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TRANSPORTATION

AND PUBLIC
UTILITY LAW
REVIEWER
B2015 ACADEMICS
COMMITTEE

Use with the previous compilation of provisions. Sources: Campos, Agbayani,


Aquino, class notes, case digests, old reviewers and Bar reviewers.
PART ONE: PUBLIC UTILITIES

I. GENERAL DISCUSSION

A. What is a public utility?

A "public utility" is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation, telephone
or telegraph service.

Public utility test:


(1) Private property for public use
(2) Of public consequence
(3) General or limited market/clientele
(4) For hire or compensation

Public Interest: Property does become clothed with a public interest when used in a manner to make it
of public consequence, and affect the community at large. (Munn v Illinois)

MUNN vs. ILLINOIS (1876)

SUMMARY: A statute in Illinois fixed the maximum charges for the storage of grain in warehouses in
Chicago and in other places in the State having not less than 100,000 inhabitants. An issue was then
raised whether the general assembly of Illinois can, under the US Constitution, has the power to fix by
law such charges. The US SC held that the general assembly of Illinois is empowered to make such
law.

DOCTRINE: When private property is affected with a public interest, it ceases to be juris privati only.
Property becomes clothed with public interest when used in a manner to make it of public
consequence, and affect the community at large.
When one devotes his property to a use in which the public has an interest, he, in effect, grants to the
public an interest in that use, and must submit to be controlled by the public for the common good, to
the extent of the interest he has created. He may withdraw his grant by discontinuing the use; but so
long as he maintains the use, he must submit to the control.

LUZON STEVEDORING v. PSC (1953)

SUMMARY: Philippine Shipowners' Association (PSA) filed a complaint with the Public Service
Commission (PSC) charging said Luzon Stevedoring and Visayan Stevedore with engaging in the
transportation of cargo without approval of the Commission. They are said to have collected freight
charges of P0.60 per bag or picul of sugar, which allegedly resulted in ruinous competition with
complainant PSA.

The PSC issued an order restraining Luzon Stevedoring and Visayan Stevedore from operating their
business. The only issue in the case is the character of said companies. If they are public utilities, then
they come under the jurisdiction of the PSC and its order restraining them is valid. The SC held that
they are public utilities engaged in public service and therefore, the order of the PSC is valid.

DOCTRINE: There is no fixed definition of what constitutes public service or public utility. It is not
always necessary, in order to be a public service, that an organization be dedicated to public use, i.e.,
ready and willing to serve the public as a class. It is only necessary that it must in some way be
impressed with a public interest; and whether the operation of a given business is a public utility
depends upon whether or not the service rendered by it is of a public character and of public
consequence and concern. Thus, a business may be affected with public interest and regulated for
public good although not under any duty to serve the public. (43 Am. Jur., 572.)

Public utility, even where the term is not defined by statute, is not determined by the number of
people actually served. Nor does the mere fact that service is rendered only under contract prevent a
company from being a public utility. Casual or incidental service devoid of public character and
interest is not within the category of public utility. The demarcation line is not susceptible of exact
description or definitions, each case being governed by its peculiar circumstances.

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A public utility may not evade control and supervision of its operation by the government by selecting
its customers under the guise of private transactions.

Additional Readings:

Batson, H.E., The Economic Concept of a Public Utility, Economica, No. 42 (November 1933), pp
457-472.

B. What is a public service?


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See Commonwealth Act No. 146 or the Public Service Act, as amended, Sec 13(b)

Differentiate public utility from public service?

Public Service is included in the broad concept of public utilities. (Aquino)

Ice plant Ice refrigeration plant obsolete; no longer a public utility because classification as
public utility is subject to change.

C. Legal Basis and Rationale for Regulation

Legal Basis: The police power of the State justifies the regulation of public utilities. In other words,
regulation of public utilities is founded upon the police powers of the State and statutes prescribing
rules for the control and regulation of public utilities are considered valid exercise thereof.

Rationale: The exercise of police power is justified because whenever private property is used for a
public purpose and is affected with public interest, it ceases to be juris privati and only becomes
subject to regulation. The regulation is to promote the common good. Submission to regulation may
be withdrawn by the owner by discontinuing the use; but as long as use of the property is continued,
the same is subject to public regulation. (Aquino)

REPUBLIC OF THE PHILIPPINES v. MERALCO (2002)

SUMMARY: MERALCO filed with the ERB an application for the revision of its rate schedule (increase
of P0.21 per kwh and a provisional approval of said increase). The ERB conditionally granted a
provisional increase of P0.184 per kwh. After an auditing by the COA, it submitted an Audit Report
which led to the ERBs decision of granting only an increase of P0.017 per kwh. CA reversed. SC
reversed and upheld the ERBs decision saying that the income tax should be excluded in computing
the operation expenses and that the net average investment method is the proper method to be used
in computing the properties used during the test period for the determination of the rate base.

DOCTRINE: 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.

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.

Additional Readings:

Millar, Edythe S., Is the Public Utility Concept Obsolete?, Land Economics, Vol. 71, No. 3, Social
Control of Private Power: The Past and Future of Public Utility Regulation (August 1995), pp. 273-
285

Gray, Horace M., The Passing of the Public Utility Concept, The Journal of Land & Public Utility
Economics, Vol. 16, No. 1 (February 1940), pp 8 -20

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For the provisions see previous compilations

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D. Where does the Power to Regulate Public Utilities Reside?

The LEGISLATIVE has the power to regulate public utilities but they may also delegate the authority to
government agencies.

ALBANO VS. REYES (1989)

SUMMARY: After public bidding, the PPA awarded the MICT contract to ICTSI. Albano opposed
arguing that the MICT is a public utility that needs a legislative franchise in order to operate. The SC
held that a legislative franchise was not necessary for MICT to operate.

DOCTRINE: The case seems to imply that the power to regulate public utilities resides in Congress but
may be delegated by law to administrative agencies when the case stated that the Constitution
provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other form of authorization for
the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does
not necessarily, imply that only Congress has the power to grant such authorization. There are laws
granting specified agencies in the Executive Branch the power to issue such authorization for certain
classes of public utilities.

KMU LABOR CENTER V. GARCIA (1994)

SUMMARY: The DOTC issued a Memorandum Circular to the LTFRB, allowing provincial bus
operators to charge 15% more or less than the official rate. The Provincial Bus Operators of the
Philippines applied for a rate increase, which the LTFRB granted. Around a year later, the DOTC
issued a Department Order reiterating that operators are allowed to charge up to 15% more or less
than the official rate. Also, it was provided that fares shall not be provisionally authorized without
hearing. However, the LTFRB eventually widened the range, allowing operators to charge up to 20%
more or 25% less than the official rate. Also, for applications for a Certificate of Public Convenience, it
created a presumption in favor of the applicant. The PBOAP announced a 20% fare increase without
any form of public hearing. The Kilosang Mayo Uno (KMU) opposed the fare increase. The LTFRB
dismissed the KMUs petition. The KMU petitions the SC for Certiorari and prays for a TRO. The SC
decides in favor of KMU.

DOCTRINE: Public utilities are privately owned and operated businesses whose service are essential to
the general public. They are enterprises specifically catering to the needs of the public, for their
comfort and convenience. (Not in the Courts resolution of the case, but from the opening statement.)

Public convenience or necessity is defined as something fitting or suited to the public need (Blacks
Law Dictionary, 5th ed.)

Under the PSA, the Legislature delegated to the defunct PSC the power to fix rates for public services.
LTFRB is the existing regulatory body, as authorized by Section 5(c), EO 202. Also, the DOTC and the
LTFRB have the authority to issue administrative orders to regulate the transport sector.

BATANGAS CATV, INC VS. CA, THE BATANGAS CITY SANGGUNIANG PANLUNGSOD AND BATANGAS
CITY MAYOR (2004)

SUMMARY: The Sangguniang Panglungsod of Batangas City enacted Resolution no. 210, which
granted petitioner a permit to construct, install, and operate a CATV system in Batangas City. In the
said resolution, a provision was inserted stating that petitioner can charge up to the maximum rate
prescribed. If there is an increase in the rate, the petitioner would have to ask for the Sangguniangs
prior approval. Petitioner increased its rates without obtaining the Sanggunians approval. The Mayor
of Batangas City wrote petitioner a letter threatening to cancel its permit unless it secures the
approval of the Sanggunian. Petitioner filed a petition for injunction with the RTC and alleged that the
Saggunian is without authority to regulate the rates of CATV operators because under EO 205, the
NTC is given the sole authority to regulate CATV operations in the Philippines. The RTC decided in
favor of petitioner. Upon appeal to the CA, the CA reversed the RTCs decision and ruled that the
authority to regulate businesses in the locality is given to the local government units, as expressly
provided in the Local Government Code. Also, the CA said that the fixing of service rates is lawful
under the General Welfare Clause. The SC reversed the CA and reinstated the decision of the RTC.

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DOCTRINE: The power to regulate CATV operations is vested solely in the NTC, as provided in EO 205.
The resolution of the Sangguniang Panglungsod is rendered invalid because it contravenes the
provisions of EO 205, which is a national statute. Nonetheless, the LGUs still possess the authority to
regulate other matters which are not within the competence of the NTC.

RELATE TO PUBLIC SERVICE ACT 13(A)

The Public Service Commission was given the power to regulate public services through delegation of
authority.

What happened to the Public Service Commission? (footnote #2 in KMU Labor Center v. Garcia)

The 20th century ushered in the birth and growth of public utility regulation in the country. After
the Americans introduced public utility regulation at the turn of the century, various regulatory bodies
were created. They were the Coastwise Rate Commission under Act No. 520 passed by the Philippine
Commission on November 17, 1902; the Board of Rate Regulation under Act No. 1779 dated October
12, 1907; the Board of Public Utility Commission under Act No. 2307 dated December 19, 1913; and the
Public Utility Commission under Act No. 3108 dated March 19, 1923.
During the Commonwealth period, the National Assembly passed a more comprehensive public
utility law. This was Commonwealth Act No. 146, as amended or the Public Service Act, as amended.
Said law created a regulatory and franchising body known as the Public Service Commission (PSC).
The Commission (PSC) existed for thirty-six (36) years from 1936 up to 1972.
On September 24, 1972, Presidential Decree No. 1 was issued and declared "part of the law of the
land." The same effected a major revamp of the executive department. Under Article III, Part X of P.D.
No. 1, the Public Service Commission (PSC) was abolished and replaced by three (3) specialized
regulatory boards. These were the Board of Transportation, the Board of Communications, and the
Board of Power and Waterworks.
The Board of Transportation (BOT) lasted for thirteen (13) years. On March 20, 1985, Executive
Order No. 1011 was issued abolishing the Board of Transportation and the Bureau of Land
Transportation. Their powers and functions were merged into the Land Transportation Commission
(LTC).
Two (2) years later, LTC was abolished by Executive Order Nos. 125 dated January 30, 1987 and
125-A dated April 13, 1987 which reorganized the Department of Transportation and Communications.
On June 19, 1987, the Land Transportation Franchising and Regulatory Board (LTFRB) was created by
Executive Order No. 202. The LTFRB, successor of LTC, is the existing franchising and regulatory body
for overland transportation today.

E. Not a Public Utility

See Public Service Act, Sec. 14 for list of enterprises not covered by definition of public service

NEBBIA v. NEW YORK

SUMMARY: Nebbia is assailing the New York law which established a Milk Control Board that can fix
the minimum and maximum retail price of milk. He based his argument on the equal protection and
due process clause. He says that only public utilities can be regulated and the milk industry is not a
public utility. The court agreed that the milk industry is not a public utility but sustained the validity of
the regulation on other grounds.

DOCTRINE: Businesses affected with a public interest; that a business so affected is one in which
property is devoted to an enterprise of a sort which the public itself might appropriately undertake, or
one whose owner relies on a public grant or franchise for the right to conduct the business, or in which
he is bound to serve all who apply; in short, such as is commonly called a public utility; or a business in
its nature a monopoly.

The milk industry, it is said, possesses none of these characteristics, and, therefore, not being affected
with a public interest, its charges may not be controlled by the state.

The court admits that the dairy industry is not, in the accepted sense of the phrase, a public utility for
the following reasons:

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There is no suggestion of any monopoly or monopolistic practice.
Those engaged in the business are in no way dependent upon public grants or franchises for the
privilege of conducting their activities.

TATAD VS. GARCIA

SUMMARY: DOTC and the EDSA LRT Corp. (initially a consortium of 10 foreign corporations;
incorporated under the laws of Hongkong) entered into an agreement to build, lease, transfer, an LRT
system in EDSA. The agreements were entered into under RA 6957, or the BOT Law. The petitioners,
senators of the Republic, filed a petition under Rule 65 seeking to enjoin the implementation of the
agreements for allegedly being violative of the BOT Law and the Constitution. The petitioners allege,
among others, that EDSA LRT Corp. is a foreign corporation and cannot own a public utility in
violation of Sec. 11, Art. XII of the Constitution. The SC denied the petition and upheld the validity of
the agreements.

DOCTRINE: EDSA LRT Corp. is NOT the owner of a public utility. What it owns is the facilities used
by DOTC. It is DOTC who operates a public utility. What EDSA LRT Corp. owns are the rail tracks,
rolling stocks like the coaches, rail stations, terminals and the power plant. It does NOT own a public
utility.

While a franchise is needed to operate these facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utitlity is not their ownership but their use to serve
the public (Iloilo Ice & Cold Storage Co. v. Public Service Board)

There is a clear distinction between OPERATION of a public utility and the OWNERSHIP of the
facilities and equipment used to serve the public. The exercise of ownership rights is limited by law so
that a property cannot be operated and used to serve the public as a public utility unless the operator
has a franchise. The right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One may own the facilities without operating them as a public
utility (the converse is also true)

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. When EDSA LRT Corp. 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.

TERESA ELECTRIC AND POWER CO. INC. V. PUBLIC SERVICE COMMISSION AND FILIPINAS CEMENT
CORPORATION

SUMMARY: Filipinas Cement, a cement company, filed an application with Public Service Commission
for a certificate of public convenience and necessity to operate an electric plant to supply its needed
electricity which Teresa Electric opposed. Teresa Electric operates an electric plant where Filipinas
Cements plant is located. PSC granted Filipinas application. Though according to the law, Filipinas is
not entitled to the certificate it not being a public utility, the SC affirmed PSC because Teresa does not
have the capacity to supply the electrical needs of the Filipinas

DOCTRINE: The above requirements (Act 667) show that the act was intended to apply exclusively to
any person or corporation who desires a franchise to construct and maintain an electric line or power
plant and line for business purposes, that is, to render service to the general public at such rate of
compensation as may be approved and regulated by the government. Clearly, it should not be made
to apply to Filipinas who applied for a certificate of public convenience and service to operate and
maintain an electric plant exclusively for its own use in connection with the operation of its cement
factory and for the use of its employees living within the compound of the factory the latter to
receive service free of charge.

NATURE OF CONCESSION AGREEMENTS

FREEDOM FROM DEBT COALITION, ET. AL. v. MWSS

SUMMARY: The MWSS is the public utility holding franchise for the supervision and control of all the
waterworks and sewerage systems in Metro Manila, Rizal and Cavite. Under the privatization program,

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it divided Metro Manila into two concession areas and awarded the exercise of certain rights and
powers to two private entities: the Manila Water and the Maynilad. The MWSS charter provided for a
12% cap for its return of investment. In audits submitted by COA, it was shown that Maynilad had a
net ROR of 7.71% and Manila Water had 40.92%. The MWSS issued a Notice of Extraordinary Price
Adjustment which shall take effect the year after its issuance. The concessionaires opposed it, saying
that they are not public utilities but merely agents of MWSS which is the public utility. A Technical
Working Group (TWG) was created and its findings favored the concessionaires stand. The MWSS
board of trustees adopted the findings in a Resolution. The Freedom from Debt, et. al. opposed this in
a petition for certiorari to the Supreme Court, saying that the resolution has the effect of excluding the
concessionaires from the 12% cap. The Supreme Court dismissed the petition for failure to exhaust
administrative remedies, failure to implead indispensable parties, non-observance of the hierarchy of
courts, and raising questions of fact.

DOCTRINE: The determination of the status of the concessionaires as public utilities is a question of
fact. In determining whether the concessionaires are public utilities or mere agents of MWSS, there
must be an examination of the intention of the MWSS and the concessionaires at the time of the
bidding process, negotiation, and execution of the Concession Agreements. This will require the
presentation and evaluation of evidence such as bidding documents, memoranda, and the
testimonies of participants during the bidding and negotiations.

II. CONSTITUTIONAL PROVISIONS

See Article XII, Secs. 6, 11, 17, 18, 19, 1987 Constitution

a. Ownership

Public utility must be:


(1) Owned by citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines
(2) At least 60% of whose capital is owned by such citizens.

Ownership of Facilities: A corporation is NOT subject to the 60% Filipino equity requirement under
Sec. 11 of Art. XII of the Constitution if it will just own the equipment or properties that will be used by
another entity which shall operate as public utility.

GAMBOA V. TEVES (2011)

SUMMARY: PTIC is a shareholder of PLDT. PTICs shares of stock is owned by PHI (46%) and First
Pacific (56%). PHIs share was sequestered by the govt and later on sold in a public auction. First
Pacific was able to buy the shares through its subsidiary company, MHA. First Pacific is a foreign
corporation and the said sale increased its shareholding in PLDT. Gamboa, PLDT shareholder, filed a
petition to the SC to annul the sale on the ground that if the new First Pacific shareholdings in PLDT is
combined with the shareholdings of other foreign corporations, 81% of PLDTs common shares would
be owned by foreigner. This violates the consti limit of 40% foreign ownership. The issue is on the
interpretation of the word capital in the sec. 11, art. 12 of the consti. The SC ruled that the term refers
to the controlling interest and if applied in this case, petitioners position is correct.

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

GAMBOA v. TEVES (2012)

SUMMARY: In the 2011 case of Gamboa v. Teves, the SC partially granted the petition and held that
the term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote
in the election of directors of a public utility, or, in the context of the case, to the total common shares
of PLDT. Following the decision of the Court in the said case, Chairman Manuel V. Pangilinan et al.,

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filed a motion for reconsideration, contending that the term capital in the aforementioned
constitutional provision has long been settled and defined to refer to the total outstanding shares of
stock, whether voting or non-voting. The SC, through Justice Carpio, denied the motion for
reconsideration with finality. While the Court brushed aside the procedural defect in the motion by
considering its transcendental importance, it rejected the contentions of Pangilinan et al. Despite the
claims of Pangilinan et al., the Court has not yet interpreted the word capital in the context of Sec.
11, Article XII of the Constitution. Furthermore, the SEC and DOJ opinions that Pangilinan et al. rely on
are conflicting and inconsistent, although DOJ Opinion No. 130, s. 1985 and SEC Opinion no. 23-10
interpreted the said word the same way the SC did,

DOCTRINE: [C]apital in Section 11, Article XII of the 1987 Constitution refers only to shares of stock
entitled to vote in the election of directors and not to the total outstanding capital stock (common
and non-voting preferred shares).

The 60-40 ownership requirement in favor of Filipino citizens in the constitution to engage in certain
economic activities applies not only to voting control of the corporation, but also to the beneficial
ownership of the corporation. Mere legal title is insufficient to meet the 60 percent filipino owned
capital required in the constitution. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance
with the constitutional mandate. Otherwise, the corporation is considered as non-Philippine
national[s]. Both the voting control test and the beneficial ownership test must be applied to
determine whether a corporation is a Philippine National.

Relate to Public Service Act, Sec 16 (a) and Sec. 20 (i)

b. Exclusivity

Nobody has any exclusive right to secure a franchise or a certificate of public convenience. Above any
or all considerations, the grant of franchises and certificates of public convenience and service should
be guided by public service and interest; the latter are the primordial considerations to be taken into
account. (Teresa Electric & Power Co v PSC)

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. (Sec. 19, Art. XII, Constitution)

MONOPOLIESnot necessarily prohibited. The State must still decide whether public interest
demands monopolies be regulated or prohibited
Simplest form: only 1 seller or producer of a product or service for which there are no
substitutes
Complex form: joint acquisition or maintenance by members of a conspiracy, formed for that
purpose, of the power to control and dominate trade and commerce in a commodity to such
an extent that they are able as a group to exclude actual or potential competitors from the
field accompanied with the intention and purpose to exercise such power.

METRO CEBU vs. ADALA

SUMMARY: Respondent Adala filed an application with the NWRD for the issuance of a CPC to
operate waterworks system in certain sitios in Cebu City. Metropolitan Cebu Water District opposed
Adalas application, citing Section 47 of PD 198 which required the consent of the Board of Directors of
the district. The NWRB granted Adalas application. The RTC upheld NWRBs decision. The Supreme
Court affirmed the RTC and dismissed Metro Cebus opposition and held that the term franchise
includes CPCs granted by agencies. It further found that Section 47 of PD 298 regarding exclusive
franchises is unconstitutional for being repugnant to Article XIV, Section 5 of the 1973 Constitution
and to Article XII, Section 11 of the 1987 Constitution.

DOCTRINE: Constitutional Provision on Exclusivity


Article XII, Section 11 of the 1987 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,

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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.

TAWANG MULTI-PURPOSE COOPERATIVE vs. LA TRINIDAD WATER DISTRICT

SUMMARY: TMPC filed with the National Water Resources Board (NWRB) an application for a
certificate of public convenience (CPC) to operate and maintain a waterworks system in Barangay
Tawang.
LTWD opposed TMPCs application. LTWD claimed that, under Section 47 of PD No. 198. NWRB
approved TMPCs application for a CPC and stated that LTWDs franchise cannot be exclusive since
exclusive franchises are unconstitutional. On appeal, RTC reversed. SC reversed and held that Sec 47
is unconstitutional. It is expressly provided in the Constitution that creation of franchises or operation
of a public utility shall not be exclusive.

DOCTRINE: The 1935, 1973 and 1987 Constitutions are clear franchises for the operation of a public
utility cannot be exclusive in character.

c. Subject to Amendment

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. V. NTC

SUMMARY: PRCI has been operating a radio communications system under a legislative franchise.
Later, it established radio telegraph and radio telephone services. Kayumanggi was authorized to
operate radio communications systems, and filed a complaint with the NTC, alleging that PRCI was
operating without a certificate of public convenience and necessity. PRCI counter-alleged that its
legislative franchise was license enough. NTC ordered RCPI to cease and desist from the operation of
its radio telephone services. SC affirmed that RCPI has no authority to operate such services without
the required certificate.

DOCTRINE: A franchise cannot be exclusive in nature, nor can a franchise be granted except that it
must be subject to amendment, alteration, or even repeal by the legislature, when the common good so
requires. (Sec. 11, Art. XII, 1986 Constitution)

Relate to Public Service Act, Sec. 16 (m) and (n)

d. Take-over Power

Take-over REQUISITES:
(1) National emergency - threat from external aggression, calamities, or natural disasters, but
NOT strikes.
(2) When the public interest so requires
(3) Authorized by Congress
(4) Temporarily take over or direct the operation
(5) Any privately-owned public utility or business affected with public interest.

DAVID V. MACAPAGAL-ARROYO

SUMMARY: 7 petitions were filed challenging the constitutionality of PP1017 and GO no. 5 which
declared a state of national emergency. SC declared consitutional PP 1017 being a call for AFP to
prevent or suppress lawless violence, Declaration of National Emergency under Sec 17, Art VII-
However, this does not authorize take-overs of private business, GO No, 5 providing standards,
appropriate actions and measures to implement PP 1017. SC also declared as unconstitutional
Provisions of PP 1017 commanding the AFP to enforce laws NOT related to lawless violence, PP 1017
authorizing the President to promulgate decrees, Non-definition of acts of terrorism in GO No.
5Warrantless searches and arrests, dispersals of assembly, restraint on the press,

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DOCTRINE: Proclamation does not authorize the President during the emergency to temporarily take
over or direct the operation of any privately owned public utility or business affected with public
interest without authority from Congress. While the President alone can declare a state of national
emergency, however, without legislation, he has no power to take over privately-owned public utility or
business affected with public interest. The President cannot decide whether exceptional
circumstances exist warranting the take-over of privately-owned public utility or business affected
with public interest. Nor can he determine when such exceptional circumstances have ceased.
Likewise, without legislation, the President has no power to point out the types of businesses affected
with public interest that should be taken over. In short, the President has no absolute authority to
exercise all the powers of the State under Section 17, Article VII in the absence of an emergency
powers act passed by Congress.

AGAN, JR. V. PIATCO

SUMMARY: The present case involves two project proposals for the construction and development of
NAIA III. Asias Emerging Dragon Corp. submitted an unsolicited project proposal. Subsequently, the
DOTC and Manila International Airport Authority invited the public to submit competitive proposals. A
second project proposal was submitted by Paircargo Consortium (later called PIATCO). The NAIA III
project was won by PIATCO. Later on, the original agreement (the 1997 Concession Agreement) was
superseded by an Amended Concession Agreement and Three Supplemental Agreements
(collectively known as PIATCO contracts). Several petitions were filed before the SC to declare the
PIATCO contracts null and void for being violative of the Constitution, the BOT law and its IRR, and
other legal principles. The SC declared them null and void. PIATCO, through MRs, sought the reversal
of the said SC decision. Furthermore, PIATCO prays that the SC should not strike down the entire
PIATCO contracts in light of their separability clause. The SC did not grant PIATCOs prayers. The
PIATCO contracts were declared null and void.

DOCTRINE: Section 17, Article XII of the 1987 Constitution grants the State in times of national
emergency the right to temporarily take over the operation of any business affected with public
interest. This right is an exercise of police power which is one of the inherent powers of the State.

Public interest on the occasion of a national emergency is the primary consideration when the
government decides to temporarily take over or direct the operation of a public utility or a business
affected with public interest. The nature and extent of the emergency is the measure of the duration
of the takeover as well as the terms thereof. It is the State that prescribes such reasonable terms
which will guide the implementation of the temporary takeover as dictated by the exigencies of the
time. This power of the State cannot be negated by any party nor should its exercise be a source of
obligation for the State.

e. Privatization of State-Operated Public Utilities

Privatization vs. Nationalization

Nationalization REQUISITES:
(1) In the interest of national welfare or defense, establish and operate vital industries
(2) Upon payment of just compensation, transfer to public ownership utilities and other private
enterprises to be operated by the Government. (Sec. 18, Art. XII, Constitution)

KUWAIT AIRWAYS v. PAL

SUMMARY: PAL was a government-owned and controlled corporation when it entered into a
Commercial Agreement Kuwait Airways with respect to Manila-Kuwait routes. Instead of offering
competing flights, they agreed that only Kuwait Airways would offer this route using its own plane but
it will share its revenues with PAL. Eleven years after, PAL was privatized. Three years from its
privatization, the government of the Philippines and the government of Kuwait entered into a
Confidential Memorandum of Understanding (CMU) providing, among others, that private
arrangements with respect to Manila-Kuwait routes will not be subject to royalty payments anymore.
In effect, this agreement would render the revenue sharing scheme of PAL and Kuwait Airways invalid.
After the signing of the CMU, Kuwait Airways notified PAL its intention to terminate the revenue
sharing scheme under its Commercial Agreement pursuant to the CMU. PAL refused and insisted that

9
Kuwait Airways pay its obligations. Kuwait Airways refused to pay PAL prompting PAL to file an action
for collection.

The SC held that Kuwait Airways is liable to PAL because the agreement between the governments
(intending to supersede the private agreement between the two airlines) cannot bind PAL without due
process.

DOCTRINE: An agreement between the Philippine government and a foreign state affecting property
rights of a government-owned and controlled corporation (GOCC) is valid. But once this GOCC is
privatized, it becomes a private company having private property rights. In such case, the government
can no longer enter into contracts affecting their property rights without due process of law. If the
Philippine government wants to enter into international agreements that would affect private
property rights, it may do so only upon observance of due process requirements.

III. Regulation of Public Utilities

A. Authority to Operate

AUTHORIZATION FOR THE OPERATION OF A PUBLIC UTILITY; REQUISITES


(1) only granted:
a. to citizens of the Philippines or
b. to corporations or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens;
(2) not be exclusive in character;
(3) not be longer period than 50 years;
(4) subject to amendment, alteration, or repeal by the Congress when the common good so requires

Authority to operate can be in the form of:


(1) Legislative Franchise
(2) CPC or CPCN
(3) License
(4) Permit
(5) Contract (Albano vs. Reyes)

That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other
form of authorization for the operation of a public utility shall be subject to amendment, alteration or
repeal by Congress does not necessarily, imply, as petitioner posits that only Congress has the power
to grant such authorization. Our statute books are replete with laws granting specified agencies in the
Executive Branch the power to issue such authorization for certain classes of public utilities. (Albano v
Reyes)

Franchise Grant of privilege from the sovereign power


CPC Form of regulation through administrative agencies

If a CPC is issued, it does not follow that a legislative franchise is no longer necessary. It would still
depend upon the enabling law.

A CPC is not necessary for the issuance of a legislative franchise but the law may require a dual
legislative franchise/CPC/license requirement.

ALBANO V. REYES

SUMMARY: The Philippine Ports Authority (PPA) conducted bidding for the operation of the Manila
International Container Terminal (MICT). The International Container Terminal Services, Inc.
(ICTSI) won the bid. Then-President Aquino approved the contract, with certain directives. Rodolfo
Albano filed the instant petition for Prohibition w/ prayer for Preliminary Injunction to restrain the
award of the contract. The SC dismissed the petition.

DOCTRINE: Franchises issued by Congress are not required before each and every public utility may
operate.

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The Constitutional provision in Sec. 11, Art. 12 (the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility shall be subject to amendment, alteration or repeal
by Congress) does not necessarily imply that only Congress has the power to grant such authorization.
Laws may grant specified agencies in the Executive the power to issue such authorization for certain
public utilities.

Restated: The Constitutional provision on legislative franchises does not imply that only Congress has
the power to issue such authorization, as other laws may grant this power to administrative agencies.

PLDT v. NTC

SUMMARY: PLDT opposed ETCIs application for a CPCN to construct, install, establish, operate and
maintain a CMTS and ANPS. The NTC granted ETCI a provisional authority to install, operate and
maintain a CMTS initially in Metro Manila, Phase A only, subject the condition that ETCI and PLDT
shall enter into an Interconnection Agreement (IA) for the provision of adequate interconnection
facilities between ETCIs cellular mobile telephone switch and the public switched telephone network
and shall jointly submit such IA to the NTC for approval. PLDT argued that NTC effectively
licensed/authorized a corporate entity without any franchise to operate a public utility, legislative or
otherwise, to establish and operate a telecommunications system. The SC dismissed the petition
finding no grave abuse of discretion on the part of NTC.

DOCTRINE: NTC is the regulatory agency of the national government with jurisdiction over all
telecommunications entities. It is legally clothed with authority and given ample discretion to grant a
provisional permit/authority. In fact, it may, on its own initiative, grant such relief even in the absence
of a motion from an applicant (see footnote).

Provisional authority would be meaningless if the grantee were not allowed to operate. The
provisional authority is not exclusive. Its lifetime is limited and may be revoked by the NTC at anytime
in accordance with law.
.
FRANCISCO VS. TOLL REGULATORY BOARD

SUMMARY: Several projects were conducted on the NLEX, SLEX, and SMMS. The projects involved the
act of TRB of granting authority to operate a toll facility/system and the exercise of the power to issue,
modify and promulgate toll rates and to rule on petitions relative to toll rate levels and increases.
Petitioners assail this power as unconstitutional.

DOCTRINE: A special franchise from Congress is not necessary if the law already specifically
authorizes an administrative body to grant a franchise or award a contract. Privileges conferred by
grant by administrative agencies as agents for the state constitute as much a legislative franchise as
though the grant had been made by the legislature. In this case, Sections 3(a) and (e) of P.D. No. 1112
in relation to Section 4 of P.D. No. 1894 have invested the TRB with sufficient power to grant a
qualified person or entity to construct, maintain and operate a toll facility and to issue the
corresponding permit or TOC.
The fact that an administrative agency is exercising administrative or executive functions (such as the
granting of franchises or awarding of contracts) and at the same time exercising quasi-legislative (e.g.,
rule making) or quasi-judicial (e.g. rate fixing) powers, does not support a finding of a violation of due
process or the Constitution.

Relate to Public Service Act, Section 16 (a), Sec. 18

i. General Qualifications

VDA. DE LAT V. PSC

SUMMARY: The Lats opposed the award by the PSC of a CPC to Diaz to operate an ice plant in Davao
City, on the grounds that (1) it was made without due process of law and (2) it will result in ruinous
competition in their business. The SC ruled that here was no denial of due process since the
publication of the application was made and hearing for the same was scheduled. Also, there is no
ruinous competition since, compared to the Lats who produce 63 tons of ice daily, Diaz was only

11
allowed to operate a 2-ton ice plant. Mere possibility of reduction of earnings is not sufficient to prove
ruinous competition.

DOCTRINE:
The requisites for the grant of CPC are:
(1) The applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or
joint-stock company constituted and organized under the laws of the Philippines, 60 per centum at
least of the stock or paid-up capital of which belong entirely to citizens of the Philippines;
(2) The applicant must be financially capable of undertaking the proposed service and meeting the
responsibilities incident to its operation; and
(3) The applicant must prove 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.

KMU LABOR CENTER V. GARCIA

SUMMARY: The DOTC issued a Memorandum Circular to the LTFRB, allowing provincial bus
operators to charge 15% more or less than the official rate. The Provincial Bus Operators of the
Philippines applied for a rate increase, which the LTFRB granted. Around a year later, the DOTC
issued a Department Order reiterating that operators are allowed to charge up to 15% more or less
than the official rate. Also, it was provided that fares shall not be provisionally authorized without
hearing. However, the LTFRB eventually widened the range, allowing operators to charge up to 20%
more or 25% less than the official rate. Also, for applications for a Certificate of Public Convenience, it
created a presumption in favor of the applicant. The PBOAP announced a 20% fare increase without
any form of public hearing. The Kilosang Mayo Uno (KMU) opposed the fare increase. The LTFRB
dismissed the KMUs petition. The KMU petitions the SC for Certiorari and prays for a TRO. The SC
decides in favor of KMU.

