negligence or because the defendant did not take the
precaution usually adopted by careful persons.
The defendant herein proved, and the plaintiff did not attempt to dispute, that
the tiles in question were of a brittle and fragile nature and that they were
delivered by the plaintiff to the defendant without any packing or protective
covering. The defendant also offered proof to show that there was no
negligence on its part, by showing that the tiles were loaded, stowed, and
discharged in a careful and diligent manner.
In this jurisdiction there is no presumption of negligence on the part of the

carriers in case like the present. The plaintiff, not having proved negligence
on the part of the defendant, is not entitled to recover damages.
37
SOUTHERN LINES V. CA
4 SCRA 256
FACTS:
The City of Iloilo requisitioned rice from NARIC, based on Manila. Upon
order of the same, NARIC shipped through Southern Lines the sacks of rice.
Upon receipt of the same, the city government paid for it and noted down in
the bill of lading that the rice received was lesser than what was ordered.
This gave rise to a complaint against the shipper and NARIC.
HELD:
Under the provisions of Article 361, the defendant-carrier in order to free
itself from liability, was only obliged to prove that the damages suffered by
the goods were "by virtue of the nature or defect of the articles." Under the
provisions of Article 362, the plaintiff, in order to hold the defendant liable,
was obliged to prove that the damages to the goods by virtue of their nature,
occurred on account of its negligence or because the defendant did not take
the precaution adopted by careful persons.
Petitioner claims exemption from liability by contending that the shortage in
the shipment of rice was due to such factors as the shrinkage, leakage or
spillage of the rice on account of the bad condition of the sacks at the time it
received the same and the negligence of the agents of respondent City of
Iloilo in receiving the shipment. The contention is untenable, for, if the fact of
improper packing is known to the carrier or his servants, or apparent upon
ordinary observation, but it accepts the goods notwithstanding such
condition, it is not relieved of liability for loss or injury resulting thereform. (9
Am Jur. 869.) Furthermore, according to the Court of Appeals, "appellant
(petitioner) itself frankly admitted that the strings that tied the bags of rice
were broken; some bags were with holes and plenty of rice were spilled
inside the hull of the boat, and that the personnel of the boat collected no
less than 26 sacks of rice which they had distributed among themselves."
This finding, which is binding upon this Court, shows that the shortage
resulted from the negligence of petitioner.
ATENEO LAW 2010
39
ORDER OF COMPETENT AUTHORITY

38
GANZON V. CA
161 SCRA 646
FACTS:
Tumambing contracted the services of Ganzon for the shipping of tons of
scrap iron from Mariveles to Manila. Ganzon was the owner of the ligther
LCT Batman. While the scrap iron was being loaded to the lighter, the
mayor of Mariveles arrived and demanded money from Tumambing. This
led to an altercation and the shooting of Tumambing. After Tumambing was
rushed to the hospital and the loading of scrap iron was resumed, the acting
mayor demanded from Ganzon to throw the scrap iron already loaded to the
dock and the remaining scrap to be transported to another place. Upon
order of the mayor, Ganzon complied. This led to a case filed by
Tumambing against Ganzon for damages. Ganzon was held liable.
HELD:
By the said act of delivery, the scraps were unconditionally placed in the
possession and control of the common carrier, and upon their receipt by the
carrier for transportation, the contract of carriage was deemed perfected.
Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction or deterioration of the goods commenced. Pursuant to Art. 1736,
such extraordinary responsibility would cease only upon the delivery, actual
or constructive, by the carrier to the consignee, or to the person who has a
right to receive them. The fact that part of the shipment had not been loaded
on board the lighter did not impair the said contract of transportation as the
goods remained in the custody and control of the carrier, albeit still
unloaded.
The petitioner has failed to show that the loss of the scraps was due to any
of the following causes enumerated in Article 1734 of the Civil Code, namely:
(3) Act or omission of the shipper or owner of the goods;
Hence, the petitioner is presumed to have been at fault or to have acted

negligently. By reason of this presumption, the court is not even required to
make an express finding of fault or negligence before it could hold the
petitioner answerable for the breach of the contract of carriage. Still, the
petitioner could have been exempted from any liability had he been able to
prove that he observed extraordinary diligence in the vigilance over the
goods in his custody, according to all the circumstances of the case, or that
the loss was due to an unforeseen event or to force majeure. As it was, there
was hardly any attempt on the part of the petitioner to prove that he
exercised such extraordinary diligence.
DURATION OF EXTRAORDINARY RESPONSIBILITY
Art. 1736. The extraordinary responsibility of the common carrier lasts from
the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of Article
1738.
Art. 1737. The common carrier's duty to observe extraordinary diligence over
the goods remains in full force and effect even when they are temporarily
unloaded or stored in transit, unless the shipper or owner has made use of
the right of stoppage in transitu.
Art. 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the
carrier at the place of destination, until the consignee has been advised of
the arrival of the goods and has had reasonable opportunity thereafter to
remove them or otherwise dispose of them.
Cf. with respect to contract of carriage of passengers (see discussion in that
part)
TWO POINTS UNDER CONSIDERATION
1. When the duty arises
2. When the contract is perfected
CONTRACT TO CARRY
ATENEO LAW 2010
40
All the elements of contract are present but there is no duty yet on
the part of the common carrier
The contract is in its executory form
CONTRACT OF CARRIAGE
There is a duty on the part of common carrier to exercise

extraordinary diligence
There has been delivery
There arises a real contract
Macleod and Company of the Philippines contracted by telephone the

services of the Compaia Maritima, a shipping corporation, for the shipment
of 2,645 bales of hemp from the former's Sasa private pier at Davao City to
Manila and for their subsequent transhipment to Boston, Massachusetts,
U.S.A. on board the S.S. Steel Navigator. Upon confirmation of contract, the
shipping company sent to Macleod's private wharf LCT Nos. 1023 and 1025
on which the loading of the hemp. The lighters were subsequently loaded
with bales of hemp. However, during the night, one of the lighters sank.
Due to the deterioration and loss of some of the bales of hemp, claim was
filed against the insurance company.
Note: the distinction between contract to carry and contract of carriage arises
when the time of delivery is different from the time the contract is perfected
QUESTIONS THAT MAY ARISE WITH RESPECT TO DUTY AND
1. When contract is perfected but duty doesnt arise yet
2. When there is duty but no contract yet
3. When simultaneously the contract and duty arise
WHY IS CONTROL AN IMPORTANT CONSIDERATION WITH RESPECT
TO THE EXERCISE OF EXTRAORDINARY DILIGENCE IN CONTRACT
OF CARRIAGE OF GOODS?
Because without control, no amount of extraordinary conduct will be

tantamount to extraordinary diligence
Extraordinary diligence cannot be discussed without discussing

control
Due to the aspect of control, the shipper or carrier can shorten the
duration of responsibility but it has to take into consideration control
IS CONTROL MATERIAL WITH RESPECT TO CONTRACT OF
CARRIAGE OF PASSENGERS?
The elements of control exist through the regulations that the

passengers need to follow while the contract exists, e.g fastening of
seat belt, no smoking
39
COMPANIA MARITIMA V. INSURANCE COMPANY

12 SCRA 213
FACTS:
Privatepierin
Davao
Lightersto
bringto
BowlineKnot
Manila
Boston:SSSteel
Navigator
HELD:
First, there is a contract of carriage between the shipper and Macleod. The
fact that the carrier sent its lighters free of charge to take the hemp from
Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline
Knot does not in any way impair the contract of carriage already entered into
between the carrier and the shipper, for that preparatory step is but part and
parcel of said contract of carriage. The lighters were merely employed as the
first step of the voyage, but once that step was taken and the hemp
delivered to the carrier's employees, the rights and obligations of the parties
attached thereby subjecting them to the principles and usages of the
maritime law. In other words, here we have a complete contract of carriage
the consummation of which has already begun: the shipper delivering the
cargo to the carrier, and the latter taking possession thereof by placing it on
a lighter manned by its authorized employees, under which Macleod became
entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of
the voyage.
The claim that there can be no contract of affreightment because the hemp
ATENEO LAW 2010
41
was not actually loaded on the ship that was to take it from Davao City to
Manila is of no moment, for, as already stated, the delivery of the hemp to
the carrier's lighter is in line with the contract. In fact, the receipt signed by
the patron of the lighter that carried the hemp stated that he was receiving
the cargo "in behalf of S.S. Bowline Knot in good order and condition." On
the other hand, the authorities are to the effect that a bill of lading is not
indispensable for the creation of a contract of carriage.
40
LU DO V. BINAMIRA
101 PHIL 243
FACTS:
Delta Photo Supply Company of New York shipped on board the M/S
"FERNSIDE" at New York, U.S.A., six cases of films and/or photographic
supplies consigned to the order of respondent I. V. Binamira. Petitioner was
the agent of the carrier and contracted stevedoring services. During the
discharge, good order cargo was separated from the bad, and a separate list
of the latter was prepared. The cargo was given to the possession of the
arrastre and was well-accounted for. However, when the respondent picked
up the cargo, it had the same surveyed and found out that quantities of film
were missing. Is the carrier still liable for the loss despite the fact that it has
already discharged the cargo to the arrastre services?
HELD:
It is true that, as a rule, a common carrier is responsible for the loss,
destruction or deterioration of the goods it assumes to carry from one place
to another unless the same is due to any to any of the causes mentioned in
Article 1734 on the new Civil Code, and that, if the goods are lost, destroyed
or deteriorated, for causes other that those mentioned, the common carrier is
presumed to have been at fault or to have acted negligently, unless it proves
that it has observed extraordinary diligence in their care (Article 1735,
Idem.), and that this extraordinary liability lasts from the time the goods are
placed in the possession of the carrier until they are delivered to the
consignee, or "to the person who has the right to receive them" (Article 1736,
Idem.), but these provisions only apply when the loss, destruction or
deterioration takes place while the goods are in the possession of the carrier,
and not after it has lost control of them. The reason is obvious. While the
goods are in its possession, it is but fair that it exercise extraordinary
diligence in protecting them from damage, and if loss occurs, the law
presumes that it was due to its fault or negligence. This is necessary to

protect the interest the interest of the owner who is at its mercy. The
situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to
the consignee, or to the person who has a right to receive them",
contemplated in Article 1736, because in such case the goods are still in the
hands of the Government and the owner cannot exercise dominion over
them, we believe however that the parties may agree to limit the liability
of the carrier considering that the goods have still to through the
inspection of the customs authorities before they are actually turned
over to the consignee. This is a situation where we may say that the carrier
losses control of the goods because of a custom regulation and it is unfair
that it be made responsible for what may happen during the interregnum.
And this is precisely what was done by the parties herein. In the bill of lading
that was issued covering the shipment in question, both the carrier and the
consignee have stipulated to limit the responsibility of the carrier for the loss
or damage that may because to the goods before they are actually delivered.
It therefore appears clear that the carrier does not assume liability for any
loss or damage to the goods once they have been "taken into the custody of
customs or other authorities", or when they have been delivered at ship's
tackle. These stipulations are clear. They have been adopted precisely to
mitigate the responsibility of the carrier considering the present law on
the matter, and we find nothing therein that is contrary to morals or
public policy that may justify their nullification.
41
APL V. KLEPPER
110 PHIL 243
FACTS:
Klepper shipped on board through SS President Cleveland, owned by
American President Lines, a lift van containing personal effects. When the
shipment arrived and was being unloaded, it fell to the pier and its contents
were scattered and spilled. Klepper now seeks the recovery of damages
exceeding that mentioned in the bill of lading.
HELD:
The carrier is liable. It has the duty to deliver the cargo in good condition to
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42
the consignee. Agreeing with the contention of the appellate court,

regardless of negligence, the shipping companys liability would attach
because being a common carrier, its responsibility is extraordinary and lasts
from the time the goods are placed in its possession until they are delivered
actually or constructively to the consignee or the person who has the right to
receive them. It can only be exempted under circumstances enumerated
under Article 1734.
42
EASTERN SHIPPING V. CA
243 SCRA 79
FACTS:
Two drums of riboflavin was shipped from Japan to Manila, on board the SS
Eastern Comet, owned by petitioner. Upon arrival, it was discharged to the
custody of the Metro Port Services. One of the drums was found to be in
bad order and was made known to the respondent. When again it was
transferred, this time to the customs broker, it was noted to be in bad order,
being unsealed, containing spillages, and adulterated. This resulted to
financial loss on the part of the respondent and gives rise to question of
whether its solidary or joint liability for loss occurred, among the carrier,
arrastre services, and customs broker.
HELD:
It therefore appears clear that the carrier does not assume liability for any
loss or damage to the goods once they have been "taken into the custody of
customs or other authorities", or when they have been delivered at ship's
tackle. These stipulations are clear. They have been adopted precisely to
mitigate the responsibility of the carrier considering the present law on the
matter, and we find nothing therein that is contrary to morals or public policy
that may justify their nullification. 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. 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.
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman. 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.
Of course, it is not implied by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily
liable solidarily with the carrier, or vice-versa, nor that attendant facts in a
given case may not vary the rule. The instant petition has been brought
solely by Eastern Shipping Lines, which, being the carrier and not having
been able to rebut the presumption of fault, is, in any event, to be held liable
in this particular case. A factual finding of both the court a quo and the
appellate court, we take note, is that "there is sufficient evidence that the
shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them). 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.
AGREEMENT LIMITING LIABILITY (IT IS THE CARRIERS INTEREST TO
LIMIT LIABILITY)
AS TO DILIGENCE REQUIRED
Art. 1744. A stipulation between the common carrier and the shipper or
owner limiting the liability of the former for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence shall
be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by
the common carrier; and
(3) Reasonable, just and not contrary to public policy.
Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
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43
agreed upon.
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody
of the goods;
(4) That the common carrier shall exercise a degree of diligence less than
that of a good father of a family, or of a man of ordinary prudence in the
vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omission
of his or its employees;
(6) That the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.
Art. 1751. The fact that the common carrier has no competitor along the line
or route, or a part thereof, to which the contract refers shall be taken into
consideration on the question of whether or not a stipulation limiting the
common carrier's liability is reasonable, just and in consonance with public
policy.
AS TO AMOUNT OF LIABILITY
Art. 1749. A stipulation that the common carrier's liability is limited to the
value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely
TWO TYPES OF AGREEMENTS LIMITING LIABILITY

1. As to the diligence standard
2. As to the amount of liability
REQUIREMENTS: AGREEMENT AS TO DILIGENCE STANDARD
1. In writing, signed by shipper (this involves contracts of adhesion;
naturally it is the shipper who needs to sign)
2. Supported by valuable consideration other than the service
rendered by the common carrier
3. Reasonable and not contrary to public policy
REQUIREMENTS: AGREEMENT AS TO AMOUNT OF LIABILITY
1. Fairly and freely agreed upon
2. Just and reasonable
43
HEACOCK V. MACONDRAY
42 PHIL 90
FACTS:
Plaintiff caused to be delivered on board of steamship Bolton Castle, then in
the harbor of New York, four cases of merchandise one of which contained
twelve (12) 8-day Edmond clocks properly boxed and marked for
transportation to Manila, and paid freight on said clocks from New York to
Manila in advance. The said steampship arrived in the port of Manila on or
about the 10th day of September, 1919, consigned to the defendant herein
as agent and representative of said vessel in said port. Neither the master of
said vessel nor the defendant herein, as its agent, delivered to the plaintiff
the aforesaid twelve 8-day Edmond clocks, although demand was made
upon them for their delivery. Under the bill of lading are the following
stipulations
1. It is mutually agreed that the value of the goods receipted for above does
not exceed $500 per freight ton, or, in proportion for any part of a ton, unless
the value be expressly stated herein and ad valorem freight paid thereon.
9. Also, that in the event of claims for short delivery of, or damage to, cargo
being made, the carrier shall not be liable for more than the net invoice price
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plus freight and insurance less all charges saved, and any loss or damage
for which the carrier may be liable shall be adjusted pro rata on the said
basis.
are not contrary to law, morals or public order." Said clauses of the bill of
lading are, therefore, valid and binding upon the parties thereto.
44
The lower court adjudged that the defendant is liable for the value of the
goods, plus freight charges and insurance costs. The defendant would like
to pay for a lesser amount, which is the freight charges.
HELD:
Three kinds of stipulations have often been made in a bill of lading. The first
is one exempting the carrier from any and all liability for loss or damage
occasioned by its own negligence. The second is one providing for an
unqualified limitation of such liability to an agreed valuation. And the third is
one limiting the liability of the carrier to an agreed valuation unless the
shipper declares a higher value and pays a higher rate of freight. According
to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid
and enforceable.
A reading of clauses 1 and 9 of the bill of lading here in question, however,
clearly shows that the present case falls within the third stipulation, to wit:
That a clause in a bill of lading limiting the liability of the carrier to a certain
amount unless the shipper declares a higher value and pays a higher rate of
freight, is valid and enforceable.
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where
a contract of carriage, signed by the shipper, is fairly made with a railroad
company, agreeing on a valuation of the property carried, with the rate of
freight based on the condition that the carrier assumes liability only to the
extent of the agreed valuation, even in case of loss or damage by the
negligence of the carrier, the contract will be upheld as proper and lawful
mode of securing a due proportion between the amount for which the carrier
may be responsible and the freight he receives, and protecting himself
against extravagant and fanciful valuations."
It seems clear from the foregoing authorities that the clauses (1 and 9) of the
bill of lading here in question are not contrary to public order. Article 1255 of
the Civil Code provides that "the contracting parties may establish any
agreements, terms and conditions they may deem advisable, provided they
SHEWARAM V. PAL
17 SCRA 606
FACTS:
Parmanand Shewaram was on his flight to Manila with three suitcases, one
of which was a suitcase. The personnel of PAL mistagged the luggages,
and marked it to be bound to Iligan instead of Manila. When he arrived, the
baggage didnt arrive with him. PAL personnel even wanted him to redeem
one suitcase which looked like his but he refused as it wasnt his as it didnt
contain his clothes and other articles. Upon search by PAL, the luggages
were found to be in Iligan. The plaintiff instituted an action to recover
damages suffered by him due to the alleged failure of defendant-appellant
Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance
and carriage of his luggage. After trial the municipal court of Zamboanga City
rendered judgment ordering the appellant to pay appellee P373.00 as actual
damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and
the costs of the action.
HELD:
The requirements provided in Article 1750 of the New Civil Code must be
complied with before a common carrier can claim a limitation of its pecuniary
liability in case of loss, destruction or deterioration of the goods it has
undertaken to transport. In the case before us We believe that the
requirements of said article have not been met. It cannot be said that the
appellee had actually entered into a contract with the appellant, embodying
the conditions as printed at the back of the ticket stub that was issued by the
appellant to the appellee. The fact that those conditions are printed at the
back of the ticket stub in letters so small that they are hard to read would not
warrant the presumption that the appellee was aware of those conditions
such that he had "fairly and freely agreed" to those conditions. The trial court
has categorically stated in its decision that the "Defendant admits that
passengers do not sign the ticket, much less did plaintiff herein sign his
ticket when he made the flight on November 23, 1959." We hold, therefore,
that the appellee is not, and cannot be, bound by the conditions of carriage
found at the back of the ticket stub issued to him when he made the flight on
appellant's plane on November 23, 1959.
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It having been clearly found by the trial court that the transistor radio and the
camera of the appellee were lost as a result of the negligence of the
appellant as a common carrier, the liability of the appellant is clear it must
pay the appellee the value of those two articles.
45
ONG YIU V. CA
91 SCRA 223
FACTS:
Ong Yiu was one of the passengers of a flight from Mactan to Butuan. He
had one baggage with him which he checked in. It contained vital
documents he needed for a hearing next day. When he arrived however, the
baggage wasnt there.
He demanded for it and through different
communications between PAL personnel, it was found out that the luggage
was brought to Manila and it will be shipped the next day. The information
was however didnt receive on time by Ong Yiu. He was prompted to move
for the postponement of the hearing and afterwards, personnel of PAL Cebu
delivered to him his luggage. Nonetheless, he still filed for damages.
HELD:
There is no dispute that PAL incurred in delay in the delivery of petitioner's
luggage. The question is the correctness of respondent Court's conclusion
that there was no gross negligence on the part of PAL and that it had not
acted fraudulently or in bad faith as to entitle petitioner to an award of moral
and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not
acted in bad faith. Bad faith means a breach of a known duty through some
motive of interest or ill will. It was the duty of PAL to look for petitioner's
luggage which had been miscarried. PAL exerted due diligence in complying
with such duty. In the absence of any bad faith, petitioner isnt entitled to
moral damages.
Regarding the limitation on liability of PAL, while it may be true that petitioner
had not signed the plane ticket, he is nevertheless bound by the provisions
thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's
lack of knowledge or assent to the regulation". It is what is known as a
contract of "adhesion", in regards which it has been said that contracts of

adhesion wherein one party imposes a ready made form of contract on the
other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent. And as held in American
jurisprudence, "a contract limiting liability upon an agreed valuation does not
offend against the policy of the law forbidding one from contracting against
his own negligence.
Considering, therefore, that petitioner had failed to declare a higher value for
his baggage, he cannot be permitted a recovery in excess of P100.00.
Besides, passengers are advised not to place valuable items inside their
baggage but "to avail of our V-cargo service " It is likewise to be noted that
there is nothing in the evidence to show the actual value of the goods
allegedly lost by petitioner.
46
PAN AM V. IAC
164 SCRA 268
FACTS:
(1) Pangan, president and general manager of the plaintiffs Sotang
Bastos and Archer Production while in San Francisco, Califonia and
Primo Quesada of Prime Films, San Francisco, California, entered
into an agreement whereby the former, for and in consideration of
the amount of US $2,500.00 per picture, bound himself to supply
the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big
Happening with Chikiting and Iking,' and 'Kambal Dragon' for
exhibition in the United States. It was also their agreement that
plaintiffs would provide the necessary promotional and advertising
materials for said films on or before May 30, 1978.
(2) On his way home to the Philippines, plaintiff Pangan visited Guam
where he contacted Leo Slutchnick of the Hafa Adai Organization.
Plaintiff Pangan likewise entered into a verbal agreement with
Slutchnick for the exhibition of two of the films above-mentioned at
the Hafa Adai Theater in Guam on May 30, 1978 for the
consideration of P7,000.00 per picture. Plaintiff Pangan undertook
to provide the necessary promotional and advertising materials for
said films on or before the exhibition date on May 30,1978.
(3) By virtue of the above agreements, plaintiff Pangan caused the
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preparation of the requisite promotional handbills and still pictures

for which he paid accordingly for. Likewise in preparation for his trip
abroad to comply with his contracts, plaintiff Pangan purchased
fourteen clutch bags, four capiz lamps and four barong tagalog,
with a total value of P4,400.00
(4) On May 18, 1978, plaintiff Pangan obtained from defendant an
economy class airplane ticket with No. 0269207406324 for passage
from Manila to Guam on defendant's Flight No. 842 upon payment
by said plaintiff of the regular fare.
(5) Two hours before departure time plaintiff Pangan was at the
defendant's ticket counter at the Manila International Airport and
presented his ticket and checked in his two luggages, for which he
was given baggage claim tickets. The two luggages contained the
promotional and advertising materials, the clutch bags, barong
tagalog and his personal belongings. Subsequently, Pangan was
informed that his name was not in the manifest and so he could not
take Flight No. 842 in the economy class. Since there was no space
in the economy class, plaintiff Pangan took the first class because
he wanted to be on time in Guam to comply with his commitment,
paying an additional sum of $112.00.
(6) When plaintiff Pangan arrived in Guam, his two luggages did not
arrive with his flight, as a consequence of which his agreements
with Slutchnick and Quesada for the exhibition of the films in Guam
and in the United States were cancelled. Thereafter, he filed a
written claim for his missing luggages.
HELD:
In the absence of a showing that petitioner's attention was called to the
special circumstances requiring prompt delivery of private respondent
Pangan's luggages, petitioner cannot be held liable for the cancellation of
private respondents' contracts as it could not have foreseen such an
eventuality when it accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of
the rule laid down in Mendoza and affirmance of the trial court's conclusion
that petitioner is liable for damages based on the finding that "[tlhe
undisputed fact is that the contracts of the plaintiffs for the exhibition of the
films in Guam and California were cancelled because of the loss of the two
luggages in question." The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to

deliver the promotional and advertising materials on the dates agreed upon.
For this petitioner cannot be held liable. Private respondent Pangan had not
declared the value of the two luggages he had checked in and paid
additional charges. Neither was petitioner privy to respondents' contracts nor
was its attention called to the condition therein requiring delivery of the
promotional and advertising materials on or before a certain date.
47
CATHAY PACIFIC V. CA
219 SCRA 520
FACTS:
Alcantara was a first-class passenger of petitioners flight from Manila on the
way to Jakarta, passing by Hong Kong mid-way. He was on the way to
Jakarta to represent his company, the Iligan Cement Corporation in a
meeting with the Trade Secretary of Indonesia. When he arrived in Jakarta,
the luggage was missing. When it was located, it wasnt delivered to
petitioners hotel but instead ordered it to be picked up by an official of the
Philippine embassy. This prompted Alcantara to file an action against
petitioner once he arrived in Philippines. The lower court decided in his
favor.
HELD:
Moral damages predicated upon a breach of contract of carriage may only
be recoverable in instances where the mishap results in death of a
4
passenger, or where the carrier is guilty of fraud or bad faith.
In the case at bar, both the trial court and the appellate court found that
CATHAY was grossly negligent and reckless when it failed to deliver the
luggage of petitioner at the appointed place and time. We agree. CATHAY
alleges that as a result of mechanical trouble, all pieces of luggage on board
the first aircraft bound for Jakarta were unloaded and transferred to the
second aircraft which departed an hour and a half later. Yet, as the Court of
Appeals noted, petitioner was not even aware that it left behind private
respondent's luggage until its attention was called by the Hongkong Customs
authorities. More, bad faith or otherwise improper conduct may be attributed
to the employees of petitioner. While the mere failure of CATHAY to deliver
respondent's luggage at the agreed place and time did not ipso facto amount
to willful misconduct since the luggage was eventually delivered to private
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47
respondent, albeit belatedly, We are persuaded that the employees of

CATHAY acted in bad faith. We refer to the deposition of Romulo Palma,
Commercial Attache of the Philippine Embassy at Jakarta, who was with
respondent Alcantara when the latter sought assistance from the employees
of CATHAY. This deposition was the basis of the findings of the lower courts
when both awarded moral damages to private respondent.
Indeed, on the basis of the Philippine embassys attach officers testimony,
the language and conduct of petitioner's representative towards respondent
Alcantara was discourteous or arbitrary to justify the grant of moral
damages. The CATHAY representative was not only indifferent and
impatient; he was also rude and insulting. He simply advised Alcantara to
buy anything he wanted. But even that was not sincere because the
representative knew that the passenger was limited only to $20.00 which,
certainly, was not enough to purchase comfortable clothings appropriate for
an executive conference. Considering that Alcantara was not only a revenue
passenger but even paid for a first class airline accommodation and
accompanied at the time by the Commercial Attache of the Philippine
Embassy who was assisting him in his problem, petitioner or its agents
should have been more courteous and accommodating to private
respondent, instead of giving him a curt reply, "What can we do, the
baggage is missing. I cannot do anything . . . . Anyhow, you can buy
anything you need, charged to Cathay Pacific." CATHAY's employees
should have been more solicitous to a passenger in distress and assuaged
his anxieties and apprehensions. To compound matters, CATHAY refused to
have the luggage of Alcantara delivered to him at his hotel; instead, he was
required to pick it up himself and an official of the Philippine Embassy. Under
the circumstances, it is evident that petitioner was remiss in its duty to
provide proper and adequate assistance to a paying passenger, more so
one with first class accommodation.
As regards its second assigned error, petitioner airline contends that the
extent of its liability for breach of contract should be limited absolutely to that
set forth in the Warsaw Convention. We do not agree. As We have
repeatedly held, although the Warsaw Convention has the force and effect of
law in this country, being a treaty commitment assumed by the Philippine
government, said convention does not operate as an exclusive enumeration
of the instances for declaring a carrier liable for breach of contract of
carriage or as an absolute limit of the extent of that liability.
FACTORS AFFECTING AGREEMENT

Art. 1746. An agreement limiting the common carrier's liability may be
annulled by the shipper or owner if the common carrier refused to carry the
goods unless the former agreed to such stipulation.
Art. 1747. If the common carrier, without just cause, delays the
transportation of the goods or changes the stipulated or usual route, the
contract limiting the common carrier's liability cannot be availed of in case of
the loss, destruction, or deterioration of the goods.
Art. 1748. An agreement limiting the common carrier's liability for delay on
account of strikes or riots is valid.
Art. 1751. The fact that the common carrier has no competitor along the line
or route, or a part thereof, to which the contract refers shall be taken into
consideration on the question of whether or not a stipulation limiting the
common carrier's liability is reasonable, just and in consonance with public
policy.
Art. 1752. Even when there is an agreement limiting the liability of the
common carrier in the vigilance over the goods, the common carrier is
disputably presumed to have been negligent in case of their loss, destruction
or deterioration.
APPLICABLE LAW IN FOREIGN TRADE
Art. 1753. The law of the country to which the goods are to be transported
shall govern the liability of the common carrier for their loss, destruction or
deterioration.
RULES ON PASSENGER BAGGAGE
Art. 1754. The provisions of Articles 1733 to 1753 shall apply to the
passenger's baggage which is not in his personal custody or in that of his
employee. As to other baggage, the rules in Articles 1998 and 2000 to 2003
concerning the responsibility of hotel-keepers shall be applicable.
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Art. 1998. The deposit of effects made by the travellers in hotels or inns shall
also be regarded as necessary. The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to them,
or to their employees, of the effects brought by the guests and that, on the
part of the latter, they take the precautions which said hotel-keepers or their
substitutes advised relative to the care and vigilance of their effects. (1783)
Art. 2000. The responsibility referred to in the two preceding articles shall
include the loss of, or injury to the personal property of the guests caused by
the servants or employees of the keepers of hotels or inns as well as
strangers; but not that which may proceed from any force majeure. The fact
that travellers are constrained to rely on the vigilance of the keeper of the
hotels or inns shall be considered in determining the degree of care required
of him. (1784a)
Art. 2001. The act of a thief or robber, who has entered the hotel is not
deemed force majeure, unless it is done with the use of arms or through an
irresistible force. (n)
Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to
the acts of the guest, his family, servants or visitors, or if the loss arises from
the character of the things brought into the hotel. (n)
Art. 2003. The hotel-keeper cannot free himself from responsibility by
posting notices to the effect that he is not liable for the articles brought by the
guest. Any stipulation between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in articles 1998 to 2001 is
suppressed or diminished shall be void. (n)
WHAT IS BAGGAGE?
Concept of carriage of goods and carriage of passengers
Not in the custody of

the passengers
Provisions on
carriage of goods
applicable
In the custody of
passengers
Provisions on
necessary deposit
(1998)
Baggage
ILLUSTRATION: A PASSENGER RIDES THE BUS WITH HIS BAGGAGE.

ON A STOPOVER, HE LEFT HIS BAGGAGE INSIDE THE BUS. TWO
CULPRITS PICKLOCKED THE BUS AND WAS ABLE TO GET THE
BAGGAGE. WAS THE BAG IN QUESTION CONSIDERED BAGGAGE?
WAS THE BAGGAGE IN CUSTODY OF THE PASSENGER?
Yes it is baggage
It was in custody of the passenger and thus, the provisions on

necessary deposit is applicable
COMMON CARRIER OF PASSENGERS
NATURE AND EXTENT OF RESPONSIBILITY
Art. 1755. A common carrier is bound to carry the passengers safely as far
cautious persons, with a due regard for all the circumstances.
(Note: this is a repetition of Article 1733 though with a different wording)
48
ISAAC V. AMMEN TRANSPORTATION

Supra
49
LANDINGIN V. PANTRANCO
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33 SCRA 284
FACTS:
Spouses Landingins two daughters were passengers of the bus operated by
PANTRANCO on an excursion trip to Baguio city. Allegedly due to the fault
and negligence of the driver, while uphill on Kennon Road, it halted and this
caused the motor of the bus to stop working. When it tried to swerve to the
mountainside, this caused several passengers to be thrown off through the
open side of the bus. This eventually led to the death of complainants
daughters due to the serious injuries they suffered.
HELD:
As a common carrier, defendant-appellant PANTRANCO was duty bound to
carry its passengers "safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with a due regard for all
the circumstances." (Article 1755, Civil Code.) Did defendant-appellant
PANTRANCO measure up to the degree of care and foresight required it
under the circumstances? We think not. The court below found that the
cross-joint of the bus in which the deceased were riding broke, which caused
the malfunctioning of the motor, which in turn resulted in panic among some
of the passengers. This is a finding of fact which this Court may not disturb.
We are of the opinion, however, that the lower court's conclusion drawn from
that fact, i.e., that "the accident was caused by a fortuitous event or an act of
God brought about by some extraordinary circumstances independent of the
will of the Pantranco or its employees," is in large measure conjectural and
speculative, and was arrived at without due regard to all the circumstances,
as required by Article 1755. In Lasam vs. Smith (45 Phil. 660), this Court
held that an accident caused by defects in the automobile is not a caso
fortuito. The rationale of the carrier's liability is the fact that "the passenger
has neither the choice nor control over the carrier in the selection and use of
the equipment and appliances in use by the carrier."
When a passenger dies or is injured, the presumption is that the common
carrier is at fault or that it acted negligently (Article 1756). This presumption
is only rebutted by proof on the carrier's part that it observed the
"extraordinary diligence" required in Article 1733 and the "utmost diligence of
very cautious persons" required in Article 1755 (Article 1756). In the instant
case it appears that the court below considered the presumption rebutted on
the strength of defendants-appellants' evidence that only the day before the
incident, the crossjoint in question was duly inspected and found to be in

order. It does not appear, however, that the carrier gave due regard for all
the circumstances in connection with the said inspection. The bus in which
the deceased were riding was heavily laden with passengers, and it would
be traversing mountainous, circuitous and ascending roads. Thus the entire
bus, including its mechanical parts, would naturally be taxed more heavily
than it would be under ordinary circumstances. The mere fact that the bus
was inspected only recently and found to be in order would not exempt the
carrier from liability unless it is shown that the particular circumstances under
which the bus would travel were also considered.
50
LANDICHO V. BT CO.
52 OG 7640
51
NECESSITO V. PARAS
104 PHIL 75
FACTS:
Severina Garces and her one-year old son, Precillano Necesito, carrying
vegetables, boarded passenger auto truck or bus No. 199 of the Philippine
Rabbit Bus Lines at Agno, Pangasinan. The passenger truck, driven by
Francisco Bandonell, then proceeded on its regular run from Agno to Manila.
After passing a town, the bus passed through a wooden bridge. The front
tires suddenly swerved. The wooden bridge consequently wreaked and the
bus fell in the creek where the water was breast deep. This caused the
mother to drown and the baby to suffer several injuries.
After joint trial, the Court of First Instance found that the bus was proceeding
slowly due to the bad condition of the road; that the accident was caused by
the fracture of the right steering knuckle, which was defective in that its
center or core was not compact but "bubbled and cellulous", a condition that
could not be known or ascertained by the carrier despite the fact that regular
thirty-day inspections were made of the steering knuckle, since the steel
exterior was smooth and shiny to the depth of 3/16 of an inch all around; that
the knuckles are designed and manufactured for heavy duty and may last up
to ten years; that the knuckle of bus No. 199 that broke on January 28, 1954,
was last inspected on January 5, 1954, and was due to be inspected again
on February 5th. Hence, the trial court, holding that the accident was
exclusively due to fortuitous event, dismissed both actions. Plaintiffs
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appealed directly to this Court in view of the amount in controversy.
good repute of the manufacturer will not relieve the carrier from liability"
HELD:
We are inclined to agree with the trial court that it is not likely that bus No.
199 of the Philippine Rabbit Lines was driven over the deeply rutted road
leading to the bridge at a speed of 50 miles per hour, as testified for the
plaintiffs. Such conduct on the part of the driver would have provoked instant
and vehement protest on the part of the passengers because of the
attendant discomfort, and there is no trace of any such complaint in the
records. We are thus forced to assume that the proximate cause of the
accident was the reduced strength of the steering knuckle of the vehicle
caused by defects in casting it. While appellants hint that the broken knuckle
exhibited in court was not the real fitting attached to the truck at the time of
the accident, the records they registered no objection on that ground at the
trial below. The issue is thus reduced to the question whether or not the
carrier is liable for the manufacturing defect of the steering knuckle, and
whether the evidence discloses that in regard thereto the carrier exercised
the diligence required by law (Art. 1755, new Civil Code).
The rationale of the carrier's liability is the fact that the passenger has
neither choice nor control over the carrier in the selection and use of the
equipment and 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 the carrier usually has. It is but logical,
therefore, that the carrier, while not in insurer of the safety of his passengers,
should nevertheless be held to answer for the flaws of his equipment if such
flaws were at all discoverable.
ART. 1755. A common carrier is bound to carry the passengers safely as far
cautious persons, with a due regard for the all the circumstances.
It is clear that the carrier is not an insurer of the passengers' safety. His
liability rests upon negligence, his failure to exercise the "utmost" degree of
diligence that the law requires, and by Art. 1756, in case of a passenger's
death or injury the carrier bears the burden of satisfying the court that he has
duly discharged the duty of prudence required. In the American law, where
the carrier is held to the same degree of diligence as under the new Civil
Code, the rule on the liability of carriers for defects of equipment is thus
expressed: "The preponderance of authority is in favor of the doctrine that a
passenger is entitled to recover damages from a carrier for an injury
resulting from a defect in an appliance purchased from a manufacturer,
whenever it appears that the defect would have been discovered by the
carrier if it had exercised the degree of care which under the circumstances
was incumbent upon it, with regard to inspection and application of the
necessary tests. For the purposes of this doctrine, the manufacturer is
considered as being in law the agent or servant of the carrier, as far as
regards the work of constructing the appliance. According to this theory, the
In the case now before us, the record is to the effect that the only test
applied to the steering knuckle in question was a purely visual inspection
every thirty days, to see if any cracks developed. It nowhere appears that
either the manufacturer or the carrier at any time tested the steering knuckle
to ascertain whether its strength was up to standard, or that it had no hidden
flaws would impair that strength. And yet the carrier must have been aware
of the critical importance of the knuckle's resistance; that its failure or
breakage would result in loss of balance and steering control of the bus, with
disastrous effects upon the passengers. No argument is required to establish
that a visual inspection could not directly determine whether the resistance
of this critically important part was not impaired. Nor has it been shown that
the weakening of the knuckle was impossible to detect by any known test; on
the contrary, there is testimony that it could be detected. We are satisfied
that the periodical visual inspection of the steering knuckle as practiced by
the carrier's agents did not measure up to the required legal standard of
"utmost diligence of very cautious persons" "as far as human care and
foresight can provide", and therefore that the knuckle's failure can not be
considered a fortuitous event that exempts the carrier from responsibility.
52
PAL V. CA
106 SCRA 91
FACTS:
On a flight to Daet, Samson was the co-pilot of the airplane owned and
operated by petitioner. Due to the poor judgment and slow reaction of the
pilot, the plane overshot the airfield and as a result, notwithstanding the
efforts of Samson to avoid the accident, the plane crash. This caused
Samsons head to hit the windshield and consequently suffered serious brain
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51
injury. And instead of giving expert and medical treatment, the company just
referred him to a company physician who only treated external injuries.
HELD:
PAL should be held liable. The duty to exercise the utmost diligence is for
the passengers as well as for the members of the crew or the complement
operating the carrier. And this must be so for any omission, lapse or neglect
thereof will result certainly to the damage, prejudice, and injuries and even
death to all aboard a plane.
53
SULPICIO V. CA
246 SCRA 299
FACTS:
A contract of carriage was entered into between petitioner and ALC for the
transport of the latter's timber from Pugad, Lianga, Surigao del Sur. On a
relevant date, petitioner sent its tugboat "MT Edmund" and barge "Solid VI"
to Lianga to pick up ALC's timber. However, no loading could be made
because of the heavy downpour. The next morning, several stevedores of
CBL, who were hired by ALC, boarded the "Solid VI" and opened its
storeroom. The stevedores were warned of the gas and heat generated by
the copra stored in the holds of the ship. Not heeding the warning, a
stevedore entered the storeroom and fell unconscious. Two other stevedores
followed, one of whom was Leoncio L. Pamalaran. He also lost
consciousness and eventually died of gas poisoning.
HELD:
Although Pamalaran was never a passenger of petitioner, still the latter is
liable as a common carrier for his death. ALC had a contract of carriage with
petitioner. The presence of the stevedores sent by ALC on board the barge
of petitioner was called for by the contract of carriage. For how else would its
lumber be transported unless it is placed on board? And by whom? Of
course, the stevedores. Definitely, petitioner could not expect the shipper
itself to load the lumber without the aid of the stevedores. Furthermore,
petitioner knew of the presence and role of the stevedores in its barge and
thus consented to their presence. Hence, petitioner was responsible for their
safety while on board the barge.
It is not enough that appellant's employees have warned the laborers not to
enter the barge after the hatch was opened. Appellant's employees should
have been sufficiently instructed to see to it that the hatch of the barge is not
opened by any unauthorized person and that the hatch is not easily opened
by anyone. At the very least, precautionary measures should have been
observed by appellant's employees to see to it that no one could enter the
bodega of the barge until after they have made sure that it is safe for anyone
to enter the same. Failing to exercise due diligence in the supervision of its
employees, the lower court was correct in holding appellant liable for
damages.
Note: According to Quimbo, the way the court decided this case is wrong.
It anchored its decision on extraordinary diligence whereas the persons
involved were not passengers and yet the court treated them as such.
54
JAPAN AIRLINES V. CA
449 SCRA 544
FACTS:
Respondents Asuncion left Manila on board Japan Airlines Flight 742 bound
for Los Angeles. Their itinerary included a stop-over in Narita and an
overnight stay at Hotel Nikko Narita. Upon arrival at Narita, Mrs. Noriko EtouHiguchi of JAL endorsed their applications for shore pass and directed them
to the Japanese immigration official. A shore pass is required of a foreigner
aboard a vessel or aircraft who desires to stay in the neighborhood of the
port of call for not more than 72 hours.
During their interview, the Japanese immigration official noted that Michael
appeared shorter than his height as indicated in his passport. Because of
this inconsistency, respondents were denied shore pass entries and were
brought instead to the Narita Airport Rest House where they were billeted
overnight. The immigration official also handed Mrs. Higuchi a Notice where
it was stated that respondents were to be "watched so as not to escape".
International Service Center (ISC), the agency tasked by Japans
Immigration Department to handle passengers who were denied shore pass
entries, brought respondents to the Narita Airport Rest House where they
stayed overnight until their departure the following day for Los Angeles.
Respondents were charged US$400.00 each for their accommodation,
security service and meals.
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The respondents filed a complaint for damages claiming that JAL did not fully
apprise them of their travel requirements and that they were rudely and
forcibly detained at Narita Airport.
JAL denied the allegations of respondents. It maintained that the refusal of
the Japanese immigration authorities to issue shore passes to respondents
is an act of state which JAL cannot interfere with or prevail upon.
Consequently, it cannot impose upon the immigration authorities that
respondents be billeted at Hotel Nikko instead of the airport resthouse.
HELD:
JAL did not breach its contract of carriage with respondents. It may be true
that JAL has the duty to inspect whether its passengers have the necessary
travel documents, however, such duty does not extend to checking the
veracity of every entry in these documents. JAL could not vouch for the
authenticity of a passport and the correctness of the entries therein. The
power to admit or not an alien into the country is a sovereign act which
cannot be interfered with even by JAL. This is not within the ambit of
the contract of carriage entered into by JAL and herein respondents.
As such, JAL should not be faulted for the denial of respondents shore pass
applications.
WHAT KIND OF DILIGENCE IS REQUIRED FOR PERSONS WHO ARE
NOT CONSIDERED AS PASSENGERS?
Ordinary diligence
Extraordinary diligence is not required for crew membersliability

doesnt arise from contract of carriage but instead, on contract of
employment
WHAT ARE THE TWO (2) REPERCUSSIONS OF LIABILITY NOT
ARISING FROM CONTRACT OF CARRIAGE?
There is no presumption of negligence
Carrier is not judged with the exercise of extraordinary diligence
However, in the case of PAL, the court extended the coverage of

the exercise of extraordinary diligence to even non-passengers
Passengers (contract of carriage;

extraordinary diligence)
Crew members (captains, stewards, etc.)

