TRANSPORTATION LAWS

NOTES AND CASES

JUDGE NOLI C. DIAZ

Presiding Judge, Regional Trial Court
Branch 39, Manila;
Former Presiding Judge, Metropolitan Trial Court
Branch 80, Muntinlupa City;
Former Third Assistant City Fiscal of Manila;
Professorial Lecturer, College of Law,
Pamantasan ng Lungsod ng Maynila and
University of Santo Tomas, Faculty of Civil Law;
Member, Philippine Association of Law Professors;
Member, Philippine Judges Association;
Author: The Law on Sales as Expounded by Jurisprudence
and Statutory Construction

Fourth Edition
2018
■ >.

I UNIVERSITY OF THE CORDILLERAS ] l.DRARIES

 CONTENTS

CHAPTER I
PRELIMINARY CONSIDERATIONS
Transportation Laws in the Philippines ...................................................................... 1
Transportation Laws and the Constitution .................................................................. 1
May a 100% Foreign Corporation Own a Public Utility? ........................................... 3
Tawang Multi-Purpose Cooperative v. La Trinidad Water District........... 6
Article 1732 ............................................................................................................................. 9
Common Carrier Defined and Explained .......................................................... 9
Common Carriers Distinguished from Private Carriers .................................... 11
First Philippine Industrial Corporation v. Court of Appeals ...................... 12
Test of a Common Carrier ................................................................................ 16
Vlasons Shipping, Inc. v. Court of Appeals and National
Steel Corporation ........................................................................................ 16
Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals and Seven BrothersShipping Corporation .................................. 19
Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance
Co., Inc ....................................................................................................... 22
Article 1733 ...................................................................................................... 26
Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila
Insurance Co., Inc .......................................................................................... 28
Faultor Negligence; Proximate Cause, Defined ..................................................... 29
Sabena Belgian World Airlines v. Hon. Court of Appeals
and Ma. Paula San Agustin ............................................................................ 29
Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc .................... 33

CHAPTER II
VIGILANCE OVER THE GOODS
Article 1734 ..................................................................................................................... 36
Eastern Shipping Lines, Inc. v. The Nisshin Fire and Marine
Insurance Co., and Dowa Fire and Marine
Insurance Co., Ltd ...................................................................................... 38
Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance
Company, Inc ............................................................................................. 41

xv
 The Philippine American General Insurance Co.. Inc. v. Court of
Appeals and Felman Shipping Lines ................................................ 43
Article 1735 ............................... ................................................................................ 45
Sarkies Tours Philippines. Inc. v. Hon. Court of Appeals and Dr. Elino
G. Fortales. Marisol A. Fortales and
Fatima A. Fortales ............................................................................ 47
Coastwise Lighterage Corporation v. Court of Appeals and
Philippine General Insurance Company ........................................... 50
Asian Terminals, Inc. v. Simon Enterprises, Inc ....................................... 52
Article 1736 ................................................................................................................. 54
Arrastre Operator and Stevedore Distinguished ............................................... 55
Benito Macam v. Court of Appeals, China Ocean Shipping Co.
and/or Wallem Philippines Shipping, Inc ......................................... 56
Billof Lading both as a receipt and a contract .................................................. 58
Samar Mining Company, Inc. v. Nordeutscher Lloyd and
C.F. Sharp and Company, Inc ........................................................ 58
Nedlloyd Lijnen B.V. Rotterdam and the East Asiatic Co., Ltd. v.
Glow Laks Enterprises, Ltd ........................................................... 62
Article 1737 ........................................................................................................... 66
Article 1738 ........................................................................................................... 66
Two Requisites Are Necessary to Avoid Liability of Common Carriers
Under This Article ................................................................................. 67
Amparo Servando, Clara Uy Bico v. Philippine Steam
Navigation Co ............................................................................... 67
Concurring Opinion ....................................................................................... 69
Article 1739 ........................................................................................................... 70
Article 1740 ........................................................................................................... 70
Maersk Line v. Court of Appeals and Effen V. Castillo ......................... 71
Article 1741 ........................................................................................................... 73
Tabacalera Insurance Co., et al. v. North Front Shipping Services,
Inc. and Court of Appeals .............................................................. 74
Article 1742 ........................................................................................................... 77
Article 1743 ........................................................................................................... 78
Intervention of municipal officials, not of a character that would
render impossible the fulfillment by the carrier of its obligations .......... 79
Mauro Ganzon v. Court of Appeals and Gelacio Tumambing ............... 79
Dissenting Opinion ..................................................... .... ............................. 81
Article 1744 ........................................................................................................... 82
Article 1745 .... ..................................................................................................... 83

xvi
 Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila
Insurance Co., Inc ................................................................................ 83
Pedro de Guzman v. Court of Appeals and Ernesto Cendana ............. 86
Grave and irresistible force must be proved in cases of hijacking ............... 90
Estrellita M. Bascos v. Court of Appeals and Rodolfo A. Cipriano.... 90
Prescillano Necesito, etc. v. Natividad Paras ...................................... 92
Vector Shipping Corporation and Francisco Soriano v. Adelfo B.
Macasa, et al ........................................................................................ 95
Article 1746 .................................................................................................................. 98
Article 1747 .................................................................................................................. 98
Article 1748 .................................................................................................................. 99
Article 1749 .................................................................................................................. 99
Article 1750 .................................................................................................................. 99
Everett Steamship Corp. v. CA and Hernandez
Trading Co., Inc ................................................................................ 101
Summa Insurance Corporation v. Court of Appeals and
Metro Port Service, Inc........................................................................ I04
Article 1751 ................................................................................................................ 107
Article 1752 ................................................................................................................ 107
Article 1753 ............................................................................................................... 108
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court and
Development Insurance and Surety Corp .......................................... 108
Article 1754 ......................................................................................................... 110

CHAPTER HI
SAFETY OF PASSENGERS
Article 1755 ............................................................................................................... 113
Aboitiz Shipping Corporation v. Hon. Court of Appeals, Lucila
Viana, Sps. Antonio and Gorgonia Viana, and Pioneer
Stevedoring Corporation.................................................................... 115
Rosito Z. Bacarro, William Sevilla, and Felario Montefalcon v.
Geruridio B. Castano and The Court of Appeals ............................... 118
Trans-Asia Shipping Lines, Inc. v. Court of Appeals and
A tty. Renato T. Arroyo ..................................................................... 122
Nature of the Contract of Air Carriage ........................................................ 123
Categories of International Transportation ......................................................... 124
Carlos Singson v. Court of Appeals and Cathay Pacific
Airways, Inc ...................................................................................... 125
“Force Majeure,” common carriers are not the insurer of all risks .............. 129
Japan Airlines v. Court of Appeals, Enrique Agana, et al ................... 129
Compared To: Philippine Airlines v. Court of Appeals ...................... 132
Japan Airlines v. Jesus Simangan .............................................................. 133
Article 1756 .............................................................................................................. 136

xvii
 Circumstances Indicative of Negligence on the Part of the Driver/
Employee ................................................................................................... 137
Precautions Required of a Driver to Avoid Accidents ......................................... \ 33
Alberta and Cresencio Yobido v. Court of Appeals and Leny
Tumboy, etal ..................................................................................... 139
Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio Garcia
and Leticia Garcia and Julio Recontique ........................................... 142
Bachelor Express, Inc. and Cresencio Rivera v. The Honorable
Court of Appeals, et al ....................................................................... 145
Duty of a common carrier to overcome the presumption
of negligence .............................................................................................. 147
Franklin Gacal and Corazon M. Gacal v.Philippine Airlines ............ 147
Herminio Mariano, Jr. v. Idelfonso C. Callejas
and Edgar De Boija ........................................................................... 150
Article 1757 ............................................................................................................... 153
Article 1758 ............................................................................................................... 153
Sulpicio Lines, Inc. v. The Honorable Court of Appeals
(Twelfth Division) and Jacinta L. Pamalaran ................................. 154
Article 1759................................................................................................................ 156
Article 1760................................................................................................................ 156
1975 Bar Question ........................................................................................... 156
Sulpicio Lines Inc. v. Napoleon Sesante, now Substituted by
Maribel Atilano, Kristine Marie, Christian lone Kenneth
Kerm and Karisna Kate,all sumamed Sesante ................................ 157
Article 1761................................................................................................................ 161
Article 1762................................................................................................................ 161
Travel & Tours Adviser, Incorporated v. Alberto Cruz, Sr., Edgar
Hernandez and Virginia Mufioz ........................................................ 163
Article 1763 .................................................................................... 167
Jose Pilapil v. Court of Appeals and Alatco Transportation
Co., Inc ........................................................................................... 168
Fortune Express, Inc. v. Court of Appeals, Paulie v. Caorong
and minor children.......................................................................... 171

CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT
OF COMMON CARRIERS
Article 1764 ........................................................................................................... 175
Sources of obligation under which the carrier-employer and his driver-employee are
liable to passenger or pedestrian in cases of injury ................... 1'

XVlll
Damages, Computation of Indemnity, Life Expectancy of
Victim as basis in fixing amount recoverable, and
Earning Capacity ......................................................................................... 182
Villa Rey Transit, Inc. v. The Court of Appeals, Trinidad A.
Quintos, Prima C. Quintos and Julita A. Quintos ........................ 182
Fortune Express, Inc. v. Court of Appeals ............................................ 185
Damages, computization of indemnity ........................................................ 186
Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc ............... 186
Dangwa Transportation Co., Inc., and Theodore M. Lardizabal
v. Court of Appeals, Inocencia Cudiamat, et al ........................... 190
Factors to be considered in the award of damages
to accident victim ........................................................................................ 192
Philippine Airlines, Inc. v. Court of Appeals and
Leovigildo A. Pantejo......................................................................... 193
Singapore Airlines Limited v. Andion Fernandez ................................ 197
Philippine Airlines, Inc. v. Vicente Lopez, Jr. ............................................. 200
Cathay Pacific Airways, Ltd. v. Spouses Amulfo and
Evelyn Fuentebella ............................................................................ 201
Spouses Jesus Fernando and Elizabeth S. Fernando v.
Northwest Airlines, Inc ...................................................................... 204
Philtranco Service Enterprises, Inc. and Rogaciano Manilhig v.
Court of Appeals and Heirs of the late Ramon Acuesta ............... 211
Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio Garcia
and Leticia Garcia, and Julio Recontique ........................................... 215
Trans-Asia Shipping Lines, Inc. v. Court of Appeals and
Atty. Renato T. Arroyo ....................................................................... 218
Cathay Pacific Airways v. Juanita Reyes, Wilffedo Reyes,
Micheal Roy Reyes, Sixta Lapuz, and Sampaguita
Travel Corporation ............................................................................. 220
When are attorney’s fees recoverable? ............................................................... 223
Philippine Airlines Incorporated v. Court of Appeals and
Sps. Manuel S. Buncio and Aurora R. Buncio............................. 224
Righteousness of Attorney’s Fees ....................................................................... 228
Asian Terminals, Inc. v. Allied Guarantee Insurance Co., Inc .............. 228
Carlos Singson v. Court of Appeals and Cathay Pacific
Airways, Inc ....................................................................................... 230
Philippine National Railways v. The Honorable Court of Appeals
and Rosario Tupang ........................................................................... 233
Moral damages, exemplary damages; where the award of moral and exemplary damages
is eliminated, so must the award for attorney’s fees be deleted .............. 236
Collin A. Morris and Thomas P. Whittier v. Court of Appeals
(Tenth Division) and Scandinavian Airlines System .......................... 236
Sulpicio Lines, Inc. v. Domingo E. Curso, et al.,
(First Division Decision) .................................................................... 239

xix
 Georgia Vda. de Paman, et al. v. Hon. Alberto V. Seneris,
Western Mindanao Lumber Company, and
Teodoro Delos Santos .............................................................................. 242
Pepe Catacutan and Aureliana Catacutan v. Heirs of Norman
Kadusale, Heirs of Lito Amancio and Gil B. Izon ............................ 245
Baliwag Transit, Inc. v. Hon. Court of Appeals and Sps. Sotero
Cailipan and Zenaida Lopez and George L. Cailipan ....................... 248

Article 1765 ....................................................................................................................... 251

Article 1766 ....................................................................................................................... 251
The Warsaw Convention has the force and effect of law in this country... 252
Edna Diago Lhuillier v.British Airways ........................................................... 252
Philippine Airlines, Inc. v. Hon. Adriano Savillo, Presiding Judge
of RTC Branch 30, Iloilo City and Simplicio Grino ......................... 254

CHAPTER V
CARRIAGE OF GOODS BY SEA ACT
(COMMONWEALTH ACT NO. 65)

TITLE I.
Section 1 ................................................................................................................ 259
Section 2 ................................................................................................................ 260
Section 3 ................................................................................................................ 260
Section 4 ................................................................................................................ 263
Section 5 ................................................................................................................ 266
Section 6 ................................................................................................................ 266
Section 7 ................................................................................................................ 267
Section 8 ................................................................................................................ 267

TITLE II.
Section 9 ......................................................................................................... 267
Section 10 ....................................................................................................... 268
Section 11 ....................................................................................................... 268
Section 12 ....................................................................................................... 268
Section 13 ....................................................................................................... 268
Section 14 ....................................................................................................... 268
Section 15 ....................................................................................................... 269
Section 16 ....................................................................................................... 269
Cases on Carriage of Goods by Sea Act:
DOLE Philippines, Inc. v. Maritime Company of the Philippines ......... 269
Asian Terminals, Inc. v. Philam Insurance Co., Inc.
(now Chartis Philippines Insurance, Inc.) ............................................. 272
Universal Shipping Lines, Inc. v. Intermediate Appellate Court
and Alliance Assurance Co., Ltd .......................................................... 276
Benjamin Cua (Cua Uian Tek) v. Wallen Philippines Shipping, Inc.
and Advance Shipping Corporation ..................................................... 277

xx
 Filipino Merchants Insurance Co;, Inc. v. Hon. Jose Alejandro
and Frota Oceanica Brasiliera; Filipino Merchants
Insurance Co., Inc. v. Hon. Alfredo Benipayo and
Australia-West
Pacific Line .......................................................................... 281
Mayer Steel Pipe Corporation and Hongkong Government
Supplies Department v. Court of Appeals, South Sea Surety
and
Insurance Co., Inc. and Charter Insurance Corporation ........ 284
Mayer Steel Pipe Corporation Case compared to Filipino
Merchants’ case ........................................................................ 286
Wallem Philippines Shipping, Inc. v. S.R. Farms, Inc ................. 288
New World International Development (Phils.), Inc. v.
NYK Fil-Japan Shipping Corporation, et al ......................... 291
New World International Development (Phils.), Inc. v.
Seaboard-Eastern Insurance Co., Inc ......................................... 291
Insurance Company of North America v. Asian Terminals, Inc ... 294
Domingo Ang v. Compania Maritima, Maritime
Company of the Philippines and C.L. Diokno ...................... 297
Mitsui O.S.K. Lines Ltd. v. Court of Appeals and Lavine
Loungewear Mfg. Corp ............................................................. 298
International Container Terminal Services, Inc. v. Prudential
Guarantee and Assurance Co., Inc ............................................ 301
Belgian Overseas Chartering and Shipping N.V. v.
Philippine First Insurance Co., Inc ............................................ 301
Philippine Charter Insurance Corporation v. Neptune Orient
Lines/Overseas Agency Services, Inc ....................................... 307

CHAPTER VI
PUBLIC SERVICE
Commonwealth Act No. 146 (Sections 13 to 16)......................................... 314
Section 13 ......................................................................................................... 314
Batangas Transportation Co. v. Cayetano Orlanes ....................... 315
Section 14 ......................................................................................................... 318
Section 15 ......................................................................................................... 318
Section 16 ......................................................................................................... 319
Certificate of Public Convenience, Defined ............................................. 323
Philippine Airlines v. Civil Aeronautics Board and Grand
International Airways ................................................................ 325
First applicant to operate service be given preference if
financially competent ........................................................................ 328
Tomas Litimco v. La Mallorca .......................................................... 328
Fortunato F. Halili v. Ruperto Cruz ............................................. 330
Additional Service by Old Operators Raymundo
Transportation Co ..................................................................... 333

xxi
 Intestate Estate of Teofilo M. Tiongson v. The Public Service
Commission and Mario Z. Lanuza ........................................................... 334
Municipality of Echague v. Hon. Leopoldo M. Abellera and
Avelina Ballad ......................................................................................... 337

EXECUTIVE ORDER NO. 202

CREATING THE LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD

Section 1. Creation of the Land Transportation Franchising

and Regulatory Board ....................................................................................................... 343
Section 2. Composition of the Board ................................................................................... 344
Section 3. Executive Director and Support Staff of the Board ............................................. 344
Section 4. Supervision and Control Over the Board ................................................................... 344
Section 5. Powers and Functions of the Land Transportation Franchising ........................... 344
Section 6. Decision of the Board; Appeals therefrom and/or
Review thereof .................................................................................................................. 346
Section 7. Creation of Regional Franchising and Regulatory Offices .................................. 347
Section 8. Appeals ..................................................................................................................... 347
Section 9. Appropriations ........................................................................................................... 347
Section 10. Effectivity ................................................................................................................ 347

RULES OF PRACTICE AND PROCEDURE BEFORE

THE LAND TRANSPORTATION FRANCHISING
AND REGULATORY BOARD OF THE
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS

PART I - GENERAL PROVISIONS Rule I -

TITLE AND CONSTRUCTION
Section 1. Title .............................................................................................................. 348
Section 2. Scope ............................................................................................................ 348
Section 3. Construction ................................................................................................. 348
Section 4. Definitions .................................................................................................... 348

Rule 2 - PARTIES
Section 1. Applicant and Oppositor ........................................................................ 349
Section 2. Complainant, Petitioner and Respondent ............................................... 349
Section 3. Appearance by Solicitor General .................................................................. 349
Section 4. Appearance by Consumers or Users ............................................................. 349
Rule 3 - PLEADINGS
Section 1. Pleading allowed........................................................................................... 350
Section 2. Verification and Supporting Documents ....................................................... 350
Section 3. Application ................................................................................................... 350
Section 4. Complaint ..................................................................................................... 350
Section 5. Petition ......................................................................................................... 351
Section 6. Answer ......................................................................................................... 351
Section 7. Amendment ........................................................................................... 351

XXII
Rule 4 - MOTIONS
351
352

Section 1. Scope and Contents

Section 2. Form .......... ................................................. 352
Section 3. Notice ........ .................................................................. 352
352
Section 4. Proof of Service .................................................
352
Section 5. Ex-Parte Motions ...............
353
Rule 5 - FILING, SERVICE OF PLEADING AND PUBLICATION Section
1. Filing..............................
Section 2. Acceptance for filing .......... .... ...................................... .... . ” 353
353
Section 3. Service upon parties .............................
Section 4. Service upon Parties represented by Attorneys ..................... 353
Section 5. Service of orders .................................. 353
Section 6. Extension of time ................................. 353
Rule 6 - PRE-HEARING CONFERENCE 353
Section 1. Purpose.................................................................................
Section 2. Scope....................................................................................
Section 3. Judgment on the pleadings and summary 354
judgment at pre-hearing ................................................................ 354
Section 4. Records of pre-hearing proceedings .....................................
354
355

Rule 7 - APPLICATION
Section 1. How commenced ............................. 355
Section 2. Contents .......................................... 355
Rule 8 - NOTICE OF HEARING
Section 1. Issuance of the Notice of Hearing.
Section 2. Publication and serving ................... 355
356
Rule 9 - OPPOSITION
Section 1. Contents ..........................................
PART II - PROCEDURE IN COMPLAINTS 356

RULE 10 - COMPLAINTS
Section 1. How commenced .............................
Section 2. Filing ...............................................
Section 3. Prosecution ............... ..................... 356
Section 4. Sufficiency of complaints ................ 356
Section 5. Separate allegations ........................ 356
Rule 11 - SUMMONS 357
357
Section 1. Duty of the Legal Division .............
Section 2. Contents .........................................
Rule 12-ANSWER 357
357
Section 1. Contents ..................

357

XXlll
PART II! - SUMMARY PROCEEDINGS
Rule 13 - ORDER TO SHOW CAUSE
Section 1. When applicable ........................................................... ............. i*\
Section 2. Contents ............................................. ... ............... ...... ...... ..... 351
Section 3. Non-Appearance ........................................... ............................ 25s
Section 4. Explanation without appearance ................................... ............. 55*
PART IV - EVIDENCE
Rule 14 - RECEPTION OF EVIDENCE
Section 1. Composition of the Board ............................................ ...... ...... 359
Section 2. Hearing before the Board ............................................. ............. 359
Section 3. Uncontested proceedings ........................................ ............ ~ .... 359
Section 4. Consolidation ............................................................... .— ------ 359
Section 5. Appearance.......................................................................... ...... 360
Section 6. Notice of appearance ..............................................................— 360
Section 7. Order on procedure.................................................................— 360
Section 10. Deposition ......................................................................... ...... 360
Section 11. Regular Hearing ......................................................... .. .......... 361
Section 12. Transcript and records ............................................................... 361
PART V - DECISIONS AND ORDERS Rule
15 - DECISIONS AND ORDERS
Section 1. How rendered .........................................................................— 361
Section 2. Form and contents ........................................................................... 361
Section 3. Provisional relief ............................................................................. 361
Section 4. Decision .......................................................................................... 362
Section 5. Execution order, ruling, decision, or resolution ............................... 362
Section 6. Compilation and publication of decisions ....................................... 362
PART VI - REOPENING, RECONSIDERATION, AND APPEAL Rule 16 -
MOTIONS FOR REOPENING OR RECONSIDERATIONS
Section 1. Motion for re-opening ................................................................ 363
Section 2. Motion for reconsideration of decisions ..................................... 363
Section 3. Service and hearing .................................................................... 363
Section 4. Opposition .................................................................................. 363
Rule 17-APPEAL
Section 1. Appeal .................................................................................... 363
Section 2. Procedure on appealed cases .................................................. 364
Section 3. Effect of Appeal ..................................................................... 365
Section 4. Appeal from the order of the Secretary................................... 365
PART VII - RECONSTITUTION OF RECORDS Rule 18 -
RECONSTITUTION
Section 1. Petition ......................................................................... ......... 365
Section 2. Contents ................................................................................. 366

xxiv
 Section 3. Notice of publications ............................................................. ........ 366
Section 4. Applicability of certain rules .................................................................... 366
Section 5. Order ........................................................................................................ 366
PART VIII - MISCELLANEOUS PROVISIONS
Rule 19 - APPLICABILITY OF THE RULES OF COURT
Section 1. Rules of Court .................................................................................. 366
Rule 20 - APPLICABILITY OF THIS RULE TO THE
REGIONAL FRANCHISING AND REGULATORY OFFICES
Section 1. Applicability ............................................................................................ 366
Rule 21 - REPEALING CLAUSE
Section 1. Repeal ...................................................................................................... 367
Rule 22 - EFFECTIVITY
Section 1. Effectivity ........................................................................................ 367

KABIT SYSTEM (SECTION 20, COMMONWEALTH ACT NO. 146)

Lita Enterprises v. Second Civil Cases Division, Intermediate
Appellate Court, Nicasio M. Ocampo and
Francisca P. Garcia ............................................................................ 370
Abelardo Lim and Esmadito Gunnaban v. Court of Appeals
and Donato H. Gonzales .................................................................... 373
MYC Agro-Industrial Corporation v. Purificacion Camerino,
et al. and the Court of Appeals .......................................................... 376
Y Transit Co., Inc. v. The National Labor Relations Commission
and Yujuico Transit Employees Union ...................................................... 379
Angel Jereos v. Hon. Court of Appeals and Soledad Rodriguez,
et al ............................................................................................................ 382
B. .................................................................................................... A. Finance
Corporation v. Hon. Court of Appeals ........................................................ 383

RECENT CASES ON REGISTERED OWNER RULE

PCI Leasing and Finance, Inc. v. UCPB General Insurance
Co., Inc ...................................................................................................... 387
Metro Manila Transit Corporation v. Reynaldo Cuevas and Junnel
Cuevas, represented by Reynaldo Cuevas ................................................. 389
R Transport Corporation v. Luisito G. Yu .......................................................... 393
Mariano C. Mendoza and Elvira Lim v. Sps. Leonora J. Gomez
and Gabriel V. Gomez ............................................................................... 395
Nostradamus Villanueva v. Priscilla R. Domingo and Leandro
Luis R. Domingo ....................................................................................... 399
Greenstar Express, Inc. and Fruto L. Sayson Jr. v. Universal Robina
Corporation and Nissin Universal Robina Corporation ............................. 402
Boundary System, defined ................................................................................. 406

xxv
 CHAPTER VII

VESSELS

Admiralty and Maritime Jurisdiction of a Court .......................................................... 409

Article 573 ................................................................................................................................... 4JQ
Article 574 .................................................................................................................................... 4JQ
Article 575 ................................................................................................................................... 4JQ
Article 576 ............................................................................................................................ 41 j
Article 577 .................................................................................................................................. 411
Article 578 .................................................................................................................................. 411
Article 579 ................................................................................................................................... 412
Article 580 .................................................................................................................................... 413
Article 581 .................................................................................................................................... 414
Article 582 ................................................................................................................................... 414
Article 583 ................................................................................................................................... 414
Article 584 .................................................................................................................................... 415
Article 585 ................................................................................................................................... 415

Commissioner of Customs v. The Court of Appeals, Arsenio M. Gonong, Presiding Judge,

RTC, Branch 8, et al....................................................................................... 417

PRESIDENTIAL DECREE NO. 474

PROVIDING FOR THE REORGANIZATION OF MARITIME
FUNCTIONS IN THE PHILIPPINES, CREATING THE MARITIME
INDUSTRY AUTHORITY, AND FOR OTHER PURPOSES

Section 1. Title ......................................................................................................... 422

Section 2. Declaration of Policies and Objectives .................................................... 422
Section 3. Definition of Terms ................................................................................. 423
A. MARITIME INDUSTRY AUTHORITY
Section 4. Maritime Industry Authority, Creation and Organization ........................ 424
Section 5. Maritime Industry Development Program ............................................... 424
B. MARITIME INDUSTRY BOARD
Section 6. Powers and Functions of the Board ......................................................... 425
Section 7. Composition and Organization ................................................................ 426
C. MANAGEMENT
Section 8. Management Head .................................................................................. 427
Section 9. The Maritime Administrator and Deputy Administrators ........................ 427
Section 10. Authority to Administer Oath ....................................................................... 428
Section 11. General Powers and Functions of the Administrator .................................... 428
Section 12. Specific Powers and Functions of the Administrator .................................... 429
Section 13. Maritime Industry Manpower Needs ............................................................ 431
Section 14. Penalties ....................................................................................................... 431
D. MISCELLANEOUS PROVISIONS
Section 15. Auditor ......................................................................................................... 432

xxvi
 Section 1 6 . Reorganization^ Chances
Section 17. Retention nf r • S....................................... 432
of the Ph, inn ^ Functions and Powers Ot the
Philippine Coast Guard
Section 1 8 . Coordination With Other Agencies' ......... 432
Section 19. Transitory Provision ...............1 432
Section 20. Appropriations
433
433
433
434
RULES
J?F PRACTICE AND PROCEDURE OF THE
MARITIME INDUSTRY AUTHORITY

MEMORANDUM CIRCULAR NO. 74-A

PARTI
Rule 1. Coverage ..................
435
Rule 2. Definition of Terms ...........
435
Rule 3. Construction ............................
435
Rule 4. Venue .........................
436
Rule 5. Filing of the Application ..........................
436
Rule 6. Pre-Trial .................................................
437
Rule 7. Compromise.................................. ........
437
Rule 8. Summary Procedure ...............................
438
Rule 9. Petition for Rate Increase ........................ 441
Rule 10. Opposition ............................................ 442
Rule 11. Renewals or Extension or Amendments 442
Rule 12. Prohibition ............................................ 442
Rule 13. Provisional Relief ................................. 443
Rule 14. Contempt .............................................. 443
Rule 15. Decisions .............................................. 441
Rule 16. Appeals ................................................. 444
PART II

Rule 1. Coverage ................. 444

445
Rule 2. Definition of Terms.
445
Rule 3. Construction ...........
445
Rule 4. Venue ................................. '/' I n ........... 446
Rule 5. Commencement of a Complaint ase .........
Rule 6. Prosecution ......................... 446
Rule 7. Effect of the Failure ofPart.es to Appear 444
During Hearing ............................................ 447
Rule 8. Postponements ................................ 447
Rule 9. Compromises ........................................ 450
Rule 11. Pre-Trial ................................... 450
Rule 12. Order of Trial ........................................ 450
Rule 13. Consolidation......................................... 450
Rule 14. Summary Procedure ................................ 450
Rule 15. Contempt................... 451
Rule 16. Provisional Relief......

xxvn
 Rule 17. Decision ................................................................................ 452
Rule 18. Finality.................................................................................. 452
Signing Authority ........................................................................ 452
Accountability of Hearing/Legal Officers .................................... 452
Repealing Clause ......................................................................... 453
Effectivity .................................................................................... 453
MARINA MEMORANDUM CIRCULAR NO. 90
IMPLEMENTING GUIDELINES FOR VESSEL
REGISTRATION AND DOCUMENTATION
I. Objective .............................................................................................. 453
II. Coverage .................................................................................................. 454
III. Definition of Terms ............................................................................ 454
IV. General Provisions.............................................................................. 455
V. Specific Guidelines ................................................................................. 455
A. Register of Vessels .......................................................................... 455
B. Requirements for Registration of Vessels ....................................... 456
C. Transfer of Rights and Encumbrances ............................................ 457
D. Deletion of Vessels ......................................................................... 457
VI. Validity................................................................................................... 457
VII. Penalty/Sanctions .................................................................................. 457
VIII. Saving Clause ...................................................................................... 458
IX. Repealing Clause ................................................................................. 458
X. Effectivity ............................................................................................ 458
CHAPTER VIII
PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS
Article 586 ....................................................................................................... 459
Article 587 ....................................................................................................... 459
The Limited Liability Rule ...................................................................... 459
Chua Yek Hong v. Intermediate Appellate Court, Mariano Guno
and Dominador Olit ............................................................. 459
Rationale on the Real and Hypothecary Liability of
Shipowner; Exceptions ................................................................ 461
Effect of the New Civil Code Provisions on Common
Carrier on the Real and Hypothecary Nature of Liability
Under Maritime Law ................................................................... 462
Liability of shipowner extends to value of vessel and insurance
proceeds thereon .......................................................................... 463
Pedro Vasquez, Soledad Ortega, Cleto Bagaipo, Agustina Virtudez,
Romeo Vasquez and Maximina Cainay v. The Court of
Appeals and Filipinas Pioneer Lines Inc .............................. 463

xxviii
 Negros Navigation Co., Inc. v. The Court of Appeals, Ramon
Miranda, Sps. Ricardo and Virginia De La Victoria..................... 465
Aboitiz Shipping Corporation v. New India Assurance
Company, Ltd .............................................................................. 468
Aboitiz Shipping Corporation v. Court of Appeals, Malayan
Insurance Company, Inc. Compagnie Maritime Des
Chargeurs REunis, et al ....................................................................... 468
Phil-Nippon Kyoei, Corporation v. Rosalia T. Gudelosao, on her
behalf of minor children Christy Mae T. Gudelosao, et al ............ 474
Augustin P. Dela Torre v. The Honorable Court of Appeals,
Crisostomo G. Concepcion, et al ......................................................... 480
.Article 588 .................................................................................................................... 483
Article 589 .................................................................................................................... 484
Article 590 ..................................................................................................................... 484
Article 591 .................................................................................................................... 484
Article 592 .................................................................................................................... 484
Article 593 .................................................................................................................... 485
Article 594 ..................................................................................................................... 485
Article 595 .................................................................................................................... 485
Article 596 ..................................................................................................................... 485
Article 597 ..................................................................................................................... 485
Article 598 .................................................................................................................... 486
Article 599 ..................................................................................................................... 486
Article 600 ..................................................................................................................... 486
Article 601 .................................................................................................................... 486
Article 602 .................................................................................................................... 486
Article 603 ..................................................................................................................... 486
Article 604 ..................................................................................................................... 487
Article 605 ..................................................................................................................... 487
Article 606 ..................................................................................................................... 487
Article 607 ..................................................................................................................... 487
Article 608 ..................................................................................................................... 487
CAPTAINS AND MASTERS OF THE VESSEL
Article 609 ..................................................................................................................... 487
Article 610 ..................................................................................................................... 489
Article 611 ................................................................................................................... 490
Article 612 ..................................................................................................................... 491
Alejandro Arada v. Court of Appeals and San Miguel Corporation.... 494
Article 613 ..................................................................................................................... 496
Article 614 ..................................................................................................................... 496
Article 615 ..................................................................................................................... 497
Article 616 ..................................................................................................................... 497
Article 617 ..................................................................................................................... 497
Article 618 ..................................................................................................................... 497
Article 619 ..................................................................................................................... 498
Article 620 ..................................................................................................................... 498

xxix
Article 621 ....................................................................................................................... ^
Article 622 ....................................................................................................................... w
Article 623 ............................................................................................................................... 4^
Article 624 .............................................................................................................................. 4^
Article 625 ............................................................................................................................ 5QQ

OFFICERS AND CREW OF THE VESSELS

Article 626 .............................................................................................................................. 500
Article 627 ...................................................................................................................... 501
Lorenzo Shipping Corp. v. National Power Corporation ..................................... 502
Article 628 .............................................................................................................................. 505
Article 629 .............................................................................................................................. 505
Article 630 .............................................................................................................................. 506
Article 631 ............................................................................................................................. 506
Article 632 .............................................................................................................................. 506
Article 633 ............................................................................................................................. 508
Article 634 .............................................................................................................................. 508
Article 635 ............................................................................................................................. 509
Article 636 ......................................................................................................................... 510
Article 637 ......................................................................................................................... 510
Article 638 ......................................................................................................................... 511
Article 639 ......................................................................................................................... 512
Article 640 .......................................................................................................................... 512
Article 641 .......................................................................................................................... 512
Article 642 .......................................................................................................................... 513
Article 643 ......................................................................................................................... 513
Article 644 .......................................................................................................................... 514
Article 645 .......................................................................................................................... 514
Article 646 .......................................................................................................................... 515
Article 647 .......................................................................................................................... 515
Article 648 ......................................................................................................................... 515

SUPER CARGOES

Article 649 .......................................................................................................................... 515

Article 650 .......................................................................................................................... 516
Article 651 .......................................................................................................................... 516

CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE
CHARTER PARTIES
Forms and Effects of Charter Parties

Article 652 ................................................................................................................. 517

Important Terms and Phrases in Charter-Party ................................................. 518
Definition of Charter-Party ............................................................................. 518

XXX
 Kinds of Charter-Party ................................................................................ 518
Transshipment ............................................................................................. 521
Demurrage ................................................................................................... 521
Laytime ...................................................................................................... 522
WWDSHINC or Weather, Working Days, Sundays, and
Holidays Included ............................................................................... 522
F.I.O.S.T...................................................................................................... 522
Primage ....................................................................................................... 523
Caltex (Philippines.),Inc. v. Sulpicio Lines ................................................. 523
Litonjua Shipping Company, Inc. v. National Seamen Board
and Gregorio P.Candongo .................................................................. 527
Federal Phoenix Assurance Co., LTD v. Fortune Sea
Carrier, Inc ......................................................................................... 529
Article 653 ..................................................................................................................... 532
Charter-Party may be oral .................................................................................... 532
Market Developers, Inc. (MADE) v. Hon. Intermediate Appellate
Court and Gaudioso Uy ...................................................................... 532
Article 654 ...................................................................................................................... 535
Article 655 ..................................................................................................................... 535
Article 656 ..................................................................................................................... 535
Article 657 ..................................................................................................................... 535
Article 658 ..................................................................................................................... 536
Article 659 ..................................................................................................................... 536
Article 660 ...................................................................................................................... 537
Article 661 ..................................................................................................................... 537
Article 662 ...................................................................................................................... 537
Article 663 ..................................................................................................................... 537
Article 664 ...................................................................................................................... 537
Article 665 ..................................................................................................................... 537
Article 666 ..................................................................................................................... 538
Article 667 ...................................................................................................................... 538
Article 668 ..................................................................................................................... 538

RIGHTS AND OBLIGATIONS OF OWNERS

Article 669 ...................................................................................................................... 538
Article 670 ...................................................................................................................... 539
Article 671 ..................................................................................................................... 539
Article 672 ...................................................................................................................... 540
Article 673 ..................................................................................................................... 540
Article 674 ...................................................................................................................... 540
Article 675 ...................................................................................................................... 540
Article 676 ...................................................................................................................... 541
Article 677 ...................................................................................................................... 541
Article 678 ...................................................................................................................... 541

xxxi
 OBLIGATIONS OF CHARTERERS

Article 679 ............................................................................................................................ 541

Article 680 ...................................................................................................................... 542
Article 681 ..................................................................................................................... 542
Article 682 ............................................................................................................................. 542
Article 683 ............................................................................................................................ 542
Article 684 ............................................................................................................................. 543
Article 685 ............................................................................................................................ 543
Article 686 ............................................................................................................................. 543
Article 687 ............................................................................................................................. 543
Article 688 ............................................................................................................................. 543
Article 689 ............................................................................................................................. 544
Article 690 ............................................................................................................................. 545
Article 691 ............................................................................................................................ 545
Article 692 ............................................................................................................................. 546

BILLS OF LADING
Article 706 ............................................................................................................................. 548
Negros Navigation v. Bacquing .......................................................................... 548
Article 707 ............................................................................................................................. 550
Article 708 ............................................................................................................................ 551
Article 709 ............................................................................................................................. 551
Article 710 ............................................................................................................................. 551
Article 711 ............................................................................................................................. 551
Article 712 ............................................................................................................................. 551
Article 713 ............................................................................................................................. 551
Article 714 ............................................................................................................................. 552
Article 715 ............................................................................................................................. 552
Article 716 ............................................................................................................................. 552
Article 717 ............................................................................................................................. 552
Article 718 ............................................................................................................................. 553
Bill of Lading Explained ............................................................................................. 553
On Board Bill of Lading and Received for Shipment
Bill of Lading.................. . ........................................................................... 554
Clean Bill of Lading ....................................................................... ..................... 554
Bill of Lading, a Contract of Adhesion........................................................................ 555
Nature of a Bill of Lading ........................................................................................... 557
Keng Hua Paper Products Co., Inc. v. Court of Appeals;
Regional Trial Court of Manila, Branch 21, and Sea
Land Service, Inc ................................................................................... 557
MOF Company, Inc. v. Shin Yang Brokerage Corporation ......................... 560
Loans on Bottomry and Respondentia ......................................................................... 563
Article 719 ............................................................................................................................. 563
Loans on Bottomry Explained ................................................................................... 563

xxxii

1
 Distinction between Loan on Bottomry and Respondentia
from Simple Loan ............................................................ 564
Article 720 ....................................................................................... 564
Article 721 ...................................................................................... 565
Article 722 ...................................................................................... 566
Article 723 ...................................................................................... 566
Article 724 ....................................................................................... 566
Article 725 ...................................................................................... 566
Article 726 ...................................................................................... 566
Article 727 ...................................................................................... 567
Article 728 ...................................................................................... 567
Article 729 ...................................................................................... 567
Article 730 ...................................................................................... 567
Article 731 ....................................................................................... 568
Article 732 ...................................................................................... 568
Article 733 ...................................................................................... 568
Article 734 ....................................................................................... 568
Article 735 ...................................................................................... 569
Article 736 ....................................................................................... 569

CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS
OF MARITIME COMMERCE
AVERAGES
570
Article 806 ................................................................................................. 570
Article 807 ................................................................................................ 570
Article 808 ................................................................................................. 570
Article 809 ................................................................................................. 571
Article 810 ................................................................................................. 572
Article 811 ................................................................................................. 573
Article 812 .................................................................................................
Classification of Averages ................................................................. 573

A. Magsaysay, Inc. v. Anastacia Agan ...................................... 573

Requisites of General Average .......................................................... 575
Article 813 ................................................................................................. 576
Article 814 ................................................................................................. 577
Philippine Home Assurance Corporation v. Court of Appeals
and Eastern Shipping Lines, Inc ....................................... 577
Article 815 ................................................................................................. 580
Article 816 ................................................................................................. 580
580
Article 817 .................................................................................................
580
Article 818 .................................................................................................

xxxm
 ARRIVALS UNDER STRESS

Article 819 ............................................................................................................................. 581

Article 820 ............................................................................................................................. 581
Article 821 ............................................................................................................................ 582
Article 822 ............................................................................................................................ 582
Article 823 ............................................................................................................................ 582
Article 824 ............................................................................................................................ 582
Article 825 ............................................................................................................................ 583

COLLISIONS
Article 826 .................................................................................................................... 585
Article 827 .................................................................................................................... 586
Article 828 .................................................................................................................... 586
SulpicioLines, Inc. v. Court of Appeals .................................................. 586
Article 829 .................................................................................................................... 587
Article 830 .................................................................................................................... 588
Article 831 .................................................................................................................... 588
Article 832 .................................................................................................................... 588
Article 833 .................................................................................................................... 588
Article 834 .................................................................................................................... 588
Is the master bound by the acts of the Pilot? Is the master
responsiblefor the negligence of the pilot? ................................................... 589
Who has the burden of proof that the pilot was negligent?................................. 590
Article 835 ............................................................................................................................ 591
AugustoLopez v. Juan Duruelo and Alino Sison ................................................ 591
Article 836 ............................................................................................................................ 592
Article 837 ............................................................................................................................ 592
Luzon Stevedoring Corporation v. Court of Appeals ......................................... 592
Article 838 ............................................................................................................................ 597
Article 839 ............................................................................................................................ 597
SHIPWRECKS
Article 840 .................................................................................................................... 597
Article 841 .................................................................................................................... 597
Article 842 .................................................................................................................... 598
Article 843 ............................................................................................................................ 598
Article 844 ............................................................................................................................ 598
Article 845 ............................................................................................................................ 599

Section I
PROOF AND LIQUIDATION OF AVERAGES Article 846 . 599

XXXIV
Article 8-J' ........ .............................................
600
Article 8-iS ....................................
600
Article 8-to ...........................................................
600
Article 850 ......................................................
600

Section 11
LIQUIDATION OF GROSS AVERAGES

Article S51...................................................... 601

Article 852 .............................................. ......................................................... 601
Article 853 .................................... 60)
Article S54.............................................. 602
.Article 855 ............................................ 603
Article 856 .............................. .................................................................. ’ ' 603
.Article S57............................................. 604
Article 858 .............................................. 604
Article S59....................................................................... 604
Article 860 ........................................................................................................ 605
.Article 861 ....................................................................................................... 605
.Article 862 ....................................................................................................... 605
Article 863 ....................................................................................................... 605
.Article 864 ....................................................................................................... 605
.Article 865 ....................................................................................................... 605
.Article 866 ............................................................................................... ....... 606
.Article 867 ................................................................................................ .... 606
Article 868 ....................................................................................................... 606

Section III

LIQUIDATION OF ORDINARY AVERAGES

606
Article 869 ........................................................................................................
CHAPTER XI
THE SALVAGE LAW
(Act No. 2616)

Section 1..................................................................................................
Section 2.................................................................................................. 607
Section 3.................................................................................................. 607
Section 4.................................................................................................. 607
Section 5.................................................................................................. 607
Section 6 ................................................................................................. 608
Section 7.................................................................................................. 608
Section 8 ................................................................................................. 608
Section 9.................................................................................................. 608
Section 10................................................................................................ .. 609
Section 11................................................................................................ 609
609

xxxv
 Section 12 ....................................................................................................... 609
Section 13 ....................................................................................................... 609
Section 14 ....................................................................................................... 610
General Principles Governing Salvage .................................................... 610
Subjects of Salvage ................................................................................. 611
When is the Ship and her cargo a fit object of Salvage? ................... 612
Concept of Salvage Reward..................................................................... 614
Distinction Between Salvage and Towage ............................................... 616
Honorio M. Barrios v. Carlos A. Gothong and Co ................... 617
Letter of Instruction No. 134, September 24, 1973 .................................. 618

APPENDICES
APPENDIX A — EXECUTIVE ORDER NO. 125
REORGANIZING THE MINISTRY OF TRANSPORTATION
AND COMMUNICATIONS, DEFINING ITS POWERS
AND FUNCTION AND OTHER PURPOSES

Section 1. Title ......................................................................................... 621

Section 2. Reorganization ........................................................................ 621
Section 3. Declaration of Policy................................. ............................. 621
Section 4. Mandate .................................................................................. 621
Section 5. Powers and Functions ............................................................. 622
Section 6. Authority and Responsibility................................................... 625
Section 7. Office of the Secretary ............................................................ 625
Section 8. Undersecretaries ...................................................................... 625
Section 9. Assistant Secretaries and Service Chiefs ................................. 626
Section 10. Structural Organization ......................................................... 627
Section 11. Department Regional Offices ................................................ 627
Section 12. Maritime Industry Authority ................................................. 528
Section 13. Abolition/Transfer/Consolidation .......................................... 529
Section 14. Attached Agencies and Corporations .................................... 539
Section 15. Transitory Provisions ............................................................ 631
Section 16. New Structure and Pattern ..................................................... 534
Section 17. Prohibition Against Changes ................................................. 635
Section 18. Implementing Authority of Minister ..................................... 635
Section 19. Notice or Consent Requirements .................................................. 635
Section 20. Funding ........................................................................................ 635
Section 21. Change of Nomenclature .............................................................. 635
Section 22. Separability ................................................................................ 636
Section 23. Repealing Clause.......................................................................... 636
Section 24. Effectivity .................................................................................... 636

xxxvi
APPENDIX B — PRESIDENTIAL DECREE NO. 1462
AMENDING CERTAIN SECTIONS OK REPUBLIC ACT
SEVEN HUNDRED AND SEVENTY-SIX
Chapter II - GENERAL PROVISIONS
Section 1......................................................................................................................... 637
Chapter III - CIVIL AERONAUTICS BOARD
Section 2......................................................................................................................... 638
Section 3......................................................................................................................... 639
Section 4......................................................................................................................... 639
Section 5......................................................................................................................... 639
Section 6 ........................................................................................................................ 640
Chapter IV — CERTIFICATE OF PUBLIC CONVENIENCE AND
NECESSITY
Section 7......................................................................................................................... 640
Section 8 ........................................................................................................................ 641
Chapter VII — VIOLATION AND PENALTIES
Section 10....................................................................................................................... 641
Section 11....................................................................................................................... 642
Section 12....................................................................................................................... 642

APPENDIX C — REPUBLIC ACT NO. 4136

AN ACT TO COMPILE THE LAWS RELATIVE TO LAND
TRANSPORTATION AND TRAFFIC RULES, TO CREATE
A LAND TRANSPORTATION COMMISSION
AND FOR OTHER PURPOSES

Chapter I - Preliminary Provisions Article I - Title and Scope of Act

Section 1. Title of Act ............................................................................................ 643
Section 2. Scope of Act .......................................................................................... 643
Article II - Definitions
Section 3. Words and Phrases Defined ................................................................... 643
Article III - Administration of Act
Section 4. Creation of the Commission .................................................................. 646

Chapter II — Registration of Motor Vehicles

Article I — Duty to Register, Reports, Applications, Regulations

Section 5. Compulsory Registration of Motor Vehicles ......................................... 649

Section 6. Application and Payments for Registrations .......................................... 651
Section 7. Registration Classification ..................................................................... 651

xxxvn
Article II — Registration Fees
Section 8. Schedule of Registration Fees .............................................................. 552
Section 9. Permissible Weights and Dimensions of Vehicles
in Highways Traffic ..................................................................................... 554
Section 10. Special Permits, Fees for .................................................................... 555
Section 11. Additional Fees .................................................................................. 655
Section 12. Fee for Original Registration for Part of Year .................................... 656
Section 13. Payment of taxes upon registration..................................................... 656

Article III — Registration Certificates, Records, Number Plates

Section 14. Issuance of Certificates of Registration .............................................. 656
Section 15. Use and Authority of Certificate of Registration ................................ 657
Section 16. Suspension of Registration Certificate ............................................... 657
Section 17. Number Plates, Preparation and Issuances of ..................................... 658
Section 18. Use of Number Plates ......................................................................... 659

Chapter III — Operation of Motor Vehicles

Article I — License to Drive Motor Vehicles
Section 19. Duty to Have License ......................................................................... 659
Section 20. (Repealed by BP Big. 398, May 18, 1983) ......................................... 659
Section 21. Operation of Motor Vehicles by Tourists ........................................... 659
Section 22. Application for Driver’s License, Fees, Examination ......................... 660
Section 23. Issuances of Driver’s License, Fees and Validity ............................... 661
Section 24. Use of Driver’s License and Identification Card ................................ 662
Section 25. Driver’s Records ................................................................................ 662
Section 26. Renewal or Replacement of Lost License .......................................... 662
Section 27. Authority to suspend, revoke and reinstate
driver’s license............................................................................................. 663
Section 28. Driver’s Bond ..................................................................................... 664
Section 29. Confiscation of Driver’s License ........................................................ 665
Section 30. Student-Driver’s Permit ..................................................................... 665

Article II — Illegal Use of Licenses, Number Plates, etc.

Section 31. Imitation and False Representations ................................................... 666
Article III — Passengers and Freight
Section 32. Exceeding Registered Capacity, Issuance
of Conductor’s License, Validity and Fee .................................................... 666
Section 33. Passenger or Freight Capacity Marked on Vehicle ............................. 667
Article IV — Accessories of Motor Vehicles
Section 34. Tires of Motor Vehicles ..................................................................... 667
Chapter IV — Traffic Rules
Article I — Speed Limit and Keeping to the Right
Section 35. Restrictions as to speed ...................................................................... 670
Section 36. Speed Limits Uniform Throughout
the Philippines ............................................................................................. 671

xxxviii
 Section o7. Driving on Right Side of Highway .............................................. 671
Section 38. Classification of Highways.......................................................... 672
Article II — Overtaking and Passing a Vehicle, and Turning
at Intersections
Section 39. Overtaking a Vehicle ...................................................................
Section 40. Driver to Give Way to Overtaking Vehicle ................................. 672
Section 41. Restrictions on Overtaking and Passing ...................................... 672
673
Article 111 — Right of Way and Signals
Section 42. Right of Way ...............................................................................
Section 43. Exception to the right of Way Rule ............................................. 674
Section 44. Signals on Starting, Stopping or Turning .................................... 674
Article IV — Turning and Parking 675

Section 45. Turning at Intersections ...............................................................

Section 46. Parking Prohibited in Specified Places ........................................ 675
Section 47. Parked Vehicle ............................................................................ 675
Article V — Miscellaneous Traffic Rules 676
Section 48. Reckless Driving .........................................................................
Section 49. Right of Way for Police and Other Emergency Vehicles..
Section 50. Tampering With Vehicles............................................................ 676
Section 51. Hitching to a Vehicle................................................................... 676
Section 52. Driving or Parking on Sidewalk .................................................. 677
Section 53. Driving While Under the Influence of Liquor 677
or Narcotic Drug ................................................................................... 677
Section 54. Obstruction of Traffic ..................................................................
Section 55. Duty of Driver in Case of Accident ............................................. 677
677
Chapter V — Penal and Other Provisions
677
Article 1 — Penalties
Section 56. Penalty for Violation ...................................................................
Section 57. Punishment for Other Offenses ...................................................
Section 58. Duty of Clerks of Court ...............................................................
678
Article 11 — Collection of Fees, Taxes and Fines, Liens,
680
Allotment of Funds
680
Section 59. Collection of Fees; National and Local Taxes; Toll Fees
Section 60. The Lien Upon Motor Vehicles ...................................................
Section 61. Disposal of Monies Collected......................................................
Article HI — Final Provisions 681
Section 62 ...................................................................................................... 681
Section 63. Repeal of Laws and Ordinances .................................................. 682
Section 64. Appropriation ..............................................................................
Section 65. Separability .................................................................................
Section 66. Elfectivity ................................................................................... 682
683
683
683
683

XXXIX
APPENDIX D — THE WARSAW CONVENTION ON AIR
TRANSPORT ...................................................................................................... 684
CHAPTER I — SCOPE-DEFINITIONS
Article 1 ............................................................................................................... 685
Article 2 ............................................................................................................... 686
CHAPTER II — TRANSPORTATION DOCUMENTS
Section I — Passenger Ticket
Article 3 ............................................................................................................... 686
Section II — Baggage Check
Article 4 ............................................................................................................... 687
Section III — Air Waybill
Article 5 ............................................................................................................... 688
Article 6 ............................................................................................................... 688
Article 7 ............................................................................................................... 688
Article 8 ............................................................................................................... 689
Article 9 .............................................................................................................. 690
Article 10 ............................................................................................................. 690
Article 11 ............................................................................................................. 690
Article 12 ............................................................................................................. 690
Article 13 ............................................................................................................. 691
Article 14 ............................................................................................................. 691
Article 15 ............................................................................................................. 692
Article 16 ............................................................................................................. 692
CHAPTER III — LIABILITY OF THE CARRIER
Article 17 ............................................................................................................. 692
Article 18 ............................................................................................................. 692
Article 19 ............................................................................................................. 693
Article 20 ............................................................................................................. 693
Article 21 ............................................................................................................. 693
Article 22 ............................................................................................................ 693
Article 23 ............................................................................................................ 694
Article 24 ............................................................................................................. 694
Article 25 ............................................................................................................. 694
Article 26 ............................................................................................................. 695
Article 27 ............................................................................................................. 695
Article 28 ............................................................................................................. 695
Article 29 ............................................................................................................. 696
Article 30 ............................................................................................................. 696
CHAPTER IV — PROVISIONS RELATING TO COMBINED TRANSPORTATION
Article 31 ............................................................................................................. 696
CHAPTER V — GENERAL AND FINAL PROVISIONS
Article 32 ............................................................................................................. 697

xl
 Article 33 ........................................................................................................................ 697
Article 34 ........................................................................................................................ 697
Article 35 ....................................................................................................................... 697
Article 36 ........................................................................................................................ 697
Article 37 ........................................................................................................................ 698
Article 38 ........................................................................................................................ 698
Article 39 ........................................................................................................................ 698
Article 40 ....................................................................................................................... 699
Article ................................................................................................................... 69*

APPENDIX E — BAR EXAMINATION QUESTIONS ON

700
TRANSPORTATION LAWS .................................................................................

xli
 CHAPTER I

PRELIMINARY CONSIDERATIONS

TRANSPORTATION LAWS IN THE PHILIPPINES

Transportation laws in the Philippines whether by land, sea, or
air, are generally governed by the New Civil Code (Arts. 1732-1766)
thus, it declared:

“In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code
of Commerce and by special laws.”
In the absence, therefore, of any provision of the New Civil
Code on the rights and obligations of common carriers, the Code of
Commerce and other special laws such as the Carriage of Goods By
Sea Act, Salvage Law, and other special laws insofar as pertinent may
be applied. (See National Development Company v. The Court of Appeals
and Development Insurance and Surety Corporation, No. L-49409, August
19, 1998; Maritime Company of the Philippines v. The Court of Appeals
and Development Insurance and Surety Corporation, No. L-49467, August
19, 1988; Eastern Shipping Lines, Inc. v. IAC, No. L-69044, March 29,
1987; Maritime Company of the Philippines v. Court of Appeals and Rizal
Surety and Insurance Co., G.R. No. 47004, March 8, 1989)

TRANSPORTATION LAWS AND THE CONSTITUTION

It is time honored that the Constitution is the Supreme Law of
the land. It is the law of all laws. If there is conflict between a statute
and the [Constitution, the statute shall yield to the [C]onstitution.
(Diaz, Statutory Construction, p. 249, 2000 Ed.)

1
 TRANSPORTATION LAWS

The 1987 Philippine Constitution provides, some restrictions or limitations

in the issuance of franchise to public utilities, which includes transportation
industries. Article XII of the National Economy and Patrimony provides, thus:
“Sec. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital,
and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
xxx xxx xxx
Sec. 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations.
Government-owned or -controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability.
Sec. 17. In times of national emergency, when the public interest so
requires, the State may, during the emergency and under reasonable terms
prescribed by it, temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest.
Sec. 18. The State may, in the interest of national welfare or defense,
establish and operate vital industries and, upon payment of just
compensation, transfer to public ownership utilities and other private
enterprises to be operated by the government.

2
 CHAPTER I
PRELIMINARY CONSIDERATIONS

Sec. 19. The State shall regulate or prohibit monopolies when the
public interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.”
Likewise, Article XVI on the general provisions states that:
“Sec. 11.(1) The ownership and management of mass media shall
be limited to citizens of the Philippines, or to corporations, cooperatives
or associations, wholly-owned and managed by such citizens.
The Congress shall regulate or prohibit monopolies in commercial
mass media when the public interest so requires. No combinations in
restraint of trade or unfair competition therein shall be allowed.
(2) The advertising industry is impressed with public interest, and
shall be regulated by law for the protection of consumers and the
promotion of the general welfare.
Only Filipino citizens or corporations or associations at least
seventy per centum of the capital of which is owned by such citizens
shall be allowed to engage in the advertising industry.
The participation of foreign investors in the governing body of
entities in such industry shall be limited to their proportionate share in the
capital thereof, and all the executive and managing officers of such
entities must be citizens of the Philippines.”

MAY A 100% FOREIGN CORPORATION OWN A PUBLIC

UTILITY?
Apparently, this question was answered in the case of the People of the
Philippines v. William M. Quasha, L-6055, June 12, 1953 and the landmark
decision in Tatad, et al. v. Sec. Garcia and EDSA LRT Corporation Ltd.,
G.R. No. 114222, April 16, 1995.
The Supreme Court, when confronted with the issue of whether
respondent EDSA LRT Corporation, Ltd., a foreign corporation can own EDSA
LRT III, a public utility, said: “The phrasing of the question is erroneous, it is
loaded. What private respondent owns are the rail

3
 TRANSPORTATION LAWS

tracks, rolling stocks like the coaches, rail stations, terminals and the power
plant, not a public utility. While a franchise is needed to operate these facilities to
serve the public, they do not, by themselves, constitute a public utility. What
constitute a public utility is not their ownership but their use to serve the public.”
(Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551,
557-558 [1923])
The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise before one
can own the facilities needed to operate a public utility so long as it does not
operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

“No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than
fifty years x x x . ”
In law, there is a clear distinction between the “operation” of a public
utility and the ownership of the facilities and equipment used to serve the public.
Ownership is defined, as a relation in law, by virtue of which a thing
pertaining to one person is completely subjected to his will in everything not
prohibited by law or the concurrence with the rights of another. (Tolentino, II
Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992])
The exercise of the rights encompassed in ownership is limited by law so
that a property cannot be operated and used to serve the public as a public utility
unless the operator has a franchise. The operation of a rail system, as a public
utility, includes the transportation of passengers from one point to another point,
their loading and unloading at designated places and the movement of the trains
at prescheduled times, (cf. Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz
282, 180

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

P. 159, 7 A.L.R. 1149 [1919]; United States Fire Ins. Co. v. Northern PR.
Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948])
The right to operate a public utility may exist independently and
separately from the ownership of the facilities thereof. One can own said
facilities without operating them as a public utility, or conversely, one may
operate a public utility without owning the facilities used to serve the public.
The devotion of property to serve the public may be done by the owner or by the
person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very well appreciated
when we consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them
themselves.
Since DOTC shall operate the EDSA LRT III, it shall assume all the
obligations and liabilities of a common carrier. For this purpose, DOTC shall
indemnify and hold harmless private respondent from any losses, damages,
injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the EDSA
LRT III on account of the defective condition of equipment or facilities or the
defective maintenance of such equipment or facilities.
In sum, private respondent will not run the light rail vehicles and collect
fees from the riding public. It will have no dealings with the public and the
public will have no right to demand any services from it.
Indeed, a mere owner and lessor of the facilities used by a public utility is
not a public utility. (Providence and W.R. Co. v. United States, 46 F. 2d
149,152 [1930]; Chippewa Power Co. v. Railroad Commission of
Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, III. 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed.
1036 [1914]) Neither are owners of tank, refrigerator, wine, poultry and beer
cars who supply cars under contract to railroad companies considered as public
utilities. (Crystal Car Line v. State Tax Commission, 174 P. 2d 984, 987
[1946])

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 TRANSPORTATION LAWS

Even the mere formation of a public utility corporation does not ipso facto
characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for that purpose. (People v.
Quasha, 93 Phil 333 [1953]; Francisco Tatad, John Osmeha and Rodolfo
Biazon v. Hon. Jesus Garcia, Jr. and EDS A LRT Corporation Ltd., G.R. No.
114222, April 6, 1995)

The President, the Congress, and the Court cannot create directly franchises that are
exclusive in character. What the President, Congress, and the Court cannot legally do
directly, they cannot not do indirectly.

Tawang Multi-Purpose Cooperative v.

La Trinidad Water District
GR. No. 166471, March 22, 2011
FACTS: Tawang Multi-Purpose Cooperative (TMPC) is a cooperative,
registered with the Cooperative Development Authority, and organized to provide
domestic water services in Barangay Tawang, La Trinidad, Benguet. La Trinidad
Water District (LTWD) is a local water utility created under P.D. No. 198, as
amended. It is authorized to supply water for domestic, industrial, and commercial
purposes within the municipality of La Trinidad, Benguet. On October 9, 2000,
TMPC Filed with the National Water Resources Board (NWRB) an application for a
Certificate of Public Convenience (CPC) to operate and maintain waterworks system
in Barangay Tawang. LTWD opposed TMPC’s application. LTWD claimed that
under Section 47 of P.D. No. 198, as amended, its franchise is exclusive. Section 47
states that:
Sec. 47. Exclusive Franchise. - No franchise shall be granted to any
other person or agency 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.

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 CHAPTER I
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In its Resolution No. 04-0702, dated July 23, 2002, the NWRB approved
TMPC’s application for a CPC. In its August 15, 2002 Decision, the NWRB
held that LTWD’s franchise cannot be exclusive since exclusive franchises are
unconstitutional and found that TMPC is legally and financially qualified to
operate and maintain a waterworks system. LTWD filed a motion for
reconsideration. In its November 18, 2002 Resolution, the NWRB denied the
motion. LTWD appealed to the Regional Trial Court (RTC).
In its October 1, 2004 Judgment, the RTC set aside the NWRB’s July 23,
2002 Resolution and August 15, 2002 Decision, and canceled TMPC’s CPC.
The RTC held that Section 47 is valid.
ISSUE: Whether or not the RTC erred in holding that Section 47 of P.D.
No. 198, as amended, is valid.
HELD: The President, the Congress, and the Court cannot create
directly franchises for the operation of a public utility that is exclusive in
character. The 1935, 1973, and 1987 Constitutions expressly and clearly
prohibit the creation of franchises that are exclusive in character. Section 8,
Article XIII of the 1935 Constitution states that: “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 other entities
organized under the laws of the Philippines, sixty per centum of the capital of
which is owned by citizens of the Philippines, nor shall such franchise,
certificate or authorization be exclusive in character or for a longer period that
fifty years.” (Emphasis supplied)
Section 5, Article XIV of the 1973 Constitution and Section 11, Article
XII of the 1987 Constitution similarly provides the same prohibition.
Plain words do not require explanations. The 1935, 1973, and 1987
Constitutions are clear — franchises for the operation of a public utility cannot
be exclusive in character. The 1935, 1973, and 1987 Constitutions expressly
and clearly states that “nor shall franchise xxx be exclusive in character, ”
There is no exception.
When the law is clear, there is nothing for the courts to do but to apply it.
The duty of the Court is to apply the law the way it is worded.

7
 TRANSPORTATION LAWS

Indeed, the President, the Congress, and the Court cannot create directly
franchises that are exclusive in character. What the President, the Congress, and
the Court cannot legally do directly, they cannot do indirectly. Thus, the
President, the Congress, and the Court cannot create indirectly franchises that are
exclusive in character by allowing the Board of Directors (BOD) of a water
district and the Local Water Utilities Administration (LWUA) to create
franchises that are exclusive in character.
In P.D. No. 198, as amended, former President Ferdinand E. Marcos
(President Marcos) created indirectly franchises that are exclusive in character by
allowing the BOD of LTWD and the LWUA to create directly franchises that are
exclusive in character. Section 47 of P.D. No. 198, as amended, allows the BOD
and the LWUA to create directly franchises that are exclusive in character.
In case if conflict between the Constitution and a statute, the Constitution
always prevails because the Constitution is the basic law to which all other laws
must conform to. The duty of the Court is to uphold the Constitution and to
declare void all laws that do not conform to it.

Section 47 gives the BOD and LWUA the authority to make an exception
to the absolute prohibition in the Constitution. In short, the BOD and the LWUA
are given the discretion to create franchises that are exclusive in character. The
BOD and the LWUA are not even legislative bodies. The BOD is not a regulatory
body but simply a management board of a water district. Indeed, neither the BOD
nor the LWUA can be granted the power to create any exception to the absolute
prohibition in the Constitution, a power that Congress itself cannot exercise.
Nonetheless, while the prohibition in Section 47 of P.D. No. 198 applies to the
issuance of CPCs for the reasons discussed above, the same provision must be
deemed void ab initio being irreconcilable with Section 5, Article XIV of the
1973 Constitution, which was ratified on January 17, 1973, the Constitution in
force when P.D. No. 198 was issued on May 25, 1973. Since Section 47 of P.D.
No. 198, which vests and “exclusive franchise” upon public utilities, is clearly
repugnant to Section 5, Article XIV of the 1973 Constitution, it is
unconstitutional

8
 CHAPTER I
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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.

ARTICLES 1732 AND 1733

ARTICLE 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to
the public.

Common Carrier Defined and Explained.

The Civil Code defines “common carriers ” in the following terms:
“Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air for compensation offering their services to the
public.”
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does
such carrying only as an ancillary activity (in local idiom, as “a sideline”).
Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic, or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the “general public,” i.e.9 the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. Article 1732 deliberately refrained from making such distinctions.
So understood, the concept of “common carriers” under Article 1732 may
be seen to coincide neatly with the notion of “Public Service,” under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, “public service ” includes:

9
 TRANSPORTATION LAWS

“x x x every person that now or hereafter may own, operate manage,

or control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional, or accidental, and done
for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services, x x
x” (Emphasis supplied.)
A certificate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers. That
liability arises the moment a person or firm acts as a common carrier, without
regard to whether or not such carrier has also complied with the requirements of
the applicable regulatory statute and implementing regulations and has been
granted a certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public
policy; that would be to reward private respondent precisely for failing to comply
with applicable statutory requirements. The business of a common carrier
impinges directly and intimately upon the safety and well-being and property of
those members of the general community who happen to deal with such carrier.
The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations. (De Guzman v. Court of
Appeals, No. L-47822, December 12, 1988; Bascos v. Court of Appeals, G.R.
No. 101089, April 7, 1993; Loadstar Shipping Co., Inc. v. Court of Appeals,
G.R. No. 131627, September 28, 1999; Calvo

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 CHAPTER I
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v. UCPB General Insurance Company; Inc., 379 SCRA 510, March 19,
2002; Asia Lighterage Shipping, Inc. v. Court of Appeals, 409 SCRA 340,
August 19, 2003)
The above statutory provision and jurisprudential discussion laid down
the following elements of a common carrier:
1. Any persons, corporations, firms or associations;
2. Such persons, corporations, firms or associations must be engaged
in the business of carrying or transporting passengers or goods or
both;
3. The means of carriage or transporting passengers, goods or both is
by land, water or air;
4. The carrying or transporting of passengers or goods or both is for a
fee or compensation; and
5. The services are offered to the public without distinction.

COMMON CARRIERS DISTINGUISHED FROM PRIVATE

CARRIERS
By definition, a contract of carriage or transportation is one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. Such person
or association of persons are regarded as carriers and are classified as private or
special carriers and common or public carriers. (Crisostomo v. Court of
Appeals, 409 SCRA 528, August 28, 2003)
The nature of the contractual relation between carrier and passenger is
determinative of the degree of care required in the performance of the latter’s
obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human care
and foresight can provide using the utmost diligence of very cautious persons
and with due regard for all the circumstances.
Private carrier is not bound under the law to observe extraordinary
diligence in the performance of its obligation.

11
 TRANSPORTATION LAWS

The standard of care required of private carriers is that of a good father of a

family under Article 1173 of the Civil Code. This connotes reasonable care
consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. (Crisostomo v. CA, supra)
Much of the distinction between a “common or public carrier” and a “private
or special carrier” lies in the character of the business, such that if the undertaking is
an isolated transaction, not a part of the business or occupation, and the carrier does
not hold itself out to carry the goods for the general public or to a limited clientele,
although involving the carriage of goods for a fee, the person or corporation
providing such service could very well be just a private carrier. The concept of a
common carrier does not change merely because individual contracts are executed
or entered into with patrons of the carrier — such restrictive interpretation would
make it easy for a common carrier to escape liability by the simple expedient of
entering into those distinct agreements with clients. (Philippine-American
General Insurance Company v. PKS Shipping Company, 401 SCRA 222, April
9, 2003)

Test for determining whether a party is a common carrier of goods.

First Philippine Industrial Corporation

v. Court of Appeals
G.R. No. 125948, December 29,1998

FACTS: Petitioner is a grantee of a pipeline concession under R.A. No. 387, as

amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 1967 and renewed by the Energy Regulatory Board in 1992.
Sometime in January 1995, petitioner applied for a mayor’s permit with the
Office of the Mayor of Batangas City. However, before the mayor’s permit could be
issued, the respondent City Treasurer required petitioner to pay a local tax based on its
gross receipts for the fiscal year 1993 pursuant to the Local Government Code. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for

12
 CHAPTER I
PRELIMINARY
CONSIDERATIONS
products pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid the tax
under protest in the amount of P239,019.01 for the first quarter of 1993.
On June 15, 1994, petitioner filed with the Regional Trial Court of
Batangas City a complaint for tax refund with prayer for writ of preliminary
injunction against respondents City of Batangas and Adoracion Arellano in her
capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that:
(1) the imposition and collection of the business tax on its gross receipts violates
Section 133 of the Local Government Code; (2) the authority of cities to impose
and collect a tax on the gross receipts of “contractors and independent
contractors” under Sections 141(e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Section 131
(h), the term “contractors” excludes transportation contractors; and
(3) the City Treasurer illegally and erroneously imposed and collected the said
tax, thus meriting the immediate refund of the tax paid.
Traversing the complaint, the respondents argued that petitioner cannot be
exempt from taxes under Section 133(j) of the Local Government Code as said
exemption applies only to “transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water.” Respondents
assert that pipelines are not included in the term “common carrier” which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term “common carrier” under the said Code pertains to the
mode or manner by which a product is delivered to its destination.
ISSUE: Whether or not petitioner is a common carrier so that in the
affirmative, he is not liable to pay the carriers tax under the Local Government
Code of 1991.
HELD: There is merit in the petition.
A “common carrier” may be defined, broadly, as one who holds himself
out to the public as engaged in the business of transporting persons or property
from place to place, for compensation, offering his services to the public
generally.

13
 TRANSPORTATION LAWS

Article 1732 of the Civil Code defines a “common carrier ” as “any

person, corporation, firm or association engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.”
The test for determining whether a party is a common carrier of goods
is:
1. He must be engaged in the business of carrying goods for others
as a public employment, and must hold himself out as ready to
engage in the transportation of goods or person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his
business is confined;
3. He must undertake to carry by the method by which his business
is conducted and over his established roads; and
4. The transportation must be for hire.
Based on the above definitions and requirements, there is no doubt
that petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e., petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently, that is, to all
persons who choose to employ its services, and transports the goods by land
and for compensation. The fact that petitioner has a limited clientele does
not exclude it from the definition of a common carrier. In De Guzman v.
Court of Appeals, the Court ruled that:
“The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such
carrying only as ancillary activity (in local idiom, as a sideline).
Article 1732 xxx avoids making any distinction between a person
or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the ‘general
public, ’ i.e., the general community or population, and one who

14
 CHAPTER I
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offers services or solicits business only from a narrow segment of the

general population. We think Article 1732 deliberately refrained from
making such distinctions. ”
So understood, the concept of “common carrier” under Article 1733 may
be seen to coincide neatly with the notion of “public service,” under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, “public service” includes:
“Every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with
general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service
of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice refrigeration plant, canal, irrigation system gas, electric light heat
and power, water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. ” (Underscoring supplied.)
Also, respondent’s argument that the term "common carrier” as used in
Section 133(j) of the Local Government Code refers only to common carriers
transporting goods and passengers through moving vehicles or vessels either by
land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of “common
carriers” in the Civil Code makes no distinction as to the means of transporting
as long as it is by land, water, or air. It does not provide that the transportation of
the passengers or goods should be by motor vehicle. In fact, in the United States,
oil pipeline operators are considered common carriers.

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 TRANSPORTATION LAWS

Under the Petroleum Act of the Philippines (R.A. No. 387), petitioner is
considered a “common carrier.” Thus, Article 86 thereof provides that:
“Art. 86. Pipeline concessionaire as common carrier. — A
pipeline shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to utilize the
remaining transportation capacity pro rata for the transportation of such
other petroleum as may be offered by others for transport, and to charge
without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources.”

Test of a Common Carrier

Vlasons Shipping, Inc. v. Court of Appeals

and National Steel Corporation
G.R. No. L-112350, December 12,1997
FACTS: On July 17, 1974, plaintiff National Steel Corporation (NSC) as
Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a
Contract of Voyage Charter Hire whereby NSC hired VSI’s vessel, the MV
‘VLASONS I’ to make one (1) voyage to load steel products at Ilagan City and
discharge them at North Harbor, Manila.
The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on
August 12,1974. The following day, August 13,1974, when the vessel’s three
(3) hatches containing the shipment were opened by plaintiff’s agents, nearly
all the skids of tinplates and hot rolled sheets were allegedly found to be wet
and rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24,1974 after incurring a
delay of eleven (11) days due to the heavy rain, which interrupted the unloading
operations.
On September 6, 1974, on the basis of the aforesaid Report No. 1770,
plaintiff filed with the defendant its claim for damages suffered due to the
downgrading of the damaged tinplates in the amount of

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of

said claim but defendant VSI refused and failed to pay. Plaintiff filed its
complaint against defendant on April 21, 1976, which was docketed as Civil
Case No. 23317, CFI, Rizal.
ISSUE: Whether or not the provisions of the Civil Code of the Philippines
on common carriers pursuant to which there exist(s) a presumption of negligence
against the common carrier in case of loss or damage to the cargo are applicable
to a private carrier.
HELD: At the outset, it is essential to establish whether VSI contracted
with NSC as a common carrier or as a private carrier. The resolution of this
preliminary question determines the law, standard of diligence and burden of
proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as “persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.” It has been held that the true
test of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a fee. A
carrier, which does not qualify under the above test, is deemed a private carrier.
Generally, “private carriage is undertaken by special agreement and the carrier
does not hold himself out to carry goods for the general public. The most typical,
although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use
and service of all or some part of a ship for a period of time or a voyage or
voyages.”
In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a “special contract of charter party.” As
correctly concluded by the Court of Appeals, the MV Vlasons I “was not a
common but a private carrier.” Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or
charter party.

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 TRANSPORTATION LAWS

In view of the aforementioned contractual stipulations, NSC must prove

that the damage to its shipment was caused by VSI’s willful negligence or failure
to exercise due diligence in making MV Vlasons I seaworthy and fit for holding,
carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed
on NSC by the parties’ agreement.
This view finds further support in the Code of Commerce, which
pertinently provides:
“Art 361. Merchandise shall be transported at the risk and
venture of the shipper, if the contrary has not been expressly
stipulated. ”
Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event .force majeure, or the nature and inherent
defect of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
“Art 362. The carrier, however, shall be liable for damages
arising from the causes mentioned in the preceding article if proofs
against him show that they occurred on account of his negligence or
his omission to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading,
making him believe that the goods were of a class or quality different
from what they really were. ”
Because the MV Vlasons I was a private carrier, the shipowner’s
obligations are governed by the foregoing provisions of the Code of Commerce
and not by the Civil Code which, as a general rule, places the prima facie
presumption of negligence on a common carrier. It is a hornbook doctrine that:
“In an action against a private carrier for loss of, or injury to,
cargo, the burden is on the plaintiff to prove that the carrier was
negligent or unseaworthy, and the fact that the goods were lost or
damaged while in the carrier’s custody does not put the burden of proof
on the carrier.”

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

In a contract of private carrier, the parties may freely stipulate their

duties and obligations which perforce be binding on them. Unlike in a
contract involving common carrier, private carriage does not involve
the general public.

Valenzuela Hardwood and Industrial Supply, Inc. v. Court

of Appeals and Seven Brothers Shipping Corporation
SfQ. 3-BBACK -Transpo Laws: Nows ana oases am eo. mto or vmt o*w

G.R. No. 102316, June 30,1997

FACTS: It appears that on 16 January 1984, plaintiff (Valenzuela
Hardwood and Industrial Supply, Inc.) entered into a charter party with the
defendant Seven Brothers (Shipping Corporation) whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the former’s
lauan round logs numbering 940 at the port of Maconacon, Isabela for
shipment to Manila.
The said vessel M/V Seven Ambassador sank on January 25,1984
resulting in the loss of the plaintiff’s insured logs. There is no dispute
between the parties that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the “snapping of the
iron chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the
vessel and not due to fortuitous event.” Likewise undisputed is the status
of private respondent Seven Brothers as a private carrier when it
contracted to transport the cargo of petitioner Valenzuela. Even the latter
admits this in its petition.
The trial court deemed the charter party stipulation void for being
contrary to public policy, citing Article 1745 of the Civil Code.
Petitioner Valenzuela adds that the stipulation is void for being
contrary to Articles 586 and 587 of the Code of Commerce and Articles
1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1,
Article 1409 of the Civil Code, petitioner further contends that said
stipulation “gives no duty or obligation to the private respondent to
observe the diligence of a good father of a family in the custody and
transportation of the cargo.”
ISSUE: Whether or not respondent Court (of Appeals) committed a
reversible error in upholding the validity of the stipulation in the

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charter party executed between the petitioner and the private respondent
exempting the latter from liability for the loss of petitioner’s logs arising from
the negligence of its (Seven Brothers) captain.
HELD: The Court is not persuaded. As adverted earlier, it is undisputed
that private respondent had acted as a private carrier in transporting
petitioner’s lauan logs. Thus, Article 1745 and other Civil Code provisions on
common carriers, which were cited by petitioner, may not be applied unless
expressly stipulated by the parties in their charter party.
In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the cargo caused even by the
negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such
stipulation is valid because it is freely entered into by the parties and the same
is not contrary to law, morals, good customs, public order, or public policy.
Indeed, their contract of private carriage is not even a contract of adhesion. We
stress that in a contract of private carriage, the parties may freely stipulate their
duties and obligations, which perforce would be binding on them. Unlike in a
contract involving a common carrier, private carriage does not involve the
general public. Hence, the stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably be applied to a ship
transporting commercial goods as a private carrier. Consequently, the public
policy embodied therein is not contravened by stipulations in a charter party
that lessen or remove the protection given by law in contracts involving
common carriers.
The issue posed in this case and the arguments raised by petitioner are
not novel; they were resolved long ago by this Court in Home Insurance Co.
v. American Steamship Agencies, Inc. In that case, the trial court similarly
nullified a stipulation identical to that involved in the present case for being
contrary to public policy based on Article 1744 of the Civil Code and Article
587 of the Code of Commerce. Consequently, the trial court held the
shipowner liable for damages resulting from the partial loss of the cargo. This
Court reversed the trial

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PRELIMINARY CONSIDERATIONS

court and laid down, through Mr. Justice Jose P. Bengzon, the following
well-settled observation and doctrine:
“The provisions of our Civil Code on common carriers were
taken from Anglo-American Law. Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to
special person only, becomes a private carrier. As a private carrier,
a stipulation exempting the owner from liability for the negligence of
its agent is not against public policy, and is deemed valid.
Such doctrine we find reasonable. The Civil Code provisions
on common carriers should be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy
governing common carriers is applied. Such policy has no force
where the public at large is not involved, as in this case of a ship
totally chartered for the use of a single party. "
Indeed, where the reason for the rule ceases, the rule itself does not
apply. The general public enters into a contract of transportation with common
carriers without a hand or a voice in the preparation thereof. The riding public
merely adheres to the contract; even if the public wants to, it cannot submit its
own stipulations for the approval of the common carrier. Thus, the law on
common carriers extends its protective mantle against one-sided stipulations
inserted in tickets, invoices or other documents over which the riding public
has no understanding or, worse, no choice. Compared to the general public, a
charterer in a contract of private carriage can stipulate the carrier’s obligations
and liabilities over the shipment, which, in turn, determines the price or
consideration of the charter. Thus, a charterer, in exchange for convenience
and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal
business risk.
The naked assertion of petitioner that the American rule enunciated in
Home Insurance is not the rule in the Philippines deserves scant
consideration. The Court there categorically held that said rule was
“reasonable” and proceeded to apply it in the resolution

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of that case. Petitioner miserably failed to show such circumstances or arguments,

which would necessitate a departure from a well-settled rule. Consequently, our
ruling in said case remains a binding judicial precedent based on the doctrine of
stare decisis and Article 8 of the Civil Code which provides that “(j) judicial
decisions applying or interpreting the laws or the Constitution shall form part of
the legal system of the Philippines.”
In fine, the respondent appellate court aptly stated, “(in the case of) a
private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid.”
Article 6 of the Civil Code provides that “rights may be waived, unless the
waiver is contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a person with a right recognized by law.” As a general rule,
patrimonial rights may be waived as opposed to rights to personality and family
rights, which may not be made the subject of waiver. Being patently and
undoubtedly patrimonial, petitioner’s right conferred under said articles may be
waived. This, the petitioner did by acceding to the contractual stipulation that it is
solely responsible for any damage to the cargo, thereby exempting the private
carrier from any responsibility for loss or damage thereto. Furthermore, as
discussed above, the contract of private carriage binds petitioner and private
respondent alone; it is not imbued with public policy considerations for the
general public or third persons are not affected thereby.

A customs broker, whose principal business is the preparation of the correct

customs declaration and the proper shipping documents, is still considered a
common carrier if it also undertakes to deliver the goods for its customers.

Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance

Co., Inc. and Benjamin P. Manalastas, doing business under the
name of BMT Trucking Services G.R. No. 194121, July 11, 2016
FACTS: On October 7, 2000, a shipment of various electronic goods from
Thailand and Malaysia arrived at the Port of Manila for Sony

22
 CHAPTER I
PRELIMINARY CONSIDERATIONS

Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the services of
TMBI to facilitate, withdraw, and deliver the shipment from the port to its
warehouse in Binan, Laguna. TMBI, who did not own any delivery trucks,
subcontracted the services of Benjamin Manalastas’ company, BMT Trucking
Services (BMT), to transport the shipment from the port to the Binan warehouse. In
the early morning of October 9, 2000, the four trucks left BMT’s garage for
Laguna. However, only three trucks arrived at Sony’s Binan warehouse. At around
12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found
abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City. Both
the driver and the shipment were missing. Later that evening, BMT’s Operations
Manager Melchor Manalastas informed Victor Torres, TMBI’s General Manager,
of the development. They went to Muntinlupa together to inspect the truck and to
report the matter to the police. Victor Torres also filed a complaint with the
National Bureau of Investigation (NBI) against Lapesura for “hijacking.” The
complaint resulted in a recommendation by the NBI to the Manila City
Prosecutor’s Office to prosecute Lapesura for qualified theft. TMBI notified Sony
of the loss through a letter. It also sent BMT a letter demanding payment for the
lost shipment. BMT refused to pay, insisting that the goods were “hijacked.” In the
meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods.
After evaluating the merits of the claim, Mitsui paid Sony P7,293,386.32
corresponding to the value of the lost goods.
After being subrogated to Sony’s rights, Mitsui sent a demand letter for
payment of the lost goods. TMBI refused to pay Mitsui’s claim. As a result, Mitsui
filed a complaint against TMBI on November 6,2001. TMBI, in turn, impleaded
Benjamin Manalastas, the proprietor of BMT, as a third-party defendant. TMBI
alleged that BMT’s driver, Lapesura, was responsible for the theft/hijacking of the
lost cargo and claimed BMT’s negligence as the proximate cause of the loss. TMBI
prayed that in the event it is held liable to Mitsui for the loss, it should be
reimbursed by BMT. On August 5, 2008, the Regional Trial Court (RTC) found
that TMBI and Benjamin Manalastas jointly and solidarily liable to pay Mitsui
P7,293,386.23 as actual damages, attorney’s fees equivalent to 25% of the amount
claimed, and the costs of the suit. The

23
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RTC held that TMBI and Manalastas were common carriers and had acted
negligently. Both TMBI and BMT appealed the RTC’s verdict. The Court of
Appeals (CA) affirmed the lower court’s decision.
TMBI denied that it was a common carrier required to exercise
extraordinary diligence because it does not own a single truck to transport its
shipment and it does not offer transport services to the public for compensation. It
emphasized that Sony knew TMBI did not have its own vehicles and would
subcontract the delivery to a third- party. Further, TMBI insists that the service it
offered was limited to the processing of paperwork attendant to the entry of
Sony’s goods. It denies that delivery of the shipment was a part of its obligation. It
maintains that it exercised the diligence of a good father of a family, and should be
absolved of liability because the truck was “hijacked,” and it was a fortuitous
event. BMT claimed that it had exercise extraordinary diligence over the lost
shipment, and argued as well that the loss resulted from a fortuitous event.
ISSUE: (1) Whether or not a brokerage may be considered as a common
carrier; (2) Whether or not hijacking is a fortuitous event.
HELD: Common carriers are persons, corporations, firms, or associations,
engaged in the business of transporting passengers, or goods, or both, by land,
water, or air, for compensation, offering their services to the public. By nature of
their business, and for reasons of public policy, they are bound to observe
extraordinary diligence in the vigilance over the goods, and in the safety of their
passengers. In A.F. Sanchez Brokerage, Inc. v. Court of Appeals, the Court held
that a custom broker, whose principal business is the preparation of the correct
customs declaration and the proper shipping documents, is still considered a
common carrier if it also undertakes to deliver the goods for its customers. The
law does not distinguish between one, whose principal business activity is the
carrying of goods, and one, who undertakes this task only as an ancillary activity.
This ruling has been reiterated in Schmitz Transport & Brokerage Corp. v.
Transport Venture, Inc.; Loadmasters Customs Services, Inc. v. Glodel
Brokerage Corporation; and, Westwind Shipping Corporation v. UCPB
General Insurance Co., Inc.

24
 CHAPTER I
PRELIMINARY
CONSIDERATIONS
Despite TMBI’s present denials, the Court finds that the delivery of the
goods is an integral, albeit ancillary, part of its brokerage services. TMBI
admitted that it was contracted to facilitate, process, and clear the shipments from
the customs authorities, withdraw them for the pier, then transport and deliver
them to Sony’s warehouse in Laguna. That TMBI does not own trucks and has to
subcontract the delivery of its client’s goods is immaterial. As long as an entity
holds itself to the public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has to actually
hire one. Lastly, TMBI’s customs brokerage services, including the
transport/delivery of the cargo, are available to anyone willing to pay its fees.
Given these circumstances, the Court finds it undeniable that TMBI is a common
carrier. Consequently, TMBI should be held responsible for the loss, destruction,
or deterioration of the goods it transports unless it results from five exemptions
under Article 1734 of the Civil Code.
For all other cases, such as theft or robbery, a common carrier is presumed
to have been at fault or to have acted negligently, unless it can prove that it
observed extraordinary diligence. Simply put, the theft or the robbery of the goods
is not considered a fortuitous event or a force majeure. Nevertheless, a common
carrier may absolve itself of liability for resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the goods; or
(2) if it stipulated with the shipper/owner of the goods to limit its liability for the
loss, destruction, or deterioration of the goods to a degree less than extraordinary
diligence. However, a stipulation diminishing or dispensing with the common
carrier’s liability for acts committed by thieves or robbers, who do not act with
grave or irresistible threat, violence, or force is void under Article 1745 of the
Civil Code for being contrary to public policy. Jurisprudence, too, has expanded
Article 1734’s five exemptions. De Guzman v. Court of Appeals interpreted
Article 1745 to mean that a robbery attended by “grave or irresistible threat,
violence or force” is a fortuitous event that absolves the common carrier from
liability.
In the present case, the shipper, Sony, engaged the services of TMBI, a
common carrier, to facilitate the release of its shipment and

25
 TRANSPORTATION LAWS

deliver the goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation, the delivery of the cargo, to another common carrier, BMT. Despite the
subcontract, TMBI remained responsible for the cargo. Under Article 1736, a
common carrier’s extraordinary responsibility over the shipper’s goods lasts from the
time these goods are unconditionally placed in the possession of, and received by, the
carrier for transportation, until they are delivered, actually or constructively, by the
carrier, to the consignee. That the cargo disappeared during the transit while under
the custody of BMT, TMBI’s subcontractor, did not diminish nor terminate TMBI’s
responsibility over the cargo. Article 1735 of the Civil Code presumes that it was at
fault. Instead of showing that it had acted with extraordinary diligence, TMBI simply
argued that it was not a common carrier bound to observe extraordinary diligence. Its
failure to successfully establish this premise carries with it the presumption of fault or
negligence, thus, rendering it liable to Sony/ Mitsui for breach of contract.
Specifically, TMBI’s current theory, that the hijacking was attended by force or
intimidation, is untenable.

ART. 1733. Common carriers, from the nature of their

business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods
is further expressed in Articles 1734,1735, and 1745, Nos. 5,6, and
7, while the extraordinary diligence for the safety of the passengers
is further set forth in Articles 1755 and 1756.

The law itself (Art. 1733) provides what kind of diligence is required of
common carriers. This is in view of the nature of the business of common carrier and
for reasons of public policy.
To overcome the presumption of negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. (Asia Litherage and Shipping, Inc. v. Court of Appeals,
409 SCRA 340, August 19, 2003)

26

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to fol low the required
precaution for avoiding damage to, or destruction of the goods entrusted to it for
sale, carriage and delivery. It requires common carriers to render service with
the greatest skill and foresight and “to use all reasonable means to ascertain the
nature and characteristic of goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature
requires.” (Compania Maritima v. Court of Appeals, 164 SCRA 685)
As a rule, the diligence required of every obligor is ordinary diligence,
i.e., diligence of a good father of a family. However, the requirement of proper
diligence may be controlled by law or stipulation of the parties (Art. 1163,
NCC), thus, the extraordinary diligence required of common carriers may be
limited by the parties themselves as Articles 1744 and 1748 provide.
Non-ownership of the vessel or vehicle use by the carrier does not render
ineffective observance of extraordinary diligence in the vigilance over the
goods and for the safety of passengers transported by the carrier.
“The fact that it did not own the vessel it decided to use to consummate
the contract of carriage did not negate its character and duties as a common
carrier. As a practical matter, it is very difficult and often impossible for the
general public to enforce its rights of action under a contract of carriage if it
should be required to know who the actual owner of the vessel is. To permit a
common carrier to escape its responsibility for the goods it agreed to transport
(by the expedient of alleging non-ownership of the vessel it employed) would
radically derogate from the carrier’s duty of extraordinary diligence. It would
also open the door to collusion between the carrier and the supposed owner and
to the possible shifting of liability from the carrier to one without any financial
capability to answer for the resulting damages.” (Cebu Salvage Corp. v.
Philippine Home Assurance Corp., 512 SCRA 667, January 25, 2007)

27
 TRANSPORTATION LAWS

For a vessel to be seaworthy, it must be adequately equipped

for the voyage and manned with a sufficient number of
competent officers and crew.

Loadstar Shipping Co., Inc. v. Court of Appeals

and the Manila Insurance Co., Inc.
G.R. No. 131621, September 28, 1999
FACTS: On November 19, 1984, LOADSTAR received on board
its M/V “Cherokee” (hereafter, the vessel) the following goods for
shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of moulding R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178 were insured for the same amount
with MIC against various risks including “TOTAL LOSS BY TOTAL LOSS
OF THE VESSEL.” The vessel, in turn, was insured by Prudential Guarantee &
Assurance, Inc. (hereafter PGAI) for P4 million. On November 20, 1984, on its
way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with
its cargo, sank off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with LOADSTAR, which, however, ignored the
same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its
claim and the latter executed a subrogation receipt therefore.
On February 4, 1985, MIC filed a complaint against LOADSTAR and
PGAI, alleging that the sinking of the vessel was due to the fault and negligence
of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay
the insurance proceeds from the loss of the vessel directly to MIC, said amount
to be deducted from MIC’s claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the
shipper’s goods and claimed that the sinking of its vessel was due to force
majeure. PGAI, on the other hand, averred that MIC had no cause of action
against it, LOADSTAR being the party insured. In any event,

28
 CHAPTER 1
PRELIMINARY CONSIDERATIONS

PGA1 was later dropped as a party defendant after it paid the insurance
proceeds to LOADSTAR.
The Regional Trial Court of Manila rendered judgment in favor
of MIC, prompting LOADSTAR to elevate the matter to the Court of
Appeals, which, however, agreed with the trial court and affirmed its
decision in toto.
ISSUE: Whether or not Loadstar observed due and/or ordinary
diligence in these premises.
HELD: M/V “Cherokee” was not seaworthy when it embarked
on its voyage on November 19, 1984. The vessel was not even
sufficiently manned at the time. “For a vessel to be seaworthy, it must
be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier
to maintain in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code.”
Neither do the Court agrees with LOADSTAR’S argument that the
8WCFU-

“limited liability” theory should be applied in this case. The doctrine of

limited liability does not apply where there was negligence on the part
c-£

of the vessel owner or agent. LOADSTAR was at fault or negligent in

not maintaining a seaworthy vessel and in having allowed its vessel
to sail despite knowledge of an approaching typhoon. In any event,
it did not sink because of any storm that may be deemed as force
majeure, inasmuch as the wind condition in the area where it sank was
determined to be moderate. Since it was remiss in the performance of its
duties, LOADSTAR cannot hide behind the “limited liability” doctrine
to escape responsibility for the loss of the vessel and its cargo.
Fault or Negligence; Proximate Cause, Defined

Sabena Belgian World Airlines v. Hon. Court of Appeals

and Ma. Paula San Agustin
G.R. No. 104685, March 14,1996
FACTS: On August 21, 1987, plaintiff was a passenger on board
Flight SN 284 of defendant airline originating from Casablanca to
29

J DIVERSITY OF THE CORDILLERAS |

 TRANSPORTATION LAWS

Brussels, Belgium, on her way back to Manila. Plaintiff checked in her luggage, which
contained her valuables, namely: jewelries valued at $2,350; clothes, $1,500;
shoes/bag, $150; accessories $75; luggage itself, $ 10.00; or a total of $4,265.00, for
which she was issued Tag No. 71423. She stayed overnight in Brussels and her luggage
was left on board Flight SN 284.
Plaintiff arrived at Manila International Airport on September 2, 1987 and
immediately submitted her Tag No. 71423 to facilitate the release of her luggage, but
the luggage was missing. She was advised to accomplish and submit a Property
Irregularity Report, which she submitted and filed on the same day.
She followed up her claim on September 14, 1987, but the luggage remained to
be missing.
On September 15, 1987, she filed her formal complaint with the Office of Ferge
Massed, defendant’s Local Manager, demanding immediate attention.
On September 30, 1987, on the occasion of plaintiff’s following up of her
luggage claim, she was furnished copies of defendant’s telexes with an information
that the Brussels’s Office of defendant found the luggage and that they have broken the
locks for identification. Plaintiff was assured by the defendant that it has notified its
Manila Office that the luggage will be shipped to Manila on October 27, 1987. But
unfortunately plaintiff was informed that the luggage was lost for the second time.
At the time of the filing of the complaint, the luggage with its contents had not
been found.
Plaintiff demanded from the defendant the money value of the luggage and its
contents amounting to $4,265 or its exchange value, but defendant refused to settle the
claim.
Defendant asserts in its Answer and its evidence tends to show that while it
admits that the plaintiff was a passenger on board Flight No. SN 284 with a piece of
checked in luggage bearing Tag No. 71423, the loss of the luggage was due to
plaintiff’s sole if not contributory negligence; that she did not declare the valuable
items in her checked

30
 CHAPTER I
PRELIMINARY CONSIDERATIONS

in luggage at the flight counter when she checked in for her flight from
Casablanca to Brussels so that either the representative of the defendant at the
counter would have advised her to secure an insurance on the alleged valuable
items and required her to pay additional charges, or would have refused
acceptance of her baggage as required by the generally accepted practices of
international carriers; that Section 9(a), Article IX of General Conditions of
carriage requiring passengers to collect their checked baggage at the place of
stopover, plaintiff neglected to claim her baggage at the Brussels Airport; that
plaintiff should have retrieved her undeclared valuables from her baggage at the
Brussels Airport since her flight from Brussels to Manila will still have to visit for
confirmation inasmuch as only her flight from Casablanca to Brussels was
confirmed; that defendant incorporated in all Sabena Plane Tickets, including
Sabena Ticket No. 082422-72502241 issued to plaintiff in Manila on August 21,
1987, a warning that “Items of value should be carried on your person” and that
some carriers assume no liability for fragile, valuable or perishable articles and
that further information may be obtained from the carrier for guidance; that
granting without conceding that defendant is liable, its liability is limited only to
US$20.00 per kilo due to plaintiff’s failure to declare a higher value on the
contents of her checked in luggage and pay additional charges thereon.
The trial court rendered judgment, ordering petitioner Sabena Belgian
World Airlines to pay private respondent Ma. Paula San Agustin — actual, moral,
and exemplary damages, and attorney’s fees. Said decision was affirmed in toto
by the Court of Appeals in its decision of February 27, 1992.
ISSUE: Whether or not there was negligence on the part of petitioner
airline.
HELD: Fault or negligence consists in the omission of that diligence
which is demanded by the nature of an obligation and corresponds with the
circumstances of the person, of the time, and of the place. When the source of an
obligation is derived from a contract, the mere breach or non-fulfillment of the
prestation gives rise to the presumption of fault on the part of the obligor. This
rule is no different in the case of common carriers in the carriage of goods, which
indeed,

31
 TRANSPORTATION LAWS

are bound to observe not just the due diligence of a good father of a family but
that of “extraordinary” care in the vigilance over the goods. The appellate
court has aptly observed:
“x x x Art. 1733 of the (Civil) Code provides that from the
very nature of their business and by reasons of public policy,
common carriers are bound to observe extraordinary diligence in
the vigilance over the goods transported by them. This
extraordinary responsibility, according to Art. 1736, lasts from the
time the goods are unconditionally placed in the possession of and
received by the carrier until they are delivered actually or
constructively to the consignee or person who has the right to
receive them. Article 1737 states that the common carriers duty to
observe extraordinary diligence in the vigilance over the goods
transported by them remains in full force and effect when they are
temporarily unloaded or stored in transit. And Art. 1735
establishes the presumption that if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they had
observed extraordinary diligence as required in Article 1733.
“The only exceptions to the foregoing extraordinary
responsibility of the common carrier is when the loss, destruction,
or deterioration of the goods is due to any of the following causes:
‘(1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
‘(2) Act of the public enemy in war, whether international or
civil;
‘(3) Act or omission of the shipper or owner of the goods;
‘(4) The character of the goods or defects in the packing or
in the containers;
‘(5) Order or act of competent public authority.
Not one of the above excepted causes obtains in this case. ”
The above rules remain basically unchanged even when the contract is
breached by tort although non-contradictory principles

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

on quasi-delict may then be assimilated as also forming part of the governing

law. Petitioner is not thus entirely off track when it has likewise raised in its
defense the tort doctrine of proximate cause. Unfortunately for petitioner,
however, the doctrine cannot, in this particular instance, support its case.
Proximate causes is that which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces injury and without which the result
would not have occurred.
Under domestic law and jurisprudence (the Philippines being the country
of destination), the attendance of gross negligence (given the equivalent of fraud
or bad faith) holds the common carrier liable for all damages, which can be
reasonably attributed, although unforeseen, to the non-performance of the
obligation, including moral and exemplary damages.

Spouses Dante Cruz and Leonora Cruz

v. Sun Holidays, Inc.
G.R. No. 186312, June 29, 2010
FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a
Complaint on January 25,2001 against Sun Holidays, Inc. (respondent) with the
Regional Trial Court (RTC) of Pasig City for damages arising from the death of
their son Ruelito C. Cruz (Ruelito), who perished with his wife on September
11, 2000 on board the boat M/B Coco Beach III that capsized en route to
Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at
Coco Beach Island Resort (Resort) owned and operated by respondent.
On September 11, 2000, as it was still windy, Miguel C. Matute
(Matute), a scuba diving instructor, and 25 other Resort guests including
petitioner’s son and wife trekked to the other side of the Coco Beach mountain
that was sheltered from the wind where they boarded M/B Coco Beach III,
which was to ferry them to Batangas. Shortly after the boat sailed, it started to
rain. As it moved farther away from Puerto Galera and into the open seas, the
rain and wind got stronger, causing the boat to tilt from side to side, and the
captain step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves, which came

33
 TRANSPORTATION LAWS

after the other, M/B Coco Beach III capsized, putting all passengers underwater.
The passengers, who had put on their lifejackets, struggled to get out of the boat.
Upon seeing the captain, Matute and the other passengers, who reached the
surface, asked him what they could do to save the people who were still trapped
under the boat. The captain replied, “Iligtas ninyo na lang ang sarili ninyo ”
(Just save yourselves).
At the time of Ruelito’s death, he was 28 years old and employed as a
contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd., in Saudi
Arabia, with a basic monthly salary for S900. Petitioners, by letter of October 26,
2000, demanded indemnification from respondent for the death of their son in the
amount of at least P4,000,000.
Replying, respondent denied any responsibility for the incident, which it
considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of PI0,000 to petitioners upon their signing of a
waiver.
By Decision of February 16, 2005, Branch 267 of the Pasig RTC dismissed
petitioners’ Complaint and respondent’s Counterclaim. Petitioner’s Motion for
Reconsideration, having been denied, they appealed to the Court of Appeals.
By Decision of August 19, 2008, the appellate court denied petitioners’
appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier, which is only required to observe ordinary
diligence; that respondent in fact observed extraordinary diligence in transporting
its guests on board M/B Coco Beach III; and that the proximate cause of the
incident was a squall, a fortuitous event.
ISSUE: Whether or not the respondent is a common carrier.
HELD: The petition is impressed with merit.
Indeed, respondent is a common carrier. Its ferry services are so intertwined
with its main business as to be properly considered ancillary thereto. The
constancy of respondent’s ferry services in its resort operations is underscored by
it having its own Coco Beach boats. And the tour packages it offers, which
include the ferry services, may

34
 CHAPTER F
PRELIMINARY CONSIDERATIONS

be availed of by anyone who can afford to pay the same. These services are thus
available to the public.
That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondent’s ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining “common
carriers” has deliberately refrained from making distinctions on whether the
carrying of persons or goods is the carrier’s principal business, whether it is
offered on a regular basis, or whether it is offered to the general public. The intent
of the law is thus to not consider such distinctions. Otherwise, there is no telling
how many other distinctions may be concocted by unscrupulous businessmen
engaged in the carrying of persons or goods in order to avoid the legal obligations
and liabilities of common carriers.
The evidence shows that PAGASA issued 24-hour public weather forecasts
and tropical cyclone warnings for shipping on September 10 and 11, 2000,
advising of tropical depressions in Northern Luzon, which would also affect the
province of Mindoro. By the testimony of Dr. Frisco Nilo, supervising weather
specialist of PAGASA, squalls are to be expected under such weather condition.
A very cautious person exercising the utmost diligence would thus not brave
such stormy weather and put other people’s lives at risk. The extraordinary
diligence required of common carriers demands that they take care of the goods or
lives entrusted to their hands as if they were their own. This respondent failed to do
so.

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 CHAPTER II

VIGILANCE OVER THE GOODS

ARTICLES 1734 to 1754

ARTICLE 1734. Common carriers are responsible for the Loss,

destruction, or deterioration of the goods, unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or
civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction
or deterioration, which exempts the common carrier for responsibility, therefore,
is a closed list. Causes falling outside the foregoing list even if they appear to
constitute specie of force majeure, fall within the scope of Article 1735. In other
words, if the goods are lost, destroyed, or deteriorated by causes other than those
mentioned in Article 1734, the common carrier must present clear and
convincing evidence that they are not negligent.
The general rule for fortuitous events provide that except in cases provided
by law, or when it is otherwise declared by stipulation or when the nature of the
obligation requires the assumption of risk, no person

36
 CHAPTER II
VIGILANCE OVER THE GOODS

shall be responsible for those events which could not be foreseen, or which though
foreseen, were inevitable. (Art. 1174, NCC)
In order that an obligor may be exempted from a breach of an obligation due
to caso fortuito or an Act of God, the following requisites must concur:
1. The cause of the breach of the obligation must be independent of the
will of the debtor;
2. The event must be unforeseen or unavoidable;
3. The event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and
4. The debtor must be free from any participation in, or aggravation of
the injury to the creditor.
Broadly speaking, force majeure generally applies to a natural accident,
such as that caused by a lightning, an earthquake, a tempest, or a public enemy.
Hence, fire is not considered a natural disaster or calamity.
This must be so as it arises almost invariably from some act of man or by
human means. It does not fall within the category of an act of God unless caused by
lightning or by other natural disaster or calamity. It may even be caused by the
actual fault or privity of the carrier. (Edgar Cokaliong Shipping Lines, Inc. v.
UCPB General Insurance Company, Inc., 404 SCRA 70, June 25, 2003)
Note: The principle embodied in the act of God doctrine strictly requires
that the act must be occasioned solely by the violence of nature. Human
intervention is to be excluded from creating or entering into the cause of the
mischief. When the effect is found to be in part the result of the participation of
man, whether due to his active intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the rules applicable to the acts of
God.
Common carrier presumed at fault or acted negligently in cases other
than those mentioned in Article 1734. Fire not considered a natural
disaster or calamity.

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 TRANSPORTATION LAWS

Eastern Shipping Lines, Inc. v. The Nisshin Fire

and Marine Insurance Co., and Dowa Fire
and Marine Insurance Co., Ltd.
No. L-71478, May 29, 1987
FACTS: Sometime in or prior to June 1977, the M/S Asiatica, a vessel
operated by petitioner Eastern Shipping Lines, Inc., took on board 128 cartons of
garment fabrics and accessories, in two containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises
and General Merchandise. The 128 cartons were insured for their stated value by
respondent Nisshin Fire & Marine Insurance Co., for US$46,583, and the two cases
by respondent Dowa Fire & Marine Insurance Co., Ltd., for US$11,385.
En route from Kobe, Japan, to Manila, the vessel caught fire and sank,
resulting in the total loss of ship and cargo. The respective respondent Insurers paid
the corresponding marine insurance.
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co.
(NISSHIN, for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for
brevity), as subrogees of the insured, filed suit against petitioner Carrier for the
recovery of the insured value of the cargo lost with then Court of First Instance of
Manila, Branch II (Civil Case No. 116151), imputing unseaworthiness of the ship
and non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which
caused the sinking of the ship is an exempting circumstance under Section 4(2)(b) of
the Carriage of Goods by Sea Act (COGSA); and that when the loss by fire is
established, the burden of proving negligence of the vessel is shifted to the cargo
shipper.
On September 15,1980, the Trial Court rendered judgment in favor of
NISSHIN and DOWA in the amounts of US$46,583 and US$11,385,
respectively, with legal interest, plus attorney’s fees of P5,000 and costs. On
appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed
with modification the Trial Court’s judgment by decreasing the amount
recoverable by DOWA to US$1,000 because of $500 per package limitation of
liability under the COGSA.

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 CHAPTER II
VIGILANCE OVER THE GOODS

ISSUE: Who has the burden of proof to show negligence of the carrier?
HELD: Under the Civil Code, common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over goods, according to all the circumstances of each
case. Common carriers are responsible for the loss, destruction, or deterioration of
the goods unless the same is due to any of the following causes only:
“(0 Flood, storm, earthquake, lightning or other natural disaster
calamity;

xxx xxx xxx

Petitioner Carrier claims that the loss of the vessel by fire exempts it from
liability under the phrase “natural disaster or calamity.” However, [W]e are of the
opinion that fire may not be considered a natural disaster or calamity. This must
be so as it arises almost invariably from some act of man or by human means. It
does not fall within the category of an act of God unless caused by lightning or by
other natural disaster or calamity. It may even be caused by the actual fault or
privity of the carrier.
As the peril of fire is not comprehended within the exceptions in Article
1734, supra, Article 1735 of the Civil Code provides that in all cases other than
those mentioned in Article 1734, the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.
In this case, the respective insurers, as subrogees of the cargo shippers,
have proven that the transported goods have been lost. Petitioner Carrier has also
proven that the loss was caused by fire. The burden then is upon Petitioner Carrier
to prove that it has exercised the extraordinary diligence required by law. In this
regard, the Trial Court, concurred in by the Appellate Court, made the following
finding of fact:
“The cargoes in question were, according to the witnesses
for the defendant, placed in hatches Nos. 2 and 3 of the vessel.

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 TRANSPORTATION LAWS

Boatswain Ernesto Pastrana noticed that smoke was coming out from Hatch
No. 2 and Hatch No. 3; that when the smoke was noticed, the fire was
already big; that the fire must have started twenty-four (24) hours before the
same was noticed; that carbon dioxide was ordered released and the crew
was ordered to open the Hatch Covers of No. 2 hold for commencement of
fire fighting by sea water; that all of these efforts were not enough to control
the fire.
“Pursuant to Article 1733, common carriers are bound to observe
extraordinary diligence in the vigilance over the goods. The evidence of the
defendant did not show that extraordinary vigilance was observed by the
vessel to prevent the occurrence of fire at hatches numbers 2 and 3.
Defendant’s evidence did not likewise show the amount of diligence made
by the crew, on orders, in the care of the cargoes. What appears is that after
the cargoes were stored in the hatches, no regular inspection was made as to
their condition during the voyage. Consequently, the crew could not have
even explain what could have caused the fire. The defendant, in the Court’s
mind, failed to satisfactorily show that extraordinary vigilance and care had
been made by the crew to prevent the occurrence of the fire. The defendant,
as a common carrier, is liable to the consignees for said lack of diligence
required of it under Article 1733 of the Civil Code.”
Having failed to discharge the burden of proving that it had exercised the
extraordinary diligence required by law, Petitioner Carrier cannot escape liability
for the loss of the cargo.
And even if fire were to be considered a “natural disaster” within the
meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the
same Code that the “natural disaster” must have been the “proximate and only
cause of the loss,” and that the carrier has “exercised due diligence to prevent or
minimize the loss before, during or after the occurrence of the disaster.” This
Petitioner Carrier has also failed to establish satisfactorily.

