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CAVEAT: READ ALL THOSE NOTED AS IMPORTANT

AND/OR BAR

CHAPTER 4
DAMAGES for BREACH OF CONTRACT of CARRIAGE

Article 1764 (Damages against common carrier)

Damages in cases comprised in this Section (i.e., Article 1764 to 1766) shall be
awarded in accordance with Title XVIII of this Book concerning damages (i.e.,
Article 2195 to 2235 [damages referring to – Moral, Exemplary, Nominal,
Temperate, Actual and Liquidated). Article 2206 shall apply to the "death of a
passenger” caused by the “breach” of contract of carriage by a common carrier
1. Article 1764 in relation with Article 2206 speaks about liability for damages
for “death” of the passenger in case of breach of contract of carriage - to wit:
(a)“death indemnity” for P50,000, plus (b) “loss of earning capacity”, plus (c)
“support” for a person who is not called to inherit from the deceased
passenger but shall not exceed 5 years, plus (d) “moral damages” for the
heirs of the deceased passenger
(a) Application of Article 1764 in relation to Article 2206 (Sulpicio Lines Inc.
vs. Curso, GR 157009, March 17, 2010; Philtranco vs. Court of Appeals, GR
No. 161909, April 25, 2012[p. 159])
General rule: Moral damages are not recoverable in actions for breach of
contract (i.e., all contracts under “ObliCon”) and in fact Article 2219 where
it enumerates right to recover moral damages does not include moral
damages for breach of contract - EXCEPT:
(a) Article 2220 2nd Sentence NCC: There is fraud, or bad faith on the part
of the defendant (or gross negligence[Far East Bank vs. CA, GR 108164,
February 23, 1995] applying Article 2220 2nd Paragraph); or
(b) Under Article 1764 in relation to Article 2206 (3) – i.e., in “breach of
contract of carriage” that resulted to death of passenger, moral
damages is recoverable even without proof of fraud/bad faith of the
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common carrier (but of course, the common carrier must be proven

negligent)
Issue: In breach of contract of carriage of passenger, suppose the
passenger did not die (but merely injured), can the spouse,
legitimate/illegitimate descendants and ascendants – still recover moral
damages?
Held: NO – because Article 1764 in relation with Article 2206 requires that
the passenger must die– UNLESS: Pursuant to Article 2220 2nd Sentence,
the common carrier in breaching its contract of carriage of passenger,
acted with fraud/bad faith (gross negligence)
2. Moral damages
(a) Moral damages - defined (Article 2217 NCC)
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 or omission
(b) How much is the moral damages
Proportionate to the suffering inflicted (Lambert vs. Heirs of Ray Castillon,
GR No. 160709, February 23, 2005)
(c) Liable for moral damages for “gross negligence”
(1) Baliwag Transit, Inc. vs. Court of Appeals, GR No. 116110, May 15,
1996 (p. 163)
Facts: The passenger bus driver was driving at an inordinately fast
speed that it failed to notice a cargo truck parked along the shoulder of
the highway with kerosene lamp sufficiently serving as warning device
– injuring the bus passengers (i.e., passengers did not die)
Issue: We know that pursuant to Article 1764 in relation to Article 2206
(3) NCC that the heirs of deceased passenger can claim moral damages.
But the question is, supposed the passenger did not die but merely
injured, can the passenger claim for moral damages against the
passenger bus?
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Held: General rule NO, because as mentioned, moral damages is not

recoverable for breach of contract such as breach of contract of
carriage – UNLESS: The common carrier is guilty of gross negligence. In
the case at bar, the driver driving at exceedingly fast speed is gross
negligence
Opinion: If the passenger dies, even if common carrier was not proven
to be in gross negligence but merely by simple negligence, still the
common carrier is liable for moral damages in view of Article 1764 in
relation to Article 2206 (3) providing that in case of death of
passenger, the common carrier is liable for moral damages
(2) Trans-Asia Shipping Lines, Inc. vs. Court of Appeals, GR No. 118126,
March 4, 1996 (p. 166)
Held: The passenger vessel by taking its voyage despite its full
awareness of being unseaworthy that only one engine was
functioning, is a breach of contract of carriage by gross negligence
(Note: SC made the common carrier liable for moral damages and also
made liable for exemplary damages)
(3) Singson vs. Court of Appeals, GR No. 119995, November 18, 1995 (p.
168)
Facts: Passenger bought six (6) open-dated flight tickets from airline
(common carrier) – constituting 6-leg flights from Manila to Hongkong,
then to San Francisco, then to Los Angeles - then from Los Angeles back
to San Francisco, then back to Hongkong, then back to Manila – such
that each flight leg, the corresponding ticket number shall be removed
from the ticket booklet of the passenger. For negligence of the airline’s
employee, there was a mistake in removing the ticket number in their
sequential order that made the passenger delayed in his flight from Los
Angeles back all the way to Manila because the airline refused to board
him. The airline ticketing agent in Hongkong informed the airline
ticketing in Los Angeles that there was a mistake in the sequential
removing from the 6 tickets of the passenger – yet the airline refused
to board the passenger.
Issue: Is the airline liable for moral damages?
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Held: YES. This negligence of the airline employee in not sequentially

removing ticket from the ticket booklet of the passenger, compounded
by refusal of airline to board the passenger despite already informed
by its own ticketing agent in Hongkong admitting fault that it was
mistaken in not removing tickets sequentially, that led to the delay of
the passenger in going back to Manila – amount of gross negligence
(Note: The airline was made liable for moral damages and also for
exemplary damages)
(d) Moral damages – not recoverable when passenger committed
contributory negligence
(1) Philippine National Railways vs. Court of Appeals, GR No. L-55347,
October 4, 1985 (p. 173)
Facts: The passenger train (PNR) was overcrowded that made the
passenger sit on the open platforms between the train coaches. The
train did not slow down when it was approaching a bridge under repair
that led to the falling of the passenger – and despite the call of other
passengers that a certain passenger fell off, the train did not stop. The
passenger died
Issue No. 1: Is PNR guilty of negligence?
Held: YES. Article 1756 provides that when passenger is injured/died,
the common carrier is presumed at fault/negligent. The PNR was not
able to refute this presumption considering the proven evidence of
negligence when it did not slow down despite approaching slow bridge
then under repair, all the more negligent when it did not stop when
other passengers were shouting that the passenger fell off the train
Issue No. 2: Is the passenger guilty of contributory negligence – i.e.,
passenger contributed to the negligence of the PNR?
Held: YES. The passenger is equally guilty of contributory negligence by
opting to sit on the open platform between train coaches, which on
that situation, the passenger should have entertained danger to
himself, and with that, he should have held tightly on the metal bar in
order to avoid falling off (Note: Article 1761: Passenger must observe
the diligence of a good father of a family to avoid injury to himself)
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Issue No. 3: Is the PNR liable for moral damages?

Held: NO. While PNR is liable for damages (i.e., death indemnity for
passenger’s death [Article 1764 in relation to Article 2206], and actual
damages for loss of earning capacity) – nevertheless, it is not liable for
moral damages since the passenger is also guilty of contributory
negligence
Note: When no moral damages, no exemplary damages
3. Exemplary damages
(a) Article 2229 NCC (Exemplary Damages): Exemplary or corrective damages
are imposed, by way of example or correction for the PUBLIC GOOD - IN
ADDITION: To damages for moral, actual (compensatory), liquidated or
temperate (MALT)
HOWEVER: For the award of liquidated damages in addition to exemplary
damages, the plaintiff must also be entitled for moral, actual or
temperate damages(Abobon vs. Abobon, GR 155830, August 15, 2012
citing Article 2234)
Note: Under Article 2235: Stipulation/agreement waiving/renouncing
exemplary damages is null and void
(b) Article 2232 NCC: In civil action for BREACH OFCONTRACTS (e.g., contract
of carriage) and quasi-contracts (e.g., solution indebiti, or negotiorum
gestio), the court may award exemplary damages if the defendant acted in
a fraudulent or wanton/reckless/oppressive/malevolent manner (i.e.,
bad faith [equivalent to gross negligence])
(1) Exemplary damage under civil action for “breach of contract”
(requisite is “gross negligence”)
Driver of common carrier driving at high speed at night, caused injury
to his passengers is gross negligence damages liable for exemplary
damages -in addition to actual damages (Marchan vs. Mendoza, GR
No. L-24471, January 31, 1969)
(2) Exemplary damage under civil action for “breach of contract”
(requisite is “gross negligence”)
The passenger vessel by taking its voyage despite its full awareness of
being unseaworthy as only engine was running is in bad faith (gross
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negligence) liable for exemplary damages -in addition to moral

damages (i.e., gross negligence)(Trans-Asia Shipping Lines, Inc. vs.
Court of Appeals, GR No. 118126, March 4, 1996 [p. 166])
(c) Exemplary damages is generally cannot be imposed against the
employer, but only against the wrongdoer himself (e.g., wrongdoer is the
employee-driver of common carrier, and the employer is the operator of
the common carrier)
(1) Exemplary damages cannot be imposed against his employer because
it is primarily imposed the wrongdoer himself – unless, the employer
“participated in, previously authorized or subsequently ratified” such
act of the employee (Rotes vs. Halili, GR No. L-21203, September 30,
1960; Munsayac vs. de Lara, GR No. L-21151, June 26, 1968)
4. Nominal damages
(a) Article 2221 in relation with Article 2222 NCC: Nominal damages is
awarded not due to plaintiff’s damage/loss – BUT: Awarded when (1) the
right of plaintiff arising from any source of obligation under Article 1157
(i.e., law, contract, quasi-contract, crime, quasi-delict) is violated by the
defendant, or (2) his property right is violated by defendant (HENCE: Proof
of damage/loss is not required but merely proof that the defendant
violated the right of the plaintiff)
(b) REMEMBER: Nominal damages is awarded when – (1) the plaintiff prayed
for actual/compensatory damages but cannot proved any amount (e.g., no
documents/receipt to substantiate it) but the plaintiff proved that his right
been violated by the defendant, or (2) that the plaintiff did not suffer
actual/compensatory damages but the plaintiff proved that his right been
violated by the defendant, or (3) that the plaintiff is not legally entitled to
actual/compensatory damages but the plaintiff proved that his right been
violated by the defendant
(c) Nominal damages – allowed or denied
(1) Instances were nominal damages allowed:
(a) In case of trespass upon real property, there is no material
loss/damage on the part of plaintiff as his property was merely
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trespassed – but he must be awarded with nominal damages for

violation of his right over the property by defendant
(b) While the passenger is not entitled to claim actual/compensatory
damages brought about by his personal expenses while stranded in
Japan because the delay of transportation was due to fortuitous
event that rendered the NAIA not safe for take-off and landing –
nevertheless, while stranded in Japan, the passenger has the right
to be accorded with comfort and convenience, as in the case at bar,
the common carrier should see to it that the stranded passenger
will be accommodated for the first available flight after the NAIA
re-opened – for after all, the contract of carriage still exists and
subsists. This particular right of the passenger has been violated by
the common carrier when the passenger was not accommodated
to the first available flight because he was declassifiedfrom transit
passenger to new passenger/chance passenger, which
declassification caused the passenger stranded longer in Japan in
violation of the right of the passenger to be accorded with comfort
and convenience – thereby making the common carrier liable for
nominal damages (Japan Airlines vs. Court of Appeals, GR No.
118664, August 7, 1998; p. 110)
(c) While actual/compensatory damages is disallowed by the court
because the plaintiff was not able to prove any amount of the same
(e.g., no documents/receipt to substantiate) - nevertheless, nominal
damages was awarded on reason that it is proven that the right of
the plaintiff been violated by the defendant (Sumalpong vs. Court
of Appeals, GR No. 123404, February 26, 1997)
(2) Instances were nominal damages not allowed:
(a) When actual/compensatory damages is already awarded, the
award of nominal damages is untenable(Light Rail Transit
Authority vs. Navidad, GR 145804, February 6, 2003)
Facts: Navidad paid his token and entered the LRT Station, and then
stood on the designated ground platform near the train tracks
where passengers are ought to be while awaiting for the arrival of
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the train – here, there is already a contract of carriage, hence

Navidad is already a passenger. While waiting for the arrival of
train, the security guard of the common carrier fought with Navidad
that caused Navidad fell off the rail track that led to his death when
it so happened that train was approaching and ran over Navidad
causing his death. The Court of Appeals awarded heirs of Navidad
actual, moral and nominal damages along with P50T death
indemnity
Issue: Is the award of nominal damages proper?
Held: NO. Nominal damages are awarded in order that a right of
the plaintiff violated by the defendant is vindicated/recognized,
and not for the purpose of indemnifying the plaintiff for any
loss/damage suffered by him. It is an established rule that nominal
damages cannot co-exist with actual damages (Reason: The award
of the court of the actual damages is already a recognition that the
right of the Navidad been violated by the common carrier - hence,
there is no more purpose of awarding nominal damages).
(b) The award of actual/compensatory and exemplary damages is by
itself a judicial recognition that the plaintiff’s right has been
violated – therefore, a further award for nominal damages is
unnecessary and improper (i.e., redundant)(Meding vs. Cresencia,
GR No. L-8194, July 11, 1956)
5. Temperate (or moderate) damages (Articles 2224 o 2225)
(a) Article 2224: Temperate damages is more than nominal but less than
actual damages – and it is recoverable when it is proven that some
pecuniary loss has been suffered by the plaintiff, however, its amount
cannot be proven with certainty
HOWEVER (Article2225): In every case, temperate damages must be
reasonable depending on the attending circumstances
(b) What is then the difference between nominal damage and temperate
damage?
Nominal damage is awarded when the plaintiff is not entitled to damages
because either legally not entitled thereto or no damages actually
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incurred by plaintiff but the latter's right was violated by the defendant -
WHILE: Temperate damage is awarded when the plaintiff indeed incurred
actual damages but cannot prove amount thereof with certainty
(c) Abella vs. People, GR 198400, October 7, 2013
As to the civil liability of the petitioner, the CA was correct in deleting the
payment of the actual damages awarded by the trial court in the absence
of proof thereof. Where the amount of actual damages cannot be
determined (with certainty) because of the absence of supporting receipts
- but entitlement for actual damages is shown by the facts of the case,
temperate damages may be awarded - i.e., Benigno certainly suffered
injuries, was actually hospitalized and underwent medical treatment. x x
x award temperate damages in the amount of P25,000.00, in lieu of actual
damages.
6. Actual or compensatory damages (Articles 2199 to 2215)
(a) Compensatory or actual damages consists of the following: (1) actual
loss/damage, (2) unrealized profits, (3) interests, (4) consequential
damages [e.g., medical and hospitalization expenses], (5) death indemnity
for at least P50T, (6) loss of earning capacity, (7) Attorney’s fee
Now, in order that actual damages is awarded, there are two (2) requisites
– (1) the plaintiff able to prove the amount of actual damages with
certainty, and (2) there must be in the body of the Decision/Judgment the
factual basis on the amount of actual damages
(b) Article 2199 NCC (compensatory damages): Except as provided by law or
by stipulation (agreement), compensatory damages is awarded only for
such incurred/suffered pecuniary loss duly proven in court. Such
compensation is referred to as actual or compensatory damages.
(1) On actual/compensatory damages, it is required to present the best
evidence (e.g., original receipts) - and if there be no best evidence,
other best reliable (secondary) evidence (e.g., photocopy of receipts;
Baliwag Transit, Inc. vs. Court of Appeals, GR No. 116110, May 15,
1996)
Facts: To prove actual damages, the passenger presented hospital and
medical receipts amounting to P5,017.74. To show other medical
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expenses, it was by the testimony alone of the passenger without

corroboration by presenting receipts or testimony of other
witness(es). After trial, the lower court awarded P25,000, all in all, i.e.,
those actual damages where medical receipts were presented and
those other actual damages where no medical receipts presented but
through testimony of the plaintiff alone uncorroborated by testimony of
other witness(es).
Issue: Was the award o P25,000 for actual damages proper?
Held: NO. The award for actual damages insofar as in excess of
P5,017.74 (i.e., medical receipts) is concerned, is not supported by
reliable evidence. To prove actual damages, the best evidence
available to the injured party must be presented (in this case medical
receipts). The court cannot rely on bare testimony uncorroborated by
other evidence where the truth of the testimony of witness(es) is
suspected – but rather, must depend upon competent reliable proof
that damages have been actually suffered. Thus, the actual damages is
reduced to (receipted) medical and hospitalization expenses to
P5,017.74
Note: Rule 130 Section 3 ROC. - Best evidence: General rule: When
“contents” of document is to be proven in court, no evidence shall be
admissible except the “original document.” HOWEVER: When original
document cannot be presented, then “secondary evidence” can be
presented (e.g., photocopy of the original document, testimony of
witness who personally saw the execution of the document, etc.)–
PROVIDED: It is proven any of the four (4) exceptions (such as the
original document is loss without fault of the offeror; or the original
document is in the custody of the adverse-party and the latter refused
to produce the original document despite reasonable notice from the
offeror, etc.)
(c) Interests
In the case of Abella vs. Abella, GR 195166, July 8, 2015:
(1) Article 1956: No interest shall be due unless it has been expressly
stipulated in writing (but legal interest will be awarded to begin from
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extrajudicial/judicial demand until finality of the decision and until its

execution)
Note: Same rule applies when obligation consists of loan with
stipulated written interest but such interest is not specified
(Note: Since July 1, 2013, the legal interest shifted from 12% per annum
t 6% per annum)
(2) When obligation consists of loan with stipulated written “specific”
interest – and such stipulated specific interest continue until
obligation is judicially demanded (i.e., filing of civil action in court) –
and after such judicial demand, legal interest (6% per annum) shall
begin to run until the case is decided in its final and executory stage
and until obligation it is fulfilled/executed
Note: 5% monthly interest, whether compounded or simple, is
unconscionable (Albos vs. Embisan, GR 210831, November 26, 2014)
(d) Loss of earning capacity
(1) Loss of earning capacity in case of death of passenger under “breach
of contract of carriage”
Article 1764 (Damages against common carrier): X x x. Article 2206
shall also apply to the DEATH of a PASSENGER caused by the breach of
contract of carriage by a common carrier. And under Article 2206 (1):
For death indemnity in the amount of at least P50T, and in addition,
defendant is liable for the loss of the earning capacity of the deceased,
x x x; unless the deceased on account of permanent physical disability
not caused by the defendant, had no earning capacity at the time of
his death
(a) Formula for the computation of “loss of earning capacity” in case
of death (People vs. Punzalan, Jr., GR No. 199892, December 10,
2012; Note: The formula applies even if the deceased is not a
passenger)
Loss earning capacity = Life Expectancy x Net income
Life expectancy = 2/3x (80 - age at the time of death)
Net income = Gross Annual Income [GAI] - Living Expenses [50%
GAI](Note: The net earning is ordinarily but not absolute computed
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at 50% of the gross earnings [GAI];Lambert vs. Heirs of Ray

Castillon, GR No. 160709, February 23, 2005)
(1) Is the formula also applicable to death under “crime” or “quasi-
delict”?
YES
(b) Passenger died while still student under “breach of contract of
carriage” (Perena vs. Court of Appeals, GR No. 157915, August 29,
2012)
Facts: Aaron a passenger of a school bus (common carrier) died due
to negligence of the driver. Aaron died at the age of 15 years.
Issue: Considering that Aaron was still a student (no job) at the time
of his death, how to compute for his loss of earning capacity?
Held: The following were adopted:
(1) Aaron begins to earn income not at the time he died at the age
of 15 years (as he yet studying that time) but at the age of 21
years (age that Aaron would have graduated from college and
started working for his own livelihood)
(2) By Table of Mortality: Life expectancy = 2/3 x (80 - age at the
time of death)
Note: The “age at the time of death” must be 21 years old (i.e.,
not 15 years old)
(3) Aaron’s salary would be the prevailing minimum wage at the
time of death of Aaron (on reason that the nature of his work
and his salary at the time of his death were unknown)
Note (SC ruled for more than minimum wage): People vs. Mayor
Sanchez, GR 121039-45, October 18, 2001: Both Sarmenta
(murdered) and Gomez (murdered) were senior agriculture
students at UPLB, the country’s leading educational institution
in agriculture. As reasonably assumed x x x, both victims would
have graduated in due course (Note: Both would have
graduated in year 1993). x x x. Considering that Sarmenta and
Gomez would have graduated in due time from a reputable
university, it would not be unreasonable to assume that in 1993
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they would have earned more than the minimum wage. X x x,

the Court believes that it is fair and reasonable to fix the
monthly income that the two would have earned in 1993 at
P8,000.00 per month and their deductible living and other
incidental expenses at P3,000.00 per month
(4) Include 13th month pay as part of gross income (since 13th
month pay is mandated by law)
(c) Loss of earning capacity of a deceased “self-employed”
When the evidence to prove daily/monthly income is purely by
testimony of the heirs of the deceased estimating such income as
self-employed – is not enough without corroborating evidence
such as income tax returns or receipts (or other evidence)
(2) Liability for “Loss of earning capacity” in case of physical injury of
plaintiff under “breach of contract of carriage”
Article 2205: Damages may be recovered: (1) For loss/impairment of
earning capacity in cases plaintiff’s personal injury
(temporary/permanent injury);(2) x x x.
(a) Passenger injured while still student (Cariaga vs. Laguna Tayabas
Bus Co., GR No. L-11037, December 29, 1960)
Facts: The passenger was a UST 4th year medical student at the time
of the accident – which accident caused him permanent physical
disability that rendered him to stop from his study.
Issue: Could it be assumed that the passenger would pass his
board examination – hence, the passenger is entitled to loss of
earning capacity?
Held: YES. At that time he was already a fourth-year student in
medicine in a reputable university (University of Sto. Tomas). While
his scholastic may not be first rate (Exhibits 4, 4-A to 4-C), it is,
nevertheless, sufficient to justify the assumption that he could
have passed the board test in due time (Note: In this case, the
Supreme Court awarded the passenger P25,000 as loss of earning
capacity)
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(3) Formulas for the computation of “loss of earning capacity” in case of

physical injuries (hence, living)
Loss of earning capacity = Duration of earning impairment/loss x gross
income
Question: Why “gross income” and not “net income”?
Answer: Considering that the plaintiff is living, he himself takes care of
own living expenses (unlike when the victim dies, he does not have
living expenses for plain reason he is dead - hence, the basis would be
"net income" and not gross income)
(a) Baliwag Transit, Inc. vs. Court of Appeals, GR No. 116110, May 15,
1996
Principle: In computing for loss of earning capacity of “living
injured” plaintiff, the living expenses is not deductible from gross
income
Facts: The passenger suffered fracture on her pelvis and right leg,
and it would take her to recover for five (5) years, which recovery
period deters her from continuing on his job. Before the accident,
the passenger was earning P5,000 per month
Issue: How much is the loss of earnings of the passenger?
Held: P5,000 (wage per month) x 5 years (of recovery) =P300,000
(b) Attorney’s fee
(1) Article 2208 NCC: In the absence of stipulation/agreement, 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) X xx
(4) X xx
(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) X xx
(7) X xx
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(8) X xx
(9) In a separate civil action to recover civil liability arising from a crime
(10) X xx
(11) In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered
HOWEVER: Attorney's fees and expenses of litigation must be reasonable
(2) How to prove attorney’s fee
(1) The award attorney’s fees under Article 2208 demands factual, legal,
and equitable justification. (Philippine National Construction Corp. vs.
APAC Marketing Corp., GR No. 190957, June 5, 2013)
Attorney’s fee under Article 2208 NCC is not automatically awarded
every time a party wins a suit, rather it is the exception rather the
general rule - such that it demands factual, legal, and equitable
justification to bring the award thereof within the exceptions under
Article 2208 NCC (e.g., the defendant unjustifiably refused to comply
with his obligation)
(3) How much attorney’s fee is to be awarded
Not necessarily proportionate to the amount actually paid by a litigant to
his lawyer – rather, it must be reasonable at all times (Article 2208
NCC)(Philippine National Construction Corp. vs. APAC Marketing Corp., GR
No. 190957, June 5, 2013)
Note: Attorney’s fee is not to be awarded to the counsel, but to the client
who already paid his counsel

 Article 1765 NCC (Cancelling the certificate of public convenience of common

carrier)
The Public Service Commission may, (1) on its own motion or (2) on petition
of any interested party - cancel the certificate of public convenience of
common carrier after due hearing that repeatedly fails to comply its duty to
observe extraordinary diligence
1. The Public Service Commission is already defunct, and insofar as common
carriers concerned, its duty already assumed by Land Transportation
Franchising and Regulatory Board (LTFRB) insofar as land common carriers are
 P a g e | 16

concerned, CAB insofar as aircraft carriers are concerned, and MARINA insofar
as sea common carriers are concerned

Article 1766 NCC (Provisions of Civil Code on common carriers prevail over other
laws)
In all matters not regulated by this New Civil Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special
laws
1. Civil Code provisions on common carrier
Articles 1732 to 1766 NCC. This Civil Code provisions prevail over other statute
- hence, rights and obligations of common carrier can be governed by other
laws only when Civil Code does not specifically provide
2. Warsaw Convention
Refers to international carriage by AIR that regulates liability for international
carriage of persons and goods performed by airline companies
3. Court jurisdiction under the Warsaw Convention (i.e., Warsaw Convention
only applies when the cause of action is based on “Breach of Contract on
“International” Carriage” [i.e., not contract of carriage within the Philippines])
(a) Lhuillier vs. British Airways, GR No. 171092, March 15, 2010
Philippine is a signatory of the Warsaw Convention and thus has the force
and effect of law in the Philippines.
In the case at bench, petitioner’s place of departure was United Kingdom
while place of destination was Italy – and both United Kingdom and Italy
are signatories of the Warsaw Convention. As such, the transport of the
petitioner is deemed to be an "international carriage" within the
contemplation of the Warsaw Convention – hence, the jurisdiction over the
subject matter of the action is governed by Warsaw Convention.
Under Article 28(1) Warsaw Convention, the plaintiff may bring the
action for damages based on “breach of contract of carriage” before:
(1) Court where carrier is domiciled; or
(2) Court where carrier has its principal place of business; or
(3) Court where the carrier has establishment which the contract of
carriage perfected (e.g., where ticket was issued); or
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(4) Court of the place of destination

In this case, the common carrier is a British corporation domiciled in
London UK, also in London that it has its principal place of business.
Hence, under the first and second jurisdictional rules, the passenger
(Filipino) may bring her case (breach of contract of carriage) before the
courts of London UK. It appears also that the ticket was issued in Rome,
Italy, hence, under the third jurisdictional rule, the passenger also has the
option to bring the action (breach of contract of carriage) before the
courts of Rome in Italy. Finally, the place of destination is Rome, Italy,
accordingly, passenger may bring her action (breach of contract of
carriage) before the courts of Rome, Italy. X xx.
X xx.
Issue: Can the passenger bring the action for damages (breach of contract
of carriage) in the court of the Philippines?
Held: NO. In all of the four (4) points of jurisdiction under the Warsaw
Convention where Philippines is also a signatory thereto, the Philippines is
not one of them. Considering that the passenger brought the action in the
Philippines, it is DISMISSED for lack of jurisdiction
4. Under Article 29 of the Warsaw Convention, provides that the action based
ion breached of contract of carriage must be filed in the country of
jurisdiction within two (2) years (otherwise action is already prescribed) –
AND: The running of the prescriptive period is absolutely cannot be tolled by
extrajudicial/judicial demand
(a) When the cause of action is based not on breach of contract of carriage
on international carriage – but breach on other sources of obligation
under Civil Code (i.e., Article 1157 NCC [i.e., law, quasi-contract, delict or
quasi-delict]), then the Warsaw Convention does not apply (United
Airlines vs. Uy, GR 127768, November 19, 1999; p. 184)
Facts: Airline passenger filed complaint with RTC-Philippines with two (2)
causes of action: (a) the shabby and humiliating treatment he received
from airline employees at the San Francisco Airport (destination is
Philippines) which caused him extreme embarrassment and social
 P a g e | 18

humiliation (i.e., tort); and, (b) the loss of his personal effects amounting
to US $5,310.00 (i.e., due to breach of contract of carriage)
Issue No. 1: In this case, can the passenger bring either of the said two (2)
causes of action in the court of the Philippines?
Held: YES. On the first action (i.e., tort), yes, because the action is not
based on beached of contract of international carriage but rather action
under Article 1157 NCC which provides liability for quasi-delict/tort. On
the second action (breach of contract of international carriage), yes also,
because under the four-point jurisdiction of the Warsaw Convention, an
action based on breach of contract of carriage can be brought in the place
of destination, and in this case, Philippines is the place of destination of
the airline passenger
Issue No. 2: If the action filed by the passenger is based on tort, does the
two-year prescriptive period under the Warsaw Convention applies?
Held: NO. Because Warsaw Convention applies only to action based on
international contract of carriage
Issue No. 2-A: If the Warsaw Convention does not apply to action
based on tort, then what is the prescriptive period?
Held: Four year – i.e., Article 1146 NCC: Action for quasi-delict (tort)
must be brought within four (4) years.
Issue No. 3: If the action filed by the passenger is based on breach of
contract of international carriage, does the two-year prescriptive period
under the Warsaw Convention applies?
Held: YES. Warsaw Convention applies only to action based on
international contract of carriage
Issue No. 3-A: If the action brought is based on breach of contract
of international carriage, hence the two-year prescriptive period
under the Warsaw Convention applies – the question is, can the
two-year prescriptive period be tolled by extrajudicial/judicial
demand?
Held: NO. Because in the travaux preparatoire of the Warsaw
Convention, provides that the two-year prescriptive period is
absolutely cannot be tolled
 P a g e | 19

5. Tort explained (Air France vs. Carrascoso, GR L-21438, September 28, 1996)
Facts: The passenger (Filipino) was issued a “first class ticket.” When the
airline (common carrier) had stopover in Thailand, the airline manager
requested the passenger to vacate the first class seat because a “white man”
will occupy the same – and the passenger replied “over my dead body.” The
airline manager resisted and a commotion ensured inside the airline that
many Filipino passengers in the tourist class got nervous, went to the
passenger and pacified him – which the passenger acceded and consequently,
reluctantly surrendered his first class seat to the white man and instead
accepted to tourist class seat.
 P a g e | 20

CHAPTER 5
The Salvage Law

Prefatory:
1. Salvage – defined (Barrios vs. Go Thong & Co., GR L-17192, March 30, 1963)
It is the effort of the salvors (a) who saved the ship and/or its cargo in whole or in
part from impending peril of the sea, or (b) who recovered the ship and/or its cargo
from actual lost (shipwreck)
Note: Salvors and assistors (if any) are compensated for the salvage of the vessel
and/or its cargoes
2. Shipwreck - defined (Philippine American General Insurance Co. vs. Delgado
Stevedoring Co., GR 36109-R, July 9, 1974)
Ship that received damage rendering the ship incapable of navigation (such as ship
sank, swallowed by waves, ran aground, etc.)