(contract of employment)
Licensees (quasi-delicts)
Guests (quasi-delicts)
Stow-aways
Not discovered: ???
Discovered mid-passage: quasi-delict
DURATION OF RESPONSIBILITY
Art. 1736. The extraordinary responsibility of the common carrier lasts from
the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of Article
1738.
Article 17, Warsaw Convention.
The carrier is liable for damage sustained in the event of death or wounding
of a passenger or any other bodily injury suffered by a passenger, if the
accident which caused the damage so sustained took place on board of the
aircraft or in the course of any of the operations of embarking or
disembarking.
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Article 698, Code of Commerce.

In case a voyage already begun should be interrupted the passengers shall
be obliged only to pay the passage in proportion to the distance covered,
and shall not be entitled to recover loss and damages if the interruption were
due to an accidental cause or to force majeure, but have a right to indemnity,
if the interruption should have been caused by the captain exclusively. If the
interruption should have been by reason of the disability of the vessel, and
the passenger should agree to await her repair, he cannot be required to pay
any increased price of passage, but his support during the delay shall be for
his own account.
when the time of delivery is different from the time the contract is perfected
In case the departure of the vessel is delayed the passengers have a right to
remain on board and to board for the account of the vessel unless the delay
is due to an accidental cause or force majeure. If the delay should exceed
10 days, the passengers who request it shall be entitled to the return of the
passage; and if it were due exclusively to the fault of the captain or agent
they may furthermore demand imdemnity for losses and damages.
NOTE: Duration of responsibility co-terminus with the contract of carriage
A vessel which is exclusively destined to the transportation of passengers

must take them directly to the port or ports of destination, no matter what the
number of passengers may be, making all the stops indicated in her
itinerary.
WHEN DOES A CONTRACT FOR CARRIAGE OF PERSONS BEGIN?
When there is concurrence of the elements of a contract

WHEN DOES EXTRAORDINARY DILIGENCE FOR CARRIAGE OF
PERSONS BEGIN?
If we follow the Warsaw Convention, it begins during the operations

of embarkation, lasting throughout the duration of the voyage, and
ends after the operations of disembarkation
Duration of responsibility; Carriage of passengers

When does liability begin?
When the K begin.
Does the law require physical contact between
passenger and carrier before liability starts?
The law doesnt say anything.
As long as human care and foresight can provide.
Cangco: Ingress and egressphysical contract not required
REVIEW: TWO POINTS UNDER CONSIDERATION

1. When the duty arises
2. When the contract is perfected
REVIEW: CONTRACT TO CARRY V. CONTRACT OF CARRIAGE
Contract to carry
o All the elements of contract are present but there is no
duty yet on the part of the common carrier
o The contract is in its executory form
Contract of carriage
o There is a duty on the part of common carrier to exercise
o There has been delivery
o There arises a real contract
Note: the distinction between contract to carry and contract of carriage arises
When does the liability end?

La Mallorca v. CA: It has been recognized as a rule that the relation
of carrier and passenger does not cease at the moment the
passenger alights from the carrier's vehicle at a place selected by
the carrier at the point of destination, but continues until the
passenger has had a reasonable time or a reasonable opportunity
to leave the carrier's premises. And, what is a reasonable time or a
reasonable delay within this rule is to be determined from all the
circumstances.
55
CANGCO V. MANILA RAILROAD

Supra
HELD:
The contract of defendant to transport plaintiff carried with it, by implication,
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54
the duty to carry him in safety and to provide safe means of entering and
leaving its trains (civil code, article 1258). That duty, being contractual, was
direct and immediate, and its non-performance could not be excused by
proof that the fault was morally imputable to defendant's servants.
56
DEL PRADO V. MERALCO

52 PHIL 900
FACTS:
Meralco was engaged in the operation of street cars. On the relevant date, a
street car was being operated by Florenciano and it was running from east to
west on R. Hidalgo Street, the scene of the accident being at a point near the
intersection of said street and Mendoza Street. After the car had stopped at
its appointed place for taking on and letting off passengers, just east of the
intersection, it resumed its course at a moderate speed under the guidance
of the motorman. The car had proceeded only a short distance, however,
when the plaintiff del Prado, ran across the street to catch the car, his
approach being made from the left. The car was of the kind having entrance
and exist at either end, and the movement of the plaintiff was so timed that
he arrived at the front entrance of the car at the moment when the car was
passing.
When del Prado was approaching the car, he signaled to the motorman of
his intention to board the car. This caused the motorman to slow the vehicle
down. Del Prado boarded the car, with his foot stepping on the platform and
a hand holding a handrail. When the motorman saw that he already
boarded, he accelerated the speed, causing a jerk, which eventually caused
del Prado to slip from the platform and his foot got ran over by the car. Days
later, it was amputated and he needed to have an artificial member. He
sued for damages against MERALCO and he won.
HELD:
With respect to the legal aspects of the case we may observe at the outset
that there is no obligation on the part of a street railway company to stop its
cars to let on intending passengers at other points than those appointed for
stoppage. In fact it would be impossible to operate a system of street cars if
a company engage in this business were required to stop any and
everywhere to take on people who were too indolent, or who imagine
themselves to be in too great a hurry, to go to the proper places for boarding
the cars. Nevertheless, although the motorman of this car was not bound to
stop to let the plaintiff on, it was his duty to do act that would have the effect
of increasing the plaintiffs peril while he was attempting to board the car.
The premature acceleration of the car was, in our opinion, a breach of this
duty.
The relation between a carrier of passengers for hire and its patrons is of a
contractual nature; and in failure on the part of the carrier to use due care in
carrying its passengers safely is a breach of duty (culpa contractual) under
articles 1101, 1103 and 1104 of the Civil Code. Furthermore, the duty that
the carrier of passengers owes to its patrons extends to persons boarding
the cars as well as to those alighting therefrom.
57
LA MALLORCA V. COURT OF APPEALS

17 SCRA 739
FACTS:
Mariano and his family were passengers in a bus owned by petitioner. After
about an hour's trip, the bus reached Anao whereat it stopped to allow the
passengers bound therefor, among whom were the plaintiffs and their
children to get off. Mariano, then carrying some of their baggages, was the
first to get down the bus, followed by his wife and his children. Mariano led
his companions to a shaded spot on the left pedestrians side of the road
about four or five meters away from the vehicle. Afterwards, he returned to
the bus in controversy to get his other bayong, which he had left behind, but
in so doing, his daughter Raquel followed him, unnoticed by her father. While
Mariano was on the running board of the bus waiting for the conductor to
hand him his bayong which he left under one of its seats near the door, the
bus, whose motor was not shut off while unloading, suddenly started moving
forward, evidently to resume its trip, notwithstanding the fact that the
conductor has not given the driver the customary signal to start, since said
conductor was still attending to the baggage left behind by Mariano.
Incidentally, when the bus was again placed into a complete stop, it had
travelled about ten meters from the point where the plaintiffs had gotten off.
Sensing that the bus was again in motion, Mariano immediately jumped from
the running board without getting his bayong from the conductor. He landed
on the side of the road almost in front of the shaded place where he left his
wife and children. At that precise time, he saw people beginning to gather
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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 with her parents.
HELD:
Under the facts as found by the Court of Appeals, we have to sustain the
judgement holding petitioner liable for damages for the death of the child,
Raquel Beltran. It may be pointed out that although it is true that respondent
Mariano Beltran, his wife, and their children (including the deceased child)
had alighted from the bus at a place designated for disembarking or
unloading of passengers, it was also established that the father had to return
to the vehicle (which was still at a stop) to get one of his bags or bayong that
was left under one of the seats of the bus. 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. For, the relation of carrier and
passenger does not necessarily cease where the latter, after alighting from
the car, aids the carrier's servant or employee in removing his baggage from
the car. The issue to be determined here is whether as to the child, who was
already led by the father to a place about 5 meters away from the bus, the
liability of the carrier for her safety under the contract of carriage also
persisted.
It has been recognized as a rule that the relation of carrier and passenger
does not cease at the moment the passenger alights from the carrier's
vehicle at a place selected by the carrier at the point of destination, but
continues until the passenger has had a reasonable time or a reasonable
opportunity to leave the carrier's premises. And, what is a reasonable time or
a reasonable delay within this rule is to be determined from all the
circumstances.
In the present case, the father returned to the bus to get one of his baggages
which was not unloaded when they alighted from the bus. Raquel, the child
that she was, must have followed the father. However, although the father
was still on the running board of the bus awaiting for the conductor to hand
him the bag or bayong, the bus started to run, so that even he (the father)
had to jump down from the moving vehicle. It was at this instance that the
child, who must be near the bus, was run over and killed. In the
circumstances, it cannot be claimed that the carrier's agent had exercised
the "utmost diligence" of a "very cautions person" required by Article 1755 of

the Civil Code to be observed by a common carrier in the discharge of its
obligation to transport safely its passengers. In the first place, the driver,
although stopping the bus, nevertheless did not put off the engine. Secondly,
he started to run the bus even before the bus conductor gave him the signal
to go and while the latter was still unloading part of the baggages of the
passengers Mariano Beltran and family. The presence of said passengers
near the bus was not unreasonable and they are, therefore, to be considered
still as passengers of the carrier, entitled to the protection under their
contract of carriage.
58
BATACLAN V. MEDINA
104 PHIL 181
FACTS:
Shortly after midnight, a passenger bus owned by defendant traveled from
Amadeo, Cavite to Pasig City. One of the passengers was Baticlan, who
was sitting at the right beside the driver. While traveling through Imus, one
of the front tires burst, which caused the bus to zigzag and eventually turned
turtle. The passengers were able to climb out but unfortunately for Baticlan
and three others, they were trapped inside. They called out for help and in a
few minutes, men from the barrio came, one of whom was carrying a torch
fueled with petroleum. When they approached, the bus suddenly caught fire
and the passengers inside were charred to death.
HELD:
The case involves a breach of contract of transportation for hire, the Medina
Transportation having undertaken to carry Bataclan safely to his destination,
Pasay City. There was negligence on the part of the defendant, through his
agent, the driver Saylon. There is evidence to show that at the time of the
blow out, the bus was speeding, as testified to by one of the passengers,
and as shown by the fact that according to the testimony of the witnesses,
including that of the defense, from the point where one of the front tires burst
up to the canal where the bus overturned after zig-zagging, there was a
distance of about 150 meters. The chauffeur, after the blow-out, must have
applied the brakes in order to stop the bus, but because of the velocity at
which the bus must have been running, its momentum carried it over a
distance of 150 meters before it fell into the canal and turned turtle.
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59
ABOITIZ V. CA
179 SCRA 95
FACTS:
Viana boarded the vessel M/V Antonia, owned by defendant, at the port at
San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket.
Said vessel arrived at Pier 4, North Harbor, Manila, and the passengers
therein disembarked, a gangplank having been provided connecting the side
of the vessel to the pier. Instead of using said gangplank Anacleto Viana
disembarked on the third deck which was on the level with the pier. After
said vessel had landed, the Pioneer Stevedoring Corporation took over the
exclusive control of the cargoes loaded on said vessel pursuant to the
Memorandum of Agreement.
The crane owned by the third party defendant and operated by its crane
operator Alejo Figueroa was placed alongside the vessel and one (1) hour
after the passengers of said vessel had disembarked, it started operation by
unloading the cargoes from said vessel. While the crane was being
operated, Anacleto Viana who had already disembarked from said vessel
obviously remembering that some of his cargoes were still loaded in the
vessel, went back to the vessel, and it was while he was pointing to the crew
of the said vessel to the place where his cargoes were loaded that the crane
hit him, pinning him between the side of the vessel and the crane. He died
after being brought to the hospital.
HELD:
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
owner's dock or premises. Once created, the relationship will not ordinarily
terminate until the passenger has, after reaching his destination, safely
alighted from the carrier's conveyance or had a reasonable opportunity to
leave the carrier's 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 carrier's premises to claim his baggage.
It is of common knowledge that, by the very nature of petitioner's business

as a shipper, the passengers of vessels are allotted a longer period of time
to disembark from the ship than other common carriers such as a passenger
bus. With respect to the bulk of cargoes and the number of passengers it
can load, such vessels are capable of accommodating a bigger volume of
both as compared to the capacity of a regular commuter bus. Consequently,
a ship passenger will need at least an hour as is the usual practice, to
disembark from the vessel and claim his baggage whereas a bus passenger
can easily get off the bus and retrieve his luggage in a very short period of
time. Verily, petitioner cannot categorically claim, through the bare expedient
of comparing the period of time entailed in getting the passenger's cargoes,
that the ruling in La Mallorca is inapplicable to the case at bar. On the
contrary, if we are to apply the doctrine enunciated therein to the instant
petition, we cannot in reason doubt that the victim Anacleto Viana was still a
passenger at the time of the incident. When the accident occurred, the victim
was in the act of unloading his cargoes, which he had every right to do, from
petitioner's vessel. As earlier stated, a carrier is duty bound not only to bring
its passengers safely to their destination but also to afford them a
reasonable time to claim their baggage.
It is not definitely shown that one (1) hour prior to the incident, the victim had
already disembarked from the vessel. Petitioner failed to prove this. What is
clear to us is that at the time the victim was taking his cargoes, the vessel
had already docked an hour earlier. In consonance with common shipping
procedure as to the minimum time of one (1) hour allowed for the
passengers to disembark, it may be presumed that the victim had just gotten
off the vessel when he went to retrieve his baggage. Yet, even if he had
already disembarked an hour earlier, his presence in petitioner's premises
was not without cause. The victim had to claim his baggage which was
possible only one (1) hour after the vessel arrived since it was admittedly
standard procedure in the case of petitioner's vessels that the unloading
operations shall start only after that time. Consequently, under the foregoing
circumstances, the victim Anacleto Viana is still deemed a passenger of said
carrier at the time of his tragic death.
60
PAL V. CA
226 SCRA 423
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FACTS:
Zapatos was among the twenty-one (21) passengers of PAL Flight 477 that
took off from Cebu bound for Ozamiz City. The routing of this flight was
Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes
before landing at Ozamiz City, the pilot received a radio message that the
airport was closed due to heavy rains and inclement weather and that he
should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the
passengers of their options to return to Cebu on flight 560 of the same day
and thence to Ozamiz City on 4 August 1975, or take the next flight to Cebu
the following day, or remain at Cotabato and take the next available flight to
Ozamiz City on 5 August 1975. The Station Agent likewise informed them
that Flight 560 bound for Manila would make a stop-over at Cebu to bring
some of the diverted passengers; that there were only six (6) seats available
as there were already confirmed passengers for Manila; and, that the basis
for priority would be the check-in sequence at Cebu.
Private respondent chose to return to Cebu but was not accommodated
because he checked-in as passenger No. 9 on Flight 477. He insisted on
being given priority over the confirmed passengers in the accommodation,
but the Station Agent refused private respondent's demand explaining that
the latter's predicament was not due to PAL's own doing but to be a force
majeure.
Private respondent tried to stop the departure of Flight 560 as his personal
belongings, including a package containing a camera which a certain Miwa
from Japan asked him to deliver to Mrs. Fe Obid of Gingoog City, were still
on board. His plea fell on deaf ears. PAL then issued to private respondent a
free ticket to Iligan city, which the latter received under protest. Private
respondent was left at the airport and could not even hitch a ride in the Ford
Fiera loaded with PAL personnel. PAL neither provided private respondent
with transportation from the airport to the city proper nor food and
accommodation for his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan City.
He informed PAL personnel that he would not use the free ticket because he
was filing a case against PAL. In Iligan City, private respondent hired a car
from the airport to Kolambugan, Lanao del Norte, reaching Ozamiz City by
crossing the bay in a launch. His personal effects including the camera,
which were valued at P2,000.00 were no longer recovered.
HELD:
With regard to the award of damages affirmed by the appellate court, PAL
argues that the same is unfounded. It asserts that it should not be charged
with the task of looking after the passengers' comfort and convenience
because the diversion of the flight was due to a fortuitous event, and that if
made liable, an added burden is given to PAL which is over and beyond its
duties under the contract of carriage. It submits that granting arguendo that
negligence exists, PAL cannot be liable in damages in the absence of fraud
or bad faith; that private respondent failed to apprise PAL of the nature of his
trip and possible business losses; and, that private respondent himself is to
be blamed for unreasonably refusing to use the free ticket which PAL issued.
The position taken by PAL in this case clearly illustrates its failure to grasp
the exacting standard required by law. Undisputably, PAL's diversion of its
flight due to inclement weather was a fortuitous event. Nonetheless, such
occurrence did not terminate PAL's contract with its passengers. Being
in the business of air carriage and the sole one to operate in the
country, PAL is deemed equipped to deal with situations as in the case at
bar. What we said in one case once again must be stressed, i.e., the relation
of carrier and passenger continues until the latter has been landed at the
port of destination and has left the carrier's premises. Hence, PAL
necessarily would still have to exercise extraordinary diligence in
safeguarding the comfort, convenience and safety of its stranded
passengers until they have reached their final destination.
PRESUMPTION OF NEGLIGENCE
Art. 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed in Articles
1733 and 1755.
FORCE MAJEURE
61
BACHELOR EXPRESS V. CA
188 SCRA 217
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58
FACTS:
Bus No. 800 owned by Bachelor Express, Inc. and driven by Cresencio
Rivera was the situs of a stampede which resulted in the death of
passengers Ornominio Beter and Narcisa Rautraut. The evidence shows
that the bus came from Davao City on its way to Cagayan de Oro City
passing Butuan City; that while at Tabon-Tabon, Butuan City, the bus picked
up a passenger; that about fifteen (15) minutes later, a passenger at the rear
portion suddenly stabbed a PC soldier which caused commotion and panic
among the passengers; that when the bus stopped, passengers Ornominio
Beter and Narcisa Rautraut were found lying down the road, the former
already dead as a result of head injuries and the latter also suffering from
severe injuries which caused her death later. The passenger assailant
alighted from the bus and ran toward the bushes but was killed by the police.
HELD:
The running amuck of the passenger was the proximate cause of the
incident as it triggered off a commotion and panic among the passengers
such that the passengers started running to the sole exit shoving each other
resulting in the falling off the bus by passengers Beter and Rautraut causing
them fatal injuries. The sudden act of the passenger who stabbed another
passenger in the bus is within the context of force majeure.
However, in order that a common carrier may be absolved from liability
in case of force majeure, it is not enough that the accident was caused
by force majeure. The common carrier must still prove that it was not
negligent in causing the injuries resulting from such accident.
Considering the factual findings of the Court of Appeals-the bus driver did
not immediately stop the bus at the height of the commotion; the bus was
speeding from a full stop; the victims fell from the bus door when it was
opened or gave way while the bus was still running; the conductor panicked
and blew his whistle after people had already fallen off the bus; and the bus
was not properly equipped with doors in accordance with law-it is clear that
the petitioners have failed to overcome the presumption of fault and
negligence found in the law governing common carriers.
The petitioners' argument that the petitioners "are not insurers of their
passengers" deserves no merit in view of the failure of the petitioners to
prove that the deaths of the two passengers were exclusively due to force
majeure and not to the failure of the petitioners to observe extraordinary
diligence in transporting safely the passengers to their destinations as
warranted by law.
LIMITATION OF LIABILITY; VALIDITY OF STIPULATIONS
Art. 1757. The responsibility of a common carrier for the safety of
passengers as required in Articles 1733 and 1755 cannot be dispensed with
or lessened by stipulation, by the posting of notices, by statements on
tickets, or otherwise.
Art. 1758. When a passenger is carried gratuitously, a stipulation limiting the
common carrier's liability for negligence is valid, but not for willful acts or
gross negligence.
The reduction of fare does not justify any limitation of the common carrier's
liability.
NOTES:
General rule: invalid to have stipulation limiting liability of common

carrier of passengers
Exception: when passenger is carried gratuitously, a stipulation

limiting common carriers liability for negligence is valid (as to
diligence required)
Exception to the exception: willful acts or gross negligence
Limitation of liability re: carriage of goods

o As to diligence required
o As to amount of liability
There is no jurisprudence that allows a stipulation limiting amount of

liability but according to the Warsaw Convention, the law provides
for the limit of amount
RESPONSIBILITY FOR ACTS OF EMPLOYEES
Art. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or wilful acts of the former's employees,
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through the exercise of the degree of car and diligence required of it.
Art. 1760. The common carrier's responsibility prescribed in the preceding
article cannot be eliminated or limited by stipulation, by the posting of
notices, by statements on the tickets or otherwise.
62
BATACLAN V. MEDINA
Supra
63
DE DILLACO V. MRR
97 PHIL 884
FACTS:
1. That at about 7:30 a.m., on the morning of April 1, 1946, Lt. Tomas
Gillaco, husband of the plaintiff, was a passenger in the early
morning train of the Manila Railroad Company from Calamba,
Laguna to Manila;
2. That when the train reached the Paco Railroad station, Emilio
Devesa, a train guard of the Manila Railroad Company assigned in
the Manila-San Fernando, La Union Line, happened to be in said
station waiting for the same train which would take him to Tutuban
Station, where he was going to report for duty;
3. That Emilio Devesa had a long standing personal grudge against
Tomas Gillaco, same dating back during the Japanese occupation;
4. That because of this personal grudge, Devesa shot Gillaco with the
carbine furnished to him by the Manila Railroad Company for his
use as such train guard, upon seeing him inside the train coach;
5. That Tomas Gillaco died as a result of the would which he
sustained from the shot fired by Devesa.
HELD:
There can be no quarrel with the principle that a passenger is entitled to
protection from personal violence by the carrier or its agents or employees,
since the contract of transportation obligates the carrier to transport a
passenger safely to his destination. But under the law of the case, this
responsibility extends only to those that the carrier could foresee or avoid
The act of guard Devesa in shooting passenger Gillaco (because of a

personal grudge nurtured against the latter since the Japanese occupation)
was entirely unforeseeable by the Manila Railroad Co. The latter had no
means to ascertain or anticipate that the two would meet, nor could it
reasonably foresee every personal rancor that might exist between each one
of its many employees and any one of the thousands of eventual passengers
riding in its trains. The shooting in question was therefore "caso fortuito"
within the definition of article 105 of the old Civil Code, being both
unforeseeable and inevitable under the given circumstances; and pursuant
to established doctrine, the resulting breach of appellant's contract of safe
carriage with the late Tomas Gillaco was excused thereby.
No doubt that a common carrier is held to a very high degree of care and
diligence in the protection of its passengers; but, considering the vast and
complex activities of modern rail transportation, to require of appellant that it
should guard against all possible misunderstanding between each and every
one of its employees and every passenger that might chance to ride in its
conveyances at any time, strikes us as demanding diligence beyond what
human care and foresight can provide.
Another very important consideration that must be borne in mind is
that, when the crime took place, the guard Devesa had no duties to
discharge in connection with the transportation of the deceased from
Calamba to Manila. The stipulation of facts is clear that when Devesa shot
and killed Gillaco, Devesa was assigned to guard the Manila-San Fernando
(La Union) trains, and he was at Paco Station awaiting transportation to
Tutuban, the starting point of the train that he was engaged to guard. In fact,
his tour of duty was to start at 9:00 a.m., two hours after the commission of
the crime. Devesa was therefore under no obligation to safeguard the
passenger of the Calamba-Manila train, where the deceased was riding; and
the killing of Gillaco was not done in line of duty. The position of Devesa at
the time was that of another would be passenger, a stranger also
awaiting transportation, and not that of an employee assigned to
discharge any of the duties that the Railroad had assumed by its
contract with the deceased. As a result, Devesa's assault cannot be
deemed in law a breach of Gillaco's contract of transportation by a
servant or employee of the carrier.
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64
MARANAN V. PEREZ
20 SCRA 442
FACTS:
Rogelio Corachea was a passenger in a taxicab owned and operated by
Pascual Perez when he was stabbed and killed by the driver, Simeon
Valenzuela. Valenzuela was prosecuted for homicide in the Court of First
Instance of Batangas. Found guilty, he was sentenced to suffer
imprisonment and to indemnify the heirs of the deceased in the sum of
P6,000. Appeal from said conviction was taken to the Court of Appeals.
Pending appeal, a case was likewise filed against Perez, the owner of the
taxi.
HELD:
1
The Civil Code provisions on the subject of Common Carriers are new and
2
were taken from Anglo-American Law. There, the basis of the carrier's
liability for assaults on passengers committed by its drivers rests either on
(1) the doctrine of respondeat superior or (2) the principle that it is the
carrier's implied duty to transport the passenger safely.
Under the first, which is the minority view, the carrier is liable only when the
act of the employee is within the scope of his authority and duty. It is not
sufficient that the act be within the course of employment only.
Under the second view, upheld by the majority and also by the later cases, it
is enough that the assault happens within the course of the employee's duty.
It is no defense for the carrier that the act was done in excess of authority or
in disobedience of the carrier's orders. The carrier's liability here is absolute
in the sense that it practically secures the passengers from assaults
committed by its own employees.
As can be gleaned from Art. 1759, the Civil Code of the Philippines evidently
follows the rule based on the second view. At least three very cogent
reasons underlie this rule. As explained in Texas Midland R.R. v. Monroe,
110 Tex. 97, 216 S.W. 388, 389-390, and Haver v. Central Railroad Co., 43
LRA 84, 85: (1) the special undertaking of the carrier requires that it furnish
its passenger that full measure of protection afforded by the exercise of the
high degree of care prescribed by the law, inter alia from violence and insults
at the hands of strangers and other passengers, but above all, from the acts
of the carrier's own servants charged with the passenger's safety; (2) said
liability of the carrier for the servant's violation of duty to passengers, is the
result of the formers confiding in the servant's hands the performance of his
contract to safely transport the passenger, delegating therewith the duty of
protecting the passenger with the utmost care prescribed by law; and (3) as
between the carrier and the passenger, the former must bear the risk of
wrongful acts or negligence of the carrier's employees against passengers,
since it, and not the passengers, has power to select and remove them.
Accordingly, it is the carrier's strict obligation to select its drivers and similar
employees with due regard not only to their technical competence and
physical ability, but also, no less important, to their total personality,
including their patterns of behavior, moral fibers, and social attitude.
Applying this stringent norm to the facts in this case, therefore, the lower
court rightly adjudged the defendant carrier liable pursuant to Art. 1759 of
the Civil Code.
65
LRTA V. NAVIDAD
397 SCRA 75
FACTS:
Nicanor was currently drunk when he arrived at the LRT station. An
altercation ensued between him and a security guard, which led to a fist
fight. He fell off the platform while there was an upcoming train, which
resulted to his instantaneous death. This prompted his widow to file a case
against the LRTA, security agency, etc.
HELD:
Law and jurisprudence dictate that a common carrier, both from the nature of
its business and for reasons of public policy, is burdened with the duty of
exercising utmost diligence in ensuring the safety of passengers. The Civil
Code, governing the liability of a common carrier for death of or injury to its
passengers, provides:
Article 1755. A common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances.
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61
Article 1756. In case of death of or injuries to passengers, common carriers

are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed in articles
1733 and 1755.
Article 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the formers employees,
Article 1763. A common carrier is responsible for injuries suffered by a
passenger on account of the willful acts or negligence of other passengers or
of strangers, if the common carriers employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the
act or omission.
failed to show, the presumption would be that it has been at fault, an

exception from the general rule that negligence must be proved.
The foundation of LRTAs liability is the contract of carriage and its obligation
to indemnify the victim arises from the breach of that contract by reason of
its failure to exercise the high diligence required of the common carrier. In
the discharge of its commitment to ensure the safety of passengers, a carrier
may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of
carriage.
RESPONSIBILITY FOR ACTS OF STRANGERS AND CO-PASSENGERS
Art. 1763. A common carrier is responsible for injuries suffered by a
passenger on account of the wilful acts or negligence of other passengers or
of strangers, if the common carrier's employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the
act or omission.
66
The law requires common carriers to carry passengers safely using the
utmost diligence of very cautious persons with due regard for all
circumstances. Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so
long as the passengers are within its premises and where they ought to be in
pursuance to the contract of carriage. The statutory provisions render a
common carrier liable for death of or injury to passengers (a) through the
negligence or 61herefo acts of its employees or b) on account of 61herefo
acts or negligence of other passengers or of strangers if the common
carriers employees through the exercise of due diligence could have
prevented or stopped the act or omission. In case of such death or injury, a
carrier is presumed to have been at fault or been negligent, and by simple
proof of injury, the passenger is relieved of the duty to still establish the fault
or negligence of the carrier or of its employees and the burden shifts upon
the carrier to prove that the injury is due to an unforeseen event or to force
majeure. In the absence of satisfactory explanation by the carrier on how the
accident occurred, which petitioners, according to the appellate court, have
PILAPIL V. CA
180 SCRA 546
FACTS:
Pilapil, a paying passenger, boarded respondent-defendant's bus. While
said bus No. 409 was in due course negotiating the distance between Iriga
City and Naga City, upon reaching the vicinity of the cemetery of the
Municipality of Baao, Camarines Sur, on the way to Naga City, an
unidentified man, a bystander along said national highway, hurled a stone at
the left side of the bus, which hit petitioner above his left eye. Private
respondent's personnel lost no time in bringing the petitioner to the provincial
hospital in Naga City where he was confined and treated.
Considering that the sight of his left eye was impaired, petitioner was taken
to Dr. Malabanan of Iriga City where he was treated for another week. Since
there was no improvement in his left eye's vision, petitioner went to V. Luna
Hospital, Quezon City where he was treated by Dr. Capulong. Despite the
treatment accorded to him by Dr. Capulong, petitioner lost partially his left
eye's vision and sustained a permanent scar above the left eye.
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62
HELD:
In consideration of the right granted to it by the public to engage in the
business of transporting passengers and goods, a common carrier does not
give its consent to become an insurer of any and all risks to passengers and
goods. It merely undertakes to perform certain duties to the public as the law
imposes, and holds itself liable for any breach thereof.
REVIEW: INJURIES AND DEATH OF PASSENGER

Diligence
Stipulation
Presumption
Defenses
Under Article 1733 of the Civil Code, common carriers are required to
observe extraordinary diligence for the safety of the passenger transported
by them, according to all the circumstances of each case. The requirement
of extraordinary diligence imposed upon common carriers is restated in
Article 1755: "A common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with due regard for all the circumstances." Further, in
case of death of or injuries to passengers, the law presumes said common
carriers to be at fault or to have acted negligently.
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
the absolute safety of its passengers.
67
Nature
Employee (Maranan
and Gillaco)
Self-inflicted
The passenger must
observe due diligence to
avoid injury to himself
BACHELOR EXPRESS V. CA
Supra
HELD:
The petitioners' argument that the petitioners "are not insurers of their
passengers" deserves no merit in view of the failure of the petitioners to
prove that the deaths of the two passengers were exclusively due to force
majeure and not to the failure of the petitioners to observe extraordinary
diligence in transporting safely the passengers to their destinations as
warranted by law.
Injury and/or
death to
passenger
Stranger (Pilapil)
Diligence: ordinary
Defense: employees
has exercised diligence
of good father of family;
Diligence: ordinary
Defenses: not an employee
(incomplete); defenses
under vicarious liability in
tort prohibited expressly by
law in common carrier
This disparity highlights the
difference between
responsibility of employer
and c. carrier
Co-passenger
(Bachelor
Express)
Diligence: ordinary
Defense: extraordinary
diligence
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DUTY OF PASSENGER; EFFECT OF CONTRIBUTORY NEGLIGENCE

Art. 1761. The passenger must observe the diligence of a good father of a
family to avoid injury to himself.
Art. 1762. The contributory negligence of the passenger does not bar
recovery of damages for his death or injuries, if the proximate cause thereof
is the negligence of the common carrier, but the amount of damages shall be
equitably reduced.
68
CANGCO V. MRR
Supra
HELD:
It may be admitted that had plaintiff waited until the train had come to a full
stop before alighting, the particular injury suffered by him could not have
occurred. Defendant contends, and cites many authorities in support of the
contention, that it is negligence per se for a passenger to alight from a
moving train. We are not disposed to subscribe to this doctrine in its absolute
form. We are of the opinion that this proposition is too badly stated and is at
variance with the experience of every-day life. In this particular instance, that
the train was barely moving when plaintiff alighted is shown conclusively by
the fact that it came to stop within six meters from the place where he
stepped from it. Thousands of person alight from trains under these
conditions every day of the year, and sustain no injury where the company
has kept its platform free from dangerous obstructions. There is no reason to
believe that plaintiff would have suffered any injury whatever in alighting as
he did had it not been for defendant's negligent failure to perform its duty to
provide a safe alighting place.
The test by which to determine whether the passenger has been guilty
of negligence in attempting to alight from a moving railway train, is that
of ordinary or reasonable care. It is to be considered whether an ordinarily
prudent person, of the age, sex and condition of the passenger, would have
acted as the passenger acted under the circumstances disclosed by the
evidence. This care has been defined to be, not the care which may or
should be used by the prudent man generally, but the care which a man of
ordinary prudence would use under similar circumstances, to avoid injury."
Was there anything in the circumstances surrounding the plaintiff at the time
he alighted from the train which would have admonished a person of

average prudence that to get off the train under the conditions then existing
was dangerous? If so, the plaintiff should have desisted from alighting; and
his failure so to desist was contributory negligence.
As pertinent to the question of contributory negligence on the part of the
plaintiff in this case the following circumstances are to be noted: The
company's platform was constructed upon a level higher than that of the
roadbed and the surrounding ground. The distance from the steps of the car
to the spot where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident to stepping
off. The nature of the platform, constructed as it was of cement material, also
assured to the passenger a stable and even surface on which to alight.
Furthermore, the plaintiff was possessed of the vigor and agility of young
manhood, and it was by no means so risky for him to get off while the train
was yet moving as the same act would have been in an aged or feeble
person. In determining the question of contributory negligence in performing
such act that is to say, whether the passenger acted prudently or recklessly
the age, sex, and physical condition of the passenger are circumstances
necessarily affecting the safety of the passenger, and should be considered.
Women, it has been observed, as a general rule are less capable than men
of alighting with safety under such conditions, as the nature of their wearing
apparel obstructs the free movement of the limbs. Again, it may be noted
that the place was perfectly familiar to the plaintiff as it was his daily custom
to get on and of the train at this station. There could, therefore, be no
uncertainty in his mind with regard either to the length of the step which he
was required to take or the character of the platform where he was alighting.
Our conclusion is that the conduct of the plaintiff in undertaking to alight
while the train was yet slightly under way was not characterized by
imprudence and that therefore he was not guilty of contributory negligence.
69
ISAAC V. A.L AMMEN

Supra
DAMAGES RECOVERABLE FROM COMMON CARRIERS
IN GENERAL
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64
Art. 2195. The provisions of this Title shall be respectively applicable to all
obligations mentioned in Article 1157.
TEMPERATE
Art. 2196. The rules under this Title are without prejudice to special
provisions on damages formulated elsewhere in this Code. Compensation
for workmen and other employees in case of death, injury or illness is
regulated by special laws. Rules governing damages laid down in other laws
shall be observed insofar as they are not in conflict with this Code.
LIQUIDIATED
When the court finds that some pecuniary loss has

been suffered but its amount can not, from the
nature of the case, be provided with certainty
Breach of contract
EXEMPLARY
Generally not recoverable
Art. 2197. Damages may be:

(1) Actual or compensatory;
(2) Moral;
(3) Nominal;
(4) Temperate or moderate;
(5) Liquidated; or
(6) Exemplary or corrective.
NOMINAL
Obligor who acted in good faith is liable shall be

those that are the natural and probable
consequences of the breach of the obligation, and
which the parties have foreseen or could have
reasonably foreseen at the time the obligation was
constituted
In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to
the non-performance of the obligation.
Not recoverable generally
Exception: malice or bad faith, fraud
For the right of the plaintiff, which has been
violated or invaded by the defendant, may be
vindicated or recognized
oppressive,
or
Art. 2199. Except as provided by law or by stipulation, one is entitled to an

adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. Such compensation is referred to as actual or
compensatory damages.
CONTRACT
MORAL
reckless,
ACTUAL OR COMPENSATORY DAMAGES
Art. 2198. The principles of the general law on damages are hereby adopted
insofar as they are not inconsistent with this Code.
ACTUAL
Wanton, fraudulent,
malevolent manner
Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural
and probable consequences of the breach of the obligation, and which the
parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. (1107a)
Art. 2203. The party suffering loss or injury must exercise the diligence of a
good father of a family to minimize the damages resulting from the act or
omission in question.
Art. 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206
shall also apply to the death of a passenger caused by the breach of
contract by a common carrier.
Art. 2206. The amount of damages for death caused by a crime or quasidelict shall be at least three thousand pesos, even though there may have
been mitigating circumstances. In addition:
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65
(1) The defendant shall be liable for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the heirs of the latter; such
indemnity shall in every case be assessed and awarded by the court, unless
the deceased on account of permanent physical disability not caused by the
defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of
Article 291, the recipient who is not an heir called to the decedent's
inheritance by the law of testate or intestate succession, may demand
support from the person causing the death, for a period not exceeding five
years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of
the deceased may demand moral damages for mental anguish by reason of
the death of the deceased.
Damnun
emergens
(actual
pecuniary
loss)
Loss, damage,
deterioration
Goods
Passengers
Actual
damages
Goods
Injury or death (Death:

P50,000)
Good faith: limited to natural and

probable consequences of the
breach which can be foreseen/
foreseeable
Bad faith: reasonably
attributable to the breach
Lucrum
cessans
If he was earning income

or could have earned
income
Passengers
Life expectency divided
by net annual income
70
CARIAGA V. LTB CO. AND MRR
110 PHIL 346

FACTS:
Cariaga was a medical student who was a passenger in a bus when the
accident occurred. The accident left Cariaga an invalid, mentally and
physically.
HELD:
Appellant LTB admits that under Art. 2201 of the Civil Code the damages for
which the obligor, guilty of a breach of contract but who acted in good faith,
is liable shall be those that are the natural and probable consequences of
the breach and which the parties had forseen or could have reasonably
forseen at the time the obligation was constituted, provided such damages,
according to Art. 2199 of the same Code, have been duly proved. Upon this
premise it claims that only the actual damages suffered by Edgardo Cariaga
consisting of medical, hospital and other expenses in the total sum of
P17,719.75 are within this category. We are of the opinion, however, that the
income which Edgardo Cariaga could earn if he should finish the medical
course and pass the corresponding board examinations must be deemed to
be within the same category because they could have reasonably been
foreseen by the parties at the time he boarded the bus No. 133 owned and
operated by the LTB. At that time he was already a fourth-year student in
medicine in a reputable university. While his scholastic may not be first rate
(Exhibits 4, 4-A to 4-C), it is, nevertheless, sufficient to justify the assumption
that he could have passed the board test in due time. As regards the income
that he could possibly earn as a medical practitioner, it appears that,
according to Dr. Amado Doria, a witness for the LTB, the amount of P300.00
could easily be expected as the minimum monthly income of Edgardo had
he finished his studies.
Upon consideration of all the facts mentioned heretofore this Court is of the
opinion, and so holds, that the compensatory damages awarded to Edgardo
Cariaga should be increased to P25,000.00.
Plaintiffs' claim for moral damages cannot also be granted. Article 2219 of
the Civil Code enumerates the instances when moral damages may be
covered and the case under consideration does not fall under any one of
them. The present action cannot come under paragraph 2 of said article
because it is not one of the quasi-delict and cannot be considered as such
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66
because of the pre-existing contractual relation between the Laguna

Tayabas Bus Company and Edgardo Cariaga. Neither could defendant
Laguna Tayabas Bus Company be held liable to pay moral damages to
Edgardo Cariaga under Article 2220 of the Civil Code on account of breach
of its contract of carriage because said defendant did not act fraudulently or
in bad faith in connection therewith. Defendant Laguna Tayabas Bus
Company had exercised due diligence in the selection and supervision of its
employees like the drivers of its buses in connection with the discharge of
their duties and so it must be considered an obligor in good faith.
The plaintiff Edgardo Cariaga is also not entitled to recover for attorney's
fees, because this case does not fall under any of the instances enumerated
in Article 2208 of the Civil Code.
71
PAN AM V. IAC
Supra
HELD:
In the absence of a showing that petitioner's attention was called to the
special circumstances requiring prompt delivery of private respondent
Pangan's luggages, petitioner cannot be held liable for the cancellation of
private respondents' contracts as it could not have foreseen such an
eventuality when it accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of
the rule laid down in Mendoza and affirmance of the trial court's conclusion
that petitioner is liable for damages based on the finding that "[tlhe
undisputed fact is that the contracts of the plaintiffs for the exhibition of the
films in Guam and California were cancelled because of the loss of the two
luggages in question." The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to
deliver the promotional and advertising materials on the dates agreed upon.
For this petitioner cannot be held liable. Private respondent Pangan had not
declared the value of the two luggages he had checked in and paid
additional charges. Neither was petitioner privy to respondents' contracts nor
was its attention called to the condition therein requiring delivery of the
promotional and advertising materials on or before a certain date.
72
VILLA-REY V. CA
31 SCRA 511
FACTS:
At about 1:30 in the morning, an Izuzu First Class passenger bus owned and
operated by the defendant, left Lingayen, Pangasinan, for Manila. Among its
paying passengers was the deceased, Policronio Quintos, Jr. who sat on the
first seat, second row, right side of the bus. At about 4:55 o'clock a.m. when
the vehicle was nearing the northern approach of the Sadsaran Bridge on
the national highway in barrio Sto. Domingo, municipality of Minalin,
Pampanga, it frontally hit the rear side of a bullcart filled with hay. As a result
the end of a bamboo pole placed on top of the hayload and tied to the cart to
hold it in place, hit the right side of the windshield of the bus. The protruding
end of the bamboo pole, about 8 feet long from the rear of the bullcart,
penetrated through the glass windshield and landed on the face of Policronio
Quintos, Jr. who, because of the impact, fell from his seat and was sprawled
on the floor. The pole landed on his left eye and the bone of the left side of
his face was fractured. He suffered other multiple wounds and was rendered
unconscious due, among other causes to severe cerebral concussion. A La
Mallorca passenger bus going in the opposite direction towards San
Fernando, Pampanga, reached the scene of the mishap and it was stopped
by Patrolman Felino Bacani of the municipal police force of Minalin who, in
the meantime, had gone to the scene to investigate. Patrolman Bacani
placed Policronio Quintos, Jr. and three other injured men who rode on the
bullcart aboard the La Mallorca bus and brought them to the provincial
hospital of Pampanga at San Fernando for medical assistance.
Notwithstanding such assistance, Policronio Quintos, Jr. died due to
traumatic shock due to cerebral injuries.
HELD:
The determination of the indemnity to be awarded to the heirs of a deceased
person has therefore no fixed basis. Much is left to the discretion of the court
considering the moral and material damages involved, and so it has been
said that "(t)here can be no exact or uniform rule for measuring the value of
a human life and the measure of damages cannot be arrived at by precise
mathematical calculation, but the amount recoverable depends on the
particular facts and circumstances of each case. The life expectancy of the
deceased or of the beneficiary, whichever is shorter, is an important factor.'
Other factors that are usually considered are: (1) pecuniary loss to plaintiff or
beneficiary; (2) loss of support; (3) loss of service; (4) loss of society; (5)
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67
mental suffering of beneficiaries; and (6) medical and funeral expenses.
by the Civil Aeronautics Administration.
Thus, life expectancy is, not only relevant, but, also, an important element in
fixing the amount recoverable by private respondents herein. Although it is
not the sole element determinative of said amount, no cogent reason has
been given to warrant its disregard and the adoption, in the case at bar, of a
purely arbitrary standard, such as a four-year rule. In short, the Court of
Appeals has not erred in basing the computation of petitioner's liability upon
the life expectancy of Policronio Quintos, Jr.
Among the fatalities was Nicanor Padilla who was a passenger on the star
crossed flight. He was 29 years old, single. His mother, Natividad A. Vda. de
Padilla, was his only legal heir.
At this juncture, it should be noted, also, that We are mainly concerned with
the determination of the losses or damages sustained by the private
respondents, as dependents and intestate heirs of the deceased, and that
said damages consist, not of the full amount of his earnings, but of the
support, they received or would have received from him had he not
died in consequence of the negligence of petitioner's agent. In fixing the
amount of that support, We must reckon with the "necessary expenses of his
own living", which should be deducted from his earnings. Thus, it has been
consistently held that earning capacity, as an element of damages to one's
estate for his death by wrongful act is necessarily his net earning capacity or
his capacity to acquire money, "less the necessary expense for his own
living. Stated otherwise, the amount recoverable is not loss of the entire
earning, but rather the loss of that portion of the earnings which the
beneficiary would have received. In other words, only net earnings, not
gross earning, are to be considered that is, the total of the earnings
6
less expenses necessary in the creation of such earnings or income
and less living and other incidental expenses.
73
PAL V. CA
185 SCRA 110
FACTS:
Starlight Flight No. 26 of the Philippine Air Lines (hereafter PAL) took off
from the Manduriao Airport in Iloilo, on its way to Manila, with 33 persons on
board, including the plane's complement. The plane did not reach its
destination but crashed on Mt. Baco, Mindoro, one hour and fifteen minutes
after takeoff .The plane was Identified as PI-C133, a DC-3 type aircraft
manufactured in 1942 and acquired by PAL in 1948. It had flown almost
18,000 hours at the time of its illfated flight. It had been certified as airworthy
As a result of her son's death, Mrs. Padilla filed a complaint (which was
amended twice) against PAL, demanding payment of P600,000 as actual
and compensatory damages, plus exemplary damages and P60,000 as
attorney's fees.
HELD:
Under Article 1764 and Article 2206(1) of the Civil Code, the award of
damages for death is computed on the basis of the life expectancy of
the deceased, not of his beneficiary.
In the case of Davila vs. PAL, 49 SCRA 497 which involved the same tragic
plane crash, this Court determined not only PALs liability for negligence or
breach of contract, but also the manner of computing the damages due the
plaintiff therein which it based on the life expectancy of the deceased, Pedro
Davila, Jr. This Court held thus:
The deceased, Pedro Davila, Jr., was single and 30 years of age
when he died. At that age one's normal life expectancy is 33-1/3
years, according to the formula (2/3 x [80-30]) adopted by this Court
in the case of Villa Rey Transit, Inc. vs. Court of Appeals on the
basis of the American Expectancy Table of Mortality or the Actuarial
of Combined Experience Table of Mortality. However, although the
deceased was in relatively good health, his medical history shows
that he had complained of and been treated for such ailments as
backaches, chest pains and occasional feelings of tiredness. It is
reasonable to make an allowance for these circumstances and
consider, for purposes of this case, a reduction of his life
expectancy to 25 years.
PALs contention makes sense. Nevertheless, the court stuck with the
doctrine that it is the life expectancy of the deceased which is taken into
consideration.
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68
MORAL DAMAGES
the action mentioned in No. 9 of this article, in the order named.
Art. 2217. Moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate
result of the defendant's wrongful act for omission.
Art. 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith.
Art. 2218. In the adjudication of moral damages, the sentimental value of

property, real or personal, may be considered.
Art. 2219. Moral damages may be recovered in the following and analogous
cases:
(1) A criminal offense resulting in physical injuries;
Art. 2206. The amount of damages for death caused by a crime or quasidelict shall be at least three thousand pesos, even though there may have
been mitigating circumstances. In addition:
xxx
(3) The spouse, legitimate and illegitimate descendants and ascendants of
the deceased may demand moral damages for mental anguish by reason of
the death of the deceased.
(2) Quasi-delicts causing physical injuries;

74
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
FORES V. MIRANDA
Supra
HELD:
Anent the moral damages ordered to be paid to the respondent, the same
must be discarded. We have repeatedly ruled, that moral damages are not
recoverable in damage actions predicted on a breach of the contract of
transportation.
Art. 2219. Moral damages may be recovered in the following and analogous
cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(9) Acts mentioned in Article 309;

xxx
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34,
and 35.
xxx
xxx
The parents of the female seduced, abducted, raped, or abused, referred to

in No. 3 of this article, may also recover moral damages.
Art. 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under circumstances, such damages
are justify due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.
The spouse, descendants, ascendants, and brothers and sisters may bring
By contrasting the provisions of these two article it immediately becomes
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69
apparent that:
(a) In case of breach of contract (including one of transportation) proof of
bad faith or fraud (dolus), i.e., wanton or deliberately injurious conduct, is
essential to justify an award of moral damages; and
(b) That a breach of contract can not be considered included in the
descriptive term "analogous cases" used in Art. 2219; not only because Art.
2220 specifically provides for the damages that are caused by contractual
breach, but because the definition of quasi-delict in Art. 2176 of the Code
expressly excludes the cases where there is a "preexisting contractual
relation between the parties."
The exception to the basic rule of damages now under consideration is a
mishap resulting in the death of a passenger, in which case Article 1764
makes the common carrier expressly subject to the rule of Art. 2206, that
entitles the deceased passenger to "demand moral damages for mental
anguish by reason of the death of the deceased". But the exceptional rule of
Art. 1764 makes it all the more evident that where the injured passenger
does not die, moral damages are not recoverable unless it is proved that the
carrier was guilty of malice or bad faith. We think it is clear that the mere
carelessness of the carrier's driver does not per se constitute of justify an
inference of malice or bad faith on the part of the carrier; and in the case at
bar there is no other evidence of such malice to support the award of moral
damages by the Court of Appeals. To award moral damages for breach of
contract, therefore, without proof of bad faith or malice on the part of the
defendant, as required by Art. 220, would be to violate the clear provisions of
the law, and constitute unwarranted judicial legislation.
intended to prove: That while sitting in the plane in Bangkok, Carrascoso

was ousted by petitioner's manager who gave his seat to a white man; and
(b) evidence of bad faith in the fulfillment of the contract was presented
without objection on the part of the petitioner. It is, therefore, unnecessary to
inquire as to whether or not there is sufficient averment in the complaint to
justify an award for moral damages. Deficiency in the complaint, if any, was
cured by the evidence. An amendment thereof to conform to the evidence is
not even required.
76
LOPEZ V. PAN AM
16 SCRA 431
FACTS:
Reservations for first class accommodations in Flight No. 2 of PAN-AM from
Tokyo
to
San
Francisco
were
made
with
PAN-AM by "Your Travel Guide" agency, for then Senator Fernando Lopez,
and his family. PAN-AM's San Francisco head office confirmed the
reservations.
First class tickets for the abovementioned flight were subsequently issued by
PAN-AM, in favor of Senator Lopez and his party. The total fare of P9,444
for all of them was fully paid before the tickets were issued.
FACTS:
Plaintiff was ousted from his first-class seat in favor of a white man by the
plane manager.
As scheduled Senator Lopez and party left Manila by Northwest Airlines

arriving in Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator
Lopez requested Minister Busuego of the Philippine Embassy to contact
PAN-AM's Tokyo office regarding their first class accommodations for that
evening's flight. For the given reason that the first class seats therein were
all booked up, however, PAN-AM's Tokyo office informed Minister Busuego
that PAN-AM could not accommodate Senator Lopez and party in that trip as
first class passengers. Senator Lopez thereupon gave their first class tickets
to Minister Busuego for him to show the same to PAN-AM's Tokyo office, but
the latter firmly reiterated that there was no accommodation for them in the
first class, stating that they could not go in that flight unless they took the
tourist class therein.
HELD:
Quite apart from the foregoing is that (a) right the start of the trial,
respondent's counsel placed petitioner on guard on what Carrascoso
Due to pressing engagements awaiting Senator Lopez and his wife, Senator
Lopez and party were constrained to take PAN-AM's flight from Tokyo to San
Francisco as tourist passengers. Senator Lopez however made it clear, as
75
AIR FRANCE V. CARRASCOSO

18 SCRA 155
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indicated in his letter to PAN-AM's Tokyo office on that date that they did so
"under protest" and without prejudice to further action against the airline.
According to plaintiffs, defendant acted in bad faith because it deliberately
refused to comply with its contract to provide first class accommodations to
plaintiffs, out of racial prejudice against Orientals. And in support of its
contention that what was done to plaintiffs is an oftrepeated practice of
defendant, evidence was adduced relating to two previous instances of
alleged racial discrimination by defendant against Filipinos in favor of "white"
passengers. Said previous occasions are what allegedly happened to (1)
Benito Jalbuena and (2) Cenon S. Cervantes and his wife.
HELD:
From the foregoing evidence of defendant it is in effect admitted that
defendant through its agents first cancelled plaintiffs, reservations by
mistake and thereafter deliberately and intentionally withheld from plaintiffs
or their travel agent the fact of said cancellation, letting them go on believing
that their first class reservations stood valid and confirmed. In so misleading
plaintiffs into purchasing first class tickets in the conviction that they had
confirmed reservations for the same, when in fact they had none, defendant
wilfully and knowingly placed itself into the position of having to breach its a
foresaid contracts with plaintiffs should there be no last-minute cancellation
by other passengers before flight time, as it turned out in this case. Such
actuation of defendant may indeed have been prompted by nothing more
than the promotion of its self-interest in holding on to Senator Lopez and
party as passengers in its flight and foreclosing on their chances to seek the
services of other airlines that may have been able to afford them first class
accommodations. All the time, in legal contemplation such conduct already
amounts to action in bad faith. For bad faith means a breach of a known duty
through some motive of interest or ill-will. Self-enrichment or fraternal
interest, and not personal ill-will, may well have been the motive; but it is
malice nevertheless.
At any rate, granting all the mistakes advanced by the defendant, there
would at least be negligence so gross and reckless as to amount to malice
or bad faith. Firstly, notwithstanding the entries in the reservation cards that
the reservations cancelled are those of the Rufinos only, Herranz made the
mistake, after reading said entries, of sending a wire cancelling all the
reservations, including those of Senator Lopez and party. Secondly, after
70
sending a wire to San Francisco head office stating his error and asking for
reinstatement, Herranz simply forgot about the matter. Notwithstanding the
reply of San Francisco head Office on April 22, 1960 that it cannot reinstate
Senator Lopez and party, it was assumed and taken for granted that
reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's
reservations in a phone call to defendant's ticket sellers, when at the time it
appeared in plaintiffs' reservation card that they were only waitlisted
passengers. Fourthly, defendant's ticket sellers issued plaintiffs' tickets
without first checking their reservations just before issuing said tickets. And,
finally, no one among defendant's agents notified Senator Lopez and party
that their reservations had been cancelled, a precaution that could have
averted their entering with defendant into contracts that the latter had
already placed beyond its power to perform.
Accordingly, there being a clear admission in defendant's evidence of facts
amounting to a bad faith on its part in regard to the breach of its contracts
with plaintiffs, it becomes unnecessary to further discuss the evidence
adduced by plaintiffs to establish defendant's bad faith. For what is admitted
in the course of the trial does not need to be proved
Addressing ourselves now to the question of damages, it is well to state at
the outset those rules and principles. First, moral damages are recoverable
in breach of contracts where the defendant acted fraudulently or in bad faith.
Second, in addition to moral damages, exemplary or corrective damages
may be imposed by way of example or correction for the public good, in
breach of contract where the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. And, third, a written contract for
an attorney's services shall control the amount to be paid therefor unless
found by the court to be unconscionable or unreasonable.
First, then, as to moral damages. As a proximate result of defendant's
breach in bad faith of its contracts with plaintiffs, the latter suffered social
humiliation, wounded feelings, serious anxiety and mental anguish. For
plaintiffs were travelling with first class tickets issued by defendant and yet
they were given only the tourist class. At stop-overs, they were expected to
be among the first-class passengers by those awaiting to welcome them,
only to be found among the tourist passengers. It may not be humiliating to
travel as tourist passengers; it is humiliating to be compelled to travel as
such, contrary to what is rightfully to be expected from the contractual
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undertaking.
77
ORTIGAS V. LUFTHANSA
64 SCRA 610
FACTS:
Lufthansas failure to "comply with its obligation to give first class
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 violation of its contract of carriage.
HELD:
Disputing the foregoing conclusions, Lufthansa claims firstly that the Alitalia
employee who validated and confirmed Ortigas' reservation must have made
a mistake because actually, he was informed by the Lufthansa Rome office
that Ortigas could only be waitlisted. Assuming, however, there was such an
error, it has been indisputably proven that under the so-called pool
arrangement among different airline companies pursuant to the International
Air Transport Association (IATA) agreement of which Alitalia and Lufthansa
are signatories, both companies are constituted thereby as agents of each
other in the issuing of tickets and other matters pertaining to their relations
with those who would need their services, and since there can be no
question that on its face, the annotations made by Alitalia on the ticket here
in dispute cannot have any (other meaning than that the reservation of
Ortigas for the Rome Hongkong flight was validated and confirmed,
Lufthansa's disclaimer is unavailing. Besides, it appears that when Ortigas
checked in at the airport, the Lufthansa lady employee thereat told him, after
making the proper verification, that the reservation was correct. What is
more, in the unconcluded testimony of Ivo Lazzari, the striking out of which is
questioned by Lufthansa, he admitted that it was a fact that the said
reservation of plaintiff for first class was confirmed, albeit he qualified that
this was done already in the morning of November 18th, the day of the flight,
almost at the last hour. What seems to have happened was that somehow
the first class accommodations for that flight were overboard and Lufthansa
tried to solve the problem by downgrading Ortigas to the economy class in
favor of a Belgian, as Ortigas was told by the Lufthansa employee who
paged him over the public address system for the purpose just as he was
about to go to the departure area, with his luggage already checked and his
71
overweight fees duly paid, so much so that they were already loaded in the
plane. Verily, such treatment given to plaintiff was completely wrong and
absolutely unjustifiable. Nobody, much less a common carrier who is under
constant special obligation to give utmost consideration to the convenience
of its customers, may be permitted to relieve itself from any difficulty situation
created by its own lack of diligence in the conduct of its affairs in a manner
prejudicial to such customers. It is Our considered view 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
the class contracted for amounts to bad faith or fraud which entitles the
passenger to the award of moral damages in accordance with Article 2220 of
the Civil Code. But in the instant case, the breach appears to be of graver
nature, since the preference given to the Belgian passenger over plaintiff
was done willfully and in wanton disregard of plaintiff's 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 therefor having been made already, when in truth such
was not the case. Thus, instead of complying with the request of Ortigas that
other airlines be contacted to find out it they had first class space for him, the
Lufthansa employee who had indifferently told him about his downgrading
paid very little attention if ever to said request. And to keep him from giving
the business to another company, he was made to believe that he would be
given first class accommodation at Cairo. 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 the 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 that leg of the flight, from Bangkok to
Hongkong. This Ortigas rejected, if only to make patent his displeasure and
indignation at being so inconsiderately treated in the earlier part of his
journey.
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72
n the light of all the foregoing, there can be no doubt as to the right of
Ortigas to damages, both moral and exemplary. Precedents We have
2
consistently adhered to so dictate. Beginning with Cuenca, wherein the
Court rejected the theory that an air carrier is liable only in the event of death
or injury suffered by a passenger, because, according to the Court, to so
hold would be tantamount to declaring the carrier "exempt from any liability
for damages in the event of its absolute refusal, in bad faith, to comply with a
contract of carriage, which is absurd", We have uniformly upheld the right of
a passenger to damages in all cases wherein, after having contracted and
paid for first class accommodations duly confirmed and validated, he is
transferred over his objection to economy, class, which he has to take in
order to be able to arrive at his destination on his scheduled time.
78
PAL V. MIANO
242 SCRA 235
FACTS:
Private respondent took petitioner's flight PR 722, Mabuhay Class, bound for
Frankfurt, Germany. He had an immediate onward connecting flight via
Lufthansa flight LH 1452 to Vienna, Austria. At the Ninoy Aquino
International Airport, he checked-in one brown suitcase weighing twenty (20)
kilograms but did not declare a higher valuation. He claimed that his suitcase
contained money, documents, one Nikkon camera with zoom lens, suits,
sweaters, shirts, pants, shoes, and other accessories.
Upon private respondent's arrival at Vienna via Lufthansa flight LH 1452, his
checked-in baggage was missing. He reported the matter to the Lufthansa
authorities. After three (3) hours of waiting in vain, he proceeded to Piestany,
Czechoslovakia. Eleven (11) days after or on September 11, 1988, his
suitcase was delivered to him in his hotel in Piestany, Czechoslovakia. He
claimed that because of the delay in the delivery of his suitcase, he was
forced to borrow money to buy some clothes, to pay $200.00 for the
transportation of his baggage from Vienna to Piestany, and lost his Nikkon
camera.
HELD:
The trial court erred in awarding moral damages to private respondent. The
established facts evince that petitioner's late delivery of the baggage for
eleven (11) days was not motivated by ill will or bad faith. In fact, it
immediately coordinated with its Central Baggage Services to trace private

respondent's suitcase and succeeded in finding it. At the hearing, petitioner's
Manager for Administration of Airport Services Department Miguel Ebio
testified that their records disclosed that Manila, the originating station, did
not receive any tracer telex. A tracer telex, an airline lingo, is an action of
any station that the airlines operate from whom a passenger may complain
or have not received his baggage upon his arrival. It was reasonable to
presume that the handling of the baggage was normal and regular. Upon
inquiry from their Frankfurt Station, it was however discovered that the
interline tag of private respondent's baggage was accidentally taken off.
According to Mr. Ebio, it was customary for destination stations to hold a
tagless baggage until properly identified. The tracer telex, which contained
information on the baggage, is matched with the tagless luggage for
identification. Without the tracer telex, the color and the type of baggage are
used as basis for the matching. Thus, the delay.
79
CATHAY PACIFIC V. VASQUEZ

399 SCRA 207
FACTS:
Vasquez spouses were granted an upgrade by Cathay Pacific. Dr. Vazquez
refused the upgrade, reasoning that it would not look nice for them as hosts
to travel in First Class and their guests, in the Business Class; and
moreover, they were going to discuss business matters during the flight. He
also told Ms. Chiu that she could have other passengers instead transferred
to the First Class Section. Taken aback by the refusal for upgrading, Ms.
Chiu consulted her supervisor, who told her to handle the situation and
convince the Vazquezes to accept the upgrading. Ms. Chiu informed the
latter that the Business Class was fully booked, and that since they were
Marco Polo Club members they had the priority to be upgraded to the First
Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they
would not avail themselves of the privilege, they would not be allowed to
take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave
in. He and Mrs. Vazquez then proceeded to the First Class Cabin. Upon
arrival in the Philippines, the spouses filed an action for breach of contract.
HELD:
We find no persuasive proof of fraud or bad faith in this case. The
Vazquezes were not induced to agree to the upgrading through insidious
ATENEO LAW 2010
73
words or deceitful machination or through willful concealment of material

facts. Upon boarding, Ms. Chiu told the Vazquezes that their
accommodations were upgraded to First Class in view of their being Gold
Card members of Cathays Marco Polo Club. She was honest in telling
them that their seats were already given to other passengers and the
Business Class Section was fully booked. Ms. Chiu might have failed to
consider the remedy of offering the First Class seats to other passengers.
But, we find no bad faith in her failure to do so, even if that amounted to an
exercise of poor judgment.
gross tonnage of 1,241,68 tons, owned by the Philippine National Oil

Company (PNOC) and operated by the PNOC Shipping and Transport
Corporation (PNOC Shipping), having unloaded its cargo of petroleum
products, left Amlan, Negros Occidental, and headed towards Bataan. At
about 1:00 o'clock in the afternoon of that same day, the M/V "Don Juan," an
interisland vessel, also of Philippine registry, of 2,391.31 tons gross weight,
owned and operated by the Negros Navigation Co., Inc. (Negros Navigation)
left Manila bound for Bacolod with seven hundred fifty (750) passengers
listed in its manifest, and a complete set of officers and crew members.
Neither was the transfer of the Vazquezes effected for some evil or devious
purpose. As testified to by Mr. Robson, the First Class Section is better than
the Business Class Section in terms of comfort, quality of food, and service
from the cabin crew; thus, the difference in fare between the First Class and
Business Class at that time was $250. Needless to state, an upgrading is for
the better condition and, definitely, for the benefit of the passenger.
On the evening of the same day, the "Tacloban City" and the "Don Juan"
collided at the Talbas Strait near Maestra de Ocampo Island in the vicinity of
the island of Mindoro. When the collision occurred, the sea was calm, the
weather fair and visibility good. As a result of this collision, the M/V "Don
Juan" sank and hundreds of its passengers perished. Among the ill-fated
passengers were the parents of petitioners, the spouses Perfecto Mecenas
and Sofia Mecenas, whose bodies were never found despite intensive
search by petitioners.
Furthermore, according to the Economic Regulations pertinent to this case,

an overbooking that does not exceed ten percent is not considered
deliberate and therefore does not amount to bad faith.
EXEMPLARY DAMAGES
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
Art. 2233. Exemplary damages cannot be recovered as a matter of right; the
court will decide whether or not they should be adjudicated.
80
MECENAS V. COURT OF APPEALS

180 SCRA 83
FACTS:
M/T "Tacloban City," a barge-type oil tanker of Philippine registry, with a
HELD:
There is, therefore, no question that the "Don Juan" was at least as negligent
as the M/T "Tacloban City" in the events leading up to the collision and the
sinking of the "Don Juan." The remaining question is whether the negligence
on the part of the "Don Juan" reached that level of recklessness or gross
negligence that our Civil Code requires for the imposition of exemplary
damages. Our own review of the record in the case at bar requires us to
answer this in the affirmative.
M/S Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong
before and up to the time of collision. Moreover, after the collision, he failed
to institute appropriate measures to delay the sinking MS Don Juan and to
supervise properly the execution of his order of abandonship. As regards the
officer on watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed
or did not call or inform Capt. Santisteban of the imminent danger of collision
and of the actual collision itself Also, he failed to assist his master to prevent
the fast sinking of the ship. The record also indicates that Auxiliary Chief
Mate Antonio Labordo displayed laxity in maintaining order among the
passengers after the collision.
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We believe that the behaviour of the captain of the "Don Juan" in tills
instance-playing mahjong "before and up to the time of collision constitutes
behaviour that is simply unacceptable on the part of the master of a vessel to
whose hands the lives and welfare of at least seven hundred fifty (750)
passengers had been entrusted. Whether or not Capt. Santisteban was "offduty" or "on-duty" at or around the time of actual collision is quite immaterial;
there is, both realistically speaking and in contemplation of law, no such
thing as "off-duty" hours for the master of a vessel at sea that is a common
carrier upon whom the law imposes the duty of extraordinary diligence.
Capt. Santisteban was also faulted in the Philippine Coast Guard decision
for failing after the collision, "to institute appropriate measures to delay the
sinking of M/V Don Juan." This appears to us to be a euphemism for failure
to maintain the sea-worthiness or the water-tight integrity of the "Don Juan."
The record shows that the "Don Juan" sank within ten (10) to fifteen (15)
15
minutes after initial contact with the "Tacloban City.
While the failure of
Capt. Santisteban to supervise his officers and crew in the process of
abandoning the ship and his failure to avail of measures to prevent the too
rapid sinking of his vessel after collision, did not cause the collision by
themselves, such failures doubtless contributed materially to the consequent
loss of life and, moreover, were indicative of the kind and level of diligence
exercised by Capt. Santisteban in respect of his vessel and his officers and
men prior to actual contact between the two (2) vessels. The officer-onwatch in the "Don Juan" admitted that he had failed to inform Capt.
Santisteban not only of the "imminent danger of collision" but even of "the
actual collision itself ".
We hold that under these circumstances, a presumption of gross negligence
on the part of the vessel (her officers and crew) and of its ship-owner arises;
this presumption was never rebutted by Negros Navigation.
Exemplary damages are designed by our civil law to permit the courts to
reshape behaviour that is socially deleterious in its consequence by creating
negative incentives or deterrents against such behaviour. In requiring
compliance with the standard which is in fact that of the highest possible
degree of diligence, from common carriers and in creating a presumption of
negligence against them, the law seels to compel them to control their
employees, to tame their reckless instincts and to force them to take
adequate care of human beings and their property. The Court will take
judicial notive of the dreadful regularity with which grievous maritime

disasters occur in our waters with massive loss of life. The bulk of our
population is too poor to afford domestic air transportation. So it is that
notwithstanding the frequent sinking of passenger vessels in our waters,
crowds of people continue to travel by sea. This Court is prepared to use the
instruments given to it by the law for securing the ends of law and public
policy. One of those instruments is the institution of exemplary damages;
one of those ends, of special importance in an archipelagic state like the
Philippines, is the safe and reliable carriage of people and goods by sea.
Considering the foregoing, we believe that an additional award in the amount
of P200,000.00 as exmplary damages, is quite modest.
NOMINAL, TEMPERATE AND LIQUIDATED DAMAGES
Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him.
Art. 2224. Temperate or moderate damages, which are more than nominal
but less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount can not,
from the nature of the case, be provided with certainty.
Art. 2226. Liquidated damages are those agreed upon by the parties to a
contract, to be paid in case of breach thereof.
81
ALITALIA V. IAC
192 SCRA 9
FACTS:
Dr. Pablo was a faculty member of the University of the Philippines. She is
also a distinguished expert in her chosen field. As such, she was invited to a
meeting in Italy. She took an ALITALIA flight and upon arrival, she was
informed that her baggage was in delay and would be arriving soon.
However, it didnt arrive. She then filled up the required forms and upon
arrival in Manila, she filed an action for damages.
HELD:
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In the case at bar, no bad faith or otherwise improper conduct may be

ascribed to the employees of petitioner and the luggage was eventually
returned to her, belatedly, it is true, but without appreciable damage. The
fact is nevertheless that some special species of injury was caused to her
because petitioner misplaced her baggage and failed to deliver to her at the
time appointeda breach of the contract of carriagewith the result that
she was unable to read her paper and make the scientific presentation.
82
SALUDO V. CA
207 SCRA 498
FACTS:
After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago
Illinois, Pomierski and Son Funeral Home of Chicago, made the necessary
preparations and arrangements for the shipment, of the remains from
Chicago to the Philippines. Pomierski brought the remains to C.M.A.S.
(Continental Mortuary Air Services) at the airport (Chicago) which made the
necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a
national service used by undertakers to throughout the nation (U.S.A.), they
furnish the air pouch which the casket is enclosed in, and they see that the
remains are taken to the proper air freight terminal.
In the meantime, plaintiffs Maria Saludo, thru a travel agent, were booked
with United Airlines from Chicago to California, and with PAL from California
to Manila. She then went to the funeral director of Pomierski Funeral Home
who had her mother's remains and she told the director that they were
booked with United Airlines. But the director told her that the remains were
booked with TWA flight to California. This upset her, and she and her brother
had to change reservations from UA to the TWA flight after she confirmed by
phone that her mother's remains should be on that TWA flight. They went to
the airport and watched from the look-out area. She saw no body being
brought. So, she went to the TWA counter again, and she was told there was
no body on that flight. Reluctantly, they took the TWA flight upon assurance
of her cousin, Ani Bantug, that he would look into the matter and inform her
about it on the plane or have it radioed to her. But no confirmation from her
cousin reached her that her mother was on the West Coast.
Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA
counter there to inquire about her mother's remains. She was told they did
not know anything about it.