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 CHAPTER II
VIGILANCE OVER THE GOODS

Force majeure generally applies to a natural accident, such as that

caused by a lightning, earthquake, a tempest or a public enemy. Hence,
fire is not considered a natural disaster or calamity.

Edgar Cokaliong Shipping Lines, Inc. v. UCPB General

Insurance Company, Inc.
G.R. No. 146018, June 25, 2003
FACTS: Sometime on December 11, 1991, Nestor Angelia delivered to
the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong Shipping Lines)
petitioner for brevity, cargo consisting of one carton of Christmas decor and two
sacks of plastic toys to be transported on board the M/V Tandag on its Voyage
No. T-189 scheduled to depart from Cebu City, on December 12, 1991, for
Tandag, Surigao del Sur. Petitioner issued Bill of Lading No. 58, freight prepaid,
covering the cargo. Nestor Angelia was both the shipper and consignee of the
cargo valued, on the face thereof, in the amount of P6,500. Zosimo Mercado
likewise delivered [the] cargo to petitioner consisting of two cartons of plastic
toys and Christmas decor[s], one roll of floor mat, and one bundle of various or
assorted goods for transportation thereof from Cebu City to Tandag, Surigao del
Sur. Petitioner issued Bill of Lading No. 59 covering the cargo which, on the
face thereof, was valued in the amount of PI4,000. Under the Bill of Lading,
Zosimo Mercado was both the shipper and consignee of the cargo.
On December 12, 1991, Feliciana Legaspi insured the cargo covered by
Bill of Lading No. 59 with the UCPB General Insurance Co., Inc., respondent for
brevity, for the amount of P100,000 “against all risks” under Open Policy No.
002/91/254 for which she issued, by respondent, Marine Risk No. 18409 on said
date. She also insured the cargo covered by Bill of Lading No. 58 with
respondent, for the amount of P50,000, under Open Policy No. 002/91/254 on
the basis of which respondent issued Marine Risk No. 18410 on said date.
When the vessel left port, it had 34 passengers and assorted cargo on
board, including the goods of Legaspi. After the vessel had passed by the
Mandaue Mactan Bridge, fire ensued in the engine room, and despite earnest
efforts of the officers and crew of the vessel, the fire

41
 TRANSPORTATION LAWS

engulfed and destroyed the entire vessel resulting in the loss of the vessel and the
cargoes therein. The Captain filed the required Marine Protest. Shortly thereafter,
Feliciana Legaspi filed a claim, with respondent, for the value of the cargo
insured, which the respondent approved.
On July 14, 1992, respondent, as subrogee of Feliciana Legaspi, filed a
complaint anchored torts against petitioner with the Regional Trial Court of
Makati City, for the loss of the cargo alleging that the loss of the said cargo was
due to the negligence of the petitioner.
ISSUE: Whether or not the cause of the loss of the said cargoes was due to
force majeure.
HELD: Petitioner argues that the cause of the loss of the goods, subject of
this case, was force majeure. It adds that its exercise of due diligence was
adequately proven by the findings of the Philippine Coast Guard. The Court is not
convinced. The uncontroverted findings of the Philippine Coast Guard show that
the M/V Tandag sank due to a fire, which resulted from a crack in the auxiliary
engine fuel oil service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into flames. The crack was
located on the side of the fuel oil tank, which had a mere two-inch gap from the
engine room walling, thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the
fire could not have been caused by force majeure. Broadly speaking, force
majeure generally applies to a natural accident, such as that caused by lightning,
earthquake, a tempest, or a public enemy. Hence, fire is not considered a natural
disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court, the Court explained: “...This must be so as it arises almost invariably from
some act of man or by human means. It does not fall within the category of an act
of God unless caused by lighting or by other natural disaster or calamity. It may
even be caused by the actual fault or privity of the carrier.”
Article 1680 of the Civil Code, which considers fire as an extraordinary
fortuitous event refers to leases or rural lands where a reduction of the rent is
allowed when more than one-half of the fruits

42
 CHAPTER II
VIGILANCE OVER THE GOODS

have been lost due to such event, considering that the law adopts a protective policy
towards agriculture.
As the peril of fire is not comprehended within the exceptions in Article 1734,
supra, Article 1735 of the Civil Code provides that in all cases other than those
mentioned in Article 1734, the common carrier shall be presumed to have been at
fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.
(See also DSR Senator Lines v. Federal Phoenix Assurance Company,
Inc., 413 SCRA 14, October 7, 2003)
The Philippine American General Insurance Co., Inc.
v. Court of Appeals and Felman Shipping Lines
G.R. No. 116940, June 11,1997
FACTS: On July 6, 1983, Coca-Cola Bottlers Philippines, Inc. loaded on
board “MV Asilda,” a vessel owned and operated by respondent Felman Shipping
Lines (FELMAN), 7,500 cases of one- liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers
Philippines, Inc., Cebu.
The shipment was insured with petitioner Philippine American General
Insurance Co., Inc. (PHILAMGEN), under Marine Open Policy No. 100367-PAG.
“MV Asilda” left the port of Zamboanga in fine weather at 8:00 in the
evening of the same day. At around eight forty-five the following morning, July 7,
1983, the vessel sank in the waters of Zamboanga del Norte bringing down her entire
cargo with her, including the subject 7,500 cases of one-liter Coca-Cola softdrink
bottles.
On July 15, 1983, the consignee Coca-Cola Bottlers Philippines, Inc., Cebu
plant, filed a claim with respondent FELMAN for recovery of damages it sustained
as a result of the loss of its softdrink bottles that sank with “MV Asilda.” Respondent
denied the claim thus prompting the consignee to file an insurance claim with
PHILAMGEN which paid its claim ofP755,250.

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 TRANSPORTATION LAWS

Claiming its right of subrogation, PHILAMGEN sought recourse against

respondent FELMAN, which disclaimed any liability for the loss.
Consequently, on November 29, 1983 PHILAMGEN sued the shipowner for
sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of
“MV Asilda” and its cargo were due to the vessel’s unseaworthiness, as he was
put to sea in an unstable condition. It further alleged that the vessel was
improperly manned and that its offices were grossly negligent in failing to take
appropriate measures to proceed to a nearby port or beach after the vessel
started to list.
On February 28, 1992, the trial court rendered judgment in favor of
FELMAN. It ruled that “MV Asilda” was seaworthy when it left the port of
Zamboanga as confirmed by certificates issued by the Philippine Coast Guard
and the shipowner’s surveyor attesting to its seaworthiness. Thus, the loss of
the vessel and its entire shipment could only be attributed to either a fortuitous
event, in which case, no liability should attach unless there was a stipulation to
the contrary, or to the negligence of the captain and his crew, in which case,
Article 587 of the Code of Commerce should apply.
ISSUE: Whether or not “MV Asilda” was seaworthy when it left the port
of Zamboanga.
HELD: “MV Asilda” was unseaworthy when it left the port of
Zamboanga. In a joint statement, the captain as well as the chief mate of the
vessel confirmed that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases of
one-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty
carbon dioxide cylinders and an undetermined quantity of empty boxes for
fresh eggs. They loaded the empty boxes for eggs and about 500 cases of
Coca-Cola bottles on deck. The ship captain stated that around 4:00 in the
morning of July 7, 1983, he was awakened by the officer on duty to inform him
that the vessel had hit a floating log. At that time, he noticed that the weather
had deteriorated with strong southeast winds inducing big waves. After 30
minutes, he observed that the vessel was listing slightly to starboard and would
not correct itself despite the heavy rolling and pitching. He then ordered his
crew to shift

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 CHAPTER II
VIGILANCE OVER THE GOODS

the cargo from starboard to portside until the vessel was balanced. At about 7:00 in
the morning, the master of the vessel stopped the engine because the vessel was
listing dangerously to portside. He ordered his crew to shift the cargo back to the
starboard. The shifting of cargo took about an hour after which he rang the engine
room to resume full speed.
At around 8:45, the vessel suddenly listed to portside and before the captain
could decide on his next move, some of the cargos on deck were thrown overboard
and seawater entered the engine room and cargo holds of the vessel. At that
instance, the master of the vessel ordered his crew to abandon ship. Shortly,
thereafter, “MV Asilda” capsized and sank. He ascribed the sinking to the entry of
seawater through a hole in the hull caused by the vessel’s collision with a partially
submerged log.
The Court subscribes to the findings of the Elite Adjusters, Inc., and the
Court of Appeals that the proximate cause of the sinking of “MV Asilda” was its
being top-heavy. Contrary to the ship captain’s allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on deck. Several days
after “MV Asilda” sank, an estimated 2,500 empty Coca-Cola plastic cases were
recovered near the vicinity of the sinking. Considering that the ship’s hatches were
properly secured, the empty Coca-Cola cases recovered could have come only
from the vessel’s deck cargo. It is settled that carrying a deck cargo raises the
presumption of unseaworthiness unless it can be shown that the deck cargo will
not interfere with the proper management of the ship. However, in this case it was
established that “MV Asilda” was not designed to carry substantial amount of
cargo on deck. The inordinate loading of cargo on deck resulted in the decrease of
the vessel’s metacentric height thus making it unstable. The strong winds and
waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage
and as such merely contributed to its already unstable and unseaworthy condition.
ISSUE: Whether or not the limited liability under Article 587 of the Code
of Commerce should apply.
HELD: On the second issue, Article 587 of the Code of Commerce is not
applicable to the case at bar. Simply put, the ship agent is liable for the negligent
acts of the captain in the care of goods loaded on the

45
 TRANSPORTATION LAWS

vessel. This liability, however, can be limited through abandonment of the vessel,
its equipment and freightage as provided in Article 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held answerable
despite the abandonment, as where the loss or injury was due to the fault of the
shipowner and the captain. The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of shipowner’s liability, does not
apply to cases where the injury or average was occasioned by the shipowner’s own
fault. It must be stressed at this point that Article 587 speak only of situations
where the fault or negligence is committed solely by the captain where the
shipowner is likewise to be blamed, Article 587 will not apply, and such situation
will be covered by the provisions of the Civil Code on common carrier.
It was already established at the outset that the sinking of “MV Asilda” was
due to its unseaworthiness even at the time of its departure from the port of
Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on
deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such, FELMAN was equally negligent. It cannot,
therefore, escape liability through the expedient of filing a notice of abandonment
of the vessel by virtue of Article 587 of the Code of Commerce.
Under Article 1733 of the Civil Code, “common carriers, from the nature
of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case, x
x x” In the event of loss of goods, common carriers are presumed to have acted
negligently; FELMAN, the shipowner, was not able to rebut this presumption.

ART. 1735. In all cases other than those mentioned in Nos. 1,2,
3,4, and 5 of the preceding article, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733.
As previously discussed, the list of causes of loss, destruction and
deterioration, which exempt the common carrier from liability, is

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 CHAPTER 11
VIGILANCE OVER THE GOODS

a closed list. Hence, in all other cases, there is a presumption in law, which is
disputable in character that common carriers are at fault or have acted negligently
if the goods are lost, destroyed or deteriorated. It is incumbent, therefore, upon the
common carrier to prove that they observed extraordinary diligence in cases of
loss, destruction or deterioration of goods in all other cases other than those
mentioned in Article 1734. In other words, the burden of proof lies on the common
carriers.
The law provides that a common carrier is presumed to have been negligent
if it fails to prove that it exercised extraordinary vigilance over the goods it
transported. Ensuring the seaworthiness of the vessel is the first step in exercising
the required vigilance. (Edgar Cokaliong Shipping Lines, Inc. v. UCPB
General Insurance Company, Inc., 404 SCRA 706)

Sarkies Tours Philippines, Inc. v. Hon. Court of Appeals

and Dr. Elino G. Fortales, Marisol A. Fortales
and Fatima A. Fortales
G.R. No. 108897, October 2,1997
FACTS: On August 31, 1984, Fatima boarded petitioner’s De Luxe Bus
No. 5 in Manila on her way to Legaspi City. Her brother, Raul, helped her load
three pieces of luggage containing all of her optometry review books, materials
and equipment, trial lenses, trial contact lenses, passport and visa, as well as her
mother Marisol’s U.S. immigration (green) card, among other important
documents and personal belongings. Her belongings were kept in the baggage
compartment of the bus, but during a stopover at Daet, it was discovered that only
one bag remained in the open compartment. The others, including Fatima’s things,
were missing and might have dropped along the way. Some of the passengers
suggested retracing the route of the bus to try to recover the lost items, but the
driver ignored them and proceeded to Legaspi City.
Fatima immediately reported the loss to her mother who, in turn, went to
petitioner’s office in Legaspi City and later at its head office in Manila.
Petitioner, however, merely offered her PI,000 for each piece of luggage lost,
which she turned down. After returning to Bicol,

47
 TRANSPORTATION LAWS

disappointed but not defeated, mother and daughter asked assistance from the radio
stations and even from Philtranco bus drivers who plied the same route on August
31st. The effort paid off when one of Fatima’s bags was recovered. Marisol further
reported the incident to the National Bureau of Investigation’s field office in Legaspi
City and to the local police.
After more than nine months of fruitless waiting, respondents decided to file
the case below to recover the value of the remaining lost items, as well as moral and
exemplary damages, attorney’s fees, and expenses of litigation. They claimed that
the loss was due to petitioner’s failure to observe extraordinary diligence in the care
of Fatima’s luggage and that petitioner dealt with them in bad faith from the start.
Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon boarding its bus.
ISSUE: Whether or not petitioner is liable for the lost pieces of baggage and
damages.
HELD: Petitioner claims that Fatima did not bring any piece of luggage with
her, and even if she did, none was declared at the start of the trip. The documentary
and testimonial evidence presented at the trial, however, established that Fatima
indeed boarded petitioner’s De Luxe Bus No. 5 in the evening of August 31,1984,
and she brought three pieces of luggage with her, as testified by her brother Raul,
who helped her pack her things and load them on said bus. One of the bags was even
recovered by a Philtranco bus driver. In its letter dated October 1,1984, petitioner
tacitly admitted its liability by apologizing to respondents and assuring them that
efforts were being made to recover the lost items.
Petitioner’s receipt of Fatima’s personal luggage having been thus
established, it must now be determined if, as a common carrier, it is responsible for
their loss. Under the Civil Code, “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 xxx transported by them,” and this liability “last from the
time the goods are unconditionally placed in the possession of, and received

48
 CHAPTER II
VIGILANCE OVER THE GOODS

by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to x x x the person who has a right to receive
them,” unless the loss is due to any of the excepted causes under Article
1734 thereof.
The cause of the loss in the case at bar was petitioner’s negligence in
not ensuring that the doors of the baggage compartment of its bus were
securely fastened. As a result of this lack of care, almost all of the luggage
were lost, to the prejudice of the paying passengers. As the Court of Appeals
correctly observed:
“x x x. Where the common carrier accepted its passenger’s
baggage for transportation and even had it placed in the vehicle by its
own employee, its failure to collect the freight charge is the common
carrier’s own lookout. It is responsible for the consequent loss of the
baggage. In the instant case, defendant appellant’s employee even
helped Fatima Minerva Fortales and her brother load the
luggages/baggages in the bus baggage compartment, without making
that they be weighed, declared, receipted or paid for. Neither was this
required of the other passengers.”
Finally, petitioner questions the award of actual damages to
respondents. On this point, [W]e likewise agree with the trial and appellate
court’s conclusions. There is no dispute that of the three pieces of luggage of
Fatima, only one was recovered. The other two contained optometry books,
materials, equipment, as well as vital documents and personal belongings.
Respondents had to shuttle between Bicol and Manila in their efforts to be
compensated for the loss. During the trial, Fatima and Marisol had to travel
from the United States just to be able to testify. Expenses were also incurred
in reconstituting their lost documents. Under these circumstances, the Court
agrees with the Court of Appeals in awarding P30,000 for the lost items and
P30,000 for the transportation expenses, but disagrees with the deletion of
the award of moral and exemplary damages which, in view of the foregoing
proven facts, with negligence and bad faith on the part of petitioner having
been duly established, should be granted to respondents in the amount
ofP20,000 and P5,000 respectively.

49
 TRANSPORTATION LAWS

Mere proof of delivery of goods in good order to a carrier and the subsequent arrival of
the same goods at the place of destination in bad order makes of a prima facie case
against the carrier.

Coastwise Lighterage Corporation v. Court of Appeals

and Philippine General Insurance Company
G.R. No. 114167, July 12,1995
FACTS: Pag-asa Sales, Inc. entered into a contract to transport molasses from
the province of Negros to Manila with Coastwise Lighterage Corporation (Coastwise
for brevity), using the latter’s dump barges. The barges were towed in tandem by the
tugboat MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
“Coastwise 9,” struck an unknown sunken object. The forward buoyancy compartment
was damaged, and water gushed in through a hole “two inches wide and twenty-two
inches long.” As a consequence, the molasses at the cargo tanks were contaminated
and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa
Sales, Inc., to reject the shipment of molasses as a total loss. Thereafter, Pag-asa Sales,
Inc., filed a formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen) and against the carrier, herein
petitioner, Coastwise Lighterage. Coastwise Lighterage denied the claim and it was
PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of P700,000
representing the value of the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the
Regional Trial Court of Manila, seeking to recover the amount of P700,000 which it
paid to Pag-asa Sales, Inc., for the latter’s lost cargo. PhilGen now claims to be
subrogated to all the contractual rights and claims, which the consignee may have
against the carrier, which is presumed to have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise
Lighterage appeal to the Court of Appeals, the award was affirmed.

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 CHAPTER II
VIGILANCE OVER THE GOODS

ISSUE: Whether or not petitioner Coastwise Lighterage was transformed

into a private carrier, by virtue of the contract of affreightment which it entered
into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence to which a
private carrier is in turn bound?
HELD: On the issue, petitioner contends that the RTC and the Court of
Appeals erred in finding that it was a common carrier. It stresses the fact that it
contracted with Pag-asa Sales, Inc. to transport the shipment of molasses from
Negros Oriental to Manila and refers to this contract as a “charter agreement.” It
then proceeds to cite the case of Home Insurance Company v. American
Steamship Agencies, Inc. wherein this Court held: “x x x a common carrier
undertaking to carry a special cargo or chartered to a special person only becomes
a private carrier.”
Petitioner’s reliance on the aforementioned case is misplaced. In its
entirety, the conclusions of the court are as follows:
“Accordingly, the charter party contract is one of affreightment
SlooiK- c-f

over the whole vessel, rather than a demise. As such, the liability of the
shipowner for acts or negligence of its captain and crew, would remain in
the absence of stipulation.”
Although a charter party may transform a common carrier into a private
one, the same however is not true in a contract of affreightment on account of the
distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was
one of affreightment. The Court agrees. Pag-asa Sales, Inc., only leased three of
petitioner’s vessels, in order to carry cargo from one point to another, but the
possession, command and navigation of the vessels remained with petitioner
Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case,
Coastwise Lighterage, by the contract of affreightment, was not converted into a
private carrier, but remained a common carrier and was still liable as such.

51

i I-~N 1 1 i r~r> A C
 TRANSPORTATION LAWS

The law and jurisprudence on common carriers both hold that the mere
proof of delivery of goods in good order to carrier and the subsequent arrival of
the same goods at the place of destination in bad order makes for a prima facie
case against the carrier.
It follows then that the presumption of negligence that attaches to
common carriers, once the goods it transports are lost, destroyed or
deteriorated, applies to the petitioner. This presumption, which is overcome
only by proof of the exercise of extraordinary diligence, remained unrebutted
in this case.
Note: To understand this case better, see the distinction between contract
of affreightment and bareboat or demise charter contract on the notes on charter
party, infra.

Asian Terminals, Inc. v. Simon Enterprises, Inc.

G.R. No. 177116, February 27, 2013
FACTS: On November 25, 1995, Contiquincybunge Export Company
made another shipment to respondent and allegedly loaded on board the vessel
M/V “Tern” at the Port of Darrow, Louisiana, U.S.A. 3,300.000 metric tons of
U.S. Soybean Meal in Bulk for delivery to respondent at the Port of Manila.
The carrier issued its clean Berth Term Grain Bill of Lading.
On January 25, 1996, the carrier docked at the inner Anchorage, South
Harbor, Manila. The subject shipment was discharged to the receiving barges
of petitioner Asian Terminals, Inc. (ATI) and received by respondent, which,
however, reported receiving only 3,100.137 metric tons instead of the
manifested 3,300.000 metric tons of shipment. Respondent filed against
petitioner ATI and the carrier claim for the shortage of 199.863 metric tons,
estimated to be worth US$79,848.86 or P2,100,025, but its claim was denied.
Thus, on December 3, 1996, respondent filed with the Regional Trial
Court (RTC) of Manila an action for damages against the unknown owner of
the vessels M/V “Sea Dream” and M/V “Tern”, its local agent Inter-Asia
Marine Transport, Inc. and petitioner ATI alleging that it suffered losses
through the fault or negligence of the said defendants.

52
 CHAPTER II
VIGILANCE OVER THE GOODS

Respondent sought to claim damages plus attorney’s fees and costs of suit.

In their Answer, the unknown owner of the vessel M/V “Tern” and its
local agent Inter-Asia Marine Transport, Inc., prayed for the dismissal of the
complaint, alleging among others that because the bill of lading states that
the goods are carried on a “shipper’s weight, quantity, and quality unknown”
terms and on “all terms, conditions, and exceptions, as per charter party,
dated October 15,1995,” the vessel had no way of knowing the actual
weight, quantity, and quality of the bulk cargo when loaded at the port of
origin and the vessel had to rely on the shipper for such information.
On May 10, 2001, the Regional Trial Court (RTC) of Manila rendered
a Decision holding petitioner ATI and its co-defendants solidarily liable to
respondent for damages arising from the shortage, ordering defendants M/V
“Tern” Inter-Asia Marine Transport, Inc., and Asian Terminal Inc., jointly
and severally liable to pay plaintiff Simon Enterprises damages, attorney’s
fees, and costs of suit. The trial court found that respondent has established
that the losses/shortages were incurred prior to its receipt of the goods. As
such, the burden shifted to the carrier to prove that it exercised diligence as
required by law to prevent the loss, destruction, or deterioration. However,
the trial court held that the defendants failed to prove that they did so.
Not satisfied, the unknown owner of the vessel M/V “Tern” Inter- Asia
Marine Transport, Inc., and petitioner ATI, respectively, filed appeals to the
Court of Appeals (CA).
The CA affirmed the RTC Decision and held that there is no
justification to disturb the factual findings of the trial court, which are
entitled to respect on appeal as they were supported by substantial evidence.
ISSUE: Whether or not petitioner is liable for the shortage incurred in
the shipment of the goods to respondent.
HELD: Petitioner ATI is correct in arguing that the respondent failed
to prove that the subject shipment suffered actual shortage, as there was no
competent evidence to prove that it actually weighed 3,300 metric tons at the
port of origin.

53
 TRANSPORTATION LAWS

Though it is true that common carriers are presumed to have been at fault
or to have acted negligently if the goods transported by them are lost, destroyed,
or deteriorated, and that the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption, the plaintiff must
still, before the burden is shifted to the defendant, prove that the subject shipment
suffered actual shortage. This can only be done if the weight of the shipment at
the port of origin and its subsequent weight at the port of arrival have been
proven by a preponderance of evidence, and it can be seen that the former weight
is considerably greater than the latter weight, taking into consideration the
exceptions provided in Article 1734 of the Civil Code.
In this case, respondent failed to prove that the subject shipment suffered
shortage, for it was not able to establish that the subject shipment was weighted
at the port of origin at Darrow, Louisiana, U.S.A., and that the actual weight of
the said shipment was 3,300 metric tons.
The Berth Term Grain Bill of Lading states that the subject shipment was
carried with the qualification “Shipper’s weight, quantity, and quality unknown,”
meaning that it was transported with the carrier having been oblivious of the
weight, quantity, and quality of the cargo.

ART. 1736. The extraordinary responsibility of the common

carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without
prejudice to the provisions of Article 1738.

The above provision determines the period of time within which the
common carrier should observe extraordinary diligence in transporting the
goods.
There is no absolute obligation on the part of a carrier to accept a cargo.
Where a common carrier accepts a cargo for shipment for valuable
consideration, it takes the risk of delivering it in good condition as when it was
loaded. And if the fact of improper packing is known to the carrier or its
personnel, or apparent upon observation but it accepts the goods notwithstanding
such condition, it is not relieved of liability

54
 CHAPTER II
VIGILANCE OVER THE GOODS

for loss or injury resulting therefrom. (PAL v. Court of Appeals, G.R. No. 119706,
March 4, 1996)

Arrastre Operator and Stevedore Distinguished.

There is a distinction between an arrastre and a stevedore. Arrastre, a Spanish
word that refers to hauling of cargo, comprehends the handling of cargo on the wharf
or between the establishment of the consignee or shipper and the ship’s tackle. The
responsibility of the arrastre operator lasts until the delivery of the cargo to the
consignee. The service is usually performed by longshoremen. On the other hand,
stevedoring refers to the handling of the cargo in the holds of the vessel or between
the ship’s tackle and the holds of the vessel. The responsibility of the stevedore ends
upon the loading and stowing of the cargo in the vessel. A stevedore was only
charged with the loading and stowing of the cargoes from the pier to the ship’s cargo
hold; it was never the custodian of the shipment. A stevedore is not a common
carrier for it does not transport goods or passengers; it is not akin to a warehouseman
for it does not store goods for profit. The loading and stowing of cargoes would not
have a far-reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract and on
quasi-delict. The public policy considerations in legally imposing upon a common
carrier or a warehouseman a higher degree of diligence is not present in a
stevedoring outfit which mainly provides labor in loading and stowing of cargoes for
its clients. There is no specific provision of law that imposes a higher degree of
diligence than ordinary diligence for a stevedoring company or one who is charged
only with the loading and stowing of cargoes. (Mindanao Terminal and
Brokerage Service, Inc. v. Phoenix Assurance Co. of New York, McGee & Co.
Inc., G.R. No. 162467, May 8, 2009)
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 deposited 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. (Summa Ins. Corp. v. Court of
Appeals, 323 Phil. 214 [1996]) Handling cargo is mainly the arrastre operator’s

55
 TRANSPORTATION LAWS

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. In Firemans Fund Insurance Co. v. Metro Port
Services, Inc.9 182 SCRA 455, February 2, 1990, the Court explained the
relationship and responsibility of an arrastre operator to a consignee of a
cargo, to quote:
“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator. Since it is
the duty of the ARRASTRE to take good care of the goods that are
in its custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and
obligated to deliver the goods in good condition to the consignee.”
(Philippine First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc., etal.,
G.R. No. 165647, March 26, 2009)

The extraordinary responsibility of the common carrier lasts until

actual or constructive delivery of the cargoes to the consignee or to the
person who has a right to receive them.

Benito Macam v. Court of Appeals, China Ocean Shipping

Co. and/or Wallem Philippines Shipping, Inc.
G.R. No. 125524, August 25,1999
FACTS: On April 4, 1989, petitioner Benito Macam, doing business
under the name and style Ben-Mac Enterprises, shipped on board the
vessel Nen Jiang, owned and operated by respondent China Ocean
Shipping Co., through local agent respondent Wallem Philippines
Shipping, Inc. (WALLEM), 3,500 boxes of watermelon valued at
US$5,950 covered by Bill of Lading No. HKG 99012 and exported
through Letter of Credit No. HK 1031/30 issued by National Bank of
Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of
fresh mangoes with a value of US$14,273.46 covered by Bill of Lading
No. HKG 99013 and exported through Letter of Credit No. HK 1032/30
also issued by PAKISTAN BANK. The Bills

56
 CHAPTER II
VIGILANCE OVER THE GOODS

of Lading contained the following pertinent provision: “One of the Bills of

Lading must be surrendered duly endorsed in exchange for the goods or
delivery order.” The shipment was bound for Hongkong with PAKISTAN
BANK as consignee and Great Prospect Company of Kowloon, Hongkong
(hereinafter GPC) as notify party.
On April 6, 1989, per letter of credit requirement, copies of the bills of
lading and commercial invoices were submitted to petitioner’s depository
bank, Consolidated Banking Corporation (SOLIDBANK), which paid
petitioner in advance the total value of the shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was delivered by respondent
WALLEM directly to GPC, not to PAKISTAN BANK, and without the
required bill of lading having been surrendered. Subsequently, GPC failed to
pay PAKISTAN BANK such that the latter, still in possession of the original
bills of lading, refused to pay petitioner through SOLIDBANK. Since
SOLIDBANK already prepaid petitioner the value of the shipment, it
demanded payment from respondent WALLEM through five letters but was
refused. Petitioner was thus allegedly constrained to return the amount
involved to SOLIDBANK, and then demanded payment from respondent
WALLEM in writing but to no avail.
On September 25, 1991, petitioner sought collection of the value of
the shipment of US$20,223.46 or its equivalent of P546,033.42 from
respondents before the Regional Trial Court of Manila, based on delivery of
the shipment to GPC without presentation of the bills of lading and bank
guarantee.
Respondents contended that the shipment was delivered to GPC
without presentation of the bills of lading and bank guarantee per request of
petitioner himself because the shipment consisted of perishable goods.
ISSUE: Whether or not respondents are liable to petitioner for
releasing the goods to GPC without the bills of lading or bank guarantee.
HELD: The extraordinary responsibility of the common carriers lasts
until actual or constructive delivery of the cargoes to the consignee or to the
person who has a right to receive them. PAKISTAN BANK

57
 TRANSPORTATION LAWS

was indicated in the bills of lading as consignee whereas GPC was the notify
party. However, in the export invoices, GPC was clearly named as buyer/importer.
Petitioner also referred to GPC as such in his demand letter to respondent
WALLEM and in his complaint before the trial court. This premise draws us to
conclude that the delivery of the cargoes to GPC as buyer/importer which,
conformably with Article 1736 had, other than the consignee, the right to receive
them was proper.
Respondents submitted in evidence a telex dated April 5, 1989 as basis for
delivering the cargoes to GPC without the bills of lading and bank guarantee. The
telex instructed delivery of various shipments to the respective consignees without
need of presenting the bill of lading and bank guarantee per the respective
shipper’s request since “for prepaid shipt offt charges already fully paid.”
Petitioner was named therein as shipper and GPC as consignee with respect to Bill
of Lading Nos. HKG 99012 and HKG 99013.

Bill of Lading both as a receipt and a contract.

Samar Mining Company, Inc. v. Nordeutscher Lloyd
and C.F. Sharp and Company, Inc.
G.R. No. L-28673, October 23,1984
FA CTS: The case arose from an importation made by plaintiff, now
appellee, SAMAR MINING COMPANY, INC., of one crate Optima welded
wedge wire sieves through the M/S SCHWABENSTEIN, a vessel owned by
defendant-appellant NORDEUTSCHER LLOYD (represented in the Philippines
by its agent, C.R SHARP & CO., INC.), which shipment is covered by Bill of
Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC.
Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned
importation was unloaded and delivered in good order and condition to the bonded
warehouse of AMCYL. The goods were, however, never delivered to, nor
received by, the consignee at the port of destination — Davao.
When the letters of complaint sent to defendants failed to elicit the
desired response, consignee herein appellee, filed a formal claim for PI,691.93,
the equivalent of $424 at the prevailing rate of exchange at that time, against the
former, but neither paid. Hence, the filing of

58

J
 CHAPTER II
VIGILANCE OVER THE GOODS

the instant suit to enforce payment. Defendants-appellants brought in

AMCYL as third-party defendant.
The trial court rendered judgment in favor of plaintiff, ordering
defendants to pay the amount of PI,691.93 plus attorney’s fees and costs.
However, the Court stated that defendants may recoup whatever they may
pay plaintiff by enforcing the judgment against third-party defendant
AMCYL which had earlier been declared in default. Only the defendants
appealed from said decision.
Defendants-appellants now shirk liability for the loss of the subject
goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from ship in
Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in
the bill of lading, their responsibility for the cargo had ceased.
ISSUE: Whether or not the stipulation in the bill of lading exempting
the carrier from liability for loss of goods not in its actual custody, i.e., after
their discharge from the ship is a valid stipulation?
HELD: The Court finds merit in appellants’ stand. The validity of
stipulations in bills of lading exempting the carrier from liability for loss or
damage to the goods when the same are not in its actual custody has been
upheld by US in Phoenix Assurance Co., Ltd. v. United States Lines, 22
SCRA 674 (1968). Said case matches the present controversy not only as to
the material facts but more importantly, as to the stipulations contained in
the bill of lading concerned. As if to underline their awesome likeness, the
goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of
lading.
The stipulations in the bill of lading in the PHOENIX case which are
substantially the same as the subject stipulations before us, provides:
“The carrier shall not be liable in any capacity whatsoever
for any loss or damage to the goods while the goods are not in its
actual custody.

XXX XXX XXX

The carrier or master, in making arrangements with any person from
or in connection with all transshipping or forwarding

59
 TRANSPORTATION LAWS

of the goods or the use of any means of transportation or

forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and
without any other responsibility whatsoever or for the cost thereof
x x x (Par. 16).”
Finding the above stipulations not contrary to law, morals, good
customs, public order or public policy, [W]e sustained their validity.
Applying said stipulations as the law between the parties in the aforecited
case, the Court concluded that:
“x x x The short form Bill of Lading states in no uncertain
terms that the port of discharge of the cargo is Manila, but that the
same was to be transshipped beyond the port of discharge to
Davao City. Pursuant to the terms of the long form Bill of Lading,
appellee’s responsibility as a common carrier ceased the moment
the goods were unloaded in Manila; and in the matter of
transshipment. Appellee acted merely as an agent of the shipper
and consignee.”
Coming now to the case before us, [the Court] hold[s], that by the
authority of the above pronouncements, and in conformity with the
pertinent provisions of the New Civil Code, Section 11 of Bill of Lading
No. 18 and the third paragraph of Section 1 thereof are valid stipulations
between the parties insofar as goods while the same are not in the latter’s
actual custody.
The liability of the common carrier for the loss, destruction or
deterioration of goods transported from a foreign country to the
Philippines is governed primarily by the New Civil Code. In all matters
not regulated by said Code, the rights and obligations of common carriers
shall be governed by the Code of Commerce and by special laws. A
careful perusal of the provisions of the New Civil Code on common
carriers (Section 4, Title VIII, Book IV) directs our attention to Article
1736 thereof, which reads:
“Article 1736. The extraordinary responsibility of the com-
mon carrier lasts from the time the goods are unconditionally
placed in the possession, and received by the carrier for transpor-
tation until the same are delivered, actually or constructively, by

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VIGILANCE OVER THE GOODS

the carrier to the consignee, or to the person who has a right to receive them,
without prejudice to the provisions of Article 1738.”
Article 1738 referred to in the foregoing provisions runs, thus:
“Article 1738. The extraordinary liability of the common carrier
continues to be operative even during the time the goods are stored in a
warehouse of the carrier at the place of destination, until the consignee has
been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.”
There is no doubt that Art. 1738 finds no applicability to the instant case.
The said article contemplates a situation where the goods had already reached
their place of destination and are stored in the warehouse of the carrier. The
subject goods were still awaiting transshipment to their port of destination, and
were stored in the warehouse of a third party when last seen and/or heard of.
However, Article 1736 is applicable to the instant suit. Under said Article, the
carrier may be relieved of the responsibility for loss or damage to the goods upon
actual or constructive delivery of the same by the carrier to the consignee, or to
the person who has a right to receive them. In sales, actual delivery has been
defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized
by him to receive the goods as his representative for the purpose of custody or
disposal. By the same token, there is actual delivery in contracts for the transport
of goods when possession has been turned over to the consignee or to his duly
authorized agent and a reasonable time is given him to remove the goods. The
court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that
had developed between appellant and appellee in the course of the transactions
that gave birth to the present suit. Two undertakings appeared embodied and/or
provided for in the Bill of Lading in question. The first is For the Transport of
goods from Bremen, Germany to Manila. The second, The Transshipment of
the same goods from Manila to Davao, with appellant acting as agent of the
consignee.

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 TRANSPORTATION LAWS

At the hiatus between these two undertakings of appellant which is the moment
when the subject goods are discharged in Manila, its personality changes from
that carrier to that of agent of the consignee. Thus, the character of appellant’s
possession also changes, from possession in its own name as carrier, into
possession in the name of consignee as the latter’s agent. Such being the case,
there was in effect, actual delivery of the goods from appellant as earner to the
same appellant as agent of the consignee. Upon such delivery, the appellant, as
erstwhile carrier, ceases to be responsible for any loss or damage that may befall
the goods from that point onwards. This is the full import of Article 1736, as
applied to the case before us.
But even as agent of the consignee, the appellant cannot be made
answerable for the value of the missing goods. It is true that the transshipment of
the goods, which was the object of the agency, was not fully performed. However,
appellant had commenced said performance, the completion of which was aborted
by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud,
cannot be held responsible for the failure of the principal to accomplish the object
of the agency. The record fails to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the Philippines. Neither is there
any showing of notorious incompetence or insolvency on the part of AMCYL,
which acted as appellant’s substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines
being in full faith with the lawful stipulations of Bill of Lading No. 18 and in
conformity with the provisions of the New Civil Code on common carriers,
agency and contracts, they incur no liability for the loss of the goods in question.

Nedlloyd Lijnen B.V. Rotterdam and the East

Asiatic Co., Ltd. v. Glow Laks Enterprises, Ltd.
G.R. No. 156330, November 19, 2014
FACTS: On or about September 14, 1987, respondent loaded on board
M/V Scandutch at the Port of Manila a total of 343 cartons of garments, complete
and in good order for pre-carriage to the Port of

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Hongkong. The goods covered by Bill of Lading Nos. MHONX-2 and MHONX-3
arrived in good condition in Hongkong and was transferred to M/S Amethyst for
final carriage to Colon, Free Zone, Panama. Both vessels, M/S Scandutch and M/S
Amethyst, are owned by Nedlloyd represented in the Philippines by its agent, East
Asiatic. The goods, which were valued at US$53,640.00, were agreed to be
released to the consignee, Pierre Kasem, International, S.A., upon presentation of
the original copies of the covering of the bills of lading. Upon arrival of the vessel
at the Port of Colon on October 23,1987, petitioners purportedly notified the
consignee of the arrival of the shipments, and its custody was turned over to the
National Ports Authority in accordance with the laws, customs, regulations, and
practice of trade in Panama. By an unfortunate turn of events, however,
unauthorized persons managed to forge the covering bills of lading, and on the
basis of the falsified documents, the ports authority released the goods.
On July 16, 1988, respondent filed a formal claim with Nedlloyd for the
recovery of the amount of US$53,640 representing the invoice value of the
shipment but to no avail. Claiming that petitioners are liable for the misdelivery of
the goods, respondent initiated Civil Case No. 88-45595 before the Regional Trial
Court (RTC) of Manila, Branch 52, seeking for the recovery of the amount of
US$53,640, including the legal interest from the date of the first demand.
In disclaiming liability for the misdelivery of the shipments, petitioners
asserted in their Answer that they were never remiss in their obligation as a
common carrier and the goods were discharged in good order and condition into
the custody of the National Port Authority of Panama in accordance with the
Panamanian Law. They averred that they cannot be faulted for the release of the
goods to unauthorized persons, their extraordinary responsibility as a common
carrier having ceased at the time the possession of the goods were turned over to
the possession of the port authorities. On April 29,2004, the RTC rendered a
Decision, ordering the dismissal of the complaint but granted petitioners’
counterclaims. In effect, respondent was directed to pay petitioners the amount of
PI20,000 as indemnification for the litigation expenses incurred by the latter. In
releasing the common carrier from liability for the misdelivery of the goods, the
RTC ruled that Panama Law was duly

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proven during the trial and pursuant to the said statute, carriers of goods
destined to any Panama port of entry have to discharge their loads into the
custody of Panama Ports Authority to make effective government collection of
port dues, customs duties and taxes. The subsequent withdrawal effected by
unauthorized persons on the strength of falsified bills of lading does not
constitute misdelivery arising from the fault of the common carrier.
On appeal, the Court of Appeals reversed the findings of the RTC and
held that foreign laws were not proven in the manner provided by Section 24,
Rule 132 of the Revised Rules of Court, and therefore, it cannot be given full
faith and credit. For failure to prove the foreign law and custom, it is presumed
that foreign laws are the same as our local or domestic or internal law under the
doctrine of processual presumption. Under the New Civil Code, the discharge
of the goods into the custody of the ports authority therefore does not relieve
the common carrier from liability because the extraordinary responsibility of
the common carriers lasts until actual or constructive delivery of the cargoes to
the consignee or to the person who has the right to receive them. Absent any
proof that the notify party or the consignee was informed of the arrival of the
goods, the appellate court held that the extraordinary responsibility of common
carriers remains. Accordingly, the Court of Appeals directed the petitioners to
pay respondent the value of the misdelivered goods in the amount of
US$53,640.
ISSUE: Whether or not petitioners are liable for the misdelivery of goods
under Philippine law.
HELD: Under the rules of private international law, a foreign law must
be properly pleaded and proved as a fact. In the absence of pleading and proof,
the laws of the foreign country or state will be presumed to be the same as our
local or domestic law. This is known as processual presumption. While the
foreign law was properly pleaded in the case at bar, it was, however, proven not
in the manner provided by Section 24, Rule 132 of the Revised Rules of Court.
The decision of the RTC, which proceeds from a disregard of specific rules,
cannot be recognized.
It is explicitly required by Section 24, Rule 132 of the Revised Rules of
Court that a copy of the statute must be accompanied by a

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THE GOODS
certificate of the officer who has legal custody of the records, and a certificate
made by the secretary of the embassy or legation, consul general, consul, vice
consular, or by any officer in the foreign service of the Philippines stationed in the
foreign country, and authenticated by the seal of his office. The latter requirement
is not merely a technicality but is intended to justify the giving of full faith and
credit to the genuineness of the document in a foreign country. Certainly, the
deposition of Mr. Enrique Cajigas, a maritime law practitioner in the Republic of
Panama, before the Philippine Consulate in Panama, is not the certificate
contemplated by law. At best, the deposition can be considered as an opinion of an
expert witness who possess the required special knowledge on the Panamanian
laws but could not be recognized as proof of a foreign law, the deponent not being
the custodian of the statute who can guarantee the genuineness of the document
from a foreign country. To admit the deposition as proof of a foreign law is,
likewise, a disavowal of the rationale of Section 24, Rule 132 of the Revised
Rules of Court, which is to ensure authenticity of a foreign law and its existence
so as to justify its import and legal consequence on the event or transaction in
issue.
Article 1736. The extraordinary responsibility of the common carrier lasts
ffom 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 the right
to receive them, without prejudice to the provisions of Article 1738.
Article 1738. The extraordinary liability of the common carrier continues
to be operative even during the time the goods are stored in a warehouse of the
carrier at the place of destination, until the consignee has been advised of the
arrival of the goods and has had reasonable opportunity thereafter to remove them
or otherwise dispose of them.
Explicit is the rule under Article 1736 of the Civil Code that the
extraordinary responsibility of the common carrier begins ffom the time the goods
are delivered to the carrier. This responsibility remains in full force and effect
even when they are temporarily unloaded or stored in transit, unless the shipper or
owner exercises the right or stoppage in transitu, and terminates only after the
lapse of a reasonable time for the

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acceptance of the goods by the consignee or such other person entitled to receive
them. In this case, there is no dispute that the custody of the goods was never
turned over to the consignee or his agent but was lost into the hands of
unauthorized persons who secured possession thereof on the strength of falsified
documents. The loss or the misdelivery of the goods in the instant case gave rise to
the presumption that the common carrier is at fault or negligent.
A common carrier is presumed to have been negligent if it fails to prove
that it exercised extraordinary vigilance over the goods it transported. When the
goods shipped are either lost or arrived in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there need not
be an express finding of negligence to hold it liable. To overcome the presumption
of negligence, the common carrier must establish, by adequate proof, that it
exercised extraordinary diligence over the goods. It must do more than merely
show that some other party could be responsible for the damage.

ART. 1737. The common carrier’s duty to observe extraordinary

diligence in the vigilance over the goods remains in full force and effect
even when they are temporarily unloaded or stored in transit, unless the
shipper or owner has made use of the right of stoppage in transitu.

Remembering the law on sales, the right of stoppage in transitu is one of

the rights of an unpaid seller when he has part with the goods and the buyer is or
becomes insolvent. (See Arts. 1526[2] and 1530, NCC)
The effect of exercising the right of stopping the goods in transit is that the
unpaid seller is entitled to the possession of the goods as if he had never parted
with it. Thus, the responsibility of the common carrier is reduced to a mere bailee
or depository. Hence, it is no longer incumbent upon the common carrier to
observe extraordinary diligence but diligence of a good father of a family in
holding the goods.

ART. 1738. The extraordinary liability of the common carrier

continues to be operative even during the time the goods are stored in a
warehouse of the carrier at the place of destination, until the consignee
has been advised on the arrival of the goods and has had
 CHAPTER II
VIGILANCE OVER Tl IE GOODS

reasonable opportunity thereafter to remove them or otherwise

dispose of them.
TWO REQUISITES ARE NECESSARY TO AVOID LIABILITY OF
COMMON CARRIERS UNDER THIS ARTICLE, NAMELY:
1. Notice of arrival of the goods to consignee, his agents, or authorized
representative; and
2. Reasonable opportunity on the part of the consignee to remove the
goods or otherwise dispose of them.
This is a continuation of Article 1736 on the period of time within which
the common carrier should observe extraordinary diligence in transporting the
goods. Notice that even if the goods are stored in the warehouse of the carrier, at
the place of destination, the extraordinary responsibility of the common carrier
continues and only ceases when the consignee is notified of the arrival of the
goods and has had reasonable opportunity to remove the goods or dispose of
them.
No extraordinary diligence by the carrier could have prevented the loss
of the goods after they had been deposited in the Warehouse of the
Bureau of Customs.
Amparo Servando, Clara Uy Bico v. Philippine
Steam Navigation Co.
G.R. Nos. 36481-2, October 23,1982
FACTS: On November 6, 1963, appellees Clara Uy Bico and Amparo
Servando loaded on board the appellant’s vessel, FS-176, for carriage from
Manila to Pulupandan, Negros Occidental, the following cargoes, to wit:
Clara Uy Bico —
1,528 cavans of rice valued at P40,907;
Amparo Servando —
44 cartons of colored paper, toys and general merchandise valued at
PI,070.50;
as evidenced by the corresponding bills of lading issued by the appellant.

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Upon arrival of the vessel at Pulupandan in the morning of November 18,

1963, the cargoes were discharged, complete and in good order, unto the
warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the same
day, said warehouse was razed by a fire of unknown origin, destroying
appellees’ cargoes. Before the fire, however, appellee Uy Bico was able to take
delivery of 907 cavans of rice. Appellees’ claims for the value of said goods
were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision,
the decretal portion of which reads as follows:
“WHEREFORE, judgment is rendered as follows:
“1. In case No. 7354, the defendant is hereby ordered to pay the
plaintiff Amparo C. Servando the aggregate sum of PI,070.50 with legal
interest thereon from the date of the filing of the complaint until fully
paid, and to pay the costs.
“2. In case No. 7428, the defendant is hereby ordered to pay to
plaintiff Clara Uy Bico the aggregate sum of PI6,625.00 with legal
interest thereon from the date of the filing of the complaint until fully
paid, and to pay the costs.”
Article 1736 of the Civil Code imposes upon common carriers the duty to
observe extraordinary diligence from the moment the goods are unconditionally
placed in their possession “until the same are delivered, actually or
constructively, by the carrier to the consignee or to the person who has a right to
receive them, without prejudice to the provisions of Article 1738.”
The court a quo held that the delivery of the shipment in question to the
warehouse of the Bureau of Customs is not the delivery contemplated by Article
1736; and since the burning of the warehouse occurred before actual or
constructive delivery of the goods to the appellees, the loss is chargeable against
the appellant.
ISSUE: Whether or not the defendant carrier was liable in the light of the
provisions of Article 1736 in relation to Article 1738.

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HELD: There is nothing in the record to show that appellant carrier

incurred in delay in the performance of its obligation. It appears that
appellant had not only notified appellees of the arrival of their shipment,
but had demanded that the same be withdrawn. In fact, pursuant to such
demand, appellee Uy Bico had taken delivery of 907 cavans of rice before
the burning of the warehouse.
Nor can the appellant or its employees be charged with negligence.
The storage of the goods in the Customs warehouse pending withdrawal
thereof by the appellees was undoubtedly made with their knowledge and
consent. Since the warehouse belonged to and was maintained by the
government, it would be unfair to impute negligence to the appellant, the
latter having no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu
Biao Sontua v. Ossorio, where this Court held the defendant liable for
damages arising from a fire caused by the negligence of the defendant’s
employees while loading cases of gasoline and petroleum products. But
unlike in the said case, there is not a shred of proof in the present case that
the cause of the fire that broke out in the Custom’s warehouse was in any
way attributable to the negligence of the appellant or its employees. Under
the circumstances, the appellant is plainly not responsible.

CONCURRING OPINION
Under Article 1738 of the Civil Code, “the extraordinary liability of
the common carrier continues to be operative even during the time the
goods are stored in the warehouse of the carrier at the place of destination,
until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of
them.”
From the time the goods in question were deposited in the Bureau of
Customs’ warehouse in the morning of their arrival up to 2:00 in the
afternoon of the same day, when the warehouse was burned, Amparo C.
Servando and Clara Uy Bico, the consignees, have reasonable opportunity
to remove the goods. Clara had removed more than one- half of the rice
consigned to her.

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 TRANSPORTATION I.AWS

Moreover, the shipping company had no more control and responsibility over
the goods after they were deposited in the customs warehouse by the arrastre and
stevedoring operator.
No amount of extraordinary diligence on the part of the carrier could have
prevented the loss of the goods by fire, which was of accidental origin.
Under those circumstances, it would not be legal and just to hold the carrier
liable to the consignees for the loss of the goods. The consignees should bear the loss,
which was due to a fortuitous event.

ART. 1739. In order that the common carrier may be exempted

from responsibility, the natural disaster must have been the proximate and
only cause of the loss. However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and after the
occurrence of flood, storm, or other natural disaster in order that the
common carrier may be exempted from liability for the loss, destruction,
or deterioration of the goods. The same duty is incumbent upon the
common carrier in case of an act of the public enemy referred to in Article
1734, No. 2.

These provisions enumerate the requirements in order that the common

carrier may be exempted from any and all responsibilities as a result of the natural
disaster such as flood, storm, earthquake, lightning or other natural calamity:
1. The natural disaster must have been the proximate and only cause of
the loss;
2. The common carrier must have exercised due diligence to prevent or
minimize loss before, during, and after the occurrence of the natural
disaster; and
3. The common carrier has not negligently incurred in delay in
transporting the goods.

ART. 1740. If the common carrier negligently incurs in delay in

transporting the goods, a natural disaster shall not free such carrier from
responsibility.

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Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When the demand would be useless, as when the obligor has rendered
it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation, delay by the other
begins. (Art. 1169)
While it is true that common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt delivery,
unless such common carriers previously assume the obligation to deliver at a given
date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil 836 [1952]),
delivery of shipment or cargo should at least be made within a reasonable time.

Maersk Line v. Court of Appeals and Efren V. Castillo

G.R. No. 94761, May 17,1993

FACTS: On November 12,1976, private respondent ordered from Eli Lily,

Inc., of Puerto Rico through its Eli Lily, Inc.’s agent in the Philippines, Elanco
Products, 600,000 empty gelatin capsules for the manufacture of his
pharmaceutical products. The capsules were placed in six drums of 100,000
capsules each valued at US$1,668.71.
Through a Memorandum of Shipment (Exh. “B” AC GR CV No. 10340,
Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc., of

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 TRANSPORTATION LAWS

Puerto Rico advised private respondent as consignee that the 600,000 empty
gelatin capsules in six drums of 100,000 capsules each, were already shipped on
board MV “Anders Maerskline” under Voyage No. 7703 for shipment to the
Philippines via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc.,
specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were mishipped and diverted
to Richmond, Virginia, USA and then transported back to Oakland, California.
The goods finally arrived in the Philippines on June 10, 1977 or after two months
from the date specified in the memorandum. As a consequence, private
respondent as consignee refused to take delivery of the goods on account of its
failure to arrive on time.
Private respondent alleging gross negligence and undue delay in the
delivery of the goods filed an action before the court a quo for rescission of
contract with damages against petitioner and Eli Lilly, Inc., as defendants.
ISSUE: Whether or not petitioner negligently incurred in delay in the
delivery of the shipment.
HELD: An examination of the subject bill of lading (Exh. “1; ” AC GR
CVNo. 10340, Folder of Exhibits, p. 41) shows that the subject shipment was
estimated to arrive in Manila on April 3, 1977. While there was no special
contract entered into by the parties indicating the date of arrival of the subject
shipment, petitioner nevertheless, was very well aware of the specific date when
the goods were expected to arrive as indicated in the bill of lading itself. In this
regard, there arises no need to execute another contract for the purpose, as it
would be a mere superfluity.
In the case before [the Court], [W]e find that a delay in the delivery of the
goods spanning a period of two (2) months and seven (7) days fails way beyond
the realm of reasonableness. Described as gelatin capsules for use in
pharmaceutical products, subject shipment was delivered to, and left in, the
possession and custody of petitioner-carrier for transport to Manila via
Oakland, California. But through petitioner’s negligence

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was mishipped to Richmond, Virginia. Petitioner’s insistence that it cannot be

held liable for the delay finds no merit.

ART. 1741. If the shipper or owner merely contributed to the

loss, destruction or deterioration of the goods, the proximate cause
thereof being the negligence of the common carrier, the latter shall be
liable in damages, which, however, shall be equitably reduced.

Negligence is conduct that creates undue risk of harm to another. It is the

failure to observe that degree of care, precaution and vigilance that the
circumstances justly demand, whereby that other person suffers injury. (Smith
Bell Dodwell Shipping Agency Corporation v. Borja, 383 SCRA 341, June
10, 2002)
“Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something, which a prudent and reasonable
man would not do.” Proximate cause is “that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred.” (Raynera v.
Hiceta, 306 SCRA 102)
Proximate cause is determined on the facts of each case upon mixed
considerations of logic, common sense, policy, and precedent. (Philippine Bank
of Commerce v. Court of Appeals, 269 SCRA 695, [1995])
Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below the
standard to which he is required to conform for his own protection. (Valenzuela
v. Court of Appeals, 253 SCRA 303, citing Prosser and Keaton on Torts)
Contributory negligence is the act or omission amounting to want of
ordinary care on the part of the complaining party which concurring with
defendant’s negligence is proximate cause of injury. (Honaker v. Krutchfield,
247Ky. 495, 57 S.W 2d502 cited in Black s Law Dictionary, Centennial Ed.)

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Contributory negligence of the shipper or owner of goods is a

mitigating circumstance on the part of the common carrier. That is to
say, the damages recoverable from the common carrier should be
equitably reduced by the Court.

Tabacalera Insurance Co., etal. v. North Front

Shipping Services, Inc. and Court of Appeals
G.R. No. 119197, May 16,1997
FACTS: On August 2, 1990, 20,234 sacks of com grains valued at
P3,500,640 were shipped on board North Front 777, a vessel owned by North
Front Shipping Services, Inc. The cargo was consigned to Republic Flour Mills
Corporation in Manila under Bill of Lading No. 001 and insured with the herein
mentioned insurance companies. The vessel was inspected prior to actual loading
by representatives of the shipper and was found fit to carry the merchandise. The
cargo was covered with tarpaulins and wooden boards. The hatches were sealed
and could only be opened by representatives of Republic Flour Mills
Corporation.
The vessel left Cagayan de Oro City on August 2,1990 and arrived
Manila on August 16, 1990. Republic Flour Mills Corporation was advised of its
arrival but it did not immediately commence the unloading operations. There
were days when unloading had to be stopped due to variable weather conditions
and sometimes for no apparent reason at all. When the cargo was eventually
unloaded there was a shortage of 26.333 metric tons. The remaining merchandise
was already moldy, rancid, and deteriorating. The unloading operations were
completed on September 5, 1990 or 20 days after the arrival of the barge at the
wharf of Republic Flour Mills Corporation in Pasig City.
Precision Analytical Services, Inc., was hired to examine the com grains
and determine the cause of deterioration. A Certificate of Analysis was issued
indicating that the corn grains had 18.56% moisture content and the wetting was
due to contact with salt water. The mold growth was only incipient and not
sufficient to make the com grains toxic and unfit for consumption. In fact, the
mold growth could still be arrested by drying.

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Republic Flour Mills Corporation rejected the entire cargo and formally
demanded from North Front Shipping Services, Inc., payment for the damages
suffered by it. The demands, however, were unheeded. The insurance companies
were perforce obliged to pay Republic Flour Mills Corporation P2,189,433.40.
By virtue of the payment made by the insurance companies, they were
subrogated to the rights of Republic Flour Mills Corporation. Thus, they lodged a
complaint for damages against North Front Shipping Services, Inc., claiming that
the loss was exclusively attributable to the fault and negligence of the carrier. The
Marine Cargo Adjusters hired by the insurance companies conducted a survey and
found cracks in the bodega of the barge and heavy concentration of molds on the
tarpaulins and wooden boards. They did not notice any seal in the hatches. The
tarpaulins were not brand new as there were patches on them, contrary to the
claim of North Front Shipping Services, Inc., thus making it possible for water to
seep in. They also discovered that the bulkhead of the barge was rusty.
North Front Shipping Services, Inc., averred in refutation that it could not
be made culpable for the loss and deterioration of the cargo, as it was never
negligent. Captain Solomon Villanueva, master of vessel, reiterated that the barge
was inspected prior to the actual loading and was found adequate and seaworthy.
In addition, they were issued a permit to sail by the Coast Guard. The tarpaulins
were doubled and brand new and hatches were properly sealed. They did not
encounter big waves hence it was not possible for water to seep in. He further
averred that the com grains were farm wet and not properly dried when loaded.
The court below dismissed the complaint and ruled that the contract
entered into between North Front Shipping Services, Inc., and Republic Flour
Mills Corporation was a charter-party agreement. As such, only ordinary
diligence in the care of goods was required of North Front Shipping Services, Inc.
ISSUE: Whether or not North Front Shipping Services, Inc., is a common
carrier and in the negative are required only to exercise ordinary diligence.

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HELD: North Front Shipping Services, Inc., is a corporation engaged in the

business of transporting cargo and offers it services indiscriminately to the public.
It is, without doubt, a common carrier. As such it is required to observe
extraordinary diligence in its vigilance over the goods it transports. When goods
placed in its care are lost or damaged, the carrier is presumed to have been at fault
or to have acted negligently. North Front Shipping Services, Inc., therefore has the
burden of proving that it observed extraordinary diligence in order to avoid
responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the vessel was inspected
prior to actual loading by representatives of the shipper and was found fit to take a
load of com grains. They were also issued Permit to Sail by the Coast Guard. The
master of the vessel testified that the com grains were farm wet when loaded.
However, this testimony was disproved by the clean bill of lading issued by North
Front Shipping Services, Inc., which did not contain a notation that the com grains
were wet and improperly dried. Having been in the service since 1968, the master
of the vessel would have known at the outset that com grains that were farm wet
and not properly dried would eventually deteriorate when stored in sealed and hot
compartments as in hatches of a ship. Equipped with this knowledge, the master of
the vessel and his crew should have undertaken precautionary measures to avoid or
lessen the cargo’s possible deterioration, as they were presumed knowledgeable
about the nature of such cargo. But none of such measures was taken.
In Compania Maritima v. Court of Appeals, the Court mled —

“x x x Mere proof of delivery of the goods in good order to a common

carrier, and of their arrival at the place of destination in bad order, makes
outprima facie case against the common carrier, so that if no explanation is
given as to how the loss, deterioration or destruction of the goods occurred,
the common carrier must be held responsible. Otherwise stated, it is
incumbent upon the common carrier to prove that the loss, deterioration or
destruction was due to accident or some other circumstances inconsistent
with its liability.”
In fine, the Court finds that the carrier failed to observe the required
extraordinary diligence in the vigilance over the goods placed in its

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care. The proofs presented by North Front Shipping Services, Inc., were
insufficient to rebut the prima facie presumption of private respondent’s
negligence, more so if we consider the evidence adduced by petitioners.
However, the Court cannot attribute the destruction, loss, or
deterioration of the cargo solely to the carrier. The Court finds the
consignee Republic Flour Mills Corporation guilty of contributory
negligence. It was seasonably notified of the arrival of the barge but did not
immediately start the unloading operations. No explanation was proffered
by the consignee as to why there was a delay of six days. Had the unloading
been commenced immediately, the loss could have been completely
avoided or at least minimized. As testified to by the chemist who analyzed
the com samples, the mold growth was only at its incipient stage and could
still be arrested by drying. The com grains were not yet toxic or unfit for
consumption. For its contributory negligence, Republic Mills Corporation
should share at least 40% of the loss.
ART. 1742. Even if the loss, destruction, or deterioration of
the goods should be caused by the character of the goods, or the
faulty nature of the packing or of the containers, the common
carrier must exercise due diligence to forestall or lessen the loss.
“Defect” is the want or absence of something necessary for
completeness or perfection; a lack or absence of something essential to
completeness; a deficiency in something essential to the proper use for the
purpose for which a thing is to be used. On the other hand, “inferior”
means of poor quality, mediocre, or second rate. A thing may be of inferior
quality but not necessarily defective. In other words, “defectiveness ” is
not synonymous with “inferiority.”
The statement in the Bill of Lading, that the shipment was in
apparent good condition, is sufficient to sustain a finding of absence of
defects in the merchandise. Case law has it that such statement will create a
prima facie presumption only as to the external condition and not to that
not open to inspection. (Philippine Charter Insurance Corp. v.
Unknown Owner of Vessel MZV National Honor, 463 SCRA 202, July
8, 2005)

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 TRANSPORTATION LAWS

To exempt the common carrier from liability, it must still exercise due
diligence to forestall or lessen the loss caused by the character of the goods or
faulty7 nature of the packing or of the containers.
For this provision to apply, the rule is that if the improper packing or, in
this case, the defect/s in the container, is/are known to the carrier or his employees
or apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of
liability for damage resulting therefrom. (Calvo v. UCPB General Insurance
Company, Inc., 379 SCRA 510, March 19, 2002)
Even if the fact of improper packing was known to the carrier or its crew
or was apparent upon ordinary observation, it is not relieved of liability for loss or
injury resulting therefrom, once it accepts the goods notwithstanding such
condition. (Belgian Overseas Chartering and Shipping N. V. v. Philippine
First Insurance Company, Inc., 383 SCRA 23)
In Iron Bulk Shipping Philippines Company, Ltd. v. Remington
Industrial Sales Corporation, 417 SCRA 229, December 8, 2003, it was held
that under Article 1742 of the Civil Code, even if the loss, destruction, or
deterioration of the goods should be caused, among others, by the character of the
goods, the common carrier must exercise due diligence to forestall or lessen the
loss. This extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them. In the
instant case, if the carrier indeed found the steel sheets to have been covered by
rust at the time that it accepted the same for transportation, such finding should
have prompted it to apply additional safety measures to make sure that the cargo
is protected from corrosion. This, the carrier failed to do.

ART. 1743. If through the order of public authority the goods are
seized or destroyed, the common carrier is not responsible, provided
said public authority had power to issue the order.

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The power to issue the order of the public authority is evidentiary in

nature. Hence, to exempt the common carrier from any liability it is incumbent
upon the common carrier to prove that the public authority had the power to issue
that order.

Intervention of municipal officials, not of a character that would render

impossible the fulfillment by the carrier of its obligations.
Mauro Ganzon v. Court of Appeals
and Gelacio Tumambing
G.R. No. L-48757, May 30, 1988
FACTS: On November 28, 1956, Gelacio Tumambing contracted the
services of Mauro B. Ganzon to haul 305 tons of scrap iron from Mariveles,
Bataan, to the port of Manila on board the lighter LCT “Batman.” Pursuant to this
agreement, Mauro B. Ganzon sent his lighter “Batman” to Mariveles where it
docked in three feet of water. On December 1, 1956, Gelacio Tumambing
delivered the scrap iron to defendant Filomeno Niza, captain of the lighter, for
loading which was actually begun on the same date by the crew of the lighter
under the captain’s supervision. When about half of the scrap iron was already
loaded, Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded
P5,000 from Gelacio Tumambing. The latter resisted the shakedown and after a
heated argument between them, Mayor Jose Advincula drew his gun and fired at
Gelacio Tumambing. The gunshot was not fatal but Tumambing had to be taken
to a hospital in Balanga, Bataan, for treatment.
After sometime, the loading of the scrap iron was resumed. But on
December 4, 1956, Acting Mayor Basilio Rub, accompanied by three policemen,
ordered captain Filomeno Niza and his crew to dump the scrap iron where the
lighter was docked. The rest was brought to the compound of NASSCO. Later
on, Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles
had taken custody of the scrap iron.
On the basis of the above findings, the respondent Court rendered a
decision which reversed and set aside the decision of the trial court and a new one
entered ordering defendant-appellee Mauro Ganzon to pay

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plaintiff-appellant Gelacio E. Tumambing the sum of P5,895 as actual damages,

the sum of P5,000 as exemplary damages, and the amount of P2,000 as attorney’s
fees. Costs against defendant-appellee Ganzon.
ISSUE: Whether or not the dumping of the scrap iron into the sea that was
ordered by the local government official a fortuitous event.
HELD: The petitioner has failed to show that the loss of the scraps was
due to any of the following causes enumerated in Article 1734 of the Civil Code,
namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
Hence, the petitioner is presumed to have been at fault or to have acted
negligently. By reason of this presumption, the court is not even required to make
an express finding of fault or negligence before it could hold the petitioner
answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he observed
extraordinary diligence in the vigilance over the goods in his custody, according
to all the circumstances of the case, or that the loss was due to an unforeseen event
or to force majeure. As it was, there was hardly any attempt on the part of the
petitioner to prove that he exercised such extraordinary diligence.
It is in the second and third assignments of error where the petitioner
maintains that he is exempt from any liability because the loss of the scraps was
due mainly to the intervention of the municipal officials of Mariveles, which
constitutes a caso fortuito as defined in Article 1174 of the Civil Code.
We cannot sustain the theory of caso fortuito. In the courts below, the
petitioner’s defense was that the loss of the scraps was due to an

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“order or act of competent public authority,” and this contention was correctly
passed upon by the Court of Appeals.
Now the petitioner is changing his theory to caso fortuito. Such a
change of theory on appeal [W]e cannot, however, allow. In any case, the
intervention of the municipal officials was not of a character that would render
impossible the fulfillment by the carrier of its obligation.
The petitioner was not duty bound to obey the illegal order to dump into the sea
the scrap iron. Moreover, there is absence of sufficient proof that the issuance
of the same order was attended with such force or intimidation as to completely
overpower the will of the petitioner’s employees. The mere difficulty in the
fulfillment of the obligation is not considered force majeure. We agree with
the private respondents that the scraps could have been properly unloaded at
the shore or at the NASSCO compound, so that after the dispute with the local
officials concerned was settled, the scraps could then be delivered in
accordance with the contract of carriage.

DISSENTING OPINION
It is my view that petitioner cannot be held liable in damages for the loss
and destruction of the scrap iron. The loss of said cargo was due to an excepted
cause — an “order or act of competent public authority.” (Art. 1734[5], Civil
Code)
The loading of the scrap iron on the lighter had to be suspended because of
Municipal Mayor Jose Advincula’s intervention, who was a “competent public
authority.” Petitioner had no control over the situation as, in fact, Tumambing
himself, the owner of the cargo, was impotent to stop the “act” of said official
and even suffered a gunshot wound on the occasion.
When loading was resumed, this time it was Acting Mayor Basilio Rub,
accompanied by three policemen, who ordered the dumping of the scrap iron into
the sea right where the lighter was docked in three feet of water. Again, could the
captain of the lighter and his crew have defied said order?
Through the “order” or “act” of “competentpublic authority,” therefore,
the performance of a contractual obligation was rendered

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impossible. The scrap iron that was dumped into the sea was “destroyed” while the
rest of the cargo was “seized.” The seizure is evidenced by the receipt issued by
Acting Mayor Rub stating that the Municipality of Mariveles had taken custody of
the scrap iron. Apparently, therefore, the seizure and destruction of the goods was
done under legal process or authority so that petitioner should be freed from
responsibility.

“Art. 1743. If through order of public authority the goods

are seized or destroyed, the common carrier is not responsible,
provided said public authority had power to issue the order.”

ART. 1744. A stipulation between the common carrier and the

shipper or owner limiting the liability of the former for the loss,
destruction, or deterioration of the goods to a degree less than
extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service
rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.

The degree of diligence less than that of extraordinary diligence referred to

in this article is no less than ordinary diligence or the diligence of a good father of
a family. Otherwise, it will fall under Article 1745(4), which is considered as
unreasonable, unjust and contrary to public policy.
The writing material referred to in paragraph (1) is not specified, hence, it
can be on paper or other substitute writing material as the law does not
distinguished. Under paragraph No. (2), the valuable consideration can be the
lesser fare or freightage chargeable to the shipper or owner of the goods. Discounts
are likewise valuable consideration.
Reference should be made to the provisions of Articles 1745,1746, and
1751 to determine whether the agreement between the common carrier and the
shipper or owner of the goods is reasonable, just and not contrary to public
policy.

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ART. 1745. Any of the following or similar stipulations shall he

considered unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or
shipper;
(2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in
the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence
less than that of a good father of a family, or of a man of ordinary
prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts
or omissions of his or its employees;
(6) That the common carrier’s liability for acts committed by
thieves, or of robbers who do not act with grave or irresistible threat,
violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss,
destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment used in
the contract of carriage.
The law itself provides that the above stipulations are unreasonable, unjust
and contrary to public policy.
A stipulation that the cargo was being shipped at “owner’s risk” is null
and void and contrary to public policy.
Loadstar Shipping Co., Inc. v. Court of Appeals
and the Manila Insurance Co., Inc.
G.R. No. 131621, September 28, 1999
FACTS: On November 19, 1984, LOADSTAR received on board its M/V
“Cherokee” (hereafter, the vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;

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b) 27 boxes and crates of tilewood assemblies and others; and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount
with MIC against various risks including “Total loss by total loss of the vessel.
” The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc.
(hereafter PGAI) for P4 million. On November 20, 1984, on its way to Manila
from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank
off Limasawa Islands. As a result of the total loss of its shipment, the consignee
made a claim with LOADSTAR, which, however, ignored the same. As the
insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the
latter executed a subrogation receipt therefore.
On February 4, 1985, MIC filed a complaint against LOADSTAR and
PGAI, alleging that the sinking of the vessel was due to the fault and negligence
of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the
insurance proceeds from the loss of the vessel directly to MIC, said amount to be
deducted from MIC’s claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the
shipper’s goods and claimed that the sinking of its vessel was due to force
majeure. PGAI, on the other hand, averred that MIC had no cause of action
against it, LOADSTAR being the party insured. In any event, PGAI was later
dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
The Regional Trial Court of Manila rendered judgment in favor of MIC,
prompting LOADSTAR to elevate the matter to the Court of Appeals, which,
however, agreed with the trial court and affirmed its decision in toto.
In dismissing LOADSTAR’S appeal, the appellate court observed that
between MIC and LOADSTAR, the provisions bind only the shipper/consignee
and the carrier. When MIC paid the shipper for the goods insured, it was
subrogated to the latter’s right as against the carrier, LOADSTAR.

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LOADSTAR goes on to argue that, being a private carrier, any agreement

limiting its liability, such as what transpired in this case, is valid. Since the cargo
was being shipped at “owner’s risk,” LOADSTAR was not liable for any loss or
damage to the same. Therefore, the Court of Appeals erred in holding that the
provisions of the bills of lading apply only to the shipper and the carrier, and not to
the insurer of the goods, which conclusion runs counter to the Supreme Court’s
ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray &
Co., Inc. and National Union Fire Insurance Company of Pittsburg v. Stolt-
Nielsen Phils., Inc.
ISSUE: Whether the stipulation in the bill of lading that the cargo was
being shipped at owner’s risk is valid.
HELD: LOADSTAR also claims that the Court of Appeals erred in
holding it liable for the loss of the goods, in utter disregard of this Court’s
pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc.
and National Union Fire Insurance v. Stolt- Nielsen Phils., Inc. It was ruled in
these two cases that after paying the claim of the insured for damages under the
insurance policy, the insurer is subrogated merely to the rights of the assured, that
is, it can recover only the amount that may, in turn, be recovered by the latter.
Since the right of the assured in case of loss or damage to the goods is limited or
restricted by the provisions in the bills of lading, a suit by the insurer as subrogee
is necessarily subject to the same limitations and restrictions. We do not agree. In
the first place, the cases relied on by LOADSTAR involved a limitation on the
carrier’s liability to an amount fixed in the bill of lading, which the parties may
enter into, provided that the same was freely, and fairly agreed upon. (Arts.
1749-1750) On the other hand, the stipulation in the case at bar effectively
reduces the common carrier’s liability for the loss or destruction of the goods to a
degree less than extraordinary (Arts. 1744 and 1745), that is, the carrier is not
liable for any loss or damage to shipments made at “owner’s risk.” Such
stipulation is obviously null and void for being contrary to public policy. Since the
stipulation in question is null and void, it follows that when MIC paid the shipper,
it was subrogated to all the rights, which the latter has against the common carrier,
LOADSTAR.

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Under Article 1745(6), a common carrier is held responsible even for acts of
strangers like thieves or robbers except where such thieves or robbers acted
“with grave or irresistible threat, violence or force.”

Pedro de Guzman v. Court of Appeals

and Ernesto Cendana
G.R. No. L-47822, December 12,1988
FACTS: Respondent Ernesto Cendana, a junk dealer, was engaged in
buying up used bottles and scrap metal in Pangasinan. Upon gathering
sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two six-wheeler trucks, which he
owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants
wanted delivered to differing establishments in Pangasinan. For that service,
respondent charged freight rates, which were commonly lower than regular
commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman, a
merchant and authorized dealer of General Milk Company (Philippines),
Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of
750 cartons of Liberty filled milk from a warehouse of General Milk in
Makati, Rizal, to petitioner’s establishment in Urdaneta on or before
December 4, 1970. Accordingly, on December 1, 1970, respondent loaded in
Makati the merchandise on to his trucks: 150 cartons were loaded on a truck
driven by respondent himself; while 600 cartons were placed on board the
other truck which was driven by Manuel Estrada, respondent’s driver and
employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The
other 600 boxes never reached petitioner, since the truck which carried these
boxes was hijacked somewhere along the McArthur Highway in Paniqui,
Tarlac, by armed men who took with them the truck, its driver, his helper,
and the cargo.
On January 6, 1971, petitioner commenced action against private
respondent in the Court of First Instance of Pangasinan, demanding
payment of P22,150, the claimed value of the lost merchandise, plus
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damages and attorney’s fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence
required of him by the law, should be held liable for the value of the
undelivered goods.
In his answer, private respondent denied that he was a common carrier
and argued that he could not be held responsible for the value of the lost goods,
such loss having been due to force majeure.
ISSUE: Whether or not the hijacking of respondent’s truck was force
majeure so that respondent was not liable for the value of the undelivered
cargo.
HELD: Article 1734 establishes the general rule that common carriers
are responsible for the loss, destruction, or deterioration of the goods, which
they carry, “unless the same is due to any of the following causes only:
(1) Flood, storm earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers; and
(5) Order or act of competent public authority.”
It is important to point out that the above list of causes of loss,
destruction or deterioration, which exempt the common carrier for
responsibility therefore, is a closed list. Causes falling outside the foregoing
list even if they appear to constitute a species of force majeure, fall within the
scope of Article 1735, which provides as follows:

“In all cases other than those mentioned in numbers 1, 2, 3, 4, and

5 of the preceding article, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733.”

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Applying the above-quoted Articles 1734 and 1735, [W]e note firstly
that the specific cause alleged in the instant cases — the hijacking of the
carrier’s truck — does not fall within any of the five categories of exempting
causes listed in Article 1734. It would follow, therefore, that the hijacking of the
carrier’s vehicle must be dealt with under the provisions of Article 1735, in
other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the part of private
respondent.
Petitioner insists that private respondent had not observed extraordinary
diligence in the care of petitioner’s goods. Petitioner argues that in the
circumstances of this case, private respondent should have hired a security
guard presumably to ride with the truck carrying the 600 cartons of Liberty
filled milk. We do not believe, however, that in the instant case, the standard of
extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firefight at the risk of his own life
and the lives of the driver and his helper.
The precise issue that the Court addresses here relates to the specific
requirements of the duty of extraordinary diligence in the vigilance over the
goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over
goods is, under Article 1733, given additional specification not only by Articles
1734 and 1735 but also by Article 1745, numbers 4, 5[,] and 6, Article 1745
provides in relevant part:
“Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy:
XXX XXX XXX
5. That the common carrier shall not be responsible for the acts
or omissions of his or its employees;
6. That the common carrier’s liability for acts committed by
thieves, or of robbers who do not act with grave or

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irresistible threat, violence or force, is dispensed with or

diminished; and
7. That the common carrier shall not be responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment
used in the contract of carriage.,,
Under Article 1745(6) above, a common carrier is held responsible
— and will not be allowed to divest or to diminish such responsibility
— even for acts of strangers like thieves or robbers, except where such thieves or
robbers in fact acted “with grave or irresistible threat, violence or force.” [The
Court] believe and so held that the limits of the duty of extraordinary diligence in
the vigilance over the goods carried are reached where the goods are lost as a result
of a robbery which is attended by “grave or irresistible threat, violence or force.”
In the instant case, armed men held up the second truck owned by private
respondent, which carried petitioner’s cargo. The record shows that an information
for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled, “People of the Philippines v. Felipe Boncorno,
Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe. ” There,
the accused were charged with willfully and unlawfully taking and carrying away
with them the second truck, driven by Manuel Estrada and loaded with the 600
cartons of Liberty filled milk destined for delivery at petitioner’s store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave,
if not irresistible, threat, violence or force. Three of the five holduppers were armed
with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later
releasing them in another province (in Zambales). The hijacked truck was
subsequently found by the police in Quezon City. The Court of First Instance
convicted all the accused of robbery, though not of robbery in band.
In these circumstances, [the Court] hold that the occurrence of the loss must
reasonably be regarded as quite beyond the control of the common carrier and
properly regarded as a fortuitous event. It is

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necessary to recall that even common carriers are not made absolute insurers
against all risk of travel and of transport of goods, and are not held liable for
acts or events which cannot be foreseen or are inevitable, provided that they
shall have complied with the rigorous standard of extraordinary diligence.

Grave and irresistible force must be proved in cases of

hijacking.
Estrellita M. Bascos v. Court of Appeals
and Rodolfo A. Cipriano
G.R. No. 101089, April 7,1993
FACTS: Rodolfo A. Cipriano representing Cipriano Trading Enterprise
(CIPTRADE for short) entered into a hauling contract with Jibfair Shipping
Agency Corporation whereby the former bound itself to haul the latter’s 2,000
m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the
warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its
obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with
Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean
meal worth PI56,404 from the Manila Port Area to Calamba, Laguna at the rate
of P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a
consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount
of the lost goods in accordance with the contract, which stated that:
“1. CIPTRADE shall be held liable and answerable for any loss in
bags due to theft, hijacking and non-delivery or damages to the cargo
during transport at market value, x x x”
CIPTRADE demanded reimbursement from petitioner but the latter
refused to pay. Eventually, Cipriano filed a complaint for a sum of money and
damages with writ of preliminary attachment for breach of a contract of
carriage. The trial court granted the writ of preliminary attachment on February
17, 1987.
In her answer, petitioner interposed the following defenses: that there
was no contract of carriage since CIPTRADE leased her cargo truck to load the
cargo from Manila Port Area to Laguna; that CIPTRADE was liable to
petitioner in the amount of PI 1,000 for loading the

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cargo; that the truck carrying the cargo was hijacked along Canonigo St.,
Paco, Manila on the night of October 21, 1988; that the hijacking was
immediately reported to CIPTRADE and that the petitioner and the police
exerted all efforts to locate the hijacked properties; that after preliminary
investigation, an information for robbery and camapping were filed against
Jose Opriano, et al., and that hijacking, being a force majeure, exculpated
petitioner from any liability to CIPTRADE.
After trial, the trial court rendered decision against the petitioner.
ISSUE: Whether or not the hijacking in this case is a force majeure.
HELD: Common carriers are obliged to observe extraordinary
diligence in the vigilance over the goods transported by them. Accordingly,
they are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated. There are very few instances
when the presumption of negligence does not attach and these instances are
enumerated in Article 1734. In those cases where the presumption is
applied, the common carrier must prove that it exercised extraordinary
diligence in order to overcome the presumption.
In this case, petitioner alleged that hijacking constituted force
majeure, which exculpated her from liability for the loss of the cargo. In
De Guzman v. Court of Appeals, the Court held that hijacking, not being
included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to
have been at fault or negligent. To exculpate the carrier from liability
arising from hijacking, he must prove that the robbers or the hijackers acted
with grave or irresistible threat, violence, or force. This is in accordance
with Article 1745 of the Civil Code, which provides:
“Art. 1745. Any of the following or similar stipulations shall
be considered unreasonable, unjust and contrary to public policy:
XXX XXX XXX
(6) That the common carrier’s liability for acts committed by
thieves, or of robbers who do not act with grave or irresistible threat,
violence or force, is dispensed with or diminished.”

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To establish grave and irresistible force, petitioner presented her

accusatory affidavit, Jesus Bascos’ affidavit, and Juanito Morden’s
“Salaysay. ” However, both the trial court and the Court of Appeals have
concluded that these affidavits were not enough to overcome the
presumption. Petitioner’s affidavit about the hijacking was based on what
had been told her by Juanito Morden. It was not a first-hand account. While
it had been admitted in court for lack of objection on the part of private
respondent, the respondent Court had discretion in assigning weight to such
evidence. We are bound by the conclusion of the appellate court. In a
petition for review on certiorari, [W]e are not to determine the probative
value of evidence but to resolve questions of law. Secondly, the affidavit of
Jesus Bascos did not dwell on how the hijacking took place. Thirdly, while
the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned
from the contents of the petition. Affidavits are not considered the best
evidence if the affiants are available as witnesses. The subsequent filing of
the information for camapping and robbery against the accused named in
said affidavits did not necessarily mean that the contents of the affidavits
were true because they were yet to be determined in the trial of the criminal
cases.
The presumption of negligence was raised against petitioner. It was
petitioner’s burden to overcome it. Thus, contrary to her assertion, private
respondent need not introduce any evidence to prove her negligence. Her
own failure to adduce sufficient proof of extraordinary diligence made the
presumption conclusive against her.

A carrier is liable to its passengers for damages caused by

mechanical defects of the conveyance.

Prescillano Necesito, etc. v. Natividad Paras

G.R. No. L-10605, June 30,1958
FACTS: In the morning of January 28, 1954, Severina Garces and
her one-year old son, Prescillano Necesito, carrying vegetables, boarded
passenger auto truck or Bus No. 199 of the Philippine Rabbit Bus Lines at
Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell,
then proceeded on its regular run from Agno to

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Manila. After passing Mangatarem, Pangasinan, truck No. 199 entered a wooden
bridge, but the front wheels swerved to the right; the driver lost control, and after
wrecking the bridge’s wooden rails, the truck fell on its right side into a creek
where water was breast deep. The mother, Severina Garces, was drowned; the son,
Prescillano Necesito, was injured, suffering abrasions and fracture of the left
femur. He was brought to the Provincial Hospital at Dagupan, where the fracture
was set but with fragments one centimeter out of line. The money, wristwatch and
cargo of vegetables were lost.
After joint trial, the Court of First Instance found that the bus was
proceeding slowly due to the bad condition of the road; that the accident was
caused by the fracture of the right steering knuckle, which was defective in that its
center or core was not compact but known or ascertained by the carrier despite the
fact that regular 30-day inspections were made of the steering knuckle, since the
steel exterior was smooth and shiny to the depth of 3/16 of an inch all around; that
the knuckles are designed and manufactured for heavy duty and may last up to 10
years; that the knuckle of Bus No. 199 that broke on January 28, 1954, was last
inspected on January 5, 1954, and was due to be inspected again on February 5th.
Hence, the trial court, holding that the accident was exclusively due to fortuitous
event, dismissed both actions. Plaintiffs appealed directly to this Court in view of
the amount in controversy.
ISSUE: Whether the carrier is liable for the manufacturing defect of the
steering knuckle, and whether the evidence discloses that in regard thereto, the
carrier exercised the diligence required by law. (Art. 1755, New Civil Code)
HELD: “Art. 1755. A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with a due regard for all the circumstances.”
It is clear that the carrier is not an insurer of the passenger’s safety. His
liability rests upon negligence, his failure to exercise the “utmost” degree of
diligence that the law requires, and by Art. 1756, in case of a passenger’s death or
injury the carrier bears the burden of satisfying the court that he has duly
discharged the duty of prudence

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required. In American law, where the carrier is held to the same degree of
diligence as under the new Civil Code, the rule on the liability of carriers for
defects of equipment is thus expressed: “The preponderance of authority is in
favor of the doctrine that a passenger is entitled to recover damages from a carrier
for an injury resulting from a defect in an appliance purchased from a
manufacturer, whenever it appears that the defect would have been discovered by
the carrier if it had exercised the degree of care which under the circumstances
was incumbent upon it, with regard to inspection and application of the necessary
tests. For the purposes of this doctrine, the manufacturer is considered as being in
law the agent or servant of the carrier, as far as regards the work of constructing
the appliance. According to this theory, the good repute of the manufacturer will
not relieve the carrier from liability.” (10 Am. Jur. 205, s. 1324; See also
Pennsylvania R. Co. v. Roy, 102 U.S. 451; 20 L. Ed. 141; Southern R. Co. v.
Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed. Note, 29 ALR 788; Ann. Cas.
1916 E 929;
The rationale of the carrier’s liability is the fact that the passenger has
neither choice nor control over the carrier in the selection and use of the
equipment and appliances in use by the carrier. Having no privity whatever with
the manufacturer or vendor of the defective equipment, the passenger has no
remedy against him, while the carrier usually has. It is but logical, therefore, that
the carrier, while not an insurer of the safety of his passengers, should
nevertheless be held to answer for the flaws of his equipment if such flaws were at
all discoverable.
In the case now before us, the record is to the effect that the only test
applied to the steering knuckle in question was a purely visual inspection every 30
days, to see if any cracks developed. It nowhere appears that either the
manufacturer or the carrier at any time tested the steering knuckle to ascertain
whether its strength was up to standard, or that it had no hidden flaws that would
impair that strength. And yet the carrier must have been aware of the critical
importance of the knuckle’s resistance; that its failure or breakage would result in
loss of balance and steering control of the bus, with disastrous effects upon the
passengers. No argument is required to establish that a visual inspection could not
directly determine whether the resistance of this critically important part was not
impaired. Nor has it been shown that

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the weakening of the knuckle was impossible to detect by any known test; on
the contrary, there is testimony that it could be detected. We are satisfied that
the periodical visual inspection of the steering knuckle as practiced by the
carrier’s agents did not measure up to the required legal standard of “utmost
diligence of very cautious persons” — “as far as human care and foresight can
provide,” and therefore that the knuckle’s failure can not be considered a
fortuitous event that exempts the carrier from responsibility. (Lasam v. Smith,
45 Phil. 657\ Son v. Cebu Autobus Co., 94 Phil. 892)
The public must, of necessity, rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers,
especially because with the modern development of science and
invention, transportation has become rapid, more complicated, and
somehow more hazardous. For these reasons, a passenger or a shipper
of goods is under no obligation to conduct an inspection of the ship
and its crew, the carrier being obliged by law to impliedly warrant its
roadworthiness, seaworthiness or airworthiness as the case maybe.
Vector Shipping Corporation and Francisco Soriano v.
Adelfo B. Macasa, et al.
G.R. No. 160219, July 21,2008
FACTS: On December 19, 1987, spouses Comelio (Comelio) and
Anacleta Macasa (Anacleta), together with their eight-year old grandson,
Ritchie Macasa (Ritchie) boarded the M/V Dona Paz, owned and operated by
respondent Sulpicio Lines, Inc. (Sulpicio Lines) at Tacloban, Leyte bound for
Manila. On the fateful evening of December 20, 1987, M/V Dona Paz collided
with the MT Vector, an oil tanker, owned and operated by petitioners Vector
Shipping Corporation (Vector Shipping) and Francisco Soriano (Soriano),
which at the time was loaded with 860,000 gallons of gasoline and other
petroleum products, in the vicinity of Dumali Point, Tablas Strait, between
Marinduque and Oriental Mindoro. Only 26 persons survived: 24 passengers of
M/V Dona Paz and two crewmembers of MT Vector. Both vessels were never
retrieved. Worse, only a few victims’ bodies, who either drowned

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or were burned alive, were recovered. Comelio, Anacleta, and Ritchie were
among the victims whose bodies have yet to be recovered up to this day.
Respondents Adelfo, Emilia, Timoteo, and Comelio, Jr., all sumamed
Macasa, are children of Comelio and Anacleta. On the other hand, Timoteo
and his wife, respondent Rosario Macasa, are the parents of Ritchie (the
Macasas). On October 2, 1991, the Macasas filed a Complaint for Damages
arising out of breach of contract of carriage against the Sulpicio Lines before
the Regional Trial Court (RTC). The complaint imputed negligence to
Sulpicio Lines because it was remiss in its obligations as a common carrier.
Sulpicio Lines traversed the complaint, alleging among others, that (1)
M/V Dona Paz was seaworthy in all aspects; (2) it exercised extraordinary
diligence in transporting their passengers and goods; (3) it acted in good faith
as it gave immediate assistance to the survivors and kin of the victims; (4) the
sinking of M/V Dona Paz was without contributory negligence on its part;
and (5) the collision was MT Vector’s fault since it was allowed to sail with
an expired coastwise license, expired certificate of inspection, and it was
manned by unqualified and incompetent crew members per findings of the
Board of Marine Inquiry (BMI) in BMI Case No. 653-87, which had
exonerated Sulpicio Lines from liability. Thus, Sulpicio Lines filed a
Third-Party Complaint against Vector Shipping. Soriano and Caltex
Philippines, Inc. (Caltex), the charterer of MT Vector.
In its decision, dated May 5, 1995, the RTC awarded P200,000 as civil
indemnity for the death of Comelio, Anacleta, and Ritchie; PI00,000 as
actual damages; P500,000 as moral damages; PI00,000 as exemplary
damages; and P50,000 as attorney’s fees. The case was disposed of in this
wise.
Accordingly, as a result of this decision, on plaintiffs’ complaint
against the third-party (sic) defendant Sulpicio Lines, Inc., third-party
defendant Caltex Philippines, Inc. and third-party defendant MT Vector
Shipping Corporation and/or Francisco Soriano, are liable against defendant
third-party plaintiff Sulpicio Lines, for reimbursement, subrogation, and
indemnity on all amounts; defendant Sulpicio Lines was ordered liable
against plaintiffs, by way of actual, moral,

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exemplary damages, and attorney’s fee; MT Vector Shipping Lines and/ or Francisco
Soriano, third-party defendants, are ordered jointly and severally, liable to pay
third-party plaintiff Sulpicio Lines, by way of reimbursement, subrogation, and
indemnity, of all the above amounts, ordered against defendant Sulpicio Lines, Inc., to
pay in favor plaintiffs, with interest and cost of suit.
Aggrieved, Sulpicio Lines, Caltex, Vector Shipping and Soriano appealed to
the Court of Appeals (CA), which modified the decision of the Regional Trial Court.
In the assailed decision, dated September 24, 2003, the CA held that the
third-party defendant-appellant Caltex Philippines is exonerated from liability. The
PI00,000 actual damages is deleted, while the indemnity for (sic) is reduced to
PI50,000. All other aspects of the appealed judgment are perforce affirmed.
ISSUE: Whether or not defendant Vector Shipping, a common carrier, was
seaworthy at the time of the mishap.
HELD: In Caltex Philippines, Inc. v. Sulpicio Lines, Inc., the Court held
that MT Vector fits the definition of a common carrier under Article 1732 of the
New Civil Code. The Court ruling in that case is instructive.
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the
ship. For a vessel to be seaworthy, it must be adequately equipped for the voyaged
and manned with a sufficient number of competent officers and crew. The failure of
a common carrier to maintain in seaworthy condition involved in its contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.
The provisions owed their conception to the nature of the business of
common carriers. This business is impressed with a special public duty. The public,
must of necessity, rely on the care and skill of common carriers in the vigilance over
the goods and safety of the passengers, especially because with the modem
development of science and invention, transportation has become more rapid, more
complicated, and somehow more hazardous. For these reasons, a passenger or a
shipper of goods is under no obligation to conduct an inspection of the

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ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.
All evidence points to the fact that it was MT Vector’s negligent officers
and crew, which caused it to ram into M/V Dona Paz. Moreso, MT Vector was
found to be carrying expired coastwise license and permits, and was not properly
manned. As the records would also disclose, there is a defect in the ignition
system of the vessel, and it was not convincingly shown whether the necessitated
repairs were in fact undertaken before the said ship had set to sea. In short, MT
Vector was unseaworthy at the time of the mishap, that the said vessel was
allowed to set sail when it was, to everyone in the group’s knowledge, not fit to
do so, translates into rashness and imprudence.
Note: Ultimately, the position taken by this Court is that a common
carrier’s contract is not to be regarded as a game of chance wherein the passenger
stakes his limb and life against the carrier’s property and profits.

ART. 1746. An agreement limiting the common carrier’s

liability may be annulled by the shipper or owner if the common
carrier refused to carry the goods unless the former agree to
such stipulation.
The contract here limiting the liability of the common carrier is merely
voidable and not void in view of the intimidation or undue influence exerted by
the common carrier or his agents. (See Art. 1390[2], NCC)

ART. 1747. If the common carrier, without just cause,

delays the transportation of the goods or changes the stipulated
or usual route, the contract limiting the common carrier’s
liability cannot be availed of in case of the loss, destruction, or
deterioration of the goods.
Considering that ordinary delay on the part of the common carrier will not
exempt the common carrier from liability for loss, destruction or deterioration of
the goods even if due to fortuitous events, in the same manner and with more
reason that unjust delays and changing

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the stipulated routes will not likewise exempt the common carrier from availing the
contract limiting his liability for loss, destruction, or deterioration.
“The oft-repeated rule regarding a carrier’s liability for delay is that in the
absence of a special contract, a carrier is not an insurer against delay in transportation
of goods. When a common carrier undertakes to convey goods, the law implies a
contract that they shall be delivered at destination within a reasonable time, in
the absence, of any agreement as to the time of delivery. But where a carrier has
made an express contract to transport and deliver property within a specified time, it is
bound to fulfill its contract and is liable for any delay, no matter from what cause it
may have arisen. This result logically follows from the well-settled rule that where
the law creates a duty or charge, and the party is disabled from performing it without
any default in himself, and has no remedy over, then the law will excuse him, but
where the party by his own contract creates a duty or charge upon himself, he is bound
to make it good notwithstanding any accident or delay by inevitable necessity because
he might have provided against it by contract. Whether or not there has been such an
undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of
contracts.” (Saludo, Jr v. Court of Appeals, 207 SCRA 498 [1992])

ART. 1748. An agreement limiting the common carrier’s

liability for delay on account of strikes or riots is valid.
The above article does not distinguish whether the strike is legal or illegal.
However, it is assumed that it applies to both kinds of strikes since there is no
universal acceptance that riots are legal.

ART. 1749. A stipulation that the common carrier’s liability is

limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered
by the owner or shipper for the loss, destruction, or deterioration of
the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

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A stipulation in the bill of lading limiting to a certain sum the common

carrier’s liability for loss or destruction of a cargo — unless the shipper or owner
declares a greater value — is sanctioned by law. There are, however, two conditions
to be satisfied: (1) the contract is reasonable and just under the circumstances; and
(2) it has been fairly and ffeely agreed upon by the parties. The rationale for this rule
is to bind the shippers by their agreement to the value (maximum valuation) of their
goods.
It is to be noted, however, that the Civil Code does not limit the liability of
the common carrier to a fixed amount per package. In all matters not regulated by
the Civil Code, the right and the obligations of common carriers shall be governed
by the Code of Commerce and special laws. Thus, the Carriage of Goods By Sea
Act, which is suppletory to the provisions of the Civil Code, supplements the latter
by establishing a statutory provision limiting the carrier’s liability in the absence of
a shipper’s declaration of a higher value in the bill of lading. The provisions on
limited liability are as much a part of the bill of lading as though physically in it and
as though placed there by agreement of the parties. (Belgian Overseas Chartering
and Shipping N. V. v. Philippine First Insurance Company, Inc,, 383 SCRA 23,
June 5, 2002)
The right of the carrier to limit its liability has been recognized not only in
our jurisdiction but also in American jurisprudence:
“A stipulation in a contract of carriage that the carrier will not be
liable beyond a specified amount unless the shipper declares the goods to
have a greater value is generally deemed to be valid and will operate to limit
the carrier’s liability, even if the loss or damage results from the carrier’s
negligence. Pursuant to such provision, where the shipper is silent as to the
value of his goods, the carrier’s liability for loss or damage thereto is limited
to the amount specified in the contract of carriage and where the shipper
states the value of his goods; the carrier’s liability for loss or damage thereto
is limited to that amount. Under a stipulation such as this, it is the duty of the
shipper to disclose, rather than the carrier’s to demand the true value of the
goods and silence on the part of the shipper will be sufficient to limit
recovery in case

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of loss to the amount stated in the contract of carriage.” (14 Am.

Jur. 2d p. 88)

A stipulation in the Bill of Lading limiting the common carrier’s liability

for loss or destruction of a cargo to a certain sum, unless the shipper or
owner declares a greater value, is sanctioned by law.

Everett Steamship Corp. v. CA and Hernandez

Trading Co., Inc.
G.R. No. 122494, October 8,1998
FACTS: Private respondent imported three crates of bus spare parts
marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO C/ No. 14, from
its supplier Maruman Trading Company, Ltd. (Maruman Trading), a foreign
corporation based in Inazaw, Aichi, Japan. The crates were shipped from Nagoya,
Japan to Manila on board “ADELFA EVERETT,” a vessel owned by petitioner’s
principal, Everett Orient Lines. The said crates were covered by Bill of Lading
No. NG053MN.
Upon arrival at the port of Manila, it was discovered that the crate marked
MARCO C/No. 14 was missing. This was confirmed and admitted by petitioner in
its letter of January 13, 1992 addressed to private respondent, which thereafter
made a formal claim upon petitioner for the value of the lost cargo amounting to
¥1,552,500, the amount shown in Invoice No. MTM-941, dated November 14,
1991. However, petitioner offered to pay only ¥100,000, the maximum amount
stipulated under Clause 18 of the covering bill of lading which limits the liability
of petitioner. ;
Private respondent rejected the offer and thereafter instituted a suit for
collection docketed as Civil Case No. C-15532, against petitioner before the
Regional Trial Court of Caloocan City, Branch 126.
On July 16, 1993, the trial court rendered judgment in favor of private
respondent, ordering petitioner to pay: (a) ¥1,552,500; (b) ¥20,000 or its peso
equivalent representing the actual value of the lost cargo and the material and
packaging cost; (c) 10% of the total amount as an award for and as contingent
attorney’s fees; and (d) to pay the cost of the suit.

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On appeal, the Court of Appeals deleted the award of attorney’s fees but
affirmed the trial court’s findings with the additional observation that private
respondent can not be bound by the terms and conditions of the bill of lading
because it was not privy to the contract of carriage.
ISSUE: Whether or not the carrier’s limited package liability as stipulated
in the bill of lading does not apply in this case.
HELD: A stipulation in the bill of lading limiting the common carrier’s
liability for loss or destruction of a cargo to a certain sum, unless the shipper or
owner declares a greater value, is sanctioned by law, particularly Articles 1749
and 1750 of the Civil Code which provides:

“ART. 1749. A stipulation that the common carrier’s liability is

limited to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods is
valid, if it is reasonable and just under the circumstances, and has been
freely and fairly agreed upon.”
Such limited liability clause has also been consistently upheld by this
Court in a number of cases. Thus, in Sea-Land Services, Inc. v. Intermediate
Appellate Court, [W]e ruled:
“It seems clear that even if said Section 4(5), of the Carriage of
Goods by Sea Act did not exist, the validity and binding effect of the
liability limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it
echoes Article 1750 itself in providing a limit to liability only if a greater
value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of the
law itself, and this private respondent does not pretend to do. But over and
above that consideration, the just and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option

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VIGll.ANCH OVF.R TlUi GOODS

of avoiding accrual of liability limitation by the simple and surely far

from onerous expedient of declaring the nature and value of the
shipment in the bill of lading.”
Pursuant to the aforequoted provisions of law, it is required that the
stipulation limiting the common earner’s liability for loss must be
“reasonable and just under the circumstances, and has been freely and fairly
agreed upon.”
The bill of lading subject of the present controversy specifically
provides, among others:
“18. All claims for which the carrier may be liable shall be
adjusted and settled on the basis of the shipper’s net invoice cost plus
freight and insurance premiums, if paid, and in no event shall the
carrier be liable for any loss of possible profits or any consequential
loss.
“The carrier shall not be liable for any loss of or any damage to
or in any connection with, goods in an amount exceeding One
Hundred Thousand Yen in Japanese Currency (¥100,000.00) or its
equivalent in any other currency per package or customary freight unit
(whichever is least) unless the value of the goods higher than this
amount is declared in writing by the shipper before receipt of the
goods by the carrier and inserted in the Bill of Lading and extra freight
is paid as required.”
The above stipulations are, to our mind, reasonable and just. In the bill
of lading, the carrier made it clear that its liability would only be up to One
Hundred Thousand Yen (¥100,000.00). However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value of its cargo
was higher than the limited liability of the carrier. Considering that the
shipper did not declare a higher valuation, it had itself to blame for not
complying with the stipulations.
The trial court’s ratiocination that private respondent could not have
“fairly and freely” agreed to the limited liability clause in the bill of lading
because the said conditions were printed in small letters does not make the
bill of lading invalid.

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We Riled in PAL, Inc. v. Court of Appeals that the “jurisprudence on

the matter reveals the consistent holding of the court that contracts of adhesion
are not invalid per se and that it has on numerous occasions upheld the binding
effect thereof.” Also, in Philippine American General Insurance Co., Inc. v.
Sweet Lines, Inc., this Court, speaking through the learned Justice Florenz D.
Regalado, held:

“x x x Ong Yiu v. Court of Appeals, et al., instructs us that

contracts of adhesion wherein one party imposes a ready — made form
of contract on the other x x x are contracts not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely; if he
adheres he gives his consent. ‘In the present case, not even an allegation
of ignorance of a party excuses non-compliance with the contractual
stipulations since the responsibility for ensuring full comprehension of
the provisions of a contract of carriage devolves not on the carrier but on
the owner, shipper, or consignee as the case may be.’”

(See also Edgar Cokaliong Shipping Lines v. UCPB General

Insurance Company, Inc., 404 SCRA 706, June 25, 2003)

Summa Insurance Corporation v. Court of Appeals

and Metro Port Service, Inc.
G.R. No. 84680, February 5,1996
FACTS: On November 22, 1981, the S/S “Galleon Sapphire,” a vessel
owned by the National Galleon Shipping Corporation (NGSC), arrived at Pier
3, South Harbor, Manila, carrying a shipment consigned to the order of
Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as “notify
party.” The shipment, including a bundle of PC8U blades, was covered by
marine insurance under Certificate No. 82/012- FEZ issued by petitioner and
Bill of Lading No. SF/MLA 1014. The shipment was discharged from the
vessel to the custody of private respondent, formerly known as E. Razon, Inc.,
the exclusive arrastre operator at the South Harbor. Accordingly, three
good-order cargo receipts were issued by NGSC, duly signed by the ship’s
checker and a representative of private respondent.

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On February 24, 1982, the forwarder, Sterling International Brokerage

Corporation withdrew the shipment from the pier and loaded it on the barge
“Semirara 8104.” The barge arrived at its port of destination, Semirara Island,
on March 9, 1982. When Semirara inspected the shipment at its warehouse, it
discovered that the bundle of PC8U blades was missing.
On March 15, 1982, private respondent issued a short landed certificate
stating that the bundle of PC8U blades was already missing when it received
the shipment from the NGSC vessel. Semirara then filed with petitioner,
private respondent and NGSC its claim for P280,969.68, the alleged value of
the lost bundle.
On September 29, 1982, petitioner paid Semirara the invoice value of the
lost shipment. Semirara thereafter executed a release of claim and subrogation
receipt. Consequently, petitioner filed its claims with NGSC and private
respondent but it was unsuccessful.
Petitioner then filed a complaint (Civil Case No. 82-13988) with the
Regional Trial Court, Branch XXIV, Manila, against NGSC and private
respondent for collection of a sum of money, damages and attorney’s fees.
On August 2, 1984, the trial court rendered a decision absolving NGSC
from any liability but finding private respondent liable to petitioner. Ordering
the defendant Metro Port Service, Inc., to pay the plaintiff Summa Insurance
Corp., the sum of P280,969.68 and attorney’s fees ofP20,000.
In resolving the issue as to who had custody of the shipment when it was
lost, the trial court relied more on the good-order cargo receipts issued by
NGSC than on the short-landed certificate issued by private respondent. The
trial court held:
“As between the aforementioned two documentary exhibits, the
Court is more inclined to give credence to the cargo receipts. Said cargo
receipts were signed by a checker of defendant NGSC and a
representative of Metro Port. It is safe to presume that the cargo receipts
accurately describe the quantity and condition of the shipment when it
was discharged from the vessel. Metro

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Port's representative would not have signed the cargo receipts if only four
(4) packages were discharged from the vessel and given to the possession
and custody of the arrastre operator. Having been signed by its
representative, the Metro Port is bound by the contents of the cargo
receipts.
On the other hand, the Metro Port’s shortlanded certificate could not be
given much weight considering that, as correctly argued by counsel for defendant
NGSC, it was issued by Metro Port alone and was not countersigned by the
representatives of the shipping company and the consignee. Besides, the
certificate was prepared by Atty. Servillano V. Dolina, Second Deputy General
Manager of Metro Port, and there is no proof on record that he was present at the
time the subject shipment was unloaded from the vessel and received by the
arrastre operator. Moreover, the shortlanded certificate bears the date of March
15, 1982, more than three months after the discharge of the cargo from the
carrying vessel.”
On appeal, the Court of Appeals modified the decision of the trial court and
reduced private respondent’s liability to P3,500 and attorney’s fees of P6,000.
ISSUES: (1) Whether or not the private respondent is legally liable for the
loss of the shipment in question. (2) If so, what is the extent of its liability?
HELD: Petitioner was subrogated to the rights of the consignee. The
relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or
owner of shipped goods and the common carrier, or that between a depositor and a
warehouseman. In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and Section
3(b) of the Warehouse Receipts Law, respectively. 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.

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In this case, it has been established that the shipment was lost while in the
custody of private respondent. We find private respondent liable for the loss.
This is an issue of fact determined by the trial court and respondent Court, which
is not reviewable in a petition under Rule 45 of the Rules of Court.
In the performance of its job, an arrastre operator is bound by the
management contract it had executed with the Bureau of Customs. However, a
management contract, which is a sort of a stipulation pour autrui within the
meaning of Article 1311 of the Code, is also binding on a consignee because it is
incorporated in the gate pass and delivery receipt, which must be presented by
the consignee before delivery can be effected to it. The insurer, as
successor-in-interest of the consignee, is likewise bound by the management
contract. Indeed, upon taking delivery of the cargo, a consignee (and necessarily
its successor-in- interest) tacitly accepts the provisions of the management
contract, including those, which are intended to limit the liability of one of the
contracting parties, the arrastre operator.
However, a consignee who does not avail of the services of the arrastre
operator is not bound by the management contract. Such an exception to the rule
does not obtain here as the consignee did in fact accept delivery of the cargo from
the arrastre operator.

ART. 1751. The fact that the common carrier has no competitor
along the line or route or a part thereof, to which the contract refers
shall be taken into a consideration on the question of whether or not a
stipulation limiting the common carrier’s liability is reasonable, just
and in consonance with public policy.
The above provision is logical inasmuch as lack of competition may lead
to undue influence.

ART. 1752. Even when there is an agreement limiting the

liability of the common carrier in the vigilance over the goods, the
common carrier is disputably presumed to have been negligent in
case of their loss, destruction or deterioration.

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The presumption of negligence against the common carrier is not relaxed

even if there is an agreement between the shipper and the common carrier limiting
the common carrier’s liability in the vigilance over the goods. In other words, the
stipulation of the parties limiting the common carrier’s liability in vigilance over
the goods is not an exception enunciated in Article 1735.

ART. 1753. The law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their
loss, destruction or deterioration.

There is no question that even if the goods never reach its destination, the
law of the country to which the goods are to be transported shall govern the
liability of the common carrier for their loss, destruction or deterioration but not if
the goods were never transported.

Law of the place of destination governs liability in case of loss,

destruction or deterioration of the goods transported.
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court
and Development Insurance and Surety Corp.
G.R. No. L-69044, May 29,1987
FACTS: Sometime in or prior to June 1977, the M/S ASIATICA, a vessel
operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as
Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000
pieces of calorized lance pipes in 28 packages valued at P256,039 consigned to
Philippine Blooming Mills Co., Inc., and seven cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development
Insurance and Surety Corporation.
En route from Kobe, Japan, to Manila, the vessel caught fire and sank,
resulting in the total loss of ship and cargo. The respective respondent Insurers
paid the corresponding marine insurance values to the consignees concerned and
were thus subrogated unto the rights of the latter as the insured.