THE SALVAGE LAW (ACT No. 2616)

Section 1 (actual derelict [i.e., derelict in the real sense because of shipwreck])
When because of shipwreck, (a) the vessel and/or its cargo are beyond the control of
crews, or (b) the vessel and/or its cargo are abandoned by the crews – AND: Thereafter,
other persons (salvors) brought the vessel (together with its cargoes [if any]) to a safe
place, or only the cargoes picked up and brought to a safe place - THEN: The salvors
(including those who assisted the salvors) are entitled to salvage reward
1. Salvage – defined (Barrios vs. Go Thong & Co., GR L-17192, March 30, 1963)
It is the effort of the salvors (a) who saved the ship and/or its cargo in whole or in
part from impending peril of the sea, or (b) who recovered the ship and/or its cargo
from actual lost (shipwreck; actual derelict [derelict in the real sense])
Notes:
a. Salvors and assistors (if any) are compensated for the salvage of the vessel
and/or its cargoes
b. "impending peril of the sea" (legal/quasi-derelict)
Example: Because of big or rogue waves, the vessel is at imminent danger of
subsiding or its cargoes are at imminent danger of lost
c. Shipwreck - defined (Philippine American General Insurance Co. vs. Delgado
Stevedoring Co., GR 36109-R, July 9, 1974)
Ship that received damage rendering the ship incapable of navigation (such as
ship sank, swallowed by waves, ran aground, etc.)
 P a g e | 21

2. Requisites for salvage reward is warranted (Barrios vs. Go Thong and Co., GR No. L-
17192, March 30, 1963) – i.e., the vessel is at actual derelict, legal derelict or quasi-
derelict
(a) There is marine peril that endangers the vessel to shipwreck
(b) Salvors executed salvaging - not due to duty (i.e., “not due to duty” such as
contract [between vessel saved and the salvor/s] or as official duty [coast
guards])
(c) Salvage is successful whether in whole/part
3. Subjects of salvage (i.e., things that can be salvaged)
(a) Vessel/ship itself
(b) Jetsam: goods cast (thrown) into sea and there sink and remain under water
(c) Floatsam/flotsan: goods remain floating on the sea
(d) Lagan/ligan: goods cast (thrown) into the sea but remained floating because of
buoys (i.e., goods tied to floaters)
4. When is the vessel and her cargo fit for salvage
(a) Derelict in the real sense (actual derelict)
Ship and/or its cargo are abandoned at sea and without any hope of recovering
them (abandoned sine spe recuperandi)
HERE: "Intent to return" (by captain) is clearly implied because there is "no hope
of recovery"
(b) When the vessel is not at derelict in the real sense - but under legal derelict or
quasi-derelict
(1) Legal derelict
Vessel abandoned and the salvors proved that the captain had no intent to
return to recover the vessel and/or its cargo (abandoned sine animo
revertendi)
Note: If the captain abandoned the vessel with no intent to return, it is
(legal) derelict, and a (subsequent) change of their intention from no intent
to return to intent to return will not change its nature that the vessel is
already a legal derelict that is proper subject of salvaging (Erlanger &
Galinger vs. New Zealand Insurance Co., GR No. L-10051, March 9, 1916;
citing Abbott’s Law of Merchant Ships and Seamen, 14th Edition, p.994)
(2) Quasi-derelict
The captain has intent to return as the vessel merely temporarily
abandoned by him in order to seek help from elsewhere - HOWEVER: While
the vessel was temporarily abandoned, it was under "considerable" peril of
 P a g e | 22

the sea and left without sufficient precaution to protect the vessel from
becoming shipwreck (Erlanger & Galinger vs. New Zealand Insurance Co., GR
No. L-10051, March 9, 1916)
5. Cases where vessel is derelict
(a) Legal derelict (vessel abandoned without intent to return [abandoned sine
animo revertendi]) (Wallace vs. Pujalte, GR No. L-10019, March 29, 1916)
It would appear to us that the trial court was correct in finding that the vessel in
question was a derelict. It had capsized and was lying on its side, its mast (long
pole standing on deck) and sails (cloth to catch wind) submerged and with every
indication that it might founder (submerged/sink) at any moment; it had been
deserted (abandoned) by its officers and crew with no intention on their part to
return”
Basis of the SC that deemed the vessel as legal derelict showing the captain's
“no intent to return” when he abandoned the vessel: The bad condition of the
vessel when abandoned by the captain
(b) Legal derelict (vessel abandoned without intent to return [abandoned sine
animo revertendi]) (Erlanger & Galinger vs. New Zealand Insurance Co., GR No.
L-10051, March 9, 1916)
Facts: The vessel was partially submerged when abandoned by the captain - i.e.,
submerged 11 feet fore (in front) and 20 feet aft (back) and would sink on gale
(strong wind)
Issue: Whether or not the captain had intention to return
Held: Such intention to return, if it existed, does not appear to have been very
firmly fixed/proven (by captain or shipowner), considering the leisurely manner
in which the captain proceeded after he reached the Port of Hongkong to seek
assistance – such that, (1) he did not make any determined effort to arrange for
the salvage when he reached Hongkong, (2) he had over two days in which to
arrange for salvage operations and he did nothing
Basis of the SC showing the captain's “no intent to return” when he abandoned
the vessel: The acts of indifference of the captain after reaching the place where
he could get help to save the vessel, coupled with the bad condition of the vessel
when abandoned by the captain (i.e., vessel was partially submerged)
(c) Quasi-derelict (vessel temporarily abandoned with intent to return to seek help
elsewhere - but while abandoned, the vessel was at “considerable” peril of the
sea without sufficient precaution to protect the vessel from becoming
shipwrecked (Erlanger & Galinger vs. New Zealand Insurance Co., GR No. L-
 P a g e | 23

10051, March 9, 1916; citing The Boston, Case no. 1673; Rowe vs. The Brig, Case
no. 12093; 1 Sir Lionel Jenkins, 89)
Salvage by the libelants (salvors), the possession they took of her (vessel) was
lawful. (The Emulous, Case No. 4480)
The animus revertendi et recuperandi (intent to return and recover) may thus far
have continued with the captain (i.e., there is intent to return), BUT this mental
hope (of the captain in recovering the vessel) must be regarded inoperative and
unavailing (unrealistic) in view of circumstances that controvert/refute such
mental hope of recovery - BECAUSE: (1) Vessel was absolutely deserted
(abandoned) for 12 or 14 hours (left without sufficient precaution) in a condition
of instant destruction in danger (“considerable” marine peril), and the lives of
those who should attempt to remain by the vessel would be considered in
highest jeopardy. The vessel was quite derelict (i.e., quasi-derelict)
Basis of the SC in considering the vessel is at quasi-derelict: While the captain
had intent to return with hope of recovery, nevertheless this hope is rendered
hopeless (unrealistic) in view of the vessel when it was abandoned, was
subjected to "considerable marine peril" since no sufficient precaution was
made upon the vessel to protect it from becoming a shipwreck
(d) Quasi-derelict (vessel temporarily abandoned with intent to return to seek help
elsewhere - but left without sufficient precaution to protect the vessel from
becoming shipwrecked and when the vessel was temporarily abandoned, it was
at “considerable” peril of the sea) (Erlanger & Galinger vs. New Zealand
Insurance Co., GR No. L-10051, March 9, 1916)
In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the
following circumstances: (1) The vessel (Myrtle Tunnel) was struck by a
hurricane and tore the sails away and carried off the deck load, and was badly
damaged and leaking, (2) the captain of Myrtle Tunnel requested towage from
another vessel (Steamship Mae) to the port of Charleston, but on account of
steamship Mae’s own damaged condition, was unable to tow the vessel Myrtle
Tunnel, however, the vessel Steamship Mae took and brought the captain and
crews of the vessel Myrtle Tunnel at port of Charleston. The vessel
Shawmut sighted the vessel Myrtle Tunnel and, finding it to be abandoned and
waterlogged and no one aboard, vessel Shawmut towed the vessel Myrtle
Tunnel and brought it to the port of Charleston. The shipowner of the vessel
Myrtle Tunnel contended that his vessel was not derelict, because the captain
 P a g e | 24

had gone ashore to procure assistance (i.e., animus revertendi and recuperandi).
With reference to this issue, the court ruled:
Prima facie the vessel Myrtle Tunnel found at sea in a situation of peril,
with no one aboard, is a derelict; but where the captain temporarily
abandoned the vessel for the purpose of obtaining assistance, and with
the intent to return and resume possession (i.e., with hope of recovery),
the vessel is therefore technically not a (legal) derelict. (But) It is not of
substantial importance to decide that question (whether or not the
captain had intention to return with hope pf recovery) - INSTEAD: The
vessel Myrtle Tunnel was what may be called a quasi-derelict;
abandoned left with no sufficient precaution, her sails gone, entirely
without power in herself to save herself from a situation though not of
imminent but of “considerable” peril; lying about midway between the
Gulf Stream and the shore, and about 30 miles from either, an east wind
would have driven the vessel upon one, and a west wind into the other,
where the vessel should have become a total lost. Lying in the pathway
of commence, with nothing aboard to indicate an intention to return
and resume possession, it was a highly meritorious act upon the part of
the Shawmut to take possession of the vessel and be awarded for
salvage
6. Cases where vessel is not derelict
(a) Vessel is not quasi-derelict
If the captain abandoned the vessel to procure assistance with intention to
return, the vessel is therefore not (legal) derelict (Erlanger & Galinger vs. New
Zealand Insurance Co., GR No. L-10051, March 9, 1916; citing Abbott’s Law of
Merchant Ships and Seamen, 14th Edition, p.994)
But note: The vessel could be deemed as "quasi-derelict" when though
temporarily abandoned with intent to return with hope of recovery, nevertheless,
the vessel was abandoned with no sufficient precaution to protect itself from
being shipwrecked while subjected to considerable peril of the sea
(b) Vessel is not quasi-derelict
The vessel is not subjected to "considerable" peril of the sea. Although the
vessel was helpless due to engine failure. There was no danger that the vessel
would sink, in view of the following: (1) smoothness of the sea and the fairness
of the weather, (2) was NO MARINE PERIL which is shown by the fact that said
captain or its crew did not even find it necessary to lower its launch and two
 P a g e | 25

motor boats to evacuate its passengers aboard, and neither jettison the vessel's
cargo as a safety measure. These circumstances does even not make the vessel a
quasi-derelict (Barrios vs. Go Thong and Co., GR No. L-17192, March 30, 1963)
Note: Marine peril is one of the requisites to make vessel a derelict, absence of
which, vessel cannot be a derelict whether as legal or quasi-derelict
7. Salvage and towage (distinguished; Barrios vs. Go Thong and Co., GR No. L-17192,
March 30, 1963; p. 195)
Facts: The weather is fine and the wave slight, but MV Don Alfredo stalled in the sea
due to engine failure. The captain of the MV Henry approached the captain of MV
Don Alfredo, the latter was on board his vessel MV Don Alfredo, and offered towage,
which captain of MV Don Alfredo agreed
Issue No 1: Is the service of MV Henry salvaging?
Held: NO. MV Don Alfredo was not subjected to marine peril as the weather was
fair, the waves smooth (Barrios vs. Go Thong and Co. [supra])
Issue No.2: What is then the nature of service of MV Henry?
Held: Contract of towage.
Issue No. 3: What is then the difference between salvaging and towage - insofar as
reward is concerned?
Held: The following:
(1) In salvage, there is salvage reward; while towage, no salvage reward but there
is towage remuneration/compensation
(2) In salvage, the captain and crews of the salvaging vessel are entitled to salvage
reward; while in towage, the captain and crews of the towing vessel are not
entitled towage remuneration/compensation but only the shipowner
8. Presidential Decree 890 (February 9, 1976)
It is unlawful to engage in the business or operation of salvaging vessels, wrecks,
derelicts and other hazards to navigation, or of salvaging cargoes carried by sunken
vessels, without first securing the required salvage “permit” from Philippine Coast
Guard – OTHERWISE: Penalty of fine P100-P500 or imprisonment from 30 days - 6
months, or both, at the discretion of the Court.
Any watercraft, equipment, tolls, paraphernalia or instruments used in the salvage
of vessels, wrecks, derelicts, and other hazards to navigation, as well as the cargoes
carried by the vessels which are recovered in violation hereof - shall be impounded
and forfeited in favor of the government
Comments (Opinion): It is believed that PD 890 refers to person who intends to
engage in the BUSINESS of salvaging operation considering that a “(business)
 P a g e | 26

permit” is required. This must be so on reason that it is absurd for a vessel (not
engaged in the business of salvaging) while voyaging in the middle of the sea, saw
another vessel badly damaged under imminent peril of sea, before proceeding to
salvaging, must first go to mainland and secure permit from the Philippine Coast
Guard
 P a g e | 27

CHAPTER 6
Carriage of Goods by Sea Act (Commonwealth Act 65; COGSA)

Prefatory:
1. COGSA refers to the rights and responsibilities between shippers and the
shipowners (i.e., carrier) as regards “INTERNATIONAL” carriage of “GOODS BY SEA”
where “Philippines is the destination” (Note: Philippines must be the destination
because of Article 1753 NCC providing that the law that governs regarding carriage
of goods is the law of destination)
HENCE: COGSA does not apply to:
(a) International carriage of PASSENGERS by sea by common carriers - even if
Philippines is the destination – as COGSA only applies to carriage by sea of
goods. What applies to international carriage of passengers by sea is the Civil
Code as primary law, and Code of Commerce and other special laws as
suppletory
Note: Warsaw Convention only applies to international carriage of passengers
and goods by AIR (not by SEA)
(b) DOMESTIC carriage of goods by sea by common carriers – even if the goods are
transported by the sea within Philippines territory, since COGSA only applies to
international carriage of goods by sea
AT ANY RATE: In international carriage of goods by common carrier, Civil Code is still
the primary law, and only in case of its deficiency that COGSA applies suppletory
pursuant to Article 1766 NCC, or that when both NCC and COGSA have provisions on
a given fact however the provision of COGSA is more specific than COGSA that
makes the latter law applied (Note: By the way, Warsaw Convention on international
carriage of passengers and goods by AIR prevails over Civil Code considering that
Philippines is a signatory thereto such that the primacy of Article 1766 does not
apply [this is implied in the case of Lhuillier vs. British Airways, GR No. 171092,
March 15, 2010 – where our Supreme Court gives primacy to the provision of
Warsaw Convention over and above our Civil Code regarding the period of
prescription of action and the suspension of the running of the prescriptive period])
2. Synopsis of what law governs regarding international carriage of “GOODS” by SEA
(a) For international “common carrier” for goods with Philippine port as
destination
First: Civil Code. Reason: Article 1766: In all matters not regulated by this Civil
Code (governing common carriers), the rights and obligations of common carriers
 P a g e | 28

shall be governed by the Code of Commerce and by special laws (such as COGSA
as suppletory)
Second: COGSA (in the absence of provision of NCC, or that both NCC and COGSA
provide the law on a given fact however COGSA is more specific)
Third: Code of Commerce (Reason why COGSA prevails over Code of Commerce:
COGSA is a special law and while Code of Commerce is a general law)
(b) For international “private carrier”(i.e., not common carrier) for goods with
Philippine port as destination
First: COGSA (Reason: Article 1766 regarding primacy of Civil Code refers to
common carriers and not private carriers)
Note: Section 1 (d) COGSA: The term "ship" means any vessel (whether
common carrier or private carrier) used for the international carriage of
goods by sea - HOWEVER: NCC is the primary law over COGSA as regards
international carriage of goods by common carrier by sea
Second: Code of Commerce (Reason why COGSA prevails over Code of
Commerce: COGSA is a special law and while Code of Commerce is a general
law)
Third: Civil Code (But only as to its provisions other than Articles 1732 to 1754,
as these provisions pertain only to common carrier)
(c) For common carrier with “foreign port as destination”
Philippine laws does not apply (Reason: Article 1753: Law of destination; this
includes private carrier)

TITLE 1

Section 1. When used in this Act —

(a) The term "carrier" includes the (1) shipowner who entered into contract with
shipper for the international transport of goods, or (2) the charterer(who entered
into contract with shipownerregarding the use of the carrier and entered into
contract with shipper for the internationaltransport of goods)
(b) The term "contract of carriage" applies only to contracts of carriage covered by a
document called B/L or any similar document of title (purporting to be a B/L)
regarding (international) carriage of goods by sea,whether such document issued by
shipowner or by the charterer as the case may be - which document regulates the
juridical relations between a carrier(shipowner or charterer) and a holder of such
document (i.e., the shipper or consignee)
 P a g e | 29

(c) The term "goods" refer to articles of every kind whatsoever, except live animals
(hence, meat products included as goods) and cargo which by the contract of
carriage is stated as being carried on deck and is so actually carried on deck
(d) The term "ship" means any vessel (common carrier or private carrier) used for the
(international) carriage of goods by sea
(e) The term "carriage of goods" covers the period from the time when the goods are
loaded(on ship/vessel) up to the time when goods are unloaded from the ship

RESPONSIBILITIES AND LIABILITIES

Section 3.
(IMPORTANT): Unless notice of (apparent) loss or damage and the general nature of
such loss or damage on the goods be given in writing (e.g., by holder of B/L whether the
shipper/consignee) to the carrier or his agent at the port of discharge (of the goods)
before or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage (e.g., by holder of B/L whether
the shipper/consignee), such removal shall be “prima facie evidence” of the delivery by
the carrier of the goods as described in the B/L. If the loss or damage is not apparent,
the (written) notice must be given (e.g., by holder of B/L whether the shipper/consignee)
within three days of (from) the delivery (to the person entitled to delivery under the
contract of carriage)
Said notice of loss or damage of the goods maybe endorsed (given) upon the receipt for
the goods given by the person taking delivery thereof.
The written notice (of the loss or damage of goods) need not be given if the
state/condition of the goods has at the time of their receipt (by holder of B/L whether
the shipper/consignee) been the subject of (i.e., subjected to) joint survey or inspection
(by the holder of B/L and the representative of the vessel).
(IMPORTANT): In any event the carrier (shipowner or charterer) and the ship shall be
discharged from ALL liability for loss or damage - UNLESS: Suit (action for damages) is
brought “within one year after delivery of the goods” or “the date when the goods
should have been delivered” (to the person entitled for delivery under the contract of
carriage [i.e., the holder of B/L which could be shipper/consignee]): PROVIDED
(IMPORTANT), That if a written notice of loss or damage, either apparent or concealed
(not apparent), is not given as provided for in this section, that fact shall not affect or
prejudice the right of the SHIPPER (or consignee) to bring suit (action for damages)
within one year after the delivery of the goods or the date when the goods should
have been delivered (to the person entitled to delivery under contract of carriage
 P a g e | 30

whether the shipper/consignee).(Note: Remember however that when loss/damage of

goods is apparent, and the holder of B/L [shipper/consignee] received the goods
without giving written notice of loss/damage – then, there is “prima facie evidence”
(i.e., presumption) of the delivery by the carrier of the goods as described in the B/L)
In the case of any actual or apprehended loss or damage the carrier and the receiver
shall give all reasonable facilities to each other for inspecting and tallying the goods.
(1) Any clause/covenant/agreement in a contract of carriage “relieving (exempting) the
carrier from liability for loss or damage of goods, arising from negligence, fault, or
failure in the duties and obligations provided in this section” or “lessening such
liability”contrary to this Act - shall be null and void (subject to “agreement” under
Section 6). (HOWEVER) A benefit of insurance in favor of the carrier (stipulated in
the contract of carriage) or similar clause, shall be deemed to be a
clause/agreement relieving the carrier from liability (hence, the shipper/consignee
shall file action for damages not against the carrier but instead against the insurer)

RIGHTS AND IMMUNITIES

Section 4.
(1) The (common) carrier nor the ship (private carrier) shall not be liable for loss or
damage arising or resulting from unseaworthiness – UNLESS: (a) caused by lack of
due diligence to make the ship seaworthy, and (b) to secure that the ship is properly
manned, equipped, and supplied, and (b) to make to the holds, refrigerating and
cool chambers, and all other parts of the ship in which goods are carried fit and safe
for their reception (usage), carriage, and preservation,- in accordance with Section 3
Paragraph 1. Whenever loss or damage of goods has resulted from
unseaworthiness, the burden of proving the exercise of due diligence shall be on
the carrier or other persons claiming exemption (e.g., insurer of carrier) under the
section
Note: As regards this “due diligence”, this is true only if the carrier is a private
carrier – such that if the carrier is a common carrier, then what is to be observed is
extraordinary diligence pursuant to Article 1733 (common carrier to observe
extraordinary diligence) in relation with Article 1753 (law of destination; as bolstered
by Section 13 COGSA) and Article 1766 (primacy of Civil Code on common carrier)
(2) The (common) carrier nor the ship (private carrier) shall not be liable for loss or
damage - arising or resulting from:
(a) Act, neglect, or default of the captain, mariner, pilot, or the servants of the

carrier in the navigation or in the management of the ship;

 P a g e | 31

(b) Fire, unless caused by the actual fault or privity of the carrier;

(c) Perils, dangers, and accidents of the sea or other navigable waters (e.g., river);

(d) Act of God;

(e) Act of war,

(f) Act of public enemies (e.g., pirates);

(g) Arrest or restraint of princes, rulers, or people (even not under legal process), or

seizure under legal process;

(h) Quarantine restrictions;

(i) Act or omission of the shipper or owner of the goods, his agent or representative;

(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause,

whether partial or general; Provided, That nothing herein contained shall be

construed to relieve a carrier from responsibility for the carrier's own acts;
(k) Riots and civil commotions;

(l) Saving or attempting to save life or property at sea;

(m) Wastage in bulk or weight or any other loss or damage arising from inherent (i.e.,

natural; intrinsic) defect, quality, or vice of the goods;

(n) Insufficiency of packing;

(o) Insufficiency or inadequacy of marks;

(p) Latent (hidden; concealed) defectsnot discoverable by due diligence; and

(q) Any other cause arising without the actual fault and privity of the carrier and

without the fault or neglect of the agents or servants of the carrier,BUT the
burden of proof shall be on the person claiming the benefit of this exception to
show that neither the actual fault or privity of the carrier nor the fault or neglect
of the agents or servants of the carrier contributed to the loss or damage.
Note: For common carrier, Civil Code applies
(3) X x x
(4) Any deviation (change of established/regular or agreed route) for the purpose of
saving or attempting to save life or property at sea OR any “reasonable” deviation
does not constitute breach of this Act/contract of carriagesuch that carrier shall
not be liable for any loss or damage resulting therefrom: PROVIDED, however, That
if the deviation is for the purpose of loading cargo or unloading cargo or
passengers, then it shall aprima facie unreasonable deviation
(5) (IMPORTANT [threshold of liability of carrier]): The (common) carrier nor the ship
(private carrier) shall not be liable for any loss or damage to goods in an amount
exceeding US$500 per package (i.e., regardless of the actual amount of goods), or in
case of goods not shipped in packages, per customary freight unit (e.g., per
 P a g e | 32

tonnage, etc.), or the equivalent of that sum in other currency – UNLESS: The nature
and value of such goods have been declared by the shipper in the B/L before
shipment, which declaration shall be prima facie evidence but not conclusive on the
carrier
By agreement between the carrier, master, or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
PROVIDED, That such maximum shall not be less than the figure above named (i.e.,
not less than $500 US dollars). In no event shall the carrier be liable for more than
the amount of damage actually sustained (by loss/damage of goods).
The carrier nor the ship shall not be liable for loss or damage of goods if the nature
or value thereof has been knowingly and fraudulently misstated by the shipper in
the B/L
(6) X x x

WAIVER OF RIGHTS AND IMMUNITIES AND INCREASE OF RESPONSIBILITIES AND

LIABILITIES
Section 5. A carrier shall has the option (even without the consent of shipper) to waive
in whole or in part all or any of his rights and immunities, or has option to increase any
of his responsibilities and liabilities under this Act - PROVIDED such waiver or increase
shall be embodied/written in the B/L issued to the shipper (Note: But the carrier cannot
decrease responsibilities and liabilities as this is void under Section 3 [8] but subject to
“agreement” Section 6)
Xxx

TITLE 2

X x x.

Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from
ports of the United States in foreign trade. As used in this Act the term "United States"
includes its districts, territories, and possessions: Provided, however, That the Philippine
legislature may by law exclude its application to transportation to or from ports of the
Philippine Islands (i.e., this is where Article 1753 is made to apply regarding law of
destination). The term "foreign trade" means the transportation of goods between the
ports of the United States (Philippines) and ports of foreign countries. Nothing in this Act
shall be held to apply to contracts for carriage of goods by sea between any port of the
 P a g e | 33

United States or its possessions, and any other port of the United States or its
possession: Provided, however, That any bill of lading or similar document of title which
is evidence of a contract for the carriage of goods by sea between such ports, containing
an express statement that it shall be subject to the provisions of this Act, shall be
subjected hereto as fully as if subject hereto as fully as if subject hereto by the express
provisions of this Act: Provided, further, That every bill of lading or similar document of
title which is evidence of a contract for the carriage of goods by sea from ports of the
United States, in foreign trade, shall contain a statement that it shall have effect subject
to the provisions of this Act.

Xxx

Section 16. This Act may be cited as the "Carriage of Goods by Sea Act."