DOCTRINE: Pursuant to Sec. 16(a) of the Public Service Act, the following requirements must be met
before a Certificate of Public Convenience may be granted:
(i) The applicant must be a citizen of the Philippines, or a corporation or co-partnership,
association or joint-stock company constituted and organized under the laws of Philippines, at least
60 per centum of its stock or paid-up capital must belong entirely to citizens of the Philippines;
(ii) The applicant must be financially capable of undertaking the proposed service and meeting
the responsibilities incident to its operation;
(iii) The applicant must prove 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.

It is understood that there must be notice and hearing before the Public Service Commission can
exercise its power to issue a CPC.

ii. Revocation or Cancellation

Since the holding of a CPC is just a privilege, the same certificate may be revoked by the administrative
agency concerned.

Revocation of the CPC is NOT justified if there is no showing of willful and contumacious violation of
the law and rules.

DIVINAGRACIA v CONSOLIDATED BROADCASTING SYSTEM and PEOPLES BROADCASTING


SERVICE, INC.

SUMMARY: By virtue of RA 7477 and RA 7582, Peoples Broadcasting Service, Inc (PBS) and
Consolidated Broadcasting System Inc (CBS) were respectively granted separate legislative franchises
to construct, install, maintain and operate radio and television stations within the Philippines for a
period of 25 years. Sec. 9 of RA 7477 and Sec. 3 of RA 7582 contain a common provision predicated
on the constitutional mandate to democratize ownership of public utilities. Petitioner Santiago
Divinagracia filed two complains with the NTC against PBS and CBS alleging that he is the actual and
beneficial owner of 12 % of the shares of stock of PBS and CBS separately. He argues that despite the
provisions in RA 7477 and RA 7582 mandating the public offering of at least 30% of the common
stocks of PBS and CBS, both entities had failed to make such offering. Petitioner thus prayed for the
cancellation of all the Provisional Authorities or Certificates of Public Convenience (CPC) of PBS and

12
CBS. NTC denied the petition on the ground that it does not have the authority to cancel the CPCs of
the radio companies who are also the holders of existing legislative franchises. The Court of Appeals
upheld the decision of the NTC and said that the remedy of petitioner is to file a petition for quo
warranto and that the complaints were a collateral attack on the legislative franchises of PBS and
CBS. The SC upheld the decision of the NTC and the CA.

DOCTRINE: The NTC does not have the power to cancel the CPCs of radio station operators who have
existing and valid legislative franchises, in the absence of any specific provision in the law allowing them
to do such. The legislative franchise is a grant of privilege from the Congress, which cannot be cancelled
through an act of an administrative agency that derived its very power from the legislative body.

Relate to Public Service Act, Section 16(m)

iii. CPC v. CPCN

See Public Service Act, Section 15

Certificate of Public Convenience (CPC) and Certificate of Public Convenience and Necessity (CPCN)

Difference between CPC and CPCN

A CPC is an authorization issued by the PSC for the operation of public services for which no franchise,
either municipal or legislative, is required by law (e.g. auto-trucks and motor vehicles)

A CPCN is issued by the PSC to a public service to which any political subdivision has granted a
franchise under Act 667 after the PSC has approved the same under Sec. 16(b).
- A CPCN is an authorization issued by the PSC for the operation of public services for which a
franchise is required by law (e.g., electric, telephone services)

Nature of Certificate
- It constitutes neither a franchise nor a contract
- It confers no property rights
- It is a mere license or privilege, and such privilege is forfeited when the grantee fails to comply
with his commitments behind which lies the paramount interest of the public
Public necessity cannot be made to wait, nor sacrificed for private convenience

However, certificates represent property rights to the extent that if the rights which any public utility is
exercising pursuant to lawful orders of the PSC has been invaded by another public utility, in
appropriate cases actions may be maintained by the complainant public utility.

Owners of public utilities have the right to maintain appropriate actions against other public utilities
not authorized to operate in competition with the complainant. Certificates are considered as property
as used in Civil Procedure as they have material value and are material assets. They are subject to
attachment and seizure by legal process, and may be acquired by purchase.

When is CPC not required? See Sec. 14, Public Service Act
1. Vehicles drawn by animals and bancas moved by oar or sail, and tugboats and lighters
2. Warehouses
3. Airships within the Philippines
- Except as regards the fixing of their maximum rates on freight and passengers
4. Radio companies
- Except with respect to the fixing of rates
5. Public services owned or operated by any instrumentality of the National Government or by any
GOC or GOCC
- Except with respect to the fixing of rates

Determination of WON an issuance of a certificate is for public convenience


1. Financial responsibility of the applicant
2. Reliability of the applicant
3. Priority of filing the application for a certificate, and
4. Priority of operation

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Requisites for Grant of CPC:

A. Under the Constitution:


1. It shall be granted only to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least 60% of whose capital is owned by
Philippine citizens
2. It shall not be exclusive in character nor for a period longer than 50 years
3. It shall be under the condition that it shall be subject to amendment, alteration, or repeal by
Congress when the common good so requires

B. Under the Public Service Act (Sec. 16(a))


1. Notice and hearing
2. Subject to the limitations and exceptions mentioned and saving the provisions to the contrary
3. Operation of the public service proposed and the authorization to do business will promote
the public interests in a proper and suitable manner
4. Grantee is a citizen of the Philippines or entity organized under the laws of the Philippines
and 60% of its stock or paid-up capital is owned by Philippine citizens
5. It shall not be for a period of more than 50 years

PAL V. CIVIL AERONAUTICS BOARD

SUMMARY: Grand Air applied with CAB for a certificate of public convenience and necessity and also a
temporary operating permit to operate as an air transport. This application was opposed by PALan
air transport granted with a legislative franchise. SC ruled that CAB has the power to issue such
certificate of public necessity and convenience and temporary operating permit.

DOCTRINE: 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.

B. Rate-Fixing

See Public Service Act, Sections 16(c) and 20(a)

Guide in rate fixing


(1) The rate must be reasonable and just as to be:
a. Not too low to be confiscatory, and
b. Not too high to be too burdensome/oppressive/discriminatory
(2) Must be affordable to the end user who will utilize the services

3 major factors considered by the regulating agency in determining the just and reasonable rate:
(a) Rate of return - judgment percentage, which if multiplied with the rate base, provides a fair
return on the public utility for the use of its property for service to the public. Usually
administrative or judicial pronouncement. The SC adopted a 12% rate of return.
(b) Rate base - an evaluation of the property devoted by the utility to the public service or the
value of invested capital or property, which the utility is entitled to a return.
(c) Return itself - computed revenue to be earned by the public utility based on the rate of return
and rate base.

14
The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests
(i.e. public interest vs. return of investment)

The rates prescribed must be one that yields a fair return on the public utility upon the value of the
property performing the services and one that is reasonable to the public for the services rendered.

NON-DELEGATION - The power to fix the rates of public utilities is a power that has been delegated to
the regulatory administrative agencies. As such, it cannot be further delegated by the said
administrative agencies.

General Rule: Notice and hearing REQUIRED in rate fixing - The people, represented by reputable
oppositors, deserve to be given full opportunity to be heard in the opposition to any fare increase.
Except: (1) Provisional increase and (2) Fixing the initial rate

PADUA V. JUDGE RANADA

SUMMARY: The Toll Regulatory Board approved an application for an interim adjustment of the toll
rates filed by CITRA for the Metro Manila Skyway Project. Padua and Zialcita opposed the increase in
rates directly with the SC. They allege among other things, that the increase is exorbitant, and
violation of due process (failure to publish, conduct hearing). SC rules against petitioners on
procedural grounds.

DOCTRINE: A hearing is not necessary for a grant by the Toll Regulatory Board of provisional toll rate
adjustments. What is necessary is that it be issued upon (1) a finding that the petition is sufficient in
form and substance; (2) the submission of an affidavit showing that the increase in rates substantially
conforms to the formula in the franchise or toll operation agreement, and that failure to immediately
impose the increase in rates would result in great irreparable injury to the petitioner; and (3) the
submission of a bond. Compliance with these requirements is an issue that must be addressed to the
TRB.

REPUBLIC OF THE PHILIPPINES v. MERALCO

SUMMARY: MERALCO filed with the ERB an application for the revision of its rate schedule (increase
of P0.21 per kwh and a provisional approval of said increase). The ERB conditionally granted a
provisional increase of P0.184 per kwh. After an auditing by the COA, it submitted an Audit Report
which led to the ERBs decision of granting only an increase of P0.017 per kwh. CA reversed. SC
reversed and upheld the ERBs decision saying that the income tax should be excluded in computing
the operation expenses and that the net average investment method is the proper method to be used
in computing the properties used during the test period for the determination of the rate base.

DOCTRINE: In the fixing of rates, the only standard which the legislature is required to prescribe for
the guidance of the administrative authority is that the rate be reasonable and just. It has been held
that even in the absence of an express requirement as to reasonableness, this standard may be
implied. What is a just and reasonable rate is a question of fact calling for the exercise of discretion,
good sense, and a fair, enlightened and independent judgment. The requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory, or too high as to be
oppressive.
In determining the just and reasonable rates to be charged by a public utility, three major
factors are considered by the regulating agency: a) rate of return; b) rate base and c) the return itself
or the computed revenue to be earned by the public utility based on the rate of return and rate base.

KMU v GARCIA

SUMMARY: DOTC and LTFRB issued memoranda and circulars, in effect allowing transport operators
to fix their own rates based on the LTFRB rates, without notice and hearing, and also added a
presumption of public convenience, again without hearing. Petitioner KMU filed a case opposing the
fare increases. SC said that KMU had standing, and that the issuances were void.

DOCTRINE: The responsible regulatory body (in this case LTFRB) is entrusted the power of
subordinate legislation. It fills in the details which the legislature may neither have time or

15
competence to provide. But nowhere are the regulatory bodies authorized to delegate that power to a
common carrier, a transport operator, or other public service.

LTFRB issues Cert of Pub Convenience, which is an authorization granted by LTFRB for the operation
of land transpo services for public use as required by law.

FRANCISCO VS. TOLL REGULATORY BOARD

SUMMARY: Several projects were conducted on the NLEX, SLEX, and SMMS. The projects involved the
act of TRB of granting authority to operate a toll facility/system and the exercise of the power to issue,
modify and promulgate toll rates and to rule on petitions relative to toll rate levels and increases.
Petitioners assail this power as unconstitutional.

DOCTRINE: A special franchise from Congress is not necessary if the law already specifically
authorizes an administrative body to grant a franchise or award a contract. Privileges conferred by
grant by administrative agencies as agents for the state constitute as much a legislative franchise as
though the grant had been made by the legislature. In this case, Sections 3(a) and (e) of P.D. No. 1112
in relation to Section 4 of P.D. No. 1894 have invested the TRB with sufficient power to grant a
qualified person or entity to construct, maintain and operate a toll facility and to issue the
corresponding permit or TOC.
The fact that an administrative agency is exercising administrative or executive functions (such as the
granting of franchises or awarding of contracts) and at the same time exercising quasi-legislative (e.g.,
rulemaking) or quasi-judicial (e.g. rate fixing) powers, does not support a finding of a violation of due
process or the Constitution.

C. Approval of Sales of Public Utility Assets or Equity

Public Service Act, Section 20 (g), (h) and (i)

MONTOYA V. IGNACIO

SUMMARY: Tomasita, passenger of the jeepney, died in the collision between the jeepney and the bus.
The jeepney is owned by Ignacio but was leased to Tahimik. The SC held that it is Ignacio who is liable
because the lease was without the approval of the Public Service Commission, as required by the
Public Service Law.

DOCTRINE: The law 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. If the property covered by the franchise is transferred, or leased to another without obtaining
the requisite approval, the transfer is not binding against the 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.

PEREZ V. GUTIERREZ

SUMMARY: Fe Perez filed a case for breach of contract of carriage against Josefina Perez for the
injuries she sustained when the jeepney she was riding on, registered under the name of the latter,
met an accident. Josefine claimed that, if there is any liability, it should be Panfilo Alajar who should
answer to such, being the actual owner of the jeepney. The CFI found the driver of the jeepney liable
for reckless imprudence, as well as Panfilo for being the actual owner. Fe appealed to the SC, saying
that it should be Josefina, being the registered owner, who should be liable. The SC agreed with Fe,
stating that the failure to obtain the requisite approval from the PSC for the transfer of the jeepney to
Panfilo meant that such transfer was not binding to the PSC and the supposed transferor remains
responsible under the franchise in relation to the PSC and the public.

DOCTRINE: The law (Sec. 20 [g], Public Service Act) really requires the approval of the Public Service
Commission in order that a franchise, or any privileges pertaining thereto, may be sold or leased
without infringing the certificate issued to the grantee. x x x If the property covered by the franchise is
transferred or leased to another without obtaining the requisite approval, the transfer is not binding
on the Public Service Commission and, in contemplation of law, the grantee continues to be

16
responsible under the franchise in relation to the Commission and to the public for the consequences
incident to the operation of the vehicle.

D. Power to set fees and other charges

REPUBLIC vs. ICC

SUMMARY: ICC filed for an application for a CPCN. NTC approved it but with the condition that ICC
pay a permit fee in the amount of P1,190,750. ICC objected to the permit fee. The CA ruled in favor of
ICC saying that although NTC has the authority to impose such regulatory and supervisory fees, the
amount was not commensurate to the costs incurred by NTC for mere regulatory and supervisory fees.
The SC upheld the CA decision.

DOCTRINE: NTC is authorized to impose the permit fee as per Section 40(g) of the Public Service Act.
This is not a tax measure. It is simply a regulatory provision for the collection of fees imposed pursuant
to the exercise of the States police power. A tax is imposed for the purpose of raising revenues.
However, Section 40(g) merely authorizes and requires the collection of fees for the reimbursement of
the Commission's expenses in the authorization, supervision and/or regulation of public services.

E. Other means of regulation

See Public Service Act, Section 16 and 20

The regulating body can also: (note: not exclusive listing)


(1) Fix the route
(2) Fix the territory

PLDT v. NTC

SUMMARY: PLDT opposed ETCIs application for a CPCN to construct, install, establish, operate and
maintain a CMTS and ANPS. The NTC granted ETCI a provisional authority to install, operate and
maintain a CMTS initially in Metro Manila, Phase A only, subject the condition that ETCI and PLDT
shall enter into an Interconnection Agreement (IA) for the provision of adequate interconnection
facilities between ETCIs cellular mobile telephone switch and the public switched telephone network
and shall jointly submit such IA to the NTC for approval. PLDT argued that NTC effectively
licensed/authorized a corporate entity without any franchise to operate a public utility, legislative or
otherwise, to establish and operate a telecommunications system. The SC dismissed the petition
finding no grave abuse of discretion on the part of NTC.

DOCTRINE: NTC is the regulatory agency of the national government with jurisdiction over all
telecommunications entities. It is legally clothed with authority and given ample discretion to grant a
provisional permit/authority. In fact, it may, on its own initiative, grant such relief even in the absence
of a motion from an applicant (see footnote).

Provisional authority would be meaningless if the grantee were not allowed to operate. The
provisional authority is not exclusive. Its lifetime is limited and may be revoked by the NTC at anytime
in accordance with law.

PART TWO: TRANSPORATION LAW

I. General Discussion

1. Definition

Contract of Transportation a person obligates himself to transport persons or property from one
place to another for a consideration. The contract may involve carriage of passengers or carriage of
goods. It may be a common carrier or a private carrier.

2. Relationship to a public utility

17
Not all transportations are a public utility. Intersection of Public Utility and Transportation is the
Common Carrier.

Public Utility Transportation

Common Carrier
PU not for Private
transportaion Carriers

3. Nature of a Franchise

Franchise is:
(1) A valuable asset considered as property and has considerable material value
(2) A privilege revocable and issued only upon meeting certain requirements
(3) Personal in nature cannot be transferred without prior approval.
(4) Does not confer upon the holder any proprietary right or interest or franchise in the route
covered thereby and in the public highways BUT cannot be taken or interfered with without
due process of law.

REQUISITES for approval of transfer of franchise:


(1) Public hearing with notice to all interested parties
(2) 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.

Effect of transfer without 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.

REGISTERED OWNER RULE: The rule in this jurisdiction is that the person who is the registered owner
of a vehicle is liable for any damage caused by the negligent operation of the vehicle although the
same was already sold or conveyed to another person at the time of the accident.

RAYMUNDO V. LUNETA MOTOR CO.

SUMMARY: Nicanor de Guzman, signing as Guzco Transit, purchased trucks from the Luneta Motor
Co. On failure of De Guzman or Guzco Transit to pay for the promissory notes, suit was brought in the
CFI for the collection of the amount unpaid. When the complaint was presented, a writ of attachment
was obtained against the properties of the Guzco Transit, and as a consequence garnishment was
served on the Secretary of the Public Service Commission attaching the right, title, and participation of
the Guzco Transit in the certificates of public convenience covering bus transportation lines in various
areas. These certificates were ordered sold by the CFI and in fact sold to Luneta Motor Co. as highest
bidder. Nine days after the certificates were attached by the Luneta Motor Co., the same certificates
and several trucks, were sold by De Guzman for the Guzco Transit to Dominador Raymundo. The
Public Service Commission approved the sale of the certificates of public convenience at public
auction in favor of Luneta Motor Co. and disapproved the sale made to Dominador Raymundo. The
decision of the Public Service Commission in these two cases were brought to the SC for review.

DOCTRINE: 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.

COGEO-CUBAO OPERATOR v. CA

SUMMARY: Lungsod Silangan was the holder of a certificate of public convenience for the Cogeo-
Cubao route. Cogeo-Cubao Operators and Drivers Association was a non-stock, non-profit
organization with the main purpose of representing its members for whatever contract and/or

18
agreement it will have regarding the ownership of units, and the like. Cogeo-Cubao formed a human
barricade and took over the dispatching of passenger jeepneys in the Cogeo-Cubao route, and so
Lungsod-Silangan then filed a suit for damages against Cogeo-Cubao. The TC ruled in favor of
Lungsod-Silangan. The CA affirmed the TC but modified the award of damages. SC affirmed CA.

DOCTRINE: a certificate of public convenience is an authorization issued by the Public Service


Commission for the operation of public services for which no franchise is required by law. Insofar as
the interest of the State is involved, a certificate of public convenience does not confer upon the holder
any proprietary right or interest or franchise in the route covered and in the public highways. However,
with respect to other persons and other public utilities, a certificate of public convenience, as property
which represents the right and authority to operate its facilities for public service, cannot be taken or
interfered with without due process of law.

Y TRANSIT V. NLRC

SUMMARY: The Yujuico Transit Employees Union filed labor-related complaints against Yujuico
Transit. The Labor Arbiter held Yujuico Transit liable under certain PDs. An alias writ of execution was
issued and levy was made upon the ten buses formerly owned by Yujuico Transit, but then sold to Y
Transit without prior approval of the BOT as required by the Public Service Act. Hence, Y Transit filed
Affidavits of Third Party Claim. The LA ruled that Y Transit had valid title to the buses and the BOT, by
its subsequent acts had approved the transfer. However, the NLRC reversed the LAs decision on the
ground that the transfer of the buses lacked the BOT approval. SC affirmed NLRC, citing Montoya v.
Ignacio.

DOCTRINE: Montoya v. Ignacio 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.

4. Scope of a Franchise

SAN PABLO V. PANTRANCO SOUTH EXPRESS INC.

SUMMARY: PANTRANCO bought M/V Black Double to be used for its project to operate a ferryboat
service from Matnog Sorsogon to Allen Samary that will provide service to company buses and freight
trucks that have to cross San Bernardo Strait. It said that it need not file a separate CPC for this
operation. BOT affirmed authority of Pantranco and amended its CPC to include the service. San
Pablo and Cardinal Shipping Corporation filed petition seeking revocation of the BOT decision. SC
reversed the BOT decision stating that the sea cannot be considered as continuation of the highway,
that Pantranco was not a ferry boat service but a coastwise or interisland shipping service. Thus, it
needed to procure an additional CPC for its operation

DOCTRINE: 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 cannot be considered
as a continuation of the highway. 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.

5. Prior-operator rule

To carry out the purpose and intent for which the PSC was created the law contemplates that the first
licensee will be protected in his investment and will not be subjected to a ruinous competition.

It is not therefore the policy of the law 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 PSC.

19
Accordingly, a CPC or CPCN ought not to be granted where there is no complaint as to existing rates
and the co. in the field is rendering adequate services.
- regular operators are preferred over irregular operators
- prior operator is given opportunity to improve service
- prior operator given opportunity to extend lines

Basis of rule: to prevent ruinous and wasteful competition in order that the interests of the public
would be conserved and preserved; so long as the operator complied with the terms and conditions of
the license and the reasonable demands of the public, it is the duty of the PSC to protect rather than
to destroy its investment

Q: How do you reconcile non-exclusivity of franchise and prior operator rule?


A: POR does not grant exclusivity but only grants preference. Also, Constitution does not absolutely
prohibit monopoly. The State shall regulate or prohibit monopolies only when the public interest so
requires.

BATANGAS TRANSPORTATION V. ORLANES

SUMMARY: 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. 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.

DOCTRINE: Prior Operator RuleSo 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.

Prior Operator Rule; RationaleThe policy of the state is to compel an established public utility
occupying a given filed to provide adequate service and at the same time protect it from ruinous
competition, and to allow it an opportunity to provide additional service when required instead of
permitting such service by a newly established competitor. (1) To secure adequate sustained service for
the public at the least possible cost, and to protect and conserve investments already made for this
purpose. (2) Experience has demonstrated beyond any question that competition among natural
monopolies is wasteful economically and results finally in insufficient and unsatisfactory service and
extravagant rates.

6. Kabit System

A person who has been granted a certificate of public convenience (1) allows another person who owns
motor vehicles to operate under such franchise (2) for a fee percentage of the earnings.

Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and in existent under NCC 1409. 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. (NCC 1412)

Rights of a Kabit Gen. Rule: Operator under the kabit system could not sue without joining the
registered owner of the vehicle as his principle
Except: When equity demands an exception as in the case of Lim v CA

TEJA MARKETING and/or ANGEL JAUCIAN v. IAC and PEDRO NALE

SUMMARY: Pedro Nale bought a motorcycle with a side car (trimobile daw) from Angel Jaucian. Nale
paid a down payment but was not able to pay the balance of the purchase price. As such, Jaucian filed

20
an action for a sum of money with damages against Nale. The parties had plenty of claims against
each other but when the case reached the IAC, the appellate court found that the motorcycle was
purchased for the purpose of using it for a transportation business. It was also found that for that
purpose, the trimobile was attached to Jaucians transportation line, which was the grantee of a
franchise from the government, so much so that in the registration certificate, Jaucian appears to be
the owner of the unit. Because of this, the IAC held that the parties were in pari delicto and
accordingly, dismissed the case. The SC affirmed.

DOCTRINE: Under the kabit system, 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. Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized
as being contrary to public policy and, therefore, void and inexistent.

SANTOS v. SIBUG

SUMMARY: Santos owned a jeep and wanted to operate it for public transportation. Since he doesnt
have a certificate of public convenience, the decided to be a Kabit Operator by executing a fictitious
deed of sale with Vidad to make it appear that Vidad was operating the jeep. Santos had the jeep
registered in Vidads name and for his protection, he made Vidad sign a re-transfer document to be
registered when he doesnt want to be a kabit operator anymore. One day, one of Vidads jeeps met an
accident and judgment was rendered against him. The victim attached the jeep actually owned by
Kabit Operator Santos but was registered in Vidads name. In this case, the Kabit Operator Santos
want to enjoin the auction sale of his jeepney alleging his ownership and claims damages from the
victim who sought the attachment. The SC held that the victim should not be liable for asserting his
rights. The execution must be enforced against Kabit Operator Santos.

DOCTRINE: (rephrased the SCs words a little)


Kabit operators cannot prevent the attachment of their property by alleging their true ownership of
the property and admitting that the registration in anothers name was to practice the kabit system.
When the registered owner incurs liability and the property registered in his name gets attached, the
levy on execution must still be enforced notwithstanding the fact that the secret ownership of the
vehicle belonged to the kabit operator. Kabit operators should not be allowed to defeat the levy and to
avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle
belonged to another. This is one way of curbing the pernicious kabit system that facilitates the
commission of fraud against the travelling public.

LITA ENTERPRISES, INC. V. SECOND CIVIL CASES DIVISION

SUMMARY: Nicasio Ocampo and Francisca Garcia (The Spouses) bought 5 cars to be used as
taxicabs. They had no franchise to operate taxicabs. They contracted w/ Lita Enterprises (Lita), for
the use of Litas Certificate of Public Convenience (CPC), paying P1,000 initially, w/ a P200 monthly
rental. The cars were registered in the name of Lita, but possession remained w/ The Spouses, who
operated and maintained them under the name Acme Taxi, Litas trade name. One of the taxicabs,
driven by their employee (implied to be The Spouses) collided w/ a motorcycle. The motorcycle
driver died. A criminal suit was instituted against the driver of the taxicab, and a civil case for damages
against Lita (as registered owner) was filed by the heir. The Damages Case was decided adversely
against Lita; eventually, pursuant to a writ of execution, 2 of the cars were levied upon and sold at
public auction. Around 6 years later, Nicasio Ocampo decided to register the taxicabs in his name. He
requested Litas manager to turn over the registration papers but the manager refused. The Spouses
filed a complaint for reconveyance of the cars, against Lita, the Heir, Visayan Surety & Insurance Co.,
and the Manila Sheriff. The CFI dismissed the case against all except Lita, w/c it ordered to transfer
the registration certificate of the 3 remaining cars; on the other hand, The Spouses were ordered to
pay Lita rental arrears for the CPC. On appeal, the IAC modified the decision by adding that the fair
market value of the cars were to be paid if their conditions would defeat the purpose of reconveyance.
The SC left found them in pari delicto, so it annulled and set aside the proceedings in the
Reconveyance Case.

DOCTRINE: (Transportation Law; General Discussion; Kabit System)


Definition of Kabit System: When a person who has been granted a CPC allows another person who
owns motor vehicles to operate under such franchise for a fee.

21
Contracts pursuant to the Kabit System are void and inexistent. Nothing cures this defect, not even
prescription or ratification.

Court will not aid either party to enforce an illegal contract, but will leave them both where it finds
them.

Courts will not grant affirmative relief to parties in cases where they set up a Kabit System, they are in
pari delicto and the Court will simply leave them where it found them.

LIM v. CA

SUMMARY: Gonzales purchased an Isuzu passenger jeepney from Vallarta, holder of a CPC for the
operation of PUVs. Vallarta remained on record as its registered owner and operator because
Gonzales did not have the registration of the vehicle transferred in his name nor secure a CPC. The
jeepney was damaged because of an accident. Gunnaban, truck driver, owned responsibility for the
accident but negotiations between the parties failed. Hence, Gonzales filed the instant suit for
damages. The RTC and CA ruled in his favor. The SC held that Gonzales had the personality to file this
suit despite not being the owner and operator on record of the jeepney. The kabit system is contrary to
public policy for it renders illusory the purpose of the granting of CPCs, which is, by taking into
account the financial capacity of the holder of the license, to compensate for liabilities arising from
accidents.

DOCTRINE: The kabit system is an arrangement whereby a person who has been granted a CPC
allows other persons who own motor vehicles to operate them under his license, sometimes for a
fee/percentage of the earnings. Although the parties to such an agreement are not outrightly
penalized by law, the kabit system is invariable recognized as being contrary to public policy, therefore
void and existent (Art. 1409, CC). See also Dizon v. Octavio.

In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit
system does not exist. First, neither of the parties to the pernicious kabit system is being held liable for
damages. Second, the case arose from the negligence of another vehicle in using the public road to
whom no representation, or misrepresentation, as regards the ownership and operation of the
passenger jeepney was made and to whom no such representation, or misrepresentation, was
necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the
jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered
owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal
arrangement. On the contrary, it was private respondent himself who had been wronged and was
seeking compensation for the damage done to him. Certainly, it would be the height of inequity to
deny him his right.

BALIWAG TRANSIT INC. VS. COURT OF APPEALS AND ROMAN MARTINEZ

SUMMARY: Martinez argues that he is an employee of BTI since Baliwag Transit, his real employer,
operated under the Kabit System with BTI evidenced by the 2 bus lines having the same ID number
issued to them by the Public Service Commission and thus is liable for his SSS remittances when he
worked for Baliwag Transit.

DOCTRINE: The "Kabit System" has been defined by the Supreme Court as an arrangement "whereby
a person who has been granted a certificate of convenience allows another person who owns motor
vehicles to operate under such franchise for a fee."

The determining factor is the possession of a franchise to operate which negates the existence of the
"Kabit System" and not the issuance of one SSS ID Number for both bus lines from which the
existence of said system was inferred.

7. Private nature; rights and obligations of parties inter se arising from transactions relating to
transportation

a. absent a transportation contract

LARA VS VALENCIA

22
SUMMARY: Demetrio Lara visited the concession of Brigido Valencia in his capacity as an inspector of
the Bureau of Forestry. While there, however, he contracted malaria. Since there was no bus available
at the time, Valencia agreed to take Demtrio and his companions to Barrio Samoay. When they got
there, however, no bus was available so Valencia agreed to take them to Davao City. On the way there,
Demetrio fell from the pick-up and died. Thus, Lourdes Lara, et al. filed a case for damages against
Valencia.

DOCTRINE: Demetrio and his co-passengers 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, Valencia 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.

b. liability of registered owner

PCI LEASING V. UCPB GEN. INS.

SUMMARY: For its payment to UCPB for its insured car, which was bumped by a truck leased by PCI
Leasing to SUGECO, UCPB Gen. Ins. sued PCI Leasing, which disclaims liability on the ground that,
while the registered owner, it was not the actual owner. The RTC, CA, and SC ruled that it is liable.
While the PSA is not applicable, the rule that the registered owner is liable applies to all vehicles in
general, to protect the injured persons. PCI Leasing may recover from SUGECO.

DOCTRINE: The principle of holding the registered owner of a vehicle liable for quasi-delicts resulting
from its use is well-established in jurisprudence. It applies to all vehicles in general, not just those
offered for public service or utility.

II. Regulation of the Transportation Industry

1. The Department of Transportation and Communication, EO 125, Sec. 4 and 5 (as amended by
EO 125-A); See also EO 292 Book IV, Title XV

Which agency is tasked to regulate the transportation industry? DOTC


DOTC has control and supervision over line agencies but not to attached agencies which is only
attached for policy alignment.

Agencies regulating air transportation are attached to DOTC only for policy and program coordination
while agencies regulating land transportation are under the control and supervision of DOTC and
DOTC has appellate jurisdiction over them. In short, there is a shorter leash for land than air. Land
transportation needs more regulation because there are more players as it requires less capital and
more people use it.

a. Air
(i) Civil Aviation Authority of the Philippines, Republic Act No. 9497 (2008), Sec. 4, 21,
24, 35
(ii) Civil Aeronautics Board, RA 776, as amended, Secs. 5, 10 (A), (C); Secs. 11,12

CAAP functions: regulates the facilities, aircrafts and pilots (i.e. safety and convenience)
CAB functions: regulates the economic aspect (licensing)
CAAP and CAB are DOTC attached agencies

PAL v. CIVIL AERONAUTICS BOARD (CAB)

SUMMARY: GrandAir applied for a Certificate of Public Convenience and Necessity with the Civil
Aeronautics Board(CAB). PAL opposed its application claiming that CAB has no jurisdiction to hear
the application since a legislative franchise to operate would have to be secured first. Nevertheless,
GrandAir was issued a Temporary Operating Permit. PAL again raised the issue of jurisdiction based
on the same ground. The Court upheld the authority of CAB to hear the application.

23
DOCTRINE: 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.

-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.

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.

KUWAIT AIRWAYS v. PAL

SUMMARY: PAL was a government-owned and controlled corporation when it entered into a
Commercial Agreement Kuwait Airways with respect to Manila-Kuwait routes. Instead of offering
competing flights, they agreed that only Kuwait Airways would offer this route using its own plane but
it will share its revenues with PAL. Eleven years after, PAL was privatized. Three years from its
privatization, the government of the Philippines and the government of Kuwait entered into a
Confidential Memorandum of Understanding (CMU) providing, among others, that private
arrangements with respect to Manila-Kuwait routes will not be subject to royalty payments anymore.
In effect, this agreement would render the revenue sharing scheme of PAL and Kuwait Airways invalid.
After the signing of the CMU, Kuwait Airways notified PAL its intention to terminate the revenue
sharing scheme under its Commercial Agreement pursuant to the CMU. PAL refused and insisted that
Kuwait Airways pay its obligations. Kuwait Airways refused to pay PAL prompting PAL to file an action
for collection.

The SC held that Kuwait Airways is liable to PAL because the agreement between the governments
(intending to supersede the private agreement between the two airlines) cannot bind PAL without due
process.

DOCTRINE: PAL forebears under several regulatory aspects: (1) Its authority to operate air services
derives from its legislative franchise; (2) PAL is subject to other laws of the Philippines, including RA
776 which grants regulatory power to CAB over economic aspect of air transportation; (3) Significant
public interest in state regulation of air travel

With the privatization of PAL, Philippines can only bind PAL in its capacity a regulator. As with all
regulatory measures, infringement of property rights can only avail with due process of law.
Legislative regulation of public utilities must not have the effect of depriving an owner of his property
without due process of law

CAB has ample power under its organizing charter to compel PAL to terminate whatever commercial
agreements the carrier may have. Considering the extent of CAB authority, the court noted that this is
not a case where the CAB had duly exercised its regulatory authority over a local airline in order to
implement or further government air policy

b. Land
(i) Land Transporation Office, EO 125-A, Secs. 9, 11, 13(a); Administrative Code of 1987,
Title XV, Sec 9(1)
(ii) Land Transportation Franchising and Regulatory Board, EO 202, Secs. 1, 2, 4, 5, 6, 7;
Administrative Code of 1987, Title XV, Secs. 15-22

LTO functions: Driver licensing and vehicle registration


LTFRB functions: Rate fixing, route fixing and licensing (i.e. economic aspect)
LTO and LTFRB are DOTC line agencies.