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VKIIUANCU OVI:Rmi GOODS

On May 11, 1978, respondent Development Insurance and Surety

Corporation (Development Insurance, for short), having been subrogated unto the
rights of the two insured companies, filed suit against Petitioner Carrier for the
recovery of the amounts it had paid to the insured before the then Court of First
Instance of Manila, Branch XXX (Civil Case No. 116087)
Petitioner Carrier denied liability mainly on the ground that the loss was
due to an extraordinary fortuitous event; hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of
Development Insurance in the amounts of P256,039 and P92,361.75, respectively,
with legal interest, plus P35,000 as attorney’s fees and costs. Petitioner carrier
took an appeal to the then Court of Appeals that, on August 14, 1984, affirmed the
decision of the lower Court.
ISSUE: Which law should govern, the Civil Code provisions on common
carrier or the Carriage of Goods by Sea Act?
HELD: The law of the country to which the goods are to be transported
governs the liability of the common carrier in case of their loss, destruction or
deterioration. As the cargoes in question were transported from Japan to the
Philippines, the liability of Petitioner Carrier is governed primarily by the Civil
Code. However, in all matters not regulated by said code, the rights and
obligations of common carrier shall be governed by the Code of Commerce and
by special laws. Thus, the Carriage of Goods by Sea Act, a special law, is
suppletory to the provisions of the Civil Code.
QUESTION: En route to Manila the vessel Dona Nati figured in a
collision at Ise, Japan, with a Japanese vessel SS Yasushima Maru as a result of
which goods were lost or damaged. The collision was found to have been caused
by the negligence or fault of both captains of the colliding vessels. Which laws
now govern the loss or destruction of goods due to collision of vessels outside
Philippine waters?
ANSWER: Article 1753 of the Civil Code will apply, and it is immaterial
that the collision actually occurred in foreign waters, such as lse Bay, Japan.

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ART. 1754. The provisions of Articles 1733 to 1753 shall apply

to the passenger’s baggage, which is not in his personal custody or in
that of his employees. As to other baggage, the rules in Articles 1998
and 2000 to 2003 concerning the responsibility of hotel-keepers shall
be applicable.

Articles 1998, 2000, to 2003 of the New Civil Code provides as

follows:

ART. 1998. The deposit effects made by travelers in hotels and

inns shall also be regarded as necessary. The keepers of hotels or
inns shall be responsible for them as depositories, provided that
notice was given to them, or to their employees, of the effects
brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised
relative to the care and vigilance of their effects.
ART. 2000. The responsibility referred to in the two preceding
articles shall include the loss of, or injury to the personal property of
the guests caused by the servants or employees of the keepers of
hotels or inns as well as by strangers; but not that which may
proceed from any force majeure. The fact that travelers are
constrained to rely on the vigilance of the keeper of the hotel or inn
shall be considered in determining the degree of care required of
him.
ART. 2001. The act of a thief or robber, who has entered the
hotel, is not deemed force majeure, unless it is done with the use of
arms or through an irresistible force.
ART. 2002. The hotel-keeper is not liable for compensation if
the loss is due to the acts of the guest, his family, servants, or visitors,
or if the loss arises from the character of the things brought into the
hotel.
ART. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not liable for
the articles brought by the guest. Any stipulation between the
hotelkeeper and the guest whereby the responsibility of the former

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as set forth in articles 1998 to 2001 is suppressed or diminished shall

be void.
QUESTION: Is notification required before the common carrier
becomes liable for lost belongings that remained in the custody of the
passenger?
The petitioner contends that its liability for the loss of Sesante’s personal
belongings should conform with Article 1754, in relation to Articles 1998, 2000
to 2003 of the Civil Code.
ANSWER: No. The rule that the common carrier is always responsible
for the passenger’s baggage during the voyage needs to be emphasized. Article
1754 of the Civil Code does not exempt the common carrier from liability in
case of loss, but only highlights the degree of care required of it depending on
who has the custody of the belongings. Hence, the law requires the common
carrier to observe the same diligence as the hotelkeepers in case the baggage
remains with the passenger; otherwise, extraordinary diligence must be
exercised. Furthermore, the liability of the common carrier attaches even if the
loss or damage to the belongings resulted from the acts of the carrier’s
employees, the only exception being where such loss or damages is due to force
majeure.
In YHT Realty Corporation v. Court of Appeals, the Court declared
that actual delivery of the goods to the innkeepers or their employees as
unnecessary before liability could attach to the hotelkeepers in the event of loss
of personal belongings of their guests considering that the personal effects were
inside the hotel or inn because the hotelkeeper shall remain accountable.
Accordingly, actual notification was not necessary to render the petitioner as
the common carrier liable for the lost personal belongings of Sesante. By
allowing him to board the vessel with his belongings without any protest, the
petitioner became sufficiently notified of such belongings. So long as the
belongings were brought inside the premises of the vessel, the petitioner was
thereby effectively notified and consequently duty-bound to observe the
required diligence in ensuring the safety of the belongings during the voyage.
Applying Article 2000 of the Civil Code, the petitioner assumed the liability for

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loss of the belongings caused by the negligence of its officers or crew. In

view of the finding of the Court that the negligence of the officer and
crew of the petitioner was the immediate and proximate cause of the
sinking of the M/V Princess of the Orient, its liability for Sesante’s lost
personal belongings was beyond question. (Sulpicio Lines v. Napoleon
Sesante, G.R. No. 172682, July 27, 2016)

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ARTICLES 1755 to 1763

ARTICLE 1755. A common carrier is bound to carry the

passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all
the circumstances.

The hazards of modem transportation demand extraordinary diligence. A

common carrier is vested with public interest. Under the New Civil Code, instead
of being required to exercise mere ordinary diligence, a common carrier is exhorted
to carry the passengers safely as far as human care and foresight can provide “using
the utmost diligence of very cautious persons.” (Art. 1755) Once a passenger in the
course of travel is injured, or does not reach his destination safely, the carrier and
driver are presumed to be at fault. (Bacarro v. Castano, 118 SCRA 187)
When the bus is not in motion, there is no necessity for a person who wants
to ride the same to signal his intention to board. A public utility bus, once it stops,
is in effect making a continuous offer to bus riders. Hence, it becomes the duty of
the driver and the conductor, every time the bus stops, to do no act that would have
the effect of increasing the peril to a passenger while he was attempting to board
the same. The premature acceleration of the bus in this case was a breach of such
duty.
It is the duty of common carriers of passengers, including common carriers
by railroad train, streetcar, or motorbus, to stop their conveyances within a
reasonable length of time in order to afford passengers an opportunity to board
and enter, and they are liable for injuries suffered by boarding passengers
resulting from the sudden starting up or jerking of their conveyances while they
are doing so.

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It is not negligence per se, or as a matter of law, for one to attempt to

board a train or streetcar, which is moving slowly. An ordinarily prudent
person would have made the attempt to board the moving conveyance
under the same or similar circumstances. The fact that passengers board
and alight from a slowly moving vehicle is a matter of common experience
and both the driver and conductor in this case could not have been
unaware of such an ordinary practice.
The victim herein, by stepping and standing on the platform of the
bus, is already considered a passenger and is entitled to all the rights and
protection pertaining to such a contractual relation. Hence, it has been
held that the duty which the carrier of passengers owes to its patrons
extends to persons boarding the cars as well as to those alighting therefrom
(Dangwa Transportation Co., Inc. v. Court of Appeals, 202 SCRA 574):

“It has been recognized as a rule that the relation of carrier

and passenger does not cease at the moment the passenger alights
from the carrier’s vehicle at a place selected by the carrier at the
point of destination, but continues until the passenger has had a
reasonable time or a reasonable opportunity to leave the carrier’s
premises. And, what is reasonable time or a reasonable delay within
this rule is to be determined from all the circumstances. Thus, a
person who, after alighting from a train, walks along the station
platform is considered still a passenger. So also, where a passenger
has alighted at his destination and is proceeding by the usual way to
leave the company’s premises, but before actually doing so is halted
by the report that his brother, a fellow passenger, has been shot, and
he in good faith and without intent of engaging in the difficulty,
returns to relieve his brother, he is deemed reasonably and
necessarily delayed and thus continued to be a passenger entitled as
such to the protection of the railroad company and its agents. (La
Mallorca v. Court of Appeals, et al., 17 SCRA 739; See also Light Rail
Transit Authority v. Natividad, 397 SCRA, February 6, 2003)

Railroad companies owe to the public a duty of exercising a

reasonable degree of care to avoid injury to persons and property at
 CHAPTER III
SAFETY OF PASSENGERS

railroads crossings, which duties pertain both to the operation of trains and to
the maintenance of the crossings. Moreover, every corporation constructing or
operating a railway shall make and construct at all points where such railway
crosses any public road, good, sufficient and safe crossings, and erect at such
points, at sufficient elevation from such road as to admit a free passage of
vehicles of every kind, a sign with large and distinct letters placed thereon, to
give notice of the proximity of the railway, and warn persons of the necessity
of looking out for trains. The failure of the PNR to put a cross bar, or signal
light, flagman or switchman, or semaphore is evidence of negligence and
disregard of the safety of the public, even if there is no law or ordinance
requiring it because public safety of the public demands that said device or
equipment be installed. (PNR v. Court of Appeals, G.R. No. 157658,
October 15, 2007)
Carrier-passenger relationship continues until the passenger has
been landed at the port of destination and has left the vessel-owner’s
premises.
Aboitiz Shipping Corporation v. Hon. Court of Appeals,
Lucila Viana, Sps. Antonio and Gorgonia Viana,
and Pioneer Stevedoring Corporation
G.R. No. 84458, November 6,1989
FACTS: The evidence disclosed that on May 11, 1975, Anacleto Viana
boarded the vessel M/V Antonia, owned by defendant, at the port of San Jose,
Occidental Mindoro, bound for Manila, having purchased a ticket (No.
117392) in the sum of P23.10. On May 12,1975, said vessel arrived at Pier 4,
North Harbor, Manila, and the passengers therein disembarked, a gangplank
having been provided connecting the side of the vessel to the pier. Instead of
using said gangplank, Anacleto Viana disembarked on the third deck, which
was on the level with the pier. After said vessel had landed, the Pioneer
Stevedoring Corporation took over the exclusive control of the cargoes loaded
on said vessel pursuant to the Memorandum of Agreement dated July 26,
1975 between the third party defendant Pioneer Stevedoring Corporation and
defendant Aboitiz Shipping Corporation.

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The crane owned by the third-party defendant and operated by its crane
operator Alejo Figueroa was placed alongside the vessel and one
(1) hour after the passengers of said vessel had disembarked, it started operation
by unloading the cargoes from said vessel. While the crane was being operated,
Anacleto Viana, who had already disembarked from said vessel obviously
remembering that some of his cargoes were still loaded in the vessel, went back to
the vessel, and it was while he was pointing to the crew of the said vessel to the
place where his cargoes were loaded that the crane hit him, pinning him between the
side of the vessel and the crane. He was thereafter brought to the hospital where he
later expired three days thereafter, on May 15, 1975.
ISSUE: Whether or not the victim’s presence in the vessel after one hour
from his disembarkation was no longer reasonable and he consequently ceased to be
a passenger.
HELD: The rule is that the relation of carrier and passenger continues until
the passenger has been landed at the port of destination and has left the vessel
owner’s dock or premises. Once created, the relationship will not ordinarily
terminate until the passenger has, after reaching his destination, safely alighted from
the carrier’s conveyance or had a reasonable opportunity to leave the carrier’s
premises. All persons who remain on the premises for a reasonable time after
leaving the conveyance are to be deemed passengers, and what is a reasonable time
or a reasonable delay within this rule is to be determined from all the circumstances,
and includes a reasonable time to look after his baggage and prepare for his
departure. The carrier-passenger relationship is not terminated merely by the fact
that the person transported has been carried to his destination if, for example, such
person remains in the carrier’s premises to claim his baggage.
It was in accordance with this rationale that the doctrine in the aforesaid
case of La Mallorca was enunciated, to wit:

“In the present case, the father returned to the bus to get one of his
baggage which was not unloaded when they alighted from the bus.
Racquel, the child that she was, must have followed the father. However,
although the father was still on the running

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board of the bus waiting for the conductor to hand him the bag or bayong,
the bus started to run, so that even he (the father) had to jump down from the
moving vehicle. It was at this instance that the child, who must be near the
bus, was run over and killed. In the circumstances, it cannot be claimed that
the carrier’s agent had exercised the ‘utmost diligence’ of a ‘very cautious
person’ required by Article 1755 of the Civil Code to be observed by a
common carrier in the discharge of its obligation to transport safely its
passengers, x x x The presence of said passengers near the bus was not
unreasonable and they are, therefore, to be considered still as passengers of
the carrier, entitled to the protection under their contract of carriage.” The
presence of passengers at the carriers’ premises is reasonable.

It is apparent from the foregoing that what prompted the Court to rule as it
did in said case is the fact of the passenger’s reasonable presence within the
carrier’s premises. That reasonableness of time should be made to depend on the
attending circumstances of the case, such as the kind of common carrier, the nature
of its business, the customs of the place, and so forth, and therefore precludes a
consideration of the time element per se without taking into account such other
factors. It is thus of no moment whether in the cited case of La Mallorca there was
no appreciable interregnum for the passenger therein to leave the carrier’s
premises whereas in the case at bar, an interval of one hour had elapsed before the
victim met the accident. The primary factor to be considered is the existence of a
reasonable cause as will justify the presence of the victim on or near the petitioner’s
vessel. It is submitted that there exists such a justifiable cause.
It is of common knowledge that, by the very nature of petitioner’s business
as a shipper, the passengers of vessels are allotted a longer period of time to
disembark from the ship than other common carriers such as a passenger bus. With
respect to the bulk of cargoes and the number of passengers it can load, such vessels
are capable of accommodating a bigger volume of both as compared to the capacity
of a regular commuter bus. Consequently, a ship passenger will need at least an
hour, as is the usual practice, to disembark from the vessel and

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claim his baggage whereas a bus passenger can easily get off the bus and retrieve his
luggage in a very short period of time. Verily, petitioner cannot categorically claim,
through the bare expedient of comparing the period of time entailed in getting the
passenger’s cargoes, that the ruling in La Mallorca is inapplicable to the case at bar.
On the contrary, if we are to apply the doctrine enunciated therein to the instant
petition, [W]e cannot in reason doubt that the victim, Anacleto Viana, was still a
passenger at the time of the incident. When the accident occurred, the victim was in
the act of unloading his cargoes, which he had every right to do, from petitioner’s
vessel. As earlier stated, a carrier is duty bound not only to bring its passengers safely
to their destination but also to afford them a reasonable time to claim their baggage.
It is not definitely shown that one hour prior to the incident, the victim had
already disembarked from the vessel. Petitioner failed to prove this. What is clear to
us is that at the time the victim was taking his cargoes, the vessel had already docked
an hour earlier. In consonance with common shipping procedure as to the minimum
time of one hour allowed for the passengers to disembark, it may be presumed that
the victim had just gotten off the vessel when he went to retrieve his baggage. Yet,
even if he had already disembarked an hour earlier, his presence in petitioner’s
premises was not without cause. The victim had to claim his baggage, which was
possibly only one hour after the vessel, arrived since it was admittedly a standard
procedure in the case of petitioner’s vessels that the unloading operations shall start
only after that time. Consequently, under the foregoing circumstances, the victim,
Anacleto Viana, is still deemed a passenger of said carrier at the time of his tragic
death.

Common carriers required to exercise extraordinary diligence in

contract of carriage of passengers; Reasons.
Rosito Z. Bacarro, William Sevilla, and Felario Montefalcon
v. Geruridio B. Castano and The Court of Appeals
G.R. No. L-34597, November 5,1982
FACTS: From appellee’s version just set out, it appears that after he boarded the
jeep in question at Oroquieta, it was driven by

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defendant Montefalcon at around forty (40) kilometers per hour bound for
Jimenez; that while approaching Sumasap Bridge at the said speed, a cargo
truck coming from behind blew its horn to signal its intention to overtake the
jeep; that the latter, without changing its speed, gave way by swerving to the
right, such that both vehicles ran side by side for a distance of around twenty
(20) meters, and that thereafter as the jeep was left behind, its driver was unable
to return it to its former lane and instead it obliquely or diagonally ran down an
inclined terrain towards the right until it fell into a ditch pinning down and
crushing appellee’s right leg in the process.
Throwing the blame for this accident on the driver of the cargo truck,
appellants, in turn, state the facts to be as follows:
‘In the afternoon of April 1, 1960, plaintiff Gerundio Castano
boarded the said jeepney at Oroquieta bound for Jimenez, Misamis
Occidental. While said jeepney was negotiating the upgrade approach of
the Sumasap Bridge at Jimenez, Misamis Occidental and at a distance of
about 44 meters therefrom, a cargo truck, owned and operated by a
certain Te Tiong alias Chinggim, then driven by Nicostrato Digal, a
person not duly licensed to drive motor vehicles, overtook the jeepney
so closely that in the process of overtaking sideswiped the jeepney,
hitting the reserve tire placed at the left side of the jeepney with the
hinge or bolt of the siding of the cargo truck, causing the jeepney to
swerve from its course and after running 14 meters from the road, it
finally fell into the canal. The right side of the jeep fell on the right leg of
the plaintiff-appellee, crushing said leg against the ditch resulting in the
injury to plaintiff-appellee consisting of a broken right thigh.’
And take the following stand: ‘The main defense of defendants-
appellants is anchored on the fact that the jeepney was sideswiped by the
overtaking cargo truck.’
“It must be admitted, out of candor, that there is evidence of the
sideswiping relied upon by appellants, x x x”
This appeal by certiorari to review the decision of respondent Court of
Appeals asserts that the latter decided questions of substance

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which are contrary to law and the approved decisions of this Court. Petitioners
alleged that respondent Court of Appeals erred: (1) in finding contributory
negligence on the part of jeepney driver appellant Montefalcon for having raced
with the overtaking cargo truck to the bridge instead of slackening its speed,
when the person solely responsible for the sideswiping is the unlicensed driver of
the overtaking cargo truck; (2) in finding the jeepney driver not to have exercised
extraordinary diligence, human care, foresight and utmost diligence of very
cautious persons, when the diligence required pursuant to Article 1763 of the
New Civil Code is only that of a good father of a family since the injuries were
caused by the negligence of a stranger; and (3) in not considering that appellants
were freed from any liability since the accident was due to fortuitous event — the
sideswiping of the jeepney by the overtaking cargo truck.
HELD: The Court is not persuaded. The fact is, petitioner-driver
Montefalcon did not slacken his speed but instead continued to run the jeep at
about 40 kilometers per hour even at the time the overtaking cargo truck was
running side by side for about 20 meters and at which time he even shouted to the
driver of the truck.
Thus, had Montefalcon slackened the speed of the jeep at the time the truck
was overtaking it, instead of running side by side with the cargo truck, there
would have been no contact and accident. He should have foreseen that at the
speed he was running, the vehicles were getting nearer the bridge and as the road
was getting narrower the truck would be too close to the jeep and would
eventually sideswiped it. Otherwise stated, he should have slackened his jeep
when he swerved it to the right to give way to the truck because the two vehicles
could not cross the bridge at the same time.
The second assigned error is centered on the alleged failure on the part of
the jeepney driver to exercise extraordinary diligence, human care, foresight and
utmost diligence of a very cautious person, when the diligence required pursuant
to Article 1763 of the Civil Code is only that of a good father of a family.
Petitioners contend that the proximate cause of the accident was the negligence of
the driver of the truck. However, the fact is, there was a contract of carriage
between the

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private respondent and the herein petitioners in which case the Court of Appeals
correctly applied Articles 1733, 1755, and 1766 of the Civil Code which required
the exercise of extraordinary diligence on the part of petitioner Montefalcon.
Article 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
Article 1755. A common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.
Article 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by
special laws.
Indeed, the hazards of modem transportation demand extraordinary
diligence. A common carrier is vested with public interest. Under the new Civil
Code, instead of being required to exercise mere ordinary diligence, a common
carrier is exhorted to carry the passengers safely as far as human care and foresight
can provide “using the utmost diligence of very cautious persons.” (Art. 1755)
Once a passenger in the course of travel is injured, or does not reach his destination
safely, the carrier and driver are presumed to be at fault.
The third assigned error of the petitioners would find fault upon respondent
court in not freeing petitioners from any liability, since the accident was due to a
fortuitous event. But, we repeat that the alleged fortuitous event in this case — the
sideswiping of the jeepney by the cargo truck, was something which could have
been avoided considering the narrowness of the Sumasap Bridge which was not
wide enough to admit two vehicles. As found by the Court of Appeals, Montefalcon
contributed to the occurrence of the mishap.

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The failure of the common carrier to maintain in seaworthy condition its

vessel involved in the contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.

Trans-Asia Shipping Lines, Inc. v. Court of Appeals

and Atty. Renato T. Arroyo
G.R. No. 118126, March 4,1996
FACTS: Plaintiff, herein private respondent Atty. Renato Arroyo, public
attorney, bought a ticket from defendant, herein petitioner, a corporation engaged
in inter-island shipping, for the voyage of M/V Asia Thailand vessel to Cagayan de
Oro City from Cebu City on November 12, 1991.
At around 5:30 in the evening of November 12, 1991, plaintiff boarded the
M/V Asia Thailand vessel. At that instance, plaintiff noticed that some repair
works [sic] were being undertaken on the engine of the vessel. The vessel departed
at around 11:00 in the evening with only one (1) engine running.
After an hour of slow voyage, the vessel stopped near Kawit Island and
dropped its anchor thereat. After half an hour of stillness, some passengers
demanded that they should be allowed to return to Cebu City for they were no
longer willing to continue their voyage to Cagayan de Oro City. The captain
acceded [sic] to their request and thus the vessel headed back to Cebu City.
At Cebu City, plaintiff together with the other passengers who requested to
be brought back to Cebu City, were allowed to disembark. Thereafter, the vessel
proceeded to Cagayan de Oro City. Plaintiff, the next day, boarded the M/V Asia
Japan for its voyage to Cagayan de Oro City, likewise a vessel of defendant.
On account of this failure of defendant to transport him to the place of
destination on November 12, 1991, plaintiff filed before the trial court a complaint
for damages against defendant.
ISSUE: Whether or not there was negligence on the part of the petitioner.

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HELD: Undoubtedly, there was. between the petitioner and the private
respondent, a contract of common carriage. The laws of primary application then
are the provisions on common carriers under Section 4, Chapter 3, Title VIII, Book
IV of the Civil Code, while for all other matters not regulated thereby, the Code of
Commerce and special laws.
Under Article 1733 of the Civil Code, the petitioner was bound to observe
extraordinary diligence in ensuring the safety of the private respondent. That
means that the petitioner was, pursuant to Article 1755 of the said Code, bound to
carry the private respondent safely as far as human care and foresight could
provide, using the utmost diligence of very cautious persons, with due regard for all
the circumstances.
Before commencing the contracted voyage, the petitioner undertook some
repairs on the cylinder head of one of the vessel’s engines. But even before it could
finish these repairs, it allowed the vessel to leave the port of origin with only one
functioning engine, instead of two. Moreover, even the lone functioning engine
was not in perfect condition as sometime after it had run its course, it conked out.
This caused the vessel to stop and remain adrift at sea, thus in order to prevent the
ship from capsizing, it had to drop anchor. Plainly, the vessel was unseaworthy; it
must be adequately equipped for the voyage and manned with a sufficient number
of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage is a clear breach of
its duty prescribed in Article 1755 of the Civil Code.

Nature of the Contract of Air Carriage

A contract of air carriage is a peculiar one. Imbued with public interest,
common carriers are required by law to carry passengers safely as far as human
care and foresight can provide, using the utmost diligence of a very cautious
person, with due regard for all the circumstances. A contract to transport
passengers is quite different in kind and degree from any other contractual relation.
And this, because its business is mainly with the traveling public. It invites people
to avail of the comforts and advantages it offers. The contract of carriage, therefore,
generates a relation attended with a public duty. Failure of the

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carrier to observe this high degree of care and extraordinary diligence renders it
liable for any damage that may be sustained by its passengers. (Singson v. Court
of Appeals, 282 SCRA 149)

Categories of International Transportation

There are then two categories of international transportation, viz., (1) that
where the place of departure and the place of destination are situated within the
territories of two High Contracting Parties regardless of whether or not there be a
break in the transportation or a transshipment; and (2) that where the place of
departure and the place of destination are within the territory of a single High
Contracting Party if there is an agreed stopping place within a territory subject to
the sovereignty, mandate, or authority of another power, even though the power is
not a party to the convention.
The High Contracting Parties referred to in the Convention are the
signatories thereto and those which subsequently adhered to it. In the case of the
Philippines, the Convention was concurred in by the Senate, through Resolution
No. 19, on May 16,1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950 and was deposited with the Polish
Government on November 9, 1950. The Convention became applicable to the
Philippines on February 9, 1951. Then, on September 23, 1955, President Ramon
Magsaysay issued Proclamation No. 201, declaring the Philippines’ formal
adherence thereto, “to the end that the same and every article and clause thereof
may be observed and fulfilled in good faith by the Republic of the Philippines and
the citizens thereof.” (Mapa v. Court of Appeals, 275 SCRA 286, G.R. No.
122308, July 8, 1998)
QUESTION: Does the Philippine recognition of Warsaw Convention
preclude the operation of the Civil Code and other pertinent laws in the
determination of extent of liability of common carriers in cases of breach of
contract of carriage, particularly for willful conduct of their employees?
ANSWER: Although the Warsaw Convention has the force and effect of
law in this country, being a treaty commitment assumed by the Philippine
government, said convention does not operate as an

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exclusive enumeration of the instances for declaring a carrier liable for breach of
contract of carriage or as an absolute limit of the extent of that liability. The
Warsaw Convention declares the carrier liable for damages in the enumerated
cases and under certain limitations. However, it must not be construed to
preclude the operation of the Civil Code and other pertinent laws. It does not
regulate, much less exempt, the carrier from liability for damages for violating
the rights of its passengers under the contract of carriage, especially if willful
misconduct on the part of the carrier’s employees is found or established.
(Cathay Pacific Airways, Ltd. v. Court of Appeals and Tomas L. Alcantara,
G.R. No. 60501, March 5, 1993)

Round trip plane ticket was itself a complete written contract between
the carrier and the passenger.

Carlos Singson v. Court of Appeals and Cathay

Pacific Airways, Inc.
G.R. No. 119995, November 18,1997
FACTS: The instant case is an illustration of the exacting standard
demanded by the law of common carriers. On May 24, 1988, Carlos Singson and
his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd.
(CATHAY), at its Metro Manila ticket outlet two open-dated, identically routed,
round trip plane tickets for the purpose of spending their vacation in the United
States. Each ticket consisted of six flight coupons corresponding to this itinerary:
flight coupon No. 1 — Manila to Hongkong; flight coupon No. 2 — Hongkong to
San Francisco; flight coupon No. 3 — San Francisco to Los Angeles; flight
coupon No. 4 — Los Angeles back to San Francisco; flight coupon No. 5 — San
Francisco to Hongkong; and finally, flight coupon No. 6 — Hongkong to Manila.
The procedure was that at the start of each leg of the trip a flight coupon
corresponding to the particular sector of the travel would be removed from the
ticket booklet so that at the end of the trip no more coupons would be left in the
ticket booklet.
On June 6,1988, CARLOS SINGSON and Crescentino Tiongson left
Manila on board CATHAY’s flight No. 902. They arrived safely in Los Angeles
and after staying there for about three weeks they decided

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to return to the Philippines. On June 30, 1988, they arranged for their return
flight at CATHAY’s Los Angeles Office and chose July 1, 1988, a Friday, for
their departure. While Tiongson easily got a booking for the flight, SINGSON
was not as lucky. It was discovered that his ticket booklet did not have flight
coupon No. 5 corresponding to the San Francisco-Hongkong leg of the trip.
Instead, what was in his ticket was flight coupon No. 3 — San Francisco to Los
Angeles — which was supposed to have been used and removed from the ticket
booklet. It was not until July 6, 1988 that CATHAY was finally able to arrange
for his return flight to Manila.
On August 26, 1988, SINGSON commenced an action for damages
against CATHAY before the Regional Trial Court of Vigan, Ilocos Sur. He
claimed that he insisted on CATHAY’s confirmation of his return flight
reservation because of very important and urgent business engagements in the
Philippines. But CATHAY allegedly shrugged off his protestations and
arrogantly directed him to go to San Francisco himself and do some
investigations on the matter or purchase a new ticket subject to refund if it turned
out that the missing coupon was still unused or subsisting. He remonstrated that
it was the airline’s agent/representative who must have committed the mistake of
tearing off the wrong flight coupon; that he did not have enough money to buy
new tickets; and, CATHAY could conclude the investigation in a matter of
minutes because of its facilities. CATHAY, allegedly in scornful insolence,
simply dismissed him like an impertinent “brown pest.” Thus, he and his cousin
Tiongson, who deferred his own flight to accompany him, were forced to leave
for San Francisco on the night of July 1, 1988 to verify the missing ticket.
CATHAY denied these allegations and averred that since petitioner was
holding an “open-dated” ticket, which meant that he was not booked on a
specific flight on a particular date, there was no contract of carriage yet existing
such that CATHAY’S refusal to immediately book him could not be construed
as breach of contract of carriage. Moreover, the coupon had been missing for
almost a month; hence, CATHAY must first verify its status, i.e., whether the
ticket was still valid and outstanding, before it could issue a replacement ticket to
petitioner. For that purpose, it set a request by telex on the same day, July 1,
1988, to its Hongkong

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Headquarters where such information could be retrieved. However, due to the

time difference between Los Angeles and Hongkong, no response from the
Hongkong office was immediately received. Besides, since July 2 and 3, 1988
were a Saturday and a Sunday, respectively, and July 4, 1988 was an official
holiday being U.S. Independence Day, the telex response of CATHAY
Hongkong was not read until 5 July 1988. Lastly, CATHAY denied having
required SINGSON to make a trip back to San Francisco; on the other hand, it
was the latter who informed CATHAY that he was making a side trip to San
Francisco. Hence, CATHAY advised him that the response of Hongkong
would be copied in San Francisco so that he could conveniently verify thereat
should he wish to.

The trial court rendered a decision in favor of petitioner herein holding

that CATHAY was guilty of gross negligence amounting to malice and bad
faith for which it was adjudged to pay petitioner P20,000 for actual damages
with interest at the legal rate of 12% per annum from August 26, 1988 when
the complaint was filed until fully paid, P500,000 for moral damages, P400,000
for exemplary damages, PI00,000 for attorney’s fees, and, to pay the costs.
On appeal by CATHAY, the Court of Appeals reversed the trial court’s
finding that there was gross negligence amounting to bad faith or fraud and,
accordingly, modified its judgment by deleting the awards for moral and
exemplary damages, and the attorney’s fees as well.
ISSUE: Whether or not a breach of contract was committed by
CATHAY when it failed to confirm the booking of petitioner for its July 1,
1988 flight.
HELD: The Court finds merit in the petition. CATHAY undoubtedly
committed a breach of contract when it refused to confirm petitioner’s flight
reservation back to the Philippines on account of his missing flight coupon. Its
contention that there was no contract of carriage that was breached because
petitioner’s ticket was open-dated is untenable. To begin with, the round trip
ticket issued by the carrier to the passenger was in itself a complete written
contract by and between the carrier and the passenger. It had all the elements of
a complete written contract, to wit: (a) the consent of the contracting parties
manifested

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by the fact that the passenger agreed to be transported by the carrier to and from
Los Angeles via San Francisco and Hongkong back to Philippines, and the
carrier's acceptance to bring him to his destination and then back home; (b) cause
or consideration, which was the fare paid by the passenger as stated in his ticket:
and (c) object, which was the transportation of the passenger from the place of
departure to the place of destination and back, which are also stated in his ticket.
In fact, the contract of carriage in the instant case was already partially executed
as the carrier complied with its obligation to transport the passenger to his
destination, i.e., Los Angeles. Only the performance of the other half of the
contract — which was to transport the passenger back to the Philippines — was
left to be done.
Clearly, therefore, petitioner was not a mere “chance passenger with no
superior right to be boarded on a specific flight,” as erroneously claimed by
CATHAY and sustained by the appellate court.
Interestingly, it appears that CATHAY was responsible for the loss of the
ticket. One of the two things may be surmised from the circumstances of this
case: first, US Air (CATHAY’ agent) had mistakenly detached the San
Francisco-Hongkong flight coupon thinking that it was the San Francisco-Lost
Angeles portion; or second, petitioner’s booklet of tickets did not from issuance
include a San Francisco-Hongkong flight coupon. In either case, the loss of the
coupon was attributable to the negligence of CATHAY’s agents and was the
proximate cause of the non-confirmation of petitioner’s return flight on July 1,
1988. It virtually prevented petitioner from demanding the fulfillment of the
carrier’s obligations under the contract. Had CATHAY’s agents been diligent in
double checking the coupons they were supposed to detach from the passengers’
tickets, there would have been no reason for CATHAY not to confirm
petitioner’s booking as exemplified in the case of his cousin and flight
companion Tiongson whose ticket booklet was found to be in order. Hence, to
hold that no contractual breach was committed by CATHAY and totally absolve
it from any liability would in effect put a premium on the negligence of its agents,
contrary to the policy of the law requiring common carriers to exercise
extraordinary diligence.

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“Force majeure, ” common carriers are not the insurer of all risks.

Japan Airlines v. Court of Appeals, Enrique Agana, et al

G.R. No. 118664, August 7,1998
FACTS: On June 13, 1991, private respondent Jose Miranda boarded
JAL flight No. JL 001 in San Francisco, California bound for Manila. Likewise,
on the same day, private respondents Enrique Agana, Maria Angela Nina Agana
and Adelia Francisco left Los Angeles, California for Manila via JAL flight No.
JL 061. As an incentive for traveling on the said airline, both flights were to
make an overnight stopover at Narita, Japan, at the airlines’ expense, thereafter
proceeding to Manila the following day.
Upon arrival at Narita, Japan on June 14,1991, private respondents were
billed at Hotel Nikko Narita for the night. The next day, private respondents, on
the final leg of their journey, went to the airport to take their flight to Manila.
However, due to the Mt. Pinatubo eruption, unrelenting ash fall blanketed Ninoy
Aquino International Airport (NAIA), rendering it inaccessible to airline traffic.
Hence, private respondents’ trip to Manila was cancelled indefinitely.
To accommodate the needs of its stranded passengers, JAL rebooked all
the Manila-bound passengers on flight No. 741 due to depart on June 16, 1991
and also paid for the hotel expenses for their unexpected overnight stay. On June
16,1991, much to the dismay of the private respondents, their long anticipated
flight to Manila was again cancelled due to NALA’s indefinite closure. At this
point, JAL informed the private respondents that it would no longer defray their
hotel and accommodation expense during their stay in Narita.
Since NAIA was only reopened to airline traffic on June 22,1991, private
respondents were forced to pay for their accommodations and meal expenses
from their personal funds from June 16 to 21, 1991. Their unexpected stay in
Narita ended on June 22, 1991 when they arrived in Manila on board JL flight
No. 741.
Obviously, still reeling from the experience, private respondents, on July
25,1991, commenced an action for damages against JAL before

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the Regional Trial Court of Quezon City, Branch 104. To support their claim,
private respondents asserted that JAL failed to live up to its duty to provide care
and comfort to its stranded passengers when it refused to pay for their hotel and
accommodation expenses from June 16 to 21, 1991 at Narita, Japan. In other
words, they insisted that JAL was obligated to shoulder their expenses as long as
they were still stranded in Narita. On the other hand, JAL denied this allegation
and averred that airline passengers have no vested right to these amenities in case a
flight is cancelled due to “force majeure. ”
On June 18,1992, the trial court rendered its judgment in favor of private
respondents holding JAL liable for damages.
ISSUE: Whether or not JAL, as a common carrier has the obligation to
shoulder the hotel and meal expenses of its stranded passengers until they have
reached their final destination, even if the delay were caused by “force majeure. ”
HELD: To begin with, there is no dispute that the Mt. Pinatubo eruption
prevented JAL from proceeding to Manila on schedule. Likewise, private
respondents concede that such event can be considered as “force majeure " since
their delayed arrival in Manila was not imputable to JAL.
However, private respondents contend that while JAL cannot be held
responsible for the delayed arrival in Manila, it was nevertheless liable for their
living expenses during their unexpected stay in Narita since airlines have the
obligation to ensure the comfort and convenience of its passengers. While the
Court sympathizes with the private respondents’ plight, the Court is unable to
accept this contention.
The Court is not unmindful of the fact that in a plethora of cases, the Court
has consistently ruled that a contract to transport passengers is quite different in
kind and degree from any other contractual relation. It is safe to conclude that it is
a relationship imbued with public interest. Failure on the part of the common
carrier to live up to the exacting standards of care and diligence renders it liable for
any damages that may be sustained by its passengers. However, this is not to say
that common carriers are absolutely responsible for all injuries or damages even if
the same were caused by a fortuitous event. To rule otherwise

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would render the defense of "force majeure, " as an exception from any liability
and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his
obligation because of "force majeure, ” the general rule is that he cannot be held
liable for damages for non-performance. Corollarily, when JAL was prevented
from resuming its flight to Manila due to the effects of Mt. Pinatubo eruption,
whatever losses or damages in the form of hotel and meal expenses the stranded
passengers incurred, cannot be charged to JAL. Yet, it is undeniable that JAL
assumed the hotel expenses of respondents for their unexpected overnight stay on
June 15, 1991.
Admittedly, to be stranded for almost a week in a foreign land was an
exasperating experience for the private respondents. To be sure, they underwent
distress and anxiety during their unanticipated stay in Narita, but their predicament
was not due to the fault or negligence of JAL but the closure of NAIA to
international flights. Indeed, to hold JAL, in the absence of bad faith or negligence,
liable for the amenities of its stranded passengers by reason of a fortuitous event is
too much of a burden to assume.
Furthermore, it has been held that airline passengers must take such risks
incident to the mode of travel. In this regard, adverse weather conditions or extreme
climatic changes are some of the perils involved in air travel, the consequences of
which the passenger must assume or expect. After all, common carriers are not the
insurer of all risks.
The Court is not prepared, however, to completely absolve petitioner JAL
from any liability. It must be noted that private respondents bought tickets from the
United States with Manila as their final destination. While JAL was no longer
required to defray private respondents’ living expenses during their stay in Narita
on account of the fortuitous event, JAL had the duty to make the necessary
arrangements to transport private respondents on the first available connecting
flight to Manila. Petitioner JAL reneged on its obligation to look after the comfort
and convenience of its passengers when it declassified private respondents from
“transit passengers” to “new passengers” as a result of which private respondents
were obliged to make the necessary arrangements themselves for the next flight to

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Manila. Private respondents were placed on the waiting list from June 20 to 24.
To assure themselves of a seat on an available flight, they were compelled to
stay in the airport the whole day of June 22, 1991 and it was only at 8:00 p.m.
of the aforesaid date that they were advised that they could be accommodated
in said flight, which flew at about 9:00
a. m. the next day.
The Court is not oblivious to the fact that the cancellation of JAL flights
to Manila from June 15 to 21,1991 caused considerable disruption in
passenger booking and reservation. In fact, it would be unreasonable to expect,
considering NAIA’s closure, that JAL flight operations would be normal on
the days affected. Nevertheless, this does not excuse JAL from its obligation to
make the necessary arrangements to transport private respondents on its first
available flight to Manila. After all, it had a contract to transport private
respondents from the United States to Manila as their final destination.
Consequently, the award of nominal damages is in order. Nominal
damages are adjudicated in order that a right of a plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized and not
for the purpose of any loss suffered by him. The court may award nominal
damages in every obligation arising from any source enumerated in Article
1157, or in every case where any property right has been invaded.

COMPARED TO: Philippine Airlines v. Court of Appeals 226

SCRA423 (1993)

The reliance of the Court of Appeals \nPAL v. CA (226 SCRA423) is

misplaced. The factual background of the PAL case is different from the instant
petition. In that case, there was indeed a fortuitous event resulting in the
diversion of the PAL flight. However, the unforeseen diversion was worsened
when “private respondents (passenger) was left at the airport and could not even
hitch a ride in a Ford Fiera loaded with PAL personnel,” not to mention the
apparent apathy of the PAL station manager as to the predicament of the stranded
passengers. In light of these circumstances, the Court held if the fortuitous event
was accompanied by neglect and malfeasance by the carrier’s employees, an

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action for damages against the carrier is permissible. Unfortunately, for

private respondents, none of these conditions are present in the instant
petition.
The power to admit or not an alien into the country is a sovereign act,
which cannot be interfered with by an airline.
Japan Airlines v. Jesus
Simangan G.R. No. 170141,
April 22,2008
FACTS: In 1991, respondent Jesus Simangan decided to donate a
kidney to his ailing cousin, Loreto Simangan, in UCLA School of Medicine
in Los Angeles, California, U.S.A. Having obtained an emergency U.S. visa,
respondent purchased a round trip plane ticket from petitioner Japan Airlines
(JAL) for US$1,485, and was issued the corresponding boarding pass. He
was scheduled to a particular flight bound for Los Angeles, California,
U.S.A. via Narita, Japan.
On July 29, 1992, the date of his flight, respondent went to Ninoy
Aquino International Airport (NAIA). He was allowed to check-in at JAL’s
counter. His plane ticket, boarding pass, travel authority, and personal
articles were subjected to rigid immigration and security routines. After
passing through said immigration and security procedures, respondent was
allowed by JAL to enter its airplane. While inside the airplane, JAL’s airline
crew suspected respondent of carrying a falsified travel document and
imputed that he would only use the trip to the United States as a pretext to
stay and work in Japan. The stewardess asked respondent to show his travel
documents. Shortly after, the stewardess, along with a Japanese and a
Filipino, haughtily ordered him to stand up and leave the plane. Respondent
protested, explaining that he was issued a U.S. visa. Just to allow him to
board the plane, he pleaded with JAL to closely monitor his movements
when the aircraft stops over in Narita. His pleas were ignored. He was then
constrained to go out of the plane. In a nutshell, respondent was bumped off
the flight. Respondent went to JAL’s ground office and waited there for three
hours. Meanwhile, the plane took off and he was left behind. Afterwards, he
was informed that his travel documents were, indeed, in order. Respondent
was refunded the cost of his plane ticket less the sum

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of US$500, which was deducted by JAL. Subsequently, respondent’s U.S.

visa was cancelled.
Displeased by the turn of events, respondent filed an action for
damages against JAL with the Regional Trial Court (RTC) in Valenzuela
City, docketed as Civil Case No. 4195-V-93 for damages and attorney’s
fee.

On September 21, 2000, the RTC rendered a decision in favor of

respondent (plaintiff), ordering the defendant to pay the plaintiff the
amount of PI,000,000 as moral damages, the amount of P500,000 as
exemplary damages, and the amount of P250,000 as attorney’s fees, plus
the cost of suit.
In a decision dated May 31, 2005, the Court of Appeals (CA)
affirmed the decision of the RTC with modification in that it lowered the
amount of moral and exemplary damages and deleted the award of
attorney’s fees.
ISSUE: Whether or not Japan Airlines is guilty of breach of contract.
HELD: That respondent purchased a round trip plane ticket from
JAL and was issued the corresponding boarding pass is uncontroverted. His
plane ticket, boarding pass, travel authority and personal articles were
subjected to rigid immigration and security procedure. After passing
through said immigration and security procedure, he was allowed by JAL
to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan. Concisely, there was a contract of carriage between JAL and
respondent.
Nevertheless, JAL made respondent get off the plane on his
scheduled departure on July 29, 1992. He was not allowed by JAL to fly.
JAL, thus, failed to comply with its obligation under the contract of
carriage.
JAL justifies its action by arguing that there was “a need to verify the
authenticity of respondent’s travel document.” It alleged that no one from
its airport staff had encountered a parole visa before. It further contended
that respondent agreed to fly the next day so that it could first verify his
travel documents; hence, there was novation. It maintained

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that it was not guilty of breach of contract of carriage as respondent was not able
to travel to the United States due to his own voluntary desistance.
The Court cannot agree. JAL did not allow respondent to fly. It informed
respondent that there was a need to first check the authenticity of his travel
documents with the U.S. Embassy. As admitted by JAL, “the flight could not wait
for Mr. Simangan because it was ready to depart.” Since JAL definitely declared
that the flight could not wait for respondent, it gave respondent no choice but to
be left behind. The latter was unceremoniously bumped off despite his
protestations and valid travel documents, and notwithstanding his contract of
carriage with JAL. Damaged had already been done when respondent was offered
to fly the next day on July 30, 1992. Said offer did not cure JAL’s default.
Considering that respondent was forced to get out of the plane and left
behind against his will, he could not have freely consented to be rebooked the
next day. In short, he did not agree to the alleged novation. Since novation
implies a waiver of the right the creditor had before the novation, such waiver
must be express. It cannot be supposed, without clear proof, that respondent had
willingly done away with his right to fly on July 29, 1992.
Moreover, the reason behind the bumping off incident, as found by the
RTC and CA, was that JAL personnel imputed that respondent would only use
the trip to the United States as a pretext to stay and work in Japan. Apart from the
fact that respondent’s plane ticket, boarding pass, travel authority, and person
articles already passed the rigid immigration and security routines, JAL as a
common carrier, ought to know the kind of valid travel documents respondent
carried. As provided in Article 1755 of the New Civil Code, “A common carrier
is bound to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard
for all the circumstances.” Thus, the Court finds untenable JAL’s defense of
“verification of respondent’s documents” in its breach of contract of carriage.
It bears repeating that the power to admit or not an alien into the country is
a sovereign act, which cannot be interfered with even by JAL.

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In addition for breach of contract of carriage, all that is required of

plaintiff is to prove the existence of such contract and its nonperformance by the
carrier through the latter’s failure to carry the passenger safely to his destination.
Respondent has complied with these twin requisites.

ART. 1756. In case of death of or injuries to passengers, common

carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as
prescribed in Articles 1733 and 1755.

Under the law, common carriers are, from the nature of their business and
for reasons of public policy, bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case. More particularly, a common
carrier is bound to carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with due regard
for all the circumstances. Thus, where a passenger dies or is injured, the common
carrier is presumed to have been at fault or to have acted negligently. This gives
rise to an action for breach of contract of carriage and its non-performance by the
carrier, that is, the failure of the carrier to carry the passenger safely to his
destination, which, in the instant case, necessarily includes its failure to safeguard
its passenger with extraordinary diligence while such relation subsists.
The presumption is, therefore, established by law that in case of a
passenger’s death or injury, the operator of the vessel was at fault or negligent,
having failed to exercise extraordinary diligence, and it is incumbent upon it to
rebut the same. This is in consonance with the avowed policy of the State to afford
full protection to the passengers of common carriers, which can be carried out
only by imposing a stringent statutory obligation upon the latter. Concomitantly,
the Supreme Court has likewise adopted a rigid posture in the application of the
law by exacting the highest degree of care and diligence from common carriers,
bearing utmost in mind the welfare of the passengers who often become hapless
victims of indifferent and profit-oriented carriers. (Aboitiz Shipping
Corporation v. Court of Appeals, 179 SCRA 95)

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It has been repeatedly held that in an action based on a contract of

carriage, the court need not make an express finding of fault or negligence on the
part of the carrier in order to hold it responsible to pay the damages sought by the
passenger. By the contract of carriage, the carrier assumes the express obligation
to transport the passenger to his destination safely and to observe extraordinary
diligence with a due regard for all the circumstances, and any injury that might be
suffered by the passenger is right away attributable to the fault or negligence of
the carrier. This is an exception to the general rule that negligence must be
proved, and it is therefore incumbent upon the common carrier to prove that it has
exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the
Civil Code. (Sy v. Malate Taxicab and Garage, Inc., 102 Phil. 482;
Singapore Airlines Limited v. Fernandez, 417 SCRA 474, December 10,
2003)

CIRCUMSTANCES INDICATIVE OF NEGLIGENCE ON THE PART

OF THE DRIVER/EMPLOYEE.
1. The fact that Pestano was able to use a bus with a faulty
speedometer shows that Metro Cebu was remiss in the supervision
of its employees and in the proper care of its vehicles. It had thus
failed to conduct its business with the diligence required by law.
(Pestano v. Sumayang, G.R. No. 139875, December 4, 2000,
346 SCRA 870)
2. Under Article 2185 of the Civil Code, unless there is proof to the
contrary, it is presumed that a person driving a motor vehicle has
been negligent if at the time of the mishap he was violating a traffic
regulation. As found by the appellate court, petitioners failed to
present satisfactory evidence to overcome this legal presumption.
(Mallari, Sr. v. Court of Appeals, 324 SCRA 147)
3. It has been said that drivers of vehicles “who bump the rear of
another vehicle” are presumed to be “the cause of the accident,
unless contradicted by other evidence.” The rationale behind the
presumption is that the driver of the rear vehicle has full control of
the situation as he is in a position to observe the vehicle in front of
him.

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Consequently, no other person was to blame but the victim himself

since he was the one who bumped his motorcycle into the rear of the Isuzu
truck. He had the last clear chance of avoiding the accident. (Raynera v.
Hiceta, 306 SCRA 102)

PRECAUTIONS REQUIRED OF A DRIVER TO AVOID ACCIDENTS.

The rule is settled that a driver abandoning his proper lane for the
purpose of overtaking another vehicle in an ordinary situation has the duty
to see to it that the road is clear and not to proceed if he cannot do so in
safety. When a motor vehicle is approaching or rounding a curve, there is
special necessity for keeping to the right side of the road and the driver does
not have the right to drive on the left hand side relying upon having time to
turn to the right if a car approaching from the opposite direction comes into
view.
This act of overtaking was in clear violation of Section 41, pars,
(a) and (b), of R.A. No. 4136 as amended, otherwise known as The Land
Transportation and Traffic Code which provides:
Sec. 41. Restrictions on overtaking and passing. — (a) The
driver of a vehicle shall not drive to the left side of the center
line of a highway in overtaking or passing another vehicle
proceeding in the same direction, unless such left side is
clearly visible and is free of oncoming traffic for a sufficient
distance ahead to permit such overtaking or passing to be
made in safety.
(b) The driver of a vehicle shall not overtake or pass
another vehicle proceeding in the same direction when
approaching the crest of a grade, nor upon a curve in the
highway, where the driver’s view along the highway is
obstructed within a distance of five hundred feet ahead except
on a highway having two or more lanes for movement of
traffic in one direction where the driver of a vehicle may
overtake or pass another vehicle: Provided, That on a
highway, within a business or residential district, having two
or more lanes for movement of traffic in one direction, the
driver of a vehicle

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may overtake or pass another vehicle on the right. (Mallari, Sr

v. Court of Appeals, 324 SCRA 147)
As a professional driver operating a public transport bus, he should have
anticipated that overtaking at a junction was a perilous maneuver and should thus
have exercised extreme caution. (Pestano v. Sumayang, 346 SCRA 870)

A common carrier may not be absolved from liability in case of

force majeure or fortuitous event alone — the common carrier
must still prove that it was not negligent in causing the death or
injury resulting from an accident.
Alberta and Cresencio Yobido v. Court of Appeals
and Leny Tumboy, et al
G.R. No. 113003, October 17,1997
FACTS: On April 26, 1988, spouses Tito and Leny Tumboy and their
minor children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur,
a Yobido Liner bound for Davao City. Along Pico Road in Km. 17, Sta. Maria,
Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine
around three feet from the road and struck a tree. The incident resulted in the death
of 28-year old Tito Tumboy and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage,
damages and attorney’s fees was filed by Leny and her children against Alberta
Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the
Regional Trial Court of Davao City. When the defendants therein filed their
answer to the complaint, they raised the affirmative defense of caso fortuito.
ISSUE: Whether or not the explosion of a newly installed tire of a
passenger vehicle is a fortuitous event that exempts the carrier from liability for
the death of a passenger.
HELD: As a rule, when a passenger boards a common carrier, he takes the
risks incidental to the mode of travel he has taken. After all, a carrier is not an
insurer of the safety of its passengers and is not bound

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absolutely and at all events to carry them safely and without injury. However, when
a passenger is injured or dies while traveling, the law presumes that the common
carrier is negligent. Thus, the Civil Code provides:

“Art. 1756. In case of death or injuries to passengers, common

carriers are presumed to have been at fault or to have acted negligently ;
unless they prove that they observed extraordinary diligence as
prescribed in Articles 1733 and 1755. ”

Article 1755 provides that “(a) common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with a due regard for all the circumstances.”
Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is
presumed to have been at fault or to have acted negligently. This disputable
presumption may only be overcome by evidence that the carrier had observed
extraordinary diligence as prescribed by Articles 1733, 1755, and 1756 of the Civil
Code or that the death or injury of the passenger was due to a fortuitous event.
Consequently, the court need not make an express finding of fault or negligence on
the part of the carrier to hold it responsible for damages sought by the passenger.

In view of the foregoing, petitioners’ contention that they should be exempt

from liability because the tire blowout was no more than a fortuitous event that
could not have been foreseen, must fail. A fortuitous event is possessed of the
following characteristics: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee the event which
constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor. As Article
1174 provides, no person shall be responsible for a fortuitous event which could not
be foreseen, or which, though foreseen, was inevitable. In other words, there must
be an entire exclusion of human agency from the cause of injury or loss.
 CHAPTER III
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Under the circumstances of this case, the explosion of the new tire may not
be considered a fortuitous event. There are human factors involved in the situation.
The fact that the tire was new did not imply that it was entirely free from
manufacturing defects or that it was properly mounted on the vehicle. Neither may
the fact that the tire bought and used in the vehicle is of a brand name noted for
quality, resulting in the conclusion that it could not explode within five days’ use.
Be that as it may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso fortuito that would
exempt the carrier from liability for damages.
Moreover, a common carrier may not be absolved from liability in case
offorce majeure or fortuitous event alone. The common carrier must still prove
that it was not negligent in causing the death or injury resulting from an accident.
This Court has had occasion to state:
“While it may be true that the tire that blew-up was still good because
the grooves of the tire were still visible, this fact alone does not make the
explosion of the tire a fortuitous event. No evidence was presented to show
that the accident was due to adverse road conditions or that precautions
were taken by the jeepney driver to compensate for any conditions liable to
cause accidents. The sudden blowing-up, therefore, could have been caused
by too much air pressure injected into the tire coupled by the fact that the
jeepney was overloaded and speeding at the time of the accident.”
Having failed to discharge its duty to overthrow the presumption of
negligence with clear and convincing evidence, petitioners are hereby held liable
for damages. Article 1764 in relation to Article 2206 of the Civil Code prescribes
the amount of at least three thousand pesos as damages for the death of a
passenger. Under prevailing jurisprudence, the award of damages under Article
2206 has been increased to P50,000.
Moral damages are generally not recoverable in culpa contractual except
when bad faith had been proven. However, the same damages may be recovered
when breach of contract of carriage results in the death of a passenger, as in this
case. Exemplary damages, awarded by way of example or correction for the public
good when moral damages

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are awarded, may likewise be recovered in contractual obligations if the defendant

acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. Because
petitioners failed to exercise the extraordinary diligence required of a common
carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted
recklessly. As such, private respondents shall be entitled to exemplary damages.

In a contract of carriage, it is presumed that the common carrier was at

fault or was negligent when a passenger dies or is injured.

Baliwag Transit, Inc. v. Court of Appeals,

Spouses Antonio Garcia and Leticia Garcia
and Julio Recontique
G.R. No. 116110, May 15,1996

FACTS: The record show that on July 31, 1980, Leticia Garcia, and her
five-year old son, Allan Garcia, boarded Baliwag Transit Bus No. 2036 bound for
Cabanatuan City driven by Jaime Santiago. They took the seat behind the driver.
At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus
passengers saw a cargo truck parked at the shoulder of the national highway. Its
left rear portion jutted to the outer lane, as the shoulder of the road was too narrow
to accommodate the whole truck. A kerosene lamp appeared at the edge of the
road obviously to serve as a warning device. The truck driver, Julio Recontique,
and his helper, Arturo Escala, were then replacing a flat tire. The truck is owned
by respondent A & J Trading.
Bus driver Santiago was driving at an inordinately fast speed and failed to
notice the truck and the kerosene lamp at the edge of the road. Santiago’s
passengers urged him to slow down but he paid them no heed. Santiago even
carried animated conversations with his co-employees while driving. When the
danger of collision became imminent, the bus passengers shouted, “Babangga
tayo!” Santiago stepped on the brake, but it was too late. His bus rammed into the
stalled cargo truck. It caused the instant death of Santiago and Escala, and injury
to several others. Leticia and Allan Garcia were among the injured passengers.

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Leticia suffered a fracture in her pelvis and right leg. They rushed her to
the provincial hospital in Cabanatuan City where she was given emergency
treatment. After three days, she was transferred to the National Orthopedic
Hospital where she was confined for more than a month. She underwent an
operation for partial hip prosthesis.
Allan, on the other hand, broke a leg. He was also given emergency
treatment at the provincial hospital.
Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J
Trading and Julio Recontique for damages in the Regional Trial Court of
Bulacan. Leticia sued as an injured passenger of Baliwag and as mother of
Allan. At the time of the complaint, Allan was a minor, hence, the suit initiated
by his parents in his favor.
Baliwag, A & J Trading and Recontique disclaimed responsibility for the
mishap. Baliwag alleged that the accident was caused solely by the fault and
negligence of A & J Trading and its driver, Recontique. Baliwag charged that
Recontique failed to place an early warning device at the comer of the disabled
cargo truck to warn oncoming vehicles. On the other hand, A & J Trading and
Recontique alleged that the accident was the result of the negligence and
reckless driving of Santiago, bus driver of Baliwag.
After hearing, the trial court found all the defendants liable.
On appeal, the Court of Appeals modified the trial court’s Decision by
absolving A & J Trading from liability and by reducing the award of attorney’s
fees to PI0,000 and loss of earnings to P300,000, respectively.
ISSUE: Whether or not the Court of Appeals erred in absolving A & J
Trading from liability and holding Baliwag solely liable for the injuries suffered
by Leticia and Allan Garcia in the accident.
HELD: As a common carrier, Baliwag breached its contract of carriage
when it failed to deliver its passengers, Leticia and Allan Garcia to their
destination safe and sound. A common carrier is bound to carry its passengers
safely as far as human care and foresight can provide, using the utmost diligence
of a very cautious person, with due regard for all the circumstances. In a
contract of carriage, it is presumed
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that the common carrier was at fault or was negligent when a passenger dies or is
injured. Unless the presumption may only be overcome by evidence that the
carrier exercised extraordinary diligence as prescribed in Articles 1733 and 1755
of the Civil Code.
The records are bereft of any proof to show that Baliwag exercised
extraordinary diligence. On the contrary, the evidence demonstrates its driver’s
recklessness. Leticia Garcia testified that the bus was running at a very high
speed despite the drizzle and the darkness of the highway. The passengers
pleaded for its driver to slow down, but their plea was ignored. Leticia also
revealed that the driver smelled of liquor. She could smell him as she was seated
right behind the driver. Another passenger, Felix Cruz testified that immediately
before the collision, the bus driver was conversing with a co-employee. All these
prove the bus driver’s wanton disregard for the physical safety of his passengers,
which makes Baliwag as a common carrier liable for damages under Article
1759 of the Civil Code:
“Art. 1759. Common carriers are liable for the death of or
injuries to passengers through the negligence or willful acts of the
former’s employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the
common carriers.
This liability of the common carriers do not cease upon proof
that they exercised all the diligence of a goodfather of a family in the
selection or supervision of their employees. ”
Baliwag cannot evade its liability by insisting that the accident was
caused solely by the negligence of A & J Trading and Julio Recontique. It
harps on their alleged none use of an early warning device as testified to by
Col. Demetrio dela Cruz, the station commander of Gapan, Nueva Ecija who
investigated the incident, and Francisco Romano, the bus conductor.
The records do not bear out Baliwag’s contention. Col. Dela Cruz and
Romano testified that they did not see any early warning device at the scene of
the accident. They were referring to the triangular reflectorized plates in red
and yellow issued by the Land Transportation

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Office. However, the evidence shows that Recontique and Escala placed a
kerosene lamp or torch at the edge of the road, near the rear portion of the truck to
serve as an early warning device. This substantially complies with Section 34(9g)
of the Land Transportation and Traffic Code.

To be absolved from liability in case of force majeure, it is not enough

that the accident was caused by force majeure; common carrier must
still prove that it was not negligent in causing the injuries resulting from
such accident.

Bachelor Express, Inc. and Cresencio Rivera v.

The Honorable Court of Appeals, et al
G.R. No. 85691, July 31,1990

FACTS: On August 1, 1980, Bus No. 800 owned by Bachelor Express,

Inc., and driven by Cresencio Rivera was the situs of a stampede, which resulted
in the death of passengers Omominio Beter and Narcisa Rautraut.
The evidence shows that the bus came from Davao City on its way to
Cagayan de Oro City passing Butuan City; that while at Tabon-Tabon, Butuan
City, the bus picked up a passenger; that about 15 minutes later, a passenger at the
rear portion suddenly stabbed a PC soldier which caused commotion and panic
among the passengers; that when the bus stopped, passengers Omominio Beter
and Narcisa Rautraut were found lying down the road, the former already dead as
a result of head injuries and the latter also suffering from severe injuries which
caused her death later. The passenger-assailant alighted from the bus and ran
toward the bushes but was killed by the police. Thereafter, the heirs of Omomino
Beter and Narcisa Rautraut, private respondents herein (Ricardo Beter and Sergia
Beter are the parents of Omominio while Teofilo Rautraut and Zoetera Rautraut
are the parents of Narcisa) filed a complaint for “sum of money” against Bachelor
Express, Inc., its alleged owner Samson Yasay, and the driver Rivera.
In their answer, the petitioners denied liability for the death of Omominio
Beter and Narcisa Rautraut. They alleged that “x x x the

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driver was able to transport his passengers safely to their respective places of
destination except Omominio Beter and Narcisa Rautraut who jumped off the
bus without the knowledge and consent, much less, the fault of the driver and
conductor and the defendants in this case; the defendant corporation had
exercised due diligence in the choice of its employees to avoid as much as
possible accidents; the incident on August 1, 1980 was not a traffic accident or
vehicular accident; it was an incident or event very much beyond the control of
the defendants; defendants were not parties to the incident complained of as it
was an act of a third-party who is not in any way connected with the defendants
and of which the latter have no control and supervision.”
After due trial, the trial court issued an order dated August 8,1985
dismissing the complaint.
Upon appeal however, the trial court’s decision was reversed and set
aside. The Court of Appeals finds the petitioners solidarity liable for damages in
the total amount of PI 20,000.
ISSUES: 1) Whether or not the accident was caused by force majeure.
2) Whether or not the petitioner common carrier observed extraordinary
diligence to safeguard the lives of its passengers.
HELD: The running amuck of the passenger was the proximate cause of
the incident as it triggered off a commotion and panic among the passengers such
that the passengers started running to the sole exit shoving each other resulting in
the falling off the bus by passengers Beter and Rautraut causing them fatal
injuries. The sudden act of the passenger who stabbed another passenger in the
bus is within the context offorce majeure.
However, in order that a common carrier may be absolved from liability
in case offorce majeure, it is not enough that the accident was caused by force
majeure. The common carrier must still prove that it was not negligent in
causing the injuries resulting from such accident.
Considering the factual findings of the Court of Appeals — the bus driver
did not immediately stop the bus at the height of the commotion; the bus was
speeding from a full stop; the victims fell from the bus door when it was opened
or gave way while the bus was still

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running; the conductor panicked and blew his whistle after people had
already fallen off the bus and the bus was not properly equipped with doors in
accordance with law — it is clear that the petitioners have failed to overcome
the presumption of fault and negligence found in the law governing common
carriers.
The petitioners’ argument that the petitioners “are not insurers of their
passengers” deserves no merit in view of the failure of the petitioners to
prove that the deaths of the two passengers were exclusively due to force
majeure and not to the failure of the petitioners to observe extraordinary
diligence in transporting safely the passengers to their destinations as
warranted by law.

Duty of a common carrier to overcome the presumption of

negligence.

Franklin Gacal and Corazon M. Gacal

v. Philippine Airlines
G.R. No. 55300, March 15,1990
FACTS: Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal,
Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the late Elma de
Guzman, were then passengers boarding defendant’s BAC 111 at Davao
Airport for a flight to Manila, not knowing that on the same flight,
Macalinog, Taurac Pendatum known as Commander Zapata, Nasser Omar,
Liling Pusuan Radia, Dimantong Dimarosing and Mike Randa, all of Marawi
City and members of the Moro National Liberation Front (MNLF), were their
co-passengers, three armed with grenades, two with .45 caliber pistols, and
one with a .22 caliber pistol. Ten (10) minutes after takeoff at about 2:30 in
the afternoon, the hijackers brandishing their respective firearms announced
the hijacking of the aircraft and directed its pilot to fly to Libya. With the
pilot explaining to them especially to its leader, Commander Zapata, of the
inherent fuel limitations of the plane and that they are not rated for
international flights, the hijackers directed the pilot to fly to Sabah. With the
same explanation, they relented and directed the aircraft to land at
Zamboanga Airport, Zamboanga City for refueling. The aircraft landed at
3:00 in the afternoon of May 21, 1976 at Zamboanga Airport. When

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the plane began to taxi at the runway, it was met by two armored cars of
the military with machine guns pointed at the plane, and it stopped
there. The rebels through its commander demanded that a DC-aircraft
take them to Libya with the President of the defendant company as
hostage and that they be given $375,000 and six armalites, otherwise they
will blow up the plane if their demands will not be met by the
government and Philippine Air Lines. Meanwhile, the passengers were
not served any food nor water and it was only on May 23, a Sunday, at
about 1:00 in the afternoon that they were served slice of a sandwich and
1/10 cup of PAL water. After that, relatives of the hijackers were allowed
to board the plane but immediately after they alighted therefrom, an
armored car bumped the stairs. That commenced the battle between the
military and the hijackers which led ultimately to the liberation of the
surviving crew and the passengers, with the final score of 10 passengers
and three hijackers dead on the spot and three hijackers captured.
“City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M.
Gacal suffered injuries in the course of her jumping out of the plane when
it was peppered with bullets by the army and after two hand grenades
exploded inside the plane. She was hospitalized at General Santos Doctors
Hospital, General Santos City, for two days, spending P245.60 for hospital
and medical expenses. Assistant City Fiscal Bonifacio S. Anislag also
escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of
her left elbow for which she was hospitalized and operated on at the San
Pedro Hospital, Davao City, and thereafter, at Davao Regional Hospital,
Davao City, spending P4,500.00. Elma de Guzman died because of that
battle. Hence, the action of damages instituted by the plaintiffs.
The trial court, on August 26, 1980, dismissed the complaints finding
that all the damages sustained in the premises were attributed to force
majeure.
ISSUE: Whether or not hijacking or air piracy during martial law
and under the circumstances obtaining herein, is a caso fortuito or force
majeure which would exempt an aircraft from payment of damages to its
passengers whose lives were put in jeopardy and whose personal
belongings were lost during the incident.

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HELD: The source of a common carrier’s legal liability is the contract of

carriage, and by entering into said contract, it binds itself to carry the passengers
safely as far as human care and foresight can provide. There is breach of this
obligation if it fails to exert extraordinary diligence according to all the
circumstances of the case in exercise of the utmost diligence of a very cautious
person. (Isaac v. Ammen Transportation Co., 101 Phil. 1046 [1957]\ Juntilla v.
Fontanar, 136 SCR A 624 [1985])
It is the duty of a common carrier to overcome the presumption of negligence
(Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it
must be shown that the carrier had observed the required extraordinary diligence of a
veiy cautious person as far as human care and foresight can provide or that the
accident was caused by a fortuitous event. (Estrada v. Consolacion, 71 SCRA 523
[1976]) Thus, as ruled by this Court, no person shall be responsible for those “events
which could not be foreseen or which though foreseen were inevitable.” (Art. 1174,
Civil Code) The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil.
657 [1924]), which is of the same sense as ' force majeure. ” (Words and Phrases,
Permanent Edition, Vol. 17, p. 362)
In order to constitute a caso fortuito or force majeure that would exempt a
person from liability under Article 1174 of the Civil Code, it is necessary that the
following elements must concur: (a) the cause of the breach of the obligation must be
independent of the human will (the will of the debtor or the obligor); (b) the event
must be either unforeseeable or unavoidable; (c) the event must be such as to render
it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the
debtor must be free from any participation in, or aggravation of the injury to the
creditor. (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court of Appeals, 39
SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v. Court of Appeals,
138 SCRA 553 [1985]; Juan E Nakpil & Sons v. Court of Appeals, 144 SCRA
596 [1986]) Caso fortuito or force majeure, by definition, are extraordinary events
not foreseeable or avoidable, events that could not be foreseen, or which, though
foreseen, are inevitable. It is, therefore, not enough that the event should not have
been foreseen or anticipated, as is commonly believed, but it must be

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one impossible to foresee or to avoid. The mere difficulty to foresee the

happening is not impossibility to foresee the same. (Republic v. Luzon
Stevedoring Corporation, 21 SCRA 279 [1967])
Applying the above guidelines to the case at bar, the failure to transport
petitioner safely from Davao to Manila was due to the skyjacking incident
staged by six passengers of the same plane, all members of the Moro National
Liberation Front (MNLF) without any connection with private respondent,
hence, independent of the will of either the PAL or of its passengers.
Otherwise stated, these events rendered it impossible for PAL to
perform its obligations in a normal manner and obviously it cannot be faulted
with negligence in the performance of duty taken over by the Armed Forces of
the Philippines to the exclusion of the former.

It is clear that neither the law nor the nature of the business of a
transportation company makes it an insurer of the passenger’s
safety, but that its liability for personal injuries sustained by its
passenger rests upon its negligence, its failure to exercise the degree
of diligence that the law requires.

Herminio Mariano, Jr. v. Idelfonso C. Callejas

and Edgar De Borja
G.R. No. 166640, July 31,2009
FACTS: At around 6:30 p.m. on November 12 1991, along Aguinaldo
Highway, San Agustin, Dasmarinas, Cavite, the Celyrose Express bus
carrying Dr. Mariano, as its passenger, collided with an Isuzu truck with trailer
bearing plate numbers PJH 906 and TRH 531. The passenger bus was bound
to Tagaytay while the trailer truck came from the opposite direction bound for
Manila. The trailer truck bumped the passenger bus on its left middle portion.
Due to the impact, the passenger bus fell on its right side on the right shoulder
of the highway and caused the death of Dr. Mariano and physical injuries to
four other passengers.
Petitioner filed a complaint for breach of contract of carriage and
damages against the respondents for their failure to transport his

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wife and mother of his three minor children safely to her destination.
Respondents denied liability’ for the death of Dr. Mariano. They claimed
that the proximate cause of the accident was the recklessness of the driver
of the trailer truck, which bumped their bus while allegedly at a halt on the
shoulder of the road in its rightful lane. Thus, respondent Callejas filed a
third-party complaint against Liong Chio Chang, doing business under the
name and style of La Perla Sugar Supply, the owner of the trailer truck, for
indemnity in the event that he would be held liable for damages to
petitioner.
In the case at bar, the trial court, in its Decision dated September 13,
1999, found respondents Idelfonso Callejas and Edgar De Boija, together
with Liong Chio Chang, jointly and severally liable to pay petitioner
damages.
Respondents Callejas and De Boija appealed to the Court of
Appeals (CA), contending that the trial court erred in holding them guilty
of breach of contract of carriage.
On May 21, 2004, the Court of Appeals reversed the decision of the
trial court.
ISSUE: Whether or not the common carrier has observed
extraordinary diligence in the discharge of its duty.
HELD: In accord with the provisions of Articles 1733, 1755, and
1756, Celyrose Express, a common carrier, through its driver respondent
De Boija, and its registered owner, respondent Callejas, has the express
obligation “to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances,” and to observe extraordinary
diligence in the discharge of its duty. The death of the wife of the
petitioner in the course of transporting her to her destination gave rise to
the presumption of negligence of the carrier. To overcome the
presumption, respondents have to show that they observed extraordinary
diligence in the discharge of their duty, or that the accident was caused by
a fortuitous event.
This Court interpreted the above quoted provisions in Pilapil v.
Court of Appeals. The Court elucidated: “While the law requires the

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highest degree of diligence from common carriers in the safe transport of their
passengers and creates a presumption of negligence against them, it does not,
however, make the carrier an insurer of the absolute safety of its passengers.”
Article 1755 of the Civil Code qualifies the duty of extraordinary care,
vigilance and precaution in the carriage of passengers by common carriers to
only such as human care and foresight can provide. What constitutes compliance
with said duty is adjudged with due regard to all the circumstances.
Article 1756 of the Civil Code, in creating a presumption of fault or
negligence on the part of the common carrier when its passenger is injured,
merely relieves the latter, from the time being, from introducing evidence to
fasten the negligence on the former, because the presumption stands in the place
of evidence. Being a mere presumption, however, the same is rebuttable by proof
that the common carrier had exercised extraordinary diligence as required by law
in the performance of its contractual obligation, or that the injury suffered by the
passenger was solely due to a fortuitous event.
Thus, it is clear that neither the law nor the nature of the business of a
transportation company makes it an insurer of the passenger’s safety, but that its
liability for personal injuries sustained by its passenger rests its negligence, its
failure to exercise the degree of diligence that the law requires.
First, the Court adverts to the sketch prepared by P03 Magno S. De Villa,
who investigated the accident. The sketch shows the passenger bus facing the
direction of Tagaytay City and lying on its right side on the shoulder of the road
about five meters away from the point of impact. On the other hand, the trailer
truck was on the opposite direction, about 500 meters away from the point of
impact. P03 De Villa stated that he interviewed De Boija, respondent driver of
the passenger bus, who said that he was about to unload some passengers when
his bus was bumped by the driver of the trailer truck that lost its brakes. P03 De
Villa checked out the trailer truck and found that its brakes really failed.
In fine, the evidence shows that before the collision, the passenger bus
was cruising on its rightful lane along Aguinaldo Highway when the

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trailer truck, coming from the opposite direction, on full speed, suddenly
swerved and encroached on its lane, and bumped the passenger bus on its left
middle portion. Respondent driver De Borja had every right to expect that the
trailer truck coming from the opposite direction would stay on its proper lane.
He was not expected to know that the trailer truck had lost its brakes. The
swerving of the trailer truck was abrupt and it was running on a fast speed as it
was found 500 meters away from the point of collision. Secondly, any doubt as
to the culpability of the driver of the trailer truck ought to vanish when he
pleaded guilty to the charge of reckless imprudence resulting to multiple slight
physical injuries and damage to property in Criminal Case No. 2223-92,
involving the same incident.

ART. 1757. The responsibility of a common carrier for the

safety of passengers as required in Articles 1733 and 1755 cannot be
dispensed with or lessened by stipulation, by the posting of notices, by
statements on tickets, or otherwise.
While it is true that a passenger’s ticket is a complete contract between
the common carrier and the passenger, the fact that it contains provision at the
back thereof in fine letters that common carrier will only exercise ordinary
diligence is contrary to law.

ART. 1758. When a passenger is carried gratuitously, a

stipulation limiting the common carrier’s liability for negligence is
valid, but not for willful acts or gross negligence.
The reduction of fare does not justify any limitation of the
common carrier’s liability.
Thus, in one case where a non-paying passenger was injured during the
trip, the carrier was still held liable since the non-paying passenger is
accompanied by his father who is a paying passenger. In fact non-payment of
fare will not exempt the common carrier from liability due to injuries to
passengers as a result of the common carrier’s negligence.

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Liability of common carriers for death or injuries to a non-passenger.

Sulpicio Lines, Inc. v. The Honorable Court of

Appeals (Twelfth Division) and
Jacinta L. Pamalaran
G.R. No. 106279, July 14,1995
FACTS: A contract of carriage was entered into between petitioner and
ALC for the transport of the latter’s timber from Pugad, Lianga, Surigao del Sur.
On March 17, 1976, petitioner sent its tugboat “MT Edmund” and barge “Solid
VI” to Lianga to pick-up ALC’s timber. However, no loading could be made
because of the heavy downpour. The next morning, several stevedores of CBL,
who were hired by ALC, boarded the “Solid VI” and opened its storeroom. The
stevedores were warned of the gas and heat generated by the copra stored in the
holds of the ship. Not heeding the warning, a stevedore entered the storeroom and
fell conscious. Two other stevedores followed, one of whom was Leoncio L.
Pamalaran. He also lost consciousness and eventually died of gas poisoning.
Thus, Civil Case No. 2864 for damages was filed with the Regional Trial
Court (RTC) of Bohol, Branch 2, Tagbilaran by Pamalaran’s heirs against
petitioner CBL, ALC and its manager, Ernie Santiago. The trial court ruled in
favor of plaintiffs, ordering the defendants CBL Timber Corporation, AGO
Lumber Company, Sulpicio Lines, Inc. and Ernie Santiago to pay plaintiffs
jointly and severally, actual and compensatory damages, moral damages,
attorney’s fees and cost of suit.
On appeal, the Court of Appeals, in its Decision dated April 8, 1992,
affirmed the lower court’s decision.
Not satisfied with the appellate court’s decision, petitioner filed a petition.
ISSUE: Whether or not the victim is not a passenger thereby relieving the
common carrier from liability for his death.
HELD: The Supreme Court agrees with the Court of Appeals that
although Pamalaran was never a passenger of petitioner, still the

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latter is liable as a common carrier for his death. The Court of Appeals relied on
Canas v. Dabatos, 8 Court of Appeals Report 918 (1965). In said case, 13
persons were on board the vessel of defendant not as passengers but as
“cargadores” of the shipper’s goods. They were with the consent and
knowledge of the owner of the vessel. Despite the absence of a passenger-carrier
relationship between them, the appellate court, just the same, held the patron
thereof liable as a common carrier. The appellate court ruled.
There is no debate as to the fact that not one of the 13 passengers has paid
an amount of money as fare for their conveyance from Hingotanan to Cebu. The
undisputed fact, however, is that all of them were in the boat with the knowledge
and consent of the patron. The eleven passengers, other than Encarnacion
and Diosdado, were in the boat because they helped in loading cargoes in
the boat, and “serve as cargadores of the cargoes ” presumably, in
unloading them at the place of destination. For those services, they were
permitted to be in the boat and to proceed to their destination in Cebu. The
services rendered were the valuable consideration in exchange for the
transportation fare. “In onerous contracts, the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service by the
other...” (p. 925; Emphasis supplied)
ALC had a contract of carriage with petitioner. The presence of the
stevedores sent by ALC on board the barge of petitioner was called for by the
contract of carriage. For how else would its lumber be transported unless it is
placed on board? And by whom? Of course, the stevedores. Definitely,
petitioner could not expect the shipper itself to load the lumber without the aid of
the stevedores. Furthermore, petitioner knew of the presence and role of the
stevedores in its barge and, thus, consented to their presence. Hence, petitioner
was responsible for their safety while on board the barge.
Petitioner next claims that its employees even warned the stevedores and
tried to prevent their entry into the storeroom. Such argument, again, is
demolished by the findings of the Court of Appeals, thus, “... However, appellant
failed to prove that its employees were actually trained or given specific
instructions to see to it that the barge is fit and safe not only in transporting goods
but also for people who

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would be loading the cargo into the bodega of the barge. It is not enough that
appellant s employees have warned the laborers not to enter the barge after
the hatch was opened. Appellant’s employees should have been sufficiently
instructed to see to it that the hatch of the barge is not opened by any
unauthorized person and that the hatch is not easily opened by anyone. At
the very least, precautionary measures should have been observed by appellant’s
employees to see to it that no one could enter the bodega of the barge until after
they have made sure that it is safe for anyone to enter the same. Failing to
exercise due diligence in the supervision of its employees, the lower court
was correct in holding appellant liable for damages. ”

ART. 1759. Common carriers are liable for the death of or

injuries to passengers through the negligence or willful acts of the
former’s employees, although such employees may have acted beyond
the scope of their authority or in violation of the orders of the common
carriers.
The liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.

ART. 1760. The common carrier’s responsibility prescribed in

the preceding article cannot be eliminated or limited by stipulation, by
the posting of notices, by statements on the tickets or otherwise.
This is a harsh provision against the common carrier. But the law is the
law no matter how harsh it may be. Dura Lex Sed Lex. Thus, a security guard of
the common carrier who happens to come across an old enemy and shot him
while boarding the truck of the common carrier, the latter is still liable although
the act of the security guard is in violation of the orders of the common carrier.

1975 Bar Question

A taxicab passenger was deliberately killed by the driver. Is the operator
of the taxicab liable?

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Answer: Yes, the taxicab operator is civilly liable on the basis of

breach of the contract of carriage. Article 1759 of the Civil Code states that
common carriers are liable for the death of or injuries to passengers
through the negligence or willful acts of the former’s employees, although
such employees may have acted beyond the scope of their authority or in
violation of the orders of the common carriers. This liability does not cease
upon proof that the common carrier exercised all the diligence of a good
father of a family in the selection and supervision of their employees.
In other words, the liability of the employer is not based on delict or
quasi-delict. The liability of the common carrier is primary and cannot be
eliminated or limited by stipulation. (Art. 1760; Maranan v. Perez, 20 SCRA
412)

Sulpicio Lines Inc. v. Napoleon Sesante, now

Substituted by Maribel Atilano, Kristine Marie, Christian lone
Kenneth Kerrn and Karisna Kate, all surnamed Sesante
G.R. No. 172782, July 27, 2016
FACTS: On September 19, 1998, around 12:55 p.m., the M/V Princess
of the Orient, a passenger vessel owned and operated by the petitioner, sank
near Fortune Island in Batangas. Of the 388-recorded passengers, 150 were
lost. Napoleon Sesante, then a member of the Philippine National Police
(PNP) and a lawyer, was one of the passengers who survived the sinking. He
sued the petitioner for breach of contract and damages. Sesante alleged in
his complaint that the MTV Princess of the Orient left the Port of Manila
while Metro Manila was experiencing stormy weather; that at around 11:00
p.m., he had noticed the vessel listing starboard, so he had gone to the
uppermost deck where he witnessed the strong winds and big waves
pounding the vessel; that at the same time, he had seen how the passengers
had been panicking, crying for help and frantically scrambling for
lifejackets in the absence of the vessel’s officers and crew; that sensing
danger, he had called a certain Ceballos through his cellphone to request
him to inform the proper authorities of the situation; that thereafter, big
waves had rocked the vessel, tossing him to the floor where he was pinned
by a long steel

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bar; that he had freed himself only after another wave had hit the vessel; that he had
managed to stay afloat after the vessel had sunk, and had been carried by the waves
to the coastline of Cavite and Batangas until he had been rescued; that he had
suffered tremendous hunger, thirst, pain, fear, shock, serious anxiety, and mental
anguish; that he had sustained injuries, and had lost money, jewelry, important
documents, police uniforms, and the .45 caliber pistol issued to him by the PNP; and
that because it had committed bad faith in allowing the vessel to sail despite the
storm signal, the petitioner should pay him actual and moral damages of P500,000
and PI,000,000, respectively.
In its defense, the petitioner insisted on the seaworthiness of the M/V
Princess of the Orient due to its having been cleared to sail from the Port of Manila
by the proper authorities; that the sinking had been due to force majeure; that it had
not been negligent; that its officers and crew had also not been negligent.
In October 2001, the Regional Trial Court (RTC) rendered its judgment in
favor of the respondent, ordering defendant to pay plaintiff temperate damages in
the amount of P400,000, and moral damages in the amount of One Million Pesos.
The RTC observed that the plaintiff, being negligent, was liable to Sesante pursuant
to Articles 1739 and 1759 of the Civil Code; that the petitioner had not established
its due diligence in the selection and supervision of the vessel crew; that the ship
officers had failed to inspect the stowage of cargoes despite being aware of the
storm signal; that the officers and crew of the vessel had not immediately sent a
distress signal to the Philippine Coast Guard; that the ship captain had not called for
then “abandon ship” protocol; and that based on the report of the Board of Marine
Inquiry (BMI), the erroneous maneuvering of the vessel by the captain during the
extreme weather condition had been the immediate and proximate cause of the
sinking.
The Court of Appeals (CA) lowered the temperate damages to PI20,000,
which approximate the cost of the Sesante’s lost personal belongings, and held that
despite the seaworthiness of the vessel, the petitioner remained civilly liable
because its officers and crew had been negligent in performing their duties.

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ISSUE: (1) Whether or not the petitioner is liable for breach of contract of
carriage. (2) Whether or not the cause of the loss or injury is due to a fortuitous
event thus exempting the petitioner from liability.
HELD: Article 1759 of the Civil Code does not establish a presumption of
negligence because it explicitly makes the common carrier liable in the event of
death or injury to passengers due to the negligence or fault of the common carrier’s
employees. It reads: “Art. 1759. Common carriers are liable for the death or
injuries to passengers through the negligence or willful acts of the former’s
employees, although such employees may have acted beyond the scope of
their authority or in violation of the orders of the common carriers. ” This
liability of the common carriers does not cease upon proof that they exercised all
the diligence of a good father of a family in the selection and supervision of their
employees. The liability of common carriers under Article 1759 is demanded by
the duty of extraordinary diligence required of common carriers in safely carrying
their passengers.
The petitioner has attributed the sinking of the vessel to the storm
notwithstanding its position on the seaworthiness of MW Princess of the Orient.
Yet, the findings of the BMI directly contradicted the petitioner’s attribution. The
BMI found that the “erroneous maneuvers” during the ill-fated voyage by the
captain of the petitioner’s vessel had caused the sinking. After the vessel cleared
Limbones Point, while navigating towards the direction of the Fortune Island, the
captain already noticed the listing of the vessel by three degrees to the portside of
the vessel, but, according to the BMI, he did not exercise prudence as required by
the situation in which his vessel was suffering the battering on the starboard side
by big waves of seven to eight meters high and strong southwesterly winds of 25
knots. The BMI pointed out that he should have considerably reduced the speed of
the vessel based on his experience about the vessel, a close-type ship of seven
decks, and of a wide and high superstructure, being vulnerable if exposed to strong
winds and high waves. He ought to have also known that maintaining a high speed
under such circumstances would have shifted the solid and liquid cargo of the
vessel to port, worsening the tilted position of the vessel. It was only after a few
minutes thereafter that he finally ordered the speed to go down to 14 knots, and to
put ballast water to the

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starboard-heeling tank to arrest the continuous listing at the port side. By then, his
moves became an exercise in futility because, according to the BMI, the vessel
was already listing to her port side between 15 to 20 degrees, which was almost
the maximum angle of the vessel’s loll. It then became inevitable for the vessel to
lose her stability. The BMI concluded that the captain had executed several
starboard maneuvers despite the critical situation of the vessel, and that the
maneuvers had greatly added to the tilting of the vessel.
The Chief Mate, when interviewed under oath, had attested that he was
not able to make stability calculation of the ship vis-a-vis her cargo. He did not
even know the metacentric height (GM) of the ship whether it be positive or
negative. As cargo officer of the ship, he failed to prepare a detailed report of the
ship’s cargo stowage plan. He likewise failed to conduct the soundings
(measurement) of the ballast tank before the ship departed from port. He readily
presumed that the ship was full of ballast since the ship was fully ballasted when
she left Cebu for Manila on September 16, 1998, and had never discharged its
contents since that time. Being the officer-in-charge for emergency situation like
this, he failed to execute and supervise the actual abandon ship procedure. There
was no announcement at the public address system of abandon ship, no orderly
distribution of life jackets, and no orderly launching of life raffs. The witnesses
have confirmed this finding on their sworn statements. There was miscalculation
in judgment on the part of the Captain when he erroneously navigated the ship at
her last crucial moment. To aggravate his case, the Captain, having full command
and responsibility of the M/V Princess of the Orient, had failed to ensure the
proper execution of the actual abandoning of the ship. The deck and engine
officers (Second Mate, Third Mate, Chief Engineers, Second Engineer, Third
Engineer, and Fourth Engineer), being in charge of their respective abandon ship
post, failed to supervise the crew and passengers in the proper execution of
abandon ship procedure. The Radio Officer (spark) failed to send the SOS
message in the internationally accepted communication network (VHF Channel
16). Instead, he used the Single Side Bank (SSB) radio in informing the company
about the emergency situation. The aforestated negligent acts of the officers and
crews of M/V Princess of the Orient could not be ignored in view of the
extraordinary duty of the common carrier to ensure the safety of the passengers.

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ART. 1761. The passenger must observe the diligence of a good

father of a family to avoid injury to himself.
This is not a redundant provision but a constant reminder to every passenger
to take all necessary precautions to avoid injury to himself and to others. For after
all, common carrier is not an insurer against all risk of travel.

ART. 1762. The contributory negligence of the passenger does not

bar recovery of damages for his death or injuries, if the proximate cause
thereof is the negligence of the common carrier, but the amount of
damages shall be equitably reduced.
This is a counterpart provision of Article 1741 in vigilance over the goods or
the mitigated liability of the common carrier. If there is contributory negligence on
the part of the passenger, he is not entitled to moral and exemplary damages.
The underlying precept of the above provision on contributory negligence is
that a plaintiff who is partly responsible for his own injury should not be entitled to
recover damages in full but must bear the consequences of his own negligence. The
defendant must thus be held liable only for the damages actually caused by his
negligence. (Estacion v. Bernardo 483 SCRA 222; See Lambert v. Heirs of Ray
Castillon, February 2005, 452 SCRA 285 and Syki v. Begasa, October 23,
2003, 414 SCRA 237)
Is the doctrine of proximate cause applicable in actions involving breach of
contract?
The doctrine of proximate cause is applicable only in actions for
quasi-delict, not in actions involving breach of contract. The doctrine is a device
for imputing liability to a person where there is no relation between him and another
party. In such a case, the obligation is created by law itself. But, where there is a
pre-existing contractual relation between the parties, it is the parties themselves
who create the obligation, and the function of the law is merely to regulate the
relation thus created. (Calalas v. Court of Appeals, 332 SCRA 356)

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In FGU Insurance Corporation v. G.P. Sarmiento Trucking

Corporation, 386 SCRA 312, August 6, 2002, it was held that the doctrine
of res ipsa loquitur is not applicable in cases of breach of contract of
carriage:
Res ipsa Loquitur, a doctrine being invoked by petitioner,
holds a defendant liable where the thing which caused the injury
complained of is shown to be under the latter’s management and
the accident is such that in the ordinary course of things, cannot be
expected to happen if those who have its management or control
use proper care. It affords reasonable evidence, in the absence of
explanation by the defendant that the accident arose from want of
care. It is not a rule of substantive law and, as such, it does not
create an independent ground of liability. Instead, it is regarded as
a mode of proof, or a mere procedural convenience since it
furnishes a substitute for, and relieves the plaintiff of the burden
of producing specific proof of negligence. The maxim simply
places on the defendant the burden of going forward with the
proof. Resort to the doctrine, however, may be allowed only when:
(a) the event is of a kind which does not ordinarily occur in the
absence of negligence; (b) other responsible causes, including the
conduct of the plaintiff and third persons are sufficiently
eliminated by the evidence; and (c) the indicated negligence is
within the scope of the defendant’s duty to the plaintiff. Thus, it is
not applicable when an unexplained accident may be attributable
to one of several causes, for some of which the defendant could not
be responsible.
Res ipsa Loquitur generally finds relevance whether or not a
contractual relationship exists between the plaintiff and the
defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the
nature of the relation of the parties. Nevertheless, the requirement
that responsible causes other than those due to defendant’s
conduct must first be eliminated, for the doctrine to apply, should
be understood as being confined only to cases of pure (non-
contractual) tort since obviously the presumption of negligence in
culpa contractual, as previously so pointed out, immediately
attaches by a failure of the covenant or its tenor. In the case of

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the truck driver, whose liability in a civil action is predicated on

culpa acquiliana, while he admittedly can be said to have been in
control and management of the vehicle which figured in the
accident, it is not equally shown, however, that the accident could
have been exclusively due to his negligence, a matter that can allow,
forthwith, res ipsa loquitur to work against him.
Similarly, the principle of last clear chance is inapplicable in cases
of breach of contract of carriage, as it only applies in a suit between the
owners and drivers of two colliding vehicles. It does not arise where a
passenger demands responsibility from the carrier to enforce its contractual
obligations, for it would be inequitable to exempt the negligent driver and
its owner on the ground that the other driver was likewise guilty of
negligence. The common law notion of last clear chance permitted courts
to grant recovery to a plaintiff who has also been negligent provided that
the defendant had the last clear chance to avoid the casualty and failed to
do so. Accordingly, it is difficult to see what role, if any, the common law
of last clear chance doctrine has to play in a jurisdiction where the
common law concept of contributory negligence as an absolute bar to
recovery by the plaintiff, has itself been rejected, as it has been in Article
2179 of the Civil Code. (Anuran v. Buho, 17 SCRA 224\ Phil. Rabbit Bus
Lines, Inc. v. I AC, 189 SCRA 158; Tiu v. Arriesgado, 437 SCRA 426,
September 1, 2004)
However, the defense of contributory negligence does not apply in
criminal cases committed through reckless imprudence, since one cannot
allege the negligence of another to evade the effects of his own
negligence. (Genobiagon v. Court of Appeals, 178 SCRA 422; Manzanares v.
People, 504 SCRA 354, October 16, 2006)

Mitigation of Defendant’s Liability in Case of Contributory

Negligence of the Plaintiff.
Travel & Tours Adviser, Incorporated v. Alberto
Cruz, Sr., Edgar Hernandez and Virginia Mufioz G.R. No.
199282, March 14, 2016
FACTS: Respondent Edgar Hernandez was driving an Isuzu Jitney
(jeepney) that he owns with Plate No. DSG-944 along Angeles-

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Magalang Road, Barangay San Francisco, Magalang, Pampanga, on January 9,

1998, around 7:50 p.m. Meanwhile, a Daewoo passenger bus (RCJ Bus Lines)
with Plate No. NXM 116, owned by petitioner Travel and Tours Advisers, Inc.,
and driven by Edgar Calaycay traveled in the same direction as that of
respondent Edgar Hernandez vehicle. Thereafter, the bus bumped the left rear
portion of the jeepney causing it to ram into an acacia tree, which resulted in the
death of Alberto Cruz, Jr. and the serious physical injuries of Virginia Munoz.
Thus, respondents Edgar Hernandez, Virginia Munoz, and Alberto Cruz, Sr.
father of the deceased Alberto Cruz, Jr., filed a complaint for damages before
the Regional Trial Court claiming that the collision was due to the reckless,
negligent, and imprudent manner by which Edgar Calaycay was driving the
bus, in complete disregard to existing traffic laws, rules and regulations. They
also alleged that the bus veered away from its usual route.
For its defense, the petitioner claimed that at the time of the incident,
Edgar Hernandez violated his franchise by traveling along an unauthorized
line/route.
After trial on the merits, the Regional Trial Court, on January 20, 2008,
rendered judgment in favor of the respondents, ordering the petitioner to jointly
and solidarity pay the following: (1) To plaintiff Alberto Cruz, Sr. and his
family - a) the sum of P50,000 as actual and compensatory damages, b) the sum
of P250,000 for loss of earning capacity of the decedent Alberto Cruz, Jr., and
c) P50,000 as moral damages. (2) To plaintiff Virginia Munoz - a) the sum of
P16,744 as actual and compensatory damages, and b) the sum of P50,000 as
moral damages. (3) To plaintiff Edgar Hernandez - a) the sum of P50,000 as
moral and compensatory damages, b) the sum of P50,000 as attorney’s fees, c)
the sum of P4,470 as cost of litigation.
On appeal, the Court of Appeals modified the award of damages in favor
of the plaintiff as follows: (1) To plaintiff Alberto Cruz, Sr., it reduces the
amount of actual damages to P25,000, but added the sum of P50,000 for the
death of Alberto Cruz, Jr.; (2) To plaintiff Virginia Mufioz, it reduces the
amount of moral damages to P30,000; and (3) To plaintiff Edgar Hernandez, it
reduces the amount of actual and

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compensatory damages to P40.200. The rest of the award of damages remains.

ISSUE: 1) Whether or not the bus is liable because it veered away from its
usual route at the time of the mishap, and 2) Whether or not this is a case of pari
delicto considering that the passenger jeepney was traveling beyond its route.
HELD: The Regional Trial Court (RTC) and the Court of Appeals (CA) are
one in finding that both vehicles were not in their authorized routes at the time of the
incident. The conductor of petitioner’s bus admitted on cross-examination that the
driver of the bus veered off from its usual route to avoid heavy traffic. The Court of
Appeals, thus, observed: First, as pointed out in the assailed Decision, both vehicles
were not in their authorized routes at the time of the mishaps. Francisco Tejada, the
conductor of defendant-appellant’s bus, admitted on cross- examination that the
driver of the bus passed through Magalang Road instead of Sta. Ines, which was the
usual route, to avoid heavy traffic. Regardless of the reason, however, the irrefutable
fact remains that defendant-appellant’s bus likewise veered from its usual route.
Petitioner now claims that the bus was not out of line when the vehicular
accident happened, because the PUB (Public Utility Bus) franchise that the petitioner
holds, is for provincial operation from Manila-Ilocos Norte/Cagayan-Manila, thus,
the bus is allowed to traverse any point between Manila-Ilocos
Norte/Cagayan-Manila. Such assertion is correct. “Veering away from the usual
route” is different from being “out of line.” A public utility vehicle can and may veer
away from its usual route as long as it does not go beyond its allowed route in its
franchise, in this case, Manila-Ilocos Norte/Cagayan-Manila. Therefore, the bus
cannot be considered to have violated the contents of its franchise. On the other hand,
it is indisputable that the jeepney was traversing a road out of its allowed route.
Necessarily, this case is not that of “In pari delicto” because only one party has
violated a traffic regulation. As such, it would seem that Article 2185 of the New
Civil Code is applicable where it provides that: “Art. 2185. Unless there is proof to
the contrary, it is presumed that a person driving a motor vehicle has been negligent
if at the time of the mishap he was violating any traffic regulation.” The provision,
however, is merely a presumption.

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From the factual findings of both the Regional Trial Court and the Court of
Appeals based on the evidence presented, the proximate cause of the collision
is the negligence of the driver of petitioner’s bus. The jeepney was bumped at
the left rear portion. Thus, the Court’s past ruling that drivers of vehicles, who
bumped the rear of another vehicle, are presumed to be the cause of the
accident, unless contradicted by other evidence, can be applied. The rationale
behind the presumption is that the driver of the rear vehicle has full control of
the situation as he is in a position to observe the vehicle in front of him.
Rate of speed, in connection with other circumstances, is one of the
principal considerations in determining whether a motorist has been reckless in
driving a vehicle, and evidence of the extent of the damage caused may show
the force of the impact from which the rate of speed of the vehicle may be
modestly inferred. From the evidence presented in this case, it cannot be
denied that the bus was running very fast. As held by the Supreme Court, the
very fact of speeding is indicative of imprudent behavior, as a motorist must
exercise ordinary care and drive at a reasonable rate of speed commensurate
with the conditions encountered, which will enable him to keep the vehicle
under control and avoid injury to others using the highway.
From the above findings, it is apparent that the proximate cause of
accident is the petitioner’s bus and that the petitioner was not able to present
evidence that would show otherwise. Be that as it may, this doesn’t erase the
fact that at the time of the vehicular accident, the jeepney was in violation of its
allowed route as found by the RTC and the CA, hence, the owner and the driver
of the jeepney likewise are guilty of negligence as defined under Article 2179
of the Civil Code, which reads as follows: “When the plaintiff’s negligence
was the immediate and proximate cause of his injury, he cannot recover
damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury, being the defendant s lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages
to be awarded. ” The petitioner and its driver, therefore, are not solely liable
for the damages caused to the victims. The petitioner must, thus, be held liable
only for the damages actually caused by his negligence. It is, therefore, proper
to mitigate the liability of the petitioner and its driver.

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The determination of the mitigation of the defendant’s liability varies

depending on the circumstances of each case. The Court had sustained a
mitigation of 50% in Rakes v. AG & P; in Phoenix Construction, Inc.
v. Intermediate Appellate Court, and LBC Air Cargo, Inc. v. Court
of Appeals; and 40% in Bank of the Philippines Islands v. Court of
Appeals, and Philippine Bank of Commerce v. Court of Appeals.
In the present case, it has been established that the proximate cause
of the death of Alberto Cruz, Jr., is the negligence of petitioner’s bus
driver, with the contributory negligence of respondent Edgar Hernandez,
the driver and owner of the jeepney, hence, the heirs of Alberto Cruz, Jr.,
shall recover damages of only 50% of the award from petitioner and its
driver. Necessarily, 50% shall be borne by respondent Edgar Hernandez.
This is pursuant to Rakes v. AG &P, and after considering the
circumstances of this case.
The petition for review is denied and the decision of the Court of
Appeals is modified, insofar as the award of damages, as follows:
The petitioner and Edgar Calaycay are ordered to jointly and
severally pay the following: (1) To respondent Alberto Cruz, Sr. and
family - a) PI2,500 as actual damages, b) P25,000 as civil indemnity for
the death of Alberto Cruz, Jr., c) P25,000 as moral damages. (2) To
respondent Virginia Munoz - a) P8,372 as actual damages, b) PI5,000 as
moral damages. (3) To respondent Edgar Hernandez - a) P20,100 as
actual damages, and (4) The sum of P2,235 as cost of litigation.
Respondent Edgar Hernandez is also ordered to pay the following:
(1) To respondent Alberto Cruz, Sr. and family - a) PI2,500 as actual
damages, b) P25,000 as civil indemnity for the death of Alberto Cruz,
Jr., and c) P25,000.00 as moral damages. (2) To respondent Virginia
Munoz - a) P8,372 as actual damages, and b) PI5,000 as moral damages.
(3) The sum of P2,235 as cost of litigation.
ART. 1763. A common carrier is responsible for injuries
suffered by a passenger on account of the willful acts or negligence
of other passengers or of strangers, if the common carrier’s
employees through the exercise of the diligence of a good father of a
family could have prevented or stopped the act or omission.

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QUESTION: What are the instances when a common carrier becomes

liable for the death of or injury to a passenger or passengers?
ANSWER: The statutory provisions render a common carrier liable for
death of or injury to passengers (a) through the negligence or willful acts of its
employees (Art. 1759) or (b) on account of willful acts or negligence of other
passengers or of strangers if the common carrier’s employees through the
exercise of due diligence could have prevented or stopped the act or
omission (Art. 1763). (Light Rail Transit Authority v. Natividad, 391 SCRA
75, February 6, 2003)
It appears that due to the extraordinary diligence required by the common
carrier for the safety of passengers, their agents will also act as security guards
for the passengers.
A tort committed by a stranger, which causes injury to a passenger,
does not accord the passenger a cause of action against the carrier.
Jose Pilapil v. Court of Appeals and Alatco
Transportation Co., Inc.
G.R. No. 52159, December 22, 1989
FACTS: Petitioner-plaintiff Jose Pilapil, a paying passenger, boarded
respondent-defendant’s bus bearing No. 409 at San Nicolas, Iriga City and Naga
City, upon reaching the vicinity of the cemetery of the Municipality of Baao,
Camarines Sur, on the way to Naga City, an unidentified man, a bystander along
said national highway, hurled a stone at the left side of the bus, which hit petitioner
above his left eye. Private respondent’s personnel lost no time in bringing the
petitioner to the provincial hospital in Naga City where he was confined and
treated.
Considering that the sight of his left eye was impaired, petitioner was taken
to Dr. Malabanan of Iriga City where he was treated for another week. Since there
was no improvement in his left eye’s vision, petitioner went to V. Luna Hospital,
Quezon City where he was treated by Dr. Capulong. Despite the treatment
accorded to him by Dr. Capulong, petitioner lost partially his left eye’s vision and
sustained a permanent scar above the left eye.
Thereupon, petitioner instituted before the Court of First Instance of
Camarines Sur, Branch I an action for recovery of damages sustained

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as a result of the stone-throwing incident. After trial, the court a quo rendered
judgment ordering respondent transportation company to pay to petitioner
damages in the total sum of PI 6,300.
From the judgment, private respondent appealed to the Court of
Appeals. On October 19, 1979, the Court of Appeals, in a Special Division of
Five, rendered judgment reversing and setting aside the judgment of the court
a quo.
ISSUE: Whether or not the stoning of the bus by a stranger resulting in
injury to petitioner-passenger is one such risk from which the common carrier
may not exempt itself from liability.
HELD: While the law requires the highest degree of diligence from
common carriers in the safe transport of their passengers and creates a
presumption of negligence against them, it does not, however, make the carrier
an insurer of the absolute safety of its passengers.
In consideration of the right granted to it by the public to engage in the
business of transporting passengers and goods, a common carrier does not give
its consent to become an insurer of any and all risks to passengers and goods. It
merely undertakes to perform certain duties to the public as the law imposes,
and hold itself liable for any breach thereof.
Article 1755 of the Civil Code qualifies the duty of extraordinary care,
vigilance and precaution in the carriage of passengers by common carriers to
only such as human care and foresight can provide. What constitutes
compliance with said duty is adjudged with due regard to all the
circumstances.
Article 1756 of the Civil Code, in creating a presumption of fault or
negligence on the part of the common carrier when its passenger is injured,
merely relieves the latter, for the time being, from introducing evidence to
fasten the negligence on the former, because the presumption stands in the
place of evidence. Being a mere presumption, however, the same is rebuttable
by proof that the common carrier had exercised extraordinary diligence as
required by law in the performance of its contractual obligation, or that the
injury suffered by the passenger was solely due to a fortuitous event.

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Thus, it is clear that neither the law nor the nature of the business of a
transportation company makes it an insurer of the passenger’s safety, but that
its liability for personal injuries sustained by its passenger rests upon its
negligence, its failure to exercise the degree of diligence that the law requires.
As stated earlier, the presumption of fault or negligence against the
carrier is only a disputable presumption. It gives in where contrary facts are
established proving either that the carrier had exercised the degree of diligence
required by law or the injury suffered by the passenger was due to a fortuitous
event. Where, as in the instant case, the injury sustained by the petitioner was in
no way due to any defect in the means of transport or in the method of
transporting or to the negligent or willful acts of private respondent’s
employees, with the injury arising wholly from causes created by strangers over
which the carrier had no control or even knowledge or could not have
prevented, the presumption is rebutted and the carrier is not and ought not to be
held liable. To rule otherwise would make the common carrier the insurer of the
absolute safety of its passengers, which is not the intention of the lawmakers.
While, as a general rule, common carriers are bound to exercise
extraordinary diligence in the safe transport of their passengers, it would seem
that this is not the standard by which its liability is to be determined when
intervening acts of strangers directly cause the injury, while the contract of
carriage exists. Article 1763 governs:
“Article 1763. A common carrier is responsible for injuries
suffered by a passenger on account of the willftil acts or negligence of
other passengers or of strangers, if the common carrier’s employees
through the exercise of the diligence of a good father of a family could
have prevented or stopped the act or omission.”
Clearly under the above provisions, a tort committed by a stranger which
causes injury to a passenger does not accord the latter a cause of action against
the carrier. The negligence for which a common carrier is held responsible is
the negligent omission by the carrier’s employees to prevent the tort from being
committed when the same could have been foreseen and prevented by them.
Further, under the same provision, it is to be noted that when the violation of the
contract is due to the willful

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acts of strangers, as in the instant case, the degree of care essential to be

exercised by the common carrier for the protection of its passenger is
only that of a good father of a family.

A common carrier can be held liable for failing to prevent a

hijacking by frisking passengers and inspecting their baggage.

Fortune Express, Inc. v. Court of Appeals, Paulie

v. Caorong and minor children
G.R. No. 119756, March 18,1999
FACTS: On November 18, 1989, a bus of petitioner figured in an
accident with a jeepney in Kauswagan, Lanao del Norte, resulting in the
death of several passengers of the jeepney, including two Maranaos.
Crisanto Generalao, a volunteer field agent of the Constabulary Regional
Security Unit No. X, conducted an investigation of the accident. He
found that the owner of the jeepney was a Maranao residing in
Delabayan, Lanao del Norte and that certain Maranaos were planning to
take revenge on the petitioner by burning some of its buses. Generalao
rendered a report on his findings to Sgt. Reynaldo Bastasa of the
Philippine Constabulary Regional Headquarters at Cagayan de Oro.
Upon the instruction of Sgt. Bastasa, he went to see Diosdado Bravo,
operations manager of petitioner, at its main office in Cagayan de Oro
City. Bravo assured him that the necessary precautions to insure the
safety of lives and property would be taken.
At about 6:45 P.M. on November 22,1989, three armed Maranaos,
who pretended to be passengers, seized a bus of petitioner at Linamon,
Lanao del Norte while on its way to Iligan City. Among the passengers
of the bus was Atty. Caorong. The leader of the Maranaos, identified as
one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan, to
stop the bus on the side of the highway. Mananggolo then shot Cabatuan
on the arm, which caused him to slump on the steering wheel. Then one
of the companions of Mananggolo started pouring gasoline inside the
bus, as the other held the passengers at bay with a handgun. Mananggolo
then ordered the passengers to get off the bus. The passengers, including
Atty. Caorong, stepped out of the bus and went behind the bushes in a
field some distance from the highway.

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However, Atty. Caorong returned to the bus to retrieve something from the
overhead rack. At that time, one of the armed men was pouring gasoline on the
head of the driver. Cabatuan, who had meantime regained consciousness, heard
Atty. Caorong pleading with the armed men to spare the driver as he was innocent
of any wrongdoing and was only trying to make a living. The armed men were,
however, adamant as they repeated their warning that they were going to bum the
bus along with its driver. During this exchange between Atty. Caorong and the
assailants, Cabatuan climbed out of the left window of the bus and crawled to the
canal on the opposite side of the highway. He heard shots from inside the bus.
Larry dela Cruz, one of the passengers, saw that Atty. Caorong was hit. Then the
bus was set on fire. Some of the passengers were able to pull Atty. Caorong out of
the burning bus and rushed him to the Mercy Community Hospital in Iligan City,
but he died while undergoing operation.
The private respondents brought this suit for breach of contract of carriage
in the Regional Trial Court, Branch VI, Iligan City. In its decision, dated
December 28, 1990, the trial court dismissed the complaint, holding the defendant
common carrier not negligent.
On appeal, however, the Court of Appeals reversed the decision of the trial
court and awarded damages to the plaintiff amounting to P3,449,649.20 plus
attorney’s fees.
ISSUES: 1) Whether or not petitioner breached the contract of carriage by
failure to exercise the required degree of diligence. 2) Whether or not the act of the
Maranao outlaws was so grave, irresistible, violent and forceful, as to be regarded
as caso fortuito.
HELD: Art. 1763 of the Civil Code provides that a common carrier is
responsible for injuries suffered by a passenger on account of the willful acts of
other passengers, if the employees of the common carrier could have prevented the
act through the exercise of the diligence of a good father of a family. In the present
case, it is clear that because of the negligence of petitioner’s employees, the
seizure of the bus by Mananggolo and his men was made possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that the
Maranaos were planning to take revenge on the petitioner

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by burning some of its buses and the assurance of petitioner’s operation manager,
Diosdado Bravo, that the necessary precautions would be taken, petitioner did
nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have failed to
see that the malefactors had a large quantity of gasoline with them. Under the
circumstances, simple precautionary measures to protect the safety of passengers,
such as frisking passengers and inspecting their baggage, preferably with
non-intrusive gadgets such as metal detectors, before allowing them on board
could have been employed without violating the passenger’s constitutional rights.
As this Court intimated in Gacal v. Philippine Air Lines, Inc., a common carrier
can be held liable for failing to prevent a hijacking by frisking passengers and
inspecting their baggage.
From the foregoing, it is evident that petitioner’s employees failed to prevent
the attack on one of petitioner’s buses because they did not exercise the diligence
of a good father of a family. Hence, petitioner should be held liable for the death of
Atty. Caorong.
The petitioner contends that the seizure of its bus by the armed assailants
was a fortuitous event for which it could not be held liable.
Article 1174 of the Civil Code defines a fortuitous event as an occurrence
which could not be foreseen or which though foreseen, is inevitable. In Yobido
v. Court of Appeals, [the Court] held that to be considered as force majeure, it
is necessary that: (1) the cause of the breach of the obligation must be
independent of the human will;
(2) the event must be either unforeseeable or unavoidable; (3) the occurrence
must be such as to render it impossible for the debtor to fulfill the obligation in a
normal manner; and (4) the obligor must be free of participation in, or
aggravation of, the injury to the creditor. The absence of any of the requisites
mentioned above would prevent the obligor from being excused from liability.
Thus, in Vasquez v. Court of Appeals, it was held that the common
carrier was liable for its failure to take the necessary precautions against an
approaching typhoon, of which it was warned, resulting in the loss of the lives of
several passengers. The event was foreseeable, and, thus, the second requisite
mentioned above was not fulfilled. This ruling

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applies by analogy to the present case. Despite the report of PC agent

Generalo that the Maranaos were going to attack its buses, petitioner took no
steps to safeguard the lives and properties of its passengers. The seizure of
the bus of the petitioner was foreseeable and, therefore, was not a fortuitous
event, which would exempt petitioner from liability.