She then called Pomierski that her mother's remains were not at the West
Coast terminal, and Pomierski immediately called C.M.A.S., which in a
matter of 10 minutes informed him that the remains were on a plane to
Mexico City, that there were two bodies at the terminal, and somehow they
were switched; he relayed this information to Miss Saludo in California; later
C.M.A.S. called and told him they were sending the remains back to
California via Texas
HELD:
The oft-repeated rule regarding a carrier's liability for delay is that in the
absence of a special contract, a carrier is not an insurer against delay in
transportation of goods. When a common carrier undertakes to convey
goods, the law implies a contract that they shall be delivered at destination
within a reasonable time, in the absence, of any agreement as to the time of
delivery. But where a carrier has made an express contract to transport and
deliver property within a specified time, it is bound to fulfill its contract and is
liable for any delay, no matter from what cause it may have arisen. This
result logically follows from the well-settled rule that where the law creates a
duty or charge, and the party is disabled from performing it without any
default in himself, and has no remedy over, then the law will excuse him, but
where the party by his own contract creates a duty or charge upon himself,
he is bound to make it good notwithstanding any accident or delay by
inevitable necessity because he might have provided against it by contract.
Whether or not there has been such an undertaking on the part of the carrier
to be determined from the circumstances surrounding the case and by
application of the ordinary rules for the interpretation of contracts.
Also, the theory of petitioners that the specification of the flights and dates of
departure and arrivals constitute a special contract that could prevail over
the printed stipulations at the back of the airway bill is vacuous. To
countenance such a postulate would unduly burden the common carrier for
that would have the effect of unilaterally transforming every single bill of
lading or trip ticket into a special contract by the simple expedient of filling it
up with the particulars of the flight, trip or voyage, and thereby imposing
upon the carrier duties and/or obligations which it may not have been ready
or willing to assume had it been timely, advised thereof.
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Note: the siblings were inquiring about the shipment of the remains of their
mother. They were inquiring as consignees under the bill of lading. Take
note that the extraordinary diligence extends to the goods and not to the
consignees or shipper in this case.
HELD:
The issue to be resolved is whether JAL, as a common carrier has the
obligation to shoulder the hotel and meal expenses of its stranded
passengers until they have reached their final destination, even if the delay
were caused by "force majeure."
83
To begin with, there is no dispute that the Mt. Pinatubo eruption prevented
JAL from proceeding to Manila on schedule. Likewise, private respondents
concede that such event can be considered as "force majeure" since their
delayed arrival in Manila was not imputable to JAL.
JAPAN AIRLINES V. CA
294 SCRA 19
FACTS:
Jose Miranda boarded JAL flight No. JL 001 in San Francisco, California
bound for Manila. Likewise, on the same day private respondents Enrique
Agana, Maria Angela Nina Agana and Adelia Francisco left Los Angeles,
California for Manila via JAL flight No. JL 061. As an incentive for travelling
on the said airline, both flights were to make an overnight stopover at Narita,
Japan, at the airlines' expense, thereafter proceeding to Manila the following
day.
Upon arrival at Narita, Japan, private respondents were billeted at Hotel
Nikko Narita for the night. The next day, private respondents, on the final leg
of their journey, went to the airport to take their flight to Manila. However,
due to the Mt. Pinatubo eruption, unrelenting ashfall blanketed Ninoy Aquino
International Airport (NAIA), rendering it inaccessible to airline traffic. Hence,
private respondents' trip to Manila was cancelled indefinitely.
To accommodate the needs of its stranded passengers, JAL rebooked all
the Manila-bound passengers on flight No. 741 due to depart on June 16,
1991 and also paid for the hotel expenses for their unexpected overnight
stay. However, much to the dismay of the private respondents, their long
anticipated flight to Manila was again cancelled due to NAIA's indefinite
closure. At this point, JAL informed the private respondents that it would no
longer defray their hotel and accommodation expense during their stay in
Narita.
Since NAIA was only reopened to airline traffic 6 days after, private
respondents were forced to pay for their accommodations and meal
expenses from their personal funds in the meanwhile. Their unexpected stay
in Narita ended on June 22, 1991 when they arrived in Manila on board JL
flight No. 741.
However, private respondents contend that while JAL cannot be held

responsible for the delayed arrival in Manila, it was nevertheless liable for
their living expenses during their unexpected stay in Narita since airlines
have the obligation to ensure the comfort and convenience of its
passengers. While we sympathize with the private respondents' plight, we
are unable to accept this contention.
We are not unmindful of the fact that in a plethora of cases we have
consistently ruled that a contract to transport passengers is quite different in
kind, and degree from any other contractual relation. It is safe to conclude
that it is a relationship imbued with public interest. Failure on the part of the
common carrier to live up to the exacting standards of care and diligence
renders it liable for any damages that may be sustained by its passengers.
However, this is not to say that common carriers are absolutely responsible
for all injuries or damages even if the same were caused by a fortuitous
event. To rule otherwise would render the defense of "force majeure," as an
exception from any liability, illusory and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his
obligation because of "force majeure," the general rule is that he cannot be
6
held liable for damages for non-performance. Corollarily, when JAL was
prevented from resuming its flight to Manila due to the effects of Mt.
Pinatubo eruption, whatever losses or damages in the form of hotel and
meal expenses the stranded passengers incurred, cannot be charged to
JAL. Yet it is undeniable that JAL assumed the hotel expenses of
respondents for their unexpected overnight stay on June 15, 1991.
Admittedly, to be stranded for almost a week in a foreign land was an
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exasperating experience for the private respondents. To be sure, they

underwent distress and anxiety during their unanticipated stay in Narita, but
their predicament was not due to the fault or negligence of JAL but the
closure of NAIA to international flights. Indeed, to hold JAL, in the absence of
bad faith or negligence, liable for the amenities of its stranded passengers
by reason of a fortuitous event is too much of a burden to assume.
Furthermore, it has been held that airline passengers must take such risks
incident to the mode of travel. In this regard, adverse weather conditions or
extreme climatic changes are some of the perils involved in air travel, the
consequences of which the passenger must assume or expect. After all,
common carriers are not the insurer of all risks.
FUNNY QUIMBO ANECDOTE:
Plaintiffs asked for damages because Japan Airlines officials were allegedly
rude. How they were rude? When asked by plaintiffs when they can fly
back to Manila, officials told them to ask the volcano. Atty. RSQ, as counsel,
said that such was not rude but in actuality, the officials were merely being
humorous and wished to entertain the passengers. PUNCHLINE? He was
cited in contempt.
84
SAVELLANO V. NORTHWEST
405 SCRA 416
FACTS:
Savellanos family was on the way to Manila from Seattle. Two and a half
hours in flight, the plane had to make an emergency landing due to fire in
one of the planes engines. The family together with other passengers was
billeted in a hotel. During the night, plaintiffs were informed of their early
flight the next day. Other mishaps happened when they rode the airplane
the next day.
Petitioners' contract of carriage with Northwest was for the San FranciscoTokyo (Narita)-Manila flights scheduled for October 27, 1991. This itinerary
was not followed when the aircraft used for the first segment of the journey
developed engine trouble. Petitioners stress that they are questioning, not
the cancellation of the original itinerary, but its substitution, which they
allegedly had not contracted for or agreed to. They insist that, like the other
passengers of the distressed flight, they had the right to be placed on Flight
77
27, which had a connecting flight from Japan to Manila. They add that in
being treated differently and shabbily, they were being discriminated against.
HELD:
After an examination of the conditions printed on the airline ticket, we find
nothing there authorizing Northwest to decide unilaterally, after the
distressed flight landed in Seattle, what other stopping places petitioners
should take and when they should fly. True, Condition 9 on the ticket allowed
respondent to substitute alternate carriers or aircraft without notice.
However, nothing there permits shuttling passengers without so much as
a by your-leave to stopping places that they have not been previously
notified of, much less agreed to or been prepared for. Substituting aircrafts
or carriers without notice is entirely different from changing stopping places
or connecting cities without notice.
Furthermore, the change in petitioners' flight itinerary does not fall under the
situation covered by the phrase "may alter or omit stopping places shown on
the ticket in case of necessity." A case of necessity must first be proven. The
burden of proving it necessarily fell on respondent. This responsibility it failed
to discharge.
Petitioners do not question the stop in Seattle, so we will not delve into this
matter. The airplane engine trouble that developed during the flight bound for
Tokyo from San Francisco definitely merited the "necessity" of landing the
plane at some place for repair in this case, Seattle but not that of
shuttling petitioners to other connecting points thereafter without their
consent.
Northwest failed to show a "case of necessity" for changing the stopping
place from Tokyo to Los Angeles and Seoul. It is a fact that some of the
passengers on the distressed flight continued on to the Tokyo (Narita)
connecting place. No explanation whatsoever was given to petitioners as to
why they were not similarly allowed to do so. It may be that the Northwest
connecting flight from Seattle to Tokyo to Manila could no longer
accommodate them. Yet it may also be that there were other carriers that
could have accommodated them for these sectors of their journey, and
whose route they might have preferred to the more circuitous one unilaterally
chosen for them by respondent.
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In the absence of evidence as to the actual situation, the Court is hard

pressed to determine if there was a "case of necessity" sanctioning the
alteration of the Tokyo stopping place in the case of petitioners. Thus, we
hold that in the absence of a demonstrated necessity thereof and their
rerouting to Los Angeles and Seoul as stopping places without their consent,
respondent committed a breach of the contract of carriage.
Nominal damages are recoverable if no actual, substantial or specific
damages were shown to have resulted from the breach. The amount of such
damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances.
In the present case, we must consider that petitioners suffered the
inconvenience of having to wake up early after a bad night and having to
miss breakfast; as well as the fact that they were business class
passengers. They paid more for better service; thus, rushing them and
making them miss their small comforts was not a trivial thing. We also
consider their social and official status. Victorino Savellano was a former
mayor, regional trial court judge and chairman of the Commission on
Elections. Virginia B. Savellano was the president of five rural banks, and
Deogracias Savellano was then the incumbent vice governor of Ilocos Sur.
Hence, it will be proper to grant one hundred fifty thousand pesos
(P150,000) as nominal damages to each of them, in order to vindicate and
recognize their right to be notified and consulted before their contracted
stopping place was changed.
Highest nominal damages on record. This is even bigger than what
Zapatos got as actual damages.
ATTORNEYS FEES AND INTEREST
(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmen's compensation and
employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be
reasonable.
Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract.
CODE OF COMMERCE PROVISIONS ON OVERLAND
TRANSPORTATION
Art. 2208. In the absence of stipulation, attorney's fees and expenses of

litigation, other than judicial costs, cannot be recovered, except:
SCOPE OF OVERLAND TRANSPORTATION
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
WHAT IS OVERLAND TRANSPORTATION?
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NATURE OF CONTRACT
Art. 349. A contract for all kinds of transportation overland or river shall be
considered commercial
1. When it involves merchandise or any commercial goods
2. When, no matter what his object may be, the carrier is a merchant
or customarily is engaged in transporting goods for the public.
EFFECT OF CIVIL CODE
Art. 1766. In all matters not regulated by this Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by
special laws.
Art. 2270. The following laws and regulations are hereby repealed:
(1) Those parts and provisions of the Civil Code of 1889 which are in force
on the date when this new Civil Code becomes effective:
(2) The provisions of the Code of Commerce governing sales, partnership,
agency, loan, deposit and guaranty;
(3) The provisions of the Code of Civil Procedure on prescription as far as
inconsistent with this Code; and
(4) All laws, Acts, parts of Acts, rules of court, executive orders, and
administrative regulations which are inconsistent with this Code. (n)
may be different, one for persons and another for baggage, but all of them
shall contain the name of the carrier, the date of shipment, the points of
departure and arrival, the price, and with regard the baggage, the number
and weight of the packages, with any other indications which may be
considered necessary in order to easily identify them.
FORM, CONTENTS, 350-351
Art. 350. The shipper as well as the carrier of merchandise and goods may
mutually demand of each other the issue of a bill of lading in which there
shall be stated
1. The name, surname, and domicile of the shipper
2. The name, surname, and domicile of the carrier
3. The name, surname, and domicile of the person to whom or to
whose order the goods are addressed, or whether they are to be
delivered to the bearer of the said bill
4. A statement of the goods, stating their generic character, their
weight, and the external marks or signs of the packages containing
the same
5. The cost of transportation
6. The date on which the shipment is made
7. The place of delivery to the carrier
8. The place and time the delivery is to be made to the consignee
9. The damages to be paid the carrier in case of delay, if any
agreement is made on this point.
BILL OF LADING
Art. 351. In shipments made over railroads or by other enterprise which are
subject to fixed schedules or the time fixed by regulations, it shall be
sufficient that the bills of lading or declarations of shipment furnished by the
shipper refer, with regard to the rate, time, and special conditions of the
transportation, to the schedules and regulations, the application of which is
requested; and should no schedule be determined the carrier must apply the
rates of the merchandise paying the lowest, with the condition inherent
thereto, always including their statement or reference in the bill of lading
delivered to the shipper.
DEFINITION, SUBJECT MATTER
FUNCTION
Art. 352. Bills of lading or tickets in the case of transportation of passengers
Art. 353. The legal instruments of the contract between the shipper and the
NOTES:
The CC provides for a hierarchy. See Article 1766. The Civil Code
provisions shall apply first and in the absence of provisions relevant
to common carrier law, the Code of Commerce shall apply first.
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80
carrier shall be the bills of lading, by the contents of which all disputes which
may arise with regard to their execution and fulfillment shall be decided
without admission of other exceptions than forgery or material errors in the
drafting thereof.
NO BILL OF LADING
After the contract has been consummated the bill of lading issued shall be
returned to the carrier, and by virtue of the exchange of this certificate for the
article transported, the respective obligations and actions shall be
considered as cancelled, unless in the same act the claims which the
contracting parties desire to reserve are reduced to writing, exception being
made of the provisions of Article 360.
Art. 351. In shipments made over railroads or by other enterprise which are
subject to fixed schedules or the time fixed by regulations, it shall be
sufficient that the bills of lading or declarations of shipment furnished by the
shipper refer, with regard to the rate, time, and special conditions of the
transportation, to the schedules and regulations, the application of which is
requested; and should no schedule be determined the carrier must apply the
rates of the merchandise paying the lowest, with the condition inherent
thereto, always including their statement or reference in the bill of lading
delivered to the shipper.
If in case of loss for any reason whatsoever, the consignee cannot return
upon receiving the merchandise the bill of lading subscribed by the carrier,
he shall give said carrier a receipt for the goods delivered, this receipt
producing the same effects as the return of the bill of lading.
Art. 354. In the absence of a bill of lading disputes shall be decided by virtue
of the legal proofs each contracting party may submit in support of his
respective claim, in accordance with the general provisions established in
this code for commercial contracts.
REFUSAL TO TRANSPORT
Art. 356. Carriers may refuse to accept packages which appear unfit for
transportation; and if said transportation is to be made over a railroad, and
the shipment is insisted on, the company shall carry it, being exempt from all
liability if it so states in the bill of lading.
DOUBTFUL DECLARATION OF CONTENTS
Art. 357. If the carrier by reason of well-founder suspicions as to the
correctness of the declaration of the contents of a package should determine
to examine it, he shall do so before witnesses, in the presence of the shipper
or of the consignee.
Should the shipper or consignee to be cited not appear, the examination
shall be made before a notary, who shall draft a certificate of the result of the
examination, for the proper purposes.
If the declaration of the shipper should be correct, the expenses caused by
the examination and those of carefully repackaging the packages shall be
defrayed by the carrier, and in a contrary case by the shipper.
RESPONSIBILITY OF CARRIER
WHEN IT COMMENCES
Art. 355. The liability of the carrier shall begin from the moment he receives
the merchandise, in person or through a person entrusted thereto in the
place indicated for their reception.
ROUTE
Art. 359. If there should be an agreement between the shipper and the
carrier with regard to the road over which the transportation is to be made,
the carrier cannot change the route, unless obliged to do so by force
majeure; and should he do so without being forced to, he shall be liable for
any damage which may be suffered by the goods transported for any cause
whatsoever, besides being required to pay the amount which may have been
stipulated for such a case.
When on account of the said force majeure, the carrier is obliged to take
another route, causing an increase in the transportation charges, he shall be
reimbursed for said increase after presenting the formal proof thereof.
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81
CARE OF GOODS
CONDITION OF GOODS
Art. 360. The shipper may, without changing the place where the delivery is
to be made, change the consignment of the goods delivered to the carrier,
and the latter shall comply with his orders, provided that at the time of
making the change of the consignee the bill of lading subscribed by the
carrier be returned to him, if one were issued, exchanging it for another
containing the novation of the contract.
Art. 363. With the exception of the cases prescribed in the second
paragraph of article 361, the carrier shall be obliged to deliver the goods
transported in the same condition in which, according to the bill of lading,
they were at the time of their receipt, without any detriment or impairment,
and should he not do so, he shall be obliged to pay the value of the goods
not delivered at the point where they should have been and at the time the
delivery should have taken place.
The expenses arising from the change of consignment shall be defrayed by

the shpper..
Art. 361. Merchandise shall be transported at the risk and venture of the
shipper, unless the contrary was not expressly stipulated.
Therefore, all damages and impairment suffered by the goods in
transportation, by reason of accident, force majeure, or by virtue of the
nature or defect of the articles, shall be for the account and risk of the
shipper.
The proof of these accidents is incumbent on the carrier.
causes only:
(3) Act of omission of the shipper or owner of the goods;
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of
the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733.
DELIVERY
If part of the goods transported should be delivered the consignee may

refuse to receive them, when he proves that he cannot make use thereof
without the others.
Art. 364. If, on account of the averages, the goods are rendered useless for
purposes of sale or consumption in the manner proper to the same, the
consignee shall not be bound to receive them, and may leave them on the
hands of the carrier, demanding payment therefore at current market prices.
If among the goods damaged, there should be some in good condition and
without any defect whatsoever, the foregoing provision shall be applicable
with regard to the damaged ones, and the consignee shall receive those
which are perfect, this separation being made by distinct and separate
articles, no object being divided for the purpose, unless the consignee
proves the impossibility of conveniently making use thereof in this form.
The same provision shall be applied to merchandise in bales or packages,
with distinction of the pages which appear perfect..
Art. 366. Within the 24 hours following the receipt of the merchandise a
claim may be brought against the carrier on account of damage or average
found therein on opening the packages, provided that the indications of the
damage or average giving rise to the claim cannot be ascertained from the
exterior of said packages, in which case said claim would only be admitted
on the receipt of the packages.
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delivered.
Art. 367. If there should occur doubts and disputes between the consignee
and the carrier with regard the condition of goods transported at the time of
their delivery to the former, the said goods shall be examined by experts
appointed by the parties, and a third one, in case of disagreement, by the
judicial authority, the result of the examination always being reduced to
writing; and if the persons interested should not agree to the report of the
experts and could not reach an agreement, said judicial authority shall have
the merchandise deposited in a safe warehouse, and the parties interested
shall make use of their rights in the proper manner.
TO WHOM DELIVERY IS MADE
entitled to anything else.

Art. 358. Should no period within which goods are to be delivered to be
previously fixed, the carrier shall be under the obligation to forward them in
the first shipment of the same or similar merchandise which he may make to
the point of delivery; and should he not do so, the damage occasioned by
the delay shall be suffered by him.
TWO OR MORE CARRIERS
Art. 373. A carrier who delivers merchandise to a consignee by virtue of
agreements or combined services with other carriers shall assume the
obligations of the carriers who preceded him, reserving his right to proceed
against the latter if he should not be directly responsible for the fault which
gives rise to the claim of the shipper or of the consignee.
Art. 368. The carrier must deliver to the consignee without any delay or
difficulty the merchandise received by him, by reason of the mere fact of
being designated in the bill of lading to receive it; and should said carrier not
do so, he shall be liable for the damages which may arise therefrom.
The carrier making the delivery shall also assume all the actions and rights
of those who may have preceded him in the transportation.
JUDICIAL DEPOSIT
The sender and the consignee shall have a right of action against the carrier
who executed the transportation contract, or against the other carriers who
received the goods transported without reserve.
Art. 369. Should the consignee not be at the domicile indicated in the bill of
lading, or should refuse to pay the transportation charges and expenses, or
to receive the goods, the deposit of said goods shall be ordered by the
municipal judge, where there is no judge of first instance, to be placed at the
disposal of the shipper or sender, without prejudice to a third person having
a better right, this deposit having all the effects of a delivery.
The reservations made by the latter shall not exempt them, however from
the liabilities they may have incurred by reason of their own acts.
OBLIGATION TO KEEP REGISTRY
Art. 1752. Even when there is an agreement limiting the liability of the
common carrier in the vigilance over the goods, the common carrier is
disputably presumed to have been negligent in case of their loss, destruction
or deterioration.
Art. 378. Transportation agents shall be obliged to keep a special registry,

with the formalities required by article 36, in which there shall be entered, in
progressive order of numbers and dates, all the goods the transportation of
which is undertaken, stating the circumstances required by articles 30 et
seq. for the respective bills of lading.
WHEN TO BE MADE
COMPLIANCE WITH ADMINISTRATIVE REGULATIONS
Art. 370. If a period has been fixed for the delivery of the goods, it must be
made within the same, and otherwise the carrier shall pay the indemnity
agreed upon in the bill of lading, neither the shipper nor the consignee being
Art. 377. The carrier shall be liable for all the consequences arising from
non-compliance on his part with the formalities prescribed by the laws and
regulations of the public administration during the entire course of the trip
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and on the arrival at the point of destination, except when his omission arise
from having been induced into error by false statements of the shipper in the
declaration of the merchandise.
If the carrier has acted in accordance with a formal order received from the
shipper or consignee of the merchandise both shall incur liability.
RIGHTS AND OBLIGATIONS OF SHIPPER AND/OR CONSIGNEE
RIGHT TO DAMAGES
CONDITION IMPOSED ON RIGHT
Art. 353. The legal basis of the contract between the shipper and the carrier
shall be the bills of lading, by the contents of which all disputes which may
arise with regard to their execution and fulfillment shall be decided, no
exceptions being admissible other than forgery or material errors in the
drafting thereof.
After the contract has been complied with, the bill of lading shall be returned
to the carrier who may have issued it, and by virtue of the exchange of this
title for the article transported, the respective obligations and actions shall be
considered canceled, unless the same act the claims which the contracting
parties desire to reserve are reduced to writing, exception being made of the
provisions of Article 366.
Art. 366.
Within the twenty-four hours following the receipt of the
merchandise a claim may be made against the carrier on account of damage
or average found upon opening the packages, provided that the indications
of the damage or average giving rise to the claim cannot be ascertained from
the exterior of said packages, in which case said claim shall only be
admitted at the time of the receipt of the packages.
In case the consignee, upon receiving the goods, cannot return the bill of
lading subscribed by the carrier, due to its loss or for any other cause, he
shall give said carrier a receipt for the goods delivered, this receipt producing
the same effect as the return of the bill of lading.

delivered.
Art. 372. The value of the goods which the carrier must pay in case of their
being lost or mislaid shall be fixed in accordance with what is stated in the
bill of lading, no proofs being allowed on the part of the shipper that there
were among the goods declared therein articles of greater value, and
money.
Art. 357. If by reason of well-founded suspicions of falsity in the declaration

of the contents of a package, the carrier should decide to examine it, he shall
do so before witnesses, in the presence of the shipper or of the consignee.
Should the shipper or consignee cited not appear, the examinations shall be
made before a notary, who shall draft a certificate of the result of the
examination, for such purposes as may be proper.
If the declaration of the shipper should be correct, the expenses caused by
the examination and those of carefully repacking the packages shall be
defrayed by the carrier, and in a contrary case by the shipper.
AMOUNT OF DAMAGES FOR LOSS
Horses, vehicles, vessels, equipments, and all the other principal and
accessory means of transportation, shall be especially obligated in favor of
the shipper, although with respect to railroads said obligation shall be
subordinated to the provisions of the laws of concession with regard to
property and to those of this Code with regard to the manner and form of
making attachments and seizures against the said companies.
Art. 1744. A stipulation between the CC and the shipper or owner limiting
the liability of the former for the loss, destruction or deterioration of the goods
to a degree less than extraordinary diligence shall be valid, provided it be:
1. In writing, signed by the shipper or owner;
2. Supported by a valuable consideration other than the service
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rendered by the cc; and

3. Reasonable, just, and not contrary to public policy.
AMOUNT OF DAMAGES FOR DELAY
Art. 371. In cases of delay on account of the fault of the carrier, referred to
in the foregoing articles, the consignee may leave the goods transported in
the hands of the carrier, informing him thereof in writing before the arrival of
the same at the point of destination.
When this abandonment occurs, the carrier shall satisfy the total value of the
goods, as if they had been lost or mislaid. Should the abandonment not
occur the indemnity for loss and damages on account of the delays cannot
exceed the current price of the goods transported on the day and at the
place where the delivery was to have been made. The same provision shall
be observed in all cases where this indemnity is due.
the shipper.
Art. 365. If, on account of the damage, the goods are rendered useless for
sale or consumption for the use for which they are properly destined the
consignee shall not be bound to receive them, and may leave them in the
hands of the carrier, demanding payment of their value at the current market
price that day.
If among the goods damages there should be some in good condition and
without any defect whatsoever, the foregoing provision shall be applicable
with regard to the damaged ones, and the consignee shall receive those
which are sound, this separation being made by distinct and separate
articles, no object being divided for the purpose, unless the consignee
proves the impossibility of conveniently making use thereof in this form.
The same provision shall be applied to merchandise in bales or packages,
with distinction of the packages which appear sound.
RIGHT TO ABANDON
Art. 371. In cases of delay on account of the fault of the carrier, referred to
in the foregoing articles, the consignee may leave the goods transported in
the hands of the carrier, informing him thereof in writing before the arrival of
the same at the point of destination.
When this abandonment occurs, the carrier shall satisfy the total value of the
goods, as if they had been lost or mislaid. Should the abandonment not
occur the indemnity for loss and damages on account of the delays cannot
exceed the current price of the goods transported on the day and at the
place where the delivery was to have been made. The same provision shall
be observed in all cases where this indemnity is due.
Art. 363. With the exception of the cases prescribed in the second
paragraph of Article 361, the carrier shall be obliged to deliver the goods
transported in the same condition in which, according to the bill of lading,
they were at the time of their receipt, without any damage or impairment, and
should he not do so, he shall be obliged to pay the value of the goods not
delivered at the point where they should have been and at the time the
delivery should have taken place.
If part of the goods transported should be delivered the consignee may
refuse to receive them, when he proves that he cannot make use thereof
without the others.
RIGHT TO CHANGE CONSIGNMENT
carrier, if one were issued, be returned to him, exchanging it for another
carrier, if one were issued, be returned to him, exchanging it for another
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the shipper.
OBLIGATION TO PAY TRANSPORTATION CHARGES
Art. 374. The consignees to whom the remittance may have been made
may not defer the payment of the expenses and transportation charges on
the goods that they received after twenty-four hours have elapsed from the
time of the delivery; and in case of delay in making this payment, the carrier
may demand the judicial sale of the goods he transported to a sufficient
amount to cover the transportation charges and the expenses incurred.
Art. 375. The goods transported shall be specifically bound to answer for the
transportation charges and for the expenses and fees caused by the same
during their transportation, and until the time of their delivery.
This special right shall be limited to eight days after the delivery has been
made, and after said prescription the carrier shall have no further right of
action than that corresponding to an ordinary creditor.
Art. 376. The preference of the carrier to the payment of what is due him for
the transportation and expenses of the goods delivered to the consignee
shall not be affected by the bankruptcy of the latter, provided the action is
brought within the eight days mentioned in the foregoing article.
Art. 2241. With reference to specific movable property of the debtor, the ff.
claims or liens shall be preferred:
xxx
(9) Credits for transportation, upon the goods carried, for the price of the
contract and incidental expenses, until their delivery and for thirty days
thereafter.
drafting thereof.
After the contract has been complied with, the bill of lading shall be returned
to the carrier who may have issued it, and by virtue of the exchange of this
title for the article transported, the respective obligations and actions shall be
considered canceled, unless the same act the claims which the contracting
parties desire to reserve are reduced to writing, exception being made of the
provisions of Article 366.
In case the consignee, upon receiving the goods, cannot return the bill of
lading subscribed by the carrier, due to its loss or for any other cause, he
shall give said carrier a receipt for the goods delivered, this receipt producing
the same effect as the return of the bill of lading.
APPLICABILITY OF PROVISIONS
Art. 379. The provisions contained in article 349, et. seq. shall also be
understood as relating to persons who, although they dont personally effect
the transportation of commercial goods, contract to do so through others,
either as contractors for a special and fixed transaction or as freight and
transportation agents.
In either case, they shall be subrogated to the place of the carriers with
regard to the obligations and liability of the latter, as well as with regard to
their right.
ADMIRALTY AND MARITIME COMMERCE
CONCEPT OF ADMIRALTY
JURISDICTION OVER ADMIRALTY CASES
OBLIGATION TO RETURN BILL OF LADING

Art. 353. The legal basis of the contract between the shipper and the carrier
shall be the bills of lading, by the contents of which all disputes which may
arise with regard to their execution and fulfillment shall be decided, no
exceptions being admissible other than forgery or material errors in the
Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise
exclusive original jurisdiction:
(3) In all actions in admiralty and maritime jurisdiction where he demand or
claim exceeds One hundred thousand pesos (P100,000.00) or , in Metro
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Manila, where such demand or claim exceeds Two hundred thousand pesos
(200,000.00);
xxx
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts in civil cases. Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over civil actions and probate proceedings,
testate and intestate, including the grant of provisional remedies in proper
cases, where the value of the personal property, estate, or amount of the
demand does not exceed One hundred thousand pesos (P100,000.00) or, in
Metro Manila where such personal property, estate, or amount of the
demand does not exceed Two hundred thousand pesos (P200,000.00)
exclusive of interest damages of whatever kind, attorney's fees, litigation
expenses, and costs, the amount of which must be specifically alleged:
Provided, That where there are several claims or causes of action between
the same or different parties, embodied in the same complaint, the amount
of the demand shall be the totality of the claims in all the causes of action,
irrespective of whether the causes of action arose out of the same or
different transactions;
xxx
85
INTERNATIONAL HARVESTER V. ARAGON

84 PHIL 363
FACTS:
Yaras and Company, Far East, filed a complaint against the Manila Terminal
Co., Inc., and International Harvester Company of the Philippines. The
complaint alleges that the defendant Manila Terminal Co., Inc., is in charge
of the custody and delivery to the respective owners of cargoes discharged
at the Government piers in the City of Manila; that the defendant
International Harvester Company of the Philippines is the agent in the
Philippines of the vessel Belle of the Sea; that the S/S Belle of the Sea took
on board at Los Angeles, California, U. S. A., goods for shipment to Manila,
Philippines; that the S/S Belle of the Sea arrived in Manila and discharged
her cargo at the Government piers under the supervision and custody of the
86
defendant Manila Terminal Co., Inc.; that one carton of assorted samples
with a stipulated value of P200 was not delivered to Yaras and Company;
and said merchandise was lost through the negligence either of the Manila
Terminal Co., Inc., or of the International Harvester Company of the
Philippines. Before the trial could be proceeded with, the International
Harvester of the Philippines filed a motion to dismiss, on the ground that the
Municipal Court of Manila had no jurisdiction to try case because the action
involves admiralty or maritime jurisdiction, which motion was overruled by
the municipal court.
HELD:
Admiralty has jurisdiction over all maritime contracts, in whatever form,
wherever they were executed or are to be performed, but not over nonmaritime contracts. Whether or not a contract is maritime depends not on
the place where the contract is made and is to be executed, making the
locality the test, but on the subject-matter of the contract, making the true
criterion a maritime service or a maritime transaction. Specifically, admiralty
has jurisdiction of a proceeding in rem or in personam for the breach of a
contract of affreightment, whether evidenced by a bill of lading or a charter
party. And typical of a controversy over contracts of affreightment is a suit of
one party against the other for loss of or damage to the cargo. This is the
very case now before us, because the respondent Yaras and Company
seeks to recover from the petitioner International Harvester Company of the
Philippines the value of a certain lost cargo.
The contention of the respondent Yaras and Company that admirally
jurisdiction is not involved herein because the contract in question was made
upon land and to be terminated upon land, merely reflects the English rule
which had long been rejected in the United States. It is now settled in the
latter country that "the jurisdiction of admiralty in matters of contract
depends upon the subject-matter, i.e., the nature and character of the
contract, and that the English rule which conceded jurisdiction (with
few exceptions) only to contracts made upon and the to be performed
upon navigable waters, is inadmissable, the true criterion being that
the contract has reference to maritime service or maritime
transaction." We choose to adopt the sound American rule. Even in
England the English rule was not without protest. Lord Kenyon, in Menetone
vs. Gibbons, 3 Term, 269, had expressed the following criticism: "if the
admiralty has jurisdiction over the subject-matter, to say that it is necessary
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for the parties to go upon the sea to execute the instrument borders upon
absurdity."
The respondent Yaras and Company cannot invoke the rule against
multiplicity of suits, for the simple reason that said rule has to be subservient
to the superior requirement that the court must have jurisdiction. In view of
our conclusion that the cause of action of said respondent against
International Harvester Company of the Philippines involves admiralty over
which the courts of first instance have original jurisdiction (Par. 4, Sec. 56,
Act No. 136 of the Philippine Commission, as reproduced in sec. 43 [d] of
Republic Act No. 296), and to which the jurisdiction of the justice of the
peace courts (including municipal courts) does not extend (sec. 68, Act No.
136 of the Philippine Commission, as amended by Commonwealth Act No.
4090, reproduced in par, 2, sec. 88, Republic Act No. 296), the respondent
judge was properly restrained from further proceeding with civil case No. IV262.
VESSELS
MEANING
86
LOPEZ V. DURUELO
52 PHIL 229
FACTS:
Lopez wanted to embark upon the interisland steamer San Jacinto in order
to go to Iloilo. This boat was at the time in the anchoring-ground of the port
of Silay, some half a mile distant from the port. The plaintiff therefore
embarked at the landing in the motor boat Jison, which was then engaged in
conveying passengers and luggage back and forth from the landing to boats
at anchor, and which was owned and operated by the defendant Albino
Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on
this trip was one Rodolin Duruelo, a boy of only 16 years of age. He is
alleged to have been a mere novice without experience in the running of
motor boats; and the day of the occurrence now in contemplation is said to
have been the third day of his apprenticeship in this capacity. It is alleged
that the Jison, upon this trip, was grossly overladen, having aboard fourteen
passengers, while its capacity was only for eight or nine. As the motor boat
approached the 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 struck the motor boat and sank it at once. It is
alleged in the complaint that the approach of the Jison to this dangerous
proximity with the propeller of the San Jacinto was due to the fault,
negligence and lack of skill of the defendant Juan Duruelo, as patron of the
Jison. As the Jison sank, the plaintiff was thrown into the water against the
propeller, and the revolving blades inflicted various injuries upon him,
consisting of a bruise in the breast, two serious fractures of the bones of the
left leg, and a compound fracture of the left femur.
HELD:
The article in question (835, Code of Com.) is found in the section dealing
with collisions, and the context shows the collisions intended are collisions of
sea-going vessels. Said article cannot be applied to small boats engaged in
river and bay traffic. The Third Book of the Code of Commerce, dealing with
Maritime Commerce, of which the section of Collisions forms a part, was
evidently intended to define the law relative to mechant vessels and marine
shipping; and, as appears from said Code, the vessels intended in that Book
are such as are run by masters having special training, with the elaborate
apparatus of crew and equipment indicated in the Code. The word "vessel"
(Spanish "buque," "nave"), used in the section referred to was not intended
to include all ships, craft or floating structures of every kind without limitation,
and the provisions of that section should not be held to include minor craft
engaged only in river and bay traffic. Vessels which are licensed to engage
in maritime commerce, or commerce by sea, whether in foreign or coastwise
trade, are no doubt regulated by Book III of the Code of Commerce. Other
vessels of a minor nature not engaged in maritime commerce, such as river
boats and those carrying passengers from ship to shore, must be governed,
as to their liability to passengers, by the provisions of the Civil Code or other
appropriate special provisions of law.
When the mercantile codes speak of vessels, they refer solely and
exclusively to merchant ships, as they do not include war ships furthermore,
they almost always refer to craft which are not accessory to another as is the
case of launches, lifeboats, etc. Moreover, the mercantile laws, in making
use of the words ship, vessels, boat, embarkation, etc., refer
exclusively to those which are engaged in the transportation of
passengers and freight from one port to another or from one place to
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another; in a word, they refer to merchant vessels and in no way can they or
should they be understood as referring to pleasure craft, yachts, pontoons,
health service and harbor police vessels, floating storehouses, warships or
patrol vessels, coast guard vessels, fishing vessels, towboats, and other
craft destined to other uses, such as for instance coast and geodetic survey,
those engaged in scientific research and exploration, craft engaged in the
loading and discharge of vessels from same to shore or docks, or in
transhipment and those small craft which in harbors, along shore, bays,
inlets, coves and anchorages are engaged in transporting passengers and
baggage.
They may also be acquired by means of prescription.

REGISTRATION, CERTIFICATES ISSUED, DISTINCTIONS
Tariff and Customs Code, Sec. 802.
1.
2.
NATURE AND ACQUISITION OF
Art. 573. Merchant vessels constitute property which 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 registry of vessels.
The ownership of a vessel shall also be acquired by the possession thereof
in good faith for three years, with a good title duly recorded.
In the absence of any of these requisites, uninterrupted possession for ten
years shall be necessary in order to acquire ownership.
A captain cannot acquire by prescription the ship of which he is in command.
Art. 574. Builders of vessels may employ the material and follow with regard
to their construction and rigging the systems most suitable to their interest.
Ship owners and seamen shall be subject to the provisions of the laws and
regulations of the public administration on navigation, customs, health,
safety of vessels, and other similar matters.
Art. 585. For all purposes of law not modified or restricted by the provisions
of this Code, vessels shall continue to be considered as personal property.
Vessels - every sort of boat, craft or other artificial contrivance

used, or capable of being used, as a means of transportation on
water
Duly registered - person, natural or juridical, registered with the
proper govt. Agencies, as bureau of commerce, sec, nacida, boi,
export incentives board or oil commission, as now or may hereafter
be required by law.
PD 761 as amended by PD 1064, 1521, Sec. 806. Upon registration of a

vessel of domestic ownership, and of more than 15 tons gross, a certificate
of Philippine registry shall be issued for it. If the vessel is of domestic
ownership and of 15 tons gross or less, the taking of the certificate of
Philippine registry shall be optional with the owner.
Domestic ownership means ownership vested in the citizens of the
Philippines or corporations or association organized under the laws of the
Philippines at least 60% of the C/S or capital of which is wholly owned by
citizens of the Philippines, and in the case of corporations or associations
which will engage in coastwise trade the president and managing directors
hereof shall be such citizens xxx
xxx an enterprise duly registered with the Board of Investments WON
entirely owned by foreign nationals, may register its own vessels xxx if such
vessels are to be used exclusively to transport its own raw materials and
finished products in Philippine waters as an incident to its manufacturing,
processing or business activity registered with the BOI and certified to by
said Board as an essential element in the operation of the registered project.
Art. 712. Ownership is acquired by occupation and by intellectual creation.