COMMENTS:
1. (IMPORTANT) Written extrajudicial demand does NOT TOLL the running of one-
year prescriptive period under COGSA (within which to file Suit/Action; DOLE
Philippines, Inc. vs. Maritime Company of the Philippines, GR No. L-61352, February
27, 1987; p. 209)
COGSA Section 3 Par 6: In any event the carrier (shipowner or charterer) and the
ship shall be discharged from ALL liability for loss or damage- UNLESS: Suit (action
for damages) is brought “within one year after delivery of the goods” or “the date
when the goods should have been delivered” (to the person entitled for delivery
under the contract of carriage [holder of B/L which could be shipper/consignee]):
PROVIDED, That if a written notice of loss or damage, either apparent or concealed
(not apparent), is not given as provided for in this section, that fact shall not affect
or prejudice the right of the SHIPPER (or consignee) to bring suit (action for
damages) within one year after the delivery of the goods or the date when the
goods should have been delivered (to the person entitled to delivery under contract
of carriage [shipper/consignee])
Facts: Goods were transported from other country with Philippines as destination.
The goods were received by the consignee on December 18, 1971. The consignee
asseverates that when he made extrajudicial demand on May 4, 1972 reckoned
from the time he received the goods on December 18, 1971, it was still within the 1-
year prescriptive period under COGSA and hence, the 1-year prescriptive period is
tolled/suspended and has to start anew also on May 4, 1972 pursuant to Article
 P a g e | 34

1155 NCC – so that when action for damages was filed with RTC (judicial demand)
on June 11, 1973, it is still within the 1-year prescriptive period (i.e., May 4, 1972 to
June 11, 1973). (Note: Article 1155 NCC: “The prescription of actions is
interrupted/tolled when they are filed before the court (judicial demand), or when
there is a written extrajudicial demand by the obligee, or when there is any written
acknowledgment of obligation by the obligor” - which interruption/tolling makes
the prescription of action runs anew of fresh start from the date of such
extrajudicial/judicial demand)
Issue: Whether or not the one-year prescriptive period under Section 3 Par 6 2nd
Paragraph COGSA within which to file suit/action for loss/damages against the
carrier/ship – is subject to tolling under Article 1155 particularly written
extrajudicial demand?
Held: NO. Article 1155 NCC is a general provision which has to yield to a
special/specific provision under Section 3 Par 6 2nd Paragraph COGSA – otherwise,
to apply Article 1155 NCC would have the effect of extending the one-year
prescriptive period specially fixed under COGSA. The reason for the strict
observance of the one-year prescriptive period is to decide actions for
loss/damages of goods affecting transportation of goods by sea in as short a time
as possible (Note: Judicial demand tolls the running of the one-year prescriptive
period under COGSA)
(a) EXCEPTION: The one-year prescriptive period under Section 3 Par 6 COGSA can
be suspended or extended by the express agreement of parties (Universal
Shipping Lines, Inc. vs. Intermediate Appellate Court, GR No. 74125, July 31,
1990; p. 212)
2. (IMPORTANT) The one-year prescriptive period under Section 3 Par 6 2nd Paragraph
of COGSA given to shipper within which to file suit/action against carrier/ship – not
only applies to shipper/consignee but also against insurer of shipper/consignee
who becomes subrogee of the rights of the insured shipper/consignee after the
insurer paid the shipper/consignee (Filipino Merchants Insurance Company, Inc. vs.
Court of First Instance of Manila, GR No. L-54140, October 14, 1986; p. 215)
Reason: Otherwise, if the one-year prescriptive period under COGSA does not apply
against insurers, then what COGSA intends to prohibit after the lapse of the one-
year prescriptive period can be indirectly avoided by way of the shipper/consignee
simply filing a claim against the insurer even after the lapse of the said one-year
prescriptive period, and subsequently for the insurer to file action against the
carrier – in which case, 1-year limitation under COGSA will be practically useless.
 P a g e | 35

Opinion: Hence, the insurer must be on the lookout that the insured
shipper/consignee must claim the insurance proceeds well within the 1-year
prescriptive period of COGSA – so that after the insurer paid and now as subrogee, it
can also file action against the carrier within the 1-year prescriptive period under
COGSA
Note: This one-year prescriptive period applies to shipper, insurer – but also to
consignee or any legal holder of the bill of lading (Belgian Overseas Chartering and
Shipping vs. Philippine First Insurance Co., Inc., GR No. 143133, June 5, 2002; p. 226)
(a) The one-year prescriptive period under COGSA applies in favor of carrier/ship as
against the shipper – but does not also apply in favor of the insurer as against
the insured-shipper/consignee (Mayer Steel Pipe Corporation vs. Court of
Appeals, GR No. 124050, June 19, 1997; p. 218)
Facts: Shipper transported his goods with carrier. The goods were insured by
shipper with insurer. When goods reached Hongkong, the goods were damaged.
The shipper-insured claimed the insurance against the insurer after the lapse of
the 1-year prescriptive period under COGSA. Now, the insurer refused to pay on
ground that the shipper claimed the insurance after the 1-year prescriptive
period under COGSA. The reason given by the insurer is that it would be unfair
for the insurer to pay the insured shipper after the 1-year prescriptive period
already lapsed, and render the insurer incapable of claiming against the carrier
since pursuant to the case of Filipino Merchants Insurance Company, Inc. vs.
Court of First Instance of Manila (supra), the 1-year prescriptive period under
COGSA not only applies against the shipper but also against the insurer.
Issue No. 1: Is the insurer correct?
Held: NO. While it is true that the 1-year prescriptive period under COGSA
applies not only against the shipper/consignee but also against the insurer,
nevertheless, the 1-year prescriptive period under COGSA does not apply in
favor of the insurer. Reason: The basis of the action of the shipper against the
insurer is not under COGSA but rather under the provisions of the Philippine
Insurance Code in relation to NCC which prescriptive period of action under
Insurance Code is longer than the 1-year prescriptive period under COGSA
Issue No. 2: What is then the prescriptive period for the insured-shipper to file
action against the insurer based on the insurance?
Held: 10 years. The insurance policy being a written contract, Article 1144 NCC
then applies which provides that written contract prescribed in 10 years from
the cause of action accrues
 P a g e | 36

3. (IMPORTANT) The one-year prescriptive period under COGSA applies to

“loss/damage” of goods (i.e., physical disappearance or physical deterioration of
the goods) – and does not apply to “misdelivery” of goods (Ang vs,
CompaniaMaritima, GR No. L-30805, December 26, 1984; p. 222)
Facts: Yau Yue Bank in Hongkong agreed to sell goods to Teves in Manila. Yau Yue
Bank transacted with Tokyo Boeki Ltd. (manufacturer) regarding the goods needed
by Teves. Tokyo Boeki loaded the goods with the carrier with Manila as destination,
and the carrier issued B/L where written thereon is Tokyo Boeki as shipper. And
then Tokyo Boeki indorsed the B/L to Yau Yue Bank, hence, such B/L was
surrendered by Tokyo Boeki to Yau Yue Bank. Then Yau Yue Bank assigned the B/L
to the Complainant in Manila thereby Yau Yue Bank surrendered possession over
B/L to the Complainant. When the good reached Manila, the carrier delivered the
goods to Teves which delivery should be to the Complainant being the present
holder of the B/L (viz., there is “misdelivery” of by carrier goods to Teves), this
pursuant to the terms in the B/L itself that the carrier shall deliver the goods to the
holder of the B/L (which in this case, the Complainant). The Complainant filed action
against the carrier one year after the misdelivery of the goods to Teves. The carrier
in its Answer countered that the action filed by the Complainant already prescribed
as the 1-year prescriptive period under COGSA already lapsed
Issue No. 1: Is the carrier correct that the 1-year prescriptive period already lapsed?
Held: NO. The carrier could have been correct that the 1-year prescriptive period
under COGSA already expired only when the Complainant filed action for
DAMAGES/LOSS of the goods pursuant to Sec 3 Par 6 COGSA. But then, the basis of
the action of the Complainant is not about damage/loss of goods, but rather
“MISDELIVERY” of goods – hence, the 1-year prescriptive period under COGSA does
not apply because the goods are not damaged/loss but rather the goods were
merely "misdelivered." “Damage/loss” referred to under Section 3 (6) COGSA refers
to PHYSICAL deterioration of the goods (damage) or PHYSICAL disappearance of the
goods (i.e., loss) – and not to mere misdelivery
Issue No. 2: What prescriptive period therefore applies in the case at bar?
Held: Prescriptive period under Article 1144 NCC, which is 10 years from cause of
action accrued for written contract – which in the case at bar, the B/L. The cause of
action of the complainant accrued from the time of misdelivery.
a. (IMPORTANT; BAR) COGSA; Prescription of Claims/Action
FACTS: AA entered into a contract with BB for the latter to transport ladies wear
from Manila to France with transshipment via Taiwan. Somehow the goods were
 P a g e | 37

not loaded in Taiwan on time, hence, these arrived in France ―off-season.‖ AA

was only paid for one half the value by the buyer. AA claimed damages from BB.
BB invoked prescription as a defense under the Carriage of Goods by Sea Act
Considering the ―loss of value‖ of the ladies wear as claimed by AA
ISSUE: Is BB’s defense tenable? Explain.
ANSWER: The defense of BB is not tenable. The one-year prescriptive period in
the Carriage of Goods Sea Act applies only in case the goods were not delivered
or were delivered in a damaged or deteriorated condition. It does not apply to
damages as a result of delay in the delivery of the goods. The prescription of the
action is governed by Article 1144 of the Civil Code, which provides for a
prescriptive period of ten years in case of actions based on a written contract
(Mitsui O.S.K. Lines Ltd. v. Court of Appeals, 287 SCRA 366 (1998)).
4. (IMPORTANT) Section 3(6) of COGSA only refers to “physical” loss/damage – and not
to damage/loss in the legal/general sense (e.g., depreciation of the “sale/market
value” of goods is loss/damages, but it is not “physical” loss/damage; Mitsui O.S.K.
Lines Ltd vs. Court of Appeals, GR No. 119571, March 11, 1998; p. 223)
Facts: Goods were transported by shipper with the carrier from Philippines to
France. However, when the goods reached France, there was a considerable
transport delay so that at the time the goods reached France, it was already market
off-season for that goods in France (so that the sale/marketvalue of the goods
deteriorated[less profit]). Hence, the consignee in France only paid half of the value
of the goods (i.e., not due to loss/damaged on the “physical condition” of the
goods, but because of the “sale/market value”). Because the carrier refused to pay
the shipper the other half of the value of the goods, the shipper filed action against
the carrier. The carrier countered that the 1-year prescriptive period under COGSA
to file action for loss/damage of goods already lapsed from the time the goods
were received by the consignee in France.
Issue No. 1: In the case at bar, is "loss or damage"of the goods based on their
“sale/market value” – is within the contemplation of Section 3(6) COGSA?
Held: NO. Because what is contemplated under Section 3(6) COGSA only refers to
“PHYSICAL loss/damage” – and not loss/damage based on their sale/market value
Issue No. 2: What is then the applicable prescriptive period?
Held: 10 years. The contract of carriage between the carrier and shipper is a written
contract by way of B/L, and under Article 1144 NCC: Written contract prescribes in
10 years from the time the cause of action accrues
 P a g e | 38

Personal observation: Under Article 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 (i.e., law of destination [France]). If that is the
case, then why the Court attempted to apply Philippine law as to the liability of the
carrier? Reason: The basis of the cause of action of the shipper is not based on NCC
governing liability of common carriers from Article 1732 to 1766 as there is no
damage/loss of goods caused by the negligence in transportation by the common
carrier but merely misdelivery, neither under COGSA as loss/damage of goods
referred to under COGSA refers to physical loss/damage and not to misdelivery -
HENCE: What applies is still the NCC but particularly OBLICON
5. “Shipper’s Load and Count” (explained; International Container Terminal Services,
Inc. vs. Prudential Guarantee and Assurance Co., Inc., GR 134514, December 8, 1999;
p. 225)
Facts: Carrier loaded goods contained in a container for Shipper from California
bound to Manila – under “shipper’s load and count.” The Carrier issued B/L written
thereon Consignee as consignee. The Consignee insured the goods with Insurer.
When the goods reached Manila, the Carrier discharged the goods to the Arrastre
Operator for safekeeping. The Broker withdrew the goods from the Arrastre
Operator and delivered to goods to the Consignee. When the goods reached the
Consignee, the latter found that there are physical losses of goods. The Insurer paid
the Consignee, then the Insurer as subrogee demanded payment from the Arrastre
Operator, but the Arrastre Operator refused to pay the Insurer.
Issue: Is the arrastre operator liable for the losses?
Held: NO. The goods were loaded by the Shipper under “Shipper’s load and count”,
i.e., the Shipper is solely responsible for the loading of the container (containing the
goods) into the vessel of the Carrier, so that the Carrier is not in privy or required to
inspect/verify as to the contents or quantity of the goods as are contained inside
the container. When the goods reached Manila, the Carrier discharged the goods to
the Arrastre, the duty of the Arrastre is only to take good care of the goods “as
received” from the Carrier, and to turn over the good to the person entitled to
receive (in this case, the Broker withdrew the goods from the Arrastre and then
delivered the goods to the Consignee). The goods being transported under “shipper’s
load and count, "just like the carrier, the Arrastre is not also required to verify the
contents of the container “as received” by it from the carrier and compare them
with the B/L – viz., the Arrastre is only required to deliver the goods to the
Consignee (through Broker) “as received” from the Carrier.
 P a g e | 39

In the case at bar, the loading being as “shipper’s load and count,” for as long as the
Arrastre able to prove that it delivered the goods to the Consignee (through Broker)
"as received" from the Carrier which in this case such burden of proof was proven
by the Arrastre thereby making the Arrastre not liable for the loss of the goods
(a) Nature of service of Arrastre Operator (International Container Terminal
Services, Inc. vs. Prudential Guarantee and Assurance Co., Inc., GR 134514,
December 8, 1999; p. 225)
The legal relationship between arrastre operator and consignee (person who
has right to receive the goods from the carrier/ship as provided in the B/L) is akin
the relationship between warehouseman and depositor. In case of loss/damage
of goods, the burden is on the arrastre operator to prove that it complied with
its duty in accordance with law.
Note: Arrastre operator is deemed as “common carrier” (Philippine First
Insurance Co. vs. WallemPhils. Shipping Inc. GR No. 165647, March 26, 2009) –
hence, pursuant to Article 1733 NCC, it is bound to observe extraordinary
diligence in the vigilance over the goods while in its possession until it delivery to
the shipper/consignee.
6. (IMPORTANT) “Package Limitation” of carrier’s liability for loss/damage of goods
(Section 4 [5] COGSA)
Section 4[5] COGSA [threshold/limit of liability of carrier]: The (common) carrier nor
the ship (private carrier) shall not be liable for any loss or damage to goods in an
amount exceeding US$500 per package (i.e., regardless of the actual amount of
goods), or in case of goods not shipped in packages, per customary freight unit
(e.g., per tonnage, etc.), or the equivalent of that sum in other currency – UNLESS:
The nature and value of such goods have been declared by the shipper in the B/L
before shipment, which declaration shall be prima facie evidence but not conclusive
on the carrier
(a) Belgian Overseas Chartering and Shipping vs. Philippine First Insurance Co.,
Inc., GR No. 143133, June 5, 2002; p. 226
Facts: 242 coils (goods) were received by Carrier from Germany to be
transported to Manila port. In the B/L, it is stipulated that the liability of the
Carrier is limited to US$500 per package. Annotated in the B/L is about the
statements in the Letter of Credit (L/C) stating the value of the goods per metric
ton which value is way higher than US$500 per package as written in the B/L.
When the goods reached Manila port, four coils were physically damaged. The
Carrier invoked COGSA Section 4 (5) which provides: “Carrier shall not be liable
 P a g e | 40

beyond US$500 “per package” unless the shipper declares the value of the
goods writtenon the B/L”. However, the shipper invoked Article 1749 NCC which
provides, “A stipulation is binding when the common carrier's liability is limited
to the “VALUE of the goods” as WRITTEN on the B/L - unless the shipper or
owner declares a greater value” written in the B/L
Issue: In contract of carriage of goods, which law that primarily governs the
rights and obligations of common carriers?
Held: Civil Code. Article 1766 NCC provides, “In all matters not regulated by this
Code (NCC), the rights and obligations of common carriers shall be governed by
the Code of Commerce and by special laws (e.g., COGSA)”. Hence, Code of
Commerce and by special laws (e.g., COGSA) are only suppletory in the absence
of provision of the NCC
Issue: In the case at bar, what governs the contract of carriage of the parties – is
it Article 1749 NCC or special law particularly COGSA Section 4 (5)?
Held: COGSA Section 4 (5).Reason: Article 1749 NCC does not apply because
there is no provision therein about limiting the liability of common carrier “PER
PACKAGE” – instead, what Article 1749 provides is the limitation of liability of
common carrier as to “VALUE of the goods” written on the B/L (i.e., NOT
limitation of liability PER PACKAGE). Now, under COGSA Section 4 (5), it is
SPECIFICALLY PROVIDED therein that the common carrier can limit its liability as
written in the B/L only up to US$500 per package. Hence, applying Article 1766
NCC, “In all matters not regulated by this Code (NCC), the rights and obligations
of common carriers shall be governed by the Code of Commerce and by special
laws which in this case the limitation of liability PER PACKAGE is SPECIFICALLY
provided under COGSA Section 4 (5) rather than the GENERAL provision of
Article 1749 NCC.
Issue: COGSA Section 4 (5) which provides: “Carrier shall not be liable beyond
US$500 per package UNLESS the shipper DECLARES THE VALUE of the goods
written on the B/L”. Shipper alleged, granting that COGSA Section 4 (5) applies,
the liability of the common carrier is not limited to US$500 per package because
in the B/L, therein ANNOTATED about the statements in the Letter of Credit
(L/C) stating that the VALUE of the goods PER METRIC TON which value of the
goods is way higher than US$500 PER PACKAGE, which by such annotation of
L/C on the B/L, in effect technically a DECLARATION OF THE VALUE of the goods
per metric in the B/L – hence, limited liability to US500 per package under
COGSA Section 4 (5) does not apply. The question, is the Shipper correct?
 P a g e | 41

Held: NO. Such annotation of the L/C on the B/L stating the value of the goods
per metric ton is NOT A DECLARATION OF THE VALUE of goods in the B/L
required under COGSA Section 4 (5). The annotation of L/C on the B/L was made
merely for the convenience between the shipper and the bank processing the
L/C (the bank being the consignee and the shipper being merely the notify party –
such that the shipper cannot withdraw the goods he imported without paying
first the bank that granted the L/C, and only after the shipper pays the bank that
the latter to surrender possession of the B/L to the shipper). In other words, the
L/C indicating the value of the goods per metric ton even if annotated on the
B/L is separate and distinct from the B/L and has nothing to do between the
contract of carriage between the common carrier and the shipper
Issue: The B/L provides that the liability of the common carrier is limited only up
to US$500 per package. Suppose, the 242 coils were contained in 2 containers,
should such 2 containers be deemed as 2 packages so that the liability of the
common carrier would only be US$1,000?
Held: NO. “Per package” is not to be construed by package or by container or by
crate or similar denomination – instead, it is to be construed per unit or per
good. Hence, there being 4 coils damaged, the common carrier is liable
toUS$2000 (i.e., US$500 x 4 units)
(b) Eastern Shipping Lines Inc. vs. BPI/MS Insurance Corp., GR 182864, January 12,
2015 (incorporation/insertion for the Invoice with the B/L)
Facts: COGSA Section 4 (5) which provides: “Carrier shall not be liable beyond
US$500 per package UNLESS the shipper DECLARES THE VALUE of the goods
written on the B/L”.
Issue: Is the incorporation/insertion of the invoice itself (written thereon the
value of the goods) with the B/L complies with the declaration of value under
COGSA Section 5 (5) - such that the limitation of liability of carrier for US$500 per
package does not apply?
Held: YES. COGSA Section 4 (5) does not require that the value of the goods must
be written on the very B/L itself. Compliance on COGSA Section 4 (5) can be
attained by incorporating the invoice, by way of reference to the B/L provided
such invoice contains the value of the goods. The value of the goods being
written on the invoice, and incorporated with the B/L, in effect, the shipper
informed the carrier about the value of the goods, and being informed, the
carrier can charge the freightage in accordance with the value of the goods.
 P a g e | 42

Note: In the same case, the SC ruled that mere insertion in the B/L about the
invoice number does not satisfy the requirement of COGSA Section 4 (5) about
the declaration of the value of the goods in the B/L, hence, the US$500 per
package limited liability applies in favor of the carrier. Reason: Mere insertion of
the invoice number does not declare the value of the goods
Note: Incorporation/insertion of L/C with the B/L is not declaration of value of
goods in the B/L
7. (IMPORTANT) “Package Limitation” of carrier’s liability for loss/damage of goods
under Section 4 [5] COGSA (Philam Insurance Compny, Inc. vs. Heung-A Shipping
Corp., GR 187701, July 23, 2014)
Facts: Shipper shipped 19 pallets of 200 rolls of goods (contained in container) with
Carrier from South Korea bound to Manila with Consignee as consignee, with Insurer
as insurer. A B/L was issued, but the Shipper did not declare therein the value of the
goods. During the voyage, the goods sustained damaged due to seawater. It also
found out that there is damage to the container supplied by the Shipper to the
Carrier. The Consignee received the goods on January 5, 2001 with damage of 17
pallets. Consignee claimed damages against Carrier, but the latter refused, hence,
Consignee claimed the insurance proceeds from the Insurer. Now, the Insurer as
subrogee, filed against the Carrier within one year from the time the Consignee
received the goods on January 5, 2001.
Issue No. 1: Whether or not the goods were damaged during the possession of the
Carrier?
Held: YES. Because it is proven that the goods were damaged during voyage
Issue No. 2: What degree of diligence required of Carrier as common carrier – is it
due diligence under section 3 (1) COGSA, or extraordinary diligence under Article
1733 NCC?
Held: Extraordinary diligence. Article 1766 NCC provides that in all matters not
regulated by the NCC, then Code of Commerce and special laws (such as COGSA)
shall apply by suppletory, and also considering that Philippines if the destination,
then Article 1753 provides, the liability of common carrier shall be governed by the
law of destination, which in this case, Philippines. Now, the diligence required of
common carrier in transportation of goods is extraordinary diligence (Article 1733
NCC).
Issue No. 3: Is the Carrier could still be liable for damages even if the container
containing the good supplied by Shipper himself is defective that could also attribute
to the seawater getting into the container and damaged the goods?
 P a g e | 43

Held: YES. Article 1742 NCC: Even if the damage/ loss of the goods should be caused
by the character of the goods, or the faulty nature of the packing or of the
containers, the common carrier must exercise due diligence to prevent or at least
lessen the damage/loss. In the case at bar, the Carrier was not also able to prove
that it exercised due diligence for prevent/lessen damage on the goods
Issue No. 4: Did the Insurer filed the action in court within the one-year prescriptive
period under Section 3 (6) COGSA?
Held: YES (see the Facts)
Issue No.5: Suppose the Consignee did not comply with the written notice in
accordance with Section 3 (6) COGSA, can the Insurer still file action against carrier?
Held: YES. Provided, the Insurer should file action with court within one year from
the time the Consignee received the goods on January 5, 2001. Reason: Section 3 (6)
COGSA: If a written notice of loss or damage, either apparent or concealed (not
apparent), is not given as provided for in this section,that fact shall not affect or
prejudice the right of the SHIPPER (or consignee) to bring suit (action for damages)
within one year after the delivery of the goods or the date when the goods should
have been delivered (to the person entitled to delivery under contract of carriage
[shipper/consignee]).
Hypothetical Issue: Article 366 Code of Commerce provides claim for damages
against the carrier must be made FROM RECEIPT of the goods if the damage is
apparent from outside - OTHERWISE: If the damage cannot be ascertained from
outside the package, then claim must be made within 24-hour from the time of
the opening of the package. While Section 3 (6) COGSA provides that an action
shall be brought within 1 year from delivery of the goods. Now, the question is,
which shall govern?
Answer: Section 3 (6) COGSA. Reason: In the Statutory Construction, when two
laws are conflicting and cannot be harmonized, then special law shall prevail
over the general law. COGSA is a special law and Code of Commerce is a general
law (Note: In this same case of Philam Insurance Compny, Inc. vs. Heung-A
Shipping Corp., GR 187701, July 23, 2014, the issue was squarely raised, i.e.,
which shall govern, is it Article 366 Code of Commerce or Section 3 (6) COGSA.
Here, the Supreme Court did not squarely addressed the issue but at any rate, it
applied COGSA)
Issue No.6: If the Insurer filed the action within one year from the time the
Consignee received the goods on January 5, 2001 – then, the question is, what is the
basis of amount of liability of the Carrier?
 P a g e | 44

Held: “Limited Package Liability” for US$500 per package pursuant Section 4 (5)
COGSA. Reason: The Shipper did not declare the value of the goods in the B/L
Issue No. 7: If the “Limited Package Liability” for US$500 per package pursuant
Section 4 (5) COGSA applies – then, how much is the Carrier liable?
Held: There being 17 pallets loss/damaged, then 17 pallets multiplied with US$500,
it would be US$8,500
 P a g e | 45

CHAPTER 7
PUBLIC SERVICE

 Public Utility (defined; Metropolitan Cebu Water District vs. Adala, GR 168914, July
4, 2007; National Power Corporation vs. Court of Appeals, GR 112702, September 26,
1997 [p. 233])
A "public utility" is a business or service engaged in regularly supplying the public with
some commodity or servicethat is of public consequence- such as transportation,
electricity, gas, water, telephone or telegraph services

 Limitation in the operation of “public utility”

1. Article 12 Section 11 of the Constitution
No franchise/certificate (of public convenience)/any other form of authorization for
the “operation” of a public utility (e.g., common carriers [e.g., public utility vehicles])
shall be granted- except to Filipino citizens. However, in case of corporations or
associations created under Philippine laws, at least 60% of the capital is owned by
Filipino citizens; x xx. X xx.(Note: If natural person, must be Filipino; if juridical
person, at least 60% of capital own by Filipino)
Note: Exception where even if not a public utility but merely a public service, is
specifically regulated by the Constitution as to percentage of capital ownership – is
ownership over mass media (wire or wireless [Bombo Radyo; ABS-CBN; GMA, etc.])
where it must be owned 100% Filipino whether by natural or judicial person (Article
16 Sec 11 Constitution)
2. Can an individual alien or foreign corporation fully own 100% of the “facilities” of
public utility – without complying with the 60% Filipino capital requirements of the
Constitution? (People vs. Quasha, L-6055, June 12, 1953; Tatad vs. Sec. Garcia, Gr.
No. 114222, April 16, 1995)
YES. Article 12 Section 11 of the 1987 Constitution refers to “operation” of the
public utility which qualifies only Filipinos (if natural person), or at least 60% of the
capital to be owned by Filipino/s (if it is corporation/association)- for the issuance of
the franchise/certificate of public convenience/other form of authorization. Now, an
alien owning 100% of the “facilities or equipments” of the public utility is different
from “operation” of the public utility. In other words, an alien may own 100% of the
facilities and equipments of the public utility, but he is not qualified to procure a
franchise/certificate of public convenience/other form of authorization for the
operation of the public utility into business in view of the Constitutional
 P a g e | 46

requirement that only Filipinos, or if corporation/association at least 60% of the

capital must be owned by Filipino/s, are qualified to operate public utility
Note: In transportation business, an alien can legally own 100% of the facilities (e.g.,
all the buses, trains, or airplanes, terminals and other facilities used in the operation
of the public utility (in this case public transportation) – but not Constitutionally
qualified to procure Certificate of Convenience/Franchise for the operation of that
transportation business
Examples of public utility: Public transportation business, water supplies through
pipelines, electric distribution through electric posts and wires, landline telephone
service through posts and wires and among others relevant to the operation of the
public utility
(a) Ownership of “facilities/equipments” and ownership of “franchise” –
distinguished (1-United Transport Koalisyon vs. COMELEC, GR 206020, April 14,
2015)
When one owns rail tracks, train coaches, rail stations, terminals and the
power plant – these are “facilities/equipments” being used by but not
necessarily public utilities. Owning 100% of the “facilities or equipments” (even
by a foreigner) of the public utility is different from “operation” of the public
utility. The latter requires the Constitutional compliance for the issuance of
certificate of public convenience/franchise for the operation of the public utility -
i.e., if the operator must be Filipino, but if the operator is a
corporation/association/partnership then at least 60% of the capital must be
owned by Filipino/s

 Nature/character of Public Utility – and its public (government) regulation

(Kilusang Mayo Uno Labor Center vs. Hon. Jesus B. Garcia, Jr., GR 115381, December
23, 1994; p. 233)
Public Utility is impressed with public interest considering that its use is of public
consequence providing the service to public – as such, being of public interest, the
government can impose regulation pursuant to its police power for the good and
protection of the public but only insofar as such regulation relevant to the operation of
the public utility (hence, the requirement of franchise/CPC/permit, the regulation as to
the maintenance of the public utility, the safety measures required in the operation of
public utility, and among other reasonable regulation - all for the public good and safety)
Note: This government’s power to regulate on private properties (e.g.,
facilities/equipments) used in the operation of public utility does not impair private
 P a g e | 47

ownership per se - RATHER: The government merely regulates juris private (private
right) particularly as regards their jus utendi (right to use/enjoy) for the public safety
and general welfare