24
KMU LABOR CENTER V. GARCIA

SUMMARY: The DOTC issued a Memorandum Circular to the LTFRB, allowing provincial bus
operators to charge 15% more or less than the official rate. The Provincial Bus Operators of the
Philippines applied for a rate increase, which the LTFRB granted. Around a year later, the DOTC
issued a Department Order reiterating that operators are allowed to charge up to 15% more or less
than the official rate. Also, it was provided that fares shall not be provisionally authorized without
hearing. However, the LTFRB eventually widened the range, allowing operators to charge up to 20%
more or 25% less than the official rate. Also, created a presumption in favor of the applicant for
applications for a Certificate of Public Convenience, it. The PBOAP announced a 20% fare increase
without any form of public hearing. The Kilosang Mayo Uno (KMU) opposed the fare increase. The
LTFRB dismissed the KMUs petition. The KMU petitions the SC for Certiorari and prays for a TRO. The
SC decides in favor of KMU.

DOCTRINE: Executive Order No. 202 Section 5(c) authorizing 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."

c. Water
(i) Maritime Industry Authority, EO 125, Sec. 14, as amended by EO-125-A, Sec. 4. See
also Republic Act No. 9295, Section 10 and 11, in relation to Section 8

MARINA functions: issues CPC, registration of vessel except deregulated rate fixing.
DOTC attached agency.

III. Common Carriers

A. In General

1. Definitions, essential elements; Art. 17322

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.

Elements of a common carrier (Art 1732):


(1) Persons, corporations, firms, associations
(2) Engaged in the business of carrying or transporting
(3) Passengers, goods, OR both
(4) By land, water, air
(5) For compensation
(6) Offering their services to the public

Art. 1732 makes no distinction:


(1) 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)
(2) 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
(3) Between a carrier offering its services to the general public and who offers services or solicits
business only from a narrow segment of the general population
(4) Even if he did not secure a CPC
(5) As to means of transporting, as long as it is by land, water or air
(6) The civil code does not provide that the transportation should be by motor vehicle (FPIC case, oil
transportation through pipes)
(7) Even if no fixed and publicly known route, maintains no terminals, and issues no tickets
(8) A person or entity need not be engaged in the business of public transportation for the provisions
of the Civil Code on common carriers to apply to them.

2
(Unless otherwise indicated, reference is to the Civil Code)

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Trend of cases is towards the less strict (liberal) view of the court on the definition of a common
carrier.

De Guzman Test of a Common Carrier: NCC 1732 makes no distinction between (1) principal business
and ancillary activity (2) regular or scheduled basis and occasional, episodic or unscheduled basis (3)
to the general public and to a narrow segment of the general population.

Bascos Test of a Common Carrier: Whether the given undertaking is 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.

Planters Test of a Common Carrier: 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.

PRIVATE CARRIER is a person or corporation offering a service, and the undertaking is a single
transaction, not a part of the general business or occupation although involving the carriage of goods
for a fee.

Common Carrier Private Carrier


Availability
Holds himself out in common, that is, to all Agrees in some special case with some private
persons who choose to employ him, as ready to individual to carry for hire
carry for hire
Binding effect
Bound to carry all who offer and tender Not bound to carry for any reason, such goods as
reasonable compensation for carrying them it is accustomed to carry, unless it enters into a
special agreement to do so
Diligence required
Extraordinary diligence Ordinary diligence
Governing law
(1) Civil Code Obligations and contracts
(2) Code of Commerce and special laws: If not
regulated by the Civil Code, rights and
obligations of common carriers shall be
governed by the Code of Commerce and by
special laws (Art.1766 Civil Code).
(3) Law of the country to which the goods are to
be transported, IF regarding liability for loss,
destruction, or deterioration of goods
Regulation
A public service, therefore subject to regulation Not subject to regulation as a common carrier

US VS. TAN PIACO

SUMMARY: Tan Piaco rented two automoblie trucks and was using them for carrying passengers and
freight. He was charged w a violation of public utility law (it was claimed that he was operating a
public utility without permission). The lower court rendered him guilty. SC reversed saying that he was
not a public utility.

DOCTRINE: two things are necessary to become a public utility: (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.
The essential feature of the public use is that it is not confined to privileged individuals, but is open to
the indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In

26
determining whether a use is public, we must look not only to 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.

HOME INSURANCE CO v AMERICAN STEAMSHIP

SUMMARY: Home Insurance paid the claim by the consignee San Miguel, and later filed a claim
against Am Steamship and Luzon. CFI absolved Luzon, but held Am Steamship liable under the
provisions regarding common carriers. The SC reversed, saying that American Steamship was not
acting as a common carrier in this case, and hence the provision in the charter party that exempted
the owner from liability is not against public policy.

DOCTRINE: Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier. Being a private carrier, a stipulation
exempting the owner from liability for the negligence of its agent is not against public policy, and is
deemed valid. The civil code provisions on common carriers should not be applied where the carrier is
acting as a private carrier.

DE GUZMAN v. CA and CENDANA

SUMMARY: Cendana owned a junk shop in Pangasinan. With his two six-wheeler trucks, he used to
bring his scrap materials to Manila and as a sideline, loaded his vehicle with cargo from merchants on
his way back to Pangasinan for a fee lower than regular commercial rates. De Guzman contracted
Cendana to haul 750 cartons of Liberty Milk from Makati. Only 600 cartons reached Pangasinan
because Cendanas truck was hijacked by armed men in Tarlac. De Guzman sued Cendana for the
price of the milk and damages. He said that as a common carrier, Cendana failed to exercise
extraordinary diligence. Cendana tried to evade liability by saying that he was not a common carrier
and that he could not be liable for loss due to force majeure. The lower court found that Cendana was
a common carrier because he had habitually offered trucking services to the public. The CA reversed
and said that he was not a common carrier because the transport of goods was only his sideline and
he had no certificate of public convenience. The SC held that Cendana was a common carrier based
on the definition in Art. 1732 of the Civil Code. As a common carrier, he had the duty to exercise
extraordinary diligence in the carriage of goods. However, the SC ruled that Cendana was not remiss
in this duty and that the robbery was a fortuitous event.

DOCTRINE:
(1) One can be a common carrier even though the carriage of goods or persons is merely an
ancillary activity or sideline.
(2) The liability of a common carrier arises from the moment a person or firm acts as a common
carrier, without regard to having been granted a certificate of public convenience or other franchise.
(3) Even common carriers are not made absolute insurers against all risks of travel and
transportation of goods. They are not liable for fortuitous events, provided that they have complied
with the rigorous standard of extraordinary diligence.

BASCOS V. CA

SUMMARY: Cipriano, having a hauling contract with Jibfair to transport the latters soy bean meals
from manila to laguna, subcontracted Bascos to transport some of the said goods. Bascos failed to
transport the goods because the truck was hijacked. Cipriano paid Jibfair for the loss and in turn,
demanded reimbursement from Bascos. The latter refused to pay on the ground that it is not a
common carrier and that even if it was, it is exculpated from liability due to force majeure. The SC
ruled that Bascos falls under the definition of common carrier in the civil code and that it was not able
to overcome the presumption of negligence that applies to common carriers.

DOCTRINE: Art. 1732 defines a common carrier as: "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air,
for compensation, offering their services to the public." The 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

27
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.

PLANTERS PRODUCTS, INC. V. CA

SUMMARY: Planters Products, Inc. purchased from Mitsubishi International Corporation 9,329.7069
metric tons of Urea 46% fertilizer, which the latter shipped aboard the cargo vessel M/V Sun Plum on
June 16, 1974. Prior to its voyage, a time-charter party was entered into between Mitsubishi as shipper,
and Kyosei Kisen Kabushiki Kaisha as shipowner. Before loading the fertilizer aboard the vessel, four of
her holds were presumably inspected by the charterers representative and found it fit to take the
load. After loading the cargo, the steel hatches were closed with heavy iron lids, covered with 3 layers
of tarpaulin then tied with steel bonds. It remained sealed throughout the entire voyage.

Upon arrival of the vessel, petitioner unloaded the cargo, which took 11 days. A private marine and
cargo surveyor, Cargo Superintendents Company, Inc. (CSCI) was hired by petitioner to determine the
outturn of the cargo shipped. CSCI reported shortage of 106.726 metric tons, and contamination of 18
metric tons due to dirt. PPI sent a claim letter against Soriamont Steamship Agencies, the resident
agent of KKKK. The request was denied, hence, PPI filed an action for damages before the CFI Manila.
The lower court sustained the petitioners claim, but such decision was reversed by the appellate
court, which absolved the carrier from liability. The appellate court ruled that the vessel was a private
carrier and not a common carrier by reason of the charter party. The SC dismissed the petition, saying
that while the carrier remained a common carrier, it had sufficiently overcome the presumption of
negligence.

DOCTRINE: [T]he 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 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.
26 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.

FABRE vs. CA

SUMMARY: The Sps. Fabre operated a bus service to students in St. Scho Manila. They hired a driver
only after a 2-week apprenticeship. It contracted with the Word for the World Christian Fellowship for
a trip to La Union. At that time, it was raining so the roads were slippery. The bus met an accident.
One of the passengers, Amyline became a paraplegic as a result of the accident. The RTC and the CA
ruled in favor of Amyline and the other passengers. The Court affirmed their decisions, stating that
petitioners Fabres and the driver Cabil can be held liable under both quas delict and breach of
contract of carriage.

DOCTRINE: Art 1732 makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in
local idiom, as "a sideline"). It 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. The
Court thinks that Article 1732 deliberately refrained from making such distinctions.

28
As common carriers, the Fabres were bound 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 exercised the diligence of a good father of the family in the selection and supervision of their
employee.

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, 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.

FIRST PHILIPPINE INDUSTRIAL CORPORATION vs. CA

SUMMARY: FPIC, a grantee of a pipeline concession under Petroleum Act, to contract, install and
operate oil pipelines, applied for a mayor's permit. However, before the mayor's permit could be
issued, the City Treasurer required FPIC to pay a local tax based on its gross receipts pursuant to the
Local Government Code. In order not to hamper its operations, FPIC paid the tax under protest. FPIC
claims exemption by virtue of it being a common carrier. City Treasurer, RTC and CA all ruled that
FPIC is not a common carrier thus should be subject to the local tax imposed. SC reversed and ruled
that FPIC is a common carrier because it passed the test (see doctrine). Thus, it is exempt from local
tax which is intended to avoid double taxation since it already paid tax imposed by NIRC.

DOCTRINE: A "common carrier" may be defined, broadly, as one who holds himself out to the public
as engaged in the business of transporting persons or property from place to place, for compensation,
offering his services to the public generally.

Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:
2. 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;
3. He must undertake to carry goods of the kind to which his business is confined;
4. He must undertake to carry by the method by which his business is conducted and over his
established roads; and
5. The transportation must be for hire.

LOADSTAR SHIPPING CO. V. CA

SUMMARY: Loadstar received on board its M/V Cherokee various wood products for shipment. The
goods were insured by Manila Insurance Co. (MIC) against various risks. On its way to Manila from the
port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a
result of the total loss of its shipment, the consignee made a claim with Loadstar which, however,
ignored the same. As the insurer, MIC paid the insured the full settlement of its claim, and the latter
executed a subrogation receipt therefor. MIC filed a complaint against Loadstar alleging that the
sinking of the vessel was due to the fault and negligence of Loadstar and its employees. Loadstar
denied any liability for the loss of the shippers goods. It claimed that the vessel was a private carrier
because it was not issued a certificate of public convenience, it did not have a regular trip or schedule
nor a fixed route, and there was only one shipper, one consignee for a special cargo. The SC held that
Loadstar was a common carrier and it was liable to MIC for negligence in the carriage of the goods.

DOCTRINE: It is not necessary that the carrier be issued a certificate of public convenience for it to be
considered a common carrier, and this public character is not altered by the fact that the carriage of
the goods in question was periodic, occasional, episodic or unscheduled.

ASIA LIGHTERAGE AND SHIPPING, INC. v. CA and PRUDENTIAL GUARANTEE

29
SUMMARY: Asia Lighterage and Shipping Co. was contracted as carrier by Marubeni American
Corporation from Portland, Oregon to deliver a cargo to the consignees (General Milling Corporation)
warehouse at Pasig City. The cargo, however, never reached the consignee as the barge that carried
the cargo sank completely, resulting in damage to the cargo. Prudential Guarantee Assurance, as
insurer, indemnified the consignee for the lost cargo and thus, as subrogee, sought recovery from Asia
Lighterage. Both the trial court and the appellate court ruled in favor of Prudential. The SC affirmed.
The Court ruled that Asia Lighterage was a common carrier, that it failed to exercise extraordinary
diligence in its care and custody of the consignee's goods, and that it failed to prove that the typhoon
was the proximate and only cause of the loss and that it has exercised due diligence before, during
and after the occurrence.

DOCTRINE: Article 1732 of the Civil Code defines common carriers as 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.

Article 1732 of the Civil Code 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. We
also did not distinguish 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.
Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to the
general public, and one who offers services or solicits business only from a narrow segment of the
general population. 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.

CRISOSTOMO V. COURT OF APPEALS

Common carrier; does not include travel agency


Object of contract with travel agency: service of arranging and facilitating clients booking, ticketing
and accommodation in the package tour;
Object of contract of carriage: transportation of passengers or goods;
Standard of care for travel agencies: diligence of a good father of a family;

2. Nature of Business; power of State to regulate; Art. 1765

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.

The business of a common carrier holds such a peculiar relation to the public interest that there is
superinduced upon it the right of public regulation. The business of a common carrier is affected with
public interest. When, therefore, one devotes his property to a use in which the public has an interest,
he, in effect, grants to the public an interest in that use, and must submit to be controlled by the
public for the common good, to the extent of the interest he had thus created.

PANTRANCO v. PSC

SUMMARY: PANTRANCO, a corporation who has been issued a CPC, applied for an authorization to
operate new equipment. The PSC granted such application subject to 2 conditions. PANTRANCO did
not agree to these conditions. When the case came to the SC, PANTRANCO argues that CA 454,
amending CA 146, which gave PSC the power to prescribe the conditions questioned, is
unconstitutional for being an undue delegation of legislative power. It also claimed that assuming CA
454 is constitutional, it nevertheless is inapplicable to its CPC, given that such was issued prior to the
enactment of CA 454. SC disagreed BUT it ruled that PSC's decision should be reversed because
PANTRANCO was not given the opportunity to present evidence.

DOCTRINE: The business of a common carrier holds such a peculiar relation to the public interest that
there is super induced upon it the right of public regulation. When private property is "affected with a
public interest it ceased to be juris privati only.

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3. Nature and Basis of Liability; Art. 1733

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.

Extraordinary diligence required of common carriers. The law requires Common Carriers to exercise
extraordinary diligence which means that they must render service with the greatest skill and utmost
foresight. The extra-ordinary diligence required of carriers in the handling of the goods of the shippers
and consignees last from the time the cargoes are loaded in the vessels until they are discharged and
delivered to the consignees.

Reasons for requiring extra-ordinary diligence. The nature of the business of common carriers and the
exigencies of public policy demand that they observe extra-ordinary diligence; the business of
Common Carriers is impressed with a special public duty and therefore subject to control and
regulation by the state. The public must of necessity rely on the care and skill of Common Carriers in
the vigilance over the goods and safety of the passengers

Rigorous law on common carriers not applicable to special employment as carrier. The laws applicable
to Common Carriers are rigorous and should not be extended to a person who has neither expressly
assumed that character, nor by his conduct and from the nature of his business justified the belief on
the part of the public that he intended to assume it.

CANGCO v. MANILA RAILROAD

SUMMARY: Cangco was an employee of Manila Railroad who went to its office everyday using the
companys trains. He uses a pass given by the company which entitled him to ride upon the company's
trains free of charge. One day, he alighted while the train was still on its way to a stop. He accidentally
stepped on a sack of melons piled on the platform causing him to fall under the moving train. As a
result, his arm was amputated up to the shoulder. He is claiming damages from the company. The SC
awarded him damages finding that the liability of Manila Railroad was direct and immediate based on
the breach of contract of carriage. It also held that Cangco was not guilty of contributory negligence in
alighting while the train was slowly moving to a stop.

DOCTRINE: (nature and basis of liability of common carriers)


Liability of Masters under Art 2180 (1903 in OCC)
The liability of masters and employers for the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to the breach of a contact, is not based
upon a mere presumption of the master's negligence in their selection or control, and proof of exercise
of the utmost diligence and care in this regard does not relieve the master of his liability for the breach
of his contract.
The contract of carriage carried with it, by implication, the duty to carry him in safety and to provide
safe means of entering and leaving its trains. 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.

ISAAC V. A.L. AMMEN

SUMMARY: At Ligao, Albay, Isaac boarded A.L. Ammens bus w/c was bound for Pili, Camarines Sur.
He sat at the left, window side of the bus and had his left elbow sticking out. As the bus was moving at
a moderate speed (just after a stop at a school zone,) a pick-up car was headed in its direction (the
pick-up was in the wrong lane.) The bus driver swerved his bus to avoid the pick-up but it still collided
w/ the bus. As a result of the collision, Isaacs left arm was severed. After spending time in several
hospitals, Isaac sued A.L. Ammen for Damages. The TC dismissed the case, finding that the collision
was due to the pick-up drivers negligence. Isaac appealed to the SC. The SC affirmed the TC,
agreeing w/ the TCs findings of fact, as well as noting that Isaacs negligence contributed to his injury.

31
DOCTRINE: (Transportation Law; Common Carriers; Nature and Basis of Liability; Art. 1733)

Under the New Civil Code, a common carrier is bound to observe extraordinary diligence.
SCs restatement of principles of common carrier liability under the New Civil Code The liability 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.
Carriers are obliged to carry passengers w/ the utmost diligence of a very cautious person, having
due regard for all circumstances.
Carriers are presumed to be at fault or to have acted negligently in case of death/injury to
passengers.
Carriers have the duty to prove that they exercised extraordinary diligence.
Carriers are not insurers against all risks of travel.

FORES v. MIRANDA

SUMMARY: Miranda was a passenger of the jeepney which, because of excessive speed, hit the bridge
wall of the Sta. Mesa bridge. Miranda was injured. The driver of the jeepney pleaded guilty to the
charge of serious physical injuries through reckless imprudence. Aside from actual damages, the CA
awarded moral damages to Miranda. The SC deleted this award on the ground that it is not
recoverable in damage actions predicated on a breach of the contract of transportation.

DOCTRINE: The action for breach of contract imposes on the defendant carrier a presumption of
liability upon mere proof of injury to the passenger; the latter is relieved from the duty to establish 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 unforeseen event or to force majeure. 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, NCC).

PHILIPPINE RABBIT VS. IAC

SUMMARY: The Jeeps rear right wheel detached and the jeep u-turned abruptly to the left from the
right lane. It was then hit by Rabbits bus killing 3 and injuring 4 passengers. The latter sued the
owners and drivers of the bus and jeep. It is the carrier(owners of the jeep) that are liable to the
passengers in the civil case for breach of contract of carriage.

DOCTRINE: In culpa contractual, the moment a passenger dies or is injured, the carrier is presumed to
have been at fault or to have acted negligently, and this disputable presumption may only be
overcome by evidence that he had observed extra-ordinary diligence as prescribed in Articles 1733,
1755 and 1756 of the New Civil Code or that the death or injury of the passenger was due to a
fortuitous event. In an action for damages against the carrier for his failure to safely carry his
passenger to his destination, an accident caused either by defects in the automobile or through the
negligence of its driver, is not a caso fortuito which would avoid the carriers liability for damages.

SARKIES TOURS PHILS. VS. COURT OF APPEALS

SUMMARY: Fatima Fortades boarded one of the buses of Sarkies Tours. On the way to Legazpi City,
however, she found out that the luggage she brought with her was missing. Thus, she filed a case for
damages, alleging that Saries failed to exercise the extraordinary diligence required of a common
carrier.

DOCTRINE: Article 1733 of the Civil Code states that Common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case. The only exceptions to this required diligence are to be found in Article
1734.

LRTA AND ROMAN V. NAVIDAD

32
SUMMARY: While standing on the platform near the LRT tracks, after buying a token, an altercation
ensued between Navidad and Escartin, the security guard in the area. As such, Navidad fell into the
tracks and was struck by a moving train operated by Roman, killing him instantaneously. The RTC
held Escartin and Prudent Security Agency liable. The CA reversed, holding LRTA and Roman liable.
The SC held LRTA liable, ruling that LRTA had the obligation to keep Navidad safe within its premises.

DOCTRINE: The law requires common carriers to carry passengers safely using the utmost diligence of
very cautious persons with due regard for all circumstances, 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.

4. Classes of common carriers; Art. 1732, 1733, 1755

ART. 1732, 1733, supra

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.

5. Law applicable; Arts. 1766, 1753

Summary of Rules:
(a) Coastwise Shipping
(1) New Civil Code (Art. 1732-1766) primary law
(2) Code of Commerce governs suppletorily in absence of Civil Code provisions
(b) Carriage from Foreign Ports to Philippine Ports
(1) New Civil Code primary law
(2) Code of Commerce all matters not regulated by the Civil Code
(3) Carriage of Goods by Sea Act suppletorily to the Civil Code
(c) Carriage from Philippine Ports to Foreign Ports
(1) The laws of the country to which the goods are to be transported.
(d) Overland Transportation
(1) New Civil Code primary law
(2) Code of Commerce - suppletorily
(e) Air Transportation
(1) New Civil Code primary law
(2) Code of Commerce suppletorily
(3) For International Carriage Warsaw Convention or Convention for the Unification of Certain
Rules Relating to the International Carriage by Air

NATIONAL DEVELOPMENT COMPANY V. CA; MARITIME COMPANY OF THE PHILS. V. CA

SUMMARY: A memorandum agreement was entered into between defendants National Development
Company (NDC) and Maritime Company of the Philippines (MCP). NDC, as the owner of the vessel,
appointed MCP as its agent to manage and operate the vessel Doa Nati for and in its behalf and
account. Also, MCP was conferred all the powers of the owners of the vessel, including the right to
enter into a contract in the name of NDC. Loaded on board the vessel Doa Nati were bales American
raw cotton (from San Francisco, CA) and cartons of sodium lauryl sulfate and cases of aluminum foil
(from Tokyo, Japan). En route to Manila, the vessel Doa Nati figured in a collision with a Japanese
vessel. As a result, a part of the said cargoes was damaged and/ or lost. Plaintiff-Insurer Development
Insurance and Surety Corporation paid to the holders of the duly endorsed bills of lading the amount
of the total respective losses. The insurer filed a complaint to recover said amount from NDC and MCP
as owner and ship agent, respectively. The trial court and Court of Appeals ruled in favor of the
Insurer. The Supreme Court ruled in favor of the Insurer.

DOCTRINE: "The law of the country to which the goods are to be transported governs the liability of
the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code).

For cargoes transported from [any country] to the Philippines, the liability of the carrier is governed
primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code).

33
Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the
Civil Code.

B. Common Carriage of Goods

1. Liability and presumption of negligence; Arts. 1733, 1734, 1735

ART. 1733. supra

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.

PRESUMPTION OF NEGLIGENCE The (1) mere proof of delivery of goods in good order to a carrier,
and of (2) 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. It is incumbent upon the carrier to prove that the loss was due to accident or some other
circumstance inconsistent with its liability.

DEFENSES against Presumption and Liability/Limit Liability:


(1) Assert NOT a Common Carrier
(2) Destination not the Philippines (i.e. Civil Code/Laws of the Philippines will not apply)
(3) Bareboat Charter
(4) Exempt from Liability under Art. 1734
(5) Exercised Extraordinary Diligence
(6) Event happened not in the duration of Extraordinary Diligence
(7) Limitations in Stipulation
(8) Contributory negligence
(9) Through allegation of lack of bad faith

THE YNCHAUSTI STEAMSHIP COMPANY v I.B. DEXTER, and C.E. UNSON,

SUMMARY: The Government of the Philippine Islands, acting by and through the respondent Insular
Purchasing Agent, transported 30 cases of White Rose mineral oil and 96 cases of Cock brand mineral
oil on July 23, 1918 and September 18, 1918, respectively. The goods were on board the steamship
Venus from Manila to Appari, Cagayan. A Government bill of lading was executed and delivered where
it was stipulated that the carrier, Ynchausti & Co., received the goods in apparent good condition and
obligated itself to carry said supplies to the place agreed upon. Upon delivery of the said shipment of
mineral oil, the consignee claimed that one case of the Cock brand and another case of the White
Rose brand were delivered empty. Insular Purchasing Agent notified the petitioner that the Insular
Auditor found that the loss was due to the negligence of petitioner and deducted the cost of the
goods (P22.53) from the amount of the freight earned (P88.79). Petitioner protested against the
threatened deduction and filed an original action for mandamus with the Supreme Court. The SC
ruled in favor of respondents and upheld the deductions.

DOCTRINE: 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. It is incumbent
upon the carrier to prove that the loss was due to accident or some other circumstance inconsistent
with its liability.

MIRASOL v. DOLLAR

34
SUMMARY: Mirasol, shipper, filed a claim against The Robbert Dollar Co., shipowner, seeking
damages for the total loss of 1 case of books and the partial loss of another case. Dollar denied
liability and argued that the cause of the destruction was "sea water" and invoked the limited liability
clause in the bill of lading. CFI found for Mirasol and awarded him damages. SC agreed.

DOCTRINE: Restrictions on liability of steamship company for its own negligence or failure of duty
toward the passenger, being against the public policy, will not be upheld, though the ticket was issued
and accepted in a foreign country and contained a condition making it subject to the law thereof.

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.

2. Exemption from liability

(a) Natural Disaster; Arts. 1734 (1), 1739, 1740; Art. 361, Code of Commerce

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.

Effect of New Civil Code. Transportation of the merchandise "at the risk and venture of the shipper"
means that the shipper will suffer losses and deterioration arising from fortuitous event, force
majeure, or inherent nature and defects of the goods. It does not mean that the carrier is free from
liability for losses and deterioration arising from his negligence or fault, w/c is presumed. Thus
construed, par. 1 of Art. 361 is not inconsistent with Art. 1735 of the NCC.

Requisites for defense of natural disaster:


(1) Natural disaster must have been the proximate and only cause of the loss (Art. 1739)
(2) Common Carrier must exercise due diligence to prevent or minimize the loss before, during and
after the occurrence of flood, storm, or other natural disaster. If the CC does not exercise due
diligence in minimizing the loss, he may yet be held liable notwithstanding the fact that the loss,
destruction or deterioration of the goods arose out of natural disaster.
(3) Common Carrier must not be in delay. If the Common Carrier incurs in delay, a natural disaster
shall not free it from responsibility. (Art. 1740) Under Art. 1165 par. 3, if the obligor incurs delay, he
shall be responsible for any fortuitous event until he has effected delivery.

However, if between the delay or refusal of the Common Carrier to transport the goods and the loss of
the goods due to an act of God there intervened the shipper's negligence, thus causing a break in the
chain of causation between the act of God which caused their loss and the Common Carrier's fault, the
act of God is the proximate cause of the loss and the carrier's delay or refusal to transport the goods, is
merely the remote cause. In such cases, the shipper is not even entitled to set up the claim of
contributory negligence. It is then necessary that it be established that the Common Carrier was guilty
of a willful or negligent act and that between this willful or negligent act and the act of God, no
negligence on the part of the shipper intervened.

Accident due to defects of carrier not caso fortuito. Accidents caused either by defects in the carrier or
through the negligence of the carrier is not caso fortuito. The passenger or shipper has every right to
presume that the carrier is perfectly in good condition and could transport him safely and securely to
his destination.

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TAN CHIONG SIAN V. INCHAUSTI & CO.

SUMMARY: Ong Bien Sip contracted Inchausti to ship goods to be brought to Catarman, Samar. It
was alleged that the goods belong to Tan Chiong Sian(the one who brought the complaint). Inchausti
has no direct trip from Manila to Catarman so it has to bring the goods to Gubat, Sorsogon to be
transferred to a lorcha(a kind of vessel without a motor of its own) which will bring the goods to
Catarman, Samar. While they were in Gubat, and after the merchandise were already inside the
lorcha, a storm came. The lorcha was brought ashore wrecked and the goods cannot be delivered
anymore. SC ruled that the patron and crew of the lorcha acted without negligence and that the cause
of the loss is force majeure. Inchausti was not held liable.

DOCTRINE: 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(If the wreck or stranding should arise
through the malice, negligence, or lack of skill of the captain, or because the vessel put to sea
insufficiently repaired and supplied, in which case the owner or the freighters may demand indemnity
of the captain for the damages caused to the vessel or cargo by the accident).

MARTINI V. MACONDRAY

SUMMARY: Martini contracted Macondray to deliver 219 cases of chemical products from Manila to
Kobe, Japan. Based on the written instruments evidencing their agreement, the cases were to be
transported on the deck of the ship (as opposed to in the hold) at shippers risk. Martini contests that
this was not in accordance with the agreement. Macondray disagrees, and informs Martini that there
is no more room in the hold, and that he may take possession of the goods if he wants. In the end
Martini did not take steps to retake the goods and allows the ship to leave. On arrival in Kobe, the
goods were found damaged by rain and the waves splashing on the deck. Martini files for damages.
CFI: Macondray liable. SC: CFI overturned. Martini consented to the goods being transported on deck.
Macondray is not liable since there is no allegation of negligence, and the consent in the carrying of
the goods.

DOCTRINE: If the (ship) master carries goods on deck as opposed to in the ships hold, without the
consent of the shipper, he does it at his own risk. If they are damaged or lost in consequence of their
being thus exposed, he cannot protect himself from responsibility by showing that they were damaged
or lost by the dangers of the seas. Where the shipper consents to have his goods carried on deck as
opposed to in the ships hold, he takes the risks of any damage or loss sustained as a consequence of
their being so carried.

EASTERN SHIPPING LINES VS. CA

SUMMARY: M/S ASIATICA (vessel operated by Eastern Shipping Lines) caught fire and sank. The
insurers paid the consignees and is now suing Eastern Shipping for the amount. TC, CA and SC
favored the insurers. The main contention of Eastern Shipping was that it was not liable because fire
was a fortuitous event. SC ruled otherwise.

DOCTRINE: Fire may not be considered a natural disaster or calamity. This must be so as it arises
almost invariably from some act of man or by human means. It does not fall within the category of an
act of God unless caused by lightning or by other natural disaster or calamity. It may even be caused
by the actual fault or privity of the carrier.
As the peril of fire is not comprehended within the exceptions in Article 1734, Article 1735 of
the Civil Code provides that in all cases other than those mentioned 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 diligence required by law. Hence, the burden then was upon Eastern
Shipping to prove that it had exercised extraordinary diligence required by law.

ASIA LIGHTERAGE AND SHIPPING, INC. v. CA and PRUDENTIAL GUARANTEE

SUMMARY: Asia Lighterage and Shipping Co. was contracted as carrier by Marubeni American
Corporation from Portland, Oregon to deliver a cargo to the consignees (General Milling Corporation)
warehouse at Pasig City. The cargo, however, never reached the consignee as the barge that carried
the cargo sank completely, resulting in damage to the cargo. Prudential Guarantee Assurance, as

36
insurer, indemnified the consignee for the lost cargo and thus, as subrogee, sought recovery from Asia
Lighterage. Both the trial court and the appellate court ruled in favor of Prudential. The SC affirmed.
The Court ruled that Asia Lighterage was a common carrier, that it failed to exercise extraordinary
diligence in its care and custody of the consignee's goods, and that it failed to prove that the typhoon
was the proximate and only cause of the loss and that it has exercised due diligence before, during
and after the occurrence.

DOCTRINE: Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. They are presumed to have been at fault or to have acted negligently if
the goods are lost, destroyed or deteriorated. To overcome the presumption of negligence in the case
of loss, destruction or deterioration of the goods, deterioration of the goods, the common carrier must
prove that it exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734
of the Civil Code enumerates the instances when the presumption of negligence does not attach,
precisely (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity.

(b) Act of public enemy; Art. 1734(2), 1739

REQUISITES:
(a) The act of the public enemy was committed either in an international or civil war. (Art. 1734)
(b) The act of the public enemy must have been the proximate and only cause (Art. 1739)
(c) The common carrier must exercise due diligence to prevent or minimize the loss before, during
and after the act of the public enemy causing the loss, destruction or deterioration of the goods.
(Art. 1739)

(d) Act or omission of shipper; Art. 1734(3), 1741

REQUISITES:
(a) The act or omission of the shipper must have been the proximate and only cause of the loss,
destruction, or deterioration of the goods (Art 1741)
(b) If the shipper owner merely contributed to the loss, destruction or deterioration of the goods, the
proximate cause being the negligence of the common carrier, then the common carrier shall be
liable for the damages, which shall, however, be equitably reduced. (Art 1741)

(e) Character of goods, etc.; Arts. 1734(4), 1742; Art. 366, Code of Commerce

REQUISITES:
(a) The loss, destruction, or deterioration of the goods is due to the character of the goods or defects
in the packing or in the containers (Art 1739)
(b) The common carrier must exercise due diligence to forestall or lessen the loss (Art 1739)

GOVERNMENT v. YNCHAUSTI

SUMMARY: The Government (shipper) shipped roofing tiles to the Treasurer of Iloilo (consignee)
through the vessel of Ynchausti & Company (carrier). It was covered by a Government Bill of Lading
but Ynchausti stamped its own two conditions thereon. The tiles were tied with bejuco in bundles of
ten without any protective covering. It was admitted that the tiles were also brittle and fragile in their
nature. When the tiles reached the consignee, some of them were cracked. The damage was worth
P200. The Government sought recovery for the damages but did not offer proof to show negligence
on the part of the carrier. It relied on American authorities to support its contention that the carrier is
the absolute insurer of the merchandise shipped. The lower court absolved the carrier from all liability
because there is no presumption of negligence on the part of the carrier. The Supreme Court affirmed
this decision based on Arts. 361 and 362 of the Commercial Code. It said that since the damage was
by virtue of the nature of the tiles, the shipper was obliged to prove that the damage was due to the
negligence of the carrier.

DOCTRINE: In this jurisdiction, there is no presumption of negligence on the part of the carrier when
the damage was by virtue of the very nature or defect of the articles shipped.