Ownership and other real rights over property are acquired and transmitted
by law, by donation, by estate and intestate succession, and in consequence
of certain contracts, by tradition.
CERTIFICATES OF PHILIPPINE REGISTER

Upon registration of a vessel of domestic ownership and of more than
15 tons gross, a certificate of Phil. register shall be issued for it
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PURPOSE OF CERTIFICATES OF REGISTER OF VESSELS

To declare the nationality of a vessel engaged in trade with foreign
nations and to enable her to assert that nationality wherever found
PRIVILEGES OF CERTIFICATE
It confers upon the vessel the right to engage, consistently with law,
in the Philippines coastwise trade and entitles it to the protection of
the authorities and the flag of the Philippines in all ports and on the
high seas, and at the same time secures to it the same privileges and
subjects it to the same disabilities as, under the laws of the
Philippines, pertain to foreign built vessels transferred abroad to
citizens of the Philippines
CERTIFICATES OF OWNERSHIP
Upon registration of a vessel of more than 5 tons gross, a certificate
of ownership shall be issued for it
SIGNIFICANCE OF REGISTRATION OF TRANSACTIONS AFFECTING
VESSELS
87
ARROYO V. YU
54 PHIL 511
FACTS:
In the Court of First Instance of Iloilo, the sheriff of that province instituted an
action to compel the various persons and entities with claims to the lorchas
China and Cuylim to interplead with one another to determine their
conflicting rights. During the trial, the court held that the mortgage of the
lorchas China and Cuylim executed in favor of J. M. Po Pauco through
notarial deed Exhibit 2, and the transfer of said mortgage by J. M. Po Pouco,
the mortgagee, to the Philippine National Bank through notarial deed Exhibit
1, duly recorded in the registry of deeds of the Province of Iloilo on
November 29, 1919, are valid and legal.
Furthermore, the court held that the fact that this mortgage was not
registered in the Bureau of Customs of the port of Iloilo until March 5th of this
year does not invalidate it; since it was proved at the trial of this case that
such deferred registration was due to certain doubts entertained by the
collector of customs of the port of Iloilo touching the applicability of Act No.
89
3324, amending section 1176 of the Administrative Code; and that said
collector only decided to admit and register said mortgage upon lochas
China and Cuylim in March of this year after receipt of advice from Manila
regarding the applicability of Act No. 3324, which was approved on
December 4, 1926, to a mortgage executed on November 6, 1918, in favor
of a Chinese subject a prohibition not found in the original section 1176 of
the Administrative Code, but which went into effect when the aforementioned
Act No. 3324, approved on December 4, 1926, took effect.
HELD:
The registration of vessels is now governed by the Administrative Code.
Section 1171 thereof provides:
Record of documents affecting title. In the record of transfers and
incumbrances of vessels, to be kept at each principal port of entry, shall be
recorded at length all transfers, bills of sale, mortgages, liens, or other
document which evidence ownership or directly or indirectly affect the title of
registered vessels, and therein shall be recorded all receipts, certificates, or
acknowledgments canceling or satisfying, whole or in part, any such
obligation. No other record of any such document or paper shall be required
than such as is affected hereunder.
It is clear that section 1171 of the Administrative Code has modified the
provisions of the Chattel Mortgage Law, Act No. 1508, particularly section 4
thereof. It is now not necessary for a chattel mortgage of a vessel to be
noted in the registry of the register of deeds. On the other hand, it is
essential that a record of documents affecting the title of a vessel be entered
in the office of the collector of customs, at a port of entry. The law as now
existing is designed to protect persons who deal with a vessel on the
strength of the record title. Mortgages on vessels, although not recorded, are
good as between the parties. But as against creditors of the mortgagor, an
unrecorded mortgage is invalid.
Consolidating the facts, we find the mortgage of the Philippine National Bank
dated November 28, 1919, but not recorded in the office of the collector of
customs until March 5, 1929. The execution sued out by Maria Corazon Yu
de Sane was dated December 6, 1928, and noted at the port of entry two
days prior thereto. Under these facts, the execution holder would have a
prior right over the unrecorded mortgage. However, in the decision of the trial
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court we find an explanation of the delay which appears to have been proved
at the trial, and which we must accept since there is nothing in the record to
the contrary. His Honor states that the fact that the mortgage was not
registered in the office of the collector of customs of Iloilo until March 5,
1929, was because of the doubts entertained by the collector relative to the
applicability of Act No. 3324 to a mortgage executed in 1918 in favor of a
Chinese subject. This uncontradicted fact must be taken as curing the bank's
defective title. That the collector of customs did not perform his duty was no
fault of the bank. Constructive registration of the mortgage must, therefore,
be accepted.
88
RUBISO V. RIVERA
37 PHIL 72
FACTS:
On April 10, 1915, counsel for plaintiff brought suit in the Court of the First
Instance of this city and alleged in the complaint that his clients were the
owners of the pilot boat named Valentina, which had been in bad condition
since the year 1914 and, on the date of the complaint, was stranded in the
place called Tingloy, of the municipality of Bauan, Batangas; that the
defendant Florentino E. Rivera took charge or possession of said vessel
without the knowledge or consent of the plaintiff and refused to deliver it to
them, under claim that he was the owner thereof; and that such procedure
on the defendant's part caused the plaintiffs to suffer damages, not only
because they could not proceed to repair the vessel, but also because they
were unable to derive profit from the voyages for which said pilot boat was
customarily used; and that the net amount of such uncollected profit was
P1,750. The complaint terminated with a petition that judgment be rendered
by ordering the defendant to deliver said pilot boat to the plaintiffs and
indemnify them in the amount aforementioned or in such amount as should
be proven at trial, and to pay the costs.
According to the records of the case, the pilot boat Valentina was twice sold:
first privately by its owner Sy Qui to the defendant Florentino E. Rivera, on
January 4, 1915, and afterwards by the sheriff at public auction in conformity
with the order contained in the judgment rendered by the justice of the
peace, court, on January 23 of the same year, against the Chinaman Sy Qui
and in behalf of the plaintiff, Fausto Rubiso.
90
It is undeniable that the defendant Rivera acquired by purchase the pilot

boat Valentina on a date prior to that of the purchase and adjudication made
at public auction, by and on behalf of the plaintiff Rubiso; but it is no less true
that the sale of the vessel by Sy Qui to Florentino E. Rivera, on January 4,
1915, was entered in the customs registry only on March 17, 1915, while its
sale at public auction to Fausto Rubiso on the 23d of January of the same
year, 1915, was recorded in the office of the Collector of Customs on the
27th of the same month, and in the commercial registry on the 4th of March,
following; that is, the sale on behalf of the defendant Rivera was prior to that
made at public auction to Rubiso, but the registration of this latter sale was
prior by many days to the sale made to the defendant.
HELD:
The requisite of registration in the registry, of the purchase of a vessel, is
necessary and indispensable in order that the purchaser's rights may be
maintained against a claim filed by a third person. Such registration is
required both by the Code of Commerce and by Act No. 1900. The
amendment solely consisted in charging the Insular Collector of Customs, as
at present, with the fulfillment of the duties of the commercial register
concerning the registering of vessels; so that the registration of a bill of sale
of a vessel shall be made in the office of the insular Collector of Customs,
who, since May 18, 1909, has been performing the duties of the commercial
register in place of this latter official.
In view of said legal provisions, it is undeniable that the defendant Florentino
E. Rivera's rights cannot prevail over those acquired by Fausto Rubiso in the
ownership of the pilot boat Valentina, inasmuch as, though the latter's
acquisition of the vessel at public auction, on January 23, 1915, was
subsequent to its purchase by the defendant Rivera, nevertheless said sale
at public auction was antecedently recorded in the office of the Collector of
Customs, on January 27, and entered in the commercial registry an
unnecessary proceeding on March 4th; while the private and voluntary
purchase made by Rivera on a prior date was not recorded in the office of
the Collector of Customs until many days afterwards, that is, not until March
17, 1915.
The legal rule set down in the Mercantile Code subsists, inasmuch as the
amendment solely refers to the official who shall make the entry; but, with
respect to the rights of the two purchasers, whichever of them first registered
his acquisition of the vessel is the one entitled to enjoy the protection of the
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91
law, which considers him the absolute owner of the purchased boat, and this
latter to be free of all encumbrance and all claims by strangers for, pursuant
to article 582 of the said code, after the bill of the judicial sale at auction has
been executed and recorded in the commercial registry, all the other
liabilities of the vessel in favor of the creditors shall be considered canceled.
PERSONS PARTICIPATING IN MARITIME COMMERCE
WHO ARE THE PERSONS PARTICIPATING IN MARINE COMMERCE?
1. The shipowner and shipagents
2. Captain and master
3. Other personnel and crew
4. Supercargoes
SHIPOWNERS AND SHIPAGENTS, 586 TO 608, 618
Art. 586. The owner of a vessel and ship agent shall be civilly liable for the
acts of the captain and for the obligations contracted by the latter to repair,
equip, and provision the vessel, provided the creditors proves that the
amount claimed was invested therein.
By agent is understood the person entrusted with the provisioning of a
vessel, or who represents her in the port in which she happens to be.
Art. 587. The ship agent shall also be civilly liable for the indemnities in
favor of third persons which arise from the conduct of the captain in the care
of the goods which the vessel carried; but he may exempt himself therefrom
by abandoning the vessel with all her equipments and the freightage he may
have earned during the voyage.
Art. 588. Neither the owner of the vessel nor the agent shall be liable for the
obligations contracted by the captain if the latter exceeds his powers and
privileges inherent in his position or those which may have been conferred
upon him by the former. However, if the amounts claimed were made use of
for the benefit of the vessel, the owner or agent shall be liable.
Art. 589. If two or more persons should be part owners of a merchant
vessel, an association shall be presumed as established by the part owners.
This association shall be governed by the resolutions of a majority of the

members.
A majority shall be the relative majority of the voting members.
If there should be only two part owners, in case of disagreement the vote of
the member having the largest interest shall be decisive. If the interests are
equal, it shall be decided by lot.
The representation of the smallest part in the ownership shall have one vote;
and proportionately the other part owners as many votes as they have parts
equal to the smallest one.
A vessel cannot be detained, attached or levied upon execution in her
entirety for the private debts of a part owner, but the proceedings shall be
limited to the interest the debtor may have in the vessel, without interfering
with her navigation.
Art. 590. The co-owners of a vessel shall be civilly liable, in the proportion of
their contribution to the common fund, for the results of the acts of the
captain, referred to in Article 587.
Each part owner may exempt himself from this liability by the abandonment
before a notary of the part of the vessel belonging to him.
Art. 591. All the part owners shall be liable, in proportion to their respective
ownership, for the expenses which are incurred by virtue of a resolution of
the majority.
They shall likewise be liable in the same proportion for the expenses of
maintenance, equipment, and provisioning of the vessel, necessary for
navigation.
Art. 592. The resolutions of the majority with regard to the repair,
equipment, and provisioning of the vessel in the port of departure shall bind
the minority, unless they renounce their participation therein, which must be
acquired by the other part owners after a judicial appraisement of the value
of the portion or portions assigned.
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The resolutions of the majority relating to the dissolution of the association

and sale of the vessel shall also be binding on the minority.
all that refers to repairs, details of equipment, armament, provisions, fuel,

and freight of the vessel, and, in general, in all that relates to the
requirements of navigation.
The sale of the vessel shall be made at a public auction, subject to the
provisions of the law of civil procedure unless the part owners unanimously
agree otherwise, subject always to the right of pre-emption and redemption
mentioned in Article 575.
Art. 598. The agent cannot order a new voyage, nor make contracts for a
new charter, nor insure the vessel, without the authority of her owner or by
virtue of a resolution of the majority of the co-owners, unless these powers
were granted him in the certificate of his appointment.
Art. 593. The owners of a vessel shall have preference in her charter over
other persons, offering equal conditions and price. If two or more of the
former should claim said right the one having greater interest shall be
preferred, and should they have an equal interest it shall be decided by lot.
If he should insure the vessel without authority therefor he shall be

subsidiarily liable for the solvency of the underwriter.
Art. 594. The part owners shall elect the manager who is to represent them
in the capacity of agent. The appointment of director or agent shall be
revocable at the will of the partners.
Art. 595. The agent, be he at the same time an owner of a vessel or a
manager for an owner or for an association of co- owners, must be qualified
to trade and must be recorded in the merchant's registry of the province.
The agent shall represent the ownership of the vessel, and may in his own
name and in such capacity take judicial and extrajudicial steps in all that
relates to commerce.
Art. 596. The agent may discharge the duties of captain of the vessel,
subject, in every case, to the provisions contained in Article 609.
If two or more co-owners request the position of captain, the disagreement
shall be decided by a vote of the members; and if the vote should result in a
tie, the position shall be given to the part owner having the larger interest in
the vessel.
If the interest of the petitioners should be the same, and there should be a
tie, the matter shall be decided by lot.
Art. 597. The agent shall select and enter into an agreement with the
captain, and shall contract in the name of the owners, who shall be bound in
Art. 599. The managing agent of an association, shall give his co-owners an
account of the results of each voyage of the vessel, without prejudice to
always having the books and correspondence relating to the vessel and to
its voyages at their disposal.
Art. 600. After the account of the managing agent has been approved by a
relative majority, the co-owners shall satisfy the expenses in proportion to
their interest, without prejudice to the civil or criminal actions which the
minority may deem fit to institute afterwards.
In order to enforce the payment, the managing agents shall be entitled to an
executory action, which shall be instituted by virtue of a resolution of the
majority, and without further proceedings than the acknowledgment of the
signatures of the persons who voted for the resolution.
Art. 601. Should there be any profits, the co-owners may demand of the
managing agent the amount due them, by means of an executory action
without further requisite than the acknowledgment of the signatures in the
instrument approving the account.
Art. 602. The agent shall indemnify the captain for all the expenses he may
have made from his own funds or from those of other persons, for the benefit
of the vessel.
Art. 603. Before a vessel goes out to sea the agent may at his discretion,
discharge the captain and members of the crew whose contract did not state
a definite period nor a definite voyage, paying them the salaries earned
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93
according to their contracts, and without any indemnity whatsoever, unless

there is an expressed and specific agreement in respect thereto.
Code.
(2) For all the thefts and robberies committed by the crew, reserving
his right of action against the guilty parties.
(3) For the losses, fines, and confiscations imposed on account of
violation of the laws and regulations of customs, police, health, and
navigation.
(4) For the losses and damages caused by mutinies on board the
vessel, or by reason of faults committed by the crew in the service
and defense of the same, if he does not prove that he made full use
of his authority to prevent or avoid them.
(5) For those arising by reason of a misuse of powers and
nonfulfillment of the duties which pertain to him in accordance with
(6) For those arising by reason of his going out of his course or taking
a course which, in the opinion of the officers of the vessel, at a
meeting attended by the shippers or supercargoes who may be on
board, he should not have taken without sufficient cause. No
exception whatsoever shall exempt him from his obligation.
(7) For those arising by reason of his voluntarily entering a port other
than his destination, with the exception of the cases or without the
formalities referred to in Article 612.
(8) For those arising by reason of the nonobservance of the provisions
contained in the regulations for lights and maneuvers for the
purpose of preventing collisions.
Art. 604. If the captain or any other member of the crew should be
discharged during the voyage, they shall receive their salary until their return
to the place where the contract was made, unless there are good reasons for
the discharge, all in accordance with Art. 636 et seq. of this Code.
Art. 605. If the contracts of the captain and members of the crew with the
agent should be for a definite period or voyage, they cannot be discharged
until the fulfillment of their contracts, except for reasons of insubordination in
serious matters, robbery, theft, habitual drunkenness, and damage caused
to the vessel or to its cargo by malice or manifest or proven negligence.
Art. 606. If the captain should be a part owner in the vessel, he may not be
discharged unless the agent returns to him the amount of his interest therein,
which, in the absence of an agreement between the parties, shall be
appraised by experts appointed in the manner established in the law of civil
procedure.
Art. 607. If the captain who is a part owners should have obtained the
command of the vessel by virtue of a special agreement contained in the
articles of copartnership, he cannot be deprived thereof except for the
reasons mentioned in Article 605.
Art. 608. In case of the voluntary sale of the vessel, all contracts between
the agent and captain shall terminate, reserving to the latter his right to the
indemnity which may be proper, according to the agreements made with the
agent.
The vessel sold shall remain subject to the security of the payment of said
indemnity if, after the action against the vendor has been instituted, the latter
should be insolvent.
Art. 618. The captain shall be civilly liable to the ship agent and the latter to
the third persons who may have made contracts with the former (1) For all the damages suffered by the vessel and its cargo by reason
of want of skill or negligence on his part. If a misdemeanor or crime
has been committed he shall be liable in accordance with the Penal
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STANDARD OIL V. CASTELO

42 PHIL 256
FACTS:
Manuel Lopez Castelo, as owner, let the small interisland steamer
Batangueo for the term of one year to Jose Lim Chumbuque for use in the
conveying of cargo between certain ports of the Philippine Islands. In this
contract it was stipulated that the officers and crew of the Batangueo
should be supplied by the owner, and that the charterer should have no
other control over the captain, pilot, and engineers than to specify the
voyages that they should make and to require the owner to discipline or
relieve them as soon as possible in case they should fail to perform the
duties respectively assigned to them.
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94
While the boat was being thus used by the charterer in the interisland trade,
the standard Oil Company delivered to the agent of the boat in Manila a
quantity of petroleum to be conveyed to the port of Casiguran, in the
Province of Sorsogon. For this consignment a bill of lading of the usual form
was delivered, with the stipulation that freight should be paid at the
destination. Said bill of lading contained no provision with respect to the
storage of the petroleum, but it was in fact placed upon the deck of the ship
and not in the hold.
While the boat was on her way to the port mentioned, and off the western
coast of Sorsogon, a violent typhoon passed over that region, and while the
storm was at its height the captain was compelled for the safety of all to
jettison the entire consignment of petroleum consisting of two hundred
cases. When the storm abated the ship made port, and thirteen cases of the
petroleum were recovered, but the remainder was wholly lost.
To recover the value of the petroleum thus jettisoned but not recovered, the
present action was instituted by the Standard Oil Company against the
owner of the ship in the Court of First Instance of Manila, where judgment
was rendered in favor of the plaintiff. From this judgment the defendant
appealed.
HELD:
That the owner of the ship is a person to whom the plaintiff in this case may
immediately look for reimbursement to the extent above stated is deducible
not only from the general doctrines of admiralty jurisprudence but from the
provisions of the Code of Commerce applicable to the case. It is universally
recognized that the captain is primarily the representative of the owner; and
article 586 of the Code of Commerce expressly declares that both the owner
of the vessel and the naviero, or charterer, shall be civil liable for the acts of
the master. In this connection, it may be noted that there is a discrepancy
between the meaning of naviero, in articles 586 of the Code of Commerce,
where the word is used in contradistinction to the term "owner of the vessel"
( propietario), and in article 587 where it is used alone, and apparently in a
sense broad enough to include the owner. Fundamentally the word "naviero"
must be understood to refer to the person undertaking the voyage, who in
one case may be the owner and in another the charterer. But this is not vital
to the present discussion. The real point to which we direct attention is that,
by the express provision of the Code, the owner of the vessel is civilly liable
for the acts of the captain; and he can only escape from this civil liability by
abandoning his property in the ship and any freight that he may have earned
on the voyage (arts. 587, 588, Code of Comm.).
Now, by article 852 of the Code of Commerce the captain is required to
initiate the proceedings for the adjustment, liquidation, and distribution of any
gross average to which the circumstances of the voyage may have given
origin; and it is therefore his duty to take the proper steps to protect any
shipper whose goods may have been jettisoned for the general safety. In
ordinary practice this, we supposed, would be primarily accomplished by
requiring the consignees of other cargo, as a condition precedent to the
delivery of their goods to them, to give a sufficient bond to respond for their
proportion of the general average. But it is not necessary here to inquire into
details. It is sufficient to say that the captain is required to take the necessary
steps to effect the adjustment, liquidation, and distribution of the general
average. In the case before us the captain of the vessel did not take those
steps; and we are of the opinion that the failure of the captain to take those
steps gave rise to a liability for which the owner of the ship must answer.
In considering the question now before us it is important to remember that
the owner of the ship ordinarily has vastly more capital embarked upon a
voyage than has any individual shipper of cargo. Moreover, the owner of the
ship, in the person of the captain, has complete and exclusive control of the
crew and of the navigation of the ship, as well as of the disposition of the
cargo at the end of the voyage. It is therefore proper that any person whose
property may have been cast overboard by order of the captain should have
a right of action directly against the ship's owner for the breach of any duty
which the law may have imposed on the captain with respect to such cargo.
To adopt the interpretation of the law for which the appellant contends would
place the shipowner in a position to escape all responsibility for a general
average of this character by means of the delinquency of his own captain.
This cannot be permitted. The evident intention of the Code, taken in all of its
provisions, is to place the primary liability upon the person who has actual
control over the conduct of the voyage and who has most capital embarked
in the venture, namely, the owner of the ship, leaving him to obtain recourse,
as it is very easy to do, from other individuals who have been drawn into the
venture as shippers.
RESPONSIBILITIES AND LIABILITIES
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YU CON V. IPIL
41 PHIL 770
FACTS:
The evidence shows that the plaintiff Yu Con, a merchant and a resident of
the town of San Nicolas, of the city of Cebu, engaged in the sale of cloth and
domestic articles and having a share in a shop, or small store, situated in the
town of Catmon, of said province, had several times chartered from the
defendant Narciso Lauron, a banca named Maria belonging to the latter, of
which Glicerio Ipil was master and Justo Solamo, supercargo, for the
transportation of certain merchandise and some money to and from the said
town and the port of Cebu, that, on or about the 17th of October, 1911, the
plaintiff chartered the said banca from the defendant Lauron for the
transportation of various merchandise from the port of Cebu to Catmon, at
the price of P45 for the round trip, which merchandise was loaded on board
the said craft which was then at anchor in front of one of the graded fills of
the wharf of said port; that in the afternoon of the following day, he delivered
to the other two defendants, Ipil, and Solamo, master and supercargo,
respectively, of the afore-named banca, the sum of P450, which was in a
trunk belonging to the plaintiff and was taken charge of by said two
defendants, who received this money from the plaintiff, for the purpose of its
delivery to the latter's shop in Catmon for the purchase of corn in this town;
that while the money was still in said truck abroad the vessel, on the night of
the said 18th of October, the time scheduled for the departure of the Maria
from the port of Cebu, said master and said supercargo transferred the P450
from the plaintiff's trunk, where it was, to theirs, which was in a stateroom of
the banca, from which stateroom both the trunk and the money disappeared
during that same night, and that the investigations, made to ascertain their
whereabouts, produced no result.
The facts are also admitted by the aforementioned master and supercargo,
two of the defendants, that they received from the plaintiff said P450, which
sum was in the latter's own trunk which was placed outside the stateroom of
the banca, for the reason, as they said, that there was no room for it inside
the stateroom; that these defendants therefore transferred said money to
their trunk, which was inside the stateroom, and that this trunk and the P450
therein contained disappeared from the boat during the night of that same
day; that said sum had not been found or returned to the plaintiff; that the
95
plaintiff, being on the banca in the afternoon of that day, when his trunk
containing the P450 was carried aboard, and seeing that said two
defendants, who had the key of the trunk, has removed said sum to their
trunk inside the stateroom, charged them to take special care of the money;
that the master Ipil assured the plaintiff that there was no danger of the
money being lost; and that, final, during the night in question, both the
master and the supercargo and four cabin-boys were aboard the banca.
HELD:
It is unquestionable that the defendants Glicerio Ipil and Justo Solamo were
the carriers of the said P450 belonging to the plaintiff, and that they received
this sum from the latter for the purpose of delivering it to the store of the
town of Catmon, to which it had been consigned. Under such circumstances,
said defendants were the depositaries of the money.
With respect to the other defendant, Narciso Lauron, as he was the owner of
the vessel in which the loss or misplacement of the P450 occurred, of which
vessel, as aforestated, Glicerio Ipil was master and Justo Solamo,
supercargo, both of whom were appointed to, or chosen for, the positions
they held, by the defendant himself, and, as the aforementioned sum was
delivered to the said master, Ipil, and the merchandise to be transported by
means of said vessel from the port of Cebu to the town of Catmon was laden
by virtue of a contract executed by and between the plaintiff and the owner
of the vessel, Narciso Lauron, it behooves us to examine whether the latter,
also, should be held to be liable, as requested by the plaintiff in his
complaint.
Said vessel was engaged in the transportation of merchandise by sea and
made voyages to and from the port of Cebu to Catmon, and had been
equipped and victualed for this purpose by its owner, Narciso Lauron, with
whom, as aforesaid, the plaintiff contracted for the transportation of the
merchandise which was to be carried, on the date hereinabove mentioned,
from the port of Cebu to the town of Catmon.
It is therefore evident that, in accordance with the provisions of the Code of
Commerce in force, which are applicable to the instance case, the defendant
Narciso Lauron, as the proprietor and owner of the craft of which Glicerio Ipil
was the master and in which, through the fault and negligence of the latter
and of the supercago Justo Solamo, there occurred the loss, theft, or
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robbery of the P450 that belonged to the plaintiff and were delivered to said
master and supercargo, a theft which, on the other hand, as shown by the
evidence, does not appear to have been committed by a person not
belonging to the craft, should, for said loss or theft, be held civilly liable to the
plaintiff, who executed with said defendant Lauron the contract for the
transportation of the merchandise and money aforementioned between the
port of Cebu and the town of Catmon, by means of the said craft.
91
limited to the res that is co-extensive with the interest of the

shipowner in the venture such that the shipowners interest consists
of the vessel and the vessel is lost, the liability of the shipowner to
that extent is completely extinguished
PARTIES IN A COMMERCIAL/MARITIME VENTURE
(Remember that these are conflicting interests)
MANILA STEAMSHIP V. ABDULHAMAN

100 PHIL 32
Ship
owner or
common
carrier
FACTS:
The M/V Consuelo V left the Zamboanga port in the evening of the relevant
date. Plaintiff and his family were passengers onboard. The ship was then
towing a kumpit, Sta. Maria Bay. The weather was good and fair. On the
same night, the M/V Bowline Knot was navigating the seas as well. A few
hours later, heavy rains poured in and the sea roared and appeared choppy.
The two vessels collided with one another which caused Consuelo to
capsized. Before this happened however, passengers found themselves
already swimming and floating on the crest of the waves, which resulted to
the death of 9 passengers.
HELD:
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 it exercised
due diligence in the selection and supervision of the vessels officers and
crew.
DOCTRINE OF LIMITED LIABILITY (synonymous to the REAL AND
HYPOTHECARY NATURE OF MARITIME LAW)
Art. 587. The agent shall also be civilly liable for the indemnities in favor of
third persons which arise from the conduct of the captain in the care of the
goods which the vessel carried; but he may exempt himself therefrom by
abandoning the vessel with all her equipments and the freight he may have
earned during the voyage.
NOTES:
The liability of the shipowner for the acts of the captain may be
92
MANILA STEAMSHIP V. ABDULHAMAN

Supra
HELD:
In fact, it is a general principle that shipowners and ship agents are civilly
liable for the acts of the captain and for indemnities due to third persons, so
that injured parties may immediately look for reimbursement to the owner of
the ship, it being universally recognized that the ship master or captain is
primarily the representative of the owner. This direct liability moderated
and limited by the owners right of abandonment of the vessel and
earned freight has been declared to exist not only in case of breached
contracts, but also in cases of tortuous negligence.
NOTES:
First in the series of cases decided by the Court in citing

exemptions to the doctrine of limited liability
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YANGCO V. LASERNA
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97
73 PHIL 330
FACTS:
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S.
Negros, belonging to petitioner here, Teodoro R. Yangco, left the port of
Romblon on its return trip to Manila. Typhoon signal No. 2 was then up, of
which fact the captain was duly advised and his attention thereto called by
the passengers themselves before the vessel set sail. The boat was
overloaded as indicated by the loadline which was 6 to 7 inches below the
surface of the water. Baggage, trunks and other equipments were heaped on
the upper deck, the hold being packed to capacity. In addition, the vessel
carried thirty sacks of crushed marble and about one hundred sacks of copra
and some lumber. The passengers, numbering about 180, were
overcrowded, the vessel's capacity being limited to only 123 passengers.
After two hours of sailing, the boat encountered strong winds and rough seas
between the islands of Banton and Simara, and as the waves splashed the
ladies' dresses, the awnings were lowered. As the sea became increasingly
violent, the captain ordered the vessel to turn left, evidently to return to port,
but in the manuever, the vessel was caught sidewise by a big wave which
caused it to capsize and sink. Many of the passengers died in the mishap.
HELD:
The provisions accords a shipowner or agent the right of abandonment; and
by necessary implication, his liability is confined to that which he is entitled
as of right to abandon "the vessel with all her equipments and the freight it
may have earned during the voyage." It is true that the article appears to
deal only with the limited liability of shipowners or agents for damages
arising from the misconduct of the captain in the care of the goods which the
vessel carries, but this is a mere deficiency of language and in no way
indicates the true extent of such liability. The consensus of authorities is to
the effect that notwithstanding the language of the aforequoted provision, the
benefit of limited liability therein provided for, applies in all cases wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts
of the captain.
In the light of all the foregoing, we therefore hold that if the shipowner or
agent may in any way be held civilly liable at all for injury to or death of
passengers arising from the negligence of the captain in cases of collisions
or shipwrecks, his liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. In arriving at this
conclusion, we have not been unmindful of the fact that the ill-fated
steamship Negros, as a vessel engaged in interisland trade, is a common
carrier, and that the as a vessel engaged in interisland trade, is a common
carrier, and that the relationship between the petitioner and the passengers
who died in the mishap rests on a contract of carriage. But assuming that
petitioner is liable for a breach of contract of carriage, the exclusively
"real and hypothecary nature" of maritime law operates to limit such
liability to the value of the vessel, or to the insurance thereon, if any. In
the instant case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the
instant case was in accordance with law of not, is immaterial. The vessel
having totally perished, any act of abandonment would be an idle ceremony.
94
ABUEG V. SAN DIEGO

77 PHIL 730
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.
HELD:
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 (Yangco vs. Laserna, 73 Phil., 330); 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
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extinguished.
The real and hypothecary nature of the liability of the shipowner or agent
embodied in the provisions of the Maritime Law, Book III, Code of
Commerce, had its origin in the prevailing continues of the maritime trade
and sea voyages during the medieval ages, attended by innumerable
hazards and perils. To offset against these adverse conditions and
encourage shipbuilding and maritime commerce, it was deemed necessary
to confine the liability of the owner or agent arising from the operation of a
ship to the vessel, equipment, and freight, or insurance, if any, so that if the
shipowner or agent abandoned the ship, equipment, and freight, his liability
was extinguished.
But 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 commerce. It
is an item in the cost of production which must be included in the budget of
any well-managed industry.
95
ABOITIZ SHIPPING V. GENERAL ACCIDENT FIRE AND LIFE

ASSURANCE CORPORATION
217 SCRA 359
FACTS:
Petitioner is a corporation organized and operating under Philippine laws
and engaged in the business of maritime trade as a carrier. As such, it
owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which
sank on a voyage from Hongkong to the Philippines on October 31, 1980.
Private respondent General Accident Fire and Life Assurance Corporation,
98
Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing

its remedies as a subrogee of several cargo consignees whose respective
cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for
recovery of lost cargo either by the shippers, their successor-in-interest, 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 force majeure and that subject vessel, at the time of the sinking
was seaworthy. This administrative finding notwithstanding, the trial court
found against the carrier on the basis that the loss subject matter therein did
not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC
was allowed to prove, and. was later awarded, its claim. This decision in
favor of GAFLAC was elevated all the way up to this Court with Aboitiz, like
its ill-fated vessel, encountering rough sailing. The attempted execution of
the judgment award in said case plus legal interest has given rise to the
instant petition.
On the other hand, other cases have resulted in findings upholding the
conclusion of the BMI that the vessel was seaworthy at the time of the
sinking, and that such sinking was due to force majeure.
HELD:
The real and hypothecary nature of maritime law simply means that the
liability of the carrier in connection with losses related to maritime
contracts is confined to the vessel, which is hypothecated for such
obligations or which stands as the guaranty for their settlement. It has
its origin by reason of the conditions and risks attending maritime trade in its
earliest years when such trade was replete with innumerable and unknown
hazards since vessels had to go through largely uncharted waters to ply their
trade. It was designed to offset such adverse conditions and to encourage
people and entities to venture into maritime commerce despite the risks and
the prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and
agent arising from the operation of such vessel were confined to the vessel
itself, its equipment, freight, and insurance, if any, which limitation served to
induce capitalists into effectively wagering their resources against the
consideration of the large profits attainable in the trade.
It might be noteworthy to add in passing that despite the modernization of
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99
the shipping industry and the development of high-technology safety devices

designed to reduce the risks therein, the limitation has not only persisted, but
is even practically absolute in well-developed maritime countries such as the
United States and England where it covers almost all maritime casualties.
Philippine maritime law is of Anglo-American extraction, and is governed by
adherence to both international maritime conventions and generally
accepted practices relative to maritime trade and travel.
existence and highly regarded.
In this jurisdiction, on the other hand, its application has been well-nigh
constricted by the very statute from which it originates. The Limited Liability
Rule in the Philippines is taken up in Book III of the Code of Commerce,
particularly in Articles 587, 590, and 837, hereunder quoted in toto:
The rights of a vessel owner or agent under the Limited Liability Rule
are akin to those of the rights of shareholders to limited liability under
our corporation law. Both are privileges granted by statute, and while not
absolute, must be swept aside only in the established existence of the most
compelling of reasons. In the absence of such reasons, this Court chooses
to exercise prudence and shall not sweep such rights aside on mere whim or
surmise, for even in the existence of cause to do so, such incursion is
definitely punitive in nature and must never be taken lightly.
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor
of third persons which may arise from the conduct of the captain in the care
of the goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all her equipment and the freight it
may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of
their interests in the common fund for the results of the acts of the captain
referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment,
before a notary, of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in
this section (on collisions), shall be understood as limited to the value of the
vessel with all its appurtenances and freightage served during the voyage.
(Emphasis supplied)
Taken together with related articles, the foregoing cover only liability for
injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions
(Art. 837).
In view of the foregoing, this Court shall not take the application of such
limited liability rule, which is a matter of near absolute application in other
jurisdictions, so lightly as to merely "imply" its inapplicability, because as
could be seen, the reasons for its being are still apparently much in
We now come to its applicability in the instant case. In the few

instances when the matter was considered by this Court, we have been
consistent in this jurisdiction in holding that the only time the Limited
Liability Rule does not apply is when there is an actual finding of
negligence on the part of the vessel owner or agent.
More to the point, the rights of parties to claim against an agent or

owner of a vessel may be compared to those of creditors against an
insolvent corporation whose assets are not enough to satisfy the
totality of claims as against it. While each individual creditor may, and
in fact shall, be allowed to prove the actual amounts of their respective
claims, this does not mean that they shall all be allowed to recover
fully thus favoring those who filed and proved their claims sooner to
the prejudice of those who come later. In such an instance, such creditors
too would not also be able to gain access to the assets of the individual
shareholders, but must limit their recovery to what is left in the name of the
corporation.
In both insolvency of a corporation and the sinking of a vessel, the claimants
or creditors are limited in their recovery to the remaining value of
accessible assets. In the case of an insolvent corporation, these are the
residual assets of the corporation left over from its operations. In the case of
a lost vessel, these are the insurance proceeds and pending freightage for
the particular voyage.
In the instant case, there is, therefore, a need to collate all claims
preparatory to their satisfaction from the insurance proceeds on the vessel
M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant
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100
can be given precedence over the others by the simple expedience of having
filed or completed its action earlier than the rest. Thus, execution of
judgment in earlier completed cases, even those already final and executory,
must be stayed pending completion of all cases occasioned by the subject
sinking. Then and only then can all such claims be simultaneously settled,
either completely or pro-rata should the insurance proceeds and freightage
be not enough to satisfy all claims.
attachment, without further requisites than the acknowledgement of the

signatures of the instrument approving the account.
CAPTAINS AND MASTERS
QUALIFICATIONS AND LICENSING
Republic Act 5173
SPECIFIC RIGHTS AND PREROGATIVES

Art. 575. Part owners of vessels shall enjoy the right of option of purchase
and withdrawal in sales made to other persons but they can only exercise it
within the nine days following the record of the sale in the registry and
paying cash.
Art. 593. The owners of the vessel shall have preference in her charter to
other persons, offering equal conditions and price. If two or more of the
former should claim said right the one having the greater interest shall be
preferred, and should they have an equal interest it shall be decided by lot.
Art. 594. The part owners shall elect the manager who is to represent them
in the capacity of agent.
The appointment of director or agent may be revoked at the will of the
members.
Art. 596. The agent may discharge the duties of captain of the vessel,
subject, in every case, to the provisions contained in article 600.
If two or more co-owners request the position of captain, the disagreement
shall be decided by a vote of the members; and if the vote should result in a
tie, the position shall be given to the part owner having the larger interest in
the vessel.
If the interest of the petitioners should be the same, and there should b a tie,
the matter shall be decided by lot.
Art. 601. Should there be any profits, the coowners may demand of the
managing agent the amount due them, by means of an action including
Section 3. Specific Functions. The Philippine Coast Guard shall perform the
following functions:
(a) To prevent and suppress illegal entry, smuggling, other customs frauds
and violations of other maritime laws that may be committed within the
waters subject to the jurisdiction of the Republic of the Philippines, and for
the purpose surveillance by the Philippine Coast Guard may be made on
vessels entering and/or leaving the Philippine territory;
(b) To assist in the suppression of fishing by means of dynamite, explosives
or toxic substances or other methods as may be declared destructive by
proper authorities;
(c) To promulgate and enforce rules for lights, signals, speed, steering,
sailing, passing, anchorage, movement and towlines of vessels and lights
and signals on bridges;
(d) To approve plans for the construction, repair, or alteration of vessels;
approve materials, equipment and appliances of vessels; approved the
classification of vessels; inspect vessels and their equipment and
appliances; register all types of motorized watercraft plying in Philippine
waters; issue certificates of inspection and of permits indicating the approval
of vessels for operation; issue certificates of Philippine registry of vessels;
administer load line requirements; promulgate and enforce other provisions
for the safety of life and property on vessels; and determine the numbering
of undocumented vessels: Provided, That certification and approval of any
plans, equipment and any vessel by internationally known classification
societies which are recognized by the Philippine Government shall be
deemed to have complied with this section;
(e) To issue licenses and certificates to officers, pilots, major and minor
patrons and seamen, as well as suspend and revoke such licenses and
certificates;
(f) To investigate marine casualties and disasters including those arising
from marine protests filed with the Bureau of Customs relative to the liability
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101
of shipowners and officers;

(g) To enforce laws, rules and regulations governing manning, citizenship
and mustering and drilling of crews requirements, control of logbooks,
shipment, discharge, protection, and welfare merchant seamen;
(h) To enforce laws requiring the performance of duties of shipowners and
officers after accidents;
(i) To prescribe and enforce regulations for outfitting and operation of
motorboats and the licensing of motorboat operators;
(j) To regulate regattas and marine parades;
(k) To render aid to distressed persons or vessels on the high seas and on
waters subject to the jurisdiction of the Philippines, and, in this connection,
the Philippine Coast Guard may perform any and all acts necessary to
rescue and aid persons; furnish clothing, food, lodging, medicine and other
necessary supplies and services to persons succored; protect, save, and
take charge of all property saved from marine disasters until such property is
delivered to persons authorized to receive it or is otherwise disposed of in
accordance with law or applicable regulations; and collect and take charge of
bodies of those who may perish in such disasters;
(l) To develop, establish, maintain, and operate aids to maritime navigation.
In the performance of these functions, the Philippine Coast Guard is
authorized to destroy or tow in port sunken of floating dangers to navigation;
(m) To supervise nautical schools with reference to activities relative to
navigation, seamanship, marine engineering and other allied matters, in
coordination with the Department of Education;
(n) To perform functions pertaining to maritime communications which are
not specifically delegated to some other office or department; and
(o) To assist, within its capabilities and upon request of the appropriate
authorities, other Government agencies in the performance of their functions,
within the waters subject to the jurisdiction of the Philippines, relating to
matters and activities not specifically mentioned in this section: Provided,
That in the exercise of these functions, personnel of the Philippine Coast
Guard shall be deemed to be acting as agents of the particular departments,
bureau, office, agency or instrumentality charged with the enforcement and
administration of the particular law. Members of the Philippine Coast Guard
are peace officers for all purposes of this Act and shall be, and shall act, as
law enforcement agents of the Bureau of Customs, and the Bureau of
Immigration, the Bureau of Internal Revenue, the Fisheries Commission, and
such other departments, bureaus or offices in the enforcement of pertinent
laws, rules and regulations.
Code of Commerce, art. 609. Captains and masters of vessels must be

(Spaniards) having legal capacity to bind themselves in accordance with this
Code, and must prove that they have the skill, capacity and conditions
required to command and direct the vessel, as established by marine laws,
ordinances, or regulations, or by those of navigation, and that they are
disqualified according to the same for the discharge of said position.
If the owner of a vessel desires to be captain thereof and doesnt have the
legal qualifications therefore, he shall limit himself to the financial
administration of the vessel, and shall entrust her navigation to the person
having the qualifications required by said ordinances and regulations.
POWERS AND DUTIES (CAN BE SECTIONED INTO THREEBEFORE
THE VOYAGE, DURING THE VOYAGE, AFTER THE VOYAGE)
622, 624, 625
Art. 610. The following powers are inherent in the position of captain or
master of a vessel:
(1) To appoint or make contracts with the crew in the absence of the
ship agent and propose said crew, should said agent be present;
but the agent may not employ any member against the captain's
express refusal.
(2) To command the crew and direct the vessel to the port to its
destination, in accordance with the instructions he may have
received from the ship agent.
(3) To impose, in accordance with the contracts and the laws and
regulations of the merchants marine, on board the vessel,
correctional punishment upon those who do not comply with his
orders or who conduct themselves against discipline, holding a
preliminary investigation on the crimes committed on board the
vessel on the high seas, which he shall turn over to the authorities,
who are to take cognizance thereof, at the first port touched.
(4) To make contracts for the charter of the vessel in the absence of
the shipagent or of the consignee, acting in accordance with the
instructions received and protecting the interests of the owner with
utmost care.
(5) To adopt all the measures which may be necessary to keep the
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vessel well supplied and equipped, purchasing all that may be

necessary for the purpose, provided there is no time to request
instructions of the agent.
(6) To provide in similar urgent cases and on a voyage, for the repairs
to the hull and engines of the vessel and to her rigging and
equipment which are absolutely necessary in order for her to be
able to continue and conclude her voyage; but if she should arrive
at a point where there is a consignee of the vessel, he shall act in
concurrence with the latter.
Art. 611. In order to comply with the obligations mentioned in the foregoing
article, and when he has no funds and does not expect to receive any from
the agent, the captain shall procure the same in the successive order stated
below:
(1) By requesting said funds of the consignees of the vessel or the
correspondents of the ship agent.
(2) By applying to the consignees of the cargo or to the persons
interested therein.
(3) By drawing on the ship agent.
(4) By borrowing the amount required by means of a bottomry loan.
(5) By selling a sufficient amount of the cargo to cover the amount
absolutely necessary to repair the vessel and to equip her to pursue
the voyage.
In the two last cases he must apply to the judicial authority of the port, if in
the Philippines and to the Filipino consul, if in a foreign country; and where
there should be none, to the local authority, proceeding in accordprovisions
of the law of civil procedure.
Art. 612. The following duties are inherent in the office of captain:
(1) To have on board before starting on a voyage a detailed inventory
of the hull, engines, rigging, tackle, stores, and other equipments of
the vessel; the navigation certificate; the roll of the persons who
make up the crew of the vessel, and the contracts entered into with
the crew; the list of passengers; the health certificate; the certificate
of the registry proving the ownership of the vessel; and all the
obligations which encumber the same up to that date; the charters
or authenticated copies thereof; the invoices or manifest of the
cargo, and the instrument of the expert visit or inspection, should it
102
have been made at the port of departure.