 “Public utility” and “public service” – their similarities and dissimilarities (JG
Summit Holdings, Inc. vs. Court of Appeals, GR 124293, September 24, 2003; p. 233)
(1) Similarities
Both (a) are supplying service or commodities to the public, and (b) engaged in
business that involves public interest
(2) Dissimilarities
(a) Public utility
It regularly supplies service or commodities to the public because it is necessary
for the maintenance of life and occupation of the public – such as service for
transportation, electricity, telephone or telegraph, or commodities such as gas
and water. The operator of the public utility must render his services to the
public indiscriminately and indefinitely without the right to refuse to render the
service on reason that the public has the right to demand such service so long as
the latter can pay the service charges. Such service could be to general public or
certain portion of the general public (i.e., limited clientele) so long as the
operator holds himself out to the public ready to provide the service to the
public indiscriminately who are also ready to pay for such service. The reason
why, public utility is equated with public use or use by the public, and the service
is not confined to privileged individuals but open to the public indefinitely and
indiscriminately
Note: “certain portion of the public” - example: Common carrier serving
transport of passengers not all people who wants to go anywhere else (general
public) but only from Enrile to Tuguegarao and vice versa (portion of the general
public). Still, the common carrier is public utility because it indiscriminately
serves all people(whether or not he be resident of Enrile or Tuguegarao) as long
as he wants to go from Enrile to Tuguegarao and vice versa– so that the operator
having no right to refuse carriage so long as the passenger pays
(b) Public service
(Unlike in public utility) The operator does not regularly supplies service or
commodities to the public (general public or portion of the general public) as
such service/commodities are not necessary for the maintenance of life and
occupation of the public – such as service for transportation, electricity,
 P a g e | 48

telephone or telegraph, or commodities such as gas and water. The main reason
why the operator in public service has the right to refuse any demand of any
member of the public to render his service – which is discussed in particular just
below.
Another difference is that, while the operator offers his services to the public
(just like public utility), nevertheless, (unlike in public utility) the public has no
right to demand the operator to render such service on reason that the operator
has the right to refuse at his discretion
Example of public service is a “shipyard” which under C.A. 146 Section 13 (b) is a
“public service.”Being “public” service, the operator offers his services to the
public (just like public utility), and in fact, the service of shipyard is imbued with
public interest (just like public utility) as maintenance of seaworthiness of vessel
used to transport passengers and/or goods. While the operator of shipyard
offers his services to the public, nevertheless, the public has no right to demand
such service as the operator has the right to refuse at his discretion (unlike in
public utility)
Note: Thusly, a public utility is always a public service – while a public utility is not
always a public service. Reason: Both are similar, and the apparent difference is that
in public the operator offers his service to the public indiscriminately and indefinitely
without right to refuse, while in public service the operator offers his service to the
public discriminately with right to refuse
(3) The importance of distinguishing public utility from public service
(a) In public utility is subjected to percentage of ownership of capital under the
1987 Constitution, also before one can operate public utility both CPC and
franchise are required
(b) In public service, not subjected to percentage of ownership of capital under the
1987 Constitution, also before one can operate public service only CPC is
required

 What are included under public service (CA 146 Section 13 [b] as amended by RA
2677)
“PUBLIC SERVICE” is defined, “includes every person (natural or juridical) that own,
operate, manage, or control in the Philippines, a business offered to the general or
limited clientele for compensation (i.e., offered to the general public or limited
portion of the public),whether permanent, occasional or accidental -
 P a g e | 49

(a) common carrier(by land/water/air), railroad (e.g., PNR, LRT, MRT), street
railway, traction railway, sub-way motor vehicle, either for freight(goods) and/or
passenger, with or without fixed route and whatever may be its classification
(b) freight or carrier service of any class
(c) express service
(d) steamboat or steamship line, pontines, ferries, and water craft - engaged in the
transportation of goods and/or passengers
(e) shipyard (place where ships are built or repaired), marine railways, marine repair
shop, wharf or dock (structure along the sea/river shore where ships are moored
[anchored] to load/unload cargoes)
(f) ice plant, ice-refrigeration plant
(g) canal irrigation system (e.g., NIA)
(h) gas, electric light/heat/power (e.g., NAPOCOR, CAGELCO)
(i) water supply power (e.g., NAWASA, TWD)
(j) petroleum (e.g., Petron, Shell, etc.)
(k) sewerage system (e.g., where water waste flows for sanitary purposes)
(l) wire or wireless communications system (e.g., PLDT, GLOBE, SMART, etc.)
(m) wire or wireless broadcasting stations(i.e., mass media; e.g., ABS-CBN)
(n) and other similar public services

1. The powers of Public Service Commission (now LTFRB), and the preference of old
operators of public utility (Batangas Transportation Co. vs. Orlanes, GR L-28865,
December 19, 1928 [En Banc]; p. 236)
FACTS: New applicant as common carrier applying for franchise/CPC on a certain
route – when such route is already plied by old operators having franchise/CPC
a. (IMPORTANT) Old operator rule (to avoid ruinous competition):PSC has the
power to deny grant of franchise to a new applicant for a certain route when
there is already existing old operator (holder of franchise) operating in the same
route as that applied for by the new applicant – and that such old operator
reasonably meets the volume of the travelling public, andhe likewise complies
with the terms and conditions of the franchise and the PSC rules and regulations
b. Old operator rule (in relation with protection of investment of old operator): PSC
has the power to deny grant of new franchise to a new applicant for a certain
route even if there is a need to add/expand common carriers as travelling public
needs increase – AND INSTEAD: The PSC will require the old operator to add
new vehicles in such route applied for by new applicant in order to reasonably
 P a g e | 50

meets the volumes of travelling public – PROVIDED: He complies with (a) the
terms and conditions of the franchise and (b) the PSC rules and regulations
NOW, only when the old operator failed to increase his vehicles, and does not
comply with (a) and (b), then, the PSC will grant the franchise of the new
applicant
Note: When public utility is operated by government entity or GOCC, no
CPC/franchise is required (CA 146 Sec 13)
2. Transfers of jurisdiction/power from PSC
a. LTO – for the registration of all vehicles whether common carrier or not
b. LTFRB – for the grant of franchise/CPC (pursuant to E.O. 202)
c. Civil Aeronautics Board (CAB) – air transportation services (pursuant to RA 776)
d. Municipality/City – public utility tricycle operating within its territory (pursuant
to LGC)
3. Section 14. Public services that are exempted from the provisions of Section 13 (as
amended by R.A. 2021)
Hence, the following public services are not under the jurisdiction, supervision and
control of PSC: (Note: Including issuance of franchise [read Section 15])
(a) Warehouse (i.e., storage building to store goods for compensation);
(b) Vehicles drawn by animals, and bancas moved by oar (peddle) or sail (large
cloth used to catch wind), and tugboats (small but powerful boats used to
pull/push ships along harbors/rivers) and lighters (i.e., boat usually flat-
bottomed used to load/unload cargoes from and unto the ship);
(c) Airships within the Philippines(i.e., domestic commercial airplanes) - EXCEPT as
regards the fixing of their maximum rates on freight and passengers (Note: The
jurisdiction, supervision and control of PSC including issuance of franchise is
already transferred from PSC to CAB [RA 776])
(d) Radio companies- EXCEPT with respect to the fixing of rates (e.g., rates on radio
advertisements);Note: Transfer of authority from PSC to DOTC, then from DOTC
to CICT (Commission on Information and Communication Technology), then from
CICT back to DOTC, then from DOTC to Office of the President)
(e) Public services owned or operated by any instrumentality of the National
Government or by any GOCC,EXCEPT with respect to the fixing of rates
4. How the “LTFRB” determines the existence/non-existence of public “convenience
and necessity” (franchise/permit; Kilusang Mayo Uno Labor Center vs. Hon. Jesus B.
Garcia, Jr., GR 115381, December 23, 1994)
 P a g e | 51

The existence or non-existence of public convenience and necessity is a question of

fact that must be established by evidence, real and/or testimonial; empirical data;
statistics and such other means necessary, in a public hearing conducted for that
purpose (i.e., public hearing conducted by LTFRB before issuing CPC [the reason why
we see at the sided of common carrier “Case No. x x x”]). The object and purpose of
such public hearing, among other things, is to look out for, and protect, the interests
of both the public and the already existing transport operators (i.e., existing holders
of CPC plying a route to which route the new applicant is also applying for [i.e.,
cognizance of the Old operator rule]). The first basic and primary requirement for
the issuance of CPCN (franchise) is the “convenience” of the public needing such
common carrier for their transportation which the applicant for CPCN (franchise) will
provide, and secondly, is the need for the augmentation of common carrier in route
applied for by the new applicant in addition to the existing common carriers (old
operators) already plying that route. This second requirement is the contentious
one that the old operators shall be heard in a public hearing before the LTFRB in
order to give the opportunity to oppose the application of the new application for
CPCN (franchise) in recognizance of the “Old Operator Rule”.
5. FACTS: Grand International Airways (GIA) is applying for CPCN (franchise; as public
utility) with Civil Aeronautics Board (CAB), an so CAB
summoned/subpoenaed/notified all existing domestic commercial airlines for a
public hearing before CAB regarding GIA’s application for CPCN, and a public hearing
is set by CAB on December 16, 1994.Before the public hearing, GIA requested the
CAB to issue Temporary Operating Permit (TOP; i.e., to operate airline service even
prior to the issuance of CPCN), which request was granted by CAB motu proprio(i.e.,
TPO granted even without notice and hearingto all domestic commercial airlines
including PAL who may desire to contest such issuance of TPO)
a. ISSUE: Does CAB has the power to hear application for CPCN (franchise), and
after public hearing, issue/grant CPCN – even if the applicant for CPCN (GIA)
does not have the direct legislative franchise?
HELD: YES. It is true that franchise to operate public utility is legislative in nature
(i.e., franchise can only be granted exclusively by Congress). However, there are
two types of legislative grant of franchise that the Congress can do, i.e., direct
legislative grant and delegated legislative grant. In the former, the franchise
directly granted by the Congress through law to a specific person [natural or
juridical]) for the operation of public utility – WHILE: In the latter, Congress
through law can delegate such power to grant franchise to government
 P a g e | 52

agency/instrumentality. In the case at bar, the Congress through law (i.e., RA

776 – Civil Aeronautics Act of the Philippines), has delegated to CAB the power
to grant franchise to applicant for public utility regarding commercial air
transport (common carrier). This being the case, CAB has the power to hear the
application for CPCN applied for by GIA, and ultimately grant CPCN authorizing
GIA to operate air transport domestically in the Philippines even without direct
legislative franchise granted to GIA as such power already delegated by Congress
to CAB (via RA 776 – Civil Aeronautics Act of the Philippines)
b. ISSUE: Does the CAB has the power to grant Temporary Operating Permit (TOP)
to GIA – pending the application for CPCN (franchise) of GIA?
HELD: YES. RA 776 expressly gives the CAB the power to issue TOP motu propio–
even before the public hearing regarding GIA’s application for franchise

 (IMPORTANT) Determination as to when and as to who will be granted CPC/CPCN –

in case of controversy between applicant and existing operators, or among existing
operators, in the same route
NOTE: The rules below apply to both PUBLIC SERVICE and PUBLIC UTILITY
1. Prior applicant rule – as regards application for CPC (public service) or CPCN (public
utility)
When there are 2/more applicants for public service (e.g., ice plant) or public utility
(e.g., as common carrier) over the same new territory (e.g., no ice plant on the
territory; no common carrier plying the route) and 2/more applicants’
conditions/capacity are equal – one who filed first for CPC(for public
service)/CPCN(for public utility) is primarily considered(Batangas Trans Co vs.
Orlanes, 52 Phil 455)
2. Old operator rule as regards application for CPC (public service) or
CPCN/Franchise(public utility)
There is a new applicant for CPC/Franchise for a territory which territory already
served by a sole old operator (who is already a holder of CPC/Franchise on such
territory applied for by the new applicant)
(a) If the old operator already meets the needs of the public in such territory, then
the new applicant will be denied CPC/Franchise
(b) If the old operator does not meet the needs of the public in such territory, then
the old operator will be given the opportunity within period to increase his
operationto meet the public need in such territory (Javier vs. Orlanes, GR 31310,
September 5, 1929) – and this is avoid ruinous competition.
 P a g e | 53

NOW: If old operator does not increase his operation despite the given period,
then the new applicant will be granted CPC/Franchise (De Cruz vs. Marcelo, GR L-
15301 and L-15302, March 30, 1962 – citing Jose de la Rosa vs. Pedro V. Corpus,
66 Phil. 8 and G.R. No. L-3622, Interprovincial Autobus Company, Inc. vs.
Lubanton, 26 July 1951)
3. Third operator rule
There is a new applicant for CPC/Franchise for a territory which territory already
served by a 2/more old operators (who are already holders of CPC/Franchise on such
territory applied for by the new applicant)
(a) If the 2/more old operators already meet the needs of the public in such
territory, then the new-3rdapplicant will be denied CPC/Franchise
(b) If the 2/more old operator do not meet the needs of the public in such territory,
then “Protection of Investment Rule” comes in (i.e., the 2/more old operators
will be given the opportunity within period to increase their operation to meet
the public need)
NOW: If 2/more old operatorsdo not increase their operation despite the given
period, then the new-3rd applicant will be granted CPC/Franchise(De Cruz vs.
Marcelo, GR L-15301 and L-15302, March 30, 1962 – citing Jose de la Rosa vs.
Pedro V. Corpus, 66 Phil. 8 and G.R. No. L-3622, Interprovincial Autobus
Company, Inc. vs. Lubanton, 26 July 1951)
Notes:
(1) In the “Protection of Investment Rule”,it is a sound rule that 2/more old
operators must be protected in their investments - as long as they are able
to serve the public needin such territory, any new-3rd applicant will be
denied CPC/Franchise – UNLESS: The 2/more old operators despite given the
chance/period to improve/increase their operation but failed to do so(De
Cruz vs. Marcelo, GR L-15301 and L-15302, March 30, 1962 – citing Jose de la
Rosa vs. Pedro V. Corpus, 66 Phil. 8 and G.R. No. L-3622, Interprovincial
Autobus Company, Inc. vs. Lubanton, 26 July 1951)
(2) The fact the new-3rd applicant only applies for one trip a day is of no
moment- since the fact remains that the 2/more old operators already meet
the need of the public(Yangco vs. Esteban, GR L-38586, August 18, 1933)

 (IMPORTANT) When CPC/Franchise granted to "new applicant" - over the “Old

operator rule”, “Third operator rule” and “Protection of investment rule”
 P a g e | 54

Even if the operator/s are protected by such mentioned three (3) rules,
nevertheless, he/they violate the terms and conditions of their CPC/Franchise as
regards the operation of public service/public utility, and/or, violate the rules and
regulations of the government agency concerned as regards the operation of public
service/public utility – THEN: The new applicant shall be granted CPC/Franchise,
and in fact, the CPC/Franchise of the existing operator/s is in danger of being
cancelled/revoked (Rizal Light & Ice Co. vs. Public Service Commission, GR L-20993,
September 28, 1968)

 (IMPORTANT) Application of “Prior applicant rule” (priority for first applicant for
new territory [route])
Litimco vs. La Mallorca, GR L-17041-42, May 18, 1962 (p. 249)
FACTS: First applicant applied franchise for new route Manila-Malolos via Sta. Isabel.
Following the application of First applicant, this Second applicant Operator who is
already an old operator plying Manila-Malolos via Guiguinto, also applied for franchise
for the same new route applied for by Litimco (i.e., Manila-Malolos via Sta. Isabel) – so
that Second applicant will be removing some its buses from its original route Manila-
Malolos via Guiguinto in order to cater the new route (i.e., Manila-Malolos via Sta.
Isabel) applied for by First Applicant. Both Frist Applicant and Second applicant are
financially capable and able to serve public convenience for the new route Manila-
Malolos via Sta. Isabel.
(a) ISSUE No. 1:Who between First Applicant and Second Operator be granted the CPC?
HELD: First Applicant. Reason: While Second applicant is an old operator, he is as
such only for old route Manila-Malolos via Guiguinto and not for the new route
Manila-Malolos via Sta. Isabel – hence, both the First applicant and the Second
applicant are deemed new applicants for a new territory (route) Manila-Malolos via
Sta. Isabel. Now, applying “Prior applicant rule,” if there are 2/more applicants
applying for franchise for a new territory/route(in this case Manila-Malolos via Sta.
Isabel), and that their conditions are equal (i.e., in this case at bar, both are
financially capable and able to serve public convenience for the new route), then
the one who first filed the application for franchise shall be awarded (which in this
case, the First applicant)
(b) ISSUE No. 2:Second applicant invoked “Old operator rule” because both will be
plying substantially same route Manila-Malolos so that the only difference is the
place to traverse in order to reach back and forth Manila-Malolos (via Guiguinto
and via Sta. Isabel) which difference is only a matter of seven (7) kilometres - hence,
 P a g e | 55

the Second applicant must be preferred considering all their conditions are equal.
The question is, is the Second applicant correct?
HELD: NO. Reason: Despite that that the new route (i.e., via Sta. Isabel) covers only
seven (7) kilometers of old route (i.e., via Guiguinto) in going to Manila-Malolos and
vice versa, is of no moment. That new territory/route is still a new territory/route
(i.e., via Sta. Isabel) and applying the “First applicant rule,” the First applicant must
be preferred

 (IMPORTANT) “Old operators” themselves are applying for additional

units(additional vehicles) for the same territory/route they are presently plying
(Raymundo Transportation Co. vs. Cerda, GR L-7880, May 18, 1956)
FACTS: The applicant is an old operator along with other old operators plying the same
route. The applicant applied for additional franchise by augmenting his present
number of vehicles for the same route, of which the other old operators opposed on
ground that the present number of vehicles plying the same route are already sufficient
to cater the volume of passengers. Additional franchise was granted (by say LTFRB) on
ground that there are hours of the day when transportation in said route are
insufficient because of the severe traffics at such hours – which traffic caused many
passenger vehicles to such route already fully occupied to the prejudice of other people
who would like also to ride such passenger vehicles
ISSUE: Is the granting of additional franchise to the applicant-old operator proper?
HELD: YES. When there is insufficiency of passenger vehicles in a certain route (whether
caused by insufficiency of passenger vehicles or heavy traffic), then among old
operators in the same route, the first one to apply for increase of passenger vehicle/s
should be given preference for franchise. The old operators in the same route should
be vigilant in meeting the needs of the travelling public
Note: The ratio decidendi applied here by the Supreme Court is similar to “Prior
applicant rule”

 (IMPORTANT) Exceptions to “Old operator rule”(and “Protection of Investment

rule”)
1. When the old operator violates the terms and conditions of his CPC/Franchise
and/or violate the rules and regulations of the government agency concerned (Halili
vs. Cruz, GR L-21061, Jun 27, 1968)
FACTS: New applicant filed application for franchise for route Norzagaray all the
way to Pier, Manila (i.e., straight/unbroken trip). Old operator opposed such
 P a g e | 56

application on ground of “Old operator rule” and “Protection of investment rule”,

averring that he is already serving the route applied for by the New applicant
though he has two (2) sets of buses but plying Norzagaray to Pier, Manila though
of broken trips (i.e., passengers must transfer from Set1 bus to Set2 bus of the old
operator)
ISSUE: Should franchise be granted to New applicant?
HELD: YES. It is true that the under the “Old operator rule” and “Protection of
investment rule,” the old operator must be given the chance/opportunity to
increase/improve/complete his service to meet the public need/convenience so as
to protect his investment as against the new applicant. However, the exceptions for
disregarding the “Old operator rule” and “Protection of investment rule” is when
the old operator violates terms and conditions of the franchise and/or violates the
rules and regulations of the government agency concerned regarding the operation
of the public service/public utility. In the case at bar, the violation of the Old
operator is that the Old operator did not comply with the terms and conditions of
his franchise where provided therein that he has to put certain number of
passenger vehicles in such route – instead, what he did, he divided his buses into
two (2) sets.
2. When there is “great demand” for public service or public utility (Tiongson vs. Public
Service Commission, GR L-24701, December 16, 1970)
FACTS: New applicant granted CPC (public service) to operate 20-ton ice-plant in
Pagsanjan, Laguna – and to sell ice in the following municipalities in Laguna:
Pagsanjan, Longos, Famy, Sta. Maria, Magdalena, Majayjay, Lilio, Paete, Pakil,
Pangil, Siniloan, Cavinti, Nagcarlan, Rizal, Sta. Cruz, Lumban, Pila and Victoria. The
Old operator previously operating ice-plant in Pagsanjan, Laguna, however, at the
time the New applicant applied for CPC, the Old operator closed his ice-plant in
Pagsanjan, Laguna and transferred it in San Pablo City, Laguna, and he is selling ice
in the following municipalities in Laguna: Calauan, Alaminos, Paete, Pakil, Pangil,
Siniloan, Cavinti, Nagcarlan, Rizal, Sta. Cruz, Lumban, Pila and Victoria. The Old
operator invoked “Old operator rule” and “Investment protection rule”
ISSUE: Is the grant of CPC to New applicant proper?
HELD: Yes. The invocation of the Old operator of the “Old operator rule” and
“Investment protection rule” do not apply – on the following two separate and
independent reasons:
(a) FIRST: At the time the New applicant applied for CPC to operate ice-plant in
Pagsanjan, Laguna, there is no ice-plant thereto adequately serve the ice needs
 P a g e | 57

of the public in Pagsanjan as the Old operatoralready removed his ice plant in
Pagsanjan. The “Old operator rule” and “Investment protection rule”
cannottake precedence over public convenience in Pagsanjan. The Old operator
is not adequately serving the publicof their ice needs not only in Pagsanjan
(where the Old operator removed his ice-plant where the New applicant took his
place and build ice-plant there), but also the public nearby Pagsanjan such as
towns of Longos, Famy, Sta. Maria, Magdalena, Majayjay, Lilio where the Old
operator does not service which towns Lanuza would cater
Personal observation: It seems that the Supreme Court, though not specifically
mentioned, applied “First applicant rule” considering the fact that the towns
(among others) to be served by the New applicant are towns not served by the
Old operator, i.e., towns of Pagsanjan, Longos, Famy, Sta. Maria, Magdalena,
Majayjay, Lilio. Hence, the legal precept “First applicant rule” that when there
are applicants for public service/public utility in a new territory, the
CPC/franchise shall be granted to the first applicant given the fact that all the
applicants are all in equal conditions (e.g., equal in capability to serve the public).
In fact in the case at bar, at the time the New applicant applied for CPC, there
was no ice plant serving the ice needs of the people of Pagsanjan, Longos,
Famy, Sta. Maria, Magdalena, Majayjay, Lilio, hence, even “First applicant rule”
does not even technically apply on obvious reason that it was onlythe New
applicant who applied for ice-plant for such new territory
(b) SECOND: How about the public of Paete, Pakil, Pangil, Siniloan, Cavinti,
Nagcarlan, Rizal, Sta. Cruz, Lumban, Pila and Victoria where the New applicant
would like to serve, and these aforementioned towns are already being served
by the Old operator. So the question, isn’t it that the Old operator pursuant to
the “Old operator rule” and the “Protection of investment rule”, should be
given the opportunity/chance to increase his operation?
HELD: The Old operator has been granted to build ice plant at first 30 tons
capacity, then later granted for 40 tons capacity, then ultimately to 70 tons
capacity. And despite this 70-ton ice plant capacity, the public of the nearby
towns are still in need for more ice – and this only proves that there is indeed a
“great demand” for ice for the towns of Paete, Pakil, Pangil, Siniloan, Cavinti,
Nagcarlan, Rizal, Sta. Cruz, Lumban, Pila and Victoria that justified the grant of
CPC to the New applicant notwithstanding the fact that both the New applicant
and the Old operator will be serving ice to those mentioned common towns
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 The authority of DOTC

1. DOTC particularly LTO: Regulates the registration of land vehicles and issuing of
driver’s license (to include registration of tricycles and the license to drive of tricycle
driver)
(a) As to registration to all motor vehicles (including tricycles whether public utility
or private)
Section 5 of RA 4136 (Land Transportation and Traffic Code): No motor vehicle
(i.e., including motorized tricycle) shall be used or operated on or upon ANY
PUBLIC HIGHWAY of the Philippines unless the same is properly registered for
the current year
Opinion: It seems that the land motor vehicles need not register the vehicle if it
does not ply public highway. This is the reason why we cannot see LTO in the
streets/roads not public highway
2. DOTC particularly LTFRB: Regulates the operation of landpublic utilities and grant
franchise/CPC (except public utility tricycles which belongs to Municipality/City
pursuant to LGC)
Question: Should tricycle operators procure CPC from LTFRB?
Answer: NO: Section 447 (a) (3) (vi) LGC specifically gives the Municipality/City the
power to regulate operation of tricycles (asides from power to issue franchise to
tricycle operators)
3. Authority of DOTC and Municipal/City – over public utility tricycles(LTO vs. City of
Butuan, GR 131512, January 20, 2000)
The power of the City/Municipality under the LGC to grant franchise to public utility
tricycle does not include the power of the LTO to require the registration of the
tricycle and to require the driver’s license
Note: LTFRB issues franchise and CPC for allland public utility land vehicles – except
for public utility tricycles. The City/Municipality the one issues MTOP (i.e., Motorized
Tricycle Operators Permit] - this is franchise/CPC) to public utility tricycles

 (IMPORTANT) KABIT SYSTEM

1. “Kabit” System - explained
It is an arrangement between holder of Franchise/CPC and owner of vehicle
(without franchise) - where the vehicle owner operates his vehicle as public
utility/common carrier using the Franchise/CPC of the holder thereof. This contract
is void for being against public policy
2. Lita Enterprise vs. Intermediate Appellate court, GR L-64693, April 27, 1984; p. 291
 P a g e | 59

FACTS: Ocampo has five (5) cars. Ocampo contracted with Lita Enterprises (holder of
Franchise for taxicabs) for Ocampo to use the franchise of Lita Enterprise for the
operation as taxicab of said 5 cars – with consideration of P200 monthly rental per
taxicab. Hence, to effectuate such contract, the five (5) cars wereregistered with
LTO in the name of Lita Enterprise to make appear that the 5 cars are owned by Lita
Enterprise. However, the possession and operation of the 5 cars as taxicabs are by
Ocampo and not by Lita Enterprise. Later, one of the 5 cars of Ocampo collided with
the motorcycle of Galvez (Galvez died). Civil case was filed by heirs of Galvez against
Lita Enterprise (being the registered owner of the car involved in the accident).
Decision was rendered against Lita Enterprise, and in executing/satisfying the award,
one of the 5 cars (really owned by Ocampo) was levied and sold at public auction in
order to satisfy the damages in favor of the heirs of Galvez
NOW: After the execution of the Decision, Ocampo wanted to register the remaining
4 taxicabs in his name with LTO, hence Ocampo requested Lita Enterprise to
surrender the OC/CR to him, but Lita Enterprise refused. Ocampo filed civil case
against Lita Enterprise for “Reconveyance of Motor Vehicles with Damages” (and
concomitantly for the registration of the remaining 4 cars into the name of Ocampo)
ISSUE: Will the civil action filed by Ocampo against Lita Enterprise prosper?
HELD: NO. The contract entered into between Ocampo and Lita Enterprise is
commonly known as “Kabit System.”Remember that Franchise is a special privilege
granted to certain person, and hence, being personal, not transferrable without
authority of the grantee (e.g., LTO-LTFRB). This contract is void for being against
public policy(Article 1409 [1]: Contract contrary to law, morals, good customs, public
order or public policy – is null and void). If both parties knowledgeably and
voluntarily entered into a contract that is against public policy,the court will not aid
either party (in this case, Ocampo and Lita Enterprise) - instead, under the principle
of pari delicto (i.e., both parties agreed to void contract), the court will leave the
parties where it finds them and parties to bear the consequences of their illegal
contract
Note: The contract being null and void, it cannot be cured by any means such as
ratification or by prescription – the reason of which, void contract by legal
contemplation, does not exists from the beginning (i.e., void ab initio)
Question: In relation to the case of Lita Enterprise vs. Intermediate Appellate Court
(supra), what happened now to the case of People vs. Quasha, L-6055, June 12,
1953; Tatad vs. Sec. Garcia, Gr. No. 114222, April 16, 1995, where the Supreme
 P a g e | 60

