TRANSPORTATION LAWS | ATTY.
CAPANAS | FINALS | SY 2018-2019
I. CONCEPTS
DOCTRINE OF LIMITED LIABILITY
“NO VESSEL, NO LIABILITY”
Shipowner’s liability or agent’s liability is merely co-extensive with his
interest in the vessel such that a total loss thereof results in its
extinction. The total destruction of the vessel extinguishes maritime
liens because there is no longer any res to which it can attach.
It was designed to offset adverse conditions and to encourage people
and entities to venture into maritime commerce despite the risks and
the prohibitive cost of shipbuilding. Thus, the liability of the vessel
owner and agent arising from operation of such vessel were confined to
the vessel itself, its equipment, freight, and insurance, if any, which
limitation served to induce capitalists into effectively wagering their
resources against the consideration of large profits attainable in the
trade.
The real and hypothecary nature of maritime law simply means that the
liability of the carrier in connection with losses related to maritime
contracts is confined with the vessel.
CODE OF COMMERCE
Liability to 3rd persons
Art. 587. The ship agent shall also be civilly liable for the indemnities in
favor of third persons which arise from the conduct of the captain in the
vigilance over the goods which the vessel carried; but he may exempt
himself therefrom by abandoning the vessel with all her equipment and
the freight he may have earned during the voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the
proportion of their contribution to the common fund for the results of
the acts of the captain, referred to in Article 587. Each co-owner may
exempt himself from this liability by the abandonment, before a notary,
of that part of the vessel belonging to him.
Collisions
Art. 643. If the vessel and her cargo should be totally lost, by reason of
capture or wreck, all rights shall be extinguished, both as regards the
crew to demand any wages whatsoever, and as regards the ship agent
to recover the advances made.
If a portion of the vessel or of the cargo, or of both, should be saved,
the crew engaged on wages, including the captain, shall retain their
rights on the salvage, so on the amount of the freightage of the cargo
saved; but sailors who are engaged on shares shall not have any right
whatsoever on the salvage of the hull, but only on the portion of the
freightage saved. If they should have worked to recover the remainder
of the shipwrecked vessel, they shall be given from the amount of the
salvage an award in proportion of the efforts made and to the risks,
encountered in order to accomplish the salvage.
Art. 837. The civil liability incurred by the shipowners in the cases
prescribed in this section, shall be understood as limited to the value of
the vessel with all her appurtenances and freight earned during the
voyage.
Note: Articles 837, 587 and 590 covers only:
(1) liability to 3rd persons
(2) acts of the captain; and
(3) collision.
The Civil Code contains no provision regulating liability of shipowners or
agents in the event of total loss or destruction of the vessel, it is the
provisions of the Code of Commerce that governs.
WHEN APPLICABLE
Liability of the shipowner or agent is limited to the value of the vessel
with all her equivalent and freight earned during the vessel if the
shipowner or agent abandoned the ship with all the equipment and
freight.
hyaaltar
SHIPOWNER ENTITLED TO LIMITED LIABILITY
The shipowner is the very person for whom the Limited Liability Rule
(LLR) has been conceived to protect.
ABANDONMENT
Abandonment of the vessel, its appurtenances and freightage is an
INDISPENSABLE requirement before the shipowner or ship agent can
enjoy the benefits of the LLR. If the carrier does not want to abandon
the vessel, then he is still liable even beyond the value of the vessel.
The only instance where such abandonment is dispensed with is when
the vessel was entirely lost. In such case, the obligation is thereby
extinguished.
Additional notes:
The shipowner’s or ship agent’s liability is limited to the value of the
vessel if the damage was caused by the unseaworthiness of the vessel
caused by the negligence of the captain or crew during the voyage.
Civil liability for collision is merely co-existent with his interest in the
vessel; since there was total loss, his liability is also extinguished.
WHEN INAPPLICABLE
LLR IS NOT APPLICABLE UNDER THE FOLLOWING INSTANCES:
1. Where the injury or death to a passenger is due either to the fault of
the shipowner, or to the concurring negligence of the shipowner and
the captain.
2. Where the vessel is insured.
3. In the workmen’s compensation claims.
4. Expenses for repairs and provisioning of the ship prior to the
departure thereof.
5. The vessel is not abandoned.
NOT APPLICABLE TO INSURANCE CLAIM
The LLR does not apply to insurance claims. Thus in Vasquez v. CA, the
court held that total loss of the vessel did not extinguish the liability of
the carrier’s insurer. Despite the loss of the vessel, therefore, its
insurance answers for the damages that a shipowner or agent may be
held liable for by reason of the death of its passengers.
However, the LLR applies to the paying insurer when it exercises its
right of subrogation against the shipowner. The cause of action of the
insurer in the exercise of his subrogation is the same cause of action of
the shipper, hence, the insurer is subject to the defenses available to
the shipowner as if it were the shipper who directly sued the same
insurer.
WORKMEN’S COMPENSATION
Even is the vessel is lost, the liability under the Workmen’s
Compensation act is still enforceable against the shipowner or employer.
It must be noted that it is now administered by the Employees
Compensation Commission (ECC) and governed by the Labor Code. It is
not the employer who will be held liable but the ECC.
TN: If an accident is compensable under the Workmen’s Compensation
Act, it must be compensated even when the workman’s right is not
recognized by or is in conflict with other provisions of the Civil Code or
of the Code of Commerce.
REPAIRS BEFORE DEPARTURE
While the total loss of the vessel extinguished a maritime lien, as there
is no longer any risk to which it can attach, the total destruction of the
vessel does not affect the liability of the owner for repairs of the vessel
completed before its loss.
Additional notes:
Page 1
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
If the failure to maintain the seaworthiness of the vessel can be
ascribed to the shipowner alone or the shipowner concurrently with the
captain then the limited liability principle CANNOT be invoked.
The carrier is liable for the damages to the full extent and not up to the
value of the vessel if it was established that the carrier was guilty of
negligence in allowing the captain and crew to play mah-jong during the
voyage, in failing to maintain the ship as seaworthy and in allowing the
ship to carry more passengers than it was allowed to carry.
Authorizing the voyage notwithstanding its knowledge of a typhoon is
tantamount to negligence that exempts the case from the operation of
the limited liability rule.
APPLICABILITY OF THE CIVIL CODE
The primary law on the maritime commerce is the New Civil Code
provisions on common carriers. The Code of Commerce and special laws
only apply suppletorily.
In connection with Article 587 of the Code of Commerce, the carrier
cannot invoke Articles 1733, 1735 of the NCC. While the primary law in
maritime commerce is the NCC, in all matters not regulated by said
Code, the Code of Commerce and other special laws shall govern.
Since the Civil Code contains no provision regulating the liability of
shipowners or agents in the event of total loss or destruction of the
vessel, it is the provisions of the Code of Commerce, particularly Article
587 that governs.
Governing laws
1. New Civil Code – Primary law on maritime commerce
2. Book III Code of Commerce – Applied suppletorily
3. Special Laws
a) Salvage Law (Act no. 2616)
b) Carriage of Goods by Sea Act (CA no. 65)
c) Ship Mortgage Decree of 1978 (PD 1521)
MARITIME PROTEST – WHEN APPLICABLE?
Protest is the written statement by the master of a vessel or any
authorized officer, attested by property officer or a notary, to the effect
that damages has been suffered by the ship.
In collisions, the maritime protest must be made within 24 hours after a
collision and circumstances of the collision are declared or made known
before a competent authority at the point of accident or the first port of
arrival if in the Philippines or the Philippine consul in a foreign country.
In a collision, between a shipper and passenger, the passenger is
expected to know the circumstances regarding the collision. Therefore,
he cannot maintain an action if he did not file a maritime protest as
provided for under Article 863 or the Code of Commerce.
WHEN APPLICABLE
When maritime protest applies?
1. When the vessel makes an arrival under stress
2. Where the vessel is shipwrecked
3. Where the vessel has gone through a hurricane or the captain
believes that the cargo has suffered damages or averages
4. Maritime collisions
Who can file a maritime protest?
1. The captain, in cases of numbers 1 to 3
2. The passenger or other persons interested, in cases of maritime
collisions.
When protest not required?
1. When it does not fall under any of the four instances mentioned.
2. When tort is involved.
hyaaltar
3. When no vessel is involved.
4. Where the interested person is not on board the vessel.
APPLICATION OF LIMITED LIABILITY RULE TO
CHARTERER
The shipowner is the very person for whom the Limited Liability Rule
(LLR) has been conceived to protect. The shipowner is the one who is
supposed to be encouraged to pursue maritime commerce. Hence, the
charterer CANNOT invoke the LLR against the shipowner in a case filed
by the shipowner against the former.
Even if the contract is for bareboat or demise charter where possession,
free administration and even navigation are temporarily surrendered to
the charterer, dominion over the vessel remains with the shipowner.
Therefore, the charterer or the sub-charterer, whose right cannot rise
above that of the former, can never set up the LLR against the very
owner of the vessel.
II. VESSELS
A vessel or watercraft is defined under PD No. 474 as “any barge, lighter,
bulk carrier, passenger ship freighter, tanker, container ship, fishing
boats, or other artificial contrivance utilizing any source of motive power,
designed use or capable of being used as a means of transportation
operating either as a common carrier, including fishing vessels covered
under PD No. 43.
Except:
1. Those owned and/or operated by the Armed Forces of the Philippines
and by the Foreign Government for its Military purpose.
2. Bancas, sailboat and other waterborne contrivance of less than three
tons capacity and not motorized.
MINOR CRAFT
Minor crafts like motorboats are not considered “vessels”.
The word "vessel" was not intended to include all ships, craft or floating
structures of every kind without limitation. Thus, it should not be held to
include minor craft engaged only in river and bay traffic. Consequently,
a passenger, on board a motor boat is not required to make a protest as
a condition precedent to his right of action for the injury suffered by him
in the collision, as the Code of Commerce does not apply.
Additional notes
 When the Mercantile Code speaks of vessels, they refer solely and
exclusively to mercantile ships, as they do not include warships,
and furthermore, they almost always refer to craft which are not
accessory to another as in the case of launches, lifeboats and etc.
 They refer exclusively to those which are engaged in the
transportation of passengers and freight from one port to another
or from one place to another
 They refer to merchant vessels and in no way can they or should
they be understood as referring to pleasure craft, yachts,
pontoons, health service and harbor police vessels, etc.
 Ships ought to be understood in the sense of vessel serving the
purpose of maritime navigation or seagoing vessel, and not in the
sense of vessel devoted to the navigation of rivers.
 Book III of the Code of Commerce, dealing with maritime
commerce, was evidently intended to define laws relative to
merchant vessels and maritime shipping; and as appears from
said code, the vessel intended in that book are such run by
masters having special training with elaborate apparatus of crew
and equipment indicated in the code.
Page 2
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
Only vessels engaged in what is ordinarily known as maritime
commerce are within the provision of law conferring limited liability on
the owner in case of maritime disaster.
REQUIREMENT OF PROTEST
In relation to protest contemplated under Article 835 of the Code of
Commerce dealing with collisions, the vessels contemplated are
sea-going vessels. Therefore, it CANNOT be applied to small boats
engaged in river and bay traffic.
Vessels which are licensed to engage in maritime commerce, or
commerce by sea, whether foreign or coastwise trade, are regulated by
Book III of the Commerce of Code. Other vessels of a minor nature not
engaged in maritime commerce, such as river boats and those carrying
passengers from ship to shore, must be governed, as to their liability to
passengers, by the provisions of the Civil Code or other appropriate
special provisions of law.
III. SHIP MORTGAGE
PREFERRED MORTGAGE
SECTION 2 OF PD 1521 (SHIP MORTGAGE DECREE)
Who may constitute a Ship Mortgage
Any citizen of the Philippines, or any association or corporation
organized under the laws of the Philippines, at least sixty per cent of the
capital of which is owned by citizens of the Philippines may, for the
purpose of financing the construction, acquisition, purchase of vessels
or initial operation of vessels, freely constitute a mortgage or any other
lien or encumbrance on his or its vessels and its equipment with any
bank or other financial institutions, domestic or foreign.
SECTION 10 OF PD 1521
A preferred mortgage shall constitute a lien upon the mortgaged vessel
in the amount of the outstanding mortgage indebtedness secured by
such vessel. Upon the default of any term or condition of the mortgage
such lien may be enforced by the mortgagee by suit in remaining
admiralty wherein the vessel itself may be made a party defendant and
be arrested in the manner as provided in Section 11.
SECTION 4 OF PD 1521
Preferred Mortgages
a. A valid mortgage which at the time it is made includes the whole of
any vessel of domestic ownership shall have, in respect to such vessel
and as of the date of recordation, the preferred status given by the
provisions of Section 17 hereof, if
1. The mortgage is recorded as provided in Section 3 hereof;
2. An affidavit is filed with the record of such mortgage to the
effect that the mortgage is made in good faith and without any
design to hinder, delay, or defraud any existing or future creditor
of the mortgagor or any lien or of the mortgaged vessel;
3. The mortgage does not stipulate that the mortgagee waives
the preferred status thereof
b. Any mortgage which complies with the above conditions is hereafter
called a "preferred mortgage". For purposes of this Decree, a vessel
holding a Provisional Certificate of Philippine Registry is considered a
vessel of domestic ownership such that it can be subject of preferred
mortgage. The Philippine Coast Guard is hereby authorized to enter a
vessel holding a Provisional Certificate of Philippine Registry in the
Registry of Vessels and to record any mortgage executed thereon. Such
mortgage shall have the preferred status as of the date of recordation
upon compliance with the above conditions.
c. There shall be endorsed upon the documents of a vessel covered by a
preferred mortgage
hyaaltar
1. The names of the mortgagor and mortgagee;
2. The time and date the endorsement is made;
3. The amount and date of maturity of the mortgage; and
4. Any amount required to be endorsed by the provisions of
paragraphs (e) or (f) of this Section.
d. Such endorsement shall be made (1) by the Coast Guard District or
Station Commander of the port of documentation of the mortgaged
vessel, or (2) by the Coast Guard District or Station Commander of any
port in which the vessel is found, if such Coast Guard District or Station
Commander is directed to make the endorsement by the Coast Guard
District or Station Commander of the port of documentation. The Coast
Guard District or Station Commander of the port of documentation shall
give such direction by wire of letter at the request of the mortgagee and
upon the tender of the cost of communication of such direction.
Whenever any new document is issued for the vessel, such
endorsement shall be transferred to and endorsed upon the new
document by the Coast Guard District or Station Commander.
In the case of a vessel holding a provincial certificate of Philippine
Registry, the endorsement shall be made by the Philippine consul
abroad upon direction by wire or letter from the Maritime Industry
Authority at the request of the mortgagee and upon tender of the cost
of communication of such direction. A certificate of such endorsement,
giving the place, time and description of the endorsement, shall be
recorded with the records of registration to be maintained at the
Philippine Consulate.
e. A mortgage which includes property other than a vessel shall not be
held a preferred mortgage unless the mortgage provides for the
separate discharge of such property by the payment of a
specified portion of the mortgage indebtedness. If a preferred mortgage
so provides for the separate discharge, the amount of
the portion of such payment shall be endorsed upon the documents of
the vessel.
f. A preferred mortgage includes more than one vessel and provides for
the separate discharge of each vessel by the payment of a portion of
mortgage indebtedness, the amount of such portion of such payment
shall be endorsed upon the documents of the vessel. In case such
mortgage does not provide for the separate discharge of a vessel and
the vessel is to be sold upon the order of a district court of the
Philippines in a suit in rem in admiralty, the court shall determine the
portion of the mortgage indebtedness increased by 20 per centum (1)
which, in the opinion of the court, the approximate value of all the
vessels covered by the mortgage, and (2) upon the payment of which
the vessel shall be discharged from the mortgage.