(2) To have a copy of this Code on board.
(3) To have three folioed and stamped books, placing at the beginning
of each one a note of the number of folios it contains, signed by the
marine official, and in his absence by the competent authority.
In the first book, which shall be called "log book," he shall enter every day
the condition of the atmosphere, the prevailing winds, the course sailed, the
rigging carried, the horsepower of the engines, the distance covered, the
maneuvers executed, and other incidents of navigation. He shall also enter
the damage suffered by the vessel in her hull engines, rigging, and tackle, no
matter what is its cause, as well as the imperfections and averages of the
cargo, and the effects and consequence of the jettison, should there be any;
and in cases of grave resolutions which require the advice or a meeting of
the officers of the vessel, or even of the passengers and crew, he shall
record the decision adopted. For the informations indicated he shall make
use of the binnacle book, and of the steam or engine book kept by the
engineer.
In the second book, called the "accounting book", he shall enter all the
amounts collected and paid for the account of the vessel, entering
specifically article by article, the sources of the collection, and the amounts
invested in provisions, repairs, acquisition of rigging or goods, fuel, outfits,
wages, and all other expenses. He shall furthermore enter therein a list of all
the members of the crew, stating their domiciles, their wages and salaries,
and the amounts they may have received on accounts, either directly or by
delivery to their families.
In the third book, called "freight book," he shall record the entry and exit of all
the goods, stating their marks and packages, names of the shippers and of
the consignees, ports of loading and unloading, and the freight earned. In
the same book he shall record the names and places of sailing of the
passengers and the number of packages of which their baggage consists,
and the price of the passage.
(4) To make, before receiving the freight, with the officers of the crew,
and the two experts, if required by the shippers and passengers, an
examination of the vessel, in order to ascertain whether she is
watertight, and whether the rigging and engines are in good
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condition; and if she has the equipment required for good

navigation, preserving a certificate of the memorandum of this
inspection, signed by all the persons who may have taken part
therein, under their liability.
The experts shall be appointed one by the captain of the vessel and the
other one by the persons who request the examination, and in case of
disagreement a third shall be appointed by the marine authority of the port.
(5) To remain constantly on board the vessel with the crew during the
time the freight is taken on board and carefully watch the stowage
thereof; not to consent to any merchandise or goods of a
dangerous character to be taken on, such as inflammable or
explosive substances, without the precautions which are
recommended for their packing, management and isolation; not to
permit that any freight be carried on deck which by reason of its
disposition, volume, or weight makes the work of the sailors difficult,
and which might endanger the safety of the vessel; and if, on
account of the nature of the merchandise, the special character of
the shipment, and principally the favorable season it takes place,
he allows merchandise to be carried on deck, he must hear the
opinion of the officers of the vessel, and have the consent of the
shippers and of the agent.
(6) To demand a pilot at the expense of the vessel whenever required
by navigation, and principally when a port, canal, or river, or a
roadstead or anchoring place is to be entered with which neither he,
the officers nor the crew are acquainted.
(7) To be on deck at the time of sighting land and to take command on
entering and leaving ports, canals, roadsteads, and rivers, unless
there is a pilot on board discharging his duties. He shall not spend
the night away from the vessel except for serious causes or by
reason of official business.
(8) To present himself, when making a port in distress, to the maritime
authority if in the Philippines and to the Filipino consul if in a
foreign country, before twenty-four hours have elapsed, and make a
statement of the name, registry, and port of departure of the vessel,
of its cargo, and reason of arrival, which declaration shall be vised
by the authority of by the consul if after examining the same it is
found to be acceptable, giving the captain the proper certificate in
103
order to show his arrival under stress and the reasons therefore. In
the absence of marine officials or of the consul, the declaration
must be made before the local authority.
(9) To take the steps necessary before the competent authority in order
to enter in the certificate of the vessel in the registry of the vessels,
the obligations which he may contract in accordance with Article
583.
(10) To put in a safe place and keep all the papers and belongings of
any members of the crew who might die on the vessel, drawing up
a detailed inventory, in the presence of passengers as witnesses,
and, in their absence, of members of the crew.
(11) To conduct himself according to the rules and precepts contained in
the instructions of the agent, being liable for all that he may do in
violation thereof.
(12) To give an account to the agent from the port where the vessel
arrives, of the reason therefore, taking advantage of the
semaphore, telegraph, mail, etc., according to the cases; notify him
the freight he may have received, stating the name and domicile of
the shippers, freight earned, and amounts borrowed on bottomry
bond, advise him of his departure, and give him any information
and date which may be of interest.
(13) To observe the rules on the situation of lights and evolutions to
prevent collisions.
(14) To remain on board in case of danger to the vessel, until all hope to
save her is lost, and before abandoning her to hear the officers of
the crew, abiding by the decision of the majority; and if he should
have to take a boat he shall take with him, before anything else, the
books and papers, and then the articles of most value, being
obliged to prove in case of the loss of the books and papers that he
did all he could to save them.
(15) In case of wreck he shall make the proper protest in due form at the
first port reached, before the competent authority or Filipino consul,
within twenty-four hours, stating therein all the incidents of the
wreck, in accordance with case 8 of this article.
(16) To comply with the obligations imposed by the laws and rules of
navigation, customs, health, and others.
Art. 622. If when on a voyage the captain should receive news of the
appearance of privateers or men of war against his flag, he shall be obliged
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to make the nearest neutral port, inform his agents or shippers, and await an
occasion to sail under convoy or until the danger is over or to receive final
orders from the ship agent or shippers.
to whom he is to make the legal delivery of the cargo, he shall place it at the
disposal of the proper judge or court or authority, in order that he may decide
with regard to its deposit, preservation, and custody.]
Art. 624. A captain whose vessel has gone through a hurricane or who
believes that the cargo has suffered damages or averages, shall make a
protest thereon before the competent authority at the first port he touches
within the twenty-four hours following his arrival, and shall ratify it within the
same period when he arrives at the place of his destination, immediately
proceeding with the proof of the facts, it not being permitted to open the
hatches until after this has been done.
A live coward is better than a dead hero.
The captain shall proceed in the same manner if, the vessel having been
wrecked, he is saved alone or with part of his crew, in which case he shall
appear before the nearest authority, and make a sworn statement of the
facts.
FACTS:
Tayong was employed on 6 July 1989 by petitioners as Master of the vessel
M/V Oceanic Mindoro, for a period of one (1) year, as evidenced by an
employment contract. He then assumed command of petitioners' vessel at
the port of Hongkong. His instructions were to replenish bunker and diesel
fuel, to sail forthwith to Richard Bay, South Africa, and there to load 120,000
metric tons of coal.
The authority or the consul abroad shall verify the said facts, receiving sworn
statements of the members of the crew and passengers who may have been
saved, and taking such other steps as may help in arriving at the facts, he
shall make a statement of the result of the proceedings in the log book and
in that of the sailing mate, and shall deliver the original records of the
proceedings to the captain, stamped and folioed, with a memorandum of the
folios, which he must rubricate, for their presentation to the judge or court of
the port of destination.
The statement of the captain shall be believed if it is in accordance with
those of the crew and passengers; if they disagreed, the latter shall be
accepted, unless there is proof to the contrary.
Art. 625. Upon arrival at the port of destination, the captain shall, under his
personal liability, turn over the cargo, without any defalcation, to the
consignees, and, in a proper case, the vessel, rigging, and freights to the
agent, after having obtained the necessary permission from the health and
customs officers and fulfilled the other formalities required by the regulations
of the administration.
[If, by reason of the absence of the consignee or on account of the
nonappearance of a legal holder of the invoices, the captain does not know
96
INTER ORIENT V. NLRC

235 SCRA 269
(Vessel #66)
While at the Port of Hongkong and in the process of unloading cargo,

Captain Tayong received a weather report that a storm code-named
"Gordon" would shortly hit Hongkong. Precautionary measures were taken to
secure the safety of the vessel, as well as its crew, considering that the
vessel's turbo-charger was leaking and the vessel was fourteen (14) years
old. During the course of the voyage, there was a reported leak in one of the
gas casings. Later, the economizer failed. He reported this to the owners
and reported the delay in the supply of the needed provisions. He also
conveyed his reservations on the continuation of the journey as for safety
reasons, the oxygen and acythelene supplies werent furnished yet. The
owner ordered to continue the journey, use the turbo boiler instead. Upon
arrival in the destination, Tayong was relieved of his duty and repatriated.
HELD:
The captain of a vessel is a confidential and managerial employee within the
meaning of the above doctrine. A master or captain, for purposes of maritime
commerce, is one who has command of a vessel. A captain commonly
performs three (3) distinct roles: (1) he is a general agent of the shipowner;
(2) he is also commander and technical director of the vessel; and (3) he is a
representative of the country under whose flag he navigates. Of these roles,
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by far the most important is the role performed by the captain as commander
of the vessel; for such role (which, to our mind, is analogous to that of "Chief
Executive Officer" [CEO] of a present-day corporate enterprise) has to do
with the operation and preservation of the vessel during its voyage and the
protection of the passengers (if any) and crew and cargo. In his role as
general agent of the shipowner, the captain has authority to sign bills of
lading, carry goods aboard and deal with the freight earned, agree upon
rates and decide whether to take cargo. The ship captain, as agent of the
shipowner, has legal authority to enter into contracts with respect to the
vessel and the trading of the vessel, subject to applicable limitations
established by statute, contract or instructions and regulations of the
shipowner. To the captain is committed the governance, care and
management of the vessel. Clearly, the captain is vested with both
management and fiduciary functions.
PROHIBITED ACTS AND TRANSACTIONS
Art. 613. A captain who navigates for freight in common or on shares may
not make any separate transaction for his own account, and should he do so
the profits shall belong to the other persons interested, and the losses shall
be borne by him alone.
charged to the private account of the captain, and the ship agent may
furthermore discharge him.
Art. 621. A captain who borrows money on the hull, engine, rigging, or
tackle of the vessel, or who pledges or sells merchandise or provisions
outside of the cases and without the formalities prescribed in this Code, shall
be liable for the principal, interest, and costs, and shall indemnify for the
damages he may cause.
He who commits fraud in his accounts shall reimburse the amount
defrauded, and shall be subject to the provisions of the Penal Code.
Art. 583. If the ship being on a voyage the captain should find it necessary
to contract one or more of the obligations mentioned in Nos. 8 and 9 of
Article 580, he shall apply to the judge or court if he is in Philippine territory,
and otherwise to the Filipino consul, should there be one, and in his absence
to the judge or court or to the proper local authority, presenting the certificate
of the registry of the vessel treated of in Article 612, and the instruments
proving the obligation contracted.
Art. 615. Without the consent of the ship agent, the captain may not have
himself substituted by another person; and should he do so, besides being
liable for all the acts of the substitute and bound to pay the indemnities
mentioned in the foregoing article, the substitute as well as the captain may
be discharged by the ship agent.
The judge or court, the consul or the local authority as the case may be in
view of the result of the proceedings instituted, shall make a temporary
memorandum in the certificate of their result, in order that it may be recorded
in the registry when the vessel returns to the port of her registry, or so that it
can be admitted as a legal and preferred obligation in case of sale before the
return, by reason of the sale of the vessel by virtue of a declaration of
unseaworthiness.
Art. 617. The captain may not contract loans on respondentia secured by
the cargo, and should he do so the contract shall be void.
The lack of this formality shall make the captain personally liable to the
creditors who may be prejudiced through his fault.
Neither may he borrow money on bottomry for his own transactions, except
on the portion of the vessel he owns, provided no money has been
previously borrowed on the whole vessel, and provided there does not exist
any other kind of lien or obligation chargeable against the vessel. When he
is permitted to do so, he must necessarily state what interest he has in the
vessel.
OTHER OFFICERS AND CREW
In case of violation of this article the principal, interest, and costs shall be
CONTRACTS AND FORMALITIES

Art. 634. The captain may make up his crew with the number he may
consider advisable, and in the absence of Filipino sailors he may ship
foreigners residing in the country, the number thereof not to exceed one-fifth
of the total crew. If in foreign ports the captain should not find a sufficient
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number of Filipino sailors, he may make up the crew with foreigners, with the
consent of the consul or marine authorities.
The agreements which the captain may make with the members of the crew
and others who go to make up the complement of the vessels, to which
reference is made in Article 612 (obligations inherent in the office of captain)
must be reduced to writing in the account book without the intervention of a
notary public or clerk of court, signed by the parties thereto, and vised by the
marine authority if they are executed in Filipino territory, or by the consuls or
consular agents of the Philippines if executed abroad, stating therein all the
obligations which each one contracts and all the rights they acquire, said
authorities taking care that these obligations and rights are recorded in a
concise and clear manner, which will not give rise to doubts or claims.
The captain shall take care to read to them the articles of this Code which
concern them, stating in the said document that they were read.
If the book includes the requisites prescribed in Article 612, and there should
not appear any signs of alterations in its entries, it shall be admitted as
evidence in questions which may arise between the captain and the crew
with regard to the agreements contained therein and the amounts paid on
account of the same.
Every member of the crew may demand of the captain a copy, signed by the
latter, of the agreement and of the liquidation of his wages, as they appear in
the book.
first bound himself or look for a person to substitute him at his expense. Said
sailor shall furthermore lose the wages earned on his first contract to the
benefit of the vessel for which he may have signed.
A captain who, knowing that a sailor is in the service of another vessel,
should have made a new agreement with him, without having requested the
permission referred to in the foregoing paragraphs, shall be personally liable
to the captain of the vessel to which the sailor first belonged for that part of
the indemnity, referred to in the third paragraph of this article, which the
sailor may not be able to pay.
RIGHTS
Art. 636. Should there be no fixed period for which a sailor has been
contracted, he cannot be discharged until the end of the return voyage to the
port where he enlisted.
Art. 637. Neither may the captain discharge a sailor during the time of his
contract except for just cause, the following being considered as such:
1. The perpetration of a crime which disturbs order on the vessel.
2. Repeated insubordination, want of discipline, or nonfulfillment of the
service.
3. Incapacity and repeated negligence in the fulfillment of the service which
he should render.
4. Habitual drunkenness.
5. Any occurrence which incapacitates the sailor to perform the work
entrusted to him, with the exception of that provided in Article 644.
DUTIES AND LIABILITIES

Art. 635. A sailor who has been contracted to serve on a vessel cannot
rescind his contract nor fail to comply therewith except by reason of a
legitimate impediment which may have occurred.
Neither can he pass from the service of one vessel to another without
obtaining the written consent of the vessel on which he may be.
If, without obtaining said permission, the sailor who has signed for one
vessel should sign for another one, the second contract shall be void, and
the captain may choose between forcing him to fulfill the service to which he
Art. 638. If, after the crew has been engaged, the voyage is revoked by the
will of the ship agent or of the charterers, before or after the vessel has put
to sea, or if the vessel is for the same reason given a different destination
from that fixed in the agreement with the crew, the latter shall be indemnified
on account of the rescission of the contract, according to the following cases:
(1) If the revocation of the voyage should be decided before departure
of the vessel from the port, each sailor engaged shall be given one
month's salary, besides what may be due him, in accordance with
his contract, for the services rendered to the vessel up to the date
of the revocation.
(2) If the agreement should have been for a fixed amount for the whole
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voyage, what may be due for said month and days shall be
determined in proportion to the approximate duration of the voyage,
in the judgment of the experts, in the manner established by the law
of civil procedure; and if the proposed voyage should be of such
short duration that it is calculated at approximately one month, the
indemnity shall be fixed at fifteen days, discounting in all cases the
sums advanced.
(3) If the revocation should take place after the vessel has put to sea,
the sailors engaged for a fixed amount for the voyage shall receive
the entire salary which may have been offered them if the voyage
had terminated; and those engaged by the month shall receive the
amount corresponding to the time they might have been on board
and to the time they may require to arrive at the port of destination,
the captain being obliged, furthermore, to pay said sailors in both
cases the passage to the said port or to the port of sailing of the
vessel, as may be convenient for them.
(4) If the ship agent or the charterers of the vessel should give it a
destination different from that fixed in the agreement, and the
members of the crew should not agree thereto, they shall be given
by way of indemnity half the amount fixed in the first case, in
addition to what may be due them for the part of the monthly wages
corresponding to the days which may have elapsed from the date of
their agreements.
If they accept the change, and the voyage, on account of greater distance or
of other reasons, should give rise to an increase of wages, the latter shall be
adjusted privately, or through friendly adjusters in case of disagreement.
Even if the voyage should be shortened to a nearer point, this shall not give
rise to a reduction in the wages agreed upon.
Should the revocation or change of the voyage originate from the shippers or
charterers, the ship agent shall have a right to demand of them the indemnity
which may be justly due.
Art. 639. Should the revocation of the voyage arise from a just cause
independent of the will of the ship agent and the charterers, and the vessel
should not have left the port, the members of the crew shall no other right
than to collect the wages earned up to the day the revocation was made.
107
Art. 640. The following shall be just causes for the revocation of the voyage:
(1) A declaration of war or interdiction of commerce with the power to
whose territory the vessel was bound.
(2) The blockade of the port of its destination or the breaking out of an
epidemic after the agreement.
(3) The prohibition to receive in said port the goods which make up the
cargo of the vessel.
(4) The detention or embargo of the same by order of the government,
or for any other reason independent of the will of the agent.
(5) The inability of the vessel to navigate.
Art. 641. If, after a voyage has been begun, and any of the first three causes
mentioned in the foregoing article should occur, the sailors shall be paid at
the port which the captain may deem advisable to make for the benefit of the
vessel and cargo, according to the time they may have served thereon; but if
the vessel is to continue its voyage, the captain and the crew may mutually
demand the enforcement of the contract.
In case of the occurrence of the fourth cause, the crew shall continue to be
paid half wages, if the agreement is by month; but if the detention should
exceed three months, the contract shall be rescinded and the crew shall be
paid what they should have earned according to the contact, as if the voyage
had been made. And if the agreement should be for a fixed sum for the
voyage, the contract must be complied with in the terms agreed upon.
In the fifth case, the crew shall have no other right than to collect the wages
earned; but if the disability of the vessel should have been caused by the
negligence or lack of skill of the captain, engineer, or sailing mate, they shall
indemnify the crew for the damages suffered, always without prejudice to the
criminal liability which may be proper.
Art. 642. If the crew has been engaged on shares it shall not be entitled, by
reason of the revocation, delay, or greater extension of the voyage, to
anything but the proportionate part of the indemnity which may be paid to the
common funds by the persons responsible for said occurrences.
Art. 643. If the vessel and her cargo should be totally lost by reason of
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capture or shipwreck, all rights shall be extinguished, both as regards the

right of the crew to demand any wages and as regards the right of the ship
agent to recover the advances made.
If a portion of the vessel or of the cargo, or of both, should be saved, the
crew engaged on wages, including the captain, shall retain their rights on the
salvage, as far as possible, on the remainder of the vessel as well as on the
value of the freightage or the cargo saved; but sailors who are engaged on
shares shall have no right on the salvage of the hull, but only on the portion
of the freightage saved. (If they should have worked to recover the
remainder of the shipwrecked vessel, they shall be given from the amount of
the salvage an award in proportion to the efforts made and to the risks
encountered in order to accomplish the salvage.)
Art. 644. A sailor who falls sick shall not lose his right to wages during the
voyage, unless his sickness is the result of his own fault. At any rate, the
costs of medical attendance and treatment shall be defrayed from the
common funds, in the form of a loan.
If the sickness should be caused by an injury received in the service or
defense of the vessel, the sailor shall be attended and treated at the
expense of the common funds, deducting, before anything else, from the
proceeds of the freightage, the cost of the attendance and treatment.
Art. 645. If a sailor should die during the voyage, his heirs shall be given the
wages earned and not received, according to his contract and the cause of
his death, namely ---
If death occurred in the defense of the vessel, the sailor shall be considered
as living, and his heirs shall be paid, at the end of the voyage, the full
amount of wages or the entire part of the profits which may be due him as
others of his class.
The sailor shall likewise be considered as present if he was captured while
defending the vessel, in order to enjoy the benefits as the rest; but should he
have been captured on account of carelessness or other accident not related
to the service, he shall only receive the wages due up to the day of his
capture.
Art. 646. The vessel with her engines, rigging, equipment, and freightage
shall be liable for the wages earned by the crew engaged per month or for
the trip, the liquidation and payment to take place between one voyage and
the other. After a new voyage has been undertaken, credits of such kind
pertaining to the preceding voyage shall lose the preference.
Art. 647. The officers and the crew of the vessel shall be exempted from all
obligations contracted, if they deem if proper, in the following cases;
(1) If, before the beginning of the voyage, the captain attempts to
change it, or there occurs a naval war with the power to which the
vessel was destined.
(2) If a disease should break out and be officially declared epidemic in
the port of destination.
(3) If the vessel should change owner or captain.
SUPERCARGOES
If he died a natural death and was engaged on wages, that which may have
been earned up to the date of his death shall be paid.
If the contract was for a fixed sum for the whole voyage, half the amount
earned shall be paid if the sailor died on the voyage out, and the whole
amount if he died on the return voyage.
And if the contract was on shares and the death occurred after the voyage
was begun, the heirs shall be paid the entire portion due the sailor; but if the
latter died before the departure of the vessel from the port, the heirs shall not
be entitled to claim anything.
Art. 649.
Supercargoes shall discharge on board the vessel the
administrative duties which the agent or shippers may have assigned them;
they shall keep an account and record of their transactions in a book which
shall have the same conditions and requisites as required for the accounting
book of the captain, and shall respect the latter in his duties as chief of the
vessel.
The powers and liabilities of the captain shall cease, when there is a
supercargo, with regard to that part of the administration legitimately
conferred upon the latter, but shall continue in force for all acts which are
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inseparable from his authority and office.

Art. 650. All the provisions contained in the second section of Title III, Book
II, with regard to qualifications, manner of making contracts, and liabilities of
factors shall be applicable to supercargoes.
Art. 651. Supercargoes cannot, without special authorization or agreement,
make any transaction for their own account during the voyage, with the
exception of the ventures which, in accordance with the custom of the port of
destination, they are permitted to do.
Art. 808. Averages shall be:

1. Simple or particular.
2. General or gross.
WHY IS AVERAGE IMPORTANT?
It is a commercial venture
And if there is damage incurred, naturally one would look for

another to shoulder the costs
There is an interest to recover costs which may have been incurred

as expense or damage
Neither shall they be permitted to invest in the return trip more than the
profits from the ventures, unless there is a special authorization therefor from
the principals.
Expense
Average
ACCIDENTS AND DAMAGES IN MARITIME COMMERCE
Damage
AVERAGES
NATURE AND KINDS
Art. 806. For the purposes of this Code the following shall be considered
averages:
(1) All extraordinary or accidental expenses which may be incurred
during the voyage for the preservation of the vessel or cargo, or
both.
(2) All damages or deterioration which the vessel may suffer from the
time it puts to sea at the port of departure until it casts anchor at the
port of destination, and those suffered by the merchandise from the
time they are loaded in the port of shipment until they are unloaded
in the port of their consignment.
Art. 807. The petty and ordinary expenses incident to navigation, such as
those of pilotage of coasts and ports, lighterage and towage, anchorage,
inspection, health, quarantine lazaretto, and other so-called port expenses,
costs of barges, and unloading, until the merchandise is placed on the wharf,
and other usual expenses of navigation shall be considered ordinary
expenses to be defrayed by the shipowner, unless there is an express
agreement to the contrary.
PARTICULAR AVERAGE
Any partial loss caused by the peril insured against which isnt a
general average
Insurer is liable for a particular average unless the policy excludes it
When it has been stipulated that the insurance shall not cover
particular average, the marine insurance is not liabile for any
particular average loss which doesn't deprive the insured of the
possession, at the point of destination, of the whole of such thing,
or class of things even though it becomes entirely worthless, but
such insurer is liable for the proportion of all general average loss
assessed upon the thing insured, even in the absence of any
agreement to that effect
Art. 809. As a general rule, simple or particular averages include all the
expenses and damages caused to the vessel or to her cargo which have not
inured to the common benefit and profit of all the persons interested in the
vessel and her cargo, especially the following:
(1) The losses suffered by the cargo from the time of its embarkation
until it is unloaded, either on account of the inherent defect of the
goods or by reason of a marine accident or force majeure, and the
expenses incurred to avoid and repair the same.
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(2) The losses and expenses suffered by the vessel in its hull, rigging,
arms, and equipments, for the same causes and reasons, from the
time it puts to sea from the port of departure until it anchors in the
port of destination.
(3) The losses suffered by the merchandise loaded on deck, except in
coastwise navigation, if the marine ordinances allow it.
(4) The wages and victuals of the crew when the vessel is detained or
embargoed by a legitimate order or force majeure, if the charter has
been contracted for a fixed sum for the voyage.
(5) The necessary expenses on arrival at port, in order to make repairs
or secure provisions.
(6) The lowest value of the goods sold by the captain in arrivals under
stress for the payment of provisions and to save the crew, to meet
any other need of the vessel against which the proper amount shall
be charged.
(7) The victuals and wages of the crew while the vessel is in
quarantine.
(8) The loss inflicted upon the vessel or cargo by reason of an impact
or collision with another, if it is accidental and unavoidable. If the
accident should occur through the fault or negligence of the captain,
the latter shall be liable for all the damage caused.
(9) Any loss suffered by the cargo through the faults, negligence, or
barratry of the captain or of the crew, without prejudice to the right
of tindemnity from the captain, the vessel, and the freight.
Art. 810. The owner of the goods which gave rise to the expense or suffered
the damage shall bear the simple or particular averages.
GENERAL AVERAGE
Includes all damages and expenses which are deliberately caused

in order to save the vessel, its cargo, both at the same time, for a
real and known risk
Gives rise to a right of the owner to contribution from those

benefited thereby or if he is insured, he has the alternative of
seeking indemnity from his insurer, surrogating the latter to his right
of contribution
However if the owner neglects or waives his right to such

contribution, he loses his alternative
110
Art. 811. As a general rule, general or gross averages shall include all the
damages and expenses which are deliberately caused in order to save the
vessel, its cargo, or both at the same time, from a real and known risk, and
particularly the following:
(1) The goods or cash invested in the redemption of the vessel or of
the cargo captured by enemies, privateers, or pirates, and the
provisions, wages, and expenses of the vessel detained during the
time the settlement or redemption is being made.
(2) The goods jettisoned to lighten the vessel, whether they belong to
the cargo, to the vessel, or to the crew, and the damage suffered
through said act by the goods which are kept on board.
(3) The cables and masts which are cut or rendered useless, the
anchors and the chains which are abandoned, in order to save the
cargo, the vessel, or both.
(4) The expenses of removing or transferring a portion of the cargo in
order to lighten the vessel and place it in condition to enter a port or
roadstead, and the damage resulting therefrom to the goods
removed or transferred.
(5) The damage suffered by the goods of the cargo by the opening
made in the vessel in order to drain it and prevent its sinking.
(6) The expenses caused in order to float a vessel intentionally
stranded for the purpose of saving it.
(7) The damage caused to the vessel which had to be opened, scuttled
or broken in order to save the cargo.
(8) The expenses for the treatment and subsistence of the members of
the crew who may have been wounded or crippled in defending or
saving the vessel.
(9) The wages of any member of the crew held as hostage by enemies,
privateers, or pirates, and the necessary expenses which he may
incur in his imprisonment, until he is returned to the vessel or to his
domicile, should he prefer it.
(10) The wages and victuals of the crew of a vessel chartered by the
month, during the time that it is embargoed or detained by force
majeure or by order of the Government, or in order to repair the
damage caused for the common benefit.
(11) The depreciation resulting in the value of the goods sold at arrivals
under stress in order to repair the vessel by reason of gross
average.
(12) The expenses of the liquidation of the average.
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Art. 817. If in the lightening a vessel on account of a storm, in order to

facilitate its entry into a port or roadstead, part of her cargo should be
transferred to lighters or barges and be lost, the owner of said part shall be
entitled to indemnity, as if the loss had originated from a gross average, the
amount thereof being distributed between the vessel and cargo from which it
came.
In the first case the minutes shall be signed by all the persons present who
could do so before taking action, if possible; and if not, at the first
opportunity. In the second case, it shall be signed by the captain and by the
officers of the vessel.
If, on the contrary, the merchandise transferred should be saved and the
vessel should be lost, no liability may be demanded of the salvage.
In the minutes, and after the resolution, shall be stated in detail all the goods
jettisoned, and mention shall be made of the injuries caused to those kept on
board. The captain shall be obliged to deliver one copy of these minutes to
the maritime judicial authority of the first port he may make, within twentyfour hours after his arrival, and to ratify it immediately under oath.
Art. 818. If, as a necessary measure to extinguish a fire in port, roadstead,

creek, or bay, it should be decided to sink any vessel, this loss shall be
considered gross average, to which the vessels saved shall contribute.
Art. 860. If, notwithstanding the jettison of the merchandise, breakage of

masts, ropes, and equipment, the vessel should be lost running same risk,
no contribution whatsoever by reason of gross average shall be proper.
Art. 813. In order to incur the expenses and cause the damages
corresponding to gross average, there must be a resolution of the captain,
adopted after deliberation with the sailing mate and other officers of the
vessel, and after hearing the persons interested in the cargo who may be
present.
The owners of the goods saved shall not be liable for the indemnification of
those jettisoned, lost or damaged.
Note: it is only here that there can be reimbursement.
97
If the latter should object, and the captain and officers or a majority of them,
or the captain, if opposed to the majority, should consider certain measures
necessary, they may be executed under his responsibility, without prejudice
to the right of the shippers to proceed against the captain before the
competent judge or court, if they can prove that he acted with malice, lack of
skill, or negligence.
If the persons interested in the cargo, being on board the vessel, have not
been heard, they shall not contribute to the gross average, their share being
chargeable against the captain, unless the urgency of the case should be
such that the time necessary for previous deliberation was wanting.
Art. 814. The resolution adopted to cause the damages which constitute
general average must necessarily be entered in the log book, stating the
motives and reasons on which it is based, the votes against it and the
reason for the dissent, should there be any, and the irresistible and urgent
causes which impelled the captain if he acted of his own accord.
MAGSAYSAY V. AGAN
96 PHIL 504
HELD:
In classifying averages into simple or particular and general or gross and
defining each class, the Code of Commerce at the same time enumerate
certain specific cases as coming specially under one or the other class.
While the expenses incurred in putting the vessel afloat may well come
under No. 2 of Art. 809 - referring to expenses suffered by the vessel due to
an accident of the sea or force majeure- said expenses do not fit into any of
the specific cases of general average enumerated in ART.
811. No. 6 of Art. 811 mentions expenses caused to afloat a vessel, but it
specifically refers to a vessel intentionally stranded for the purpose of saving
it, and would have no application where the stranding was unintentional.
The following are the requisites for a general average: 1) there must be
common danger, 2) for the common safety part of the vessel or cargo or
both is sacrificed deliberately, 3) from the expenses or damages caused
follows the successful saving of the vessel and cargo, and 4) the expenses
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112
or damages should have been incurred or inflicted after taking the proper
legal steps and authority. It is the deliverance from an immediate peril, by
reason of a common sacrifice, that constitutes the essence of a general
average. Where there is no proof that the stranded vessel had to be put
afloat to save it from imminent danger, and what does appear is that the
vessel had to be salvaged in order to enable it to proceed to its port of
destination, the expenses incurred in floating the vessel do not constitute
general average. It is the safety of the property, and not of the voyage which
constitutes the true foundation of general average.
The expenses incurred for the common safety of the vessel and cargo in this
case did not arise from the imminent peril of both. The cargo could have
been unloaded by the owners had they been required to do so. The
refloating was a success, but as the sacrifice was for the vessel's benefit -to enable it to proceed to its destination -- and not for the purpose of saving
the cargo, the cargo owners are not in law bound to contribute to expenses.
The final requisite has not been proved for it does not appear that the
expenses in question were incurred after following the procedure laid down
in Art. 913.
EFFECTS
Art. 812. In order to satisfy the amount of the gross or general averages, all
the persons having an interest in the vessel and cargo therein at the time of
the occurrence of the average shall contribute.
necessary in so far as the cargo is concerned that their existence on board

be proven by means of the bill of lading; and with regard to those belonging
to the vessel, by means of the inventory prepared before the departure, in
accordance with the first paragraph of Article 612.
JASON CLAUSES
(SEE YORK-ANTWERP RULES, RULE D)
In the event of accident, danger, damage or disaster before or after the
commencement of the voyage, resulting from any cause whatsoever,
whether due to negligence or not, for which, or for the consequence of
which, the carrier is not responsible, by statute, contract or otherwise, the
goods, shippers, consignees or owners of the goods shall contribute with the
carrier in general average to the payment of any sacrifices, losses or
expenses of a general average nature that may be made or incurred and
shall pay salvage and special charges incurred in respect of the goods.
If a salving ship is owned or operated by the carrier, salvage shall be paid for
as fully as if the said salving ship or ships belonged to strangers. Such
deposit as the carrier or his agents may deem sufficient to cover the
estimated contribution of the goods and any salvage and special charges
thereon shall, if required, be made by the goods, shippers, consignees or
owners of the goods to the carrier before delivery.
PROOF AND LIQUIDATION OF AVERAGES
JETTISON
MODES
Art. 815. The captain shall direct the jettison, and shall order the goods cast
overboard in the following order:
(1) Those which are on deck, beginning with those which embarrass
the maneuver or damage the vessel, preferring, if possible, the
heaviest ones with the least utility and value.
(2) Those which are below the upper deck, always beginning with
those of the greatest weight and smallest value, to the amount and
number absolutely indispensable.
Art. 846. Those interested in the proof and liquidation of averages may
mutually agree and bind themselves at any time with regard to the liability,
liquidation and payment thereof.
Art. 816. In order that the goods jettisoned may be included in the gross
average and the owners thereof be entitled to indemnity, it shall be
In the absence of agreements, the following rules shall be observed:

(1) The proof of the average shall take place in the port where the
repairs are made, should any be necessary, or in the port of
unloading.
(2) The liquidation shall be made in the port of unloading, if it is a
Philippine port.
(3) If the average occurred outside of the jurisdictional waters of the
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Philippines, or the cargo has been sold in a foreign port by reason

of an arrival under stress, the liquidation shall be made in the port
of arrival.
(4) If the average has occurred near the port of destination, so that said
port can be made, the proceedings mentioned in rules 1 and 2 shall
be held there.
Art. 847. In the case where the liquidation of the averages is made privately
by virtue of agreement, as well as when a judicial authority intervenes at the
request of any of the parties interested who do not agree thereto, all of them
shall be cited and heard, should they not have renounced this right.
Should they not be present or should they have no legal representative, the
liquidation shall be made by the consul in a foreign port, and where there is
none, by the competent judge or court, according to the laws of the country
and for the account of the proper party.
When the representative is a person well known in the place where the
liquidation is made, his intervention shall be admitted and shall produce legal
effects, even though he be authorized only by a letter of the ship agent, the
shipper, or the insurer.
Art. 848. Claims for averages shall not be admitted if they do not exceed 5
per cent of the interest which the claimant may have in the vessel or in the
cargo if it be gross average, and 1 per cent of the goods damaged if
particular average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary.
APPRAISAL OF GENERAL AVERAGE
Art. 850. If by reason of one or more accidents of the sea, particular and
gross averages of the vessel, of the cargo, or of both, should take place on
the same voyage, the expenses and damages corresponding to each
average shall be determined separately in the port where the repairs are
made, or where the merchandise is discharged, sold, or utilized.
For this purpose the captains shall be obliged to demand of the expert
appraisers and of the contractors making the repairs, as well as of those
appraising and taking part in the unloading, repair, sale, or utilization of the
113
merchandise, that in their appraisements or estimates and accounts they set

down separately and accurately the expenses and damages pertaining to
each average, and in those of each average those corresponding to the
vessel and to the cargo, also stating separately whether or not there are
damages proceeding from inherent defect of the thing and not from accident
of the sea; and in case there should be expenses common to the different
averages and to the vessel and its cargo, the amount corresponding to each
must be estimated and stated distinctly.
Art. 851. At the instance of the captain, the adjustment, liquidation, and
distribution of gross averages shall be held privately, with the consent of all
the parties in interest.
For this purpose, within forty-eight hours, following the arrival of the vessel at
the port, the captain shall convene all the persons interested in order that
they may decide as to whether the adjustment or liquidation of the gross
average is to be made by experts and liquidators appointed by themselves,
in which case did shall be so done if the interested parties agree. If an
agreement is not possible, the captain shall apply to the competent judge or
court, who shall be the one in the port where these proceedings are to be
held in accordance with the provisions of this Code, or to the consul of the
Philippines should there be one, and should there be none, to the local
authority when they are to be held in a foreign port.
Art. 852. If the captain does not comply with the provisions of the preceding
article, the ship agent or the shippers shall demand the liquidation, without
prejudice to the action they may bring to demand indemnity from him.
Art. 853. After the experts have been appointed by the persons interested,
or by the court, and after the acceptance, they shall proceed to the
examination of the vessel and of the repairs required and to the appraisal of
their cost, separating these losses and damages from those arising from the
inherent defect of the things.
The experts shall also declare whether the repairs may be made
immediately, or whether it is necessary to unload the vessel in order to e
examine and repair it.
With regard to the merchandise, if the average should be visible at a mere
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glance, the examination thereof must be made before they are delivered.
Should it not be visible at the time of unloading, said examination may be
made after the delivery, provided that it is done within forty-eight hours from
the unloading, and without prejudice to the other proofs which the experts
may deem proper.
Art. 854. The valuation of the objects which are to contribute to the gross
average, and that of those which constitute the average, shall be subject to
the following rules:
1. The merchandise saved which is to contribute to the payment of the
gross average shall be valued at the current price at the port of unloading,
deducting the freightage, customs duties, and expenses of unloading, as
may appear from a material inspection of the same, without taking the bills of
lading into consideration, unless there is an agreement to the contrary.
2. If the liquidation is to be made in the port of departure, the value of the
merchandise loaded shall be determined by the purchase price, including the
expenses until they are placed on board, the insurance premium excluded.
3. If the merchandise should be damaged, it shall be appraised at its true
value.
4. If the voyage having been interrupted, the merchandise should have
been sold in a foreign port, and the average cannot be estimated, the value
of the merchandise in the port of arrival, or the net proceeds obtained at the
sale thereof, shall be taken as the contributing capital.
5. Merchandise lost, which constitutes the gross average, shall be
appraised at the value which merchandise of its kind may have in the port of
unloading, provided that its kind and quality appear in the bill of lading; and
should they not appear, the value shall be that stated in the invoices of the
purchase issued in the port of shipment, adding thereto the expenses and
freightage subsequently arising.
6. The masts cut down, the sails, cables, and other equipment of the vessel
rendered useless for the purpose of saving it, shall be appraised at the
current value, deducting one-third by reason of the difference between new
and old.
This deduction shall not be made with respect to anchors and chains.
7. The vessel shall be appraised at its true value in the condition in which it
is found.
8. The freightage shall represent 50 per cent by way of contributing capital.

Art. 855. The merchandise loaded on the upper deck of the vessel shall
contribute to the gross average should it be saved; but there shall be no right
to indemnify if it should be lost by reason of having been jettisoned for
common safety, except when the marine ordinances allow its shipment in
this manner in coastwise navigation.
The same shall take place with that which is on board and is not included in
the bills of lading or inventories, according to the cases.
In any case the shipowner and the captain shall be liable to the shippers for
the damages from the jettison, if the storage on the upper deck was made
without the consent of the latter.
Art. 857. After the appraisement of the goods saved and of those lost which
constitute the gross average, has been concluded by the experts, the
repairs, if any, made on the vessel, and, in this case, the accounts of the
same approved by the persons interested or by the judge or court, the entire
record shall be turned over to the liquidator appointed, in order that he may
proceed with the distribution of the average.
LIQUIDATION OF GENERAL AVERAGE, 858, 865 TO 869
Art. 858. In order to effect the liquidation, the liquidator shall examine the
protest of the captain, comparing it, if necessary, with the log book, and all
the contracts which may have been made among the persons interested in
the average, the appraisements, expert examinations, and accounts of
repairs made. If, as a result of this examination, he should find any defect in
the procedure which might injure the rights of the persons interested or affect
the liability of the captain, he shall call attention thereto in order that it may
be corrected, if possible, and otherwise he shall include it in the exordial of
the liquidation. Immediately thereafter he shall proceed with the distribution
of the amount of the average, for which purpose he shall fix:
(1) The contributing capital, which he shall determine by the value of
the cargo, in accordance with the rules established in Article 854.
(2) That of the vessel in its actual condition, according to a statement
of experts.
(3) The 50 per cent of the amount of the freightage, deducting the
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remaining 50 per cent for wages and maintenance of the crew.