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DAMAGES FOR BREACH OF CONTRACT

OF COMMON CARRIERS
ARTICLES 1764 and 1766

ARTICLE 1764. Damages in cases comprised in this Section

shall be awarded in accordance with Title XVIII of this Book,
concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by a common carrier.
Sources of obligation under which the carrier-employer and his
driver-employee are liable to passenger or pedestrian in cases of
injury.
Under the Civil Code, obligations arise from law, contracts, quasi-
contracts, acts or omissions punished by law, and quasi-delicts. (Art. 1157,
NCC)
From these sources of obligations, three kinds of culpa or fault or
negligence are derived: 1. culpa contractual or contractual negligence due to
breach of contract of carriage; 2. culpa aquiliana, tort or quasidelict; and 3.
culpa criminal or criminal negligence which results in criminal liability.
Illustration:
Suppose a passenger of a public utility bus was injured due to the
driver’s recklessness, what case or cases can the passenger file against the
common carrier and the driver?
The injured passenger can file a civil case for breach of contract of
carriage against the common carrier and not against the driver because the
contract of carriage is between the common carrier and the passenger. The
driver was acting merely as an agent of the common

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carrier. In this case of breach of contract of carriage, the liability of the common
carrier is direct and primary.
What quantum of evidence is required? Preponderance of evidence. All
that the passenger has to prove is his contract of carriage between him and the
common carrier, the public utility bus; and that he did not reach his destination
unhurt.
Suppose the common carrier was able to prove due diligence in the
selection and supervision of his driver, will the common carrier still be liable?
Yes, because the defense of due diligence in the selection and supervision of
employee, though may mitigate liability, is not a complete defense in culpa
contractual or breach of contract of carriage. In fact, the burden of proof lies in
the common carrier that it exercises extraordinary diligence to avoid injury to
passengers.
The injured passenger can also file a criminal case against the driver for
reckless imprudence resulting in physical injuries. However, the quantum of
evidence in this case is proof beyond reasonable doubt and the prosecution has
the burden of proving the guilt of the driver beyond reasonable doubt. Suppose
the driver was pronounced guilty of the crime of reckless imprudence resulting in
physical injuries, who will be liable to pay the civil damages of the injured
passenger. In this criminal negligence case, the liability of the driver-employee is
direct and primary (Art. 100, RPC) while the liability of the common carrier as
employer is subsidiary. (Art 103, RPC) Suppose, the driver employee is
insolvent, can the injured passenger go after the common carrier as employer?
Yes. As stated earlier, the civil liability of the common carrier as employer is
subsidiary. Hence, if the driver cannot comply directly with his civil liability, the
common carrier as employer is subsidiarily liable. In this case of criminal
negligence, where can the injured passenger recover subsidiary liability against
the common carrier as employer in case the driver employee is insolvent? In the
present criminal suit or in another civil suit?
The old view is that and it is even the practice of some lawyers today to file
a separate civil case against the common carrier as employer to recover the
subsidiary liability. The injured passenger has only two documentary evidence to
present: (1) judgment of the court

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convicting the driver-employee of reckless imprudence resulting in physical injuries;
and (2) the sheriff’s return showing that the judgment is unsatisfied due to the
insolvency of the driver.
The better view is that, the subsidiary liability of the common carrier as
employer can be obtained in the same criminal case against the driver-employee
during execution proceedings after proper motion and due notice and hearing against
the common carrier as employer. And all the injured passenger has to show is that
the driver employee is insolvent per sheriff’s return of judgment in execution. (Vda.
de Paman v. Seneris, 115 SCRA 709)
Now, if that is the case, was the common carrier as employer denied of due
process as he was deprived of his day in court. The answer is no, the rationale being
that the common carrier as employer should have given his driver a good defense
counsel, because in defending the interest of the driver, the employer would also be
defending his own interest.
May the injured passenger file also a case of culpa aquiliana or quasi-delict
against the common carrier even if there is a pre-existing contractual relationship
between them. It seems that the injured passenger may opt also to file a quasi-delict
case if the act that breaks the contract resulted in tort. (Air France v. Carrascoso,
September 28, 1966) However, in cases of culpa aquiliana or quasi-delict, the
injured passenger has the burden of proving the negligence of the common carrier
and his driver, and the defense of due diligence in the selection and supervision of
employee is a complete defense of the common carrier as employer to avoid civil
liability.
A contractual obligation can be breached by tort and when the same act or
omission causes the injury, one resulting in culpa contractual and the other in
culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability
for tort may arise even under a contract, where tort is that which breaches the
contract. Stated differently, when an act which constitutes a breach of contract would
have itself constituted the source of a quasi-delictual liability had no contract existed
between the parties, the contract can be said to have been breached by tort, thereby
allowing the rules on tort to apply. (LRTA v. Natividad, 397 SCRA 75,

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February 6, 2003; Mindanao Terminal and Brokerage Services, Inc. v.

Phoenix Assurance Co. of New York/McGee & Co., Inc., G.R. No. 162467,
May 8, 2009)
In quasi-delict, the negligence or fault should be clearly established
because it is the basis of the action, whereas in breach of contract, the action can
be prosecuted merely by proving the existence of the contract and the fact that
the obligor, in this case the common carrier failed to transport his passenger
safely to his destination. (Calalas v. Court of Appeals, 332 SCRA 356)
In all these cases (culpa contractual, culpa criminal and culpa
aquiliana), when the common carrier was held to pay damages for the injured
passenger, he may ask reimbursement from his driver in a proper case.
The amount of damages for death caused by a crime or quasi-delict shall
be at least P3,000, even though there may have been mitigating circumstances.
In addition:
(1) The defendant shall be liable for the loss of the earning capacity of
the deceased, and the indemnity shall be paid to the heirs of the
latter; such indemnity shall in every case be assessed and awarded
by the court, unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at
the time of his death;
(2) If the deceased was obliged to give support according to the
provisions of Article 291, the recipient who is not an heir called to
the decedent’s inheritance by the law of testate or intestate
succession, may demand support from the person causing the death,
for a period not exceeding five years, the exact duration to be fixed
by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants
of the deceased may demand moral damages for mental anguish by
reason of the death of the deceased. (Art. 2206)
The indemnity for death caused by a quasi-delict used to be pegged at
P3,000, based on Article 2206 of the Civil Code. However,

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CARRIERS
the amount has been gradually increased through the years because of the
declining value of our currency. At present, prevailing jurisprudence fixes the
amount at P50,000. (Pestaho v. Sumayang, 346 SCRA 870)
In the absence of stipulation, attorney’s fees and expense of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmen’s compensation and
employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a
crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney’s fees and expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be
reasonable. (Art. 2208)

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In contracts, quasi-contracts, and quasi-delicts, the court may equitably

mitigate the damages under circumstances other than the case referred to in the
preceding article, as in the following instances:
(1) That the plaintiff himself has contravened the terms of the contract;
(2) That the plaintiff has derived some benefit as a result of the
contract;
(3) In cases where exemplary damages are to be awarded, that the
defendant acted upon the advice of counsel;
(4) That the loss would have resulted in any event;
(5) That since the filing of the action, the defendant has done his best to
lessen the plaintiff’s loss or injury. (Art. 2215)
Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the
defendant’s wrongful act or omission. (Art. 2217)
Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21,26,27,28,29,30, 32, 34,
and 35.

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The parents of the female seduced, abducted, raped, or abused, referred to
in No. 3 of this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring
the action mentioned in No. 9 of this article, in the order named. (Art. 2219)
As a general rule, moral damages are not recoverable in actions for
damages predicated on a breach of contract for it is not one of the items
enumerated under Art. 2219 of the Civil Code. As an exception, such damages
are recoverable: (1) in cases in which the mishap results in the death of a
passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the Civil Code;
and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided
in Art. 2220. (Calalas v. Court of Appeals, 332 SCRA 356)
The person claiming moral damages must prove the existence of bad faith
by clear and convincing evidence for the law always presumes good faith. It is not
enough that one merely suffered sleepless nights, mental anguish, and serious
anxiety as the result of the actuations of the other party. Invariably such action
must be shown to have been willfully done in bad faith or with ill motive. (Ace
Haulers Corporation v. Court of Appeals, 338 SCRA 572)
“Bad faith does not simply connote bad judgment or negligence, it imports
a dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of known duty through some motive or interest or ill-will that partakes of
the nature of fraud.” Where in breaching the contract of carriage the common
carrier is not shown to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable consequences of the breach of
obligation, which the parties had foreseen or could have reasonably foreseen. In
that case, such liability does not include moral and exemplary damages.” (Tan v.
Northwest Airlines, 327 SCRA 263)
Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages. (Art. 2229)
In criminal offenses, exemplary damages as a part of the civil liability
may be imposed when the crime was committed with one

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or more aggravating circumstances. Such damages are separate and

distinct from fines and shall be paid to the offended party. (Art. 2230)
In quasi-delicts, exemplary damages may be granted if the defendant acted
with gross negligence. (Art. 2231)
In contracts and quasi-contracts, the court may award exemplary damages if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. (Art. 2232). (Singapore Airlines v. Fernandez, 417 SCRA 484)
Exemplary damages cannot be recovered as a matter of right; the court will
decide whether or not they should be adjudicated. (Art. 2233)
Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any loss suffered by him. It
is an established rule that nominal damages cannot co-exist with compensatory
damages. (LRTA v. Natividad, 397 SCRA 75, February 6, 2003)

Damages, Computation of Indemnity, Life Expectancy of Victim as basis

in fixing amount recoverable, and Earning Capacity.

Villa Rey Transit, Inc. v. The Court of Appeals,

Trinidad A. Quintos, Prima A. Quintos
and Julita A. Quintos
G.R. No. L-25499, February 18,1970
FACTS: At about 1:30 in the morning ofMarch 17,1960, anlsuzu First Class
passenger bus owned and operated by the defendant, bearing Plate No.
TPU-14871-Bulacan and driven by Laureano Casim, left Lingayen, Pangasinan,
for Manila. Among its paying passengers was the deceased, Policronio Quintos, Jr.,
who sat on the first seat, second row, right side of the bus. At about 4:55 a.m. when
the vehicle was nearing the northern approach of the Sadsaran Bridge on the
national highway in Barrio Sto. Domingo, Municipality of Minalin, Pampanga, it
frontally hit the rear side of a bull cart filled with hay. As a result the end of a
bamboo pole placed on top of the hay load and tied to the cart to hold it in place, hit
the right side of the windshield of the bus. The

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CARRIERS
protruding end of the bamboo pole, about eight feet long from the rear of the bull
cart, penetrated through the glass windshield and landed on the face of Policronio
Quintos, Jr., who, because of the impact, fell from his seat and was sprawled on
the floor. The pole landed on his left eye and the bone of the left side of his face
was fractured. He suffered other multiple wounds and was rendered unconscious
due, among other causes, to severe cerebral concussion. Policronio Quintos, Jr.,
died at 3:15 p.m. on the same day, March 17, 1960, due to traumatic shock due to
cerebral injuries.
The private respondents, Trinidad, Prima and Julita, all sumamed Quintos,
are the sisters and only surviving heirs of Policronio Quintos, Jr., who died single,
leaving no descendants or ascendants. Said respondents herein brought this action
against herein petitioner. Villa Rey Transit, Inc., as owner and operator of said
passenger bus, bearing Plate No. TPU-14871-Bulacan, for breach of the contract
of carriage between said petitioner and the deceased Policronio Quintos, Jr., to
recover the aggregate sum of P63,750 as damages, including attorney’s fees. Said
petitioner — defendant in the Court of First Instance — contended that the mishap
was due to a fortuitous event, but this pretense was rejected by the trial court and
the Court of Appeals, both of which found that the accident and the death of
Policronio had been due to the negligence of the bus driver, for whom petitioner
was liable under its contract of carriage with the deceased.
ISSUE: The only issue raised in this appeal is the amount of damages
recoverable by private respondents herein. The determination of such amount
depends, mainly upon two factors, namely: (1) the number of years on the basis of
which the damages shall be computed; and (2) the rate at which the losses
sustained by said respondents should be fixed.
HELD: The first factor was based by the trial court — the view of which
was concurred in by the Court of Appeals — upon the life expectancy of
Policronio Quintos, Jr., which was placed at 33-1/3 years — he being over 29
years of age (or around 30 years for purposes of computation) at the time of his
demise — by applying the formula (2/3 x [80 - 30] = life expectancy) adopted in
the American Expectancy

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Table of Mortality or the actuarial of Combined Experience Table of Mortality.

Upon the other hand, petitioner maintains that the lower courts had erred in
adopting said formula and in not acting in accordance with Alcantara v. Surro in
which the damages were computed on a four year basis, despite the fact that the
victim therein was 39 years old, at the time of his death, and had a life expectancy of
28.90 years.
The case cited is not, however, controlling in the one at bar. In the Alcantara
case, none of the parties had questioned the propriety of the four-year basis adopted
by the trial court in making its award of damages.
Thus, life expectancy is not only relevant but also, an important element in
fixing the amount recoverable by private respondents herein. Although it is not the
sole element determinative of said amount, no cogent reason has been given to
warrant its disregard and the adoption, in the case at bar, of a purely arbitrary
standard, such as a four-year rule. In short, the Court of Appeals has not erred in
basing the computation of petitioner’s liability upon the life expectancy of
Policronio Quintos, Jr.
At this juncture, it should be noted, also, that the Court is mainly concerned
with the determination of the losses or damages sustained by the private
respondents, as dependents and intestate heirs of the deceased, and that said
damages consist, not of the full amount of his earnings, but of the support they
received or would have received from him had he not died in consequence of the
negligence of petitioner’s agent. In fixing the amount of that support, we must
reckon with the “necessary expenses of his own living,” which should be deducted
from his earnings. Thus, it has been consistently held that earning capacity, as an
element of damages to one’s estate for his death by wrongful act is necessarily his
net earning capacity or his capacity to acquire money, “less the necessary expense
for his own living.” Stated otherwise, the amount recoverable is not loss of the
entire earning, but rather the loss of that portion of the earnings, which the
beneficiary would have received. In other words, only net earnings, not gross
earning, are to be considered that is, the total of the earnings less expenses necessary
in the creation of such earnings or income and less living and other incidental
expenses.

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All things considered, the Court is of the opinion that it is fair and
reasonable to fix the deductible living and other expenses of the deceased at
the sum of P 1,184 a year, or about PI00 a month, and that, consequently, the
loss sustained by his sisters may be roughly estimated at PI ,000 a year or
P33,333.33 for the 33-1/3 years of his life expectancy. To this sum of
P33,333.33, the following should be added: (a) P 12,000, pursuant to Articles
104 and 107 of the Revised Penal Code, in relation to Article 2206 of our Civil
Code, as construed and applied by this Court; (b) PI,727.95, actually spent by
private respondents for medical and burial expenses; and (c) attorney’s fee,
which was fixed by the trial court, at P500, but which, in view of the appeal
taken by petitioner herein, first to the Court of Appeals and later to this
Supreme Court, should be increased to P2,500.
In other words, the amount adjudged in the decision appealed from
should be reduced to the aggregate sum of P49,561.28, with interest thereon,
at the legal rate, from December 29, 1961, date of the promulgation of the
decision of the trial court.
Thus modified, said decision and that of the Court of Appeals are
hereby affirmed, in all other respects, with costs against petitioner, Villa Rey
Transit, Inc.

Fortune Express, Inc. v. Court of Appeals

G.R. No. 119756, March 18,1999
Compensation for Loss of Earning Capacity. Article 1764 of the
Civil Code, in relation to Article 2206 thereof, provided that in addition to the
indemnity for death arising from the breach of contract of carriage by a
common carrier, the “defendant shall be liable for the loss of the earning
capacity of the deceased, and the indemnity shall be paid to the heirs of the
latter.” The formula established in decided cases for computing net earning
capacity is as follows:
[Gross Necessary]
Net Earning = Life x [Annual - Living]
Capacity Expectancy [Income Expenses]

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Life expectancy is equivalent to 2/3 multiplied by the difference of

80 and the age of the deceased. Since Atty. Caorong was 37 years old at the
time of his death, he had a life expectancy of 28, 2/3 more years. His
projected gross annual income, computed based on his monthly salary of
PI 1,385 as a lawyer in the Department of Agrarian Reform at the time of
his death, was P148,005. Allowing for necessary living expenses of 50%
of his projected gross annual income, his total earning capacity amounts to
P2,121,404.90. Hence, the petitioner is liable to the private respondents in
the said amount as compensation for loss of earning capacity.

Damages, computation of indemnity.

Spouses Dante Cruz and Leonora Cruz
v. Sun Holidays, Inc.
G.R. No. 186312, June 29, 2010
FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a
Complaint on January 25, 2001 against Sun Holidays, Inc. (respondent)
with the Regional Trial Court (RTC) of Pasig City for damages arising
from the death of their son Ruelito C. Cruz (Ruelito), who perished with
his wife on September 11, 2000 on board the boat M/B Coco Beach III that
capsized en route to Batangas from Puerto Galera, Oriental Mindoro
where the couple had stayed at Coco Beach Island Resort (Resort) owned
and operated by respondent.
On September 11, 2000, as it was still windy, Miguel C. Matute
(Matute), a scuba diving instructor, and 25 other Resort guests including
petitioner’s son and wife trekked to the other side of the Coco Beach
mountain that was sheltered from the wind where they boarded M/B Coco
Beach III, which was to ferry them to Batangas. Shortly after the boat
sailed, it started to rain. As it moved farther away from Puerto Galera and
into the open seas, the rain and wind got stronger, causing the boat to tilt
from side to side, and the captain step forward to the front, leaving the
wheel to one of the crew members. The waves got more unwieldy. After
getting hit by two big waves, which came after the other, M/B Coco Beach
III capsized, putting all passengers

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underwater. The passengers, who had put on their life jackets, struggled to get out of the
boat. Upon seeing the captain, Matute and the other passengers, who reached the
surface, asked him what they could do to save the people who were still trapped under
the boat. The captain replied. “Iligtas ninyo na lang ang sarili ninyo ” (Just save
yourselves).
At the time of Ruelito's death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd., in Saudi Arabia, with a
basic monthly salary for $900. Petitioners, by letter of October 26, 2000, demanded
Indemnification from respondent for the death of their son in the amount of at least
P4,000.000.
Replying, respondent denied any responsibility for the incident, which it
considered to be a fortuitous event. It nevertheless offered, as an act of commiseration,
the amount of PI 0,000 to petitioners upon their signing of a waiver.
By Decision of February 16, 2005, Branch 267 of the Pasig RTC dismissed
petitioners’ Complaint and respondent’s Counterclaim. Petitioner’s Motion for
Reconsideration, having been denied, they appealed to the Court of Appeals.
By Decision of August 19, 2008, the appellate court denied petitioners’ appeal,
holding, among other things, that the trial court correctly ruled that respondent is a
private carrier, which is only required to observe ordinary diligence; that respondent in
fact observed extraordinary diligence in transporting its guests on board M/B Coco
Beach III; and that the proximate cause of the incident was a squall, a fortuitous event.
ISSUE: Assuming that respondent is a common carrier, how much is he liable
for the death of the victim.
HELD: Article 1764 vis-a-vis Article 2206 of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a passenger liable
to pay the following: (1) indemnity for death; (2) indemnity for loss of earning capacity;
and (3) moral damages. Petitioners are entitled to indemnity for the death of Ruelito,
which is fixed at P50,000.

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 TRANSPORTATION LAWS

As for damages representing unearned income, the formula for its

compensation is:

Net Earning Capacity = life expectancy x (gross annual

income-reasonable and necessary living expenses)
Life expectancy is determined in accordance with the formula:
2/3 x [80 - age of deceased at the time of the death]

The first factor, i.e, life expectancy, is compared by applying the

formula 2/3 x [80 - age at death] adopted in the American Expectancy Table of
Mortality or the Actuarial of Combine Experience Table of Mortality.
The second factor is computed by multiplying the life expectancy by
the net earnings of the deceased, i.e., the total earnings less expenses necessary
in the creation of such earnings or income and less living and other incidental
expenses. The loss is not equivalent to the entire earnings of the deceased, but
only such portion, as he would have used to support his dependents or heirs.
Hence, to be deducted from his gross earnings are the necessary expenses
supposed to be used by the deceased for his own needs.
In computing the third factor — necessary living expense, Smith Bell
Dodwell Shipping Agency Corp. v. Borja teaches that when, as in this case,
there is no showing that the living expenses constituted the smaller percentage
of the gross income, the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito’s life
expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80-28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary
of $900 which, when converted to Philippine peso

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applying the annual average exchange rate of 1 $ = P44 in 2000 amounts to
P39,600. Ruelito’s net earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income-
reasonable and necessary living expenses)
= 35 x (P475,200.00 - P237,600.00)
= 35 x (P237,600.00)
Net Earning Capacity = P8,316,000.00
Respecting the award of moral damages, since respondent common
carrier’s breach of contract of carriage resulted in the death of petitioners’ son,
following Article 1765 vis-a-vis Article 2206 of the Civil Code, petitioners are
entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary
diligence required of common carriers, it is presumed to have acted recklessly,
thus, warranting the award too of exemplary damages, which are granted in
contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
Under the circumstances, it is reasonable to award petitioners the amount
of PI00,000 as moral damages, and PI00,000 as exemplary damages.
Pursuant to Article 2208 of the Civil Code, attorney’s fees may also be
awarded where exemplary damages are awarded. The Court finds that 10% of the
total amount adjudged against respondent is reasonable for the purpose.
Wherefore, the Court of Appeals Decision of August 19, 2008 is
REVERSED and SET ASIDE. Judgment is rendered in favor of petitioners,
ordering respondent to pay petitioners the following: (1) P50,000 as indemnity
for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito’s loss of
earning capacity; (3) PI00,000 as moral damages; (4) PI00,000 as exemplary
damages; (5) 10% of the total amount adjudged against respondent as attorney’s
fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate
of 12% per annum computed from the finality of this decision until full payment.

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The amount recoverable by the heirs of a victim of a tort is not the

loss of the entire earnings, but the loss of that portion of the earnings,
which the beneficiary would have received.

Dangwa Transportation Co., Inc. and Theodore M.

Lardizabal v. Court of Appeals,
Inocencia Cudiamat, et al
G.R. No. 95582, October 7,1991
FACTS: On May 13, 1985, private respondents filed a complaint for
damages against petitioners for the death of Pedrito Cudiamat as a result of a
vehicular accident, which occurred on March 25, 1985 at Marivic, Sapid,
Mankayan, Benguet. Among others, it was alleged that on said date, while
petitioner Theodore M. Lardizabal was driving a passenger bus belonging to
petitioner corporation in a reckless and imprudent manner and without due
regard to traffic rules and regulations and safety to persons and property, it ran
over its passenger, Pedrito Cudiamat. However, instead of bringing Pedrito
immediately to the nearest hospital, the said driver, in utter bad faith and
without regard to the welfare of the victim, first brought his other passengers
and cargo to their respective destinations before bringing said victim to the
Lepanto Hospital where he expired.
On the other hand, petitioners alleged that they had observed and
continued to observe the extraordinary diligence required in the operation of
the transportation company and the supervision of the employees, even as they
add that they are not absolute insurers of the safety of the public at large.
Further, it was alleged that it was the victim’s own carelessness and
negligence, which gave rise to the subject incident, hence, they prayed for the
dismissal of the complaint plus an award of damages in their favor by way of a
counterclaim.
On July 29,1988, the trial court rendered a decision, effectively in favor
of petitioners, with this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby
pronounced that Pedrito Cudiamat was negligent, which negligence was the
proximate cause of his death. Nonetheless, defendants in equity, are hereby
ordered to pay the heirs of Pedrito Cudiamat the sum of PI 0,000

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which approximates the amount defendants initially offered said heirs for the
amicable settlement of the case. No costs.
Not satisfied therewith, private respondents appealed to the Court of
Appeals, which, in a decision in CA-G.R. CVNo. 19504 promulgated on August
14, 1990, set aside the decision of the lower court, and ordered petitioners to pay
private respondents:
“1. The sum of Thirty Thousand Pesos (P30,000.00) by way of
indemnity for death of the victim Pedrito Cudiamat;
2. The sum of Twenty Thousand Pesos (P20,000.00) by way of
moral damages;
3. The sum of Two Hundred Eighty-Eight Thousand Pesos
(P288,000.00) as actual and compensatory damages;
4. The costs of this suit.”
ISSUE: Whether or not respondent court erred in reversing the decision of
the trial court and in finding petitioners negligent and liable for the damages
claimed.
HELD: The victim herein, by stepping and standing on the platform of the
bus, is already considered a passenger and is entitled to all the rights and
protection pertaining to such a contractual relation. Hence, it has been held that
the duty, which the carrier of passengers owes to its patrons, extends to persons
boarding the cars as well as to those alighting therefrom.
Moreover, the circumstances under which the driver and the conductor
failed to bring the gravely injured victim immediately to the hospital for medical
treatment is a patent and incontrovertible proof of their negligence. It defies
understanding and can even be stigmatized as callous indifference. The evidence
shows that after the accident, the bus could have forthwith turned at Bunk 56 and
thence to the hospital, but its driver instead opted to first proceed to Bunk 70 to
allow a passenger to alight and to deliver a refrigerator, despite the serious
condition of the victim. The vacuous reason given by petitioners that it was the
wife of the deceased who caused the delay was tersely and correctly confuted by
respondent court:

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“x x x The pretension of the appellees that the delay was due to

the fact that they had to wait for about twenty minutes for Inocencia
Cudiamat to get dressed deserves scant consideration. It is rather
scandalous and deplorable for a wife whose husband is at the verge of
dying to have the luxury of dressing herself up for about twenty
minutes before attending to help her distressed and helpless husband.”

With respect to the award of damages, an oversight was, however,

committed by respondent Court of Appeals in computing the actual damages
based on the gross income of the victim. The rule is that the amount
recoverable by the heirs of a victim of a tort is not the loss of the entire
earnings, but rather the loss of that portion of the earnings, which the
beneficiary would have received. In other words, only net earnings, not gross
earnings, are to be considered, that is, the total of the earnings less expenses
necessary in the creation of such earnings or income and minus living and
other incidental expenses.

The Court is of the opinion that the deductible living and other expense
of the deceased may fairly and reasonably be fixed at P500 a month or P6,000
a year. In adjudicating the actual or compensatory damages, respondent court
found that the deceased was 48 years old, in good health with a remaining
productive life expectancy of 12 years, and then earning P24,000 a year.
Using the gross annual income as the basis, and multiplying the same by 12
years, it accordingly awarded P288,000. Applying the aforestated rule on
computation based on the net earnings, said award must be, as it hereby is,
rectified and reduced to P216,000. However, in accordance with prevailing
jurisprudence, the death indemnity is hereby increased to P50,000. (See also
Smith Podwell Shipping Agency Corporation v. Borja, 383 SCRA 341,
June 30, 2002)
Factors to be considered in the award of damages to accident victim
The determination of the indemnity to be awarded to the heirs of a
deceased person has therefore no fixed basis. Much is left to the discretion of
the court considering the moral and material damages involved, and so it has
been said that “there can be no exact or uniform

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rule for measuring the value of a human life and the measure of damages
cannot be arrived at by precise mathematical calculation, but the amount
recoverable depends on the particular facts and circumstances of each case.
The life expectancy of the deceased or of the beneficiary, whichever is
shorter, is an important factor.” (25 CJ.S. 124) Other factors that are usually
considered are: (1) pecuniary loss to plaintiff or beneficiary (25 CJ.S.
1243-1250); (2) loss of support (25 C.J.S. 1250- 1251); (3) loss of service
(25 C.J.S 1251-1254); (4) loss of society (25 CJ.S. 1254-1255); (5) mental
suffering of beneficiaries (25 C.J.S. 1258-1259); and (6) medical and
funeral expenses (25 C.J.S., 1254- 1260). (Alcantara v. Surro, 93 Phil.
472)
The contract of air carriage generates a relation attended with a public
duty and neglect or malfeasance of carrier’s employees naturally could
give ground for an action for damages.
Philippine Airlines, Inc. v. Court of Appeals
and Leovigildo A. Pantejo
G.R. No. 120262, July 17,1997
FACTS: On October 23, 1988, private respondent Pantejo, then City
Fiscal of Surigao City, boarded a PAL plane in Manila and disembarked in
Cebu City where he was supposed to take his connecting flight to Surigao
City. However, due to typhoon Osang, the connecting flight to Surigao City
was cancelled.
To accommodate the needs of its stranded passengers, PAL initially
gave out cash assistance of PI00 and, the next day, P200, for their expected
stay of two days in Cebu. Respondent Pantejo requested instead that he be
billeted in a hotel at PAL’s expense because he did not have cash with him at
that time, but PAL refused. Thus, respondent Pantejo was forced to seek and
accept the generosity of a co-passenger, an engineer named Andoni Dumlao,
and he shared a room with the latter at Sky View Hotel with the promise to
pay his share of the expenses upon reaching Surigao.
On October 25, 1988, when the flight for Surigao was resumed,
respondent Pantejo came to know that the hotel expenses of his copassengers,
one Superintendent Ernesto Gonzales and a certain Mrs.

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Gloria Rocha, an auditor of the Philippine National Bank, were reimbursed by

PAL. At this point, respondent Pantejo informed Oscar Jereza, PAL’s Manager for
Departure Services at Mactan Airport and who was in charge of cancelled flights,
that he was going to sue the airline for discriminating him. It was only then that
Jereza offered to pay respondent Pantejo P300 which, due to the ordeal and
anguish he had undergone, the latter declined.
On March 18, 1991, the Regional Trial Court of Surigao City, Branch 30,
rendered judgment in the action for damages filed by respondent Pantejo against
herein petitioner, Philippine Airlines, Inc., ordering the latter to pay Pantejo P300
for actual damages, PI50,000 as moral damages, PI 00,000 as exemplary damages,
PI5,000 as attorney’s fees, and 6% interest from the time of the filing of the
complaint until said amounts shall have been fully paid, plus costs of suit. On
appeal, respondent court affirmed the decision of the court a quo, but with the
exclusion of the award of attorney’s fees and litigation expenses.
ISSUE: Whether or not petitioner airlines acted in bad faith when it failed
and refused to provide hotel accommodations for respondent Pantejo or to
reimburse him for hotel expenses incurred by reason of the cancellation of its
connecting flight to Surigao City due to force majeure.
HELD: To begin with, it must be emphasized that a contract to transport
passengers is quite different in kind and degree from any other contractual relation,
and this is because of the relation, which an air carrier sustains with the public. Its
business is mainly with the traveling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage, therefore, generates
a relation attended with a public duty. Neglect or malfeasance of the carrier’s
employees naturally could give ground for an action for damages.
Petitioner theorizes that the hotel accommodations or cash assistance given
in case a flight is cancelled is in the nature of an amenity and is merely a privilege
that may be extended at its own discretion, but never a right that may be demanded
by its passengers. Thus, when respondent Pantejo was offered cash assistance and
he refused it, petitioner cannot be held liable for whatever befell respondent
Pantejo

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on that day, because it was merely exercising its discretion when it opted to just
give cash assistance to its passengers.
Assuming arguendo that the airline passengers have no vested right to these
amenities in case a flight is cancelled due to force majeure, what makes petitioner
liable for damages in this particular case and under the facts obtaining herein is its
blatant refusal to accord the so- called amenities equally to all its stranded
passengers who were bound for Surigao City. No compelling or justifying reason
was advanced for such discriminatory and prejudicial conduct.
More importantly, it has been sufficiently established that it is petitioner’s
standard company policy, whenever a flight has been cancelled, to extend to its
hapless passengers cash assistance or to provide them accommodations in hotels
with which it has existing tie-ups. In fact, petitioner’s Mactan Airport Manager for
departure services, Oscar Jereza, admitted that PAL has an existing arrangement
with hotels to accommodate stranded passengers, and that the hotel bills of Ernesto
Gonzales were reimbursed obviously pursuant to that policy.
Further, Ernesto Gonzales, the aforementioned co-passenger of respondent
on that fateful flight, testified that based on his previous experience, hotel
accommodations were extended by PAL to its stranded passengers either in
Magellan or Rajah Hotels, or even in Cebu Plaza. Thus, we view as impressed with
dubiety PAL’s present attempt to represent such emergency assistance as being
merely ex gratia and not ex debito.
Respondent Court of Appeals thus correctly concluded that the refund of
hotel expenses was surreptitiously and discriminatorily made by herein petitioner
since the same was not made known to everyone, except through word of mouth
to a handful of passengers. This is a sad commentary on the quality of service and
professionalism of an airline company, which is the country’s flag carrier at that.
It is likewise claimed that the moral and exemplary damages awarded to
respondent Pantejo are excessive and unwarranted on the ground that respondent
is not totally blameless because of his refusal to accept the PI00 cash assistance
which was inceptively offered to him.

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The discriminatory act of petitioner against respondent ineludibly

makes the former liable for moral damages under Article 21 in relation to
Article 2219(10) of the Civil Code. As held in Alitalia Airways v. Court of
Appeals, et al., such inattention to and lack of care by petitioner airline for the
interest of its passengers who are entitled to its utmost consideration,
particularly as to their convenience, amount to bad faith which entitles the
passenger to the award of moral damages.
Moral damages are emphatically not intended to enrich a plaintiff at the
expense of the defendant. They are awarded only to allow the former to obtain
means, diversion, or amusements that will serve to alleviate the moral
suffering he has undergone due to the defendant’s culpable action and must,
perforce, be proportional to the suffering inflicted. However, substantial
damages do not translate into excessive damages. Except for attorney’s fees
and costs of suit, it will be noted that the Court of Appeals affirmed point by
point the factual findings of the lower court upon which the award of damages
had been based. We, therefore, see no reason to modify the award of damages
made by the trial court.
Under the peculiar circumstances of this case, the Court is convinced
that the awards for actual, moral and exemplary damages granted in the
judgment of respondent court, for the reasons meticulously analyzed and
thoroughly explained in its decision, are just and equitable. It is high time that
the traveling public is afforded protection and that the duties of common
carriers, long detailed in our previous laws and jurisprudence and thereafter
collated and specifically catalogued in our Civil Code in 1950, be enforced
through appropriate sanctions.
The Court agrees, however, with the contention that the interest of 6%
imposed by respondent court should be computed from the date of rendition of
judgment and not from the filing of the complaint. The rule has been laid
down in Eastern Shipping Lines, Inc. v. Court of Appeals, et al.

This is because at the time of the filing of the complaint, the amount of
damages to which plaintiff may be entitled remains unliquidated and not
known, until it is definitely ascertained, assessed and determined by the court,
and only after the presentation of proof thereon.

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When a passenger contracts for a specific flight, he has a purpose in

making that choice which must be respected. This choice, once
exercised, must not be impaired by a breach on the part of the airline
without the latter incurring any liability.
Singapore Airlines Limited v. Andion Fernandez
G.R. No. 142305, December 10,2003
FACTS: Respondent Andion Fernandez is an acclaimed soprano here in
the Philippines and abroad. At the time of the incident, she was availing an
educational grant from the Federal Republic of Germany, pursuing a Masters
Degree in Music, majoring in Voice. She was invited to sing before the King
and Queen of Malaysia on February 3 and 4, 1991. For this singing
engagement, an airline passage ticket was purchased from petitioner Singapore
Airlines, which would transport her to Manila from Frankfurt, Germany on
January 28, 1991. From Manila, she would proceed to Malaysia on the next
day. The petitioner issued the respondent a Singapore Airlines ticket for Flight
No. SAQ 27, leaving Frankfurt, Germany on January 27, 1991 bound for
Singapore with onward connections from Singapore to Manila. Flight No. SQ
27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January 27,
1991, arriving at Singapore at 8:50 in the morning of January 28, 1991. The
connecting flight from Singapore to Manila, Flight No. SQ 72, was leaving
Singapore at 11:00 in the morning of January 28, 1991, arriving in Manila at
2:20 in the afternoon of the same day. On January 27,1991, Flight No. SQ 27
left Frankfurt but arrived in Singapore two hours late or at about 11:00 in the
morning of January 29, 1991. By then, the aircraft bound for Manila had left as
scheduled, leaving the respondent and about 25 other passengers stranded in
the Changi Airport in Singapore. Upon disembarkation at Singapore, the
respondent approached the transit counter, who referred her to the nightstop
counter, and told the lady employee thereat that it was important for her to
reach Manila on that day, January 28, 1991. The lady employee told her that
there were no more flights to Manila for that day, and that respondent had no
choice but to stay in Singapore. Upon respondent’s persistence, she was told
that she can actually fly to Hongkong going to Manila but since her ticket was
non-transferable, she would have to pay for the ticket. The

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respondent could not accept the offer because she had no money to pay for it.
Her pleas for the respondent to make arrangements to transport her to Manila
were unheeded. The respondent was able to contact a family friend, who
picked her up from the airport for her overnight stay in Singapore.
The next day, after being brought back to the airport, the respondent
proceeded to petitioner’s counter, which says: “Immediate Attention to
Passengers with Immediate Booking.” There were four or five passengers in
line. The respondent approached petitioner’s male employee at the counter to
make arrangements for immediate booking only to be told: “Can’t you see I am
doing something.” She explained her predicament but the male employee
uncaringly retorted: “It’s your problem, not ours.”
The respondent never made it to Manila and was forced to take a direct
flight from Singapore to Malaysia on January 29, 1991, through the efforts of
her mother and travel agency in Manila. Her mother also had to travel to
Malaysia bringing with her respondent’s wardrobe and personal things needed
for the performance that caused them to incur an expense of about P50,000. As
a result of this incident, the respondent’s performance before the Royal Family
of Malaysia was below par. Because of the rude and unkind treatment she
received from the petitioner’s personnel in Singapore, the respondent was
engulfed with fear, anxiety, humiliation, and embarrassment causing her to
suffer mental fatigue. A case was filed against the petitioner for damages.
On June 15, 1993, the Regional Trial Court (RTC) rendered a decision
and ordered the defendant to pay the plaintiff P50,000. as compensatory and
actual damages, P250,000 as moral damages considering plaintiff’s
professional standing in the field of culture home and abroad, P100,000 as
exemplary damages, and P75,000 as attorney's fees. The petitioner appealed
the decision to the Court of Appeals (CA).
On June 10, 1998, the CA promulgated the assailed decision finding no
reversible error in the appealed decision of the trial court. Forthwith, the
petitioner filed the instant petition for review. The petitioner assails the award
of damages contending that it exercised the extraordinary diligence required by
law under the given circumstances.

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ISSUE: Whether or not the delay in transporting the respondent to Singapore

was justified.
HELD: When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriages arises. The passenger then has every
right to expect that he be transported on that flight and on that date. If he does not, then
the earner opens itself to a suit for breach of contract of carriage. The contract of air
carriage is a peculiar one. Imbued with public interest, the law requires a common
carriers to carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons with due regard for all the
circumstances. In an action for breach of contract of carriage, the aggrieved party does
not have to prove that the common carrier was at fault or was negligent. All that is
necessary to prove is the existence of the contract and the fact of its non-performance
by the carrier.
In the case at bar, it is undisputed that the respondent carried a confirmed
ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-Singapore; 2)
Singapore-Manila. In her contract of carriage with the petitioner, the respondent
certainly expected that she would fly to Manila on Flight No. SQ 72 on January
28,1991. Since the petitioner did not transport the respondent as covenanted by it on
said terms, the petitioner clearly breached its contract of carriage with the
respondent. The respondent had every right to sue the petitioner for this breach.
When a passenger contracts for a specific flight, he has a purpose in making
that choice which must be respected. This choice, once exercised, must not be
impaired by a breach on the part of the airline without the latter incurring any
liability. For petitioner’s failure to bring the respondent to her destination, as
scheduled, the Court finds the petitioner clearly liable for the breach of its contract
of carriage with the respondent.
Article 2232 of the Civil Code provides that in a contractual or
quasi-contractual relationship, exemplary damages may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. The award of exemplary damages is, therefore, warranted in this case.

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There is no hard-and-fast rule in determining what would be a fair

and reasonable amount of moral damages, since each case must be
governed by its own peculiar facts. However, it must be commensurate
to the loss or injury suffered.

Philippine Airlines, Inc. v. Vicente Lopez, Jr.

G.R. No. 156654, November 20, 2008

FACTS: In a Complaint dated February 11, 1992 filed with the Regional
Trial Court (RTC) of Manila, Branch 24, Lopez claimed that PAL had
unjustifiably downgraded his seat from business to economy class in his return
flight from Bangkok to Manila last November 30, 1991, and that in view
thereof, PAL should be directed to pay him moral damages of at least PI 00,000,
exemplary damages of at least P20,000, attorney’s fees in the sum of P30,000,
as well as the costs of suit.
To support his claim, Lopez averred that he purchased a Manila-
Hongkong-Bangkok-Manila PAL business class ticket and that his return flight
to Manila was confirmed by PAL’s booking personnel in Bangkok on
November 26, 1991. He also mentioned that he was surprised to learn during his
check-in for the said return flight that his status as business class passenger was
changed to economy class, and that PAL was not able to offer any valid
explanation for the sudden change when he protested the change. Lopez added
that although aggrieved, he nevertheless took the said flight as an economy class
passenger because he had important appointments in Manila.
In its Decision dated April 19, 1995, the trial court held PAL liable for
damages and orders defendant to pay plaintiff, as prayed for in the complaint,
the following amounts: PI00,000 for moral damages; P20,000 for exemplary
damages, P30,000 for attorney’s fees, and also to pay for the cost of suit. All
amounts awarded to bear legal interest from date of this decision.
On appeal, the Court of Appeals affirmed in toto the trial court’s decision.
PAL moved for consideration, which was denied. Hence, this petition.
ISSUE: Whether or not the award of moral damages is excessive.

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HELD: Citing Articles 1733 and 2220 of the Civil Code and the case of
Ortigas, Jr v. Lufthansa German Airlines, the trial court held that the inattention
and lack of care on the part of the common carrier, in this case PAL, resulting in the
failure of the passenger to be accommodated in the class contracted for amounts to
bad faith or fraud, making it liable for damages. The trial court likewise awarded
attorney’s fees in favor of Lopez after noting that Lopez was forced to litigate in order
to assert his rights.
PAL’s procedural lapses notwithstanding, the Court had nevertheless
carefully reviewed the records of this case and found no compelling reason to depart
from the uniform factual findings of the trial court and the Court of Appeals that: (1) it
was the negligence of PAL which caused the downgrading of the seat of Lopez; and
(2) the aforesaid negligence of PAL amounted to fraud or bad faith, considering our
ruling in Ortigas.
Moreover, the Court cannot agree with PAL that the amount of moral damages
awarded by the trial court, as affirmed by the Court of Appeals, was excessive. In
Mercury Drug Corporation v. Baking, the Court stated that “there is no
hard-and-fast rule in determining what would be a fair and reasonable amount of
moral damages, since each case must be governed by its own peculiar facts. However,
it must be commensurate to the loss or injury suffered.” Taking into account the
attending circumstances here, the amount of PI00,000 awarded as moral damage is
appropriate.

An action based on breach of contract of carriage, the aggrieved party does

not have to prove that the common carrier was at fault or negligent; all he
has to prove is the existence of the contract and the fact of its
non-performance by the carrier.

Cathay Pacific Airways, Ltd. v. Spouses Arnulfo

and Evelyn Fuentebella
G.R. No. 188283, July 20, 2016
FACTS: In 1993, the Speaker of the House authorized Congressman
Arnulfo Fuentebella (respondent Fuentebella), Alberto Lopez (Cong. Lopez) and
Leonardo Fugoso (Cong. Fugoso) to travel on of-

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ficial business to Sydney, Australia, to confer with their counterparts in the

Australian Parliament from October 25 to November 6, 1993. On October 22,
1993, respondents bought Business Class tickets for Manila to Sydney via
Hong Kong and back. They changed their minds, however, and decided to
upgrade to First Class. From this point, the parties presented divergent versions
of facts. The overarching disagreement was on whether respondents should
have been given First Class seat accommodations for all the segments of their
itinerary. According to respondents, their travel arrangements, including the
request for the upgrade of their seats from Business Class to First Class, were
made through Cong. Lopez. The congressman corroborated this allegation and
testified that upon assurance that their group would be able to travel on First
Class upon cash payment of the fair difference, he sent a member of his staff
that same afternoon to pay. Petitioner, on their part, admits that First Class
tickets were issued to respondents, but clarifies that the tickets were open-dated
(waitlisted).
On October 25, 1993, respondents queued in front of the First Class
counter in the airport. They were issued boarding passes for Business Class
seats on board CX 902 bound for Hong Kong from Manila and Economy Class
seats on board CX 101 bound for Sydney from Hong Kong. They only
discovered that they had not been given First Class seats when they were
denied entry into the First Class lounge. Respondent Fuentebella went back to
the check-in-counter to demand that they be given First Class seats or at the
very least, access to the First Class Lounge. He recalled that he was treated by
the ground staff in a discourteous, arrogant, and rude manner. He was allegedly
told that the plane would leave with or without them. Respondents were able to
travel First Class for their trip from Sydney to Hong Kong on October 30,
1993. However, on the last segment of the itinerary from Hong Kong to Manila
on November 2,1993, they were issued boarding passes for Business Class.
Upon arrival in the Philippines, respondents demanded a formal apology and
payment of damages from petitioner.
In resolving the case, the trial court first identified the ticket as a
contract of adhesion whose terms, as such, should be construed against
petitioner. It found that respondents had entered into the contract because of
the assurance that they would be given First Class seats.

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The trial court ordered petitioner to pay P5 million as moral damages, PI million
as exemplary damages, and P500,000 as attorney’s fees. In setting the award for
moral damages, the Regional Trial Court (RTC) considered the prestigious
position held by respondent Fuentebella, as well as the bad faith exhibited by
petitioner. According to the trial court, the contract was flagrantly violated in
four instances: First, when respondents were denied entry to the First Class
lounge; Second, at the check-in-counter when the airport services officer failed
to adequately address their concern; Third, at the Hong Kong airport when they
were ignored; and Fourth, when respondents became the butt of jokes upon their
arrival in Sydney. Court of Appeals (CA) affirmed the lower court’s decision and
held that there was a breach of contract when petitioner assigned Business Class
and Economy Class seats to First Class ticket holders.
ISSUE: Whether of not there is a breach of contract of carriage.
HELD: In Air France v. Gillego, this Court ruled that in an action based
on a breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent; all that he has to prove is
the existence of the contract and the fact of its non-performance by the carrier. In
this case, both the trial and appellate courts found that respondents were entitled
to First Class accommodations under the contract of carriage, and that petitioner
failed to perform its obligation. According to the petitioner, a reservation is
deemed confirmed when there is a seat available on the plane. When asked how a
passenger was informed of the confirmation, they replied that computer records
were consulted upon inquiry. By its issuance of First Class tickets on the same
day of the flight in place of Business Class tickets that indicated the preferred and
confirmed flight, petitioner led respondents to believe that their request for an
upgrade had been approved.
However, the award of P5 million as moral damages is excessive,
considering that the highest amount ever awarded by this Court for moral
damages in cases involving airlines is P500,000. In Air France v. Gillego, “the
mere fact that respondent was a Congressman should not result in an automatic
increase in the moral and exemplary damages.”

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The Court finds that upon the facts established, the amount of P500,000 as moral
damages is reasonable to obviate the moral suffering that respondents have
undergone. With regard to exemplary damages, jurisprudence shows that
P50,000 is sufficient to deter similar acts of bad faith attributable to airline
representatives.

Passengers do not contract merely for transportation. They have a

right to be treated by the carrier’s employees with kindness, respect,
courtesy, and due consideration. They are entitled to be protected
against personal misconduct, injurious language, indignities, and
abuses from such employees.
Spouses Jesus Fernando and Elizabeth S. Fernando
v. Northwest Airlines, Inc.
G.R. No. 212038, February 8, 2017
Northwest Airlines, Inc. v. Spouses Jesus Fernando
and Elizabeth S. Fernando
G.R. No. 212043
FACTS: Sometime on December 20, 2001, Jesus Fernando arrived at the
LA Airport via Northwest Airlines Flight No. NW02, to join his family for the
Christmas holidays. When Jesus Fernando presented his documents at the
immigration counter, he was asked by the Immigration Officer to have his return
ticket verified and validated since the date reflected thereon is August 2001. So
he approached a Northwest personnel Linda Puntawongdaycha, but the latter
merely glanced at his ticket without checking its status with the computer and
peremptorily said that the ticket has been used and could not be considered as
valid. He then explained to the personnel that he was about to use the said ticket
on August 20 or 21, 2001 on his way back to Manila from LA but he could not
book any seat because of some ticket restrictions, so he, instead purchased new
business class ticket on the said date. Hence, the ticket remains unused and
perfectly valid. To avoid further arguments, Jesus Fernando gave the personnel
the number of his Elite Platinum World Perks Card for the latter to access the
ticket control record with the airline’s computer and for her to see that the ticket
is still valid. But Linda Puntawongdaycha refused to check

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the validity of the ticket in the computer, but instead, looked at Jesus Fernando with
contempt, then informed the Immigration Officer that the ticket is not valid because
it had been used. The Immigration Officer brought Jesus Fernando to the
interrogation room of the Immigration and Naturalization Services (INS) where he
was asked humiliating questions for more than two hours. When he was finally
cleared by the Immigration Officer, he was granted only a 12-day stay in the United
States (US), instead of the usual six months. When Jesus Fernando was finally able
to get out of the airport, to the relief of his family, Elizabeth Fernando proceeded to a
Northwest Ticket counter to verify the status of the ticket. The personnel manning
the counter courteously assisted her and confirmed that the ticket remained unused
and perfectly valid. To avoid any further problems that may be encountered on the
validity of the ticket, a new ticket was issued to Jesus Fernando. Since Jesus
Fernando was granted only a 12-day stay in the US, his scheduled plans with his
family, as well as his business commitments were disrupted. The Femandos were
scheduled to attend the Musical Instrument Trade Show in LA on January 17,2002,
and the Sports Equipment Trade Show in Las Vegas on January 21 to 23, 2002,
which were both previously scheduled. Hence, Jesus Fernando had to spend
additional expenses for plane fares and other related expenses, and missed the
chance to be with his family for the whole duration of the Christmas holidays.
On January 29, 2002, the Femandos were on their way back to the Philippines.
They have confirmed bookings on Northwest Airlines NW Flight No. 001 for Narita,
Japan, and NW 029 for Manila. They checked in with their luggage at the LA
Airport, and were given their respective boarding passes for business class seats and
claim stubs for six pieces of luggage. With boarding passes, tickets, and other proper
travel documents, they were allowed entry to the departure area. When it was
announced that the plane was ready for boarding, the Femandos joined long queue of
business class passengers along with their business associates from Japan and the
Philippines, who attended the aforesaid trade shows. When the Femandos reached
the gate area where boarding passes need to be presented, Northwest supervisor,
Linda Tang, stopped them and demanded for the presentation of their paper tickets
(coupon type). They failed to present the same since,

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according to them; Northwest issued electronic tickets (attached to the

boarding passes), which they showed to the supervisor. In the presence of the
other passengers, Linda Tang pulled them out of the queue. Elizabeth Fernando
explained that the matter could be sorted out by simply verifying their electronic
tickets in her computer, and all she had to do was click and punch in their Elite
Platinum World Perks Card number. But Linda Tang told them that if they
wanted to board the plane, they should produce their credit cards and pay for
their new tickets, otherwise, they would be off-loaded from the plane.
Exasperated and pressed for time, the Femandos rushed to the Northwest Airline
Ticket counter to clarify the matter. They were assisted by Northwest personnel
Jeanne Meyer, who retrieved their control number from her computer and was
able to ascertain that the Femandos’ electric tickets were valid and they were
confirmed passengers on both NW Flight No. 001 for Narita Japan and NW 029
for Manila on that day. To ensure that the Femandos would no longer encounter
any problem with Linda Tang, Jeanne Meyer printed coupon tickets for them,
who were then advised to msh back to the boarding gates since the plane was
about to depart. But when the Femandos reached the boarding gate, the plane
had already departed. They were able to depart instead the day after, or on
January 30, 2002, and arrived in the Philippines on January 31, 2002.

On April 30, 2002, a complaint for damages was instituted by the

Femandos against Northwest Airlines before the Regional Trial Court (RTC),
Branch 97, Quezon City. In September 2008, the RTC rendered judgment in
favor of the plaintiffs and ordering the defendants to pay moral damages in the
amount of P200,000; actual or compensatory damages in the amount of US
$2,000, or its corresponding Peso equivalent at the time the airline ticket was
purchased; attorney’s fees in the amount of P50,000; and the cost of suit.
ISSUE: (1) Whether or not there was breach of contract of carriage; (2)
Whether or not it was done in a wanton, malevolent, or reckless manner
amounting to bad faith, and; (3) Whether or not it is liable to pay more than that
awarded by the RTC.
HELD: The Court finds merit in the petition of the Spouses Jesus and
Elizabeth Fernando. Undoubtedly, a contract of carriage existed

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)AMA(il!S I OR ItUI'ACII ()!• CONTRACT OI< COMMON CARRIERS

between Northwest and (lie Fernandos. They voluntarily and freely gave (heir
consent to an agreement whose object was the transportation of the Fernandos from
LA to Manila, and whose cause or consideration was the fare paid by the Fernandos
to Northwest. In Alitalia Airways v. CA, et al> the Court held that when an airline
issues a ticket to a passenger confirmed for a particular flight on a certain date, a
contract of carriage arises. The passenger then has every right to expect that he
would fly on that flight and on that date. If he does not, then the carrier opens itself
to a suit for breach of contract of carriage. When Northwest confirmed the
reservations of the Fernandos, it bound itself to transport the Fernandos on their
flight on January 29, 2002. Northwest admitted on cross-examination that based on
the documents submitted by the Fernandos, they were confirmed passengers on the
January 29, 2002 flight.
In an action based on a breach of contract of carriage, the aggrieved party
does not have to prove that the common carrier was at fault or was negligent. All
that he has to prove is the existence of the contract and the fact of its
non-performance by the carrier. As the aggrieved party, the Fernandos only had to
prove the existence of the contract and the fact of its non-performance by
Northwest, as carrier, in order to be awarded compensatory and actual damages.
Therefore, having proven the existence of a contract of carriage between Northwest
and the Fernandos, and the fact of non-performance by Northwest of its obligation
as a common carrier, it is clear that Northwest breached its contract of carriage with
the Fernandos. Thus, Northwest opened itself to claims for compensatory, actual,
moral, and exemplary damages, attorney’s fees, and costs of suit.
The Court, thus, sustained the findings of the CA and the RTC that Northwest
committed a breach of contract “in failing to provide the spouses with the proper
assistance to avoid inconveniences,” and that the actuations of Northwest in both
subject incidents “fall short of the utmost diligence of a very cautious person
expected of it.” Both ruled that considering that the Fernandos are not just ordinary
passengers but, in fact, frequent flyers of Northwest, the latter should have been
more courteous and accommodating to their needs so that the delay and
inconveniences they suffered could have been avoided. Northwest was

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remiss in its duty to provide the proper and adequate assistance to them.
Nonetheless, the Court is not in accord with the common findings of the CA and
the RTC when both ruled out bad faith on the part of Northwest. While the Court
agrees that the discrepancy between the date of actual travel and the date
appearing on the tickets of the Femandos called for some verification, however,
the Northwest personnel failed to exercise the utmost diligence in assisting the
Femandos. The actuations of Northwest personnel in both subject incidents are
constitutive of bad faith.

On the first incident, Jesus Fernando even gave the Northwest personnel
the number of his Elite Platinum World Perks Card for the latter to access the
ticket control record with the airline’s computer for her to see that the ticket is
still valid. But Linda Puntawongdaycha refused to check the validity of the ticket
in the computer. As a result, the Immigration Officer brought Jesus Fernando to
the interrogation room of the INS, where he was interrogated for more than two
hours. When he was finally cleared by the Immigration Officer, he was granted
only a 12-day stay in the US, instead of the usual six months. As in fact, the RTC
awarded actual or compensatory damages because of the testimony of Jesus
Fernando that he had to go back to Manila and then return again to LA, USA two
days after requiring him to purchase another round trip ticket from Northwest in
the amount of $2,000, which was not disputed by Northwest. In ignoring Jesus
Femando’s pleas to check the validity of the tickets in the computer, the
Northwest personnel exhibited an indifferent attitude without due regard for the
inconvenience and anxiety Jesus Fernando might have experienced.
Passengers do not contract merely for transportation. They have a right to
be treated by the carrier’s employees with kindness, respect, courtesy, and due
consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities, and abuses from such employees. So it is, that any
rule or discourteous conduct on the part of employees towards a passenger gives
the latter an action for damages against the carrier. In requiring compliance with
the standard of extraordinary diligence, a standard which is, in fact, that of the
highest possible degree of diligence from common carriers and in creating a
presumption of negligence against them, the law seeks to compel them

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to control their employees, to tame their reckless instincts, and to force them to take
adequate care of human beings and their property.
Notably, after the incident, the Femandos proceeded to a Northwest Ticket
counter to verify the status of the ticket and they were assured that the ticket remained
unused and perfectly valid. And to avoid any future problems that may be encountered
on the validity of the ticket, a new ticket was issued to Jesus Fernando. The failure to
promptly verify the validity of the ticket connotes bad faith on the part of Northwest.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong. It means breach of a
known duty through some motive, interest or ill will that partakes of the nature of
fraud. A finding of bad faith entitles the offended party to moral damages.
As to the second incident, there was likewise fraud or bad faith on the part of
Northwest when it did not allow the Femandos to board their flight for Manila on
January 29,2002, in spite of confirmed tickets. The Court needs to stress that they have
confirmed bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan, and
NW 029 for Manila. They checked in with their luggage at LA Airport and were given
their respective boarding passes for business class seats and claim stubs for six pieces
of luggage. With boarding passes and electronic tickets, apparently, they were
allowed entry to the departure area, and they eventually joined the long queue of
business class passengers along with their business associates. However, in the
presence of the other passengers, Northwest personnel Linda Tang pulled the
Femandos out of the queue and asked for paper tickets (coupon type). Elizabeth
Fernando explained to Linda Tang that the matter could be sorted out by simply
verifying their electronic tickets in her computer and all she had to do was click and
punch in their Elite Platinum World Perks Card number. Again, the Northwest
personnel refused to do so; she, instead, told them to pay for new tickets so they could
board the plane. Hence, the Femandos rushed to the Northwest Airline Ticket counter
to clarify the matter. They were assisted by Northwest personnel Jeanne Meyer, who
retrieved their control number from her computer, and was able to ascertain that the
Femandos electronic tickets were valid, and they were confirmed passengers on both
NW Flight No. 001 for Narita, Japan and NW 029 for Manila on that day.

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In Ortigas, Jr. v Lufthansa German Airlines, this Court declared that “in
contracts of common carnage, in attention and lack of care on the part of the carrier
resulting in the failure of the passenger to be accommodated in the class contracted
for amounts to bad faith or fraud, which entitles the passengers to the award of
moral damages in accordance with Article 2220 of the Civil Code.” In Pan
American World Airways, Inc. v. Intermediate Appellate Court, where a
would-be passenger had the necessary ticket, baggage claim and clearance from
immigration, all clearly and unmistakably showing that she was, in fact, included in
the passenger manifest of said flight, and yet was denied accommodation in said
flight, this Court did not hesitate to affirm the lower court’s finding awarding her
damages on the ground that the breach of contract of carriage amounted to bad
faith. For the indignity and inconvenience of being refused a confirmed seat on the
last minute, said passenger is entitled to an award of moral damages.
Under Article 2220 of the Civil Code of the Philippines, an award of moral
damages, in breaches of contract, is in order upon a showing that the defendant
acted fraudulently or in bad faith. Clearly, in this case, the Femandos are entitled to
an award of moral damages. The purpose of awarding moral damages is to enable
the injured party to obtain means, diversion, or amusement that will serve to
alleviate the moral suffering he has undergone by reason of defendant’s culpable
action. The Court notes that even if both the CA and the RTC ruled out bad faith on
the part of Northwest, the award of “some moral damages” was recognized. Both
courts believed that considering that the Femandos are good clients of Northwest
for almost 10 years being Elite Platinum World Perks Card holders, and are known
in their business circle, they should have been given by Northwest the
corresponding special treatment. They own hotels and a chain of apartelles in the
country, and a parking garage building in Indiana, USA. From this perspective, the
Court adopts the said view. The Court, thus, increase the award of moral damages
to the Femandos the amount of P3,000,000.
Exemplary damages, which are awarded by way of example or correction
for the public good, may be recovered in contractual obligations, if defendant acted
in wanton, fraudulent, reckless, oppressive, or malevolent manner. They are
designed by our civil law to permit the courts to reshape behavior that is socially
deleterious in its

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consequence by creating negative incentives or deterrents against such behavior.

Hence, given the facts and circumstances of this case, the Court holds Northwest liable
for the payment of exemplary damages in the amount of P2,000,000.
As to the payment of attorney’s fees, the Court sustains the award thereof on
the ground that the Femandos were ultimately compelled to litigate and incurred
expenses to protect their rights and interests, and because the Femandos are entitled to
an award for exemplary damages. Pursuant to Article 2208 of the Civil Code,
attorney’s fees may be awarded when exemplary damages are awarded, or a party is
compelled to litigate or incur expenses to protect his interest, or where the defendant
acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid,
just and demandable claim. Records show that the Femandos demanded payment for
damages from Northwest even before the filing of this case in court. Clearly, the
Femandos were forced to obtain the services of counsel to enforce a just claim, for
which they should be awarded attorney’s fees. The Court deems it just and equitable to
grant an award of attorney’s fees equivalent to 10% of the damages awarded.

Philtranco Service Enterprises, Inc. and Rogaciano

Manilhig v. Court of Appeals and Heirs
of the late Ramon Acuesta
G.R. No. 120553, June 17,1997
FACTS: In the early morning of March 24, 1990, about 6:00, the victim
Ramon A. Acuesta was riding in his easy rider bicycle, along the Gomez Street of
Calbayog City. The Gomez Street is along the side of Nijaga Park. On the
Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises,
Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-725 driven by
defendant Rogasiones Manilhig y Dolira was being pushed by some persons in
order to start its engine. The Magsaysay Blvd. runs perpendicular to Gomez St.,
and the said Philtranco Bus No. 4025 was heading in the general direction of the
said Gomez St. Some of the persons who were pushing the bus were on its back,
while the others were on the sides. As the bus was pushed, its engine started
thereby the bus continued on its running motion and it occurred at the time when
Ramon A. Acuesta who was

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still riding on his bicycle was directly in front of the said bus. As the engine of the
Philtranco bus started abruptly and suddenly, its running motion was also
enhanced by the said functioning engine, thereby the subject bus bumped on the
victim Ramon A. Acuesta who, as a result thereof fell and, thereafter, was run over
by the said bus. The bus did not stop although it had already bumped and run over
the victim; instead, it proceeded running towards the direction of the Rosales
Bridge and which is located at one side of the Nijaga Park and towards one end of
the Gomez St., to which direction the victim was then heading when he was riding
on his bicycle. P/Sgt. Yabao who was then jogging [through] the Gomez Street and
was heading towards the victim Ramon A. Acuesta as the latter was riding on his
bicycle, saw when the Philtranco abruptly started and when the said bus bumped
and ran over the victim. He approached the bus driver defendant Manilhig herein
and signaled to him to stop, but the latter did not listen. So the police officer
jumped into the bus and introducing himself to the driver defendant as policeman,
ordered the latter to stop. The said defendant driver stopped the Philtranco bus near
the Nijaga Park and Sgt. Yabao thereafter, told the driver to proceed to the Police
Headquarter, which was only 100 meters away from Nijaga Park because he was
apprehensive that the said driver might be harmed by the relatives of the victim
who might come to the scene of the accident. Then Sgt. Yabao cordoned the scene
where the vehicular accident occurred and had P/Cpl. Bartolome Bagot, the Traffic
Investigator, conduct an investigation and make a sketch of the crime scene. Sgt.
Yabao was only 20 meters away when he saw the bus of defendant Philtranco
bump and run over the victim. From the place where the victim was actually
bumped by the bus, the said vehicle still had run to a distance of about 15 meters
away.
For their part, the petitioners filed an Answer wherein they alleged that
petitioner Philtranco exercised the diligence of a good father of a family in the
selection and supervision of its employees, including petitioner Manilhig, who had
an excellent record as a driver and had undergone months of rigid training before
he was hired. Petitioner Manilhig had always been a prudent professional driver,
religiously observing traffic rules and regulations. In driving Philtranco’s buses,
he exercised the diligence of a very cautious person.

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The petitioner further claimed that it was the negligence of the victim in
overtaking two tricycles, without taking precautions such as seeing first that the
road was clear, which caused the death of the victim. The latter did not even give
any signal of his intention to overtake.
However, the petitioners were not able to present their evidence, as they were
deemed to have waived that right by the failure of their counsel to appear at the
scheduled hearings on March 30 and 31, 1992. The trial court then issued an Order
declaring the case submitted for decision. Motions for the reconsideration of the
said Order were both denied.
On January 22, 1992, the trial court handed down a decision ordering the
petitioners to jointly and severally pay the private respondents the following
amounts:
1) P55,615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A.
Acuesta;
3) PI million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorney’s fees; and
6) The costs of suit.
Unsatisfied with the judgment, the petitioners appealed to the Court of
Appeals, which affirmed the decision of the trial court.
ISSUE: Whether or not the award of damages is excessive.
HELD: The trial court erroneously fixed the “death indemnity” at
P200,000. The private respondents defended the award in their opposition to the
Motion for Reconsideration by saying that “In the case of Philippine Airlines,
Inc. v. Court of Appeals, 185 SCRA 110, our Supreme Court held that the
award of damages for death is computed on the basis of the life expectancy of the
deceased.” In that case, the “death indemnity” was computed by multiplying the
victim’s gross annual income by his life expectancy, less his yearly living
expenses. Clearly then, the “death indemnity” referred to was the additional
indemnity for the loss of earning capacity mentioned in Article 2206(1) of the

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Civil Code, and not the basic indemnity for death mentioned in the first
paragraph thereof.
The Court concurs with petitioners’ view that the trial court intended the
award of P200,000 as “death indemnity” not as compensation for loss of earning
capacity. Even if the trial court intended the award as indemnity for loss of
earning capacity, the same must be struck out for lack of basis. There is no
evidence on the victim’s earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is
due, the amount of which has been fixed by current jurisprudence at P50,000.
The award of PI million for moral damages to the heirs of Ramon Acuesta
has no sufficient basis and is excessive and unreasonable.
Moral damages are emphatically not intended to enrich a plaintiff at the
expense of the defendant. They are awarded only to allow the former to obtain
means, diversion, or amusements that will serve to alleviate the moral suffering
he has undergone due to the defendant’s culpable action and must, perforce, be
proportional to the suffering inflicted. In light of the circumstances in this case,
an award of P50,000 for moral damages is in order.
The award of P500,000 for exemplary damages is also excessive. In
quasi-delicts, exemplary damages may be awarded if the party at fault acted
with gross negligence. The Court of Appeals found that there was gross
negligence on the part of petitioner Manilhig. Under Article 2229 of the Civil
Code, exemplary damages are imposed by way of example or correction for the
public good in addition to the moral, temperate, liquidated, or compensatory
damages. Considering its purpose, it must be fair and reasonable in every case
and should not be awarded to unjustly enrich a prevailing party. In the instant
case, an award of P50,000 for the purpose would be adequate, fair, and
reasonable.
Finally, the award of P50,000 for attorney’s fees must be reduced. The
general rule is that attorney’s fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to
litigate. Stated otherwise, the grant of attorney’s fees as part of

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damages is the exception rather than the rule, as counsel’s fees are not awarded every
time a party prevails in a suit. Such attorney’s fees can be awarded in the cases
enumerated in Article 2208 of the Civil Code, and in all cases it must be reasonable.

To prove actual damages, the best evidence available to the injured party
must be presented.

Baliwag Transit, Inc. v. Court of Appeals,

Spouses Antonio Garcia and Leticia Garcia,
and Julio Recontique
G.R. No. 116110, May 15, 1996
FACTS: The records show that on July 31, 1980, Leticia Garcia, and her
five-year old son, Allan Garcia, boarded Baliwag Transit Bus No. 2036 bound for
Cabanatuan City driven by Jaime Santiago. They took the seat behind the driver.
At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus passengers
saw a cargo truck parked at the shoulder of the national highway. Its left rear
portion jutted to the outer lane, as the shoulder of the road was too narrow to
accommodate the whole truck. A kerosene lamp appeared at the edge of the road
obviously to serve as a warning device. The truck driver, Julio Recontique, and his
helper, Arturo Escala, were then replacing a flat tire. The truck is owned by
respondent A & J Trading.
Bus driver Santiago was driving at an inordinately fast speed and failed to
notice the truck and the kerosene lamp at the edge of the road. Santiago’s
passengers urged him to slow down but he paid them no heed. Santiago even
carried animated conversations with his co-employees while driving. When the
danger of collision became imminent, the bus passengers shouted, “Babangga
tayo!” Santiago stepped on the brake, but it was too late. His bus rammed into the
stalled cargo truck.
It caused the instant death of Santiago and Escala, and injury to several others.
Leticia and Allan Garcia were among the injured passengers. Leticia suffered a
fracture in her pelvis and right leg. They rushed her to the provincial hospital in
Cabanatuan City where she was given emergency treatment. After three days, she
was transferred to the National Orthopedic Hospital where she was confined for
more than a month. She underwent an operation for partial hip prosthesis. Allan,
on

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the other hand, broke a leg. He was also given emergency treatment at the provincial
hospital.
Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J
Trading and Julio Recontique for damages in the Regional Trial Court of Bulacan.
Leticia sued as an injured passenger of Baliwag and as mother of Allan. At the time
of the complaint, Allan was a minor, hence, the suit initiated by his parents in his
favor. Baliwag, A & J Trading and Recontique disclaimed responsibility for the
mishap. Baliwag alleged that the accident was caused solely by the fault and
negligence of A & J Trading and its driver, Recontique. Baliwag charged that
Recontique failed to place an early warning device at the comer of the disabled cargo
truck to warn oncoming vehicles. On the other hand, A & J Trading and Recontique
alleged that the accident was the result of the negligence and reckless driving of
Santiago, bus driver of Baliwag.
After hearing, the trial court found all the defendants liable.
On Appeal, the Court of Appeals modified the Trial Court’s Decision by
absolving A & J Trading from liability and by reducing the award of attorney’s fees
to PI0,000, and loss of earnings to P300,000, respectively.
ISSUE: Whether or not the amount of damages awarded by the Court of
Appeals to the Garcia Spouses is correct.
HELD: First, the propriety of the amount awarded as hospitalization and
medical fees. The award of P25,000 is not supported by the evidence on record. The
Garcias presented receipts marked as Exhibits “B-l” to “B-42” but their total
amounted only to P5,017.74. To be sure, Leticia testified as to the extra amount spent
for her medical needs but without more reliable evidence, her lone testimony cannot
justify the award of P25,000 to prove actual damages, the best evidence available to
the injured party must be presented. The court cannot rely on uncorroborated
testimony whose truth is suspect, but must depend upon competent proof that
damages have been actually suffered. Thus, the Court reduced the actual damages for
medical and hospitalization expenses to P5,017.74.
Second, the Court finds as reasonable the award of P300,000 representing
Leticia’s lost earnings. Before the accident, Leticia was

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engaged in embroidery, earning P5,()00 per month. Her injuries forced her to
stop working. Considering the nature and extent of her injuries and the length of
time it would take her to recover, we find it proper that Baliwag should
compensate her lost income for five years.
Third, the award of moral damages is in accord with law. In a breach of
contract of carriage, moral damages are recoverable if the carrier, through its
agent, acted fraudulently or in bad faith. The evidence shows the gross
negligence of the driver of Baliwag bus, which amounted to bad faith. Without
doubt, Leticia and Allan experienced physical suffering, mental anguish and
serious anxiety by reason of the accident. Leticia underwent an operation to
replace her broken hipbone with metal plate. She was confined at the National
Orthopedic Hospital for 45 days. The young Allan was also confined in the
hospital for his foot injury. Contrary to the contention of Baliwag, the decision
of the trial court as affirmed by the Court of Appeals awarded moral damages to
Antonio and Leticia Garcia not in their capacity as parents of Allan. Leticia was
given moral damages as an injured party. Allan was also granted moral damages
as an injured party but because of his minority, the award in his favor has to be
given to his father who represented him in the suit.
Finally, the Court finds the award of attorney’s fees justified. The
complaint for damages was instituted by the Garcia spouses on December 15,
1982, following the unjustified refusal of Baliwag to settle their claim. The
Decision was promulgated by the trial court only on January 29,1991 or about
nine years later. Numerous pleadings were filed before the trial court, the
appellate court and to this Court. Given the complexity of the case and the
amount of damages involved, the award of attorney’s fees for PI 0,000 is just
and reasonable.

QUESTION: May the Court award indemnity for the victims of accident
for loss of earning capacity when the latter is not employed or no history of
earnings?
ANSWER: Yes (Pereha v. Zarate and PNR, G.R. No. 157917, August
29, 2012 and Carianga v. Laguna Tayabas Bus Co. and Manila Railroad
Co., 110 Phil. 346 [I960]), under the above case, the fact that Aaron was then
without a history of earnings should not be taken

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against his parents and in favor of the defendants whose negligence not only cost
Aaron his life and his right to work and earn money, but also deprived his
parents of their right to his presence and his services as well. Our law itself states
that the loss of the earning capacity of the deceased shall be the liability of the
guilty party in favor of the heirs of the deceased, and shall in every case be
assessed and awarded by the court “unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the
time of his death.”
The Court further explained that the operator of a school bus service is a
common carrier in the eyes of the law. He is bound to observe extraordinary
diligence in the conduct of his business. He is presumed to be negligent when
death occurs to a passenger. His liability may include indemnity for loss of
earning capacity even if the deceased passenger may only be unemployed high
school student at the time of the accident.
The prevailing minimum wage under the Labor Code will be the basis of
the computation in arriving for such award. (Perena v. Zarate andPNR, G.R.
No. 157917, August 29, 2012)
Trans-Asia Shipping Lines, Inc. v. Court of Appeals
and Atty. Renato T. Arroyo G.R. No. 118126, March
4,1996
FACTS: Plaintiff, herein private respondent Atty. Renato Arroyo, public
attorney, bought a ticket from defendant, herein petitioner, a corporation
engaged in inter-island shipping, for the voyage of M/V Asia Thailand vessel to
Cagayan de Oro City from Cebu City on November 12, 1991. At around 5:30 in
the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand
vessel. At that instance, plaintiff noticed that some repair works [sic] were being
undertaken on the engine of the vessel. The vessel departed at around 11:00 in
the evening with only one engine running. After an hour of slow voyage, the
vessel stopped near Kawit Island and dropped its anchor thereat. After half an
hour of stillness, some passengers demanded that they should be allowed to
return to Cebu City for they were no longer willing to continue their voyage to
Cagayan de Oro City. The captain acceded [sic] to their request and thus the
vessel headed back to Cebu City.

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At Cebu City, plaintiff together with the other passengers who

requested to be brought back to Cebu City, were allowed to disembark.
Thereafter, the vessel proceeded to Cagayan de Oro City. Plaintiff, the
next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro
City, likewise a vessel of defendant.
On account of this failure of defendant to transport him to the place
of destination on November 12, 1991, plaintiff filed before the trial court a
complaint for damages against defendant.
ISSUE: Whether or not the petitioner is liable for moral and
exemplary damages.
HELD: Moral damages include moral suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, or similar injury. They may be recovered in the
cases enumerated in Article 2219 of the Civil Code. Likewise, if they are
the proximate result of, as in this case, the petitioner’s breach of the
contract of carriage. Anent a breach of a contract of common carriage,
moral damages may be awarded if the common carrier, like the petitioner,
acted fraudulently or in bad faith.
Exemplary damages are imposed by way of example or correction
for the public good, in addition to moral, temperate, liquidated or
compensatory damages. In contracts and quasi-contracts, exemplary
damages may be awarded if the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. It cannot, however, be
considered as a matter of right; the court having to decide whether or not
they should be adjudicated. Before the court may consider an award for
exemplary damages, the plaintiff must first show that he is entitled to
moral, temperate or compensatory; but it is not necessary that he prove the
monetary value thereof.
The Court likewise fully agrees with the Court of Appeals that the
petitioner is liable for moral and exemplary damages. In allowing its
unseaworthy MW Asia Thailand to leave the port of origin and undertake
the contracted voyage, with full awareness that it was exposed to perils of
the sea, it deliberately disregarded its solemn duty to exercise
extraordinary diligence and obviously acted with bad faith and in a wanton
and reckless manner. On this score, however, the petitioner

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asserts that the safety of the vessel and passengers was never at stake because the sea
was “calm” in the vicinity where it stopped as faithfully recorded in the vessel’s
logbook. Hence, the petitioner concludes, the private respondent was merely
“over-acting” to the situation obtaining then.

The Court holds that the petitioner’s defense cannot exculpate it nor mitigate
its liability. On the contrary, such a claim demonstrates beyond cavil the petitioner’s
lack of genuine concern for the safety of its passengers. It was, perhaps, only
providential that the sea happened to be calm. Even so, the petitioner should not
expect its passengers to act in the manner it desired. The passengers were not stoics;
becoming alarmed, anxious, or frightened at the stoppage of a vessel at sea in an
unfamiliar zone at nighttime is not the sole prerogative of the fainthearted. More so,
in the light of the many tragedies at sea resulting in the loss of lives of hopeless
passengers and damage to property simply because common carriers failed in their
duty to exercise extraordinary diligence in the performance of their obligations.

Nominal damages are recovered where a legal right is technically violated

and must be vindicated against an invasion that has produced no actual
present loss of any kind or where there has been a breach of contract and
no substantial injury or actual damages whatsoever have been or can be
shown.

Cathay Pacific Airways v. Juanita Reyes, Wilfredo Reyes,

Michael Roy Reyes, Sixta Lapuz, and
Sampaguita Travel Corporation
G.R. No. 185891, June 26, 2013
FACTS: Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo)
made a travel reservation with Sampaguita Travel for his family’s trip to Adelaide,
Australia scheduled from April 12, 1997 to May 4, 1997. Upon booking and
confirmation of their flight schedule, Wilfredo paid for the airfare and was issued four
Cathay Pacific round- trip airplane tickets for
Manila-Hongkong-Adelaide-Hongkong-Manila. On April 12, 1997, Wilfredo,
together with his wife Juanita Reyes (Juanita), son Michael Roy Reyes (Michael) and
mother-in-law Sixta Lapuz (Sixta) flew to Adelaide, Australia without a hitch. One
week

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before they were scheduled to fly back home, Wilfredo reconfirmed his family’s
return flight with the Cathay Pacific office in Adelaide. They were advised that the
reservation was “still okay as scheduled.” On the day of their scheduled departure
from Adelaide, Wilfredo and his family arrived at the airport on time. When the
airport check-in counter opened, Wilfredo was informed by a staff from Cathay
Pacific that the Reyeses did not have confirmed reservations, and only Sixta’s
flight booking was confirmed. Nevertheless, they were allowed to board the flight
to Hongkong due to adamant pleas from Wilfredo. When they arrived in
Hongkong, they were again informed of the same problem. Unfortunately this
time, the Reyeses were not allowed to board because the flight to Manila was fully
booked. Only Sixta was allowed to proceed to Manila from Hongkong. On the
following day, the Reyeses were finally allowed to board the next flight bound for
Manila. After a series of exchanges and with no resolution in sight, respondents
filed a Complaint for damages against Cathay Pacific and Sampaguita Travel, and
prayed for the following relief: a) PI,000,000 as moral damages; b) P300,000 as
actual damages; c) PI00,000 as exemplary damages; and d) PI00,000 as attorney’s
fees.
After trial on the merits, the Regional Trial Court (RTC) rendered a decision
in favor of the defendants and against the herein plaintiff. Accordingly, plaintiffs’
complaint was ordered DISMISSED for lack of merit.
Respondents appealed to the Court of Appeals (CA). On October 22, 2008,
the CA ordered Cathay Pacific to pay P25,000 each to respondents as nominal
damages. Cathay Pacific assails the award of nominal damages in favor of
respondents on the ground that its action of canceling the flight bookings was
justifiable. Cathay Pacific reveals that upon investigation, the respondents had no
confirmed bookings for their return flights. Hence, it was not obligated to transport
the respondents. In fact, Cathay Pacific adds, it exhibited good faith in
accommodating the respondents despite holding unconfirmed bookings.
ISSUE: Whether or not the award of nominal damages is proper.
HELD: For one to be entitled to actual damages, it is necessary to prove the
actual amount of loss with a reasonable degree of certainty,

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premised upon competent proof and the best evidence obtainable by the injured
party. To justify an award of actual damages, there must be competent proof of the
actual amount of loss. Credence can be given only to claims, which are duly
supported by receipts.
The CA echoes the findings of the trial court that respondent failed to show
proof of actual damages. Wilfredo initially testified that he personally incurred losses
amounting to P300,000, which represents the amount of the contract that he was
supposedly scheduled to sign had his return trip not been cancelled. During the
cross-examination, however, it appears that the supposed contract signing was a mere
formality and that an agreement had already been hatched beforehand. Hence, we
cannot fathom how said contract did not materialize because of Wilfredo’s absence,
and how Wilfredo incurred such losses when he himself admitted that he entered into
said contract on behalf of Parsons Engineering Consulting Firm, where he worked as
construction manager. Thus, if indeed there were losses, these were losses suffered
by the company and not by Wilfredo. Moreover, he did not present any documentary
evidence such as the actual contract or affidavits from any of the parties to said
contract to substantiate his claim of losses. With respect to the remaining passengers,
they likewise failed to present proof of the actual losses they suffered.
Under Article 2220 of the Civil Code of the Philippines, an award of moral
damages, in breaches of contract, is in order upon a showing that the defendant acted
fraudulently or in bad faith. What the law considers as bad faith, which may furnish
the ground for an award of moral damages, would be bad faith in securing the
contract and in the execution thereof, as well as in the enforcement of its terms, or
any other kind of deceit. In the same vein, to warrant the award of exemplary
damages, defendant must have acted in wanton, fraudulent, reckless oppressive, or
malevolent manner.
The Court of Appeals is correct in stating that “what may be attributed to x x
x Cathay Pacific is negligence concerning the lapses in their process of confirming
passenger bookings and reservations, done through travel agencies. But this
negligence is not so gross so as to amount to bad faith. Cathay Pacific was not
motivated by malice or bad faith in not allowing respondents to board on their return
flight to

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| Manila. It is evident and was in fact proven by Cathay Pacific that its
I refusal to honor the return flight bookings of respondents was due to
the cancellation of one booking and the two other bookings were not reflected on
its computerized booking system.
Likewise, Sampaguita Travel cannot be held liable for moral |
damages. True, Sampaguita Travel was negligent in the conduct of its
booking and ticketing which resulted in the cancellation of flights. But I
its actions were not proven to have been tainted with malice or bad faith,
j Under these circumstances, respondents are not entitled to moral and
exemplary damages. With respect to attorney’s fees, the Court upholds the i.

appellate court’s finding on lack of factual and legal justification to award

attorney’s fees.
The Court, however, sustains the award of nominal damages in the amount
of P25,000 to only three of the four respondents who were aggrieved by the
last-minute cancellation of their flights. Nominal damages are recoverable
where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind or where there has
been a breach of contract, and no substantial injury or actual damages
whatsoever have been or can be shown. Under Article 2221 of the Civil Code,
nominal damages may be awarded to a plaintiff whose right has been violated or
invaded by the defendant, for the purpose of vindicating or recognizing that
right, not for indemnifying the plaintiff for any loss suffered.
Considering that the three respondents were denied boarding their return
flight from Hongkong to Manila, and that they had to wait in the airport
overnight for their return flight, they are deemed to have technically suffered
injury. Nonetheless, they failed to present proof of actual damages.
Consequently, they should be compensated in the form of nominal damages.

When are attorney’s fees recoverable?

Under Article 2208 of the Civil Code, these are recoverable only in the
concept of actual damages, not as moral damages or judicial costs. Hence, to merit such an
award, it is settled that the amount thereof must j be proven. Moreover, such must be
specifically prayed for — as was
! not done in this case — and may not be deemed incorporated within

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a general prayer for such other relief and remedy as this court may deem just and
equitable. Finally, it must be noted that aside from the following, the body of the
respondent Court’s decision was devoid of any statement regarding attorney’s
fees.

In breach of contract of air carriage, moral damages may be recovered

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

Philippine Airlines Incorporated v. Court of Appeals and

Sps. Manuel S. Buncio and Aurora R. Buncio,
assisted by their father, Manuel S. Buncio, et al
G.R. No. 123238, September 22,2008
FACTS: Sometime before May 2, 1980, private respondents- spouses
Manuel S. Buncio and Aurora R. Buncio purchased from petitioner Philippine
Airlines, Incorporated, two plane tickets for their two minor children, Deanna R.
Buncio (Deanna), then nine years of age, and Nikolai R. Buncio (Nikolai), then
eight years old. Since Deanna and Nikolai will travel as unaccompanied minors,
petitioner required private respondents to accomplish, sign, and submit to it an
indemnity bond. Private respondents complied with this requirement. For the
purchase of the said two plane tickets, petitioner agreed to transport Deanna and
Nikolai on May 2, 1980 from Manila to San Francisco, California, United States
of America (USA), through one of its planes, Flight 106. Petitioner also agreed
that upon the arrival of Deanna and Nikolai in San Francisco Airplane on May 3,
1980, it would again transport the two on that same day through a connecting
flight from San Francisco, California, USA to Los Angeles, California, USA via
another airline, United Airways 996. Deanna and Nikolai then will be met by
their grandmother, Mrs. Josefa Regalado (Mrs. Regalado), at the Los Angeles
Airport on their scheduled arrival on May 3, 1980. On 2 May 1980, Deanna and
Nikolai boarded Flight 106 in Manila.
On May 3,1980, Deanna and Nikolai arrived at the San Francisco Airport.
However, the staff of United Airways 996 refused to take

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aboard Deanna and Nikolai for their connecting flight to Los Angeles because
petitioner’s personnel in San Francisco could not produce the indemnity bond
accomplished and submitted by private respondents. The said indemnity bond was
lost by petitioner’s personnel during the previous stop-over of Flight 106 in
Honolulu, Hawaii. Deanna and Nikolai were then left stranded at the San
Francisco Airport. Subsequently, Mr. Edwin Strigl (Strigl), then the Lead Traffic
Agent of petitioner in San Francisco, California, USA, took Deanna and Nikolai to
his residence in San Francisco where they stayed overnight.
Meanwhile, Mrs. Regalado and several relatives waited for the arrival of
Deanna and Nikolai at the Los Angeles Airport. When United Airways 996 landed
at the Los Angeles Airport and its passengers disembarked, Mrs. Regalado sought
Deanna and Nikolai but she failed to find them. Mrs. Regalado asked a stewardess
of the United Airways 996 if Deanna and Nikolai were on board but the stewardess
told her that they had no minor passengers. Mrs. Regalado called private
respondents and inform them that Deanna and Nikolai did not arrived at the Los
Angeles Airport. Private respondents inquired about the location of Deanna and
Nikolai from petitioner’s personnel, but the latter replied that they were still
verifying their whereabouts.
On the morning of May 4,1980, Strigl took Deanna and Nikolai to San
Francisco Airport where the two boarded a Western Airlines plane bound for Los
Angeles. Later that day, Deanna and Nikolai arrived at Los Angeles where they
were met by Mrs. Regalado. Petitioner’s personnel had previously informed Mrs.
Regalado of the late arrival of Deanna and Nikolai on May 4, 1980.
On November 20, 1981, private respondents filed a complaint for damages
against petitioner before the Regional Trial Court (RTC).
After trial, RTC rendered a Decision on April 2, 1990 holding petitioner
liable for damages for breach of contract of carriage. It ruled that petitioner should
pay moral damages for its inattention and lack of care for the welfare of Deanna
and Nikolai, which, in effect, amounted to bad faith and for the agony brought by
the incident to private respondents and Mrs. Regalado. It also held that petitioner
should pay exemplary damages by way of example or correction for the public

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good under Articles 2229 and 2232 of the Civil Code, plus attorney’s fees and
costs of suit. In sum, the RTC ordered petitioner: (1) to pay Deanna and
Nikolai P50,000 each as moral damages, and P25,000 each for exemplary
damages; (2) to pay private respondent Aurora R. Buncio, as mother of
Deanna and Nikolai, P75,000 as moral damages; (3) to pay Mrs. Regalado, as
grandmother of Deanna and Nikolai, P30,000 as moral damages; and (4) to
pay an amount of P38,250 as attorney’s fees, and the costs of suit.
Petitioner appealed to the Court of Appeals. On December 20, 1995, the
appellate court affirmed in toto the RTC Decision.
ISSUE: Whether or not the grant of attorney’s fees cited only in the
dispositive portion of the trial court is justified.
HELD: When an airline issues a ticket to a passenger, confirmed for a
particular flight on a certain date, a contract of carriage arises. The passenger
has every right to expect that he be transported on that flight and on that date,
and it becomes the airline’s obligation to carry him and his luggage safely to
the agreed destination without delay. If the passenger is not so transported or
if in the process of transporting, he dies or is injured, the carrier may be held
liable for a breach of contract of carrier.
Private respondents and petitioner entered into a contract of air carriage
when the former purchased two plane tickets from the latter. Under this
contract, petitioner obliged itself (1) to transport Deanna and Nikolai, as
unaccompanied minors, on May 2, 1980 from Manila to San Francisco
through one of its planes, Flight 106; and (2) upon the arrival of Deanna and
Nikolai in San Francisco Airport on May 3, 1980, to transport them on that
same day from San Francisco to Los Angeles via a connecting flight on
United Airways 996. As it was, petitioner failed to transport Deanna and
Nikolai from San Francisco to Los Angeles on the day of their arrival at San
Francisco. The staff of United Airways 996 refused to take aboard Deanna
and Nikolai for their connecting flight to Los Angeles because petitioner’s
personnel in San Francisco could not produce the indemnity bond
accomplished and submitted by private respondents. Thus, Deanna and
Nikolai were

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stranded in San Francisco and were forced to stay there overnight. It was only
on the following day that Deanna and Nikolai were able to leave San Francisco
and arrive at Los Angeles via another airline, Western Airlines. Clearly then,
petitioner breached its contract of carriage with private respondents.
In breach of contract of air carriage, moral damages may be recovered
where (1) mishap results in the death of a passenger; or (2) where the carrier is
guilty of fraud and bad faith; or (3) where the negligence of the carrier is so
gross and reckless as to virtually amount to bad faith.
Gross negligence implies a want or absence of or failure to exercise even
slight care or diligence, or the entire absence of case. It evinces a thoughtless
disregard of consequences without exerting any effort to avoid them.
As earlier found, petitioner breached its contract of carriage with private
respondents, and it acted recklessly and malevolently in transporting Deanna
and Nikolai as unaccompanied minors and in handling their indemnity bond.
The court has also ascertained that private respondents are entitled to moral
damages because they have sufficiently established petitioner’s gross
i;1j 1
negligence, which amounted to bad faith. This being the case, the award of !|
exemplary damages is warranted.
Current jurisprudence instructs that in awarding attorney’s fees, the trial
court must state the factual, legal, or equitable justification for awarding the
same, bearing in mind that the award of attorney’s fees is the exception, not the
general rule, and it is not sound public policy to place a penalty on the right to
litigate, nor attorney’s fees be awarded every time a party wins a lawsuit. The
matter of attorney’s fees cannot be dealt with only in the dispositive portion of
the decision. The text of the decision must state the reason behind the award of
attorney’s fees. Otherwise, its award is totally unjustified.
In the instant case, the award of attorney’s fees was merely cited in the
dispositive portion of the RTC decision without the RTC stating any legal or
factual basis for said award. Hence, the Court of Appeals erred in sustaining
the RTC’s award of attorney’s fees.

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RIGHTEOUSNESS OF ATTORNEY’S FEES

Asian Terminals, Inc. v. Allied Guarantee

Insurance Co., Inc.,
G.R. No. 182208, October 14,2015
FACTS: Marina Port Services, Inc. (Marina), the predecessor of
herein petitioner Asian Terminals, Inc. (petitioner ATP), is an arrastre
operator based in the South Harbor, Port Area, Manila. On February 5,
1989, a shipment was made of 72,322 lbs. of kraft linear board (a type of
paperboard) loaded and received from the ports of Lake Charles, LA and
Mobile, AL, U.S.A., for transport and delivery to San Miguel Corporation
(San Miguel) in Manila, Philippines. The vessel used was the M/V Nicole,
operated by Transocean Marine, Inc. (Transocean), a foreign corporation,
whose Philippine representative is Philippine Transmarine Carrier, Inc.
(Philippine Transmarine).
The M/V Nicole arrived in Manila on April 8, 1989 and, shortly
thereafter, the subject shipment was offloaded from the vessel to the
arrastre Marina until April 13, 1989. Thereafter, it was assessed that a total
of 158 rolls of the goods were “damaged” during shipping. Further, upon
the good’s withdrawal from the arrastre and their delivery, first, to San
Miguel’s customs broker, Dynamic Brokerage Co., Inc. (Dynamic), and
eventually, to the consignee San Miguel, another 54 rolls were found to
have been damaged, for a total of 212 rolls of damaged shipment worth
P755,666.84. Herein respondent Allied Guarantee Insurance Co., Inc.
(respondent Allied) was the insurer of the shipment. Thus, it paid San
Miguel P755,666.84 and was subrogated in the latter’s rights.
On March 8,1990, Allied filed a Complaint (and later, an Amended
Complaint) for maritime damages against Transocean, Philippine
Transmarine, Dynamic, and Marina seeking to be indemnified for the
P755,666.84 it lost in paying the consignee San Miguel. The suit alleged
that the shipment was loaded from the ports of origin “in good and
complete order condition”, and all losses were due to the fault of the named
defendants. In addition, the suit sought legal interest, 25% of the indemnity
as attorney’s fees and costs of the suit.

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The Marine denied liability alleging that the 158 rolls shipments were
already in “bad order condition” when it turned over the same to the consignees
representative/broker. The other co-defendants likewise denied their liability.
The case underwent trial, and thereafter, the Regional Trial Court (RTC)
of Makati City, Branch 148, found all the defendants, including the predecessor
of herein petitioner, liable for the losses, ordering the latter to pay the obligation
in the amount of P623,935.76, plus interest corresponding to the 158 rolls of
kraft linear board that was damaged while in the custody of defendant
Transocean, Inc., to be paid by the latter to the plaintiff with legal rate of interest
from the time when it was due and until fully paid; the amount of PI31,731.08,
plus interest corresponding to the additional 54 rolls of kraft linear board that
was damaged, to be paid jointly and severally by defendants Marina Port
Services, Inc. and Dynamic Brokerage Co., Inc. to the plaintiff with legal rate of
interest from the time when it was due until fully paid, and 25% of the aforesaid
principal amounts as attorney’s fees to be paid jointly and severally by all the
defendants.
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC.
From the said decision, ATI filed the instant petition for review. ATI assails,
among others, the award of attorney’s fees, stating that no findings of fact, or
law were made, to justify the grant of such an award.
ISSUE: Whether or not the award of attorney’s fees is justified.
HELD: The court consistently held that an award of attorney’s fees under
Article 2208 demands factual, legal, and equitable justification to avoid
speculations and conjecture surrounding the grant thereof. Due to the
special nature of the award of attorney’s fees, a rigid standard is imposed on the
courts before these fees could be granted. Hence, it is imperative that they
clearly and distinctly set forth in their decisions the basis for the award
thereof. It is not enough that they merely state the amount of the grant in the
dispositive portion of their decisions. It bears reiteration that the award of
attorney’s fees is an exception rather than the general rule, thus, there must be
compelling legal reason to bring the case within the exceptions provided under
Article 2208 of the Civil Code to justify the award.

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The court must always state the basis for the grant of attorney’s fees before
such is justified because the principle that is generally observed is that no premium
should be placed on the right to litigate.
In the case at bar, other than a mere mention that “plaintiff was constrained to
litigate to enforce its valid claim” by the trial court, there is no other compelling
reason cited that would make the respondent entitled to attorney’s fees as held in the
trial court, as well as the appellate court’s decision. It has been previously held that
the mere fact of “having been forced to litigate to protect one’s interest” does not
amount to the compelling legal reason that would make a case covered by any of the
exceptions provided under Article 2208. Although attorney’s fees may be awarded
when a claimant is “compelled to litigate with third persons or incur expenses to
protect his interest” by reason of an unjustified act or omission on the part of the
party from whom it is sought, but when there is a lack of findings on the amount to
be awarded, and since there is no sufficient showing of bad faith in the defendant’s
refusal to pay other than an erroneous assertion of the righteousness of its cause,
attorney’s fees cannot be awarded against the latter.
Hence, such an award in the case at bar is unjustified and must be deleted.

Carlos Singson v. Court of Appeals

and Cathay Pacific Airways, Inc.
G.R. No. 119995, November 18,1997
FACTS: The instant case is an illustration of the exacting standard
demanded by the law of common carriers. On 24 May 1988 CARLOS SINGSON
and his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd.
(CATHAY), at its Metro Manila ticket outlet two open-dated, identically routed,
round trip plane tickets for the purpose of spending their vacation in the United
States. Each ticket consisted of six flight coupons corresponding to this itinerary:
flight coupon No. 1 — Manila to Hongkong; flight coupon No. 2 — Hongkong to
San Francisco; flight coupon No. 3 — San Francisco to Los Angeles; flight coupon
No. 4 — Los Angeles back to San Francisco; flight coupon No. 5 — San Francisco
to Hongkong; and finally, flight coupon No. 6 — Hongkong to Manila. The
procedure was that at the start of each leg

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of the trip a flight coupon corresponding to the particular sector of the travel would
be removed from the ticket booklet so that at the end of the trip no more coupons
would be left in the ticket booklet.
On June 6, 1988, CARLOS SINGSON and Crescentino Tiongson left
Manila on board CATHAY’s flight No. 902. They arrived safely in Los Angeles
and after staying there for about three weeks they decided to return to the
Philippines. On June 30, 1988, they arranged for their return flight at CATHAY’s
Los Angeles Office and chose July 1, 1988, a Friday, for their departure. While
Tiongson easily got a booking for the flight, SINGSON was not as lucky. It was
discovered that his ticket booklet did not have flight coupon No. 5 corresponding to
the San Francisco-Hongkong leg of the trip. Instead, what was in his ticket was
flight coupon No. 3 — San Francisco to Los Angeles — which was supposed to
have been used and removed from the ticket booklet. It was not until July 6, 1988
that CATHAY was finally able to arrange for his return flight to Manila.
On August 26, 1988, SINGSON commenced an action for damages against
CATHAY before the Regional Trial Court of Vigan, Ilocos Sur. He claimed that he
insisted on CATHAY’s confirmation of his return flight reservation because of very
important and urgent business engagements in the Philippines. But CATHAY
allegedly shrugged off his protestations and arrogantly directed him to go to San
Francisco himself and do some investigations on the matter or purchase a new ticket
subject to refund if it turned out that the missing coupon was still unused or
subsisting. He remonstrated that it was the airline’s agent/representative who must
have committed the mistake of tearing off the wrong flight coupon; that he did not
have enough money to buy new tickets; and, CATHAY could conclude the
investigation in a matter of minutes because of its facilities. CATHAY, allegedly in
scornful insolence, simply dismissed him like an impertinent “brown pest.” Thus,
he and his cousin Tiongson, who deferred his own flight to accompany him, were
forced to leave for San Francisco on the night of July 1, 1988 to verify the missing
ticket.
CATHAY denied these allegations and averred that since petitioner was holding an
“open-dated” ticket, which meant that he was not booked

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on a specific flight on a particular date, there was no contract of carriage yet

existing such that CATHAY’S refusal to immediately book him could not be
construed as breach of contract of carriage. Moreover, the coupon had been
missing for almost a month; hence, CATHAY must first verify its status, i.e.,
whether the ticket was still valid and outstanding, before it could issue a
replacement ticket to petitioner. For that purpose, it set a request by telex on
the same day, July 1, 1988, to its Hongkong Headquarters where such
information could be retrieved. However, due to the time difference between
Los Angeles and Hongkong, no response from the Hongkong office was
immediately received. Besides, since July 2 and 3, 1988 were a Saturday and a
Sunday, respectively, and July 4, 1988 was an official holiday being U.S.
Independence Day, the telex response of CATHAY Hongkong was not read
until July 5, 1988. Lastly, CATHAY denied having required SINGSON to
make a trip back to San Francisco; on the other hand, it was the latter that
informed CATHAY that he was making a side trip to San Francisco. Hence,
CATHAY advised him that the response of Hongkong would be copied in San
Francisco so that he could conveniently verify thereat should he wish to.
The trial court rendered a decision in favor of petitioner herein holding
that CATHAY was guilty of gross negligence amounting to malice and bad
faith for which it was adjudged to pay petitioner P20,000 for actual damages
with interest at the legal rate of 12% per annum from August 26, 1988 when
the complaint was filed until fully paid; P500,000 for moral damages;
P400,000 for exemplary damages; PI00,000 for attorney’s fees, and, to pay
the costs.
On appeal by CATHAY, the Court of Appeals reversed the trial court’s
finding that there was gross negligence amounting to bad faith or fraud and,
accordingly, modified its judgment by deleting the awards for moral and
exemplary damages, and the attorney’s fees as well.
ISSUE: Whether or not the carrier was liable not only for actual
damages but also for moral and exemplary damages, and attorney’s fees for
failing to book petitioner on his return flight to the Philippines.
HELD: With regard to the second issue, the Court is of the firm view
that the appellate court seriously erred in disallowing moral and

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DAMAGES I OR BREACH OF CONTRACT OF COMMON CARRIERS

exemplary damages. Although the rule is that moral damages predicated upon a
breach of contract of carriage may only be recoverable in instances where the
mishap results in the death of a passenger, or where the carrier is guilty of fraud or
bad faith, there are situations where the negligence of the carrier is so gross and
reckless as to virtually amount to bad faith, in which case, the passenger likewise
becomes entitled to recover moral damages.
However, the P500,000 moral damages and P400,000 exemplary damages
awarded by the trial court have to be reduced. The well- entrenched principle is
that the grant of moral damages depends upon the discretion of the court based on
the circumstances of each case. This discretion is limited by the principle that the
“amount awarded should not be palpably and scandalously excessive” as to
indicate that it was the result of prejudice or corruption on the part of the trial court.
Damages are not intended to enrich the complainant at the expense of the
defendant. They are awarded only to alleviate the moral suffering that the injured
party had undergone by reason of the defendant’s culpable action. There is no
hard-and-fast rule in the determination of what would be fair amount of moral
damages since each case must be governed by its own peculiar facts.
As regards attorney’s fees, they may be awarded when the defendant’s act or
omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest. It was therefore erroneous for the Court of Appeals
to delete the award made by the trial court; consequently, petitioner should be
awarded attorney’s fees and the amount of P25,000, instead of PI00,000 earlier
awarded, may be considered rational, fair and reasonable.

Philippine National Railways v. The Honorable

Court of Appeals and Rosario Tupang
G.R. No. L-55347, October 4,1985
FACTS: The facts show that on September 10,1972, at about 9:00 in the
evening, Winifredo Tupang, husband of plaintiff Rosario Tupang, boarded Train
No. 516 of appellant at Libmanan, Camarines Sur, as a paying passenger bound for
Manila. Due to some mechanical defect, the

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train stopped at Sipocot, Camarines Sur, for repairs, taking some two hours before
the train could resume its trip to Manila. Unfortunately, upon passing Iyam Bridge
at Lucena, Quezon, Winifredo Tupang fell off the train resulting in his death. The
train did not stop despite the alarm raised by the other passengers that somebody
fell from the train. Instead, the train conductor, Perfecto Abrazado, called the
station agent at Candelaria, Quezon, and requested for verification of the
information. Police authorities of Lucena City were dispatched to the Iyam-Bridge
where they found the lifeless body of Winifredo Tupang.
“As shown by the autopsy report, Winifredo Tupang died of
cardio-respiratory failure due to massive cerebral hemorrhage due to
traumatic injury. Tupang was later buried in the public cemetery of Lucena
City by the local police authorities. ”
Upon complaint filed by the deceased’s widow, Rosario Tupang, the then
Court of First Instance of Rizal, after trial, held the petitioner PNR liable for
damages for breach of contract of carriage and ordered it “to pay the plaintiff the
sum of PI 2,000.00 for the death of Winifredo Tupang, plus P20,000.00 for loss of
his earning capacity, and the further sum of PI 0,000.00 as moral damages, and
P2,000.00 as attorney’s fees, and costs.”
On appeal, the Appellate Court sustained the holding of the trial court that
the PNR did not exercise the utmost diligence required by law of a common carrier.
It further increased the amount adjudicated by the trial court by ordering PNR to
pay the plaintiff an additional sum of P5,000.00 as exemplary damages.
Moving for reconsideration of the above decision, the PNR raised for the
first time, as a defense, the doctrine of state immunity from suit. It alleged that it is
a mere agency of the Philippine Government without distinct or separate
personality of its own, and that its funds are governmental in character and,
therefore, not subject to garnishment or execution. The motion was denied; the
respondent court ruled that the ground advanced could not be raised for the first
time on appeal.
HELD: The petition is devoid of merit. The PNR was created under R.A.
No. 4156, as amended. The PNR has all the powers, the characteristics and
attributes of a corporation under the Corporation

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

Law. There can be no question then that the PNR may sue and be sued and may be
subjected to court processes just like any other corporation.
As far back as 1941, this Court in the case of Manila Hotel Employees
Association v. Manila Hotel Co., laid down the rule that “when the government
enters into commercial business, it abandons its sovereign capacity and is to be
treated like any other corporation. (Bank of the U.S. v. Planters’ Bank, 9 Waitch
904, 6 L. ed. 244) By engaging in a particular business through the instrumentality
of a corporation, the government divests itself/?ro hac vice of its sovereign
character, so as to render the corporation subject to the rules of law governing
private corporations.” Of similar import is the pronouncement in Frisco v. CIR,
that “when the government engages in business, it abdicates part of its sovereign
prerogatives and descends to the level of a citizen x x x.” In fine, the petitioner
PNR cannot legally set up the doctrine of nonsuability as a bar to the plaintiff’s suit
for damages.
The appellant court found, the petitioner does not deny, that the train
boarded by the deceased Winifredo Tupang was so overcrowded that he and many
other passengers had no choice but to sit on the open platforms between the
coaches of the train. It is likewise undisputed that the train did not even slow down
when it approached the Iyam Bridge which was under repair at that time. Neither
did the train stop, despite the alarm raised by other passengers that a person had
fallen off the train at Iyam Bridge.
The petitioner has the obligation to transport its passengers to their
destinations and to observe extraordinary diligence in doing so. Death or any injury
suffered by any of its passengers gives rise to the presumption that it was negligent
in the performance of its obligation under the contract of carriage. Thus, as
correctly ruled by the respondent court, the petitioner failed to overthrow such
presumption of negligence with clear and convincing evidence.
But while petitioner failed to exercise extraordinary diligence as required
by law, it appears that the deceased was chargeable with contributory
negligence. Since he opted to sit on the open platform between the coaches of
the train, he should have held tightly and tenaciously on the upright metal bar
found at the side of said platform to

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avoid falling off from the speeding train. Such contributory negligence, while not
exempting the PNR from liability, nevertheless justified the deletion of the amount
adjudicated as moral damages. By the same token, the award of exemplary
damages must be set aside. Exemplary damages may be allowed only in cases
where the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. There being no evidence of fraud, malice or bad faith on the
part of petitioner, the grant of exemplary damages should be discarded.

Moral damages, exemplary damages; where the award of moral and

exemplary damages is eliminated, so must the award for attorney’s fees
be deleted.

Collin A. Morris and Thomas P. Whittier v.