Note: The preference is not absolute because there are other claims
that prevail over ship mortgage.
PREFERRED MARITIME LIEN
A maritime lien is a privileged claim on a vessel for some service
rendered to it to facilitate its use in navigation. It is a special property
right in a ship given to a creditor by law as security for a debt or claim
subsisting from the moment the debt arises with right to have the ship
sold and debt paid out of the proceeds.
It is akin to a mortgage lien in that in spite of the transfer of ownership,
the lien is not extinguished. The maritime lien is inseparable from the
vessel and until discharged, it follows the vessel. Hence, enforcement of
a maritime lien is in the nature and character of a proceeding quasi in
rem.
PREFERRED CLAIMS
Section 17 of PD 1521
Preferred mortgage lien should have PRIORITY over all claims against
the vessel, EXCEPT the following claims in the order stated:
1. Expenses and fees allowed and costs taxed by the court and taxes
due to the Government
2. Crew's wages
3. General average
Page 3
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
4. Salvage; including contract salvage
5. Maritime liens arising prior in time to the recording of the preferred
mortgage
6. Damages arising out of tort, and
7. Preferred mortgage registered prior in time.
MARITIME LIENS ARE CREATED BY OPERATION OF LAW
Abovementioned are maritime liens that attaches to the vessel. Notice
of their existence is not necessary. These maritime liens do not arise
from specific agreement. Although they may arise out of contract or in
the absence of contract, they are imposed even in the absence of
specific contractual provisions providing a lien. Similarly, the parties
may not impose a maritime lien by agreement if one is not provided by
law. In other words, the claim must be one of those enumerated under
Section 17.
The claims are not based on possession. Possession of the vessel is not
necessary for the maritime liens under Section 17 to attach to the vessel.
In other words, the nature of the claims does not presuppose nor
originate in possession.
The provision of PD 1521 on the order of preference in the satisfaction
of the claims against the vessel is the more applicable compared to the
Civil Code provisions on the concurrence and preference of credit.
General legislation must give way to special legislation on the same
subject, and generally be so interpreted as to embrace only cases in
which the special provisions are not applicable.
The Statute of Frauds under Article 1403 (2) of the Civil Code is
inapplicable. The claim on the maritime lien is based on law, PD 1521,
and not on any contract or agreement.
Note: Section 17 of PD 1521 refers to preferred claims and Section 4 of
PD 1521 refers to preferred mortgages. Thus, if a vessel will be sold on
auction, and there are preferred claims, proceeds of the sale shall first
be applied to the preferred claims before they are applied to preferred
mortgages.
PRESCRIPTIVE PERIOD
Under Article 1144 of the Civil Code, an action upon an obligation
created by law must be brought within 10 YEARS from the time the
right of action accrues. Hence, enforcement of a maritime lien imposed
by special law prescribes in 10 years.
Laches may also lie if there was unreasonable delay on the part of
claimant in asserting its rights. The protection against 3rd person
accorded to the maritime lienor is narrowly circumscribed by the
requirement that he must act promptly to assert his rights.
MARITIME LIENS
MARITIME LIENS FOR NECESSARIES
The maritime liens that are superior to the preferred mortgage includes
maritime lien for necessaries.
SECTION 21 OF PD 1521
Maritime Lien for Necessaries; person entitled to such lien - Any person
furnishing repairs, supplies, towage, use of dry-dock or marine railway,
or other necessaries, to nay vessel, whether foreign or domestic, upon
the order of the owner of such vessel, or of a person authorized by the
owner, shall have a maritime lien on the vessel, which may be enforced
by suit in rem, and it shall be necessary to allege or prove that credit
was given to the
vessel.
Requirement for a maritime lien for necessaries which is enforceable by
suit in rem:
1. The “necessaries” must have been furnished to and for the benefit of
the vessel
2. The “necessaries” must have been necessary for the continuation of
the voyage of the vessel
3. The credit must have been extended to the vessel
hyaaltar
4. There must be necessity for the extension of the credit, and
A necessity of credit will be presumed where it appears that the
repairs and supplies were necessary for the ship and that they
were ordered by the master. Hence, this presumption does not
arise in a case where it was established that the master did not
order the fuels and there was no proof of necessity of supplies.
5. The necessaries must be ordered by persons authorized to
contract on behalf of the vessel
Two concepts of maritime lien on necessaries:
1. Maritime lien on necessaries
Necessaries include those items required to facilitate the use of the ship,
save her from danger and enable her to perform those acts currently
demanded of her. Ex: Supply of Fuel (use of the ship or to save her from
danger)
2. Maritime lien on other necessaries
Ex: Expense incurred by travel agency for the transportation of crew not
directly related to the ship but indirectly necessary for the ship.
Situation: One of the crew will have to disembark in Japan while the
vessel is in Japan and they need a new crew. The expense incurred for
transportation in flying to Japan by the new is considered other
necessaries.
Examples of maritime liens for necessaries
1. Claims with respect to expenses for the payment of bunker oil/fuel,
unused stores and oil, bonded stores, provisions and repair and docking
of the vessel.
2. Ship modification cost.
How to enforce maritime lien:
1. Collection of sum of money
2. To nullify a foreclosure, intervene
3. Collection suit with attachment
Note: Liquor, according to the Supreme Court, is not considered as
other necessaries. As long as an expense on the vessel is indispensable
to the maintenance and navigation of vessel, it may properly be treated
as a maritime lien for necessaries under Section 21 of PD 1521
PERSONS AUTHORIZED TO PROCURE NECESSARIES
SECTION 22 OF PD 1521
Persons Authorized to Procure Repairs, Supplies, and Necessaries. The
following persons shall be presumed to have authority from the owner
to procure repairs, supplies, towage, use of dry dock or marine railway,
and other necessaries for the vessel:
1. The managing owner,
2. ship's husband, master or
3. any person to whom the management of the vessel at the port of
supply is entrusted.
No person tortuously or unlawfully in possession or charge of a vessel
shall have authority to bind the vessel.
The officers and agents of a vessel shall be taken to include such
officers and agents when appointed by a character, by owner pro hac
vice, or by an agreed purchaser in possession of the vessel.
No lien is conferred when:
1. The furnisher knows, or by exercise of reasonable diligence could
have ascertained, that because of the terms of a charter party,
agreement for sale of the vessel, or for any other reason, the person
ordering the repairs, supplies, or other necessaries was without
authority to bind the vessel therefor.
2. The person is tortuously or unlawfully in possession or charge of a
vessel.
Page 4
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
PERSONAL ACTION AGAINST DEBTOR
SECTION 17 OF PD 1521
Preferred Maritime Lien, Priorities, Other Liens
a) Upon the sale of any mortgaged vessel in any extra-judicial sale or by
order of a district court of the Philippines in any suit in rem in admiralty
for the enforcement of a preferred mortgage lien thereon, all
pre-existing claims in the vessel, including any possessory common-law
lien of which a lienor is deprived under the provisions of Section 16 of
this Decree, shall be held terminated and shall thereafter attach in like
amount and in accordance with the priorities established herein to the
proceeds of the sale. The preferred mortgage lien shall have priority
over all claims against the vessel, except the following claims in the
order stated: (1) expenses and fees allowed and costs taxed by the
court and taxes due to the Government; (2) crew's wages; (3) general
average; (4) salvage; including contract salvage; (5) maritime liens
arising prior in time to the recording of the preferred mortgage; (6)
damages arising out of tort; and (7) preferred mortgage registered prior
in time.
b) If the proceeds of the sale should not be sufficient to pay all creditors
included in one number or grade, the residue shall be divided among
them pro rata. All credits not paid, whether fully or partially shall subsist
as ordinary credits enforceable by personal action against the debtor.
The record of judicial sale or sale by public auction shall be recorded in
the Record of Transfers and Encumbrances of Vessels in the port of
documentation.
WHEN PROCEEDS NOT SUFFICIENT
If the proceeds of the sale should not be sufficient to pay all creditors
included in one number or grade, the residue shall be divided among
them pro rata. All credits not paid, whether fully or partially shall subsist
as ordinary credits enforceable by personal action against the debtor.
IV. PERSONS WHO TAKE PART
SHIP AGENT
A “ship agent” is defined in the Code of Commerce as the person
entrusted with provisioning of the vessel, or who represents her in the
port in which she happens to be (Article 595, first paragraph, Code of
Commerce)
Powers of Ship Agent
 The ship agent can enter into contracts to provision the ship.
Hence, he can purchase necessary supplies and fuel that are
necessary for a particular voyage.
 Representation of a vessel, includes the right to represent the
vessel in any action in a court or tribunal.
 Art. 595 of the Code of Commerce provides that the ship agent
shall represent the ownership of the vessel, and may, in his own
name and in such capacity, take judicial and extrajudicial steps in
matters relating to commerce.
 Whether acting as agent of the owner of the vessel or as agent of
the charterer, petitioner will be considered as the ship agent and
may be held liable as such, as long as the latter is the one that
provisions or represents the vessel.
WHAT IF THE OBLIGATION OF A PERSON IS LIMITED TO
INFORMING THE CONSIGNEE ON THE ARRIVAL OF THE
GOODS?
ACE NAVIGATION CO., INC. vs. FGU INSURANCE
CORPORATION
The Court ruled that an agent is not a ship agent if its only function is
limited to informing the consignee of the arrival of the vessel in order
for the latter to immediately take possession of the cargoes. An agent is
not a ship agent if there’s no hand in the provisioning of the vessel. The
responsibilities of such agent is not covered by the Code of Commerce
but by the provisions of the New Civil Code, including Art. 1897. Article
hyaaltar
1897 of the same code provides that an agent is not personally liable to
the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers.
The Court ruled in Ace Navigation Co. Inc., v. FGU Insurance
Corporation that both exceptions do not obtain in the case. Records
show that the obligation of ACENAV was limited to informing the
consignee HEINDRICH of the arrival of the vessel in order for the latter
to immediately take possession of the goods. No evidence was offered
to establish that ACENAV had a hand in the provisioning of the vessel or
that it represented the carrier, its charterers, or the vessel at any time
during the unloading of the goods.
Records are bereft of any showing that ACENAV, the agent, exceeded
its authority in the discharge of its duties as a mere agent of CARDIA.
Neither was it alleged, much less proved, that ACENAV’s limited
obligation as agent of the shipper, CARDIA, was not known to
HEINDRICH. Furthermore, since CARDIA was not impleaded as a party
in the suit, the liability attributed upon it by the Court of Appeals on the
basis of its finding that the damage sustained by the cargo was due to
improper packing cannot be borne by ACENAV. As a mere agent,
ACENAV cannot be made responsible or held accountable for the
damage supposedly caused by its principal.
TRAMP SERVICE
RA NO. 9515 (AN ACT DEFINING THE LIABILITY OF SHIP AGENTS IN
THE TRAMP SERVICE AND FOR OTHER PURPOSES)
"Tramp Service" shall mean the operation of a contract carrier which
has no regular and fixed routes and schedules but accepts cargo
wherever and whenever the shipper desires, is hired on a contractual
basis, or chartered by any one or few shippers under mutually agreed
terms and usually carries bulk or break bulk cargoes
"Tramp Agent" shall mean a ship agent appointed by the ship owner,
charterer or carrier iti the tramp service for one particular voyage whose
authority is limited to the customary and usual procedures and
formalities required for the facilitation of the vessel’s entry, stay and
departure in the port and does not include the assumption of the ship
owner’s, charterer’s, or carrier’s obligations with the shipper or receiver
for the goods carried by the ship;
"Ship Agent" shall mean the person entrusted with the provisioning or
representing the vessel in the port in which it may be found;
"General Agent" shall mean a ship agent appointed by the ship owner or
carrier in the liner service for all voyages and covered by a General
Agency Agreement whereby the 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;
Liability of the Ship Agent, General Agent and Tramp Agent
The responsibility or liability, if any, of the ship agent, general agent and
tramp agent shall continue to be governed by the pertinent provisions
of the Code of Commerce: Provided, that in the case of the tramp agent,
his liability shall not extend to the obligations assumed by the ship
owner, charterer or carrier with the shipper or receiver for the goods
carried by the ship: Provided, further, That it is the duty of the tramp
agent, however, to assist the shipper or receiver in making cargo
liability claims against the ship owner, charterer or carrier: Provided,
finally, That failure or inaction to perform the aforesaid duty shall
subject the tramp agent to applicable administrative sanctions based on
the Implementing Rules and Regulations (IRR) to be formulated
thereon by the Maritime Industry Authority (MARINA) under the
Depatment of Transportation and Communication (DOTC) and by the
Philippine Shippers Bureau (PSB) under the Department of Trade and
Industry (DTI).
Page 5
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
TRIPLE ROLES OF CAPTAIN
CAPTAIN
The captain of a vessel is a confidential and managerial employee within
the meaning of the above doctrine. A master or captain, for the
purposes of maritime commerce, is one who has command of the
vessel.
A captain commonly performs 3 distinct roles:
navigation of the ship, and his orders must be obeyed in all matters
connected with her navigation. He becomes the MASTER PRO HAC VICE
and should give all directions as to speed, course, stopping and
reversing, anchoring, towing and the like. And when a licensed pilot is
employed in a place where pilotage is compulsory, it is his duty to insist
on having control if the vessel or to decline to act as pilot. Under the
certain systems of foreign law, the pilot does not take entire charge of
the vessel, but is deemed merely the adviser of the master, who retains
command and control of the navigation even localities where pilotage is
compulsory.

1. He is a general agent of the ship owner
2. He is also commander and technical director of the vessel
3. He is a representative of the country under whose flag he navigates
As commander of the vessel
Of these three roles, the most important is the role performed by the
captain as commander of the vessel; for such role (which is analogous
to that of “Chief Executive Officer” of a present-day corporate
enterprise) has to do with the operation and preservation of the vessel
during its voyage and the protection of the passengers (if any) and crew
and cargo.
In general, a pilot is personally liable for damages caused by his own
negligence or default to the owners of the vessel, and to third parties
for damages sustained in a collision. Such negligence of the pilot in the
performance of duty constitutes a maritime tort.
The fact that the law compelled the master to take the pilot does not
exonerate the vessel from liability. The parties who suffer are entitled to
have their remedy against the vessel that occasioned the damage, and
are not under necessity to look to the pilot from whom redress is not
always had for compensation. The owners of the vessel are responsible
to the injured party for the acts of the pilot, and they must be left to
recover the amount as well as they can against him.