Court ruled that one may own the facilities and while the franchise may be owned
by another?
Opinion: In Lita Enterprise vs. IAC, what happened there is that in their agreement,
while LIta Enterprise is the registered operator, nevertheless, the possession and
actual operation of the 5 cars was with Ocampo – and this is “Kabit System”. Hence,
had the 5 cars been registered still in the name of Ocampo and while the franchise
in the name of Lita Enterprise, the contract could not have been void as against
public policy for after all, the franchise being personalis, still belongs to Lita
Enterprise – PROVIDED: The actual operation, management, employeesin the
operation of the 5 cars are all belonging to Lita Enterprise say by way of lease
Question: In case of liability to the public (passengers of the 5 cars [culpa
contractual] or others [culpa aquiliana/quasi-delict]), who shall be liable then, will it
be Ocampo or Lita Enterprise?
Answer: It will be Ocampo being the registered “registered owner” – but Ocampo
has the right to be reimbursed by Lita Enterprise, the latter being the one
responsible for the accident

 (IMPORTANT) The “registered” owner (of private vehicle) or “registered” operator

(of public utility) is the one liable for accident to its passenger (culpa contractual), to
others (culpa aquiliana/quasi-delict) - regardless of the existence of sale/lease of
vehicles made by “registered” owner/operator prior to such accident
1. Registered owner, the one liable to the public even if not the actual operator at the
time of the accident (MYC Agro-Industrial Corp. vs. Camerino, GR L-57298,
September 7, 1984; p. 294)
FACTS: MYC leased several of its delivery trucks (not common carrier; all registered
with MYC as owner) to Jaguar Transportation Company. Later, one of the leased
trucks collided with passenger jeepney (own by Silla) resulting to the death and
injuries of the passengers of the jeepney. Complaint for damages was filed against
MYC (being the registered owner of the truck; via culpa contractual) and the truck-
driver (via quasi-delict). MYC admits ownership over the truck, however, at the time
of the mishap, the truck was already leased to Jaguar and that the truck-driver is
the employee of Jaguar – so that MYC alleged that it has no control over the leased
truck because the operation thereof was with Jaguar neither to truck-driver as he is
under the employ of Jaguar
ISSUE: Who between MYC and Jaguar liable to heirs of deceased passenger and
injured passengers?
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HELD: MYC. MYC being the registered owner of the truck, and is liable solidarily
with truck-driver – regardless of sale/lease of the truck prior to the vehicular
mishap. Hence, within the contemplation of the law and the public, MYC is the
employer of the truck-driver, and the Jaguar though actual operator nevertheless
deemed as “agent” of MYC
Note: MYC can recover reimbursement from Jaguar(by way of independent civil
action, 3rd-party complaint or cross-claim, as the case maybe)
2. Registered owner, the one liable to the public even if not the actual owner at the
time of the accident (Y Transit Co., Inc. vs. NLRC, GR 88195-96, January 27, 1994; p.
297)
FACTS: Employees of Yujuico Transit Co. filed labor case against the latter – the
Employees won against Yujuico Transit Company. Writ of execution was issued
levying 10 buses registered with Yujuico Transit Co. Now, “Y” Transit Co., Inc.
opposed the execution on ground that it is the new owner of the levied 10
buses.Before the labor case was filed with NLRC, Yujuico Transit Co., Inc. transferred
the ownership of the buses to Jesus Yujuico, and during the pendency of the labor
case, Jesus Yujuico transferred ownership over the buses to “Y” Transit Co., Inc.
which ownership continued until the execution of the NLRC Decision. All these
transfers lacked prior approvalof BOT (Board of Transportation, now LTFRB) as
required under Section 20 of the Public Service Act – so that those levied 10
buseswere still registered in the name of Yujuico Transit Co. (i.e., as registered
owner in the BOT) at the time the time the labor case was filed by the employees of
Yujuico Transit Company
ISSUE: Can “Y” Transit Co., Inc. oppose the execution over levied 10 buses – on
ground that it was never a party to the labor case, and that the levied 10 buses are
already owned by it?
HELD: NO. The reason is simple, insofar as the public is concerned (i.e., employees),
Yujuico Transit Co. being the registered owner, even if not the actual owner of the
10 busesat the time of the accident - – and that “Y” Transit Co. is a mere “agent” of
the Yujuico Transit Co. – whatever series of transfers over the 10 buses that
happened
Note: Corollary, the Supreme Court also ruled that “Y” Transit can recover
damages/reimbursement from Yujuico Transit Company (in a separate civil action)
for the executed 10 buses that “Y” Transit already owns before the execution of the
NLRC Decision
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3. Same principle (B.A. Finance Corporation vs. Court of Appeals, GR 98275, November
13, 1992; p. 301)
ISSUE:Is the registered owner liable for damages in civil action to public – even if the
truck was already leased/sold to another at the time of the accident – and the latter
was also the actual operator of the truck at the time of the accident?
HELD: YES. Insofar as public is concerned, the registered owner (be it public utility or
private vehicle) is the owner of the vehicle, and as such, liable for damages to the
public (passengers and/or third persons) – NOTWITHSTANDING: That the vehicle is
already transferred to another (actual owner) by sale, lease, assignment or
otherwise at the time the mishap happened causing damage
HOWEVER: When the registered owner/operator is made to pay for the damages in
civil action, he has the right to be indemnified by the actual owner (and of course
also against the driver) via independent civil action, 3rd-party complaint or cross-
claim as the case maybe

 (IMPORTANT) Registered owner, actual owner and driver – all solidarily liable for
damages in “Civil Action” filed “against all of them” by the public (i.e., passengers or
3rd-persons)
1. Jereos vs. Rodriguez, GR L-48747, September 30, 1982; p. 300
FACTS: Padorla (registered operator of jeepney [holder of franchise]); Jereos (actual
owner of jeepney); Jaravilla (driver of jeepney under the employ of Jereos). The
registered operator and the actual operator entered into “Kabit System”, i.e., the
actual owner has no franchise to operate his jeepney as public utility particularly as
common carrier, hence, the actual owner used the franchise of the registered
operator. Driver negligently hit Judge Rodriguez and his Wife, the Judge died, while
the Wife injured. Wife and Children filed civil action for damages against registered
operator, actual owner and the driver and the Court of Appeals held them all
solidarily liable. The actual operator averred that he cannot be solidarily liable with
the registered operator and driver by invoking the civil case of Vargas vs. Langcay
(GR L-17459, September 29, 1962), where the Supreme Court held that in that civil
case, only the registered operator/owner and the driver (of actual owner) were
held solidarily liable for damages (and the actual owner was not)
ISSUE: Is Jereos correct in invoking the case of Vargas vs. Langcay?
HELD: NO – it is misplaced. In the case of Vargas vs. Langcay, the Supreme Court
held:
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Vargas is the registered owner and operator of the jeepney, while Jose is the
actual owner of the jeepney (i.e., Jose bought the jeepney of Vargas), and while
Ramon is the driver of Jose as regards the jeepney. Driver while driving the
jeepney, negligently hit a pedestrian Langcay, which at the time, the registered
owner was still the registered owner and operator of the jeepney. Langcay filed
civil action against the registered owner and the driver (Note: The actual owner
is not impleaded as one of the defendants). When the civil action was appealed
with the Court of Appeals, the later ruled that the registered owner is
subsidiarily liable with the driver – applying Article 103 RPC: Article 103 RPC:
Subsidiary civil liability of other persons. — The subsidiary liability established in
the next preceding article shall also apply to employers (i.e., in this case in the
eyes of the public, it is the registered owner), x xx engaged in any kind of industry
for felonies committed by their x x x employees (i.e., the driver convicted of
reckless imp. Res. To physical injuries) in the discharge of their duties.
When the case was appealed to the Supreme Court, it was ruled that the Court
of Appeals erred in ruling that the registered owner is subsidiarily liable with the
driver by applying Article 103 RPC. The Supreme Court ruled that in many cases
it decided, it remained consistent that the registered owner and driver are
solidarily liable for damages whether to the passenger (culpa contractual) or to
third person (quasi-delict). At the time of the accident, it is immaterial whether
the registered owner is the actual owner of the vehicle in the same vein that it
also immaterial who is the actual employer of the driver – on reason that in the
eyes of the law and public, the registered owner is the actual owner of the
vehicle and the actual employer of the driver.
NOW, going back in the case at bar (Jereos vs. Rodriguez), the Supreme Court ruled
in Vargas vs. Langcay that the registered owner and driver are solidarily liable only
to correct/rectify the error of the Court of Appeals in ruling that by applying Article
103 RPC, the registered owner is subsidiarily liable with the driver. The Supreme
Court in Vargas vs. Langcay, did not rule that the actual owner is exempt or not
solidarily liable with the registered owner and the driver(Reason:Why should the
Supreme Court in Vargas vs. Langcay hold the actual owner solidarily liable with the
registered owner and driver when in the first place, the actual owner was not made
one of the defendants in the civil case filed by the complainant and instead, the
complainant filed civil action only against the registered owner and the driver - and
in Vargas vs. Langcay to hold the actual owner solidarily liablewith the registered
owner and driver would be in utter violence of due process of law – but again, in no
 P a g e | 64

case, the Supreme Court in Vargas vs. Langcay ruled that the actual owner is
exempt or not solidarily liable)
NOW, in the case at bar (Jereos vs. Rodriguez), the Supreme Court at any rate ruled
that considering the registered owner is solidarily liable with actual owner and
driver, and in the event that it is the registered owner that made to actually pay for
the damages, he has the right to be indemnified by the actual owner and driver in
the same civil action via cross-claim or 3rd party complaint, in his option in a
separate civil action filed against the actual owner and driver.
Personal observations:
(a) How about in MYC Agro-Industrial Corp. vs. Camerino, GR L-57298, September 7,
1984 (supra), why the Supreme Court ruled that the registered owner/operator
and driver are solidarily liable in a civil action?
Reason: Because the civil action is filed only against the registered
owner/operator and driver(with the actual owner not included as one of the
defendants). A person not included as defendant cannot be made liable in a civil
action on ground of due process
(b) Why is it that in the case of Vargas vs. Langcay, GR L-17459, September 29, 1962
(supra), Supreme Court ruled that the registered owner/operator and driverare
solidarily liable in a civil action?
Reason: Because the civil action is filed only against the registered
owner/operator and driver (with the actual owner not included as one of the
defendants). A person not included as defendant cannot be made liable in a civil
action on ground of due process
2. BA Finance Corp. vs. Court of Appeals, GR 98275, November 13, 1992 and Equitable
Leasing Corp. vs. Suyom, 388 SCRA 445 – same principles in the above discussions

 (IMPORTANT) Boundary System – defined/explained

It is an agreement whereby the driver (and conductor) uses the public utility
(common carrier such as bus/jeepney/tricycle/calesa) belonging to the
owner/operator for number of hours, with the gasoline for the account of the driver
(and conductor) - and from the fare collections of the driver (and conductor), remits
to the owner/operator the agreed amount, and the excess belonging to the driver
(and conductor)
Their juridical relationship is that of “employer-employee relationship” and not
“lessor-lessee relationship” (National Labor Union vs. Dinglasan, 98 Phil 649). Their
relationship being “employer-employee relationship”, therefore, the owner/operator
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has the control and supervision over the driver (and conductor) unlike under the
relationship of “lessor-lessee relationship” where the lessor loses complete control
over the thing leased
And their relationship being under “employer-employee relationship”, the following
are the consequences:
(a) In case of labor dispute between Driver (as employee) and Operator (as
employer), the jurisdiction belongs to NLRC; and
(b) In case the driver negligently causes damage to passenger/3rd-person (e.g.,
pedestrian or another vehicle), then the owner/operator is solidarily liable with
the driver (Note: But of course, the owner/operator can recover indemnity from
the driver)
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CHAPTER 8
MARITIME COMMERCE (Note: Applicable only to “sea-going” vessels whether domestic
or international; not to minor watercrafts engaged in river and bay navigation [Lopez vs.
Sison, GR 29166, October 23, 1928])

PREFATORY:
1. Article 1753 NCC (Law of destination)
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.
(a) The liability of a common carrier for loss of or damage to goods transported by
it under a contract of carriage is governed by the laws of the country of
destination (Sea-Land Service Inc. vs. Cue, GR 75118, August 31, 1987)
2. Article 1766 NCC (In laws governing common carriers, civil laws prevail over other
laws)
In all matters not regulated by this Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special laws.
HENCE: Civil Code, Code of Commerce and other Philippine special laws pertaining to
transportation only applies when in international shipping, the destination is the
Philippines. However, in domestic transportation, Philippines laws always apply
3. Vessels referred to under Code of Commerce exclusively refer to “sea-going”
merchant ships (i.e., common carrier vessels engaged in the transportation of goods
and/or passengers), and hence, does not include war ships, fishing vessels,
towboats, yachts, patrol vessels, floating storehouse, etc.

VESSELS
 Admiralty and maritime jurisdiction of court (i.e., either MTC or RTC [as the case
maybe] – acting as admiralty court)
1. Maritime transaction/contract can be enforced before proper court of law – as
provided under Articles 579, 580 and 584 Code of Commerce
2. Court’s jurisdiction over admiralty and maritime transaction
(a) B.P. 129 as amended by R.A. 7691
RTC: When demand/claim exceeds P400,000 in Metro Manila; in other places,
when it exceeds P300,00
(b) Two tests to determine whether the contract/transaction is of maritime
contract/transaction or ordinary contract/transaction (for us to know what law
shall apply)
(1) English rule (Locational Test)
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It is maritime transaction/contract when maritime service/transaction is

made (perfected) upon the sea (navigable waters) and such maritime
service/transaction to be executed (consummated) upon the sea (navigable
waters) (Crescent Petroleum, Ltd. Vs. M/V Lok Maheshwari, G.R. No. 155014,
Nov. 11, 2005)
(2) American rule (Subject-matter Test)
Maritime transaction/contract does not depend on the place where maritime
transaction/contract perfected and executed but upon the nature or subject
matter of the service/transaction which must have reference to maritime
service/transaction (International Harvester Company of the Philippines vs.
Aragon, GR L-2372, August 26, 1949)
Note: The Philippines follows the American Rule
Example: Typical example of maritime transaction/contract is the carriage
of “goods” by sea where the goods is damaged/loss (International Harvester
Company of the Phils. Vs. Aragon, G.R. No. L-2372, Aug. 26, 1949) – also
charter party agreement, wharfage transaction (transaction for the use of a
structure built along the shore where ships are moored [anchored] to
load/unload cargoes), supplies that are furnished the vessel, repairs of
vessel, in case of collision of vessel, and among others relating to maritime
service/transaction.
 P a g e | 68

 (IMPORTANT) LIMITED LIABILITY RULE (Real and Hypothecary Nature of Liability; No

vessel No Liability); and its exceptions (BAR)
1. Article 586 Code of Commerce: The shipowner and the shipagent shall be
(solidarily) civilly liable for the (a) acts of the captain and (b) for the obligations
contracted by the captain to repair (the vessel), equip (the vessel), and for the
provision the vessel, PROVIDED the creditor proves that the amount contracted by
captain claimed by the creditor was invested in such repair, equip and/or provision
of the vessel
By SHIPAGENT is understood the person (a) entrusted with the provisioning of a
vessel, or (b) who represents the vessel in the port in which such vessel may be
found.
Notes:
(a) Provisioning of vessel refers to supplying the vessel of something needed for the
voyage (e.g., foods, water, petroleum, personal needs of the crews, etc.)
(b) Shipagent even though not the owner of the vessel, is liable solidarily with the
shipowner to the cargo owners for losses/damages of cargoes in view of acts of
or obligations contracted by captain relative to the vessel – but without prejudice
to shipagent’s right to be reimbursed by the shipowner if such shipagenthimself is
free of fault, otherwise, it is the shipowner who can make him liable
2. (IMPORTANT) Article 587 Code of Commerce: The shipagent(including shipowner)
shall also be civilly liable for the indemnities in favour of third persons which arise
from the conduct of the captain in the vigilance over the goods which the vessel
carried; BUT: Subject to “Limited Liability Rule”, i.e., he (shipagent/shipowner) may
exempt himself from liability by (a) ABANDONING the vessel (including), and (b)
abandon also all her equipment and the freightage he may have earned during the
voyage (i.e., freightage earned for the transportation of goods) (Note: In invoking
“Limited Liability Rule”, abandonment of vessel is not necessary neither requisite
when vessel is lost, on reason that a vessel that is lost, there is nothing to abandon –
Luzon Stevedoring Corp. vs. Court of Appeals, GR L-58897, December 3, 1987)
(a) Chua Yek Hong vs. IAC, GR No. L-74811, Sep. 30, 1988
The term “shipagent” referred to under Article 587 is broad enough to include
“shipowner” (viz., a person can be shipowner and at the same time also a
shipagent).
(b) (Exception to Article 587 regarding shipagent/shipowner liability as regards only
contract obtained by captain) Article 588: Neither the shipowner nor shipagent
liable for obligation contracted by captain if the captain exceed his powers and
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privileges (e.g., captain exceeding his inherent powers under Article 610and in
relation to Article 611) by reason of his position or conferred upon him by the
shipowner
However, if the amounts claimed (by creditors) were used for the benefit of
vessel, the shipowner and shipagent shall be (solidarily) liable
(c) Article 590 (How 2/more shipowners liable; and how to make the abandonment)
Co-owners of the vessel (i.e., shipowners are more than one) are liable for
damages in view of the act of the captain referred to under Article 587 - in
proportion of their contribution to the common fund (i.e., share in the common
fund)
However, each shipowners can exempt himself from liability by making
abandonment of that part of the vessel belonging to him (i.e., abandoning his
contribution in the common fund) – which deed/affidavit of abandonment must
be executed before a notary
3. Limited Liability Rule (Real and Hypothecary Liability of Shipowner/Shipagent; No
Vessel No Liability Rule)
(a) Luzon Stevedoring Corp. Vs. Court of Appeals, 156 SCRA 169
The nature of maritime transaction/contract is shown by:
(1) (IMPORTANT) Limited Liability Rule: Limitation of liability of the
shipagent/shipowner to the actual value of the vessel, its equipments and
the earned freightage (amount charged for carriage of goods and/or
passengers); and
Note: If the shipowner/shipagent abandons the vessel – then their liability is
limited to the value of the vessel, its equipments and its earned freightagefor
the voyage (i.e., Hypothecary).
However, if the vessel is totally loss (e.g., it sunk), then their liability is
extinguished together with the loss vessel (i.e., No Vessel No Liability Rule).
(IMPORTANT) Note: When vessel is lost, and for the shipowner/shipagent to
invoke Limited Liability Rule, there is no need to abandon the vessel (together
with its equipments) as there is nothing to abandon since the vessel is lost,
however, there is a need to abandon earned freightage
– PROVIDED: The shipowner/shipagent has no participation in the
negligence of the captain that resulted in the loss/damage of goods and/or
injury/death of the passengers (viz., )
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(2) Claimants have the right to retain cargo, embargo and detain the vessel
(when vessel found in the Philippines) – in order to secure their claim in case
an action is filed in court
(b) Chua Yek Hong vs. IAC, GR No. L-74811, Sep. 30, 1988
The term “shipagent” referred to under Article 587 is broad enough to include
“shipowner”.
The shipowner’s/shipagent’s civil liability is co-extensive with his interest over
the vessel, such that a total loss of vessel results to the doctrine “No vessel No
liability Rule”
Notes:
(1) (IMPORTANT) In order for “Limited Liability Rule” applies (hypothecary or
No Vessel No Liability [in case vessel is lost]), it must be emphasized that
Article 587 refers to FAULT/NEGLIGENCE EXCLUSIVELY THAT OF THE
CAPTAIN (i.e., shipowner/shipagent are not themselves also at
fault/negligence, or that the shipowner/shipagent concurred with or
participated to the fault/negligence of the captain) – otherwise, the
shipowner/shipagent cannot invoke Limited Liability Rule or No Vessel No
Liability Rule (as the case maybe)
(2) Under Code of Commerce, “captain” and “master of the vessel” have the
same meaning – both being commander and technical director of the vessel
(Articles 609-612, Code of Commerce)
(c) Yangco vs. Laserna, GR L-47447-47449, October 29, 1941
FACTS: A vessel (i.e., domestic passenger vessel) capsized because of the
negligence of the captain leading to death of several passengers. Civil action for
damages were filed against the shipowner of the vessel.
ISSUE: How can the shipowner exempt himself from his civil liability for damages
to the heirs of deceased passengers?
HELD: Abandon the vessel (if the vessel is not totally lost), its equipments and
freightage earned during the voyage
(d) In understanding “No Vessel No Liability Rule”, when is it that a “thing” deemed
lost under the law
Article 1189 Subpar 2 Civil Code: x xx; it is understood that the thing (e.g., vessel)
is lost when it perishes (loss), or goes out of commerce, or disappears in such a
way that its existence is unknown or existence is known but cannot be
recovered
(e) Reason for the Limited Liability Rule
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To encourage shipbuilding and maritime commerce because they play significant

role in the economy of our country
(f) (IMPORTANT) Therefore, the requisites of “Limited Liability Rule”,
“Hypothecary Nature of Liability”, or “No Vessel No Liability Rule”
(1) The negligence must exclusively that of the captain – and none of the
shipowner/shipagent
(2) The shipowner/shipagent abandons the vessel together with its equipment
(3) The shipowner/shipagent also abandons the freightage earned during voyage
4. (IMPORTANT) “Limited Liability Rule” – instances where applied
(a) Vasquez vs. CA, GR No. L-42926, Sep. 13, 1985
The captain (of passenger vessel) was negligent in continuing the voyage despite
the unfavourable weather report (typhoon). The common carrier cannot invoked
fortuitous event because the requisites were not satisfied: (1) event is
independent of human will, (2) event rendered the common carrier impossible
to perform his obligation in a normal manner, and (3) the common carrier is free
from participation in, or aggravation of, the injury/damage to the passenger (i.e.,
there must be entire exclusion of human agency from the cause of injury/loss).
This requisite No. 3, the common carrier miserably failed as the captain still
continued with the voyage despite the bad weather report. The vessel sunk.
Issue: There is no question that captain is negligent, hence (pursuant to Article
587), the shipowner/shipagent are also civilly liable. But the question is, is there
any possibility that the shipowner/shipagent can escape civil liability?
Held: YES. Considering that the negligence solely belongs to the captain (none of
the shipowner/shipagent), hence, the shipowner/shipagent can invoke the
“Limited Liability Rule” under Article 587 Code of Commerce (i.e., No Vessel No
Liability – the vessel being totally loss).
(b) Breached of contract of carriage (Yu Biao Sontua vs. Ossorio, GR L-17690, June
14, 1922)
Limited Liability Rule also applies in case of “Breach of Contract of Carriage” in
maritime transaction
5. (IMPORTANT; BAR) “Limited Liability Rule” – its exceptions (i.e., the
shipowner/shipagent cannot escape civil liability by invoking “Limited Liability Rule”)
(a) When shipowner (or shipagent)himself is negligent or at fault (or concurrence
of fault/negligence of shipowner and captain)
(1) Shipowner is negligent in allowing or tolerating the ship captain and crews
playing mahjong during voyage which resulted in collision with other vessel
 P a g e | 72

(Negros Navigation Co. vs. CA, GR No. 110398, Nov. 7, 1997, citing Mecenas
vs. CA, 180 SCRA 83)
Note: In this case, the shipowner (of passenger vessel; M/V Don Juan) tried to
lessen his civil liability by asserting that the negligence of the other vessel
against whom M/V Don Juan collided withis the proximate cause of the
collision, so that the negligence of the captain of shipowner is merely
contributory (i.e., contributory negligence). The Supreme Court ruled that the
shipowner cannot invoke “Doctrine of Contributory Negligence” because the
cause of action of the victim-passengers is based on “breach of contract of
carriage” as the passengers were not transported to their destination safely
due to the negligence/fault of the captain. In such “contract of carriage”
between shipowner (of M/V Don Juan) and the victim-passengers, the other
vessel has no privitythereto. Of course, the shipowner (of M/V Don Juan) can
demand reimbursement from the other vessel after paying the passengers
(either by 3rd-party complaint, or in a separate civil action).
(2) Shipowner is negligent in failing to maintain vessel seaworthy (Negros
Navigation Co. vs. CA, GR No. 110398, Nov. 7, 1997, citing Mecenas vs. CA,
180 SCRA 83)
Note: For a vessel to be seaworthy, it must be adequately equipped for the
voyage, and manned with sufficient number of competent officers and
crew(Caltex vs. Sulpicio Lines, 315 SCRA 709)
(a) Aboitiz Shipping Corp. vs. New India Assurance Co., GR No. 156978, May
2, 2006
“Moreover, where the vessel is found unseaworthy, the shipowner is also
“presumed” to be negligent though this duty to maintain seaworthiness
of vessel can be delegated by shipowner
Reason for such presumption of negligence of shipowner when the vessel
is unseaworthy: Shipowner must exercise close supervision over its men
as to the seaworthy of the vessel)
(b) Shipowner is negligent in allowing the overloading of vessel (Negros
Navigation Co. vs. CA, GR No. 110398, Nov. 7, 1997, citing Mecenas vs.
CA, 180 SCRA 83)
Sinking of "MV Asilda" was due to its unseaworthinessx xx. It was top-
heavy as an excessive amount of cargo was loaded on deck (i.e.,
overload).Closer supervision on the part of the shipownercould have
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prevented this fatal miscalculation(The Philippine American General

Insurance Company vs. CA, GR No. 116940, June 11, 1997)
(c) Shipowner at fault due to: (Manila Steamship vs. Abdulhaman, 100 Phil
32)
(1) Lack of proper equipment (of vessel; inadequately equipped for the
voyage); or
(2) Lack of proper technical training of officers and crews(i.e., vessel not
manned by competent officers and crew)
(b) Services (e.g., repairs) made to vessel before its loss
(1) Repairs made to vessel before its loss (Government vs. Insular Maritime Co.,
45 Phil 805)
Note: Article 586 Code of Commerce: The shipowner and the shipagent shall
be (solidarily) civilly liable for the (a) acts of the captain and (b) for the
obligations contracted by the captain to repair (the vessel), equip (the
vessel), and for the provision the vessel, PROVIDED the creditor proves that
the amount contracted by captain claimed by the creditor was invested in
such repair, equip and/or provision of the vessel
(c) Insurance proceeds of insured vessel
(1) Insurance proceeds of insured vessel to answer for civil damages – and it is
only when in case such insurance proceeds do not completely satisfy civil
liability, the “Limited Liability Rule” now applies (Vasquez vs. A, 138 SCRA
553)
In other words, when the vessel is insured, the shipowner/shipagent cannot
invoke Limited Liability Rule without abandoning insurance proceeds in
favour of the claimants, and it is only when the insurance proceeds do not
satisfy all claims that the shipowner/shipagent can now invoke the Limited
Liability Rule
(2) (IMPORTANT; BAR) Carriage of Goods; Implied Warranty; Liability
FACTS: Paulo, the owner of an ocean-going vessel, offered to transport the
logs of Constantino from Manila to Nagoya. Constantino accepted the offer,
not knowing that the vessel was manned by an irresponsible crew with deep-
seated resentments against Paolo, their employer. Constantino insured the
cargo of logs 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 unbolted the sea valves of the vessel causing
water to flood the ship hold. The vessel sank. Constantino tried to collect
 P a g e | 74

from the insurance company which denied liability, given the unworthiness
of both the vessel and its crew. Constantino countered that he was not the
owner of the vessel and he could therefore not be responsible for conditions
about which he was innocent.
ISSUE: Is the insurance company liable? Why or why not?
ANSWER: The insurance company is not liable, because there is an implied
warranty in every marine insurance that the ship is seaworthy whoever is
insuring the cargo, 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
(Roque v. Intermediate Appellate Court, 139 SCRA 596 [1985]).
(3) (IMPORTANT; BAR) FACTS: On October 30, 2007, M/V Pacific, a Philippine
registered vessel owned by Cebu Shipping Company (CSC), sank on her
voyage from Hong Kong to Manila. Empire Assurance Company (Empire) is
the insurer of the lost cargoes loaded on board the vessel which were
consigned to Debenhams Company. After it indemnified Debenhams, Empire
as subrogee filed an action for damages against CSC.