SOUTHERN LINES, INC. V. CA

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SUMMARY: The city of Iloilo bought rice from NARIC which was shipped through the Southern Lines,
Inc. Iloilo paid for the entire shipping cost. When the goods arrived in Iloilo, there was shortage in the
number of sacks, hence, Iloilo filed a case for the recovery of the amount representing the value of the
shortage of the shipment of rice. The CFI and CA absolved NARIC and ordered Southern to pay. One
of the defenses of Southern was that it was exempt from liability because the shortage was on
account of the bad condition of the sacks. The SC affirmed the lower courts and held southern liable.

DOCTRINE: If the fact of improper packing is known to the carrier or his servants, or apparent upon
ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved of
liability for loss or injury resulting therefrom.

(f) Order of competent authority; Arts. 1734(5), 1743

REQUISITES:
(a) There must be an order or act of competent public authority (Art. 1734)
(b) The said public authority must have had the power to issue the order. (Art. 1743)

GANZON V. CA

SUMMARY: Tumambing contracted the services of Ganzon to haul scrap iron on board the latters
lighter. Tumambing then delivered the scrap iron to Captain Niza, the captain of the lighter, for the
loading of such scrap iron. When half had been loaded, Mayor Advincula of Mariveles, Bataan arrived
and demanded 5k from Tumambing. The latter resisted the shakedown, which resulted in an
altercation between the two and Tumambing getting shot. After some time, the loading was resumed,
but this time, Acting Mayor Rub ordered Captain Niza and Ganzons employees to dump the scrap
iron. Ganzons employees did so. Tumambing filed a case for damages against Ganzon. The CFI ruled
against Tumambing, but the CA reversed. The SC affirmed the CA, saying that there was no showing
that it was well within the power of the acting mayor to order the dumping of such scrap iron.
Therefore, the said order does not fall under Art. 1734 (5), which would have exempted Ganzon from
liability.

DOCTRINE: To be absolved on the basis of being ordered by a competent public authority, it should
have been shown the authority had the power to issue the disputed order, or that it was lawful, or that
it was issued under legal process of authority.

Sufficient proof is required to show that the issuance of the order was attended with such force or
intimidation as to completely overpower the will of the petitioner's employees.

3. Duration of Extraordinary Responsibility; Arts. 1736 to 1738

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.

When does the carriers extraordinary responsibility begin?


It only begins from the time the goods are unconditionally placed in the possession of and received by
the carrier for transportation. (Art 1736)

When does carriers extraordinary responsibility terminate?

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(1) 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.
1736)
(2) When the goods are temporarily unloaded or stored in transit by reason of the exercise of the
shipper or owner of his right of stoppage in transitu.
(3) Until the consignee has been advised of the arrival of the goods at the place of destination and
has had reasonable opportunity to remove them or dispose of them from the warehouse of the
carrier at the place of destination (Art. 1738)

To whom should the goods be delivered?


(1) Consignee
(2) Person who has a right to receive them - includes agents, brokers, and the like.

COMPANIA MARITIMA vs. INSURANCE COMPANY

SUMMARY: Macleod and Co. contracted the services of Compania Maritima for the shipment of hemp.
The lighter carrying a portion of the hemp sank resulting in the damage of the hemp. The insurance
company paid for the damage and brought this claim against Compania Maritima. The lower courts
ruled in favor of the insurance company. The Supreme Court affirmed their rulings, stating that there
was already a contract of carriage even though the hemp were not yet loaded on the ship. The loading
of the hemp in the lighters were preparatory to the its loading on the ship. This preparatory step is but
a part and parcel of said contract of carriage.

DOCTRINE: The liability and responsibility of the carrier under a contract for the carriage of goods
commence on their actual delivery to, or receipt by, the carrier or an authorized agent. . . . and delivery
to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in that
way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time
of delivery to the lighter. . . and, similarly, where there is a contract to carry goods from one port to
another, and they cannot be loaded directly on the vessel, and lighters are sent by the vessel to bring
the goods to it, the lighters are for the time its substitutes, so that the bill of lading is applicable to the
goods as soon as they are placed on the lighters.

The test as to whether the relation of shipper and carrier had been established is, had the control and
possession of the cotton been completely surrendered by the shipper to the railroad company?
Whenever the control and possession of goods passes to the carrier and nothing remains to be done by
the shipper, then it can be said with certainty that the relation of shipper and carrier has been
established.

LU DO & LU YM CORPORATION vs. I. V. BINAMIRA

SUMMARY: Delta Photo Supply Company of New York shipped on board the M/S "FERNSIDE" at New
York, U.S.A.,6 cases of films and/or photographic supplies consigned to the order of respondent I. V.
Binamira. It was stipulated in the bill of lading that the responsibility of the carrier shall cease when
the goods are taken into the custody of customs or other authorities. The goods are unloaded in good
order. Visayan Cebu Terminal Company Inc, the arrastre operator appointed by the Bureau of
Customs, received the goods and noted that it is in good order. 3 days after the goods were unloaded
from the ship, Binamira took delivery of his 6 cases of photographic supplies from the arrastre
operator. He discovered that the cases showed signs of pilferage. Thus, Binamira filed a claim for the
sum of the missing shipment and damages. TC and CA ruled in favor of Binamira and order Lu Do, the
carrier to pay. SC ruled that the carrier is not liable.

DOCTRINE: The extra ordinary diligence requirement and the presumption of negligence is only
applicable 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. (own words)

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 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.

AMERICAN PRESIDENT LINES V. KLEPPER

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SUMMARY: Richard Klepper shipped on board the S.S. President Cleveland at Yokohama, Japan one
lift van containing personal and household effects. While the lift van was being unloaded by the
Gantry crane operated by Delgado Brothers, Inc., it fell on the pier and its contents were spilled and
scattered. Klepper brought this action against American President Lines (APL), the carrier of the
goods, before the CFI to recover damages. The CFI, the CA and the SC all affirmed the liability of APL
to Klepper.

DOCTRINE: The common carriers extraordinary responsibility lasts from the time the goods are
placed in its possession until they are delivered, actually or constructively, to the consignee or to the
person who has a right to receive them.

SAMAR MINING COMPANY, INC. and NORDEUTSCHER LLOYD and CF SHARP CO, INC.

SUMMARY: Samar Mining Co. entered into a contract with Nordeutscher and its Philippine agent CF
Sharp, evidenced by a Bill of Lading, for the importation of welded wedge wire sieves. The goods were
received in Manila, but never reached the port of destination, Davao. Samar Mining filed a claim for
payment from Nordeutscher and CF Sharp. The TC ruled in their favor, but the SC disagreed, ruling
that the carriers were not liable, since the terms in the Bill of Lading absolved them of responsibility.

DOCTRINE: Stipulations in bills of lading exempting the carrier from liability for loss or damage to the
goods when the same are not in its actual custody have been upheld. (In this case, the Bill of Lading
stated that upon reaching Manila, the carrier was to be considered an agent of the shipper already.
Therefore, the goods were considered as being delivered to the shipper at that point.)

EASTERN SHIPPING LINES V. CA

SUMMARY: 2 fiber drums of ribloflavin were shipped from Japan through a vessel owned by Eastern.
When custody was discharged to Metro Port, one drum was in bad order. Allied Brokerage received
the shipment one drum opened and without seal. When it delivered the shipment the consignees
warehouse, one drum contained spillages while the rest of the contents was adulterated/fake.
Mercantile filed a case for damages as the insurer of the shipment. LC held Eastern, Metro Port and
Allied Brokerage jointly and severally liable. CA affirmed the decision.

DOCTRINE: The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for
their acceptance by, the person entitled to receive them. 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.

4. Agreement Limiting Liability

(a) As to diligence required; Arts. 1744, 1745, 1751

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:
(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;

40
(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

Stipulations on Degree of Diligence


No diligence to be observed Void
Less than Diligence of a good father of a family Void
Less than Extraordinary diligence Valid, if 3 requisites in
Art. 1744 are satisfied

(b) As to amount of liability; Arts. 1749 and 1750

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 agreed upon.

Kinds of Stripulations Limiting Liability


(Heacock v. Macondray, 42 Phil 205)
Exempting the common carrier from any and all liability for loss or damage Void
occasioned by its own negligence
Providing for an unqualified limitation of such liability to an agreed Void
stipulation
Limiting the liability of the common carrier to an agreed valuation unless the Valid
shipper declares a higher value and pays a higher rate of freight

HEACOCK v. MACONDRAY

SUMMARY: Heacock, as shipper, caused the delivery of 4 cases of merchandise including 12 8-day
Edmond clocks on board Bolton Castle in New York for transportation to Manila. Although Bolton
Castle arrived Manila, the clocks were not delivered to Heacock. Macondray, as agent and
representative of [the owner of?] Bolton, tendered an amount to Heacock, representing the
proportionate freight value of the clocks, but Heacock rejected this. Heacock later filed a suit for
recovery of a bigger amount against Macondray. Both parties were basing their respective claims on
two different clauses contained in the Bill of Lading (Clauses 1 and 9), both of which limited the
liability of the carrier but differ on the measure of Macondrays liability. Lower Court applied Clause 9
and ruled in favour of Heacock. SC affirmed.

DOCTRINE: 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. The first and second kinds of stipulations are invalid as
being contrary to public policy, but the third is valid and enforceable.
If a common carrier gives to a shipper the choice of two rates, the lower of the conditioned upon his
agreeing to a stipulated valuation of his property in case of loss, even by the carrier's negligence, if the

41
shipper makes such a choice, understandingly and freely, and names his valuation, he cannot
thereafter recover more than the value which he thus places upon his property.
In construing a bill of lading given by the carrier for the safe transportation and delivery of goods
shipped by a consignor, the contract will be construed most strongly against the carrier, and favorably
to the consignor, in case of doubt in any matter of construction

SHEWARAM V. PAL

SUMMARY: Shewaram is a passenger of PAL bound for Manila. One of his suitcases did not arrive at
the destination with him. PALs employees gave him another suitcase that looked like his, but he
refused upon opening the suitcase, saying that the items were not his. Upon PALs investigation, it
turned out that the suitcase was mistagged for another place instead of for Manila. When the suitcase
arrived in Manila, two valuable items were missing: a transistor and a camera. Shewaram claimed the
value of the lost items to PAL who refused to pay. Shewaram filed an action to recver the value of his
lost items. PAL denied liability and invoked the fine print on the ticket stub limiting its liability in case
of loss of goods.

SC held that PAL is liable for the loss and that its liability is not limited by the amount printed at the
back of the ticket.

DOCTRINE: (agreement as to amount of liability)


In accordance with Article 1750, the pecuniary liability of a common carrier may, by contract, be
limited to a fixed amount. It is required, however, that the contract must be "(1) reasonable and just
under the circumstances and (2) has been fairly and freely agreed upon."

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. If not complied with, the limitation on the
liability will not be effective.

ONG YIU V. CA

SUMMARY: Ong Yiu rode a PAL flight (from Mactan, Cebu, to Butuan City) to attend some hearings in
a trial. PAL lost his maleta by overcarrying (Francis????) the luggage to Manila. The maleta was
brought in by a flight the next morning, but Yiu was not there so a driver who previously worked for Yiu
volunteered to deliver it. The driver opened the lock, and called the attention of the porter clerk, who
looked at its contents but did not touch them. When it was delivered to Yiu, Yiu inspected it and found
that a folder containing materials related to his trial, as well as 2 gifts for his in-laws, were missing, so
he refused to accept the luggage. The driver returned the luggage to the porter clerk, who sealed and
forwarded it to PAL Cebu. Yiu got a postponement for his hearings, so he returned to Cebu City. He
sent a letter to PAL demanding that his luggage be produced intact, as well as for compensation. 2
days later, 3 men of PAL Cebu went to Yius office to deliver the maleta. In the presence of a Mr. Yap
and Atty. Maranga, the contents were listed and receipted for by Yiu. 6 days later, Yiu sent a letter to
PAL Cebu inquiring as to an investigation promised by the 3 men of PAL. The next day, PAL replied
that the folder could not be found, not could any personnel who allegedly pilfered the baggage be
identified. Yiu filed a Complaint against PAL for Breach of Contract of Transportation w/ the Cebu CFI.
The CFI found adversely against PAL, ordering it to pay damages. The CA reversed the CFI, only
ordering PAL to pay P100, the baggage liability printed at the back of the ticket. The SC upheld the
CAs decision.

DOCTRINE: (implied) Where the liability has been limited due to a stipulation written at the back of a
ticket, to the effect that the liability is limited to a certain amount unless the passenger declares a
higher valuation, a passenger who did not declare a higher valuation, or did not pay additional
charges, or did not even provide an actual amount of the goods, cannot increase the liability of the
carrier.

Such contracts are Contracts of Adhesion, where one party imposes a ready made form of contract on
the other.

Even though the passenger did not sign the ticket, they are still bound by its provisions.

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These provisions are valid and binding on the passenger regardless of their lack of knowledge or
assent to the regulation (Tannebaum v. National Airline, Inc.)

The one who adheres is in reality free to reject it entirely. If he adheres, he gives his consent
(Tolentino).

A contract limiting liability upon an agreed violation does not offend against the policy of the law
forbidding one from contracting against his own negligence (Randolph v. American Airlines)

PAN AMERICAN v. IAC

SUMMARY: Pangan entered into a contract with a company in San Francisco and another in Guam for
the exhibition of his films in said places. He purchased a ticket and took the flight to Guam to comply
with his commitments therein. Upon arrival, however, his 2 luggages did not arrive with his flight. Due
to futile attempt of Pangans claims with Pan Am for the recovery of his luggages, the former filed this
complaint. The CFI, affirmed by the IAC, awarded actual damages of P83,000 plus P8,123.34 both
with interest and P10,000 as attorneys fees. Pan Am contended that its liability was limited to what
was stipulated in Pangans plane ticket. The SC set aside the IACs decision and ruled that Pan Ams
liability for the lost baggage is limited to $20 per kilo or $600 as stipulated in the ticket.

DOCTRINE: 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, valid and binding upon the passenger regardless of the latters lack of knowledge or assent
to the regulation. It is a contract of adhesion wherein one party imposes a ready made form of
contract on the other. These contracts are 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. 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.

CATHAY PACIFIC VS. C.A.

SUMMARY: Cathay left the baggage of Alcantara in Hongkong which Alcantara was able to get in
Jakarta more than 24 hours after arrival which made him postpone his meeting with the Director
General of Trade of Indonesia. The employee of Cathay told him I cannot do anything. SC held that
this amounted to bad faith warranting award of moral and exemplary damages.

DOCTRINE: In relation to Warsaw ConventionAlthough 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. The Warsaw
Convention declares the carrier liable for damages in the enumerated cases and under certain
limitations. However, it must not be construed to preclude the operation of the Civil Code and other
pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for
violating the rights of its passengers under the contract of carriage, especially if willful misconduct on
the part of the carrier's employees is found or established, which is clearly the case before Us. When
petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at the
appointed place and time, some special species of injury must have been caused to him. For sure, the
latter underwent profound distress and anxiety, and the fear of losing the opportunity to fulfill the
purpose of his trip. In fact, for want of appropriate clothings for the occasion brought about by the
delay of the arrival of his luggage, to his embarrassment and consternation respondent Alcantara had
to seek postponement of his pre-arranged conference with the Director General of Trade of the host
country.

(c) As to delay in delivery

MAERSK LINE VS. COURT OF APPEALS

SUMMARY: Castillo ordered gelatin capsules from Eli Lilly. They were to be transported to Manila by
Maersk. However, the capsules, instead of being shipped to Manila from California, were sent to
Virginia. This caused a delay of more than 2 months in the delivery of the capsules. Castillo refused
the late delivery and filed a case for rescission of contract and damages against Eli Lilly and Maersk.

43
DOCTRINE: Unless such common carriers previously assume the obligation to deliver at a given date
or time, delivery of shipment or cargo should at least be made within a reasonable time.

(d) Factor affecting agreement; Arts. 1746, 1747, 1748, 1751, 1752, CC

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. supra

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.

Construction of stipulations limiting common carrier's liability. An exemption in general words not
expressly relating to negligence, even though the words are wide enough to include loss by
negligence or default of the common carrier's servants, must be construed as limiting the liability of
the common carrier as assurer, and not as relieving him from the duty of exercising reasonable skill
and care

Effect of lack of competitor to common carrier. Under 1751, the lack of competition of the common
carrier shall be considered in determining WON a stipulation limiting the common carrier's liability is
reasonable, just and in consonance with public policy.

Effect of delay in transportation, etc. Under 1747, the common carrier cannot avail of the contract
limiting his liability in these cases : (1) where the common carrier delays the transportation of the
goods; (2) where the common carrier changes the stipulated or usual route [in both cases, the delay or
change of route must be without just cause]

Presumption as to negligence in case of limited liability. Under 1752, the presumption continues even
when there is an agreement limiting the liability of the common carrier in the vigilance of the goods.
This presumption is disputable or rebuttable by evidence that the common carrier exercised extra-
ordinary diligence.

5. Applicable Law in Foreign Trade; Art. 1753

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.

6. Rules on Passenger Baggage; Arts. 1754, 1998, 2000 to 2003

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.

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.

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

44
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.

What is a passenger baggage? Things that a passenger will bring with him consistent with a
temporary absence from where he lives. Passenger baggage must have a direct relationship with the
passenger who is traveling.

What are the kinds of passenger baggage and the laws applicable to them?
(1) Passenger baggage in the custody of the passenger (e.g. carry-on luggage): These are considered
as necessary deposits. Arts. 1998, 2000-2003 apply.
(2) Passenger baggage not in the custody of the passenger (e.g. checked-in luggage): Arts. 1733-1753
on extraordinary diligence apply.

The liability is greater for baggage that is in the custody of the carrier in contrast if such is in the
possession of the passenger.

Under Art. 1998, the baggage of passengers in their personal custody or in that of their employees
while being transported shall be regarded as necessary deposits. The common carrier shall be
responsible for such baggage as depositaries (i.e. like hotel-keepers), provided that:
(1) Notice was given to them or to their employees, AND that
(2) The passengers take the precautions which said carriers advised relative to the care and vigilance
of their baggage. (Agbayani)

In case of loss or injury to the baggage of passengers in their personal custody or in that of their
employees while being transported:
(1) The carrier is LIABLE if the loss or injury is caused by:
(a) his servants OR
(b) employees OR
(c) strangers (Art. 2000)
(d) thief or robber done without the use of arms or irresistible force (Art 2001)

(2) The carrier is NOT LIABLE, if loss or injury is caused by:


(a) force majeure (Art. 2000),
(b) theft or robbery by a stranger with the use of arms or irresistible force (Art 2001),
(c) the acts of the guests, his family, servants, or visitors (Art 2002)
(d) the character of the things brought into the hotel (Art 2002)

C. Common Carriage of Passengers

1. Nature and extent of responsibility; Arts. 1733, 1755

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.

45
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.

ISAAC V. A.L. AMMEN TRANSPO. CO.

SUMMARY: During a collision between an A.L. Ammen bus, on which Isaac was boarded as a
passenger, and a pick-up, Isaac's left arm was severed. At the time of the collision, his left elbow was
outside the window. He was the only passenger injured. He sued the A.L. Ammen for damages. The
TC and SC dismissed his complaint, finding that the evidence show that A.L. Ammen exercised due
diligence, and, besides, Isaac was guilty of contributory negligence.

DOCTRINE: Articles 1733, 1755, and 1756, Civil Code may be restated by the following 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.

LANDINGIN V. PANTRANCO

SUMMARY: A bus driven by Marcelo Oligan and owned and operated by PANTRANCO was traveling
on an excursion trip from Dagupan to Baguio. Upon reaching Camp 8, Kennon Road, Baguio City, the
driver caused the bus to stall and stop for a few moments. The motor ceased to function, causing the
bus to slide back. When the drivcery suddenly swerved and steered the bus toward the mountainsaid,
some of the passangers were thrown out of the bus, including the daughters of the complainants in
the present case. The daughters of the complainants filed a complaint for damages suffered by them
due to the death of their daughters and/ or for breach of contract of carriage. The CFI Manila rendered
a decision in favor of PANTRANCO. PANTRANCO and the driver appealed because the dispositive
portion of the CFI decision made them assume pecuniary liability despite a finding of absence of
negligence. The Supreme Court found the defendants liable for breach of contract of carriage.

DOCTRINE: 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).

LANDICHO and JONSON v BATANGAS TRANSPORTATION COMPANY

SUMMARY: Eugenio Landicho stopped bus no. 443 of the Batangas Transportation Company at
Barrio Bagong Pook, Nasugbu, Batangas. Before boarding, the conductor helped him place his two
baskets of chicken inside the running board. He paid the corresponding fair until Balayan (P 0.50) and
noticed that one cage of his chickens was about to fall. He called the attention of the conductor but
the latter failed to attend to the matter so Landicho fixed it. As he was fixing the cages, he fell from
the bus, which prompted the driver to stop the bus. Landicho was brought to the Batangas Provincial
Hospital where he was hospitalized and treated. The CFI ruled in favor of Landicho and against the
bus company. The lower court found the bus company negligent and ordered the latter to indemnify
Landicho for actual and moral damages. The SC reversed the lower courts judgment and dismissed
the complaint. The SC stated that the carrier is not an insurer against all risk and could not be
charged with all the care and diligence for each and every individual passenger.

DOCTRINE: A carrier is duty bound to transport its passengers from the point of origin to the place of
destination but such duty does not encompass all the risks attendant to a passenger in transit. A
carrier could not be charged with all the care and diligence for each and every individual passenger. It
is enough that his employees must see to it that a passenger places himself safely inside the vehicle,
that it is operated carefully and that its mechanism is perfectly alright to avoid mishaps.

NECESITO, ET AL. v. PARAS, ET AL.

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SUMMARY: Severina Garces and her 1 year old son boarded a Phil Rabbit Bus in Pangasinan bound
for Manila, carrying vegetables. As the bus approached the bridge, its steering knuckle malfunctioned
causing the front wheels to swerve to the right, hitting the bridges wooden rails and causing the bus
to fall on its side. Severina died and her son suffered abrasions and a fractured femur. The family of
Severina, the Necesitos, filed 2 cases to recover damages. The CFI agreed with Phil Rabbit and held
that the mechanical defect was a fortuitous event. SC reversed and ruled in favor of the Necesitos and
awarded damages.

DOCTRINE: The carrier is not an insurer of passengers safety. Its liability rests upon negligence. The
SC cited American law and jurisprudence (since we impose the same degree of diligence); 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.

Rationale of liability: The passenger has neither choice nor control over the carrier in the selection and
use of the equipment and appliances used by carrier.

In this case, the knuckles failure CANNOT be considered a fortuitous event. Hence, the periodic visual
inspection of the steering knuckle as practiced by the carriers agents did not measure up to the
required legal standard of utmost diligence of very cautious persons

PAL V. CA AND SAMSON

SUMMARY: Samson is a co-pilot in PAL. The main pilot Bustamante has a tumor in his nose, and
Samson usually complains with the administration the slow reaction and poor judgement of
Bustamante. One day while they were to land in Daet airport, Bustamante overshot the airfield and
notwithstanding the due diligence of Samson to avert the accident, the crash-landed beyond the
runway. The jolt caused his head to hit the windshield. Instead of bringing him to a specialist, he was
brought to the company clinic where the general practitioner tended to his external wounds without
examining him for brain damage. Since then, he has suffered dizziness, headache and general
debility. Despite demands from PAL to have him examined, PAL ignored his plea. Later, PAL
discharged him for having neurosis. TC ruled in favor of Samson. CA affirmed TC. SC affirmed CA with
modifications changing P198,000 compensatory damages to P204,000.

DOCTRINE: The duty to exercise the utmost diligence on the part of common carriers is for the safety
of 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 certainly result to the damage,
prejudice, and injuries and even death to all aboard the plane, passengers and crew members alike.

SULPICIO LINES V. CA

SUMMARY: ALC contracted Sulpicio Lines to transport its timber by tugboat/ barge. ALC hired
stevedores to carry the timber on the boats of Sulpicio Lines. No loading could be done because of the
heavy rains. The stevedores, notwithstanding the warnings about the gas and heat produced in the
boats hold, still entered the same. One of them died as a result. The deceaseds heirs files for
damages. RTC/ CA/ SC: Sulpicio Lines liable as common carrier.

DOCTRINE: Common carriers are responsible for the safety of people on board its ship, though they
are not passengers, if the common carrier knows of/ consents to their presence.
In onerous contracts the cause is understood to be, for each contracting party, the prestation or
promise of a thing or service by the other (in this case the stevedores service is the cause- so it is the
same as the payment of the fare).

JAL vs. CA

SUMMARY: The Asuncions left Manila on board JAL bound for Los Angeles. They have an overnight
stop over at Narita where it was arranged that they would be staying at Hotel Nikko. Before they could
get out of the airport in Narita and stay at Hotel Nikko, the Japanese immigration would have to issue

47
them a shore pass first. They were not granted the said shore passes hence they were forced to stay at
the airports rest house. The Asuncions filed a case for damages against JAL. TC ruled in their favor.
SC reversed saying that JAL had not fault because it did not have any control on the power to admit or
deny aliens into a country.

DOCTRINE: Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to carry its
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.

When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a
contract of carriage arises. The passenger has every right to expect that he be transported on that
flight and on that date and it becomes the carrier's obligation to carry him and his luggage safely to
the agreed destination. If the passenger is not so transported or if in the process of transporting he
dies or is injured, the carrier may be held liable for a breach of contract of carriage.

Also, the power to admit or not an alien into a country is a sovereign act which cannot be interfered
with by a common carrier.

2. Duration of responsibility; Cf. Article 1736, Civil Code;

Cf. Art. 1736. supra

Warsaw 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.

Code of Commerce, Article 698. In case a voyage already begun should be interrupted, the passengers
shall be obliged to pay the fare in proportion to the distance covered, without right to recover for
losses and damages if the interruption is due to fortuitous event or to force majeure, but with a right to
indemnity if the interruption should have been caused by the captain exclusively. If the interruption
should be caused by the disability of the vessel, and a 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 stay
shall be for his own account.
In case of delay in the departure of the vessel, the passengers have the right to remain on board and
to be furnished with food for the account of the vessel unless the delay is due to fortuitous events or to
force majeure. If the delay should exceed ten days, passengers requesting the same shall be entitled
to the return of the fare; and if it is due exclusively to the fault of the captain or ship agent, they may
also demand indemnity for losses and damages.
A vessel exclusively devoted 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

When does relationship of common carrier and passenger terminate? It does not cease at the moment
that the passenger alights from the common carriers vehicle at a place selected by the carrier at the
point of destination, but continues until the passenger has had (1) reasonable time or (2) a reasonable
opportunity to leave the carriers premises. What is a reasonable time or a reasonable delay within this
rule is to be determined from all the circumstances. (La Mallorca v. CA, 1966)

CANGCO VS. MANILA RAILROAD CO.

SUMMARY: Cangco, when he stepped out of the train of MRC, stepped on a sack of melon on the
platform causing him to fall on the rails. His arm was run-over by the train. MRC argues that Cangcos
negligence in stepping out while the train was still moving was the proximate cause of the injury. SC
held that Cangco could not be blamed for the act since the place was dark, the train was barely
moving and Cangco had the right to assume the platform was clear since MRC, as a common carrier,
had the duty to provide a safe means to alight from the train.

DOCTRINE: 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).

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A public carrier is bound, by reason of its duty as such, to afford its passengers facilities for safe egress
from its vehicles. (confirmed as almost the same doctrine in the next case Del Prado)

DEL PRADO v. MANILA ELECTRIC

SUMMARY: Ignacio del Prado attempted to board a street car owned by Manila Electric Co. It was
already near an intersection, after the appointed place for taking on and letting off passengers. Del
Prado was running from the left and got hold of a perpendicular handpost. When his left foot was
already in the car, the motorman applied the power which caused him to fall, crushing his right leg.
Del Prado sued Manila Electric Co. for its negligence. The Court held Manila Electric Co. guilty of
culpa contractual for the premature acceleration of the car, but mitigated the damage because of the
contributory negligence of del Prado. It said that although there is no obligation on the part of the
street railway company to stop anywhere a passenger wishes to board or alight, it has the duty to not
do any act that would have the effect of increasing the passengers peril while he was attempting to
board the car.

DOCTRINE: 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. Nevertheless, it has the duty
to do no act that would have the effect to increasing the [passenger]s peril while he was attempting
to beard the car.

LA MALLORCA V. CA

SUMMARY: The Beltrans rode Pambusco bus owned by La Mallorca. When the family reached their
destination, they all got off the bus but Mariano, the father, had to go back for a baggage. He did not
notice that his 4 yr old daughter followed her. While Mariano was still on the running board and the
conductor has not yet given a signal to the driver to move the bus, the bus started moving forward for
10 meters before it stopped again. Mariano had to jump off the bus. Raquel was run over by the bus,
causing her death. The TC, CA and SC all held La Mallorca liable but the CA differ with the TC and
SCs ground.

DOCTRINE: 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.

VDA DE BATACLAN ET AL v. MEDINA

SUMMARY: Bataclan died in a bus accident. The bus he was riding turned turtle when one of its front
tires exploded. He was not able to get out and when men approached their bus to help, fire razed the
bus. It was found that when the bus turned turtle, gas started to leak and spread into the body of the
bus and its immediate surroundings. The CFI of Cavite awarded P1,000 to the plaintiffs plus P600 as
attorney's fee, plus P100, the value of the merchandise being carried by Bataclan to Pasay City for sale
and which was lost in the fire. Both parties appealed the decision to the CA, but the latter endorsed
the appeal to the SC because of the value involved in the claim.

DOCTRINE: "The proximate legal cause is that the acting first and producing the injury, either
immediately or by setting other events in motion., all constituting a natural and continuous chain of
events, each having a close causal connection with its immediate predecessor, the final event in the
chain immediately affecting the injury as a natural and probable result of the cause which first acted,
under such circumstances that the person responsible for the first event should, as ordinarily prudent
and intelligent person, have reasonable ground to expect at the moment of his act or default that an
injury to some person might be probably result therefrom."

Not explicitly mentioned in the case, but could be implied from the ruling: ARTICLE 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,

49
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.

ABOITIZ vs. CA

SUMMARY: The victim Anaclceto Viana, a passenger of an Aboitiz vessel, returned to the vessel to get
his cargo. He was hit by a crane used for the unloading of cargo. Consequently, Anacleto died. His
heirs sued Aboitiz for breach of contract of carriage. The TC and CA ruled in favor of the Vianas. The
Court upheld the findings of the lower courts.

DOCTRINE: 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.

PAL vs. CA and PEDRO ZAPATOS

SUMMARY: Zapatos was one of the passengers who took off in Cebu bound for Ozamis. The routing of
his flight was Cebu-Ozamis-Cotabato route. While on flight and just about 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. In Cotabato, several options
were given to stranded passenges. One of the options is to take the flight to Manila which would make
a stopover in Cebu so they could just go back. However, there were only 6 seats available and priority
was given based on the check-in sequence in Cebu. Thus, Zapatos was not accommodated. He was
left in Cotabato airport. PAL did not provide him food and accommodation while he is in Cotabato. He
even alleged that he was not accommodated by the pick-up truck carrying PAL personnel to the city
proper. He filed a complaint for breach of contract of carriage. PAL denied liability and claim that the
predicament happened because of force majeure. TC ruled in favor of Zapatos. CA affirmed. SC
affirmed but modified the award of damages

DOCTRINE: 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. (Aboitiz Shipping Corporation v. CA)
Hence, in this case, 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

3. Presumption of Negligence; Art. 1756

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.

DEFENSES against presumption:


(1) Exercised extraordinary diligence
(2) Not insurer of all risks
(3) Force majeure

4. Force Majeure

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were inevitable.

Force Majeure REQUISITES:

50
(1) The event must be independent of human will;
(2) The occurrence must render it impossible for the obligor to fulfill his obligation in a normal
manner;
(3) The obligor must be free of a concurrent or contributory fault or negligence.

BACHELOR EXPRESS V. CA

SUMMARY: While a bus owned by Bachelor Express was on its way to Cagayan de Oro City, a
passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and panic
among the passengers. 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 parents of the victims filed a
complaint for "sum of money" against Bachelor Express, Inc. its alleged owner Samson Yasay and the
driver Rivera. The defendants averred that they should not be held liable for damages because the
proximate cause of the death of the victims was the act of one of the passengers in running amuck,
causing the victims to panic and jump off the bus. The trial court dismissed the complaint but the CA
and SC held the defendants liable for damages.

DOCTRINE: A caso fortuito presents the following essential characteristics:


(1) The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply
with his obligation, must be independent of the human will.
(2) It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid.
(3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner, and
(4) The obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.

YOBIDO v. CA

SUMMARY: Tito and Leny Tumboy and their children boarded a Yobido Liner Bus to Davao. In the
middle of a trip, the bus was traversing a winding road that was not cemented and was rocky.
According to Leny, she asked the driver to slow down but he ignored her. Moments later, one of the
tires blew out causing the bus to fall into a ravine and hit a tree. This caused the death of Tito. Leny
and the children filed a case for breach of contract of carriage, and Yobidos defense was that the even
was a caso fortuito, for which they were not liable. Lower court favored Yobido. The CA reversed and
held that it was NOT a caso fortuito. The SC agreed with the CA.

DOCTRINE: A fortuitous event has the following characteristics: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee the event which constitutes the caso
fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor
must be free from any participation in the aggravation of the injury resulting to the creditor.

An accident caused either by defects in the automobile or through the negligence of its driver is not a
caso fortuito that would exempt the carrier from liability for damages. A common carrier may not be
absolved from liability in case of force majeure or fortuitous event alone. The common carrier must
still prove that it was not negligent in causing the death or injury resulting from an accident.

5. Limitation of Liability; validity of stipulations; Arts. 1757, 1758

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

6. Responsibility for acts of employees; Arts. 1759, 1760

51
ART. 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.

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.