As general agent of the ship owner
Captain has authority to sign bills of lading, carry goods aboard and deal
with the freight earned, agree upon rates and decide whether to take
cargo. The captain also has legal authority to enter into contracts with
respect to the vessel and the trading of the vessel, subject to applicable
limitations established by the statute, contract or instructions an
regulations of the ship owner. The captain is committed the governance,
care and management of the vessel. He is vested with both
management and fiduciary functions.
DISCRETION OF CAPTAIN OR MASTER
INTER-ORIENT MARITIME ENTERPRISES vs. CA
Where a compulsory pilot is in charge of a ship, the master being
required to permit him to navigate it, if the master observes that the
pilot is incompetent or physically incapable, then it is the duty of the
master tor refuse to permit the pilot to act. But if no such reasons are
present, then the master is justified in relying upon the pilot, but not
blindly. Under the circumstances of this case, if a situation arose where
the master, exercising that reasonable vigilance which the master of a
ship should exercise, observed, or should have observed, that the pilot
was so navigating the vessel that she was going, or was likely to go, into
danger, and there was in the exercise of reasonable care and vigilance
an opportunity for the master to intervene so as to save the ship from
danger, the master should have acted accordingly. The master of a
vessel must exercise a degree of vigilance commensurate with the
circumstances.

“A ship's captain must be accorded a reasonable measure of ROLE OF CAPTAIN V. ROLE OF MARITIME PILOT
discretionary authority to decide what the safety of the ship and of its
crew and cargo specifically requires on a stipulated ocean voyage. The Captain or Master Maritime Pilot
captain is held responsible, and properly so, for such safety. He is right For purposes of maritime A pilot, in maritime law, is a
there on the vessel, in command of it and (it must be presumed) commerce, is one who has person duly qualified, and licensed
knowledgeable as to the specific requirements of seaworthiness and the command of a vessel. to conduct a vessel into or out of
particular risks and perils of the voyage he is to embark upon. ports, or in certain waters.

The applicable principle is that the captain has control of all “pilot” includes those whose duty
departments of service in the vessel, and reasonable discretion as to its is to guide vessels into or out of
navigation. It is the right and duty of the captain, in the exercise of ports, or in particular waters and
sound discretion and in good faith, to do all things with respect to the those entrusted with the
vessel and its equipment and conduct of the voyage which are navigation of vessels on high
reasonably necessary for the protection and preservation of the seas.
interests under his charge, whether those be of the shipowners, On compulsory pilotage grounds
charterers, cargo owners or of underwriters. It is a basic principle of The Harbor Pilot providing the The Master shall retain overall
admiralty law that in navigating a merchantman, the master must be service to a vessel shall be command of the vessel even on
left free to exercise his own best judgment. responsible for the damage to a pilotage grounds whereby he can
vessel or to life and property at countermand or overrule the
The requirements of safe navigation compel us to reject any suggestion ports due to his negligence or order or command of the Harbor
that the judgment and discretion of the captain of a vessel may be fault. Pilot on board. In such event, any
confined within a straitjacket, even in this age of electronic He can only be absolved form damage caused to a vessel or to
communications. Indeed, if the ship captain is convinced, as a liability if the accident is caused by life or property at ports by reason
reasonably prudent and competent mariner acting in good faith that the force majeure or natural of the fault or negligence of the
shipowner's or ship agent's instructions (insisted upon by radio or calamities provided he has Master shall be the responsibility
telefax from their offices thousands of miles away) will result, in the exercised prudence and extra and liability of the registered
very specific circumstances facing him, in imposing unacceptable risks diligence to prevent or minimize owner of the vessel concerned
of loss or serious danger to ship or crew, he cannot casually seek damage. without prejudice to recourse
absolution from his responsibility, if a marine casualty occurs, in against said Master.
such instructions.”
Compulsory Pilotage
 For entering a harbor and anchoring thereat, or passing through
rivers or straits within a pilotage district, as well as docking and
MASTER PRO HAC VICE undocking at any pier/wharf, or shifting from one berth or
another, every vessel engaged in coastwise and foreign trade
Pilot is the master pro hac vice
shall be under compulsory pilotage.
 Implemented in the Port of Manila.
Under English and American authorities, generally speaking, the pilot
supersedes the master for the time being in the command and
hyaaltar Page 6
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
V. CHARTER PARTIES
TWO MAIN CATEGORIES
A. Bareboat or Demise Charter
Ship owner leases to the charterer the whole vessel, transferring to the
latter the entire command, possession and consequent control over the
vessel’s navigation, including the master and the crew, who becomes
the charterer’s “servants”.
The charterer takes over the ship, lock, stock and barrel. As the
shipowner is not normally required to provide for a crew; the charterer
gains possession of the vessel “bare”, hence, the term “bareboat”.
B. Contract of Affreightment
The charterer hires the vessel only, either for a determinate period of
time or for a single or consecutive voyage, with the ship owner
providing for the provisions of the ship, the wages of the master and
crew, and the expenses for the maintenance of the vessel.
a. Time Charter – use of a vessel for a specified period of timeor for
the duration of one or more specified voyages. Owner of a time
chartered vessel retains possession and control through the master and
crew who remains employees. What the time charterer acquires is the
right to utilize the carrying capacity and facilities of the vessel and to
designate her destinations during the term of the charter.
b. Voyage Charter or Trip Charter – contract for the carriage of
goods from one or more ports of loading to one or more ports of
unloading, on one or on a series of voyages. In a voyage charter, the
master and crew remain in the employ of the owner of the vessel.
c. Slot Charter Party – Shipper leases one or more “slots” aboard a
container ship. Here, a space in the vessel is reserved for the use of the
charterer. A slot or space charter agreement is in the nature of a
contract of affreightment. Hence, the Curt observed in one case the slot
charter agreement did not divest the carrier of such characterization as
a carrier not relieved it of any accountability for the shipment.
SLOT CHARTER PARTY AND ITS EFFECT ON DILIGENCE
OF COMMON CARRIER
The carrier is bound to exercise extraordinary diligence in conveying its
slot charter agreement. Being a contract of affreightment, it is the
carrier and not the charterer, who is liable for damages or losses
sustained by the goods transported.
HEUNG-A SHIPPING vs. PHILAM INSURANCE CO.
“As the carrier of the subject shipment, Heung-A was bound to exercise
extraordinary diligence in conveying the same and its slot charter
agreement with Dongmana did not divest it to such characterization nor
relieve it of any accountability for shipment.
The slot charter was in fact a contract of affreightment which means
that the use of shipping space on vessel is leased in part or as a whole,
to the carry for the good of others. The voyage remains under the
responsibility of the carrier and it is answerable for the loss of goods
received for transportation.”
EFFECT OF CHARTER PARTY ON CARRIER
A charter party may transform a common carrier into a private carrier.
However, it must be a bareboat or demise charter where the charterer
means the vessel with his own people and becomes, in effect, the
owner for the voyage or service stipulated.
The common carrier is not transformed into a private carrier if the
charter party is a contract of affreightment like a voyage charter or a
time charter.
hyaaltar
LIABILITY OF CHARTERER UNDER A CONTRACT OF
AFFREIGHTMENT
Generally, the character of the common carrier is not affected by the
charter party if the same is a contract of affreightment.
If the charter is a contract of affreightment, which leaves the general
owner in possession of the ship as owner for the voyage, the rights and
the responsibilities of ownership rest on the owner. The charterer is free
from liability to third persons in respect of the ship.
In this case, the charter party agreement did not convert the common
carrier into a private carrier. The parties entered into a voyager charter,
which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, we said: "It is therefore
imperative that a public carrier shall remain as such, notwithstanding
the charter of the whole or portion of a vessel by one or more persons,
provided the charter is limited to the ship only, as in the case of a
time-charter or voyage charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage
covering the charter-party is concerned. Indubitably, a ship-owner in a
time or voyage charter retains possession and control of the ship,
although her holds may, for the moment, be the property of the
charterer."
The charterer of a vessel has no obligation before transporting its cargo
to ensure that the vessel it chartered complied with all legal
requirements. The duty rests upon the common carrier simply for being
engaged in "public service." The Civil Code demands diligence which is
required by the nature of the obligation and that which corresponds
with the circumstances of the persons, the time and the place. Hence,
considering the nature of the obligation between Caltex and MT Vector,
the liability as found by the Court of Appeals is without basis.
OWNER PRO HAC VICE
The bareboat charterer becomes the owner “pro hac vice” of the vessel
since he mans the vessel with his own set of master and crew,
effectively becoming the owner for the voyage or service stipulated,
subject however to any liability for damages arising from negligence.
The bareboat charterer assumes, to a large extent, the customary rights
and liabilities of the shipowner in relation to third persons who may
have dealt with him or with the vessel. In this latter instance, the master
of the vessel is the agent of the charterer, and not of the shipowner,
and this, it is the charterer or owner pro hac vice, and not the general
owner of the vessel, who is liable for the expense of the voyage
including the wages of seamen.
VI. LOANS ON BOTTOMRY AND RESPONDENTIA
CHARACTERISTICS OF BOTTOMRY AND
RESPONDENTIA
LOAN ON BOTTOMRY
In maritime law, is a contract whereby the owner of a ship borrows for
the use, equipment or repair of the vessel, for a definite term, and
pledges the ship (or the keel or bottom of the ship pars pro toto) as
security, with the stipulation that id the ship is lost during the voyage or
during the limited time on account of the perils enumerated, the lender
shall lose his money.
LOAN ON RESPONDENTIA
Where the goods, or some part thereof, are hypothecated as security
for a loan, the repayment of which is dependent upon maritime risks
Usual form is that of a bond. In this kind of maritime loan, it is the
borrower’s personal responsibility which is deemed to be the principal
Page 7
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
security for the performance of a contract, hence the term
ORDINARY VS. EXTRAORDINARY EXPENSES
“respondentia”
Note: before determining whether the averages are particular or
BOTTOMRY RESPONDENTIA general, determine first whether expenses are ordinary or extraordinary.
Pledges the ship or the keel or Goods, or some part thereof, are Because if they are mere ordinary expenses, the rules on average will
bottom of the ship pars pro toto hypothecated as security not apply. However, if they are extraordinary expenses, the rules on
Lender loses his capital should the Lender does not lose his capital averages will apply.
ship perish due to marine peril should the ship perish due to
marine peril, so long as the goods ORDINARY EXPENSES
subject of the loan survive or are
saved; but where the ship and the Ordinary expenses are not averages because they are foreseeable (as
cargo on board should disappear opposed to extraordinary, they are foreseeable), unless the parties
due to perils of the sea, the lender agree that averages will cover ordinary expenses. The Code of
on respondentia shall suffer loss Commerce does not prohibit the inclusion of other expenses under
of his capital averages.
Ship owner has authority to The cargo owner shall have the
constitute loan on bottomry. A right to enter into a loan on Note: Petty and ordinary expenses incident to navigation, such as those
part respondentia involving his cargo. pilotage of coasts and ports, those of lighterage and towage, anchorage,
owner shall be limited to loan only inspection, health, quarantine, lazaretto, and other so-called oirt
up to the extent of his share. The captain, being a mere agent expenses, costs of barges and unloading until the merchandise is placed
of the ship owner and not of the on the wharf, and any other usual expenses of navigation, shall be
A ship captain, who is a part cargo owner, may not contract a considered ordinary expenses to be defrayed by the shipowner, unless
owner, may obtain a loan on loan on respondentia. If he does there is an express agreement to the contrary.
bottomry only to the extent of his so, it would be void.
interest. You have a vessel at present, we say present, because the book makes
a distinction about vessels during the medieval times and now. If at
A ship captain, who is not an present, your vessel is caught by fire, and to extinguish the fire, a
owner, may enter into a loan on certain equipment was used, the owner of that equipment will have to
bottomry on account of extreme be paid for rescuing. The ship owner would have to pay the expense.
necessity. This is not an ordinary expense because it does not normally happen in
a voyage.
Important: There must be a marine risk upon which the loan is
predicated. Thus, there is no bottomry nor respondentia if the money GENERAL AVERAGE
borrowed is subject to repayment in any event.
General average - includes all damages and expenses which are
deliberately caused in order to save the vessel, its cargo or both at the
same time, from real and known risk.
VII. AVERAGES
Requisites:
WHAT ARE AVERAGES
1. There must be a common danger
2. For the common safety part of the vessel or of the cargo or both is
1. All extraordinary expenses or accidental expenses which may be
sacrificed deliberately
incurred during the voyage in order to preserve the cargo, the cargo or
3. From the expenses or damages caused follows the successful saving
both.
of the vessel and cargo
4. Expenses or damages should have been incurred or inflicted after
2. Any damages or deteriorations which the vessel may suffer from the
taking the proper legal steps and authority
time it puts to sea from the port of departure until it casts anchor in the
port of destination, and those suffered by the merchandise from the
time they are loaded in the port of shipment until they are unloaded in Particular/Simple Average Gross/General Average
the port of their consignment Have not inured to the common Caused for the benefit of those
benefit of all persons interested in interested in the vessel or cargoes
It is classified into two: simple or particular; and general or gross the vessel or cargoes
average. May be due to causes other than Deliberately caused in order to
deliberate acts save the vessel or the cargoes
SIMPLE AVERAGE Borne by the owner of thing Borne proportionately by the
vessel or cargoes damaged persons having interest in the
This includes all the expenses and damages caused to the vessel or to vessel or cargoes
her cargo which have not inured to the common benefit and profit of all
the persons interested in the vessel and her cargo. If damage cause is
not a general average, the same can be considered particular average. EFFECT OF PRESENCE OF NEGLIGENCE
Since this type of average does not inure to the common benefit, the AMERICAN HOME ASSURANCE vs. CA
owner of the goods that suffered the damage bears the loss.
The law on averages in the Code of Commerce cannot be applied in
GENERAL AVERAGE determining liability where there is negligence.

Includes all damages and expenses which are deliberately caused in
order to save the vessel, its cargo or both at the same time, from real
and known risk
PILOTAGE
There is negligence here because the shipowner proceeded with the
voyage despite warning from PAG-ASA of a storm. This is the case
where almost 10,000 televisions were loaded on a vessel. The issue on
negligence must first be resolved before provisions on Code of
Commerce may be applied.

They are ordinary expenses. They are not averages unless stipulated. NDC vs. COURT OF APPEALS

Two vessels collided because of negligence of the captain. When the

shipowner and ship agent were sued, they interposed the defense that
the law on averages must apply, so the loss must be proportionately
hyaaltar Page 8
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
spread. However, the Supreme Court said that the law on averages
finds no application where there is negligence and where the cargoes
are not jettisoned.
During the medieval times, the concept of averages was limited to
instances where cargoes are jettisoned. At present, there can still be
averages even if the cargoes are not jettisoned.
Note: The common carriers cannot limit their liability for injury or loss of
goods when such injury or loss was caused by its own negligence. The
law on average under the Code of Commerce cannot be applied in
determining liability where there is negligence.
EXPENSES TO REFLOAT A VESSEL
A.MAGSAYSAY INC vs. AGAN
FACTS: A vessel, while unintentionally stranded inside a port, ran
aground at the mouth of the Cagayan River. Expenses were incurred in
hiring a company to refloat the vessel. The shipowner claims that the
expenses constitute general averages and thus the losses should be
borne proportionately.
ISSUE: Whether the expenses constitute general averages.