(i) ISSUE: Assume that the vessel was seaworthy. Before departing, the
vessel was advised by the Japanese Meteorological Center that it was
safe to travel to its destination. But while at sea, the vessel received a
report of a typhoon moving within its general path. To avoid the typhoon,
the vessel changed its course. However, it was still at the fringe of the
typhoon when it was repeatedly hit by huge waves, were saved three (3)
who perished. Is CSC liable to empire? What principle of maritime law is
applicable? Explain.
ANSWER: The common carrier incurs no liability for the loss of the cargo
during a fortuitous event, because the following circumstances were
present: (1) the 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 minimize the attendant damage before, during and
after the typhoon (See Fortune Express v. CA, Caorong. G.R. No. 119756,
18 March 1999; Yobido v. CA, G.R. No. 113003, 17 October 1997;
Gathalian v. Delim, G.R. No. L-56487, 21 October 1991).
 P a g e | 75

(ii) Hypothecary nature of shipowner's liability under Art. 587 of Code of

Commerce (i.e., No vessel, no liability rule; Limited Liability Rule)
In case of maritime transactions, the liability of the owner of the vessel is
limited to the vessel itself. Since the vessel of CSC was seaworthy at the
time it sank, the CSC is not liable to Empire under the maritime principle
that the obligations of the owner of a vessel are hypothecary in nature.
ISSUE: Assume the vessel was not seaworthy as in fact its hull had leaked,
causing flooding in the vessel. Will you answer be the same? Explain.
ANSWER: When the vessel is not seaworthy, it is an exception to the
hypothecary principle in maritime commerce. To limit its liability to the
amount of the insurance proceeds, the carrier has the burden of proving
that the unseaworthiness of its vessel was not due to its fault or
negligence. The failure to discharge such a heavy burden precludes
application of the limited liability rule and the carrier is liable to the full
extent of the claims of the cargo owners (Aboitiz Shipping v. New India
Assurance Company, G.R. No. 156978, 02 May 2006).
(iii) ISSUE: Assume the facts in question (b). Can the heirs of the three (3)
crew members who perished recover from CSC? Explain fully.
ANSWER: Yes, because the crew members died while performing their
assigned duties, aggravated by the failure of the ship owner to ensure
that the vessel is seaworthy. Workmen’s compensation has been
classified by jurisprudence as an exception to the hypothecary nature of
maritime commerce, Abueg v. San Diego, 77 Phil. 730 (1948), especially
in this case where the vessel was not seaworthy at the time it sank.
(d) Liability under Labor Code (e.g., labor action due to non-payment of wages of
captain and crews)
(1) Labor laws apply. Reason: Maritime transactions under Code of Commerce is
a general law; while provisions of labor laws as to claim for wages is specific
(Abueg vs. San Diego, 77 Phil 32)
(2) Articles 603 to 605: The law applicable on termination pay is the Labor Code,
including the power of shipowner or shipagent to dismiss captain and crews
and as to just causes for dismissal
(e) Those that are due the government (e.g., tax, those tax by the court such as
judicial costs and fees)
6. Arrastre operation, is not maritime transaction/contract for Code of Commerce to
apply
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Hence, Limited Liability Rule and other principles governing law on maritime
transaction cannot be invoked by arrastre operators (ICTSI vs. Prudential Guarantee,
320 SCRA 244)
Note: Laws governing the liability of common carriers also apply to arrastre, because
arrastre operation is deemed as common carrier (Philippine First Insurance Co. vs.
WallemPhils. Shipping Inc. GR No. 165647, March 26, 2009). However, as to common
carriers referring to sea-going merchant vessels, what applies is still Civil Code
pursuant to Article 1766 NCC, and Code of Commerce applies only if no provision of
NCC applies to the case

 CAPTAINS/MASTERS AND CREWS OF THE VESSEL

X X X.

 SPECIAL CONTRACTS OF MARITIME COMMERCE

1. (IMPORTANT; BAR) “Charter-party” – defined
Maritime contract where the entire ship (or some principal part thereof) is let
(leased) by shipowner to another person (charterer) for agreed time (Time Charter)
or for agreed use (Voyage Charter)
2. (IMPORTANT; BAR) Kinds of Charter-party
(a) Contract of Affreightment
Can either be:
(a) Time charter: The vessel is leased to charterer for fixed period of time
(b) Voyage charter (trip charter): The vessel is leased to charterer for single or
series of voyage
Whether time/voyage charter, the shipowner supplies the ship’s provisions (e.g.,
foods and drinking water for the captain and crews, fuel for vessel, and all things
necessary for the voyage), pay for the wages of the master and the crews, and
defray (pay) the expenses for the maintenance of the ship
Note: Common (public) carrier remains common carrier despite whole/portion of
vessel subjected to contract under charter-party – provided that the charter is
limited to ship only as in time/voyage charter (i.e., the captain and crews still
provided by, under the employ of and control of the shipowner – and not by the
charterer)
(b) Bareboat or demise Charter
The vessel is manned/navigated by:
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(1) People (captain, officers and crews) of the charterer (not of the shipowner);
or
(2) People (captain, officers and crews) of the shipowner, but such people are
agents and under the employ of the charterer (viz., such people are
technically the people of the charterer)
TRUE TEST OF BAREBOAT/DEMISE CHARTER: In “bareboat/demise charter”, the
shipowner must completely and exclusively relinquish the possession, control,
command and navigation of the vessel to the charterer (including the
employment of the captain and crews) so that the charterer becomes the pro hac
vice owner (owner in the meantime) of the vessel – and anything short of such, is
not bareboat/demise charter but time/voyage charter (Puromines vs. CA, GR No.
91228, Mar 22, 1993)
(c) Importance of distinguishing “Contract of Affreightment” (i.e., Voyage
charter/Time charter) and “Bareboat/demise Charter”
To determine who is liable to the passenger and/or shipper/consignee in case of
breach of contract of carriage, or who is liable in case of quasi-delict(e.g.,
chartered vessel colliding with another vessel) – whether the one liable would be
the shipowner/shipagent(under time/voyage charter) or the bareboat/demise
charterer.
In voyage/time charter, the shipowner/shipagent would be liable.
In bareboat/demise charter, the bareboat charterer is the one personally liable
(in personam) arising out of the operation of the vessel – HOWEVER: The vessel
itself (of the shipowner) would be liable in rem(i.e., an action against the thing
itself [e.g., vessel], and technically not against the shipowner) which renders the
vessel liable to passengers and/or shippers/consignees – AND: The
bareboat/demise charterer would in turn liable to the shipowner for whatever
suffered by the shipowner’s vessel due to negligence of bareboat/demise
charterer (or negligence of his captain and crews).
HOWEVER: The shipowner can also be liable to the bareboat/demise charterer
for “unseaworthiness” of the shipowner’s vessel or, for any negligence of the
shipowner that existed prior to the delivery of the vessel by the shipowner to the
bareboat/demise charterer
(d) Sub-chartering of vessel by original charterer to sub-charterer(i.e., vessel is sub-
chartered by original charterer to sub-charterer) - in violation of charter
agreement against sub-chartering between the shipowner and original charterer
(Ouano vs. CA, GR No. 95900, Jul. 23, 1992)
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Issue: Does the shipowner has cause of action against the sub-charterer (i.e., the
one with whom the original charterer sub-chartered the vessel)?
Held: It depends. YES – if at the time the original charterer and sub-charterer
entered into sub-charter agreement, the sub-charterer is aware of the
prohibition by shipowner to original charterer against sub-chartering; otherwise,
sub-charterer is not liable.
Reason: Article 1311 NCC, “a contract only binds the parties therein”
(contract binding only the shipowner and original charterer). In other
words, the sub-charterer, who lacks knowledge about the prohibition
against sub-charteringis not in privity of the charter agreement between
the shipowner and the original charterer.
Issue: If the shipowner has no cause of action against the sub-charterer, what is
then the remedy of the shipowner?
Answer: The shipowner can file civil action against the original charterer for
breach of contract plus damages.
Note (when in the charter agreement between shipowner and original charterer,
there is no agreement against sub-chartering of the vessel)): Article 679 Code of
Commerce: Charterer of “entire” vessel may sub-charter the whole or part of
vessel on such terms more convenient to him (charterer), the captain not being
allowed to refuse to receive on board the cargo delivered by the second
charterers (i.e., sub-charterers), provided that the conditions of the first charter
(i.e., between shipowner and first [or original] charterer) are not altered, and
that the consideration agreed upon (for the charter of the vessel) is paid in
full(by original charterer) to the person from whom the vessel is chartered (i.e.,
the shipowner), even though the full cargo is not loaded (i.e., cargo capacity of
vessel is not fully loaded with goods by original charterer),subject to the
limitation established in Article 680
3. Transhipment
Act of transferring cargoes/goods from one vessel to another vessel before the
goods/cargoes reach its place of destination, and the transferee vessel to continue
the voyage to the place of destination. This transhipment is true whether or not the
transferor vessel and the transferee vessel are owned by the same shipowner.
In the absence of prior consent of the shipper/consignee, transhipment is
absolutely without excuse/justification, regardless how competent/safe the
transferee vessel – as this is a clear breach of the contract of carriage and thereby
subjects the shipowner/bareboat/demise charterer to civil liability if the
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cargoes/goods of the shippers/consignees are lost/damaged, even if the

loss/damage is excepted/excluded under the law (fortuitous event; force majeure;
etc.) while the goods/cargoes are under the load of the transferee vessel
Except: Transhipment of cargoes is allowed when the transferor-vessel is subjected
to marine peril or on the verge of being shipwrecked
Peril of the sea (marine peril): Refers to peril caused by the overwhelming
power/violence of natural elements such as weather, winds and waves, lightning,
tempests (windstorm) and the like – which cannot be guarded against by ordinary
human skills and prudence (Roque vs. IAC, GR L-66935, November 11, 1985)
4. Demurrage
Refers to the compensation/charges (liquidated damages) in favor of shipowner
agreed in the contract of affreightment (e.g., time charter or voyage charter) to be
paid by charterer for his detention/delay of the vessel beyond the agreed period of
“laytime.”
(a) Laytime
It is the time agreed (in hours/days) in contract of affreightment for the actual
loading and unloading of cargo to/from the vessel.
The reason for the penalty for demurrage is deprivation of earnings that the
vessel could have earned (from other shippers) if the cargoes were
loaded/unloaded in due time (on time).
(1) “WWDSHINC” (Weather Working Days, Sundays, Holidays - Included)
It refers to laytime including workings days, Sundays and Holidays –when the
weather permits. Hence, the running of laytime is tolled when there is bad
weather (whether working days, Sundays or Holidays; i.e., laytime is
extended by period corresponding to the period of bad weather)
(2) Lay Days – explained (vis-à-vis laytime)
It is an agreement in contract of affreightment stipulating therein the days
that are allowed without penalty (for demurrage) to charter parties (i.e.,
shipowner and charterer) for the purpose of “starting” the
loading/unloading of cargoes into/from the vessel – viz., it does not refer
the length of time agreed for actual loading/unloading of cargoes [as this is
laytime]. If the allowed laydays exceeded, the guilty party is liable for
demurrage
Note: From the time the agreed loading/unloading should start, the counting
of “laytime” begins to run for purposes of determining whether or not there is
liability for demurrage.
 P a g e | 80

(a) Article 652 (11) Code of Commerce: X xx. a charter party must be drawn
in duplicate and signed by the contracting parties" and enumerates the
conditions and information to be embodied in the contract, including "the
lay days and extra lay days to be allowed and the demurrage to be paid
for each (i.e., lay days and extra lay days) of them.
(b) “Running days”
Refers to uninterrupted and continuous days allowed for the start of
loading/unloading of cargoes(i.e., lay days) – which days include
weekends and holidays.
However, if there is stipulation “weather permitting”, then bad weather is
excluded from the counting of “running days”
(c) “Extra laydays”
Refers to days allowance beyond the agreed “laydays” without penalty to
charter parties for demurrage
(d) “Customary Quick Dispatch”
There is no specific agreement on the number of lay days, but the
loading/unloading should begin within reasonable time according to
customs and usages of the port where the loading/unloading will be
made
(3) F.I.O.S.T. (Freight In and Out Including Stevedoring and Trading)
Refers to standard stipulation in charter party where the loading, handling
and unloading of cargos are the responsibility of the charterer (and not of the
shipowner)
(4) Primage
Amount stipulated in charter party to be paid by charterer or shipper to
captain as reward for the latter’s special care of the cargos over and above
the (asides from) freightage of cargos
(b) Can there be demurrage even if not stipulated in the contract of affreightment?
YES. When the vessel is improperly detained/delayed due to unreasonable time
in the loading/unloading of the cargoes to/from the vessel(i.e., implied
demurrage).
Note: “Despatch” is the reverse of demurrage, where as per agreement, the
charterer can demand from the shipowner to pay for despatch”” for the time
saved in loading and unloading of cargoes.
(c) Certain obligation of charterer in Contract of Affreightment (voyage/time
charter – i.e., the captain and crews are still under the employ of the shipowner)
 P a g e | 81

In a contract of affreightment, the charterer merely contracts the shipowner to

carry its goods – however, the charterer has the duty observing due diligence to
make available the berthing space for the vessel (i.e.,place where vessel is to be
anchored to load/unload the goods). Now, delay in loading or unloading, to be
deemed as a demurrage, runs against the charterer as soon as the vessel is
detained for an unreasonable length of time from the arrival of the vessel
because no available berthing space was provided for the vessel due to the
negligence of the charterer or by reason of circumstances caused by the fault of
the charterer(NFA vs. CA, GR 96453, August 4, 1999).
5. Liability of charterer to third person (Caltex [Phils.] Inc. vs. Sulpicio Lines, GR No.
131166, Sept. 30, 1999)
If the charter party is a bareboat/demise charter, then it is the charterer who is
responsible to third persons (e.g., vessel of charterer colliding with another vessel).
If the charter party contract is contract of affreightment (voyage charter or time
charter), then it is the shipowner/shipagent who is responsible to third persons.
Issue (IMPORTANT; BAR): In the charter party, does it convert the common carrier
into private carrier?
Held: If the charter party contract is merely voyage/time charter, then the
common carrier is not converted to private carrier, on reason that it is still
the shipowner who has possession, control, command and navigation of the
vessel, and that captain and crews are still employees of the shipowner.
Hence, if the charter party is bareboat/demise charter, then the common
carrier is converted into private carrier wherein it is the bareboat/demise
charterer is the owner pro hac vice of the vessel and that the captain and
crews are also his employees (i.e., not of the shipowner)
Issue: Who has the responsibility between charterer
(bareboat/demise/voyage/time) and shipowner/shipagent as to whether the vessel
complied with all legal requirements of vessel (genuineness of vessel’s license and
vessel’s compliance with all maritime laws) and vessel seaworthiness?
Held: It is the shipowner/shipagent(common carrier). The charterer has the
right to presume that common carrier (i.e., the vessel chartered) possesses all
legal requirements in maritime laws and its seaworthiness
Note: For a vessel to be seaworthy, it must be adequately equipped for the
voyage, and manned with sufficient number of competent officers and crew
(Caltex vs. Sulpicio Lines, 315 SCRA 709). QUESTION: In “bareboat/demise
charter”, how about if the captain and crews were that of the shipowner
 P a g e | 82

though employed by the bareboat/demise charterer? Still, the

shipowner/shipagent will be liable because the charterer has the right to
presume that the vessel/ship is seaworthy – UNLESS: Such captain and crews
(e.g., other than of the shipowner) were of the direct employ chosen by the
bareboat/demise charterer himself.
6. When charter party contract is bareboat/demise charter, then the captain, officers
and crews are the employees of the bareboat/demise charterer (Reason: The
charterer being the pro hac vice owner;Litonjua Shipping Company, Inc. vs.
Candongo, GR No. 51910, Aug. 10, 1989)
Facts:RD Mullion as shipowner and Fairwind as bareboat/demise charterer entered
into bareboat/demise charter, with Litonjua as the local shipagent of Fairwind as
regards crewing needs of vessel M/V Dufton Bay in the Philippines
During the time that the vessel at the port of Cebu, the captain contracted the
services of Candongo as third engineer for period of 12 months employment
contract. While the vessel at the port of Malaysia and before the expiration of 12-
month employment, Candongo was ordered by Fairwind be repatriated (returned) to
the Philippines. Upon return to the Philippines, Candongo filed complaint with
National Seamen Board (NSB) against Litonjua (shipagent of bareboat charterer
Fairwind) for breach of employment contract.
Issue: Who is the employer of Candongo – RD Muullion, Fairwind or Litonjua?
Held: Fairwind. Not RD Mullion because the chartere contract between RD and
Fairwind is bareboat/demise charter, and as such, Fairwind is the owner pro hac vice
of the vessel M/V Dufton Bay. Not Litonjua because the latter is merely the local
shipagent of Fairwind in-charge of the crewing needs of bareboat charterer
Fairwind.
Issue: Who is/are liable to Candongo?
Held:Both Fairwind as bareboat charterer and Litonjua being the local crewing
shipagent of Fairwind pursuant to Art. 586 Code of Commerce. In this case, it was
the Captain who recruited Candongo as 3rd engineer, and that the Captain being the
employee of Fairwind, therefore, the Captain being the general agent of Fairwind
pursuant to Art. 610 Code of Commerce, acted in behalf of Fairwind in recruiting
Candongo.
Note: The Captain, as (general) agent of the pro hac vice shipowner Fairwind, has
legal authority to enter into contracts with respect to the vessel(e.g., captain
procuring employment of vessel [e.g., crewing needs of vessel) and the trading of the
vessel, subject to applicable limitations established by statute, contract or
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instructions and regulations of the shipowner (Inter-Orient Maritime Enterprises, Inc.

vs. NLRC, GR No. 115286, Aug. 11, 1994)
7. Article 653 Code of Commerce: Should the cargo be received without the charter
party having been signed (i.e., the shipowner and charterer entered into an “oral”
charter party contract), then the charter party contract shall be interpreted in
accordance with what appear in the B/L – and the B/L shall be sole evidence of
title as regards the cargo(i.e., evidence of ownership of shippers/consignees over
cargoes received by charterer for shipping), and the B/L shall also be the sole basis
in determining the rights and obligations of the charterer, shipagent and the
captain
(a) Charter party contract can be written or oral (Market Developers, Inc. vs. IAC,
GR No. 74978, Sept. 8, 1989)
Facts: Market Developers, Inc. (Charterer) entered into written charter party
(i.e., Contract of Affreightment) with Gaudioso Uy (Shipowner) for shipment of
goods through barging from Iligan City to Kalibo, Aklan with Bill of Lading also
issued. After the goods were loaded into the barge, the parties orally agreed to
divert the destination to Roxas City instead of Kalibo, Aklan (it is not clear as it is
not shown by evidence who made the request for the diversion), with the cargoes
consigned with Modern Hardware (consignee) as stipulated in the Bill of Lading.
The cargoes reached its destination in Roxas City, however, there is dispute as to
the delay in the unloading of cargos from the barge, hence, the Shipowner
demanded for payment of “demurrage” (charges for delay in unloading) against
Charterer as stipulated in the charter party contract (Contract of Affreightment).
Issue: Is the second contract of affreightment (charter party contract; in re
diversion of destination) valid even is merely oral?
Held: YES. While Article 652 Code of Commerce provides that charter party
must be in writing, nevertheless, Article 653 Code of Commerce provides
that when charter party is not in writing, then Bill of Lading takes the place of
the written charter party contract but only for purposes of evidence of
title/ownership with regard to the cargo (and also for determining the rights
and obligations of Charterer, Shipagent and the Captain) – and in the case at
bar, there is a Bill of Lading issued by Charterer to the Shipper/Consignee.
Issue: In the first written contract (Charter Party [Contract of Affreightment])
stipulated therein about the charges for demurrage; however, in the second
contract (oral Charter Party) no stipulation as to demurrage. Now, is the
Charterer liable for demurrage?
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Held: NO. When the Shipowner and Charterer entered into second oral
contract of affreightment, the first written contract of affreighment is
deemed modified. Now, pursuant to Article 653 Code of Commerce, in
determining the liability for demurrage, the Bill of Lading is then to be
consulted to determine the rights and obligations of Shipowner and
Charterer as regards the liability of Charterer for demurrage. However, in the
Bill of Lading, there being no stipulation regarding charges for demurrage,
then, the Charterer is not liable therefor.
Note: Barge: It is a flat-bottomed boat pulled/pushed by towboat for
transportation of goods (in river/canal)
8. Obligations of Charterer (Articles 679 to 692)
(a) Article 679 Code of Commerce (In the absence of agreement in the charter party
contract about sub-chartering of vessel by the original charterer to a sub-
charterer): Charterer of “entire” vessel may sub-charter the whole or part of
vessel on such terms more convenient to him (charterer), the captain not being
allowed to refuse to receive on board the cargo delivered by the second
charterers, provided that the conditions of the first charter (i.e., between
shipowner and first charterer) are not altered,and that the consideration agreed
upon (for the charter of the vessel) is paid in full to the person from whom the
vessel is chartered (i.e., the shipowner), eventhough the full cargo is not loaded
(i.e., cargo capacity of vessel is not fully loaded with goods),subject to the
limitation established in Article 680
Note:Acharter-party is defined as a contract by which an entire ship, or some
principal part thereof, is let by the shipowner to chartererfor a specified time
(time charter) or use (voyage charter) (Tabacalera Insurance vs. North Front
Shipping, GR No. 119197, May 16, 1997). A charter party can also be
“bareboat/demise” charter
(b) Article 680 Code of Commerce:Acharterer who does not complete the full cargo
he bound himself to ship (i.e., deadfreight) shall pay the freight of the amount
he fails to load,if the captain does not take cargo of others (i.e., cargoes not of
the charterer) to complete the load of the vessel[i.e., the captain is prohibited to
take cargoes from others without prior consent of charterer], in which case the
charterer shall pay the difference [deadfreight], should there be any)
(1) Deadfreight (also known as “Shut-out Load”)
Refers to charter party where the charterer (chartering entire or principal
part of the vessel) agreed to load the vessel (i.e., full load capacity if “entire
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ship” is chartered, or to fully load the “principal part” of the vessel chartered
– as the case may be), however, the charterer was not able to do so – NOW:
The difference of the agreed load and the unloaded, is called “deadfreight”
(2) National Food Authority vs. Court of Appeals, GR 96453, August 4, 1999
Facts: NFA and Hongfil Shipping Corporation (shipowner) entered into “Letter
of Agreement for Vessel/Barge Hire”, for the shipping of 200,000 corn bags
from Cagayan De Oro to Manila – hence, NFA as the Charterer and Hongfil as
the Shipowner. However, the Charterer NFA loaded 166,798 bags. Charterer-
NFA contended that it is not liable for deadfreight for the lacking 33,202 bags
(i.e., 200,000 – 166,798 bags) as it is only liable to pay for the actual load of
166,798 bags.
Issue: Is there Contract of Affreightment between NFA and Hongfil?
Held: YES. The “Letter of Agreement” is deemed as “Contract of
Affreightment.”
Issue: Is there deadfreight?
Held: YES. Under Article 680 Code of Commerce, when there is
agreement as to number of loads between the Shipowner and Charterer,
the deficit number of loads is called “deadfreight” of which the Charterer
is liable to pay.
(c) Unilateral rescission/cancellation of charter party contract at the request
(notice) of charterer (Article 688 Code of Commerce)
(1) Charterer can unilaterally cancel/rescind the charter party contract,
provided: (a) such rescission/cancellation is requested by charterer before
loading of the vessel, and (b) charterer pays one-half (1/2) of freightage
agreed upon
(2) Charterer can unilaterally cancel/rescind the charter party contract when the
Charterer discovered that (a) the capacity of the vessel is not in
accordance/conformity with the “Certificate of Tonnage” issued by authority,
or (b) there is error in the statement in the Certificate of the vessel as
regards the flag of which the vessel navigates
The shipowner is liable for damages to charterer
(3) Charterer can unilaterally cancel/rescind the charter party contract when
vessel is not placed (by shipowner) at the disposal of charterer within the
period agreed upon (i.e., lay day), or the shipowner had the vessel placed at
the disposal of the charterer but not in accordance with the agreement as
regards the manner of disposal of the vessel
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The shipowner is liable for damages to charterer

(4) Charterer can unilaterally cancel/rescind the charter party contractwhen
vessel returns to the port of departure (origin) due to risk of pirate, enemy or
bad weather and the shippers agree to unload their cargo from vessel
The shipwoner has the right to be paid full freightage for the voyage out
(5) Charterer can unilaterally cancel/rescind the charter party contract when the
vessel during voyage should stop at a certain port for an urgent repair of the
vessel, and the charterer decided to dispose of the goods
When the delay due to vessel repair not exceed 30 days, the shippers shall
pay full freightage for the voyage out – BUT: If the delay exceeds 30 days, the
shipper shall pay freightage in proportion to the distance covered by the
vessel
Note: The consent of shipowner is not necessary; mere notice to him is
sufficient. This is the first distinction of a charter party from an ordinary lease
because in an ordinary lease, none of the parties may unilaterally cancel
(rescind) the contract without court intervention and if any party choose to do so
they have to pay the full consideration thereof plus any damages caused
(d) Total rescission of the charter party contract at the request of the shipowner
(Article 689 Code of Commerce)
(1) When charterer within the agreed lay days, fails to place the goods alongside
the vessel for loading
Charterer pays one-half (1/2) of the agreed freightage – and also damages
for demurrage due for lay days and extra lay days;
(2) When before the charterer loads the vessel, the shipowner sells the vessel,
then the shipowner is liable for damages suffered by charterer – provided,
the new owner-buyer decides to load the vessel for his own account (i.e., the
new owner-buyer does not load charterer’s cargoes)
However, if the new owner-buyer does not load the vessel for his own
account, then he must respect the charty party contract previously entered
into by previous-shipowner and the charterer – and the previous-shipowner
shall is liable for damages to the new owner-buyer if the former did not
notify the new owner-buyer as regards the charty party contract perfected
previous to the sale
(e) Total rescission due to fortuitous event (Article 690 Code of Commerce)’
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Charter party contract is ipso jure rescinded and all action due to rescission is
extinguished – PROVIDED: Before the vessel takes its voyage from port of
departure, any of the following occur:
(1) War
(2) Blockade
(3) Prohibition to receive cargo
(4) Embargo of vessel by Government
(5) Inability of vessel to navigate due to no fault of captain or shipagent
HOWEVER: The unloading of cargoes from vessel shall be for the account of the
charterer
9. Republic Act 9515 (Act Defining the Liability of Ship Agents in the Tramp Service and
for Other Purposes)
(a) Ship agent: Person (appointed by shipowner) entrusted with the provisioning or
representing the vessel- in the port in which it (vessel) may be found
(b) General agent: Agent appointed by shipowner in the liner service for all voyages
and covered by a General Agency Agreement whereby the (general) agent
assumes the role and responsibility of its principal within the Philippine territory
including but not limited to solicitation of cargo and freight, payment of
discharging or loading expenses, collection of shipping charges and
issuing/releasing bills of lading and cargo manifest
(c) Tramp agent: Agent appointed by shipowner (owner or bareboat charterer),
charterer (voyage charter or time charter)or carrier - for purposes of tramp service
for one particular voyage whose authority is limited to the customary and usual
procedures and formalities required for the facilitation(enablement) of the (tramp)
vessel’s entry (in the port), stay and departure in the port- and does not include the
assumption of the shipowner’s, charterer’s obligations with the shipper or receiver
for the goods (consignee) carried by the vessel
(1) Tramp service: Refers to the operation of vessel which has no regular and fixed
routes and schedules but accepts cargo wherever (and whenever) the shipper
desires (viz., it is service on the spot), is hired or chartered by any one or few
shippers and usually carries bulk or break bulk cargoes
(2) Liner service: Refers to operation of common carrier (vessel) which publicly offers
its services without discrimination to any user, has regular ports of
call/destination,fixed sailing schedules and frequencies and published freight
rates and attendant charges and usually carries multiple consignments
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Note: Shipowner is the owner of the vessel; while “bareboat/demise” charterer is the
owner pro hac vice of the chartered vessel – hence, “bareboat/demise” charterer can
appoint agent
10. Other provisions of Code of Commerce relating to charter Party
(a) Article 670: If the charterer’s cargo is not sufficient to fill 3/5 of the capacity of
vessel, shipowner has the right to unload cargo and put it on a smaller vessel at
the expense of charterer
Otherwise: If the cargo exceeds 3/5 of the capacity of the vessel, the shipowner
cannot exercise this right
(b) Article 672: If vessel chartered in whole by one party, the owner cannot receive
the cargo of any other person because the charter party is an exclusive contract
(c) Article 673: Shipowner is liable to charterer for damages in case the captain
unduly delays the voyage
(d) Article 675: If vessel has been chartered to load cargo in another port and upon
arrival in that port there is no cargo delivered, the captain has two alternatives:
(a) To look for other cargo; or
(b) If after the lay days have expired there is still no cargo, the captain
should file a marine protest (the third time) and return to home port in
full ballast. The charterer pays freightage in full. (Return in ballast: with
no cargo but with some heavy material placed in ship used to maintain
proper stability)
(e) Article 676: No right of freightage if charterer can prove that vessel is not in
condition to navigate
(f) Article 679: Charterer may sub-charter. This is similar to the law on lease where
the lessee is authorized to enter into a sub-lease, when there is no express
prohibition
(g) Article 680: Charterer who cannot fill the vessel is liable for full freightage
(h) Article 681: Charterer is liable for damages if loaded cargo subjects the vessel to
forfeiture or confiscation. Under Article 356, the carrier can open the packages
of shipper to find out whether they contain items which may subject vessel to
forfeiture.
(i) Article 682: If merchandize should have been shipper for purpose of illicit
commerce, and were taken on board with knowledge of the person from whom
the vessel was chartered or of the captain, the latter, jointly with the shipowner,
shall be liable for all the losses which may be caused other chippers
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(j) Article 685: Before beginning the trip, charterer may unload vessel paying one-
half (1/2) of freightage
(k) Article 686: obligation to pay freightage after discharge of cargo
Note: Read other from Articles 669 to 678 (Rights and Obligations of Shipowners)