After the amount of the gross average has been determined in accordance
with the provisions of this Code, it shall be distributed pro rata among the
goods which are to cover the same.
Art. 865. The distribution of the gross average shall not be final until it has
been agreed to, or in the absence thereof, until it has been approved by the
judge or court, after an examination of the liquidation and a hearing of the
persons interested who may be present or of their representatives.
Art. 866. After the liquidation has been approved, it shall be the duty of the
captain to collect the amount of the contribution, and he shall be liable to the
owners of the goods averaged for the damages they may suffer through his
delay or negligence.
Art. 867. If the persons contributing should not pay the amount of the
contribution at the end of the third day after having been required to do so,
the goods saved shall be proceeded against, at the request of the captain,
until payment has been made from their proceeds.
Art. 868. If the person interested in receiving the goods saved should not
give security sufficient to answer for the amount corresponding to the gross
average, the captain may defer the delivery thereof until payment has been
made.
LIQUIDATION OF PARTICULAR AVERAGE, 869
Art. 869. The experts whom the court or the persons interested may
appoint, as the case may be, shall proceed with the examination and
appraisement of the averages in the manner prescribed in Articles 853 and
854, Rules 2 to 7, in so far as they are applicable.
ARRIVALS UNDER STRESS
provisions, well-founded fear of seizure, privateers, or pirates, or by reason

of any accident of the sea disabling it to navigate, he shall assemble the
officers and shall summon the persons interested in the cargo who may be
present, and who may attend the meeting without the right to vote; and if,
after examining the circumstances of the case, the reason should be
considered well-founded, the arrival at the nearest and most convenient port
shall be agreed upon, drafting and entering the proper minutes, which shall
be signed by all, in the log book.
The captain shall have the deciding vote, and the persons interested in the
cargo may make the objections and protests they may deem proper, which
shall be entered in the minutes in order that they may make use thereof in
the manner they may consider advisable.
Art. 820. An arrival shall not be considered lawful in the following cases:
1. If the lack of provisions should arise from the failure to take the
necessary provisions for the voyage according to usage and custom, or if
they should have been rendered useless or lost through bad stowage or
negligence in their care.
2. If the risk of enemies, privateers, or pirates should not have been well
known, manifest, and based on positive and provable facts.
3. If the defector the vessel should have arisen from the fact that it was not
repaired, rigged, equipped, and prepared in a manner suitable for the
voyage, or from some erroneous order of the captain.
4. Whenever malice, negligence, want of foresight, or lack of skill on the
part of the captain exists in the act causing the damage.
FORMALITIES
Art. 822. If in order to make repairs to the vessel or because there is danger
that the cargo may suffer damage, it should be necessary to unload, the
captain must request authorization from the competent judge or court for the
removal, and carry it out with the knowledge of the person interested in the
cargo, or his representative, should there be any.
CAUSES
In a foreign port, it shall be the duty of the Filipino consul, where there is
one, to give the authorization.
Art. 819. If during the voyage the captain should believe that the vessel
cannot continue the trip to the port of destination on account of the lack of
In the first case, the expenses shall be for the account of the ship agent or
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owner, and in the second, they shall be chargeable against the owners of the
merchandise for whose benefit the act was performed.
If the unloading should take place for both reasons, the expenses shall be
divided proportionately between the value of the vessel and that of the
cargo.
If the cause of the arrival should have been the fear of enemies, privateers,
or pirates, a deliberation and resolution in a meeting of the officers of the
vessel and persons interested in the cargo who may be present, in
accordance with the provisions contained in Article 819, shall precede the
departure.
EXPENSES
COLLISION
Art. 821. The expenses of an arrival under stress shall always be for the
account of the shipowner or agent, but they shall not be liable for the
damages which may be caused the shippers by reason of the arrival,
provided the latter is legitimate.
COLLISION, DEFINITION
Impact of two vessels both of which are moving

COMPARED WITH ALLISION
Striking of a moving vessel against one that is stationary
Otherwise, the ship agent and the captain shall be jointly liable.
Art. 822, supra.
RESPONSIBILITIES OF CAPTAIN
Art. 823. The custody and preservation of the cargo which has been
unloaded shall be entrusted to the captain, who shall be responsible for the
same, except in cases of force majeure.
Art. 824. If the entire cargo or part thereof should appear to be damaged, or
there should be imminent danger of its being damaged, the captain may
request of the competent judge or court, or of the consul in a proper case,
the sale of all or of part of the former, and the person taking cognizance of
the matter shall authorize it, after an examination and declaration of experts,
advertisements, and other formalities required by the case, and an entry in
the book, in accordance with the provisions of Article 624.
The captain shall, in a proper case, justify the legality of his conduct, under
the penalty of answering to the shipper for the price the merchandise would
have brought if it had arrived in good condition at the port of destination.
Art. 825. The captain shall be responsible for the damages caused by his
delay, if after the cause of the arrival under stress has ceased, he should not
continue the voyage.
CLASSES AND EFFECTS

(1) Fortuitous/force majeure
Art. 830. If a vessel should collide with another through fortuitous event or
force majeure, each vessel and its cargo shall bear its own damages.
Art. 832. If, by reasons of a storm or other cause of force majeure, a vessel
which is properly anchored and moored should collide with those nearby,
causing them damages, the injury occasioned shall be considered as
particular average of the vessel run into.
(2) Culpable
Art. 826. If a vessel should collide with another, through the fault,
negligence, or lack of skill of the captain, sailing mate, or any other member
of the complement, the owner of the vessel at fault shall indemnify the losses
and damages suffered, after an expert appraisal.
Art. 827. If the collision is imputable to both vessels, each one shall suffer
its own damages, and both shall be solidarily responsible for the losses and
damages occasioned to their cargoes.
Art.831. If a vessel should be forced by a third vessel to collide with another,
the owner of the third vessel shall indemnify the losses and damages
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caused, the captain thereof being civilly liable to said owner.

(3) Inscrutable fault
Art. 828. The provisions of the preceding article are applicable to the case in
which it cannot be determined which of the two vessels has caused the
collision.
PRESUMPTION OF LOSS BY COLLISION
Art.833. A vessel which, upon being run into, sinks immediately, as well as
that which, having been obliged to make a port to repair the damages
caused by the collision, is lost during the voyage or is obliged to be stranded
in order to be saved, shall be presumed as lost by reason of collision.
LIABILITIES
(1) Shipowner or agent
Art. 837. The civil liability incurred by the shipowners in the cases
prescribed in this section, shall be understood as limited to the value of the
vessel with all its appurtenances and freightage earned during the voyage.
Art. 838. When the value of the vessel and her appurtenances should not be
sufficient to cover all the liabilities, the indemnity due by reason of the death
or injury of persons shall have preference.
(2) Captain, pilot or others
Art. 829. In the cases above mentioned the civil action of the owner against
the person causing the injury as well as the criminal liabilities, which may
be proper, are reserved.
Art. 834. If the vessels colliding with each other should have pilots on board
discharging their duties at the time of the collision, their presence shall not
exempt the captains from the liabilities they incur, but the latter shall have
the right to be indemnified by the pilots, without prejudice to the criminal
liability which the latter may incur.
(3) Conditions, protests
Art. 835. The action for the recovery of losses and damages arising from
collisions cannot be admitted if a protest or declaration is not presented
within twenty-four hours before the competent authority of the point where
the collision took place, or that of the first port of arrival of the vessel, if in
Philippine territory and to the consul of the Philippines, if it occurred in a
foreign country.
Note: the 24-hour requirement mentioned here is not a reglamentary period,
rather, it is a condition precedent.
Art. 836. With respect to damages caused to persons or to the cargo, the
absence of a protest may not prejudice the persons interested who were not
on board or were not in a condition to make known their wishes.
Art. 839. If the collision should take place between Philippine vessels in
foreign waters, of if having taken place in the open seas, and the vessels
should make a foreign port, the Filipino consul in said port shall hold a
summary investigation of the accident, forwarding the proceedings to the
Secretary of the Department of Foreign Affairs for continuation and
conclusion.
SUMMARY OF CASES WHERE PROTEST IS REQUIRED
(1) Under 612, when the vessel makes an arrival under stress
(2) Under 612, 624 and 843, where the vessel is shipwrecked
(3) Under 624, where the vessel has gone through a hurricane or when
the captain believes that the cargo has suffered damages or
averages
(4) Under 835, in case of maritime collisions
SHIPWRECKS
Art. 840. The losses and deteriorations suffered by a vessel and her cargo
by reason of shipwreck or stranding shall be individually for the account of
the owners, the part which may be saved belonging to them in the same
proportion.
Art. 841. If the wreck or standing should be caused by the malice,e
negligence, or lack of skill of the captain, or because the vessel put to sea
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insufficiently repaired and equipped, the ship agent or the shippers may
demand indemnity of the captain for the damages caused to the vessel or to
the cargo by the accident, in accordance with the provisions contained in
Articles 610, 612, 614, and 621.
Art. 842. The goods saved from the wreck shall be specially bound for the
payment of the expenses of the respective salvage, and the amount thereof
must be paid by the owners of the former before they are delivered to them,
and with preference over any other obligation if the merchandise should be
sold.
Art. 843. If several vessels sail under convoy, and any of them should be
wrecked, the cargos saved shall be distributed among the rest in proportion
to the amount which each one is able to take.
If any captain should refuse, without sufficient cause, to receive what may
correspond to him, the captain of the wrecked vessels shall enter a protest
against him, before two sea officials, of the losses and damages resulting
therefrom, ratifying the protest within twenty-four hours after arrival at the
first port, and including it in the proceedings he must institute in accordance
with the provisions contained in Article 612.
If it is not possible to transfer to the other vessels the entire cargo of the
vessel wrecked, the goods of the highest value and smallest volume shall be
saved first, the designation thereof to be made by the captain with the
concurrence of the officers of his vessel.
SHIPWRECK, DEFINITION.
Loss of a vessel at sea, either by being swallowed up by the waves,
by running against another vessel or thing at sea, or on coast -->
renders the ship incapable of navigation
Under 841, in case the wreck or stranding is due to the (1) malice,
negligence, or lack of skill of the captain, or (2) because the vessel
put to sea was insufficiently repaired and equipped, the captain shall
be liable
beyond the control of the crew, or shall have been abandoned by them, and
picked up and conveyed to a safe place by other persons, the latter shall be
entitled to a reward for the salvage.
Those who, not being included in the above paragraph, assist in saving a
vessel or its cargo from shipwreck, shall be entitled to a like reward.
SECTION 2. If the captain of the vessel, or the person acting in his stead,
is present, no one shall take from the sea, or from the shores or coast
merchandise or effects proceeding from a shipwreck or proceed to the
salvage of the vessel, without the consent of such captain or person acting in
his stead.
SECTION 3. He who shall save or pick up a vessel or merchandise at sea,
in the absence of the captain of the vessel, owner, or a representative of
either of them, they being unknown, shall convey and deliver such vessel or
merchandise, as soon as possible, to the Collector of Customs, if the port
has a collector, and otherwise to the provincial treasurer or municipal mayor.
SECTION 4.
After the salvage is accomplished, the owner or his
representative shall have a right to the delivery of the vessel or things saved,
provided that he pays, or gives a bond to secure, the expenses and the
proper reward.
The amount and sufficiency of the bond, in the absence of agreement, shall
be determined by the Collector of Customs or by the Judge of the Court of
First Instance of the province in which the things saved may be found.
SECTION 5. The Collector of Customs, provincial treasurer, or municipal
mayor, to whom a salvage is reported, shall order:
a.
That the things saved be safeguard and inventoried.
b. The sale at public auction of the things saved which may be in danger of
immediate loss or of those whose conservation is evidently prejudicial to the
interests of the owner, when no objection is made to such sale.
SALVAGE LAW, ACT NO. 2616

SECTION 1.
When in case of shipwreck, the vessel or its cargo shall be
c. The advertisement within the thirty days subsequent to the salvage, in

one of the local newspapers or in the nearest newspaper published, of all the
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details of the disaster, with a statement of the mark and number of the
effects requesting all interested persons to make their claims.
SECTION 6. If, while the vessel or things saved are at the disposition of
the authorities, the owner or his representative shall claim them, such
authorities shall order their delivery to such owner or his representative,
provided that there is no controversy over their value, and a bond is given by
the owner or his representative to secure the payment of the expenses and
the proper reward. Otherwise, the delivery shall nor be made until the matter
is decided by the Court of First Instance of the province.
SECTION 7. No claim being presented in the three months subsequent to
the publication of the advertisement prescribed in sub-section (c) of Section
five, the things save shall be sold at public auction, and their proceeds, after
deducting the expenses and the proper reward shall be deposited in the
insular treasury. If three years shall pass without anyone claiming it, one-half
of the deposit shall be adjudged to him who saved the things, and the other
half to the insular government.
SECTION 8.
assistance:
The following shall have no right to a reward for salvage or
a.
The crew of the vessel shipwrecked or which was is danger of
shipwreck;
b. He who shall have commenced the salvage in spite of opposition of the
captain or his representative; and
c.
He who shall have failed to comply with the provisions of Section three.
SECTION 9.
If, during the danger, an agreement is entered into
concerning the amount of the reward for salvage or assistance, its validity
may be impugned because it is excessive, and it may be required to be
reduced to an amount proportionate to the circumstances.
SECTION 10. In a case coming under the last preceding section, as well
as in the absence of an agreement, the reward for salvage or assistance
shall be fixed by the Court of First Instance of the province where the things
salvaged are found, taking into account principally the expenditures made to
recover or save the vessel or the cargo or both, the zeal demonstrated, the
time employed, the services rendered, the excessive express occasioned
the number of persons who aided, the danger to which they and their
vessels were exposed as well as that which menaced the things recovered
or salvaged, and the value of such things after deducting the expenses.
SECTION 11. From the proceeds of the sale of the things saved shall be
deducted, first, the expenses of their custody, conservation, advertisement,
and auction, as well as whatever taxes or duties they should pay for their
entrance; then there shall be deducted the expenses of salvage; and from
the net amount remaining shall be taken the reward for the salvage or
assistance which shall not exceed fifty per cent of such amount remaining.
SECTION 12. If in the salvage or in the rendering of assistance different
persons shall have intervened the reward shall be divided between them in
proportion to the services which each one may have rendered, and, in case
of doubt, in equal parts.
Those who, in order to save persons, shall have been exposed to the same
dangers shall also have a right to participation in the reward.
SECTION 13. If a vessel or its cargo shall have been assisted or saved,
entirely or partially, by another vessel, the reward for salvage or for
assistance shall be divided between the owner, the captain, and the
remainder of the crew of the latter vessel, so as to give the owner a half, the
captain a fourth, and all the remainder of the crew the other fourth of the
reward, in proportion to their respective salaries, in the absence of an
agreement to the contrary. The express of salvage, as well as the reward for
salvage or assistance, shall be a charge on the things salvaged on their
value.
SALVAGE, DEFINITION.
The compensation allowed to persons by whose assistance a ship

or her cargo has been saved, in whole or in part, from impending
peril on the sea, or in recovering such property from actual loss, as
in case of shipwreck, derelict, or recapture
THREE REQUISITES FOR A VALID SALVAGE CLAIM
1. A marine peril
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2.
3.
98
Service voluntarily rendered when not required as an existing duty

or from a special contract
Success in whole or in part, or that the service rendered contributed
to such success
BARRIOS V. GO THONG
7 SCRA 535
FACTS:
Barrios was captain and/or master of the MV Henry I of the William Lines
Incorporated, of Cebu City, plying between and to and from Cebu City and
other southern cities and ports, among which are Dumaguete City,
Zamboanga City, and Davao City. At one evening, plaintiff in his capacity as
such captain and/or master of the aforesaid MV Henry I, received or
otherwise intercepted an S.O.S. or distress signal by blinkers from the MV
Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong &
Company. Acting on and/or answering the S.O.S. call, Barrios, altered the
course of said vessel, and steered and headed towards the beckoning MV
Don Alfredo, which plaintiff found to be in trouble, due to engine failure and
the loss of her propeller, for which reason, it was drifting slowly southward
from Negros Island towards Borneo in the open China Sea, at the mercy of a
moderate easterly wind. A few hours later, the MV Henry I, under the
command of the plaintiff, succeeded in getting near the MV Don Alfredo and
with the consent and knowledge of the captain and/or master of the MV Don
Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured
and connected with two lines from the MV Henry I; and in that manner,
position and situation, the latter had the MV Don Alfredo in tow and
proceeded towards the direction of Dumaguete City. After almost nine hours
during the night, with the MV Don Alfredo still in tow by the MV Henry I, and
while both vessels were approaching the vicinity of Apo Islands off
Zamboanga town, Negros Oriental, the MV Lux, a sister ship of the MV Don
Alfredo, was sighted heading towards the direction of the aforesaid two
vessels, reaching then fifteen minutes later, or at about 5:25 o'clock on that
same morning. Thereupon, at the request and instance of the captain and/or
master of the MV Don Alfredo, the plaintiff caused the tow lines to be
released, thereby also releasing the MV Don Alfredo.
Under the circumstances, plaintiff concludes that they establish an
impending sea peril from which salvage of a ship worth more than
120
P100,000.00, plus life and cargo was done, the defendant insists that the
facts made out no such case, but that what merely happened was only mere
towage from which plaintiff cannot claim any compensation or remuneration
independently of the shipping company that owned the vessel commanded
by him.
HELD:
Was there a marine peril, in the instant case, to justify a valid salvage claim
by plaintiff against defendant? Like the trial court, we do not think there was.
It appears that although the defendant's vessel in question was, on the night
of May 1, 1958, in a helpless condition due to engine failure, it did not drift
too far from the place where it was. As found by the court a quo the weather
was fair, clear, and good. The waves were small and too slight, so much so,
that there were only ripples on the sea, which was quite smooth. During the
towing of the vessel on the same night, there was moonlight. Although said
vessel was drifting towards the open sea, there was no danger of it
floundering or being stranded, as it was far from any island or rocks. In case
of danger of stranding, its anchor could released, to prevent such
occurrence. There was no danger that defendant's vessel would sink, in view
of the smoothness of the sea and the fairness of the weather. That there was
absence of danger is shown by the fact that said vessel or its crew did not
even find it necessary to lower its launch and two motor boats, in order to
evacuate its passengers aboard. Neither did they find occasion to jettison
the vessel's cargo as a safety measure. Neither the passengers nor the
cargo were in danger of perishing. All that the vessel's crew members could
not do was to move the vessel on its own power. That did not make the
vessel a quasi-derelict, considering that even before the appellant extended
the help to the distressed ship, a sister vessel was known to be on its way to
succor it.
If plaintiff's service to defendant does not constitute "salvage" within the
purview of the Salvage Law, can it be considered as a quasi-contract of
"towage" created in the spirit of the new Civil Code? The answer seems to
incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel,
defendant (through the captain of its vessel MV Don Alfredo) thereby
impliedly entered into a juridical relation of "towage" with the owner of the
vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated.
Tug which put line aboard liberty ship which was not in danger or peril but
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which had reduced its engine speed because of hot grounds, and assisted
ship over bar and, thereafter, dropped towline and stood by while ship
proceeded to dock under own power, was entitled, in absence of written
agreement as to amount to be paid for services, to payment for towage
services, and not for salvage services. (Sause, et al. v. United States, et al.,
107 F. Supp. 489)
If the contract thus created, in this case, is one for towage, then only the
owner of the towing vessel, to the exclusion of the crew of the said vessel,
may be entitled to remuneration.
SPECIAL CONTRACTS OF MARITIME COMMERCE
CHARTER PARTY
DEFINITION
A charter party is a contract by virtue of which the owner or agent of

a vessel binds himself to transport merchandise or persons for a
fixed price. It is a contract by which the owner or agent of the vessel
leases for a certain price the whole or a portion of the vessel for the
transportation of goods or persons from one port to another.
KINDS OF CHARTER PARTY
99
PLANTERS PRODUCTS V. CA
Supra
HELD:
A charter-party is a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use.
There are 2 kinds : (1) contract of affreightment which involves the use of
shipping space or vessels leased by the owner in part or as a whole, to carry
goods for others; and (2) charter by demise or bareboat charter where the
whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation,
including the master and the crew, who are his servants.
It is not disputed that the carrier operates as a CC in the ordinary course of
business. When PPI chartered the vessel, the ship captain, its officers and
crew were under the employ of the shipowner and therefore continued to be
under its direct supervision and control. Thus it continued to be a public
carrier. It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel, provided the
charter is limited to the ship only, as in the case of a time- charter or a
voyage-charter. It is only when the charter includes both the vessel and the
crew, as in a bareboat or demise that a CC becomes private, insofar as such
particular voyage is concerned.
100
COASTWISE LIGHTERAGE CORPORATION V. CA

245 SCRA 796
HELD:
Petitioner's reliance on the aforementioned case is misplaced. In its entirety,
the conclusions of the court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole
vessel, rather than a demise. As such, the liability of the shipowner for acts
or negligence of its captain and crew, would remain in the absence of
stipulation.
Under the demise or bareboat charter of the vessel, the charterer will
generally be regarded as the owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes the owner pro
hac vice, subject to liability to others for damages caused by negligence. To
create a demise, the owner of a vessel must completely and exclusively
relinquish possession, command and navigation thereof to the charterer,
anything short of such a complete transfer is a contract of affreightment
(time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of
the vessel leases part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner of the vessel and
under such contract the general owner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of the
space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for any
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breach of duty as to the care, loading and unloading of the cargo. . . .
of the captain, and of the charterer.
Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment on account of the
aforementioned distinctions between the two.
Art. 654. The charter parties executed with the intervention of a broker, who
certifies to the authenticity of the signatures of the contracting parties made
in his presence, shall be full evidence in court; and, if they should be
conflicting, that which agrees with the one which the broker must keep in his
registry, if kept in accordance with law, shall govern.
FORMS AND EFFECTS

Art. 652. A charter party must be drawn in duplicate and signed by the
contracting parties, and when either does not know how or is not able to do
so, by two witnesses at his request.
The charter party shall include, besides the condition stipulated, the following
circumstances:
(1) The kind, name, and tonnage of the vessel.
(2) Her flag and port or registry.
(3) The name, surname, and domicile of the captain.
(4) The name, surname, and domicile of the agent, if the latter should
make the charter party.
(5) The 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) The port of loading and unloading.
(7) The capacity, number of tons or weight, or measure which they
respectively bind themselves to load and transport, or whether it is
the total cargo.
(8) The freightage to be paid, stating whether it is to be a fixed
amount for the voyage or so much per month, or for the space to be
occupied, or for the weight or measure of the goods of which the
cargo consists, or in any other manner whatsoever agreed upon.
(9) The amount of primage to be paid the captain.
(10) The days agreed upon for loading and unloading.
(11) The lay days and extra lay days to be allowed and the rate of
demurrage.
Art. 653. If the freight should be received without the charter party having
been signed, the contract shall be understood as executed in accordance
with what appears in the bill of lading, which shall be the only instrument with
regard to the freight to determine the rights and obligations of the ship agent,
The contracts shall also be admitted as evidence, even though a broker has
not taken part therein, if the contracting parties acknowledge the signatures
of the same as their own. Should no broker have taken part in the charter
party and the signatures be not acknowledged, doubts shall be decided by
what is provided for in the bill of lading, and, in the absence thereof, by the
proofs submitted by the parties.
Art. 655. Charter parties executed by the captain in the absence of the ship
agent shall be valid and effective, even though in executing them he should
have acted in violation of the orders and instructions of the agent or
shipowner; but the latter shall have a right of action against the captain to
recover damages.
Art. 656. If in the charter party the time in which the loading and unloading
are to take place is not stated, the usages of the port where these acts take
place shall be observed. After the stipulated or customary period has
passed, and should there not be in the freight contract an express provision
fixing the indemnification for the delay, the captain shall be entitled to
demand demurrage for the lay days and extra lay days which may have
elapsed in loading and unloading.
Art. 657. If during the voyage the vessel should be rendered unseaworthy
the captain shall be obliged to charter at his expense another one in good
condition, to carry the cargo to its destination, for which purpose he shall be
obliged to look for a vessel not only at the port of arrival but also in the
neighboring ports within a distance of 150 kilometers.
If the captain, through indolence or malice, should not furnish a vessel to
take the cargo to its destination, the shippers, after requesting the captain to
charter a vessel within an unextendible period, may charter one and apply to
the judicial authority for the summary approval of the charter party which
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they may have made.

The same authority shall judicially compel the captain to carry out for his
account and under his responsibility the charter made by the shippers.
If the captain, notwithstanding his diligence, should not find a vessel to
charter, he shall deposit the cargo at the disposal of the shippers, to whom
he shall communicate the facts on the first opportunity, the freight being
adjusted in such cases by the distance covered by the vessel, with no right
to any indemnification whatsoever.
RIGHTS AND OBLIGATIONS OF SHIPOWNERS
Art. 669. The shipowner of the captain shall observe in charter parties the
capacity of the vessel or that expressly designated in its registry, a
difference greater than 2 per cent between that registered and her true
capacity not being permissible.
If the shipowner or the captain should contract to carry a greater amount of
cargo than the vessel can carry, in view of her tonnage, they shall indemnify
the shippers whose contracts they do not fulfill for the losses they may have
caused them by reason of their default, according to the cases, viz:
If the vessel has been chartered by one shipper only, and there should
appear to be an error or fraud in her capacity, and the charterer should not
wish to rescind the contract, when he has a right to do so, the freightage
shall be reduced in proportion to the cargo the vessel cannot receive, the
person from whom the vessel is chartered being furthermore obliged to
indemnify the charterer for the losses he may have caused him.
If, on the contrary, there should be several charter parties, and by reason of
the want of space all the cargo contracted for cannot be received, and none
of the charterers desires to rescind the contract, preference shall be given to
the person who has already loaded and arranged the cargo in the vessel,
and the rest shall take the place corresponding to them in the order of the
dates of their contracts.
Should there be no priority, the charterers may load, if they wish, in
proportion to the weight or space they may have engaged, and the person
123
from whom the vessel was chartered shall be obliged to indemnify them for
losses and damages.
Art. 670. If the person from whom the vessel is chartered, after receiving a
part of the cargo, should not find sufficient to make up at least three fifths of
the amount the vessel can hold, at the price he may have fixed, he may
substitute for that transportation another vessel inspected and declared
suitable for the same voyage, the expenses of transfer, and the increase in
the price of the charter, should there be any, being for his account. Should
he not be able to make this change, the voyage shall be undertaken at the
time agreed upon; and should no time have been fixed, within fifteen days
from the time the loading began, should nothing to the contrary have been
stipulated.
If the owner of the part of the cargo already loaded should procure some
more at the same price and under similar or proportionate conditions to
those accepted for the freight received, the person from whom the vessel is
chartered or the captain may not refuse to accept the rest of the cargo; and
should he do so, the charterer shall have a right to demand that the vessel
put to sea with the cargo she may have on board.
Art. 671. After three-fifths of the vessel is loaded, the person from whom she
is chartered may not, without the consent of the charterers or shippers,
substitute the vessel designated in the charter party with another one, under
the penalty of making himself thereby liable for all the losses and damages
occurring during the voyage to the cargo of those who did not consent to the
change.
Art. 672. If the vessel has been chartered in whole, the captain may not,
without the consent of the person chartering her, accept cargo from any
other person; and should he do so, said charterer may oblige him to unload it
and to indemnify him for the losses suffered thereby.
Art. 673. The person from whom the vessel is chartered shall be liable for all
the losses caused the charterer by reason of the voluntary delay of the
captain in putting to sea, according to the rules prescribed, provided he has
been requested to put to sea at the proper time through a notary or judicially.
Art. 674. If the charterer should carry to the vessel more cargo than that
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contracted for, the excess may be admitted in accordance with the price
stipulated in the contract if it can be well stowed without incurring the other
shippers, but if in order to stow said cargo it should be necessary to stow it
in such manner as to throw the vessel out of trim the captain must refuse it
or unload it at the expense of its owner.
requesting and awaiting orders from the shipper; and the expenses and
salaries accruing during the detention shall be paid as general average.
The captain may likewise, before leaving the port, unload the merchandise
clandestinely placed on board, or transport it, it he can do so and keep the
vessel in trim, demanding by way of freightage the highest price which may
have been stipulated for said voyage.
Art. 678. If the time necessary, in the opinion of the judge or court, to
receive orders from the shippers should have elapsed without the captain
having received any instructions, the cargo shall be deposited, and it shall be
liable for the payment of the freightage and expenses incurred by reason of
the delay, which shall be paid from the proceeds of the part first sold.
Art. 675. If the vessel has been chartered to receive the cargo in another
port, the captain shall appear before the consignee designated in the charter
party, and should the latter not deliver the cargo to him, he shall inform the
charterer and await his instructions, the lay days agreed upon, or those
allowed by custom in the port, beginning to run in the meantime, unless
there is an express agreement to the contrary.
Should the captain not receive an answer within the time necessary
therefore, he shall make efforts to find cargo; and should he not find any
after the lay days and extra lay days have elapsed, he shall make a protest
and return to the port where the charter was made. The charterer shall pay
the freightage in full, discounting that which may have been earned on the
merchandise which may have been carried on the voyage out or on the
return trip, if carried for the account of third persons.
The same shall be done if a vessel, having been chartered for the round trip,
should not be given any cargo for her return.
Art. 676. The captain shall lose the freightage and shall indemnify the
charterers if the latter should prove, even against the certificate of
inspection, if one has been made at the port of departure, that the vessel
was not in a condition to navigate at the time of receiving the cargo.
Art. 677. The charter party shall subsist if the captain should not have any
instructions from the charterer, and a declaration of war or a blockade should
take place during the voyage.
In such case the captain must proceed to the nearest safe and neutral port,
If, by orders of the shipper, the cargo should be discharged at the port of
arrival, the freightage for the voyage out shall be paid in full.
OBLIGATIONS OF CHARTERERS
Art. 679. The charterer of an entire vessel may subcharter the whole or part
thereof for the amounts he may consider most convenient, the captain not
being allowed to refuse to receive on board the cargo delivered by the
second charterers, provided the conditions of the first charter are not
changed, and that the price agreed upon is paid in full, even though the full
cargo is not loaded, with the limitation established in the next article.
Art. 680. A charterer who does not complete the full cargo he bound himself
to ship shall pay the freightage of the amount he fails to load, if the captain
does not take other freight to complete the load of the vessel, in which case
he shall pay the first charterer the difference should there be any.
Art. 681. If the charterer should ship goods different from those indicated at
the time of executing the charter party, without the knowledge of the person
from whom the vessel was chartered or of the captain, and should thereby
give rise to losses, by reason of confiscation, embargo, detention, or other
causes, to the person from whom the vessel was chartered or to the
shippers, the person giving rise thereto shall be liable with the value of his
shipment and furthermore with his property, for the full indemnity to all those
injured through his fault.
Art. 682. If the merchandise should have been shipped for the purpose of
illicit commerce, and was taken on board with the knowledge of the person
from whom the vessel was chartered or of the captain, the latter, jointly with
the owner of the merchandise, shall be liable for all the losses which may be
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caused to other shippers, and even though it may have been agreed, they
cannot demand any indemnity whatsoever from the charterer for the damage
caused the vessel.
Art. 683. In case of making a port to repair the hull, machinery, or equipment
of the vessel, the shippers must wait until the vessel is repaired, being
permitted to unload her at their own expense should they deem it advisable.
If, for the benefit of cargo which runs the risk of deterioration, the shippers or
the court, or the consul, or the competent authority in a foreign land should
order the merchandise to be unloaded, the expenses of unloading and
reloading shall be for the account of the former.
Art. 684.
If the charterer, without the occurrence of any
of the cases of force majeure mentioned in the foregoing article, should wish
to unload his merchandise before arriving at the port of destination, he shall
pay the full freightage, the expenses of the arrival made at his request, and
the losses and damages caused the other shippers, should there be any.
Art. 685. In charters for transportation of general freight any of the shippers
may unload the merchandise before the beginning of the voyage, paying one
half the freightage, the expense of stowing and restoring the cargo, and any
other damage which may be caused the other shippers.
Art. 686. After the vessel has been unloaded and the cargo placed at the
disposal of the consignee, the latter must immediately pay the captain the
freightage due and the other expenses for which the cargo may be liable.
The primage must be paid in the same proportion and at the same time as
the freightage, all the changes and modifications to which the latter should
be subject also governing the former.
Art. 687. The charterers and shippers may not abandon merchandise
damaged on account of its own inherent defect or of fortuitous event for the
payment of the freightage and other expenses.
The abandonment shall be proper, however, if the cargo should consist of
liquids which may have leaked out, there remaining in the containers not
more than one-fourth of their contents.
101
CALTEX PHILS. V. SULPICIO LINES

315 SCRA 709
HELD:
A charter party is a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment is one by which the owner of a ship or other vessel
lets the whole or part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the
11
payment of freight.
A contract of affreightment may be either time charter, wherein the leased
vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charterparty provides for the hire of the vessel only, either for a determinate period
of time or for a single or consecutive voyage, the ship owner to supply the
ship's store, pay for the wages of the master of the crew, and defray the
12
expenses for the maintenance of the ship.
Under a demise or bareboat charter on the other hand, the charterer mans
the vessel with his own people and becomes, in effect, the owner for the
voyage or service stipulated, subject to liability for damages caused by
negligence.
If the charter is a contract of affreightment, which leaves the general owner
in possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.
RESCISSION
Art. 688. A charter party may be annulled at the request of the charterer:
1. If before loading the vessel he should abandon the charter, paying half
the freightage agreed upon.
2. If the capacity of the vessel should not agree with that stated in the
certificate of tonnage, or if there be an error in the statement of the flag
under which she sails.
3. If the vessel should not be placed at the disposal of the charterer within
the period and in the manner agreed upon.
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4. If, after the vessel has put to sea, she should return to the port of
departure, on account of risk from pirates, enemies, or bad weather, and the
shippers should agree to unload her.
In the second and third cases the person from whom the vessel was
chartered shall indemnify the charterer for the losses he may suffer.
In the fourth case the person from whom the vessel was chartered shall
have a right to the freightage in full for the voyage out.
If the charter should have been made by the month, the charterers shall pay
the full freightage for one month, if the voyage is for a port in the same
waters; and two months, if for a port in different waters.
(From one port to another of the Peninsula (Philippines) and adjacent
islands, the freightage for one month only shall be paid.)
5. If a vessel should make a port during the voyage in order to make urgent
repairs and the charterers should prefer to dispose of the merchandise.
When the delay does not exceed thirty days, the shippers shall pay the full
freightage for the voyage out. Should the delay exceed thirty days, they shall
pay the freight in proportion to the distance covered by the vessel.
Art. 689. At the request of the person from whom the vessel is chartered the
charter party may be rescinded:
1. If the charterer at the termination of the extra lay days does not place the
cargo alongside the vessel.
In such case the charterer must pay half of the freightage stipulated besides
the demurrage due for the lay days and extra lay days.
2. If the person from whom the vessel was chartered should sell it before
the charterer has begun to load it and the purchaser should load it for his
own account.
In such case the vendor shall indemnify the charterer for the losses he may
suffer.
If the new owner of the vessel should not load it for his own account the
charter party shall be respected, and the vendor shall indemnify the
purchaser if the former did not inform him of the charter pending at the time
of making the sale.
Art. 690. The charter party shall be rescinded and all action arising
therefrom shall be extinguished if, before the vessel puts to sea from the port
of departure, any of the following cases should occur:
1. A declaration of war or interdiction of commerce with the power to whose
ports the vessel was to make its voyage.
2. A condition of blockage of the port of destination of said vessel, or the
breaking out of an epidemic after the contract was executed.
3. The prohibition to receive at the said port the merchandise constituting
the cargo of the vessel.
4. An indefinite detention, by reason of an embargo of the vessel by order
of the government, or for any other reason independent of the will of the ship
agent.
5. The inability of the vessel to navigate, without fault of the captain or ship
agent.
The unloading shall be made for the account of the charterer.
Art. 691. If the vessel cannot put to sea on account of the closing of the port
of departure, or any other temporary cause, the charter shall remain in force
without right of either of the contracting parties to claim damages.
The subsistence and wages of the crew shall be considered as general
average.
During the interruption the charterer may, at the proper timer and for his own
account, unload and load the merchandise, paying demurrage if the
reloading should continue after the cause for the detention has ceased.
Art. 692. A charter party shall be partially rescinded, unless there is an
agreement to the contrary, and the captain shall only be entitled to the
freightage for the voyage out, if, by reason of a declaration of war, closing of
ports, or interdiction of commercial relations during the voyage, the vessel
should make the port designated for such a case in the instructions of the
charterer.
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LOANS ON BOTTOMRY AND RESPONDENTIS

LOAN ON BOTTOMRY
A contract in the nature of a mortgage, by which the owner of the ship
borrows money for the use, equipment and repair of the vessel and
for a definite term, and pledges the ship (or the keel or bottom of the
ship) as a security for its repayment, with maritime or extraordinary
interest on account of the maritime risks to be borne by the lender, it
being stipulated that if the ship be lost in the course of the specific
voyage or during the limited time, by any of the perils enumerated in
the contract, the lender shall also lose his money.
have, with regard to other credits, the preference which, according to their
nature, they should have, although the obligation shall be valid between the
contracting parties.
The contracts made during a voyage shall be governed by the provisions of
Articles 583 and 611, and shall be effective with regard to third persons from
the date of their execution, if they should be recorded in the registry of
vessels of the port of registry of the vessel before the lapse of eight days
following its arrival. If said eight days should elapse without the record
having been made in the registry of vessels, the contracts made during the
voyage of a vessel shall produce no effect with regard to third persons,
except from the day and date of their inscription.
LOAN ON RESPONDENTIS
One made on the goods laden on board the ship, and which are to be
sold or exchanged in the course of the voyage, the borrower's
personal responsibility being deemed the principal security for the
performance of the contract, which is therefore called respondentia.
The lender must be paid his principal and interest, thought the ship
perishes, provided that the goods are saved.
In order that the policy of the contracts executed in accordance with No.2
may have binding force, they must conform to the registry of the broker who
took part therein. With respect to those executed in accordance with No. 3
the acknowledgment of the signature shall be required.
CHARACTER
ON WHAT CONSTITUTED
Art. 719. A loan in which, under any condition whatever, the repayment of
the sum loaned and of the premium stipulated depends upon the safe arrival
in port of the goods on which it is made, or of the price they may receive in
case of accident, shall be considered a loan on bottomry or respondentia.
Art. 724. The loans may be constituted jointly or separately:

(1) On the hull of the vessel.
(2) On the rigging.
(3) On the equipment, provisions, and fuel.
(4) On the engine, if the vessel is a steamer.
(5) On the merchandise loaded.
FORMS AND REQUISITES