Court of Appeals (Tenth Division) and Scandinavian
Airlines System
G.R. No. 127957, February 21,2001
FACTS: Petitioner Morris and co-petitioner Whittier had a series of business
meetings with Japanese businessmen in Japan from February 14 to February 22, 1978.
They requested their travel agent, Staats Travel Services, Inc. to book them as first
class passengers in SAS Manila-Tokyo flight on February 14, 1978. Respondent
booked them as first-class passengers on Flight SK 893, Manila-Tokyo flight, on
February 14,1978 at 3:50 in the afternoon. On the day of their flight, petitioners went
to the Manila International Airport and arrived at 2:35 in the afternoon. Upon arrival at
the airport, representatives of the travel agency met petitioners. It took petitioners two
or three minutes to clear their bags at the customs section. After that, they proceeded
to the SAS check-in counter and presented their tickets, passports, immigration cards,
and travel documents to Ms. Erlinda Ponce at the reception desk. After about 15
minutes, petitioners noticed that their travel documents were not being processed at
the check-in counter. They were informed that there were no seats on the plane for
which reason they could not be accommodated on the flight.
When petitioners went to the supervisor’s desk to check the flight manifest, they saw
that their names on top of the list of the first class

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section had been crossed out. They pressed the supervisor to allow them in the
flight as they had confirmed tickets. Mr. Basa informed them that it could not
be done because the flight was closed and it was too late to do anything. They
checked in at exactly 3:10 in the afternoon and the flight was scheduled to leave
Manila International Airport at 3:50 in the afternoon.
Ms. Brlinda Ponce, SAS employee on duty at the check-in counter on
February 14, 1978, testified that the economy class of SAS Flight SL 893 was
overbooked, however, the first class section was open. She met petitioners,
who were booked in the first class section, when they approached the counter to
check-in. They were not accommodated on the flight because they checked-in
after the flight manifest had been closed, 40 minutes prior to the plane’s
departure. Petitioners’ seats were given to economy class passengers who were
upgraded to first class.
On August 24, 1988, the trial court rendered a judgment against
respondent and in favor of petitioners, ordering the defendants to pay moral
damages to Morris in the amount of PI00,000 and to Whittier the sum of
PI00,000, exemplary damages in the sum of P200,000, attorney’s fees in the
amount of P300,000, plus the cost of suit.
On appeal, the Court of Appeals (CA), on January 21, 1997,
promulgated a decision reversing the decision of the court a quo, and ordering
the dismissal of the complaint for damages.
ISSUE: Whether or not the act of the airlines in bumping-off the
petitioners from their flights were done in bad faith.
HELD: The petition has no merit.
,(
To begin with, it must be emphasized that a contract to transport
passengers is quite different in kind and degree from any other contractual
relations, and this is because of the relation, which an air carrier sustains
with the public. Its business is mainly with the traveling public. It invites
people to avail themselves of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation attended with a
public duty. Neglect or malfeasance of the carrier s employees naturally
could give ground for an action for damages. ”

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In the instant case, assuming arguendo that breach of contract of carriage

may be attributed to respondent, petitioners’ travails were directly traceable to
their failure to check-in on time, which led to respondent’s refusal to
accommodate them on the flight.
“The rule is that moral damages are recoverable in a damage suit
predicated upon a breach of contract of carriage only where (a) the mishap
results in the death of a passenger, and (b) it is proved that the carrier was guilty
of fraud and bad faith even if death does not result.”
For having arrived at the airport after the closure of the flight manifest,
respondent’s employee could not be faulted for not entertaining petitioners’
tickets and travel documents for processing, as the checking-in of passengers for
SAS Flight SK 893 was finished. There was no fraud or bad faith as would
justify the court’s award of moral damages.
In the instant case, respondent’s denial of petitioners’ boarding on SAS
Flight SK 893 was not attended by bad faith or malice. To the contrary, facts
revealed that they were not allowed to board the plane due to their failure to
check-in on time. Petitioner Morris admitted that they were at the check-in
counter at around 3:30, exactly the same time the flight manifest was closed, but
still too late to be accommodated on the plane. Respondent’s supervisor, Raul C.
Basa, testified that he met petitioners at about 3:20 in the afternoon after
receiving a radio call from the ground staff regarding petitioners’ complaint.
Clearly, petitioners did not arrive on time for check-in.
“Where the award ofmoral and exemplary damages is eliminated, so
must the award of attorney’s fees be deleted. ”
Note: The case of Malong v. PNR, L-49930, August 5, 1985 (en banc)
held that the PNR is not immune from suit and is liable as a common carrier for
the negligent acts of its employees. It is expressly liable for moral damages for
the death of a passenger under Articles 1764 and 2206 of the Civil Code.
QUESTION: May the heirs of the victim in a vehicular accident be
awarded monetarily for loss of pension for which the deceased had failed to
receive?

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ANSWER: Yes. Under Article 2206 of the Civil Code —

“The amount of damages for death caused by a crime or
quasi-delict shall be at least three thousand pesos, even though there may
have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity
of the deceased, and the indemnity shall be paid to the heirs of the latter...
”
The pension of the decedent being a sure income that was cut short by her
death for which the errant driver was responsible, the surviving heir of the former is
entitled to the award of PI 0,000 which is just equivalent to the pension the decedent
would have received for one year if she did not die. (Gloria Darrocha de Caliston v.
The Honorable Court of Appeals and Geronimo Dalmacio, 122 SCRA 958, June
24, 1983)
Brothers and sisters of a deceased passenger in a breach of contract of carriage are not
entitled to an award of moral damages.

Sulpicio Lines, Inc. v. Domingo E. Curso, et al.

(First Division Decision)
G.R. No. 157009, March 17, 2010

FACTS: On October 23, 1988, Dr. Curso boarded at the port of Manila the
M/V Dona Marilyn, and inter-island vessel owned and operated by petitioner Sulpicio
Lines, Inc., bound for Tacloban City. Unfortunately, the M/V Dona Marilyn sank in
the afternoon of October 24, 1988 while at sea due to the inclement sea and weather
conditions brought about by Typhoon Unsang. The body of Dr. Curso was not
recovered, along with hundreds of other passengers of the ill-fated vessel. At the time
of his death, Dr. Curso was 48 years old, and employed as a resident physician at the
Naval District Hospital in Naval, Biliran. He had a basic monthly salary of P3,940,
and would have retired from government service by December 20, 2004 at the age of
65.

On January 21, 1993, the respondents, allegedly the surviving brothers and sisters of
Dr. Curso, sued the petitioner in the Regional

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Trial Court (RTC) in Naval, Biliran to claim damages based on breach of

contract of carriage by sea, averring that the petitioner had acted negligently in
transporting Dr. Curso and the other passengers. They stated, among others, that
their parents had predeceased Dr. Curso, who died single and without issue, and
that, as such, they were Dr. Curso’s surviving heirs and successors in interest
entitled to recover moral and other damages. They prayed for judgment, as
follows: (a) compensatory damages of PI,924,809; (b) moral damages ofP
100,000;
(c) exemplary or corrective damages in the amount deemed proper and just; (d)
expenses of litigation of at least P50,000; (e) attorney’s fees of P50,000; and (f)
costs of suit. The petitioner denied liability, insisting that the sinking of the
vessel was due to force majeure (i.e., Typhoon Unsang), which exempted a
common carrier from liability. It averred that the M/V Doha Marilyn was
seaworthy in all respects, and was in fact cleared by the Philippine Coast Guard
for the voyage, and that after the accident, it conducted intensive search and
rescue operations, and extended assistance and aid to the victims and their
families.
On July 28, 1995, the Regional Trial Court (RTC) dismissed the
complaint upon its finding that the sinking vessel was due to force majeure.
Respondents appealed to the Court of Appeals (CA). In its decision dated
September 16, 2002, the CA reversed the decision of the RTC in this wise:
“Wherefore, premises considered, the appealed decision of the RTC of Naval,
Biliran, Branch 16, rendered in Civil Case No. B-0851, is hereby SET ASIDE. In
lieu thereof, judgment is hereby rendered, finding the defendant-appellate
Sulpicio Lines, Inc. to have been negligent in transporting the deceased Cenon E.
Curso, who was on board the ill-fated MW Dona Marilyn, resulting in his
untimely death. Defendant-appellee is hereby ordered to pay the plaintiff’s heirs
of Cenon E. Curso the following: (1) Death indemnity in the amount of P50,000;
(2) Loss of Earning Capacity in the amount of P504,241,20;
(3) Moral Damages in the amount of PI 00,000; and (4) Costs of suit.
ISSUE: Whether or not brothers and sisters of a deceased passenger in a
case of breach of contract of carriage are entitled to an award of moral damages.
HELD: As a general rule, moral damages are not recoverable in actions
for damages predicated on a breach of contract, unless there is

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fraud or bad faith. As an exception, moral damages may be awarded in case of

breach of contract of carriage that results in the death of a passenger in accordance
with Article 1764, in relation to Article 2206(3) of the Civil Code, which provides:
Article 1764, Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall
also apply to the death of a passenger caused by the breach of contract by a common
carrier. Article 2206. The amount of damages for death caused by a crime or
quasi-delict shall be at least three thousand pesos, even though there may have been
mitigating circumstances. In addition: (1) The defendant shall be liable for the loss
of the earning capacity of the deceased, and the indemnity shall be paid to the heirs
of the latter; such indemnity shall in every case be assessed and awarded by the
court, unless the deceased, on account of permanent physical disability not caused
by the defendant, had no earning capacity at the time of his death; (2) If the deceased
was obliged to give support according to the provisions of Article 291, the recipient
who is not an heir called to the decedent’s inheritance by the law of testate or
intestate succession, may demand support from the person causing the death, for a
period not exceeding five years, the exact duration to be fixed by the court; (3) The
spouse, legitimate and illegitimate descendants and ascendants of the deceased may
demand moral damages for mental anguish by reason of the death of the deceased.
The foregoing legal provisions set forth the persons entitled to moral
damages. The omission from Article 2206(3) of the brothers and sisters of the
deceased passenger reveals the legislative intent to exclude them from the
recovery of moral damages for mental anguish by reason of the death of the
deceased. Inclusio unius est exclusio alterius. The solemn power and duty of
the courts to interpret and apply the law do not include the power to correct the
law by reading into it what is not written therein. Thus, the CA erred in awarding
moral damages to the respondents. The petitioner has correctly relied on the
holding in Receiver for North Negros Sugar Company, Inc . v. Ybahez, to the
effect that in case of death caused by quasi-delict, the brother of the deceased
was not entitled to the award of moral damages based on Article 2206 of the Civil
Code.

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Article 2219 circumscribes the instances in which moral damages may be

awarded. The provision does not include succession in the collateral line as a
source of the right to recover moral damages. The usage of the phrase analogous
cases in the provision means simply that the situation must be held similar to
those expressly enumerated in the law in question following the ejusdem generis
rule. Hence, Article 103 of the Civil Code is not concerned with recovery of moral
damages.

Subsidiary liability of an employer under Article 103, Revised Penal Code,

enforceable in the same criminal case where award was made.

Gregoria Vda. de Paman, et al. v.

Hon. Alberto V. Seneris, Western Mindanao
Lumber Company, and Teodoro Delos Santos
G.R. No. L-37632, July 30,1982

FACTS: On May 24, 1961, accused-respondent Teodoro Delos Santos

was charged by the City Attorney of Zamboanga City of Homicide [Through]
Reckless Imprudence in Violation of Sec. 52 of Act 3992, as amended.

Upon arraignment on June 26,1972, accused-respondent Teodoro Delos

Santos entered a plea of guilty. In view of said plea, the respondent Judge, Alberto
Seneris, rendered a Decision sentencing said respondent to suffer an
imprisonment of two months and one day of arresto mayor and to indemnify the
heirs of the late Victoriano Paman, namely, the petitioner Gregoria Vda. de
Paman and her three children, in the amount of PI2,000.

On the same day, accused-respondent Teodoro Delos Santos commenced

his service of sentence. On August 4, 1972, petitioner Gregoria Vda. de Paman,
widow of the victim, filed the first motion for execution of the judgment to enforce
the civil liability of the PI2,000 of the accused-respondent. This was followed on
August 28, 1972 by the filing of petitioner of an ex parte motion for execution of
judgment against the accused. In both instances, Western Mindanao Lumber
Company was duly notified.

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On August 31, 1972, respondent Judge issued an order granting the said
motion for execution. However, on September 4, 1972, the Sheriff’s Return of
Service showed that the accused respondent Teodoro Delos Santos had no
property registered in his name.
Upon discovery that accused-respondent was insolvent, petitioner filed
on September 19, 1972, a “Motion for Execution on Subsidiary Liability of
Employer Western Mindanao Lumber Company under Article 103 of the
Revised Penal Code.” Petitioner contended therein that the subsidiary liability
of the employer, Western Mindanao Lumber company in the event the accused
is insolvent, is executory in nature and there is no need for a separate action or
a further civil case to be filed in the enforcement of the decision
aforementioned. On October 11, 1972, petitioner filed a “Supplemental
Motion for Execution for Subsidiary Liability of Employer under Article 103
of the Penal Code.” Petitioner, through counsel, cited therein the case of
Fernando v. Francoy 37 SCRA 311.
Petitioner concluded that the tenor of the aforesaid decision implies
that the subsidiary liability of the employer may be enforced in the same
proceeding.
On September 8, 1973, respondent Judge issued an order denying the
motion for issuance of writ of execution against the employer of Teodoro
Delos Santos. He opined that the alleged employer not having been notified
that its driver was facing a criminal charge, a separate civil action must be
filed. Hence, this petition for mandamus.
ISSUE: Whether or not there is a need to file a separate civil action to
enforce the subsidiaiy liability of the employer in a criminal case.
HELD: No. This case finds parallelism in a case involving the same
respondent Judge, i.e., Lucia S. Pajarito v. Hon. Alberto V. Seneris et al.,
87 SCRA 275, where the only issue involved is whether the subsidiaiy liability
established in Article 103 of the Revised Penal Code may be enforced in the
same criminal case where the award was made, or in a separate civil action.
As in the aforementioned case, the apparent drawback in the
enforcement of the subsidiary liability in the same criminal proceeding

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is the lack of due process to the alleged employer. Not being a party to the case,
he was not heard as to whether he was indeed the employer. Besides, even if the
employer-employee relationship is not disputed, still, in order that an employer
may be subsidiarily liable for the employee’s civil liability in the criminal
action, it should be shown: (1) that the employer, etc. is engaged in any kind of
industry; (2) that the employee committed the offense in the discharge of his
duties; and (3) that he is insolvent.
Against the foregoing considerations, Section 1, Rule 111 of the Rules of
Court provides, however, that “when a criminal action is instituted, the civil
action for recovery of civil liability arising from the offense charged is impliedly
instituted with the criminal action, unless the offended party expressly waives
the civil action or reserves his right to institute it separately.” That means as if
two actions are joined in one as twins, each one complete with the same
completeness as any of the two normal persons composing the twins. It means
that the civil action may be tried and prosecuted, with all the ancillary processes
provided by law. Said provision will be rendered meaningless if the subsidiary
civil liability is not allowed to be enforced in the same proceeding.
To remedy the situation and thereby afford due process to the alleged
employer, this Court directed the court a quo in Pajarito v. Seneris (supra) to
hear and decide in the same proceeding the subsidiary liability of the alleged
owner and operator of the passenger bus. It was explained therein that the
proceeding for the enforcement of the subsidiary liability may be considered as
part of the proceeding for the execution of the judgment. A case in which an
execution has been issued is regarded as still pending so that all proceedings on
the execution are proceeding in the suit. There is no question that the court,
which rendered the judgment, has a general supervisory control over its process
of execution, and this power carries with it the right to determine every question
of fact and law, which may be involved in the execution.
Moreover, it has been invariably held that a judgment of conviction
sentencing a defendant employer to pay an indemnity in the absence of any
collusion between the defendant and the offended party, is conclusive upon the
employer in an action for the enforcement of the

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

latter’s subsidiary liability not only with regard to the civil liability, but also with
regard to its amount. This being the case, this Court stated in Rotea v. Halili, 109
Phil. 495, that the court has no other function than to render decision based upon the
indemnity awarded in the criminal case and has no power to amend or modify it
even if in its opinion an error has been committed in the decision. A separate and
independent action is, therefore, unnecessary and would only unduly prolong the
agony of the heirs of the victim.

Subsidiary liability of an employer under Article 103, Revised Penal Code,

enforceable in the same criminal case where award was made.

Pepe Catacutan and Aureliana Catacutan v. Heirs of

!
Norman Kadusale, Heirs of Lito Amancio and
w
Gil B. Izon <
G.R. No. 131280, October 18, 2000 |j
|

FACTS: Petitioner Aureliana Catacutan is the registered owner and operator

of a jeepney driven by the accused Porferio Vendiola, which bumped a tricycle on
April 11, 1991 in Banilad, Bacong, Negros Oriental, thereby causing the death of its
driver, Norman Kadusale, and its passenger Lito Amancio, and serious physical
injuries to another passenger, respondent Gil B. Izon.
Respondents thus filed a criminal case against Porferio Vendiola for
Reckless Imprudence Resulting In Double Homicide with Physical Injuries and
Damage to Property on July 26, 1991 before the Regional Trial Court of Negros
Oriental. On December 1, 1995, the trial court rendered judgment, declaring the
accused guilty of negligence and imprudence under Article 365 of the Revised
Penal Code. He is therefore sentenced to suffer the penalty of prision correctional
medium and maximum periods. Accused is ordered to suffer the penalty of 30 days
of arresto mayor straight. He is likewise ordered to indemnify the heirs of Norman
Kadusale and Lito Amancio in the amount of P50,000 each victim, and to pay actual
damages to Norman Kadusale or his heirs in the amount of PI70,543.24; Lito
Amancio or his heirs the amount of P38,394.35; and Gild B. Izon the amount of
P23,454.

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 TRANSPORTATION LAWS

Accused Vendiola did not appeal the judgment of conviction. Instead,

he applied for probation. Meanwhile, when the judgment became final and
executoiy, respondents moved for the issuance of a writ of execution, and the
corresponding writ was issued by the trial court on April 24, 1996. However,
per the Sheriff’s Return of Service, dated July 3,1996, the writ was unsatisfied
as the accused had “nothing to pay off the damages in the decision.”
On August 28, 1996, respondents filed a Motion for Subsidiary Writ of
Execution before the trial court, praying that such writ be issued against
petitioner Aureliana Catacutan as registered owner and operator of the
jeepney driven by the accused when the collision occurred. Petitioner
Aureliana Catacutan filed her Opposition thereto; arguing that she was never a
party to the case and to proceed against her would be in violation of the due
process clause of the Constitution. Petitioner also argued that the subsidiary
liability of the employer is not determined in the criminal case against the
employee.
On October 3,1996, the trial court issued an Order denying the said
Motion for lack of merit. According to the trial court, it never acquired
jurisdiction over petitioner Aureliana Catacutan since she was never
impleaded as party to the case, and respondents’ remedy was to file a separate
case for damages. Respondents’ Motion for Reconsideration was also denied
on December 3,1996. Undaunted, respondents went on certiorari to the Court
of Appeals (CA). On August 12, 1997, the CA rendered the assailed Decision.
ISSUE: Whether or not there is a need for a separate case for the
determination of employer’s subsidiary liability.
HELD: The employer is, in substance and in effect, a party to the
criminal case against his employee, considering the subsidiary liability
imposed upon him by law. Thus, “It is true that an employer, strictly speaking,
is not a party to the criminal case instituted against his employee but in
substance and in effect, he is considering the subsidiary liability imposed
upon him by law. It is his concern, as well as his employee, to see to it that his
interest is protected in the criminal case by taking virtual participation in the
defense of his employee. He cannot leave him to his own fate because his
failure is also his. And if

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because of his indifference or inaction the employee is convicted and damages are
awarded against him, he cannot later be heard to complaint, if brought to court for
the enforcement of his subsidiary liability, that he was not given his day in court.
It was not without purpose that the court sounded the following stem warning”:
“It is high time that the employer exercised the greatest care in selecting his
employees, taking real and deep interest in their welfare; intervening in any
criminal action brought against them by reason or as a result of the performance
of their duties, if only in the way of giving them benefit of counsel; and
consequently doing away with the practice of leaving them to their fates. If these
be done, the American rule requiring notice on the part of the employer shall have
been satisfied (Miranda v. Mai ate Garage and Taxicab, Inc., 99 Phil. 670,
675, citing Martinez v. Barredo, supra).”
The statutory basis for an employer’s subsidiary liability is found in
Article 103 of the Revised Penal Code. This liability is enforceable in the same
criminal proceeding where the award is made. (Rules of Court, Rule 111,
Section 1) However, before execution against an employer ensues, there must
be a determination in a hearing set for the purpose of (1) the existence of an
employer-employee relationship; (2) that the employer is engaged in some kind
of industry; (3) that the employee is adjudged guilty of the wrongful act and
found to have committed the offense in the discharge of his duties (not
necessarily any offense he commits “while” in the discharge of such duties);
and (4) that said employee is insolvent. (Yonaha v. CA, 255 SCRA 397, 402
[1996])
Petitioner knew of the criminal case that was filed against accused
because it was his truck that was involved in the incident. Further, it was the
insurance company, with which his truck was insured, that provided the counsel
for the accused, pursuant to the stipulations in their contract. Petitioner did not
intervene in the criminal proceedings, despite the knowledge, through counsel,
that the prosecution adduced evidence to show employer-employee
relationship. With the convict’s application for probation, the trial court’s
judgment became final and executory. All told, it is the CA’s view that the
lower court did not err when it found that petitioner was not denied due process.
He had all his

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chances to intervene in the criminal proceedings, and prove that he was not the
employer of the accused, but he chooses not to intervene at the appropriate time.

Release of claims executed by the injured party discharging the

insurance and transportation companies from any and all liability is
valid.

Baliwag Transit, Inc. v. Hon. Court of Appeals

and Sps. Sotero Cailipan and Zenaida Lopez
and George L. Cailipan
G.R. No. 80447, January 31,1989
FACTS: On April 10,1985, a complaint for damages arising from breach
of contract of carriage was filed by private respondents, the Spouses Sotero
Cailipan, Jr. and Zenaida Lopez, and their son George, of legal age, against
petitioner Baliwag Transit (Baliwag, for brevity). The Complaint alleged that
George, who was a paying passenger on a Baliwag bus on December 17, 1984,
suffered multiple serious physical injuries when he was thrown off said bus
driven in a careless and negligent manner by Leonardo Cruz, the authorized bus
driver, along Barangay Patubid, Marilao, Bulacan. As a result, he was confined
in the hospital for treatment, incurring medical expenses, which were borne by
his parents, the respondent Spouses, in the sum of about P200,000, plus other
incidental expenses of about PI 0,000.
Baliwag then filed a Third-Party Complaint against Fortune Insurance &
Surety Company, Inc., on its third-party liability insurance in the amount of
P50,000. In its Answer, Fortune Insurance claimed limited liability, the coverage
being subject to a Schedule of Indemnities forming part of the insurance policy.
On November 14, 1985 and November 18, 1985, respectively, Fortune
Insurance and Baliwag each filed Motions to Dismiss on the ground that George,
in consideration of the sum of P8,020.50 had executed a “Release of Claims”
dated May 16, 1985. These Motions were denied by the Trial Court in an Order,
dated January 13, 1986, as they were filed beyond the time for pleading and after
the Answer were already filed.

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In an Order, dated August 29, 1986, the Regional Trial Court of Bulacan,
Branch 20, dismissed the complaint and third-party complaint, ruling that since the
contract of carriage is between Baliwag and George L. Cailipan, the latter, who is
of legal age, had the exclusive right to execute the Release of Claims despite the
fact that he is still a student and dependent on his parents for support.
Consequently, the execution by George of the Release of Claims discharges
Baliwag and Fortune Insurance.
Aggrieved, the Spouses appealed to respondent Court of Appeals.
On October 22, 1987, the Appellate Court rendered a Decision setting aside
the appealed order and holding that the “Release of Claims” cannot operate as a
valid ground for the dismissal of the case because it does not have the conformity
of all the parties, particularly George’s parents, who have substantial interest in the
case as they stand to be prejudiced by the judgment because they spent a sizeable
amount for the medical bills of their son; that the Release of Claims was secured by
Fortune Insurance for the consideration of P8,020.50 as the full and final
settlement of its liability under the insurance policy and not for the purpose of
releasing Baliwag from its liability as a carrier in this suit for breach of contract.
The Appellate Court also ordered the remand of the case to the lower Court for trial
on the merits and for George to return the amount of P8,020.50 to Fortune
Insurance.
ISSUE: Whether the Release of Claims executed by George, the injured
party during the pendency of this case is valid.
HELD: Since the suit is one for breach of contract of carriage, the Release
of Claims executed by him, as the injured party, discharging Fortune Insurance
and Baliwag from any and all liability, is valid. He was then of legal age, a
graduating student of Agricultural Engineering, and had the capacity to do acts
with legal effect. (Article 37 in relation to Article 402, Civil Code) Thus, he
could sue and be sued even without the assistance of his parents.
Significantly, the contract of carriage was actually between George, as the
paying passenger, and Baliwag, which was bound to carry its passengers safely as
far as human care and foresight could provide, and is liable for injuries to them
through the negligence or willful acts

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4P^

TRANSPORTATION LAWS

of its employees. (Articles 1755 and 1759, Civil Code) Thus, George had the
right to be safely brought to his destination, and Baliwag had the correlative
obligation to do so. Since a contract may be violated only by the parties thereto,
as against each other, in an action upon that contract, the real parties in interest,
either as plaintiff or as defendant, must be parties to said contract. (Marimperio
Compania Naviera, S.A. v. Court of Appeals, No. L-40234, December 14,
1987, 156 SCRA 368) A real party-in-interest-plaintiff is one who has a legal
right while a real party-in-interest-defendant is one who has a correlative legal
obligation whose act or omission violates the legal right of the former. (Lee v.
Romillo, Jr., G.R. No. 60973, May 28, 1988) In the absence of any contract of
carriage between Baliwag and George’s parents, the latter are not real
parties-in-interest in an action for breach of that contract.
There is no question regarding the genuineness and due execution of the
Release of Claims. It is a duly notarized public document. It clearly stipulates
that the consideration of P8,020.50 received by George was “to release and
forever discharge Fortune Insurance and/ or Baliwag from any and all liabilities
now accrued or to accrue on account of any and all claims or causes of action x
x x for personal injuries, damage to property, loss of services, medical expenses,
losses or damages of any and every kind or nature whatsoever, sustained by him
on December 17, 1984 through Reckless Imprudence Resulting to Physical
Injuries.” Consequently, the ruling of respondent Appellate Court that the
“Release of Claims” was intended only as the full and final settlement of a
third-party-liability for bodily injury claim and not for the purpose of releasing
Baliwag from its liability, if any, in a breach of contract of carriage, has to be
rejected for being contrary to the very terms thereof. If the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. (Article 1370, Civil Code) The
phraseology “any and all claims or causes of action” is broad enough to include
all damages that may accrue to the injured party arising from the unfortunate
accident.
The Release of Claims had the effect of a compromise agreement since it
was entered into for the purpose of making a full and final compromise
adjustment and settlement of the cause of action involved.

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

A compromise is a contract whereby the parties, by making reciprocal

concessions, avoid litigation, or put an end to one already commenced. (Article
2028, Civil Code) The Release of Claims executed by the injured party himself
wrote finish to this litigation.

ART. 1765. The Public Service Commission may, on its own

motion or on petition of any interested party, after due hearing, cancel
the certificate of public convenience granted to any common carrier
that repeatedly fails to comply with his duty to observe extraordinary
diligence as prescribed in this Section.

This function of the defunct Public Service Commission insofar as land

transportation is now transferred to the Land Transportation Franchising and
Regulatory Board (LTFRB). See E.O. No. 220, Section 5(b), infra.

ART. 1766. In all matters not regulated by this Code, the rights
and obligations of common carriers shall be governed by the Code of
Commerce and by special laws.

The new Civil Code particularly Articles 1732 to 1766 is the general law on
common carriers. Should the matters involved is not covered by Articles 1732 to
1766 of the Civil Code, the Code of Commerce and special laws will apply.
QUESTION: What is the effect of our adherence to the Warsaw
Convention (Convention for the Unification of Certain Rules Relating to
International Transportation by Air) on our laws on transportation?
ANSWER: Within our jurisdiction the Warsaw Convention can be
applied, or ignored, depending on the peculiar facts presented by each case. The
Convention’s provisions do not regulate or exclude liability for other breaches
of contract by the carrier or misconduct of its officers and employees, or for
some particular or exceptional type of damage. Neither may the Convention be
invoked to justify the disregard of some extraordinary sort of damage resulting
to a passenger and preclude recovery therefor beyond the limits set by said
Convention. Likewise,

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 TRANSPORTATION LAWS

the Convention does not preclude the operation of the Civil Code and other
pertinent laws. It does not regulate, much less exempt, the carrier from liability for
damages for violating the rights of its passengers under the contract of carriage,
especially if willful misconduct on the part of the carrier’s employees is found or
established. (UnitedAirlines v. Uy, 318 SCRA 576, November 19, 1999)

The Warsaw Convention has the force and effect of law in this country.

Edna Diago Lhuillier v. British Airways

G.R. No. 171092, March 15, 2010
Philippine Courts have no jurisdiction over a tortuous conduct committed
against a Filipino Citizen and resident airline personnel of a foreign carrier
traveling beyond the territorial limit of any foreign country.
Under Article 28(1)‘ of the Warsaw Convention, the plaintiff may bring the
action for damages before —
1. The court where the carrier is domiciled;
2. The court where the carrier has its principal place of business;
3. The court where the carrier has an establishment by which the
contract has been made; or
4. The court of the place of destination.
In this case, it is not disputed that respondent is a British corporation
domiciled in London, United Kingdom with London as its principal place of
business. Hence, under the first and second jurisdictional rules, the petitioner
may bring her case before the courts of London in the United Kingdom. In the
passenger ticket and baggage check presented by both the petitioner and
respondent, it appears that the ticket

‘Article 28(1) provides “An action for damages must be brought at the option of the plaintiff, either
before the court of domicile of the carrier or his principal place of business, or where he has a place of
business through which the contract has been made, or before the court of the place of destination.”

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

was issued in Rome, Italy. Consequently, under the third jurisdiction rule, the
petitioner has the option to bring her case before the courts of Rome in Italy.
Finally, both the petitioner and respondent aver that the place of destination is
Rome, Italy, which is properly designated given the routing presented in the
said passenger ticket and baggage check. Accordingly, petitioner may bring
her action before the courts of Rome, Italy.
The Republic of the Philippines is a party to the Convention for the
Unification of Certain Rules Relating to International Transportation by Air,
otherwise known as the Warsaw Convention. It took effect on February 13,
1933. The Convention was concurred in by the Senate, through its Resolution
No. 19, on May 16,1950, and was deposited with the Polish government on
November 9, 1950. The Convention became applicable to the Philippines on
February 9, 1951. On September 23, 1955, President Ramon Magsaysay
issued Proclamation No. 201, declaring our formal adherence thereto, “to the
end that the same and ever article and clause thereof may be observed and
fulfilled in good faith by the Republic of the Philippines and the citizens
thereof.”
In Pricilla L. Tan v. Northwest Airlines, Inc., G.R. No. 135802,
March 3, 2000 (327 SCRA 263), it was held that: “For willful misconduct to
exist, there must be a showing that the acts complained of were impelled by an
intention to violate the law, or were in persistent disregard of one’s rights. It
must be evidenced by a flagrantly or shamefully wrong or improper conduct.”
Contrary to petitioner’s contention, there was nothing in the conduct of
respondent, which showed that they were motivated by malice or bad faith in
loading her baggages on another plane. Due to weight and balance
restrictions, as a safety measure, respondent airline had to transport the
baggages on a different flight, but with the same expected date and time of
arrival in the Philippines.
“Bad faith does not simply connote bad judgment or negligence, it
imports a dishonest purpose or some moral obliquity and conscious doing of
a wrong, a breach of known duty through some motive or interest or ill-will
that partakes of the nature of fraud.”

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“Where in breaching the contract of carriage the defendant airline is not

shown to have acted fraudulently or in bad faith, liability for damages is limited
to the natural and probable consequences of the breach of obligation which the
parties had foreseen or could have reasonably foreseen. In that case, such
liability does not include moral and exemplary damages.”

Warsaw convention does not “exclusively regulate” the

relationship between passenger and carrier on an international
flight.

Philippine Airlines, Inc. v. Hon. Adriano Savillo,

Presiding Judge of RTC Branch 30, Iloilo City
and Simplicio Grino
G.R. No. 149547, July 4, 2008
FACTS: Private respondent was invited to participate in the 1993
ASEAN Seniors Annual Golf Tournament held in Jakarta, Indonesia. He and
several companies decided to purchase their respective passenger tickets from
Philippine Airlines, Inc. (PAL) with the following points of passage:
MANILA-SINGAPORE-JAKARTA-SINGAPORE- MANILA. Private
respondent and his companies were made to understand by PAL that its plane
would take them from Manila to Singapore, while Singapore Airlines would
take them from Singapore to Jakarta.
On October 3, 1993, private respondent and his companion took the PAL
flight to Singapore and arrived at about 6:00 in the evening. Upon their arrival,
they proceeded to the Singapore Airlines office to check-in for their flight to
Jakarta scheduled at 8:00 in the same evening. Singapore Airlines rejected the
tickets of private respondent and his group because they were not endorsed by
PAL. Stranded at the airport in Singapore and left with no recourse, private
respondent was in panic and at a loss where to go, and was subjected to
humiliation, embarrassment, mental anguish, serious anxiety, fear and distress.
Eventually, private respondent and his companions were forced to purchase
tickets from Garuda Airlines and board its last flight bound for Jakarta. When
they arrived in Jakarta at about 12:00 midnight, the party who was supposed to
fetch them from the airport had already left and they had to arrange

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

for their transportation to the hotel at a very late hour. After a series of
nerve-wracking experiences, private respondent became ill and was unable to
participate in the tournament. Both airlines disowned liability and blamed each
other for the fiasco. On August 15, 1997, private respondent filed a Complaint for
Damages before the Regional Trial Court (RTC) docketed as Civil Case No.
23773, seeking compensation for moral damages in the amount of PI million and
attorney’s fees.
Instead of filing an answer to private respondent’s Complaint, PAL filed a
Motion to Dismiss, dated September 18, 1998, on the ground that the said
complaint was barred on the ground of prescription under Section 1 (f) of Rule 16
of the Rules of Court. PAL argued that the Warsaw Convention, particularly
Article 29 thereof, governed this case, as it provides that any claim for damages
in connection with the international transportation of persons is subject to the
prescription period of two years. Since the Complaint was filed on August 15,
1997, more than three years after PAL received the demand letter on January 25,
1994, it was already barred by prescription.
The RTC and the C A ruled in favor of the respondent, applying the
provision of the Civil Code and other pertinent laws of the Philippines.
ISSUE: Whether or not the filing of the complaint was already barred by
prescription.
HELD: The Warsaw Convention applies to “all international
transportation of persons, baggage, or goods performed by any aircraft for hire.”
It seeks to accommodate or balance the interests of passengers seeking recovery
for personal injuries and the interest of air carriers seeking to limit potential
liability. It employs a scheme of strict liability favoring passengers and imposing
damage caps to benefit air carrier. The cardinal purpose of the Warsaw
Convention is to provide uniformity of rules governing claims arising from
international air travel, thus, it precludes a passenger from maintaining an action
for personal injury damages under local law when his or her claim does not
satisfy the conditions of liability under the Convention. Nevertheless, this Court
notes that jurisprudence in the Philippines and the United States also recognizes
that the Warsaw Convention does not “exclusively regulate” the relationship
between passenger and carrier on an international flight.

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 TRANSPORTATION l AWS

This Court finds that the present ease is substantially similar to cases in w hich the
damages sought were considered to be outside the coverage of the Warsaw
Convention.
In f Airlines v. Cv. this Court distinguished between the(l) damage to the
passenger's baggage, and (2) humiliation he suffered at the hands of the airline's
employees. The first cause of action was covered by the Warsaw Convention,
which prescribes two years, while tiie second was covered by the provisions of the
Civil Code on torts, which prescribes in four years. In the petition at bar, private
respondent’s Complaint alleged that both PAL and Singapore Airlines were guilty
of gross negligence, which resulted in his being subjected to “humiliation,
embarrassment, mental anguish, serious anxiety, fear, and distress.” The emotional
harm suffered by the private respondent, as a result of ha\ing been unreasonably
and unjustly prevented from boarding the plane, should be distinguished from the
actual damages, which resulted from the same incident. Under the Civil Code
provisions on tort, such emotional harm gives rise to compensation where gross
negligence or malice is proven.
Had the present case merely consisted of claims incidental to the airlines’
delay in transporting their passengers, the private respondent’s Complaint would
have been time-barred under Article 29 of the Warsaw Convention. However, the
present case involves a special species of injury resulting from the failure of PAL
and/or Singapore Airlines to transport private respondent from Singapore to Jakarta-
the profound distress, fear, anxiety, and humiliation that private respondent
experienced when, despite PAL’s earlier assurance that Singapore Airlines
confirmed his passage, he was prevented from boarding the plane and he faced the
daunting possibility that he would be stranded in Singapore Airport because the PAL
office was already closed.
These claims are covered by the Civil Code provisions on tort, and not within
the purview of the Warsaw Convention. Hence, the applicable prescription period is
that provided under Article 1146 of the Civil Code.

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Article 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff
(2) Upon a quasi-delict
Private respondent’s Complaint was filed with the RTC on August 15,
1997, which was less than four years since PAL received his extrajudicial demand
on January 25, 1994. Thus, private respondent’s claims have not yet prescribed
and PAL’s Motion to Dismiss must be denied.

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CARRIAGE OF GOODS BY SEA ACT

(COMMONWEALTH ACT NO. 65)

AN ACT TO DECLARE THAT PUBLIC ACT NUMBERED

FIVE HUNDRED AND TWENTY-ONE, KNOWN AS
“CARRIAGE OF GOODS BY SEA ACT,” ENACTED BY
THE SEVENTY-FOURTH CONGRESS OF THE UNITED
STATES, BE ACCEPTED, AS IT IS HEREBY ACCEPTED
BY THE NATIONAL ASSEMBLY.

WHEREAS, the Seventy-fourth Congress of the United States enacted

Public Act Numbered Five hundred and twenty-one, entitled:
“Carriage of Goods by Sea Act”;
WHEREAS, the primordial purpose of the said Acts is to bring about
uniformity in ocean bills of lading and to give effect to the Brussels Treaty,
signed by the United States with other powers;
WHEREAS, the Government of the United States has left it to the
Philippine Government to decide whether or not the said Act shall apply to
carriage of goods by sea in foreign trade to and from Philippine ports;
WHEREAS, the said Act of Congress contains advanced legislation,
which is in consonance with modem maritime mles and the practices of the
great shipping countries of the world;
WHEREAS, shipping companies, shippers and marine insurance
companies, and various chambers of commerce, which are directly affected by
such legislation, have expressed their desire that said Congressional Act be
made applicable and extended to the Philippines, therefore.

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CARRIAGE OF GOODS BY SEA ACT

Be it enacted by the National Assembly

of the Philippines:
Section 1. That the provisions of Public Act Numbered Five hundred and
twenty-one of the Seventy-fourth Congress of the United States, approved on April
sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made
applicable to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade: Provided, That nothing in the Act shall be construed as repealing any
existing provision of the Code of Commerce which is now in force, or as limiting its
application.

Sec. 2. This Act shall take effect upon its approval.

Approved, October 22, 1936.

An Act Relating to the Carriage of Goods by Sea.

Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That every bill of lading or similar document of title
which is evidence of a contract for the carriage of goods by sea to or from ports of the
United States, in foreign trade, shall be effect subject to the provisions of the Act.

TITLE I

Section 1. When used in this Act —

(a) The term “carrier” includes the owner or the charterer who enters
into a contract of carriage with a shipper.

(b) The term “contract of carriage” applies only to contracts of

carriage covered by a bill of lading or any similar document of title, insofar as
such document relates to the carriage of goods by sea, including any bill of
lading or any similar document as aforesaid issued under or pursuant to a
charter party from the moment at which such bill of lading or similar document
of title regulates the relations between a carrier and a holder of the same.

(c) The term “goods” includes goods, wares, merchandise, and articles
of every kind whatsoever, except live animals and cargo

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which by the contract of carriage is stated as being carried on deck and is

so carried.
(d) The term “ship” means any vessel used for the carriage of
goods by sea.
(e) The term “carriage of goods” covers the period from the time
when the goods are loaded to the time when they are discharged from the
ship.

RISKS
Section 2. Subject to the provisions of Section 6, under every
contract of carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such goods,
shall be subject to the responsibilities and liabilities and entitled to the
rights and immunities hereinafter set forth.

RESPONSIBILITIES AND LIABILITIES

Section 3. (1) The carrier shall be bound, before and at the
beginning of the voyage, to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling chambers,
and all other parts of the ship in which goods are carried, fit and
safe for their reception, carriage, and preservation.

Note: Under Section 3(1), Paragraphs (a) to (c), the carriers are deemed to
warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to
maintain in seaworthy condition the vessel involved in its contract of carriage is a
clear breach of its duty prescribed in Article 1755 of the Civil Code.
The provisions owed their conception to the nature of the business of common
carriers. This business is impressed with a special public

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duty. The public must of necessity rely on the care and skill of common carriers in the
vigilance over the goods and safety of the passengers, especially because with the
modem development of science and invention, transportation has become more rapid,
more complicated and somehow more hazardous. For these reasons, a passenger or a
shipper of goods is under no obligation to conduct an inspection of the ship and its
crew, the carrier being obliged by law to impliedly warrant its seaworthiness. (Caltex
[Philippines], Inc. v. Sulpicio Lines, 315 SCRA 709, September 30, 1999)

(2) The carrier shall properly and carefully load, handle, stow,
carry, keep, care for, and discharge the goods carried.
(3) After receiving the goods into his charge, the carrier, or the
master or agent of the carrier, shall, on demand of the shipper, issue to the
shipper a bill of lading showing among other things —
(a) The loading marks necessary for identification of the
goods as the same are furnished in writing by the shipper before the
loading of such goods starts, provided such marks are stamped or
otherwise shown clearly upon the goods if uncovered, in such a
manner as should ordinarily remain legible until the end of the
voyage.
(b) Either the number of packages or pieces, or the
quantity or weight, as the case may be, as furnished in writing
by the shipper.
(c) The apparent order and condition of the goods:
Provided, That no carrier, master, or agent of the carrier, shall
be bound to state or show in the bill of lading any marks,
number, quantity, or weight which he has reasonable ground
for suspecting not accurately to represent the goods actually
received or which he has had no reasonable means of
checking.
(4) Such a bill of lading shall be prima facie evidence of the
receipt by the carrier of the goods as therein described in
accordance with paragraphs (3)(a), (b), and (c) of this section: (The
rest of the provision is not applicable to the Philippines.)

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(5) The shipper shall be deemed to have guaranteed to the

carrier the accuracy at the time of shipment of the marks, number,
quantity, and weight, as furnished by him; and the shipper shall
indemnify the carrier against all loss, damages, and expenses arising or
resulting from inaccuracies in such particulars. The right of the carrier
to such indemnity shall in no way limit his responsibility and liability,
under the contract of carriage to any person other than the shipper.
(6) Unless notice of loss or damage and the general nature of
such loss or damage be given in writing to the carrier or his agent at the
port of discharge 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 may be 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.
In the case of any actual or apprehended loss or damage, the
carrier and the receiver shall give all reasonable facilities to each other
for inspecting and tallying the goods.
(7) After the goods are loaded, the bill of lading to be issued by
the carrier, master, or agent of the carrier to the shipper shall,

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if the shipper so demands, be a “shipped” bill of lading: Provided, That

if the shipper shall have previously taken up any document of title to
such goods, he shall surrender the same as against the issue of the
“shipped” bill of lading, but at the option of the carrier such document
of title may be noted at the port of shipment by the carrier, master, or
agent with the name or names of the ship or ships upon which the goods
have been shipped and the date or dates of shipment, and when so
noted, the same shall for the purpose of this section be deemed to
constitute a “shipped” bill of lading.
(8) Any claims, covenant, or agreement in a contract of carriage
relieving the carrier of the ship from liability for loss or damage to or in
connection with the goods, arising from negligence, fault, or failure in
the duties and obligations provided in this section, or lessening such
liability otherwise than as provided in this Act, shall be null and void
and of no effect. A benefit of insurance in favor of the carrier, or similar
clause, shall be deemed to be a clause relieving the carrier from liability.

RIGHTS AND IMMUNITIES

Section 4. (1) Neither the carrier nor the ship shall be liable for
loss or damages arising or resulting from unseaworthiness unless
caused by want of due diligence on the part of the carrier to make the
ship seaworthy, and to secure that the ship is properly manned,
equipped, and supplied, and to make the holds, refrigerating and
cooling chambers, and all other parts of the ship in which goods are
carried fit and safe for their reception, carriage, and preservation, in
accordance with the provisions of paragraph (1) of Section (3).
Whenever loss or damage has resulted from unseaworthiness, the
burden of proving the exercise of due diligence shall be on the carrier
or other persons claiming exemption under this section.
(2) Neither the carrier nor the ship shall be responsible for loss or
damage arising or resulting from —
(a) Act, neglect, or default of the master, mariner, pilot, or
the servants of the carrier in the navigation or in the management
of the ship;

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

carrier;
(c) Perils, dangers, and accidents of the sea or other navigable
waters;
(d) Act of God;

(e) Act of war;

(f) Act of public enemies;
(g) Arrest or restraint of princes, rulers, or people, or seizure
under legal process;
(h) Quarantine restrictions;
(i) Act or omission of the shipper or owner of the goods, his
agent or representative;
(j) Strikes or lockouts or stoppage or restraint of labor from
whatever cause, whether partial or general: Provided, That nothing
herein contained shall be construed to relieve a carrier from
responsibility for the carrier’s own acts;
(k) Riots and civil commotions;
(l) Saving or attempting to save life or property at sea;
(m) Wastage in bulk or weight or any other loss or damage
arising from inherent defect, quality, or vice of the goods;
(n) Insufficiency of packing;
(o) Insufficiency or inadequacy of marks;
(p) Latent defects not discoverable by due diligence;
and
(q) Any other cause arising without the actual fault and
privity of the carrier and without the fault or neglect of the agents or
servants of the carrier, but the burden of proof shall be on the person
claiming the benefit of this exception to show that neither the actual
fault or privity of the carrier

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nor the fault or neglect of the agents or servants of the carrier

contributed to the loss or damage.
(3) The shipper shall not be responsible for loss or damage
sustained by the carrier or the ship arising or resulting from any
cause without the act, or neglect of the shipper, his agents, or his
servants.
(4) Any deviation in saving or attempting to save life or property
at sea, or any reasonable deviation shall not be deemed to be an
infringement or breach of this Act or of the contract of carriage, and
carrier shall not be liable for any loss or damage resulting therefrom:
Provided\ however, That if the deviation is for the purpose of loading or
unloading cargo or passengers, it shall, prima facie, be regarded as
unreasonable.
(5) Neither the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package lawful
money of the United States, or in case of goods not shipped in packages,
per customary freight unit, or the equivalent of that sum in other
currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading shall be prima facie evidence,
but shall be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier,
and the shipper, another maximum amount than that mentioned in this
paragraph may be fixed: Provided, That such maximum shall not be less
than the figure above named. In no event shall the carrier be liable for
more than the amount of damage actually sustained.
Neither the carrier nor the ship shall be responsible in any event for
loss or damage to or in connection with the transportation of the goods if
the nature or value thereof has been knowingly and fraudulently
misstated by the shipper in the bill of lading.
(6) Goods of an inflammable, explosive, or dangerous nature to
the shipment whereof, the carrier, master or agent of the carrier, has not
consented with knowledge of their nature and character, may

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at any time before discharge be landed at any place or destroyed or

rendered innocuous by the carrier without compensation, and the
shipper of such goods shall be liable for all damages and expenses
directly or indirectly arising out of or resulting from such shipment.
If any such goods shipped with such knowledge and consent shall become
a danger to the ship or cargo, they may in like manner be landed at any
place, or destroyed or rendered innocuous by the carrier without liability
on the part of the carrier except to general average if any.

SURRENDER OF RIGHTS AND IMMUNITIES

AND INCREASE OF RESPONSIBILITIES
AND LIABILITIES
Section 5. A carrier shall be at liberty to surrender in whole or in
part all or any of his rights and immunities or to increase any of his
responsibilities and liabilities under this Act, provided such surrender or
increase shall be embodied in the bill of lading issued to the shipper.
The provisions of this Act shall not be applicable to charter parties;
but if bills of lading are issued in the case of a ship under a charter party,
they shall comply with the terms of this Act. Nothing in this Act shall be
held to prevent the insertion in a bill of lading of any lawful provisions
regarding general average.

SPECIAL CONDITIONS
Section 6. Notwithstanding the provisions of the preceding sections,
a carrier, master or agent of the carrier, and a shipper shall, in regard to
any particular goods, be at liberty to enter into any agreement in any
terms as to the responsibility and liability of the carrier for such goods,
and as to the rights and immunities of the carrier in respect of such goods,
or his obligation as to seaworthiness (so far as the stipulation regarding
seaworthiness is not contrary to public policy), or the care or diligence of
his servants or agents in regard to the loading, handling, stowage,
carriage, custody, care and discharge of the goods carried by sea:
Provided, That in this case, no bill of lading has been or shall be issued and
that the

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terms agreed shall be embodied in a receipt which shall be a non-

negotiable document and shall be marked as such.
Any agreement so entered into shall have full legal effect:
Provided, That this Section shall not apply to ordinary commercial
shipments made in the ordinary course of trade but only to other
shipments where the character or condition of the property to be
carried or the circumstances, terms and conditions under which the
carriage is to be performed are such as reasonably to justify a special
agreement.
Section 7. Nothing contained in this Act shall prevent a carrier
or a shipper from entering into any agreement, stipulation, condition,
reservation, or exemption as to the responsibility and liability of the
carrier or the ship for the loss or damage to or in connection with the
custody and care and handling of goods prior to the loading on and
subsequent to the discharge from the ship on which the goods are
carried by sea.
Section 8. The provisions of this Act shall not affect the rights
and obligations of the carrier under the provisions of the Shipping
Act 1916, or under the provisions of Sections 4281 to 4292, inclusive,
of the Revised Statutes of the United States, or of any amendments
thereto, or under the provisions of any other enactment for the time
being in force relating to the limitation of the liability of the owners
of seagoing vessels.

TITLE II
Section 9. Nothing contained in this Act shall be construed as
permitting a common carrier by water or discriminate between
competing shippers similarly placed in time and circumstances,
either: (a) with respect to their right to demand and receive bills of
lading subject to the provisions of this Act; or (b) when issuing such
bills of lading either in the surrender of any of the carrier’s rights
and immunities or in the increase of any of the carrier’s
responsibilities and liabilities pursuant to Section 5, Title I, of this
Act; (c) in any other way prohibited by the Shipping Act, 1916, as
amended.

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Section 10. (Not applicable to the Philippines.)

Section 11. Where under the custom of any trade the weight of any
bulk cargo inserted in the bill of lading is a weight ascertained or accepted
by a third party other than the carrier or the shipper and the fact that the
weight as ascertained or accepted is stated in the bill of lading, then
notwithstanding anything in this Act, the bill of lading shall not be
deemed to be prima facie evidence against the carrier of the receipt of
goods of the weight so inserted in the bill of lading, and the accuracy
thereof at the time of shipment shall not be deemed to have been
guaranteed by the shipper.
Section 12. (Not applicable to the Philippines.)
Section 13. This Act shall apply to all contracts for carriage of
goods by sea to or from ports of the United States in foreign trade. As used
in this Act the term “United States” includes, its districts, territories, and
possessions: Provided, however, That the Philippine Legislature may by
law exclude its application to transportation to or from ports of the
Philippine Islands. The term “foreign trade” means the transportation of
goods between the ports of the United States or its possessions, and any
other port of the United States or its possessions: Provided, however, That,
That any bill of lading or similar document of the title which is evidence of
a contract for the carriage of goods by sea between such ports, containing
an express statement that it shall be subject to the provisions of this Act,
shall be subjected hereto as fully as if subject hereto by the express
provisions of this Act: Provided, further, That every bill of lading or
similar document of title which is evidence of a contract for the carriage of
goods by sea from ports of the United States, in foreign trade, shall
contain a statement that it shall have effect subject to the provisions of this
Act.
Section 14. Upon the certification of the Secretary of Commerce
that the foreign commerce of the United States in its competition with
that of foreign nations is prejudiced by the provisions, or any of them,
of the Title I of this Act, or by the laws of any foreign country or
countries relating to the carriage of goods by sea, the President of the
United States may, from time to time by proclamation, suspend any or
all provisions of Title I of this Act for such periods

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of time or indefinitely as may be designated in the proclamation. The

President may at any time rescind such suspension of Title I hereof, and
any provisions thereof which may have been suspended shall thereby be
reinstated and again apply to contracts thereafter made for carriage of
goods by sea. Any proclamation of suspension or rescission of any such
suspension shall take effect on the date named therein, which date shall
be not less than ten days from the issue of the proclamation.
Any contract for the carriage of goods by sea, subject to the
provisions of this Act, effective during any period when title I hereof, or
any part thereof, is suspended, shall be subject to all provisions of law
now or hereafter applicable to that part of Title I which may have thus
been suspended.
Section 15. This Act shall take effect ninety days after the date of its
approval; but nothing in this Act shall apply during a period not to
exceed one year following its approval to any contract for the carriage of
goods by sea, made before the date on which this Act is approved nor to
any bill of lading or similar document of title issued, whether before or
after such date of approval in pursuance of any such contract as
aforesaid.
Section 16. This Act may be cited as the “Carriage of Goods by Sea
Act ”
Approved, April 16,1936.
CASES ON CARRIAGE OF GOODS BY SEA ACT
Written extrajudicial demand by the creditor does not toll the running of
the prescriptive period under the Act.

DOLE Philippines, Inc. v. Maritime

Company of the Philippines
No. L-61352, February 27,1987
FACTS: The cargo subject of the instant case was discharged in
Dadiangas unto the custody of the consignee on December 18, 1971. The
corresponding claim or the damages sustained by the cargo was

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filed by the plaintiff with the defendant vessel on May 4,1972. On June 11,
1973, the plaintiff filed a complaint in the Court of First Instance of Manila,
docketed therein as Civil Case No. 91043, embodying three causes of action
involving three separate and different shipments. The third cause of action
therein involved the cargo now subject of this present litigation. On December
11,1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043
dismissing the first two causes of action in the aforesaid case with prejudice
and without pronouncement as to costs because the parties had settled or
compromised the claims involved therein. The third cause of action, which
covered the cargo subject of this case, now was likewise dismissed but
without prejudice as it was not covered by the settlement. The dismissal of
that complaint containing the three causes of action was upon a joint motion to
dismiss filed by the parties. Because of the dismissal of the complaint in Civil
Case No. 91043 with respect to the third cause of action without prejudice,
plaintiff instituted this present complaint on January 6,1975.
To the complaint in the subsequent action, Maritime filed an answer
pleading inter alia the affirmative defense of prescription under the
provisions of the Carriage of Goods by Sea Act, and following pretrial moved
for a preliminary hearing on said defense. The Trial Court granted the motion,
scheduling the preliminary hearing on April 27, 1977. The record before the
Court does not show whether or not that hearing was held, but under date of
May 6,1977, Maritime filed a formal motion to dismiss invoking once more
the ground of prescription. The motion was opposed by DOLE and the Trial
Court, after due consideration, resolved the matter in favor of Maritime and
dismissed the complaint. DOLE sought a reconsideration, which was denied,
and thereafter took the present appeal from the order of dismissal.
ISSUE: Whether or not Article 1155 of the Civil Code providing that
the prescription of actions is interrupted by the making of an extrajudicial
written demand by the creditor is applicable to actions brought under the
Carriage of Goods by Sea Act which, in its Section 3, paragraph 6, provides
that:
the carriage 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

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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.”
HELD: DOLE concedes that its action is subject to the one- year period of
limitation prescribed in the abovecited provision. The substance of its argument is
that since the provisions of the Civil Code are, by express mandate of said Code,
suppletory of deficiencies in the Code of Commerce and special laws in matters
governed by the latter, and there being a patent deficiency with respect to the
tolling of the prescriptive period provided for in the Carriage of Goods by Sea Act,
prescription under said Act is subject to the provisions of Article 1155 of the Civil
Code on tolling and because DOLE’S claim for loss or damage made on May 4,
1972 amounted to a written extrajudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll prescription also in actions
under the Carriage of Goods by Sea Act. Too much the same effect is the further
argument based on Article 1766 of the Civil Code which provides that the rights
and obligations of common carriers shall be governed by the Code of Commerce
and by special laws in all matters not regulated by the Civil Code.
These arguments might merit weightier consideration were it not for the
fact that the question has already received a definite answer, adverse to the
position taken by DOLE, in The Yek Tong Lin Fire & Marine Insurance Co.,
Ltd. v. American President Lines, Inc. There, in a parallel factual situation,
where suit to recover for damage to cargo shipped by vessel from Tokyo to Manila
was filed more than two years after the consignee’s receipt of the cargo, this Court
rejected the contention that an extrajudicial demand tolled the prescriptive period
provided for in the Carriage of Goods by Sea Act.
Moreover, no different result would obtain even if the Court were to accept
the proposition that a written extrajudicial demand does toll prescription under the
Carriage of Goods by Sea Act. The demand

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in this instance would be the claim for damage filed by DOLE with Maritime on
May 4, 1972. The effect of that demand would have been to renew the one-year
prescriptive period from the date of its making. Stated otherwise, under DOLE’S
theory, when its claim was received by Maritime, the one-year prescriptive period
was interrupted — “tolled” would be the more precise term — and began to run
anew from May 4, 1972, affording DOLE another period of one year counted
from that date within which to institute action on its claim for damage.
Unfortunately, DOLE let the new period lapse without filing action. In instituting
Civil Case No. 91043 only on June 11, 1973, more than one month after that
period has expired and its right of action has prescribed.
DOLE’S contention that the prescriptive period “remained tolled as of
May 4, 1972 (and that) in legal contemplation (the) case (Civil Case No. 96353)
was filed on January 7, 1975 well within the one-year prescriptive period in
Section 3(6) of the Carriage of Goods by Sea Act,” equates tolling with indefinite
suspension. It is clearly fallacious and merits no consideration.

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 it’s agent, serves the purpose of a claim under Paragraph 6,
Section 3 of the COGS A; nevertheless, the same provision 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.
Asian Terminals, Inc. v. Philam Insurance Co., Inc.
(now Chartis Philippines Insurance, Inc.)
G.R. No. 181163, July 24, 2013
FACTS: On April 15, 1995, Nichimen Corporation shipped to Universal
Motors Corporation (Universal Motors) 219 packages containing 120 units of
brand new Nissan Pickup Truck Double Cab 4x2 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. The carrying vessel arrived at the port of Manila on

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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 identified two packages, labeled 03-245-42K/1 and
03-237-7CK/2, as being dented and broken. 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 baffle plate, while six Frame Assembly with Bust 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 Motor’s 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 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 (RTC) of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of Philam and
ordered Westwind and ATI to pay Philam, jointly and severally, the sum of
P633,957.15, with interest at the rate of 12% per annum, PI58,989.28 by way of
attorney’s fees, and expenses of litigation. On appeal, the Court of Appeals (CA)
affirmed the decision of RTC, with modification.
ISSUE: Whether or not Philam’s cause of action has prescribed.
HELD: Upon a careful review of the records, the Court finds no reason to
deviate from the finding that petitioners Westwind and ATI are concurrently
accountable for the damage to the content of Steel Case No. 03-245-42K/1.
Section 2 of the COGSA provides that under every contract of carriage of
goods by the sea, the carrier in relation to the loading, handling, stowage, carriage,
custody, care, and discharge of such goods,

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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 carrier’s responsibilities are to properly load, handle, stow, carry, keep,
care for and discharge the goods carried.
The Carriage of Goods bv Sea Act (COGSA) or Public Act No. 521 of
the 74th US Congress was accepted to be made applicable to all contracts for
the carriage of goods by sea to and from Philippine ports in foreign trade by
virtue of Commonwealth Act (C.A.) No. 65, Section 1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Number Five Hundred and
Twenty-one of the Seventy-fourth Congress of the United States approved on
April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby
accepted to be made applicable to all contracts for the carriage of goods by sea
to and from Philippine ports in foreign trade: Provided, That nothing in the
Act shall be construed as repealing any existing provision of the Code of
Commerce, which is now in force, or as limiting its application.
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:
Paragraph 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

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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, [W]e 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 it’s agent, served the purpose of a claim. A
claim is required to be filed within the reglementary period to afford the
carrier or depository reasonable opportunity and facilities to 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. Eventually, petitioner Philam’s
action against petitioners Westwind and ATI was seasonably filed.

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Section 3(6), Title I of the Carriage of goods by Sea Act admits of an

exception: if the one-year period is suspended by express agreement
of the parties.
Universal Shipping Lines, Inc. v. Intermediate Appellate
Court and Alliance Assurance Co., Ltd.
G.R. No. 74125, July 31,1990
FACTS: On or about March 22,1974, SEVALCO, Limited, owned and
operated by the petitioner, shipped from Rotterdam, Netherlands, to Bangkok,
Thailand, aboard its M/V “TAIWAN,” two cargoes of 50 palletized cartons
consisting of 2,000 units of 25 kilogram bags of Statex R Brand carton black,
with a declared gross weight of 53,000 kilos each. They were respectively
consigned to S. Lersen Company, Ltd. and Muang Ngarm Retreads, Ltd., per
Bills of Lading Nos. RB- 15 both shipments were insured with the private
respondent, Alliance Assurance Company, Ltd., a foreign insurance company
domiciled in London, England, which had withdrawn from the Philippine
market on June 30, 1951.
Despite the arrival of the vessel on June 28, 1974 at Bangkok, the cargo
covered by Bill of Lading No. RB-15 was not unloaded nor delivered to the
consignee, S. Lersen Company, Ltd. The shipment under Bill of Lading No.
RB-16 was delivered to Muang Ngarm Retreads, Ltd. with a total weight
shortage of 11,070 kilos because the cargoes had been either totally or
partially dissolved in saltwater which flooded Hatch No. 2 of the vessel where
they had been stored.
The consignees, S. Lersen Co., Ltd. and Muang Ngarm Retreads, Inc.,
filed their respective formal claims for loss and damage to their cargoes on
August 7, 1974 and on November 12, 1974 the insurer paid both claims in the
amounts of $12,180 and $2,547.18 for the loss and damage to their cargoes.
On June 25, 1976, private respondent, as insurer-subrogee, filed an
action in the Court of First Instance of Manila to recover from the petitioner
and its Manila agent, Carlos Go Thong & Company, what it paid the
consignees of the cargo.
After the trial, the court a quo rendered judgment for the private
respondent.

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In this appeal by certiorari, petitioner alleges that respondent court erred

in finding that private respondent’s cause of action has not yet prescribed.
ISSUE: Whether or not the action under Section 3(6) of the Carriage of
Goods by Sea Act has prescribed.
HELD: Anent the issue of prescription of the action under Section 3(6),
Title 1, of the Carriage of Goods by Sea Act (Commonwealth Act No. 65)
which provides that:
“x x x the carrier and the ship shall be dischargedfrom 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, x x x ”
This provision of the law admits of an exception: if the one-year period
is suspended by express agreement of the parties. (Chun Kay v. Everett
Steamship Corporation, L-5554, May 27, 1953; Tan Liao v. American President
Lines, Ltd., L-7280, January 20, 1956) For in such a case, their agreement
becomes the law for them. (Phoenix Assurance Co., Ltd. v. United Stated Lines,
22 SCRA 674; Baluyot v. Venegas, 22 SCRA 412; Lazo v. Republic Surety &
Insurance, Co., Inc., 31 SCRA 329; Philippine American General Insurance Co.,
Inc. v. Mutuc, 61 SCRA 22-23)
The exchange of correspondence between the parties and/or their
associates/representatives shows that the parties had mutually agreed to
extend the time within the plaintiff or its predecessors-in-interest may file
suit until December 27, 1976. When the complaint was filed on June 25,
1976, that deadline had not yet expired.
One-year period of prescription under COGSA suspended by
express agreement of the parties.
Benjamin Cua (Cua Uian Tek) v. Wallem Philippines
Shipping, Inc. and Advance Shipping Corporation
G.R. No. 171337, July 11, 2012
FACTS: On November 12, 1990, Cua filed a civil action for damages
against Wallem and Advance Shipping before the Regional

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Trial Court (RTC) of Manila. Cua sought the payment of P2,030,303.52 for
damage to 218 tons and for a shortage of 50 tons of shipment of Brazilian
Soybean consigned to him as evidenced by Bill of Lading No. 10. He claimed
that the loss was due to the respondents’ failure to observe extraordinary
diligence in carrying the cargo. Advance Shipping (a foreign corporation) was
the owner and manager of M/V Argo Trader that carried the cargo, while Wallem
was its local agent.
Advanced Shipping filed a motion to dismiss the complaint, assailing the
RTC’s jurisdiction over Cua’s claim. It argued that Cua’s claim should have first
been brought to arbitration. Cua contended that he, as a consignee, was not bound
by the Charter Party Agreement, which was a contract between the ship owner
(Advance Shipping) and the charterers. Upon motion by Advance Shipping, the
RTC ruled that Cua was not bound by the arbitration clause in the Charter Party
Agreement.
In the meantime, Wallem filed its own motion to dismiss, raising the sole
ground of prescription. Section 3(6) of the Carriage of Goods by Sea Act
(COGSA) provides that “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.” Wallem alleged that the goods were delivered to Cua on
August 16, 1989, but the damage suit was instituted only on November 12, 1990,
more than one year than the period allotted under the COGSA. Since the action
was filed beyond the one-year prescriptive period, Wallem argued that Cua’s
action has been barred.
Cua filed an opposition to Wallem’s motion to dismiss, denying the
latter’s claim of prescription. Cua referred to the August 10, 1990 telex message
sent by Mr. A.R. Filder of Thomas Miller, manager of the UK P&I Club, which
stated that Advance Shipping agreed to extend the commencement of suit for 90
days, from August 14,1990 to November 12, 1990. The extension was made with
the concurrence of the insurer of the vessel, the UK P&I Club. A copy of the
August 10, 1990 telex was supposedly attached to Cua’s opposition.
After trial on the merits, the RTC issued its decision on December 28, 1995,
ordering the respondents jointly and severally liable to pay as

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damages to Cua in the amount of P2,030,000.00, plus interest until the same is
fully paid; the sum of PI 00,000 as attorney’s fees; and the cost of the suit, and
dismissing the counterclaims of the respondents.
The respondents filed an appeal with the Court of Appeals (CA),
insisting that Cua’s claim is arbitrable and has been barred by prescription
and/or laches. The CA found the respondents’ claim of prescription
meritorious after finding that the August 10, 1990 telex message, extending
the period to file an action, was neither attached to Cua’s opposition to
Wallem’s motion to dismiss, nor presented during trial. The CA ruled that
there was no basis for the RTC to conclude that the prescriptive period was
extended by the parties’ agreement. Hence, it set aside the RTC decision and
dismissed Cua’s complaint. Cua filed a motion for reconsideration of the
CA’s decision, which was denied by the CA in a resolution dated January
31,2006. Cua thus filed the present petition to assail the CA rulings.
ISSUE: Whether or not Cua’s claim for payment of damages against the /)
respondents has prescribed. II
.J
HELD: The COGSA is the applicable law for all contracts for carriage of
goods by sea to and from Philippine ports in foreign trade.
It is thus the law that the Court shall consider in the present case since the ■i
cargo was transported from Brazil to the Philippines. Under Section 3(6) of
the COGSA, the carrier is discharged from liability for loss or damage to the
cargo “unless the suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered.” Jurisprudence,
however, recognized the validity of an agreement between the carrier and the
shipper/consignee extending the one-year period to file a claim.
The vessel M/V Argo Trader arrived in Manila on July 8, 1989. Cua’s
complaint for damages was filed before the RTC of Manila on November
12, 1990. Although the complaint was clearly filed beyond the one-year
period, Cua additionally alleged in his complaint (under paragraph 11) that
“the defendants xxx agreed to extend the time for filing of the action up to
November 12,1990”
The allegation of an agreement extending the period to file an action
in Cua’s complaint is a material averment that, under Section 11,

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Rule 8 of the Rules of Court, must be specifically denied by the respondents,

otherwise, the allegation is deemed admitted.
A specific denial is made by specifying each material allegation of fact,
the truth of which the defendant does not admit, and whenever practicable,
setting forth the substance of the matters upon which he relies to support his
denial. The purpose of requiring the defendant to make a specific denial is to
make him disclose the matters alleged in the complaint, which he succinctly
intends to disprove at the trial, together with the mattery which he relied upon
to support the denial
A review of the pleadings submitted by the respondents disclosed that
they failed to specifically deny Cua’s allegation of an agreement extending the
period to file an action to November 12, 1990. Wallem’s motion to dismiss
simply referred to the fact that Cua’s complaint was filed more than one year
from the arrival of the vessel, but it did not contain a denial of the extension.
Advance Shipping’s motion to dismiss, on the other hand, focused solely on its
contention that the action was premature for failure to first undergo arbitration.
While the joint answer submitted by the respondents denied Cua’s allegation of
an extension, they made no further statement other than a bare and unsupported
contention that Cua’s “complaint is barred by prescription and/or laches.” The
respondent did not provide in their joint answer any factual basis for their belief
that the complaint had prescribed.
Given the respondents failure to specifically deny the agreement on the
extension of the period to file an action, the Court considers the extension of the
period as an admitted fact. This presumed admission is further bolstered by the
express admission made by the respondent themselves in their Memorandum.
Notes: Written extrajudicial demand by the creditor does not toll the
running of the one-year prescriptive period imder the Carriage of Goods by Sea
Act. (Dole Philippines, Inc. v. Maritime Company of the Philippines, 148 SCRA 118)
The one-year prescriptive period under Section 3(6) of paragraph 4 of the
Carriage of Goods by Sea Act is not applicable in cases of misdelivery or
conversion. (Ang v. American Steamship Agencies, Inc.. 19 SCRA 123)

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The prescriptive period for suits predicated not upon lost or damage
but on alleged misdelivery or conversion of goods is that found in the New
Civil Code, i.e., either ten years for breach of a written contract or four years
for quasi-delict.
Coverage of the one-year prescriptive period under the Carriage of
Goods by Sea Act includes the insurer of the goods.
Filipino Merchants Insurance Co.,
Inc. v. Hon. Jose Alejandro and Frota
Oceanica Brasiliera
G.R. No. L-54140, October 14,1986
Filipino Merchants Insurance Co., Inc.
v. Hon. Alfredo Benipayo and Australia-
West Pacific Line
G.R. No. L-62001, October 14,1986
FACTS: On August 3, 1977, plaintiff Choa Tiek Seng filed a
complaint, docketed as Civil Case No. 10991, against the petitioner before
the then Court of First Instance of Manila for recovery of a sum of money
under the marine insurance policy on cargo. Mr. Choa alleged that the goods
he insured with the petitioner sustained loss and damage in the amount of
P35,987.26. The vessel SS Frotario that was owned and operated by private
respondent Frota Oceanica Brasiliera (Frota), discharged the goods at the
port of Manila on December 13, 1976. The said goods were delivered to the
arrastre operator E. Razon, Inc., on December 17, 1976 and on the same date
were received by the consignee-plaintiff. On December 19, 1977, the
petitioner filed its amended answer disclaiming the liability, imputing against
the plaintiff the commission of fraud and counterclaiming for damages. On
January 9, 1978, the petitioner filed a third-party complaint against the
carrier, private respondent Frota and the arrastre contractor, E. Razon, Inc.
for indemnity, subrogation, or reimbursement in the event that it is held liable
to the plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar
complaint against the petitioner which was docketed as Civil

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Case No. 110061, for recovery under the marine insurance policy for cargo
alleging that the goods insured with the petitioner sustained loss and damage in
the sum of P55,996.49. The goods were delivered to the plaintiff-consignee on
or about January 25-28,1977.
On May 31, 1978, the petitioner filed its answer. On September 28,
1978, it filed an amended third-party complaint against respondent carrier, the
Australia-West Pacific Line (Australia-West).
In both cases, the private respondents filed their respective answers and
subsequently filed a motion for preliminary hearing on their affirmative
defense of prescription. The private respondents alleged in their separate
answers that the petitioner is already barred from filing a claim because under
the Carriage of Goods by Sea Act, the suit against the carrier must be filed
“within one year after delivery of the goods or the date when the goods should
have been delivered, x x x” The petitioner contended that the provision relied
upon by the respondents applies only to the shipper and not to the insurer of the
goods.
On April 30,1980, the respondent judge in Civil Case No. 109911,
upheld respondent Frota and dismissed the petitioner’s third party complaint.
Likewise, on August 31,1982, the respondent judge in CM Case No. 110061
dismissed the petitioner’s third-party complainant against respondent
Australia-West on the ground that the same was filed beyond the prescriptive
period provided in Section 3(6) of the Carriage of Goods by Sea Act of 1936.
ISSUE: Whether or not the prescriptive period of one year under the said
Act also applies to an insurer such as herein petitioner.
HELD: The lower courts did not err.
Section 3(6) of the Carriage of Goods by Sea Act provides:
“(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

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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 may be 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 the suit within one year after the delivery of the goods or the
date when the goods should have been delivered.
“In the case of any actual or apprehended loss or damage,
the carrier and the receiver shall give all reasonable facilities to
each other for inspecting and tallying the goods. ” (Italics
supplied) (Philippine Permanent and General Statutes, Revised
Edition, Vol. 1, pp. 663-666)
Clearly, the coverage of the Act includes the insurer of the goods.
Otherwise, what the Act intends to prohibit after the lapse of the one- year
prescriptive period can be done indirectly by the shipper or owner of the goods
by simply filing a claim against the insurer even after the lapse of one year. This
would be the result if we follow petitioner’s argument that the insurer can, at
any time, proceed against the carrier and the ship since it is not bound by the
time-bar provision. In this situation, the one-year limitation will be practically
useless. This could not have been the intention of the law which has also for its
purpose the protection of the carrier and the ship from fraudulent claims by
having “matters affecting transportation of goods by sea be decided in as short a
time as possible” and by avoiding incidents which would “unnecessarily extend
the period and permit delays in the settlement

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of questions affecting the transportation.” (See The Yek Tong Fire and
Marine Insurance Co., Ltd. u American President Lines, Inc., 103 Phil.
1125-1126)
In the case at bar, the petitioner’s action has prescribed under the
provisions of the Carriage of Goods by Sea Act. Hence, whether it files a
third-party complaint or chooses to maintain an independent action
against herein respondents is of no moment. Had the plaintiffs in the civil
cases below filed an action against the petitioner after the one-year
prescriptive period, then the latter could have successfully denied
liability on the ground that by their own doing, the plaintiffs had
prevented the petitioner from being subrogated to their respective rights
against the herein respondents by filing a suit after the one-year
prescriptive period. The situation, however, does not obtain in the
present case. The plaintiffs in the civil cases below gave extrajudicial
notice to their respective carriers and filed suit against the petitioner well
within one year from their receipt of the goods. The petitioner had plenty
of time within which to act. In Civil Case No. 109911, the petitioner had
more than four months to file a third-party complaint while in Civil Case
No. 110061, it had more than five months to do so. In both instances,
however, the petitioner failed to file the appropriate action.
Under Section 3(6) of the Carriage of Goods by Sea Act, only the
carrier’s liability is extinguished if no suit is brought within one
year.

Mayer Steel Pipe Corporation and Hongkong

Government Supplies Department v.
Court of Appeals, South Sea Surety
and Insurance Co., Inc. and Charter
Insurance Corporation
274 SCRA 432 (1997)
FACTS: In 1983, petitioner Hongkong Government Supplies
Department (Hongkong) contracted petitioner Mayer Steel Pipe
Corporation (Mayer) to manufacture and supply various steel pipes and
fittings. From August to October 1983, Mayer shipped the pipes

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( AKUI A<il Ol ( i< )ODS I lY SI {A ACT

and Idlings to Hongkong as evidenced by Invoice Nos. MSFC-JOM, MSIV-1015,

MSKM020, MSPC1017 and MSI,C-I022. Prior to the shipping, petitioner Mayer
insured the pipes and fittings against all risks with private respondents South Sea
Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter).
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection
(International), Inc., as third-party inspector to examine whether the pipes and
fittings arc manufactured in accordance with the specifications in the contract.
Industrial inspection certified all the pipes and fittings to be in good order condition
before they were loaded in the vessel. Nonetheless, when the goods readied
Hongkong, it was discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the
insurance contract. Respondent Charter paid petitioner Hongkong the amount of
HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor’s report allegedly
showed that the damage is a factory defect. On April 17,1986, petitioners filed an
action against private respondents to recover the sum of HK$299,345.30. For their
defense, private respondents averred that they have no obligation to pay the amount
claimed by petitioners because the damage to the goods is due to factory defects,
which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the
goods is not due to manufacturing defects. It also noted that the insurance contracts
executed by petitioner Mayer and private respondents are “all risks” policies, which
insure against all causes of conceivable loss or damage. The only exceptions are
those excluded in the policy, or those sustained due to fraud or intentional
misconduct on the part of the insured.
Respondent court affirmed the finding of the trial court that the damage is not
due to factory defect and that it was covered by the “all risk” insurance policies
issued by private respondents to petitioner Mayer. However, it set aside the
decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of
Goods by Sea Act since it was filed only on April 17, 1986, more than two years
from the time

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(he goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods
by Sea Act provides that “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.”
Respondent court ruled that this provision applies not only to the carrier but also
to the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro.
ISSUE: Whether or not petitioner’s cause of action had already
prescribed under Section 3(6) of the Carriage of Goods by Sea Act in the light of
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42).
HELD: No. The petition is impressed with merit. Respondent court erred
in applying Section 3(6) of the Carriage of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to the goods
if no suit is filed within one year after delivery of the goods or the date when they
should have been delivered. Under this provision, only the carrier’s liability is
extinguished if no suit is brought within one year. But the liability of the insurer is
not extinguished because the insurer’s liability is based not on the contract of
carriage but on the contract of insurance. A close reading of the law reveals that
the Carriage of Goods by Sea Act governs the relationship between the carrier on
the one hand and the shipper, the consignee and/or the insurer on the other hand.
It defines the obligation of the carrier under the contract of carriage. It does not,
however, affect the relationship between the shipper and the insurer. The latter
case is governed by the Insurance Code.

Mayer Steel Pipe Corporation Case compared to Filipino Merchants’

case
The ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and
the other cases cited therein does not support respondent court’s view that the
insurer’s liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the

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I

shipper filed a complaint against the insurer for recovery of a sum of money as
indemnity for the loss and damage sustained by the insured goods. The insurer, in
turn, filed a third-party complaint against the carrier for reimbursement of the
amount it paid to the shipper. The insurer filed the third-party complaint on January
9, 1978, more than one year after delivery of the goods on December 17, 1977. The
court held that the insurer was already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit against the carrier must be
filed within one year after delivery of the goods or the date when the goods should
have been delivered. The court said, “The coverage of the Act includes the insurer of
the goods.”
The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer, which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it was the
shipper, which filed a claim against the insurer. The basis of the shipper’s claim is the
“all risks” insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier
filed either by the shipper, the consignee or the insurer. When the court said in
Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to
the insurer, it meant that the insurer, like the shipper, may no longer file a claim
against the carrier beyond the one-year period provided in the law. But it does not
mean that the shipper may no longer file a claim against the insurer because the basis
of the insurer’s liability is the insurance contract. An insurance contract is a contract
whereby one party, for a consideration known as the premium, agrees to indemnify
another for loss or damage, which he may suffer from a specified peril. An “all risks”
insurance policy covers all kinds of loss other than those due to willful and fraudulent
act of the insured. Thus, when private respondents issued the “all risks” policies to
petitioner Mayer, they bound themselves to indemnify the latter in case of loss or
damage to the goods insured. Such obligation prescribes in ten years, in accordance
with Article 1144 of the New Civil Code.

An amended complaint filed beyond the one-year prescriptive period under

Section 3(6) of COGSA against the party impleaded

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for the first time is barred by prescription the filing of the amended
complaint does not retroact to the date of the filing of the original
complaint.

Wallem Philippines Shipping, Inc.

v. S.R. Farms, Inc.
G.R. No. 161849, July 9, 2010
FACTS: On March 25,1992, Continental Enterprises, Ltd. loaded on
board the vessel M/V “Hui Yang” at Bedi Bunder, India, a shipment of Indian
Soya Bean Meal, for transportation and delivery to Manila, with plaintiff
(herein respondent) as consignee/notify party. The said shipment is said to
weigh 1,100 metric tons and covered by Bill of Lading No. BEDI dated March
25, 1992 (Exhibit “A”, also Exhibit “1”). The vessel is owned and operated by
defendant Conti-Feed with defendant (herein petitioner) Wallem as its ship
agent. On April 11, 1992, the said vessel, M/V “Hui Yang” arrived at the port
of Manila, Pier 7, South Harbor. Thereafter, the shipment was discharged and
transferred into the custody of the receiving barges, the NorthFront-333 and
NorthFront-444. The offloading of the shipment went on until April 15, 1992
and was handled by Ocean Terminal Services, Inc. (OTSI) using its own
manpower and equipment, and without the participation of the crewmembers
of the vessel. All throughout the entire period of unloading operation, good and
fair weather condition prevailed. At the instance of the plaintiff, a cargo check
of the subject was made by one Lorenzo Bituin of Eme Maritime and Allied
Services, Co. Inc., who noted a shortage in the shipment, which was placed at
80.467 metric tons based on draft survey made on the NorthFront-333 and
NorthFront-444 showing that the quantity of cargo unloaded from the vessel
was only 1019.53 metric tons. Thus, per the bill of lading, there was an
estimated shortage of 80.467. Upon discovery thereof, the vessel chief officer
was immediately notified of the said short shipment by the cargo surveyor, who
accordingly issued the corresponding Certificate of Discharge dated April 15,
1992.
On May 8, 1993, plaintiff then filed a Complaint for damages against
Conti-Feed & Maritime Pvt. Ltd., a foreign corporation doing business in
the Philippines and the owner of MW “Hui Yang,” RCS

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Shipping Agencies, Inc., the ship agent of Conti-Feed, Ocean Terminal

Services, Inc. (OTSI), the arrastre operator at Anchorage No. 7, South
Harbor, Manila, and Cargo Trade, the customs broker. On June 7, 1993,
respondent filed an Amended Complaint impleading herein petitioner as
defendant, alleging that the latter, and not RCS, was the one which, in
fact, acted as Conti-Feed’s ship agent. On October 8, 1999, the RTC
rendered its decision dismissing respondent’s complaint, as well as the
opposing parties’ counterclaims and cross-claims. Aggrieved by the
RTC’s decision, respondent filed an appeal with the CA.
On June 2, 2003, the CA rendered its presently assailed decision,
REVERSED and SET ASIDE the RTC decision, and another one entered
ordering defendants-appellees Conti-Feed and Maritime PVT, Ltd. and
Wallem Philippines Shipping, Inc. to pay the sum representing the value
of 80.467 metric tons of Indian Soya Beans short delivered, with legal
interest from the time the judgment becomes final until full payment, plus
attorney’s fees and expenses of litigation of PI 0,000.00, as well as the cost
of suit.
ISSUE: Whether or not the case was already time-barred when the
case was filed as provided in Section 3(6) of the COGSA.
HELD: With respect to the prescriptive period involving claims
arising from shortage, loss of or damage to cargoes sustained during
transit, the law the governs the instant case is the Carriage of Goods by
Sea Act (COGSA), Section 3(6) of which provides: “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 or at the time
of the removal ofthe 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 delivery.99 Said notice of loss or
damage may be 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 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

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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. In the case of any actual or
apprehended loss or damage, the carrier and the receiver shall give all
reasonable facilities to each other for inspecting and tallying the goods.
Petitioner claims that pursuant to the abovecited provision, respondent should
have filed its Notice of Loss within three days from delivery. It asserts that the
cargo was fully discharged from the vessel on April 15, 1992, but the
respondent failed to file any written notice of claim. Petitioner also avers that,
pursuant to the same provision of the COGS A, respondent’s claim had already
prescribed because the complaint for damages was filed more than one year
after shipment was discharged. The Court agrees.
Under Section 3(6) of the COGS A, notice of loss or damages must be
filed within three days of delivery. Admittedly, respondent did not comply with
the provision. Under the same provisions, however, failure to file a notice of
claim within three days will not bar recovery if a suit is nonetheless filed within
one year from delivery of the goods or from the date when the goods should
have been delivered. Inasmuch as neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the matter, the COGSA,
which provides for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit may be applied suppletorily to the
case at bar.
In the instant case, the Court is not persuaded by respondent’s claim that
the complaint against petitioner was timely filed. Respondent argues that the
suit for damages was filed on March 11, 1993, which is within one year from
the time the vessel carrying the subject cargo arrived at the Port of Manila on
April 11, 1992, or from the time the shipment was completely discharged from
the vessel on April 15,1992. There is no dispute that the vessel carrying the
shipment arrived at the Port of Manila on April 11, 1992, and that the cargo
was completely discharged therefrom on April 15, 1992. However, respondent
erred in arguing that the complaint for damages, insofar as the petitioner is

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concerned, was filed on March 11, 1993. As the records would show,
petitioner was not impleaded as a defendant in the original complaint filed on
March 11, 1993. Respondent cannot argue that the filing of the Amended
Complaint against petitioner should retroact to the date of the filing of the
original complaint. The settled rule is that the filing of an amended pleading
does not retroact to the date of the filing of the original, hence, the statute of
limitation runs until the submission of the amendment. It is true that, as an
exception, this Court has held that an amendment, which merely supplements
and amplifies facts originally alleged in the complaint, relates back to the
date of the commencement of the action and is not barred by the statute of
limitation, which expired after the service of the original complaint. The
exception, however, would not apply to the party impleaded for the first time
in the amended complaint.
In the instant case, petitioner was only impleaded in the amended
complaint of June 7, 1993, or one year, one month and 23 days from April 15,
1992, the date when the subject cargo was fully unloaded from the vessel.
Hence, reckoned from April 15, 1992, the one-year prescriptive period had
already lapsed.

New World International Development (Phils.), Inc. v.

NYK Fil-Japan Shipping Corporation, et al
G.R. No. 171468, August 24, 2011
New World International Development (Phils.), Inc. v.
Seaboard-Eastern Insurance Co., Inc.
G.R. No. 174241
FACTS: Petitioner New World International Development Philippines,
Inc. (New World) bought from DMT Corporation (DMT) through its agent,
Advatech Industries, Inc. (Advatech) three emergency generator sets worth
US$721,500.00. DMT shipped the generator sets by truck from Wisconsin,
United States, to LEP Profit International, Inc. (LEP Profit) in Chicago,
Illinois. From there, the shipment went by train to Oakland, California, where
it was loaded on S/S California Luna V59, owned and operated by NYK
Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World
in

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Manila. NYK issued a bill of lading, declaring that it received the goods in good
condition. NYK unloaded the shipment in Hong Kong and transshipped it to S/S
ACX Ruby v/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon “Kading,” whose captain filed a sea
protest on arrival at the Manila South Harbor on October 5,1993, respecting the
loss and damage that the goods on board his vessel suffered. An examination of
the three generator sets in the presence of petitioner New World’s
representatives revealed that all sets suffered extensive damage and could no
longer be repaired. For these reasons, New World demanded recompense for its
loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International
Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK
acknowledged receipt of the demand, both denied liability for the loss. Since
Seaboard covered the goods with a marine insurance policy, petitioner New
World sent it a formal claim dated November 16, 1993. Replying on February
14, 1994, Seaboard required petitioner New World to submit to it and itemized
list of the damaged units, parts, and accessories, with corresponding values, for
the processing of the claim. But petitioner New World did not submit what was
required of it, insisting that the insurance policy did not include the submission
of such a list in connection with an insurance claim. Reacting to this, Seaboard
refused to process the claim.
On October 11,1994, petitioner New World filed an action for specific
performance and damages against all the respondents before the Regional Trial
Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770. On August 16,
2001, the RTC rendered a decision absolving the various respondents from
liability with the exception of NYK. The RTC found that the generator sets were
damaged during transit while in the care of NYK’s vessel, ACX Ruby. The RTC
ruled, however, that petitioner New World filed its claim against the vessel
owner NYK beyond the one-year provided under the Carriage of Goods by Sea
Act (COGSA). New World filed its complaint on October 11, 1994, when the
deadline for filing the action (on or before October 7, 1994) had already lapsed.
The RTC held that the one-year period should be counted from the date the
goods were delivered to the arrastre operator and not from the date they were
delivered to petitioner’s job site. As

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regards petitioner New World’s claim against Seaboard, its insurer, the RTC held
that the latter couldn’t be faulted for denying the claim against ii since New World
refused to submit the itemized list that Seaboard needed for assessing the damage to
the shipment. Likewise, the belated filing of the complaint prejudiced Seaboard’s
right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) held that petitioner New World can
still recoup its loss from Seaboard’s marine insurance policy considering that a) the
submission of the Itemized listing is an unreasonable imposition, and b) the
one-year prescriptive period under COGS A did not affect New World’s right under
the insurance policy since it was the Insurance Code that governed the relation
between the insurer and the insured. Although petitioner New World promptly filed
a petition for review of the CA decision before the Court in G.R. 171468, Seaboard
chose to file a motion for reconsideration of that decision. On August 17,2006, the
CA rendered an amended decision, reversing itself as regard the claim against
Seaboard. The CA held that the submission of the itemized listing was a reasonable
requirement that Seaboard asked of New World. Further, CA held that the one-year
prescriptive period for maritime claims applied to Seaboard, as insurer and
subrogee of New World’s right against the vessel owner. New World’s failure to
comply promptly with what was required of it prejudiced such right.
ISSUE: Whether or not the CA erred in failing to rule that the one-year
COGSA prescriptive period for marine claims does not apply to petitioner New
World’s prosecution of its claim against Seaboard, its insurer.
HELD: Regarding prescription of claims, Section 3(6) of the COGSA
provides that the carrier and the ship shall be discharged from all liability in case
of loss or damage, unless the suit is brought within one year after delivery of the
goods or the date when the goods should have been delivered. But whose fault
was it that the suit against NYK, the common carrier, was not brought to court
on time? The last day for filing such a suit fell on October 7, 1994. The record
shows that petitioner New World filed its formal claim for its loss with
Seaboard, its insurer, a remedy it had the right to take, as early as November 16,
1993, or about 11 months before the suit against NYK would have

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fallen due. In the ordinary course, if Seaboard had processed that claim and
paid the same, Seaboard would have been subrogated to petitioner New
World’s right to recover from NYK. And it could have then filed the suit as a
subrogee. But, as discussed above, Seaboard made an unreasonable demand on
February 14, 1994 for an itemized list of the damaged units, part, and
accessories, with corresponding values when it appeared settled that New
World’s loss was total and when the insurance policy did not require the
production of such list in the event of a claim. Besides, when petitioner New
World declined to comply with the demand for the list, Seaboard against whom
a formal claim was pending should not have remained obstinate in refusing to
process that claim. It should have examined the same, found it unsubstantiated
by documents if that were the case, and formally rejected it. That would have at
least given petitioner New World a clear signal that it needed to promptly file
its suit directly against NYK and the others. Ultimately, the fault for the
delayed court suit could be brought to Seaboard’s doorstep.

It has been held that not only the shipper, but also the consignee or legal
holder of the bill may invoke the prescriptive period. However, the
COGSA does not mention that an arrastre operator may invoke the
prescriptive period of one year; hence, it does not cover the arrastre
operator.
Insurance Company of North America v.
Asian Terminals, Inc.
G.R. No. 180784, February 15, 2012
FACTS: On November 9, 2002, Macro-Lite Korea Corporation shipped
to San Miguel Corporation, through M/V “DIMI P” vessel, 185 packages
(231,000 sheets) of electrolytic tin free steel, complete and in good order
condition, and covered by a Bill of Lading. The shipment had a declared value
of US$169,850.35 and was insured with petitioner Insurance Company of
North America against all risks. The carrying vessel arrived at the port of
Manila on November 19, 2002, and when the shipment was discharged
therefrom, it was noted that seven packages thereof were damaged and in bad
order. The shipment was then turned over to the custody of respondent Asian
Terminals, Inc. (ATI) on November 21, 2002 for storage and safekeeping
pending its

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withdrawal by the consignee’s authorized customs broker, R.V. Marzan

Brokerage Corporation (Marzan). On November 22, 23, and 29, 2002, the
subject shipment was withdrawn by Marzan from the custody of respondent.
On November 29, 2002, prior to the last withdrawal of the shipment, a joint
inspection of the said cargo was conducted per the Request for Bad Order
Survey, dated November 29, 2002, and the examination report, which was
written on the same request, showed that an additional five packages were
found to be damaged and in bad order. On January 6, 2003, the consignee,
San Miguel Corporation, filed separate claims against respondent and
petitioner for the damage to 11,200 sheets of electrolytic tin free steel.
Petitioner engaged the services of an independent adjuster/ surveyor,
BA McLarens Philippines, Inc., to conduct an investigation and evaluation
on the claim and to prepare the necessary report. BA McLarens Philippines,
Inc., submitted to petitioner a Survey Report, dated January 22, 2003, and
another report, dated May 5, 2003, regarding the damaged shipment. It noted
that out of the reported 12 damaged skids, nine of them were rejected and
three skids were accepted by the consignee’s representative as good order.
BA McLarens Philippines, Inc., evaluated the total cost of damage to the
nine rejected skids (11,200 sheets of electrolytic tin free steel) to be
P431,592.14. The petitioner, as insurer of the said cargo, paid the consignee
the amount of P431,592.14 for the damage caused to the shipment, as
evidenced by the Subrogation Receipt, dated January 8, 2004. Therefore,
petitioner, formally demanded reparation against respondent. As respondent
failed to satisfy its demand, petitioner filed an action for damages with the
Regional Trial Court (RTC) of Makati City.
The trial court dismissed the complaint on the ground that the petitioner’s claim
was already barred by the statute of limitations.
It held that Carriage of Goods by Sea Act (COGSA) embodied in
Commonwealth Act (CA) No. 65 applies to this case, since the goods were
shipped from a foreign port to the Philippines. The trial court stated that
under the said law, particularly paragraph 4, Section 3(6) thereof, the
shipper has the right to bring a suit within one year after the delivery of the
goods, or the date when the goods should have been delivered, in respect
of loss or damage thereto.

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The trial court held: “In case at bar, the records show that the
shipment was delivered to the consignee on 22, 23 and 29, of November
2002. The plaintiff took almost a year to approve and pay the claim of its
assured, San Miguel, despite the fact that it had initially received the
latter’s claim, as well as the inspection report and survey report of
McLarens, as early as January 2003. The assured/consignee had only until
November of2003 within which to file a suit against the defendant.
However, the instant case was filed only on September 7, 2005 or almost
three (3) years from the date the subject shipment was delivered to the
consignee. The plaintiff, as insurer of the shipment, which has paid the
claim of the insured, is subrogated to all the rights of the said insured in
relation to the reimbursement of such claim. As such, the plaintiff cannot
acquire better rights than that of the insured. Thus, the plaintiff has no one
but itself to blame for having acted lackadaisically on San Miguel s claim. ”
ISSUE: Whether or not the one-year prescriptive period for filing a suit
under the COGS A applies to an arrastre operator.
HELD: It is noted that the term “carriage of goods” covers the period
from the time when the goods are loaded to the time when they are discharged
from the ship; thus, it can be inferred that the period of time when the goods have
been discharged from the ship, and given to the custody of the arrastre operator,
is not covered by the COGSA. 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:
Paragraph 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

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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 eoods
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
providedfor 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.
From the provision above, the carrier and the ship may put up the defense
of prescription if the action for damages is not brought within one year after the
delivery of the goods or the date when the goods should have been delivered. It
has been held that not only the shipper but also the consignee or legal holder of
the bill may invoke the prescriptive period. However, the COGSA does not
mention that an arrastre operator may invoke the prescriptive period of one year;
hence, it does not cover the arrastre operator.

Domingo Ang v. Compania Maritima,

Maritime Company of the Philippines
and C.L. Diokno
G.R. No. L-30805, December 26,1984
FACTS: In the instant case, Ang on September 26, 1963, as the assignee
of a bill of lading held by Yau Yue Commercial Bank, Ltd. of Hongkong, sued
Compania Maritima, Maritime Company of the Philippines and C.L. Diokno. He
prayed that the defendant be ordered to pay him solidarily the sum of
US$130,539.68 with interest from February 9, 1963 plus attorney’s fees and
damages. Ang alleged that Yau Yue Commercial Bank agreed to sell to
Herminio G. Teves under certain conditions 559 packages of galvanized steel,
Durzine sheets. The merchandise was loaded on May 25, 1961 at Yawata, Japan
in the M/S Luzon, a vessel owned and operated by the defendants, to be
transported to Manila and consigned “to order” of the shipper, Tokyo Boeki,
Ltd., which indorsed the bill of lading issued by Compania Maritima to the order
of Yau Yue Commercial Bank. Ang further alleged that the defendants, by
means of permit to deliver imported articles, authorized the delivery of the cargo
to Teves who obtained delivery from the

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Bureau of Customs without the surrender of the bill of lading and in violation of
the terms thereof. Teves dishonored the draft drawn by Yau Yue against him. The
Hongkong and Shanghai Banking Corporation made the corresponding protest
for the draft’s dishonor and returned the bill of lading to Yau Yue. The bill of
lading was indorsed to Ang.
The defendants filed a motion to dismiss Ang’s complaint on the ground
of lack of cause of action. Ang opposed the motion. The trial court on May 22,
1964 dismissed the complaint on the grounds of lack of cause of action and
prescription since the action was filed beyond the one-year period provided in the
Carriage of Goods by Sea Act.
ISSUE: Whether or not the action has prescribed under Section 3(6) of
the Carriage of Goods by Sea Act.
HELD: In the American Steamship Agencies cases, it was held that the
action of Ang is based on misdelivery of the cargo which should be distinguished
from loss thereof. The one-year period provided for in Section 3(6) of the
Carriage of Goods by Sea Act refers to loss of the cargo. What is applicable is the
four-year period of prescription for quasi-delicts prescribed in Article 1146(2) of
the Civil Code or 10 years for violation of a written contract as provided for in
Article 1144(1) of the same Code.
As Ang filed the action less than three years from the date of the alleged
misdelivery of the cargo, it has not yet prescribed. Ang, as indorsee of the bill of
lading, is a real party-in-interest with a cause of action for damages.

The prescriptive period of one year under Section 3(6) of COGSA will not
apply to damages caused to the shipper’s goods in the general sense.

Mitsui O.S.K. Lines Ltd. v. Court of Appeals

and Lavine Loungewear Mfg. Corp.
G.R. No. 119571, March 11,1998
FACTS: Petitioner Mitsui O.S.K. Lines Ltd., is a foreign corporation
represented in the Philippines by its agent, Magsaysay Agencies.
It entered into a contract of carriage through Meister Transport, Inc.,

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an international freight forwarder, with private respondent Lavine Loungewear

Manufacturing Corporation to transport goods of the latter from Manila to Le
Havre, France. Petitioner undertook to deliver the goods to France 28 days from
initial loading. On July 24, 1991, petitioner’s vessel loaded private respondent’s
container van for carriage at the said port of origin. However, in Kaoshiung,
Taiwan the goods were not transhipped immediately, with the result that the
shipment arrived in Le Havre only on November 14, 1991. The consignee
allegedly paid only half of the value of the said goods on the ground that they did
not arrive in France until the “off season” in that country. The remaining half was
allegedly charged to the account of private respondent, which in turn demanded
payment from petitioner through its agent. As petitioner denied private
respondent’s claim, the latter filed a case in the Regional Trial Court on April 14,
1992. In the original complaint, private respondent impleaded as defendants
Meister Transport, Inc. and Magsaysay Agencies, Inc., the latter as agent of
petitioner Mitsui O.S.K. Lines Ltd. On May 20, 1993, it amended its complaint by
impleading petitioner as defendant in lieu of its agent. The parties to the case thus
became private respondent as plaintiff, on one side, and Meister Transport, Inc.
and petitioner Mitsui O.S.K. Lines Ltd., as represented by Magsaysay Agencies,
Inc., as defendants on the other.
Petitioner filed a motion to dismiss alleging that the claim against it had
prescribed under the Carriage of Goods by Sea Act. The Regional Trial Court,
denied petitioner’s motion as well as its subsequent motion for reconsideration.
On petition for certiorari, the Court of Appeals sustained the trial court’s orders.
ISSUE: Whether or not private respondent’s action is for “loss or damage”
to goods shipped, within the meaning of Section 3(6) of the Carriage of Goods by
Sea Act (COGSA).
HELD: In Angv. 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 Section 3(6) of
the COGSA. It was held that there was no loss because the goods had simply been
misdelivered. “Loss” refers

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to the deterioration or disappearance of goods. As defined in the Civil Code and

as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act,
“loss ” contemplates merely a situation where no delivery at all was made by
the shipper of the goods because the same had perished, gone out of commerce,
or disappeared in such a way that their existence is unknown or they cannot be
recovered. Conformably with this concept of what constitutes “loss” or
“damage,” this 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. Whatever damage or injury is suffered by the goods while in transit
would result in loss or damage to either the shipper or the 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 abovequoted provision of the Carriage of Goods by Sea Act.
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 concludes by holding that as the suit below is not for “loss or
damage” to goods contemplated in Section 3(6), the question of prescription
of action is governed not by the COGSA but by

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Article 1144 of the Civil Code which provides for a prescriptive period of ten years.

International Container Terminal Services,

Inc. v. Prudential Guarantee and Assurance Co., Inc.
G.R. No. 134514, December 8,1999
HELD: The legal relationship between an arrastre operator and a consignee
is akin to that between a warehouseman and a depositor. As to both the nature of the
functions and the place of their performance, an arrastre operator’s services are
clearly not maritime in character.
In a claim for loss filed by a consignee, the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves
upon the arrastre operator. Since the safekeeping of the goods rests within its
knowledge, it must prove that the losses were not due to its negligence or that of its
employees.
“Shipper’s Load and Count. ” This means that the shipper was solely
responsible for the loading of the container, while the carrier was oblivious to the
contents of the shipment. Protection against pilferage of the shipment was the
consignee’s lookout. The arrastre operator was, like any ordinary depositary,
duty-bound to take good care of the goods received from the vessel and to turn the
same over to the party entitled to their possession, subject to such qualifications as
may have validly been imposed in the contract between the parties. The arrastre
operator was not required to verify the contents of the container received and to
compare them with those declared by the shipper because, as earlier stated, the cargo
was at the shipper’s load and count. The arrastre operator was expected to deliver to
the consignee only the container received from the carrier.
Belgian Overseas Chartering and Shipping N.V. v.
Philippine First Insurance Co., Inc.
G.R. No. 143133, June 5, 2002
FACTS: On June 13, 1990, CMC Trading A.G. shipped on board the MV
Anangel Sky at Humburg, Germany 242 coils of various Prime Cold Rolled Steel
sheets for transportation to Manila consigned to the

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Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky
arrived at the port of Manila and within the subsequent days discharged the
subject cargo. Four coils were found to be in bad order B.O. Tally Sheet No.
154974. Finding the four coils in their damaged state to be unfit for the
intended purpose, the consignee Philippine Steel Trading Corporation declared
the same as total loss.
“Despite receipt of a formal demand, defendants-appellees refused to
submit to the consignee’s claim. Consequently, plaintiff-appellant paid the
consignee five hundred six thousand eighty six & 50/100 pesos
(Php506,086.50) and was subrogated to the latter’s rights and causes of action
against defendant-appellees. Subsequently, plaintiff-appellant instituted this
complaint for recovery of the amount paid by them to the consignee as insured.
Defendants-appellees argued that their liability, if there be any, should not
exceed the limitations of liability provided for in the bill of lading and other
pertinent laws.”
ISSUE: Whether or not the “PACKAGE LIMITATION” of liability
under Section 4(5) of COGSA is applicable to the case at bar.
HELD: There was no stipulation in the Bill of Lading limiting the
carrier’s liability. Neither did the shipper declare a higher valuation of the
goods to be shipped. This fact notwithstanding, the insertion of the words “L/C
No. 90/02/2447” cannot be the basis for petitioners’ liability.
First, a notation in the Bill of Lading, which indicated the amount of the
Letter of Credit obtained by the shipper for the importation of steel sheets, did
not effect a declaration of the value of the goods as required by the bill. That
notation was made only for the convenience of the shipper and the bank
processing the Letter of Credit.
Second, in Keng Hua Paper Products v. Court of Appeals, [the
Court] held that a bill of lading was separate from the other Letter of Credit
arrangements.
“The contract of carriage, as stipulated in the bill of lading in the
present case, must be treated independently of the contract of sale between
the seller and the buyer, and the contract of issuance of a letter of credit
between the amount of goods described in the commercial

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invoice in the contract of sale and the amount allowed in the letter of credit will not
affect the validity and enforceability of the contract of carriage as embodied in the
bill of lading. As the bank cannot be expected to look beyond the documents
presented to it by the seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the bill of lading and to
verify their accuracy vis-a-vis the commercial invoice, and the letter of credit. Thus,
the discrepancy between the amount of goods indicated in the invoice and the
amount in the bill of lading cannot negate petitioner’s obligation to private
respondent arising from the contract of transportation.
In the light of the foregoing, petitioners’ liability should be computed based
on US$500 per package and not on the per metric ton price declared in the Letter of
Credit. Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, explained
the meaning of package:
“When what would ordinarily be considered packages are shipped in a
container supplied by the carrier and the number of such units is disclosed in
the shipping documents, each of those units and not the container constitutes
the ‘package’ referred to in the liability limitation provision of Carriage of
Goods by Sea Act.”
Considering, therefore, the ruling in Eastern Shipping Lines and the fact
that the Bill of Lading clearly disclosed the contents of the containers, the number
of units, as well as the nature of the steel sheets, the four damaged coils should be
considered as the shipping unit subject to the US$500 limitation. In the case of
UCPB General Insurance Co., Inc. v. Aboitiz Shipping Corp., Eagle Express
Lines, DAMCO Intermodal Services, Inc., and Pimentel Customs Brokerage
Co., G.R. No. 168433, February 10,2009, the Supreme Court in denying the
petition for certiorari of UCPB Gen. Ins. Co., interestingly applied Article 366 of
the Code of Commerce which apply to overland, river and maritime
transportation.
Article 366 of the Code of Commerce states that within 24 hours following
the receipt of the merchandise, the claim against the carrier for damage or average
which may be found therein upon opening the

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packages, may be made provided that the indications of the damage or average
which gives rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the time of
receipt.
After the periods mentioned have elapsed, or the transportation charges
have been paid, no claim shall be admitted against the carrier with regard to the
condition in which the goods transported were delivered. The shipment in this
case was received by SMC on August 2, 1991. However, as found by the Court
of Appeals, the claims were dated October 30, 1991, more than three months
from receipt of the shipment and, at that, even after the extent of the loss had
already been determined by SMC’s surveyor. The claim was, therefore, clearly
filed beyond the 24-hour time frame prescribed by Article 366 of the Code of
Commerce. Pursuant to an insurance agreement, petitioner paid SMC the
amount of PI,703,381.40 representing the value of the damaged unit. In turn,
SMC executed a Subrogation Form dated March 31,1992 in favor of
plaintiff-appellee.
Consequently, petitioners filed a Complaint on July 21, 1992 as
subrogee of SMC seeking to recover from defendants the amount it had paid
SMC. On September 20, 1994, petitioner moved to admit its Amended
Complaint whereby it impleaded East Asiatic Co. Ltd. (EAST for brevity) as
among the defendants for being the “general agent” of DAMCO. In its Order
dated September 23, 1994, the lower court admitted the said amended
complaint.
The Supreme Court held:
The law clearly requires that the claim for damages or average
must be made within 24 hours from receipt of the merchandise if, as
in this case, damage cannot be ascertained merely from the outside
packaging of the cargo.
In Philippine Charter Insurance Corporation v. Chemoil Lighterage
Corporation (462 SCRA 75, June 29, 2005), petitioner, as subrogee of
Plastic Group Phil., Inc. (PGP), filed suit against respondent’s barge.
Respondent claimed that no timely notice in accordance with Article 366
of the Code of Commerce was made by

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petitioner because an employee of PGP merely made a phone call to

respondent’s Vice President, informing the latter of the contamination of the
cargo. The Court ruled that the notice of claim was not timely made or
relayed to respondent in accordance with Article 366 of the Code of
Commerce.
The requirement to give notice of loss or damage to the goods is not an empty
formalism. The fundamental reason or purpose ofsuch a stipulation is not to relieve
the carrier from just liability, but reasonably to inform it that the shipment has been
damaged and that it is charged with liability therefore, and to give it an opportunity
to examine the nature and extent of the injury. This protects the carrier by affording
it an opportunity to make an investigation of a claim while the matter is still fresh
and easily investigated so as to safeguard itselffrom false and fraudulent claims.
(Philamgen Ins. Co., Inc. v. Sweetlines, Inc., 212 SCRA 194, August 5, 1992)
It was construed the 24-hour claim requirement as a condition precedent to the
accrual of a right of action against a carrier for loss of, or damage to, the goods. The
shipper or consignee must allege and prove the fulfillment of the condition.
Otherwise, no right of action against the carrier can accrue in favor of the former.
In the light of the above pronouncement of the Supreme Court, a
question may be asked whether or not Article 366 of the Code of Commerce
is superior to the provision of Section 3(6) of the Carriage of Goods by Sea
Act or in case of conflict between Article 366 of the Code of Commerce and
Section 3(6) of COGSA, which one will prevail.
Section 3(6) of the Carriage of Goods by Sea Act discussed in passing
in the above case provides:
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 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.