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

Reason for making the CC liable for the misconduct of its EEs in their own interest. The servant is
clothed with delegated authority and charged with the duty by the CC, to execute his undertaking to
carry the passenger safely; when the EE mistreats the passenger, he violates the contractual
obligation of the CC for which he represents the CC

Liability of CC for defects of its equipment. A passenger is entitled to recover damages from a CC 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 CC 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 CC, as far as regards the work of constructing the appliance

Common carrier is exempt from acts of EE not done in line of duty. The CC is exempt from liability
where the EE was never in a position in which it became his duty to his ER to represent him in
discharging any duty of the CC towards the passenger; the EE is deemed as a stranger or co-
passenger since his act was not done in the line of duty

Defense of diligence in selection, etc., of employees. CC cannot escape liability by interposing defense
that he exercised due diligence in the selection and supervision of his EEs; his liability is based on
culpa contractual

DE GILLACO V. MANILA RAILROAD CO.

SUMMARY: Gillaco rode the MRC train from Laguna to Manila. While at the Paco station, Devesa,
train guard of MRC for its Manila-San Fernando La Union trains, who had a personal grudge against
Gillaco shot the latter with a carbine furnished by MRC for his use as train guard. MRC was held liable
for damages by the CFI of Laguna. SC reversed the decision.

DOCTRINE: 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 through the exercise of
the degree of care and diligence required of it.

MARANAN v. PEREZ

SUMMARY: Rogelio was a passenger in a taxi owned by Perez when he was stabbed and killed by the
taxi driver Valenzuela. Valenzuela was charged and convicted of homicide. While the criminal case
was pending appeal, Rogelios mother, Maranan, filed an action against Perez and Valenzuela, to
recover damages for her sons death (based on breach of contract of carriage). As a defense, Perez
claims that Rogelio was killed in self-defense and that the death was a caso fortuito for which the
carrier was not liable. Perez relies on the case of Gilaco v. Manila Railroad. The SC held that the Gilaco
was not applicable to the case at bar due to difference in the attendant facts and the controlling law.
It held that Perez, as carrier, was absolutely liable for the assault made by his driver against the
passenger.

DOCTRINE: Under Ar. 1759 CC, common carriers are liable for the death of or injuries to passengers
through the negligence or wilful acts of the formers employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common carriers. It is
enough that the assault happens within the course of the employees duty. It is no defense for the

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carrier that the act was done in excess of authority or in disobedience of his orders. The carriers
liability is ABSOLUTE.

LRTA AND ROMAN V. NAVIDAD

SUMMARY: While standing on the platform near the LRT tracks, after buying a token, an altercation
ensued between Navidad and Escartin, the security guard in the area. As such, Navidad fell into the
tracks and was struck by a moving train operated by Roman, killing him instantaneously. The RTC
held Escartin and Prudent Security Agency liable. The CA reversed, holding LRTA and Roman liable.
The SC held LRTA liable, ruling that LRTA had the obligation to keep Navidad safe within its premises.

DOCTRINE: 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 willful 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 ensuring the safety of passengers, a carrier may choose to hire its own employees or avail itself of
the services of an independent firm. In either case, the common carrier is not relieved from liability
under the contract of carriage.

7. Responsibility for acts of strangers and co-passengers; Arts. 1763

ART. 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 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.

PILAPIL V. CA (AND ALATCO TRANSPORTATION COMPANY, INC.)

SUMMARY: Pilapil rode an ALATCO bus. En route to its destination, an unidentified bystander threw a
stone at the left side of the bus, which hit Pilapil above his left eye. Despite confinement in a hospital,
and treatment by 2 different doctors, Pilapil still partially lost vision in his left eye and sustained a
permanent scar above it. Pilapil sued ALATCO for recovery of damages, with the Camarines Sur CFI.
The CFI found for Pilapil, ordering ALATCO to pay damages and to reimburse the medical expenses.
The CA reversed the CFI judgment. The SC upheld the CAs decision.

DOCTRINE: The negligence of the Common Carrier in NCC 1763 would consist of the negligent
omission of its employees.

The degree of care required in NCC 1763 is only that of a good father of a family.

BACHELOR EXPRESS v. CA

SUMMARY: One of the passengers of the bus stabbed a PC soldier which caused a commotion and
stampede inside the bus resulting in the death of 2 passengers, Beter and Rautraut, who jumped off
while the bus was still moving. The parents of both deceased passengers filed a complaint for a sum
of money. RTC dismissed the complaint. CA reversed. Petitioners argued that they could not be held
liable as the proximate cause of the death of the 2 passengers was due to the act of a third person
stabbing the PC soldier, which is a force majeure. The SC held that for the defense of force majeure to
prosper, the common carrier must still prove that it was not negligent in causing the injuries resulting
form the accident. However, it was shown that Bachelor Express was negligent.

DOCTRINE: Lasam v. Smith (1924) defined events which cannot be foreseen and which, having been
foreseen, are inevitable: The Spanish authorities regard the language employed as an effort to define
the term caso fortuito and hold that the 2 expressions are synonymous. Antecedent to Art. 1105 (Art.
1174 in the NCC) is found in Law II, Title 33, Partida 7, which defines caso fortuito as an event that takes
place by incident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers. Escriche defines caso fortuito as an unexpected event
or act of God which could neither be foreseen nor resisted, such as floods, torrents, shipwrecks,
conflagrations, lightning, compulsion, insurrections, destruction of buildings by unforeseen accidents

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and other occurrences of a similar nature. Caso fortuito according to the Enciclopedia Juridica
Espanola: In a legal sense and, consequently, also in relation to contracts, a caso fortuito presents the
following essential characteristics: (1 ) The cause of the unforeseen and unexpected occurrence, or of
the failure of the debtor to comply with his obligation, must be independent of the human will. (2) It
must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it
must be impossible to avoid. (3) The occurrence must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner. And (4) the obligor (debtor) must be free from any
participation in the aggravation of the injury resulting to the creditor. As will be seen, these authorities
agree that some extraordinary circumstance independent of the will of the obligor, or of his
employees, is an essential element of a caso fortuito.

8. Duty of passenger; effect of contributory negligence; Arts. 1761, 1762

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

Law does not protect negligence of passenger. Law does not protect negligence of passenger to the
extent of doing harm or damage upon a public utility

Diligence required of passenger. Diligence of a good father of a family to avoid injury to himself.

Effect of negligence of passenger. Where the proximate cause of the death of or injury to the
passenger is his own negligence, and not that of the CC, the CC is exempted from liability

Effect of passenger's contributory negligence. Contributory negligence on the part of the passenger
does not justify the CC's exemption from liability.

Where it is not the proximate cause of the death or injury, he or his heirs are not barred from recovery
of damages, provided of course that the CC is the proximate cause of his death or injury

CANGCO VS. MANILA RAILROAD CO.

SUMMARY: Cangco, when he stepped out of the train of MRC, stepped on a sack of melon on the
platform causing him to fall on the rails. His arm was run-over by the train. MRC argues that Cangcos
negligence in stepping out while the train was still moving was the proximate cause of the injury. SC
held that Cangco could not be blamed for the act since the place was dark, the train was barely
moving and Cangco had the right to assume the platform was clear since MRC, as a common carrier,
had the duty to provide a safe means to alight from the train.

DOCTRINE: Under the doctrine of comparative negligence announced in the Rakes case, if the
accident was caused by plaintiff's own negligence, no liability is imposed upon defendant's negligence
and if plaintiff's negligence merely contributed to his injury, the damages should be apportioned.

ISAAC VS. AL AMMEN

SUMMARY: During a collision between an A.L. Ammen bus, on which Isaac was boarded as a
passenger, and a pick-up, Isaac's left arm was severed. At the time of the collision, his left elbow was
outside the window. He was the only passenger injured. He sued the A.L. Ammen for damages. The
TC and SC dismissed his complaint, finding that the evidence show that A.L. Ammen exercised due
diligence, and, besides, Isaac was guilty of contributory negligence.

DOCTRINE: Under Article 1762 of the CC, contributory negligence on the part of the injured party does
not relieve the carrier from liability if the proximate cause of the accident was due to the fault of the
carrier. However, this would result into a reduction of the damages awarded.

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According to American jurisprudence, a passenger leaving his arm out while onboard a moving vehicle
is negligence per se and bars him from recovery of damages arising from injuries that would not have
arisen if he had not done so.

D. Damages Recoverable from Common Carriers

1. In general

2. Actual or compensatory; Arts. 2199, 2201, 2203, 1764, 2206

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.

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 non-performance 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 quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:
(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.

General rule: Recoverable

Exception: Not recoverable by law or stipulation (Art. 2199)

Actual Damages include:


(1) Loss of earning capacity (Art. 2206)
(2) Support (Art. 2206)

2 kinds of actual or compensatory damages:


(1) The loss of what a person already possesses (dao emergente)
(2) The failure to receive as a benefit that would have pertained to him (lucro cesante)

Fixed Damage. In case of Death the amount of fixed damages is now P50,000.00

Loss of Earning Capacity Formula:

Net Earning Capaciy = Life Expectancy x [Gross Annual Income Necessary Living Expenses]
Life Expectancy = 2/3 x (80-age of death)
Necessary Living Expenses = usually pegged by SC at half the gross annual income

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CARIAGA, ET AL., V. LTB CO. & MRR

SUMMARY: Edgardo Cariaga, a 4th year UST medical student, was a passenger in an LTB bus when it
collided with an MRR train. The LTB bus was passing through an intersection of the national highway
and railway tracks at the time, ignoring 4 whistle blows from the train. Cariaga was severely injured,
leading to the removal of his right frontal lobe. The right portion of his skull was then covered with a
tantalum plate. He and his parents sued LTB. The TC awarded P10,000 as compensatory damages
only. They appealed, claiming more. The SC increased the award of compensatory damages, including
what he could have earned had he finished his studies.

DOCTRINE: The income which Cariaga could earn if he should finish the medical course and pass the
corresponding board examinations must be deemed recoverable because they could have reasonably
been foreseen by the parties at the time he boarded the bus.

PAN AMERICAN v. IAC

SUMMARY: Pangan entered into a contract with a company in San Francisco and another in Guam for
the exhibition of his films in said places. He purchased a ticket and took the flight to Guam to comply
with his commitments therein. Upon arrival, however, his 2 luggages did not arrive with his flight. Due
to futile attempt of Pangans claims with Pan Am for the recovery of his luggages, the former filed this
complaint. The CFI, affirmed by the IAC, awarded actual damages of P83,000 plus P8,123.34 both
with interest and P10,000 as attorneys fees. Pan Am contended that its liability was limited to what
was stipulated in Pangans plane ticket. The SC set aside the IACs decision and ruled that Pan Ams
liability for the lost baggage is limited to $20 per kilo or $600 as stipulated in the ticket.

DOCTRINE: The limitation of liability (as to the actual damages) set forth in the Warsaw Convention
and the contract of carriage is valid.

In Ong Yiu v. CA, the Court sustained the validity of a printed stipulation at the back of an airline ticket
limiting the liability of the carrier for lost baggage to a specified amount (the amount printed at the
back of the ticket). When the passenger declares a higher value in advance and pays additional
charges, the liability of the carrier will not be limited to the stipulation printed at the ticket.

When the conditions printed at the back of the ticket are so small and would not warrant the
presumption that the passenger was aware of the conditions and that he had freely agreed thereto,
then the stipulation limiting the carriers liability to a specified amount is invalid (Shewaram v. PAL).

In order to impose on the defaulting party further liability than for damages naturally and directly (in
the course of ordinary things) arising from a breach of contract, such unusual or extraordinary
damages must have been brought within the contemplation of the parties as a probable result of
breach at the time of or prior to contracting. (Mendoza v. PAL, citing Chapman v. Fargo).

VILLA REY TRANSIT v COURT OF APPEALS

SUMMARY: Policronio Quintos, a 29-year old training assistant in the Bacnotan Cement Industries,
Inc., boarded an Isuzu First Class passenger bus owned and operated by Villa Rey Transit, Inc and
driven by Laureano Casim. The bus left Lingayen, Pangasinan at about 1:30 AM and at about 4:55 AM,
when the vehicle was nearing the northern approach of the Sadsaran Bridge on the national highway
in Sto. Domingo, municipality of Minalin, Pampanga, the bus hit the rear side of a bull-cart filled with
hay. 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. The end of the pole, protruding 8 feet from the rear of the bullcart, hit the
windshield of the bus and landed on the left eye of Policronio Quintos. He suffered injuries and died.
Private respondents, sisters and only surviving heirs of Policronio, sued petitioner-carrier for breach of
contract of carriage and prayed for the recovery of the aggregate sum of P63,750 as damages. The
trial court found the carrier negligent and awarded P63,750 as damages. The TC noted that although
the expenses reached P79,615.95, it is just that the damages be assessed at a total of only P63,750 as
prayed for by the plaintiffs. CA affirmed. SC affirmed but reduced damages to P49,561.28 after
deducting the expenses necessary in the creation of such earning or income.

56
DOCTRINE: The determination of the indemnity to be awarded to the heirs of a deceased person has
no fixed basis. Much is left to the discretion of the court and there 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. Other factors usually considered: a) pecuniary loss to plaintiff or
beneficiary, b) loss of support, c) loss of service, d) loss of society, e) mental suffering of beneficiaries, f)
medical and funeral expenses. In the computation of the amount recoverable, only the net earnings,
not gross earning, are to be considered that is, the total of the earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses.

PAL VS. CA AND NATIVIDAD VDA. DE PADILLA

SUMMARY: Nicanor Padilla was one of the passenger of the plane operated by PAL which crahed 1 hr
and 15 mins after takeoff. As the sole legal heir, her mother claim for damages. In the course of trial,
pieces of evidence showing earnings and status of the deceased were presented. TC ordered PAL to
pay P477,000.00 as award for the expected income of the deceased Nicanor. CA affirmed in toto. PAL
appealed and claimed that foreign jurisprudence shows that the basis should be the life expectancy of
the legal heir. SC ruled that foreign jurisprudence is only persuasive and that award of damages for
death is computed on the basis of the life expectancy of the deceased, not of his beneficiary.

DOCTRINE: 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

VICTORY LINER V. GAMMAD

SUMMARY: The heirs of Gammad filed a case for damages against Victory Liner for the death of Mary
Grace Gammad. She died when a Victory Liner bus bound for Tuguegarao from manila fell on a ravine.
Victory Liner questioned the basis of the damages. SC ruled accordingly.

DOCTRINE:
Compensatory damages:
Documentary evidence should be presented to substantiate the claim for damages for loss of earning
capacity. By way of exception, damages for loss of earning capacity may be awarded despite the
absence of documentary evidence when:
(1) the deceased is self-employed earning less than the minimum wage under current labor laws, and
judicial notice may be taken of the fact that in the deceaseds line of work no documentary evidence is
available; or
(2) the deceased is employed as a daily wage worker earning less than the minimum wage under
current labor laws.

Actual Damages:
In People v. Duban, only substantiated and proven expenses or those that appear to have been
genuinely incurred in connection with the death, wake or burial of the victim will be recognized. A list
of expenses and the contract/receipt for the construction of the tomb cannot be considered
competent proof and cannot replace the official receipts necessary to justify the award.

3. Moral; Arts. 2217, 2216, 2219, 2220, 2206(3)

Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated
or exemplary damages, may be adjudicated. The assessment of such damages, except liquidated
ones, is left to the discretion of the court, according to the circumstances of each case.

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. 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;
(3) Seduction, abduction, rape, or other lascivious acts;

57
(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;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may
also recover moral damages.

The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No.
9 of this article, in the order named.

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.

General Rule: Moral Damages NOT recoverable in breach of contract


Except:
(1) The mishap results in the death of a passenger
(2) Where the carrier is guilty of fraud or bad faith
(3) Where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith

FORES V. MIRANDA

SUMMARY: A jeepney descended the Sta. Mesa bridge at an excessive rate of speed. The jeepney hit
the bridge wall, 5 passengers injured, including Miranda who lost use of his right arm. Driver clearly
negligent. CFI: no award of moral damages. CA: P5,000 as moral damages. SC: Moral damages
award removed.

DOCTRINE: In a breach of contract, bad faith or fraud (wanton or deliberately injurious conduct) is
essential to justify an award of moral damages. Mere carelessness of the carrier does not per se justify
an inference of malice or bad faith of the carrier.

The exception to this basic rule of damages is a mishap resulting in the death of a passenger, which
entitles the deceased passenger (family of the deceased) to demand moral damages for mental
anguish by reason of the death.

AIR FRANCE VS. CARRASCOSO

SUMMARY: Carrascoso was to travel to Rome. From Manila to Bangkok, he was given a first class
seat. But in the second leg of the trip, he was asked to vacate his first class seat because the manager
said that there was a white man who had a better right to it. He had no choice but to vacate and take
the economy seat in protest for the entire trip. He filed a case against Air France. CFI decided in favor
of Carrascoso asking Air France to pay among others 25k moral damages. CA and SC affirmed.

DOCTRINE: A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air-carrier sustains with the public. Its
business is mainly with the travelling public. It invites people to avail of the comforts and advantages
it offers. The contract of air carriage, therefore, generates a relation attended with a public duty.
Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action for
damages. Passengers do not contract merely for transportation. They have a right to be treated by the
carrier's employees with kindness, respect, courtesy and due consideration. They are entitled to be
protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is that any rude or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier.

LOPEZ VS. PANAM

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SUMMARY: Senator Lopez booked tickets in first-class with PanAm, but when they tried to board the
plane, they were not accommodated for the reason that the flight is already booked. They took the
flight under tourist class under protest and later filed a case for damages. The defense was that this
was due to the honest mistake of PanAms employees. The SC held that PanAm acted in bad faith,
hence was liable for moral damages.

DOCTRINE: Bad faith means breach of a known duty through some motive of interest or ill will.

Promoting your own self-interest may still be considered bad faith, in certain circumstances. In Kamm
v Flink, it was said that self-enrichment or fraternal interest, and not personal ill will, may well have
been the motive, but it is malice nevertheless.

Moral damages are recoverable in breach of contracts where the defendant acted fraudulently or in
bad faith (2220, NCC).

Amount of damages is determined by considering the official, political, social and financial standing of
the offended parties, and the business and financial position of the offended as well.

ORTIGAS v. LUFTHANSA GERMAN AIRLINES

SUMMARY: Francisco Ortigas, Jr. booked first class Lufthansa tickets from Rome to Hongkong
through Alitalia (an Italian airline). It was confirmed by the Alitalia employee who attached a
validating sticker on his ticket. The authority of Alitalia to book a flight for other airlines is pursuant to
an international airline agreement to which Alitalia and Lufthansa were parties. After checking in and
seeing that he carried a Filipino passport, Ortigas was told that his seat would be given to a Belgian.
He asked that the papers of the Belgian be examined to see if he indeed had a preferential right to the
seat but the Lufthansa employee refused, raised his voice and said that he could take an economy
seat and be allowed a refund. Ortigas requested the employee to call another airline that has first
class seats but the employee refused and said that he will be transferred to first class in Cairo. Despite
this assurance, the employee wrote a notation on his ticket that translates to travelled economy class
Rome to Hongkong St. When they reached Cairo, he was not allowed to move to first class and was
told that they did not receive any communication to allow him transfer. He was told that he can move
at Dharham. At Darham he was told the same thing. When they reached Calcutta, he again asked to
be moved to first class but this was again denied. It was only in Bangkok when the chief steward asked
him if he wanted to move to first class but he refused, saying that he would not as a sign of protest. He
protested when he reached Hongkong and filed a case for damages when he returned to Manila. After
three years of hearing postponements, the lower court ruled in his favor and awarded him P100,000
moral damages and P30,000 exemplary damages. Both parties appealed the amount of damages.
The Supreme Court increased the moral damages to P150,000 and the exemplary damages to
P100,000.

DOCTRINE: 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. Giving
preference to a passenger of another nationality aggravated the damage or injury suffered, but the
very act alone of deliberately downgrading despite confirmed reservation for first class
accommodation is sufficient ground for relief.

PAL v. MIANO

SUMMARY: Miano took a PAL flight to Germany. He connecting flight via Lufthansa. The baggage he
checked in at the Ninoy airport was missing when he arrived from his flight via Lufthansa. It took 11
days before the baggage was delivered to him with a missing item. He filed a claim for damages
against PAL. The RTC ruled that there was no bad faith on PALs end but still awarded moral
damages to Miano. The SC deleted the award of moral damages because there was no finding of bad
faith.

DOCTRINE: In breach of contract of carriage by air, moral damages are awarded only if the defendant
acted fraudulently or in bad faith. Bad faith means a breach of a known duty through same motive of
interest or ill will.

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UNITED AIRLINES V. CA

SUMMARY: The Fontanillas purchased from United Airlines, through the Phil. Travel Bureau in
Manila, three Visit the USA tickets for himself, his wife, and his minor son. The flight had three legs,
and were all confirmed by United Airlines beforehand. On April 24, 1989, Aniceto Fontanilla bought
two coupons each for his wife and son and paid the penalty for rewriting the tickets, After doing so,
they were issued tickets with corresponding boarding passes with the words CHECK-IN REQUIRED.
According to the Fontanillas, after Linda, the UA employee attending the UA counter had examined
their tickets, they were not allowed to board the plane by the stewardess because there were no seat
numbers assigned. When they went back to the counter, Linda told them that the flight was
overbooked and apparently uttered discriminatory remarks against them and did not even assist
them. It was even alleged that three passengers with Caucasian features were allowed to board even
after the Fontanillas were told that the flight was overbooked. The Fontanillas also allegedly suffered
the same treatment from a male customer representative of UA. According to United Airlines, the
Fontanillas did not initially go to the check-in counter and proceeded to the queue to board the plane
instead, hence non-compliance with the check-in requirement. United Airlines also said that its
employee, Linda Allen, denied having uttered such derogatory remarks. The RTC dismissed the
complaint filed by the Fontanillas, while the CA reversed and ruled in favor of the Fontanillas. The SC
reversed the CA and reinstated the RTCs decision. With regard to the award of moral damages, the
SC said that the Fontanillas were entitled to the same as there was no bad faith involved.

DOCTRINE: As to the award of moral [and exemplary] damages, the CA erred in awarding such. For
the plaintiff to be entitled to an award of moral damages arising from a breach of contract of carriage,
the carrier must have acted with fraud or bad faith.

Bad faith in this jurisdiction is the willful and deliberate overbooking on the part of the airline carrier.
The [Economic Regulation No. 7] clearly states that when the overbooking does not exceed ten
percent (10%), it is not considered as deliberate and therefore does not amount to bad faith.

CATHAY PACIFIC vs. VASQUEZ

SUMMARY: The Sps. Vasquez, who originally had Business Class tickets. were given priority by Cathay
as frequent flyers and upgraded to First Class. Even though they refused, they were forced to take the
upgrade since the Business Class was already fully booked. The Sps. Vasquez filed an action for
damages against Cathay. The RTC and CA ruled in favor of the Sps. Vasquez. The SC ruled that there
was a breach of contract for the involuntary upgrade. However, this was not accompanied by fraud or
bad faith so moral damages should not be awarded.

DOCTRINE: Moral damages predicated upon a breach of contract of carriage may only be recoverable
in instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the death
of a passenger. Otherwise, liability for damages is limited to the natural and probable consequences
of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In
such a case the liability does not include moral and exemplary damages. Although incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the
defendant's wrongful act or omission.

Case law establishes the following requisites for the award of moral damages: (1) there must be an
injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated
on any of the cases stated in Article 2219 of the Civil Code.

AIR FRANCE vs. GILLEGO

SUMMARY: Gillego, a congressman left Manila on board Air Frances aircraft bound for Paris, France.
He was to attend as a keynote speaker in a conference to be held in Budapest, Hungary and Tokyo,
Japan. When in Paris, he arranged for an earlier connecting flight to Budapest. When he arrived in
Budapest, he was not able to locate his luggage. Despite assurance that it would be delivered to him
and repeated follow-ups, he did not recover his luggage. It contained his personal effects such as
clothes, toiletries, medicines for his hypertension, and the speeches he had prepared, including the
notes and reference materials he needed for the conference. When he returned to Manila, he followed

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up about his luggage but was ignored. He filed a case for breach of contract of carriage and claim for
actual, moral and exemplary damages. When he recovered his luggage (2 yrs after) he did not insist
on his claim for actual damages so TC granted him moral damages (1m), exemplary damages (500k),
and attorneys fees (50k). CA affirmed. SC agreed with TC and CA that Air france is guilty of gross
negligence amounting to bad faith, but reduced the award of damages.

DOCTRINE: In awarding moral damages for breach of contract of carriage, the breach must be wanton
and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. Not
every case of mental anguish, fright or serious anxiety calls for the award of moral damages. Where in
breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the breach of the
obligation which the parties had foreseen or could have reasonably foreseen. In such a case the
liability does not include moral and exemplary damages.

Inattention to and lack of care for the interest of its passengers who are entitled to its utmost
consideration, particularly as to their convenience, amount to bad faith which entitles the passenger
to an award of moral damages.

4. Exemplary; Arts. 2229, 2232, 2233

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.

MECENAS V. CA

SUMMARY: M/T Tacloban City, an oil tanker owned by PNOC and operated by PNOC Shipping, and
M/V Don Juan, a passenger vessel owned by Negros Navigation, collided resulting in the death of
hundreds of its passengers. Two of them were Sps. Mecenas, parents of herein petitioners. Both the
trial court and CA ruled in favor of the petitioners against Negros Navigation and its captain. The CA
however reduced the award of damages given by the trial court. SC increased the award given by the
CA by providing a higher award of moral and exemplary damages.

DOCTRINE: Art. 2232 of the Civil Code provides that [i]n contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. Thus, whether the plaintiff/s are entitled to exemplary damages must depend
upon whether or not the defendant/s acted recklessly or with gross negligence.

5. Nominal, Temperate and Liquidated; Arts. 2221, 2224, 2226

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 cannot, 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.

ALITALIA v. IAC

SUMMARY: Dr. Felipa Pablo, an associate professor in the University of the Philippines, was invited to
take part in the conference of the Department of Research and Isotopes of the Joint FAO-IAEA

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Division of Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. She booked a
flight with ALITALIA. Her suitcases, containing scientific papers, slides and other research material
needed for the conference did not arrive, and so she was not able to attend the conference and
instead returned to Manila. Her baggage was only returned to her after months. She filed a claim
against ALITALIA. CFI ruled in her favor, awarding P20.000.00 as nominal damages. CA affirmed,
and raised the award to P40,000.00. SC affirmed the CA.

DOCTRINE: Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered.

SALUDO, JR. V. CA

SUMMARY: After the death of Crispina Saludo, Pomierski made the necessary preparations for
shipment for the remains from Chicago to the Philippines. It brought the remains to CMAS which
booked the shipment with PAL through Aircare Intl, its agent. . PAL Airway Bill was issued wherein the
requested routing was from Chicago to San Francisco on board TWA Flight 131 of October 27, 1976
and from San Francisco to Manila on board PAL Flight No. 107 of the same date, and from Manila to
Cebu on board PAL Flight 149 of October 29, 1976. It turned out that the remains were carried a flight
earlier on a plane to Mexico City. The shipment was received one day after its expected arrival. The
children of Saludo filed a claim for damages against TWA and PAL. Lower courts dismissed the
complaint. SC affirmed with modification awarding nominal damages to the plaintiffs.

DOCTRINE:The facts show that the Saludosright to be treated with due courtesy in accordance with
the degree of diligence required by law to be exercised by every common carrier was violated by TWA
and this entitles them, at least, to nominal damages from TWA alone. Articles 2221 and 2222 of the
Civil Code make it clear that nominal damages are not intended for indemnification of loss suffered
but for the vindication or recognition of a right violated of invaded. They are recoverable where some
injury has been done but the amount of which the evidence fails to show, the assessment of damages
being left to the discretion of the court according to the circumstances of the case. In the exercise of
our discretion, an award of P40,000.00 as nominal damages in favor of Saludos to be a reasonable
amount under the circumstances of this case.

JAPAN AIRLINES V. CA

SUMMARY: Miranda boarded a JAL flight from San Francisco to Manila. On the same day Agana et al.
boarded a separate JAL flight from LA to Manila. As part of the contract, both flights have an
overnight stopover at Narita (at JALs expense) before proceeding to Manila. Already in Narita, the 2nd
leg of the trip (Narita-Manila) was cancelled due to the Pinatubo eruption. The replacement flight the
next day was also cancelled (NAIA was still not accepting international flights due to the eruption).
After the 2nd cancellation, JAL declassified them from transit passengers (so they now had to make
the arrangements themselves for the trip to Manila) and refused to pay their hotel/food expenses
anymore. TC/CA: JAL liable for actual, moral, exemplary damages, and attorneys fees. SC: Removed
actual, moral, exemplary damages. Added nominal damages. Lowered attorneys fees.

DOCTRINE: Nominal damages are adjudicated in order that a right of a plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of
indemnifying any loss suffered by him.

The court may award nominal damages in every obligation arising from any source enumerated in Art.
1157, or in every case where any property right has been invaded.

SAVELLANO v. NORTHWEST AIRLINES

SUMMARY: The Savellanos were passengers of Northwest airline and their contract of carriage with
the latter was for the San Francisco-Tokyo(Narita)-Manila flights. Their itinerary was not followed
when the aircraft used for the first segment of the journey developed engine trouble. They had to be
rerouted to different stopping places without their consent. Consequently, petitioners filed a case for
damages.

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The SC refused to give them moral damages because of lack of evidence showing bad faith. No
exemplary damages were awarded also because there was no proof that Northwest acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. However, the SC recognized their right to be
notified and consulted before their contracted stopping place was changed and awarded them
nominal damages.

DOCTRINE: 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.

VICTORY LINER V. GAMMAD

SUMMARY: Marie Grace Pagulayan-Gammad (BIR Section Chief)was a passenger of a Victory Liner
bus bound for Tuguegarao, from Manila. It was running at a high speed at 3 in the morning, falling
into a ravine somewhere in Nueva Vizcaya. Marie Grace died as a result of this incident. The heirs of
Gammad filed a Complaint for Damages arising from Culpa Countractual against the bus company.
The TC considered the case submitted for decision due to the failure of the company and its counsel to
appear, and found for Gammad. Actual damages, Death indemnity, Exemplary and Moral damages,
Compensatory Damages, Attorneys fees, and costs of the suit were to be paid by the company. The
CA affirmed the decision with modification, reducing the Actual and Compensatory damages. The SC
affirmed with modification, reducing the Actual, Moral, and Exemplary damages, while imposing
Temperate damages.

DOCTRINE: Under Article 2224 of the Civil Code, 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 cannot, from the nature of the case, be proved with
certainty.

Temperate damages are in order when damages for loss of earning capacity are not substantiated by
documentary proof.

6. Attorneys Fees and Interest; Arts. 2208, 2210

ART. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(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;
(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.

IV. Code of Commerce Provisions on Overland Transportation

A. Scope of Overload Transportation


B. Nature of Contract, Art. 3493

3
(Unless otherwise indicated, reference is to Code of Commerce)

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Commercial Contract of Transportation by land of waterways:
(1) When it has for its object merchandise or any article of commerce.
(2) When, whatever its object may be, the carrier is a merchant or is habitually engaged in
transportation for the public.

Merchandise goods for general consumption of the public


Article of Commerce all other goods other than a merchandise

Commercial private carriers Code of Commerce governs


Common Carriers Civil Code governs

C. Effect of Civil Code; Arts. 1766, 2270, Civil Code

Code of Commerce applies suppletorily to all matters not regulated by the Civil Code.

D. Contract of Carriage
1. Bill of Lading

(a) Definition, Subject Matter, Art. 352

BILL OF LADING: It is a written acknowledgement, signed by the master of a vessel or other


authorized agent of the carrier, that he has received the described goods from the shipper, to be
transported on the expressed terms to the described place of destination, and to be delivered there to
the designated consignee or parties. (70 Am Jur 2d 924)

It is not indispensable for the creation of a contract of carriage. (Compania Maritima v. Insurance
Company of North America, 12 SCRA 213)

When effective: Usually upon its delivery to and acceptance by the shipper (Aquino)

It is presumed that the stipulations of the bill are, in the absence of fraud, concealment, or improper
conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill
or not.

(b) Form, Contents, Arts. 350, 351

Omission of the required contents as well as not following the form does not void the contract of
transportation.

Kinds of Bills of Lading:


(1) Negotiable B/L - where it is stated that the goods will be delivered to the bearer, or to the order of
any person named in such document
(2) Non-negotiable B/L - where the goods are to be delivered to a specified person
(3) Clean B/L - does not indicate any defect in the goods
(4) Foul B/L - indicates that the goods covered by it are in bad condition
(5) Spent B/L - covers goods that have already been delivered by the CC without a surrender of a
signed copy of the B/L; the subsequent delivery of the spent B/L cannot give to the buyer of it any
actual control of the goods, or anything which can fairly be called delivery
(6) Through B/L - issued by the CC who is obliged to use the facilities of other carriers as well as his
own facilities for the purpose of transporting the goods from the city of the seller to the city of the
buyer, which B/L is honored by the subsequent interested carriers who do not issue their own
ladings
(7) On Board B/L - states that the goods have been received on board the vessels which is to carry
the goods
(8) Received for Shipment B/L - states that the goods have been received for shipment with or w/o
specifying the vessel by which the goods are to be shipped; issued when conditions are not
normal and there is an insufficiency of shipping space
(9) Custody B/L - issued by the CC to whom the goods have been delivered for shipment but the
steamer indicated in the B/L which is to carry the goods has not yet reached the port where the
goods are held for shipment

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(10) Port B/L - issued by the CC to whom the goods have been delivered and the steamer indicated in
the B/L by which the goods are to be shipped is already in the port where the goods are held for
shipment

(c) Function, Art. 353

THREE-FOLD CHARACTER
(1) Receipt as to the quantity and description of the goods shipped;
(2) Contract to transport and deliver the goods to the consignee or other person therein designated,
on the terms specified in such instrument; and
(3) Document of title, which makes it a symbol of the goods

The Bill of Lading is the legal evidence of the contract between the shipper and the carrier and there
can be no other evidence admissible to prove their contract other than the Bill of lading itself (Parole
Evidence Rule) except if there is (1) falsity and (2) material error in the drafting.

