You are on page 1of 11

Mercantile Law Bar Examination Q & A (1990-2006) Page 69 of 103

BV agreed to sell to AC, a Ship and Merchandise Broker, SUGGESTED ANSWER:

2,500 cubic meters of logs at $27 per cubic meter FOB. It incurs no liability unless it is also the negotiating bank
After inspecting the logs, CD issued a purchase order.
b) Bravo Bank received from Cisco Bank by registered
On the arrangements made upon instruction of the mail an irrevocable letter of credit issued by Delta
consignee, H&T Corporation of LA, California, the SP Bank for the account of Y Company in the amount
Bank of LA issued an irrevocable letter of credit available of US$10,000,000 to cover the sale of canned fruit
at sight in favor of BV for the total purchase price of the juices. The beneficiary of the letter of credit was X
logs. The letter of credit was mailed to FE Bank with the Corporation which later on partially availed itself of
instruction “to forward it to the beneficiary.” The letter the letter of credit by submitting to Bravo Bank all
of credit provided that the draft to be drawn is on SP documents relative to the shipment of the cans of
Bank and that it be accompanied by, among other things, fruit juices. Bravo Bank paid X Corporation for its
a certification from AC, stating that the logs have been partial availment. Later, however, it refused further
approved prior shipment in accordance with the terms availment because of suspicions of fraud being
and conditions of the purchase order. practiced upon it and, instead , sued X Corporation
to recover what it had paid the latter. How would
Before loading on the vessel chartered by AC, the logs you rule if you were the judge to decide the
were inspected by custom inspectors and representatives controversy? (6%)
of the Bureau of Forestry, who certified to the good SUGGESTED ANSWER:
condition and exportability of the logs. After the loading
was completed, the Chief Mate of the vessel issued a Letters of Credit; Three Distinct Contract Relationships
mate receipt of the cargo which stated that the logs are in (2002)
good condition. However, AC refused to issue the Explain the three (3) distinct but intertwined contract
required certification in the letter of credit. Because of relationships that are indispensable in a letter of credit
the absence of certification, FE Bank refused to advance transaction.
payment on the letter of credit.
The three (3) distinct but intertwined contract
1) May Fe Bank be held liable under the letter of credit?
relationships that are indispensable in a letter of credit
transaction are:
2) Under the facts above, the seller, BV, argued that FE
1) Between the applicant/buyer/importer and the
Bank, by accepting the obligation to notify him that the
beneficiary/seller/exporter – The
irrevocable letter of credit has been transmitted to it on
applicant/buyer/importer is the one who procures
his behalf, has confirmed the letter of credit.
the letter of credit and obliges himself to reimburse
Consequently, FE Bank is liable under the letter of credit.
the issuing bank upon receipt of the documents of
Is the argument tenable? Explain.
title, while the beneficiary/seller/exporter is the one
1) No. The letter of credit provides as a condition a who in compliance with the contract of sale ships
certification of AC. Without such certification, there is the goods to the buyer and delivers the documents
no obligation on the part of FE Bank to advance of title and draft to the issuing bank to recover
payment of the letter of credit. (Feati Bank v CA 196 S 576) payment for the goods. Their relationship is
governed by the contract of sale.
2) No. FE Bank may have confirmed the letter of credit
when it notified BV, that an irrevocable letter of credit 2) Between the issuing bank and the
has been transmitted to it on its behalf. But the beneficiary/seller/exporter – The issuing bank is the
conditions in the letter of credit must first be complied one that issues the letter of credit and undertakes to
with, namely that the draft be accompanied by a pay the seller upon receipt of the draft and proper
certification from AC. Further, confirmation of a letter of documents of title and to surrender the documents
credit must be expressed. (Feati Bank v CA 196 s 576) to the buyer upon reimbursement. Their relationship
is governed by the terms of the letter of credit issued
Letters of Credit; Liability of a confirming and notifying by the bank.
bank (1994)
In letters of credit in banking transactions, distinguish the 3) Between the issuing bank and the
liability of a confirming bank from a notifying bank. applicant/buyer/importer – Their relationship is
SUGGESTED ANSWER: governed by the terms of the application and
In case anything wrong happens to the letter of credit, a agreement for the issuance of the letter of credit by
confirming bank incurs liability for the amount of the the bank.
letter of credit, while a notifying bank does not incur any
Maritime Commerce
Letters of Credit; Liability of a Notifying Bank (2003)
a) What liability, if any is incurred by an advising or Average; Particular Average vs. General Average (2003)
notifying bank in a letter of credit transaction?