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Said notice of loss or damage may be endorsed upon the receipt of 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 its
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 providedfor 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.
In the case of any actual or apprehended loss or damage the carrier and
the receiver shall give all reasonable facilities to each other for inspecting and
tallying the goods. It is clear from the above given provision of COGSA that it
provides a similar claim mechanism as provided in Article 366 of the Code of
Commerce but prescribes a period of three days within which notice of claim
must be given if the loss or damage is not apparent. In fact, if this notice or
claim was neglected by the shipper or owner of the goods, he may still hold the
carrier and the ship liable provided that he filed a suit within one year after
delivery of the goods or the date when the goods should have been delivered.
Apparently, this provision of COGSA was not raised as an issue in the UCPB
case.
It must be emphasized that the Carriage of Goods by Sea Act (CA No.
65) is a special law but it cannot be construed as repealing or limiting any
provision of the Code of Commerce. (Section l, CA 65) Hence, it can operate
as suppletory law to the Code of Commerce, supplying the deficiencies thereof
relating to contracts of carriage of goods by sea in foreign trade.
But supposing Mr. A consignee received the shipment on March 1,
2010 but discovered that there were damaged articles on the shipment on
March 2,2010. Mr. A did not file a claim against X Shipping Co., but went
directly to the insurer Y Ins. Co., who paid the insured item one month later.
Upon receipt of the subrogation letter, Y Ins. Co., instituted

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an action for damages against X Shipping Co. invoking Section 3(6) of COGSA.
X Shipping Co., filed a motion to dismiss on the ground of failure to comply with
Article 366 of the Code of Commerce. Will the action of Y Ins. Co. prosper? In
other words, there are two statutes now in conflict with each other.
Courts of justice, when confronted with apparently conflicting statutes,
should endeavor to reconcile the same instead of declaring outright the invalidity
of one against the other. Such alacrity should be avoided. The wise policy is for
the judge to harmonize them if this is possible, bearing in mind that they are
equally the handiwork of the same legislature, and so to give effect to both while
at the same time also accorded due respect to a coordinate department of the
government. (Gordon v. Veridiano, 167 SCRA 51)
But then, the two statutes cannot be applied in the given problem.
Following the rule on statutory construction that a special law prevails over the
general law regardless of their dates of passage, and the special law is to be
considered as a remaining exception to the general law, it is submitted that
Section 3(6) of the COGSA should prevail over Article 366 of the Code of
Commerce, which is a general law.

Philippine Charter Insurance Corporation v.

Neptune Orient Lines/Overseas Agency Services, Inc.
G.R. No. 145044, June 12, 2008
FACTS: On September 30, 1993, L.T. Garments Manufacturing
Corporation, Ltd., shipped from Hong Kong three sets of warp yam on returnable
beams aboard respondent Neptune Orient Lines’ vessel, M/V Baltimar Orion, for
transport and delivery to Fukuyama Manufacturing Corporation (Fukuyama) of
No. 7 Jasmin Street, AUV Subdivision, Metro Manila. The said cargoes were
loaded in Container No. IEAU- 4592750 in good condition under Bill of Lading
No. HKG-0396180. Fukuyama insured the shipment against all risks with
petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo
Policy No. RN55581 in the amount of P228,085. During the course of the
voyage, the container with the cargoes fell overboard and was lost. Thus,
Fukuyama wrote a letter to respondent Overseas Agency

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Services, Inc. (Overseas Agency), the agent of Neptune Orient Lines in

Manila, and claimed for the value of the lost cargoes. However, Overseas
Agency ignored the claim. Hence, Fukuyama sought payment from its
insurer, PCIC, for the insured value of the cargoes in the amount of
P228,085, which claim was fully satisfied by PCIC. On February 17, 1994,
Fukuyama issued a Subrogation Receipt to petitioner PCIC for the latter to
be subrogated in its right to recover losses from respondents. PCIC
demanded from respondents’ reimbursement of the entire amount it paid to
Fukuyama, but respondents refused payment. On March 21, 1994, PCIC
filed a complaint for damages against respondents with the Regional Trial
Court (RTC) Manila, Branch 35. Respondents filed an Answer with
Compulsory Counterclaim denying liability. They alleged that during the
voyage, the vessel encountered strong winds and heavy seas making the
vessel pitch and roll, which caused the subject container with the cargoes to
fall overboard. Respondents contended that the occurrence was a fortuitous
event which exempted them from any liability, and that their liability, if
any, should not exceed US$500 or the limit of liability in the bill of lading,
whichever is lower.
In a Decision, dated January 12, 1996, the RTC held that respondents,
as common carrier, failed to prove that they observed the required
extraordinary diligence to prevent loss of the subject cargoes in accordance
with the pertinent provisions of the Civil Code. The RTC ordered the
defendants, jointly and severally, to pay the plaintiff the peso equivalent as
of February 17, 1994 of HK$55,000 or the sum of P228,085, whichever is
lower, with costs against the defendants. Respondents’ motion for
reconsideration was denied. Respondents appealed the RTC decision to the
Court of Appeals (CA).
In its Resolution, dated April 13, 2000, the CA found the said
argument of respondents to be meritorious. Holding the appellants shall be
liable to pay appellee PCIC the value of the three packages lost computed at
the rate of US$500 per package or a total of US$1,500.
Hence, this petition. Petitioner contends that the CA erred in
awarding damages to respondents subject to the US$500 per package
limitation since the vessel committed a “quasi deviation”, which is a
breach of the contract of carriage when it intentionally threw overboard
the container with the subject shipment during the voyage to Manila

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for its own benefit or preservation. The breach of contract resulted in the
abrogation of respondents’ rights under the contract and COGS A including the
US$500 per package limitation. Hence, respondents cannot invoke the benefit of
the US$500 per package limitation, and the CA erred in considering the
limitation and modifying its decision.
ISSUE: Whether or not US$500 package limitation under the COGSA
will apply.
HELD: The facts, as found by the RTC, do not support the new allegation
of facts by petitioner regarding the intentional throwing overboard of the subject
cargoes and quasi deviation. The Court is of the opinion that the shipment of
three cases of Various Warp Yam on Returnable Beams, which were
containerized onto 40 feet LCL (no. IEAU-459750) and fell overboard the
subject vessel during heavy weather, is an “Actual Total Loss.” The records
show that the subject cargoes fell overboard the ship, and petitioner should not
vary the facts of the case on appeal. This Court is not a trier of facts, and, in this
case, the factual finding of the RTC and the CA, which is supported by the
evidence on record, is conclusive upon this Court. As regards the issue on the
limited liability of respondents, the Court upholds the decision of the CA.
Since the subject cargoes were lost while being transported by
respondent common carrier from Hong Kong to the Philippines, Philippine
law applies pursuant to the Civil Code, which provides:
Art. 1753. The law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss,
destruction, or deterioration.
Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce
and by special laws.
The rights and obligations of respondent common carrier are thus
governed by the provisions of the Civil Code and the COGSA, which is a
special law, applies suppletorily. The pertinent provisions of the Civil Code
applicable to this case are as follows:

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Art. 1749. A stipulation that the common carrier’s liability is limited

to the value of the goods appearing in the bill of lading, unless the shipper
or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods is
valid, if it is reasonable and just under the circumstances, and has been
fairly and freely agreed upon.
In addition, Section 4, paragraph 5 of the COGSA, which is
applicable to all contracts for the carriage of goods by sea to and from
Philippine ports in foreign trade, provides: “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 $500per
package lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in other
currency, unless the nature and value ofsuch goods have been declared by the
shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading shall be prima facie evidence, but shall be
conclusive on the carrier. ”
The bill of lading submitted in evidence by petitioner did not show
that the shipper in Hong Kong declared the actual value of the goods as
insured by the Fukuyama before shipment, and that the said value was
inserted in the Bill of Lading, and so no additional charges were paid.
Hence, the stipulation in the bill of lading that the carrier’s liability shall
not exceed USS500 per package applies. To hold otherwise would amount
to questioning the justness and fairness of the law itself. But over and
above that consideration, the just and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in the
bill of lading.
QUESTION: What is the effect on the liability of the shipowner and
ship agent in case of loss or damage to the goods on the basis of the
shipper’s load, count shipment?
ANSWER: While the Civil Code contains provision making the
common carrier liable for loss/damage to the goods transported, it

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failed to outline the manner of determining the amount of such liability. Article 372
of the Code of Commerce fills this gap, thus: Article 372. The value of the goods
which the carrier must pay in cases if loss or misplacement shall be determined in
accordance with that declared in the bill of lading, the shipper not being allowed to
present proof that among the goods declared therein there were articles of greater
value and money. (Philam Insurance Co., Inc. v Heung-A Shipping Corporation
and Wallem Philippines Shipping, Inc., G.R. No. 187701, July 2014)
NOTE: Article 366 of the Code of Commerce requiring that a claim must be
made against the carrier within 24 hours from receipt of the merchandise applies only
interisland shipments within the Philippines.

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PUBLIC SERVICE

A “public utility ” is a business or service engaged in regularly supplying

the public with some commodity or service of public consequences such as
electricity, gas, water, transportation, telephone or telegraph service. The term
implies public use and service. (National Power Corporation v. Court of
Appeals and Cepalco, G.R. No. 112702, September 26, 1997)
Public utilities are privately owned and operated businesses whose services
are essential to the general public. They are enterprises, which specially cater to the
needs of the public and conduce to their comfort and convenience. As such, public
utility services are impressed with public interest and concern. The same is true
with respect to the business of common carrier which holds such a peculiar relation
to the public interest that there is super induced upon it the right of public
regulation when private properties are affected with public interest, hence, they
cease to be juris privati only. When, therefore, one devotes his property to a use in
which the public has an interest, he, in effect grants to the public an interest in that
use, and must submit to the control by the public for the common good, to the
extent of the interest he has thus created. (Kilusang Mayo Uno Labor Center v.
Hon. Jesus B. Garcia, Jr., the LTFRB and Provincial Bus Operators
Association of the Philippines, Inc., G.R. No. 115381, December 23, 1994)
In JG Summit Holdings, Inc. v. Court of Appeals, 412 SCRA 10,
September 24, 2003, it was held that the terms “public service” and “public
utility,” however, do not have the same legal meaning, at least since the enactment
of C.A. No. 454. The terms are related though.
The definition of “public service ” in the Public Service Act, as last
amended by R.A. No. 2611, includes every person who owns, operates,
manages or controls, for hire or compensation, and done

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 CHAPTFR M
PI Bl 1C Sl-RVICF

for general business purposes, any common carrier railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or
both with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express sen'ice, steamboat, or
steamship line, pontines, ferries, and water craft engaged in the
transportation of passengers or freight or both, shipyard, marine railway',
marine repair shop, wharf or dock, ice plant, ice refrigeration plant, canal,
irrigation system gas, electric light, heat and power, water supply and
power, petroleum, sewerage system, wire or wireless comtnunications
systems, broadcasting stations and other similar public services. A ‘‘public
utility,” on the other hand, is a business or service engaged in regularly
supplying the public with some commodity or service of public consequence
such as electricity, gas, water, transportation, telephone or telegraph
service. Simply stated, a public utility provides a service or facility needed for
present day living which cannot be denied to anyone who is willing to pay for it.
Formerly, there was a statutory definition of “public utility, ” but it was
abandoned in C.A. No. 454. The definition was instead solely applied to “public
service” apparently because it did not exactly fit the concept of public utility. It is
significant in this regard that while the 1935 Constitution which took effect on
February 2, 1935 specifically mentioned “public utility,” C.A. No. 454 shifted
from “public utility” to “public service” as the sole reference term in the Public
Service Act.
Another dissimilarity is that a public utility requires a franchise, aside
from a certificate of public necessity and convenience, for its operation, while a
public service, which is not a public utility, requires only a certificate of public
convenience. The dichotomy in requirements flows from the enforced
indeterminacy of the market for the service provided by a public utility. Thus, it
may be pointed out that all public utilities are public services but the converse
is not true. This is so because the term “public utility” connotes public use and
service to the public.
A legislative declaration such as the definition by enumeration in the
Public Service Act does not ipso facto render a business or service a public
utility. Whether or not one is a public utility is a matter of judicial, not legislative
determination.

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COMMONWEALTH ACT NO. 146

(SECTIONS 13 TO 16)

Section 13. (a) The Commission shall have jurisdiction, supervision,

and control over all public services and their franchises, equipment, and
other properties, and in the exercise of its authority, it shall have the
necessary powers and the aid of the public force: Provided, That public
service owned or operated by government entities or government-owned or
-controlled corporations shall be regulated by the Commission in the same
way as privately-owned public services, but certificates of public
convenience or certificates of public convenience and necessity shall not be
required of such entities or corporations: And provided, further, That it shall
have no authority to require steamboats, motor ships and steamship lines,
whether privately-owned, owned or operated by any Government
controlled corporation or instrumentality to obtain certificate of public
convenience or to prescribe their definite routes or lines of service.
(b) The term “public service” includes every person that now or
hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger or both, with or without fixed route
and whatever may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines, ferries, and water
craft, engaged in the transportation of passengers or freight or both,
shipyard, marine railway, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal irrigation system, gas, electric light, heat and
power, water supply power, petroleum, sewerage system, wire or wireless
communication systems, wire or wireless broadcasting stations and other
similar public services: Provided, however, That a person engaged in
agriculture, not otherwise a public service, who owns a motor vehicle and
uses it personally and/or enters into a special contract whereby said motor
vehicle is offered for hire or compensation to a third-party or third-parties

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engaged in agriculture, not itself or themselves a public service, for operation by the
latter for a limited time and for a specific purpose directly connected with the
cultivation of his or their farm, the transportation, processing, and marketing of
agricultural products of such third-party or third-parties shall not be considered as
operating a public service for the purposes of this Act.
(c) The word “person” includes every individual, co-partnership, joint
stock company or corporation, whether domestic or foreign, their lessees, trustees or
receivers, as well as any municipality, province, city, government-owned or
-controlled corporation, or agency of the Government of the Philippines, and
whatever other persons or entities that may own or possess or operate public service.
(As amended by R.A. Nos. 1270 and 2677)

Powers and duties of the Public Service Commission, and the purpose and intent
for which it was created, and the legal rights and privileges of a public utility
operating under a prior license.

Batangas Transportation Co. v.

Cayetano Orlanes G.R. No.
28865, December 19,1928
The primary purpose of the Public Service Commission Law is to secure
adequate, sustained service for the public at the least cost, and to protect and
conserve investments, which have already been made for that purpose.
It must be conceded that an autobus line is a public utility, and that in all
things and respects, it is what is legally known as a common carrier, and that it is
an important factor in the business conditions of the Islands, which is daily
branching out and growing very fast.
Before such a business can be operated, it must apply for, and obtain, a
license or permit from the Public Service Commission, and comply with certain
defined terms and conditions, and when the license is once granted, the operator
must conform to, and comply with, all reasonable rules and regulations of the
Public Service Commission. The object and purpose of such a commission,
among other things, is to look

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out for, and protect, the interests of the public, and, in the instant case, to provide
it with safe and suitable means of travel over the highways in question, in like
manner that a railroad would be operated under like terms and conditions. To all
intents and purposes, the operation of an autobus line is very similar to that of a
railroad, and a license for its operation should be granted or refused on like terms
and conditions. For many and different reasons, it has never been the policy of a
public service commission to grant a license for the operation of a new line of
railroad which parallels and covers the same field and territory of another old
established line, for the simple reason that it would result in ruinous competition
between the two lines, and would not be of any benefit or convenience to the
public.
The Public Service Commission has ample power and authority to make
any and all reasonable rules and regulations for the operation of any public utility
and to enforce compliance with them, and for failure of such utility to comply
with, or conform to, such reasonable rules and regulations; the Commission has
power to revoke the license for its operation. It also has ample power to specify
and define what is a reasonable compensation for the services rendered to the
traveling public.
That is to say, the Public Service Commission, as such, has the power to
specify and define the terms and conditions upon which the public utility shall be
operated, and to make reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its services to the public, and for
any failure to comply with such rules and regulations or the violation of any of the
terms and conditions for which the license was granted, the Commission has ample
power to enforce the provisions of the license or even to revoke it, for any failure or
neglect to comply with any of its terms and provisions.
Hence, and for such reasons, the fact that the Commission has previously
granted a license to any person to operate a bus line over a given highway and
refuses to grant a similar license to another person over the same highway, does not
in the least create a monopoly in the person of the licensee, for the simple reason
that at all times the Public Service Commission has the power to say what is a
reasonable

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PUBLIC' SERVICE

compensation to the utility, and to make reasonable rules and regulations for the
convenience of the traveling public and to enforce them.
The proceeding we are considering is governed by Section 13. That is the
general section of the Act comprehensively describing the duty of the Commission,
vesting it with power to fix and order substituted new rates for existing rates. The
power is expressly made to depend on the condition that, after full hearing and
investigation, the commission shall find existing rates to be unjust, unreasonable,
unjustly discriminatory, or unduly preferential. We conclude that a valid order of the
Commission under the act must contain a finding of fact after hearing and
investigation, upon which the order is founded, and that, for lack of such a finding,
the order in this case was void.
“Is a certificate of public convenience going to be issued to a second operator
to operate a public utility in a field where, and in competition with, a first operator
who is already operating a sufficient, adequate and satisfactory service?”
So long as the first licensee keeps and performs the terms and conditions of
its license and complies with the reasonable rules and regulations of the
Commission and meets the reasonable demands of the public, it should have more or
less of a vested and preferential right over a person who seeks to acquire another and
a later license over the same route. Otherwise, the first licensee would not have any
protection on his investment, and would be subject to ruinous competition and thus
defeat the very purpose and intent for which the Public Service Commission was
created.
The Court is clearly of the opinion that the order of the Commission granting
the petition of Orlanes in question, for the reasons therein stated, is null and void,
and that it is in direct conflict with the underlying and fundamental principles for
which the Commission was created.
The question presented is very important and far-reaching and one of first
impression in this court, and for such reasons [the Court] ha[s] given this case the
careful consideration which its importance deserves. The government having taken
over the control and supervision of all public utilities, so long as an operator under a
prior license complies with the terms and conditions of license and reasonable rules
and

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regulations for its operation and meets the reasonable demands of the public, it is
the duty of the Commission to protect rather than to destroy his investment by the
granting of a subsequent license to another for the same thing over the same route
of travel. The granting of such a license does not serve its convenience or promote
the interests of the public.

Section 14. The following are exempted from the provisions of the
preceding section:
(a) Warehouses;
(b) Vehicles drawn by animals and baticas moved by oar or sail,
and tugboats and lighters;
(c) Airship within the Philippines except as regards the fixing of
their maximum rates on freight and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of
the National Government or by any government-owned or -controlled
corporation, except with respect to the fixing of rates. (As amended by
R.A. No. 2031)
Section 15. With the exception of those enumerated in the
preceding section, no public service shall operate in the Philippines
without possessing a valid and subsisting certificate from the Public
Service Commission, known as “certificate of public convenience,” or
“certificate of convenience and public necessity,” as the case may be, to
the effect that the operation of said service and the authorization to do
business will promote the public interests in a proper and suitable
manner.
The Commission may prescribe as a condition for the issuance
of the certificate provided in the preceding paragraph that the service
can be acquired by the Republic of the Philippines or by any
instrumentality thereof upon payment of the cost price of its useful
equipment, less reasonable depreciation; and likewise, that the
certificate shall be valid only for a definite period of time, and that the
violation of any of these conditions shall produce the immediate

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cancellation of the certificate without the necessity of any express action on

the part of the Commission.
In estimating the depreciation, the effect of the use of the equipment,
its actual condition, the age of the model, or other circumstances affecting
its value in the market shall be taken into consideration.
The foregoing is likewise applicable to any extension or amendment
of certificates actually in force and to those which may hereafter be issued,
to permit to modify itineraries and time schedules of public services, and to
authorizations to renew and increase equipment and properties. (As
amended by Com. Act No, 454)

Section 16. Proceedings of the Commission, upon notice and hearing, —

The Commission shall have power, upon proper notice and hearing in
accordance with the rules and provisions of this Act, subject to the
limitations and exceptions mentioned and saving provisions to the
contrary:
(a) To issue certificates which shall be known as Certificates of
Public Convenience, authorizing the operation of public services within the
Philippines whenever the Commission finds that the operation of the public
service proposed and the authorization to do business will promote the
public interest in a proper and suitable manner: Provided, That thereafter,
certificates of public convenience and necessity will be granted only to
citizens of the Philippines or of the United States or to corporations, co-
partnerships, associations or joint-stock companies constituted and
organized under the laws of the Philippines: Provided, That sixty per centum
of the stock or paid-up capital of any such corporation, co-partnership,
association or joint-stock company must belong entirely to citizens of the
Philippines or of the United States: Provided, further, That no such
certificates shall be issued for a period of more than fifty years.
(b) To approve, subject to constitutional limitations, any franchise
or privilege granted under the provisions of Act No. 667, as amended by Act
No. 1022, by any political subdivision of

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the Philippines when, in the judgment of the Commission, such franchise

or privilege will properly conserve the public interests, and the
Commission shall in so approving impose such conditions as to
construction, equipment, maintenance, service, or operation as the public
interests and convenience may reasonably require, and to issue certificates
of public convenience and necessity when such is required or provided by
any law or franchise.
(c) To fix and determine individual or joint rates, tools, charges,
classifications, or schedules thereof, as well as commutations, mileage,
kilometrage, and other special rates which shall be imposed, observed, and
followed thereafter by a 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.
(d) To fix just and reasonable standards, classifications,
regulations, practices, measurements, or service to be furnished, imposed,
observed, and followed thereafter by any public services.
(e) To ascertain and fix adequate and serviceable standards for the
measurement of quantity, quality, pressure, initial voltage, or other
condition pertaining to the supply of the product or service rendered by
any public service, and to prescribe reasonable regulations for the
examination and test of such product or service and for the measurement
thereof.
(f) To establish reasonable rules, regulations, instructions,
specifications, and standards, to secure the accuracy of all meters and
appliances for measurements.
(g) To compel any public service to furnish safe, adequate, and
proper service as regards the manner of furnishing the same as well as the
maintenance of the necessary material and equipment.

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(h) To require any public service to establish, construct, maintain, and

operate any reasonable extension of its existing facilities, where, in the
judgment of said Commission, such extension is reasonable and practicable
and will furnish sufficient business to justify the construction and
maintenance of the same, and when the financial condition of the said public
service reasonably warrant the original expenditure required in making and
operating such extension.
(i) To direct any railroad, street railway or traction company to
establish and maintain at any junction or point of connection or intersection
with any other line of said road or tract, or with any other line of any other
railroad, street railway or traction company, such just and reasonable
connection as shall be necessary to promote the convenience of shippers of
property, or of passengers, and in like manner to direct any railroad, street
railways, or traction company engaged in carrying merchandise, to construct,
maintain and operate, upon reasonable terms, a switch connection with any
private sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of the
Commission, such connection is reasonable and practicable, and can be put in
with safety, and will furnish sufficient business to justify the construction and
maintenance of the same.
(j) To authorize, in its discretion, any railroad, street railway or
traction company to lay its tracts across the tracks of any other railroad,
street railway or traction company, or across any public highway.
(k) To direct any railroad or street railway company to install such
safety devices or adopt such other reasonable measures as may in the
judgment of the Commission be necessary for the protection of the public at
passing grade crossings of: (1) public highways and railroads, (2) public
highways and street railways, or (3) railroads and streets railways.
(l) To fix and determine proper and adequate rates of depreciation
of the property of any public service which will he observed in a proper and
adequate depreciation account to

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be carried for the protection of stockholders, bondholders or creditors,

in accordance with such rules, regulations, and form of account as the
Commission may prescribe. Said rates shall be sufficient to provide the
amounts required over and above the expense of maintenance to keep
such property in a state of efficiency corresponding to the progress of
the industry. Each public service shall conform its depreciation
accounts to the rates so determined and fixed, and shall set aside the
money so provided for out of its earnings and carry the same in a
depreciation fund. The income from investments of money in such fund
shall likewise be carried in such fund. This fund shall not be expended
otherwise than for depreciation, improvements, new constructions,
extensions or conditions to the property of such public service.
(m) To amend, modify or revoke at any time any certificate
issued under the provisions of this Act, whenever the facts and
circumstances on the strength of which said certificate was issued have
been misrepresented or materially changed.
(n) To suspend or revoke any certificate issued under the
provisions of this Act whenever the holder thereof has violated or
willfully and contumaciously refused to comply with any order, rule or
regulation of the Commission or any provision of this Act: Provided,
That the Commission, for good cause, may prior to the hearing suspend
for a period not to exceed thirty days any certificate or the exercise of
any right or authority issued or granted under this Act by order of the
Commission, whenever such step shall in the judgment of the
Commission be necessary to avoid serious and irreparable damage or
inconvenience to the public or to private interests.
(o) To fix, determine, and regulate, as the convenience of the
State may require, a special type for auto-buses, trucks, and motor
trucks, to be hereafter constructed, purchased, and operated by
operators after the approval of this Act; to fix and determine a special
registration fee for auto-buses, trucks, and motor trucks so constructed,
purchased and operated: Provided, That said fees shall be smaller than
those charged for auto-buses, trucks, and motor trucks of types not made
regulation under the subsection.

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Certificate of Public Convenience, Defined

A certificate of public convenience (CPC) is an authorization granted
by the LTFRB for the operation of land transportation services for public use
as required by the law. Pursuant to Section 16(a) of the Public Service Act, as
amended, the following requirements must be met before a CPC may be
granted, to wit: (i) the applicant must be a citizen of the Philippines, or a
corporation or co-partnership, association or joint-stock company constituted
and organized under the laws of the Philippines, at least 60 per centum of its
stock or paid-up capital must belong entirely to citizens of the Philippines; (ii)
the applicant must be financially capable of undertaking the proposed service
and meeting the responsibilities incident to its operation; and (iii) the
applicant must prove that the operation of the public service proposed
and the authorization to do business will promote the public interest in a
proper and suitable manner. It is understood that there must be proper notice
and hearing before the PSC can exercise its power to issue a CPC.
By its terms, public convenience or necessity generally means
something fitting or suited to the public need. As one of the basic requirements
for the grant of a CPC, public convenience and necessity exists when the
proposed facility or service meets reasonable want of the public and supply a
need, which the existing facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of
fact that must be established by evidence, real and/or testimonial; empirical
data; statistics and such other means necessary, in a public hearing conducted
for that purpose. The object and purpose of such procedure, among other
things, is to look out for, and protect, the interests of both the public and the
existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the
condition that after full-dress hearing and investigation, it shall find, as a fact,
that the proposed operation is for the convenience of the public. Basic
convenience is the primary consideration for which a CPC is issued, and that
fact alone must be consistently borne in mind. Also, existing operators in
subject routes must be given an opportunity to offer proof and oppose the
application. Therefore, an applicant must, at

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all times, be required to prove his capacity and capability to furnish the service
which he has undertaken to render. And all this will be possible only if a
public hearing were conducted for that purpose. (KMU Labor Center v. Hon.
Garcia, supra)
Certificate of Public Convenience and Certificate of Convenience and
Public Necessity, distinguished.
“Certificate of Public Convenience ” is issued by the Commission
authorizing the operation of public service within the Philippines whenever the
Commission finds that the operation of the public service proposed will promote the
public interests in a proper and suitable manner; while “certificate of public
convenience and necessity ” is issued by the Commission upon approval of any
franchise or privilege granted by any political subdivision of the Philippines when
in the judgment of the Commission, such franchise or privilege will properly
conserve the public interest. fSee Subsections [a] and [b])
In Philippine Airlines, Inc. v. Civil Aeronautics Board and Grand
International Airways, G.R. No. 119528, March 26, 1997, it was held that there
is no more distinction between certificate of public convenience and certificate of
convenience and public necessity. Said the Supreme Court: “Many and varied are
the definition of certificates of public convenience which court’s and legal writers
have drafted. Some statutes use the terms “convenience and necessity ” while
others use only the words “public convenience. ” The terms “convenience and
necessity, ” if used together in a statute, are usually held not to be separable, but are
construed together. Both words modify each other and must be construed together.
The word “necessity ” is so connected, not as an additional requirement but to
modify and qualify what might otherwise be taken as the strict significance of the
word necessity. Public convenience and necessity exists when the proposed facility
will meet a reasonable want of the public and supply a need, which the existing
facilities do not adequately afford. It does not mean or require an actual physical
necessity or an indispensable thing.”
“The terms ‘convenience’ and ‘necessity’ are to be construed together,
although they are not synonymous, and effect must be given both. The convenience
of the public must not be circumscribed by

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according to the word ‘necessity’ its strict meaning or an essential requisite.”

The use of the word “necessity,” in conjunction with “public convenience”
in a certificate of authorization to a public service entity to operate, does not in any
way modify the nature of such certification, or the requirements for the issuance of
the same. It is the law, which determines the requisites for the issuance of such
certification, and not the title indicating the certificate.

Philippine Airlines v. Civil Aeronautics

Board and Grand International Airways
G.R. No. 119528, March 26,1997
FACTS: Petitioner Philippine Airlines, Inc. in a Special Civil Action for
Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit
respondent Civil Aeronautics Board from exercising jurisdiction over private
respondent’s Application for the issuance of a Certificate of Public Convenience
and Necessity, and to annul and set aside a temporary operating permit issued by
the Civil Aeronautics Board in favor of Grand International Airways (Grandair, for
brevity) allowing the same to engage in scheduled domestic air transportation
services, particularly the Manila-Cebu, Manila-Davao, and converse routes.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of Grand Airs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since Grand Air has not been granted and does
not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage in air
transport service.
Respondent Grandair, on the other hand, posits that a legislative franchise is
no longer a requirement for the issuance of a Certificate of Public Convenience and
Necessity or a Temporary Operating Permit, following the Court’s
pronouncements in the case of Albano v. Reyes, as restated by the Court of
Appeals in Avia Filipinas International v. Civil Aeronautics Board and
Silangan Airways, Inc. v. Grand International Airways, Inc., and the Hon.
Civil Aeronautics Board.

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ISSUES: 1) Whether the Civil Aeronautics Board can issue the

Certificate of Public Convenience and Necessity or Temporary Operating
Permit to a prospective domestic air transport operator who does not possess
a legislative franchise to operate as such.
2) Whether Congress, in enacting R.A. No. 776, has delegated the
authority to authorize the operation of domestic air transport services to the
respondent Board, such that Congressional mandate for the approval of such
authority is no longer necessary.
HELD: The Civil Aeronautics Board has jurisdiction over Grand
Air’s Application for a Temporary Operating Permit. This rule has been
established in the case of Philippine Air Lines, Inc. v. Civil Aeronautics
Board, promulgated on June 13,1968. The Board is expressly authorized by
R.A. No. 776 to issue a temporary operating permit or Certificate of Public
Convenience and Necessity, and nothing contained in the said law negates
the power to issue said permit before the completion of the applicant’s
evidence and that of the oppositor thereto on the main petition. Indeed, the
CAB’s authority to grant a temporary permit “upon its own initiative”
strongly suggests the power to exercise said authority, even before the
presentation of said evidence has begun. Assuming arguendo that a
legislative franchise is prerequisite to the issuance of a permit, the absence
of the same does not affect the jurisdiction of the Board to hear the
application, but tolls only upon the ultimate issuance of the requested
permit.
The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.
“The franchise is a legislative grant, whether made directly by the
legislature itself, or by any one of its properly constituted instrumentalities.
The grant, when made, binds the public, and is, directly or indirectly, the act
of the state.”
On the second issue, the Supreme Court held that:
Congress has granted certain administrative agencies the power to
grant licenses for, or to authorize the operation of certain public utilities.
With the growing complexity of modem life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of
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PUBLIC SERVICE

administering the laws, there is a constantly growing tendency towards

the delegation of greater powers by the legislature, and towards the
approval of the practice by the courts. It is generally recognized that a
franchise may be delivered indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than those of a
legislative nature. In pursuance of this, it has been held that privileges
conferred by grant by local authorities as agents for the state constitute as
much a legislative franchise as though the grant had been made by an act
of the Legislature.
The trend of modem legislation is to vest the Public Service
Commissioner with the power to regulate and control the operation of
public services under reasonable rules and regulations, and as a general
rule, courts will not interfere with the exercise of that discretion when it is
just and reasonable and founded upon a legal right.
Given the foregoing postulates, [W]e find that the Civil Aeronautics
Board has the authority to issue a Certificate of Public Convenience and
Necessity, or Temporary Operating Permit to a domestic air transport
operator, who, though not possessing a legislative franchise, meets all the
other requirements prescribed by the law. Such requirements were
enumerated in Section 21 of R.A. No. 776.
There is nothing in the law or in the Constitution, which indicates
that a legislative franchise is an indispensable requirement for an entity to
operate as a domestic air transport operator. Although Section 11 of
Article XII recognizes Congress’ control over any franchise, certificate or
authority to operate public utility, it does not mean that Congress has
exclusive authority to issue the same. Franchises issued by Congress are
not required before each and every public utility may operate. In many
instances, Congress has seen it fit to delegate this function to government
agencies, specialized particularly in their respective areas of public
service.
Prior applicant rule. — Where there are various applicants for a
public utility over the same territory, all conditions being equal, priority
in the filing of the application for a certificate of public convenience
becomes an important factor in the granting or refusal of a certificate.
(Batangas Trans. Co. v. Orlanes, 52 Phil. 455)

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Old operator rule. — Before permitting a new operator to invade the

territory of another already established with a certificate of public convenience,
thereby entering into competition with it, the prior operator must be given an
opportunity to extend its service in order to meet the public. (Javier v.
Orlanes, 53 Phil. 468)
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. Thus, the fact that it is only one trip and of little consequence, is not
sufficient reason to grant the application. (Yangco v. Esteban, 58 Phil. 346)
However, if later on circumstances would change requiring the operation of
new units or extending existing facilities, the third operator rule would be
subject to the prior applicant rule and also as to who may best subserve the
public interests.
Protection of investment rule. — It is one of the primary purposes of the
Public Service Law to protect and conserve investments, which have already
been made for that purpose by public service operators. (Batangas Trans. Co.
v. Orlanes, 52 Phil 455)

First applicant to operate service be given preference if financially competent.

Tomas Litimco v. La Mallorca

G.R. Nos. L-17041-42, May 18,1962
FACTS: Tomas Litimco filed a petition before the Public Service
Commission praying for authority to operate a TPU service on the line
Manila-Malolos via Sta. Isabel with the use of 10 units. To the petition, several
operators filed written oppositions. On the date set for hearing, petitioner adduced
evidence in support of his petition, but none of the oppositors submitted evidence
in support of their oppositions. Thereafter, the petition was submitted for
decision.
On November 7, 1958, before the Public Service Commission could
render its decision, La Mallorca, another operator, moved to reopen the case
stating that if the petition to operate the line proposed be granted it would work to
its prejudice and so it requested a reopening in order that it may file its opposition
and present evidence in support

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thereof. The motion was granted and, accordingly, the case was set for hearing
on January 12, 1959. However, instead of presenting evidence in support of its
opposition, La Mallorca moved for postponement, only to announce days later
that instead of merely objecting to the petition, it decided to file an application
under a separate number (Case No. 63120) requesting for authority to operate
the same line applied for by petitioner by rerouting 4 of its 10 round trip units
of the line Malolos-Manila via Guiguinto. To this application, several
oppositions were presented, including petitioner himself, although only the
latter presented evidence in support of his opposition. Because of the identity
of the issues involved, the two applications were heard jointly.
After a protracted hearing, the Public Service Commission rendered
decision denying petitioner’s application but granting that of respondents on the
ground that the latter has a better right to render the service applied for. Petitioner
interposed the present petition for review.
ISSUE: Whether or not the priority in filing of the application, other
conditions being equal, is an important factor in determining the rights of public
service companies.
HELD: Yes. There is no doubt that petitioner was the first to apply
for the service in the territory in question. Through his amended application,
petitioner has applied for the new service as early as October 24,1958, while
respondent only was awakened and followed suit when it filed its
application on January 21,1959, after petitioner’s application was already
submitted for decision. Since it is admitted that petitioner is financially
competent and able to operate the line proposed, for it is a matter of record
that he is also an operator of a bus line from Manila to Malolos via Bulacan,
[W]e see no plausible reason why he should not be given preference to
operate the service applied for considering that he is the first one to apply for
such line. This is in accord with the policy constantly adopted by this Court
in analogous cases, which we find to be sound, to stave off any act of
discrimination or partiality against any applicant for operation of a new line.
While there may be cases where an applicant, even if ahead in time, was not
given the service, it is because it was proven that he was financially
incompetent, or otherwise disqualified, to render the service. If an applicant
is qualified financially,

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and is able to undertake the service, he should be given the preference as a

matter of fairness and justice. Indeed, this Court has postulated that “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.” Considering that petitioner has filed his
application much ahead in point of time than respondent, and is financially
competent, the action of the Public Service Commission in giving preference
to respondent is not justified.
The argument that the application of petitioner for the operation of the
new line calls for the purchase of 10 new trucks which would result in further
depletion of the dollar reserve of our government, while the application for
re-routing of respondent will not entail any further expenditure, is of no
consequence, if the operation will redound to the benefit of the riding public.
The operation of a new line as a general proposition always involves a new
investment, which may happen even with old operators. In the course of
operation, and with the passing of time, new equipment and facilities may be
found necessary to maintain an efficient service, which additional
expenditure cannot certainly be considered as a cause for disruption of the
service. This is a matter of finance, which concerns exclusively the one who
desires to operate the new line. At any rate, the new line merely covers seven
kilometers of new territory, which traverses three sparsely populated barrios,
and considering that respondent did not deem it necessary to cover said
territory except after the passing of many years, and only thought of giving
the service when petitioner filed his application. Fairness requires that
preference be given to petitioner.

A certificate of public convenience may be granted to a new operator

without giving the old operator an opportunity to improve its
equipment and service.

Fortunato F. Halili v. Ruperto Cruz

G.R. No. L-21061, June 27,1968
FACTS: Herein respondent filed, on September 19, 1961, with the
Public Service Commission an application, praying for the grant of a
certificate of public convenience to operate, under PUB denomination,

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 CIIAITKR V!
I’Um.lC SRRV1CT.

|() buses between Norzagaray (Bulacan) and Piers (Manila), via Novaliehes Road,
A. Bonifacio Road, Blumentritt Street, Rizal Avenue, MacArtluir Bridge, Aduana
and 13th Streets; and on the return trip, via Boston Street, MacArtluir Bridge,
Rizal Avenue, Blumentritt, A. Bonifacio Road, and Novaliehes Road. The
application was opposed by l)e Dios Transportation Co., Inc., Raymundo
Transportation Co., Inc., POP Transit Inc., Villa Rey Transit, Inc., and by herein
petitioner- appellant Fortunato F. Halili who was the operator of the
transportation service known as “Halili Transit.” Petitioner, in his opposition
alleged, substantially, that he was an operator of a bus service on the line applied
for, enumerating at the same time the other lines he operated which were
traversed by the route mentioned in respondent’s application; that his service, as
well as that of other bus operators on the route, was more than adequate to meet
the demands of the traveling public; that the grant of the application would
merely result in wasteful and ruinous competition, and that the respondent was
not financially capable of operating and maintaining the service proposed by him.
After several hearings in which the parties presented their evidence, oral
and documentary, the Public Service Commission rendered a decision, on
February 13, 1963, granting a certificate of public convenience to respondent
Ruperto Cruz to operate 10 buses under PUB denomination on the line
Norzagaray (Bulacan)-Piers (Manila) passing through the routes applied for.
Petitioner contends that “The Public Service Commission erred in
failing to give petitioner-appellant the right of protection to investment to
which petitioner-appellant is entitled.”
ISSUE: Whether or not the protection to investment rule is a paramount
consideration in the grant of certificate of public convenience.
HELD: Petitioner claims, that the Public Service Commission failed to
give him the protection that he is entitled to, being an old and established
public service operator. As a general principle, public utility operators must
be protected from ruinous competition, such that before permitting a new
operator to serve in a territoiy already served by another operator, the latter
should first be given opportunity to improve his equipment and service. This
principle, however, is subject

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to justifiable exceptions. The primary consideration in the grant of a certificate of

public convenience must always be public convenience. Thus, this Court said:
“While it is the duty of the government as far as possible to protect
public utility operators against unfair and unjustified competition, it is
nevertheless obvious that public convenience must have the first
consideration, x x x.” (Raymundo Transportation Co. v. Perez, 56 Phil.
274)
The public convenience is properly served if passengers who take buses at
points in one part of a line are able to proceed beyond those points without having
to change buses. On this point, this Court said:
“It is the convenience of the public that must be taken into account,
other things being equal, and that convenience would be effectuated by
passengers who take buses at points in one part of a line being able to
proceed beyond those points without having to change buses and to wait
for the arrival of buses of a competitive operator. We can perceive how
under such conditions one public utility could gain business at the expense
of a rival.”
In the instant case, public convenience would be properly served if
commuters from Norzagaray going to the Piers in Manila could go to their
destination without the need of changing buses. Certainly, the Public Service
Commission has power to grant a certificate of public convenience to a new
operator, and the old operator cannot with reason complain that it had not been
given opportunity to improve its equipment and service, if it is shown that the old
operator has not placed in the service all the units of equipment that it had been
authorized to operate, and also when the old operator has violated, or has not
complied with, important conditions in its certificate. In the instant case, it has
been shown that petitioner had not operated all the units that it was authorized to
operate.
Note: The rule where there are various applicants for a public utility over
the same territory, is that priority of application, while an element to be
considered, does not necessarily control the granting of a certificate of public
convenience. The question to be considered in such

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cases is, which applicant can render the best service, considering the
conditions and qualifications of the applicant to furnish the same. But
where other conditions are equal, priority in the filing of the application for
a certificate of public convenience becomes an important factor in the
granting or refusal of a certificate. (Cruz v. Marcelo, L-l5301- 01, March
30, 1962, reiterating the rulings in Pineda v. Carandang, L-l3270-71,
March 24, 1960; Benitez v. Santos, L-12911-12, and Lopez v. Santos,
L-l3073-74, February 29, 1960; andBatangas Trans. Co., etal. v. Or
lanes, et ai, 55 Phil. 745)

Additional Service by Old Operators

Raymundo Transportation Co.
G.R. No. L-7880, May 18,1956
FACTS: Teofilo Cerda is a holder of a certificate of public
convenience granted him by the Public Service Commission to operate a
bus service for the transportation of passengers and freight on the line
Binangonan (Rizal) to Manila and vice versa. This certificate is but a
conversion into a permanent one of the emergency certificate previously
given him by the Commission way back in 1947. On September 12, 1953,
he asked for authority to increase his present number of trips by eight
additional round trips with the use of three additional buses on the ground
that public convenience required the operation of the additional trips. His
application was opposed by Raymundo Transportation Co., A. Gergaray
Tanchingco and the Halili Transit alleging that the services they are
rendering on the same line are more than sufficient to satisfy the needs of
the traveling public, and hence, there is no need for the additional trips on
the same line.
At the hearing, the applicant presented the testimony of Sisenando
Sison, Pedro Fineza, and Fernando Flores, all residents of Binangonan,
Rizal, while on the part of the oppositors, only the first two submitted
evidence in support of their opposition, and on the strength of the evidence
submitted, the Commission found that the preponderance of evidence
“justifies the authorization of additional trips on the line although not in the
number asked by the applicant” and granted him authority to operate only
four additional round trips with one auto-truck

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subject to certain specified conditions. From this decision, oppositor

Raymundo Transportation Co., interposed the present petition for review.
It is contended for petitioner that the decision of the Public Service
Commission is erroneous because if there is any need for additional service,
petitioner should be given the preference of rendering it being an old
operator.
HELD: As to the claim that petitioner should be given the privilege
of rendering the additional service because it is an old operator, suffice it to
say that this rule only applies when the old operator offers to meet the
increase in the demand the moment it arises and not after another operator
had offered to render the additional service as was done in the present case.
(Angat-Manila Trans. Co., Inc. v. Victoria Vda. de Tengco, 95 Phil. 58)
The rule protects those who are vigilant in meeting the needs of the traveling
public.
The decision appealed from is affirmed, with costs against petitioner.

The “prior operator” and “protection of investment” rules cannot take

precedence over the convenience of the public.

Intestate Estate of Teofilo M. Tiongson v.

The Public Service Commission and Mario Z. Lanuza
G.R. No. L-2470I, December 16,1970
FACTS: On May 11, 1965, the Public Service Commission
decided its Case No. 124626, approving the application of Mario Z.
Lanuza for a certificate of public convenience to install and operate a
20-ton daily capacity ice-plant in Pagsanjan, Laguna, and to sell the ice to
be produced in said municipality as well as in the municipalities of
Longos, Paete, Pakil, Pangil, Siniloan, Famy, Sta. Maria, Cavinti,
Magdalena, Majayjay, Nagcarlan, Rizal, Lilio, Sta. Cruz, Lumban, Pila
and Victoria, all in the province of Laguna.
Three existing operators had opposed the application. One of them,
Victorino de Pena, who has an ice plant in Mauban, Quezon,

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withdrew his opposition after the applicant excluded the municipality of

Luisiana from the territory originally applied for. Another oppositor, Emilio
Gomez, did not appeal from the decision of the Public Service Commission.
The petitioner here, the Estate of Teofilo M. Tiongson, remains the only
oppositor in the present appeal.
The petitioner is the grantee of a certificate of public convenience to
maintain and operate a 30-ton (increased to 40 tons in 1960 and then to 70
tons in 1964) ice plant in San Pablo City, with authority to sell ice therein as
well as in the municipalities of Sta. Cruz, Rizal, Nagcarlan, Calauan,
Victoria, Pila, Lumban, Paete, Pakil, Pangil, Cavinti, Siniloan, and Alaminos.
ISSUE: There is no question as to the applicant’s financial capacity.
The principal issue is whether there is sufficient need for ice in the places
stated in the decision to justify the establishment of a plant in Pagsanjan with
the daily capacity authorized by the Commission. This issue is essentially one
of fact on which, as a rule, the findings of the Commission are binding on this
Court unless it clearly appears that there is no evidence to reasonably support
them.
HELD: The Court has gone over the record in this regard and found
enough support therein for the decision appealed from. Manuel Zaide is a fish
dealer in Paete; Willing Limlengco is a sari-sari and refreshment
store-owner in Pagsanjan; Conrado Almario has a similar business in
Lumban; Alfonso Rebong was the municipal mayor of Victoria since 1960;
Ernesto Marina is a businessman in Pila; Jose Acuiza is a businessman and
fisherman in Pakil; Jose Maceda was the municipal secretary of Pagsanjan;
and Eligio Lorenzo is a grocery merchant in Sta. Cruz. They all affirmed the
inadequacy and frequent lack of ice supply in their respective localities not
only for home consumption but also for restaurants and refreshment parlors
as well as for the fishing industry or occupation of the inhabitants,
particularly in the regions bordering Laguna Bay. It is true their combined
testimony did not cover all the municipalities applied for, but the applicant
himself, respondent here, demonstrated sufficient familiarity with the entire
area to be able to give evidence, as he did, on the ice-supply situation in
everyone of them. He did a lot of traveling as owner of three movie-houses in
Pagsanjan,

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 TRANSPORTATION LAWS

Sta. Cruz and Pila, and in connection with his application in this case, personally
conducted a thorough investigation of the local demands for ice in the
municipalities covered by said application. That he is the applicant does not
necessarily affect his credibility; on the contrary, such an investigation was
necessary and called for by sound business policy, for no one would invest
capital in the production and sale of any commodity without first ascertaining the
needs of the prospective market.
One significant fact may be noted insofar as the petitioner’s existing ice
plant in San Pablo is concerned. The petitioner formerly operated another plant
in Pagsanjan, and each of them had one delivery truck to service the customers in
different municipalities. The Pagsanjan plant, however, was closed in 1952 and
transferred to San Pablo, and since then, the petitioner has been maintaining only
one delivery-truck service, with a single dealer-employee in charge. Under the
circumstances, the Public Service Commission correctly remarked that “the
oppositors have not established the adequacy of the service rendered by them in
the eighteen (18) municipalities proposed to be served by the applicant,
considering that most of these municipalities are far from the locations of their
ice-plants.
The “prior operator ” and “protection of investment ” rules cited by
petitioner cannot take precedence over the convenience of the public. There is no
ice plant at present in Pagsanjan; and from the testimony of the witnesses for the
applicant, there exists a great demand for ice not only there but also in certain
neighboring municipalities. There is nothing in the record to show that the
petitioner had exerted efforts to meet this demand before the respondent made
his offer to service the areas where ice was needed. Moreover, the respondent is
authorized to produce only 20 tons of ice daily, whereas, the petitioner has been
allowed to increase its daily capacity from 30 to 40 tons in 1960, and recently, in
1964, to 70 tons. This only proves that there is indeed a great demand for ice in
the area applied for by the respondent, and negates the probability of ruinous
competition. On the contrary, the resulting competition will undoubtedly benefit
the public through improvement in the service and reduction in retail prices.

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Municipality of Echague v. Hon. Leopoldo

M. Abellera and Avelina Ballad
G.R. No. L-48671, December 12,1986
FACTS: Since 1936, the petitioner municipality, through its then
municipal council, and later, its Sangguniang Bayan, had been operating a
municipal ferry service traversing the Cagayan River to and from the
Barangays Soyung-Malitao and Barangays Embarcadero-Dammang East
and West, all within the municipality of Echague, Isabela. In this regard,
petitioner either operated the ferry service itself, or annually leased the
operation of the same to the highest bidder.
On November 16, 1977, herein private respondent Avelino Ballad
furnished petitioner, through its then incumbent mayor, a xerox copy of a
Decision issued on October 13, 1977 by the Board of Transportation
granting respondent Ballad a Certificate of Public Convenience to operate a
two-motor boat service for the regular and public transportation of
passengers and freight between Barrio Soyung-Dammang West and vice
versa across the Cagayan River all in the municipality of Echague, Isabela.
In furnishing petitioner with a copy of the Decision in his favor, private
respondent gave notice that he would start his ferry boat service operation in
January 1978 and petitioner Municipality has to stop its own feiry boat
service within the aforementioned routes.
Petitioner expressed its surprise over said Decision because it is
averred that it was never notified of the application of respondent Ballad
with the Board of Transportation to operate the ferry service. On January
17,1977, the respondent Board of Transportation, upon motion of petitioner
Municipality, issued an Order suspending the operation of the motorboat
service of private respondent after a rehearing of the case by the Board en
banc.
On February 14, 1978, the petitioner filed a Motion for
Reconsideration of the Decision, dated October 13, 1977, on the grounds of
lack of notice and deprivation of the opportunity to be heard by respondent
Board; and the award of said Certificate of Public Convenience to
respondent Ballad was approved without favorable indorsement by
resolution of the Sangguniang Bayan of Echague, Isabela of Ballad’s
application.

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 TRANSPORTATION LAWS

The respondent Board, on June 26, 1978, denied the Motion for
Reconsideration and lifted and set aside the Order of suspension dated
January 17, 1977.
ISSUE: Whether or not under RD. No. 1 or the Integrated
Reorganization Plan, which vests on the Board of Transportation the
jurisdiction and authority to issue Certificate of Public Convenience for the
operation of public land, water and air transportation utilities, there would
still be need for an applicant for a ferry boat service operating between two
points within a municipality to obtain a favorable resolution of the
Sangguniang Bayan of said municipality before the Board of Transportation,
can validly award the corresponding franchise to the applicant, considering
the provisions of Sections 2318-2320 of the Revised Administrative Code.
HELD: Indeed, the records reflect that in the case at bar there was no
compliance made with the essential requirements of administrative due
process. It appears that the notice of hearing was duly published once in two
Manila daily newspapers of general circulation in the Philippines.
Nonetheless, Respondent Board ruled that petitioner is not entitled to be
notified of the hearing inasmuch as petitioner Municipality never informed
the respondent Board that it is an operator of a ferry boat service, and that
petitioner Municipality being then a de facto ferry boat operator, has no
personality to oppose the application of private respondent Ballad.
The Court cannot consider the alleged publication of the said notice in
two unnamed Manila dailies as sufficient compliance of notice to petitioner
when the singular date of such supposed publication is not even mentioned by
respondents nor disclosed by the records. As a party to be directly affected by
the setting up of a ferry service by private respondent, petitioner Municipality is
entitled to be directly informed and afforded an opportunity to be heard by the
Board.
The Court holds that the specific jurisdiction and authority given by
Sections 2318-2320 of the Revised Administrative Code to a municipality to
operate or lease the ferry service within its own territorial limits should
prevail. The grant of supervision and authority by Administrative Code to
municipalities or municipal councils over public utilities such as municipal
ferries, markets, etc., is specific, and

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undoubtedly was “intended to provide an additional source of revenue to municipal

corporations for their maintenance and operation.” (Municipality of Gattaran v.
Elizaga, 91 Phil. 440) On the other hand, the authority conferred on the
respondent Board of Transportation was intended principally to insure and
safeguard the convenience, comfort and safety of the public.
The Court declines to accept the proposition that the operation of the ferry
being then exercised by petitioner municipality, pursuant to clear provisions of the
law, was removed by a general reorganization plan, which was intended only to
indicate the agency which would supervise or regulate the operation of public
services. The provisions of the Revised Administrative Code which grant to the
municipal council or Sangguniang Bayan the power to acquire or establish
i
municipal ferries, are different and should be distinguished from the authority of
the Board of Transportation to issue a Certificate of Public Convenience. While the
establishment of a municipal ferry is first given to a municipality, ferry service will
nevertheless be subject to the supervision and control of the Board of
Transportation. The winner in a public bidding conducted by the municipal council
obtains the privilege to operate the ferry service, but he has to apply for a
Certificate of Public Convenience from the Board of Transportation which then has
the duty to regulate the operation, route, rates to be charged, as well as specify the
kind of equipment to be used for the comfort, convenience and safety of the public
using the ferry.
Note: The aforestated sections of the Administrative Code read as follows:

“Section 2318. Municipal ferries, wharves, markets, etc. — A

municipal council shall have authority to acquire or establish municipal
ferries, wharves, markets, slaughterhouses, pounds, and cemeteries. Public
utilities thus owned by the municipality may be conducted by the municipal
authorities upon account of the municipality or may be let for a stipulated
return to private parties.”
“Section 2320. Establishment of certain public utilities by private
parties under license. — Where provisions of the next

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two preceding sections hereof, for maintaining or conducting the

ferries, wharves, markets, or slaughterhouses requisite for the needs
of the municipality, the municipal council shall have authority in its
discretion, to let the privilege of establishing and maintaining such
utilities to private parties by license granted upon such terms as shall
be fixed by the council.”
“The right to reject any or all bids shall be preserved in all
proposals for such bids; and the maximum charges, rents, or fees
which may be exacted by the lessees shall be fixed in advance and
shall be stated in the proposals for bids. The decision of a municipal
council rejecting any bid or awarding any such privilege shall be
subject to final revisal by the provincial board.”

LGU’s indubitably now have the power to regulate the operation

of tricycles-for-hire and to grant franchises for the operation
thereof
The Department of Transportation and Communications (“DOTC”),
through the LTO and the LTFRB, has since been tasked with implementing
laws pertaining to land transportation. The LTO is a line agency under the
DOTC whose powers and functions, pursuant to Article III, Section 4(d)[l],
of R.A. No. 4136, otherwise known as Land Transportation and Traffic
Code, as amended, deal primarily with the registration of all motor vehicles
and the licensing of drivers thereof. The LTFRB, upon the other hand, is the
governing body tasked by E.O. No. 202, dated June 19,1987, to regulate the
operation of public utility or “for hire” vehicles and to grant franchises or
certificates of public convenience (“CPC”). Finely put, registration and
licensing functions are vested in the LTO while franchising and regulatory
responsibilities had been vested in the LTFRB.
Under the Local Government Code, certain functions of the DOTC
were transferred to the LGUs, thusly:
“SEC. 458. Powers, Duties, Functions and Compensation.
—

“xxx XXX XXX

“(3) Subject to the provisions of Book II of this Code,

enact ordinances granting franchises and authorizing the

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issuance of permits or licenses, upon such conditions and for

such purposes intended to promote the general welfare of the
inhabitants of the city and pursuant to this legislative authority
shall:
“xxx xxx xxx
“(VI) Subject to the guidelines prescribed by the
Department of Transportation and communications, regulate
the operation of tricycles and grant franchises for the operation
thereof within the territorial jurisdiction of the city.” (Emphasis
supplied)

LGUs indubitably now have the power to regulate the operation of

tricycles-for-hire and to grant franchise for the operation thereof. “To
regulate” means to fix, establish, or control; to adjust by rule, method, or
established mode; to direct by rule or restriction; or to subject governing
principles or laws. A franchise is defined to be a special privilege to do certain
things conferred by government on an individual or corporation, and which
does not belong to citizens generally of common right. On the other hand, “to
register,” means to record formally and exactly, to enroll, or to enter precisely
in a list or the like, and a “driver’s license” is the certificate or license issued
by the government which authorizes a person to operate a motor vehicle. The
devolution of the functions of the DOTC, performed by the LTFRB, to the
LGUs, as so aptly observed by the Solicitor General, is aimed at curbing the
alarming increase of accidents in national highways involving tricycles. It has
been the perception that local governments are in good position to achieve the
end desired by the law making body because of their proximity to the
situation that can enable them to address that serious concern better than the
national government.
It may not be amiss to state, nevertheless, that under Article 458
(a)[3-VI] of the Local Government Code, the power of LGUs to regulate the
operation of tricycles and to grant franchises for the operation thereof is still
subject to the guidelines prescribed by DOTC. In compliance therewith, the
Department of Transportation and Communications (“DOTC”) issued
“Guidelines to Implement the Devolution of LTFRBs

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 TRANSPORTATION LAWS

Franchising Authority over Tricycles-For-Hire to Local Government

units pursuant to the Local Government Code. ” Pertinent provisions of
the guidelines state:
“In lieu of the Land Transportation Franchising and Regulatory
Board (LTFRB) in the DOTC, the Sangguniang Bayan I Sangguniang
Panglungsod (SB/SP) shall perform the following:
“(a) Issue, amend, revise, renew, suspend, or cancel MTOP and
prescribe the appropriate terms and conditions therefore;
“xxx XXX XXX
“Operating Conditions:
“1. For safety reasons, no tricycles should operate on national
highways utilized by 4 wheel vehicles greater than 4 tons and where
normal speed exceed 40 KPH. However, the SB/SP may provide
exceptions if there is no alternative route.
“2. Zones must be within the boundaries of the municipal-
ity/city. However, existing zones within more than one municipal-
ity/city shall be maintained, provided that operators serving said zone
shall secure MTOPs from each of the municipalities/cities having
jurisdiction over the areas covered by the zone.
“3. A common color for tricycles-for-hire operating in the same
zone may be imposed. Each unit shall be assigned and bear an
identification number, aside from its LTO license plate number.
“4. An operator wishing to stop service completely, or to
suspend service for more than one month, should report in writing
such termination or suspension to the SB/SP which originally granted
the MTOP prior thereto. Transfer to another zone may be permitted
upon application.
“5. The MTOP shall be valid for three (3) years, renewable for
the same period. Transfer to another zone, change of ownership of
unit or transfer of MTOP shall be construed as an amendment to an
MTOP and shall require appropriate approval of the SB/SP.
“6. Operators shall employ only drivers duly licensed by LTO
for tricycle-for-hire.

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“7. No tricycle-for-hire shall be allowed to carry more passengers

and/or goods than it is designed for.
“8. A tricycle-for-hire shall be allowed to operate like a taxi service,
i.e., service is rendered upon demand and without a fixed route within a
zone.”
Such as can be gleaned from the explicit language of the statute, as well as
the corresponding guidelines issued by DOTC, the newly delegated powers
pertain to the franchising and regulatory powers therefore exercised by the
LTFRB and not to the functions of the LTO relative to the registration of
motor vehicles and issuance of license for the driving thereof Clearly
unaffected by the Local Government Code are the powers of LTO under R.A.
No. 4136 requiring the registration of all kinds of motor vehicles used or operated
on or upon any public highway in the country. Thus —
“SEC. 5. All motor vehicles and other vehicles must be
registered— (a) No motor vehicle shall be used or operated on or upon
any public highway of the Philippines unless the same is properly
registered for the current year in accordance with the provisions of this
Act.” (Article 1, Chapter II, R.A. No. 4136). (Land Transportation
Office v. City of Butuan, G.R. No. 131512, January 20, 2000, 322
SCRA 805)

EXECUTIVE ORDER NO. 202

CREATING THE LAND TRANSPORTATION FRANCHISING AND

REGULATORY BOARD
WHEREAS, the Department of Transportation and Communications is
vested with, among others, quasi-judicial powers and functions pursuant to
Executive Order No. 125, as amended:
NOW, THEREFORE, I, CORAZON C. AQUINO, president of the
Philippines, do hereby order:
SECTION 1. Creation of the Land Transportation Franchising and
Regulatory Board. — There is hereby created in

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 TRANSPORTATION LAWS

the Department of Transportation and Communications, the Land

Transportation Franchising and Regulatory Board, hereinafter referred
to as the “Board.”
SEC. 2. Composition of the Board. — The Board shall be
composed of a Chairman and two (2) members with the same rank,
salary and privileges of an Assistant Secretary, all of whom shall be
appointed by the President of the Philippines upon recommendation of
the Secretary of Transportation and Communications. One (1)
member of the Board shall be a member of the Bar and shall have
engaged in the practice of law in the Philippines for at least five (5)
years, another a holder of a degree in civil engineering, and the other a
holder of a degree in economics, finance or management both with the
same number of years of experience and practice.
SEC. 3. Executive Director and Support Staff of the Board.
— The Board shall have an Executive Director who shall also be
appointed by the President of the Philippines upon the
recommendation of the Secretary of Transportation and
Communications. He shall have the rank, salary and privileges of a
Department Service Chief. He shall assist the Board in the
performance of its powers and functions.
The Board shall be supported by the Technical Evaluation
Division, Legal Division, Management Information Division,
Administrative Division and Finance Division.
SEC. 4. Supervision and Control Over the Board. — The
Secretary of Transportation and Communications, through his duly
designated Undersecretary, shall exercise administrative supervision
and control over the Land Transportation Franchising and Regulatory
Board.
SEC. 5. Powers and Functions of the Land Transportation
Franchising. — 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

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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 Certificate of
Public Convenience or permits authorizing the operation of public land
transportation services provided by motorized vehicles, and to prescribe
the appropriate terms and conditions therefor;
c. To determine, prescribe and approve and periodically review
and adjust, reasonable fares, rates and other related charges, relative to the
operation of public land transportation services provided by motorized
vehicles;
d. To issue preliminary or permanent injunction, whether
prohibitory or mandatory, in all cases in which it has jurisdiction, and in
which cases the pertinent provisions of the Rules of Court shall apply;
e. To punish for contempt of the Board, both direct and indirect,
in accordance with the pertinent provisions of, and the penalties prescribed
by, the Rules of Court;
f. To issue subpoena and subpoena duces tecum and 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 rulings and to
impose fines and/or penalties for such violations;
h. To review motu proprio the decisions/actions of the Regional
Franchising and Regulatory Office herein created;
i. To promulgate rules and regulations governing proceedings
before the Board and the Regional Franchising and Regulatory Office:
Provided, That except with respect to paragraphs d, e, f and g hereof, the
rules of procedure and evidence prevailing in the courts of law should not
be controlling
f
I'

|.
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 TRANSPORTATION LAWS

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,
standards of measurements and/or design, and rules and regulations
requiring operators of any public land transportation service to equip,
install and provide in their stations such devices, equipment facilities and
operating procedures and techniques as may promote safety, protection,
comfort and convenience to persons and property in their charges as well
as the safety of persons and property within their areas of operations;
l. To coordinate and cooperate with other government agencies
and entities concerned with any aspect involving public land
transportation services with the end in view of effecting continuing
improvement of such services; and
m. To perform such other functions and duties as may be
provided by law, or as may be necessary, or proper or incidental to the
purposes and objectives of this Executive Order.
SEC. 6. Decision of the Board; Appeals therefrom and/ or
Review thereof — The Board, in the exercise of its powers and
functions, shall sit and render its decision en banc. Every such decision,
order, or resolution of the Board must bear the concurrence and signature
of at least two (2) members thereof.
The decision, order or resolution of the Board shall be appealable
to the Secretary within thirty (30) days from receipt of the decision:
Provided, That the Secretary may motu proprio review any decision or
action of the Board before the same becomes final.

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SEC. 7. Creation of Regional Franchising and

Regulatory Offices. — There shall be a Regional Franchising and
Regulatory Office in each of the administrative regions of the country,
which shall be headed by a Board Regional Manager having the rank,
salary and privileges of a Department Assistant Regional Director.
The Regional Franchising and Regulatory Offices shall hear and
decide uncontested applications/petitions for routes, within their
respective administrative regions: Provided, That applications/
petitions for routes extending their respective territorial jurisdiction
shall be heard and decided by the Board.
SEC. 8. Appeals. — The decisions, orders or resolutions of the
Regional Franchising and Regulatory Offices shall be appealable to
the Board within thirty (30) days from receipt of the decision.
SEC. 9. Appropriations. — Funds needed to carry out the
provisions of this Executive Order shall be taken from the funds
available in the Department of Transportation and Communications.
Thereafter, the approved budget of the Board shall be included in the
General Appropriations Act.
SEC. 10. Effectivity. — This Executive Order shall take effect
immediately.
Done in the City of Manila this 19th day of June, in the year of Our
Lord, nineteen hundred and eighty-seven.

RULES OF PRACTICE AND PROCEDURE BEFORE THE LAND

TRANSPORTATION FRANCHISING AND REGULATORY BOARD
OF THE DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS
The Land Transportation Franchising and Regulatory Board of the
Department of Transportation and Communications hereby adopts and
promulgates the following rules of pleadings, practice and procedure
governing hearings before the Board, pursuant to the Public Service Act,
as amended.

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 TRANSPORTATION LAWS

PART I — GENERAL PROVISIONS

Rule 1
TITLE AND CONSTRUCTION
SECTION 1. Title. — The rules shall be known and cited as the
Rules of Practice and Procedure before the Land Transportation
Franchising and Regulatory Board of the Department of Transportation and
Communications.
SEC. 2. Scope.—These rules shall govern pleadings, practice and
procedure before the Land Transportation Franchising and Regulatory
Board in all matters of hearing, investigation and proceedings within the
jurisdiction of the Board. However, to best serve public interest and subject
to the due process clause, the Board may, in any particular matter, except
itself from these rules and apply such fair and reasonable procedures to
assist the parties to obtain a speedy disposition of cases.
SEC. 3. Construction. — These rules shall be liberally construed to
protect and promote public interest and to assist the parties in obtaining just,
speedy, and inexpensive determination of every action or proceeding.
SEC. 4. Definitions. — For the purposes of these rules, the terms:
a) “Board” shall refer to the Land Transportation Franchising
and Regulatory Board of the Department of Transportation and
Communications.
b) “EO ” shall refer to Executive Order No. 202.
c) “Act ” shall refer to C.A. No. 146, as amended.
d) “Chairman” shall refer to the Chairman of the Land
Transportation Franchising and Regulatory Board.
e) “Member ” shall refer to any member of said Board.
f) “En Banc ” shall refer to hearing or deciding of cases by at
least any two (2) of the three (3) composite members of the Board.
g) “Secretary ” shall refer to the Secretary of Transportation and
Communications.

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Rule 2
PARTIES

SECTION 1. Applicant and Oppositor. —Any person or group of

persons, natural or juridical, applying with the Board for a Certificate of
Public Convenience for the operation of public transportation utilities and
services or for any form of authorization within the regulatory powers of the
Board shall be called the Applicant.
Any person having substantial interest capable of pecuniary estimation
in the application who opposes the application shall be called the Oppositor.
For new and additional services, substantial interest shall mean that the line
applied for affects the oppositor because on the line applied for or substantial
portions thereof, the oppositor is authorized to operate and is actually
operating the said service authorized.
SEC. 2. Complainant, Petitioner and Respondent. — Any
aggrieved person or group of persons who filed a complaint on matters
within the jurisdiction of the Board shall be called the complainant, and the
person complained of who may or may not be holder of a Certificate of
Public Convenience shall be called the Respondent.
In seeking remedies for violation of Certificates of Public
Convenience or any form of authorization or relief from orders, rulings,
regulations, standards, specifications or any act of the Board, the one filing
the petition shall be called the Petitioner.
SEC. 3. Appearance by Solicitor General — Whenever the Solicitor
General appears in behalf of the public in applications for approval of rates
with this Board, his appearance shall be considered as representative of all
individuals, consumers or users who have filed their written oppositions to
such applications and who are not represented by counsel.
SEC. 4. Appearance by Consumers or Users. — If individual users
or entities opposing the petition for approval of rates are represented by
several lawyers, they shall choose not more than two among themselves who
shall be allowed by the Board to represent them for that particular hearing.

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Rule 3
PLEADINGS
SECTION 1. Pleading allowed. — The pleadings allowed by these
rules are application, complaint, petition, opposition, answer, and such other
pleadings as the Board may allow.
All pleadings shall be in any of the official languages, English or
Filipino, typewritten or printed as to be sufficiently legible, double space on
legal size white bond paper, and shall be filed in six (6) copies with the
Receiving and Assessment Section of the Technical Evaluation Division.
Every pleading shall contain in methodical and logical form, a plain,
concise and direct statement of the ultimate facts on which the party bases his
claim or defense, as the case may be.
SEC. 2. Verification and Supporting Documents. —Applications
for new services, complaints petitions, oppositions, and answers shall be
verified or accompanied by affidavits of merit and by such documents as
would reasonably tend to establish prima facie the truth of the factual
allegations thereof.
A pleading is verified by an affidavit stating that the person verifying
has read the pleading and that the allegations of facts thereof are true of his
own personal knowledge.
A verification based on “knowledge, information and belief’ shall be
deemed sufficient.
SEC. 3. Application. — By means of an application, the applicant
seeks for authorization or permission to undertake any matter within the
power of the Board under the Act and/or E.O. and the issuance of certificate
of public convenience in appropriate cases.
SEC. 4. Complaint. — The complaint is a concise statement of the
ultimate facts constituting the acts or matters complained of within the power
of the Board, and shall specify the relief sought. The names and addresses of
the complainants and the respondents must be stated in the complaint, and
whenever practicable, the date, place and hour of the commission of the
alleged act or omission.

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SEC. 5. Petition. — A petition is a pleading covering any matter within

the jurisdiction of the Board as provided in the Act and the E.O. concerning a
controversy against any person whether a holder or not of Certificate of Public
Convenience or grantee of any Board Order, ruling, resolution or act.
SEC. 6. Answer. — An answer is a pleading in which the respondent sets
forth the defense upon which he relies. The respondent to whom an order is
issued by the Board to show cause or otherwise summoned to answer, shall file
and answer within ten (10) days from receipt of the order. The answer shall
admit or deny the material allegations of facts stated in the show cause order or
in the complaint or petition. Whenever practicable, the respondent shall attach to
his answer such documents and affidavits in support of his allegations.
The respondent may seek an affirmative relief.
SEC. 7. Amendment. —Amendment to the pleading which consists in the
modification or supplement to an application, complaint, petition, answer or
other pleading must comply with the requirements of these rules. Amendments
may be made as a matter of right at any time before a responsive pleading has
been filed, and thereafter only with leave of the Board.
If a responsive pleading has been filed by any oppositor or respondent, a
copy of the amended pleading should be served on the oppositor or respondent.
The latter may amend his opposition or answer within five (5) days from receipt
of amended application, complaint or petition and thereafter only with leave of
the Board.
SEC. 8. Amendment to conform to the evidence. — When issues not
raised by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects as if they have been raised in the pleadings. If
evidence upon new issues is objected to on the ground that it is not within the
issues raised in the pleadings, the Board may allow the pleading to be amended
and receive such evidence when it appears that the presentation of the merits of
the proceeding will be served thereby without prejudicing the public interest or
the right of the parties. The Board may grant a continuance to enable the
objecting party to meet such evidence.

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SEC. 9. Directed amendments. — The Board, may, at any time, on its

own motion or upon motion of any party, direct a party to amend his pleading in
order to state his case more fully or in a more specific manner. Such amendment
shall be reduced in writing and filed within such time as may be fixed by the
Board, and shall comply with the requirements of the rule pertaining to the
pleading amended insofar as appropriate.

Rule 4

MOTIONS

SECTION 1. Scope and Contents. — Every application for any

procedural or interlocutory ruling or relief may be made by a motion. A motion
shall be in writing and shall state the ruling or relief sought to be obtained and
the grounds upon which it is based, and if necessary shall be accompanied by
supporting affidavits and other documents. The requirements of Rule 3 insofar
as applicable shall apply to all written motions. However, every ancillary
motion for temporary/ special authorization or proposed services or rates shall
be governed by Section 3, Rule 15.
SEC. 2. Form. — All motions shall be in writing except motions for
continuance made in the presence of the adverse party, or those made in the
course of a hearing. All written motions shall be served to all parties concerned
at least three (3) working days before the hearing thereof.
SEC. 3. Notice. — Written motions shall contain a notice setting the
hearing thereof at a specified date and time. All parties must be furnished copies
of the Motions. However, for good cause shown, the Board may hear a motion
on shorter notice.
SEC. 4. Proof of Service. — The Board shall not act upon any motion
without proof of service of notice thereof on all parties. When the service of
notice is made by registered mail, the submission of registry return cards and
registry receipt is sufficient compliance with the proof of service required
herein.

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SEC. 5. Ex-Parte Motions. — Ex-Parte motions shall be acted upon by

the Board only upon showing of urgent necessity therefor and the rights of the
opposing party are not substantially impaired. However, opposing party/ies
must always be furnished copies of said motions.
Rule 5
FILING, SERVICE OF PLEADING
AND PUBLICATION
SECTION L Filing. — A l l pleadings, motions, documents and other
papers required or allowed to be filed shall be filed with the Receiving and
Assessment Section.
SEC. 2. Acceptance for filing. — Only pleadings, motions, documents,
and other papers, which conform to the formal requirements of these Rules,
shall be accepted for filing. Acceptance for filing is not a waiver of failure to
comply with the Rules and such failure may be a cause for striking off all or
part of such pleading filed.
SEC. 3. Service upon parties. — All pleadings, documents, and other
papers tendered to the Receiving and Assessment Section of the Board for
filing shall show proof of service thereof upon all parties to the proceeding.
Such service shall be made by personal delivery or by registered mail, properly
addressed, with postage prepaid, of one (1) confirmed copy to each party,
together with all annexes attached thereto.
SEC. 4. Service upon Parties represented by Attorneys. — When any
party has appeared by attorney, service upon him shall be made upon his
attorney or any of his attorneys of record.
SEC. 5. Service of orders. —All decisions, orders, and resolutions of
the Board shall be served upon all parties or their attorneys who have entered
their appearance either by personal delivery or registered mail.
SEC. 6. Extension of time. — Whenever by any order of the Board, a
pleading, motion or document is required to be filed within a fixed time or
period, the Board may, for good cause shown, extend the period upon motion
made before the terms as may be just, allow or permit any pleading to be filed
after the time fixed by these Rules.

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Rule 6
PRE-HEARING CONFERENCE
SECTION 1. Purpose. — Whenever the Board finds that a formal
hearing should be held on any matter in dispute within the jurisdiction of the
Board, it shall, after the last pleading is filed, set a pre-hearing conference
between/among the parties together with their attomey/s and the Board at
such time as the nature of the proceeding and the public interest may permit
or require for the purpose of adopting means or procedures as may aid in the
prompt disposition of the matter or action.
SEC. 2. Scope. — All parties and their respective attorneys are
required to appear before the Board to consider the following:
a) The possibility and advisability of a consented decree for
voluntary compliance or desistance on certain terms and conditions;
b) The simplification of the issues;
c) The obtaining of admission, or stipulation of fact, not remaining
in dispute, or the authenticity of documents, which may properly shorten the
hearing;
d) The limitation of the number of witnesses;
e) Admissibility and competence of evidence proposed to be
submitted by a party; and
f) Such other matters as may be of aid in the speedy disposition
of the case.
All the parties and their attorneys shall attend the pre-hearing
conference. The presence of a party is indispensable unless his counsel is
authorized to enter into an agreement on any or all of the above matters.
SEC. 3. Judgment on the pleadings and summary judgment at
pre-hearing. — If at the pre-hearing, the Board finds that facts exist upon
which a decision on the pleadings or a summary decision may be made, a
decision on the pleadings or a summary decision may be rendered as
justice may require.

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SEC. 4. Records of pre-hearing proceedings. — After a pre- hearing,

the Board shall make an order, which recites the action at the conference, the
amendments allowed in the pleadings, and/or the agreements made by the parties
as to any of the matters considered. Such order shall limit the issues for hearing,
to those not disposed of by admission and agreements of the parties/counsel, and
when entered controls the subsequent course of the proceeding, unless modified
before the formal hearing to prevent manifest injustice.

Rule 7
APPLICATION
SECTION 1. How commenced. — Any proceeding the object of which is
to obtain a certificate of public convenience or any form of authorization under
the E.O. and/or Act shall be commenced by the filing of the corresponding
application and the payment of the required fee.

SEC. 2. Contents. — The application shall contain a concise statement of

the service proposed or authorization applied for, and the ultimate facts that
would qualify or entitle the applicant to the grant of the certificate, privilege, or
authorization.
When the application is predicated on a franchise, sale, lease, mortgage,
or any other contract, such franchise or contract shall be impleaded in the
application by alleging in substance its salient provisions and appending to the
application a copy of the franchise, contract or pertinent document.

Rule 8
NOTICE OF HEARING
SECTION 1. Issuance of the Notice of Hearing . — After the filing of
the application and the payment of the required fees, the application shall be
docketed, and after a technical evaluation of the case, the Legal Division shall
issue the notice of hearing and furnish the list of affected parties to the applicant
for compliance with the Board’s jurisdictional requirements.

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SEC. 2. Publication and serving. —The applicant shall cause the

notice of hearing to be published once in one (1) newspaper of general
circulation at least ten (10) days before the date of hearing provided that if an
application covers only one (1) region, publication in the local newspaper
circulated within that region is sufficient, and serve copies of the same
together with copies of the application to all affected parties, as furnished by
the Board.

Rule 9

OPPOSITION

SECTION 1. Contents. — Within the time stated in the notice of

hearing, a written opposition, not a motion to dismiss, may be filed against
an application with copy served upon the applicant, in which the oppositor
shall state concisely his right or interest affected by the application and the
ultimate facts constituting all his grounds for opposition, including all
grounds for a motion to dismiss.
When any ground for a motion to dismiss is alleged in the opposition,
the proceeding shall be taken as though a motion to dismiss has been filed.

PART II — PROCEDURE IN COMPLAINTS

Rule 10
COMPLAINTS
SECTION 1. How commenced. — Any action, the object of which is to
subject a holder of a certificate of public convenience or authorization or any
person operating without authority from the Board to any penalty that may be
taken in the public interest by the Board, or violation by such holder or any
person of the provisions of the E.O. and/ or the Act, or the terms and conditions
of his certificate or any order, decision, or regulations of the Board, shall be
commenced by the filing of a complaint.
SEC. 2. Filing. — All complaints based on the official report of an
agent or inspector of the Board or any other person deputized in

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writing hy Che Board, shall be filed in the name of the appropriate unit of the
Board, including all complaints based on the sworn statement of any public
utility user, other private individual, and those made by any competing operator.
Upon filing of the complaint and payment of the required fees, the Office of the
Executive Director shall cause the case to be docketed.
SEC. 3. Prosecution. — All complaints, other than commenced by a
private party represented by counsel, or by a competing operator, shall be
prosecuted under the direction and control of the Legal Division of the Board.
SEC. 4. Sufficiency of complaints. —A complaint is sufficient if it
conforms to Section 3 of Rule 4.
SEC. 5. Separate allegations. — Whenever two or more offenses are
charged in one (1) complaint, each offense must be separately alleged.

Rule 11
SUMMONS
SECTION 1. Duty of the Legal Division. — When the complaint is
sufficient in form and substance in accordance with these Rules, it shall be the
duty of the Chief of Legal Division to promptly issue the summons together
with a copy of the complaint to the respondent.
SEC. 2. Contents. — The summons shall be under the signature of the
Chief of the Legal Division directing the respondent to answer the complaint
within ten (10) days from receipt of the summons and to appear and produce
evidence on the date and hour stated herein.

Rule 12
ANSWER
SECTION 1. Contents.—Within the time stated in the summons, a
written answer, not a motion to dismiss, shall be filed with the Board, a copy
of which shall be served by the respondent to the complainant. The
respondent, in his answer, shall admit or deny specifically the

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material allegations in the complaint, and state all his lawful defenses, including all
grounds for a motion to dismiss.
When any ground for a motion to dismiss is alleged in the answer, the
proceeding shall be taken as though a motion to dismiss had been filed.

PART III — SUMMARY PROCEEDINGS

Rule 13
ORDER TO SHOW CAUSE

SECTION 1. When applicable. — Based on the official report of an agent

or any person deputized in writing by the Board, or the credible sworn statement of
any offended party, the Board instead of acting according to the procedure
indicated for complaints, may, when public interest requires, issue an order
directing a respondent to appear before the board within seventy-two (72) hours
from receipt of the order and show cause why his certificate should not be
cancelled or suspended for the cause stated in the report or complaint.
This summary proceeding shall apply only in cases where the respondent is
reported to have or will continue to cause death, physical injuries, defraudation of
public utility users, or willfully or contumaciously refuse to comply with the orders,
rules or regulations of the Board, or any provisions of the E.O. and the Act.
The Board may prior to the hearing, suspend for a period not exceeding thirty
(30) days any certificate or the exercise of any right or authority issued or granted
under the Act or E.O., whenever it is necessary to avoid the causes mentioned in the
preceding paragraph.
SEC. 2. Contents. — The order to show cause shall include a statement in
substance of the violation reported or complained of; and whenever practicable, there
shall be appended to it a copy of the report or complaint upon which the order is based.
SEC. 3. Non-Appearance. — Whenever the respondent failed to appear on the date
and hour specified in the show cause order, the Board

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shall issue an order requiring such respondent to explain why he should not be
declared in contempt of the Board.
SEC. 4. Explanation without appearance. — Whenever the respondent
mentioned in the immediately preceding sections failed to appear but filed a
written explanation whether or not supported by any documentary evidence, the
show cause order against respondent shall be deemed submitted for resolution
based on the available evidence without further arguments.

PART IV — EVIDENCE

Rule 14
RECEPTION OF EVIDENCE
SECTION 1. Composition of the Board. — The Board shall be composed
of a Chairman and two members who shall sit and render decision en banc.
SEC. 2. Hearing before the Board. — All powers necessary to be
exercised in the hearing of cases when vested in the Board shall be considered
vested upon the Chairman and the two (2) members. The Board shall proceed to
hear and determine according to the merit of the case and provided that all cases
may be delegated for reception of evidence to the Hearing Officer who shall
submit a report on the evidence so received together with recommendations to
enable the Board to render its decision.
SEC. 3. Uncontested proceedings.—When in the initial pleading it
appears that public interest requires the granting of the relief or authorization
requested and there is no opposition not contest thereto and it is properly certified
that there is no operator adversely affected, the Board shall terminate the
proceeding upon consideration of the pleadings and the supporting affidavits and
attached documents.
SEC. 4. Consolidation. — The Board, on its own initiative, or upon motion
of a party, may hold a joint hearing in proceedings involving common questions
of law or facts. However, upon motion of any interested party, a separate hearing
may be held on issues peculiar only to the movants.

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SEC. 5. Appearance. — Any party to a hearing may appear in person or by

any attorney admitted to practice law in the Philippines who is a member of the
Integrated Bar of the Philippines (IBP) and has paid professional tax and IBP dues
for the current year.
SEC. 6. Notice of appearance. — No attorney shall appear before the
Board in behalf of a party without first serving and filing a written notice of
appearance, unless such attorney signed the initial pleading of the party he
represents, or manifests in open court his appearance or makes a special appearance
for the attorney of record to postpone the case, stating therein his Membership in
the Integrated Bar of the Philippines and the payment of his professional tax and
IBP dues for the current year.
SEC. 7. Order on procedure. — As far as practicable, the following order
shall be followed in the presentation of evidence:
(a) The presentation of evidence shall commence with the party initiating
the proceedings by presenting his evidence with the offering of affidavits and
supporting documents attached to his pleading, and such additional evidence as he
may wish to present in consolidated proceedings, all parties initiating the
consolidated proceedings shall first present their evidences; and
(b) The party or parties opposing the grant of the relief sought shall then
present their evidences; and
(c) Presentation of rebuttal or surrebuttal evidence may be allowed at the
discretion of the Board.
SEC. 10. Deposition. — Where the witnesses reside in places distant from
the offices of the Board and it would be inconvenient and expensive for them to
appear personally before the Board, the Board upon the written request of any
party, may authorize a municipal or city judge, or the Clerk of Court of the
Regional Trial Court to take the depositions of witnesses in any case pending
before the Board, substantially in accordance with the provisions of Rule 24 of the
New Rules of Court.
Unless the Board orders otherwise, cases in which depositions are taken
according to the procedure stated above, shall be considered

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submitted for decision on the basis of such deposition after tiling with the Board.
SEC. 11. Regular Hearing. —- All hearings for reception of evidence of
delegated cases from the Board to a Hearing Officer shall be subject to the
provisions of these Rules.
SEC. 12. Transcript and records. — Hearings shall be stenographically
recorded by the official stenographer of the Board, and his transcript of
stenographic notes shall be part of the records and the sole official transcript of the
proceedings. Parties desiring copies of such transcript may obtain the same from
official stenographers upon payment of the fees prescribed therefor.

PART V — DECISIONS AND ORDERS

Rule 15
DECISIONS AND ORDERS
SECTION 1. How rendered. — In every case heard by the Board, all
orders, rulings, decisions and resolutions disposing of the merits of the matter
within its jurisdiction shall be reached with the concurrence of any two (2) of
the composite members after deliberation and consultation, and thereafter
assigned to a member for the deliberation and consultation, and thereafter
assigned to a member for the writing of the opinion. Any member dissenting
from the order, ruling, decision or resolution shall state in writing the reason for
his dissent.
SEC. 2. Form and contents. —All orders, rulings, decisions and
resolution determining the merits of matters within the jurisdiction of the Board
shall be in writing, stating clearly and distinctly the facts and the law on which it
is based. They shall be filed with the Executive Director who shall, within three
(3) days from receipt thereof, cause true copies thereof to be served upon their
counsel, if any, otherwise upon the parties.
SEC. 3. Provisional relief. — Upon the filing of an application,
complaint or petition or at any stage thereafter, the Board may, if the case is
uncontested, grant on motion of the pleaders or on its own

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initiative, the relief prayed for, based on the pleading, together with the affidavits
and supporting documents attached thereto, without prejudice to a final decision
after the termination of the hearing which shall be called within thirty (30) days
from issuance of an order granting the relief prayed for. If contested, the Board
may, after notice and hearing, grant the provisional relief, it there exists a
compelling and urgent reason for the grant of such relief. However, in the broader
interest of the public, the Board may exempt petitions for increase of rates from
this rule and adopt the procedure mentioned in Rule 1, Section 2 for a fair and
speedy adjudication of said petition.
SEC. 4. Decision. — The Board shall render a decision, order, ruling or
resolution.
a) In non-contestedproceedings. — When the Board is satisfied that
the pleading, together with the supporting affidavits and documents, establishes
the right of the party to the relief prayed for, and there is no opposition thereto,
said Board shall, within fifteen (15) days after the case has been submitted for
resolution, render an order or decision on the matter.
b) In contested proceedings. — The Board shall render a decision,
ruling or resolution within sixty (60) days after the case has been submitted for
decision, unless the evidence submitted is so voluminous and the issues so
complicated requiring a longer period to prepare and render a decision or
resolution.
c) Grant of other relief. — In all decisions, orders, ruling or
resolution, the Board may grant such other relief or impose such terms it may
deem necessary in order to promote public interest.
SEC. 5. Execution order, ruling, decision, or resolution. — The
order, ruling, decision or resolution of the Board shall take effect immediately
and shall become final unless motu proprio reviewed by the Secretary or an
appeal is filed within thirty (30) days from receipt of the order, ruling or
decision.
SEC. 6. Compilation and publication of decisions. — The Executive
Director shall compile all final decisions and resolutions of the Board
including final decisions of the Supreme Court or Court of

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Appeals relevant to cases and proceedings before the Board if any. and shall cause
them to be printed by the Bureau of Printing in bound and numbered volumes.

PART VI — REOPENING, RECONSIDERATION,

AND APPEAL
Rule 16

MOTIONS FOR REOPENING OR RECONSIDERATIONS

SECTION 1. Motion for re-opening. — Any party may file a motion for
reopening of the proceeding at any time after the presentation of evidence has been
completed but before promulgation of a decision, order, ruling or resolution, if
during that period there should occur or arise transactions, events or matters,
whether factual or legal which would change the situation of the parties.
SEC. 2. Motion for reconsideration of decisions. — A party adversely
affected by a decision, order, ruling or resolution may within fifteen (15) days from
receipt of a copy thereof, file a motion for reconsideration. No more than one
motion for reconsideration by each party shall be entertained unless otherwise
permitted by the Board.
SEC. 3. Service and hearing. — The motions allowed by this Rule shall be
served upon all parties on record and shall be set for hearing within ten (10) days
from service thereof.
SEC. 4. Opposition. — Any party to the proceeding may file an opposition
to the motions allowed by this Rule accompanied by supporting affidavits and
documents, and serving a copy thereof upon the movants.

Rule 17
APPEAL
SECTION 1. Appeal. —Any party may appeal the order, ruling, or decision
of the Board to the Secretary. However, interlocutory orders cannot be the subject
of an appeal. The Secretary may motu proprio review any order, ruling or decision
of the Board.

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SEC. 2. Procedure on appealed cases. — In case of an appeal under

the preceding section, the following rules shall apply:
a) An appeal from an order, decision or ruling of the Board shall
be perfected by filing with the Board a Notice of Appeal and with the
Secretary, within a period of thirty (30) days from notice of such order,
ruling or decision; copy of the Notice of Appeal must be furnished all
parties to the case;
b) No appeal shall be entertained by the Secretary unless it is
shown that a Motion for Reconsideration from the order, ruling or
decisions has been filed with the Board and the same has been denied;
c) Upon the filing of the Notice of Appeal, the appellant shall pay
with the Board an appeal fee of Two Hundred (P200.00) pesos,
whereupon, the Board shall act on the Notice of Appeal and shall transmit
the certificate of payment of the appeal fee to the Secretary;
d) Within five (5) days from receipt of the certificate from the
Board, the Secretary shall notify and require the Board to forward the
record of the case. Within five (5) days from such notice, the whole record
shall be forwarded to the Office of the Secretary. When the appeal does not
require a review of the entire record of the case, only pertinent documents
or part of the record shall be forwarded to the Secretary;
e) Immediately upon receipt of the records of the case and/or
documents mentioned in the preceding paragraph, the Secretary shall
inform the appellant thereof, and shall issue an order requiring the
appellant to file within ten (10) days from receipt of the order a position
paper together with the documents or evidence supporting the appeal. The
appellant may file his/her position paper simultaneously within the filing
of the Notice of Appeal;
f) Appellant’s position paper shall contain the following data/
matters:
(1) Exact date of the appealed order, ruling decision;
(2) Exact date when the appealed order, ruling or decision
was received by him;
(3) Information regarding compliance with the requirements
for appeal under these rules;

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(4) Brief statement of the case and the facts;

(5) Reasons or grounds for appeal;
(6) Arguments in support of the appeal; and
(7) Relief sought.
The Secretary may require the tiling of additional pleadings to provide
additional information;
g) Any party filing the required pleading or documents and other
pleadings pertinent to the appealed case shall furnish the adverse party/ies,
including the Board, copies thereof;
h) Upon receipt of the appellant’s position paper, the Secretary shall
issue an order requiring the adverse party/ies to file within fifteen (15) days
from receipt of the order an answer, reply, comment or counterposition paper.
Additional facts being adverted to in the comment or counter-position paper
must be verified;
i) Unless other pleadings are required by the Secretary, the appealed
case shall be considered submitted for resolution when the papers above
mentioned have been filed. Parties may, upon request, file their respective
memorandum.
SEC. 3. Effect of Appeal — The appeal shall not stay the award, order or
decision of the Board unless the Secretary shall direct otherwise upon such
terms as he may deem just.
SEC. 4. Appeal from the order of the Secretary. — The order of the
Secretary in appealed case shall be appealable within thirty (30) days from
receipt thereof in accordance with the provisions of the Rules of Court.
PART VII — RECONSTITUTION OF RECORDS
Rule 18
RECONSTITUTION
SECTION 1. Petition. — Any interested party may, by petition, apply
for the reconstitution of lost or destroyed records of any case or proceeding
before the Board, the Land Transportation Commission or of the defunct
Public Service Commission.

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SEC. 2. Contents. — The petition shall be in writing with a copy

served upon all affected parties, and shall state the title, case number and
the parties in the case or proceeding desired to be reconstituted; the reason
or reasons for its destruction or loss, if known, and that the party seeking its
reconstruction has exhausted all means to locate said records to no avail.
SEC. 3. Notice of publications. — The provisions of Rule 8 of these
Rules shall be observed in the issuance and publication of the notice of
hearing of the petition for reconstitution unless otherwise modified by the
Board having jurisdiction on the subject matter.
SEC. 4. Applicability of certain rules. — The rules governing
procedure in application for the issuance of certificate of public
convenience as provided in Part II of these Rules shall be applicable for the
reconstitution of lost or destroyed records.
SEC. 5. Order. — After hearing the parties the Board on the basis of
available records and testimonies of witnesses, may grant or deny the
petition or issue such orders justice may require.

PART VIII — MISCELLANEOUS PROVISIONS

Rule 19
APPLICABILITY OF THE RULES OF COURT
SECTION 1. Rules of Court — The provisions of the Rules of Court
applicable to proceedings before the Regional Trial Court, which are not
inconsistent with these Rules, shall apply in an analogous and suppletory
character whenever practicable and convenient.

Rule 20
APPLICABILITY OF THIS RULE TO THE REGIONAL
FRANCHISING AND REGULATORY OFFICES

SECTION 1. Applicability. — This Rule shall apply whenever

practicable to all cases filed before the Regional Franchising and
Regulatory Offices within their jurisdiction.

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Rule 21
REPEALING CLAUSE
SECTION I. Repeal. — All prior rules, regulations or practices
heretofore followed in the Board, which are inconsistent with these Rules, are
hereby repealed.

Rule 22
EFFECTIVITY
SECTION L Effectivity. — These Rules shall take effect after fifteen
(15) days following their publication in any newspaper of national circulation or
in the Official Gazette.
Approved in Quezon City, Philippines, this 8th of March 1988.

KABIT SYSTEM

Section 20
Commonwealth Act No. 146
Section 20. Acts requiring the approval of the Commission. —
Subject to established limitations and exceptions and saving provisions
to the contrary, it shall be unlawful for any public service or for the
owner, lessee or operator thereof, without the approval and
authorization of the Commission previously had —
(a) To adopt, establish, fix, impose, maintain, collect or carry
into effect any individual or joint rates, commutation, mileage or other
special rate, toll, fare, charge, classification or itinerary. The
Commission shall approve only those that are just and reasonable and
not any that are unjustly discriminatory or unduly preferential, only
upon reasonable notice to the public services and other parties
concerned, giving them a reasonable opportunity to be heard, and the
burden of the proof to show that the proposed rates or regulations are
just and reasonable shall be upon the public service proposing the
same.

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(b) To establish, construct, maintain, or operate new units or

extend existing facilities or make any other addition to or general
extension of the service.
(c) To abandon any railroad station or stop the sale of passenger
tickets, or cease to maintain an agent to receive and discharge freight at
any station now or hereafter established at which passenger tickets are
now or may hereafter be regularly sold, or at which such agent is now or
may hereafter be maintained, or make any permanent change in its time
tables or itineraries on any railroad or in its service.
(d) To lay any railroad or street railway track across any
highway so as to make a new crossing at grade, or cross the tracks of any
other railroad or street railway, provided that this subsection shall not
apply to replacements of lawful existing tracks.
(e) Hereafter to issue any stock or stock certificates representing
an increase of capital; or issue any share of stock without par value; or
issue any bonds or other evidence of indebtedness payable in more than
one year from the issuance thereof, provided that it shall be the duty of
the commission, after hearing, to approve any such issue maturing in
more than one year from the date thereof, when satisfied that the same is
to be made in accordance with law, and the purpose of such issue be
approved by the Commission.
(f) To capitalize any franchise in excess of the amount, inclusive
of any tax or annual charge, actually paid to the Government of the
Philippines or any political subdivision thereof as the consideration of
said franchise; capitalize any contract for consolidation, merger, or lease,
or issue any bond or other evidence or indebtedness against or as a lien
upon any contract for consolidation, merger, or lease: Provided, however,
That the provisions of this section shall not prevent the issuance of stock,
bonds, or other evidence of indebtedness subject to the approval of the
commission by any lawfully merged or consolidated public services not in
contravention of the provisions of this section.

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(g) To sell, alienate, mortgage, encumber or lease its property,

franchises, certificates, privileges, or rights, or any part thereof; or
merge or consolidate its property, franchises, privileges or rights, or
any part hereof, with those of any other public service. The approval
herein required shall be given, after notice to the public and after
hearing the persons interested at a public hearing, if it be shown that
there are just and reasonable grounds for making the mortgage or
encumbrance, for liabilities of more than one year maturity, or the
sale, alienation, lease, merger, or consolidation to be approved, and
that the same are not detrimental to the public interest, and in case of
a sale, the date on which the same is to be consummated shall be fixed
in the order of approval: Provided\ however, That nothing herein
contained shall be construed to prevent the transaction from being
negotiated or completed before its approval or to prevent the sale,
alienation, or lease by any public service of any of its property in the
ordinary course of its business.
(h) To sell or register in its books the transfer or sale of shares
of its capital stock, if the result of that sale in itself or in connection
with another previous sale, shall be to vest in the transferee more
than forty per centum of the subscribed capital of said public service.
Any transfer made in violation of this provision shall be void and of
no effect and shall not be registered in the books of the public service
corporation. Nothing herein contained shall be construed to prevent
the holding of shares lawfully acquired. (As amended by Com. Act No.
454)
(i) To sell, alienate or in any manner transfer shares of its
capital stock to any alien if the result of that sale, alienation, or
transfer in itself or in connection with another previous sale shall be
the reduction to less than sixty per centum of the capital stock
belonging to Philippine citizens. Such sale, alienation or transfer
shall be void and of no effect and shall be sufficient cause for
ordering the cancellation of the certificate.
(j) To issue, give or tender, directly or indirectly, any free
ticket, free pass or free or reduced rate of transportation for
passengers, except to the following persons: (1) officers, agents,
employees, attorneys, physicians and surgeons of said public

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service, and members of their families; (2) inmates of hospitals or

charity institutions, and persons engaged in charitable work;
(3) indigent, destitute, and homeless persons when transported by
charitable societies or hospitals, and the necessary agents employed
in such transportation; (4) the necessary caretakers, going and
returning, of livestock, poultry, fruit, and other freight under
uniform and non-discriminatory regulation; (5) employees of
sleeping car corporations, express corporations and telegraph and
telephone corporations, railway and marine mail service
employees, when traveling in the course of their official duty;
(6) post-office inspectors, customs officers and inspectors, and
immigration inspectors when engaged in inspection; (7) witnesses
attending any legal investigation in which the public service is an
interested party; (8) persons injured in accidents or wrecks, and
physicians and nurses attending such persons; (9) peace officers
and men of regularly constituted fire departments. (As amended by
Com. Act No. 454)
(k) Adopt, maintain, or apply practices or measures, rules
or regulations to which the public shall be subject in its relations
with the public service.
Kabit System is an arrangement whereby a person who has been
granted a certificate of convenience allows another person who
owns motor vehicles to operate under such franchise for a fee.
Lita Enterprises v. Second Civil Cases Division,
Intermediate Appellate Court, Nicasio M.
Ocampo and Francisca P. Garcia
G.R. No. L-64693, April 27,1984
FACTS: Sometime in 1966, the spouses Nicasio M. Ocampo and
Francisca Garcia, herein private respondents, purchased in installment
from the Delta Motor Sales Corporation five Toyota Corona Standard cars
to be used as taxicabs. Since they had no franchise to operate taxicabs, they
contracted with petitioner Lita Enterprises, Inc., through its representative,
Manuel Concordia, for the use of the latter’s certificate of public
convenience in consideration of an initial payment of PI,000

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and a monthly rental of P200 per taxicab unit. To effectuate said agreement,
the aforesaid cars were registered in the name of petitioner Lita Enterprises,
Inc. Possession, however, remained with the spouses Ocampo who operated
and maintained the same under the name Acme Taxi, petitioner’s trade name.
About a year later, on March 18,1967, one of said taxicabs driven by
their employee, Emeterio Martin, collided with a motorcycle whose driver,
one Florante Galvez, died from the head injuries sustained therefrom. A
criminal case was eventually filed against the driver Emeterio Martin, while a
civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir
of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab.
In the latter case, Civil Case No. 72067 of the Court of First Instance of
Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in
the amount of P25,000 and P7,000 for attorney’s fees.
This decision having become final, a writ of execution was issued. One
of the vehicles of respondent spouses with Engine No. 2R-914472 was levied
upon and sold at public auction for P2,150 to one Sonnie Cortez, the highest
bidder. Another car with Engine No. 2R-915036 was likewise levied upon and
sold at public auction for P8,000 to a certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to
register his taxicabs in his name. He requested the manager of petitioner Lita
Enterprises, Inc., to turn over the registration papers to him, but the latter
allegedly refused. Hence, he and his wife filed a complaint against Lita
Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety &
Insurance Co., and the Sheriff of Manila for reconveyance of motor vehicles
with damages, docketed as Civil Case No. 90988 of the Court of First Instance
of Manila. Trial on the merits ensued and on July 22, 1975, the said court
rendered a decision, dismissing the complaint as far as defendants Rosita
Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the
Sheriff of Manila are concerned.
“Defendant Lita Enterprises, Inc., is ordered to transfer the registration
certificate of the three Toyota cars not levied upon with Engine Nos.
2R-230026, 2R-688740 and 2R-585884 by executing a deed of conveyance in
favor of the plaintiff.”

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“Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in
arrears for the certificate of convenience from March 1973 up to May 1973 at
the rate of P200 a month per unit for the three cars.”
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the
Intermediate Appellate Court modified the decision by including as part of its
dispositive portion another paragraph, to wit:
“In the event the condition of the three Toyota cars will no longer serve
the purpose of the deed of conveyance because of their deterioration, or
because they are no longer serviceable, or because they are no longer
available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair
market values as of July 22, 1975.”
ISSUE: Whether the decision of the Trial Court and the Court of
Appeals are correct.
HELD: Unquestionably, the parties herein operated under an
arrangement, commonly known as the “habit system, ” whereby a person
who has been granted a certificate of public convenience allows another
person who owns motor vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege by the grantees thereof
cannot be countenanced. The “kabit system ” has been identified as one of
the root causes of the prevalence of graft and corruption in the government
transportation offices. In the words of Chief Justice Makalintal, “this is a
pernicious system that cannot be too severely condemned. It constitutes an
imposition upon the good faith of the government.”
Although not outrightly penalized as a criminal offense, the “kabit
system ” is invariably recognized as being contrary to public policy and,
therefore, void and inexistent under Article 1409 of the Civil Code. It is a
fundamental principle that the court will not aid either party to enforce an
illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts
to have accorded the parties relief from their predicament. Article 1412 of the
Civil Code denies them such aid.
“Ex pacto illicito non oritur action ” (No action arises out of an illicit
bargain) is the time-honored maxim that must be applied to the

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parties in the case at bar. Having entered into an illegal contract, neither can seek
relief from the courts, and each must bear the consequences of his acts.
The defect of inexistence of a contract is permanent and incurable, and cannot
be cured by ratification or by prescription. As this court said in Eugenio v. Perdido,
“the mere lapse of time cannot give efficacy to contracts that are null and void.”
The principle of in pari delicto is well known not only in this jurisdiction but
also in the United States where common law prevails. Under American jurisdiction,
the doctrine is stated thus: “The proposition is universal that no action arises, in
equity or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or damages
for its violation. The rule has sometimes been laid down as though it was equally
universal, that where the parties are in pari delicto, no affirmative relief of any kind
will be given to one against the other.” Although certain exceptions to the rule are
provided by law, the Court see no cogent reason why the full force of the rule should
not be applied in the instant case.

Abelardo Lim and Esmadito Gunnaban

v. Court of Appeals and Donato H. Gonzales
G.R. No. 125817, January 16, 2002
FACTS: Sometime in 1982 private respondent Donato Gonzales
purchased an Isuzu passenger jeepney from Gomercjno Vallarta, holder of a
certificate of public convenience for the operation of public utility vehicles
plying the Monumento-Bulacan route. While private respondent Gonzales
continued offering the jeepney for public transport services, he did not have the
registration of the vehicle transferred in his name nor did he secure himself a
certificate of public convenience for its operation. Thus, Vallarta remained on
record as its registered owner and operator.
On July 22, 1990, while the jeepney was running northbound along the
North Diversion Road somewhere in Meycauayan, Bulacan, it collided with a
ten-wheeler-truck owned by petitioner Abelardo Lim

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and driven by his co-petitioner Esmadito Gunnaban. Gunnaban owned

responsibility for the accident, explaining that while he was traveling
towards Manila the truck suddenly lost its brakes. To avoid colliding with
another vehicle, he swerved to the left until he reached the center island.
However, as the center island eventually came to an end, he veered further
to the left until he smashed into a Ferroza automobile, and later, into
private respondent’s passenger jeepney driven by one Virgilio Gonzales.
The impact caused severe damage to both the Ferroza and the passenger
jeepney, and left one passenger dead and many others wounded. Petitioner
Lim shouldered the costs for hospitalization of the wounded, compensated
the heirs of the deceased passenger, and had the Ferroza restored to good
condition. He also negotiated with private respondent and offered to have
the passenger jeepney repaired at his shop. Private respondent, however,
did not accept the offer of Lim. Instead, private respondent demanded a
brand-new jeep or the amount of P236,000. Under the circumstances,
negotiations had to be abandoned; hence, the filing of the complaint for
damages by private respondent against petitioners.
On October 1, 1993, the trial court upheld private respondent’s
claim and awarded him P236,000 with legal interest from July 22, 1990 as
compensatory damages, and P30,000 as attorney’s fees. In support of its
decision, the trial court ratiocinated that as vendee and current owner of the
passenger jeepney, private respondent stood for all intents and purposes as
the real party in interest. Even Vallarta himself supported private
respondent’s assertion of interest over the jeepney for, when he was called
to testify, he dispossessed himself of any claim or pretension on the
property. On the other hand, petitioner Lim’s liability for Gunnaban’s
negligence was premised on his want of diligence in supervising his
employees. It was admitted during the trial that Gunnaban doubled as
mechanic of the ill-fated truck despite the fact that he was neither tutored
nor trained to handle such task.
On appeal, the Court of Appeals (CA), on July 17, 1996, affirmed
the decision of the trial court. In upholding the decision of the court a
quo, the appeals court concluded that, while an operator under the habit
system could not sue without joining the registered owner of the vehicle
as his principal, equity demanded that the present case be made an
exception.
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ISSUE: Whether or not the new owner has any legal personality to bring the
action despite the fact that he is not the registered owner under the certificate of
public convenience.
HELD: The habit system is an arrangement whereby a person who has been
granted a certificate of public convenience allows other persons, who own motor
vehicles, to operate them under his license, sometimes for a fee or percentage of the
earnings. Although the parties to such an agreement are not outrightly penalized by
law, the habit system is invariably recognized as being contrary to public policy
and therefore, void and inexistent under Article 1409 of the Civil Code.
In the early case of Dizon v. Octavio, the Court explained that one of the
primary factors considered in the granting of a certificate of public convenience for
the business of public transportation is the financial capacity of the holder of the
license so that liabilities arising from accidents may be duly compensated. The
habit system renders illusory such purpose and worse, may still be availed of by the
grantee to escape civil liability caused by a negligent use of a vehicle owned by
another and operated under his license. If a registered owner is allowed to escape
liability by proving who the supposed owner of the vehicle is, it would be easy for
him to transfer the subject vehicle to another who possesses no property with which
to respond financially for the damage done. Thus, for the safety of passengers and
the public, who may have been wronged and deceived through the baneful habit
system, the registered owner of the vehicle is not allowed to prove that another
person has become the owner so that he may be thereby relieved of responsibility.
Subsequent cases affirm such basic doctrine.
It would seem then that the thrust of the law in enjoining the kabit system is
not so much as to penalize the parties but to identify the person upon whom
responsibility may be fixed in case of an accident with the end view of protecting
the riding public. The policy therefore loses its force if the public at large is not
deceived, much less involved.
In the present case, it is at once apparent that the evil sought to be prevented
in enjoining the habit system does not exist. First, neither of the parties to the
pernicious habit system is being held liable for damages. Second, the case arose
from the negligence of another vehicle

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in using the public road to whom no representation, or misrepresentation, as

regards the ownership and operation of the passenger jeepney was made and to
whom no such representation, or misrepresentation, was necessary. Thus, it
cannot be said that private respondent Gonzales and the registered owner of the
jeepney were in estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not bothered nor
inconvenienced at the very least by the illegal arrangement. On the contrary, it
was private respondent himself who had been wronged and was seeking
compensation for the damage done to him. Certainly, it would be the height of
inequity to deny him his right.
In light of the foregoing, it is evident that private respondent has the right
to proceed against petitioners for the damage caused on his passenger jeepney,
as well as on his business. Any effort then to frustrate his claim of damages by
the ingenuity with which petitioners framed the issue should be discouraged, if
not repelled.

The registered owner or operator of record is the one liable for

damages caused by a vehicle regardless of any alleged sale or lease
made thereon.

MYC Agro-Industrial Corporation v.