RULING: No. For expenses for refloating a vessel to constitute general
averages, the vessel must be intentionally stranded and the expenses
were incurred for the purpose of saving both the vessel and the cargo.
Here, the stranding of the vessel was not intentional. Moreso, the
expenses were not incurred for the common safety of the vessel and the
cargo, since they, or at least the cargo, were not in imminent peril. The
cargoes could have been unloaded without need of an expensive
salvage operation.
In sum, where the expense sought to be recovered does not show that
it is intended to save the vessel or cargo from common danger, it
cannot be considered a general average.
Note: There is no proof that the vessel had to be put afloat to save it
from imminent danger. From the testimony of the shipowner, the vessel
had to be salvaged in order to enable it to proceed to its port of
destination. It is important to note that the true foundation of general
averages is the safety of the property and not of the voyage.
VIII. COLLISIONS
An impact or sudden contact of a vessel with another whether both are
in motion or one stationary.
If one vessel is moving while the other is stationary, the same is more
appropriately called ‘allision’.
DOCTRINE OF ERROR IN EXTREMIS
In the first zone, no rules apply. In the second, the burden is on the
vessel required to keep away and avoid the danger. The third zone
covers the period in which errors in extremis occur; and the rule is that
the vessel which has forced the privileged vessel into danger is
responsible even if the privileged vessel has committed an error within
that zone. Thus, if it was during the time when the sail vessel was
passing through the third zone that it changed its course to port in order
to avoid, if possible, the collision, the act may be said to have been done
in extremis, and, even if wrong, the sailing vessel is not responsible for
the result.
A. Urrutia & Co. Case
This pertains to a collision between a steamer and a sail vessel. The two
watched each other for some time before the collision. The sailing
vessel kept her course until in extermis when she made a wrong
maneuver.
If a vessel having a right of way suddenly changes its course during the
3rd zone (time between the moment when collision has become a
hyaaltar
practical certainty and the moment of actual contact), in an effort to
avoid an imminent collision due to the fault of another vessel, such act
may be said to be done in extremis, and even if wrong, cannot create
responsibility on the part of said vessel with the right of way.
Thus, it has been held that fault on the part of the sailing vessel at the
moment preceding a collision, that is, during the 3rd division of time,
does not absolve the steamship which has suffered herself and a sailing
vessel to get into such dangerous proximity as to cause inevitable harm
and confusion, and a collision results as a consequence.
The steamer having a far greater fault in allowing such proximity to be
brought about is chargeable with all the damages resulting from the
collision; and the act of the vessel sailing having been done in extremis,
even if wrong, is not responsible for the result.
ZONES IN COLLISION
In collisions between vessels, there exist three division of time or zones:
1. The first division covers all the time up to the moment when the risk
applicable may be said to have begun.
- Within this zone, no rule is applicable because none is necessary
- Each vessel is free to direct its course as it deems best without
reference to the movements of the other vessel
2. The second division covers the time between the moment when the
risk of collision begins and the moment when it has become a practical
certainty.
3. The third division covers the time of actual contract
LIABILITY RULES
Although the liability with respect to collision is not governed by
quasi-delict, liability in collision cases is still negligence based. Collision
cases are still governed by the provisions of the Code of Commerce on
Collision.
In other words, courts are still called upon to determine the negligence
of the persons involved in order to impose liability. The person who
causes the injury is both civilly and criminally liable.
Note: in determination of negligence, the same test of a reasonable
man in the position of an expert that applies in quasi-delict should also
be applied although with due consideration to the expertise of the
persons involved including the carrier itself, the captain, officers and
crew of the vessels. Thus it still relevant to determine if the collision is
sufficiently foreseeable such that a reasonable man with the same
expertise could have avoided the impact
Contributory negligence and last clear chance is not applicable to
collision cases because of Art. 827 of the Code of Commerce.
Thus, if both vessels were negligently operated, it does not matter if the
other has the clear chance of avoiding the injury because under Art. 827
- each must suffer its own damage if both of them are negligent.
Although the negligence on the part of the mate of the incoming vessel
preceded the negligence on the part of the mate of the outgoing vessel
by an appreciable interval of time, the first vessel cannot on that
account be absolved from responsibility.
Note: proof that the plaintiff was negligent will bar recovery from the
defendant in collision cases even if the plaintiff’s negligence can be
classified as merely contributory.
SPECIFIC LIABILITY RULES
The liability of the carriers would depend if only one is at fault, if both
vessels are at fault or if the entity at fault cannot be determined.
One vessel at fault
If a vessel should collide with another, through or the fault, negligence,
or lack of skill of the captain, sailing mate, or any other member of the
complement, the owner of the vessel at fault shall indemnify the losses
Page 9
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
and damages suffered, after an expert appraisal. (Art. 826 of the Code
of Commerce)
Both vessels at fault
If the collision is imputable to both vessels, each one shall suffer its own
damages, and both shall be solidarily responsible for the losses and
damages occasioned to their cargoes.
No apportionment of liability.
Party at fault cannot be determined
Each party shall bear his own damage in cases in which it cannot be
determined which of the two vessels has caused the collision. They are
solidarily responsible for the losses and damages occasioned to their
cargoes.
Cause is fortuitous event
Each vessel and its cargo shall bear its own damages. If, by reason of
storm or other cause of force majeure, a vessel which is properly
anchored and moored should collide with vessels nearby, causing the
latter vessels damage, the injury occasioned shall be considered as
particular average of the vessel run into.
Third person at fault
If a vessel should be forced by a third vessel to collide with another, the
owner of the third vessel shall indemnify the losses and damages cause,
the captain being civilly liable to said owner.
Sinking on the way to port
A vessel which, upon being run into, sinks immediately, as well as that
which, having been obliged to make a port to repair the damages
caused by the collision, is lost during the voyage or is obliged to be
stranded in order to be saved shall be presumed as lost by reason of
collision.
IS A CHARTERER LIABLE UNDER MARITIME LAW?
It depends if the charter party is a contract of affreightment or a
bareboat/demise charter.
A. Contract of affreightment
The use of shipping space on vessels is leased in part or as a whole, to
carry goods for others. Consequently, the voyage remains under the
responsibility of the carrier and it is answerable for the loss of goods
received for transportation. The charterer is free from liability to third
persons in respect of the ship.
B. Bareboat charter or charter by demise
The whole vessel is let to the charterer with a transfer to him of its
entire command and possession and consequent control over its
navigation, including the master and the crew, who are his servants.
The charterer becomes the owner for the voyage or service stipulated
and hence liable for damages or loss sustained by the goods
transported.
Note: It is only in bareboat or demise charter where the charterer is
liable for damages or losses sustained.
OWNER PRO HAC VICE OR OWNER FOR THIS
OCCASION
Charterer is the owner pro hac vice in a bareboat charter
HEUNG-A SHIPPING vs. PHILAM INSURANCE CO.
In a bareboat or demise charter, the shipowner leases to the charterer
the whole vessel, transferring to the latter the entire command,
possession and consequent control over the vessel’s navigation,
including the master and crew, who thereby become the charterer’s
“servant.”
hyaaltar
As the shipowner is not normally required to provide for a crew, the
charterer gains possession of the vessel “bare,” hence, the term
“bareboat.”
Thus, the charterer becomes the owner “pro hac vice” of the vessel
since he mans the vessel with his own set of master and crew,
effectively becoming the owner for the voyage or service stipulated,
subject however to any liability for damages arising from negligence.
Moreover, the bareboat charterer assumes, to a large extent, the
customary rights and liabilities of the shipowner in relation to third
persons who may have dealt with him or with the vessel. In this latter
instance, the master of the vessel is the agent of the charterer, and not
of the shipowner, and therefore, it is the charterer or owner pro hac vice,
and not the general owner of the vessel, who is liable for the expenses
of the voyage including the wages of the seamen.
MARITIME PROTEST - WHEN NOT REQUIRED
General Rule: It is necessary in collision cases - must be presented
within 24 hours
Exception: If the collision involves small boats engaged in reiver and
bay traffic and inland navigation because this requirement applies only
to ships and sea-going vessels
DOCTRINE OF INSCRUTABLE FAULT
This is applicable where it cannot be determined which between the two
vessels was at fault, both shall bear their respective damage, but both
should be solidarily liable for damage to the cargo of both vessels.
RULE 18, INT’L RULES OF THE ROAD
When two power-driven vessels are meeting end on, or nearly end on,
so as to involve risk of collision, each shall alter her course to starboard,
so that each may pass on the port side of the other.
Note: This is actually Rule 14 the International Rules of the Road.
However, the Supreme Court, in the case of Smith Bell v. Go Thong,
referred to this as Rule 18. Maybe it was Rule 18 before and was
repealed, I don’t know. Tried my best to figure out why, but failed. But
it would seem that this is the rule referred to by Sir as per his
discussion.
When applicable and when not applicable
This Rule only applies to cases where vessels are meeting end on or
nearly end on, in such a manner as to involve risk of collision, and does
not apply to two vessels which must, if both keep on their respective
course, pass clear of each other.
SMITH BELL vs. GO THONG (1991)
Go Thong was held responsible for collision in this case for violation of
Rule 18 of the International Rules of the Road. This is because of the
following:
1. It turned to portside (left), instead of turning to starboard (right)
2. There was no proper look-out
3. The second mate was the one in command of the vessel even if there
was a captain on board.
MECENAS vs. COURT OF APPEALS (1989)
This is a peculiar case because the Supreme Court did not apply
international rules. Instead, it applied the presumption of gross
negligence under the New Civil Code.
FACTS: M/T Tacloban (barge-type oil tanker) and the M/V Don Juan
(passenger vessel) collided. When the collision occurred, the sea was
calm, the weather fair and visibility good. As a result of this collision, the
M/V "Don Juan" sank and hundreds of its passengers perished.
M/V Don Juan claimed that it should not be liable as it complied with
Rule 18 of the International Rules of the Road, while M/T Tacloban City
Page 10
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
did not. It appears that when the two vessels were only three-tenths
(0.3) of a mile apart, M/T Tacloban turned to port side (in violation of
Rule 18, while the M/V Don Juan veered hard to starboard.
RULING: The “Route observance” of the International Rules of the Road
will not relieve a vessel from responsibility if the collision could have
been avoided by proper care and skill on her part or even by a departure
from the rules.
Rule 18 like all other International Rules of the Road, are not to be
obeyed and construed without regard to all the circumstances
surrounding a particular encounter between two vessels.
In ordinary circumstances, a vessel discharges her duty to another by a
faithful and literal observance of the Rules of Navigation, and she
cannot be held at fault for so doing even though a different course
would have prevented the collision. This rule, however, is not to be
applied where it is apparent, as in the instant case, that her captain was
guilty of negligence or
of a want of seamanship in not perceiving the necessity for, or in so
acting as to create such necessity for, a departure from the rule and
acting accordingly.
IX. ARRIVAL UNDER STRESS (AUS) AND SHIPWRECKS
The arrival of a vessel at the nearest and most convenient port which
was decided upon after determining that there is well-founded fear of
seizure, privateers, or pirates or by reason of any accident of the sea
disabling it to navigate.
LEGITIMATE AUS - GROUNDS
1. Lack of provisions
2. Well-founded fear of seizure
3. Privateers or pirates
4. By reason of any accident of the sea disabling it to navigate
STEPS TO BE TAKEN TO DETERMINE PROPRIETY OF AUS:
1. The captain should determine during the voyage if there is
well-founded fear of seizure, privateers and other valid grounds;
2. The captain shall assemble the officers;
3. The captain shall summon the persons interested in the cargo
who may be present and who may attend but without right to vote;
4. The officers shall determine and agree if there is well-founded reason
after examining the circumstances. The captain shall have deciding
vote;
5. The agreement shall be drafted and the proper minutes shall be
signed and entered in the log book;
6. Objections and protests shall likewise be entered in the minutes
Note: Lawfulness of the arrival under stress determines if damages will
be shouldered by the shipowner and the ship agent. The captain must
make a protest
WHEN NOT LAWFUL
1. If the lack of provisions should arise from the failure to take the
necessary provisions for the voyage according to usage and customs, or
if they should have been rendered useless or lost through bad stowage
or negligence in their care.
2. If the risk of enemies, privateers, or pirates should not have been
well-known, manifest, and based on positive and provable facts.
3. If the defect of the vessel should have arisen from the fact that it was
not repaired, rigged, equipped, and prepared in a manner suitable for
the voyage, or from some erroneous order of the captain.
4. When malice, negligence, want of foresight or lack of skill on the part
of the captain exists in the act causing the damage.
LIABILITY OF SHIPOWNER
If AUS is proper – shipowner and ship agent is liably only for the
expenses for the same arrival. The shipowner and ship agent will be
hyaaltar
liable for the same expenses and, in addition, they shall be solidarily
liable for damages caused to the cargoes by such AUS.
Note: this presupposes that exercise of extraordinary diligence is
exercised by the carrier
SUMMARY:
The shipowner will always be liable for the expenses of an arrival under
stress, whether lawful or unlawful. The only difference lies in the liability
for damages caused to the shipper’s cargoes:
 If AUS is lawful – not liable
 Is AUS is unlawful – liable (here, shipowner is liable for both the
expenses of arrival under stress and damages caused to the
shipper)
ARTICLE 825, CODE OF COMMERCE
The captain shall be liable for damages caused by his delay, if after the
cause of the arrival under stress has ceased, he should not continue the
voyage.
X. SALVAGE
RIGHT TO SALVAGE REWARD
Salvage is founded on the equity of remunerating private and individual
services performed in saving, in whole or in part, as ship or its cargo
from impending peril, or from recovering them form actual loss. It is
compensation for actual services rendered to the property charge with it,
and is allowed for meritorious conduct of the salvor, and in
consideration of a benefit conferred upon the person whose the
property he has saved.
WHO ARE NOT ENTITLED TO REWARD
The salvor, under the Salvage Law, must have no compensation,
contractual or otherwise, upon the ship in distress. Thus under Section
8 of the law, the following persons shall have no right to reward, namely:
1) the crew of the vessel shipwrecked or which was in danger of
shipwreck
2) he who shall have commenced the salvage in spite of the opposition
of the captain or his representative; and
3) he who shall have failed to comply with the provision of section 3.
TOWAGE VS. SALVAGE
TOWAGE
A contract whereby one vessel pulls another, whether loaded or not
with cargo, from one place to another, for a compensation. This is the
service rendered to a vessel by towing for the mere purpose of
expediting her voyage without reference to any circumstances of
danger.
SALVAGE
A service rendered by one to the owner of a ship or goods, by his own
labor preserving the goods or the ship which the owner or those
entrusted with the care of them have either abandoned in distress at
sea or are unable to protect and secure.
Kinds of salvage:
1. Voluntary – compensation is dependent upon success
2. Rendered under a contract – payable at all events
3. Under a contract for a compensation – payable only in case of
success.
XI. CARRIAGE OF GOODS BY SEA ACT (COGSA)
WHEN APPLICABLE
1. Applies suppletorily to the Civil Code if the goods are to be shipped
form a foreign port to the Philippines
2. COGSA is applicable in international maritime commerce.
Page 11
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
3. It can be applied in domestic sea transportation if agreed upon by the
parties (paramount clause).