Art. 720. Loans on bottomry or respondentia may be executed:
1. By means of a public instrument.
2. By means of a policy signed by the contracting parties and the broker
taking part therein.
3. By means of a private instrument.
Under whichever of these forms the contract is executed, it shall be entered
in the certificate of the registry of the vessel and shall be recorded in the
registry of vessels, without which requisites the credits of this kind shall not
Contracts which are not reduced in writing shall not give rise to judicial
action.
If the loan is constituted on the hull of the vessel, the rigging, equipment and
other goods, provisions, fuel, steam engines, and the freightage earned
during the voyage on which the loan is made, shall also be considered as
included in the liability for the loan.
If the loan is made on the cargo, all that which constitutes the same shall be
subject to the repayment; and if on a particular object of the vessel or of the
cargo, only the object concretely and specifically mentioned shall be liable.
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Art. 725. No loans on bottomry may be made on the salaries of the crew or
on the profits expected.
Art. 617. The captain may not contract loans on respondentia secured by
the cargo, and should he do so the contract shall be void.
AMOUNT
Neither may he borrow money on bottomry for his own transactions, except
on the portion of the vessel he owns, provided no money has been
previously borrowed on the whole vessel, and provided there does not exist
any other kind of lien or obligation chargeable against the vessel. When he
is permitted to do so, he must necessarily state what interest he has in the
vessel.
Art. 723. Loans may be made in goods and in merchandise, fixing their
value in order to determine the principal of the loan.
Art. 726. If the lender should prove that he loaned an amount larger than the
value of the object liable for the bottomry loan, on account of fraudulent
measures employed by the borrower, the loan shall be valid only for the
amount at which said object is appraised by experts.
In case of violation of this article the principal, interest, and costs shall be
charged to the private account of the captain, and the ship agent may
furthermore discharge him.
The surplus principal shall be returned with legal interest for the entire time
required for repayment.
Art. 727. If the full amount of the loan contracted in order to load the vessel
should not be used for the cargo, the balance shall be returned before
clearing.
The same procedure shall be observed with regard to the goods taken as
loan, if they were not loaded.
BY WHOM
Art. 728. The loan which the captain takes at the point of residence of the
owners of the vessel shall only affect that part thereof which belongs to the
captain, if the other owners or their agents should not have given their
express authorization therefor or should not have taken part in the
transaction.
If one or more of the owners should be requested to furnish the amount
necessary to repair or provision the vessel, and they should not do so within
twenty-four hours, the interest which the parties in default may have in the
vessel shall be liable for the loan in the proper proportion.
Outside of the residence of the owners, the captain may contract loans in
accordance with the provisions of Articles 583 and 611.
Art. 611. In order to comply with the obligations mentioned in the foregoing
article, and when he has no funds and does not expect to receive any from
the agent, the captain shall procure the same in the successive order stated
below:
1. By requesting said funds of the consignees of the vessel or the
correspondents of the ship agent.
2. By applying to the consignees of the cargo or to the persons
interested therein.
3. By drawing on the ship agent.
4. By borrowing the amount required by means of a bottomry loan.
5. By selling a sufficient amount of the cargo to cover the amount
absolutely necessary to repair the vessel and to equip her to pursue
the voyage.
In the two last cases he must apply to the judicial authority of the port, if in
the Philippines and to the Filipino consul, if in a foreign country; and where
there should be none, to the local authority, proceeding in accordance with
the prescriptions of Article 583, and with the provisions of the law of civil
procedure.
Art. 583. If the ship being on a voyage the captain should find it necessary
to contract one or more of the obligations mentioned in Nos. 8 and 9 of
Article 580, he shall apply to the judge or court if he is in Philippine territory,
and otherwise to the Filipino consul, should there be one, and in his absence
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to the judge or court or to the proper local authority, presenting the certificate
of the registry of the vessel treated of in Article 612, and the instruments
proving the obligation contracted.
The judge or court, the consul or the local authority as the case may be in
view of the result of the proceedings instituted, shall make a temporary
memorandum in the certificate of their result, in order that it may be recorded
in the registry when the vessel returns to the port of her registry, or so that it
can be admitted as a legal and preferred obligation in case of sale before the
return, by reason of the sale of the vessel by virtue of a declaration of
unseaworthiness.
The lack of this formality shall make the captain personally liable to the
creditors who may be prejudiced through his fault.
The same procedure shall be observed with regard to the goods taken as
loan, if they were not loaded.
Art. 730. Loans made during the voyage shall have preference over those
made before the clearing of the vessel, and they shall be graduated in the
inverse order of their dates.
The loans for the last voyage shall have preference over prior ones.
Should several loans have been made at the same port of arrival under
stress and for the same purpose, all of them shall be paid pro rata.
BILL OF LADING
CONTENTS
EFFECTS OF CONTRACT
Art. 719. A loan in which, under any condition whatever, the repayment of
the sum loaned and of the premium stipulated depends upon the safe arrival
in port of the goods on which it is made, or of the price they may receive in
case of accident, shall be considered a loan on bottomry or respondentia.
Art. 729. Should the goods on which money is taken not be subjected to
risk, the contract shall be considered a simple loan, with the obligation on the
part of the borrower to return the principal and interest at the legal rate, if
that agreed upon should not be lower.
Art. 726. If the lender should prove that he loaned an amount larger than the
value of the object liable for the bottomry loan, on account of fraudulent
measures employed by the borrower, the loan shall be valid only for the
amount at which said object is appraised by experts.
The surplus principal shall be returned with legal interest for the entire time
required for repayment.
Art. 727. If the full amount of the loan contracted in order to load the vessel
should not be used for the cargo, the balance shall be returned before
clearing.
Art. 706. The captain and the shipper shall have the obligation of drawing up
the bill of lading, in which shall be stated:
(1) The name, registry, and tonnage of the vessel.
(2) The name of the captain and his domicile.
(3) The port of loading and that of unloading.
(4) The name of the shipper.
(5) The name of the consignee, if the bill of lading is issued in the
name of a specified person.
(6) The quantity, quality, number of packages, and marks of the
merchandise.
(7) The freightage and the primage stipulated.
The bill of lading may be issued to bearer, to order, or in the name of a
specified person, and must be signed within twenty- four hours after the
cargo has been received on board, the shipper being entitled to demand the
unloading at the expense of the captain should the latter not sign it, and, in
any case, the losses and damages suffered thereby.
Art.707. Four true copies of the original bill of lading shall be made, and all
of them shall be signed by the captain and by the shipper. Of these copies
the shipper shall keep one and send another to the consignee; the captain
shall take two, one for himself and the other for the ship agent.
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There may also be drawn as many copies of the bill of lading as may be
considered necessary by the parties; but, when they are issued to order or to
bearer, there shall be stated in all the copies, be they the first four or the
subsequent ones, the destination of each one, stating whether it is for the
ship agent, for the captain, for the shipper, or for the consignee. If the copy
sent to the latter should have a duplicate, this circumstance and the fact that
it is not valid except in default of the first one must be stated therein.
signed by the captain shall be proof against the latter or ship agent in favor
of the consignee or the shipper; and those possessed by the captain or ship
agent signed by tfavor of the captain or ship agent.
Art. 713. If before the delivery of the cargo a new bill of lading should be
demanded of the captain, on the allegation that the failure to present the
previous ones is on account of their loss or for any other just cause, he shall
be obliged to issue it, provided that security for the value of the cargo is
given to his satisfaction; but without changing the consignment and stating
therein the circumstances prescribed in the last paragraph of Article 707,
when dealing with the bills of lading referred to therein, under penalty, should
he not do so, of being liable for said cargo if improperly delivered through his
fault.
Art. 695. The right to passage, if issued to a specified person, may not be
transferred without the consent of the captain or of the consignee.
Art. 714. If before the vessel puts to sea the captain should die or should
cease to hold his position through any cause, the shipper shall have the right
to demand of the new captain the ratification of the first bills of lading, and
the latter must do so, provided that all the copies previously issued be
presented or returned to him, and it should appear from an examination of
the cargo that they are correct.
The expenses arising from the examination of the cargo shall be for the
account of the ship agent, without prejudice to his right of action against the
first captain, if he ceased to be such through his own fault. Should said
examination not be made, it shall be understood that the new captain
accepts the cargo as it appears from the bills of lading.
PASSENGERS ON SEA VOYAGE

NATURE OF CONTRACT
OBLIGATIONS OF PASSENGERS
Art. 693. If the passage price has not been agreed upon, the judge or court
shall summarily fix it, after a statement of experts.
Art. 699. If the contract is rescinded, before or after the commencement of
the voyage, the captain shall have a right to claim payment for what he may
have furnished the passengers.
Art. 704. In order to collect the fare and expenses of sustenance, the
captain may retain the goods belonging to the passenger, and in case of
their sale, he shall be given preference over other creditors, acting in the
same way as in the collection of freightage.
Art. 694. Should the passenger not arrive on board at the time fixed, or
should he leave the vessel without permission from the captain, when the
latter is ready to leave the port, the captain may continue the voyage and
demand the full passage price.
PROBATIVE VALUE
Art. 700. In all that pertains to the preservation of order and discipline on
board the vessel, the passengers shall be subject to the orders of the
captain, without any distinction whatsoever.
Art. 709. A bill of lading drawn up in accordance with the provisions of this
title shall be proof as between those interested in the cargo and between the
latter and the insurers, evidence to the contrary being reserved by the latter.
RIGHTS OF PASSENGERS
Art. 710. If the bills of lading do not agree, and no change or erasure
appears in any of them, those in the possession of the shipper or consignee
Art. 697. If before beginning the voyage it should be suspended through the
sole fault of the captain or ship agent, the passengers shall be entitled to
have their passage refunded and to recover for losses and damages; but if
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the suspension was due to an accidental cause, or to force majeure, or to

any other cause beyond the control of the captain or ship agent, the
passengers shall only be entitled to the return of the passage money.
breaches of contract where the defendant acted fraudulently or in bad faith.

Both the Trial Court and the Appellate Court found that there was bad faith
on the part of petitioner in that:
Art. 698. In case a voyage already begun should be interrupted, the

passengers shall be obliged to pay only the fare in proportion to the distance
covered, and without right to recover for losses and damages if the
interruption is due to a fortuitous event or to force majeure, but with a right to
indemnify if the interruption should have been caused by the captain
exclusively.
(1)
Defendants-appellants did not give notice to plaintiffs- appellees as to
the change of schedule of the vessel;
If the interruption should be by reason of the disability of the vessel, and the
passenger should agree to await the repairs, he may not be required to pay
any increased price of passage, but his living expenses during the delay
shall be for his own account.
In case of delay in the departure of the vessel, the passengers have a right
to remain on board and to be furnished food for the account of the vessel,
unless the delay is due to an accidental cause or to force majeure. If the
delay should exceed ten days, the passengers requesting the same shall be
entitled to the return of the fare; and if it is due exclusively to the captain or
ship agent they may furthermore demand indemnity for losses and damages.
A vessel exclusively destined to the transportation of passengers must take
them directly to the port or ports of destination, no matter what the number of
passengers may be, making all the stops indicated in its itinerary.
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SWEET LINES V. CA
121 SCRA 769
HELD:
The voyage to Catbalogan was "interrupted" by the captain upon instruction
of management. The "interruption" was not due to fortuitous event or for
majeure nor to disability of the vessel. Having been caused by the captain
upon instruction of management, the passengers' right to indemnity is
evident. The owner of a vessel and the ship agent shall be civilly liable for
the acts of the captain.
Under Article 2220 of the Civil Code, moral damages are justly due in
(2)
Knowing fully well that it would take no less than fifteen hours to
effect the repairs of the damaged engine, defendants-appellants instead
made announcement of assurance that the vessel would leave within a short
period of time, and when plaintiffs-appellees wanted to leave the port and
gave up the trip, defendants-appellants' employees would come and say, 'we
are leaving, already.'
(3)
Defendants-appellants did not offer to refund plaintiffs-appellees'
tickets nor provide them with transportation from Tacloban City to
Catbalogan.
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TRANS-ASIA SHIPPING V. CA
254 SCRA 260
HELD:
Under Article 1733 of the Civil Code, the petitioner was bound to observe
extraordinary diligence in ensuring the safety of the private respondent. That
meant that the petitioner was, pursuant to Article 1755 of 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, we are in full accord
with the Court of Appeals that the petitioner failed to discharge this
obligation.
Before commencing the contracted voyage, the petitioner undertook some
repairs on the cylinder head of one of the vessel's engines. But even before
it could finish these repairs, it allowed the vessel to leave the port of origin on
only one functioning engine, instead of two. Moreover, even the lone
functioning engine was not in perfect condition as sometime after it had run
its course, it conked out. This caused the vessel to stop and remain a drift 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 began. For a
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vessel to be seaworthy, it must be adequately equipped for the voyage and

manned with a sufficient number of competent officers and crew. The failure
of a common carrier to maintain in seaworthy condition its vessel involved in
a contract of carriage is a clear breach of its duty prescribed in Article 1755
of the Civil Code.
RESPONSIBILITIES OF CAPTAIN
Art. 701. The convenience or the interest of the passengers shall not
obligate nor empower the captain to stand in-shore or enter places which
may take the vessel out of her course, nor to remain in the ports he must or
is under the necessity of touching for a period longer than that required by
the needs of navigation.
covered by a bill of lading or any similar document of title, insofar as such

document relates to the carriage of goods by sea, including any bill of lading
or any similar document as aforesaid issued under or pursuant to a charter
party from the moment at which such bill of lading or similar document of title
regulates the relations between a carrier and a holder of the same.
(c) The term "goods" includes goods, wares, merchandise, and articles of
every kind whatsoever, except live animals and cargo which by the contract
of carriage is stated as being carried on deck and is so carried.
(d) The term "ship" means any vessel used for the carriage of goods by sea.
(e) The term "carriage of goods" covers the period from the time when the
goods are loaded on to the time when they are discharged from the ship.
RISKS
Art. 702. In the absence of an agreement to the contrary, the subsistence of

the passengers during the voyage shall be deemed included in the price of
the passage; but should it be for their account, the captain shall be under the
obligation, in case of necessity, to supply the food necessary for their
sustenance at a reasonable price.
Section 2. Subject to the provisions of section 6, under every contract of

carriage of goods by sea, the carrier in relation to the loading handling,
stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and
immunities hereinafter set forth.
Art. 705. In case of the death of a passenger during the voyage the captain
shall be authorized, with respect to the body, to take the steps required by
the circumstances, and shall carefully take care of the papers and goods of
said passenger which may be on board, complying with the provisions of
case No. 10 of Article 612 with regard to members of the crew.
Art. 612. Supra.

Art. 1754. (NCC) The provisions of Arts. 1733 to 1753 shall apply to the
passenger's baggage which is not in his personal custody or in that of his
employee. As to the other baggage, the rules in Articles 1998 and 2000 to
2003 concerning the responsibility of hotel-keepers shall be applicable.
CARRIAGE OF GOODS BY SEA ACT
Section 1. When used in this Act
(a) The term "carrier" includes the owner or the charterer who enters into a
contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage
Section 3. (1) The carrier shall be bound, before and at the beginning of the
voyage, to exercise due diligence to
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling chambers, and all other parts of
the ship in which goods are carried, fit and safe for their reception carriage
and preservation.
(2) The carrier shall properly and carefully load, handle, stow, carry, keep,
care for, and discharge the goods carried.
(3) After receiving the goods into his charge the carrier, or the master or
agent of the carrier, shall, on demand of the shipper, issue to the shipper a
bill of lading showing among other things
(a) The leading marks necessary for identification of the goods as the same
are furnished in writing by the shipper before the loading of such goods
starts, provided such marks are stamped or otherwise shown clearly upon
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the goods if uncovered, or on the cases or coverings in which such goods

are contained, in such a manner as should ordinarily remain legible until the
end of the voyage.
(b) Either the number of packages or pieces, or the quantity or weight, as the
case may be, as furnished in writing by the shipper.
(c) The apparent order and condition of the goods: Provided, That no carrier,
master, or agent of the carrier, shall be bound to state or show in the bill of
lading any marks, number, quantity, or weight which he has reasonable
ground for suspecting not accurately to represent the goods actually
received, or which he has had no reasonable means of checking.
time of their receipt been the subject of joint survey or inspection.
(4) Such a bill of lading shall be prima facie evidence of the receipt by the
carrier of the goods as therein described in accordance with paragraphs (3)
(a), (b), and (c) of this section: Provided, That nothing in this Act shall be
construed as repealing or limiting the application of any part of the Act, as
amended, entitled "An Act relating to bills of lading in interstate and foreign
commerce," approved August 29, 1916 (U. S. C. title 49, secs. 81-124),
commonly known as the "Pomerene Bills of Lading Act."
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.
(5) The shipper shall be deemed to have guaranteed to the carrier the
accuracy at the time of shipment of the marks, number, quantity, and weight,
as furnished by him; and the shipper shall indemnify the carrier against all
loss damages, and expenses arising or resulting from inaccuracies in such
particulars. The right of the carrier to such indemnity shall in no way limit his
responsibility and liability under the contract of carriage or to any person
other than the shipper.
(6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such
removal shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.
In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not
affect or prejudice the right of the shipper to bring suit within one year after
the delivery of the goods or the date when the goods should have been
delivered.
(7) After the goods are loaded the bill of lading to be issued by the carrier,
master, or agent of the carrier to the shipper shall, if the shipper so
demands, be a "shipped" bill of lading Provided, That if the shipper shall
have previously taken up any document of title to such goods, he shall
surrender the same as against the issue of the "shipped" bill of lading, but at
the option of the carrier such document of title may be noted at the port of
shipment by the carrier, master, or agent with name or name the names of
the ship or ships upon which the goods have been shipped and the date or
dates of shipment, and when so noted the same shall for the purpose of this
section be deemed to constitute a "shipped" bill of lading.
(8) Any clause, covenant, or agreement in a contract of carriage relieving the
carrier or the ship from liability for loss or damage to or in connection with
the goods, arising from negligence, fault, or failure in the duties and
obligations provided in this section, or lessening such liability otherwise than
as provided in this Act, shall be null and void and of no effect. A benefit of
insurance in favor of the carrier, or similar clause, shall be deemed to be a
clause relieving the carrier from liability.
RIGHTS AND IMMUNITIES
Said notice of loss or damage maybe endorsed upon the receipt for the
goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the
Section 4. (1) Neither the carrier nor the ship shall be liable for loss or
damage arising or resulting from unseaworthiness unless caused by want of
due diligence on the part of the carrier to make the ship seaworthy, and to
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secure that the ship is properly manned, equipped, and supplied, and to
make to the holds, refrigerating and cool chambers, and all other parts of the
ship in which goods are carried fit and safe for their reception, carriage, and
preservation in accordance with the provisions of paragraph (1) of section 3.
Whenever loss or damage has resulted from unseaworthiness, the burden of
proving the exercise of due diligence shall be on the carrier or other persons
claiming exemption under the section.
(2) Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the
carrier in the navigation or in the management of the ship;
(b) Fire, unless caused by the actual fault or privity of the carrier;
(c) Perils, dangers, and accidents of the sea or other navigable waters;
(d) Act of God;
(e) Act of war,
(f) Act of public enemies;
(g) Arrest or restraint of princes, rulers, or people, or seizure under legal
process;
(h) Quarantine restrictions;
(i) Act or omission of the shipper or owner of the goods, his agent or
representative;
(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause,
whether partial or general; Provided, That nothing herein contained shall be
construed to relieve a carrier from responsibility for the carrier's own acts;
(k) Riots and civil commotions
(l) Saving or attempting to save life or property at sea;
(m) Wastage in bulk or weight or any other loss or damage arising from
inherent defect, quality, or vice of the goods;
(n) Insufficiency of packing;
(o) Insufficiency of inadequacy of marks;
(p) Latent defects not discoverable by due diligence; and
(q) Any other cause arising without the actual fault and privity of the carrier
and without the fault or neglect of the agents or servants of the carrier, but
the burden of proof shall be on the person claiming the benefit of this
exception to show that neither the actual fault or privity of the carrier nor the
fault or neglect of the agents or servants of the carrier contributed to the loss
or damage.
134
(3) The shipper shall not be responsible for loss or damage sustained by the
carrier or the ship arising from any cause without the act, fault, or neglect of
the shipper, his agents, or servants.
(4) Any deviation in saving or attempting to save life or property at sea, or
any reasonable deviation shall not be deemed to be an infringement or
breach of this Act or of the contract of carriage, and the carrier shall not be
liable for any loss or damage resulting therefrom: Provided, however, That if
the deviation is for the purpose of loading cargo or unloading cargo or
passengers it shall, prima facie, be regarded as unreasonable.
(5) Neither the carrier nor the ship shall in any event be or become liable for
any loss or damage to or in connection with the transportation of goods in an
amount exceeding $600 per package lawful money of the United States, or
in case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in
the bill of lading. This declaration, if embodied in the bill of lading, shall be
prima facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the
shipper another maximum amount than that mentioned in this paragraph
may be fixed: Provided, That such maximum shall not be less than the figure
above named. In no event shall the carrier be liable for more than the
amount of damage actually sustained.
Neither the carrier nor the ship shall be responsible in any event for loss or
damage to or in connection with the transportation of the goods if the nature
or value thereof has been knowingly and fraudulently misstated by the
shipper in the bill of lading.
(6) Goods of an inflammable, explosive, or dangerous nature to the shipment
whereof the carrier, master or agent of the carrier, has not consented with
knowledge of their nature and character, may at any time before discharge
be landed at any place or destroyed or rendered innocuous by the carrier
without compensation, and the shipper of such goods shall be liable for all
damages and expenses directly or indirectly arising out of or resulting from
such shipment. If any such goods shipped with such knowledge and consent
shall become a danger to the ship or cargo, they may in like manner be
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landed at any place, or destroyed or rendered innocuous by the carrier

without liability on the part of the carrier except to general average, if any.
SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF
Section 5. A carrier shall be at liberty to surrender in whole or in part all or
any of his rights and immunities or to increase any of his responsibilities and
liabilities under this Act, provided such surrender or increase shall be
embodied in the bill of lading issued to the shipper.
The provisions of this Act shall not be applicable to charter parties; but if bills
of lading are issued in the case of a ship under charter party, they shall
comply with the terms of this Act. Nothing in this Act shall be held to prevent
the insertion in a bill of lading of any lawful provision regarding general
average.
SPECIAL CONDITIONS
Section 6. Notwithstanding the provisions of the preceding sections, a
carrier, master or agent of the carrier, and a shipper shall, in regard to any
particular goods be at liberty to enter into any agreement in any terms as to
the responsibility and liability of the carrier for such goods, and as to the
rights and immunities of the carrier in respect of such goods, or his obligation
as to seaworthiness (so far as the stipulation regarding seaworthiness is not
contrary to public policy), or the care or diligence of his servants or agents in
regard to the loading, handling stowage, carriage, custody, care, and
discharge of the goods carried by sea: Provided, That in this case no bill of
lading has been or shall be issued and that the terms agreed shall be
embodied in a receipt which shall be a non-negotiable document and shall
be marked as such.
Any agreement so entered into shall have full legal effect: Provided, That this
section shall not apply to ordinary commercial shipments made in the
ordinary course of trade but only to other shipments where the character or
condition of the property to be carried or the circumstances, terms, and
conditions under which the carriage is to be performed are such as
reasonably to justify a special agreement.
Section 7. Nothing contained in this Act shall prevent a carrier or a shipper

from entering into any agreement, stipulation, condition, reservation, or
exemption as to the responsibility and liability of the carrier or the ship for the
loss or damage to or in connection with the custody and care and handling of
goods prior to the loading on and subsequent to the discharge from the ship
on which the goods are carried by sea.
Section 8. The provisions of this Act shall not affect the rights and
obligations of the carrier under the provisions of the Shipping Act, 1916, or
under the provisions of section 4281 to 4289, inclusive, of the Revised
Statutes of the United States, or of any amendments thereto; or under the
provisions of any other enactment for the time being in force relating to the
limitation of the liability of the owners of seagoing vessels.
TITLE II
Section 9. Nothing contained in this Act shall be construed as permitting a
common carrier by water to discriminate between competing shippers
similarly place in time and circumstances, either (a) with respect to the right
to demand and receive bills of lading subject to the provisions of this Act; or
(b) when issuing such bills of lading, either in the surrender of any of the
carrier's rights and immunities or in the increase of any of the carrier's
responsibilities and liabilities pursuant to section 6, title I, of this Act or (c) in
any other way prohibited by the Shipping Act, 1916, s amended.
Section 10. Section 25 of the Interstate Commerce Act is hereby amended
by adding the following proviso at the end of paragraph 4 thereof: "Provided,
however, That insofar as any bill of lading authorized hereunder relates to
the carriage of goods by sea, such bill of lading shall be subject to the
provisions of the Carriage of Goods by Sea Act."
Section 11. Where under the customs of any trade the weight of any bulk
cargo inserted in the bill of lading is a weight ascertained or accepted by a
third party other than the carrier or the shipper, and the fact that the weight is
so ascertained or accepted is stated in the bill of lading, then,
notwithstanding any thing in this Act, the bill of lading shall not be deemed to
be prima facie evidence against the carrier of the receipt of goods of the
weight so inserted in the bill of lading, and the accuracy thereof at the time of
shipment shall not be deemed to have been guaranteed by the shipper.
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Section 12. Nothing in this Act shall be construed as superseding any part
of the Act entitled "An act relating to navigation of vessels, bills of lading, and
to certain obligations, duties, and rights in connection with the carriage of
property," approved February 13,1893, or of any other law which would be
applicable in the absence of this Act, insofar as they relate to the duties,
responsibilities, and liabilities of the ship or carrier prior to the time when the
goods are loaded on or after the time they are discharged from the ship.
Section 13. This Act shall apply to all contracts for carriage of goods by sea
to or from ports of the United States in foreign trade. As used in this Act the
term "United States" includes its districts, territories, and possessions:
Provided, however, That the Philippine legislature may by law exclude its
application to transportation to or from ports of the Philippine Islands. The
term "foreign trade" means the transportation of goods between the ports of
the United States and ports of foreign countries. Nothing in this Act shall be
held to apply to contracts for carriage of goods by sea between any port of
the United States or its possessions, and any other port of the United States
or its possession: Provided, however, That any bill of lading or similar
document of title which is evidence of a contract for the carriage of goods by
sea between such ports, containing an express statement that it shall be
subject to the provisions of this Act, shall be subjected hereto as fully as if
subject hereto as fully as if subject hereto by the express provisions of this
Act: Provided, further, That every bill of lading or similar document of title
which is evidence of a contract for the carriage of goods by sea from ports of
the United States, in foreign trade, shall contain a statement that it shall have
effect subject to the provisions of this Act.
Section 14. Upon the certification of the Secretary of Commerce that the
foreign commerce of the United States in its competition with that of foreign
nations is prejudiced the provisions, or any of them, of Title I of this Act, or
by the laws of any foreign country or countries relating to the carriage of
goods by sea, the President of the United States, may, from time to time, by
proclamation, suspend any or all provisions of Title I of this Act for such
periods of time or indefinitely as may be designated in the proclamation. The
President may at any time rescind such suspension of Title I hereof, and any
provisions thereof which may have been suspended shall thereby be
reinstated and again apply to contracts thereafter made for the carriage of
goods by sea. Any proclamation of suspension or rescission of any such
suspension shall take effect on a date named therein, which date shall be
not less than ten days from the issue of the proclamation.
Any contract for the carriage of goods by sea, subject to the provisions of
this Act, effective during any period when title I hereof, or any part thereof, is
suspended, shall be subject to all provisions of law now or hereafter
applicable to that part of Title I which may have thus been suspended.
Section 15. This Act shall take effect ninety days after the date of its
approval; but nothing in this Act shall apply during a period not to exceed
one year following its approval to any contract for the carriage of goods by
sea, made before the date on which this Act is approved, nor to any bill of
lading or similar document of title issued, whether before or after such date
of approval in pursuance of any such contract as aforesaid.
Section 16. This Act may be cited as the "Carriage of Goods by Sea Act."
INTERNATIONAL AIR TRANSPORT
INTERNATIONAL CARRIAGE, DEFINITION.
The expression "international carriage" means any carriage in which,
according to the contract made by the parties, the place of departure
and the place of destination, whether or not there be a break in the
carriage or a transhipment, are situated either within the territories of
two High Contracting Parties, or within the territory of a single High
Contracting Party, if there is an agreed stopping place within a
territory subject to the sovereignty, suzerainty, mandate or authority
of another Power, even though that Power is not a party to this
Convention. A carriage without such an agreed stopping place
between territories subject to the sovereignty, suzerainty, mandate or
authority of the same High Contracting Party is not deemed to be
international for the purposes of this Convention.
A carriage to be performed by several successive air carriers is
deemed, for the purposes of this Convention, to be one undivided
carriage, if it has been regarded by the parties as a single operation,
whether it had been agreed upon under the form of a single contract
or of a series of contracts, and it does not lose its international
character merely because one contract or a series of contracts is to
be performed entirely within a territory subject to the sovereignty,
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137
suzerainty, mandate or authority of the same High Contracting Party.

CONSTITUTIONALITY
104
SANTOS V. NORTHWEST
210 SCRA 256
HELD:
Art. 28 (1) of Warsaw Con. is constitutional. Although the case can be
decided on other grounds without resolving the constitutional question, the
Warsaw Convention is a treaty commitment voluntarily assumed by the
Philippine Government and as such, has the force and effect of law. The
presumption is that this joint legislative-executive act was first carefully
studied and determined to be constitutional before it was adopted.
Petitioner's allegation have not overcome this presumption. Moreover, the
treaty since 1950 has not been rejected by the Philippine Government.
1. The carrier is liable for damage sustained in the event of the destruction
or loss of, or of damage to, any registered luggage or any goods, if the
occurrence which caused the damage so sustained took place during the
carriage by air.
2. The carriage by air within the meaning of the preceding paragraph
comprises the period during which the luggage or goods are in charge of the
carrier, whether in an aerodrome or on board an aircraft, or, in the case of a
landing outside an aerodrome, in any place whatsoever.
3. The period of the carriage by air does not extend to any carriage by land,
by sea or by river performed outside an aerodrome. If, however, such a
carriage takes place in the performance of a contract for carriage by air, for
the purpose of loading, delivery or transshipment, any damage is presumed,
subject to proof to the contrary, to have been the result of an event which
took place during the carriage by air.
Article 19
WHEN APPLICABLE
Article 1
1. This Convention applies to all international carriage of persons, luggage
or goods performed by aircraft for reward. It applies equally to gratuitous
carriage by aircraft performed by an air transport undertaking. ***
LIABILITIES UNDER THE CONVENTION
Article 17
The carrier is liable for damage sustained in the event of the death or
wounding of a passenger or any other bodily injury suffered by a passenger,
if the accident which caused the damage so sustained took place on board
the aircraft or in the course of any of the operations of embarking or
disembarking.
Article 18
The carrier is liable for damage occasioned by delay in the carriage by air of
passengers, luggage or goods.
105
NORTHWEST V. CUENCA
14 SCRA 1063
HELD:
The said articles merely declare the carrier liable for damages in the
enumerated cases, if the conditions therein specified are present. Neither
the provisions of said articles nor others regulate or exclude liability for other
breaches of contract by the carrier. Under petitioner's theory, an air carrier
would be exempt from any liability for damages in the event of its absolute
refusal, in bad faith, to comply with a contract of carriage, which is absurd.
106
ALITALIA V. IAC
192 SCRA 10
HELD:
The WC does not operate as an absolute limit of the extent of an airline's
liability. It does not regulate or exclude liability for other breaches of contract
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138
by the carrier.
greater than the actual value to the consignor at delivery.
Under the WC, an air carrier is made liable for damages for delay in the
transportation by air of passengers, luggage or goods. The WC also limits
the liability of the carrier to 250 francs per kilo of the total weight of the
package. The WC denies to the carrier availment of the provisions which
exclude or limit his liability, if the damage is caused by his willful misconduct
or by such default on his part as, in accordance with the law of the court
seized of the case, is considered as willful misconduct, or if the damage is
caused by any agent of the carrier acting w/in the scope of his
employment.
3. As regards objects of which the passenger takes charge himself the

liability of the carrier is limited to 5,000 francs per passenger.
The WC does not regulate or exclude liability for other breaches of contract
by the carrier or misconduct of its officers and employees or for some
particular or exceptional damage. The WC has been held inapplicable where
there was proof of malice or bad faith attributable to its officers and
employees. Here, however, there was no bad faith on the part of the
employees.
HELD:
A contract limiting liability upon an agreed valuation does not offend against
the policy of the law forbidding one from contracting against his own
negligence. Inasmuch as Pangan failed to declare any higher value for his
luggage & to pay add'l charges, PanAm's liability is limited to $600, as
stipulated at the back of the ticket.
Nominal damages however, was awarded because of the presence of some

special species of injury caused to Dr. Pablo.
WHEN LIMITATIONS UNAVAILABLE
LIMITATIONS ON LIABILITY
Article 22
1. In the carriage of passengers the liability of the carrier for each passenger
is limited to the sum of 125,000 francs. Where, in accordance with the law of
the Court seised of the case, damages may be awarded in the form of
periodical payments, the equivalent capital value of the said payments shall
not exceed 125,000 francs. Nevertheless, by special contract, the carrier
and the passenger may agree to a higher limit of liability.
2. In the carriage of registered luggage and of goods, the liability of the
carrier is limited to a sum of 250 francs per kilogram, unless the consignor
has made, at the time when the package was handed over to the carrier, a
special declaration of the value at delivery and has paid a supplementary
sum if the case so requires. In that case the carrier will be liable to pay a
sum not exceeding the declared sum, unless he proves that that sum is
4. The sums mentioned above shall be deemed to refer to the French franc
consisting of 65 milligrams gold of millesimal fineness 900. These sums
may be converted into any national currency in round figures.
107
PAN AM V. IAC
164 SCRA 268
Article 3.
1. For the carriage of passengers the carrier must deliver a passenger ticket
which shall contain the following particulars:(a) the place and date of issue;
(b) the place of departure and of destination;
(c) the agreed stopping places, provided that the carrier may reserve the
right to alter the stopping places in case of necessity, and that if he
exercises that right, the alteration shall not have the effect of depriving the
carriage of its international character;
(d) the name and address of the carrier or carriers;
(e) a statement that the carriage is subject to the rules relating to liability
established by this Convention.
2. The absence, irregularity or loss of the passenger ticket does not affect
the existence or the validity of the contract of carriage, which shall none the
less be subject to the rules of this Convention. Nevertheless, if the carrier
accepts a passenger without a passenger ticket having been delivered he
ATENEO LAW 2010
139
shall not be entitled to avail himself of those provisions of this Convention

which exclude or limit his liability.
4. Failing complaint within the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on his part.
Article 25.
1. The carrier shall not be entitled to avail himself of the provisions of this
Convention which exclude or limit his liability, if the damage is caused by his
wilful misconduct or by such default on his part as, in accordance with the
law of the Court seised of the case, is considered to be equivalent to wilful
misconduct.
2. Similarly the carrier shall not be entitled to avail himself of the said
provisions, if the damage is caused as aforesaid by any agent of the carrier
acting within the scope of his employment.
108
or by separate notice in writing despatched within the times aforesaid.
TWA V. CA
165 SCRA 143
Article 28.
1. An action for damages must be brought, at the option of the plaintiff, in
the territory of one of the High Contracting Parties, either before the Court
having jurisdiction where the carrier is ordinarily resident, or has his principal
place of business, or has an establishment by which the contract has been
made or before the Court having jurisdiction at the place of destination.
2. Questions of procedure shall be governed by the law of the Court seised
of the case.
Article 29.
HELD:
There was obvious discrimination & humiliation to w/c Vinluan was
subjected. Such inattention and lack of care for interest of its passengers
amount to bad faith w/c entitles passenger to moral damages.
1. The right to damages shall be extinguished if an action is not brought

within two years, reckoned from the date of arrival at the destination, or from
the date on which the aircraft ought to have arrived, or from the date on
which the carriage stopped.
CONDITIONS ON IMPOSITION OF LIABILITY
2. The method of calculating the period of limitation shall be determined by

the law of the Court seised of the case.
Article 26.
1. Receipt by the person entitled to delivery of luggage or goods without
complaint is prima facie evidence that the same have been delivered in good
condition and in accordance with the document of carriage.
2. In the case of damage, the person entitled to delivery must complain to
the carrier forthwith after the discovery of the damage, and, at the latest,
within three days from the date of receipt in the case of luggage and seven
days from the date of receipt in the case of goods. In the case of delay the
complaint must be made at the latest within fourteen days from the date on
which the luggage or goods have been placed at his disposal.
109
SANTOS V. NORTHWEST
Supra
HELD:
Art. 28 (1) provides that an action for damage must be brought at the option
of the plaintiff:
(a) before the court of the domicile of the carrier;
(b) the court of its principal place of business;
(c) the court where it has a place of business thru w/c the contract had been
made;
(d) the court of the place of destination.
In this case, the ff. were not followed, and hence the Philippines, not being
3. Every complaint must be made in writing upon the document of carriage
ATENEO LAW 2010
140
one of the courts mentioned in Art.28 (1), does not have jurisdiction over the
case.
(1) court of domicile is Minnesota, U.S.A;
(2) principal place of business of carrier is also U.S.A;
(3) place of business where contract was made was in San Francisco;
(4) place of destination is also San Francisco, Santos having purchased a
round trip-ticket from SFO-TYO-MNL, then back to TYO- SFO. The "ultimate
destination" being San Francisco.
110
LUNA V. CA
216 SCRA 107
HELD:
Previously, We ruled that the Warsaw Convention was a treaty commitment
voluntarily assumed by the Philippine government; consequently, it has the
force and effect of law in this country. But, in the same token, We are also
aware of jurisprudence that the Warsaw Convention does not operate as an
exclusive enumeration of the instances for declaring an airline liable for
breach of contract of carriage or as an absolute limit of the extent of that
liability. The Convention merely declares the carrier liable for damages in the
enumerated cases, if the conditions therein specified are present. For sure,
it does not regulate the liability, much less exempt, the carrier for violating
the rights of others which must simply be respected in accordance with their
contracts of carriage. The application of the Convention must not therefore
be construed to preclude the operation of the Civil Code and other pertinent
laws. In fact, in Alitalia v. IAC, We awarded Dr. Felipa Pablo nominal
damages, the provisions of the Convention notwithstanding.
Hence, petitioners' alleged failure to file a claim with the common carrier as
mandated by the provisions of the Warsaw Convention should not be a
ground for the summary dismissal of their complaints since private
respondent may still be held liable for breach of other relevant laws which
may provide a different period or procedure for filing a claim. Considering
that petitioners indeed filed a claim which private respondent admitted
having received on 21 June, 1989, their demand may have very well been
filed within the period prescribed by those applicable laws. Consequently,
respondent trial courts, as well as respondent appellate court, were in error
when they limited themselves to the provisions of the Warsaw Convention
and disregarding completely the provisions of the Civil Code.
ATENEO LAW 2010

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1

MA. ANGELA AGUINALDO

A PUBLIC UTILITY IS A PARTLY NATIONALIZED BUSINESS

Public utilities may only be operated by Filipino citizens or

Another aspect of this idea is that the participation of foreign

The constitution reserves part of ownership of public utilities to

Fully-nationalized, as given by the Constitution: mass media,

The issuance of a franchise, certificate or any other form of

Franchise granted is subject to the condition that can be amended,

The State may temporarily take over

The State may permanently acquire vital industries and private

The State shall regulate or prohibit monopolies

May fall under those enumerated in Section 13 (b) in CA 146

REPUBLIC V. MANILA ELECTRIC COMPANY

ATENEO LAW 2010

MA. ANGELA AGUINALDO

DAVID, ET. AL. V. GLORIA ARROYO, ET. AL.

ATENEO LAW 2010

MA. ANGELA AGUINALDO

ATENEO LAW 2010

MA. ANGELA AGUINALDO

ATENEO LAW 2010

While a franchise is needed to operate these facilities to serve the public,

MA. ANGELA AGUINALDO

vehicles under simulated operating conditions, control of operations, dealing

ATENEO LAW 2010

legislative franchise is anymore needed with respect to air transportation

One whereby a certain person or association of persons obligate

MA. ANGELA AGUINALDO

ATENEO LAW 2010

(c) The word "person" includes every individual, co-partnership, joint-stock

the immediate cancellation of the certificate without the necessity of any

The foregoing is likewise applicable to any extension or amendment of

MA. ANGELA AGUINALDO

ATENEO LAW 2010

convenience may reasonably require, and to issue certificates of public

(c) To fix and determine individual or joint rates, tolls, charges,

(d) To fix just and reasonable standards, classifications, regulations,

MA. ANGELA AGUINALDO

(j) To authorize, in its discretion, any railroad, street railway or traction

ATENEO LAW 2010

expressly exempted from the jurisdiction of the Commission, either totally or

MA. ANGELA AGUINALDO

(a) To provide or maintain any service that is unsafe, improper, or

ATENEO LAW 2010

MA. ANGELA AGUINALDO

ATENEO LAW 2010

REQUISITES FOR GRANT OF CERTIFICATE

Criticized because it allegedly fosters monopolies: no, since this is

CERTIFICATE OF PUBLIC CONVENIENCE

Authorization to operate a public service issued by the Public

This is merely a license or privilege and this can be forfeited when

CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY

MA. ANGELA AGUINALDO

Authorization to operate a public service for which a franchise is

RAYMUNDO V. LUNETA MOTOR

ATENEO LAW 2010

In the instant case, the evidence is conclusive that the Batangas

BATANGAS TRANSPORTATION V. ORLANES

MA. ANGELA AGUINALDO

SAN PABLO V. PANTRANCO

ATENEO LAW 2010

MA. ANGELA AGUINALDO