Version 1990-2003 Ar ranged by SULAW Class 2005 Version 1990-2006 U pdat ed by Dondee
Mercantile Law Bar Examination Q & A (1990-2006) Page 70 of 103
M/V Ilog de Manila with a cargo of 500 tons of iron ore The insurance company should bear the loss to the cargo
left the Port of Zamboanga City bound for Manila. For because the deviation of the vessel was proper in order to
one reason or another, M/V Ilog de Manila hit a avoid a peril, which was the strong typhoon. The running
submerged obstacle causing it to sink along with its out of provisions was a direct consequence of the proper
cargo. A salvor, Salvador, Inc., was contracted to refloat deviation in order to avoid the peril of the typhoon.
the vessel for P1 Million. What kind of average was the ALTERNATIVE ANSWER:
refloating fee of P1 million, and for whose account The owner of the cargo bears the loss because in the case
should it be? Why? (4%) at bar, they stayed too long at the island, making it an
SUGGESTED ANSWER: improper deviation. Every deviation not specified in Sec.
Particular Average. The owner of the vessel shall 124 is improper. (Sec. 125, Insurance Code)
shoulder the average. Generally speaking, simple or
particular averages include all expenses and damages
caused to the vessel or cargo which have not inured to Carriage of Goods; Deviation; When Proper (2005)
the common benefit (Art. 809, and are, therefore, to be Under what circumstances can a vessel properly proceed
borne only by the owner of the property which gave rise to a port other than its port of destination? Explain. (4%)
to the same (Art. 810) while general or gross averages SUGGESTED ANSWER:
include "all the damages and expenses which are Deviation is proper:
deliberately caused in order to save the vessel, its cargo, a) when caused by circumstances over which neither
or both at the same time, from a real and known risk" the master nor the owner of the ship has any
(Art. 811). Being for the common benefit, gross averages control;
are to be borne by the owners of the articles saved (Art. b) when necessary to comply with a warranty or avoid a
812). In the present case there is no proof that the vessel peril, whether or not the peril is insured against;
had to be put afloat to save it from an imminent danger. c) when made in good faith, and upon reasonable
grounds of belief in its necessity to avoid a peril; or
Bottomry (1994) d) when in good faith, for the purpose of saving human
Gigi obtained a loan from Jojo Corporation, payable in life, or relieving another vessel in distress. (Sec. 124,
installments. Gigi executed a chattel mortgage in favor of Insurance Code)
Jojo whereby she transferred “in favor of Jojo, its
successors and assigns, all her title, rights ... to a vessel of Carriage of Goods; Exercise Extraordinary Diligence
which Gigi is the absolute owner.” The chattel mortgage (2005)
was registered with the Philippine Coast Guard pursuant Star Shipping Lines accepted 100 cartons of sardines
to PD 1521. Gigi defaulted and had a total accountability from Master to be delivered to 555 Company in Manila.
of P3M. But Jojo could not foreclose the mortgage on Only 88 cartons were delivered, however, these were in
the vessel because it sank during a typhoon. bad condition. 555 Company claimed from Star Shipping
Meanwhile, Lutang Corporation which rendered salvage Lines the value of the missing goods, as well as the
services for refloating the vessel sued Gigi. damaged goods. Star Shipping Lines refused because the
Whose lien should be given preference, that of Jojo or former failed to present a bill of lading. Resolve with
Lutang? reasons the claim of 555 Company. (4%)
Lutang Corporation’s lien should be given preference. The claim of 555 Company is meritorious, even if it fails
The lien of Jojo by virtue of a loan of bottomry was to present a bill of lading. Although a bill of lading is the
extinguished when the vessel sank. Under such loan on best evidence of the contract of carriage for cargo,
bottomry Jojo acted not only as creditor but also as nevertheless such contract can exist even without a bill of
insurer. Jojo’s right to recover the amount of the loan is lading. Like any other contract, a contract of carriage is a
predicated on the safe arrival of the vessel at the port of meeting of minds that gives rise to an obligation on the
destination. The right was lost when the vessel sank (Sec part of the carrier to transport the goods. Jurisprudence
17 PD 1521) has held that the moment the carrier receives the cargo
for transport, then its duty to exercise extraordinary
Carriage of Goods: Deviation: Liability (2005) diligence arises. (Cia. Maritima v. Insurance Co. of North America,
On a clear weather, M/V Sundo, carrying insured cargo, G.R. No. L-18965, October 30, 1964; Negre v. Cabahug Shipping &
left the port of Manila bound for Cebu. While at sea, the Co., G.R. No. L-19609, April 29, 1966)
vessel encountered a strong typhoon forcing the captain
Star Shipping Lines can refuse to honor 555 Company's
to steer the vessel to the nearest island where it stayed for
claim for the missing and damaged goods. The Bill of
seven days. The vessel ran out of provisions for its
Lading is the document of title that legally establishes the
passengers. Consequently, the vessel proceeded to Leyte
ownership of 555 Company over said goods. 555 needs
to replenish its supplies.
to present the Bill of Lading to legally claim said goods.
(National Union Fire Insurance of Pittsburg v. Stolt-Nielaen, G.R. No.
Assuming that the cargo was damaged because of such 87958, April 26, 1990)
deviation, who between the insurance company and the
owner of the cargo bears the loss? Explain. Charter Party (1991)