BILLS OF LADING (Articles 706 to 718 Code of Commerce)

1. Bill of Lading (B/L; explained)
It operates both as:
(a) Evidence of receipt by common carrier of goods for shipment; and
(b) Contract of carriage to transport goods
Being a contract, written therein the goods, freightage, names of the parties
(shipper, common carrier, consignee), route, destination, and also stipulated the
rights and obligations of the parties.
From the moment the shipper accepts the B/L (usually a contract of adhesion),
the parties become bound to the contract whether or not the shipper read the
B/L – UNLESS:
(1) B/L is against the law, morals, good customs, public order/policy; or
(2) There is (causal) fraud; or
(3) It is contrary to the express provisions in the Contract of Affreightment
([Charter Party] voyage charter or time charter) that the common carrier and
charterer executed (Cebu Salvage Corp. vs. Phil. Home Assurance Corp., 512
SCRA 667)
(a) Cebu Salvage Corp. vs. Phil. Home Assurance Corp., GR 150403, January
25, 2007
FACTS: ALS owns the vessel (M/T Espiritu). Cebu Salvage Corp. (CSC) and
Maria Cristina Chemicals Industries (MCCI) entered into contract of
affreightment (voyage charter), with CSC using the vessel (M/T Espiritu)
of ALS. While on the voyage, the vessel sink.
ISSUE: CSC could not be liable for damages to MCCI because M/T Espiritu
does not belong to CSC but instead belongs to ALS – hence, it is as if the
contract of carriage was entered into by MCCI and ALS. Is CSC correct?
HELD: NO. The contract of carriage is entered into between CSC and MCII
because it was CSC who contracted with MCII to transport the goods of
the latter. MCCI at the time it entered into contract of carriage with CSC,
the former need not inquire who owns the M/T Espiritu. In fact, in the
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voyage charter party contract between CSC and MCII, it is written therein
that CSC is the “owner/operator” of M/T Espiritu.
ISSUE: CSC averred that granting there is contract of carriage, such
contract is between ALS and MCCI because the Bill of Lading issued by
CSC to MCCI is the B/L of ALS. Is CSC correct?
HELD: NO. While it is true that B/L is an evidence of receipt of goods and
also as contract of carriage, nevertheless, what is true upon ALS is merely
the fact that ALS “received” the goods from MCCI for transportation –
HOWEVER: It cannot be said also that ALS entered into contract of
carriage with MCCI on reason that it was CSC who directly contracted
with MCCI for the transport of goods in which case therefore, the
contract of carriage is between CSC and MCCI. On the issue of who are
parties to a contract of carriage, while it is true that B/L (of ALS) is an
evidence of contract of carriage between ALS and MCCI, nonetheless,
when there is inconsistency between B/L and the Voyage Charter Party
Contract (entered into between CSC and MCCI), the provisions of Voyage
Charter Party Contract shall prevails where therein provided that CSC
contracted with MCCI to transport the goods. In other words, the
principle that B/L is an evidence of contract of carriage between ALS and
MCCI, nevertheless, such evidence will not prevail when B/L is contrary
to the express provisions in the Contract of Affreightment (which in the
case at bar a voyage charter party contract)
Note: M/T Espiritu remains a common carrier considering that the
contract entered into between CBC and MCII is merely voyage charter
(and not bareboat/demise charter) – hence, CBC is bound to observe
extraordinary diligence over the vigilance over the goods of MCCI, and
therefore in case of loss/damage to the goods, CBC is presumed at
fault/negligence.
Personal observation: The principle in transportation law that insofar as
the public is concerned, the operator is the registered owner – does not
apply in cases of maritime commerce
2. Kinds of B/L
(a) “On Board Bill of Lading” and “Received for Shipment Bill of Lading”
(1) Received for Shipment Bill of Lading
B/L certifies that goods been received for shipment with/without specifying
the vessel (i.e., naming the vessel) with which goods will be loaded (viz., the
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goods are not actually loaded on board vessel but merely received for
shipment). This kind of B/L is issued whenever:
(a) The goods arrive prior to the time of vessel loading
(b) There is not enough space available to have the goods on board vessel
for shipment (but will be shipped to another vessel at later time, or on
same vessel upon return)
This B/L is not a complete B/L (but only a document evidencing that the
goods were received for shipment) and will still be replaced by “On Board
B/L” when the goods are already actually loaded on board vessel
(2) On Board Bill of Lading
B/L certifies that the goods been received and actually loaded on a specified
vessel (i.e., named vessel) for shipment. This B/L is issued only after the
goods are already loaded on board vessel.
(b) Clean Bill of Lading
B/L where there is no notations (called “clauses”) on the B/L (whether “On Board
B/L” or “Received for Shipment B/L”) issued by common carrier as regards the
goods’ defects as to condition, packaging, quantities, qualities, etc. Clean B/L is
therefore a prima facie evidence that the goods were in good condition – so that
in case the goods reached its destination damaged or in bad order, then the
presumption is, the carrier is at fault/negligent
3. Bill of Lading, as “contract of adhesion”
(a) B/L is commonly a “Contract of adhesion” which is defined as a ready-made form
of contract which the other party has nothing to do but merely accept or reject
such that said other party cannot modify the provisions thereof.
Hence, acceptance by shipper of the B/L raises the presumption that all the terms
therein were brought to the knowledge of and agreed to by the shipper – and
hence, binding provided in the absence of (causal) fraud committed by common
carrier or mistake on the part of the shipper (Provident Insurance Corp. vs. CA,
GR No. 118030, Jan. 15, 2004)
Note: A seasoned businessman extensively engaged in trading business could not
be said to be ignorant in every business transactions he entered into, including
his assent to the contract of adhesion (Everett Steamship Corp. vs. CA, GR No.
122494, Oct. 8, 1998)
(b) Provident Insurance Corp. vs. CA, GR No. 118030, Jan. 15, 2004
Facts: The B/L provides that in case of damages to the goods delivered to the
consignee, the carrier must be notified thereof in writing within 24 hours from
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time of delivery (i.e., Notice of Claim within 24 hours from delivery of goods to
the consignee). The consignee received the goods, but the consignee failed to
observe the 24-hour Notice of Claim
Issue: The consignee averred that he is not bound by the B/L especially as
regards the 24-hour Notice of Claim considering that (1) the consignee has
nothing to do with the preparation of the B/L but only by the common carrier
(i.e., being Contract of Adhesion), (2) such 24-hour notice provision of the B/L
were written in small letters as one would not mind/read examine the same, and
that (3) the 24-hour notice of claim is unreasonable as the place of consignee
were goods been delivered is remote from the place of the common carrier?
Held:
(1) Effect when Contract of Adhesion (e.g., B/L) is accepted
While it is true that the B/L is a contract of adhesion, nevertheless, this kind
of contract is binding, the reason being that the adhering party is free to
accept or reject it entirely. After the B/L is accepted by the shipper without
objection, he is presumed to have knowledge of ALL its contents and
assented to the terms and conditions provided in the B/L
(2) As regards the “small prints” in the B/L
Consignee could not claim ignorance of the contents of the B/L just because
of the small printed letters. The consignee being a regular shipper and a big
corporation, he is presumed to know ALL the contents of the B/L (written
big or small).
(3) With respect to the claim of the consignee about unreasonableness of the
24-hour filing notice of claim from receipt of goods by the consignee due to
distance
It is hard to believe. The consignee as an established corporation and a
regular shipper, and with the advanced “telecommunications” (Note:
Nowadays, cellular phone) and modern transportation – the consignee
would have the necessary facilities to comply with the 24-hour notice of
claim so that such period is just and reasonable.
Note: The Supreme Court gave reason for the prompt 24-hour notice of
claim. The reason therefor is to afford the common carrier/depositary
reasonable opportunity to check the validity of the consignee’s claims of
damaged goods while the facts are still fresh in the minds of the concerned
parties and the document are still available, and in order to avoid the
possibility of fraud or mistake in ascertaining the validity of claims.
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4. Nature of B/L (Keng Hua Paper Products Co., Inc. vs. CA, GR No. 116863, Feb. 12,
1998)
Facts: The shipper shipped with the common carrier goods for transportation to
Manila, with Keg Hua Paper Products Co. as consignee – and a B/L was issued by
carrier to the shipper with provision about liability for demurrage. When goods
reached Manila port, the common carrier issued “Notice of Arrival” to the
consignee. However, the consignee failed to discharge the goods during the “free
time of grace period” (i.e., lay days) so that it was only after 481 days (from the time
goods were stored in the warehouse or container of carrier) when the goods were
unloaded by the consignee. Hence, pursuant to the provision in the B/L regarding
demurrage (i.e., in excess of lay days), the common carrier penalized the consignee
for demurrage in excess of the allowed lay days for unloading.
(a) Issue: What is the nature of B/L?
A bill of lading serves two functions. First, it is a receipt (by carrier) for the goods
for shipment. Second, it is a contract by which three parties, namely, the shipper
and the carrier undertake specific responsibilities and assume stipulated
obligations (and the moment the consignee accepts the B/L without protest, he is
deemed bound by the provisions stated in the B/L despite he is not also a
signatory to such B/L)
(b) Issue: When does the B/L becomes binding upon the consignee; does the B/L
binds the consignee considering that the contract of carriage (B/L) was only
signed by the common carrier and shipper and that the consignee is not also
signatory thereof and in fact has nothing to do with such B/L?
Held: A B/L delivered and accepted constitutes the contract of carriage even
though not signed (i.e., the consignee does not participate in the B/L entered
into by and between the carrier and shipper)," because the acceptance of a
paper (e.g., B/L) containing the terms of a proposed contract generally
constitutes an acceptance of the contract and of all of its terms and conditions
of which the acceptor has actual or constructive notice. In a nutshell, the
acceptance of a B/L by the shipper and the consignee (when B/L was delivered
to the consignee), with full knowledge of its contents, gives rise to the
presumption that the same was a perfected and binding
Note: When shipper accepts the B/L from carrier, then the B/L becomes a binding
contract between them. If later, the consignee also accepts the same B/L, then by
his acceptance, he becomes bound by the contents of the B/L – even if the
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consignee is not a signatory to the B/L because his mere acceptance of the B/L
makes him bound and become party to the contract of carriage
(c) Issue: Is the consignee therefore liable for demurrage charges?
Held: YES. Considering that the B/L contains provisions for demurrage charges as
against the shipper and consignee, and the consignee accepted the B/L without
objection, hence, the demurrage provision binds the consignee.
(d) Issue: Consignee’s defense that it did not discharge (claim) the goods within the
time limit on reason that he might be violating customs, tariff and central bank
laws as there was overshipment (i.e., the shipper shipped goods more than what
had been agreed by the consignee).
Held: Such defense must fail. Mere apprehension of violating said laws, without
a clear demonstration (i.e., without establishing) that taking delivery of the
shipment has become legally impossible (i.e., taking by consignee of
overshipment is prohibited by law; this impossibility must be distinguished from
physically impossibility), cannot defeat the consignee’s contractual obligation
under the bill of lading at the time he accepted the B/L without objection.
Note: Further, the common carrier has nothing to do with the contract between
the shipper and consignee, so that it concern is only to transport the goods
shipped by the shipper and deliver the goods to the consignee. Petitioner's
remedy in case of overshipment lies against the seller/shipper, not against the
carrier. (Note: The agreement between carrier and shipper was “Shipper’s Load
and Count”, i.e., shipper is solely responsible for the loading of container on
board the vessel)
5. When the consignee named in the B/L - is not bound by the B/L (MOF Company,
Inc. vs. Shin Yang Brokerage Corporation, GR No. 172822, Dec. 18, 2009)
Facts: From Korea, the Shipper shipped goods to the Philippines via Carrier. The
Carrier issued B/L where the named therein as consignee is Shin Yang Brokerage
Corp. (Consignee) – and the B/L provision is “Freight Collect” (i.e., the Consignee as
the one who will pay for the freightage and not the Shipper). When the goods
arrived in Manila, Carrier (though its general agent in Manila) demanded payment
for freightage from the Consignee (presumably after the Carrier gave the Consignee
a “Notice of Arrival”). The Consignee refused to pay on ground that it did not
contract with the Shipper for shipment of goods, though it merely acted as
consolidator for the said shipments along with the shippers (consolidator – one who
groups together all shipments from different ).
Issue: Is Shin Yang bound by the stipulation in the B/L?
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Held: NO. Shin Yang was never a consignee of the Shipper.

Bill of Lading is a contract which the common carrier, shipper and consignee (upon
acceptance on B/L without protest) are parties thereof - even if the latter (consignee)
is not signatory thereto provided he accepted the B/L when delivered to him the
goods by the carrier without objection. Therefore, it does not bind a person (Shin
Yang in this case) when he did not accept the B/L.
(IMPORTANT; BAR) B/L is oftentimes drawn up between carrier and shipper without
the intervention of the consignee. However, the consignee can be bound by the B/L
when:
(1) Consignee accepts the B/L without objection, notwithstanding he is not a
signatory to the B/L (Keng Hua vs. CA, GR No. 116863, Feb. 12, 1998); or
(2) There is agency relation between the shipper and the consignee (i.e., principal
[consignee] is bound by the act of the agent [shipper]) – notwithstanding he is
not a signatory of or does not accept the B/L; or
(3) Consignee (as third person) demands from carrier the fulfilment of the provision
in the B/L drawn up by shipper from carrier in behalf of the consignee (i.e.,
stipulation pour atrui; e.g., consignee demanding delivery of the goods to him by
the carrier)
In the case at bar, Shin Yang never accepted the B/L, neither being as principal, nor it
demanded from common carrier the delivery of the goods in its favor.
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 LOANS ON BOTTOMRY AND RESPONDENTIA

1. Article 719 Code of Commerce (commonality of bottomry loan and respondentia
loan): A loan (bottomry loan [on vessel] or respondentia loan [on cargoes]) in which,
under any condition whatsoever, the repayment (by shipowner/captain [bottomry
loan]; by cargo owner [respondentia loan]) of the sum loaned and of the premium
(i.e., interest) agreed – depends: (a) upon the safe arrival in port of the effects (i.e.,
safe arrival of the vessel or safe arrival of the goods [as the case maybe]; “No
Vessel/Goods No Liability Rule” [no repayment]) on which it is made, or (b) upon the
(remaining) value (of vessel or goods [as the case maybe]) in case of accident (i.e.,
Limited Liability Rule) - shall be called a bottomry loan or respondentia loan
Note: Principle on “hypothecary” also applies in Bottomry Loan or Respodentia Loan
(i.e., either “No Vessel/Goods, No Liability Rule” or “Limited Liability Rule” [i.e.,
remaining value of vessel/goods after accident])
(a) Bottomry/respondentia loan – their common elements/requisites
(1) The vessel/goods must be exposed to marine peril (Article 732 Code of
Commerce); and
Note (IMPORTANT; BAR): When then vessel/goods not subjected to marine
peril, then the contract is not bottomry/respondentia loan but an “ordinary
loan” (in which case, borrower cannot claim for the hypothecary nature of
Bottomry/Respondentia – i.e., either “No vessel/goods No Liability Rule” or
“Limited Liability Rule”, as the case maybe; viz., the shipowner/shipper must
pay the lender regardless of the safe arrival of the vessel/goods)
Peril of the sea: Refers to peril caused by the overwhelming power/violence
of natural elements such as weather, winds and waves, lightning, tempests
(windstorm) and the like – which cannot be guarded against by ordinary
human skills and prudence (Roque vs. IAC, GR L-66935, November 11, 1985)
(2) The lender is paid principal loan and premium (interest) only when the
vessel/goods (as the case maybe) safely arrived at destination (Article 719
Code of Commerce)
2. Loan on Bottomry (explained)
A maritime loan contract where the shipowner or the captain (in the absence of
shipowner) borrows money from lender which money to be utilized for the
use/voyage of vessel, for the vessel’s equipment for the voyage or repair of the
vessel – and that the vessel is mortgaged in favor of lender as security (collateral).
The payment of the principal loan and agreed loan premium (interest) depends
when the vessel arrives safely - so that (a) if the vessel loss due to marine peril,
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then shipowner pays nothing to the lender (i.e., No Vessel No Liability Rule), or (b) if
the vessel is damaged due to marine peril, then the shipowner can limit his liability
to pay the lender as to the remaining value of the damaged ship (i.e., Limited
Liability Rule; however, if the value of the damaged ship is way over and above the
value of the bottomry loan and the liability for damaged/loss goods, then of course,
it is better for the shipowner to pay the principal loan plus premium of the bottomry
loan)
3. Loan on Respondentia
A maritime loan where the owner of the goods on board vessel for shipment
borrows money from lender, with the goods mortgaged as security (collateral). The
payment of the principal loan and agreed loan premium (interest) depends when
the goods arrives safely - so that (a) if the goods loss due to marine peril, then the
cargo owner pays nothing to the lender (i.e., No Goods No Liability Rule), or (b) if
the goods are damaged due to marine peril, then the cargo owner can limit his
liability to pay the lender as to the remaining value of the damaged goods (i.e.,
Limited Liability Rule; however, if the value of the damaged goods is way over and
above the value of the respondentia loan, then of course, it is better for the cargo
owner to pay the principal loan plus premium of the respondentia loan)
It is called “respondentia” because it is the cargo owner’s own responsibility, and not
of the shipowner
4. Bottomry Loan and Respondentia Loan (distinguished)
Bottomry Loan Respondentia Loan
Contracted by shipowner; in the absence Contracted by owner of cargo
of shipowner (e.g., during voyage), by
the captain
Vessel serves as security (collateral) for Goods on board vessel serve as security
the loan (collateral) for the loan
Lender is paid the principal and agreed Lender is paid the principal and agreed
premium (interest) upon the safe arrival premium (interest) upon the safe arrival
of vessel at port of destination of goods at port of destination
AND: In other respects, bottomry and respondentia are substantially of same
footing.

5. (IMPORTANT; BAR) Bottomry Loan/Respondentia Loan and Simple Loan

(distinguished)
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Bottomry Loan/Respondentia Loan Simple Loan

Rate of interest is not subject to Usury Rate of interest is subject to Usury Law
Law Note: Usury Law is suspended; however
in lines of jurisprudence, when the
interest is unconscionable, it will be
rendered void and the interest would be
reduced to legal interest
Requisite of contract that the Marine peril/risk is not necessary
vessel/goods must be subject to marine
peril/risk
Loans made during voyage, shall be The prior lenders are preferred for
preferred over those loans made before payment
vessel took its voyage (Reason: The last
loan contributes to the preservation of
the pledged/mortgaged vessel/goods
from marine peril) – however, for those
loans made during voyage, preferred is
the last lender over prior lenders
Must be in writing in order to have right Not necessary
for judicial action
Loss of pledged vessel/goods, makes the Loss of pledge property (e.g., pledge,
lender lost his principal and agreed mortgage; accessory obligation) does
interest not carry with it the loss of the principal
debt and interest
Bottomry/Respondentia loan must be Registration is not required
recorded with registry of vessels to bind
3rd persons

6. (IMPORTANT; BAR) Exceptions to Hypothecary Nature of Bottomry/Respondentia

Loan (Article 731; Shipowner/Captain/Owner of Goods [as the case maybe] cannot
invoke hypothecary nature of bottomry/respondentia loan)
Lender has no cause of action by the absolute loss of the pledged vessel/goods due
to accident on the sea (marine peril) that happened during the voyage – UNLESS:
(a) Loss of the pledged vessel/goods due to inherent defect of the vessel/goods;
(b) Loss of the pledged vessel/goods due to barratry on the part of captain
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Notes: (IMPORTANT; BAR) What is barratry: Barratry is any willful/intentional

misconduct (i.e., not negligence) on the part of the master/captain or vessel's
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).
(c) Loss of the pledged vessel/goods due to fault/malice of borrower
(shipowner/captain/cargo owner [as the case maybe]);
(d) Vessel was engaged in contraband (e.g., illegal goods; smuggled goods);
(e) Cargo loaded on the vessel is different from that agreed
7. Relevant provisions on loans on Bottomry/Respondentia
(a) Salaries of crews cannot be subject of bottomry loan (by the shipowner; Article
725 Code of Commerce)
(b) Bottomry loan that was granted is in excess in view of over-valuationby the
shipowner/captain/cargo owner over the vessel/goods – such loan is valid only
as to the amount which the vessel/goods is appraised by expert appraiser, and
the excess shall be returned to the lender with legal interest (Article 726 Code of
Commerce)
(c) (IMPORTANT; BAR) Lender of bottomry/respondentia must contribute (liable) to
general average once jettison(of goods) made possible the safe arrival of
pledged vessel and goods (Article 732 Code of Commerce)
Notes:
(1) Jettison: Refers to throwing overboard from vessel goods/cargos to lighten
the vessel in case of maritime peril
(2) General average: Loss/damage deliberately caused due to marine peril that
resulted in saving the vessel and cargo (i.e., common benefit), and such
loss/damage shall be proportionately shared by all parties with financial
interest in the voyage
(d) Exposure to marine peril takes place (begins) from the time anchors are
weighed (lifted) at the port of departure until anchors are dropped at the port
of destination (Article 733 Code of Commerce)
(1) Rusting of steel pipes in the course of voyage is deemed a marine peril
(Cathay Insurance Co. vs. CA, 151 SCRA 710)
(e) In case of shipwreck (i.e., vessel not lost) and there is
salvage,(bottomry/respondentia) loan will depend upon the repayment on what
maybe salvaged (Article 734 Code of Commerce; i.e., Limited Liability Rule)
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(f) When there is concurrence of bottomry loan with insurance of vessel (i.e.,
bottomry loan and at the same time the vessel is insured) - for purposes of
insuring the vessel, the insurable interest of shipowner over vessel is value of
vessel minus the bottomry loan (Article 735 Code of Commerce)
(g) Articles 737 to 805 – repealed by Insurance Code

RISKS, DAMAGES AND ACCIDENTS OF MARITIME COMMERCE

 AVERAGES (Articles 806 to 812 Code of Commerce [General Average or Particular

Average])
1. When claims for damages on cargoes/goods due to negligence of “common
carrier”
The Civil Code applies, and not the Code of Commerce (American Home Assurance
vs. Court of Appeals, 208 SCRA 343) – in which case, the common carrier is liable to
cargo owners. However, if negligence of common carrier is a factual issue, then
under Civil Law, the presumption is that the common carrier is at fault/negligent
HENCE: In order to apply “averages” under the Code of Commerce, the
expenses/damages must have been incurred to save the vessel and its cargoes – and
not expenses/damages incurred to save the vessel and its cargoes due to or brought
about by the negligence of the common carrier
2. Averages
Refers to incurred expenses or damage – which expenses/damages shall be borne
either by those who incur expenses or damages (particular average) themselves or
by all those who have interest in the voyage (general average)
a. (IMPORTANT BAR) What are the types of averages in marine commerce
under Code of Commerce
ANSWER: Particular and general average (Article 808 of the Code of
Commerce). Particular averages include all expenses and damages caused
to the vessel or to the cargoes which did not inure to the common benefit
and profit of all the persons interested in the vessel and the cargo (Article
809 of the Code of Commerce). General averages include all damages and
expenses which are deliberately caused to save the vessel, its cargo, or
both at the same time, from a real and known risk (Article 811 of the Code
of Commerce).
3. Article 806 (When and what are to be considered “averages”)
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(a) All extraordinary or accidental expenses made during voyage – to preserve

(save) the vessel or cargo(es), or both
Note: Article 807 refers to navigation ordinary expenses, and not averages
(b) All damages/deterioration upon the vessel from the time it left its port of
departure up to the time the anchor is cast (lowered) at the port of destination
(c) All damages/deteriorations incurred upon the goods from the time they are
loaded on board vessel at the port of departure up to the time goods are
unloaded at the port of their consignment
4. Article 807 (Expenses not deemed as averages – but merely ordinary expenses)
Petty/ordinary expenses incident (as consequence of) to navigation such as (not
exclusive) pilotage, lighterage, towage, anchorage, inspection, health, quarantine,
lazaretto, and other so-called port expenses, casts of barges, and unloading, until
goods are placed on wharf, and other usual expenses of navigation – are deemed
ordinary expense to be defrayed by shipowner unless there is contrary agreement
(a) Pilotage – refers to services made by a local pilot (a person who is seasoned pilot
and has knowledge of local water) on vessel, safely piloting the vessel to its
destination
(b) Lighterage – refers to services of a small watercraft unloading goods from the
vessel and bring the goods to the port of destination, or from port to the vessel
(Note: This usually happens when the deep of the sea at the port cannot
accommodate the vessel, or runs the risk of running aground)
(c) Towage – refers to service of a small (but powerful) boat (known as tugs) by
towing (pushing or pulling) the vessel into the port of destination
(d) Anchorage – refers to service by giving privilege to the vessel a place where it
could drop its anchor
(e) Lazaretto – refers to service to quarantine marine travellers to prevent spread of
contagious diseases
(f) Barge – refers to service made upon vessel, where the goods on board vessel are
transferred to a flat-bottomed boat (some are not self-propelled, i.e., no engine
on it, and has to towed through towage; but some are self-propelled) carrying
goods travelling through rivers or canals leading to the port of destination of the
goods
(g) Wharf – refers to a structure built along harbour shores, rivers or canals (viz.,
piers) where goods/passengers are loaded/unloaded
5. Particular/simple Averages
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(a) Article 809 (Particular/simple Averages; here the damages and expenses shall be
borne upon those who suffer damages or incur expenses themselves individually
– viz., no contribution from others)
General rule: Refers to all expenses and damages caused upon the vessel and/or
cargoes – that did not inure to the common/general benefit of all persons
interested in the vessel and its cargoes – especially the following (i.e., not
exclusive):
(1) Particular averages upon “goods/cargoes”
(a) Damage incurred upon goods, and expenses made upon goods to avoid
damage to or repair the damage of the goods,(damage made/expenses
incurred) from the time goods are embarked (loaded) on board vessel
until unloaded - either because of goods’ inherent defect, or because of
marine accident or force majeure
(b) Damage incurred upon goods loaded on deck if marine ordinance allows
it (i.e., ordinance/law mandates the damage), except in coastwise
navigation (i.e.,navigation in the sea along and near the land [shore land])
Note: “Deck” refers to floor platform (flat area) on top and to cover the
ship’s compartment.
(c) Damage upon cargo through fault, negligence or barratry of
captain/crew – without prejudice to the right of cargo owner to recover
from captain, vessel and earned freightage
Note: “Barratry” refers to intentional misconduct, fraud or gross
negligence of captain/crews(s) causing damage to the goods
(2) Particular averages upon “vessel”
(a) Damage and expenses incurred upon vessel from the time the vessel
departs from port of departure to the time vessel is anchored at the port
of destination –regarding her hull, rigging, arms and equipments-
because of inherent defect of the vessel,or because of marine accident
or force majeure
(b) Expenses made at port (i.e., in between port of departure and
destination) necessary to repair the vessel, or to secure (protect)
provisions
(3) Particular averages for the “vessel” and “cargoes/goods”
(a) Damage incurred on vessel and/or cargoes due to impact or collision
with another (e.g., another vessel), provided it is accidental or inevitable
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without fault/negligence of the captain – otherwise, it is the captain