ARTICLE 1753, NCC
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.
WHEN COGSA NOT APPLICABLE
1. When liability is based on a contract of insurance
2. In cases of misdelivery of goods
TO WHAT CONTRACT DOES COGSA APPLY?
COGSA applies to contracts of carriage of goods evidenced by Bills of
Lading.
Section 1(b) of COGSA provides that the term “contract of carriage”
applies only to contracts of carriage by sea covered by a bill of lading or
any similar document of title, insofar as such document relates to the
carriage of goods by sea, including any bill of lading or any similar
document as aforesaid issued under or pursuant to a charter party from
the moment at which such bill of lading or similar document of title
regulates the relations between a carrier and a holder of the same.
Reason: In international trade, other countries are also involved. A bill
of lading is the contract between the shipper and the carrier. Being so,
regardless of country, it shall be governing law between the two.
Consequently, in case of suit, the law to be applied won’t be an issue
because it is the contract (bill of lading) that will govern.
MEANING OF FOREIGN TRADE
Transportation of goods between the ports of the Philippines and ports
of foreign countries; “to and from” Philippine ports.
PARTIES IN COGSA
1. Carrier
- includes the charterer who enters into a contract of carriage with
the shipper; charters a vessel and conducts his own business for his
own account.
2. Shipper
3. Consignee becomes a party to the contract by reason of either:
a) When he accepted the bill of lading and is trying to enforce
the agreement;
b) Relationship of agency between the consignee and the
shipper/consignor;
c) Unequivocal acceptance of the of the bill of lading delivered
to the consignee with full knowledge of its contents; or
d) Availment of the stipulation pour autrui
GOODS ARE DAMAGED DURING UNLOADING
PHILIPPINES FIRST vs. WALLEM
FACTS: October 2, 1995, Anhui Chemicals Import & Export Corp. loaded
on board M/S Offshore Master a shipment consisting of 10,000 bags of
sodium sulphate anhydrous, complete and in good order for
transportation to and delivery to the port of Manila for consignee, L.G.
Atkimson Import-Export, covered by a Clean Bill of Lading. The BOL
reflects the gross weight of the total cargo at 500,200 kilograms. The
owner and/or charterer of M/V Offshore Master is unknown while the
shipper of the shipment is Shanghai Fareast Ship Business Company.
Both are foreign firms doing business in the Philippines, thru its local
ship agent, respondent Wallem Philippines.
October 16, 1995, the shipment arrived at the port of Manila and was
subsequently discharged. It was disclosed during the discharge that
2,426 bags were in bad order and condition, having sustained various
degrees of spillages and losses. This is evidenced by the Turn Over
Survey of Bad Order Cargoes of the arrastre operator, Asian Terminals.
The bad state of the bags is also evinced by the arrastre operator’s
request for bad order survey.
hyaaltar
Asia Star Freight Services undertook the delivery of the shipment from
pier to consignee’s warehouse in Quezon City, while the final inspection
was conducted jointly by the cargo surveyor and the consignee’s
representative. During unloading, it was found and noted that the bags
had been discharged in damaged and bad order condition. It was
discovered that 63,065 kgs of the shipment had sustained unrecovered
spillages, while 58,235 kgs had been exposed and contaminated,
resulting in losses due to depreciation and downgrading.
April 26, 1996, the consignee filed a formal claim with Wallem for the
value of the damaged shipment, to no avail. Since the shipment was
insured with petitioner Philippines First Insurance against all risks in the
amount of P2,470,213.50, the consignee filed a formal claim with
petitioner for the damage and losses sustained by the shipment. After
evaluating the invoices, the turn-over survey, the bad order certificate
and other documents, petitioner found the claim to be in order and
compensable under the marine insurance policy. Consequently,
petitioner paid the consignee the sum of P397,879.69 and the latter
signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand
letter to Wallem for recovery of the amount paid. However, despite
receipt of the letter, Wallem did not respond to the claim, thus
petitioner instituted an action for damages before the RTC.
RTC ruled in favor of petitioners, ordering respondents to pay. The CA
reversed and set aside the RTC’s decision. (RTC ruled that it was
arrastre operator’s fault, and that arrastre operator should be solidarily
liable with shipping company. CA held that there is no solidary liability
because it was established that the damages were caused by the
arrastre operator)
ISSUE: 1. WON CA erred in not holding that as a common carrier, the
carrier’s duties extend to the obligation to safely discharge the cargo -
YES
2. WON the carrier should be held liable for the cost of the damaged
shipment - YES
3. WON Wallem’s failure to answer the extra judicial demand by
petitioner for the cost of the lost/damaged shipment is an implied
admission of the former’s liability for said goods - NO
HELD: Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods transported by them. Subject to certain
exceptions enumerated under Article 1734 of the NCC, common carriers
are responsible for the loss, destruction, or deterioration of the goods.
The extraordinary responsibility of the common carriers last from the
time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them.
For Marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over to
him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agree otherwise.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3(2) thereof then states that
among the carriers’ responsibilities are to properly and carefully load,
handle, stow, carry, keep, care for, and discharge the goods carried.
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the establishment
of the consignee or shipper and the ship’s tackle. Being the custodian of
the goods discharged from a vessel, an arrastre operator’s duty is to
take good care of the goods and to turn them over to the party entitled
to their possession. Handling cargo is mainly the arrastre operator’s
principal work so its drivers/operators or employees should observe the
standards and measures necessary to prevent losses and damage to
shipments under its custody.
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. In the
Page 12
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
instant case, the damage or losses were incurred during the discharge
of the shipment while under the supervision of the carrier. Consequently,
the carrier is liable for the damage or losses caused to the shipment.
As for the 3rd issue, Wallem’s failure to respond to its demand letter
does not constitute an implied admission of liability. Accoridng to Justice
Oliver Wendell Holmes: “A failure to answer such adverse assertions in
the absence of further circumstances making an answer requisite or
natural has no effect as an admission.”
DELIVERY TO ARRASTRE OPERATOR FOR PURPOSES OF
SEC. 3(6)
SECTION 3(6), COGSA
Unless notice or loss or damage and the general nature of such loss or
damage given in writing to the carrier or his agent at the port of
discharge or at the time of the removal of the goods into the custody of
the person entitled to delivery thereof under the contract of carriage,
such removal shall be prima facie evidence of the delivery by the carrier
of the goods as described in the bill of lading.
ASIAN TERMINALS vs. PHILAM INSURANCE
FACTS: On April 15, 1995, Nichimen Corporation shipped to Universal
Motors Corporation 219 packages containing 120 units of brand new
Nissan Pickup Truck Double Cab 4×2 model, without engine, tires and
batteries, on board the vessel S/S Calayan Iris from Japan to Manila.
The shipment, which had a declared value of US$81,368 or P29,400,000,
was insured with Philam against all risks under the marine Policy no.
708-8006717-4.
The carrying vessel arrived at the port of Manila on April 20, 1995, and
when the shipment was unloaded by the staff of ATI, it was found that
the package marked as 03-245-42K/1 was in bad order. The Turn Over
Survey of bad order cargoes dated April 21, 1995 identified two
packages, labelled 03-245-42K/1 and 03/237/7CK/2, as being dented
and broken. Thereafter, the cargoes were stored for temporary
safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs
Brokerage, Inc., the authorized broker of Universal Motors, and
delivered to the latter’s warehouse in Mandaluyong City. Upon the
request of Universal Motors, a bad order survey was conducted on the
cargoes and it was found that one Frame Axle Sub without LWR was
deeply dented on the buffle plate while six Frame Assembly with Bush
were deformed and misaligned. Owing to the extent of the damage to
said cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in
the amount of P643,963.84 against Westwind, ATI and R.F. Revilla
Customs Brokerage, Inc. When Universal Motors’ demands remained
unheeded, it sought reparation from and was compensated in the sum
of P633,957.15 by Philam. Accordingly, Universal Motors issued a
Subrogation Receipt dated November 15, 1995 in favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal Motors, filed a
Complaint for damages against Westwind, ATI and R.F. Revilla Customs
Brokerage, Inc. before the Regional Trial Court of Makati City. The trial
court rendered judgment in favour of Philam which ruling was affirmed
by the Court of Appeals modifying the amount to be paid by Westwind
and ATI.
PETITIONER’S ARGUMENT:
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the value of the
deformed Frame Axle Sub without Lower in Case No. 03-
245-42K/1.
Westwind argues that the evidence shows that ATI was already in
actual custody of said case when the Frame Axle Sub without Lower
inside it was misaligned from being compressed by the tight cable used
to unload it.
Accordingly, Westwind ceased to have responsibility over the cargoes as
provided in paragraph 4 of the Bill of Lading which provides that the
responsibility of the carrier shall cease when the goods are taken into
the custody of the arrastre.
hyaaltar
Westwind contends that sole liability for the damage rests on ATI since
it was the latter’s stevedores who operated the ship’s gear to unload the
cargoes.
Westwind reasons that ATI is an independent company, over whose
employees and operations it does not exercise control. Moreover, it was
ATI’s employees who selected and used the wrong cable to lift the box
containing the cargo which was damaged.
Westwind likewise believes that ATI is bound by its acceptance of the
goods in good order despite a finding that Case No. 03-
245-42K/1 was partly torn and crumpled on one side. Westwind also
notes that the discovery that a piece of Frame Axle Sub without Lower
was completely deformed and misaligned came only on May 12, 1995 or
22 days after the cargoes were turned over to ATI and after the same
had been hauled by R.F. Revilla
Customs Brokerage, Inc.
Westwind further argues that the CA erred in holding it liable
considering that Philam’s cause of action has prescribed since the latter
filed a formal claim with it only on August 17, 1995 or four months after
the cargoes arrived on April 20, 1995. Westwind stresses that according
to the provisions of clause 20, paragraph 2 of the Bill of Lading as well
as Article 366 of the Code of Commerce, the consignee had until April
20, 1995 within which to make a claim considering the readily apparent
nature of the damage, or until April 27, 1995 at the latest, if it is
assumed that the damage is not readily apparent.
ISSUE: Has Philam’s action for damages prescribed?
RULING:
As to prescription
The prescriptive period for filing an action for the loss or damage of the
goods under the COGSA is found in paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such loss
or damage be given in writing to the carrier or his agent at the port of
discharge before or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by
the carrier of the goods as described in the bill of lading. If the loss or
damage is not apparent, the notice must be given within three days of
the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the
goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at
the time of their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered: Provided, That if a notice of loss or damage, either apparent
or concealed, is not given as provided for in this section, that fact shall
not affect or prejudice the right of the shipper to bring suit within one
year after the delivery of the goods or the date when the goods should
have been delivered.
S/S “Calayan Iris” arrived at the port of Manila on April 20, 1995, and
the subject cargoes were discharged to the custody of ATI the next day.
The goods were then withdrawn from the CFS Warehouse on May 11,
1995 and the last of the packages delivered to Universal Motors on May
17, 1995. Prior to this, the latter filed a Request for Bad Order Survey on
May 12, 1995 following a joint inspection where it was discovered that
six pieces of Chassis Frame Assembly from two bundles were deformed
and one Front Axle Sub without Lower from a steel case was dented.
Yet, it was not until August 4, 1995 that Universal Motors filed a formal
claim for damages against petitioner Westwind.
Even so, we have held in Insurance Company of North America v. Asian
Terminals, Inc. that a request for, and the result of a bad order
examination, done within the reglementary period for furnishing notice
of loss or damage to the carrier or its agent, serves the purpose of a
claim. A claim is required to be filed within the reglementary period to
afford the carrier or depositary reasonable opportunity and facilities to
Page 13
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
check the validity of the claims while facts are still fresh in the minds of
the persons who took part in the transaction and documents are still
available.
Here, Universal Motors filed a request for bad order survey on May 12,
1995, even before all the packages could be unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that
failure to comply with the notice requirement shall not affect or
prejudice the right of the shipper to bring suit within one year after
delivery of the goods.
Petitioner Philam, as subrogee of Universal Motors, filed the Complaint
for damages on January 18, 1996, just eight months after all the
packages were delivered to its possession on May 17, 1995. Evidently,
petitioner Philam’s action against petitioners Westwind and ATI was
seasonably filed.
NOTICE OF CLAIM
1. If loss or damage is apparent – notice must be given immediately
2. If loss or damage is not apparent – notice must be given within 3
days from delivery.
Non-compliance with the notice requirement shall not prejudice the
right of the shipper to bring suit within 1 year from delivery of the goods
or the date when the goods should have been delivered.
PACKAGE LIABILITY LIMITATION
PHILAM INSURANCE vs. HEUNG-A
“The liability of HEUNG-A is limited to $500 per package or pallet
because in case of the shipper’s failure to declare the value of the goods
in the bill of lading, Section 4, paragraph 5 of the COGSA provides that
neither the carrier nor the ship shall in any event be or become liable for
any loss or damage to or in connection with the transportation of goods
in an amount exceeding $500 per package.”
FACTS: NOVARTIS imported from Jinsuk pallets of roll of Ovaltine
Power Glaminated plastic packaging material. JINSUK engaged the
services of Protop Shipping Corporation to forward the goods to their
consignee, NOVARTIS. Based on Bill of Lading issued by PROTOP, the
cargo was on freight prepaid basis and on "shipper’s load and count"
which means that the "container [was] packed with cargo by one
shipper where the quantity, description and condition of the cargo is the
sole responsibility of the shipper." Likewise stated in the bill of lading is
the name Sagawa Express designated as the entity in the Philippines
which will obtain the delivery contract.
PROTOP shipped the cargo through Dongnama Shipping which in turn
loaded the same on M/V Heung-A Bangkok owned and operated by
Heung-A Shipping Corporation pursuant to a ‘slot charter agreement’
whereby a space in the latter’s vessel was reserved for the exclusive use
of the former. Wallem Philippines is the ship agent of HEUNG-A in the
Philippines. NOVARTIS insured the shipment with Philam Insurance
Company under All
Risk Marine Open Insurance Policy. The vessel arrived at the port of
Manila.
It was found that the boxes of the shipment were wet and damp. Since
the damaged packaging materials might contaminate the product they
were meant to hold, the inspector of NAVORTIS rejected the entire
shipment.
NOVARTIS demanded indemnification for the lost/damaged shipment
from PROTOP, SAGAWA, ATI and STEPHANIE but was denied.
Insurance claims which were granted. Philam subrogated to the rights
of NOVARTIS.
PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied
liability for the lost/damaged shipment
SAGAWA: denied that it is the ship agent of PROTOP and argued that a
ship agent represents the owner of the vessel and not a mere freight
forwarder like PROTOP. SAGAWA averred that its only role with respect
to the shipment was to inform NOVARTIS of its arrival in the Philippines
hyaaltar
and facilitate the surrender of the original bill of lading issued by
PROTOP.
ATI: baseless complaint. ATI averred that it exercised due care and
diligence in handling the subject container.
STEPHANIE: its only role with respect to the shipment was its physical
retrieval from ATI and thereafter its delivery to NOVARTIS. That entire
time, the sealwas intact and not broken.