Purificacion Camerino, et al.
and the Court of Appeals
G.R. No. L-52798, September 7,1984
FACTS: About 4:30 in the afternoon of March 21, 1971, a Toyota
truck with Plate No. 12-90-4 CT ’70 owned by petitioner and operated by
Ceferino Arevalo hit the right center side of a jeepney with Plate No.
24-97-40-3 1970 owned by Nicanor Silla and operated by Alfredo Rodolfo.
There were 15 passengers of the jeepney, namely: (1) Laureano Lacson; (2)
Salome Bautista; (3) Chona Alcaraz; (4) Ruby Gonzaga; (5) Felicitacion
Gonzaga; (6) Epifania Bautista; (7) Avelino Ignacio; (8) Erlinda Candado;
(9) Leniza Alcaraz; (10) Sotera Ramirez;
(11) Rosario Ordonez; (12) Maximina Bautista; (13) Comelio Bautista; (14)
Hermogena Bautista; and (15) Felicidad Alcaraz. The jeepney, at the time of
the impact, was parked at Regiment Street, Anabu, Imus,

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Cavite. As a consequence, said jeepney turned turtle and was pushed to a

cemented fence owned by Lucila Reyes, pinning down to death Carlito
Pakingan, Hipolito Caldo, Azucena Camaclang-Navarette and Fortunato
Bonifacio. Likewise, the passengers: Laureano Lacson, Salome Bautista
and Chona Alcaraz died because of the injuries sustained in this incident;
the other passengers suffered various injuries on the different parts of their
bodies.
The aforementioned jeepney and the wall fence were also damaged.
Complaint for damages was filed by the owner of the wall fence, the
aforementioned victims and the heirs of the deceased victims against
petitioner MYC-AGRO INDUSTRIAL CORPORATION, the registered
owner of the Toyota truck; Ceferino Arevalo, the driver of said truck; and
Benedicto Kalaw-Katigbak, the general manager of petitioner corporation.
In its responsive pleading, petitioner admitted ownership of the
Toyota truck but alleged that the same, together with nine other units were
leased to the Jaguar Transportation, Inc., and that Ceferino Arevalo, as
well as Benedicto Kalaw-Katigbak are not its (petitioner) employees.
Thereafter, petitioner, defendant in the damage suit, filed a third-party
complaint against Jaguar Transportation Company.
Third-party Jaguar pleads that its liability is only secondary and that
it had already complied with its obligation under its contract of lease with
petitioner when it secured third-party liability insurance from Federal
Insurance Company, Inc. It then filed a fourth-party complaint against
Federal Insurance Company, Inc., F.E. Zuellig, Inc. and Castro Madamba,
claiming that Jaguar had obtained an insurance policy from Federal
Insurance Company, Inc., of which F.E. Zuellig is its general manager, and
fourth-party defendant Castro Madamba is the general agent of defendant
Federal Insurance Company, Inc.
In its answer to the fourth-party complaint, the fourth-party
defendants alleged that Jaguar has no cause of action against them
because F.E. Zuellig is only the general manager of Federal Insurance
Company, Inc.; that Casto Madamba is only the general agent of Federal

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Insurance Company, Inc., and that the proper party in interest is herein petitioner,
the registered owner of the Toyota truck.
Ceferino Arevalo, driver of the truck in question was named defendant in
Criminal Case No. 53-71 of the then Court of First Instance of Cavite, Branch V.
Upon arraignment, he pleaded guilty to the crimes of multiple homicide, multiple
serious physical injuries, multiple less serious physical injuries, slight physical
injuries and damage to property through reckless imprudence.
Evidence is clear that the death of seven persons and the injuries suffered by
private respondents were due to the negligence and reckless operation of the Toyota
truck, owned by herein petitioner and driven by Ceferino Arevalo. On March 21, 1971,
when the accident happened, subject vehicle was registered in the name of petitioner,
which, however, would want to exculpate itself from liability because of the contract of
lease with sale (Exhibit “1”) allegedly executed on December 1, 1970 between it and
Jaguar Transportation Company. Petitioner claims that because of the lease of contract
r with sale to Jaguar it had no more control over the vehicle; that Ceferino Arevalo is not
its employee but that of Jaguar. After trial, the lower court rendered Judgment ordering
defendants MYC-Agro-Industrial Corporation and Ceferino Arevalo jointly and
severally to pay plaintiff actual damages, exemplary damages and attorney’s fees and
dismissed the complaint against Benedicto Katigbak, the counterclaim and the third
and fourth party complaint.
ISSUE: Who should be liable: MYC-Agro Industrial Corporation
or Jaguar Transportation Company?
HELD: The Court cannot uphold the contention of petitioner. In
the first place, Jaguar’s answer to the third-party complaint tendered no
genuine or real issue. Secondly, Jaguar’s representative did not even
z appear in court after impleading fourth party defendants and its president,
Benedicto Katigbak, did not adduce evidence in his behalf. Thirdly, the
sign MYC that stands for petitioner still appears on subject vehicle and,
as aptly observed by the appellate court “the agreement which allegedly
transferred the truck from MYC to Jaguar failed to

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provide for a chattel mortgage to secure said transfer. The well-known practice is
that motor vehicles acquired through installment pa\ments are secured by a chattel
mortgage oveT the vehicle sold None exists in the instant case.” Finally, it is
undisputed that the registered owner of the Toyota truck is petitioner. As held in
Vargas v. Langcay, 6 SCRA 174, “the registered owner/operator of a passenger
vehicle is jointly and severally liable with the driver for damages incurred by
passengers or third persons as consequence of injuries (or death) sustained in the
operation of said vehicles. Regardless of who the actual owner of a vehicle is, the
operator of record continues to be the operator of the vehicles as regards the public
and third persons, and as such is directly and primarily responsible for the
consequences incident to its operation, so that, in contemplation of law, such
owner/operator of record is the employer of the driver, the actual operator and
employer being considered merely as his agent.”

There being no prior BOT approval in the transfer of property, transferee

only held the property as agents.

Y Transit Co., Inc. v. The National Labor

Relations Commission and Yujuico Transit
Employees Union G.R. Nos. 88195-96,
January 27,1994
FACTS: Sometime in June and July 1979, the Yujuico Transit Employees
Union (Associated Labor Union) filed two consolidated complaints against Yujuico
Transit Co., Inc., for Unfair Labor Practice and violations of P.D. Nos. 525, 1123,
1614, and 851 (non-payment of living allowances).
On May 21,1980, the Labor Arbiter rendered a decision dismissing the
complaint for unfair labor practice but holding Yujuico Transit Co., Inc., liable under
the aforementioned Presidential Decrees in the amount of P142,780.49. On February
9, 1982, a writ of execution for the said amount was issued by the Labor Arbiter. On
June 14, 1982, an alias writ of execution was issued and levy was made upon the 10
buses. Thereafter, “Y” Transit Co., Inc. filed Affidavits of Third-Party Claim.

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Private respondents herein opposed the Third-Party Claim on the ground that
the transactions leading to the transfer of the buses to “Y” Transit Co., Inc. were void
because they lacked the approval of the BOT as required by the Public Service Act.
They also argued that the buses were still registered in the name of Yujuico Transit
Co., which was, therefore, still the lawful owner thereof.
The Labor Arbiter found that “Y” Transit Co., Inc. had valid title to the buses
and that the BOT, by its subsequent acts had approved the transfer. Accordingly, the
Third-Party Claim was granted and the release of all the buses levied for execution
was ordered.
On appeal, the NLRC reversed the labor arbiter’s decision on the ground that
the transfer of the buses lacked the BOT approval. It ordered the reinstatement of the
levy and the auction of the properties.
ISSUE: Whether the levy on the buses, which have been allegedly, transferred
to a third-party, herein petitioner “Y” Transit Co., Inc., can be reinstated.
HELD: The following facts have been established before the NLRC: that the
transfer of ownership from Yujuico Transit Co., Inc., to Jesus Yujuico, and from
Jesus Yujuico to “Y” Transit Co., Inc. lacked the prior approval of the BOT as
required by Section 20 of the Public Service Act; that the buses were transferred to
“Y” Transit Co., Inc. during the pendency of the action; and that until the time of
execution, the buses were still registered in the name of Yujuico Transit Co., Inc.
In Montoya v. Ignacio, the Court held:

“x x x The law really requires the approval of the Public Service

Commission in order that a franchise, or any privilege pertaining thereto, may
be sold or leased without infringing the certificate issued to the grantee. The
reason is obvious. Since a franchise is personal in nature, any transfer or lease
thereof should be notified to the Public Service Commission so that the latter
may take proper safeguards to protect the interest of the public. In fact, the law
requires that before the approval is granted, there should be a public hearing
with notice to all interested parties in
 CHAP7 kV VI
PUBLIC SLPVICfc

order that the commission may determine if there are good and
reasonable grounds justifying the transfer or lease of the property
covered by the franchise, or if the sale or lease is detrimental to public
interest. Such being the reason and philosophy behind this requirement,
it follows that if the property covered by the franchise is transferred, or
leased to another without obtaining the requisite approval, the transfer is
not binding against the Public Service Commission and in contemplation
of law, the grantee continues to be responsible under the franchise in
relation to the Commission and to the public, x x x public and the
Public Service Commission. The approval is only necessary to
protect public interest. ”
There being no prior BOT approval in the transfer of the property
from Yujuico Transit Co., Inc., to Jesus Yujuico, it only follows that as far as
the BOT and third-parties are concerned, Yujuico Transit Co., Inc., still owned
the properties, and Yujuico and later, “Y” Transit Co., Inc., only held the same
as agents of the former. In Tamayo v. Aquino, the Supreme Court stated, thus:
“x x x In operating the truck without transfer thereof having been
approved by the Public Service Commission, the transferee acted
merely as agent of the registered owner and should be responsible to
him (the registered owner) for any damages that he may cause the latter
by his negligence.”
Conversely, where the registered owner is liable for obligations to
third-parties and vehicles registered under his name are levied upon to satisfy
his obligations, the transferee of such vehicles cannot prevent the levy by
asserting his ownership because as far as the law is concerned, the one in
whose name the vehicle is registered remains to be the owner and the
transferee merely holds the vehicles for the registered owner. Thus, “Y”
Transit Co., Inc., cannot now argue that the buses could not be levied upon to
satisfy the money judgment in favor of herein private respondents. However,
this does not deprive the transferee of the right to recover from the registered
owner any damages, which may have been incurred by the former since the
transfer, or lease is valid and binding between the parties.

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Actual owner of passenger jeep liable solidarily with registered owner in a civil action
based on quasi-delict.

Angel Jereos v. Hon. Court of Appeals

and Soledad Rodriguez, et al
G.R. No. L-48747, September 30,1982
FACTS: Private respondent, Domingo Pardorla, Jr. is the holder of a
certificate of public convenience for the operation of a jeepney line in Iloilo City. On
February 23, 1971, one of his jeepneys, driven by Narciso Jaravilla, hit Judge Jesus S.
Rodriguez and his wife, Soledad, while they were crossing Bonifacio Drive, Iloilo
City, causing injuries to them, which resulted in the death of Judge Rodriguez.
Narciso Jaravilla was prosecuted and, on his plea of guilty, was convicted of the crime
of Homicide and Physical Injuries through Reckless Imprudence and sentenced
accordingly. Thereafter, Soledad Rodriguez and her children filed with the Court of
First Instance of Iloilo an action for damages against Narciso Jaravilla, Domingo
Pardorla, Jr., and Angel Jereos, the actual owner of the jeepney.
Domingo Pardorla, Jr., upon the other hand, claimed that he was only the
franchise owner and has nothing to do with the actual operation and supervision of the
passenger jeepney in question which is under the actual control, operation and
supervision of Angel Jereos who operates the same under the "habit system. ”
ISSUE: Who should be liable? The actual owner of passenger jeep or the
franchise holder?
HELD: Finally, the petitioner, citing the case of Vargas v. Langcay,
contends that it is the registered owner of the vehicle, rather than the actual owner,
who must be jointly and severally liable with the driver of the passenger vehicle for
damages incurred by third persons as a consequence of injuries or death sustained in
the operation of said vehicle.
The contention is devoid of merit. While the Court therein ruled that the
registered owner or operator of a passenger vehicle is jointly and severally liable with
the driver of the said vehicle for damages

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incurred by passengers or third persons as a consequence of injuries or death

sustained in the operation of the said vehicle, the Court did so to correct the
erroneous findings of the Court of Appeals that the liability of the registered
owner or operator of a passenger vehicle is merely subsidiary, as contemplated
in Article 103 of the Revised Penal Code. In no case did the Court exempt the
actual owner of the passenger vehicle from liability. On the contrary, it
adhered to the rule followed in the cases of Erezo v. Jepte, Tamayo v. Aquino,
and De Peralta v. Mangusang, among others, that the registered owner or
operator has the right to be indemnified by the real or actual owner of the
amount that he may be required to pay as damage for the injury caused.
The right to be indemnified being recognized, recovery by the
registered owner or operator may be made in any form - either by a
cross-claim, third-party complaint, or an independent action. The result is
the same.

The registered owner of a certificate of public convenience is liable to the

public for the injuries or damages suffered by passengers or third persons
caused by the operation of said vehicle even though the same bad been
transferred to a third person.

B. A. Finance Corporation v.
Hon. Court of Appeals
G.R. No. 9S215, November 13,1992
FACTS: On March 6, 1983, an accident occurred involving
petitioner’s Isuzu 10-wheeler truck then driven by an employee of Lino
Castro.
The lower court ascertained after due trial that Rogelio Villar Y.
Amare, the driver of the Isuzu truck, was at fault when the mishap occurred
in as much as he was found guilty beyond reasonable doubt of reckless
imprudence resulting in triple homicide with multiple physical injuries with
damage to property in a decision rendered on February 16, 1984 by the
Presiding Judge of Branch 6 of the Regional Trial Court stationed at
Malolos, Bulacan. Petitioner was adjudged liable for damages in as much as
the truck was registered in its name

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during the incident in question, following the doctrine laid down by this Court in
Perez v. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. v. Jepte (102 Phil.
103 [1957]). In the same breadth, Rock Component Philippines, Inc., was ordered
to reimburse petitioner for any amount that the latter may be adjudged liable to
pay herein private respondents as expressly stipulated in the contract of lease
between petitioner and Rock Component Philippines, Inc.
Petitioner asseverates that it should not have been haled to court and
ordered to respond for the damage in the manner arrived at by both the trial and
appellate courts since paragraph 5 of the complaint lodged by the plaintiffs below
would indicate that petitioner was not the employer of the negligent driver who
was under the control and supervision of Lino Castro at the time of the accident,
apart from the fact that the Isuzu truck was in the physical possession of Rock
Component Philippines by virtue of the lease agreement.
ISSUE: Whether or not petitioner can be held responsible to the victims
albeit the truck was leased to Rock Component Philippines when the incident
occurred.
HELD: In previous decisions, the Court already has held that the
registered owner of a certificate of public convenience is liable to the public for
the injuries or damages suffered by passengers or third persons caused by the
operation of said vehicle, even though the same had been transferred to a third
person. (Montoya v. Ignacio, 94 Phil 182, 50 Off. Gaz., 108; Roque v.
Malibay Transit, Inc., November 18, 1955; Vda. de Medina v. Cresencia, 99
Phil. 506, 52 Off. Gaz. [10], 4606) The principle upon which this doctrine is
based is that in dealing with vehicles registered under the Public Service Law, the
public has the right to assume or presume that the registered owner is the actual
owner thereof, for it would be difficult for the public to enforce the actions that
they may have for injuries caused to them by the vehicles being negligently
operated if the public should be required to prove who the actual owner is. How
would the public or third persons know against whom to enforce their rights in
case of subsequent transfers of the vehicles? The Court does not imply by this
doctrine however, that the registered owner may not recover whatever amount he
had paid by

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virtue of his liability to third persons from the person to whom he had actually sold,
assigned or conveyed the vehicle.
“Under the same principle the registered owner of any vehicle, even if not
used for a public service, should primarily be responsible to the public or to third
persons for injuries caused the latter while the vehicle is being driven on the
highways or streets. The members of the Court are in agreement that the
defendant-appellant should be held liable to plaintiff-appellee for the injuries
occasioned to the latter because of the negligence of the driver, even if the
defendant-appellant was no longer the owner of the vehicle at the time ofthe
damage because he had previously sold it to another. ”
The main aim of motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite individual, the registered
owner. Instances are numerous where vehicles running on public highways caused
accidents or injuries to pedestrians or other vehicles without positive identification of
the owner or drivers, or with very scant means of identification. It is to forestall these
circumstances, so inconvenient or prejudicial to the public that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons
responsible for damages or injuries caused on public highways.
“One of the principal purposes of motor vehicles legislation is
identification of the vehicle and of the operator, in case of accident; and another
is that the knowledge that means of detection are always available may act as a
deterrent from lax observance of the law and of the rules of conservative and
safe operation. Whatever purpose there may be in these statutes, it is subordinate
at the last to the primary purpose of rendering it certain that the violator of the
law or of the rules of safety shall not escape because of lack of means to discover
him. The purpose of the statute is thwarted, and the displayed number becomes a
“share and delusion,” if courts would entertain such defenses as that put forward
by appelle[e] in this case. No responsible person or corporation could be held
liable for the most outrageous acts of negligence, if they should be allowed to
place a “middleman”

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between them and the public, and escape liability by the manner in which they
recompense servants.” (King v. Brenham Automobile Co., Inc., 145 S.W.
278, 279)
“With the above policy in mind, the question that defendant- appellant poses
is: should not the registered owner be allowed at the trial to prove who the actual and
real owner is, and in accordance with such proof, escape or evade responsibility by
and lay the same on the person actually owning the vehicle? The Court holds with
the trial court that the law does not allow him to do so; the law, with its aim and
policy in mind, does not relieve him directly of the responsibility that the law fixes
and places upon him as an incident or consequence of registration. Were a registered
owner allowed to evade responsibility by proving who the supposed transferee or
owner is, it would be easy for him, by collusion with others or otherwise, to escape
said responsibility and transfer the same to an indefinite person, or to one who
possesses no property with which to respond financially for the damage or injury
done. A victim of recklessness on the public highways is usually without means to
discover or identify the person actually causing the injury or damage. He has no
means other than by recourse to the registration in the Motor Vehicles Office to
determine who is the owner. The protection that the law aims to extend to him would
become illusory were the registered owner given the opportunity to escape liability
by disproving his ownership. If the policy of the law is to be enforced and carried
out, the registered owner should not be allowed to prove the contrary to the prejudice
of the person injured, that is, to prove that a third person or another has become the
owner, so that he may thereby be relieved of the responsibility to the injured person.
“The above policy and application of the law may appear quite harsh
and would seem to conflict with truth and justice. The Court do not think it is
so. A registered owner who has already sold or transferred a vehicle has the
recourse to a third-party complaint, in the same action brought against him to
recover for the damage or injury done, against the vendee or transferee of the
vehicle. The inconvenience of the suit is no justification for relieving him of
liability; said inconvenience is the price he pays for failure to comply with the
registration that the law demands and requires.

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If the foregoing words of wisdom were applied in solving the circumstance

whereof the vehicle had been alienated or sold to another, there certainly can be no
serious exception against utilizing the same rationale to the antecedents of this case
where the subject vehicle was merely leased by petitioner to Rock Component
Philippines, Inc., with petitioner retaining ownership over the vehicle.
In a much later case of Equitable Leasing Corporation v. Lucita Suyom,
388 SCRA445, September 5,2002, the Court held that petitioner Equitable Leasing
Corporation [is] liable for the deaths and the injuries complained of, because it was
the registered owner of the tractor at the time of the accident on July 17, 1994. The
Court has consistently ruled that, regardless of sales made of a motor vehicle, the
registered owner is the lawful operator insofar as the public and third persons are
concerned; consequently, it is directly and primarily responsible for the
consequences of its operation. In contemplation of law, the owner/ operator of
record is the employer of the driver, the actual operator and employer being
considered as merely its agent. The same principle applies even if the registered
owner of any vehicles does not use it for public service. fSee also St. Mary’s
Academy v. Carpitano, 376 SCRA 473)

RECENT CASES ON REGISTERED OWNER RULE

Under the Public Service Act, if the property covered by a franchise is

transferred or leased to another without obtaining the requisite approval, the
transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continued to be responsible under the
franchise in relation to the operation of the vehicle, such as damaged or injury
to third parties due to collisions.

PCI Leasing and Finance, Inc. v. UCPB

General Insurance Co., Inc.
G.R. No. 162267, July 4, 2008
FACTS: On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car
with Plate No. PHD-206 owned by United Coconut Planters

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Bank was traversing the Laurel Highway. Barangay Balintawak, Lipa City. The
car was insured with plaintiff-appellee (UCPB General Insurance, Inc.), then
driven by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said
bank, was hit and bumped by an 18-wheeler Fuso Tanker Truck with Plate No.
PJE-737, and Trailer Plate No. NVM- 133, owned by defendants-appellants PCI
Leasing & Finance, Inc., allegedly leased to and operated by defendant-appellant
Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its employee,
defendant- appellant Renato Gonzaga.
The impact caused heavy damage to the Mitsubishi Lancer car resulting in
an explosion of the rear part of the car. The driver and passenger suffered physical
injuries. However, the driver, defendant- appellant Gonzaga, continued on its way
to its destination and did not bother to bring his victims to the hospital.
Plaintiff-appellee paid the assured UCPB the amount of P244,500, representing
the insurance coverage of the damaged car.
As the 18-wheeler truck is registered under the name of PCI Leasing,
repeated demands were made by plaintiff-appellee for the payment of the
aforesaid amounts. However, no payment was made. Thus, plaintiff-appellee
filed the instant case on March 13, 1991. PCI Leasing and Finance, Inc.,
(petitioner) interposed the defense that it could not be held liable for the collision
since the driver of the truck, Gonzaga, was not its employee, but that of its
co-defendant Superior Gas & Equitable Co. Inc. (SUGECO), and not petitioner
that was the actual operator of the truck, pursuant to a Contract of Lease signed by
petitioner and SUGECO. Petitioner, however, admitted that it was the owner of
the truck in question.
After the trial, the Regional Trial Court (RTC) rendered its Decision, dated
April 15, 1999, in favor of plaintiff UCPB General Insurance, ordering the
defendants PCI Leasing and Finance, Inc. and Renato Gonzaga to pay jointly and
severally the former.
In its Decision, dated December 12, 2003, the Court of Appeals (CA)
affirmed the RTC’s Decision, with certain modifications.
ISSUE: Whether or not petitioner, as registered owner of a motor vehicle
that figured in a quasi delict, may be held liable, jointly and
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severally, with the driver thereof, for the damages caused to the third parties.
HELD: Under the Public Service Act, if the property covered by a franchise
is transferred or leased to another without obtaining the requisite approval, the
transfer is not binding on the Public Service Commission and, in contemplation of
law, the grantee continues to be responsible under the franchise in relation to the
operation of the vehicle such as damage or injury to third parties due to collisions.
“One of the principal purposes of motor vehicles legislation is
identification of the vehicle and of the operator, in case of accident; and
another is that the knowledge that means of detection are always available may
act as a deterrent from lax observance of the law and of the rules of
conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it
certain that the violator of the law or of the rules of safety shall not escape
because of lack of means to discover him. The purpose of statute is thwarted,
and the displayed number becomes a “snare and delusion, ” if courts would
entertain such defenses as that put forward by appellee in this case. No
responsible person or corporation could be held liable for the most outrageous
acts of negligence, if they should be allowed to place a “middleman ” between
them and the public, and escape liability by the manner in which they
recompense their servants. " (King v. Brenham Automobile Co., 145, S. W. 278,
279)
The registered owner of a motor vehicle whose operation causes injury to
another is legally liable to the latter. But it is error not to allow the
registered owner to recover reimbursement from the actual and present
owner by way of its cross-claim.
Metro Manila Transit Corporation v. Reynaldo Cuevas
and Junnel Cuevas, represented by
Reynaldo Cuevas
G.R. No. 167797, June 15, 2015
FACTS: Metro Manila Transit Corporation (MMTC) and Mina’s Transit
Corporation (Mina’s Transit) entered into an agreement to sell,

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dated August 31,1990, whereby the latter bought several bus units from the former
at a stipulated price. They agreed that MMTC would retain the ownership of the
buses until certain conditions were met, but in the meantime, Mina’s Transit could
operate the buses within Metro Manila.
On October 14,1994, one of the buses, subject of the agreement to sell,
bearing Plate No. NXM-449-TB-pil 94 hit and damaged a Honda Motorcycle
owned by Reynaldo and driven by Junnel. Reynaldo and Junnel sued MMTC and
Mina’s Transit for damages in the Regional Trial Court (RTC) in Cavite, docketed
as Civil Case No. N-6127, pertinently alleging and praying that defendants Metro
Manila Transit Corporation and Mina’s Transit are registered joint-owners or
operator of an MMTC/Mina’s Transit passenger bus with Plate No. NXM-449-
TB-pil 94, and is the employers (sic) of the driver Jessie Rillera y Gaceta.
In its answer with compulsory counterclaim and cross-claim, MMTC denied
liability and averred that although it retained the ownership of the bus, the actual
operator and employer of the bus driver was Mina’s Transit, and that, in support of
its cross-claim against Mina’s Transit, a provision in the agreement to sell
mandated Mina’s Transit to hold it free from liability arising from the use and
operation of the bus units.
On its part, Mina’s Transit contended that it was not liable because (a) it
exercised due diligence in the selection and supervision of its employees; (b) Its
bus driver exercised due diligence; and (c) Junnel’s negligence was the cause of
the accident.
Meanwhile, Mina’s Transit filed a third-party complaint against its
insurer, Perla Compania de Seguros, Inc. (Perla), seeking reimbursement should
it be adjudged liable, pursuant to its insurance policy issued by Perla with the
following coverage: (a) third-party liability of P50,000 as the maximum amount;
and (b) third-party damage to property of P20,000 as maximum amount.
In [its] answer to the third-party complaint, Perla denied liability because
Mina’s Transit had waived its recourse by failing to notify Perla of the incident
within one year from its occurrence, as required by Section 384 of the Insurance
Code. It submitted that even assuming

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that the claim had not yet prescribed, its liability should be limited to the
maximum of P50,000 for third-party liability and 1*20,000 for third- party
damage.
After trial, the RTC rendered judgment in favor of the respondents on
September 17, 1999, ordering petitioner Metro Manila Transit Corporation
(MMTC) and its co-defendant Mina’s Transit Corporation (Mina’s Transit) to
pay damages in favor of respondents Reynaldo Cuevas and Junnel Cuevas. The
RTC concluded that the proximate cause of the mishap was the negligence of
the bus driver; that following Article 2180 of the Civil Code, his employers
should be solidarity liable; that MMTC and Mina’s Transit, being the joint
owners of the bus, were liable; and that the third-party complaint was dismissed
because no evidence was presented to prove it. The RTC, however, did not rule
on the propriety of the cross-claim.
On appeal, the Court of Appeals (CA) affirmed the RTC’s decision.
ISSUE: Whether or not MMTC was liable for the injuries sustained by
the respondents despite the provision in the agreement to sell that shielded it
from liability.
HELD: MMTC urges the revisit of the registered-owner rule in order to
gain absolution from liability. It contends that although it retained ownership of
the bus at the time of the vehicular accident, the actual operation was
transferred to Mina’s Transit; that for it to be held liable for the acts of the bus
driver, the existence of an employer- employee relationship between them must
be established; and that because the bus driver was not its employee, it was not
liable for his negligent act.
The contentions of MMTC cannot persuade.
In view of MMTC’s admission in its pleadings that it had remained the
registered owner of the bus at the time of the incident, it could not escape
liability for the personal injuries and property damage suffered by the
Cuevases. This is because of the registered-owner rule, whereby the registered
owner of the motor vehicle involved in a vehicular accident could be held liable
for the consequences. The registered-owner rule remained good law in this
jurisdiction considering its impeccable and timeless rationale, as enunciated in
the 1957 ruling in Erezo, et

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al. v. Jepte, where the Court pronounced: Registration is required not to make
said registration the operative act by which ownership in vehicles is transferred,
as in land registration cases, because the administrative proceeding of
registration does not bear any essential relation to the contract of sale between
the parties (Chinchilla v. Rafael and Verdaguer, 39 Phil. 888), but to permit
the use and operation of the vehicle upon any public highway (Section 5[a],
Act No. 3992, as amended), to wit: “JC jt x it is well settled that in case of
motor vehicle mishaps, the registered owner of the motor vehicle is
considered as the employer of the tortfeasor-driver, and is made primarily
liable for the tort committed by the latter under Article 2176, in relation
with Article 2180 of the Civil Code. ”
In Equitable Leasing Corporation v. Suyom, [W]e ruled that in so far
as third persons are concerned, the registered owner of the motor vehicle
is the employer of the negligent driver, and the actual employer is
considered merely as an agent of such owner.
Thus, it is clear that for the purpose of holding the registered owner of the
motor vehicle primarily and directly liable for damages under Article 2176, in
relation with Article 2180 of the Civil Code, the existence of an
employer-employee relationship, as it is understood in labor relation law, is not
required. It is sufficient to establish that Filcar is the registered owner of the
motor vehicle causing damage in order that it may be held vicariously liable
under Article 2180 of the Civil Code. (Citations omitted.)
Indeed, MMTC could not evade liability to passing the buck to Mina’s
Transit. The stipulation in the agreement to sell did not bind third parties like
the Cuevases, who were expected to simply rely on the data contained in the
registration certificate of the erring bus.
Although the registered-owner rule might seem to be unjust towards
MMTC, the law did not leave it without any remedy or recourse. According to
Filcar Transport Services v Espinas, MMTC could recover from Mina’s
Transit, the actual employer of the negligent driver, under the principle of
unjust enrichment, by means of a crossclaim seeking reimbursement of all the
amounts that it could be required to pay as damages arising from the driver’s
negligence. A cross-claim

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is a claim by one party against a co-party arising out of the transaction or

occurrence that is the subject matter either of the original action or of a
counterclaim therein, and may include a claim that the party against whom it is
asserted is or may be liable to the cross-claimant for all or part of a claim
asserted in the action against the cross-claimant.
The Court AFFIRMS the decision promulgated on June 28,2004 subject
to the MODIFICATION that the cross-claim of Metro Manila Transit
Corporation against Mina’s Transit Corporation is GRANTED, and,
ACCORDINGLY, Mina’s Transit Corporation is ORDERED to reimburse to
Metro Manila Transit Corporation whatever amounts the latter shall pay to the
respondents pursuant to the judgment of the Regional Trial Court in Civil Case
No. N-6127.

The principle of holding the registered owner liable for damages

notwithstanding that ownership of the offending vehicle has
already been transferred to another is designed to protect the
public and not as a shield on the part of the unscrupulous
transferees of the vehicle to take refuge in, in order to free itself
from liability arising from its own negligent act.
R Transport Corporation v. Luisito G. Yu
G.R. No. 174161, February 18, 2015
FACTS: At around 8:45 in the morning of December 12, 1993, Loreta
J. Yu, after having alighted from a passenger bus in front of Robinson’s
Galleria along the northbound lane of Epifanio Delos Santos Avenue
(EDSA), was hit and run over by a bus driven by Antonio R Gimena, who
was then employed by petitioner R Transport Corporation. Loreta was
immediately rushed to Medical City Hospital where she was pronounced
dead on arrival. On February 3, 1994, the husband of the deceased,
respondent Luisito G. Yu, filed a Complaint for damages before the
Regional Trial Court (RTC) of Makati City against petitioner R Transport,
Antonio Gimena and Metro Manila Transport Corporation (MMTC) for the
death of his wife. MMTC denied its liability reasoning that it is merely the
registered owner of the bus involved in the incident, the actual owner, being
petitioner R Transport. It explained that under the Bus Installment Purchase
Program of the government, MMTC

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merely purchased the subject bus, among several others, for resale to petitioner R
Transport, which will in turn operate the same within Metro Manila. Since it was not
actually operating the bus which killed respondent’s wife, nor was it the employer of
the driver thereof. For its part, petitioner R Transport alleged that respondent had no
cause of action against it for it had exercised due diligence in the selection and
supervision of its employees and drivers and that its buses are in good condition.
Meanwhile, the driver Antonio Gimena was declared in default for his failure to file
an answer to the complaint. After trial on the merits, wherein the parties presented
their respective witnesses and documentary evidence, the trial court rendered
judgment in favor of respondent Yu ruling that petitioner R Transport failed to prove
that it exercised the diligence of a good father of a family in the selection and
supervision of its driver, who, by its negligence, ran over the deceased resulting in
her death. It also held that MMTC should be held solidarity liable with petitioner R
Transport because it would unduly prejudice a third person who is a victim of a tort to
look beyond the certificate of registration and prove who the actual owner is in order
to enforce a right of action. Thus, on June 3,2004, the trial court ordered defendants
Rizal Transport and Metro Manila Transport Corporation to be primarily and
solidarity liable and defendant Antonio Parraba Gimena subsidiarity liable to
plaintiff Luisito Yu.
On September 9, 2005, the Court of Appeals (CA) affirmed the Decision of
the RTC. The CA noted that the fact that petitioner is not the registered owner of the
bus, which caused the death of the victim, does not exculpate it from liability. Motion
for Reconsideration was likewise denied.
ISSUE: Whether or not the actual owner of a common carrier can be held
solidarity liable with the registered owner.
HELD: Under Article 2180 of the New Civil Code, employers are liable for
the damages caused by their employees acting within the scope of their assigned
tasks. Once negligence on the part of the employee is established, a presumption
instantly arises that the employer was remiss in the selection and/or supervision of
the negligent employee. To avoid liability for the quasi-delict committed by its
employee, it is incumbent upon the employer to rebut this presumption by presenting
adequate

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and convincing proof that it exercised the care and diligence of a good father of
a family in the selection and supervision of its employees.
Unfortunately, however, the records of this case are bereft of any proof
showing the exercise by petitioner of the required diligence. As aptly observed
by the CA, no evidence of whatever nature was ever presented depicting
petitioner’s due diligence in the selection and supervision of its driver,
Gimena, despite several opportunities to do so. In fact, in its petition, apart
from denying the negligence of its employee and imputing the same to the bus
from which the victim alighted, petitioner merely reiterates its argument that
since it is not the registered owner of the bus, which bumped the victim, it
cannot be held liable for the damage caused by the same. Nowhere was it even
remotely alleged that petitioner had exercised the required diligence in the
selection and supervision of its employee. Because of this failure, petitioner
cannot now avoid liability for the quasi-delict committed by its negligent
employee.

With the enactment of the motor vehicle registration law, the defense
available under Article 2180 of the Civil Code - that the employee acts
beyond the scope of his assigned task or that it exercised the due
diligence of a good father of a family to prevent damage - are no
longer available to the registered owner of the motor vehicle, because
the motor vehicle registration law, to a certain extent, modified
Article 2180.
Mariano C. Mendoza and Elvira Lim
v. Sps. Leonora J. Gomez and Gabriel V. Gomez
G.R. No. 160110, June 18,2014
FACTS: On 7 March 1997, Isuzu Elf truck (Isuzu truck) with Plate No.
UAW-582, owned by respondent Leonora J. Gomez and driven by
Antenojenes Perez (Perez), was hit by a Mayamy Transportation bus (Mayamy
bus) with temporary Plate No. 1376-1280, registered under the name of
petitioner Elvira Lim (Lim) and driven by petitioner Mariano C. Mendoza
(Mendoza).
Owning to the incident, an Information for reckless imprudence
resulting in damage to property and multiple physical injuries was filed

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against Mendoza. Mendoza, however, eluded arrest, thus, respondents

filed a separate complaint for damages against Mendoza and Lim, seeking
actual damages, compensation for lost of income, moral damages,
exemplary damages, attorney’s fees and costs of the suit.
According to POl Melchor F. Rosales (POl Rosales), investigating
officer of the case, at around 5:30 a.m., the Isuzu truck, coming from
Katipunan Road and heading toward E. Rodriguez, Sr. Avenue, was
traveling along the downward portion of Boni Serrano Avenue when,
upon reaching the comer of Riviera Street, fronting St. Ignatius Village, its
left front portion was hit by the Mayamy bus. According to POl Rosales,
the Mayamy bus, while traversing the opposite lane, intruded on the lane
occupied by the Isuzu truck.
POl Rosales also reported that Mendoza tried to escape by speeding
away, but he was apprehended in Katipunan Road comer
C. P. Garcia Avenue by one Traffic Enforcer and a security guard of St.
Ignatius Village. As a result of the incident, Perez, as well as the helpers on
board the Isuzu truck, namely, Melchor V. Anla (Anla), Romeo J. Banca
(Banca), and Jimmy Repisada (Repisada), sustained injuries necessitating
medical treatment amounting to PI 1,267.35, which amount was shouldered
by respondents. Moreover, the Isuzu truck sustained extensive damages on
its cowl, chassis, lights, and steering wheel amounting to PI42,757.40.
Additionally, respondents averred that the mishap deprived them of a daily
income of PI,000. Engaged in the business of buying plastic scraps and
delivering them to recycling plants, respondents claimed that the Isuzu
truck was vital in the furtherance of their business. For their part, petitioners
capitalized on the issue of ownership of the bus in question. Respondents
argued that although the registered owner was Lim, the actual owner of the
bus was SPOl Cirilo Enriquez (Enriquez), who had the bus attached with
Mayamy Transportation Company (Mayamy Transport) under the
so-called “habit system.” Respondents then impleaded both Lim and
Enriquez.
After weighing the evidence, the Regional Trial Court (RTC)
found Mendoza liable for direct personal negligence under Article 2176
of the Civil Code, and it also found Lim vicariously liable under

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pimut' si'RVici-

Article 2180 of the same Code. As regards Lim, the RTC relied on the Certificate
of Registration issued by the Land Transportation Office (LTO) on December 9,
1996 in concluding that she is the registered owner of the bus in question.
Although actually owned by Enriquez, following the established principle in
transportation law, Lim, as the registered owner, is the one who can be held liable.
Displeased, petitioners appealed to the CA. After evaluating the damages awarded
by the RTC, such were affirmed by the CA, with the exception of the award of
unrealized income. Unsatisfied with the CA ruling, petitioners filed an appeal by
certiorari before the Court.
ISSUE: Whether or not the defense of diligence in the selection and
supervision of employees is still a valid defense under the motor vehicle
registration law.
HELD: The Court is in agreement with the findings of the RTC, and as
affirmed by the CA that Mendoza was negligent in driving the subject
Mayamy bus, as demonstrated by the fact that at the time of the collision the
bus intruded on the lane intended for the Isuzu truck. Having encroached on
the opposite lane, Mendoza was clearly in violation of traffic laws. Article
2185 of the Civil Code provides that unless there is a proof to the contrary, it is
presumed that a person driving a motor vehicle has been negligent if at the
time of the mishap he was violating any traffic regulation. In the case at bar,
Mendoza’s violation of traffic laws was the proximate cause of the harm.
Mendoza’s employer may also be held liable under the doctrine of vicarious
liability or imputed negligence. Under such doctrine, a person who has not
committed the act or omission, which caused damage or injury to another, may
nevertheless be held civilly liable to the latter either directly or subsidiarily
under certain circumstances. In our jurisdiction, vicarious liability or imputed
negligence is embodied in Article 2180 of the Civil Code and the basis for
damages in the action under said article is the direct and primary negligence of
the employer in the selection or supervision, or both, of his employee.
In the case at bar, who is deemed as Mendoza’s employer? Is it Enriquez,
the actual owner of the bus, or Lim, the registered owner of the bus?

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In Filcar Transport Services v. Espinas, the Court held that the

registered owner is deemed the employer of the negligent driver, and is thus
vicariously liable under Article 2176, in relation to Article 2180 of the Civil
Code. Citing Equitable Leasing Corporation v. Suyom, the Court ruled that in
so far as third persons are concerned, the registered owner of the motor vehicle is
the employer of the negligent driver, and the actual employer is considered
merely as an agent of such owner. Thus, whether there is an employer-employee
relationship between the registered owner and the driver is relevant in
determining the liability of the registered owner who the law holds primarily and
directly responsible for any accident, injury, or death caused by the operation of
the vehicle in the streets and highways.
Generally, when an injury is caused by the negligence of a servant or
employee, there instantly arises a presumption of law that there was negligence
on the part of the master or employer either in the selection of the servant or
employee {culpa in eligiendo) or in the supervision over him after the selection
{culpa vigilando), or both. The presumption is juris tantum and not juris et de
jure\ consequently, it may be rebutted. Accordingly, the general rule is that if
the employer shows to the satisfaction of the court that in the selection and
supervision of his employee he has exercised the care and diligence of a good
father of a family, the presumption is overcome and he is relieved of liability.
However, with the enactment of the motor vehicle registration law, the defenses
available under Article 2180 of the Civil Code - that the employee acts beyond
the scope of his assigned task or that it exercised the due diligence of a good
father of a family to prevent damage - are no longer available to the registered
owner of the motor vehicle because the motor vehicle registration law, to a
certain extent, modified Article 2180.
As such, there can be no other conclusion but to hold Lim vicariously
liable with Mendoza.

One of the principal purposes of motor vehicles legislation is

identification of the vehicle and of the operator, in case of accident;
and another is that the knowledge that means of detection are
always available may act as a deterrent from lax observance of the

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law and of the rules of conserv ative and safe operation. Whatever purpose there
may be in these statutes, it is subordinate at the last to the primary purpose of
rendering it certain that the violator of the law or of the rules of safety shall not
escape because of lack of means of discover him.

Nostradamus Villanueva v. Priscilla R. Domingo

and Leandro Luis R. Domingo
G.R. No. 144274, September 20,2004
FACTS: Respondent Priscilla R. Domingo is the registered owner of a silver
Mitsubishi Lancer car model 1980 bearing Plate No. NDW- 781 ‘91 with
co-respondent Leandro Luis R. Domingo as authorized driver. Petitioner
Nostradamus Villanueva was then the registered “owner’' of a green Mitsubishi
Lancer bearing Plate No. PHK-201 ‘91.
On October 22, 1991 at about 9:45 in the evening, following a green traffic
light, respondent Priscilla Domingo’s silver Lancer car with Plate No. NDW-781
‘91, then driven by co-defendant Leandro Luis R. Domingo, was cruising along the
middle lane of South Superhighway at a moderate speed from north to south.
Suddenly, a green Mitsubishi Lancer with Plate No. PHK-201 ‘91, driven by Renato
Del a Cruz Ocfemia, darted from Vito Cruz Street towards the South Superhighway
directly into the path of NDW-781 ‘91 thereby hitting and bumping its left front
portion. As a result of the impact, NDW 781 ‘91 hit two parked vehicles at the
roadside, the second hitting another parked car in front of it.
Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio
N. Acido, Renato dela Cruz Ocfemia was driving with expired license and positive
for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua
recommended the filing of information for reckless imprudence resulting to (sic)
damage to property and physical injuries.
The original complaint was amended twice: first, impleading Auto Palace
Car Exchange as commercial agent and/or buyer-seller, and second, impleading
Albert Jaucian as principal defendant doing business under the name and style of
Auto Palace Car Exchange. Except

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for Ocfemia, all the defendants filed separate answers to the complaint.
Petitioner Nostradamus Villanueva claimed that he was no longer the owner
of the car at the time of the mishap because it was swapped with a Pajero
owned by Albert Jaucian/Auto Palace Car Exchange. On the other hand, Auto
Palace Car Exchange represented by Albert Jaucian claimed that he was not
the registered owner of the car. Moreover, it could not be held subsidiary
liable as employer of Ocfemia because the latter was off-duty as utility
employee at the time of the incident. Neither was Ocfemia performing a duty
related to his employment.
ISSUE: Whether or not the registered owner of a motor vehicle be held
liable for damages arising from a vehicular accident involving his motor
vehicle while being operated by the employee of its buyer without the latter’s
consent and knowledge.
HELD: The Court consistently ruled that the registered owner of any
vehicle is directly and primarily responsible to the public and third persons while it is being
operated. The rationale behind such doctrine was explained way back in 1957 in Erezo v. Jepte.
The principle upon r which this doctrine is based is that in dealing with vehicles registered
under the Public Service Law, the public has the right to assume or presume
that the registered owner is the actual owner thereof, for it would be difficult for the public to
enforce the actions that they may have for injuries caused to them by the vehicles being
negligently operated if the public should require to prove who the actual owner is. How would
the public or third persons know against whom to enforce their rights in case of subsequent
transfers of the vehicles? We do not imply by his Z doctrine, however, that the registered
owner may not recover whatever
amount he had paid by virtue of his liability to third persons from the person
to whom he had actually sold, assigned, or conveyed the vehicle.
Registration is required not to make said registration the operative act
by which ownership in vehicles is transferred, as in land registration cases,
because the administrative proceeding of registration does not bear any
essential relation to the contract of sale between the parties (Chinchilla v.
Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of
the vehicle upon any public highway. (Section 5 [a], Act No. 3992, as
amended) The main aim of motor vehicle registration is to identify the owner
so that if any accident happens, or that any damage

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mu u st uvu i

or injury is caused by the \vhiolo on the public highways, responsibility

ihervfore can bo fixed on a definite individual, the registered owner. Instances
are numerous wheiv vehicles running on public highways caused accidents or
injuries to pedestrians or other vehicles without positive identification or the
owner or drivers, or with very scant means of identification. It is to forestall
these circumstances, so inconvenient or prejudicial to the public, that the motor
vehicle registration is primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on public highways.
One of the principal purposes of motor vehicle legislation is identification of
the vehicle and of the operator, in case of accident, and another is that the
knowledge that means of detection are always available may act as a deterrent
from lax observance of the law and of the rules of conservative and safe
operation. Whatever purpose there may be in these statutes, it is subordinate at the
last to the primary purpose of rendering it certain that the violator of the law or of
the rules of safety shall not escape because of lack of means to discover him. The
purpose of the statute is thwarted, and the displayed number becomes a “share
and delusion,” if courts would entertain such defenses as that put forward by
appellee in this case. No responsible person or corporation could be held liable for
the most outrageous acts of negligence, if they should be allowed to pace a
“middleman” between them and the public, and escape liability by the manner in
which they recompense servants. (King v. Brenham Automobile Co., Inc., 145
S.W. 278, 279)
The main purpose of vehicle registration is the easy identification of the
owner who can be held responsible for any accident, damage, or injury caused by
the vehicle. Easy identification prevents inconvenience and prejudice to a third
party injured by one who is unknown or unidentified. To allow a registered
owner to escape liability by claiming that the driver was not authorized by the
new (actual) owner results in the public detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the
accident was authorized is not at all relevant to determining the liability of the
registered owner. This must be so if we are to comply with the rationale and
principle behind the registration requirement under the motor vehicle law.

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There is no categorical statutory pronouncement in the Land

Transportation and Traffic Code stipulating the liability of the
registered owner. The source of registered owner’s liability is not a
distinct statutory provision, but remains to be Articles 2176 and 2180
of the Civil Code.

Greenstar Express, Inc. and Fruto L. Sayson Jr.

v. Universal Robina Corporation and Nissin Universal
Robina Corporation
G.R. No. 205090, October 17,2016
FACTS: Petitioner Greenstar Express, Inc. is a domestic corporation
engaged in the business of public transportation, while petitioner Fruto L.
Sayson, Jr. is one of its bus drivers. Respondents Universal Robina Corporation
(URC) and Nissin Universal Robina Corporation (NURC) are domestic
corporations engaged in the food business. NURC is a subsidiary of URC. URC
is the registered owner of a Mitsubishi L-300 van with Plate No. WRN-403
(URC van). At about 6:50 a.m. on February 25, 2003, which was then a declared
national holiday, petitioner’s bus, which was then being driven toward the
direction of Manila by Sayson, collided head-on with the URC van, a company
vehicle, which was then driven to Quezon province bound by NURC’s
Operations Manager, Renante Bicomong, whose purpose in going to Quezon
was to visit his family and give money to his daughter. According to the bus
driver’s account, at a distance of more or less five meters away from his bus, he
noticed that the L-300 UV was running at full speed as he saw dust clouds, and
was already near his bus when it managed to return to its proper lane coming
from the shoulder. It was heading directly towards his direction. The point of
impact happened on his lane. The incident occurred along Km. 76, Maharlika
Highway, Brgy. San Agustin, Alaminos, Laguna. Bicomong died on the spot,
while the colliding vehicles sustained considerable damage. For fear of reprisals
from bystanders, Sayson fled the scene.
In September 2003, petitioners filed a Complaint against NURC to recover
damages sustained during the collision, premised on negligence. The Regional
Trial Court (RTC) ruled that the plaintiff has no cause of action and cannot
recover from the defendants even

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assuming that the direct and proximate cause of the accident was the negligence
of the defendant’s employee Renato Bicomong. Under Article 2180,
“employers shall be held liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry. ” In other
words, for the employer to be liable for the damages caused by his employee,
the latter must have caused the damage in the course of doing his assigned tasks
or in the performance of his duties. The Court of Appeals (CA) affirmed the
decision of the lower court.
ISSUE: (1) Whether or not URC is liable as the registered owner of the
vehicle; and (2) Whether or not the bus, which is a common carrier, observed
extraordinary diligence at the time of the collision.
HELD: In Caravan Travel and Tours International, Inc. v. Abejar, the
Court made the following relevant pronouncements: “The resolution of this case
must consider two rules: First, Article 2180’s specification that employers shall
be liable for the damages caused by their employees x x x acting within the
scope of their assigned task; Second, the operation of the registered-owner rule
that the registered owners are liable for the death or injuries caused by the
operation of their vehicles.
These rules appear to be in conflict when it comes to cases in which the
employer is also the registered owner of a vehicle. Article 2180 requires proof of
two things: first, an employment relationship between the driver and the owner;
and second, that the driver acted within the scope of his or her assigned tasks.
On the other hand, applying the registered-owner rule only requires the plaintiff
to prove that the defendant-employer is the registered owner of the vehicle.
Aguilar, Sr. v. Commercial Savings Bank recognized the seeming conflict
between Article 2180 and the registered-owner rule and applied the latter.
Preference for the registered-owner rule became more pronounced in Del
Carmen, Jr. v. Bacoy; Filcar Transport Services v. Espinas stated that the
registered owner of the vehicle can no longer use the defenses found in Article
2180. Mendoza v. Souses Gomez reiterated this doctrine.
However, Aguilar, Sr, Del Carmen, Filcar, and Mendoza should not
be taken to mean that Article 2180 of the Civil Code should be

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completely discarded in cases where the registered-owner rule finds

application. As acknowledged in Filcar, there is no categorical statutory
pronouncement in the Land Transportation and Traffic Code stipulating the
liability of a registered owner. The source of a registered owner’s liability is
not a distinct statutory provision, but remains to be Articles 2176 and 2180 of
the Civil Code. While Republic Act No. 4136 of the Land Transportation and
Traffic Code does not contain any provision on the liability of registered
owners in case of motor vehicle mishaps, Article 2176, in relation with Article
2180 of the Civil Code, imposes an obligation upon Filcar, as registered
owner, to answer for the damages caused to Espinas’ car. Thus, it is
imperative to apply the registered- owner rule in a manner that harmonizes it
with Articles 2176 and 2180 of the Civil Code. Rules must be construed in a
manner that will harmonize them with other rules so as to form a uniform and
consistent system of jurisprudence. In light of this, the words used in Del
Carmen are particularly notable. There, this Court stated that Article 2180
“should defer to” the registered-owner rule. It never stated that Article 2180
should be totally abandoned. Therefore, the appropriate approach is that in
cases where both the registered-owner rule and Article 2180 apply, the
plaintiff must first establish that the employer is the registered owner of the
vehicle in question. Once the plaintiff successfully proves ownership, there
arises a disputable presumption that the requirements of Article 2180 have
been proven. As a consequence, the burden of proof shifts to the defendant to
show that no liability under Article 2180 has arisen.
In the present case, it has been established that on the day of the
collision, or on February 25,2003, URC was the registered owner of the
URC van, although it appears that it was designated for use by NURC, as it
was officially assigned to the latter’s Logistics Manager, Florante
Soro-Soro (Soro-Soro); that Bicomong was the Operation Manager of
NURC and assigned to the First Cavite Industrial Estate; that there was no
work as the day was declared a national holiday; that Bicomong was on his
way home to his family in Quezon province; that the URC van was not
assigned to Bicomong as well, but solely for Soro-Soro’s official use; that
the company service vehicle officially assigned to Bicomong was a Toyota
Corolla, which he left at the Cavite plant, and

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instead, he used the URC van; and that other than the Cavite plant, there is no
other NURC plant in the provinces of Quezon, Laguna or Bicol.
Applying the above pronouncement in the Caravan Travel and Tours
case, it must be said that when by evidence of ownership of the van and
Bicomong’s employment were proved, the presumption of negligence on
respondents’ part attached, as the registered owner of the van, and as
Bicomong’s employer. His burden of proof then shifted to respondents to
show that no liability under Article 2180 arose. This may be done by proof of
any of the following: (1) that they had no employment relationship with
Bicomong; or (2) that Bicomong acted outside the scope of his assigned tasks;
or (3) that they exercised the diligence of a good father of a family in the
selection and supervision of Bicomong.
Respondents succeeded in overcoming the presumption of negligence,
having shown that when the collision took place, Bicomong was not in the
performance of his work; that he was in possession of a service vehicle that did not
belong to his employer NURC, but to URC, and which vehicle was not officially
assigned to him, but to another employee; that his use of the URC van was
unauthorized, even if he had used the same vehicle in furtherance of a personal
undertaking in the past, this does not amount to implied permission; that the
accident occurred on a holiday and while Bicomong was on his way home to his
family in Quezon province; and that Bicomong had no official business
whatsoever in his hometown in Quezon, or in Laguna, where the collision
occurred; his area of operation being limited to the Cavite area. On the other hand,
the evidence suggests that the collision could have been avoided if Sayson
exercised care and prudence, given the circumstances and information that he has
immediately prior to the accident.
The law exacts from common carriers (i.e., those persons, corporations,
firms, or associations engaged in the business of carrying or transporting
passengers or goods, or both, by land, water, or air, for compensation,
offering their services to the public) the highest degree of diligence (i.e.,
extraordinary diligence) in ensuring the safety of its passengers. In this relation,
Article 1756 of the Civil Code provides that in case of death of or injuries to
passengers, common carriers are

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presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as prescribed in Articles 1733 and
1755.
However, Sayson took no defense maneuver whatsoever in spite of the
fact that he saw Bicomong drive his van in a precarious manner, as far as 250
meters away, or at a point in time and space where Sayson had all the
opportunity to prepare and avert a possible collision. The collision was certainly
foreseen and avoidable but Sayson took no measures to avoid it. Rather than
exhibit concern for the welfare of his passengers and the driver of the oncoming
vehicle, who might have fallen asleep or suddenly fallen ill at the wheel, Sayson
coldly and uncaringly stood his ground, closed his eyes, and left everything to
fate without due regard for the consequences. Such a suicidal mindset cannot be
tolerated, for the grave danger it poses to the public and passengers availing of
petitioners’ services. To add insult to injury, Sayson hastily fled the scene of the
collision instead of rendering assistance to the victims, thus exhibiting a selfish,
cold-blooded attitude, and utter lack of concern motivated by the self-centered
desire to escape liability, inconvenience, and possible detention by the
authorities, rather than secure the wellbeing of the victims of his own negligent
act. An experienced driver, who is presented with the same facts, would have
adopted an attitude consistent with a desire to preserve life and property; for
common carriers, the diligence demanded is of the highest degree.
The doctrine of last clear chance provides that where both parties are
negligent but the negligent act of one is appreciably later in point of time than
that of the other, or where it is impossible to determine whose fault or
negligence brought about the occurrence of the incident, the one who had the
last clear opportunity to avoid the impending harm but failed to do so, is
chargeable with the consequences arising therefrom. Stated differently, the rule
is that the antecedent negligence of a person does not preclude recovery of
damages caused by the supervening negligence of the latter, who had the last
fair chance to prevent the impending harm by the exercise of due diligence.
Boundary System, defined. — “Boundary System," is an
arrangement in which the drivers (and their conductors) of jeepneys or
busses, for the use thereof, within a specified number of hours, with the

■St.
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gasoline burned for their account, give to the owner-operator a fixed amount of the
daily earnings derived from their operation, their day’s earnings being the excess
over the amount paid for the gasoline and use of the vehicles. (See National Labor
Union v. Dinglasan, L-7945, March 23, 1956; Doce v. Workmens
Compensation Commission, L-91417, December 22, 1958)
It is a system whereby: a franchise operator of jeepneys rents out his
jeepney to a driver, at say P30.00 a day. The owner (operator) expects to collect
from the driver his P30.00 at the end of the day. Any earning over and above the
P30.00 (the boundary) goes to the driver. So the bigger the earnings over and above
the boundary, as in this example, the better for the driver.
This is the reason why drivers, under this boundary agreement, are apt to
drive faster and always on the go, for the more trips they make in a day, the
bigger their earnings. This rush maneuver or operation, however, almost always
results in accidents unfortunately. (Moreno, Philippine Law Dictionary, p.
112, 3rd Ed., citing Gubot v. Bulaon, 59473-R, October 1, 1982)
The jeepney owner/operator-driver relationship under the boundary
system is that of employer-employee and not lessor-lessee. (National Labor
Union v. Dinglasan, 98 Phil. 649) This doctrine was affirmed under similar
factual settings, in Magboo v. Bernardo (7 SCRA 952) and Lantaco, Sr. v.
Llamas (108 SCRA 502), and was analogously applied to govern the
relationships between auto-calesa owner/operator and driver, bus
owner/operator and conductor, and taxi owner/operator and driver.
The boundaiy system is a scheme by an owner/operator engaged in
transporting passengers as a common carrier to primarily govern the
compensation of the driver, that is, the latter’s daily earnings are remitted to
the owner/operator less the excess of the boundaiy which represents the
driver’s compensation. Under this system, the owner/ operator exercises
control and supervision over the driver. It is unlike in lease of chattels where
the lessor loses complete control over the chattel leased but the lessee is still
ultimately responsible for the consequences of its use. The management of the
business is still in the hands of

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the owner/operator, who, being the holder of the certificate of public

convenience, must see to it that the driver follows the route prescribed by the
franchising and regulatory authority, and the rules promulgated with regard to
the business operations. The fact that the driver does not receive fixed wages but
only the excess of the “boundary” given to the owner/operator is not sufficient to
change the relationship between them. Indubitably, the driver performs
activities, which are usually necessary or desirable in the usual business or trade
of the owner/operator. (Oscar Villamaria, Jr. v. Court of Appeals and Jerry
Bustamante, G.R. No. 165881, April 19, 2006)
To exempt from liability the owner of a public vehicle who operates it
under the “boundary system” on the ground that he is a mere lessor would be not
only to abet flagrant violations of the Public Service Law, but also to place the
riding public at the mercy of reckless and irresponsible drivers—reckless
because the measure of their earnings depends largely upon the number of trips
they make and, hence, the speed at which they drive; and irresponsible because
most if not all of them are in no position to pay the damages they might cause.
(Erezo v. Jepte, 102 Phil. 103 [1957]; Hernandez v. Dolor, 435 SCRA 668,
July 30, 2004)

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ADMIRALTY AND MARITIME JURISDICTION OF A COURT

Maritime transaction may be invoked before our courts in an action in
rem or quasi in rem or an action in personam as provided in Articles 579, 580,
and 584 of the Code of Commerce.
Under B.P. Big. 129, as amended by R.A. No. 7691, the Regional Trial
Court exercise exclusive original jurisdiction “in all actions in admiralty and
maritime where the demand or claim exceeds two hundred thousand pesos
(P200,000.00) or in Metro Manila, where such demand or claim exceeds four
hundred thousand pesos (P400,000.00).” Two tests have been used to
determine whether a case involving a contract comes within the admiralty and
maritime jurisdiction of a court - the locational test and the subject matter
test. The English rule follows the locational test wherein maritime and
admiralty jurisdiction, with a few exceptions, is exercised only on contracts
made upon the sea and to be executed thereon. This is totally rejected under the
American rule where the criterion in determining whether a contract is
maritime depends on the nature and subject matter of the contract, having
reference to maritime service and transaction. In International Harvester
Company of the Philippines v. Aragon (G.R. No. L-2372, August 26, 1949),
the Court adopted the American rule and held that “whether or not a contract is
maritime depends not on the place where the contract is made and is to be
executed, making the locality the test, but on the subject matter of the contract,
making the true criterion a maritime service or a maritime transaction.
In the Philippines, the Court have a complete legislation, both
substantive and adjective, under which to bring an action in rem against a
vessel for the purpose of enforcing liens. The substantive law is found in
Article 580 of the Code of Commerce. The procedural law is to be

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found in Article 584 of the same Code. The result is, therefore, that in the
Philippines any vessels — even though it be a foreign vessel — found in any
port of this Archipelago may be attached and sold under the substantive law
which defines the right, and the procedural law contained in the Code of
Commerce by which this right is to be enforced. But where neither the law nor
the contract between the parties creates any lien or charge upon the vessel, the
only way in which it can be seized before judgment is by pursuing the remedy
relating to attachment under Rule 57 of the Rules of Court. (Crescent
Petroleum, Ltd. v. M/V Lok Maheshwari, G.R. No. 155014, November 11,
2005)

ART. 573. Merchant vessels constitute property, which may be

acquired and transferred by any of the means recognized by law. The
acquisition of a vessel must appear in a written instrument, which
shall not produce any effect with regard to third persons if not
recorded in the registry of vessels.
The ownership of a vessel shall also be acquired by possession
thereof in good faith for three years, with a good title duly recorded.
In the absence of any of these requisites, continuous possession
for ten years shall be necessary in order to acquire ownership.
Note: The “prescription adquisitiva ”has been amended by Art.
1132 of the Civil Code — good faith is 4 yrs. and bad faith is 8 yrs.
A captain cannot acquire by prescription of the ship of which he
is in command.
ART. 574. The builders of vessels may employ the materials
and, with regard to the construction and rigging, may follow the
systems most appropriate to their interest. Ship agents and seamen
shall be subject to the provisions of the laws and regulations of the
government on navigation, customs, health, safety of the vessels, and
other similar provisions.
ART. 575. Part owners of the vessels shall enjoy the right of
pre-emption and redemption in sales made to strangers; but they
can only exercise it within the nine days following the registration
of the sale in the registry and by delivering the price at once.

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ART. 576. The rigging, tackle, stores, and engine of a vessel, if it is

a steamer, shall always be understood as included in the sale thereof if,
at the time of sale, they are owned by the vendor.
The arms, munitions of war, provisions, and fuel shall not be
considered as included in the sale.
The vendor shall be under the obligation to deliver to the
purchaser a certificate of the record of the vessel in the registry up to
the date of the sale.
ART. 577. If the sale of the vessel should take place while she is on
a voyage, all the freightage she earns from the time she received her
last cargo shall belong to the buyer, and the latter shall pay the crew
and other persons who go to make up her complement for the said
voyage.
If the sale should take place after the arrival of the vessel at the
port of her destination, the freightage shall belong to the seller and the
latter shall pay the crew and other persons who go to make up her
complement, unless there is an agreement to the contrary in either
case.
ART. 578. If, the vessel while on a voyage or in a foreign port,
her owner or owners should voluntarily sell her either to Filipinos or
to foreigners domiciled in the capital or in a port of another country,
the bill of sale shall be executed before the consul of the Philippines of
the port where she terminates her voyage; and said instrument shall
have no effect with regard to third persons if it is not registered in the
registry of the consulate. The consul shall immediately forward a true
copy of the bill of purchase of the vessel to the registry of vessels of the
port where said vessel is entered and registered.
In every case the sale of the vessel must be made to appear with
a statement whether the seller receives the full price or part thereof,
or whether he retains any interest in said vessel in full or in part. In
case the sale is made to a Filipino, this fact shall be stated in the
certificate of navigation.
 TRANSPORTATION LAWS

When a vessel, while on a voyage, should become useless for navigation,

the captain shall report the matter to the judge or court of competent
jurisdiction of the port of arrival, should she be in the Philippines; and
should she be in foreign port, to the Filipino consul should there be one; or to
the judge, or court, or local authority in the absence of the former; and the
consul, or judge, or court, or, in their absence, the local authority, shall
order an examination of the vessel to be made.
If the consignee or the insurer should reside at said port, or should
have representatives there, they must be cited in order to take part in the
proceedings for the account of whom it may concern.
ART. 579. After the damage of the vessel and the impossibility of her
being repaired, in order to continue the voyage, having been proven, her
sale at public auction shall be ordered, subject to the following rules:
1. The hull of the vessel, her rigging, engines, stores, and other
articles shall be appraised by means of an inventory, said proceedings
being brought to the notice of the persons who may wish to take part in the
auction.
2. The order or decree ordering the public auction shall be posted
in the usual places, and shall be advertised in the newspapers of the port
where the auction is to be held, should there be any, and in other
newspapers which the court may determine.
The period, which may be fixed, for the auction shall not be less than
twenty days.
3. These advertisements shall be repeated every ten days, and
their publication shall be recorded in the proceedings.
4. The auction shall be held on the day fixed, with the formalities
prescribed in the common law for judicial sales.
5. If the sale should take place when the vessel is in a foreign
country, the special provisions governing such cases shaU be observed.

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 CHAnW VII
VhSSbl.S

ART. 580. In all judicial sales of vessels for the payment of creditors, the
following shall he preferred in the order named:
1. The credits in favor of the public treasury’ proven by means of an
official certificate of the competent authority.
2. The judicial costs of the proceedings, according to an appraisement
approved by the judge or court.
3. The pilotage charge, tonnage dues, and the other sea or port
charges, proven by means of proper certificates of the officers intrusted with
the collection.
4. The salaries of the caretakers and watchmen of the vessel and
any other expenses connected with the preservation of said vessel, from the
time of arrival in the port until her sale, which appear to have been paid or
to be due by virtue of a true account approved by the judge or court.
5. The rent of the warehouse where the rigging and stores of the
vessel have been taken cared of, according to contract.
6. The salaries due the captain and crew during their last voyage,
which shall be verified by means of the liquidation based on the rolls of the
crew and the account books of the vessel, approved by the chief of the
bureau of merchant marine where there is one, and, in his absence, by the
consul, or judge, or court.
7. The reimbursement for the goods transported which the
captain may have sold in order to repair the vessel, provided the sale has
been ordered by a judicial instrument executed with the formalities
required in such cases, and recorded in the certificate of the registry of the
vessel.
8. The part of the price which has not been paid to the last seller, the
credits pending for the payment of materials and work in the construction of
the vessel when she has not navigated, and those arising from the repair and
equipment of the vessel and her provisioning with victuals and fuel during her
last voyage.
In order that said credits may enjoy the preference provided for in this
subdivision, they must appear by means of contracts

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recorded in the registry of vessels, or if they were contracted for the vessel
while on a voyage and said vessel has not returned to the port of her registry,
they must be made under the authority required for such cases and entered
in the certificate of the record of the vessel.
9. The amounts borrowed on bottomry loans before the departure
of the vessel, proven by means of the contracts executed according to law
and recorded in the registry of vessels, the amounts borrowed during the
voyage with the authority mentioned in the foregoing subdivision,
complying with the same requisites, and the insurance premium, proven by
the policy of the contract or certificate taken from the books of the broker.
10. The indemnity due to the shippers for the value of the goods
transported which were not delivered to the consignee, or for averages
suffered for which the vessel is liable, provided either shall appear in a
judicial or arbitration decision.
Note: Expressly repealed by R.A. 6106 effective August 4, 1969.
ART. 581. If the proceeds of the sale are not sufficient to pay all the
creditors included in one number or grade, the amount shall be divided
among them pro rata.
ART. 582. After the bill of the judicial sale at public auction has been
executed and recorded in the registry of vessels, all the other liabilities of the
vessel in favor of the creditors shall be considered cancelled.
But if the sale should have been voluntary, and made while the vessel
was on a voyage, the creditors shall retain their rights against the vessel until
her return to the port of her registry, and three months after the record of
sale in the registry of vessels, or after her arrival.
ART. 583. If the ship being on a voyage the captain should find it
necessary to contract one or more of the obligations mentioned in
sub-divisions 8 and 9 of Article 580, he shall apply to the judge or court if he is
in Philippines territory, and otherwise to the Filipino

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VESSEL S

consul, should there be one and in his absence, to the judge or court or to the
proper local authority, presenting the certificate of the registry of the vessel
treated of in Article 612, and the instruments proving the obligation
contracted.
The judge or court, the consul or the local authority as the case may be,
in view of the result of the proceedings instituted, shall make a temporary
memorandum in the certificate of their result, in order that it may be
recorded in the registry when the vessel returns to the port of her registry, or
so that it can be admitted as a legal and preferred obligation in case of sale
before the return, by reason of the sale of the vessel by virtue of a declaration
of unseaworthiness.
The omission of this formality shall make the captain personally liable
for the credits, which may be prejudiced through his fault.
ART. 584. The vessels subject to the liability for the credits mentioned
in Article 580 may be attached and judicially sold in the manner prescribed
in Article 579, in the port in which they may be found, at the instance of any
of the creditors; but if they should be loaded and ready to sail, the
attachment cannot take place except for debts contracted by reason of the
preparation and provisioning of the vessel for the voyage, and even then the
attachment shall be dissolved if any person interested in her sailing should
give bond for the return of the vessel within the period fixed in the
certificate of navigation, binding himself to pay the debt, in so far as it may
be legal, should the vessel fail to do so, even if this failure may have been
caused by fortuitous events.
For debts of any other kind whatsoever not included in the said Article
580, the vessel may only be attached in the port of her registry.
Note: Expressly repealed by R.A. 6106, effective August 4, 1969.
ART. 585. For all purposes of law not modified or restricted by the
provisions of the Code, vessels shall continue to be considered personal
property.

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 TRANSPORTATION LAWS

The Code of Commerce classified vessels as personal property. (Art. 585)

Merchant vessels are considered as property and as such can be acquired by any
of the modes of acquiring ownership. The acquisition of vessel, however, to be
binding against third persons, must be in writing and recorded in the registry of
vessels. (Art. 573) Thus, sale of vessel must be in writing and recorded in the
registry of vessels to bind third persons. The Code of Commerce likewise
provides what is deemed included and excluded in case of sale of vessels. (Art.
576) Sale of vessel may likewise be consummated while on voyage or after
arrival at the port of destination. The only difference is to whom shall the earned
freightage accrue and who shall pay the crew and other persons who goes to
make up the complement of the voyage. (Art. 557) Sale of vessel may likewise
be executed in foreign port. (Art. 578) In judicial sales, preferred creditors are
likewise named. (Art. 580)
When the mercantile code speak of vessels, they refer solely and
exclusively to merchant ships, as they do not include war ships, and
furthermore, they almost always refer to craft which are not accessory to another
as in the case of launches, lifeboats, etc. Moreover, the mercantile laws, in
making use of the words ship, vessel, boat embarkation, etc., refer exclusively to
those which are engaged in the transportation of passengers, and freight from
one port to another or from one place to another; in a word, they refer to
merchant vessels and in no way can they or should they be understood as
referring to pleasure craft, yachts, pontoons, health service and harbor police
vessels, floating storehouses, warships or patrol vessels, coast guard vessels,
fishing vessels, towboats, and other craft destined to other uses, such as for
instance coast and geodetic survey, those engaged in scientific research and
exploration, craft engaged in the loading and discharge of vessels from same to
shore or docks, or in transshipment, and those small craft which in harbors,
along shore, bays, inlets, coves and anchorages are engaged in transporting
passengers and baggage. (Eastern, Der. Men, Vol. IV, p. 195 cited in Lopez v.
Duruelo, 52 Phil. 299)
Note: The importance of the distinction lies on the applicable law that
will apply on the rights and obligations of the parties involved. If it is a
merchant vessel, then the Code of Commerce will apply. If ordinary vessel,
the Civil Code will apply.

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VESSELS

The basic operative fact for the institution and perfection of proceedings in
rem is the actual or constructive possession of the res by the tribunal
empowered by law to conduct the proceedings. This means that to acquire
jurisdiction over the vessel, as a defendant, the trial court must have
obtained either actual or constructive possession over it.

Commissioner of Customs v. The Court of Appeals,

Hon. Arsenio M. Gonong, Presiding Judge, Regional Trial Court,
Branch 8; Hon. Mauro T. Allarde, Presiding Judge,
Regional Trial Court,
Kalookan City, Branch 123; Amado Sevilla and Antonio Velasco,
Special Sheriffs of Manila of Manila; Jovenal Salayon,
Special Sheriff of
Kalookan City, Dionisio J. Camangon,
Ex-Deputy Sheriff of Manila;
and Cesar S. Urbino, Sr., doing business under the name and style
“Duraproof Services”
G.R. Nos. 111202-05, January 31, 2006
FACTS: On January 7, 1989, the vessel M/V “Star Ace,” coming from
Singapore laden with cargo, entered the Port of San Fernando, La Union (SFLU) for
needed repairs. The vessel and the cargo had an appraised value, at that time, of more
or less P200,000,000. When the Bureau of Customs later became suspicious that the
vessel’s real purpose in docking was to smuggle its cargo into the country, seizure
proceedings were instituted under S.I. Nos. 02-89 and 03-89 and, subsequently, two
Warrants of Seizure and Detention were issued for the vessel and its cargo.
Respondent Cesar S. Urbino, Sr. does not own the vessel or any of its cargo but
claimed a preferred maritime lien under a Salvage Agreement dated June 8, 1989. To
protect its claim, Urbino initially filed two motions in the seizure and detention cases:
a Motion to Dismiss and a Motion to Lift Warrant of Seizure and Detention. Urbino,
likewise, sought relief with the regular courts by filing a case for Prohibition,
Mandamus, and Damages before the Regional Trial Court (RTC) of SFLU on July
26, 1989, seeking to restrain the District

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Collector of Customs from interfering with his salvage operation. The case
was docketed as Civil Case No. 89-4267. On January 31, 1991, the RTC of
SFLU dismissed the case for lack of jurisdiction because of the pending
seizure and detention cases. Urbino then elevated the matter to the Court of
Appeals (CA) where it was docketed as CA- G.R. CV No. 32746. The
Commissioner of Customs, in response, filed a Motion to Suspend
Proceedings, advising the CA that it intends to question the jurisdiction of the
CA before this Court. On January 9, 1990, Urbino filed another case for
Certiorari and Mandamus with the RTC of Manila, presided by Judge
Arsenio M. Gonong, this time to enforce his maritime lien. Impleaded as one
among several defendants is the Commissioner of Customs. This case was
docketed as Civil Case No. 89-51451. The Office of the Solicitor General
filed a Motion to Dismiss on the ground that a similar case was pending with
the RTC of SFLU. The Motion to Dismiss was granted on July 2, 1990, but
only insofar as the Commissioner of Customs and the District Collector was
concerned. The RTC of Manila proceeded to hear the case against the other
parties and received evidence ex -parte. The RTC of Manila later rendered a
decision on February 18, 1991, finding in favor of Urbino.
Thereafter, on March 13, 1991, a writ of execution was issued by the
RTC of Manila. Respondent Camangon was appointed as Special Sheriff to
execute the decision and he issued a notice of levy and sale against the vessel
and its cargo. The Commissioner of Customs, upon learning of the notice of
levy and sale, filed with the RTC of Manila a motion to recall the writ, but
before it could be acted upon, Camangon had auctioned off the vessel and the
cargo to Urbino for PI20,000,000. The following day, Judge Gonong issued
an order commanding Sheriff Camangon to cease and desist from
implementing the writ. Despite the order, Camangon issued a Certificate of
Sale of Urbino. A week later, Judge Gonong issued another order recalling the
writ of execution. Both cease and desist and recall orders of Judge Gonong
were elevated by Urbino to the CA on April 12, 1991 where it was docketed
as CA- G.R. SP No. 24669. On April 26, 1991, the CA issued a Temporary
Restraining Order (TRO) enjoining the RTC of Manila from enforcing its
cease and desist and recall orders. The TRO was eventually substituted by a
writ of preliminary injunction. A motion to lift the injunction was filed by the
Commissioner of Customs but it was denied.

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On June 26, 1992, the Executive Judge for the RTC of Manila, Judge
Bernardo P. Pardo, having been informed of the circumstances of the sale, issued
an order nullifying the report and all proceedings taken in connection therewith.
With this order, Urbino filed his fourth case with the CA on July 15, 1992, a
Petition for Certiorari, Prohibition, and Mandamus against Judge Pardo. This
became CA-G.R. SP No. 28387. The CA issued a Resolution on August 6, 1992,
granting the TRO against the Executive Judge to enjoin the implementation of his
June 26, 1992 Order. Going back to the seizure and detention proceedings, the
decision of the District Collector of Customs was to forfeit the vessel and cargo in
favor of the Government. The decision was affirmed by the Commissioner of
Customs. Three appeals were then filed with the Court of Tax Appeals (CTA) by
different parties, excluding Urbino, who claimed an interest in the vessel and
cargo. These three cases were docketed as CTA Case No. 4492, CTA Case No.
4494 and CTA Case No. 4500. Urbino filed his own case, CTA Case No. 4497, but
it was dismissed for want of capacity to sue. He, however, was allowed to intervene
in CTA Case No. 4500. On October 5, 1992, the CTA issued an order authorizing
the Commissioner of Customs to assign customs police and guards around the
vessel and to conduct an inventory of the cargo. In response, on November 3, 1992,
Urbino filed a fifth Petition for Certiorari and Prohibition with the CA to assail
the order, as well as the jurisdiction of the Presiding Judge and Associate Judges of
the CTA in the three cases. That case was docketed as CA G.R. SP No. 29317. On
November 10, 1992, the CA issued a Resolution reminding the parties that the
vessel is under the control of the appellate court.
ISSUE: Whether or not the RTC acquired jurisdiction over the vessel.
HELD: The Court rules in favor of the Commissioner of Customs. First of
all, the Court finds the decision of the RTC of Manila, insofar as it relates to the
vessel M/V “Star Ace,” to be void as jurisdiction was never acquired over the
vessel.
In filing the case, Urbino had impleaded the vessel as a defendant to enforce
his alleged maritime lien. This meant that he brought an action in rem under the
Code of Commerce under which the perfection of proceedings in rem is the actual
or constructive possession of the

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res by the tribunal empowered by law to conduct the proceedings. This means that
to acquire jurisdiction over the vessel, as a defendant, the trial court must have
obtained either actual or constructive possession over it. Neither was accomplished
by the RTC of Manila. In his comment to the petition, Urbino plainly stated that
“petitioner has actual physical custody not only of the goods and/or cargo but the
subject vessel, M/V Star Ace, as well.” This is clearly an admission that the RTC of
Manila did not have jurisdiction over the res. While Urbino contends that the
Commissioner of Custom’s custody was illegal, such fact, even if true, does not
deprive the Commissioner of Customs of jurisdiction thereon. This is a question
that ought to be resolved in the seizure and forfeiture cases, which are now pending
with the CTA, and not by the regular courts as a collateral matter to enforce his lien.
By simply filing a case in rem against the vessel, despite its being in the custody of
customs officials, Urbino has circumvented the rule that regular trial courts are
devoid of any competence to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted in the Bureau of Customs, on his mere assertion
that the administrative proceedings were a nullity.
On the other hand, the Bureau of Customs had acquired jurisdiction over the
res ahead and to the exclusion of the RTC of Manila. The forfeiture proceedings
conducted by the Bureau of Customs are in the nature of proceedings in rem and
jurisdiction was obtained from the moment the vessel entered the SFLU port.
Moreover, there is no question that forfeiture proceedings were instituted and the
vessel was seized even before the filing of the RTC of Manila case. The Court is
aware that Urbino seeks to enforce a maritime lien and because of its nature, it is
equivalent to an attachment from the time of its existence. Nevertheless, despite his
lien’s constructive attachment, Urbino still cannot claim an advantage as his lien
only came about after the warrant of seizure and detention was issued and
implemented. The Salvage Agreement, upon which Urbino based his lien, was
entered into on June 8,1989. The warrants of seizure and detention, on the other
hand, were issued on January 19 and 20,1989. And to remove further doubts that
the forfeiture case takes precedence over the RTC of Manila case, it should be
noted that forfeiture retroacts to the date of the commission of the offense, in this
case, the day the vessel entered the country. A maritime lien, in contrast, relates
back to the period when it first attached in this

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VESSELS

case the earliest retroactive date can only be the date of the Salvage
Agreement. Thus, when the vessel and its cargo are ordered forfeited, the
effect will retroact to the moment the vessel entered the Philippine
waters.
Accordingly, the RTC of Manila’s decision never attained finality
as to the defendant vessel, inasmuch as no jurisdiction was acquired over
it, and the decision cannot be binding, and the writ of execution issued in
connection therewith is null and void. Moreover, even assuming that
execution can be made against the vessel and its cargo, as goods and
chattels to satisfy the liabilities of the other defendants who have an
interest therein, the RTC of Manila may not execute its decision against
them while, as found by this Court, these are under the proper and lawful
custody of the Bureau of Customs. This is especially true when, in case of
finality of the order of forfeiture, the execution cannot anymore cover the
vessel and cargo, as ownership of the Government will retroact to the
date of entry of the vessel into Philippine waters.
PRESIDENTIAL DECREE NO. 474
PROVIDING FOR THE REORGANIZATION OF MARITIME
FUNCTIONS IN THE PHILIPPINES, CREATING THE
MARITIME INDUSTRY AUTHORITY, AND FOR OTHER
PURPOSES.
WHEREAS, the efficient sea transport of raw materials, products,
commodities and people is vital to the growth of the Philippine economy;
WHEREAS, the functions pertaining to the development and
regulation of shipping enterprises are fragmented among various
government agencies, resulting in inadequate and inefficient shipping
facilities, dependence on external shipping interests, maldistribution of
commodities, and piece-meal solutions;
WHEREAS, there is imperative need to modernize and expand
the Philippine merchant fleet, and to rationalize and improve their
operations in order to make them effective instalments in promoting
domestic production, inter-island and overseas trade, price
stabilization, and employment generation;

42 J

*
 TRANSPORTATION LAWS

WHEREAS, it is urgently necessary to provide a strong organizational

framework to effect the accelerated and integrated development and effective
regulation of shipping enterprises;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution, in order
to effect the desired changes and reforms in the social, economic and political
structure of our society, do hereby decree and order that the following be
adopted and made part of the laws of the land:
Section 1. Title. — This Decree shall be known as the “Maritime Industry
Decree of 1974. ”
Section 2. Declaration of Policies and Objectives. — It is hereby
declared the policy of the State to accelerate the integrated development of the
maritime industry of the Philippines to attain the following objectives: (a) To
increase production and productivity in the various islands and regions of the
archipelago through the provision of effective sea linkage; (b) To provide for the
economical, safe, adequate and efficient shipment of raw materials, products,
commodities and people; (c) To enhance the competitive position of Philippine
flag vessels in the carriage of foreign trade; (d) To strengthen the balance of
payments position minimizing the outflow of foreign exchange and increasing
dollar earnings; and (e) To generate new and more job opportunities.
For the attainment of these objectives, the Government through the
Maritime Industry Authority hereinafter created, shall:
(a) Adopt and implement a practicable and coordinated Maritime
Industry Development Program which shall include, among others, the
early replacement of obsolescent and uneconomic vessels; modernization
and expansion of the Philippine merchant fleet; enhancement of domestic
capability for shipbuilding, repair and maintenance; and development of
reservoir of trained manpower;
(b) Provide and help provide the necessary: (i) financial
assistance to the industry through public and private financing institutions
and instrumentalities; (ii) technological assistance;

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VESSELS

and (iii) in general, a favorable climate for expansion of domestic and

foreign investments in shipping enterprises: and
(c) Provide for the effective supervision, regulation and
rationalization of the organizational management, ownership and
operations of all water transport utilities, and other maritime enterprises.
Section 3. Definition of Terms. — The terms, as used, in this Decree
shall have the following meaning, unless the context of the particular usage of
the term indicates otherwise:
a. “Maritime Industry, ” briefly referred to as “industry”
in the broadest concept of the term. —All enterprises engaged in the
business of designing, constructing, manufacturing, acquiring,
operating, supplying, repairing, and/or maintaining vessels, or
component parts thereof; of managing and/or operating shipping
lines, stevedoring arrastre and customs brokerage services,
shipyards, drydocks, marine railways, marine repair shops, shipping
and freight forwarding agencies and similar enterprises.
b. “Vessels ” or “Watercraft. ” — Any barge, lighter, bulk
carrier, passenger ship freighter, tanker, container ship, fishing boats or
other artificial contrivance utilizing any source of motive power,
designed, used or capable of being used as a means of water
transportation operating either as common contract carrier, including
fishing vessels covered under Presidential Decree No.
43, except (i) those owned and/or operated by the Armed Forces of
the Philippines and by foreign governments for military purposes,
and (ii) bancas, sailboats and other waterborne contrivance of less
than three gross tons capacity and not motorized.
c. “Philippine National. ” — A citizen of the Philippines;
or a partnership or association wholly owned by and composed of
citizens of the Philippines; or a corporation organized under the laws
of the Philippines of which at least sixty percent of the capital stock
outstanding and entitled to vote is owned and held by Philippine
citizens; or a trustee of funds for pensions or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent of the funds

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will accrue to the benefit of the Philippine nationals; Provided, That where
a corporation and its non-Filipino stockholders own stock in an enterprise,
at least sixty percent of the members of the governing board of both
corporations must be Philippine nationals.
d. “Philippine flag vessel. ” — A vessel or watercraft
registered under Philippine laws.
e. “Foreign flag vessel. ” — A vessel or watercraft registered
under the laws of a country other than the Philippines.
f. “Philippine shipping companies. ” — Philippine nationals
registered and licensed under the laws of the Philippines to engage in the
business of overseas and/or domestic water transportation.

A. MARITIME INDUSTRY AUTHORITY

Section 4. Maritime Industry Authority, Creation and Organization.
— There is hereby created a Maritime Industry Authority, hereinafter referred to
as the Authority, under the Office of the President. It shall be composed of a
governing board of directors to be known as Maritime Industry Board and the
Management.
The Authority shall have general jurisdiction and control over all
persons, corporations, firms or entities in the maritime industry of the
Philippines and shall supervise, regulate in accordance with this Decree.
The principal office of the Authority shall be in the Greater Manila Area.
Regional or branch offices may be established at such other place or places
within the Philippines as may be deemed necessary by the Board.
Section 5. Maritime Industry Development Program. -— The
Authority shall prepare and annually update a Ten-Year Maritime Industry
Development Program, hereinafter referred to as “Program” which shall contain
a rational and integrated development of the maritime industry. The Authority
shall submit the same for approval by the President of the Philippines.

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VESSELS

Upon approval of the Program by the President, all government

departments, bureaus, agencies and instrumentalities shall implement the
same within their respective jurisdictions. The Authority shall ensure that the
approved program is being effectively implemented by the participating
agencies. No government body or instrumentality shall adopt any policy or
take course of action contrary to or inconsistent with the Program.

B. MARITIME INDUSTRY BOARD

Section 6. Powers and Functions of the Board. — The Maritime Industry
Board shall have the following powers, functions, and duties, among others:
a. To provide comprehensive policy guidance for the
promotion and development of the maritime industry as provided for in
this Decree;
b. To promulgate and prescribe such promotional and
development rules and regulations, standards, guidelines and procedures
and recommend laws or measures as may be necessary for the growth
and effective regulation of shipping enterprises;
c. To formulate a comprehensive and practicable Maritime
Industry Development Program for a ten-year period and review and
update the same annually;
d. To prescribe specific policies in the determination of just
and reasonable passenger fares, freight rates and other charges relative
to the operation of inter-island vessels. Accordingly, the Board of
Transportation shall exercise its rate-fixing functions in accordance with
such policies;
e. To recommend to the President that the State, through such
agency or agencies as the President may designate, purchase, lease,
manage, operate or requisition any vessel, ship or shipping enterprise,
for national security purposes, to meet emergency situations or when the
national interest so requires;
f. To approve contracts;

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 TRANSPORTATION LAWS

g. To approve the organizational structure, staffing pattern,

and budget of the Authority upon the recommendation of the
Administrator;
h. To appoint, discipline and remove, and determine the
composition of the Authority technical staff and other personnel:
Provided, That all regular professional and technical personnel in the
Authority shall be permanent and career in status, but exempt from
WAPCO and Civil Service rules and regulations: Provided, further,
That the personnel shall be entitled to the benefits normally accorded to
government employees, such as retirement, GSIS insurance, leave and
similar matters: Provided, finally, That the Board or the Administrator
may engage on contractual basis or other arrangements for the
temporary services, and fix the compensation of highly qualified
professionals, expert technical advisers or consulting firms;
i. To adopt a common seal for the Authority, which shall be
juridically noticed, determine the exact location of its office and
prescribe the rules and regulations to govern its proceedings;
j. To recommend to the President, through the National
Economic and Development Authority, the grant of necessary incentives
for the development of shipping and other related maritime enterprises;
and
k. To perform such acts as are proper and necessary to
implement this Decree.
Section 7. Composition and Organization. — The Board shall be
composed of eight members as follows: The Secretary of Trade; the Secretary of
Public Works; Transportation and Communications; the Secretary of National
Defense; the Executive Secretary; the Chairman of the Board of Investments; the
Chairman of the Development Bank of the Philippines; the Chairman of the
Board of Transportation and the Maritime Administrator. The Chairman of the
Board shall be appointed by the President of the Philippines from among its
members.
The officials next in rank to the regular members shall serve as permanent
alternate members, except that, in the absence of the

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chairman, the Board shall elect a temporary presiding officer. The alternate
members shall attend meetings of the Board and committees assigned to their
principals and receive the corresponding per diems whenever their principal
is absent or the said position is vacant.
The Board shall meet regularly once a month and may hold special
meetings to consider urgent matters upon call of the Chairman or any three
members thereof. A majority shall constitute a quorum for the transaction of
business.
Each member shall receive a monthly commutable allowance of Five
hundred pesos and per diem of One hundred for every meeting of the Board
or committee thereof actually attended: Provided' That the total amount
ofper diems which each may receive shall not exceed Five hundred pesos a
month.

C. MANAGEMENT
Section 8. Management Head. — The management of the
Authority shall be vested in the Maritime Administrator who shall be directly
assisted by the Deputy Administrator for Planning and a Deputy
Administrator for Operations, hereinafter referred to as “ Deputy
Administrators. ”
Section 9. The Maritime Administrator and Deputy
Administrators. — The Maritime Administrator and Deputy Administrators
shall be appointed by the President for a term of six years: Provided, That
upon the expiration of their respective terms, they shall continue to serve until
their successor shall have been appointed and qualified: Provided, further,
That no vacancy shall be filled except for the unexpired portion of the term:
Provided, finally, That the President may remove the Administrator and
Deputy Administrators from office for cause upon recommendation of the
Board.
The Maritime Administrator and Deputy Administrators shall be
citizens of the Philippines, at least thirty-five years old on the date of their
appointment, of good moral character, of recognized executive ability and
competence in previous public or private employment, with adequate training
and experience in economics, technology, finance, law, management, public
utility, or in other phases or aspects of the

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maritime industry, receive an annual salary of Fifty thousand pesos and a monthly
commutable allowance of Two thousand pesos. Each Deputy Administrator shall
receive an annual salary of Forty thousand pesos and a monthly allowance of One
thousand five hundred pesos.
The Administrator shall be directly responsible to the Board, and shall have
powers, functions and duties as provided in this Decree. The Deputy Administrator
shall be directly responsible to the Administrator, and their respective powers,
functions and duties shall be determined by the Board, upon recommendation of the
Administrator.
Section 10. Authority to Administer Oath. — The Chairman of the Board,
the Administrator, the Deputy Administrators, the Chief Legal Officer and heads of
divisions of the Authority shall have the power to administer oaths for the
transaction of official business.
Section 11. General Powers and Functions of the Administrator. —
Subject to the general supervision and control of the Board, the Administrator shall
have the following general powers, functions and duties:

a. To implement, enforce and apply the policies,

programs, standards, guidelines, procedures, decisions and rules
and regulations issued, prescribed or adopted by the Board
pursuant to this Decree;
b. To undertake researches, studies, investigations and
other activities and projects, on his own initiative or upon
instructions of the Board and to submit comprehensive reports
and appropriate recommendations to the Board for its
information and action;
c. To undertake studies to determine present and future
requirements for port development including navigational aids,
and improvement of waterways and navigable waters in
consultation with appropriate agencies;
d. To pursue continuing research and developmental
programs on expansion and modernization of the merchant fleet
and supporting facilities taking into consideration the needs of the
domestic trade and the need of regional economic cooperation
schemes; and

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e. To manage the affairs of the Authority subject to the

provisions of this Decree and applicable laws, orders, rules and
regulations of other appropriate government entities.
Section 12. Specific Powers and Functions of the Administrator.
— In addition to his general powers and functions, the Administrator shall:

a. Issue Certificates of Philippine Registry for all vessels

being used in Philippine waters, including fishing vessels covered by
Presidential Decree No. 43 except transient civilian vessels of foreign
registry, vessels owned and/or operated by the Armed Forces of the
Philippines or by foreign governments for military purposes, and
bancas, sailboats and other watercraft which are not motorized, of
less than three gross tons;
b. Provide a system of assisting various officers, profes-
sionals, technicians, skilled workers and seamen to be gainfully
employed in shipping enterprises, priority being given to domestic
needs;
c. In collaboration and coordination with the Department of
Labor, to look into, and promote improvements in, the working
conditions and terms and employment of the officers and crew of
vessels of Philippine registry, and of such officers and crew members
who are Philippine citizens and employed by foreign flag vessels, as
well as of personnel of other shipping enterprises, and to assist in the
settlement of disputes between the shipowners and ship operators and
such officers and crew members, and between the owner or manager
of other shipping enterprises and their personnel;
d. To require any public water transport utility or Philippine
flag vessels to provide shipping services to any coastal areas in the
country where such services are necessary for the development of the
area, to meet emergency sealift requirements, or when public interest
so requires;
e. Investigate by itself or with the assistance of other
appropriate government agencies or officials, or experts from

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the private sector, any matter within its jurisdiction, except marine
casualties or accidents, which shall be undertaken by the Philippine Coast
Guard;
f. Impose, fix, collect and receive in accordance with the
schedules approved by the Board, from any shipping enterprise or other
persons concerned, such fees and other charges for the payment of its
services;
g. Inspect, at least annually, the facilities of port and cargo
operators and recommend measures for adherence to prescribed
standards of safety, quality and operations;
h. Approve the sale, lease or transfer of management of vessels
owned by Philippine nationals to foreign-owned or controlled
enterprises;
i. Prescribe and enforce rules and regulations for the prevention
of marine pollution in bays, harbours and other innavigable waters of the
Philippines, in coordination with the government authorities concerned;
j. Establish and maintain, in coordination with the appropriate
government offices and agencies, a system of regularly and promptly
producing, collating, analysing and disseminating traffic flows, port
operations, marine insurance services and other information on maritime
matters;
k. Recommend such measures as may be necessary for the
regulation of the importation into and exportation from the Philippines of
vessels, their equipment and spare parts;
l. Implement the rules and regulations issued by the Board of
Transportation;
m. Compile and codify all maritime laws, orders, rules and
regulations, decisions in leading cases of courts and the Authority’s
procedures and other requirements relative to shipping and other shipping
enterprises, make them available to the public and whenever practicable,
to publish such materials;
n. Delegate his powers in writing to either of the Deputy
Administrators or any other ranking officials of the Authority;

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Provided, That he informs the Board of such delegation promptly ; and

o. Perform such other duties as the Board may assign, and

such acts as may be necessary and proper to implement this Decree.
Section 13. Maritime Industry Manpower Needs. —The Authority shall
establish and support a system of maintaining and developing a reservoir of
trained manpower to meet the current and future needs of the industry. For
the attainment of this objective, it shall undertake the following:

a. Evaluate, in collaboration with the Department of

Education and Culture, the capability of maritime educational and
training institutions and programs in the Philippines, including the
Philippine Merchant Marine Academy, herein placed under the
administrative supervision of the Authority, to supply shipping and
shipyard manpower needs.
b. Inspect and evaluate periodically the standards, facilities and
performance of the maritime educational and training programs of
government and private schools and enterprises and recommend to the
Department of Education and Culture and other appropriate government
agencies such changes in the curriculum as may be necessary.
c. Conduct or arrange for the holding of pre-employment,
on-the-job and other training programs to provide and upgrade shipping
skills and techniques, with the cooperation and support of private
enterprises and government agencies.
d. Provide incentives for education and training in shipping and
shipbuilding fields, especially those which are not attractive to students
such as naval architecture, including scholarships and fellowships, in the
Philippines or abroad, with liberal grants for the entire duration of the
course, to be sponsored directly or arranged by the Administration.
Section 14. Penalties. —Any person who gives false or misleading data or
information or wilfully or through gross negligence, conceals

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or falsifies a material fact, in any investigation, inquiry or hearing, or other

proceedings held pursuant to this Decree, shall be punished with
imprisonment of not less than two nor more than six months and with a fine or
not less than Five hundred nor more than One thousand pesos: Provided,
however, That if the false or misleading data or information shall have been
given under oath, the maximum penalty for giving false testimony or perjury
shall be imposed.

D. MISCELLANEOUS PROVISIONS
Section 15. Auditor. — The Commission on Audit shall be the ex-officio
Auditor of the Authority and it shall appoint its representative therein, who
shall audit all accounts thereof.

Section 16. Reorganizational Changes. —

a. Department of Trade. — The Shipping and Freight Study
Unit of the Department of Trade is hereby transferred to the Authority
together with its applicable appropriations, records, equipment,
property and such personnel as may be necessary.
b. Bureau of Transportation. — The powers and functions
pertaining to the development and supervision of maritime shipping of
the Bureau of Transportation for Water are hereby transferred to the
Authority. Accordingly, the Water Transportation Division of the
Bureau is hereby abolished.
c. National Development Company. — The powers and
functions of the National Development Company relative to ship
acquisition under Republic Act No. 1407, as amended (Philippine
Overseas Act of 1955), are hereby transferred to the Authority together
with its applicable records, equipment and property.
In addition to the powers and functions herein transferred, balances
of all appropriations, funds, accounts and notes receivable derived from
shipping companies, equipment, records and supplies are likewise
transferred to the Authority.
Section 17. Retention of the Functions and Powers of the Philippine
Coast Guard. — Nothing in this Decree shall be constructed to affect or
delimit the present functions and powers of the Philippine

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Coast Guard relative to maritime affairs. All such functions and powers of the
Philippine Coast Guard are retained by it. Furthermore, in the performance of its
functions, especially in the classification and inspection of vessels, the Philippine
Coast Guard will be assisted by the Authority: Provided, That within two years
from the issuance of this Decree, the President may transfer to the Authority such
regulatory functions of the Philippine Coast Guard pertaining to maritime affairs as
may be necessary for the achievement of the aims and purposes of the Authority.
The Authority shall coordinate with the Philippine Coast Guard in the exercise of
supervision and regulation of the operation of water transport utilities.
Section 18. Coordination With Other Agencies. —The Authority shall
coordinate with the Department of Labor, the Department of Education and Culture
and the National Manpower and Youth Council in the exercise of its pertinent
functions that have relation to the functions of the above-mentioned agencies,
particularly as these pertain to the development of trained and qualified seamen for
Philippine vessels.
In order to strengthen its coordinative functions, the Authority shall hire and
train appropriate technical personnel which may be assigned to other government
agencies involved in the implementation of laws, rules and regulations relative to
maritime affairs.
Section 19. Transitory Provision. — Officials and employees of all
existing offices or agencies which are abolished or reorganized under this Decree
may be absorbed into the Authority on the basis of merit and fitness: Provided, That
employees who shall be laid off by reason of this Decree shall be given gratuity
equivalent to one month’s salary for every year of service but in no case more than
twenty-four months salary, in addition to all benefits to which they are entitled under
existing laws and regulations.
To carry out the provisions of this Section there is hereby appropriated the
sum of Five hundred thousand pesos out of the unappropriated funds in the National
Treasury.
Section 20. Appropriations. — To carry out the provisions of this Decree,
there is hereby appropriated the sum of Two million pesos out of the funds in the
National Treasury not otherwise appropriated.

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Thereafter, the succeeding appropriations of the Authority shall be included in the

annual Appropriations Act.
In addition to the above, the Authority is hereby authorized to retain fifty
percent of its collections from fees, charges and fines to defray any deficiency in
annual appropriations and to finance its other projects.
Section 21. Repealing and Separability Clauses. — All laws, decrees,
orders, rules and regulations, policies, programs or parts thereof, which are
inconsistent with any of the provisions of this Decree, are hereby repealed or
modified accordingly.
If for any reason any section or provision of this Decree is declared to be
unconstitutional or invalid, the other sections or provisions hereof, which are not
affected thereby, shall continue in full force and effect.
Section 22. Effectivity. — This Decree shall take effect upon its
promulgation: Provided, That these portions hereof which may require a transition
period to assure the orderly transfer of powers and functions shall take effect as stated
in the implementing details: Provided' further, That such implementing details shall
be prepared by the Board, in consultation with the government agency heads
concerned, and submitted to the President for approval within four months after
issuance of this Decree.
DONE in the City of Manila, this 1st day of June, in the year of Our Lord,
Nineteen Hundred and Seventy-Four.

RULES OF PRACTICE AND PROCEDURE

OF THE MARITIME INDUSTRY AUTHORITY

MEMORANDUM CIRCULAR NO. 74-A

By virtue of the powers vested in the MARINA pursuant to Section 11(a) of
P.D. No. 474 and Section 12, E.O. No. 125/125-A, in relation to Chapter V,
Section 29 of the Public Service Act and paragraph 2 of E.O. No. 26, dated October
7, 1992 and in furtherance of the policy of the MARINA to obtain an inexpensive,
speedy and equitable disposition of cases before it, the MARINA Board in its
meeting of July 13, 1995,

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orders the implementation of the following rules of procedure in cases enumerated in

Rule I of PART I and PART II hereof.
Parti
Rule 1: Coverage
The procedure set forth hereunder shall govern and apply to the
following cases, heard before the Maritime Regional Offices and the
Central Office, to wit:
a) Application or petitions for the issuance of Certificate of
Public Convenience (CPC), Provisional Authority (PA) or Special
Permit (SP), granting authority or permitting the operation of
inter-island vessels as public service in the domestic trade, for the
carriage of cargo, or cargo/passenger or both, either as liner or tramp
services;
b) Renewals or amendments to the CPC, PA or SP; and
c) Petitions for rate increase/adjustments.

Rule 2: Definition of Terms

a) Uncontested Application — one in which the application is
uncontroverted, unopposed and unadversarial.
b) Contested Application — one in which the application is
controverted, litigated, opposed, and disputed.
c) Affected Operators — any unauthorized or authorized/
franchised operation who stands to be prejudiced by a probable grant of the
reliefrprayer, sought in the application.
d) Affected Parties — parties who stand to be prejudiced by any
grant of rate increase!
e) MARINA — Maritime Industry Authority.

Rule 3: Construction
These rules shall be liberally construed in order to promote their
object in obtaining a just, speedy and inexpensive disposition and
resolution of applications/petitions filed before the MARINA.

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Rule 4: Venue
Section 1. Applications for the issuance of CPC, PA, or SP shall be filed in
the Maritime Regional Office (MRO) or the Central Office whose territorial
jurisdiction the vessel(s) is (are) being operated in, Provided, That in case of
tramping vessels, the MRO where the vessels are home ported: Provided,
further, That in case the operation involves two (2) or more regions the MRO
where the vessel is home ported to the exclusion of all the MROs: Provided,
finally, That in case the application is contested the MRO concerned shall after
hearing, forward the records of the case to the Central Office for final resolution
or decision in accordance with Section 2, sub-section 2.2 of Administrative
Order No. 06-94.
Section 2. Venue may be transferred at the discretion of the MARINA,
upon a written motion by any of the parties based on convenience and other
meritorious reasons.

Rule 5: Filing of the Application

Section 1. Jurisdiction is acquired over the applicant upon the filing of
the application and the payment of the required fees.
Section 2. No CPC shall be granted without substantially complying
with the three requisites stated in Section 16(a), Chapter 2 of the Public
Service Act or C.A. No. 146, as amended, namely: (1) Filipino ownership;
(2) public necessity; and (3) financial capacity.
Section 3. Hearing shall be set on a date that will allow a ten (10)- day
period for publication prior to the initial hearing.
Section 4. The Notice of Hearing (NOH) should specify the route and
schedule applied for by the applicant and shall contain the attached list of
existing/affected operators and concerned parties who shall be individually
furnished a copy of the NOH and a copy of the application, at least five (5)
days before the initial hearing.
Section 5. The notice of hearing shall be published once in a newspaper of
general circulation or in the case of regions, of regional circulation at least 10
days before the date of hearing.

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 ( IIAIMI.K VII
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Section 6. The applicant shall serve to the affected operators and

affected parties copies of the application and NO! I either by personal
delivery or by registered mail.
Section 7. Postponements shall he allowed only in meritorious cases, at
the discretion of this Authority upon the filing of an appropriate pleading or
motion at least three (3) days before the scheduled hearing and with proof of
service to the affected parties.

Rule 6: Pre-Trial
Section 1. After the applicant has submitted proofs of compliance with
jurisdictional requirements of publication of the notice of hearing and
service of notice to the affected parties, the hearing officer shall direct the
parties to appear before it for a pre-trial conference to consider the
following: a) the possibility of arriving at an amicable settlement or for
submission to arbitration; b) possible stipulation of facts in order to simplify
the issues; c) the number of witnesses and the nature of their written
testimonies; d) on settings of the subsequent hearings; and e) such other
matters as may aid for the prompt disposition of the case.
Section 2. Applicants or oppositors may be declared non-suited or in
default respectively motu proprio by the Authority or upon the motion of
the parties.
Section 3. The pre-trial conference shall be called by the Hearing
Officer in uncontested applications for the purpose of shortening the period of
the proceedings.
Section 4. After the pre-trial conference, the Hearing Officer shall issue
an Order stating the ultimate facts that the parties have stipulated on the
issues to be heard, the number of witnesses and the provisions of law
involved.

Rule 7: Compromise
To expedite administrative proceedings involving conflicting rights to
obviate expensive litigation, the parties are encouraged and enjoined to enter
into an amicable settlement, compromise and arbitration.

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Rule 8: Summary Procedure

Section 1. At the initial hearing of uncontested applications, the
applicants shall submit to the MARINA through the Hearing Officer their
formal written offer of exhibits with the following documents attached
thereto, stating the nature and purpose of the offer:
A. Application for CPC/PA/SP shall indicate the proposed
schedule of trips and the proposed route for the vessel (schedule
of trips not applicable to tramping).
B. Documents to be submitted upon filing of the application.
B. l Vessel Documents.
B.1.1 Updated/Valid Bay and River License (BRL)
Coastwise License (CWL) for the motor boaM
vessel.
B.l.2 Updated/Valid Certificate of Inspection (Cl)
reflecting the vessel’s authorized area of
operation/vessel’s authority to carry either
passengers or cargoes or both.
B. 1.3 Certificate of ownership, Certificate of Philippine
Registry or Certificate of Vessel Registry and
Certificate of Admeasurement.
B.2 Financial Statements.
B.2.1 For existing operators.
1.1 Latest Annual Report, or
1.2 Latest Balance Sheet, and latest Income
Sheet.
B.2.2 For new operators.
1.1 Estimated/Projected Income and Expense
Summary for at least a period of two (2)
months; and
2.2 Beginning Balance Sheet, or Certified
Statement of Assets and Liabilities as of

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the latest date together with a schedule

showing an itemized list of income
producing properties and/or Source of
Income and the average annual income
from each.
C. 3 Other Mandatory Requirements.
C. 3.1 Certified Distance from the National
Mapping Resource and Information Authority
(NAM- RIA), formerly Bureau of Coast and
Geodetic Survey (BCGS) showing distance of
port-to- port link (not applicable to tramping)
C.3.2 Sketch showing the proposed route or line or
operation, the homeport, and the port(s) of
call(s) or origin and destination, (not applicable
to tramping)
C.3.3 Updated/Valid Radio Station License issued by
the National Telecommunications
Commission (NTC) for vessels 35 GRT and
above.
C.3.4 Article of Incorporation/Partnership approved
by the Securities and Exchange Commission
(SEC) for Corporations and Partnership re-
flecting as its primary/secondary purpose(s)
the operation of a common carrier as defined
in the Public Service Act as amended:
Registration of Business Name/Business
License for Single Proprietorship, Charter
Agreement if vessel is locally chartered.
DOT accreditation, (if vessel is for
tourism purposes)
C.3.5 Condition Survey Report/Provisional Class
Certificate/Class Maintenance Survey/Provi-
sional Class Certificate/Final Class
Certificate/
Class Maintenance Survey Report, (if vessel
is required to be classed)
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 TRANSPORTATION LAWS

C.3.6 Insurance Policy.

1. Tankers and barges carrying oil and
petroleum products.
1.1 Oil/Marine Pollution/Protection and
Indemnity (P & I) Cover or their
equivalent, of not less than USS300
million per vessel for vessels carrying a
capacity of 700,000 liters or more.
1.2 Oil/Marine Pollution/Protection and
Indemnity. (P & I) cover, or their
equivalent, of not less than US$10
million per vessel for vessels carrying a
capacity of less than 700,000 liters.
1.3 Tanker Owners Voluntary Agreement
on Liability for Oil Pollution
(TOVALOP), if applicable.
2. LPG Carriers-Insurance cover against third
party liability in the amount equivalent to
US$2 Million.
3. Passenger vessels-insurance coverage of
P50,000 per authorized vessel.
For tankers and barges carrying oil and
petroleum products:
1. P2M paid-up capitalization for
corporations.
2. Petroleum industry suitability checklist
requirements/hauling contract/spot hire
contract with oil companies, (for
tankers and barges 500 GRT and below)

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C.3.7 Registration accreditation under Memorandum

Circular No. 79.
C.3.8 Payment of filing'processing fees.
C.3.9 Three colored photographs of the vessels (5” x T)
showing port side, starboard side and eastern view.
C. Proof of compliance of jurisdictional requirements to be submitted during
the hearing:
1. Affidavit of the editor or business manager of the newspaper
of regional or provincial publication in which the notice of
hearing was published together with a complete copy of the
issue of the newspaper clippings;
2. Proof of mailing/delivery of the notice of hearing to the
affected operator/s within the specified period of affidavit,
showing that a copy of the application and the notice of
hearing, enclosed in an envelope properly addressed to the
affected parties postage prepaid was mailed ten (10) days
prior to the date of hearing to which affidavit the registry
receipt and return cards, or any enclosed letters, shall be
attached.
Section 2. The foregoing summary procedure shall be applicable to
contested and uncontested applications.
Rule 9: Petition for Rate Increase
Section 1. The provisions in Rule 5 of this Book shall be applicable to
petitions for freight and/or passenger rate increase adjustments.
Section 2. In addition, the petition should state the existing rates being
charged, as well as the proposed rates. A list of affected parties should be
attached to the petition.
Section 3. The list of affected parties shall contain all affected sector(s),
i.e., shippers, passenger group, local government units, nongovernmental units
and the like.

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 TRANSPORTATION LAWS

Section 4. The NOH and the petition shall be published in accordance

with the provisions of Section 5, Rule 5 of this Book.

Section 5. Provisions of Rules 6 and 7 shall also be applicable.

Section 6. The following documents/data shall be required:
A. Latest audited financial statement/annual Report, i.e.f
balance sheet; income statement of subject vessel; income sheet of the
company; and cost of the subject vessel; (projected income statements
for new operators);

B. Passenger capacity/Cargo capacity/Roro capacity;

C. Frequency of trips;
D. Commissionable days;
E. General arrangement plan, if applicable;
F. Other documents as may be required by the MARINA’S
Domestic Shipping Office (DSO).
Rule 10: Opposition
Section 1. Parties opposed to the grant of the CPC/PA/SP or petitions for
rate increase/adjustment shall, at the hearing, submit counter-affidavit of their
witnesses, controverting applicant’s evidence.
Section 2. Every party shall have the right to cross-examine witnesses
presented against him and to submit rebuttal evidence.