who will be liable for such damages
(4) Particular averages for the “crews”
(a) Wages and victuals (crews’ provisions such as foods, waters and other
human consumptions) of the crews when the vessel is
detained/embargoed by reason of:(1) legitimate order (of the
authorities), or (2)force majeure – provided the charter party is
contracted for a fixed sum for the voyage
(b) Victuals and wages of crews while vessel under quarantine (through
lazaretto)
(5) Particular averages for the “crews and vessel”
(a) When vessel arrive under stress,expensesmade where money came from
the sale of lowest valued goods/cargoes by the captainwhich sale made
to save crews and to pay of provisions, or to meet (satisfy) other needs
of the vessel
Note: “Vessel arrival under stress” (Article 819 Code of Commerce) –refers
to the arrival of vessel at the nearest and most convenient port when the
vessel cannot continue the voyage to the port of destination because of
lack of provision, well-founded fear of seizure, privateers (private armed
ship commissioned by government during war to capture enemy vessel) or
pirates, or by reason of any accident of the sea disabling the vessel to
navigate
(b) Article 810 (Who shall bear damages/expenses in particular averages)
The owner of the thing/s that caused expenses, or the owner of the thing that
suffered the damage (i.e., the one who shall bear the expenses/damage can be
shipowner or cargo owner – as the case maybe)
Note: In other words, such expenses or damages shall fall individually and solely
upon the owner of the vessel or goods, as the case maybe – without right to
demand sharing/contribution from others
6. General/gross Averages
(a) Article 811 (General or gross Averages; i.e., expenses or damages intentionally
done for the common benefit; i.e., to save the vessel and all cargoes)
Refers to damages and expenses intentionally caused in order to save (preserve)
the vessel, cargoes, or both – from real known risk, particularly the following:
(a) Expenses to save the vessel/cargoes
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(1) Cash invested in order to redeem (recover) the vessel and

cargoescaptured by enemy, privateers, or pirates – including provisions
(of vessel and its crews), wages (of crews), and expenses of the vessels
detained during the time the settlement or redemption is being made
(2) Expenses of (1) removing or transferring portion of cargoes in order to
lighten the vessel and (2) placing such cargoes in condition to enter a
port or roadstead – including damage upon cargoes that are
removed/transferred
Note: “Roadstead” a body of water sheltered (protected) from sea
currents/tides near shoreline where vessels can be safely anchored
(3) Expenses incurred to float the vessel, which was intentionally
stranded(i.e., vessel intentionally run aground) in order to save the vessel
(b) Damages to save the vessel/cargoes
(1) Effects jettisoned (i.e., cargoes or other things thrown from vessel) in
order to lighten the vessel, whether belonged to vessel, or cargo
owners, or to the crews - including the damage resulting from such
jettisoning caused upon effects kept on board the vessel
(2) Cables and masts that are rendered useless, or anchors and chains
abandoned – in order to save the vessel, cargoes, or both
(3) Damage suffered by cargoes caused by the opening in the vessel in
order to drain the vessel and prevent from sinking
(4) Damage suffered by vessel which was (intentionally) opened, scuttled
(bore a hole) or broken in order to save the vessel
(5) Depreciation in the value of the goods/cargoes that were sold (by
captain) in view of the vessel’s arrival under stress which sale was made
in order to repair the vessel by reason of gross (general) average (i.e.,
sale was made for the benefit of all)
Note: Arrival under stress (read Article 819 Code of Commerce)
(c) Expenses for the crews
(1) Expenses incurred in treating the crews including expenses for the their
subsistence – who were wounded or crippled in defending or saving the
vessel
(2) Wages of the crews who were held as hostage by enemy, privateers,
pirates - including expenses the crews necessarily incurred during his
imprisonment – until crews returned to the vessel or to his domicile
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(3) Wages and victuals of crews of vessel chartered by the month which
vessel embargoed(i.e., vessel banned by government) or detained by
force majeure or order of the Government, or in order to repair the
damage caused the vessel for the common benefit
(d) Expenses for the liquidation (i.e., determination in value and distribution) of
the (general) average
Note: For liquidation of damages, Read Articles 846-869
(b) Article 812 (Who shall bear the expenses/damages in General [gross] Averages)
All persons who has interest in the vessel and its cargoes shall contribute (over
and above [i.e., asides from] the freightage paid by the shipper/consignee)
(c) Requisites of General Average (Magsaysay, Inc. vs. Agan, GR L-6393, January 31,
1955)
FACTS: Common carrier (Vessel) carries cargoes. Vessel had its stopover at the
port of Aparri, Cagayan. It was a fine weather, and when it lifted its anchor to
proceed to its further voyage, the Vessel accidentally ran aground. Vessel was
pulled by another ship for a compensation/fee (salvage).
ISSUE: Is the running aground of the Vessel a general average (so that the
shipowner and cargo owners will contribute to the compensation paid for the re-
floating of the Vessel) or particular average (so that only the shipowner bear his
own expenses in said re-floating)?
HELD: Particular average falling under Article 809 (2) Code of Commerce – i.e.,
damage suffered by Vessel by reason of accident of the sea or force majeure.
While Article 811 (6) under the general average speaks about “Expenses
incurred to float the vessel, which was intentionally stranded (i.e., vessel
intentionally run aground) in order to save the vessel”, nevertheless, the
stranding (run aground) of the Vessel not intentional but instead caused by
accident of the sea or force majeure.
The following are the requisites of general average:
(1) There is danger common to all (i.e., the shipowner and cargo owners) –
which common danger can exists in the port of loading/unloading, during
voyage, and danger is imminent (i.e., immediate and impending danger) and
not distant (speculative danger not yet existing)
(2) For the common safety - the vessel, or its cargoes, or both is/are deliberately
sacrificed(to avoid the danger)
(3) Expenses/damage brought about the common danger, resulted in the
successful saving of the vessel and cargoes
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(4) Expenses had been incurredor damage had been caused – only after taking
proper legal steps under law (i.e., Articles 813 and 814 Code of Commerce
must first be observed before making expenses or intentional damage)
AS TO THE FIRST REQUISITE: There was no danger as in fact it was a fine weather
when the Vessel run aground. It is true that if the Vessel just left indefinitely run
aground at the mercy of elements and would therefore place the cargoes under
risk of being destroyed – however, the Fourth Requisite requires that the danger
must be imminent (i.e., immediate and impending danger) and not distant
danger. In this case, the Vessel though run aground, there is no evidence that it
has to be immediately floated to save it from imminent danger.
AS TO THE SECOND REQUISITE:The Vessel ran aground not by intentional but by
accident or force majeure. Moreover, there is no common safety to speak of
because the common safety must relate to an imminent danger
AS TO THE THIRD REQUISITE:While it is true that the Vessel was successfully
salvaged, nevertheless, the expenses made (i.e., salvage) was made not to avoid
an imminent danger.
AS TO THE FOURTH REQUISITE:Considering that the case at bar is particular
average, it becomes irrelevant because Articles 813 and 814 Code of Commerce
refers to general average. (Note: Even assuming that the case is of general
average, nevertheless, the captain did not observed Articles 813 Code of
Commerce before incurring expenses for afloat [salvage] the Vessel - Magsaysay,
Inc. vs. Agan [supra])
(d) Articles 813 and 814 (In General Average, there are procedures to be observed
before making expenses or intentional damage)
(1) Captain call for a meeting of the vessel officers, and also cargo owners (if on
board vessel) – for purposes of determining the necessity of making general
average
If the persons on board vessel (if any) having interest on cargoes (e.g.,
shippers/consignees or agent of shippers/consignees) should object, but the
captain and officers, or captain and majority of officers, or solely the captain
if opposed by majority of officers – should resolve that measures are
necessary to execute general average, then general average shall be
conducted – but without prejudice to the right of those persons having
interest in the cargoes(on board or not the vessel) to file action in court
against the captain (not the shipowner) and prove therein that the captain
acted with malice, lack of skill, or negligence.
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However, those persons on board vessel having interest on cargoes were not
heard during the aforementioned meeting before the captain conducted
general average, then they shall not contribute to the general average and
they can recover indemnity from the captain – unless, meeting would not be
necessary in view of the urgency of the situation where a resolution of the
captain to conduct general average must be resolved with dispatch
(2) In case the resolution adopted by captain (i.e., after meeting) be for the
intentional causing of damage for purposes of general average, then such
resolution must be entered (by the captain) in the logbook, stating therein
the following:
(a) Motives and reasons why damage must be done;
(b) The votes opposing such resolution (to cause damage), and the reason
given for such opposition (if any); and
(c) The irresistible and urgent situation calling for the necessity of causing
damage, if such resolution is of the captain’s accord (i.e., captains made
such resolution despite opposition by majority of vessel officers)
(3) The minutes of the meeting must be signed by all persons present during the
meeting (i.e., persons interested in the cargoes [if on board], the vessel
officers and the captain, all persons present), provided such signing of the
minutes is possible – and if not possible(because of the urgency of the
situation to cause damage for purposes of general average), then the signing
of the minutes of the meeting must be done at the first opportunity (i.e., the
first opportunity after the conduct of general average).
(a) After the conduct of general average (i.e., by causing damage), in the
minutes of the meeting, must be mentioned in detail all things jettisoned,
damage caused on things kept on board vessel (caused by the conduct of
general average).
(4) Captain shall deliver one copy of said minutes to maritime judicial authority
(RTC) at the first port within 24 hours after arrival of the vessel to such port –
and the captain shall under oath ratify the meeting before such judicial
authority.
7. Article 814 (If the captain did not comply with the procedures/formalities provided
under Articles 813 and 814 Code of commerce)
The carrier (shipowner) cannot claim for contribution (under general average) from
consignees for additional freightage and salvage expenses.
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(a) Effects when Captain did not observe the procedures under Articles 813 & 814
Code of Commerce before resolving/proceeding to general averages
(Philippine Home Assurance Corp. vs. Eastern Shipping Lines, Inc., GR 106999,
June 20, 1996)
FACTS: Cargoes were loaded Carrier-A from Japan to Manila, and then to Cebu.
While on its voyage, the Carrier caught fire which was uncontrollable that
forced the captain to order abandoning the Carrier, the Carrier constructively
loss. Several hours later, Tugboat conducted salvage and pulled the Carrier back
to port of Japan where fire fighting operations were conducted to consume the
fire still engulfing the Carrier. The saved cargoes were loaded to another carrier
(Carrier-B) and shipped them to Manila and Cebu.
Carrier-A charged from all the Consignees (whose cargoes were saved) the
amount pertaining to the expenses incurred in the salvage and also the
freightage charged by Carrier-B from Carrier-A (i.e., general averages).
Philippine Home Assurance Corporation (PHAC; insurer of all the Consignees)
paid Carrier-A such charges but under protest.
PHAC (as subrogee of Consignees) filed with RTC (admiralty court) an action
against Carrier-A for “recovery of sums it paid with Carrier-A” on ground of
breach of contract of carriage on reason that the fire was brought about by the
negligence of the captain and crews of Carrier-A.
HELD: The fire is not caused by Act of God such as lightning or calamities or
natural disasters – but by negligence of captain and its crews.
(a) ISSUE: Is the expenses incurred by Carrier-A pertaining to salvage reward it
paid to Tugboat and the freightage it paid to Carrier-B – one of “General
Averages.”
HELD: YES. General averages include all damages and expenses (i.e.,
salvage reward and freightage to Carrier-B) which are deliberately caused
in order to save the vessel, its cargo, or both at the same time, from a real
and known risk (i.e., fire that gutted Carrier-A). The expenses for salvage
reward that Carrier-A paid to Tugboat was intentionally made to save the
vessel and its cargoes – while the expenses paid by Carrier-A to Carrier-B for
the transport of saved cargoes from Japan to Manila/Cebu were also
intentionally made to save the cargoes from deterioration/damage.
(b) ISSUE: Considering that the said expenses were of general averages, can
therefore Carrier-A make the Consignees of the saved cargoes in
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Manila/Cebu liable to contribute/share on said expenses pursuant to

general averages?
HELD: NO. Because the captain of Carrier-A did not observe the procedures
laid down under Articles 813 and 814 Code of Commerce – before general
averages was commenced (Note: Please read Articles 813 & 814 Code of
Commerce).
Notes:
a) Carrier-A is however liable for damages for breach of contract of carriage to
those consignees whose cargoes were not saved. Granting that Carrier-A has
the right to demand contribution under general averages from consignees of
the saved cargoes – NEVERTHELESS: Those loss cargoes (i.e., cargoes not
saved but consumed by fire) were not intentionally damaged to save the ship
or other cargoes or both, but instead those cargoes were damaged/loss
because of fire through the negligence of captain and crews of Carrier-A
b) Now, if cargoes were intentionally damaged (or loss [e.g., jettisoned];
general average) in order to save the vessel and/or cargoes, then those
consignees whose cargoes were intentionally damaged/loss are entitled to
indemnity from the shipowner and consignees whose cargoes were saved, or
only from consignees whose cargoes were saved if the general average was
made to save only the cargoes
8. Article 815 (Jettisoning of things from vessel pursuant to general average)
Captain shall direct jettison in the following order:
(1) Those that are on (upper) deck, beginning on those that embarrass (i.e., upset)
the maneuver the vessel or damage the vessel – and if possible, preference be
made on those heaviest ones with least utility and value
(2) Those that are below the upper deck, always beginning with those greatest
weight with smallest value – to the number/amount absolutely necessary (in
saving the vessel and/or its cargoes)
9. Read Articles 816 to 818
a. Carriage of Goods; Indemnity; Jettisoned Goods
FACTS: An importer of Christmas toys loaded 100 boxes of Santa Claus
talking dolls aboard a ship in Korea bound for Manila. With the intention
of smuggling one-half of his cargo, he took a bill of lading for only 50
boxes. On the voyage to Manila, 50 boxes were jettisoned to save the
more precious cargo
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ISSUE: Is the importer entitled to receive any indemnity for average?

Explain.
ANSWER: The importer is not entitled to receive any indemnity for
average. In order that the goods jettisoned may be included in the general
average and the owner be entitled to indemnity, it is necessary that their
existence on board be proven by means of the bill of lading (Article 816 of
the Code of Commerce).
b. Carriage of Goods; Deviation; Liability
FACTS: 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 Cebu laden with, among other goods, 10,000
television sets consigned to Romualdo, a TV retailer in Cebu. When the
vessel was about ten nautical miles away from Manila, the ship captain
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 into Philippine
territory, the captain realized that MV Dona Juana would traverse the
storm’s path, but decided to proceed with the voyage. True enough, the
vessel sailed into the storm. The captain ordered the jettison of the 10,
000 television 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.
(i) ISSUE: Will you characterize the jettison of Romualdo’s TV sets as an
average? If so, what kind of an average, and why? If not, why not?
ANSWER: The jettison of Romualdo’s TV sets resulted in a general
average loss, which entitles him to compensation or indemnification
from the shipowner and the owners of the cargoes saved by the
jettison.
ALTERNATIVE ANSWER: The jettison resulted to a particular average
loss because the damage was due to the fault of the captain.
(ii) ISSUE: Against whom does Romualdo have a cause of action for
indemnity of his lost TV sets? Explain.
ANSWER: Romualdo has a cause of action for his lost TV sets against
the shipowner and the owners of the cargoes saved by the jettison.
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The jettison of the TV sets resulted in a general average loss, entitling

Romualdo to indemnity for the lost TV sets.
c. xxx

 ARRIVALS UNDER STRESS

1. Arrival under stress
Refers to the arrival of vessel at nearest and most convenient port upon instance
(command) of captain if the vessel cannot continue the voyage, the vessel to its port
of destination because of:
(a) Lack of provisions (e.g., foods, water, petroleum, personal needs of the crews,
etc.)
(b) Well-founded fear of seizure
(c) Privateers (private armed ship commissioned by government during war to
capture enemy vessel) or pirates
(d) Any accident of sea that disabled the vessel to navigate
2. Article 819 (regarding the procedures before the captain could declare the vessel to
arrive under stress)
3. Article 820 (When vessel not deemed as “arrival under stress”)
The arrival of vessel shall not be considered lawful in the following:
(1) If the lack of provisions arise from failure to take necessary provisions for voyage
according to usage and custom, or the provisions rendered useless or lost
because of bad storage or negligence in their care;
(2) If the risk of enemies, privateers, or pirates is not well-known, manifest, and not
based on positive and provable facts;
(3) If the defect if vessel arose from the fact that she was not repaired, rigged (i.e.,
ropes or chains that support the mast or sail or any structure of the vessel),
equipped, and prepared in a manner suitable for the voyage, or from erroneous
orders of the captain
(4) When the damage of the vessel is caused by malice, negligence, lack of
foresight, or want of skill of captain
4. Article 821 (Expenses for arrival under stress, and the non-liability for damage
caused the goods)
Expenses on arrival under stress always for the account of shipowner/shipagent –
BUT: Shipowner/shipagent are not liable for damages on cargoes provided is arrival
under stress is lawful (please read Article 819 and also Article 820)
(a) Other cases where “vessel arrival under stress” is relevant
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(1) Article 809 (6) – Particular average: When vessel arrive under
stress,expenses made where money came from the sale of lowest valued
goods/cargoes by the captain which sale made to save crews and to pay of
provisions, or to meet (satisfy) other needs of the vessel
(2) Article 811 (11) – General average: Depreciation in the value of the
goods/cargoes that were sold (by captain) in view of the vessel’s arrival
under stress which sale was made in order to repair the vessel by reason of
gross (general) average (i.e., sale was made for the benefit of all)
(b) Compagnie de Commerce vs. Gesellschaft, GR L-13954, January 17, 1919 (cited in
the case of Inter-orient Maritime Enterprise, Inc. vs. NLRC, GR 115286, August 11,
1994)
FACTS: Charter party entered into between Compagnie de Commerce (Charterer;
voyage charter [i.e., captain and crews are still under the employ of the
shipowner]) and Shipowner. From Saigon, Vietnam, the vessel should voyage to
Europe, however, due to the declaration of World War 1 between Germany and
France, the captain deviated to Manila on reasonable fear that the vessel will be
seized by French authorities when to voyage to Europe considering that the
vessel is a registered in Germany (i.e., plying under German flag).
ISSUE: Did the vessel arrived under stress?
HELD: YES. Code of Commerce provides for vessel arrival under stress, i.e.,
“Refers to the arrival of vessel at nearest and most convenient port upon instance
(command) of captain if the vessel cannot continue the voyage, the vessel to its
port of destination because of - well-founded fear of seizure, privateers(private
armed ship commissioned by government during war to capture enemy vessel [in
this case France government]).
5. Read Articles 822 to 825 Code of Commerce

 COLLISIONS (Applicable only to “sea-going” vessels; not to minor watercrafts

engaged in river and bay navigation [Lopez vs. Sison, GR 29166, October 23, 1928])
1. Article 826 (Liability of shipowner at fault in case of maritime collision)
If vessel collides with another (i.e., another moving/stationary vessel) through the
fault, negligence, or want of skill of the captain, sailing mate, or any member of
complement (crews), the shipowner at fault shall be liable for damages caused
after an expert appraisal (of such damage)
(a) Collision – both moving vessels collided against each other
(b) Allision – one of the vessels collided with another still/stationary vessel
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2. Five (5) cases covered by “collision” and “allusion”

(a) One vessel at fault – shipowner of the vessel at fault liable for damages caused
to shipowner of the innocent vessel, and also liable to cargo owners
(b) Both vessels at fault(Article 827) – each vessel bear their own damages,
however, cargo owners can make both shipowners of both vessels solidarily
liable
(c) Vessel at fault not known(Article 828) – same as (b)
(d) Third vessel at fault(Article 831) – same as (a); if a vessel is forced by 3rd vessel to
collide with another vessel, the shipowner of 3rd vessel is liable for damages to
the vessels damaged – however, the captain in turn is civilly liable for damages to
his shipowner
(e) Fortuitous eventor force majeure (Article 830) – no liability to either vessel, also
no liability to cargo owners; i.e., all bear their own damages
(1) Properly anchored or moored (i.e., rope/cable used in holding vessel in place)
vessel collided with another vessel nearby due to fortuitous event or force
majeure despite the former despite properly anchored (Article 832)
The damages is of “particular average” of the vessel run into (i.e., damages
born themselves by shipowner of the damaged vessel or by the cargo owners
on board the damaged vessel)
3. Overtaking vessel is presumed at fault in case of collision (Sulpicio Lines, Inc. vs.
Court of Appeals, GR 93291, March 29, 1999)
FACTS: Vessel-A was overtaking Vessel-B. The two (2) vessels collided with each
other. Vessel-B had no lookout at the time of the collision.
ISSUE: Who is at fault?
HELD: Vessel-A. Rule 24-C (of Regulations for Preventing Collision at the Sea)
provides that it is the duty of the overtaking vessel to keep out of the way even if
the overtaking vessel cannot determine with certainty whether is its forward or aft
more than 2 points from the vessel being overtaken – and this must be so because
the overtaking vessel is in a better position to avoid collision. The overtaking vessel
must blow its horn or give signs to warn the vessel being overtaken.
Granting that Vessel-B had no lookout at the time of the collision, this fact does not
free Vessel-A from fault, it is the duty of overtaking vessel (Vessel-A) to take all
necessary actions to keep clear of the vessel being overtaken (Vessel-B). Vessel-A
while overtaking, did not reduced its speed notwithstanding it is already close to
Vessel-B, and worse did not even gave warning (such as blowing its horn)
4. Article 833 (Vessel presumed lost by reason of collision)
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Vessel run into (i.e., collided into by another vessel) sinks immediately, or after being
ran into it attempted to make a port for repair, is lost during voyage (i.e., during the
attempt to make a port) or obliged to be stranded in order to be saved – then such
vessel is presumed as lost by reason of collision
5. Article 834 (Vessel manned through pilotage)
Vessel while being manned by a pilot, collided with another vessel (i.e., pilot being at
fault or negligent), this fact does not exempt the captain (of the vessel being
manned by pilot) from damages – however, the captain has the right to be
indemnified by pilot, and without prejudice to the criminal liability of the pilot (e.g.,
reckless imprudence resulting to damage to properties/homicide/physical injuries)
Notes:
(a) There are ports where pilotage is either voluntary or mandatory, in either case,
Article 834 applies
(b) “Pilot” (i.e., not captain) in maritime law refers a licensed individual as pro hac
vice master/captain who pilot a vessel into or out of the portconsidering that he
is acquainted with the port so as to protect life , vessel and cargoes from dangers
of navigation
6. (IMPORTANT; BAR) Article 835 (Prescriptive period within which to claim for
damages in view of collision/allusion)
“Protest” must be presented within 24 hours (reckoned from time of
collision/allision) before competent authority where collision/allision happened or at
the first port of arrival, however, if the collision/allision happened outside the
Philippines then “protest” must be made with Philippine Consul – OTHERWISE:
Action for recovery of damages arising from collisions (or allisions) cannot be
admitted
(a) Article 836 (Exception of making of “Protest” within 24 hours)
As regards damage to persons or cargoes, the absence of protest (i.e., no protest
made within 24 hours reckoned from time of collision/allision) does not prejudice
those persons interested (1) who were not on board vessel when
collision/allision happened, or (2) who were not in a condition to make known
their wishes
(b) Maritime collisions (or allisions) only applies to “sea-going” vessels (i.e., not to
minor watercrafts engaged in river and bay navigation; Lopez vs. Sison, GR
29166, October 23, 1928)
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ISSUE: Whether “protest” under Article 835 under Code of Commerce dealing
with “Maritime Commerce” applies to collision of minor watercrafts engaged in
river or bay navigation?
HELD: NO. Maritime Commerce refers to commerce by sea, viz., those vessels
that are see-going manned by captain and crews equipped with apparatuses and
equipments required under the Code of Commerce. Hence, minor watercrafts
engaged in river or bay navigation are governed by Civil Code or other
appropriate special provisions of law – thereby in case collisions, it is the Civil
Code or other appropriate special provisions of law that applies.
7. Article 837 (Limited Liability Rule in favor of shipowner – in case of maritime
collisions/allisions)
Civil liability of shipowners (i.e., direct liability; not subsidiary to captain)in cases of
“collisions” (or allisions) is limited to the value of the vessel with all her
appurtenances (i.e., accessories and equipments of vessel) and freightage earned
during the voyage (viz., Limited Liability Rule applies in favor of shipowners [i.e.,
either “Hypothecary nature of liability”, or “No Vessel No Liability Rule”])
(a) Luzon Stevedoring Corp. vs. Court of Appeals, GR L-58897, December 3, 1987
FACTS: Maritime collision happened between Vessel-A (tanker) and Vessel-B
(passenger vessel), Vessel-B sunk. It was held that captain of Vessel-A is at
fault/negligent.
(1) ISSUE: Whether or not in cases of “collision” (or allision), an “abandonment”
by shipowner (or shipagent) of Vessel-A of the vessel with all its
appurtenances and freightage earned are required in order to invoke Limited
Liability Rule and thereby to free itself from damages?
HELD: YES – only when the vessel is “not totally lost”, in which case, the
shipowner or shipagent must abandon the vessel, its appurtenances and
freightage earned during the voyage.
(a) ISSUE: When is “abandonment” not necessary in order that
shipowner/shipagent can invoke Limited Liability Rule?
When the vessel is “totally lost”, then abandonment is not necessary in
order to invoke the Limited Liability Rule on reason that what is there to
abandon when the vessel is totally lost.
Note: Article 1189 Subpar 2 Civil Code: x xx; it is understood that the
thing (e.g., vessel) is lost when it perishes (loss), or goes out of commerce,
or disappears in such a way that its existence is unknown or it cannot be
recovered
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(2) ISSUE: In case of collisions (or allisions), when can the shipowner/shipagent
of Vessel-A cannot invoke Limited Liability Rule?
HELD: When the collision (or allision) happened because of the
fault/negligent of the shipowner/shipagent himself – such as when the
shipowner/shipagent hired an unlicensed captain, engineer or crew who
caused the collision (or allision)
(3) ISSUE: In case of collisions (or allisions), when is it that the civil liability of
shipowner/shipagent is “subsidiary” to the captain?
HELD: When the captain committed an illegal act that led to the collision (or
allision). Hence, the one directly civilly liable is the captain, and it is only that
when the captain cannot pay damages that the shipowner/shipagent
becomes liable
(b) Manila Steamship Company, Inc. vs. InsaAbdulhaman and Lim Hong To, 100 Phil
32
Vessel-A and Vessel-B collided with each other, causing deaths of passengers and
loss of all its cargoes – due to fault/negligence of both vessels.
HELD: When both vessels at fault, each vessel bear their own damages, however,
cargo owners can make both shipowners of both vessels solidarily liable(Article
827). Nonetheless, shipowners and shipagents are solidarily liable for the acts of
captain (Article 586) and also for damages due to 3rd persons (article 587).
However, these liabilities can be limited by shipowner/shipagent through
Limited Liability Rule
8. Article 838 (In case shipowner invoked Limited Liability Rule – but the value of the
abandoned vessel and its appurtenances [and freightage earned during voyage] are
not enough to cover all liabilities)
Indemnities for the death or injury of persons shall be given preference (over
indemnities for damaged/loss cargoes)
Note: Article 838 applies when the vessel is not totally lost, and the shipowner
invoked Limited Liability Rule
9. Doctrine of “Last Clear Chance” in maritime collision (Williams vs. Yangco, GR L-
8325, March 10, 1914)
FACTS: Vessel-A collided with Vessel-B in the Manila Bay – where both vessels were
negligent.
ISSUE: Can either vessel invoke “Doctrine of Last Clear Chance” in maritime
collision?
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HELD: NO. What applies is the clear and unequivocal provision of Article 827 Code of
Commerce – i.e., where both vessels at fault, each vessel bear their own damages,
however, cargo owners can make both shipowners of both vessels solidarily liable

 SHIPWRECKS
1. Shipwreck – defined/explained
Vessel/ship with damage rendering it incapable of navigation - whether because of
violence of waves or winds, collision with another vessel/thing, or any cause
rendering it incapable of navigation (whether it sank or not, or run aground)
2. Article 840 (Shipwreck or stranding [vessel run aground] without fault/negligence of
captain [e.g., fortuitous event or force majeure])
Damages and deteriorations on vessel and cargoes due to shipwreck or stranding
shall be individually for the account of owners (shipowner and cargo owners) –
HOWEVER: For those saved, shall belong to the owners in proportion to their
damage/deterioration
(a) Article 842 (Goods saved are reserved for salvage expenses)
Goods saved is reserved for the payment of salvage expenses, which expenses
must be paid by the owners (of the goods saved) before such goods be delivered
to them (owners) – and if said expenses not paid, then the goods shall be sold,
and the salvors are preferred over the proceeds of such sale
3. Article 841 (Shipwreck or stranding due to fault of captain)
If the wreck or stranding is due to malice, negligence, or lack of skill of the captain,
or because the vessel put to sea insufficiently repaired and equipped – then the
owners (shipowner and cargo owners)can demand indemnity for damages against
the captain in accordance with the provisions contained in articles 610, 612, 614 and
621 Code of Commerce
4. Read Articles 843 to 845
5. For “Liquidation of Averages” – read Articles 846 to 869