Version 1990-2003 Ar ranged by SULAW Class 2005 Version 1990-2006 U pdat ed by Dondee
Mercantile Law Bar Examination Q & A (1990-2006) Page 71 of 103
The Saad Dev Co enters into a voyage charter with XYZ AA entered into a contract with BB thru CC to transport
over the latter’s vessel, the MV LadyLove. Before the ladies' wear from Manila to France with transhipment at
Saad could load it, XYZ sold Lady Love to Oslob Taiwan. Somehow the goods were not loaded at Taiwan
Maritime Co which decided to load it for its own on time. Hence, when the goods arrived in France, they
account. arrived "off-season" and AA was paid only for one-half
a) May XYZ Shipping Co validly ask for the rescission of the value by the buyer. AA claimed damages from the
the charter party? If so, can Saad recover damages? To shipping company and its agent. The defense of the
what extent? respondents was prescription. Considering that the ladies'
b) If Oslob did not load it for its own account, is it wear suffered "loss of value," as claimed by AA, should
bound by the charter party? the prescriptive period be one year under the Carriage of
c) Explain the meaning of “owner pro hac vice of the Goods by Sea Act, or ten years under the Civil Code?
vessel.” In what kind of charter party does this obtain? Explain briefly. (5%)
SUGGESTED ANSWER: The applicable prescriptive period is ten years under the
a) XYZ may ask for the rescission of the charter party if, Civil Code. The one-year prescriptive period under the
as in this case, it sold the vessel before the charterer has Carriage of Goods by Sea Act applies in cases of loss or
begun to load the vessel and the purchaser loads it for his damages to the cargo. The term "loss" as interpreted by
own account. Saad may recover damages to the extent of the Supreme Court in Mitsui O.S.K. Lines Ltd. v. Court of
its losses (Art 689 Code of Commerce) Appeals, 287 SCRA 366 (1998), contemplates a situation
where no delivery at all was made by the carrier of the
b) If Oslob did not load Lady Love for its own account, goods because the same had perished or gone out of
it would be bound by the charter party, but XYZ would commerce deteriorated or decayed while in transit. In the
have to indemnify Oslob if it was not informed of the present case, the shipment of ladies' wear was actually
Charter Party at the time of sale. (Art 689 Code of delivered. The "loss of value" is not the total loss
Commerce) contemplated by the Carriage of Goods by Sea Act.

c) The term “Owner Pro Hac Vice of the Vessel,” is COGSA; Prescription of Claims (1992)
generally understood to be the charterer of the vessel in A local consignee sought to enforce judicially a claim
the case of bareboat or demise charter (Litonjua Shipping Co against the carrier for loss of a shipment of drums of
v National Seamen’s Board GR 51910 10Aug1989) lubricating oil from Japan under the Carriage of Goods
by Sea Act (COGSA) after the carrier had rejected its
Charter Party (2004) demand. The carrier pleaded in its Answer the
Under a charter party, XXO Trading Company shipped affirmative defense of prescription under the provisions
sugar to Coca-Cola Company through SS Negros of said Act inasmuch as the suit was brought by the
Shipping Corp., insured by Capitol Insurance Company. consignee after one (1) year from the delivery of the
The cargo arrived but with shortages. Coca-Cola goods. In turn, the consignee contended that the period
demanded from Capitol Insurance Co. P500.000 in of prescription was suspended by the written extrajudicial
settlement for XXO Trading. The MM Regional Trial demand it had made against the carrier within the one-
Court, where the civil suit was filed, "absolved the year period, pursuant to Article 1155 of the Civil Code
insurance company, declaring that under the Code of providing that the prescription of actions is interrupted
Commerce, the shipping agent is civilly liable for when there is a written extrajudicial demand by the
damages in favor of third persons due to the conduct of creditors.
the carrier's captain, and the stipulation in the charter a) Has the action in fact prescribed? Why?
party exempting the owner from liability is not against b) If the consignee’s action were predicated on
public policy. Coca-Cola appealed. Will its appeal misdelivery or conversion of the goods, would your
prosper? Reason briefly. (5%) answer be the same? Explain briefly.
No. The appeal of Coca-Cola will not prosper. Under a) The action taken by the local consignee has, in fact,
Article 587 of the Code of Commerce, the shipping agent prescribed. The period of one year under the Carriage of
is civilly liable for damages in favor of third persons due Goods by Sea Act (COGSA) is not interrupted by a
to the conduct of the carrier's captain, and the shipping written extrajudicial demand. The provisions of Art 1155
agent can exempt himself therefrom only by abandoning of the NCC merely apply to prescriptive periods
the vessel with all his equipment and the freight he may provided for in said Code and not to special laws such as
have earned during the voyage. On the other hand, COGSA except when otherwise provided. (Dole v Maritime
assuming there is bareboat charter, the stipulation in the Co 148 s 118).
charter party exempting the owner from liability is not
against public policy because the public at large is not b) If the consignee’s action were predicated on
involved (Home Insurance Co. v. American Steamship Agencies, Inc., misdelivery or conversion of goods, the provisions of the
23 SCRA25 (1968). COGSA would be inapplicable. In these cases, the NCC
prescriptive periods, including Art 1155 of the NCC will
COGSA: Prescription of Claims/Actions (2004) apply (Ang v Compania Maritama 133 s 600)