WALLEM: alleged that the damage and shortages in the shipment were
the responsibility of the shipper, JINSUK, because it was taken on board
on a "shipper’s load and count" basis which means that it was the
shipper that packed, contained and stuffed the shipment in the
container van without the carrier’s participation. The container van was
already sealed when it was loaded on the vessel and hence, the carrier
was in no position to verify the condition and other particulars of the
shipment. WALLEM claimed to have exercised due care and diligence in
handling the shipment. Any liability
which may be imputed to it is limited only to US$8,500.00 pursuant to
the Carriage of Goods by Sea Act (COGSA).
HEUNG-A: it is not the carrier insofar as NOVARTIS is concerned. The
carrier was either PROTOP, a freight forwarder considered as a
non-vessel operating common carrier or DONGNAMA which provided
the container van to PROTOP. HEUNG-A denied being the carrier of the
subject shipment. Is only obligation was to provide DONGNAMA a space
on board M/V Heung-A Bangkok V-019.
RULING OF THE RTC: The damage to the shipment occurred onboard
the vessel while in transit from Korea to the Philippines. HEUNG-A was
the common carrier of the subject shipment by virtue of the admissions
of WALLEM's witness, Ronald Gonzales (Gonzales) that despite the slot
charter agreement with DONGNAMA, it was still the obligation of
HEUNG-A to transport the cargo from Busan, Korea to Manila and thus
any damage to the shipment is the responsibility of the carrier to the
consignee. Moreover, HEUNG-A failed to present evidence showing that
it exercised the diligence required of a common carrier in ensuring the
safety of the shipment.
WALLEM was held liable as HEUNG-A's ship agent in the Philippines
while PROTOP was adjudged liable because the damage sustained by
the shipment was due to the bad condition of the container van. Also,
based on the statement at the back of the bill of lading, it assumed
responsibility for loss and damage as freight forwarder.
RULING OF THE CA: The CA agreed with the RTC that PROTOP,
HEUNG-A and WALLEM are liable for the damaged shipment. Moreover,
the proximate cause of the damage was the failure of HEUNG-A to
inspect and examine the actual condition of the sea van before loading
it on the vessel. Also, proper measures in handling and stowage should
have been adopted to prevent seepage of sea water into the sea van.
The CA limited the liability of PROTOP, WALLEM and HEUNG-A to
US$8,500.00 pursuant to the liability limitation under the COGSA since
the shipper failed to declare the value of the subject cargo in the bill of
lading and since they could not be made answerable for the two (2)
unaccounted pallets because the shipment was on a "shipper's load,
count and seal" basis.
ISSUE:
1) Whether the shipment sustained damage while in the possession and
custody of HEUNG-A, and if so, whether HEUNG-A's liability can be
limited to US$500 per package pursuant to the COGSA;
2) Whether or not NOVARTIS/PHILAM failed to file a timely claim
against HEUNG-A and/or WALLEM.
RULING: Common carriers, as a general rule, are presumed to have
been at fault or negligent if the goods they transported deteriorated or
got lost or destroyed.
That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they observed
such diligence. As the carrier of the subject shipment, HEUNG-A was
bound to exercise extraordinary diligence in conveying the same and its
slot charter agreement with DONGNAMA did not divest it of such
Page 14
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
characterization nor relieve it of any accountability for the shipment.
However, the liability of HEUNG-A is limited to $500 per package or
pallet because in case of the shipper’s failure to declare the value of the
goods in the bill of lading, Section 4, paragraph 5 of the COGSA provides
that neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the transportation
of goods in an amount exceeding $500 per package.
“Per steel drum”/”per pallet” = “per package”
PRESCRIPTION
Where to reckon?
SECTION 3 (6), COGSA
The carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered:
Provided, that, if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not
affect or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should have
been delivered.
Prescriptive period
Suit for loss or damage to the cargo must be brought within 1 year
from:
1. Delivery of the goods, or
2. The date when the goods should be delivered.
The one-year prescriptive period does not apply to cases of misdelivery
or conversion.
EFFECT OF TRANSSHIPMENT
THE AMERICAN INSURANCE COMPANY vs. COMPANIA
MARITIMA
SC: According to paragraph 4 of the amended complaint the cargo was
loaded on board the "M/S TOREADOR" in New York, "freight prepaid to
Cebu City . . . pursuant to the bill of lading No. 13." In other words, the
action is based on the contract of carriage up to the final port of
destination, which was Cebu City, for which the corresponding freight
had been prepaid.
The transshipment of the cargo from Manila to Cebu was not a separate
transaction from that originally entered into by Macondray, as general
agent for the "M/S TOREADOR". It was part of Macondray's obligation
under the contract of carriage and the fact that the transshipment was
made via an inter-island vessel did not operate to remove the
transaction from the operation of the Carriage of Goods by Sea Act.
The one-year period starts on the day of delivery to Cebu.
WHAT IF THERE IS A LETTER OF CREDIT?
UNSWORTH TRANSPORT INTERNATIONAL vs. CA
SC rejected CA’s contention that COGSA limitation of $500 per package
should not apply considering that a higher value was declared pursuant
to the letter of credit and the pro forma invoice. Insertion of the words
"L/C No. LC No. 1-187-008394/ NY 69867 covering shipment of raw
materials for pharmaceutical Mfg. x xx" cannot be the basis of
petitioner's liability and invoice number does not in itself sufficiently and
convincingly show that petitioner had knowledge of the value of the
cargo.
In the present case, the shipper did not declare a higher valuation of the
goods to be shipped (meaning, letters of credit and letters of invoice are
not enough to establish the value of the goods; it should be stated in
the bill of lading). Petitioners liability should be limited to $500 per steel
drum. In this case, as there was only one drum lost, private respondent
is entitled to receive only $500 as damages for the loss.
IS A STIPULATED SHORTER PRESCRIPTIVE PERIOD
ALLOWED?
hyaaltar
PIONEER INSURANCE vs. APL CO. PTE. LTD.
SC: In the Bill of Lading, it was categorically stated that the carrier shall
in any event be discharged from all liability whatsoever in respect of the
goods, unless suit is brought in the proper forum within nine (9) months
after delivery of the goods or the date when they should have been
delivered. The same, however, is qualified in that when the said
nine-month period is contrary to any law compulsory applicable, the
period prescribed by the said law shall apply. The present case involves
lost or damaged cargo. It has long been settled that in case of loss or
damage of cargoes, the one-year prescriptive period under the COGSA
applies. It is at this juncture where the parties are at odds, with Pioneer
Insurance claiming that the one-year prescriptive period under the
COGSA governs; whereas APL insists that the nine-month prescriptive
period under the Bill of Lading applies. A reading of the Bill of Lading
between the parties reveals that the nine-month prescriptive period is
not applicable in all actions or claims. As an exception, the nine-month
period is inapplicable when there is a different period provided by a law
for a particular claim or action. Thus, it is readily apparent that the
exception under the Bill of Lading became operative because there was
a compulsory law applicable which provides for a different prescriptive
period. Hence, strictly applying the terms of the Bill of Lading, the
one-year prescriptive period under the COGSA should govern because
the present case involves loss of goods or cargo.
(tl;dr, the 9-month prescriptive period in the BoL is a valid stipulation
and would have applied if not for the qualification that the 9-month
period would not apply if there is a compulsory law applicable. Since in
this case there’s a compulsory law applicable which is COGSA, that’s
why COGSA was applied instead.)
SUSPENSION OF PRESCRIPTIVE PERIOD BY PARTIES
1. Modification in the prescriptive period
THE HAMBURG RULES
Article 20(4) – Agreement of the parties
The person against whom a claim is made may at any time during the
running of the limitation period extend that period by a declaration in
writing to the claimant. This period may be further extended by another
declaration or declarations.
2. Exchange of correspondence
UNIVERSAL SHIPPING vs. IAC
This provision under Section 3 (6) of COGSA admits of an exception,
that is, if the one-year period is suspended by express agreement of the
parties for in such a case, their agreement becomes the law for them.
In this case, the period was suspended because of the exchange of
communication by the parties. It was considered by the court that they
have mutual agreed to extend the time to file the suit.
TN: The circumstances in this are peculiar and cannot be applied in all
cases.
3. Implied admission
CUA vs. WALLEM
In the allegations of his complaint, petitioner alleged that they have
agreed to extend the prescriptive period. When the defendant answered,
it was not specifically denied. So the court said that it was a presumed
admission.
Therefore, there was no prescription.
4. Amended complaint
WALLEN PHILS vs. SR FARMS
The one year prescriptive period is reckoned not from the filing of the
original complaint, but from the filing of the amended complaint.
Page 15
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
5. Fault attributable to insurer
NEW WORLD vs. SEABOARD
In this case, the one year already prescribed. But the SC allowed the
filing of the action because there was fault on the part of the insurance
company, the subrogee:
(a) The insurer did not answer the claim.
(b) The insurer asked for an itemized list of the goods which were
damaged.
(c) There was no rejection of the claim
The Supreme Court said that the insurer cannot ask for an itemized list
because the claim was for total loss. So there’s no need for a list of the
goods damaged since the claim is total.
MEANING OF DELIVERY UNDER SECTION 3(6) ON
PRESCRIPTION
MITSUI V. COURT OF APPEALS
FACTS: Mitsui O.S.K Lines is a foreign corporation represented by its
agent, Magsaysay Agencies. It entered into a contract of carriage with
private respondent Lavine Mfg. Co. to transport goods of the latter from
Manila to France. Petitioner failed in its undertaking to transport the
goods in 28 days from initial loading, hence, private respondent filed a
case for the recovery of damages before the RTC.
Petitioner moved for the dismissal of the complaint alleging that private
respondent cause of action had prescribed under the Carriage of Goods
by Sea Act (COGSA). It was denied by the RTC.
On petition for certiorari, the Court of Appeals sustained the trial court's
order. Hence this petition
ISSUE: WON private respondent's action is for "loss or damage" to
goods shipped, within the meaning of COGSA
RULING: NO. As defined in the Civil Code and as applied to Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act, "loss" contemplates
merely a situation where no delivery at all was made by the shipper of
the goods because the same has perished, gone out of commerce, or
disappeared in such a way that their existence is unknown or they
cannot be recovered.
Conformably with this concept of what constitutes "loss" or "damage,"
the Court held in another case that the deterioration of goods due to
delay in their transportation constitutes "loss" or "damage" within the
meaning of Section 3(6), so that as suit was not brought within one year
the action was barred.
In Ang v. American Steamship Agencies, Inc. the question was whether
an action for the value of goods which had been delivered to a party
other than the consignee is for "loss or damage" within the meaning of
§3(6) of the COGSA. It was held that there was no loss because the
goods had simply been misdelivered. "Loss" refers to the deterioration
or disappearance of goods.
In the case at bar, there is neither deterioration nor disappearance nor
destruction of goods caused by the carrier's breach of contract.
Whatever reduction there may have been in the value of the goods is
not due to their deterioration or disappearance because they had been
damaged in transit. Indeed, what is in issue in this petition is not the
liability of petitioner for its handling of goods as provided by Section 3(6)
of the COGSA, but its liability under its contract of carriage with private
respondent as covered by laws of more general application.
Precisely, the question before the trial court is not the particular sense
of "damages" as it refers to the physical loss or damage of a shipper's
goods as specifically covered by Section 3(6) of COGSA but petitioner's
potential liability for the damages it has caused in the general sense and,
as such, the matter is governed by the Civil Code, the Code of
Commerce and COGSA, for the breach of its contract of carriage with
private respondent. The Court concluded by holding that as the suit is
not for "loss or damage" to goods contemplated in §3(6), the question
hyaaltar
of prescription of action is governed not by the COGSA but by Art. 1144
of the Civil Code which provides for a prescriptive period of ten years.
LIAO vs. APL
“..the suit must be brought “within one year after delivery of the goods
or the date when the goods should have been delivered.”
FACTS: Plaintiff on July 30 1946, entered into a contract for the
importation of 2,000 cases of fresh hen eggs with Kent Sales Co. Inc,
through the latter’s agent in Manila (People’s Trading). It was to be
shipped on the S.S “Marine Leopard” sailing from New York on August 7,
1946.
Upon notification and payment, the Kent Sales Co., Inc. issued on
August 6, 1946 Invoice No. 5070 in favor of plaintiff, and on the same
day contracted with the defendant shipping company to have the eggs
shipped to Manila on the vessel S.S “Marine Leopard. On same day, the
defendant through its captain received at the pork of New York 2,000
cases of eggs and loaded them on the ship for delivery to plaintiff in
Manila.
Upon arrival in San Francisco, California, on August 30, 1946, the
defendant unloaded the 2,000 cases of eggs from the S.S. "Marine
Leopard", which resumed its voyage, arriving in Singapore in
September, 1946.
The eggs were later shipped on another of defendant's ships, the S.S.
"General Meigs"on November 27, 1946, which arrived in Manila on
December 26, 1946.
Plaintiff claimed that the discharge of the cargo at the Port of San
Francisco was wrongful and unjustified and a violation of the bill of
lading which provided that the eggs would be shipped to Manila on the
S.S “Marine Leopard”;
Plaintiff further claimed that the eggs were exposed to the hot summer
weather without having placed in refrigeration and that because of the
delay in the shipment and the careless and repeated handling of the
cases of eggs by mechanical devices, a substantial number of them
arrived broken and damaged; 587 were broken, with the eggs
contained therein in leaking condition; while the rest of the eggs in
1,413 cases were in a state of deterioration.
Upon recommendation of the surveyors, plaintiff immediately disposed
of the eggs, realizing from the sale only the amount of P27,300. He
argued that had there been no delay, plaintiff would have been able to
sell each case of egg for P60, or the entire shipment for the total sum of
P120,000 thereby realizing a profit of P92,755 on his total investment.
Having sold it only for P27,300, he suffered a loss of 92,700 plus the
sum of P55 which he paid the marine surveyors who inspected the
cargo.
Defendant, upon the other hand, alleged in defense that under the
terms of the Bill of Lading Exhibit B, it was at liberty to tranship the
cargo in question on any other vessel.
It also claimed that when the eggs were discharged in San Francisco,
they were immediately brought to the storage plant of the National Ice
and Cold Storage. Hence, if they arrived in Manila in deteriorated
condition, it was because of the inherent nature or defect of the eggs.
On the issue of delay in the transshipment of the cargo, it raised that
was due to the strike of the union of longshoremen in the western coast
of the United States from September to November, 1947, although
when the goods were unloaded in San Francisco, there was yet no
threat of a strike; and that immediately after the strike, the cargo was
loaded and transported on the S.S. "General Meigs."
The defendant also alleged by special defense while plaintiff received
the goods in question on December 26, 1946, he filed a claim with
defendant for damages only on July 25, 1947 (denied on February 16,
1948), and brought suit on May 25, 1948 which is more than a year
from the receipt of the goods. Being filed more than a year from the
time the plaintiff received the goods, the defendant argues that
plaintiff's action had prescribed under section 3, paragraph 6 of the
Carriage of Goods by Sea Act.
Page 16
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
The trial court found that the plaintiff suffered a loss of P25,896.81 by
reason of the delayed arrival of his cargo of eggs. The court however
found defendant’s defense of prescription meritorious and so dismissed
the case. From the dismissal, plaintiff appealed to this Court.