2. Refusal to Transport, Art. 356

The common carrier cannot refuse transport except there is justified refusal to transport if the
packages appear unfit for transportation.

3. Doubtful declaration of contents, Art. 357

If the Common Carrier has a well-founded suspicion of falsity in the declaration as to the contents of a
package, he may examine it and must follow the procedure under Art. 357.

4. No Bill of Lading, Art. 354, 351

Bill of lading is not essential to contract: While under 350, the shipper and the Common Carrier may
mutually demand that a B/L is made, it is not obligatory. The fact that a B/L is not issued does not
preclude the existence of a contract of transportation. Provided there is a meeting of the minds and
from such meeting arise rights and obligations, there should be no limitations as to form.

Commercial contracts shall be valid in whatever form and language as long as existence is proven.

E. Responsibility of the Carrier


1. When it commences, Art. 355

The responsibility of the Common Carrier commences from the moment he receives the merchandise.
The delivery must be made to (1) him personally or through his duly authorized agent, and (2) at the
place indicated for receiving the merchandise

2. Route, Art. 359

Where there is an agreed route, the Common Carrier is not allowed to deviate and shall be liable for
losses due not only to the change of route but also to other causes, together with the indemnity
agreed upon EXCEPT when there is force majeure, in which case he will be reimbursed if there is an
increase in transportation charges.

Where there is no agreed route, the carrier must select one which may be the shortest, least expensive
and practically passable

3. Care of Goods, Arts. 361, 362, Arts. 1734, 1735, Civil Code

When goods are delivered on board a ship in good order and condition, and the shipper-owner
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 reason of some fact which legally exempts him
from liability.

The shipper will suffer losses and deteriorations arising from fortuitous event, force majeure, or
inherent nature and defects of the goods (at the risk and venture of the shipper).

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It does not mean that the Common Carrier is free from liability for losses and deterioration arising
from his negligence or fault, which is presumed. Relate this with Art. 1734 and 1735 of the Civil Code.

4. Delivery

(a) Condition of Goods, Arts. 363 to 367

Duty to deliver goods: duty to deliver the goods in the same condition in which according to the B/L
they were found at the time they were received, without damage or impairment otherwise, the
Common Carrier is liable for damages.

When consignee may refuse to receive goods


(1) When the consignee proves that he cannot make use of the goods without the others (partial
delivery) (Art. 363, Code of Commerce)
(2) When goods are rendered useless for purposes of sale or consumption in the use for which they
are properly destined. (Effect: consignee may demand payment of the goods at current market
prices) (Art. 365, Code of Commerce)
(3) In case part of the goods is in good condition, the consignee may refuse to receive only the
damaged goods if separation is possible. (Art. 365, Code of Commerce)
(4) Where the delay is through the fault of the carrier. (Art. 371, Code of Commerce)

(b) To Whom Delivery Made, Art. 368

The goods should be delivered to the CONSIGNEE or any other person to whom the bill of lading was
validly transferred or negotiated.

(c) When to be made, Arts. 370, 358

Rule: Period fixed for the delivery of the goods as stipulated in the Bill of Lading. (Art. 370)

If there is no stipulation:
(1) Within a reasonable time (Art. 370, Code of Commerce)
(2) Carrier is bound to forward the goods in the first shipment of the same or similar goods which he
may make to the point of delivery (Art. 358, Code of Commerce)

Effect of non-compliance: The carrier shall pay the indemnity agreed upon in the bill of lading. If no
indemnity is fixed, the carrier shall be liable for the damages which may have been caused by the
delay. (Art. 370, Code of Commerce)

F. Rights and Obligations or Shipper and/or Consignee

1. Right to damages

(a) Condition imposed on right, Arts. 366, 357

PERIOD FOR FILING CLAIMS


Damage When to Claim
Patent damage Claim for damages must be made upon receipt of
(Ascertainable from package) delivery (oral or written)
Latent damage Claim for damages may be made within 24 hours
(Only upon opening the package) upon receipt of delivery.

After such periods OR transportation charges have been paid, no more claims for damages will be
entertained. (Art. 366, Code of Commerce)

Non-filing of the claim bars recovery. (Aquino)

Art. 366 is limited to cases of claims for damage to goods actually turned over by the carrier and
received by the consignee. It does not apply to misdelivery of goods. (Aquino)

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Purpose: The rule protects the carrier by affording it an opportunity to make an investigation of a claim
while the matter is still fresh and easily investigated so as to safeguard itself from false and fraudulent
claims. (UCPB General Insurance Co., Inc. vs. Aboitiz Shipping, 2009)

(b) Amount of damages for loss, Art. 732; Art. 1744, Civil Code
(c) Amount of Damages for delay, Art. 371(3)

The indemnification for losses and damages by reason of the delay cannot exceed the current price
which the goods transported would have had on the day and at the place in which they should have
been delivered.

2. Right to abandon, Arts. 371, 360, 365, 363

Right of abandonment: Exceptional but limited right


The right must be exercised during the intervening period between the moment when the fault of the
Common Carrier produces a delay, which is the generative cause of the action, until the moment just
before the arrival of the goods at the place of delivery, by communicating such abandonment to the
Common Carrier in writing. Where these conditions do not concur, the refusal to accept cannot be
effective.

Damages for abandonment : Art. 371 (2) --> subject to Civil Code

Cases where consignee may abandon goods:


(1) Art. 363, in case of partial non-delivery where the consignee proves that he cannot make use of
the goods capable of delivery independently of those not delivered
(2) Art. 365, where the goods are rendered useless for sale and consumption for the purposes for
which they are properly destined
(3) Art. 371, where there is delay through the fault of the carrier

3. Right to change consignment, Art. 360

ARTICLE 360. The shipper, without changing the place where the delivery is to be made, may change
the consignment of the goods which he delivered to the carrier, provided that at the time of ordering
the change of consignee the bill of lading signed by the carrier, if one has been issued, be returned to
him, in exchange for another wherein the novation of the contract appears. The expenses which this
change of consignment occasions shall be for the account of the shipper.

4. Obligation to pay transportation charges, Arts. 376; Art. 2241(9), Civil Code

Two sanctions for the enforcement by the CC of the payment of expenses and transportation charges :
(1) Art. 374 - Judicial sale of the goods transported
(2) Art. 375 - Creating a lien in favor of the CC on the goods transported --> 8 day period has been
increased to 30 days by the NCC

The purpose of the lien and time limit: Reciprocal to that established in favor of the shipper under Art.
372 (par. 2); time limit rests on the necessity which the consignee must have for alienation of the
goods, by which the CC is given a period relatively urgent pertaining to the said goods transported -->
after the time has prescribed, his preference prescribes and his only remedy is by ordinary action.

5. Obligation to return bill of lading, Art. 353(2)

Under par. 2, Art. 353, after the contract of transportation has been complied with, the B/L shall be
returned to the issuing CC in exchange for the goods transported which are delivered to the shipper or
consignee.

Where the consignee upon receiving the goods cannot return the B/L to the CC by reason of its loss or
any other cause, par. 3, Art. 353 provides that he must give the CC a receipt of the goods delivered.

Effect of return of the B/L or giving of the receipt: The respective obligations and actions of the parties
against each other shall be considered canceled, except where in the same act of return or giving of a
receipt the claims of the parties be reduced to writing subject to the provisions of Art. 366

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G. Applicability of Provisions, Art. 379

V. Admiralty and Maritime Commerce

A. Concept of Admiralty; Jurisdiction over admiralty cases; Batas Pambansa Blg. 129, Sec. 19 (3),
Sec. 33(1), as amended by R.A. 7691

Test of Admiralty Jurisdiction: WON the subject matter of the contract involves maritime service or
maritime transaction.

What cases courts have jurisdiction over maritime commerce?


Demand or claim:
(a) Not exceeding P400,000 (Metro Manila) or P300,000 (outside MM) - MTC;
(b) Above P400,000 or P300,000 RTC
EXCLUSIVE of interest, damages of whatever kind, attorney's fees, litigation expenses, and costs

INTERNATIONAL HARVESTER v. ARAGON

SUMMARY: YCFE filed a case against IHCP and MTCI to recover P200 as the value of the goods not
delivered to YCFE. IHCP filed a motion to dismiss alleging that the municipal court had no jurisdiction
to try the case because the action involves admiralty or maritime jurisdiction. The MCM overruled the
motion. The CFI reversed. The SC affirmed, ruling that since the case involves admiralty, it is the CFI
which has original jurisdiction over the case.

DOCTRINE: Admiralty has jurisdiction over all maritime contracts, in whatever form, wherever they were
executed or are to be performed, but not over non-maritime contracts. WON a contract is maritime
depends not on the place where the contract is made and is to be executed, making the locality 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 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.

B. Vessels

1. Meaning

LOPEZ VS. DURUELO

SUMMARY: Lopez rode the small boat, Jison, for him to ride the interisland steamer, San Jacinto. But
Jison came too close to San Jacinto and was hit by the latters propeller blades. Lopez was thrown off
and was injured by the blades. Lopez sued for damages arguing that his injuries were caused by
Duruelos, Jisons patron, negligence. Duruelo argues that Lopez did not file a protest required by Art.
835 of the Code of Commerce within 24 hours from the collision which renders his complaint without
cause of action. SC held that such provision only applies to merchant vessels.

DOCTRINE: 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 another, in other words, 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.

C. Nature and acquisition of; Arts. 573, 573, 583. Art. 712, Civil Code

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VESSELS: Those engaged in navigation, whether coastwise or on the high seas, including floating
docks, pontoons, dredges, scows and any other floating apparatus destined for the services of the
industry or maritime commerce.

Vessels engaged in the business of carrying or transporting passengers or goods for compensation,
offering their services to the public are common carriers --> governed primarily by the Civil Code, the
Code of Commerce and special laws provisions apply suppletorily.

The Code of Commerce regulates merchant ships or those engaged in the transportation of
passengers and freight from one port to another or from place to another.

The Code of Commerce does not refer to pleasure ships, 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 coast and geodetic survey, scientific research
and exploration, crafts engaged in the loading and the discharge of vessels, or transhipments from
one vessel to another.

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.

Modes of acquisition: (1) purchase and sale, (2) prescription, (3) construction, (4) capture, (5) donation,
(6) succession, and (7) other means, such as barter.

Possession in GF will ripen into ownership in 3 years; if the possession is otherwise, it will ripen
into ownership in 10 years.
There can be no prescription in favor of the captain because the nature of the possession of the
captain is such that he is only an agent of the owner, a depositary of the vessel.
The acquisition of a vessel must appear in a written instrument and such instrument must be
registered in order that the transfer may affect third persons.

The business of constructing and repairing vessels or parts thereof shall not be considered a public
utility and no CPC shall be required thereof.

Vessels are considered personal or movable property; but they partake to a certain extent, of the nature
and conditions of real property, on account of their value and importance in the world of commerce.

D. Registration; certificates issued; distinctions; Republic Act 9295 Section 10(1)

RA 9295. SEC. 10. Jurisdiction; Power; and Duties of MARINA. - The MARINA shall have the power
and authority to:
(1) Register vessels

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

The 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.

E. Significance of registration of transactions affecting vessels

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Registration; RatioShips or vessels, whether moved by steam or by sail, partake, to a certain extent,
of the nature and conditions of real property, on account of their value and importance in the world
commerce; and for this reason the provisions of article 573 of the Code of Commerce are nearly
identical with those of article 1473 of the Civil Code.

Presumption of ownership from registration: the presumption is that the person in whose name a
vessel is registered has legal title thereto --> but such is not conclusive proof against the real owners
It is essential that a record of documents affecting the title of a vessel be entered in the Philippine
Coast Guard

ARROYO VS. YU

SUMMARY: The lorchas were owned by Lim Ponzo Navigation. They were then mortgaged to Po
Pauco. Po Pauc then transferred the mortgage to PNB. Eventually, Maria Corazon filed a civil case
against Lim Ponzo and she was able to obtain a writ of execution on the lorchas. However, she was
not able to have the lorchas sold on public auction because PNB filed a third-party complaint. It
should be noted that the writ of execution was executed before the mortgage in favor of PNB was
registered due to some doubts held by the Commissioner of Customs.

DOCTRINE: It is now not necessary for a chattel mortgage of a vessel to be noted in the registry of the
register of deeds. It is, however, essential, that a record of documents affecting the title of the vessel
be entered in the office of the collector of customs, at a port of entry. Mortgages on vessels, although
not recorded, are good as between the parties. But as against the creditors of the mortgagor, an
unrecorded mortgage is invalid.

The belated registration of the mortgage in favor of PNB was not due to its fault. It was due to the
fault of the Commissioner. As such, even though the registration was belated and Maria Corazon
appears to be preferred, the subsequent registration was curative and PNB should be preferred.

RUBISO AND GELITO V. RIVERA

SUMMARY: Gelito and Sy Qui, as partners, owned a boat, Valentina. Gelito sold his share to Sy Qui. Sy
Qui sold the boat to Rivera. After said sale, Rubiso sued Sy Qui, who, apparently owed him money, for
payment. The Justice of the Peace ordered that the boat, which was already sold to Rivera, be sold at
a public auction, where Rubiso was able to buy it. He then registered the sale with the Collector of
Customs. Later, Rivera also registered his purchase. Rubiso sued Rivera for the boat. The CFI and the
SC ordered delivery to Rubiso, the latter ruling that, since Rubiso registered first, he has a better right.

DOCTRINE: The requisite of registration is necessary 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 Act No. 1900. As such, 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 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, Code of Commerce, 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.

F. Persons Participating in Maritime Commerce

1. Shipowners and shipagents; Arts. 586 to 608; 618

SHIPOWNER: The person who is primarily liable for damages sustained in the operation of the vessel.
SHIP AGENT: The person entrusted with provisioning of the vessel, or who represents her in the port in
which she happens to be.

STANDARD OIL V. CASTELO

SUMMARY: Manuel Castelo, the owner of a small interisland steamer Batangueo, entered into a
contract of charter with Jose Lim Chumbuque. The small steamer would be used in conveying cargo
between certain ports in the Philippines. Castelo would supply the officers and crew of the steamer.
Subsequently, Standard Oil, as shipper, delivered to the ganet of the boat in Manila 200 cases of

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petroleum to be conveyed by the steamer. While the ship was on its way to Srosogon, a typhoon
passed and while the storm was at its height, the captain jettisoned the entire consignment of
petroleum for the safety of the crew and of the steamer. Standard Oil filed the present action to
recover the value of the lost petroleum shipped by the steamer. CFI Manila ruled in favor of Standard
Oil. The SC also ruled in favor of Standard Oil.

DOCTRINE: It is universally recognized that the captain is primarily the representative of the owner of
the ship. Art. 586 of the Code of Commerce declares that both the owner of the ship and the naviero,
or charterer, shall be civilly liable for the acts of the master. The owner of the vessel is civilly liable for
the acts of the captain; and the ship owner can only escape from civil liability by abandoning his
property in the ship and any freight that he may have earned in the voyage.

Any person whose property may have been cast overboard by order of the captain should have a right
of action directly against the ship owner for breach of any duty which the law may have imposed on
the captain to such cargo. The evident intention of the Code of Commerce 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 so, from other individuals who have been drawn into the venture as shippers.

(a) Responsibilities and liabilities

Liability of shipowner and shipagent :


(1) Under Art. 857, for the acts of the captain
(2) for contracts entered into by the captain to repair, equip and provision the vessel, provided that
the amount claimed was invested for the benefit of the vessel
(3) for the indemnities in favor of third persons which may arise from the conduct of the captain in
the care of the goods transported, as well as for the safety of passengers transported
(4) for damages to third persons for tort or quasi-delict committed by the captain, except collision
with another vessel
(5) under Art. 826, for damages in case of collision due to the fault, negligence, or want of skill of the
captain, sailing mate, or any other member of the complement

The agent is liable to the shippers and owners of the cargo transported by it, for losses and
damages occasioned to such cargo without prejudice to his rights against the owner of the ship,
to the extent of the value of the vessel, its equipment and the freight.
Under 588, the shipowner and the shipagent are not liable for the obligations contracted by the
captain if he exceeds his authority, unless the amounts claimed were invested for the benefit of
the vessel --> however under Art. 1759, NCC, the ship owner is liable for the death of or injuries to
the passengers which are caused by the negligence or willful acts of his EEs although such EEs
may have acted beyond the scope of their authority or in violation of the orders of the shipowner.
Art. 618 provides for the direct responsibility of the shipowner and shipagent to third persons; the
captain shall be civilly liable to the ship agent and the latter is the one liable to third persons. This
article applies to breaches of contract and tortious negligence of the captain.
But where the vessel is totally chartered for use of a single party, the shipowner and that party
may validly stipulate that the latter shall be exempt from liability for the negligence of the captain
and crew.
Reason for imposition of liability on owner for damages suffered by third persons occasioned by
the acts of the captain: To place the primary liability upon the person who has actual control over
the conduct of the voyage and who has the most capital embarked in the venture, namely, the
owner of the ship, leaving him to obtain recourse, from other individuals who have been drawn
into the venture as shippers.
The shippers and passengers in making contracts with the captain do so through the confidence
they have in the shipowner who appointed him --> they presume that the owner made a most
careful investigation before appointing him

Distinction between liability for lawful and unlawful acts:


The lawful acts and obligations of the captain beneficial to the vessel may be enforced as against
the agent/owner for the reason that such obligations arise from the contract of agency ( provided
that the captain does not exceed his authority)
As to any liability incurred by the captain through his unlawful acts, the ship agent is simply
subsidiarily liable.

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Liabilities of captain: the responsibility of the captain extends to every fraudulent or negligent act
of any person in the complement, in the execution of his employment --> he does not respond for
personal injuries of the crew arising from personal quarrels but he is liable for damages to
persons or property occasioned by a maneuvering of the vessel, for failure to follow international
rules and regulations, for failure to take the precautions to prevent every damage possible to the
vessel which has suffered an average.

LIABILITY FOR ACTS OF CAPTAIN


(1) The owner of a vessel and the 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. (Art. 586, Code of
Commerce)
(2) 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.
(3) Damages to vessel and to cargo due to lack of skill and negligence.
(4) Losses, fines, and confiscations imposed an account of violation of customs, police, health, and
navigation laws and regulations.
(5) Those caused by the misuse of the powers.
(6) For those arising by reason of his voluntarily entering a port other than that of his destination.
(7) For those arising by reason of non-observance of the provisions contained in the regulations on
situation of lights and maneuvers for the purpose of preventing collisions. (Art. 618)

Exception: Abandonment of the vessel (Art. 587, Code of Commerce)

Note: The owner or agent shall not be liable for the obligations contracted by the captain if the latter
exceeds his powers and privileges. However, if the amounts claimed were made use of for the benefit of
the vessel, the owner or agent shall be liable. (Art. 588, Code of Commerce)

YU CON v GLICERIO IPIL (master), NARCISO LAURON (shipowner), AND JUSTO SOLAMO (supercargo)

SUMMARY: Yu Con contracted with Lauron (shipowner) for the transportation of certain merchandise
and some money from the port of Cebu to Catmon. Yu Con chartered the banca Maria with Glicerio
Ipil as master and Justo Sulamo as supercargo for the said purpose. On the afternoon of October 18,
1911, Yu Con delivered a trunk containing P450, which was to be delivered to Yu Cons shop in Catmon
for the purchase of corn. That same night, the trunk was lost and the thief was not identified despite
investigations. Yu Con filed a complaint to recover the sum of P450 while the defendants filed a
counterclaim. The trial court held that the sole cause of the disappearance of the money was the
negligence of the master and supercargo and held that the shipowner was responsible for that
negligence. The defendants were held jointly and severally liable for the sum of P450. The SC
affirmed.

DOCTRINE: The shipowner is liable for the acts of the captain and the crew based on Arts. 587 and
618 of the Code of Commerce. The liability of the shipowner stems from his capability to appoint the
crew and the captain and from the rule under the Partidas that he who derives benefit from a
particular activity must also be liable for losses occasioned by such activity.

MANILA STEAMSHIP v. ABDULHAMAN

SUMMARY: Manila Steamships M/S Bowline Knot collided with Lim Hong Tos M/L Consuelo V. As a
result of the maritime collision, Abdulhamans cargoes were lost and his 5 children dead. He sues
both owners for damages. Manila Steamship argues that it should be exempted from liability because
it observed due diligence of a good father of a family in the selection and supervision of his employees.
SC disagreed and held both owners solidarily liable.

DOCTRINE: Abdulhamans action is based on a tort or quasi-delict -- a maritime tort resulting in a


collision at sea, governed by Art. 826-939, Code of Commerce. Under Art 827 COC in case of
collision between 2 vessels imputable to both of them, each vessel shall suffer her own damage and
both shall be solidarily liable for the damages occasioned to their cargoes.
The characteristic language of the law in making the vessels solidarily liable for damages
due to the maritime collision emphasizes the direct nature of responsibilities on account of the
collision incurred by shipowner under maritime law, as distinguished from civil law and mercantile law

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in general. This direct responsibility recognized in Art. 618 of COC under which the captain shall be
civilly liable to ship agent, and the latter is one liable to 3rd persons.
This direct liability, moderated and limited by the owners right of abandonment of the vessel
and earned freight (Art. 587), has been declared to exist not only in case of breached contracts but
also in cases of tortious negligence (Yu Biao Sontua v. Osorio).

WING KEE COMPRADORING COMPANY V. THE BARK "MONONGAHELA," VICTOR S. FOX AND CO.,
INC., OWNER OF THE BARK MONONGAHELA, THE ADMIRAL LINE, AND C. G. LOTHIGIUS

SUMMARY: From March 16, 1921 to August 2, Wing Kee delivered supplies for use of the Bark. Wing
Kee filed this claim against the defendant to collect sum of money. On August 2, a newspaper ad was
shown stating that Admiral shall no longer be the agent of the Bark. SC held that Admiral Line was
found to be the agent of Bark during March 16 to August 2, hence should be liable as such, for the
supplies provided for during the period of agency.

DOCTRINE: The owner of a vessel and the agent shall be civilly liable for the acts of the captain and
for the obligations contracted by the latter to repair, equip, and provision the vessel provided the
creditor proves that the amount claimed was invested therein.

By agent is understood the person intrusted with the provisioning of a vessel, or who represents her in
the port in which she happens to be.

(b) The doctrine of limited liability, Art. 587

Doctrine of limited liability (Hypothecary Rule)


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. (Aboitiz Shipping Corp. vs. General Accident Fire and Life Assurance Corp.
(1993))

Applicable in the following cases: The agent shall 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 equipment and the freight
he may have earned during the voyage. (Art. 587, Code of Commerce)

The 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. 590, Code of Commerce)

In case of collision, the liability of the shipowner shall be understood as limited to the value of the vessel
with all her appurtenances and all the freight earned during the voyage. (Art. 837, Code of Commerce)

Liability for wages of the captain and the crew and for advances made by the ship agent if the vessel is
lost by shipwreck or capture (Art. 643, Code of Commerce)

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

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at this conclusion, the fact is not ignored that the ill-fated S.S. Negros, 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. (Yangco v. Laserna et al., 1941)

Exceptions to the Doctrine of Limited Liability


(1) Claims under the Workmens Compensation (Abueg vs. San Diego)
(2) Expenses for repairing, provisioning and equipping the vessel
(3) There is an actual finding of negligence on the part of the vessel owner or agent (Aboitiz Shipping
vs. General Accident Fire and Life Assurance Corp.)
(4) Vessel is insured (Vasquez vs. CA)
(5) Vessel is not abandoned or there was no total loss.
(6) Collision between two negligent vessels

MANILA STEAMSHIP V. ABDULHAMAN

SUMMARY: A collision of the Consuelo V and the Bowline Knot happened at sea near San Ramon
beach, Zambo City. The Consuelo V was a total loss. The crew of both ships was negligent.
Passenger Abdulhaman lost his baggage and 5 children. He sues the owners of both ships for
damages. CFI: Owners of both ships solidarily liable. CA: Owner of Consuelo V is exempt because of
the total loss of his ship. SC: CFI ruling reinstated. Doctrine of Limited Liability does not apply because
the injury is the shipowners fault.

DOCTRINE: The right of abandonment of vessels, as a legal limitation of a shipowners liability, does
not apply to cases where the injury or the average is due to shipowners own fault. The shipowner does
not have right to the legal limitation of responsibility if any damage or malfunction that give rise to the
limitation originate from his own sins.

Relevant law: Art. 587 CoC: The ship agent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her
equipments and the freight it may have earned during the voyage.

YANGCO V. LASERNA

SUMMARY: SS Negros, owned by Yangco, sank. Before they embarked on the trip, the captain was
duly advised that it was typhoon signal no. 2 in their area. The boat was overloaded w cargo and the
passengers were overcrowded as well. the boat encountered strong winds and rough seas that caused
it to capsize and sink. Many of the passengers died. Their relatives filed separate civil actions to
recover damages. CFI awarded damages. Yangco filed a verified pleading saying that he was
abandoning the vessel together with all its equipments. Abandonment was denied. CA affirmed CFI.
SC reversed saying that Yangco is absolved from paying the complainants.

DOCTRINE:
Doctrine of limited liability: 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.

I think this is important: In arriving at this conclusion, the fact is not ignored that the ill-fated S. S.
Negros, 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.

ABUEG VS. SAN DIEGO

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SUMMARY: Appellees-widows filed cases and were granted the compensation provided for under the
workmens compensation act. The ship owner appealed, alleging among others that his limited
liability under the code of commerce in cases of collision renders him not liable for anything under the
workmens compensation act as the code of commerce says that his liability is extinguished. The SC
ruled that still he is liable to pay.

DOCTRINE: The real and hypothecary nature of the liability of the shipowner or agent under the
provisions of the code of commerce had their origins from maritime trade during the medieval ages,
and to offset the hazards and perils and encourage shipbuilding and maritime commerce, it was
deemed necessary to confine the liability of the ship owner/agent arsing from operation of the ship, so
that the shipowner or agent abandoned the ship, his liability was extinguished.

The provisions of the code of commerce does not apply to the workmens compensation act which
seeks to improve the condition of laborers and employees. 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.

ABOITIZ SHIPPING v. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE

SUMMARY: M/V Aboitiz, a common carrier, sank on a voyage from Hongkong to the Philippines in
1980. General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC) is the foreign insurance
company of several cargo consignees of the said vessel. The sinking gave rise to the filing of suits for
recovery. One case discussed that limited liability attaches to the cargo by virtue of stipulations in the
Bill of Lading. This was granted full execution by the lower court and then affirmed by the CA. Aboitiz
contends that the execution should be stayed because of the Limited Liability Rule arising out of real
and hypothecary nature of maritime law under the Code of Commerce. The SC held that the limited
liability on cargo which was settled in the previous case is not the same as the limited liability arising
out of real and hypothecary nature of maritime law. Under this rule, the liability of the vessel owner
and agent is confined to the vessel itself, its equipment, freight, and insurance, if any. The only time
that 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. In this case, there was no finding that the shipowner itself was
negligent. All that the findings reveal is that the ship sank due to unseaworthiness. Since other claims
from the same incident are pending, there is a need to collate them and later pro-rate them up to the
limited liability of the shipowner.

DOCTRINE: 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
hypothecarated for such obligations or which stands as the guaranty for their settlement. 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.

(c) Specific rights and prerogatives; Arts. 575, 593, 594, 596, 601

ARTICLE 575. Co-owners of vessels shall have the right of repurchase and redemption in sales made
to strangers, but they may exercise the same only within the nine days following the inscription of the
sale in the registry, and by depositing the price at the same time.

ARTICLE 593. The owners of a vessel shall have preference in her charter over other persons, under
the same conditions and price. If two or more of them should claim this right, the one having the
greater interest shall be preferred; and should they have equal interests, the matter shall be decided
by lot.

ARTICLE 594. The co-owners shall elect the manager who is to represent them in the capacity of ship
agent. The appointment of director or ship agent shall be revocable at the will of the members.
ARTICLE 595. The ship agent, whether he is at the same time the owner of the vessel, or a manager
for an owner or for an association of co-owners, must have the capacity to trade and must be recorded
in the merchant's registry of the province. The ship agent shall represent the ownership of the vessel,
and may, in his own name and in such capacity, take judicial and extrajudicial steps in matters relating
to commerce.

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ARTICLE 596. The ship agent may discharge the duties of captain of the vessel, subject in every case
to the provision of Article 609. If two or more co-owners apply for the position of captain, the
disagreement shall be decided by a vote of the members; and if the vote should result in a tie, it shall
be decided in favor of the co-owner having the larger interest in the vessel. If the interests of the
applicants should be equal, and there should be a tie, the matter shall be decided by lot.

ARTICLE 601. Should there be any profits, the co-owners may demand of the managing agent the
amount corresponding to their interests by means of an executory action ("accion ejecutiva"), without
any other requisite than the acknowledgment of the signatures on the instrument approving the
account.

2. Captains and Master

Captain: those who govern vessels that navigates the high seas or ships of large dimensions and
importance, although they are engaged in the coastwise trade.

Masters: those who command smaller ships engaged exclusively in the coastwise trade.

For the purposes of maritime commerce, the words "captain" and "master" have the same meaning;
both being the chiefs or commanders of ships.

(a) Qualifications and licensing; Rep. Act 5173, Sec. 3; Art. 609

Qualifications of Captains, masters or patrons of vessels:


(1) Filipino
(2) Have legal capacity to contract
(3) Skill, capacity, and qualifications necessary to command and direct the vessel
(4) Must not be disqualified for the discharge of the duties of the position.

(b) Powers and Duties; Arts. 610, 611, 612, 622, 624, 625

Captain; managerial EE; 3 roles 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, 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.

Captain; discretion a ships captain must be accorded a reasonable measure of discretionary


authority to decide what the safety of the ship and of its crew and cargo specifically requires on a
stipulated ocean voyage. The captain is held responsible, and properly so, for such safety.

ARTICLE 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;

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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 Code.

2. For all the thefts committed by the crew, reserving his right of action against the guilty parties.

3. For the losses, fines, and confiscations imposed an account of violation of customs, police, health,
and navigation laws and regulations.

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
timely use of all his authority to prevent or avoid them.

5. For those caused by the misuse of the powers and the non-fulfillment of the obligations pertaining
to him in accordance with Articles 610 and 612.

6. For those arising by reason of his going out of his course or taking a course which he should not
have taken without sufficient cause, in the opinion of the officers of the vessel, at a meeting with the
shippers or supercargoes who may be on board. No exceptions whatsoever shall exempt him from this
obligation.

7. For those arising by reason of his voluntarily entering a port other than that of his destination,
outside of the cases or without the formalities referred to in Article 612.

8. For those arising by reason of non-observance of the provisions contained in the regulations on
situation of lights and maneuvers for the purpose of preventing collisions.

ARTICLE 619. The captain shall be liable for the cargo from the time it is delivered to him at the dock
or afloat alongside the at the port of loading, until he delivers it on the shore or on the discharging
wharf at the port of unloading, unless the contrary has been expressly agreed upon.

ARTICLE 620. The captain shall not be liable for the damages caused to the vessel or to the cargo by
force majeure; but he shall always be so for those arising through his own fault, no agreement to the
contrary being valid. Neither shall he be personally liable for the obligations he may have contracted
for the repair, equipment, and provisioning of the vessel, which shall devolve upon the ship agent,
unless the former has expressly bound himself personally or has signed a bill of exchange or
promissory note in his name.

ARTICLE 621. A captain who borrows money on the hull, engine, rigging or tackle of the vessel, or
pledges or sells merchandise or provisions outside of the cases and without the formalities prescribed
in this Code, shall be liable for the principal, interests, and costs, and shall indemnify for the damages
he may cause. He who commits fraud in his accounts shall pay the amount defrauded and shall be
subject to the provisions of the Penal Code.

INTER-ORIENT MARITIME ENTERPRISES, INC. V. NLRC

SUMMARY: Capt. Tayong was instructed to sail to Africa. The 14-yr old vessel he was navigating
needed supplies (oxygen and acetylene) for repair. He was supposed to get the supplies in Singapore
but there was a delay in the delivery of the said materials. He decided to wait for the supplies before
proceeding to Africa which caused a 7 hour delay in the scheduled arrival of vessel. Upon arrival in
Africa, he was immediately repatriated to the Philippines. He filed for a case of illegal dismissal. The
SC discussed the nature, duties, and powers of a ship captain and decided that his actions were
reasonable. Hence, the dismissal was illegal.

DOCTRINE: The captain of a vessel is a confidential and managerial employee. A master or captain,
for purposes of maritime commerce, is one who has command of a vessel. He has 3 distinct roles: (1)
he is a general agent of the shipowner; (2) he is also commander and technical director of the vessel;
(3) he is a representative of the country under whose flag he navigates.
a ship's captain must be accorded a reasonable measure of discretionary authority to decide what the
safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage.

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(c) Prohibited acts and transactions; Arts. 613, 614, 615, 617, 621, 583

ARTICLE 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 profit which may accrue shall belong to the
other persons interested, and the losses shall be borne by him exclusively.

ARTICLE 614. A captain who, having made an agreement to make a voyage, fails to perform his
undertaking, without prevented by fortuitous accident or force majeure, shall indemnify for all the
losses which he may cause without prejudice to the criminal penalties which may be proper.

ARTICLE 615. Without the consent of the agent, the captain cannot have himself substituted by
another person; and should he do so, besides being liable for all the acts of the substitute and bound
to the indemnities mentioned in the foregoing articles, the captain as well as the substitute may be
discharged by the ship agent.

ARTICLE 617. The captain may not contract loans on respondentia secured by the cargo; and should
he do so, the contracts shall be void. 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 there does not exist any other kind of lien or obligation chargeable
against the vessel. If he may do so, he must state what interest he has in the vessel. In case of violation
of this article, the principal, interest, and costs shall be for the personal account of the captain, and
the ship agent may furthermore discharge him.

ARTICLE 621. A captain who borrows money on the hull, engine, rigging or tackle of the vessel, or
pledges or sells merchandise or provisions outside of the cases and without the formalities prescribed
in this Code, shall be liable for the principal, interests, and costs, and shall indemnify for the damages
he may cause. He who commits fraud in his accounts shall pay the amount defrauded and shall be
subject to the provisions of the Penal Code.