Version 1990-2003 Ar ranged by SULAW Class 2005 Version 1990-2006 U pdat ed by Dondee
Mercantile Law Bar Examination Q & A (1990-2006) Page 72 of 103
COGSA; Prescription of Claims (2000) Under the “doctrine of inscrutable fault,” where fault is
RC imported computer motherboards from the United established but it cannot be determined which of the two
States and had them shipped to Manila aboard an ocean- vessels were at fault, both shall be deemed to have been
going cargo ship owned by BC Shipping Company. at fault.
When the cargo arrived at Manila seaport and delivered
to RC, the crate appeared intact; but upon inspection of Doctrine of Inscrutable Fault (1998)
the contents, RC discovered that the items inside had all A severe typhoon was raging when the vessel SS
been badly damaged. He did not file any notice of Masdaam collided with MV Princes. It is conceded that
damage or anything with anyone, least of all with BC the typhoon was the major cause of the collision,
Shipping Company. What he did was to proceed directly although there was a very strong possibility that it could
to your office to consult you about whether he should have been avoided if the captain of SS Masdaam was not
have given a notice of damage and how long a time he drunk and the captain of the MV Princes was not asleep
had to initiate a suit under the provisions of the Carriage at the time of collisions.
of Goods by Sea Act (CA 65). What would your advice Who should bear the damages to the vessels and their
be? (2%) cargoes? (5%)
My advice would be that RC should give notice of the The shipowners of SS Masdaam and MV Princess shall
damage sustained by the cargo within 3 days and that he each bear their respective loss of vessels. For the losses
has to file the suit to recover the damage sustained by the and damages suffered by their cargoes both shipowners
cargo within one year from the date of the delivery of the are solidarily liable.
cargo to him.
Limited Liability Rule (1994)
COGSA; Prescriptive Period (1995) Toni, a copra dealer, loaded 1000 sacks of copra on
What is the prescriptive period for actions involving lost board the vessel MV Tonichi (a common carrier engaged
or damaged cargo under the Carriage of Goods by Sea in coastwise trade owned by Ichi) for shipment from
Act? Puerto Galera to Manila. The cargo did not reach Manila
SUGGESTED ANSWER: because the vessel capsized and sank with all its cargo.
ONE YEAR after the delivery of the goods or the date
when the goods should have been delivered (Sec 3(6), When Toni sued Ichi for damages based on breach of
COGSA) contract, the latter invoked the “limited liability rule.”
1) What do you understand of the “rule” invoked by
Doctrine of Inscrutable Fault (1995) Ichi?
1. 2 vessels coming from the opposite directions collided 2) Are there exceptions to the “limited liability rule”?
with each other due to fault imputable to both. What are SUGGESTED ANSWER:
the liabilities of the two vessels with respect to the 1) By “limited liability rule” is meant that the liability of a
damage caused to them and their cargoes? Explain. shipowner for damages in case of loss is limited to the
value of the vessel involved. His other properties cannot
2. If it cannot be determined which of the two vessels be reached by the parties entitled to damages.
was at fault resulting in the collision, which party should
bear the damage caused to the vessels and the cargoes? 2) Yes. When the ship owner of the vessel involved is
Explain. guilty of negligence, the “limited liability rule” does not
apply. In such case, the ship owner is liable to the full
3. Which party should bear the damage to the vessels and extent of the damages sustained by the aggrieved parties
the cargoes if the cause of the collision was a fortuitous (Mecenas v CA 180 s 83)
event? Explain.
Limited Liability Rule (1997)
SUGGESTED ANSWER: Explain the doctrine in Maritime accidents – The
1. Each vessel must bear its own damage. Both of them Doctrine of Limited Liability
were at fault. (Art 827, Code of Commerce) SUGGESTED ANSWER:
Under the “doctrine of limited liability” the exclusively
2. Each of them should bear their respective damages. real and hypothecary nature of maritime law operates to
Since it cannot be determined as to which vessel is at limit the liability of the shipowner to the value of the
fault. This is the doctrine of “inscrutable fault.” vessel, earned freightage and proceeds of the insurance.
However, such doctrine does not apply if the shipowner
3. No party shall be held liable since the cause of the and the captain are guilty of negligence.
collision is fortuitous event. The carrier is not an insurer.
Limited Liability Rule (1999)
Thinking that the impending typhoon was still 24 hours
Doctrine of Inscrutable Fault (1997)
Explain the doctrine in Maritime accidents – Doctrine of away, MV Pioneer left port to sail for Leyte. That was a
Inscrutable Fault miscalculation of the typhoon signals by both the ship-

Version 1990-2003 Ar ranged by SULAW Class 2005 Version 1990-2006 U pdat ed by Dondee
Mercantile Law Bar Examination Q & A (1990-2006) Page 73 of 103
owner and the captain as the typhoon came earlier and Claro already sighted Manila on its radar screen. Manila
overtook the vessel. The vessel sank and a number of had no radar equipment. As for speed, Don Claro was
passengers disappeared with it. twice as fast as Manila.