ISSUE: Whether or not the present case does not fall within the
prescriptive period provided in Section 3 of the Carriage of the Goods by
Sea Act
RULING: Appellant argues that section 3 of COGSA only applies to a suit
or action for loss or damage, either apparent or concealed and does not
apply for a breach of contract of carriage on the part of the carrier, as in
this case, where it is guilty of delay in the shipment of the goods,
causing losses or damages to the consignee
The distinction drawn is more apparent than real. Any and all injury or
damages suffered by the goods, while in transit and in the custody of
the carrier amounts to a breach of the contract of carriage, unless due
to fortuitous event. Thus the carrier is bound to transport the goods
safely and so breaches its contract if it neglects such duty.
Appellant furthermore urges that the action or suit referred to in the
provision in question refers only to loss or damage to the goods in
relation to their "loading, handling, storage, carriage, custody, care, and
discharge"
The argument is equally untenable. The obligation of the carrier to carry
the goods naturally includes the duty not to delay their transportation,
so unjustified delay, the carrier is held liable therefore liable.
The appellant also argues by making a distinction between damage to
the goods and damages to the shipper or consignee, and claims that
while the former falls within the prescriptive period in question, the
latter is governed by the provisions of the Code of Commerce on
limitation of actions.
We see no difference. Whatever damage or injury is suffered by the
goods while in transit would result in loss or damage to either the
shipper or consignee.
As long as it is claimed, therefore, as it is done here, that the losses or
damages suffered by the shipper or consignee were due to the arrival of
the goods in damaged or deteriorated condition, the action is still
basically one for damage to the goods, and must be filed within the
period of one year from delivery or receipt, under the above-quoted
provision of the Carriage of Goods by Sea Act.
Lastly, the appellant argues that assuming that his action against the
defendant prescribes in one year, it accrued not upon the receipt of his
goods, but upon denial of his claim for damages by the defendant on
February 16, 1498.
This claim is clearly without merit, for the law in question clearly
requires that the suit must be brought “within one year after delivery of
the goods or the date when the goods should have been delivered.”
Decision is affirmed.
INVOCATION OF ARRASTRE OPERATOR OF
PRESCRIPTION
INSURANCE CO. OF NA vs. ASIAN TERMINALS
COGSA does not apply to arrastre operators. Section 3 (6) of COGSA
applies only to carriers. “Carrier” under Section 1 of COGSA includes the
owner or the charterer who enters into a contract of carriage with a
shipper. Consequently, not being a common carrier, an arrastre
operator cannot invoke the prescriptive period of one year.
hyaaltar
XII. PUBLIC UTILITIES
PUBLIC UTILITY
A “public utility” is a business service engage in regular supplying the
public with some commodity or service of public consequence such as
electricity, gas, water, transportation, telephone or telegraph service.
The term implies public use and service, e.g. the Water District is public
utility.
PUBLIC SERVICE
The term “public service” (Sec 13 of the Public Service Act) includes
every person that may own, operate, manage or control in the
Philippines, for hire or for compensation, with general or limited
clientele, whether permanent, occasional/ accidental, & done with
general business purposes, any common carrier, etc; will not only refer
to land transpo. but also include telecommunications, railroads, vessels
etc.
FRANCHISE
The term “franchise” includes not only authorization issuing directly
from Congress in the form of a Statute, but also those granted by
administrative agencies to which the power to grant franchise has been
delegated by Congress.
CERTIFICATEOF PUBLIC CONVENIENCE (CPC)
An authorization issued for the operation of public services for which no
franchise, either municipal or legislative, is required by law, such as a
common carrier.
Under the Public Service Law, a certificate of public convenience can be
sold by the holder thereof because it has considerable material value
and is considered a valuable asset (Raymundo v. Luneta Motor Co., G.R.
No. 39902, Nov. 29, 1933).
Does the CPC confer upon the holder any proprietary right or interest in
the route covered thereby?
No. (Luque v. Villegas, G.R. No. L-22545, Nov. 28, 1969). However,
with respect to other persons and other public utilities, a certificate of
public convenience as property, which represents the right and
authority to operate its facilities for public service, cannot be taken or
interfered with without due process of law. Appropriate actions may be
maintained in courts by the holder of the certificate against those who
have not been authorized to operate in competition with the former and
those who invade the rights which the former has pursuant to the
authority granted by the Public Service Commission (A.L. Animen
Transportation Co. v. Golingco, G.R. No. 17151, Apr. 6, 1922)
What are the requirements for the grant of certificate of public
convenience?
1. Applicant must be a citizen of the Philippines. If the applicant is a
Corporation, 60% of its capital must be owned by Filipinos
2. Applicant must prove public necessity
3. Applicant must prove the operation of proposed public service will
promote public interest in a proper and suitable manner; and
4. Applicant must have sufficient financial capability to undertake
proposed services and meeting responsibilities incidental to its
operation. (Kilusang Mayo Uno v. Garcia G.R. No. 108584, Dec. 22,
1994)
CERTIFICATEOF PUBLIC CONVENIENCE AND
NECESSITY (CPCN)
Certificate of Public Convenience (CPC) plus franchise
Difference between CPC and CPCN
CPC CPCN
Does not need a franchise Needs a franchise
Granted by delegates Granted by Congress
Example: Vessels, taxis Example: Electric,
Telecommunications
Page 17
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
RULES TO BE APPLIED BY THE REGULATORY AGENCIES
ASIDE FROM PUBLIC INTEREST
While public interest, convenience and necessity is the controlling policy,
the regulating administrative bodies previously applied different policies
and rules such as:
1. The prior operator rule - the Public Service Commission will not
issue a certificate of public convenience to a second operator if there is
a first operator who is rendering sufficient, adequate and satisfactory
service, and who in all things and respects is complying with the rules
and regulations of the Commission.
2. Prior applicant rule - priority in the filing of the application for a
certificate of public convenience is, other conditions being equal, an
important factor in determining the rights of the public service
companies.
3. Third operator rule - where two operators are more than serving
the public there is no reason to permit a third operator to engage in
competition with them.
4. Protection of investment rule - it is the duty of the government
to protect the investment of the operators of public utilities; to protect
said operators from unfair, unjustified and ruinous competition.
REGULATORY AGENCIES AND THEIR FUNCTIONS
LAND TRANSPORTATION OFFICE (LTO)
Functions:
1. Inspection and Registration of Motor Vehicles
2. Issuance of Licenses and Permits
3. Enforcement of Land Transportation Rules and Regulations
4. Adjudication of Traffic Cases
LAND TRANSPORTATION FRANCHISING AND
REGULATORY BOARD (LTFRB)
SEC. 5, EXECUTIVE ORDER NO. 202
SEC. 5. Powers and Functions of the Land Transportation
Franchising and Regulatory Board. – The Board shall have the following
powers and functions :
a. To prescribe and regulate routes of service, economically viable
capacities and zones or areas of operation of public land transportation
services provided by motorized vehicles in accordance with the public
land transportation development plans and programs approved by the
Department of Transportation and Communications;
b. To issue , amend, revise, suspend or cancel Certificates of Public
Convenience or permits authorizing the operation of public Land
Transportation services provided by motorized vehicles, and to
prescribe the appropriate terms and conditions therefore;
c. To determine, prescribe and approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the
operation of public land transportation services provided by motorized
vehicles;
d. To issue preliminary or permanent injunctions, whether prohibitory or
Mandatory, in all cases in which it has jurisdiction, and in which cases
the pertinent provisions of the Rules of Court shall apply;
e. To punish for contempt of the Board, both direct and indirect, in
accordance with the pertinent provisions of, and the penalties prescribe
by, the Rules of Court;
f. To issue subpoena and subpoena duces tecum and to summon
witnesses to appear in any proceedings of the Board, to administer
oaths and affirmations;
g. To conduct investigations and hearings of complaints for violation of
the public service laws on land transportation and of the Board’s rules
and regulations, orders, decisions and/ or ruling and to impose fines
and/ or penalties for such violations;
h. To review motu propio the decisions/actions of the Regional
Franchising and Regulatory Office herein created;
hyaaltar
i. To promulgate rules and regulations governing proceedings before
the Board and the Regional Franchising and Regulatory Office: Provided,
That except with respect to paragraphs d,e,f and g hereof, the rules of
procedure and evidence prevailing in the courts of law should not be
controlling and it is the spirit and intention of said rules that the Board
and the Regional Franchising and Regulatory Offices shall use every and
all reasonable means to ascertain facts in its case speedily and
objectively and without regard to technicalities of law and procedures,
all in the interest of due process;
j. To fix, impose and collect, and periodically review and adjust,
reasonable fees and other related charges for services rendered;
k. To formulate. Promulgate, administer, implement and enforce rules
and Regulations on land transportation public utilities, standard of
measurements and/ or design, and rules and regulations requiring
operators of any public land transportation service to equip, install and
provide in their stations such devices, equipment facilities and operating
procedures and techniques as may promote safety, protection, comfort
and convenience to persons and property in their charges as well as the
safety of persons and property within their areas of operations;
l. To coordinate and cooperate with other government agencies and
entities Concerned with any aspect involving public land transportation
services with the end in view of effecting continuing improvement of
such services; and
m. To perform such other functions and duties as may be provided by
law, as may be provided by law, as may be necessary, or proper or
incidental to the purposes and objectives of this Executive Order.
MARITIME INDUSTRY AUTHORITY (MARINA)
SEC. 12, E.O. 125 AS AMENDED BY E.O. 125-A
Sec. 12. Maritime Industry Authority. The Maritime Industry Authority is
hereby retained and shall have the following functions:
(a) Develop and formulate plans, policies, programs, projects,
standards, specifications and guidelines geared toward the promotion
and development of the maritime industry, the growth and effective
regulation of shipping enterprises, and for the national security
objectives of the country;
(b) Establish, prescribe and regulate routes, zones and/or areas of
operation of particular operators of public water services;
(c) Issue Certificates of Public Convenience for the operation of
domestic and overseas water carriers;
(d) Register vessels as well as issue certificates, licenses or documents
necessary or incident thereto;
(e) Undertake the safety regulatory functions pertaining to vessel
construction and operation including the determination of manning
levels and issuance of certificates of competency to seamen;
(f) Enforce laws, prescribe and enforce rules and regulations, including
penalties for violations thereof, governing water transportation and the
Philippine merchant marine, and deputize the Philippine Coast Guard
and other law enforcement agencies to effectively discharge these
functions;
(g) Undertake the issuance of licenses to qualified seamen and harbor,
bay and river pilots;
(h) Determine, fix and/or prescribe charges and/or rates pertinent to
the operation of public water transport utilities, facilities and services
except in cases where charges or rates are established by international
bodies or associations of which the Philippines is a participating member
or by bodies or associations recognized by the Philippine Government as
the proper arbiter of such charges or rates.
(i) Accredit marine surveyors and maritime enterprises engaged in
shipbuilding, shiprepair, shipbreaking, domestic and overseas shipping
ship management and agency;
(j) Issue and register the continuous discharge book of Filipino seamen;
Page 18
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
(k) Establish and prescribe rules and regulations, standards and
procedures for the efficient and effective discharge of the above
functions;
(l) Perform such other functions as may now or hereafter be provided
by law.
PHILIPPINE COAST GUARD (PCG)
SEC. 3, R.A. 9993
Section 3. Powers and Functions. - The PCG shall have the following
powers and functions:
(a) To enforce regulations in accordance with all relevant maritime
international conventions, treaties or instruments and national laws for
the promotion of safety of life property at sea within the maritime
jurisdiction of the Philippines and conduct port state control
implementation;
(b) To inspections on all merchant ships and vessels, including but shall
not be limited to inspections prior to departure, to ensure and enforce
compliance with safety standards, rules and regulations;
(c) To detain, stop or prevent a ship or vessel which does not comply
with safety standards, rules and regulations from sailing or leaving port;
(d) To conduct emergency readiness evaluation on merchant marine
vessels;
(e) Subject to the approval of the Secretary of the DOTC, to issue and
enforce rules and regulation for the promotion of safety and life and
property at sea on all maritime-related activities;
(f) To coordinate, develop, establish, maintain and operate aids to
navigation, vessel traffic system, maritime communications and search
and rescue facilities within the maritime jurisdiction of the Philippines;
(g) To remove, destroy or low to port, sunken or floating hazards to
navigation, including illegal fish and vessels, at or close to sea lanes
which may cause hazards to the marine environment;
(h) To issue permits for the salvage of vessels and to supervise all
marine salvage operations, as well as prescribe and enforce rules and
regulations governing the same;
(i) To render aid to persons and vessels in distress and conduct search
rescue in marine accidents within the maritime jurisdiction of the
Philippines, including the high seas, in accordance with applicable
international conventions. In the performance of this function, the PCG
may enlist the services of other government agencies and the merchant
marine fleet;
(j) To investigate the inquire into the causes of all maritime accidents
involving death, casualties and damage to properties;
(l) To assist in the enforcement of laws on fisheries, immigration, tariff
and customs, forestry, firearms and explosives, human trafficking,
dangerous drugs and controlled chemicals, transnational crimes and
other applicable laws within the maritime jurisdiction of the Philippines;
(m) To board and inspect all types of merchant ships and watercrafts in
the performance of this functions;
(n) To enforce laws and promulgated and administer rules and
regulations for the protection of marine environment and resources
from offshore sources or pollution within the maritime jurisdiction of the
Philippines;
(o) To develop oil spill response, containment and recovery capabilities
against ship-based pollution;
(p) To grant, within the capabilities and consistent with its mandate,
requests for assistance of other government agencies in the
performance of their functions;
(q) To organize, train and supervise the PCG Auxiliary (PCGA) for the
purpose of assisting the PCG in carrying out its mandated functions; and
(r) To perform such other functions that may be necessary in the
attainment of the objectives of this Act.
hyaaltar
CIVIL AERONAUTICS BOARD (CAB)
SEC. 10, R.A. 776
SECTION 10. Powers and duties of the Board. - (A) Except as otherwise
provided herein, the Board shall have the power to regulate the
economic aspect of air transportation, and shall have the general
supervision and regulation of, the jurisdiction and control over, air
carriers, general sales agents, cargo sales agents, and airfreight
forwarders as well as their property, property rights, equipment,
facilities, and franchise, in so far as may be necessary for the purpose of
carrying out the provisions of this Act.
(B) The Board may perform such acts, conduct such investigations,
issue and amend such orders, and make and amend such general and
special rules, regulations, and procedures as it shall deem necessary to
carry out the provisions of this Act.
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter 4 of this Act, to issue,
deny, amend, revise, alter, modify, cancel, suspend, or revoke, in whole
or in part, upon petition or complaint, or upon its own initiative, any
temporary operating permit or Certificate of Public Convenience and
Necessity; Provided, however, That in the case of foreign air carriers,
the permit shall be issued with the approval of the President of the
Republic of the Philippines.
(2) To fix and determine reasonable individual, joint or special rates,
charges or fares, which an air carrier may demand, collect or receive for
any service in connection with air commerce. The Board may adopt any
original, amended, or new individual, joint or special rates, charges or
fares proposed by an air carrier if the pro- posed individual, joint, or
special rates, charges for fares are not unduly preferential or unduly
discriminatory or unreasonable. The burden of proof to show that the
proposed individual, joint or special rates, charges or fares are just and
reasonable shall be upon the air carrier proposing the same.