ARTICLE 583. If while on a voyage the captain should find it necessary to contract one or more of the
obligations mentioned in subdivisions 8 and 9 of Article 580, he shall apply to the judge or court if he
is in Philippine territory, and otherwise to the consul of the Republic of the Philippines, should there
be one, and, in his absence, to the judge or court or proper local authority, presenting the certificate of
the registration sheet 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 of their result in the certificate, in order
that it may be recorded in the registry when the vessel returns to the port of its registry, or so that it
can be admitted as a legal and preferred obligation in case of sale before its return, by reason of the
sale of the vessel on account of a declaration of unseaworthiness. The omission of this formality shall
make the captain personally liable for the credits prejudiced on his account.

3. Other Officers and Crew

(1) Deck Officer


(2) Chief Engineer
(3) Engineer Officer
(4) Radio Officer
(5) Ratings
(6) Chief Mate

(a) Contracts and formalities, Art. 634

ARTICLE 634. The captain may make up the crew of his vessel with such number of men as he may
consider proper, and in the absence of Filipino sailors, he may take on foreigners residing in the
country, the number thereof not to exceed one-fifth of the crew. If in foreign ports the captain should
not find a sufficient number of Filipino sailors, he may complete the crew with foreigners, with the
consent of the consul or marine authorities. The agreement which the captain may make with the
members of the crew and others who go to make up the complement of the vessel, to which reference
is made in Article 612, must be reduced to writing in the account book, without the intervention of a
notary public or clerk of court ("escribano"), signed by the parties thereto and visaed by the marine
authority if they be executed in Philippine territory or by the consuls or consular agents of the Republic

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of the Philippines if executed abroad, stating therein all the obligations which each one contracts and
all the rights he acquires said authorities taking care that these obligations and rights are recorded in
a clear and definite manner which give no room for doubts or claims. cd The captain shall take care to
read to them the articles of this Code which concern them, stating in said document that they were
read. If the book contains 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 respect 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.

(b) Duties and liabilities, Art. 635

ARTICLE 635. A seaman who has been contracted to serve on a vessel may not rescind his contract or
fail to comply therewith except by reason of a legitimate impediment which may have happened to
him. Neither may he transfer from the service of one vessel to another without obtaining the written
permission of the captain of the vessel on which he may be. If, without obtaining said permission, the
seaman 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 first bound himself,
or at his expense to look for a person to substitute him. Furthermore, he shall lose the wages earned
on his first contract, to the benefit of the vessel for which he had signed. A captain who, knowing that
a seaman is in the service of another vessel, should have made a new agreement with him without
having required of him the permission referred to in the preceding paragraphs, shall be subsidiarily
responsible to the captain of the vessel to which the seaman first belonged, for that part of the
indemnity, referred to in the third paragraph of this article, which the seaman may not be able to pay.

(c) Rights, Arts. 636 to 647

ARTICLE 636. If there is no fixed period for which a seaman has been contracted he may not be
discharged until the end of the return voyage to the port where he enlisted.

ARTICLE 637. Neither may the captain discharge a seaman 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 non-fulfillment of the service.

3. Repeated incapacity and negligence in the fulfillment of the service he should render.

4. Habitual drunkenness.

5. Any occurrence which incapacitates the seaman to perform the work entrusted to him, with the
exception of that provided in Article 644.

6. Desertion. The captain may, however, before getting out on a voyage and without giving any reason,
refuse to permit a seaman whom he may have engaged to go on board, and leave him on land, in
which case he will be obliged to pay him his wages as if he had rendered services. This indemnity shall
be paid from the funds of the vessel if the captain should have acted for reasons of prudence and in
the interest of the safety and good services of the farmer. Should this not be the case, it shall be paid
by the captain personally.

After the voyage has begun, during the same, and until the conclusion thereof, the captain may not
abandon any member of his crew on land or on sea, unless, by reason of some crime, his
imprisonment and delivery to the competent authority in the first port touched should be proper, a
matter obligatory for the captain.

ARTICLE 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 destination different 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 cases follows:

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1. If the revocation of the voyage should be decided upon before the 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 voyage, that which may be due
for said month and days shall be determined in proportion to the approximate number of days the
voyage should have lasted, in the judgment of experts, in the manner established in 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 for fifteen days, discounting in all cases the
sums advanced.

3. If the revocation should take place after the vessel has put to sea, the seamen engaged for a fixed
amount for the voyage shall receive in full the salary which may have been offered them as 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 the seamen 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 case No. 1, besides what may be owed them for the part of the
monthly wages corresponding to the days which have elapsed from the date of their agreements. If
they accept the change, and the voyage, on account of the greater distance or of other reasons, should
give rise to an increase of wages, the latter shall be adjusted privately or through amicable arbitrators
in case of disagreement. Even though the voyage should be shortened to a nearer point, this shall not
give rise to a reduction in the wages agreed upon. If the revocation or change of the voyage should
come from the shippers or charterers, the agent shall have a right to demand of them the indemnity
which may be justly due.

ARTICLE 639. If the revocation of the voyage should arise from a just cause independent of the will of
the ship agent and charterers, and the vessel should not have left the port, the members of the crew
shall have no other right than to collect the wages earned up to the day on which the revocation took
place.

ARTICLE 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 ship agent. 5. The inability of the vessel to navigate.

ARTICLE 641. If, after a voyage has been begun, 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 contract if the voyage had been concluded. And if the agreement should be for a fixed sum for the
voyage, the contract must be complied within 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.

ARTICLE 642. If the crew have been engaged on shares, they 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 way be paid into the common funds of the vessel by the persons liable for said
occurrences.

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ARTICLE 643. If the vessel and her cargo should be totally lost, by reason of capture or wreck, all
rights shall be extinguished, both as regards the crew to demand any wages whatsoever, and as
regards the ship agent to recover the advances made. If a portion of the vessel or of the cargo, or of
both, should be saved, the crew engaged on wages, including the captain, shall retain their rights on
the salvage, so far as they go, on the remainder of the vessel as well as on the amount of the
freightage of the cargo saved; but sailors who are engaged on shares shall not have any right
whatsoever on the salvage of the hull, but only on the portion of the freightage saved. If they should
have worked to recover the remainder of the shipwrecked vessel they shall be given from the amount
of the salvage an award in proportion of the efforts made and to the risks, encountered in order to
accomplish the salvage.

ARTICLE 644. A seaman who falls sick shall not lose his right to wages during the voyage, unless the
sickness is the result of his own fault. At any rate, the costs of the attendance and cure shall be
defrayed from the common funds, in the form of a loan. If the sickness should come from an injury
received in the service or defense of the vessel, the seaman shall be attended and cured at the
expense of the common funds deducting, before anything else, from the proceeds of the freightage
the cost of the attendance and cure.

ARTICLE 645. If a seaman should die during the voyage, his heirs will be given the wages earned and
not received according to his contract and the cause of his death, namely 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 seamen died on the voyage out, and the whole amount if he died on the return voyage. And if the
contract was on shares and death occurred after the voyage was begun, the heirs shall be paid the
entire portion due the seaman; but if the latter died before the departure of the vessel from the port,
the heirs shall not be entitled to claim anything. If death occurred in the defense of the vessel, the
seaman shall be considered as living, and his heirs shall be paid, at the end of the voyage, the full
amount of wages or the integral part of the profits which may be due him as to others of his class. In
the same manner, the seaman captured while defending the vessel shall be considered present so as
to enjoy the same 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.

ARTICLE 646. The vessel with her engines, rigging, equipment, and freightage shall he 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 their right of preference.

ARTICLE 647. The officers and the crew of the vessel shall be free from all obligations if they deem it
proper, in the following cases: 1. If, before beginning the voyage, the captain attempts to change it, or
a naval war with the power to which the vessel was destined occurs. 2. If a disease should break out
and be officially declared an epidemic in the port of destination. 3. If the vessel should change owner
or captain.

4. Supercargoes, Arts. 649-651

ARTICLE 649. Supercargoes shall discharge on board the vessel the administrative duties which the
ship agent or the shippers may have assigned to 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 they shall respect the latter in his capacity as chief of the vessel.

The powers and responsibilities 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 inseparable from his authority and office.

ARTICLE 650. All the provisions contained in the second section of Title III, Book II, with regard to
capacity, manner of making contracts, and liabilities of factors, shall be applicable to supercargoes.

ARTICLE 651. Supercargoes may not, 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. Neither shall they be

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permitted to invest in the return trip more than the profits from the ventures, unless there is an
express authorization from the principals.

G. Accidents and Damages in Maritime Commerces

1. Averages

(a) Nature and Kinds, Arts. 806 to 808

The following shall be considered averages:


1. All extraordinary or accidental expenses incurred during the navigation for the preservation of the
vessel or cargo, or both.
2. All damages or deterioration the vessel may suffer from the time she puts to sea from the port of
departure until she casts anchor in the port of destination, and those suffered by the merchandise
from the time it is loaded in the port of shipment until it is unloaded in the port of consignment.
(Art. 806, Code of Commerce)

NOT considered as averages: The petty and ordinary expenses incident to navigation, such as those of
pilotage of coasts and ports, those of 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 any 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. (Art. 807, Code of Commerce)

(1) Simple or Particular


(a) Defined, Art. 809

Particular or simple Averages shall include all damages and expenses caused to the vessel or cargo
that did not inure to the common benefit and profit of all persons interested in the vessel and her
cargo. (Art. 809, Code of Commerce)

(b) Effects, Art. 810

The owner of the goods which gave rise to the expense or suffered the damage shall bear this average.
(Art. 810, Code of Commerce)

(2) Gross or General


(a) Defined, Arts. 811, 817, 818

General or gross averages shall include all the damages and expenses which are deliberately caused
in order to save the vessel, her cargo, or both at the same time, from a real and known risk. (Art. 811,
Code of Commerce)

(b) Essential Requisites, Arts. 813, 814, 860

(1) There must be a common danger. This means, that both the ship and the cargo, after it has been
loaded, are subject to the same danger, whether during the voyage, or in the port of loading or
unloading, that the danger arises from the accidents of the sea, dispositions of the authority, or
faults of men, provided that the circumstances producing the peril should be ascertained and
imminent or may rationally be said to be certain and imminent. This last requirement excludes
measures undertaken against a distant peril.
(2) That for the common safety, part of the vessel or of the cargo or both is sacrificed deliberately.
(3) That from the expenses or damages caused follows the successful saving of the vessel and cargo.
(4) That the expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority. (Magsaysay, Inc. v. Agan, 1955)

The gross or general average shall be borne by those who benefited from the sacrifice. These include
the shipowner and the owners of the cargoes that were saved. Contribution may also be imposed on
the insurers of the vessel or cargoes that were saved, as well as lenders on bottomry or respondentia.
(PD 1460, as amended)

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Procedure for recovery
1. Assembly and deliberation with the sailing mate and other officers
2. Resolution of the captain adopted
2. Hearing of the persons interested. In case an interested person should not be heard, he shall not
contribute to the gross average. (Art. 813, Code of Commerce)
3. Resolution to be entered in the log book, stating the motives and reasons therefore as well as the
votes and reason for disagreement. (Art. 814, Code of Commerce)
4. Minutes to be signed by all the persons present or in urgent cases, the captain.
5. Captain shall deliver one copy of the minutes to the maritime judicial authority of the first port he
may make within 24 hours (Art. 814, Code of Commerce)
6. Captain shall ratify the minutes under oath. (Art. 814, Code of Commerce)

MAGSAYSAY VS. AGAN

SUMMARY: In 1949, SS San Antonio, owned by Magsaysay embarked on its voyage to Batanes via
Aparri. It was carrying various cargoes, one of which was owned by Agan. One fine weather day, it
accidentally ran aground the mouth of the Cagayan River due to the sudden shifting of the sands
below. SS San Antonio then needed the services of Luzon Stevedoring Co. to tow the ship and make it
afloat so that it can continue its journey. When the cargoes were delivered to the respective owners,
they, with the exception of Agan, made a deposit and or signed a bond to answer for their
contributions to the average. Magsaysay filed a complaint for the CFI for Agans failure to pay his
share, on the theory that the expenses incurred in floating the ship constitute general average in
which both ship and cargo should contribute. Agan, on the other hand, claimed that such expenses
did not constitute the general average. The CFI ruled in favor of Magsaysay. The SC reversed and
dismissed the complaint.

DOCTRINE: Tolentino, in his commentaries on the Code of Commerce, gives the following requisites
for general average:

(1) There must be a common danger. This means, that both the ship and the cargo, after has been
loaded, are subject to the same danger, whether during the voyage, or in the port of loading or
unloading; that the danger arises from the accidents of the sea, dispositions of the authority, or
faults of men, provided that the circumstances producing the peril should be ascertained and
imminent or may rationally be said to be certain and imminent. This last requirement exclude
measures undertaken against a distant peril.
(2) That for the common safety part of the vessel or of the cargo or both is sacrificed deliberately.
(3) That from the expenses or damages caused follows the successful saving of the vessel and cargo.
(4) That the expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority. (Vol. 1, 7th ed., p. 155.)

(c) Effects, Art. 810

ARTICLE 810. The owner of the goods which gave rise to the expense or suffered the damage shall
bear the simple or particular averages.

(d) Jettison, Arts. 815, 816

ARTICLE 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 of 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.

ARTICLE 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 necessary insofar 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 812.

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(e) Jason Clauses (See York-Antwerp Rules, Rule D)

RULE D
Rights to contribution in general average shall not be affected, though the event which gave rise to
the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure, but
this shall not prejudice any remedies or defences which may be open against or to that party in
respect of such fault.

2. Arrival Under Stress

What is arrival under stress? Arrival under stress is the arrival of a vessel at the nearest and most
convenient port instead of the port of destination, if during the voyage the vessel cannot continue the
trip to the port of destination.

It is lawful when the inability to continue voyage is due to lack of provisions, well-founded fear of
seizure, privateers, pirates, or accidents of the sea disabling it to navigate. (Art. 819, Code of
Commerce)

It is unlawful when:
(1) Lack of provisions due to negligence to carry according to usage and customs;
(2) Risk of enemy not well known or manifest
(3) Defect of vessel due to improper repair; and
(4) Malice, negligence, lack of foresight or skill of captain. (Art. 820, Code of Commerce)

(a) Causes, Arts. 819 and 820

ARTICLE 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 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.

ARTICLE 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 customs, 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 defect of the vessel should have arisen from the fact that it was not repaired, rigged,
equipped, and prepared in a manner suitable for the voyage, or from some erroneous order of the
captain.

4. When malice, negligence, want of foresight, or lack of skill on the part of the captain exists in the
act causing the damage.

(b) Formalities, Arts. 819, 822

ARTICLE 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. In a foreign port, it shall be the duty, of the
Philippine Consul, where there is one, to give the authorization. In the first case, the expenses shall be

84
for the account of the ship agent or 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.

(c) Expenses, Arts. 821, 822

ARTICLE 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. Otherwise, the ship agent and the captain shall be jointly
liable.

(d) Responsibility of Captain, Arts. 823 825

ARTICLE 823. The custody and preservation of the cargo which has been unloaded shall be intrusted
to the captain, who shall be responsible for the same, except in cases of force majeure.

ARTICLE 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 they had arrived in good
condition at the port of destination.

ARTICLE 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. If the cause of 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.

3. Collisions

COLLISION is an impact or sudden contact between two moving vessels. (Aquino)

ALLISION is the striking of a moving vessel against one that is stationary.

Zones in collision
(1) First Division covers all the time up to the moment when the risk of collision may be said to have
begun. Here, each vessel is free to direct its course as it deems best.
(2) Second Division covers the time between the moment when the risk of collision begins and the
moment when it has become a practical certainty. Burden is on the vessel required to keep away and
avoid the danger.
(3) Third Division covers the time of actual contact. The vessel which has forced the privileged vessel into
danger is responsible even if the privileged vessel has committed an error within that zone. (A. Urrutia
& Co. vs. Baco River Plantation Co.)

NOTE: Liability in collision cases is negligence-based. The person who caused the injury is both civilly
and criminally liable. (Aquino)

Effect of fault of privileged vessel during third zone :


If a vessel having a right of way suddenly changes its course during the third zone, in an effort to avoid
an imminent collision due to the fault of another vessel, such act may be said to be done in extremis,
and even if wrong, cannot create responsibility on the part of said vessel with the right of way.

Specific rules under the Code of Commerce


(1) One vessel at fault. The owner of the vessel at fault shall indemnify the losses and damages
suffered, after an expert appraisal. (Art. 826, Code of Commerce)
(2) Both vessels at fault. Each shall suffer its own damages, and both shall be solidarily responsible for
the losses and damages occasioned to their cargoes. (Art. 826, Code of Commerce)

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(3) Inscrutable fault. (If it cannot be decided which of the two vessels was the cause of the collision).
Each shall bear his own damage and both shall be jointly responsible for the losses and damages
suffered by their cargoes. (Art. 828, Code of Commerce) (Asked in the 97)
(4) Due to fortuitous event. Each vessel and its cargo shall bear its own damages. (Art. 830, Code of
Commerce)
(5) By reason of fortuitous event, vessel properly anchored and moored collides with another. The injury
occasioned shall be looked upon as particular average to the vessel run into. (Article 832, Code of
Commerce)
(6) Third vessel at fault. The owner of the third vessel shall indemnify the losses and damages caused,
the captain thereof being civilly liable to said owner. (Art. 831, Code of Commerce)

Nautical Rules to determine negligence:


1. When 2 vessels are about to enter a port, the farther one must allow the nearer to enter first; if they
collide, the fault is presumed to be imputable to the one who arrived later, unless it can be proved
that there was no fault on its part.
2. When 2 vessels meet, the smaller should give the right of way to the larger one.
3. A vessel leaving port should leave the way clear for another which may be entering the same port.
4. The vessel which leaves later is presumed to have collided against one who has left earlier.
5. There is also a presumption against the vessel which sets sail at night.
6. The presumption also works against the vessel with spread sails which collides with another which
is at anchor, and cannot move, even when the crew of the latter has received word to lift anchor,
when there was not sufficient time to do so or there was fear of a greater damage or other
legitimate reason.
7. The vessel which is not properly moored or does not observe the proper distances, has the
presumption against itself.
8. The vessel which is moored at a place not used for the purpose, or which is improperly moored or
does not have sufficient cables, or which has been left without watch, has also against itself the
presumption.
9. The same rule applies to those vessels which do not have buoys to indicate the location of its
anchors to prevent damage to these vessels which may approach it.

(a) Classes and Effects

(1) Fortuitous, Arts. 830, 832

ARTICLE 830. If a vessel should collide with another, through fortuitous event or force majeure, each
vessel and its cargo shall bear its own damages.

ARTICLE 832. If by reason 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, Arts. 826, 827 and 831

ARTICLE 826. If a vessel should collide with another, through or 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.

ARTICLE 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.

ARTICLE 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 caused, the captain thereof being civilly liable to
said owner.

(3) Inscrutable Fault, Art. 828

ARTICLE 828. The provisions of the preceding article are applicable to the use in which it cannot be
determined which of the two vessels has caused the collision.

G. URRUTIA & CO. vs. BACO RIVER PLANTATION

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SUMMARY: This is a case of collision between a steamship and a sailing vessel. The steamship was
sailing erratically and without any watchman, However, the sailing vessel, despite seeing the erratic
sailing of the steamship, kept its course. The Court found the steamship negligent. The burden of
avoiding the collision was on the steamer. The sailing vessel should not be held at fault for keeping its
course.
DOCTRINE: In collisions between vessels there exist three divisions of time, or zones; The first division
covers all the time up to the moment when the risk of collision may be said to have begun. Within this
zone no rule is applicable because none is necessary. Each vessel is free to direct its course as it
deems best without reference to the movements of the other vessel. The second division covers the
time between the moment when the risk of collision begins and the moment when it has become a
practical certainty. The third division covers the time between the moment when collision has become
a practical certainty and the moment of actual contact.

It was during the time when the sail vessel was passing through the third zone that it changed its
course in order to avoid, if possible, the collision. This act may be said to have been done in extremis,
and, even if wrong, the sailing vessel is not responsible for the result.

NDC vs. CA and DEVELOPMENT INSURANCE & SURETY CORPORATION,

SUMMARY: In a memorandum agreement, NDC appointed MCP as its agent to manage and operate 3
ocean going vessels, one of which is Dona Nati. Cargoes (American raw cotton, sodium lauryl sulfate
and aluminum foil) were loaded for transport to Manila. However, Dona Nati collided with SS
Yasushima Maru at Ise Bay, Japan and as a result of which cargoes were lost and damaged. DISC as
insurer paid the amount of loss and damage to the consignee and thus filed this case for recovery.
Trial Court found both pilots of the vessel at fault. It ordered NDC and MCP solidarily liable to DISC
and ordered NDC to reimburse MCP of any amount it would pay. CA affirmed in too. Both trial court
and CA applied the Code of Commerce in determining liability. NDC and MCP appeal contending that
the Carriage of Goods by Sea Act should be applied. SC affirmed CA ruling. Laws of the Philippines
apply because the point of destination is the Philippines. The law where the goods are to be
transported should govern. There is no provision in our Civil Code regarding collision so Code of
Commerce must be applied. The Carriage of Goods by Sea Act (CGSA) does not specifically provide for
the subject of collision and does not repeal the Code of Commerce.

DOCTRINE: It appears, however, that collision falls among matters not specifically regulated by the
Civil Code, so Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with
collision of vessels should apply.
Article 826 provides that where collision is imputable to the personnel of a vessel, the owner
of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal.
Article 827 provides that if the collision is imputable to both vessels, each one shall suffer its
own damages and both shall be solidarily responsible for the losses and damages suffered by their
cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or
negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the
universally accepted doctrine that the shipmaster or captain is merely the representative of the owner
who has the actual or constructive control over the conduct of the voyage

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to
domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act
does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its
application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign
trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed as
repealing any existing provision of the Code of Commerce which is now in force, or as limiting its
application." By such incorporation, it is obvious that said law not only recognizes the existence of the
Code of Commerce, but more importantly does not repeal nor limit its application.

GOVERNMENT OF THE P.I. V. PHIL. STEAMSHIP CO.

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SUMMARY: A collision occurred between the vessel Isabel, which was then carrying the sacks of rice
owned by the Philippine Government, and the steamship Antipolo which was owned by Phil.
Steamship Co. Both vessels were found to be negligent by the Supreme Court. Since Isabel was a
complete loss, the Court ruled that Phil. Steamship Co. should shoulder the entire loss suffered by the
Phil. Government.

DOCTRINE: -Where both vessels are to blame, both shall be solidarily responsible for the damage
occasioned to their cargoes.

- Under Arts. 827 and 828 combined, the rule of liability announced in Art. 827 is applicable not only
to the case where both vessels may be shown to be actually blameworthy but also to the case where it
is obvious that only one was at fault but the proof does not show which.

SMITH BELL & Co. Inc and TOKYO MARINE & FIRE INSURANCE Co. Inc v. CA

SUMMARY: The "Don Carlos" was sailing south bound from Manila to Cebu, while the "Yotai Maru"
was approaching Manila from Kobe, Japan. The bow of the "Don Carlos" rammed the portside (left
side) of the "Yotai Maru" inflicting a three 3 cm. gaping hole, through which seawater rushed in and
flooded a hatch and her bottom tanks, damaging all the cargo stowed inside. The consignees of the
damaged cargo were paid by their insurance companies (Smith Bell and Tokyo Marine) and the latter,
having been subrogated to the interests of the consignees, filed actions against Go Thong for
damages. Two cases were filed by Smith Bell & Co and Tokyo Marine & Fire Insruance against Go
Thong. Both CFI cases ruled that Don Carlos was negligent. Both decisions were appealed to the CA.
The first CFI decision by Judge Fernandez was affirmed by Judge Reyes, and later by the SC. After two
years, the other CFI decision by Judge Cuevas was reversed by the CA through Judge Sison. Smith Bell
and Tokyo Marine appealed this CA decision (by Judge Cuevas) to the SC. The SC reversed the Judge
Sison-CA decision.

DOCTRINE: Vessels must follow the International Rules of the Road. They must always have a proper
look-out, whose only function is to be such a look-out. The captain must always be in charge of the
ship, except in case of inability or disqualification, in which case the second mate should take over.

4. Shipwrecks, Arts. 840 to 843

What is SHIPWRECK? Shipwreck denotes loss/wreck of a vessel at sea as a consequence of running


against another vessel or thing at sea or on coast where the vessel is rendered incapable of
navigation.

If the wreck was due to malice, negligence or lack of skill of the captain, or because the vessel put to
sea was insufficiently repaired and equipped the owner of the vessel may demand indemnity from said
captain. (Art. 841)

ARTICLE 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.

ARTICLE 841. If the wreck or stranding should be caused by the malice, negligence, or lack of skill of
the captain, or because the vessel put to sea was 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.

ARTICLE 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.

ARTICLE 843. If several vessels sail under convoy, and any of them should be wrecked, the cargo
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 vessel 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

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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.

(a) Salvage Law (Act No. 2616)

Salvage; definedsalvage may be defined as a service which one person renders to the owner of a
ship or goods, by his own labor, preserving the goods or the ship which the owner or those entrusted
with the care of them have either abandoned in distress at sea, or are unable to protect and secure.

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.

Salvage; REQUISITES:
(1) A marine peril.
(2) Service voluntarily rendered when not required as an existing duty or from a special contract.
(3) Success, in whole or in part, or that the service rendered contributed to such success.

Kinds of salvage service:


(1) Voluntary - wherein the compensation is dependent upon success
(2) Rendered under a contract for a pier diem or per horam wage, payable at all events
Where the compensation is dependent upon success, it may be very much larger than mere quantum
meruit --> as a reward for perilous services Such contracts for salvage will not be set aside unless
corruptly entered into, or made under fraudulent representations, a clear mistake or suppression of
important facts, under compulsion or contrary to equity and good conscience.

Reasons for allowing salvage compensation to salving vessel:


(1) to reward promptness, energy, efficiency, and heroic endeavor in saving life and property in peril;
(2) to compensate the use and service of the vessel as an indispensable instrument for the salvage;
(3) recognizes the danger and risk to which the crew and the vessel were exposed to in saving the ship
and property and life.
The amount should be liberal enough to cover the expenses and to give an extra sum as a reward for
the services rendered; should be liberal enough to offer an inducement to others to render like
services in similar emergencies in the future; BUT should not be so high as to cause vessels in need of
assistance to hesitate because of ruinous cost

G. URRUTIA & CO. V. BACO RIVER PLANTATION CO.

SUMMARY: Steamship owned by G. Urrutia collided with the schooner owned by Baco River
Plantation. The sail vessel kept her course steadily until just before the actual contact when her
helmsman threw her hard to port in an effort to avoid the collision. The movement, however, was
unsuccessful and the sail vessel rammed the steamer on the starboard quarter well aft. The steamer
sank and eight died. The sail vessel was considerably injured. G Urrutia filed an action to recover the
value of the destroyed steamer. Baco filed a counterclaim for damages. TC held that both were guilty
of negligence so they cannot recover. SC held that Baco Plantation can recover on its counterclaim.

DOCTRINE: Generally, in collisions between vessels there exist 3 divisions of time or zones; a. 1st
division- covers all the time up to the moment when the risk of collision may be said to have begun.
Within this zone no rule is applicable because none is necessary. Each vessel is free to direct its course
as it deems best without reference to the movements of the other vessel.b. 2nd division- the time
between the moment when the risk of collision begins and the moment when it has become a
practical certainty.c. 3rd division- the time between the moment when collision has become a
practical certainty and the moment of actual contact..It was during the time when the sail vessel was
passing through the third zone that it changed its course to port in order to avoid, if possible, the
collision. This act may be said to have been done in extremis, and, even if wrong, the sailing vessel is
not responsible for the result.

ERLANGER & GALINGER V. SWEDISH EAST ASIATIC CO. LTD

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SUMMARY: The steamship Nippon, which was loaded with copra and with some other general
merchandise, sank on Scarborough Reef. The Government of the Philippine Islands ordered the coast
guard cutter Mindoro with life-saving appliances to the scene of the wreck. The steamship Manchuria
which sailed from Manila for Hongkong was requested to pass by the reef. The captain and crew of the
Nippon took on board the Manchuria. The captain of the Manchuria informed the captain of the
Mindoro that the captain and crew of the Nippon were on board the Manchuria and were proceeding
to Hongkong. Erlanger & Galinger, which neither owned the ship nor any of its cargo, recovered some
of the cargo of the Nippon and made temporary repairs to the ship. It took possession of the Nippon
on or about May 17, 1913, and continued in possession until about the 1st of July, when the last of the
cargo was shipped to Manila. Erlanger & Galinger brought an action against the insurance companies
and underwriters (who both represented the cargo salved from the Nippon) to have the amount of
salvage, to which Erlanger & Galinger were entitled, determined.

DOCTRINE: On general principles of salvage:


Salvage is defined as the service which one person renders to the owner of a ship or goods, by his own
labor, preserving the goods or the ship which the owner or those entrusted with the care of them have
either abandoned in distress at sea, or are unable to protect and secure.

It is founded on equity and is compensation for actual services rendered.

Three elements necessary to a valid salvage claim:


a. A marine peril;
b. Service voluntarily rendered when not required as an existing duty or from a special contract;
c. Success, in whole or in part, or that the service rendered contributed to such success.

A derelict is defined as "A ship or her cargo which is abandoned and deserted at sea by those who
were in charge of it---without any hope of recovering it (sine spe recuperandi); or without any intention
of returning to it (sine animo revertendi).

On award justifiable for salvors:


The award should be liberal enough to cover the salvors expenses and give an extra amount as a
reward for the services rendered BUT the expenses are used in no other way as a basis for the final
award.

If the salvor has been unfortunate and has incurred expenses in saving a property not worth the
expenditure he made it is a misfortune not uncommon to all who seek gain by adventurous
speculations in values. A part of the risk incurred was that the goods salved would not pay them for
the amount expended in salving them.

Courts have a wide discretion in settling the award.

THE ATLANTIC, GULF & PACIFIC COMPANY OF MANILA and SIMMIE & GRILK vs. UCHIDA KISEN
KAISHA and MITSUI BUSSAN KAISHA and VICENTE MADRIGAL

SUMMARY: While steamship Kyodo Maru was discharging a cargo of coal owned by Madrigal, one of
the lighters alongside it sank. Due to the tide, Kyodo Maru came in contact with the said lighter and its
hull was perforated. In the next few days, it began to sink. The services of plaintiffs Atlantic and
Simmie were sought by the captain and ship agent for the salvage of the Kyodo Maru. While the
acceptance of their proposal regarding compensation for salvage operations was pending, they were
instructed to continue the operations. Their proposal was later rejected. Due to the failure of
negotiations regarding the value of the salvage services, plaintiffs-salvors filed an action against the
owners of Kyodo Maru, the Kaishas, and against the cargo owner, Madrigal. The Kaishas argue that
the amount claimed by the salvors were exorbitant. The SC determined the value of the salvage
services pursuant to Act No. 2616. It also ruled that the cargo owner Madrigal should contribute to the
compensation awarded to the salvors.

DOCTRINE: (I'm not sure about the doctrine because I think all the issues are important under our
topic Salvage Law.)

Pursuant to Sec. 10 of Act 2616, in the absence of an agreement, the reward for salvage or assistance
shall be fixed by the CFI of the province where the things salvage are found, taking into account

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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 expenses 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.

BARRIOS v. GO THIONG

SUMMARY: Capt. Barrios is a captain of a ship owned by William Lines. Receiving an SOS call from
another ship, he steered his vessel to the distressed ship which was in trouble for engine failure. He
had the distressed ship tied to his vessel and towed. Thereafter, he claimed remuneration for the
services he rendered based on the Salvage Act. The issue is whether he can claim remuneration for his
alleged salvage or towage. The SC held that his service did not constitute salvage under the
Salvage Act, absent the element of marine peril. While his service constituted a quasi-contract of
towage for which there can be compensation, such compensation is not owed to the crew of the
vessel but to the owner thereof. In this case, the owner of the vessel used by Capt. Barrios did not
claim any amount and therefore waived its compensation. Hence, Capt. Barrios, as crew of the vessel,
cannot claim remuneration.

DOCTRINE: "Salvage" has been defined as "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."

3 elements necessary to a valid salvage claim, namely,


(1) a marine peril,
(2) service voluntarily rendered when not required as an existing duty or from a special contract, and
(3) success in whole or in part, or that the service rendered contributed to such success.

Salvage vs. Towage


A reward ought sometimes to be given to the crew of the salvage vessel and to other participants in
salvage services Reward should not be given to the master and members of the crew of a tug if the
services were held to be merely towage.
The crew of the salvaging ship is entitled to salvage, and can look to the salvaged vessel for its share.
The crew does not have any interest or rights in the remuneration pursuant to the contract.

H. Special Contracts of Maritime Commerce

1. Charter Parties
(a) Definition

What is a CHARTER PARTY? 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 portion
of a vessel for the transportation of the goods or persons from one port to another.

A contract whereby the whole or part of the ship is let by the owner to a merchant or other person for a
specified time or use for the conveyance of goods, in consideration of the payment of freight. (Caltex v.
Sulpicio Lines, 1999)

(b) Kinds

BAREBOAT/DEMISE CHARTER
In a bareboat or demise charter, the shipowner leases to the charterer the whole vessel, transferring to
the latter the entire command, possession and consequent control over the vessel's navigation,
including the master and the crew, who thereby become the charterer's "servants." (Aquino)

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. (Puromines v. CA)

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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 distinctions between a contract of affreightment
and a demise or bareboat charter. (Puromines, Inc. v. Court of Appeals)

Note: In a bareboat or demise charter, the common carrier is converted to private carrier.

Owner Pro Hac Vice demise charter to whom the owner of the vessel has completely and exclusively
relinquished possession, command and navigation of the vessel. In this kind of charter, the charterer
mans and equips the vessel and assumes all responsibility for navigation, management and
operation. He thus acts as the owner of the vessel in all important aspects during the duration of the
charter.

CONTRACT OF AFFREIGHTMENT
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. (Puromines vs. CA)

Note: In a contract of affreightment, the common carrier is NOT converted into a private carrier.