Relatives of the missing passengers claimed damages At the time of the collision, Manila failed to follow Rule
against the shipowner. The shipowner set up the defense 19 of the International Rules of the Road which requires
that under the doctrine of limited liability, his liability was 2 vessels meeting head on to change their course by each
co-extensive with his interest in the vessel. As the vessel vessel steering to starboard (right) so that each vessel
was totally lost, his liability had also been extinguished. may pass on the port side (left) of the other. Manila
a. How will you advice the claimants? Discuss the signaled that it would turn to the port side and steered
doctrine of limited liability in maritime law. (3%) accordingly, thus resulting in the collision. Don Claro’s
b. Assuming that the vessel was insured, may the captain was off-duty and was having a drink at the ship’s
claimants go after the insurance proceeds? (3%) bar at the time of the collision.
SUGGESTED ANSWER: a) Who would you hold liable for the collision?
a. Under the doctrine of limited liability in maritime law, b) If Don Claro was at fault, may the heirs of the
the liability of the shipowner arising from the operation passengers who died and the owners of the cargoes
of a ship is confined to the vessel, equipment, and recover damages from the owner of said vessel?
freight, or insurance, if any, so that if the shipowner SUGGESTED ANSWER:
abandoned the ship, equipment, and freight, his liability is I can hold the 2 vessels liable. In the problem given,
extinguished. However, the doctrine of limited liability whether on the basis of the factual settings or under the
does not apply when the shipowner or captain is guilty of doctrine of inscrutable fault, both vessels can be said to
negligence. have been guilty of negligence. The liability of the 2
carriers for the death or injury of passengers and for the
b. Yes. In case of a lost vessel, the claimants may go after loss of or damage to the goods arising from the collision
the proceeds of the insurance covering the vessel. is solidary. Neither carrier may invoke the doctrine of last
clear chance which can only be relevant, if at all, between
Limited Liability Rule (2000) the two vessels but not on the claims made by passengers
MV Mariposa, one of five passenger ships owned by or shippers (Litonjua Shipping v National Seamen Board GR 51910
Marina Navigation Co, sank off the coast of Mindoro 10Aug1989)
while en route to Iloilo City. More than 200 passengers SUGGESTED ANSWER:
perished in the disaster. Evidence showed that the ship Yes, but subject to the doctrine of limited liability. The
captain ignored typhoon bulletins issued by Pag-asa doctrine is to the effect that the liability of the
during the 24-hour period immediately prior to the shipowners would only be to the extent of any remaining
vessel’s departure from Manila. The bulletins warned all value of the vessel, proceeds of insurance, if any, and
types of sea crafts to avoid the typhoon’s expected path earned freightage. Given the factual settings, the
near Mindoro. To make matters worse, he took more shipowner himself was not guilty of negligence and,
load than was allowed for the ship’s rated capacity. Sued therefore, the doctrine can well apply (Amparo de los Santos v
for damages by the victim’s surviving relatives, Marina CA 186 s 69)
Nav Co contended 1) that its liability, if any, had been
extinguished with the sinking of MV Mariposa; and 2) Limited Liability Rule; General Average Loss (2000)
that assuming it had not been so extinguished, such X Shipping Company spent almost a fortune in refitting
liability should be limited to the loss of the cargo. Are and repairing its luxury passenger vessel, the MV Marina,
these contentions meritorious in the context of which plied the inter-island routes of the company from
applicable provisions of the Code of Commerce? (3%) La Union in the north to Davao City in the south. The
SUGGESTED ANSWER: MV Marina met an untimely fate during its post-repair
Yes. The contentions of Marina Nav Co are meritorious. voyage. It sank off the coast of Zambales while en route
The captain of MV Mariposa is guilty of negligence in to La Union from Manila. The investigation showed that
ignoring the typhoon bulletins issued by PAGASA and in the captain alone was negligent. There were no casualties
overloading the vessel. But only the captain of the vessel in that disaster. Faced with a claim for the payment of
MV Mariposa is guilty of negligence. The ship owner is the refitting and repair, X Shipping company asserted
not. Therefore, the ship owner can invoke the doctrine exemption from liability on the basis of the hypothecary
of limited liability. or limited liability rule under Article 587 of the Code of
Commerce. Is X Shipping Company’s assertion valid?
Limited Liability Rule; Doctrine of Inscrutable Fault Explain (3%).
In a collision between M/T Manila, a tanker, and M/V No. The assertion of X Shipping Company is not valid.
Don Claro, an inter-island vessel, Don Claro sank and The total destruction of the vessel does not affect the
many of its passengers drowned and died. All its cargoes liability of the ship owner for repairs on the vessel
were lost. The collision occurred at nighttime but the sea completed before its loss.
was calm, the weather fair and visibility was good. Prior
to the collision and while still 4 nautical miles apart, Don Limited Liability Rule; General Average Loss (2000)