In fixing rates, charges, fares under the provisions of this Act, the Board
shall take into consideration, among other factors:
(a) The effect of such rates upon the movement of traffic;
(b) The need in the public interest of adequate and
efficient transportation of persons and property by air carriers at the
lowest cost consistent with the furnishing of such service.
(c) Such standards respecting the character and quality of service to be
rendered by air carriers as may be prescribed by or pursuant to law;
(d) The inherent advantages of transportation by aircraft; and
(e) The need of each air carrier for revenues sufficient to enable
such air carrier, under honest, economical, and efficient management,
to provide adequate and efficient air carrier service.
(3) To authorize any type of charters whether domestic or international
and special air services or flight under such terms and conditions as in
its judgment public interest requires. Notwithstanding the existence of
bilateral air agreement, the CAB is authorized to grant any foreign
airline increase in frequencies and/or capacities on international routes
when in its judgment the national interest requires it, provided that the
utilization of the increase frequencies and capacities is not more than
thirty days. All grants of frequencies and/or capacities shall be subject
to the approval of the President.
(4) To approve or disapprove increase and/or decrease of capital, lease,
purchase, sales of aircraft of air carrier engaged in air commerce;
consolidation, merger, purchase, lease and acquisition and control of
operating contracts between domestic foreign air carriers, or between
domestic air carriers or any person engaged in any phase of
aeronautics.
(5) To inquire into the management of the business of any air carrier
and, to the extent reasonably necessary for such inquiry, to obtain from
such carrier, and from any person controlling, or controlled by, or under
common control with, such air carrier, full and complete reports and
other informations. Such reports shall be under oath whenever the
Board so requires.
Page 19
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
(6) To require annual, monthly, periodical, and special reports from any
air carrier, to prescribe the manner and form in which such reports shall
be made, and to re- quire from any air carrier specific answers to all
questions upon which the Board may deem information to be necessary.
Such reports shall be under oath whenever the Board so requires. The
Board may also require any air carrier to file with it any contract,
agreement, understanding or arrangement, or a true copy thereof,
between such air carrier and any other carrier or person, in relation to
any traffic affected by the provisions of this Act.
(7) To prescribe the forms of any and all accounts, records, and
memoranda of the movement of traffic, as well as of the receipts and
expenditures of money, and the length of times such accounts, records
and memoranda shall be preserved: Provided, that any air carrier may
keep additional accounts, records, or memoranda if they do not impair
the integrity of the accounts, records, or memoranda prescribed or
approved by the Board and do not constitute an undue financial burden
on such air carrier.
(8) To require each officer and director of any air carrier to transmit a
report describing the shares of stock with any persons engaged in any
phase or other interest held by such air carrier of aeronautics, and the
holding of the stock in and control of, other persons engaged in any
phase of aeronautics.
(D) The Board may investigate, upon complaint or upon its own
initiative whether any individual or air carrier, domestic or foreign, is
violating any provision of this Act, or the rules and regulations issued
thereunder, and shall take such action consistent with the provisions of
this Act, as may be necessary to prevent further violation of such
provision, or rules and regulations so issued.
(E) The Board may issue subpoena or subpoena duces tecum require
the attendance and testimony of witness in any matter or inquiry
pending before the Board or its duly authorized representatives, and
require the production of books, papers, tariffs, contracts, agreements
and all other documents submitted for purposes of this section to be
under oath and verified by the person in custody thereof as to the truth
and correctness of data appearing in such books, papers, tariffs,
contracts, agreements and all other documents.
(F) The Board may review, revise, reverse, modify or affirm on appeal
any administrative decision or order of the Administrator on matter
pertaining to:
(1) Grounding of airmen and aircraft or
(2) Revocation of any certificate or the denial by the Administrator of
issuance of any certificate; or
(3) Imposition of civil penalty of fine in connection with the violation of
any provision of this Act or rules and regulations issued thereunder.
(G) The Board shall have the power, either on its own initiative or upon
review on appeal from an order or decision of the Administrator, to
determine whether to impose, remit, mitigate, increase, or compromise,
such fines and civil penalties as the case may be.
(H) (1) The Civil Aeronautics Board shall be advised of, and shall consult
with the Department of Foreign Affairs concerning the negotiation of
any air agreement with foreign governments for the promotion,
establishment, or development of foreign air transportation.
(2) In exercising and performing its powers and duties under the
provisions of this Act, the Civil Aeronautics Board shall take into
consideration the obligation assumed by the Republic of the Philippines
in any treaty, convention or agreement with foreign countries on
matters affecting civil aviation.
CIVIL AVIATION AUTHORITY OF THE PHILIPPINES (CAAP)
SEC. 2, R.A. 9497
Sec. 2 of R.A. 9497 provides that “it is hereby declared the policy of the
State to provide safe and efficient air transport and regulatory services
in the Philippines by providing for the creation of a civil aviation
authority with jurisdiction over the restructuring of the civil aviation
system, the promotion, development and regulation of the technical,
operational, safety, and aviation security functions under the civil
aviation authority.” CAAP is mandated to perform the following
pursuant to such declared policy:
hyaaltar
1. To establish and prescribe rules and regulations for the inspection
and registration of all aircrafts owned and operated in the Philippines
and all air facilities;
2. To establish and prescribe the corresponding rules and regulations
for the enforcement of laws governing air transportation;
3. To determine, fix and/or prescribe charges and/or rates pertinent to
the operation of public air utility facilities and services;
4. To administer and operate the Civil Aviation Training Center (CATC);
5. To operate and maintain national airports, air navigation and other
similar facilities in compliance to ICAO;
6. To perform such other such other powers and functions as may be
prescribed by law.
RATE-FIXING
The regulation of public utilities includes the regulation of the rates that
they are charging the public. Sec. 15, par. (c) of the Public Service Act
provides that the PSC has the power to:
(c) To fix and determine individual or joint rates, tolls, charges,
classifications, or schedules thereof, as well as commutation, mileage,
kilometrage, and other special rates which shall be imposed, observed
and followed thereafter by any public service: Provided, That the
Commission may, in its discretion, approve rates proposed by public
services provisionally and without necessity of any hearing; but it shall
call a hearing thereon within thirty days, thereafter, upon publication
and notice to the concerns operating in the territory affected: Provided,
further, That in case the public service equipment of an operator is used
principally or secondarily for the promotion of a private business, the
net profits of said private business shall be considered in relation with
the public service of such operator for the purpose of fixing the rates.
Public interest v. Return of Investment
The rates prescribed by the State must be one that yields a fair return
on the public utility upon the value of the property performing the
service and one that is reasonable to the public for the services
rendered. The fixing of just and reasonable rates involves a
balancing of the investor and consumer interests.
LUQUE vs. VILLEGAS (1994)
FACTS: Two ordinances were issued by the City of Manila and by the
Commissioner of the Public Service Commission. The first ordinance (by
City of Manila) states that Provincial passenger buses and jeepneys
(PUB and PUJ) shall be allowed to enter Manila, but only through the
following entry points and routes, from 6:30 A.M. to 8:30 P.M. every
day except Sundays and holidays.
The other ordinance (issued by the Commissioner) provides that:
All such vehicles marked "For Provincial Operation" are
authorized to operate outside the perimeter of Greater
Manila in accordance with their respective certificates of
public convenience, and are not authorized to enter or to
operate beyond the boundary line fixed in our order of
March 12, 1963 and July 22, 1963, with the exception of
those vehicles authorized to carry their provincial
passengers thru the boundary line up to their Manila
terminal which shall be identified by a sticker signed and
furnished by the PSC and by the Mayors of the affected
Cities and municipalities, and which shall be carried on a
prominent place of the vehicle about the upper middle part
of the windshield.
Petitioners contend it destroys vested rights of petitioning public
services to operate inside Manila and to proceed to their respective
terminals located in the City and impairs the vested rights of petitioning
bus passengers to be transported directly to downtown Manila.
Contending that they possess valid and subsisting certificates of public
convenience, the petitioning public services aver that they acquired a
vested right to operate their public utility vehicles to and from Manila as
appearing in their said respective certificates of public convenience.
Page 20
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
ISSUE: Whether petitioners’ contention that they had already vested
rights on public service is correct
RULING: A certificate of public convenience constitutes neither a
franchise nor a contract, confers no property right, and is a mere license
or privilege. New and additional burdens, alteration of the certificate,
and even revocation or annulment thereof are reserved to the State.
The Public Service Commission, a government agency vested by law
with "jurisdiction, supervision, and control over all public services and
their franchises, equipment, and other properties" is empowered, upon
proper notice and hearing, amongst others: (1) "[t]o amend, modify or
revoke at any time a certificate issued under the provisions of this Act
[Commonwealth Act 146, as amended], whenever the facts and
circumstances on the strength of which said certificate was issued have
been misrepresented or materially changed"; and (2) "[t]o suspend or
revoke any certificate issued under the provisions of this Act whenever
the holder thereof has violated or willfully and contumaciously refused
to comply with any order, rule or regulation of the Commission or any
provision of this Act: Provided, That the Commission, for good cause,
may prior to the hearing suspend for a period not to exceed thirty days
any certificate or the exercise of any right or authority issued or granted
under this Act by order of the Commission, whenever such step shall in
the judgment of the Commission be necessary to avoid serious and
irreparable damage or inconvenience to the public or to private
interests."
Jurisprudence echoes the rule that the Commission is authorized to
make reasonable rules and regulations for the operation of public
services and to enforce them. In reality, all certificates of public
convenience issued are subject to the condition that all public services
"shall observe and comply [with] ... all the rules and regulations of the
Commission relative to" the service. To further emphasize the control
imposed on public services, before any public service can "adopt,
maintain, or apply practices or measures, rules, or regulations to which
the public shall be subject in its relation with the public service," the
Commission's approval must first be had.
It is the State’s right to exercise police power for the benefit of the many.
Reasonable restrictions have to be provided for the use of the
thoroughfares. The operation of public services may be subjected to
restraints and burdens, in order to secure the general comfort. No
franchise or right can be availed of to defeat the proper exercise of
police power — the authority "to enact rules and regulations for the
promotion of the general welfare. Public welfare, we have said, lies at
the bottom of any regulatory measure designed "to relieve congestion
of traffic, which is, to say the least, a menace to public safety." As a
corollary, measures calculated to promote the safety and convenience
of the people using the thoroughfares by the regulation of vehicular
traffic, present a proper subject for the exercise of police power.
Both Ordinance 4986 and the Commissioner's administrative orders fit
into the concept of promotion of the general welfare. Expressive of the
purpose of Ordinance 4986 is Section 1 thereof, thus — "As a positive
measure to relieve the critical traffic congestion in the City of Manila,
which has grown to alarming and emergency proportions, and in the
best interest of public welfare and convenience, the following traffic
rules and regulations are hereby promulgated." Along the same lines,
the bus ban instituted by the Commissioner has for its object "to
minimize the 'traffic problem in the City of Manila' and the 'traffic
congestion, delays and even accidents' resulting from the free entry into
the streets of said City and the operation 'around
said streets, loading and unloading or picking up passengers and
cargoes' of PU buses in great 'number and size.
Police power in both was properly exercised.
KMU vs. GARCIA
FACTS: The Kilusang Mayo Uno Labor Center (KMU) assails the
constitutionality and validity of a memorandum which, among others,
authorize provincial bus and jeepney operators to increase or decrease
the prescribed transportation fares without application therefore with
the LTFRB, and without hearing and
approval thereof by said agency.
hyaaltar
ISSUE:
1) WON the absence of notice and hearing and the delegation of
authority in the increase or decrease of transportation fares to
provincial bus and jeepney operators is illegal.
2) WON the presumption of public need in favor of applicants for
certificates of public convenience (CPC) is valid.
RULING:
(1) Under Section 16 (c) of the Public Service Act, as amended, the
legislature delegated to the defunct Public Service Commission (PSC)
the power of fixing the rates of public services. LTFRB, the existing
regulatory body today, is likewise vested with the same under Executive
Order 202. The delegation of legislative power to an administrative
agency is permitted in order to adopt to the increasing complexity of
modern life. However, nowhere under the provisions of law are the
regulatory bodies such as PSC and LTFRB are authorized to delegate
that power to a common carrier, a transport operator or other public
service.
The authority given by the LTFRB to the bus operators to set fares over
and above the authorized existing fare is illegal and invalid, as it is
tantamount to undue delegation of legislative authority. Under the
maxim potestas delegate non delegari potest “what has been delegated
cannot be delegated.” The policy allowing provincial bus operators to
change and increase their fares would result not only to a chaotic
situation but to an anarchic state of affairs. This would leave the riding
public at the mercy of transport operators who may increase fares,
every hour, every day, every month or every year, whenever it pleases
them or whenever they deem it necessary to do so. Furthermore, under
the Section 16 (a) of Public Service Act, there must be proper notice and
hearing in the fixing of rates, to arrive at a just and reasonable rate
acceptable to both the public utility and the public.
(2) No. As one of the basic requirements for the grant of CPC, public
convenience and necessity when the proposed facility/service meets a
reasonable want of the public and supply a need which the existing
facilities do not adequately supply. The existence of existence or
non-existence of public convenience and necessity is a question of fact
that must be established by evidence. Also, an applicant must be
required to
prove his capacity and capability to furnish service. All this will be
possible only if a public hearing were conducted for that purpose.
MCWD vs. ADALA
FACTS: Adala filed with NWRB for issuance of a Certificate of Public
Convenience (CPC) to operate and maintain waterworks system in sitios
San Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City.
MCWD opposed such. Saying that: (1) petitioner's Board of Directors
had not consented to the issuance of the franchise applied for, such
consent being a mandatory condition pursuant to P.D. 198, (2) the
proposed waterworks would interfere with petitioner's water supply
which it has the right to protect, and (3) the water
NWRB dismissed MCWD’s opposition for lack of merit
ISSUE: Whether MCWD may validly oppose the petition of Adala
RULING: MCWD relied on Section 47 of P.D. 198 which states:
Sec. 47. Exclusive Franchise. — No franchise shall be
granted to any other person or agency for domestic,
industrial or commercial water service within the district or
any portion thereof unless and except to the extent that the
board of directors of said district consents thereto by
resolution duly adopted, such resolution, however, shall be
subject to review by the
Administration.
But the court ruled that such is unconstitutional.
Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to
the issuance of CPCs for the reasons discussed above, the same
provision must be deemed void ab initio for being irreconcilable with
Article XIV Section 5 of the 1973 Constitution which was ratified on
Page 21
TRANSPORTATION LAWS | ATTY. CAPANAS | FINALS | SY 2018-2019
January 17, 1973 — the constitution in force when P.D. 198 was issued
on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution
reads:

SECTION 5. No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines at least sixty per centum of the capital of which is
owned by such citizens, nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Batasang
Pambansa when the public interest so requires. The State
shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be
limited to their proportionate share in the capital thereof.

Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon

public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973
Constitution, it is unconstitutional and may not, therefore, be relied
upon by petitioner in support of its opposition against respondent's
application for CPC and the subsequent grant thereof by the NWRB.

MCWD lost.

hyaaltar Page 22