TIME CHARTER
A time charter is a contract for the use of a vessel for a specified period of time or for the duration of
one or more specified voyages.

In this case, the owner of a time-chartered vessel retains possession and control through the master
and crew, who remain his employees. What the time charterer acquires is the right to utilize the
carrying capacity and facilities of the vessel and to designate her destinations during the term of the
charter. (Litonjua Shipping Co., Inc. vs. National Seamen Board (1989))

VOYAGE/TRIP CHARTER
In a voyage charter, the vessel is leased for a single or particular voyage. The master and crew remain
the employ of the owner of the vessel. (Litonjua Shipping Co., Inc. vs. National Seamen Board)

Classes of charter party:


(1) as to extent of vessel hired
(a) total
(b) partial - the charterer does not as a rule acquire the right to fix the date when the vessel
should depart, unless such right is expressly granted in the contract
(2) as to time
(a) until a fixed day or for a determined number of days or month
(b) for a voyage
(3) as to freightage
(a) for a fixed amount for the whole cargo
(b) for a fixed rate per ton
(c) for so much per month

PLANTERS PRODUCTS V. CA

SUMMARY: Planters Products purchased urea fertilizer from Mitsubishi. Mitsubishi and Kyosei Kisen
Kabushiki Kaisha (KKKK) entered into a time charter-party. Mitsubishi (as shipper) shipped the urea in
bulk aboard KKKKs vessel, the Sun Plum, from Alaska to La Union. The vessels holds were inspected
and found fit to take the urea. The urea was loaded in bulk by Mitsubishis stevedores. The steel
hatches were closed with heavy iron lids, covered with tarpaulin, and tied with steel bonds. The
hatches were sealed and closed tightly during the entire voyage. At La Union, the hatches were
opened using the ships boom (the only way to open them). The hatches remained open throughout
the discharge. The dump trucks were covered with tarpaulin before going to Planters warehouse,
50m from the wharf. The port area was windy, some parts of the route were sandy (RM????), and it
would occasionally rain.The warehouse was covered with GI sheets, with an opening in front for the
trucks to enter. The fertilizer was unloaded on the floor.Tarpaulin and GI sheets were placed in

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between and alongside the trucks to contain spillages. The cargo was found to be short of 95mt while
23mt was unfit for commerce due to contamination. Planters wrote KKKKs agent which disclaimed
liability and denied the claim, so it sued KKKK at the Manila CFI. The CFI found for Planters. The CA
reversed the CFI. The SC affirmed the CAs decision, holding that while KKKK was still considered a
common carrier due to the time charter-party, it was not liable since it proved that it exercised
extraordinary diligence as to vigilance over Planters goods.

DOCTRINE: Definition of Charter Party: 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 (citing Am Jur)

Kinds of Charter Parties: Contract of Affreightment(Involves the use of shipping space on vessels
leased by the owner in part or as a whole, to carry goods for others) and Charter by demise/bareboat
charter (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).

Kinds of Contracts of Affreightment: Time charter (The vessel is leased to the charterer for a fixed
period of time) and voyage charter (The ship is leased for a single voyage).

COASTWISE LIGHTERAGE v. CA

SUMMARY: Pag-asa Sales entered into a contract to transport molasses from Negros to Manila with
Coastwise using the latters dumb barges. Upon reaching Manila Bay, one of the barges struck an
unknown sunken object. Water entered through a hole and contaminated and rendered the molasses
unfit for the use intended. PhilGen, as insurer of the cargo, paid Pag-asa P700,000. PhilGen then
claimed to recover the P700,000 from Coastwise, alleging that the latter was presumed to have
violated the contract of carrage. Coastwise contended that the contract of affreightment did not
convert it into a private carrier and it could not be held liable for the damage because the Philippine
Coastguard failed to prepare a chart to indicate the location of the sunken derelicts within the harbor.
The RTC, CA and SC ruled in favor of PhilGen. The SC agreed that the contract did not convert
Coastwise into a private carrier; however, as a common carrier, it was presumptively negligent and it
was not able to present evidence to show that it exercised extraordinary diligence to prevent the
mishap.

DOCTRINE: The distinction between the 2 kinds of charter parties (bareboat or demise and contract of
affreightment) is more clearly set out in Puromines, Inc. v. CA:
a. 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 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 the possession,
command and navigation thereof to the charterer, anything short of such a complete transfer is a
contract of affreighment (time or voyage charter party) or not a charter party at all.
b. Contract of Affreightment the owner of the vessel leases part or all of its space to haul gods 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.
c. 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 breach of duty as to the care, loading and
unloading of the cargo.

CALTEX VS. SULPICIO LINES

SUMMARY: Sulpicios ship collided with Vectors ship. Vectors ship was chartered by Caltex at the
time of collision. The heirs of Sulpicios passengers sued Sulpicio. Sulpicio filed a 3rd party complaint
against Vector and Caltex. SC held that Caltex is not liable.

DOCTRINE: 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 payment of freight. A contract of

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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 charter-party provides for the hire of the vessel only, the ship owner to supply the ships store, pay
for the wages of the master of the crew, and defray the expenses for the maintenance of the ship.
Under a demise or bareboat charter, 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.

2. Loans on Bottomry and Respondentia


(a) Loan on Bottomry, defined

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.

(b) Loan on Respondentia, defined

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.

(c) Character of Loan, Art. 719

Bottomry or Respondentia Simple Loan


The rate of Interest Subject to Usury Law Not Subject to Usury Law
There must be a marine risk the existence of There need not be marine risks involved
which must be duly established
Must be executed in accordance with form and Formal requisites regarding contracts in general
manner required in the code of commerce would apply
Must be recorded in the registry in order to bind No such registration required
third persons
Preference is extended to the last lender if there The first lender, as a general rule, enjoys
be several lenders preference over subsequent ones

When loss does not extinguish loan: (Art. 731)


(1) where the loss is caused by inherent defect of the thing
(2) where the loss is caused by fault or malice of borrower
(3) where loss is caused by barratry on the part of the captain
(4) where loss is caused by damage to the vessel as a consequence of its engaging in contraband
(5) where loss arose from having loaded the merchandise on a vessel different from that designated
in the contract, except if change is due to force majeure

ARTICLE 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.

I. Bill of Lading (see discussion above of bill of lading)

1. Contents, Art. 706, 707,713, 714


2. Probative Value, Arts. 709, 710

J. Passenger on Sea Voyage

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1. Nature of Contracts, Art. 695

ARTICLE 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.

2. Obligations of Passengers, Arts. 693, 699, 704, 694, 700

ARTICLE 693. If the passage price has not been agreed upon, the judge or court shall summarily fix it,
after a declaration of experts.

ARTICLE 699. If the contract is rescinded, before or after the commencement of the voyage, the
captain shall have a right to claim payment of what he may have furnished the passengers.

ARTICLE 704. The captain, in order to collect the passage-money and expenses of sustenance, may
retain the goods belonging to the passenger, and in case of the sale of the same he shall be given
preference over other creditors acting the same way as in the collection of freightage.

ARTICLE 694. Should the passenger not arrive on board at the time fixed, or should 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.

ARTICLE 700. In all matters pertaining to the preservation of order and discipline on board the vessel
passengers shall be subject to the orders of the captain, without any distinction whatsoever.

3. Rights of Passengers, Arts. 697, 698

Suspension
Before voyage begun
Exclusive fault of the captain or ship agent, the passengers shall have the right to a refund of their
fares and to recover losses and damages;
Due to fortuitous events, or to force majeure, or to any other cause independent of the captain or
ship agent, the passengers shall only be entitled to the return of the fare.

Interruption
Voyage already begun
If due to force majeure - passengers shall be obliged to pay the fare in proportion to the distance
covered, without right to recover for losses and damages
If exclusively fault of captain right to indemnity
If caused by the disability of the vessel, and a 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 stay shall
be for his own account.

Delay
Delay in the departure of the vessel
The passengers have the right to remain on board and to be furnished with food for the account
of the vessel unless the delay is due to fortuitous events or to force majeure.
If the delay should exceed ten days, passengers requesting the same shall be entitled to the
return of the fare; and if it is due exclusively to the fault of the captain or ship agent, they may also
demand indemnity for losses and damages.

ARTICLE 697. If before the voyage is begun it is suspended through the exclusive fault of the captain
or ship agent, the passengers shall have the right to a refund of their fares and to recover losses and
damages; but if the suspension is due to fortuitous events, or to force majeure, or to any other cause
independent of the captain or ship agent, the passengers shall only be entitled to the return of the
fare.

ARTICLE 698. In case a voyage already begun should be interrupted, the passengers shall be obliged
to pay the fare in proportion to the distance covered, without right to recover for losses and damages if
the interruption is due to fortuitous event or to force majeure, but with a right to indemnity if the
interruption should have been caused by the captain exclusively. If the interruption should be caused

95
by the disability of the vessel, and a 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 stay shall be for his
own account. In case of delay in the departure of the vessel, the passengers have the right to remain
on board and to be furnished with food for the account of the vessel unless the delay is due to
fortuitous events or to force majeure. If the delay should exceed ten days, passengers requesting the
same shall be entitled to the return of the fare; and if it is due exclusively to the fault of the captain or
ship agent, they may also demand indemnity for losses and damages. A vessel exclusively devoted 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.

SWEET LINES VS. CA

SUMMARY: Quintos, Bacatan, Cabras, and Veloso bought tickets in Cebu from Sweet Lines to bring
them to Catbalogan. However, mechanical failures caused their departure to be delayed. When they
finally left the port, to save time, Catbalogan, a port of call, was bypassed and the vessel went straight
to Tacloban. Thus, they were forced to take another ferry ride to get to Catbalogan. Due to this, they
filed a case for damages against Sweet Lines.

DOCTRINE: Article 698 of the Code of Commerce provides that In case of interruption of a voyage
already begun, the passengers shall only be obliged to pay the fare in proportion to the distance
covered, without right to recover damages if the interruption is due to fortuitous event or force
majeure, but with a right to indemnity, if the interruption should have been caused by the captain
exclusively. If the interruption should be caused by the disability of the vessel, and the passenger
should agree to wait for her repairs, he may not be required to pay any increased fare of passage, but
his living expenses during the delay shall be for his own account.

In this case, the inconvenience suffered by the respondents was not due to fortuitous event of force
majeure because mechanical failures are not considered to be such an event. Thus, the carrier is liable
to them for damages.

TRANS-ASIA SHIPPING LINES V. CA

SUMMARY: Arroyo boarded M/V Asia Thailand on a voyage from Cebu to CDO, operated by Trans-
Asia. At the time, the vessel only had 1 engine running, the other undergoing repairs. Nevertheless, the
vessel proceeded with its voyage. After an hour, the vessel stopped and the anchor was dropped.
Some passengers demanded that they be allowed to disembark in CDO. The captain acceded. Among
the passengers who disembarked was Arroyo. He filed a complaint for damages against Trans-Asia.
The RTC dismissed. The CA reversed and awarded damages. The SC affirmed, but set aside the award
of attorneys fees. [The SC mentioned Article 698, Code of Commerce (see Doctrine) but ruled that
Arroyo was not entitled for damages thereon, since he did stay in the vessel during the delay.]

DOCTRINE: In case a voyage already begun should be interrupted, the passengers shall be obliged to
pay the fare in proportion to the distance covered, without right to recover for losses and damages if
the interruption is due to fortuitous event or force majeure, but with a right to indemnity if the
interruption should have been caused by the captain exclusively. If the interruption should be caused
by the disability of the vessel and a 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 stay shall be for his
own account.

K. Carriage of Goods by Sea Act (Commonwealth Act No. 65; Public Act. No. 521, 74th US
Congress)

As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by
Sea Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of
the goods because the same had perished, gone out of commerce, or disappeared that their existence
is unknown or they cannot be recovered. It does not include a situation where there was indeed
delivery but delivery to the wrong person, or a misdelivery. If the goods have been delivered, it
cannot at the same time be said that they have not been delivered. According to the bill of lading
which was issued in the case at bar to the order of the shipper, the carrier was under a duty not to
deliver the merchandise mentioned in the bill of lading except upon presentation of the bill of lading
duly endorsed by the shipper.

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One-year limitationone-year period of limitation is designed to meet the exigencies of maritime
hazards. In a case where the goods shipped were neither last nor damaged in transit but were, on the
contrary, delivered in port to someone who claimed to be entitled thereto, the situation is different,
and the special need for the short period of limitation in cases of loss or damage caused by maritime
perils does not obtain.

See discussion on summary of rules applicable

ANG V. AMERICAN STEAMSHIP AGENCIES, INC.

SUMMARY: YauYue Commercial Bank Ltd. Of Hongkong agreed to sell 140 packages of galvanized
steel durzinc sheets to HerminioTeves. The purchase price of said goods should be covered by a bank
draft for the corresponding amount which should be paid by Teves in exchange for the delivery of the
corresponding bill of lading to be deposited with a local bank. Pursuant to the said agreement,
YauYue shipped the articles from Japan aboard SS Tensaimaru, of which American Steamship
Agencies is the agent in the Philippines, under a Bill of Lading, consigned to order of the shipper,
with Teves as party to be notified of the arrival of the goods. When the goods arrived in Manila, Teves
did not pay the demand draft. YauYue indorsed the bill of lading to Domingo Ang, for failure of Teves
to pay the demand draft. Meanwhile, Teves was able to obtain a bank guaranty in favor of the
American Steamship, as carriers agent. On the strength of this guaranty, Teves succeeded in securing
a Permit to Deliver Imported Articles from the carriers agent which he presented to the Bureau of
Customs. Domingo Ang claimed the articles from American Steamship, but he was informed that the
goods were delivered to Teves. Ang filed a complaint before the CFI Manila for having wrongfully
delivered and/ or converted the goods covered by the bill of lading belonging to Ang. The CFI
dismissed the complaint because of prescription under the COGSA. The SC reversed and said that
COGSA does not apply in the present case and that Angs cause of action had not yet prescribed,
under the Civil Code.

DOCTRINE: [The Carriage of Goods by Sea Act was not applied in this case because the goods did not
suffer any loss or damage.]

As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by
Sea Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of
the goods because the same had perished, gone out of commerce, or disappeared that their existence
is unknown or they cannot be recovered. It does not include a situation where there was indeed
delivery but delivery to the wrong person, or a misdelivery.

There being no loss or damage to the goods, the aforequoted provision of the Carriage of Good by Sea
Act stating that "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," does not apply. The reason is not difficult to see. Said one-
year period of limitation is designed to meet the exigencies of maritime hazards. In a case where the
goods shipped were neither last nor damaged in transit but were, on the contrary, delivered in port to
someone who claimed to be entitled thereto, the situation is different, and the special need for the
short period of limitation in cases of loss or damage caused by maritime perils does not obtain.

F.H. STEVENS v. NORDDEUSCHER

SUMMARY: F.H. Stevens shipped from Hamburg to Manila aboard the MS SCHWABENSTEIN 2,000
pieces of prismatical thermometers valued at $650. When the vessel arrived on May 15, 1959, the
master of the vessel notified plaintiff, through its broker, the delivery of said goods. Upon examination,
it turned out that 1,154 pieces of the thermometers (valued at $342.74) were missing and/or
destroyed. Plaintiff Stevens filed the corresponding notice of loss and/or short delivery, followed by
the corresponding notice and formal claim for loss and/or short delivery. Despite several demands,
defendant carrier refused to pay so plaintiff Stevens filed an action in the Municipal Court of Manila on
April 27, 1960. The suit was dismissed on June 13, 1960 without trial on merits. The present case (2nd
suit) was commenced on June 24, 1960 asking for payment of $342.72 (value of the goods sold),
P1,000 (attorneys fees), and P664.70 (unrealized profits. The defendant moved to dismiss the
complaint on the ground of prescription. The case was dismissed by the trial court. Petitioner
appealed to the SC and the SC held that prescription has not yet set in.

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DOCTRINE: A claim must be made within 1 year from the time the consignee (or owner of the goods)
was notified of the delivery thereof. However, the period is interrupted upon the filing of a previous suit
and resumes once the case is dismissed. Renewal of time from the time of dismissal.

VI. Air Transportion

A. International Air Transportation

Transportation by air between points of contact of two high contracting parties, or those countries that
have acceded to the Convention, wherein the place of departure and the place of destination are
situated:
(1) Within the territories of two High Contracting Parties regardless of whether or not there be a break in
the transportation or a transshipment; OR
(2) Within the territory of a single High Contracting Party if there is an agreed stopping place within a
territory subject to the sovereignty, mandate or authority of another power, even though the power
is not a party to the Convention. (Sec. 1, No. 2, WC)

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. (Sec. 1,
No. 3, WC)

PERIOD COVERED
The period during which the baggage or goods are in charge of the carrier, whether in an airport or on
board an aircraft, or, in the case of a landing outside an airport, in any place whatsoever. (Sec. 18, WC)

1. Constitutionality

SANTOS v. NORTHWEST AIRLINES

SUMMARY: The Northwest Orient Airlines (NOA) is a foreign corporation with principal office in
Minnesota, and licensed to do business and maintain a branch office in the Philippines. Augusto
Benedict Santos III, a minor, bought a NOA round-trip ticket in San Francisco to Manila via Tokyo and
back. His departure date from Tokyo was December 20, 1986, and no date was specified for his return
to San Francisco. When he checked in at the NOA counter in San Francisco, he was informed that he
had no reservation despite of his previous confirmation. He therefore had to be waitlisted. He sued
NOA for damages in the RTC of Makati. NOA moved to dismiss for lack of jurisdiction because of Art.
28 of the Warsaw Convention which provides that the complaint can be instituted only in the court of
domicile of the carrier; its principal place of business; its principal place of business through which the
contract has been made; and the court of the place of destination. The domicile of NOA is San
Francisco and it was the place where the ticket was bought; also being a roundtrip ticket, the place of
destination is also San Francisco, according to NOA. The RTC and the CA dismissed the case. In the
SC, Santos questioned the constitutionality of the Warsaw Convention and the jurisdiction of the
Philippine courts over the case. Santos said that Art. 28 of the Warsaw Convention violates the
constitutional guarantees of due process, equal protection and the right to access to courts. He
argued that there is no substantial distinction between a person who purchases his ticket in Manila
and one who purchases in San Francisco. The classification of the places where the action may be
brought is arbitrary and irrational. The SC ruled for the constitutionality of the Warsaw Convention.
Apparently, the four places designated in Art. 28 are the most convenient forums for the litigation of
any claim that may arise between the parties. The Warsaw Convention is a valid and binding treaty
and thus the Philippine courts have no jurisdiction. The right to access to courts refers only to courts
with appropriate jurisdiction as defined by law.

DOCTRINE: The Warsaw Convention is a treaty commitment voluntarily assumed by the Philippine
government and as such has the force and effect of law in this country.

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2. When applicable, Art. 1(1)4

(1) All international carriage of persons, baggage, or cargo performed by aircraft for reward.
(2) Gratuitous carriage by aircraft performed by an air transport undertaking (Art. 1, No. 1, WC)

3. Liabilities under the Convention, Arts. 17, 18, 19

LIABILITY OF CARRIER FOR DAMAGES


(1) Death or injury of a passenger if the accident causing it took place
(a) on board the aircraft,
(b) in the course of the operations of embarking,
(c) in the course of disembarking, or
(d) when there was delay (Sec. 17 and 19, WC);

(2) Destruction, loss, or damage to any baggage or goods that are checked in, if damage occurred
(a) during the transportation by air, or
(b) when there was delay (Sec. 18 and 19, WC)

Transportation by air is the period during which the baggage or goods are in the charge of the carrier
whether in an airport or on board an aircraft, or in case of a landing outside an airport, in any place
whatsoever. (Sec. 18, WC)

(3) Delay in the transport by air of passengers, baggage or goods.

NORTHWEST AIRLINES, INC. v. CUENCA

SUMMARY: Cuenca is the Commissioner of Public Works. He bought a first class ticket of Northwest
Airlines on his way to Tokyo. Upon arrival at Okinawa, he was rudely transferred to the tourist class by
the agents of Northwest under threat of leaving him in Okinawa. Allegedly on the ground that his
ticket says W/L, meaning waitlisted. Despite his objections, he still transferred. Hence, this case for
damages against Northwest. Northwest alleged that Cuenca has no cause of action. SC affirmed CA
and CFI in ruling that the cause of action was based on the Warsaw Convention.

DOCTRINE: Articles 17, 18 and 19 of the Warsaw Convention merely declares the carrier liable for
damages in the enumerated cases, if the conditions therein specified are present. Neither said
provisions nor others in the Convention regulate or exclude liability for other breaches of contract by
the carrier.

ALITALIA v. IAC

SUMMARY: Dr. Pablo, an associate professor in UP, was invited to take part in the conference of the
Department of Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and
Agriculture of the United Nations in Ispra, Italy. She booked a flight with ALITALIA. Her suitcases,
containing scientific papers, slides and other research material needed for the conference did not
arrive, and so she was not able to attend the conference and instead returned to Manila. Her baggage
was only returned to her after 11 months. She filed a claim against ALITALIA. The CFI ruled in her
favor, awarding P20.000.00 as nominal damages. CA affirmed, and raised the award to P40,000.00.
In the SC, ALITALIA was claiming that the Warsaw Convention should have been applied to limit its
liability. The SC disagreed with ALITALIA and affirmed the CA.

DOCTRINE: The Warsaw Convention does not operate as an exclusive enumeration of the instances of
an airline's liability, or as an absolute limit of the extent of that liability. It is a limit of liability only in
those cases where the cause of the death or injury to person, or destruction, loss or damage to
property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official or employee for which the
carrier is responsible, and there is otherwise no special or extraordinary form of resulting injury.

4. Limitations on Liability, Art. 22

4
(Unless otherwise indicated, reference is to the Warsaw Convension, 51 O.G. 5084; Presidential Proclamation No. 201, 51, O.G.
4933 [Oct. 1995]

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LIMITATION OF LIABILITY

LIABILITY TO PASSENGERS
General rule: 250,000 francs per passenger

Exception: Agreement to a higher limit (Art. 22(1), WC)

LIABILITY FOR CHECKED BAGGAGE


General rule: 250 francs per kg

Exception: In case of special declaration of value and payment of a supplementary sum by consignor,
carrier is liable to not more than the declared sum unless it proves the sum is greater than actual
value. (Art. 22(2), WC)

LIABILITY FOR HAND-CARRIED BAGGAGE


General rule: 5,000 francs per passenger (Art. 22(3), WC)

(1) An agreement relieving the carrier from liability or fixing a lower limit is null and void. (Art. 23, WC)
(2) Carrier is not entitled to the foregoing limit if the damage is caused by willful misconduct or default
on its part. (Art. 25)
(3) The right to damages under the WC is extinguished after 2 years 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. (Art. 29(1), WC)

Note: The Guatemala Protocol of 1971 increased the limit for passengers to $100,000 and $1,000 for
baggage. However, the Supreme Court noted in Santos III v. Northwest Orient Airlines, G.R. No. 101538,
June 23, 1992, that the Guatemala Protocol is still ineffective. (Sundiang and Aquino)

The WC should be deemed a limit of liability only in those cases where the cause of death or injury to
person, or destruction, loss or damage to property or delay in its transport is not attributable to or
attended by any willful misconduct, bad faith, recklessness, or otherwise improper conduct on the part
of any official or employee for which the carrier is responsible; and there is otherwise no special or
extraordinary form of resulting injury. (Alitalia v. CA)

PAN AMERICAN WORLD AIRWAYS VS. IAC

SUMMARY: Pangan entered into contracts in the US for the exhibition of his movies there. It was
agreed that Pangan would be the one to provide the necessary promotional and advertising materials.
He flew to Guam via Pan Am flight 842 in order to fulfill his part of the contract. He checked in two
luggages that contained the promo and advertising materials. Pangan reached Guam but his
luggages didnt. Pangan filed a case against Pan Am CFI and IAC found PanAm liable for 83,000php
actual damages. SC lowered the amount to $600 only based on the Warsaw convention

DOCTRINE: The limitation of liability imposed by the Warsaw Convention is applicable in this case.
The provision states that: Notice of baggage liability limitations: liability for loss, delay, or damage to
baggage is limited as follows unless a higher value is declared in advance and additional charges are
paid: a) for most international travel to approximately $9.70 per pound ($20 per kilo) for checked
baggage and $400 per passenger for unchecked baggage; b) for travel wholly between US points to
7750 per passenger on most carriers. Excess valuation may not be declared on certain types of
valuable articles. Carriers assume no liability for fragile or perishable articles further information may
be obtained from the carrier.

5. When limitations unavailable, Art 3, 25

WILLFUL MISCONDUCT

When can a common carrier not avail itself of this limitation?


(1) Willful misconduct (Art. 25, WC)
(2) Default amounting to willful misconduct (Art. 25, WC)
(3) Accepting passengers without ticket (Art. 3, No. 2, WC)

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(4) Accepting goods without airway bill or baggage without baggage check. Carrier guilty of willful
misconduct cannot avail of the provisions limiting liability but may still invoke other provisions of
the WC. (see Art. 25)

Receipt by the person entitled to the delivery of baggage or cargo without complaint is prima facie
evidence that the same have been delivered in good condition and in accordance with the document
of carriage. (Art. 26, WC).

TRANS WORLD AIRLINES V CA AND ROGELIO VINLUAN

SUMMARY: Vinluan was confirmed for first class in a trip from NYC to San Francisco, up to the point
where he presented his ticket for check-in. He was then informed that there were no more 1st class
seats, and he was forced to go to economy class. He was rudely treated by one of the employees of
TWA, and also several Caucasians were allowed even when they arrived later than him. RTC, CA, SC
all ruled in favor of Vinluan, although the final award of damages was reduced by the SC in its
judgment. It ruled that TWAs actions amounted to bad faith.

DOCTRINE: (not in the case) The warsaw convention, particularly Art 25, provides that the carrier shall
not be entitled to avail himself of the provisions of the convention which exclude or limit his liability, if
the damage is caused by his willful misconduct or by such fault on his part as, in accordance with the
law of the Court seised of the case, is considered to be equivalent to willful misconduct. Also, if the
damage is caused by any agent of the carrier acting within the scope of his employment. (I think this is
just an example of willful misconduct, act of agent).

6. Conditions on Imposition of Liability, Art 26, 28, 29

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.

3. Every complaint must be made in writing upon the document of carriage or by separate notice in
writing dispatched within the times aforesaid.

4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case
of fraud on his part.

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
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.
2. The method of calculating the period of limitation shall be determined by the law of the Court
seised of the case.

SANTOS v. NORTHWEST AIRLINES

101
SUMMARY: The Northwest Orient Airlines (NOA) is a foreign corporation with principal office in
Minnesota, and licensed to do business and maintain a branch office in the Philippines. Augusto
Benedict Santos III, a minor, bought a NOA round-trip ticket in San Francisco to Manila via Tokyo and
back. His departure date from Tokyo was December 20, 1986, and no date was specified for his return
to San Francisco. When he checked in at the NOA counter in San Francisco, he was informed that he
had no reservation despite of his previous confirmation. He therefore had to be waitlisted. He sued
NOA for damages in the RTC of Makati. NOA moved to dismiss for lack of jurisdiction because of Art.
28 of the Warsaw Convention which provides that the complaint can be instituted only in the court of
domicile of the carrier; its principal place of business; its principal place of business through which the
contract has been made; and the court of the place of destination. The domicile of NOA is San
Francisco and it was the place where the ticket was bought; also being a roundtrip ticket, the place of
destination is also San Francisco, according to NOA. The RTC and the CA dismissed the case. In the
SC, Santos questioned the constitutionality of the Warsaw Convention and the jurisdiction of the
Philippine courts over the case. Santos said that Art. 28 of the Warsaw Convention violates the
constitutional guarantees of due process, equal protection and the right to access to courts. He
argued that there is no substantial distinction between a person who purchases his ticket in Manila
and one who purchases in San Francisco. The classification of the places where the action may be
brought is arbitrary and irrational. The SC ruled for the constitutionality of the Warsaw Convention.
Apparently, the four places designated in Art. 28 are the most convenient forums for the litigation of
any claim that may arise between the parties. The Warsaw Convention is a valid and binding treaty
and thus the Philippine courts have no jurisdiction. The right to access to courts refers only to courts
with appropriate jurisdiction as defined by law.

DOCTRINE: Warsaw Convention; Scopeapplies to all international transportation of persons


performed by aircraft for hire.
International TransportationWhether the transportation is "international" is determined by the
contract of the parties, which in the case of passengers is the ticket. When the contract of carriage
provides for the transportation of the passenger between certain designated terminals "within the
territories of two High Contracting Parties," the provisions of the Convention automatically apply and
exclusively govern the rights and liabilities of the airline and its passenger.

LUNA V. CA

SUMMARY: Luna, Alfonso, and Rodriguez went to Korea to attend a convention via Northwest
Airlines. Each had one baggage. They were asked to transfer to another plane due to engine trouble.
The baggage were lost and were only retrieved after 4 days. They wrote a complaint to Northwest but
the latter disowned liability. They filed a case for breach of contract and damages before the RTC. The
case was dismissed for lack of cause of action because they failed to state that they have made a prior
claim to Northwest before filing the case, as required by the Warsaw Convention. The CA also
dismissed the case. The SC ordered the case to be reinstated.

DOCTRINE: The alleged failure to file a claim as mandated by the Warsaw should not be a ground for
the summary dismissal of the complaints since Northwest may still be held liable for breach of other
relevant laws which may provide a different period or procedure for filing a claim.

LHUILLIER V. BRITISH AIRWAYS

SUMMARY: Lhuillier filed a complaint for damages against British Airways on the basis of the tortious
conduct of the latters flight stewards. BA, by way of special appearance, filed a motion to dismiss on
the basis of the Courts lack of jurisdiction pursuant to the Art. 28(1) of the Warsaw Convention and
the fact that the Court has no jurisdiction on the person of the respondent because of improper service
of summons. The RTC ruled in favor of BA and granted the motion to dismiss, relying on the Warsaw
Convention. Lhuilliers motion for reconsideration was likewise denied. The SC likewise ruled in favor
of British Airways, affirming the RTCs decision.

DOCTRINE: Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for
damages before

1. The court where the carrier is domiciled;


2. The court where the carrier has its principal place of business;
3. The court where the carrier has an establishment by which the contract has been made; or

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4. The court of the place of destination.

Allegations of tortious conduct committed against an airline passenger during the course of the
international carriage does not bring a case outside the ambit of the Warsaw Convention.

PAL vs. SAVILLO

SUMMARY: Grino was invited to play in the ASEAN Senior Annual Golf Tournament. He bought a
plane ticket from PAL with the following points: Manila-Singapore-Jakarta-Singapore-Manila. PAL
was to take him from Manila to Singapore while Singapore Airlines was in charge of getting him from
Singapore to Jakarta. Upon his arrival at Singapore, Singapore Airlines rejected his ticket since it was
not endorsed by PAL. He was forced to buy a ticket from another airline to get to Jakarta. Because of
what he went through, Grino got sick and was unable to play in the tournament. He then filed a
complaint for damages against PAL. PAL filed a MTD alleging that the case has already prescribed
under the Warsaw Convention. The Court held that the Civil Code provision on prescription applies so
the case has not yet prescribed.

DOCTRINE: Article 19 of the Warsaw Convention provides for liability on the part of a carrier for
"damages occasioned by delay in the transportation by air of passengers, baggage or goods." Article
24 excludes other remedies by further providing that "(1) in the cases covered by articles 18 and 19, any
action for damages, however founded, can only be brought subject to the conditions and limits set out
in this convention." Therefore, a claim covered by the Warsaw Convention can no longer be recovered
under local law, if the statute of limitations of two years has already lapsed.

Still, jurisprudence in the Phil and the US recognize that the Warsaw Convention does not "exclusively
regulate" the relationship between passenger and carrier on an international flight.

In United Airlines v. Uy: This Court distinguished between the (1) damage to the passengers baggage
and (2) humiliation he suffered at the hands of the airlines employees. The first cause of action was
covered by the Warsaw Convention which prescribes in 2 yrs while the second was covered by the
provisions of the Civil Code on torts, which prescribes in four years.

UNITED AIRLINES vs. UY

SUMMARY: On Oct 13, 1939, Uy was a passenger of United Airlines with a flight from San Francisco to
Manila. When checking in at the airline counter, it was found that one of his luggage is overweight. He
was humiliated by UA employee who rebuked him saying he should have known the maximum weight
allowed. Then, in a loud voice in front of the milling crowd, Uy was told to repack his things. Despite
this, his luggage was still overweight and so he paid the fee for his excess luggage through his AmEx
card because UA refused to honor the pre-paid credit he has. Upon arrival in Manila, Uy discovered
that one of his bags had been slashed and its contents stolen. Uy sent a letter on Oct 16, 1969 to UA
claiming for moral damages and the reimbursement of his lost personal effects. UA paid for the loss
personal effect but Uy was not satisfied as he think it was grossly inadequate. He sent 2 letters asking
for an out-of court settlement. UA did not accede to this demand so Uy filed this case on June 9, 1992.
TC dismissed the action for being filed beyond 2 yrs as prescribed by the Warsaw Convention. CA
reversed saying that Civil Code can still be the basis for action. SC affirmed. Warsaw Convention is not
applicable to first cause of action (ill and shabby treatment of UA employees), and is applicable to
second cause of action (loss personal effets in luggage). However, his immediate actions (sending
letters) and the delaying tactics of UA rendered the prescription period not applicable

DOCTRINE: In our jurisdiction, Warsaw Convention can be applied, or ignored, depending on the
peculiar facts presented by each case. Thus, the Convention's provisions do not regulate or exclude
liability for other breaches of contract by the carrier or misconduct of its officers and employees, or for
some particular or exceptional type of damage. Neither may the Convention be invoked to justify the
disregard of some extraordinary sort of damage resulting to a passenger and preclude recovery
therefor beyond the limits set by said Convention. Likewise, the Convention does not preclude the
operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the
carrier from liability for damages for violating the rights of its passengers under the contract of
carriage, especially if willful misconduct on the part of the carrier's employees is found or established.

B. Passenger Rights; Joint DOTC-DTI Administrative Order No. 01, Series of 2012

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