Version 1990-2003 Ar ranged by SULAW Class 2005 Version 1990-2006 U pdat ed by Dondee
Mercantile Law Bar Examination Q & A (1990-2006) Page 74 of 103
MV SuperFast, a passenger-cargo vessel owned by SF and also the fact that A does not have the means and
Shipping Company plying the inter-island routes, was on resources to invest P500th in the security agency.
its way to Zamboanga City from the Manila port when it ALTERNATIVE ANSWER:
accidentally, and without fault or negligence of anyone 1) The prosecutor may establish the fact that the P500th
on the ship, hit a huge floating object. The accident would constitute a major investment and yet A is not
caused damage to the vessel and loss of an accompanying even elected member of the BOD or one of the officers.
crated cargo of passenger PR. In order to lighten the Furthermore, it may also be shown that A does not even
vessel and save it from sinking and in order to avoid risk have the means to raise the amount of P500th and that
of damage to or loss of the rest of the shipped items the officers or majority of the directors are foreigners.
(none of which was located on the deck), some had to be
jettisoned. SF Shipping had the vessel repaired at its port SUGGESTED ANSWER:
of destination. SF Shipping thereafter filed a complaint 2) No. The mere fact of being a common law wife of a
demanding all the other cargo owners to share in the foreigner does not bring her within the ambit of the
total repair costs incurred by the company and in the Anti-Dummy Law.
value of the lost and jettisoned cargoes. In answer to the 2) Yes. Being a common law wife, it can be presumed
complaint, the shippers’ sole contention was that, under that she is the one running the business, which raises a
the Code of Commerce, each damaged party should bear prima facie presumption of violation of the Anti-dummy
its or his own damage and those that did not suffer any Law, (RA 6084).
loss or damage were not obligated to make any
contribution in favor of those who did. Is the shippers’
Nationalized Activities or Undertakings (1994)
contention valid? Explain (2%)
Celeste, a domestic corporation wholly owned by Filipino
No. The shippers’ contention is not valid. The owners of citizens, is engaged in trading and operates as general
the cargo jettisoned, to save the vessel from sinking and contractor. It buys and resells the products of Matilde, a
to save the rest of the cargoes, are entitled to domestic corporation, 90% of whose capital stock is
contribution. The jettisoning of said cargoes constitute owned by aliens. All of Matilde’s goods are made in the
general average loss which entitles the owners thereof to Philippines from materials found or produced in the
contribution from the owner of the vessel and also from Philippines.
the owners of the cargoes saved. On the other hand, ECQ Integrated is a 100% Filipino
owned corporation and manufacturer of asbestos
SF Shipping is not entitled to contribution/ products.
reimbursement for the costs of repairs on the vessel from Celeste and ECQ took part in a public bidding
the shippers. conducted by MWSS for its asbestos pipe requirements.
Celeste won the bid, having offered 13% lower than that
offered by ECQ; and MWSS awarded the contract to
Nationalized Activities or supply its asbestos pipes to Celeste. ECQ sought to
nullify the award in favor of Celeste.
1) Is Celeste barred under the Flag Law from taking part
in biddings to supply the government?
Nationalized Activities or Undertakings (1993) 2) Did Celeste and Matilde violate the Anti-Dummy
1) A invested P500th in a security agency on October 30, Law?
1990. He was charged with being a dummy of his friend, 3) Did Celeste and Matilde violate the Retail Trade
a foreigner. If you were the prosecutor, what evidence Nationalization Law? Explain.
can you present to prove violation of the Anti-Dummy
2) Juana de la Cruz, a common law wife of a foreigner 1) No. The materials offered in the bids submitted are
wrested the control of a television firm. At the instance made in the Philippines from articles produced or grown
of the minority group of the firm, she was charged with in the Philippines, and the bidder, Celeste, is a domestic
violation of the Anti-Dummy Law. May she be convicted entity. The Flag Law does not apply. It can be invoked
by the mere fact that she is a common law wife of a only against a bidder who is not a domestic entity, or
foreigner? Explain. against a domestic entity who offers imported materials.
1) A allows or permits the use or exploitation or 2) No, since Celeste is merely a dealer of Matilde and not
enjoyment of a right, privilege or business, the exercise or an alter ego of the latter. Celeste buys and sells on its
enjoyment of which is expressly reserved by the own account the products of Matilde.
Constitution or the laws to citizens of the Philippines, by
the foreigner not possessing the requisites prescribed by 3) Matilde did not violate the Retail Trade Law since it
the Constitution or the laws of the Philippines. The does not sell its products to consumers, but to dealers
prosecutor should prove the above elements of the crime who resell them. Neither did Celeste violate the Retail
Trade Law since, in the first place, it is not prohibited to

Version 1990-2003 Ar ranged by SULAW Class 2005 Version 1990-2006 U pdat ed by Dondee
Mercantile Law Q&As (2007-2013) JayArhSals

Appeals, G.R. No.94209, 30 April 1991, The types of average are particular and
the Court held that an irrevocable letter general (Article 808 of the Code of
of credit is independent of the contract Commerce). Particular averages include
between the buyer-applicant and the all expenses and damages caused to the
seller-beneficiary. vessel or to the cargo which did not
inure to the common benefit and profit
(B) Can X Corporation claim directly from of all the persons interested in the
PT Construction Corp.? Explain. (3%) vessel and the cargo (Article 809 of the
SUGGESTED ANSWER: Code of Commerce). General averages
include all damages and expenses which
Yes, X Corporation can claim directly
are deliberately caused to save the
from PT Construction Corp. The
vessel, its cargo, or both at the same
irrevocable letter of credit was merely a
time, from a real and known risk (Article
security arrangement that did not
811 of the Code of Commerce).
replace the main contract between the
two companies. In FEATI Bank c. CA,
G.R. No. 94209, 30 April 1991, opening a
letter of credit does not involve a
specific appropriation of money in favor Barratry (2010)
of the beneficiary. It only signifies that
No.XIII. (B) What is ―barratry‖ in marine
the beneficiary may draw funds up to the
insurance? (2%)
designated amount. It does not mean
that a particular sum of money has been
Barratry is any willfull misconduct in the
specifically reserved of held in trust.
part of the master or crew in pursuance
of some unlawful or fraudulent purpose
without the consent of the owner and to
the prejudice of the interest of the
owner (Roque v. Intermediate Appellate
Court, supra).
Maritime Commerce

Averages: Types (2010)

No.XVI. (B) What are the types of averages

in marine commerce (3%)

“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
Page 64 of 173
Mercantile Law Q&As (2007-2013) JayArhSals

Carriage of Goods; Deviation; Liability entitles him to compensation or

(2009) indemnification from the shipowner and
the owners of the cargoes saved by the
No.VII. Global Transport Services, Inc.
(GTSI) operates a fleet of cargo vessels
plying interisland routes. One of its vessels,
MV Dona Juana, left the port of Manila for
The jettison resulted to a particular
Cebu laden with,among other goods,
average loss because the damage was due
10,000 television sets consigned to
to the fault of the captain.
Romualdo, a TV retailer in Cebu.

(B) Against whom does Romualdo have a

When the vessel was about ten nautical
cause of action for indemnity of his lost TV
miles away from Manila, the ship captain
sets? Explain. (3%)
heard on the radio that a typhoon which, as
announced by PAG-ASA, was on its way out
of the country, had suddenly veered back
Romualdo has a cause of action for his
into Philippine territory, the captain
lost TV sets against the shipowner and
realized that MV Dona Juana would
the owners of the cargoes saved by the
traverse the storm’s path, but decided to
jettison. The jettison of the TV sets
proceed with the voyage. True enough, the
resulted in a general average loss,
vessel sailed into the storm. The captain
entitling Romualdo to indemnity for the
ordered the jettison of the 10, 000 television
lost TV sets.
sets, along with some other cargo, in order
to lighten the vessel and make it easier to
steer the vessel out of the path of the
typhoon. Eventually, the vessel, with its
crew intact, arrived safely in Cebu. Carriage of Goods; Implied Warranty;
Liability (2010)
(A) Will you characterize the jettison of
No.XIII. Paulo, the owner of an ocean-going
Romualdo’s TV sets as an average? If so,
vessel, offered to transport the logs of
what kind of an average, and why? If not,
Constantino from Manila to Nagoya.
why not? (3%)
Constantino accepted the offer, not
knowing that the vessel was manned by an
The jettison of Romualdo’s TV sets
irresponsible crew with deep-seated
resulted in a general average loss, which
resentments against Paolo, their employer.

“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
Page 65 of 173
Mercantile Law Q&As (2007-2013) JayArhSals

(Roque v. Intermediate Appellate Court,

Constantino insured the cargo of logs 139 SCRA 596 [1985]).
against both perils of the sea and barratry.
The logs were improperly loaded on one
side, thereby causing the vessel to tilt on
one side. On the way to Nagoya, the crew Carriage of Goods; Indemnity; Jettisoned
unbolted the sea valves of the vessel Goods (2010)
causing water to flood the ship hold. The
No.XVI. An importer of Christmas toys
vessel sank.
loaded 100 boxes of Santa Claus talking
dolls aboard a ship in Korea bound for
Constantino tried to collect from the
Manila. With the intention of smuggling
insurance company which denied liability,
one-half of his cargo, he took a bill of lading
given the unworthiness of both the vessel
for only 50 boxes. On the voyage to Manila,
and its crew.
50 boxes were jettisoned to save the more
precious cargo.
Constantino countered that he was not the
owner of the vessel and he could therefore
(A) Is the importer entitled to receive any
not be responsible for conditions about
indemnity for average? Explain. (2%)
which he was innocent.
The importer is not entitled to receive
(A) Is the insurance company liable? Why or
any indemnity for average. In order that
why not? (3%)
the goods jettisoned may be included in
the general average and the owner be
The insurance company is not liable,
entitled to indemnity, it is necessary
because there is an implied warranty in
that their existence on board be proven
every marine insurance that the ship is
by means of the bill of lading (Article
seaworthy whoever is insuring the cargo,
816 of the Code of Commerce).
whether it be the ship-owner or not.
There was a breach of warranty, because
the logs were improperly loaded and the
crew was irresponsible. It is the
obligation of the owner of the cargo to
look for a reliable common carrier which
keeps its vessel in seaworthy condition

“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
Page 66 of 173
Mercantile Law Q&As (2007-2013) JayArhSals

COGSA; Prescription of Claims/Action Liability; Loss; Fortuitous Event (2008)

No.IX. On October 30, 2007, M/V Pacific, a
No.XII. AA entered into a contract with BB Philippine registered vessel owned by Cebu
for the latter to transport ladies wear from Shipping Company (CSC), sank on her
Manila to France with transshipment via voyage from Hong Kong to Manila. Empire
Taiwan. Somehow the goods were not Assurance Company (Emprie) is the insurer
loaded in Taiwan on time, hence, these of the lost cargoes loaded on board the
arrived in France ―off-season.‖ AA was only vessel which were consigned to Debenhams
paid for one half the value by the buyer. Company. After it indemnified Debenhams,
Empire as subrogee filed an action for
AA claimed damages from BB. BB invoked damages against CSC.
prescription as a defense under the
Carriage of Goods by Sea Act Considering (A) Assume that the vessel was seaworthy.
the ―loss of value‖ of the ladies wear as Before departing, the vessel was advised by
claimed by AA, is BB’s defense tenable? theJapanese Meteorological Center that it
Explain. (3%) was safe to travel to its destination. But
SUGGESTED ANSWER: while at sea, the vessel received a report of
The defense of BB is not tenable. The a typhoon moving within its general path.
one-year prescriptive period in the To avoid the typhoon, the vessel changed
Carriage of Goods Sea Act applies only in its course. However, it was still at the fringe
case the goods were not delivered or of the typhoon when it was repeatedly hit
were delivered in a damaged or by huge waves, were saved three (3) who
deteriorated condition. It does not apply perished. Is CSC liable to empire? What
to damages as a result of delay in the principle of maritime law is applicable?
delivery of the goods. The prescription of Explain. (3%)
the action is governed by Article 1144 of SUGGESTED ANSWER:
the Civil Code, which provides for a
The common carrier incurs no liability
prescriptive period of ten years in case
for the loss of the cargo during a
of actions based on a written contract
fortuitous event, because the following
(Mitsui O.S.K. Lines Ltd. v. Court of
circumstances were present: (1) the
Appeals, 287 SCRA 366 (1998)).
typhoon was the cause of the cargo loss;
(2) the carrier did not contribute to the
loss; and (3) the carrier exercised
extraordinary diligence in order to

“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
Page 67 of 173
Mercantile Law Q&As (2007-2013) JayArhSals

minimize the attendant damage before, the full extent of the claims of the cargo
during and after the typhoon (See owners (Aboitiz Shipping v. New India
Fortune Express v. CA, Caorong. G.R. No. Assurance Company, G.R. No. 156978,
119756, 18 March 1999; Yobido v. CA, 02 May 2006).
G.R. No. 113003, 17 October 1997;
Gathalian v. Delim, G.R. No. L-56487, 21 (C) Assume the facts in question (b). Can
October 1991). the heirs of the three (3) crew members who
perished recover from CSC? Explain fully.
Under Art. 587 of Code of Commerce, in (3%)
case of maritime transactions, the SUGGESTED ANSWER:
liability of the owner of the vessel is
Yes, because the crew members died
limited to the vessel itself. Since the
while performing their assigned duties,
vessel of CSC was seaworthy at the time
aggravated by the failure of the ship
it sank, the CSC is not liable to Empire
owner to ensure that the vessel is
under the maritime principle that the
seaworthy. Workmen’s compensation has
obligations of the owner of a vessel are
been classified by jurisprudence as an
hypothecary in nature.
exception to the hypothecary nature of
maritime commerce, Abueg v. San Diego,
(B) Assume the vessel was not seaworthy as
77 Phil. 730 (1948), especially in this
in fact its hull had leaked, causing flooding
case where the vessel was not seaworthy
in the vessel. Will you answer be the same?
at the time it sank.
Explain. (2%)

When the vessel is not seaworthy, it is

an exception to the hypothecary
principle in maritime commerce. To Negotiable Instruments Law
limit its liability to the amount of the
Checks: Forged Checks; Liability of
insurance proceeds, the carrier has the
Drawee Bank (2008)
burden of proving that the
No.V. Pancho drew a check to Bong and
unseaworthiness of its vessel was not
Gerard jointly, Bong indorsed the check
due to its fault or negligence. The failure
and also forged Gerard’s indorsement . The
to discharge such a heavy burden
payor bank paid the check and charged
precludes application of the limited
Pancho’s account for the amount of the
liability rule and the carrier is liable to

“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
Page 68 of 173