Section 3. With the submission by the parties of the aforesaid

documentary evidence and written testimonies under oath, the application
shall be deemed submitted for final decision upon the filing of the written
formal offer of evidence. Witnesses may be called for clarificatory questions.

Rule 11: Renewals or Extension or Amendments

In case of extension of the PA/SP or amendments to the PA/CPC, a
timely motion shall be filed before the MARINA with proof of service to
affected operators (in the case of contested applications).
 CHAPTER VII
VESSELS

In case of renewals, the operator, shipping company or shipowner shall

signify its intention to renew its PA or CPC in writing.

Rule 12: Prohibition

Section 1. No application/petition shall be processed or be given due
course if the applicant/petitioner has unsettled accounts before the MARINA
consisting of unpaid administrative penalties and fines or otherwise.
Section 2. No PA shall be issued except upon compliance with the three
requisites in Sec. 16(a), Chapter 2 of the Public Service Act or C.A. No. 146, as
amended and after the initial hearing except in tramping service wherein PA may
issue prior to the initial hearing.

Rule 13: Provisional Relief

Upon the filing of an application or petition and after initial hearing or at
any stage thereafter, this Authority motu proprio or at the initiative of the
parties, may grant the relief prayed for based on the pleadings and other
documentary evidence without prejudice to the final resolution of the case.

Rule 14: Contempt

In accordance with Section 29, Chapter V of the Public Service Act as
amended, the hearing officer may summarily punish for contempt by a fine not
exceeding Two hundred pesos or by imprisonment not exceeding ten (10) days or
both any person guilty of misconduct in the presence of the hearing officer or so
near the same as to interrupt the hearing or session or any proceedings before
him, including cases in which a person present at a hearing session or
investigation held by the hearing officer refuse to be sworn as witness or to
answer as such when lawfully required to do so. To enforce the provisions of this
Rule, the hearing officer may request the assistance of the municipal police and/
or MARINA’S Enforcement Office for the execution of any order made for said
purpose.

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 TRANSPORTATION LAWS

Rule 15: Decisions

Section 1. Uncontested Cases. — Subject to compliance with the
relevant Memorandum Circulars and upon satisfactory showing that the pleadings
together with the supporting affidavits and documents establishes the right of the
party to the relief prayed for and when there is no opposition thereto, the Authority
shall within fifteen (15) days after case has been submitted for resolution, render
an order or decision thereon.
Section 2. Contested Cases. — Subject to compliance with other relevant
Memorandum Circulars, the Authority shall render a decision, ruling or resolution
within thirty (30) days after the case has been submitted unless the record is so
voluminous and the issues are complicated that a longer period to prepare and
render a decision or resolution is required.

Rule 16: Appeals

Mi.LtkAS

The order, ruling, decision or resolution of the MARINA shall take effect
immediately and shall become final after fifteen (15) days from receipt of the copy
of the party unless:
a) reviewed en banc by the MARINA Board motu proprio; or
b) a motion for reconsideration is filed within fifteen (15) days
from receipt of the order, ruling, decision or resolution sought to be
reconsidered by the aggrieved party, provided, however, that only one
motion for reconsideration shall be allowed.

PART II
Rule 1: Coverage
The procedure set forth hereunder shall govern and apply to the following
cases heard before the MARINA Central Office and the Maritime Regional
Offices, to wit:
a) Violation of the provisions of the Public Service Act or
C. A. No. 146, as amended;

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b) Violation of memorandum circulars issued and

promulgated by the MARINA in pursuance of its regulatory
functions; and
c) Violation of the provisions of laws, rules and regulations,
the implementation of which is vested and/or delegated to the
MARINA.

Rule 2: Definition of Terms

a) Memorandum Report — any official written report originating
from any of the offices of the MARINA, containing distinctly the facts
constituting violation(s) by the respondent of the provisions of the Public
Service Act, as amended; Memorandum Circulars; and/or other pertinent
laws, rules, regulations, decisions, ruling or orders of the MARINA and
recommending the issuance of a Show Cause Order.
b) Complaint — sworn written statement containing concise and
ultimate facts constituting the violation(s) by the respondent of the
provisions of the Public Service Act, as amended; Memorandum Circulars;
and/or other pertinent laws, rules, regulations, decisions, ruling or orders of
the MARINA and duly signed by private aggrieved party attaching thereto
supporting documentary evidence.
c) Show Cause Order—order issued by the MARINA requiring the
respondent to submit an answer or comment to the complaint or to the
Memorandum Report and to show cause why it should not be held
administratively liable for the alleged offense/violation.
d) Answer/Comment—verified pleading filed by the respondent
containing the defenses upon which he relies or an admission of the offense
being charged.
e) MARINA — Maritime Industry Authority.

Rule 3: Construction
These rules shall be liberally construed in order to promote their object
in obtaining a just, speedy, and inexpensive disposition and resolution of the
complaint cases.

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 TRANSPORTATION LAWS

Rule 4: Venue
Section 1. The MROs and the Central Office shall have the authority to
hear complaints against a public service and/or operator, whose vessel
complained about is being operated within the territorial jurisdiction of the
respective MROs or the Central Office: Provided, however, That after
hearing, the MRO concerned shall forward the entire records of the case to the
Central Office for final resolution or decision in accordance with
Administrative Order 06-94.
Section 2. The provisions of Section 2, Rule 4 of Part I shall also be
applicable.

Rule 5: Commencement of a Complaint Case

Section 1. A complaint case is commenced either by a complaint or a
Memorandum Report.
Section 2. A complaint or a Memorandum Report is sufficient if it states
the name(s) of the respondent, the material facts constituting the violation of
offense and other particulars of the alleged violation as well as other
supporting documentary evidence.
Section 3. The MARINA, motu proprio or upon a written motion of the
Respondent, may deny due course to any complaint if upon evaluation
thereof, it appears to be insufficient to initiate prosecution.

Rule 6: Prosecution
Section 1. The MARINA upon finding a cause to hold respondent for
prosecution shall issue an Order stating therein the alleged violation of the
provisions of law and/or other pertinent rules and regulations requiring
respondent to file his comment or answer and setting the case for hearing.
Section 2. The Order referred to in the preceding section shall be
attached to a xerox copy of the complaint or the Memorandum Report and
shall be served upon the respondent by registered mail or personally.
Section 3. The respondent shall file his verified answer to comment to
the charges within ten (10) days from receipt of the Order mentioned

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in Section 1 hereof duly supported by affidavits of his witnesses and

other relevant documentary evidence.
Section 4. It shall be the duty of the MARINA prosecutor to
actively direct and supervise the prosecution of the case.
Section 5. The complainant or his counsel if he is represented by
one, shall collaborate and work under the direct supervision of the
MARINA prosecutor.
Section 6. The MARINA shall have the power to require the
attendance of witnesses or the production of books, papers,
documents and other pertinent data motu proprio or upon request of
any party before or during the hearing, upon showing of general
relevance.

Rule 7: Effect of the Failure of Parties to Appear

During Hearing
The MARINA shall, in its discretion or upon motion of any of
the parties to the case, declare that the same is submitted for
decision upon failure of the complainant or the respondent to
appear in the hearing, provided that there is proof of service of the
notice of the hearing.
Rule 8: Postponements
Postponements of hearing or trials shall not be allowed except
in meritorious cases and provided that the movants files a written
motion at least three (3) days before the scheduled hearing with
proof of service to the parties concerned.
Rule 9: Compromises
Section 1. The following conditions should exist prior to a possible
compromise of an administrative liability/fine/penalty:
a. a complaint must have been filed;
b. a show cause order has been issued;
c. there must be a determination of possible liability
(amount of penalty) in accordance with the pertinent Memorandum
Circular alleged to have been violated; and

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 TRANSPORTATION LAWS

d. an answer or comment shall have been filed admitting

guilt and offering compromise or a mere offer of compromise is
filed.
Section 2. An offer for compromise must be in writing.
Section 3. If the offer for compromise is made by a person other than the
respondent, he must have a special power of attorney authorizing him to
compromise the case. The special power of attorney shall be filed together with
the offer of compromise.
Section 4. The amount offered must be clearly stated.
Section 5. No offer for compromise shall be filed prior to the issuance of
a show cause order and a determination of a possible liability (amount of penalty)
in accordance with the pertinent law or circular alleged to have been violated.
Section 6. After an offer of compromise shall have been filed in
accordance with the above, the office of the origin (OF or MLAD) for case
falling under their respective jurisdictions, shall make its recommendation in
writing to be attached to the records/expediente for acceptance or
rejection/denial by the signatories to the decision.
Section 7. The recommendation referred to in the preceding section shall
contain a brief summary of the antecedent facts, the amount offered as
compromise, and the recommendation either for acceptance of the offer or its
rejection taking into account the factors enumerated in Section 13 hereof.
Section 8. Should the offer of compromise be accepted by the
signatories, a decision shall be drafted by the office of origin, stating:
a) distinctly the facts of the case;
b) the law/MC alleged to have been violated;
c) issues;
d) determination of liability/penalty;
e) offer of compromise and the amount offered;
f) acceptance of the amount; and

448
 CHAPTER VII
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g) the dispositive portion of the decision shall reflect the exact

amount offered as compromise.
Section 9. Should the offer of compromise be rejected by the signatories,
the appropriate decision shall be drafted for full liability in accordance with the
pertinent Memorandum Circular violated; Provided, That there has been an
admission of guilt in the answer or comment or appropriate pleading previously
filed: Provided' furl her. That if there is no such admission the case shall be
remanded to the office of origin for further hearings or if evidence is sufficient,
the case shall be submitted for decision.
Section 10. No offer for compromise shall be entertained after the case is
submitted for decision or after the promulgation of the decision.
Section 11. In the cases heard before the Maritime Regional Office, the
entire records of the case (complaint and Show Cause Order,
Answer/Comment and/or written offer for compromise) shall be forwarded to
the Franchising Office with MRO’s recommendation, as stated in Sections 6
and 7. The Franchising Office shall also prepare its own recommendation to be
attached to the records for the rejection or acceptance by the signatories.
Section 12. The Maritime Regional Offices are not authorized to accept
compromise penalties (full or partial) neither are they authorized to render
decisions in complaint cases pursuant to Administrative Order 06-94, Section
2.2.
Section 13. The following factors should be considered in determination
of the amount of compromise penalty:
a) financial ability of the respondent to pay;
b) nature and circumstances of the violation;
c) record of previous violations by respondent pursuant to the
decisions previously rendered by the Authority;
d) reparation or compliance by the respondent;
e) the magnitude of damage to the public caused by the
violation; and
f) probative value of evidence on record.

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 TRANSPORTATION LAWS

Rule 11: Pre-Trial

A pre-trial conference shall be conducted in the same manner and for the
same purpose as provided in Book One, Rule 6 of this Circular.

Rule 12: Order of Trial

a) The private complainant and the MARINA prosecutor, or the MARINA
prosecutor alone in case of Memorandum Reports must present the evidence on
their/his part;
b) The respondent shall then offer evidence in support of his defense;
c) The parties may then respectively offer rebutting evidence only, unless
this Authority for good reasons, in furtherance of justice permits them to offer
evidence upon their original case.

Rule 13: Consolidation

When complaints involving a common question of law or fact are pending
bKA.-.

before this Authority, it may order a joint hearing or trial of any or all the matters in
1

issue in the actions, it may order all the actions consolidated and it may make such
orders concerning the proceedings therein as may tend to avoid unnecessary delay.

Rule 14: Summary Procedure

Section 1. Parties to the complaint case may at their election, have the
provisions of this rule govern the proceedings in the case, unless specifically
required by applicable memorandum circular.
Section 2. The only pleadings allowed to be filed are the complaint and the
answer.
Z
.L. Section 3. The MARINA may, motu proprio, deny due course to any
complaint if upon evaluation thereof, it appears to be insufficient to initiate
prosecution.
Section 4. All pleadings must be verified.
Section 5. The MARINA, upon finding a cause to hold respondent for
protection shall issue an Order, stating therein the alleged violation

450
 CHAPTER VII
VESSELS

of the provisions of this circular and/or other pertinent rules and regulations
requiring respondent to file his comment or answer.
Section 6. The Order referred to in the preceding section shall be attached
to a xerox copy of the complaint and shall be served upon the respondent by
registered mail or personally.
Section 7. For failure of the respondent to file an answer to the complaint,
the case shall be deemed submitted for decision based on the evidence on record,
unless the hearing officer deems it necessary to hold a hearing to clarify specific
factual matters in which case, he shall set the case for hearing.
Section 8. If the complainant is incapable of being present at the hearing,
dispositions on oral examination may be taken whenever practicable and
convenient.

Rule 15: Contempt

In accordance with Section 29, Chapter V of the Public Service Law, as
amended, the hearing officer may summarily punish for contempt by a fine not
exceeding Two hundred pesos or by imprisonment not exceeding ten (10) days or
both, any person guilty of misconduct in the presence of the hearing officer or so
near the same as to interrupt the hearing or session or any proceedings before him
including cases in which a person present at a hearing session or investigation
held by the hearing officer refuses to be sworn as a witness or to answer as such
when lawfully required to do so. To enforce the provisions of this Rule the
hearing officer may request the assistance of the municipal police and/or the
MARINA’S Enforcement Office for the execution of any order made for said
purpose.

Rule 16: Provisional Relief

Upon the filing of the complaint or at any stage thereafter, this Authority
may grant on motion of the parties, the relief prayed for based on the pleading
and other supporting documents without prejudice to a final decision which
shall be rendered after the termination of the hearing to be called within 30 days
from submission of the case for resolution.

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 TRANSPORTATION LAWS

Rule 17: Decision

Every decision rendered by this Authority shall state clearly and
distinctly the facts and the law on which it is based. The agency shall decide
each case within thirty (30) days following its submission. The parties shall be
notified of the decision personally or by registered mail addressed to their
counsel of record, if any, or to them.

Rule 18: Finality

The decision of the MARINA shall become final and executory fifteen
(15) days after the receipt of a copy thereof by the party adversely affected
unless within that period, an administrative appeal or judicial review, if
proper, has been perfected. One motion for consideration may be filed which
shall suspend the running of the said period.

Signing Authority.
The Administrator and his Deputy Administrators shall have the
Authority to sign decisions, resolutions, CPC, PA, and SP: Provided,
however, That in the absence of the Administrator, any of his Deputy
Administrators may sign for and in his behalf provided that said delegated
authority shall be in writing, provided finally that, the MARINA Board shall
have the authority to recall or revoke the decision, resolution, CPC, PA or SP
signed.
Accountability of Hearing/Legal Officers.
Every legal officer charged with the resolution of cases or incidents
shall submit to the director, within ten (10) days following the end of every
month, a sworn statement of Disposition of Cases in accordance with E.O. No.
26, declaring that all cases or incidents submitted to him for resolution have
been decided within the prescribed period, Provided, further, That the salary
of any officer who fails to submit the aforesaid Statement within the
prescribed period shall be or cause to be withheld by the head of office until
compliance hereto: Provided, further, That this shall be without prejudice to
the imposition of other penalties, Provided, finally, That this provision shall
be applicable only to cases submitted for decision after the effectivity of this
Circular.

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 CHAPTER VII
VESSELS

Repealing Clause.
The provisions of Memorandum Circular No. 74 is hereby expressly
repealed.

Effect ivity.
This circular shall take effect after the lapse of fifteen (15) days from the
time of its publication in a newspaper of general circulation.

By Authority of the Board: (Sgd.)

PACIENCIO M. BALBON, JR.

SECRETARY’S CERTIFICATE
This is to certify that the foregoing Memorandum Circular No. 74-A was
approved by the MARINA’S Board on 13 July 1995.

(Sgd.) PURITA C. CENTENO

Corporate Board Secretary
MARINA MEMORANDUM CIRCULAR NO. 90
IMPLEMENTING GUIDELINES FOR VESSEL
REGISTRATION AND DOCUMENTATION
The Maritime Industry Authority Board in its meeting on October
7, 1994 has approved and promulgated the following guidelines in the
implementation of vessel registration pursuant to the provisions of
Executive Order No. 125, as amended, DOTC Memorandum dated
September 7, 1994 and MARINA Memorandum Circular No. 88, S.
1994 approved by the MARINA Board on 15 September 1994.
I. Objective
This Circular serves to provide a consolidated implementing
guidelines that shall govern the registration and documentation of
vessels to entitle it to the protection of Philippine laws and the right of

453
V
 TRANSPORTATION LAWS

fly the Philippine flag subject to the obligations and disabilities under the laws
of the Philippines.

II. Coverage
This Guidelines shall apply to:
1. All types of vessels of domestic ownership and of more than
15GRT;

2. All vessels engaged in towing/pushing or carrying goods and/or

passengers for hire regardless of tonnage; and

3. All vessels acquired under PDs 760/866/1711. Registration of

vessels 15 GRT and below under this Circular shall be optional.
Provided that such vessels as are not entered in the Philippine
register of ships shall be required to secure a vessel identity
certificate (Certificate of Number).

The following vessels shall not be covered:

1. Warships and naval vessels;
2. All vessels of foreign registry temporarily used in the Philippine
waters for less than one year;
3. Non-motorized bancas, sailboats, and other waterborne
contrivance of less than three gross tons capacity.
III. Definition of Terms
1. Vessels. Any watercraft used for water transportation, delivery of
services and those used for scientific, educational and research
purposes, including fishing vessels.

2. Domestic Ownership. Ownership vested in citizens of the

Philippines or corporations or associations organized under the
laws of the Philippines at least sixty per centum of the capital
stock or capital of which is wholly owned by citizens of the
Philippines.
3. Homeport. The port where the vessels is registered or enrolled
provided, registration shall be effected at the port where the

454
 CHAPTER VII
VESSELS

principal office of the shipowner/operator is located and/or at the

terminal port of the vessel.
4. Domestic Trade. The carriage of passengers and/or cargoes between
two or more ports and places in the Philippines by the use of vessel
either as common or contract carrier or for exclusive company/own use
including operations within bays and rivers and other inland
waterways.
5. Overseas Trade. The transport of goods and/or passengers and/or
vessel operations outside of Philippine territorial waters, including
those calls at Philippine ports from foreign ports and vice versa.
IV. General Provisions
The Maritime Industry Authority (MARINA) is the exclusive authority in
matters of registration and documentation of Philippines vessels including, but not
limited to, the issuance of certificates, licenses, or other documents incident therein.
V. Specific Guidelines
A. Register of Vessels
1. The MARINA shall maintain a registry of vessels to be known as
“REGISTER OF PHILIPPINE VESSELS” which shall be kept open to
free inspection by the public during regular office hours or when the
exigency of the service so requires. Separate registers shall be maintained
for overseas and domestic vessels.
2. The Register of the Philippine Vessels shall contain the following
particulars in such form and detail as the MARINA may prescribe:
a. Name of vessel
b. Former names and registry (if applicable)
c. Type of vessel
d. Call sign

455
 TRANSPORTATION LAWS

e. Official number
f. Material of hull
g. Principal dimensions
h. Tonnage (Gross/Net/Deadweight)
i. Classification
j. Speed
k. Main engine
l. Builders/Place of birth
m. Year built
n. Name, nationality and business address/residence of
owner/operator
o. Date of issuance of Certificate of Vessel Registry
p. Any material change of condition in respect to any of the
preceding items including records of encumbrances.
3. The registration of a vessel for domestic trade shall be effected at
its homeport as herein defined while registration of a vessel for
overseas trade shall be effected only at the MARINA Central
Office.
B. Requirements for Registration of Vessels
The following requirements shall have been complied with prior
to registration of a vessel, if applicable:
1. Existing Vessels
i. Plans approval
ii. Admeasurement
iii. Presentation of photocopies of valid trading certificates
2. New buildings
i. MARINA’S approval to acquire vessel
ii. Approval of complete plans of hull and machineries

456
 CHAPTER VII
VESSELS

in. Authority issued to a classification society to inspect/

supervise the construction of the vessel
C. Transfer of Rights and Encumbrances
Any rights affecting the vessel or the ownership thereof shall
be registered in the Book of Transfer and Encumbrances provided
the same is annotated in the Certificate of Vessel Registry and
Register of Philippine Vessels.
D. Deletion of Vessels
Vessels registered under the Philippine flag shall be deleted
from the Register of Philippine Vessel under any of the following
circumstances:
1. Bareboat chartering out to foreign nationals, unless the charterer
opts to fly the Philippine flag
2. Pre-termination/termination of charter agreement under PDs
760/866/1711
3. Sale to foreign buyers
4. Scrapping/Decommissioning of vessel
5. Constructive or total loss of vessels

VI. Validity
1. A Certificate of Vessel Registry (CVR) shall be valid until
there is a change in ownership or the vessel is
decommissioned or constructively or totally lost.
2. Certificate of Vessel Registry (CVR) for vessels acquired
under PDs 760/866/1711 shall be coterminous with the
charter party.

VII. Penalty/Sanctions
Violation of any of the provisions of the Circular shall be
governed by existing laws and regulations.

457
 TRANSPORTATION LAWS

VIII. Saving Clause

The provisions of the Revised Philippine Merchant Marine Rules and
Regulations as amended, which are not inconsistent with this Circular, are
hereby adopted by reference.

IX. Repealing Clause

Any provision of existing MARINA rules and regulations, circulars and
orders, which are inconsistent with the Circular, are hereby repealed or
modified accordingly.

X. Effectivity
This Memorandum Circular shall be published once in a newspaper of
general circulation in the Philippines and shall take effect on 15 October 1994.
(5 NAR 4, p. 562)
Adopted: 7 October 1994.

(Sgd.) PACIENCIO M. BALBON, JR.

Administrator
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458
 CHAPTER VIII

PERSONS WHO TAKE PART IN

MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS
ARTICLE 586. The shipowner and the ship agent shall be civilly
liable for the acts of the captain and for the obligations contracted by the
latter to repair, equip, and provision the vessel, provided the creditor proves
that the amount claimed was invested therein.
By ship agent is understood the person entrusted with the
provisioning of a vessel, or who represents her in the port in which she may
be found.
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.
The Limited Liability Rule.
Chua Yek Hong v.
Intermediate Appellate Court, Mariano Guno
and Dominador Olit
G. R. No. L-74811, September 30,1988
FACTS: Petitioner is a duly licensed copra dealer based at Puerto
Galera, Oriental Mindoro, while private respondents are the owners of
the vessel, “M/V Luzviminda I,” a common carrier engaged in
coastwise trade from the different ports of Oriental Mindoro to the port
of Manila.
In October 1977, petitioner loaded 1,000 sacks of copra, valued at
P101,227.40, on board the vessel “M/V Luzviminda I” for shipment

459
 TRANSPORTATION LAWS

from Puerto Galera, Oriental Mindoro, to Manila. Said cargo, however, did not
reach Manila because somewhere between Cape Santiago and Calatagan,
Batangas, the vessel capsized and sank with all its cargo.
On March 30, 1979, petitioner instituted before the then Court of First
Instance of Oriental Mindoro, a complaint for damages based on breach of
contract of carriage against private respondents. (Civil Case No. R-3205)
The trial court rendered its decision in favor of Chua Yek Hong ordering
defendant Guno and Olit to pay the value of the cargo, other expenses,
attorney’s fees and costs of suit.
On appeal, respondent Court of Appeals ruled to the contrary when it
applied Article 587 of the Code of Commerce and the doctrine in Yangco v.
Laserna (73 Phil. 330 [1941]) and held that private respondents’ liability, as
shipowners, for the loss of the cargo is merely co-extensive with their interest
in the vessel such that a total loss thereof results in its extinction.
ISSUE: Whether or not the doctrine of limited liability under Article 587
of the Code of Commerce as expounded in Yangco v. Laserna was correctly
applied by the Appellate Court.
HELD: The term “ship agent ” as used in the foregoing provision is
broad enough to include the shipowner. (Standard Oil Co. v. Lopez Castelo,
42 Phil. 256 [1921]) Pursuant to said provision, therefore, both the shipowner
and ship agent are civilly and directly liable for the indemnities in favor of third
persons, which may arise from the conduct of the captain in the care of goods
transported, as well as for the safety of passengers transported. (Yangco v.
Laserna, supra; Manila Steamship Co. v. Abdulhaman, et al., 100 Phil. 32
[1956])
However, under the same Article, this direct liability is moderated and
limited by the ship agent’s or shipowner’s right of abandonment of the
vessel and earned freight. This expresses the universal principle of limited
liability under maritime law. The most fundamental effect of abandonment
is the cessation of the responsibility of the ship agent/ owner. (Switzerland
General Insurance Co., Ltd. v. Ramirez, L-48264, February 21,1980,
96SCRA 297) It has thus been held that by necessary

460
 CHAPTER VIJI
PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

implication, the ship agent's or shipowner’s liability is confined to that which he is

entitled as of right to abandon — “the vessel with all her equipment and the freight it
may have earned during the voyage,” and “to the insurance thereof if any.” (Yangco
v. Lasema, supra) In other words, the shipowner’s or agent’s liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction. “No vessel, no liability” expresses in a nutshell the limited liability rule.
The total destruction of the vessel extinguishes maritime liens as there is no longer
any res to which it can attach. (Gov’t. Insular Maritime Co. v. The Insular
Maritime, 45 Phil. 805, 807 [1942])
As the Court HELD:
“If the shipowner or agent may in any way be held civilly liable at all
for injury to or death of passengers arising from the negligence of the captain
in cases of collisions or shipwrecks, his liability is merely co-extensive with
his interest in the vessel such that a total loss thereof results in its extinction.”
(Yangco v. Laserna, et al., supra)
RATIONALE ON THE REAL AND HYPOTHECARY LIABILITY OF
SHIPOWNER; EXCEPTIONS
“The real and hypothecary nature of the liability of the shipowner or agent
embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had
its origin in the prevailing conditions of the maritime trade and sea voyages during
the medieval ages, attended by innumerable hazards and perils. To offset against
these adverse conditions and to encourage shipbuilding and maritime commerce, it
was deemed necessary to confine the liability of the owner or agent arising from the
operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that
if the shipowner or agent abandoned the ship, equipment, and freight, his liability
was extinguished.” (Abueg v. San Diego, 77 Phil. 730 [1946])
“Without the principle of limited liability, a shipowner and investor in
maritime commerce would run the risk of being ruined by the bad faith or
negligence of his captain, and the apprehension of this would be fatal to the interest
of navigation.” (Yangco v. Laserna, supra)

461
 TRANSPORTATION LAWS

“As evidence of this ‘real’ nature of the maritime law, we have

(1) the limitation of the liability of the agents to the actual value of the vessel
and the freight money, and (2) the right to retain the cargo and the embargo and
detention of the vessel even in cases where the ordinary civil law would not
allow more than a personal action against the debtor or person liable. It will be
observed that these rights are correlative, and naturally so, because if the agent
can exempt himself from liability by abandoning the vessel and freight money,
thus avoiding the possibility of risking his whole fortune in the business, it is
also just that his maritime creditor may for any reason attach the vessel itself to
secure his claim without waiting for a settlement of his rights, by a final
judgment, even to the prejudice of a third person.” (Phil. Shipping Co. v.
Vergara, 6 Phil. 284 [1906])
The limited liability rule, however, is not without exceptions, namely: (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
(Manila Steamship Co., Inc. v. Abdulhaman, supra); (2) where the vessel is
insured; and (3) in workmen’s compensation claims. (Abueg v. San Diego,
supra; See also Monarch Insurance Company, Inc. v. CA, 333 SCRA 71,
June 8, 2000)
EFFECT OF THE NEW CIVIL CODE PROVISIONS ON COMMON
CARRIER ON THE REAL AND HYPOTHECARY NATURE OF
LIABILITY UNDER MARITIME LAW
Considering the "real and hypothecary nature” of liability under
maritime law, the Civil Code provisions would not have any effect on the
principle of limited liability for shipowners or ship agents. As was expounded
by this Court:
“In arriving at this conclusion, the fact is not ignored that the
ill-fated, S.S. Negros, as a vessel engaged in inter-island trade, is a
common carrier, and that the relationship between the petitioner and
the passengers who died in the mishap rests on a contract of carriage.
But assuming that petitioner is liable for a breach of contract of
carriage, the exclusively ‘real and hypothecary nature’ of maritime
law operates to limit such liability to the value of the

462
 CHAPTER VIII
PERSONS WHO PARE PARI IN MARITIME )MMERCK.
SHIPOWNERS ANO SHIP AGENTS

vessel, or to the insurance thereon, if any. in the instant case it does not
appear that the vessel was insured.” (Yangco v. Laserna et al., supra)

Moreover, Article 1766 of the Civil Code provides:

“Art. 1766. In all matters not regulated by this Code, the
rights and obligations of common carriers shall be governed by the
Code of Commerce and by special laws.”

In other words, the primary law is the Civil Code (Arts. 1732-
1766) and in default thereof, the Code of Commerce and other special
laws are applied. Since the Civil Code contains no provisions
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, more particularly Article 587, that govern in this case.

Liability of shipowner extends to value of vessel and insurance proceeds

thereon.

Pedro Vasquez, Soledad Ortega, Cleto Bagaipo,

Agustina Virtudez,
Romeo Vasquez and Maximina Cainay v.
The Court of Appeals and Filipinas Pioneer Lines Inc.
G.R. No. L-42926, September 13,1985

FACTS: “When the inter-island vessel MV ‘Pioneer Cebu’ left the

Port of Manila in the early morning of May 15,1966 bound for Cebu, it
had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a
four-year old boy, Mario Marlon Vasquez, among her passengers. The
MV ‘Pioneer Cebu’ encountered typhoon ‘Klaring’ and struck a reef on
the southern part of Malapascua Island, located somewhere north of the
island of Cebu and subsequently sunk. The aforementioned passengers
were unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of
Alfonso Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are
the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and
Maximina Cainay are the parents of the child, Mario Marlon Vasquez.

463
 TRANSPORTATION LAWS

They seek the recovery of damages due to the loss of Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.
When the vessel left Manila, its officers were already aware of the
typhoon ‘Klaring’ building up somewhere in Mindanao. There being no
typhoon signals on the route from Manila to Cebu, and the vessel having been
cleared by the Customs authorities, the MV ‘Pioneer Cebu’ left on its voyage to
Cebu despite the typhoon. When it reached Romblon Island, it was decided not
to seek shelter thereat, inasmuch as the weather condition was still good. After
passing Romblon and while near Jintotolo Island, the barometer still indicated
the existence of good weather condition which continued until the vessel
approached Tanguingui Island. Upon passing the latter island, however, the
weather suddenly changed and heavy rains fell. Fearing that due to zero
visibility, the vessel might hit Chocolate Island group, the captain ordered a
reversal of the course so that the vessel could ‘weather out’ the typhoon by
facing the winds and the waves in the open. Unfortunately, at about noontime
on May 16, 1966, the vessel struck a reef near Malapascua Island, sustained
leaks and eventually sunk, bringing with her Captain Floro Yap who was in
command of the vessel.”
Due to the loss of their children, petitioners sued for damages before the
Court of First Instance of Manila (Civil Case No. 67139). Respondent
defended on the plea offorce majeure, and the extinction of its liability by the
actual total loss of the vessel.
After proper proceedings, the trial court awarded damages, to the
plaintiffs.
On appeal, respondent Court reversed the aforementioned judgment and
absolved private respondent from any and all liability.
ISSUES: 1) Whether or not the sinking of the vessel was caused by
force majeure\ and 2) Whether or not the liability of the respondent was
extinguished by the total loss of the vessel.
HELD: Upon the evidence and the applicable law, this Court sustains
the trial Court. “To constitute a caso fortuito that would exempt a person
from responsibility, it is necessary that: (1) the event must be independent of
the human will; (2) the occurrence must render it impossible for the debtor to
fulfil the obligation in a normal manner; and that (3) the obligor must be free
of participation in, or aggravation

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SHIPOWNERS AND SHIP AGENTS

of, the injury to the creditor.” In the language of the law, the event must have
been impossible to foresee, or if it could be foreseen must have been impossible
to avoid. There must be an entire exclusion of human agency from the cause of
injury or loss.
Under the circumstances, while indeed, the typhoon was an inevitable
occurrence, yet, having been kept posted on the course of the typhoon by
weather bulletins at intervals of six hours, the captain and crew were well aware
of the risk they were taking as they hopped from island to island from Romblon
up to Tanguingui. They held frequent conferences, and oblivious of the utmost
diligence required of very cautious persons, they decided to take a calculated
risk. In so doing, they failed to observe that extraordinary diligence required of
them explicitly by law for the safety of the passengers transported by them with
due regard for all circumstances and unnecessarily exposed the vessel and
passengers to the tragic mishap. They failed to overcome that presumption of
fault or negligence that arises in cases of death or injuries to passengers.
With respect to private respondent’s submission that the total loss of the
vessel extinguished its liability pursuant to Article 587 of the Code of
Commerce as construed in Yangco v. Laserna, 73 Phil. 330 (1941), suffice it
to state that even in the cited case, it was held that the liability of a shipowner is
limited to the value of the vessel or to the insurance thereon. Despite the total
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.
A shipowner may be held liable for injuries to passengers notwithstanding
the exclusively real and hypothecary nature of maritime law if fault can be
attributed to the shipowner.
Negros Navigation Co., Inc. v.
The Court of Appeals, Ramon Miranda, Sps. Ricardo
and Virginia De La Victoria
G.R. No. 110398, November 7,1997
FACTS: In April of 1980, private respondent Ramon Miranda purchased
from the Negros Navigation Co., Inc. four special cabin

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tickets (=74411, "4412, ”"4413 and 74414) for his wife, daughter, son and
niece who were going to Bacolod City to attend a family reunion. The tickets
were for Voyage No. 457-A of the M/V Don Juan, leaving Manila at 1:00 p.m.
on April 22, 1980.
The ship sailed from the port of Manila on schedule.
At about 10:30 in the evening of April 22, 1980, the Don Juan collided
off the Tablas Strait in Mindoro, with the M/T Tacloban City, an oil tanker
owned by the Philippine National Oil Company (PNOC) and the PNOC
Shipping and Transport Corporation (PNOC/STC). As a result, the M^V Don
Juan sank. Several of her passengers perished in the sea tragedy. The bodies of
some of the victims were found and brought to shore, but the four members of
private respondents’ families were never found.
Private respondents filed a complaint on July 16, 1980 in the Regional
Trial Court of Manila, Branch 34, against the Negros Navigation, the
Philippine National Oil Company (PNOC), and the PNOC Shipping and
Transport Corporation (PNOC/STC), seeking damages for the death of Ardita
de la Victoria Miranda, 48, Rosario V. Miranda, 19, Ramon V. Miranda, Jr.,
16, and Elfreda de la Victoria, 26.
The Regional Trial Court rendered judgment in favor of the plaintiffs.
The Court of Appeals affirmed the decision of the Regional Trial Court with
modification on actual and compensatory damages.
ISSUES: (1) Whether or not the ruling in Mecenas v. Court of
Appeals, finding the crewmembers of petitioner to be grossly negligent in the
performance of their duties, is binding in this case; and (2) Whether or not the
total loss of the M/V Don Juan extinguished petitioner’s liability.
HELD: In finding petitioner guilty of negligence and in failing to
exercise the extraordinary diligence required of it in the carriage of
passengers, both the trial court and the appellate court relied on the findings of
this Court in Mecenas v. Intermediate Appellate Court, which case was
brought for the death of other passengers. In that case it was found that
although the proximate cause of the mishap was the negligence of the crew of
the M/T Tacloban City, the crew of the Don

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PERSONS W HO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

Juan was equally negligent as it found that the latter’s master, Capt. Rogelio
Santisteban. was playing mahjong at the time of collision, and the officer on watch.
Senior Third Mate Rogelio De Vera, admitted that he failed to call the attention of
Santisteban to the imminent danger facing them. This Court found that Capt.
Santisteban and the crew of the M V Don Juan failed to take steps to prevent the
collision or at least delay the sinking of the ship and supervise the abandoning of
the ship.
Petitioner Negros Navigation was found equally negligent in tolerating the
playing of mahjong by the ship captain and other crew members while on board
the ship and failing to keep the M/V Don Juan seaworthy so much so that the ship
sank within 10 to 15 minutes of its impact with the M/T Tacloban City.
In addition, the Court found that the Don Juan was overloaded. The
Certificate of Inspection, dated August 27, 1979 issued by the Philippine Coast
Guard Commander at Iloilo City stated that the total number of persons allowed
on the ship was 864, of whom 810 are passengers, but there were actually 1,004
on board the vessel when it sank, 140 persons more than the maximum number
that could be safely carried by it.
Taking these circumstances together, and the fact that the MTV Don Juan, as
the faster and better-equipped vessel, could have avoided a collision with the PNOC
tanker, this Court held that even if the M/T Tacloban City had been at fault for failing
to observe an internationally- recognized rule of navigation, the Don Juan was guilty
of contributory negligence.
Adherence to the Mecenas case is dictated by this Court’s policy of
maintaining stability in jurisprudence in accordance with the legal maxim
“stare decisis et non quieta movere ” (Follow past precedents and do not
disturb what has been settled). Where, as in this case, the same questions
relating to the same event have been put forward by parties similarly situated as
in a previous case litigated and decided by a competent court, the rule of stare
decisis is a bar to any attempt to litigate the same issue.
The next issue is whether petitioner is liable to pay damages notwithstanding
the total loss of its ship. The issue is not one of first

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impression. The rule is well entrenched in our jurisprudence that a shipowner

may be held liable for injuries to passengers notwithstanding the exclusively
real and hypothecary nature of maritime law if fault can be attributed to the
shipowner.
In Mecenas, this Court found petitioner guilty of negligence in: (1)
allowing or tolerating the ship captain and crew members in playing mahjong
during the voyage, (2) in failing to maintain the vessel seaworthy, and (3) in
allowing the ship to carry more passengers than it was allowed to carry.
Petitioner is, therefore, clearly liable for damages to the full extent.

Aboitiz Shipping Corporation v.

New India Assurance Company, Ltd.
G.R. No. 156978, May 2, 2006
ISSUE: Whether or not the limited liability doctrine, which limits
respondent’s award for damages to its pro-rata share in the insurance
proceeds, applies when the sinking of the ship was due to unseaworthiness.
HELD: To limit its liability to the amount of the insurance proceeds,
petitioner has the burden of proving that the unseaworthiness of its vessel was
not due to its fault or negligence.
Where the ship owner fails to overcome the presumption of negligence,
the doctrine of limited liability cannot be applied.

Aboitiz Shipping Corporation v. Court of Appeals,

Malayan Insurance Company, Inc. Compagnie Maritime Des
Chargeurs REunis, and F.E. Zuellig (M), Inc.
G.R. No. 121833, October 17,2008
Aboitiz Shipping Corporation v. Court of Appeals; The Hon.
Judge Remegio E. Zari, in his capacity as Presiding Judge
of the RTC, Branch 20; Asia Traders Insurance Corporation;
and Allied Guarantee Insurance Corporation
G.R. No. 130752, October 17,2008

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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

Aboitiz Shipping Corporation v. Equitable

Insurance Corporation
G.R. No. 137801, October 17,2008
FACTS:
in G,R, No. 121833
Respondent Malayan Insurance Company, Inc. (Malayan) filed five
separate actions against several defendants for the collection of the
amounts of the cargoes allegedly paid by Malayan under various marine
cargo policies issued to the insurance claimants. The five civil cases were
consolidated and heard before the Regional Trial Court (RTC) of Manila,
Branch 54. The shipments were supported by their respective bills of
lading and insured separately by Malayan against the risk of loss or
damage. In the five consolidated cases, Malayan sought the recovery of
amounts totalling P639,862.02. Aboitiz raised the defenses of lack of
jurisdiction, lack of cause of action and prescription. It also claimed that
M/V R Aboitiz was seaworthy, that it exercised extraordinary diligence
and that the loss was caused for a fortuitous event. After trial on merits,
the RTC of Manila rendered a Decision dated 27 November 1989,
adjudging Aboitiz liable on the money claims. Aboitiz, CMCR, and
Zuellig appealed the RTC decision to the Court of Appeals. The appeal
was docketed as CA-G. R. SP No. 35975-CV. During the pendency of the
appeal, the Court promulgated the decision in the 1993 GAFLAC case.
On March 31, 1995, the Court of Appeals (Ninth Division)
affirmed the RTC decision. It disregarded Aboitiz’s argument that the
sinking of the vessel was caused by a force majeure, in view of this
Court’s finding in a related case, Aboitiz Shipping Corporation v. Court of
Appeals 9 et al. (the 1990 GAFLAC case). In said case, this Court
affirmed the Court of Appeals’ finding that the sinking of M/VR Aboitiz
was caused by the negligence of its officers and crew. It is one of the
numerous collection suits against Aboitiz, which eventually reached this
Court in connection with the sinking of M/VP. Aboitiz.
In G.R, No, 130752
Respondents Asia Traders Insurance Corporation (Asia Traders) and
Allied Guarantee Insurance Corporation (Allied) filed separate

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actions for damages against Aboitiz to recover by way of subrogation the

value of the cargoes insured by them and lost in the sinking of the vessel
M/V P. Aboitiz. The two actions were consolidated and heard before the
RTC of Manila, Branch 20. Aboitiz reiterated the defense of force majeure.
The trial court rendered a decision on 25 April 1990, ordering Aboitiz to pay
damages in the amount of P646,926.30. Aboitiz sought reconsideration,
arguing that the trial court should have considered the findings of the Board
of Marine Inquiry that the sinking of the M/V P. Aboitiz was caused by a
typhoon and should have applied the real and hypothecary doctrine in
limiting the monetary award in favor of the claimants. The trial court denied
Aboitiz’s motion for reconsideration. Aboitiz elevated the case to the Court
of Appeals. While the appeal was pending, the Court promulgated the
decision in the 1993 GAFLAC case. The Court of Appeals subsequently
rendered a decision in 1994, affirming the RTC decision.
In G.R. No. 137801
On February 27, 1981, Equitable Insurance Corporation (Equitable)
filed an action for damages against Aboitiz to recover by way of subrogation
the value of the cargoes Insured by Equitable that were lost in the sinking of
M/V P. Aboitiz. On September 7, 1989, the RTC of Manila, Branch 7,
rendered judgment ordering Aboitiz to pay Equitable the amount of
P87,633.81, plus legal interest and attorney’s fees. It found that Aboitiz was
guilty of contributory negligence, and therefore, liable for the loss. In its
appeal, docketed as CA-G.R. No. 43458, Aboitiz invoked the doctrine of
limited liability and claimed that the typhoon was the proximate cause of the
loss. On November 27, 1998, the Court of Appeals rendered a decision,
affirming the RTC decision.
ISSUE: The principal issue common to all three petitions is whether
or not Aboitiz can avail limited liability on the basis of the real and
hypothecaiy doctrine of maritime law.
HELD: These consolidated petitions similarly posit that Aboitiz’s
liability to respondents should be limited to the value of the insurance
proceeds of the lost vessel plus pending freightage and not correspond to
the full insurable value of the cargoes paid by the respondents, based

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 < 11A I* I IK VIII
IM KSONS WHO I AKI NANI IN MAN I IIMI, < OMMI.W l ,
SI 11 K< IWNI.KS AND SHIN ADI.N IS
on the Court’s ruling in the 1993 GAL!.AC c;isc. 'I hose consolidated petitions are
just among the many others elevated to this ('ourt involving Ahoiti/.’s liability to
shippers and insurers as a result, of the sinking of its vessel, M/V P. Ahoiliz, on
October 31, 1980 in the South China Sea. One of those petitions is the 1993
GAFLAC c ase, docketed as G.R. No. 100446. The 1993 GAFLAC case was an
offshoot of an earlier final and executory judgement in the 1990 GAFLAC case,
where the General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC)
as judgment obligee therein, sought the execution of the monetary award against
Aboitiz. The trial court granted GAFLACs prayer for execution of the full
judgment award. The appellate court dismissed Aboitiz’s petition to nullify the
order of execution, prompting Aboitiz to file a petition with this Court. In the 1993
GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted
the immediate stay of execution of judgment to prevent the impairment of the
other creditors’ shares. Invoking the rule on the law of the case, private respondent
therein countered that the 1990 GAFLAC case had already settled the extent of
Aboitiz’s liability.
Following the doctrine of limited liability, however, the Court declared in
the 1993 GAFLAC case that claims against Aboitiz arising from the sinking of
M/VP. Aboitiz should be limited only to the extent of the value of the vessel. Thus,
the Court held that the execution of judgments in cases already resolved with
finality must be stayed pending the resolution of all the other similar claims arising
from the sinking of M/V P. Aboitiz. Considering that the claims against Aboitiz
had reached more than 100, the Court found it necessary to collate all these claims
before their payment form the insurance proceeds of the vessel and its pending
freightage. As a result, the Court exhorted the trial courts before whom similar
cases remained pending to proceed with trial and adjudicate these claims so that the
pro-rated share of each claim could be determined after all the cases shall have
been decided. In the 1993 GAFLAC case, the Court applied the limited liability
rule in favor of Aboitiz based on the trial court’s finding therein that Aboitiz was
not negligent.
The ruling in the 1993 GAFLAC case cited the real and hypothecary
doctrine in maritime law that the shipowner or agent’s liability is merely

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co-extensive with his interest in the vessel such that the total loss thereof
results in its extinction. “No vessel, no liability" expresses in a nutshell the
limited liability rule. In this jurisdiction, the limited liability rule is
embodied in Articles 587, 590 and 837 under Book 11 of the Code of
Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the conduct of
the captain in the care of the goods which he loaded on the vessel; but he
may exempt himself therefrom by abandoning the vessel with all her
equipment and the freight it may have earned during the voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the
proportion of their interests in the common fund for the results of the acts
of the captain referred to in Art. 587. Each co-owner may exempt himself
from this liability by the abandonment, before a notary, of the part of the
vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the cases
prescribed in this section, shall be understood as limited to the value of the
vessel with all its appurtenances and freightage served during the voyage.
These articles precisely intend to limit the liability of the shipowner
or agent to the value of the vessel, its appurtenances and freightage earned
in the voyage, provided that the owner or agent abandons the vessel.
When the vessel is totally lost, in which case there is no vessel to abandon,
abandonment is not required. Because of such total loss, the liability of the
shipowner or agent for damages is extinguished. However, despite the
total loss of the vessel, its insurance answers for the damages for which a
shipowner or agent may be held liable. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable
despite the abandonment of the vessel, as where the loss or injury was due
to the fault of the shipowner and the captain. The international rule is to
the effect that the right of abandonment of vessels, as a legal limitation of
a shipowner’s liability, does not apply to cases where the injury or average
was occasioned by the shipowner’s own fault. Likewise, the shipowner
may be held liable for injuries to passengers notwithstanding the
exclusively real

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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

and hypothecary nature of maritime law if fault can be attributed to the

shipowner.
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC
case, the Court applied the doctrine of limited liability in view of the absence of
an express finding that Aboitiz’s negligence was the direct cause of the sinking of
the vessel. The circumstances in the 1993 GAFLAC case, however, are not
obtaining in the instant petitions. A perusal of the decisions of the courts below in
all three petitions reveals that there is a categorical finding of negligence on the
part of the Aboitiz. For instance, in G.R. No. 121833, the RTC therein expressly
stated that the captain of M/VP. Aboitiz was negligent in failing to take a course
of action that would prevent the vessel from sailing into the typhoon. In G.R. No.
130752, the RTC concluded that Aboitiz failed to show that it had exercised
extraordinary diligence in steering the vessel before, during, and after the storm.
In G.R. No. 137801, the RTC categorically stated that the sinking of M/V R
Aboitiz was attributable to the negligence or fault of Aboitiz. In all instances, the
Court of Appeals affirmed the factual finding of the trial courts. The finding of
actual fault on the part of Aboitiz is central to the issue of its liability to the
respondents. Aboitiz’s contention, that with the sinking of M/VP Aboitiz, its
liability to the cargo shippers and shippers should be limited only to the insurance
proceeds of the vessel absent any finding of fault on the part of the Aboitiz, is not
supported by the record. Thus, Aboitiz is not entitled to the limited liability rule
and is, therefore, liable for the value of the lost cargoes as so duly alleged and
proven during trial.
The instant petitions provide another occasion for the Court to reiterate
the well-settled doctrine of the real and hypothecary nature of maritime law. As
a general rule, a shipowner’s liability is merely co-extensive with his interest in
the vessel, except where actual fault is attributable to the shipowner. Thus, as an
exception to the limited liability doctrine, a shipowner or ship agent may be
held liable for damages when the sinking of the vessel is attributable to the
actual fault or negligence of the shipowner or its failure to ensure the
seaworthiness of the vessel. The instant petitions cannot be spared from the
application of the exception to the doctrine of limited liability in view of the
unanimous findings of the courts below that both Aboitiz and the crew failed to
ensure the seaworthiness of the M/VP. Aboitiz.

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The claim for the death benefits under the POEA-SEC is the same species as the
workmen’s compensation claims under the Labor Code—both of which belong
to a different realm from that of Maritime Law. Therefore, the limited liability
rule does not apply to petitioner’s liability under the POEA-SEC.

Phil-Nippon Kyoei, Corporation v.

Rosalia T. Gudelosao, on her behalf of minor children
Christy Mae T. Gudelosao and Rose Elden T. Gudelsosao,
Carmen B. Tancontian, on her behalf and in behalf of the
Children Camela B. Tancontian, Beverly B. Tancontian, and
Ace B. Tancontian
G.R. No. 181375, July 13, 2016
FACTS: Petitioner, a domestic shipping corporation,
purchased a “Ro-Ro” passenger/cargo vessel M/V Mahlia in Japan
in February 2003. For the vessel’s one month conduction voyage
from Japan to the Philippines, petitioner, as local principal, and
Top Ever Marine Management Maritime Co., Ltd. (TMCL), as
foreign principal, hired Edwin C. Gudelosao, Virgilio A.
Tancontian, and six other crewmembers. They were hired through
the local manning agency of TMCL, Top Ever Marine Philippine
Corporation (TEMMPC). TEMMPC, through their president and
general manager, Capt. Oscar Orbeta (Capt. Orbeta), and the eight
crewmembers signed separate contracts of employment. Petitioner
secured a Marine Insurance Police (Maritime Policy No. 00001)
form SSSICI over the vessel for PI0,800,000 against loss, damage,
and third party liability or expense, arising from the occurrence of
the perils of the sea for the voyage of the vessel from Onomichi,
Japan to Batangas, Philippines. This Marine Insurance Policy
included Personal Accident Policies for the eight crewmembers for
P3,240,000 each in case of accidental death or injuiy. On February
24, 2003, while still within Japanese waters, the vessel sank due to
extreme bad weather condition. Only Chief Engineer Nilo
Macasling survived the incident, while the rest of the
crewmembers, including Gudelosao and Tancontian, perished.
Respondents, as heirs and beneficiaries of Gudelosao and
Tancontian, filed separate complaints for death benefits and other

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 t ,M h V \ \M V i H
W.KSONS WHO IAKK Vb . V \ IS MAM'I 'MK t /M 'l Vs ', ' r.
SHIPOWNI H '. ASO ' M W AM,*< V.
damages against petitioner, '1LMMPL, Capt. OTbeta, TMCL. ar.T SSSICI,
with the Arbitration Branch of the National Labor ?sla Commission
(NLRC). On August 5,2(X)4, LaboT Arbiter (LA; Pab.o S Magat rendered a
Decision finding solidary liability among petiv,ar,tr. TEMMPC, TMCL, and
Capt. Orbeta. 'Fhe LA also found SSSICI liable to the respondents for the
proceeds of the Personal Accident Policies and attorney's fees. The LA,
however, ruled that the liability of petitioner shall be deemed extinguished
only upon SSSICI’s payment of the insurance proceeds. On appeal, the
NLRC absolved petitioner. TEMMPC and TMCL and Capt. Orbeta from any
liability based on the limited liability rule. It, however, affirmed SSSICI’s
liability after finding that the Personal Accident Policies answer for the death
benefit claims under the Philippine Overseas Employment Administration
Standard Employment Contract (POEA-SEC).
Respondents filed a petition for certiorari before the Court of Appeals
(CA) where they argued that the NLRC gravely abused its discretion in ruling
that TEMMPC, TMCL, and Capt. Orbeta are absolved from the terms and
conditions of the POEA-SEC by virtue of the limited liability rule. The CA
found that the NLRC erred when it ruled that the obligation of petitioner,
TEMMPC and TMCL, for the payment of death benefits under the
POEA-SEC was ipso facto transferred to SSSICI upon the death of the
seafarers. TEMMPC and TMCL cannot raise the defense of the total loss of
the ship because its liability under the POEA-SEC is separate and distinct
from the liability of the shipowner. To disregard the contract, which has the
force of law between the parties, would defeat the purpose of the Labor Code
and the rules and regulations issued by the Department of Labor and
Employment (DOLE) in setting the minimum terms and conditions of
employment for the protection of Filipino seamen. The CA noted that the
benefits being claimed are not dependent upon whether there is total loss of
the vessel, because the liability attaches even if the vessel did not sink. Thus,
it was error for the NLRC to absolve the TEMMPC and TMCL on the basis of
the limited liability rule. The CA then ordered that petitioner’s liability will
only be extinguished upon payment by SSSICI of the insurance proceeds. On
December 8, 2008, TEMMPC filed its Memorandum informing that
TEMMPC and TMCL’s Joint Motion to Dismiss the Petition and the CA’s
Resolution granting it. The

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 TRANSPORTATION LAWS

dismissal is based on the execution of the Release of All Rights and Full
Satisfaction Claim (Release and Quitclaim) on December 14,2007 between
respondents and TEMMPC, TMCL, and Capt. Orbeta.
ISSUE: (1) Whether or not the doctrine of real and hypothecary nature
of maritime law (also known as the limited liability rule) applies in favor of
petitioner; and (2) Whether or not the CA erred in ruling that the liability of
petitioner is extinguished only upon SSSICI’s payment of Insurance
proceeds.
HELD: In this jurisdiction, the limited liability rule is embodied In
Articles 587,590, and 837 under the Book III of the Code of Commerce,
viz.:

Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons, which arise from the conduct of
the captain in the care of the goods, which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel with all her
.bviA-

equipment and the freightage he may have earned during the voyage.
r\ Art. 590. The co-owners of a vessel shall be civilly liable, in the
proportion of their contribution to the common fund, for the results of
the acts of the captain referred to in Art. 587.
i Each part owner may exempt himself from this liability by the
abandonment before a notary of the part of the vessel belonging to
him.
Art. 837. The civil liability incurred by the shipowner in the
cases prescribed in this section shall be understood as limited to the
value of the vessel with all its appurtenances and freightage earned
during the voyage.
Article 837 applies the limited liability rule in cases of collision.
Meanwhile, Articles 587 and 590 embody the universal principle of
limited liability in all cases wherein the shipowner or agent may be
properly held liable for the negligent or illicit acts of the captain.
These articles precisely intend to limit the liability of the shipowner or
agent to the value of the vessel; it’s appurtenances and freightage
earned in the voyage, provided that

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PERSONS WHO TAKE PART IN MARI TIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

the owner or agent abandons the vessel. When the vessel is totally lost, in
which case abandonment, is not required because there is no vessel to
abandon. The liability of the shipowner or agent for damages is
extinguished. Nonetheless, the limited liability rule is not absolute and is
without exceptions. It does not apply in cases: (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; and (3) in workmen’s compensation claims. In Abueg
v. San Diego, the Court ruled that the limited liability rule found in the
Code of Commerce is inapplicable in a liability created by statute to
compensate employees and laborers, or the heirs and dependents, in cases
of injury received by or inflicted upon them while engaged in the
performance of their work or employment.
But the provisions of the Code of Commerce invoked bv appellant have
no room in the application of the Workmen’s Compensation Act, which seeks to
improve, and aims at the amelioration of. the condition of laborers and
employees. It is not the liability for the damage or loss of the cargo or injury to,
or death of. a passenger bv or through the misconduct of the captain or master of
the ship, nor the liability for the loss of the ship as a result of collision, nor the
responsibility for wages of the crew, but a liability created bv a statute to
compensate employees and laborers in cases of injury received bv or inflicted
upon them, while engaged in the performance of their work or employment, or
the heirs and dependents of such laborers and employees in the event of death
caused bv their employment. Such compensation has nothing to do with the
provisions of the Code of Commerce regarding maritime commerce. It is an item
in the cost of production, which must be included in the budget of any
well-managed industry. (Underscoring supplied)
The Court sees no reason why the above doctrine should not apply here.
The death benefits granted under Title II, Book IV of the Labor Code are similar
to the death benefits granted under the POEA-SEC, specifically its Section
20(A)(1) and (4)(c), which provides that:
(1) In case of work-related death of the seafarers, during the term of
his contract, the employer shall pay his beneficiaries the Philippine
Currency equivalent to the amount of Fifty

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Thousand US dollars (US$50,000.00), and an additional amount of Seven

Thousand US dollars (US$7,000.00) to each child under the age of
twenty-one (21) but not exceeding four (4) children, at the exchange rate
prevailing during the time of payment.
xxx
(4) The other liabilities of the employer when the seafarers dies as a
result of work-related Injury or Illness during the term of employment are as
follows:
xxx
(c) The employer shall pay the beneficiaries of the seafarers the
Philippine currency equivalent to the amount of One Thousand US dollars
(US$1,000.00) for burial expenses at the exchange rate prevailing during the
time of payment.
Akin to the death benefits under the Labor Code, these benefits under the
POEA-SEC are given when the employee dies due to a work-related cause during
the term of his contract. The liability of the shipowner or agent under the
POEA-SEC has likewise nothing to do with the provisions of the Code of
Commerce regarding maritime commerce. The death benefits granted under the
POEA-SEC is not due to the death of a passenger by or through the misconduct of
the captain or master of the ship, nor is it the liability for the loss of the ship as
result of collision, nor the liability for wages of the crew. It is a liability created by
contract between the seafarers and their employers, but secured through the State’s
intervention as a matter of constitutional and statutory duty to protect Filipino
overseas workers and to secure for them the best terms and conditions possible, in
order to compensate the seafarer’s heirs and dependents in the event of death while
engaged in the performance of their work or employment.
But while the nature of death benefits under the Labor Code and the
POEA-SEC are similar, the death benefits under the POEA-SEC are intended to
be separate and distinct from, and in addition to, whatever benefits the seafarer
is entitled under Philippine laws, including those benefits, which may be
claimed from the State Insurance Fund. Thus, the claim for death benefits under
the POEA-SEC is the same species

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as the workmen’s compensation claims under the Labor Code—both of which

belong to a different realm from that of Maritime Law. Therefore, the limited
liability rule does not apply to petitioner’s liability under the POEA-SEC.
The Court, however, finds that the CA erred in ruling that "upon payment
of the insurance proceeds to said widows by respondent South Sea Surety &
Insurance Co., Inc., respondentPhil-Nippon Corporation’s liability to all
the complainants is deemed extinguished. ” This ruling makes petitioner’s
liability conditional upon SSSICI’s payment of the insurance proceeds. In doing
so, the CA determined that the Personal Accident Policies are casualty insurance,
specifically one of liability insurance. The CA determined that petitioner, as
insured, procured from SSS1CI the Personal Accident Policies in order to protect
itself from the consequences of the total loss of the vessel caused by the perils of
the sea. The CA found that the liabilities insured against are all monetary claims,
excluding the benefits under the POEA-SEC, of respondents in connection with
the sinking of the vessel. The Court rules that while the Personal Accident
Policies are casualty insurance, they do not answer for petitioner’s liabilities
arising from the sinking of the vessel. It is an indemnity insurance procured by
petitioner for the benefit of the seafarers. As a result, petitioner is not directly
liable to pay under the policies because it is merely the policyholder of the
Personal Accident Policies.
The liabilities of SSSICI to the beneficiaries are direct under the insurance
contract. Under the contract, petitioner is the policyholder, with SSSICI as the
insurer, the crewmembers as the cestuique vie or the person whose life is being
insured with another as beneficiary of the proceeds, and the latter’s heirs as
beneficiaries of the policies. Upon petitioner’s payment of the premiums
intended as additional compensation to the crewmembers, SSSICI, as insurer,
undertook to indemnify the crewmember’s beneficiaries from an unknown or
contingent event. Thus, when the CA conditioned the extinguishment of
petitioner’s liability on SSSICI’s payment of the Personal Accident Policies’
proceeds, it made a finding that petitioner is subsidiary liable for the face value
of the policies. To reiterate, however, there is no basis for such finding; there is
no obligation on the part of petitioner to pay

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the insurance proceeds because petitioner is, in fact, the obligee or policyholder in
the Personal Accident Policies. Since petitioner is not the party liable for the value of
the insurance proceeds, it follows that the limited liability rule does not apply as well.

Even if the contract is for a 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. Ergo,
the charterer or the sub-charterer, whose rights cannot rise above that of
the former, can never set up the Limited Liability Rule against the very
owner of the vessel.
Augustin P. Dela Torre v. The Honorable Court of
Appeals, Crisostomo G. Concepcion, Ramon “Boy” Larrazabal,
Philippine Trigon Shipyard Corporation and
Roland G. Dela Torre
G.R. No. 160088, July 13, 2011

Philippine Trigon Shipyard Corporation and Roland G.

Dela Torre v. Crisostomo G. Concepcion, Agustin Dela Torre,
and Ramon “Boy” Larrazabal
G.R. No. 160565
FACTS: Respondent Crisostomo G. Concepcion (Concepcion) owned
LCT-Josephine, a vessel registered with the Philippine Coast Guard. On February 1,
1984, Concepcion entered into a “Preliminary Agreement” with Roland dela Torre
(Roland) for the dry-docking and repairs of the said vessel, as well as for its charter
afterwards. Under this agreement, Concepcion agreed that after the dry-docking and
repair of LCT-Josephine, it “should” be chartered for PI0,000 per month and the
charter will be the one to pay the insurance premium of the vessel. On June 20, 1984,
Concepcion and the Philippine Trigon Shipyard Corporation (PTSC), represented by
Roland, entered into a “Contract of Agreement,” wherein the latter would charter
LCT- Josephine retroactive to May 1, 1984. On August 1, 1984, PTSC/ Roland
sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single
proprietorship owned by Roland’s father, Agustin dela Torre. On November 22,
1984, TSL, this time represented by Roland per
 CHAPTER VIII
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Agustin’s Special Power of Attorney, sub-chartered LCT-Josephine to

Ramon Larrazabal (Larrazabal) for the transport of cargo consisting of sand
and gravel to Leyte. It was agreed in the contract that Larrazabal is the one
responsible to supervise in loading and unloading of cargo load on the vessel.
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel
arrived at Philpos, Isabel, Leyte. The vessel was beached near the NDC
Wharf. With the vessel’s ramp already lowered, the unloading of the vessel’s
cargo began with the use of Larrazabal’s pay loader. While the payloader was
on the deck of the LCT-Josephine scooping a load of the cargo, the vessel’s
ramp started to move downward, the vessel tilted, and sea water rushed in.
Shortly thereafter, LCT-Josephine sank.
Concepcion demanded that PTSC/Roland refloat LCT-Josephine.
The latter assured Concepcion that negotiations were underway for the
refloating of his vessel. Unfortunately, this did not materialize. For this
reason, Concepcion was constrained to institute a complaint for Sum of
Money and Damages against PTSC and Roland before the Regional Trial
Court (RTC). PTSC and Roland filed their answer together with a third-party
complaint against Agustin. Agustin, in turn, filed his answer plus a
fourth-party complaint against Larrazabal. The latter filed his answer and
counterclaim but was subsequently declared in default by the RTC.
Eventually, the fourth-party complaint against Larrazabal was dismissed
when the RTC rendered its decision in favor of Concepcion, ordering the
defendants to pay the plaintiff the value of the vessel. Hubart Sungayan, who
was the chief mate of LCT-Josephine and under the employ of TSL/Agustin,
also admitted at the trial that it was TSL/Agustin, through its crew, who was
in charge of LCT-Josephine s operations although the responsibility of
loading and unloading the cargo was under Larrazabal. Thus, the RTC
declared that the “efficient cause of the sinking of the LCT-Josephine was
the improper lowering or positioning of the ramp,” which was well within the
charge or responsibility of the captain and crew of the vessel. Augustin, PTSC
and Roland went to the Court of Appeals (CA) on appeal. The appellate court,
in agreement with the findings of the RTC, affirmed its decision in toto.
ISSUE: Whether or not the limited liability rule should apply to
Agustin, PTSC and Roland.

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HELD: With respect to petitioner's position that the Limited Liability Rule
under the Code of Commerce should be applied to them, the argument is
misplaced. The said rule has been explained to be that of the real and hypothecary
doctrine in maritime law where the shipowner of ship agent’s liability is held as
merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction. In this jurisdiction, this rule is provided in three articles of
the Code of Commerce. These are Articles 887, 590, and 837 of the Code of
Commerce.
Article 837 specifically applied to cases involving collision, which is a
necessary consequence of the right to abandon the vessel given to the shipowner or
ship agent under the first provision-Article 587. Similarly, Article 590 is a
reiteration of Article 587, only this time, the situation is that the vessel is co-owned
by several persons. Obviously, the forerunner of the Limited Liability Rule under
the Code of Commerce is Article 587. Now, the latter is quite clear on which
indemnities may be confined or restricted to the value pursuant to the said Rule,
and these are the “indemnities in favor of third persons which may arise from the
conduct of the captain in the care of the goods which he loaded on the vessel.”
Thus, what is contemplated is the liability to third persons who may have dealt
with the shipowner, the agent, or even the charterer in case of demise or bareboat
charter. The only person who could avail of this is the shipowner, Concepcion. He
is the very person whom the Limited Liability Rule has been conceived to protect.
The petitioners cannot invoke this as a defense. In Yangco v. Laserna, this Court,
through Justice Moran, wrote: “The policy, which the rule is designed to promote,
is the encouragement of ship building and investment in maritime commerce, x x x
Grotius, in his law of War and Peace, says that men would be deterred from
investing in ships if they thereby incurred the apprehension of being rendered
liable to an indefinite amount by the acts of the master, x x x”
Later, in the case of Monarch Insurance Co. Inc, v. CA, this Court, this
time through Justice Sabino R. de Leon, Jr. again explained: “No vessel, no
liability, ” expresses in a nutshell the limited liability rule. The
shipowner’s 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

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total destruction of the vessel extinguishes liens because there is no longer

any res to which it can attach. This doctrine is based on the real and
hypothecary nature of maritime law, which has its origin in the prevailing
conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To o ffset against these adverse
conditions and to encourage shipbuilding and maritime commerce . it was
deemed necessary to confine the liability of the owner or agent arising from
the operation of a ship to the vessel, equipment, and freight, or insurance . if
any. ”
In view of the foregoing, Concepcion, as the real shipowner, is the one who
is supposed to be supported and encouraged to pursue maritime commerce. Thus, it
would be absurd to apply the Limited Liability Rule against him, who, in the first
place, should be the one benefiting from the said rule. In Yueng Sheng, it was
further stressed that the charterer does not completely and absolutely step into the
shoes of the shipowner or even the ship agent because there remains conflicting
rights between the former and the real shipowner as derived from their charter
agreement. The Court again quotes Chief Justice Arellano: “Their (charterer's)
possession was, therefore, the uncertain title of lease, not a possession of the
owner, such as is that of the agent, who is fully subrogated to the place of the
owner in regard to the dominion, possession, free administration, and
navigation of the vessel. ” Therefore, even if the contract is for a 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. Ergo, the charterer or the sub-charterer, whose rights cannot rise
above that of the former, can never set up the Limited Liability Rule against the
very owner of the vessel.

ART. 588. Neither the shipowner nor the ship agent shall be liable
for the obligation contracted by the captain if the latter exceed his
powers and privileges pertaining to him by reason of his position or
conferred upon him by the former.
However, if the amounts claimed were used for the benefit of the
vessel, the owner or agent shall be liable.

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ART. 589. If two or more persons should be co-owners of a

merchant vessel, a partnership shall be presumed as established by the
co-owners.
This partnership shall be governed by the resolutions of the majority
of the co-owners.
A majority shall be the relative majority of the voting coowners.
If there should be only two co-owners, in case of disagreement the
vote of the co-owner having the largest interest shall be decisive. If the
interests are equal, it shall be decided by lot.
The co-owner having the smallest share in the vessel shall have one
vote; and the other co-owners proportionately shall have as many votes as
they have parts equal to the smallest one.
The vessel cannot be detained, attached, or levied upon execution in
her entirety for the private debts of a co-owner, but the proceedings limited
iifl
to the interest, which the debtor may have in the vessel, may be made,
without interfering with her navigation.
..JiLLLK.

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.
ART. 591. All the co-owners shall be liable, in proportion to their
respective ownership, for the expenses of the repairs of the vessel and for
other expenses, which are incurred by virtue of the resolution of the
i? majority.
They shall likewise be liable in the same proportion for the
expenses of maintenance, equipment, and provisioning of the vessel,
necessary for navigation.
ART. 592. The resolutions of the majority with regard to the
repair, equipment, and provisioning of the vessel in the port of departure
shall bind the minority unless the co-owners in the

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PERSONS WHO TAKi: PAR I IN MARHIMI COMMKR( lv
siu POWNI :RS AN I ) si 11 p AC i i ;N rs

minority renounce their participation therein, which must be acquired by the

other co-owners after a judicial appraisement of the value of the portion or
portions assigned.
ART. 593. The owners of a vessel shall have preference in her charter
over other persons, offering equal conditions and price. If two or more of the
former should claim said right, the one having greater interest shall be preferred,
and should they have an equal interest it shall be decided by lot.
ART. 594. The co-owners shall elect the manager who is to represent
them in the capacity of ship agent.
The appointment of director or ship agent shall be revocable at the will of
the co-owners.
ART. 595. The ship agent, whether he is at the same time the owner of the
vessel, or a manager for an owner or for an association of co-owners, must have
the capacity to engage in commerce and must be recorded in the merchant’s
registry of the province.
The ship agent shall represent the ownership of the vessel, and may in his
own name and in such capacity take judicial and extrajudicial steps in matters
relating to commerce.
ART. 596. The ship agent may occupy the duties of captain of the vessel,
subject in every case, to the provisions contained in Article 609.
If two or more co-owners apply for the position of captain, the
disagreement shall be decided by a vote of the co-owners, and if the vote should
result in a tie, the position shall be given to the coowner having the larger interest
in the vessel.
If the interest of the applicants should be the same, and there should be a
tie, the matter shall be decided by lot.
ART. 597. The ship agent shall select and come to an agreement with the
captain, and shall contract in the name of the owners who shall be bound in all
that refers to repairs, details of equipment, armament, provisions, fuel, and
freight of the vessel, and, in general, in all that pertains to the requirements of
navigation.

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ART. 598. The ship agent may not order a new voyage, or make
contracts for a new charter, or insure the vessel, without the authority of
her owner or by virtue of a resolution of the majority of the co-owners,
unless these privileges were granted to him in the certificate of his
appointment.
If he should insure the vessel without authority therefore, he shall
subsidiary be liable for the solvency of the insurer.
ART. 599. The managing agent of an association shall render to his
co-owners an account of the results of each voyage of the vessel, without
prejudice to always having the books and correspondence relating to the
vessel and to her voyage at their disposal.
ART. 600. After the account of the managing agent has been
approved by a relative majority, the co-owners shall pay the expenses in
proportion to their interest, without prejudice to the civil or criminal
actions, which the minority may deem, fit to institute afterwards.
In order to enforce the payment, the managing agents shall be
entitled to an executory action, which shall be instituted by virtue of a
resolution of the majority, and without further proceedings than the
acknowledgment of the signatures of the persons who voted the
resolution.
ART. 601. Should there be any profits, the co-owners may demand
of the managing agent the amount due them, by means of an executory
action without further requisite than the acknowledgment of the
signatures in the instrument approving the account.
ART. 602. The ship agent shall indemnify the captain for all the
expenses he may have incurred from his own funds or from those of
other persons for the benefit of the vessel.
ART. 603. Before the vessel goes out to sea, the ship agent may, at
his discretion, discharge the captain and members of the crew whose
contract did not state a fixed period or voyage, paying them the
salaries earned according to their contracts, and without

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any indemnity whatsoever, unless there is an expressed and specific

agreement in respect thereto.
ART. 604. If the captain or any other member of the crew should be
discharged during the voyage, they shall continue to receive their salary until
their return to the port where the contract was made, unless there should be
just motive for the discharge, all in accordance with Article 636 et. seq. of this
Code.
ART. 605. If the contracts of the captain and members of the crew
with the agent should be for a fixed period or voyage, they may not be
discharged until after the fulfilment of their contracts, except for reason
of insubordination in serious matters, robbery, theft, habitual
drunkenness or damage caused to the vessel or to her cargo by malice, or
manifest or proven negligence.
ART. 606. If the captain should be a co-owner of the vessel, he
may not be discharged without the ship agent returning to him the
amount of his interest therein, which, in the absence of an agreement
between the parties, shall be appraised by experts appointed in the
manner established in the law of civil procedure.
ART. 607. If the captain who is a co-owner should have obtained
the command of the vessel by virtue of special agreement contained in the
articles of co-partnership, he cannot be deprived of his office except for
the causes mentioned in Article 605.
ART. 608. In case of the voluntary sale of the vessel, all contracts
between the ship agent and captain shall terminate, the right to proper
indemnity being reserved in favor of the captain, according to the
agreements made with the ship agent.
The vessel sold shall remain subject to the security of the
payment of said indemnity if, after the action against the seller has been
instituted, the latter should be insolvent
CAPTAINS AND MASTERS OF THE VESSEL
ART. 609. Captains and masters of vessels must be Filipinos
having legal capacity to obligate themselves in accordance with this
Code, and must prove that they have the skill, capacity,

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and qualifications required to command and direct the vessel, as

established by marine or navigation laws, ordinances, or
regulations, and must not be disqualified according to the same for
the discharge of the duties of that position.
If the owner of a vessel desires to be the captain thereof and
does not have the legal qualifications therefore, he shall limit
himself to the financial administration of the vessel, and shall
entrust her navigation to the person possessing the qualifications
required by said ordinances and regulations.
In maritime law, master of a ship is the commander of a merchant
vessel, who has the chief charge of her government and navigation and the
command of the crew, as well as the general care and control of the vessel
and cargo, as the representative and confidential agent of the owner. He is
commonly called the “captain.” (Blacks Law Dictionary, Sixth Ed.)
Under the Code of Commerce, captain and master of the vessel have
the same meaning; both being the commander and technical director of the
vessel. (See Arts. 609-612, Code of Commerce)
In Inter-Orient Maritime Enterprises, Inc. v. NLRC, 235 SCRA 268,
August 11, 1994, it was held that the captain of a vessel is a confidential and
managerial employee. A master or captain, for purposes of maritime
commerce, is one who has command of a vessel. A captain commonly
performs three distinct roles: (1) he is a general agent of the shipowner; (2) he
is also commander and technical director of the vessel; and (3) he is a
representative of the country under whose flag he navigates. Of these roles,
by far the most important is the role performed by the captain as commander
of the vessel; for such role (which, to our mind, is analogous to that of “Chief
Executive Officer” [CEO] of a present-day corporate enterprise) has to do with
the operation and preservation of the vessel during its voyage and the
protection of the passengers (if any) and crew and cargo. In his role as general
agent of the shipowner, the captain has authority to sign bills of lading, carry
goods aboard and deal with the freight earned, agree upon rates and decide
whether to take cargo. The ship captain, as agent of the shipowner, has legal
authority to enter into contracts with respect to the vessel and

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the trading of the vessel, subject to applicable limitations established by statute,

contract or instructions and regulations of the shipowner.
To the captain is committed the governance, care and management of the vessel.
Clearly, the captain is vested with both management and fiduciary functions.

ART. 610. The following powers are inherent in the position of captain
or master of a vessel.
1. To appoint or make contracts with the crew in the absence
of the ship agent, and to propose said crew, should the said agent be
present; but the ship agent shall not be permitted to employ any member
against the captain’s express refusal.
2. To command the crew and direct the vessel to the port of its
destination, in accordance with the instructions he may have received
from the ship agent.
3. To impose, in accordance with the contracts and the laws and
regulations of the merchant marine, on board the vessel, correctional
punishment upon those who do not comply with his orders or who conduct
themselves against discipline, holding a preliminary investigation on the
crimes committed on board the vessel on the high seas, which he shall turn
over to the authorities who are to take cognizance thereof, at the first port
touched.
4. To make contracts for the charter of the vessel in the absence
of her ship agent or consignee, acting in accordance with the instructions
received and protecting with utmost care the interest of the owner.
5. To adopt all proper measures in order to keep the vessel well
provisioned and equipped, purchasing all that may be necessary for the
purpose, provided there is no time request instructions from the ship
agent.
6. To make disposition, in similar urgent cases while on a voyage,
for the repairs of the hull and engines of the vessel and of her rigging and
equipment which are absolutely necessary so that she may be able to
continue and conclude her voyage; but if she

489
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should arrive at a point where there is a consignee of the vessel, he

shall act in concurrence with the latter.
ART. 611. In order to comply with the obligations mentioned
in the preceding article, the captain, when he has no funds and does
not expect to receive any from the ship agent, shall obtain the same
in the successive order stated below:
1. By requesting said funds from the consignees of the vessel
or correspondents of the ship agent.
2. By applying to the consignees of the cargo or to the
persons interested therein.
3. By drawing on the ship agent.
4. By borrowing the amount required by means of a loan on
bottomry.
5. By selling a sufficient quantity of the cargo to cover the
amount absolutely necessary to repair the vessel and equip her to
■OiLi_tEkA.S

pursue the voyage.

r, In the two latter cases he must apply to the judicial authority
of the port if in the Philippines, and to the Filipino consul if in a foreign
country; and where there should be none, to the local authority, proceeding in
accordance with the provisions of Article 583, and with provisions of the law
of civil procedure.

A ship’s captain must be accorded a reasonable measure of |

discretionary authority to decide what the safety of the ship and of
~ its crew and cargo specifically requires on a stipulated ocean voyage.
The captain is held responsible, and properly so, for such safety. He is right
there on the vessel, in command of it and (it must be presumed)
knowledgeable as to the specific requirements of seaworthiness and the
particular risks and perils of the voyage he is to embark upon. The applicable
principle is that the captain has control of all departments of service in the
vessel, and reasonable discretion as to its navigation. It is the right and duty of
the captain, in the exercise of sound discretion and in good faith, to do all
things with respect to the vessel and its equipment and conduct of the voyage
which are reasonably necessary for the

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protection and preservation of the interests under his charge, whether those be of
the shipowners, charterers, cargo owners or of underwriters. It is a basic principle
of admiralty law that in navigating a merchantman, the master must be left free to
exercise his own best judgment. The requirements of safe navigation compel us to
reject any suggestion that the judgment and discretion of the captain of a vessel
may be confined within a straitjacket, even in this age of electronic
communications. Indeed, if the ship captain is convinced, as a reasonably prudent
and competent mariner acting in good faith that the shipowner’s or ship agent’s
instructions (insisted upon by radio or telefax from their offices thousands of miles
away) will result, in the very specific circumstances facing him, in imposing
unacceptable risks of loss or serious danger to ship or crew, he cannot casually
seek absolution from his responsibility, if a marine casualty occurs, in such
instructions. (Inter-Orient Maritime Enterprises, Inc. v. NLRC, 235 SCRA
268)
ART. 612. The following duties are inherent in the office of captain:
1. To have on board, before starting on a voyage, a detailed
inventory of the hull, engines, rigging, tackle, stores and other
equipment of the vessel; the navigation certificate; the roll of the
persons who make up the crew of the vessel, and the contracts entered
into with the crew; the list of passengers; the health certificate; the
certificate of the registry proving the ownership of the vessel, and all
the obligations which encumber the same up to that date; the charter
parties or authenticated copies thereof; the invoices or manifests of
the cargo, and the instrument of the visit or inspection of the expert,
should it have been made at the port of departure.
2. To have a copy of this Code on board.
3. To have three folioed and stamped books, placing at the
beginning of each one a note of the number of folios it contains,
signed by the marine official, and, in his absence, by the competent
authority.
In the first book which shall be called “logbook,” he shall enter
every day the condition of the atmosphere, the prevailing

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winds, the course taken, the rigging carried, the horsepower of the
engines, the distance covered, the maneuvers executed, and other
incidents of navigation; he shall also enter the damage suffered by the
vessel in her hull, engines, rigging, and tackle, no matter what is its cause,
as well as the imperfections and averages of the cargo, and the effects and
consequences of the jettison, should there be any; and in cases of grave
resolutions which required the advice or a meeting of the officers of the
vessel or even of the passengers and crew, he shall record the decisions
adopted. For the informations indicated he shall make use of the binnacle
book, and the steam or engine book kept by the engineer.
4. To make, before receiving the cargo, with the officers of the
crew and two experts, if required by the shippers and passengers, an
examination of the vessel, in order to ascertain whether she is watertight,
with the rigging and engines in good condition, and with equipment
required for good navigation, preserving a certificate of the memorandum
of this inspection, signed by all the persons who may have taken part
therein, under their responsibility.
The experts shall be appointed, one by the captain of the vessel and
the other one by those who request the examination, and in case of
disagreement a third shall be appointed by the marine authority of the
port.
5. To remain constantly on board the vessel with the crew while
receiving the cargo on board, and watch carefully the stowage thereof; not
to consent to the loading of any merchandise or goods of a dangerous
character, such as inflammable or explosive substances, without the
precautions which are recommended for their packing, handling, and
isolation; not to permit any cargo to be carried on deck which, by reason of
its arrangement, volume, or weight, makes the work of the sailors difficult,
and which might endanger the safety of the vessel; and in case the nature
of the merchandise, the special character of the shipment and principally
the favorable season when it takes place, would allow the merchandise to
be carried on deck, he must hear the opinion of the officers of the vessel,
and have the consent of the shippers and of the ship agent.

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6. To demand a pilot at the expense of the vessel whenever required

by navigation, and principally when a port, canal, or river, or a roadstead or
anchoring place is to be entered with which neither he, nor the officers and
the crew are acquainted.
7. To be on deck at the time of sighting land and to take command
on entering and leaving the ports, canals, roadsteads, and rivers, unless
there is a pilot on board discharging his duties. He shall not spend his night
away from the vessel except for serious cause or by reason of official
business.
8. To present himself, when making a port in distress, to the
maritime authority if in the Philippines and to the Filipino consul if in a
foreign country, before twenty-four hours have elapsed, and make a
statement of the name, registry, and port of departure of the vessel, of her
cargo, and cause of arrival, which declaration shall be vised by the authority
or by the consul if after examining the same it is found to be acceptable,
giving the captain the proper certificate in order to show his arrival under
stress and the causes therefore. In the absence of marine officials or of the
consul, the declaration must be made before the local authority.
9. To take the necessary steps before the competent authority in
order to enter in the certificate of the vessel in the registry of vessels, the
obligations which he may contract in accordance with Art. 583.
10. To place under good care and custody all the papers and
belongings of any member of the crew who might die on the vessel, making a
detailed inventory in the presence of passengers as witnesses, and, in their
absence, of members of the crew.
11. To conduct himself according to the rules and precepts
contained in the instructions of the ship agent, being liable for all that he
may do in violation thereof.
12. To give account to the ship agent, from the port where the vessel
arrives, of the cause of his arrival, taking advantage of the semaphore,
telegraph, mail etc., as the case may be; notify the said ship agent of the
cargo he may have received, stating the names and

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domiciles of the shippers, freight earned, and amounts borrowed

on bottomry loan; advise him of his departure, and give him any
information and data which may be of interest to him.
13. To observe the rules on the situation of lights and
maneuvers to prevent collisions.
14. To remain on board, in case the vessel is in danger, until
the last hope to save her is lost, and before abandoning her, to hear
the officers of the crew, abiding by the decision of the majority;
and if he should have to take a boat he shall take with him, before
anything else, the books and papers and then the articles of most
value, being obliged to prove, in case of the loss of the books and
papers, that he did all he could to save them.
15. In case of shipwreck, to make the proper protest in due
form at the first port reached before the competent authority or
Filipino consul within twenty-four hours, specifying therein all
the incidents of the wreck in accordance with subdivision 8 of this
■f^DJLLEK/V S

article.
16. To comply with the obligations imposed by the laws and
regulations of navigation, customs, health, and others.

Failure of Ship Captain to ascertain beforehand direction of

reported storm and weather conditions along his route constitutes
negligent lack of foresight.

Alejandro Arada v.
Court of Appeals and San Miguel Corporation
G.R. No. 98243, July 1,1992
FACTS: On March 24, 1982, petitioner through its crew master, Mr.
Vivencio Babao, applied for a clearance with the Philippine Coast Guard for
M/L Maya to leave the port of San Carlos City but due to a typhoon, it was
denied clearance by SNI Antonio Prestado, PN who was then assigned at San
Carlos City Coast Guard Detachment.
On March 25, 1982 M/L Maya was given clearance as there was no
storm and the sea was calm. Hence, said vessel left for Mandaue

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City. While it was navigating towards Cebu, a typhoon developed and said vessel
was buffeted on all its sides by big waves. Its rudder was destroyed and it drifted for
16 hours although its engine was running.
On March 27, 1982 at about 4:00 a.m., the vessel sank with whatever was left
of its cargoes. The crew was rescued by a passing pump boat and was brought to
Palompon, Leyte, where Vivencio Babao filed a marine protest.
On the basis of such marine protest, the Board of Marine Inquiry conducted a
hearing of the sinking of M/L Maya wherein private respondent was duly
represented. Said Board made its findings and recommendation dated November 7,
1983, that the owner/operator, officers and crew of M/L Maya be exonerated or
absolved from any administrative liability on account of this incident.
The Board’s report containing its findings and recommendation was then
forwarded to the headquarters of the Philippine Coast Guard for appropriate action.
On the basis of such report, the Commandant of the Philippine Coast Guard
rendered a decision dated December 21, 1984 in SBMI Adm. Case No. 88-82
exonerating the owner/operator officers and crew of the ill-fated M/L Maya from
any administrative liability on account of said incident.
ISSUE: Whether petitioner is liable for the value of the lost cargoes.
Petitioner contends that it was not in the exercise of its function as a common
carrier when it entered into a contract with private respondent, but was then acting
as private carrier not bound by the requirement of extraordinary diligence and that
the factual findings of the Board of Marine Inquiry and the Special Board of Marine
Inquiry are binding and conclusive on the Court.
Private respondent counters that M/L Maya was in the exercise of its
function as a common carrier and its failure to observe the extraordinary diligence
required of it in the vigilance over their cargoes makes petitioner liable for the
value of said cargoes.
HELD: Respondent court’s conclusion as to the negligence of petitioner is
supported by evidence. It will be noted that Vivencio Babao

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knew of ihe impending t\phoon on March 24,1982 when the Philippine Coast Guard
denied ML Maya the issuance of a clearance to sail. Less than 24 hours elapsed
since the time of the denial of said clearance and the time a clearance to sail was
finally issued on March 25, 1982. Records will show that Babao did not ascertain
where the typhoon was headed by the use of his vessel’s barometer and radio.
Neither did the captain of the vessel monitor and record the weather conditions
everyday as required by Article 612 of the Code of Commerce. Had he done so
while navigating for 31 hours, he could have anticipated the strong winds and big
waves and taken shelter.
Furthermore, the records show that the crew of M/L Maya did not have the
required qualifications provided for in P.D. No. 97 or the Philippine Merchant
Marine Officers Law, all of whom were unlicensed. While it is true that they were
given special permit to man the vessel, such permit was issued at the risk and
responsibility of the owner.
Finally, petitioner claims that the factual findings of the Special Board of
Marine Inquiry exonerating the owner/operator, crew officers of the ill-fated vessel
M/L Maya from any administrative liability is binding on the court.
In rejecting petitioner’s claim, respondent court was correct in ruling that
“such exoneration was but with respect to the administrative liability of the
‘owner/operator,’ officers and crew of the ill-fated vessel. It could not have meant
exoneration of appellee from liability as a common carrier for his failure to observe
extraordinary diligence in the vigilance over the goods it was transporting and for
the negligent acts or omissions of his employees. Such is the function of the Court,
not the Special Board of Marine Inquiry.”

ART. 613. A captain who navigates for freight in common or on

shares, may not make any separate transaction for his own account, and
should he do so the profits shall belong to the other persons interested,
and the losses shall be borne by him alone.
ART. 614. A captain who, having agreed to make a voyage, fails to
fulfill his undertaking, without being prevented by fortuitous event or
force mejeure, shall indemnify all the losses, which his

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failure may cause, without prejudice to criminal penalties, which
may be proper.
ART. 615. Without the consent of the ship agent, the captain
may not have himself substituted by another person; and should he
do so, besides being liable for all the acts of the substitute and bound
to pay the indemnities mentioned in the foregoing article, the
captain as well as the substitute may be discharged by the ship
agent.
ART. 616. If the provisions and fuel of the vessel are consumed
before arriving at the port of destination, the captain shall order
with the consent of the officers of the same, to make the nearest port
to get a supply of either; but if there are persons on board who have
provisions of their own, he may compel them to turn over said
provisions for the common consumption of all persons on board,
paying the price thereof at the same time, or, at the latest, at the
first port where the vessel may arrive.
ART. 617. The captain cannot contract loans on respondentia
secured by the cargo, and should he do so, the contract shall be void.

Neither can he borrow money on bottomry for his own

transactions, except on the portion of the vessel he owns, provided,
no money has been previously borrowed on the whole vessel, nor
exits any other kind of lien or obligation chargeable against her.
When he is permitted to do so, he must necessarily state what
interest he has in the vessel.
In case of violation of this article, the principal, interest, and
costs shall be charged to the private account of the captain, and the
agent shall further have the right to discharge him.
ART. 618. The captain shall be civilly liable to the ship agent,
and the latter to the third persons who may have made contracts with
the former:
1. For all the damage suffered by the vessel and her cargo by
reason of want of skill and negligence on his part. If a misdemeanor
or crime has been committed, they shall be liable in accordance with
the Penal Code.

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2. For all thefts and robberies committed by the crew,

reserving his right of action against the guilty parties.
3. For the losses, fines and confiscations imposed on account
of violation of laws and regulations of customs, police, health, and
navigation.
4. For the damage caused by mutinies on board the vessel, or
by reason of faults committed by the crew in the service and defense
of the same, if he does not prove that he opportunely made full use of
his authority to prevent or avoid them.
5. For those arising by reason of a misuse of powers and
nonfulfillment of duties corresponding to him in accordance with
Articles 610 and 612.
6. For those arising by reason of his going out of his course
or taking a course which, in the opinion of the officers of the vessel at
a meeting attended by the shippers and supercargoes who may be on
board, he should not have taken without sufficient cause.
No exception whatsoever shall exempt him from this liability.
7. For those arising by reason of his voluntarily entering a port
other than his destination, outside of the cases of without formalities
referred to in Article 612.
8. For those arising by reason for the non-observance of the
provisions contained in the regulations for the situation of lights and
maneuvers for the purpose of preventing collisions.
ART. 619. The captain shall be 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 otherwise expressly agreed upon.
ART. 620. The captain shall not be liable for the damage caused
to the vessel or to the cargo by reason of force majeure; but he shall
always be so for those arising through his own fault, no agreement to
the contrary being valid.

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Neither shall he be personally liable for the obligation he may

have contracted for the repair, equipment, and provisioning of the
vessel, which shall be incurred by the ship agent, unless the former
has expressly bound himself personally or signed a bill of exchange or
promissory note in his name.
ART. 621. A captain who borrows money on the hull, engine,
rigging or tackle of the vessel, or who pledges or sells merchandise or
provisions outside of the cases and without formalities prescribed in
this Code, shall be liable for the principal, interest, and costs, and
shall indemnify for the damages he may cause.
He, who commits fraud in his accounts, shall reimburse the
amount defrauded, and shall be subject to the provisions of the
Revised Penal Code.
ART. 622. If, when on a voyage, the captain should receive news
of the appearance of corsairs or men of war against his flag, he shall
be obliged to make the nearest neutral port, inform his ship agent or
shippers, and await an occasion to sail under convoy or until the
danger is over, or to final orders from the ship agent or shippers.
ART. 623. If he should be attacked by a corsair and after having
tried to avoid the encounter and having resisted the delivery of the
effects of the vessel or of her cargo, they should be forcibly taken away
from him, or he should be obliged to deliver them, he shall make an
entry of that fact in his freight book and shall prove it before the
competent authority at the first port he touches.
After the force majeure has been proven, he shall be exempted
from liability.
ART. 624. A captain whose vessel has gone through a
hurricane or who believes that the cargo has suffered damage or
averages, shall make a protest thereon before the competent
authority at the first port he touches within the twenty-four hours
following his arrival, and shall ratify it within the same period when
he arrives at the place of his destination, proceeding immediately
with the proof of the facts, without opening the hatches not until
after this has been done.

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 IK ANSI*( STATION I.AWS

The captain shall proceed in the same manner if, the vend having
been wrecked, he is saved alone or with part of his cre*, in which case he
shall appear before the nearest authority, and make a sworn statement
of the facts.
The authority or the consul abroad shall verify the said facts,
receiving sworn statements of the members of the crew and passengers
who may have been saved; and taking such other steps as may help in
arriving at the facts, he shall make a statement of what may be the
result of the proceedings in the logbook and in that of the sailing mate,
and shall deliver the original records of the proceedings to the captain,
stamped and folioed, with a memorandum of the folios, which he must
rubricate, for their presentation to the judge or court of the port of
destination.
The statement of the captain shall be believed if it is in accordance
with those of the crew and passengers; if they disagree, the latter shall
be accepted, always saving proof to the contrary.
ART. 625. The captain, under his personal responsibility, as soon
as he should have arrived at the port of his destination, obtained the
necessary permission from the offices of health and customs, and
complied with the other formalities required by the regulations of the
administration, shall make the delivery of the cargo without any
defalcation to the consignees, and, in proper case, the vessel, rigging,
and freights to the ship agent.

OFFICERS AND CREW OF THE VESSELS

If, by reason of the absence of the consignee or non-appearance of
the legal holder of the invoices, the captain should not know to whom
the cargo could be legally delivered, he shall place it at the disposal of
the proper judge, or court, or authority, in order that he may determine
what is proper with regard to its deposit, preservation, and custody.
ART. 626. In order to be a sailing mate it shall be necessary:
1. To possess the qualifications required by the marine or
navigation laws or regulations.

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 v)x /r . i,v/j 'txh n.v:: / >
A.'</ '.r."r * f.\. v".

2. Not to be divpjalified in iCLorrbr.'.e rder*-* u-

discharge of the position.
AR'I. 627. 'I he sailing mate, a* the vetond chief of tf.t -esvei and
unless the ship agent does not order otherwise. fhafJ uke ri^e place of
the captain in case of absence, ritkneu or death- aid t-haQ then
assume all his powers, obligations, and Ilabflxtiei.

Article 627 of the Code of Commerce defies ±e Chief Ms-s. also

called Chief Officer or Sailing Mate, as ~me second chief of die
vessel, and unless the agent orders otherwise, shall take die place of
±e captain in eases of absence, sickness, or death, and shah then
assume all his powers, duties, and responsibilities.” A Chief Officer.
merefore. is second in command, next only to the captain of the
vesseL Moreover, the Standard of Training, Certification, and
Watchkeeping for Seafarers 1978 (STCW ‘78), to which the Philippines
is a signatory, defines a Chief Mate as “the deck officer next in rank
to the master and upon whom the command of the ship will fall in the
event of incapacity of the master.”
In Association of Marine Officers and Seaman of Reyes and Lim
Co. v. Laguesmay the Court held that the Chief Mate is a managerial
employee because the said officer performed the functions of an
executive officer next in command to the captain; that in the
performance of such functions, he is vested with powers or
prerogatives to lay down and execute management policies. The
exercise of discretion and judgment in directing a ship’s course is as
much managerial in nature as decisions arrived at in the confines of
the more conventional boardroom or executive office. Important
functions pertaining to the navigation of the vessel like assessing risks
and evaluating the vessel’s situation are managerial in nature. Thus,
respondent, as Chief Officer, is a managerial employee; hence,
petitioners need to show by substantial evidence the basis for their
claim that respondent has breached their trust and confidence.
(Centennial Transmarine, Inc., Centennial Maritime Services
Corporation and/or B+H Equimar Singapore, PTE. LTD. v. Ruben G.
Dela Cruz, G.R. No. 180719, August 22, 2008)

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The Master shall retain overall command of the vessel even on

pilotage grounds whereby he can countermand or overrule the order
or command of the Harbor Pilot on board.

Lorenzo Shipping Corporation v.

National Power Corporation
G.R. No. 181683, October 7. 2015
National Pow er Corporation v.
Lorenzo Shipping Corporation
G.R. No. 184568
FACTS: Lorenzo Shipping is the owner and operator of the commercial
vessel M/V Lorcon Luzon. National Powder Corporation is the owner of Power
Barge 104, a non-propelled powrer plant barge. On March 20, 1993, Power
Barge 104 w'as berthed and stationed at the Makar Wharf in General Santos
City when the M/V Lorcon Luzon hit and rammed Power Barge 104. At the
time of the incident. Captain Mariano Villarias (Captain Villarias) served as the
Master of the M/V Lorcon Luzon. However, the M/V Lorcon Luzon wras then
being piloted by Captain Homer Yape (Captain Yape), a Harbor Pilot from the
General Santos City pilotage district. As underscored by Lorenzo Shipping, the
M/V Lorcon Luzon was under Captain Yape’s pilotage as it was mandatory to
yield navigational control to the Harbor Pilot while docking.
Testifying before the Board of Marine Inquiry, Captain Villarias recalled
that while the M/V Lorcon Luzon was under Captain Yape’s pilotage, he
nevertheless “always” remained at the side of Captain Yape. He, likewise,
affirmed that he heard and knew Captain Yape’s orders “because I have to
repeat his order.” As the M/V Lorcon Luzon was docking, Captain Yape
ordered the vessel to proceed “slow ahead,” making it move at the speed of
about one knot. As it moved closer to dock, Captain Yape gave the order “dead
slow ahead,” making the vessel move even slower. He then ordered the engine
stopped. As the M/V Lorcon Luzon moved “precariously close to the wharf,”
Captain Yape ordered the vessel to move backward, i.e., go “slow astern,” and
subsequently “full astern.” Despite his orders, the engine failed to

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SHIPOWNERS AND SHIP AGENTS
timely respond. Thus, Captain Yape ordered the dropping of the anchor.
Despite this, the M/VLorcon Luzon rammed into Power Barge 104.
hollowing this incident, Nelson Homena, Plant Manager of Power
Barge 104, filed a Marine Protest before the Board of Marine Inquiry.
Captain Villarias also filed his own Marine Protest. For his part, Captain
Yape filed a Marine Accident Report. To forestall the prescription of its
cause of action for damages, National Power Corporation filed before
the Quezon City Regional Trial Court a Complaint for Damages against
Lorenzo Shipping. On November 7, 1997, Lorenzo Shipping filed its
Answer. It emphasized that at the time of the incident, the M/V Lorcon
Luzon was commandeered by an official Harbor Pilot, to whom it was
“mandatory x x x to yield operational control.”
The Regional Trial Court issued the Decision, dated February 18,
2002, absolving Lorenzo Shipping of liability. It concluded that
National Power Corporation failed to establish Lorenzo Shipping’s
negligence. It underscored that while the ramming was found to have
been the result of the engine’s stoppage, no malfunctioning was
recorded before and after the incident. The RTC further stated that
Lorenzo Shipping was sued in its capacity as the employer of Captain
Villarias and that any liability it incurred would have been only
subsidiary. Nevertheless, as Lorenzo Shipping supposedly exercised due
diligence in its selection and supervision of Captain Villarias, no
liability could be attributed to it. National Power Corporation appealed
before the Court of Appeals.
The Court of Appeals rendered its decision reversing and setting
aside the decision of the Regional Trial Court, and entering another
judgement ordering Lorenzo Shipping to pay National Power
Corporation the amount of P876,286 as actual damages, and P50,000 as
attorney’s fees, and expenses of litigation. The Court of Appeals
reasoned that while M/V Lorcon Luzon was under compulsory pilotage,
Captain Villarias, the vessel’s Master, remained to be its overall
commander. It added that he was remiss in his duties as he did nothing in
the crucial moments when Captain Yape’s orders to go astern appeared
to not have been heeded. It cited Article 2180 of the Civil Code in that an
employer’s liability is primary and not subsidiary. It further noted that
Lorenzo Shipping failed to show that it exercised due diligence in

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the selection and supervision of Captain Villarias. On March 31,2008,

Lorenzo Shipping filed the Petition for Review on Certiorari docketed as
G.R. No. 181683. It reiterated its position that no liability could be attributed
to it as the M/VLorcon Luzon was under compulsory pilotage and that
National Power Corporation assumed risk when it berthed a non-propelled
vessel in the Makar Wharf.
ISSUE: Whether or not Lorenzo Shipping Corporation is liable for the
damage sustained by Power Barge 104 when the M/V Lorcon Luzon
rammed into it, considering that at the time of the ramming, the M/V Lorcon
Luzon was under mandatory pilotage by Captain Yape.
HELD: It is not disputed that the M/V Lorcon Luzon, a vessel owned
and operated by Lorenzo Shipping, rammed into Power Barge 104 while
attempting to dock at the Makar Wharf. Likewise, it is not disputed that when
it rammed into Power Barge No. 104, the M/V Lorcon Luzon was being
piloted by Captain Yape. What is in dispute is whether Captain Yape’s
pilotage suffices to absolve Lorenzo Shipping liability. A master’s
designation as the commander of a vessel is long- settled:. This court’s
citation in Yu Con v. Ipil of General Review of Legislation and Jurisprudent
explains that “Master” and “Captain” are synonymous terms. The name of
captain or master is given, according to the kind of vessel, to the person in
charge of it. The first denomination is applied to those who govern vessels
that navigate the high seas or ships- of large dimensions and importance,
although they are engaged in the coastwise trade. Masters are those who
command smaller ships engaged- exclusively in the coastwise trade. The
Master shall retain overall command of the vessel even on pilotage grounds
whereby he can countermand or overrule the order or command of the
Harbor Pilot on board- In such event, any damage caused to a vessel or to life
and property at ports by reason of the fault or negligence of the Master,
shalLbeThe responsibility and liability of the registered owner of the vessel
concerned, without prejudice to recourse against said Master. Such liability
of the owner or Master of the vessel or its pilot shall be detjennined by
competent authority in appropriate proceedings in the light of the facts and
circumstances of each particular case. Accordingly, it is.settled that Harbor
Pilots are liable only to the extent that they

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SHIPOWNERS AND SHIP AGENTS
can perform their function through the officers and crew of the piloted
vessel. Where there is failure by the officers and crew to adhere to their
orders, Harbor Pilots cannot be held liable.
Thus, contrary to Lorenzo Shipping’s assertion, the M/V Lorcon
Luzon's, having been piloted by Captain Yape at the time of the ramming,
does not automatically absolve Lorenzo Shipping of liability. Clearing it
of liability requires a demonstration of how the Master, Captain Villarias,
conducted himself in those moments when it became apparent that the M/V
Lorcon Luzon s engine stopped and Captain Yape’s orders to go “slow
astern” and “full astern” were not being heeded. As noted by the Court of
Appeals, Captain Villarias was remiss in his duties. In his testimony before
the Board of Marine Inquiry, Captain Villarias admitted that about six
minutes had passed before he even realized that there was an engine
failure, let alone acted on this fact. In the first place, six minutes cannot be
characterized as so quick and fleeting that it deprived Captain Villarias and
his crew of “the time they needed to arrest the momentum of the vessel.”
By way of reference, an entire song of average length (no longer) could
have played in Captain Villarias’ head within those six minutes. The vessel
had been performing the tedious task of berthing and had been moving so
fast that it was about to collide with the docks in the wharf. Given these
circumstances, it was only reasonable for Captain Villarias, precisely
because he was the vessel’s Master, to remain vigilant, to support and
supplement Captain Yape’s orders, and to take evasive and counter
measures should Captain Yape’s attempts to safely berth prove to be
ineffectual. The Court of Appeals’ observation is well-taken: “Even just a
minute without any response from the concerned department could have
alarmed him.”

ART. 628. The sailing mate must provide himself with charts of
the seas on which he will navigate, with the maps and quadrants or
sextants which are in use and necessary for the discharge of his duties,
being liable for the accidents which may arise by reason of his
omission in this matter.
ART. 629. The sailing mate shall particularly and personally
keep a book folioed and stamped on all its pages, denominated
“Binnacle Book,” with a memorandum at the beginning stating

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the number of folios it contains signed by the competent authority, and shall
enter therein daily the distance and course travelled, the variations of the
needle, the leeway, the direction and force of the wind, the condition of the
atmosphere and the sea, the rigging set, the latitude and longitude observed,
the number of furnaces with fire, the steam pressure, the number of
revolutions, and under the name “Incidents,’’ the manoeuvres made, the
meetings with other vessels, and all the particular events and accidents
which may occur during the navigation.
ART. 630. In order to change the course and to take the one most
convenient for the good voyage of the vessel, the sailing mate shall come to an
agreement with the captain. Should the latter oppose, the sailing mate shall
explain to him his proper observations in the presence of other sea officers.
Should the captain still insist in his negative decision, the sailing mate shall
make the proper protest, signed by him and by other one of the officers in
the Log Book, and shall obey the captain who alone shall be liable for the
consequences of his decision.
ART. 631. The sailing mate shall be liable for all the damage caused
to the vessel and cargo by reason of his negligence or want of skill, without
prejudice to the criminal liability, which may arise, if a felony or
misdemeanor has been committed.
ART. 632. The following shall be the duties of the second mate:
1. To watch over the preservation of the hull and rigging of the
vessel, and to take charge of the tackle and equipment which make up her
outfit, suggesting to the captain the necessary repairs, and the replacement
of the effects and implements which are rendered useless and lost.
2. To take care that the cargo is well-arranged, keeping the
vessel always ready for maneuvers.
3. To preserve order, discipline, and good service among the
crew, requesting the proper orders and instructions of the captain and
giving him prompt information of any occurrence in which the
intervention of his authority may be necessary.

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/.«
4. To assign to each sailor the work he must do on board, in
accordance with the instructions received, and to see that it is carried out
with accuracy and promptness.
5. To take charge by inventory of the rigging and all the equipment
of the vessel if she should be laid up, unless the agent may order otherwise.
With regard to engineers, the following rules shall govern:
1. In order to be taken on board as a marine engineer forming
part of the complement of a merchant vessel, it shall be necessary to
possess the qualifications required by the laws and regulations, and to be
not disqualified in accordance therewith to hold said position. Engineers
shall be considered officers of the vessel, but they shall have no authority
or intervention except in matters referring to the motor apparatus.
2. When there are two or more engineers on one vessel, one of
them shall be the chief, and the other engineers and all the personnel of
the engines shall be under his orders; he shall furthermore have the
motor apparatus under his charge, as well as the spare parts, the
instruments, and, finally, whatever is entrusted to an engineer on board
a vessel.
3. He shall keep the engines and boilers in good and clean
condition, and shall order what may be proper so they may always be
ready for regular use, being liable for the accidents or damages which
may arise by reason of his negligence or want of skill to the motor
apparatus, vessel and cargo, without prejudice to the criminal liability
which may be proper if a felony or misdemeanor has been committed.
4. He shall make no change in the motor apparatus, nor
repair the averages he may have noticed in it, nor change the normal
speed of its movement, without prior authorization form the captain,
to whom, if he should oppose to their being made, he shall explain the
reasons he may deem proper in the presence of the other engineers or
officers; and if, notwithstanding this, the captain should insist in his
objection, the chief engineer shall make the

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proper protest, entering the same in the “Engine Book,” and shall obey the
captain who alone shall be liable for the consequences of his decision.
5. He shall inform the captain of any average which may occur in
the motor apparatus, and notify him whenever it may be necessary to stop
the engines for some time, or when any other accident occurs in his
department of which the captain should be immediately notified besides
frequently advising him of the consumption of fuel and lubricants.
6. He shall keep a book or registry7 called “Engine Book,” in
which there shall be entered all the data referring to the work of the
engines, such as for example, the number of furnaces with fire, the steam
pressure in the boilers and cylinders, the vacuum in the condenser, the
temperatures, the degree of saturation of the water in the boilers, the
consumption of fuel and lubricants, and, under the heading of
“Noteworthy Occurrences,” the average and imperfections which occur in
the engines and boilers, the causes therefore, and the means employed to
repair them; also the force and direction of the wind, the rigging set and
the speed of the vessel, shall be indicated, taking the data from the Binnacle
Book.
ART. 633. The second mate shall take the command of the vessel in
case of the inability or disqualification of the captain and sailing mate,
assuming therefore their powers and responsibilities.
ART. 634. The captain may make up his crew of his vessel with such
number as he may deem proper; and in the absence of Filipino sailors, he
may enlist foreigners residing in the Philippines, the number thereof not to
exceed one fifth of the total crew. If in foreign ports the captain could not
find a sufficient number of Filipino sailors, he may make up the crew with
foreigners, with the consent of the consul or marine authorities.
The agreements which the captain may make with the members of the
crew and others who go to make up the complement of the vessel, to which
reference is made in Article 612, must be reduced to writing in the Account
Book, without the intervention of a notary public or clerk of court, signed by
the parties thereto, and vised by

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SHIPOWNERS AND SHIP AGENTS

the marine authority if executed in Philippine territory, or by the consuls or

consular agents of the Philippines if executed abroad, stating therein all the
obligations which each one contracts and all the rights he acquires, said
authorities, taking care that these obligations and rights are recorded in a
clear and concise manner which will give no room for doubts or claims.
The captain shall take care to read to them articles of this Code which
concern them, stating in said document that such articles were read.
If the book contains the requisites prescribed in Article 612, and
there should not appear any sign of alterations in its entries, it shall be
admitted as evidence in all questions, which may arise, between the
captain and the crew with regard to the agreements contained therein and
the amounts paid on account of the same.
Every member of the crew may demand from the captain a copy,
signed by the latter, of the agreement and of the liquidation of his wages, as
they appear in the book.
ART. 635. A sailor who has been contracted to serve on a vessel
cannot rescind his contract nor fail to comply therewith, except by reason
of a legitimate impediment, which may have occurred to him.
Neither can he pass from the service of one vessel to another without
obtaining the written permission of the captain of the vessel on which he
may be.
If, without obtaining said permission, the sailor who has signed for
one vessel should sign for another one, the second contract shall be void,
and the captain may choose between forcing him to fulfil the service to
which he first bound himself or to look for a person to substitute him at
his expense.
Said sailor shall furthermore lose the wages on his first contract to the
benefit of the vessel for which he has formerly signed.
A captain who, knowing, that the sailor is in the service of another
vessel, should have made a new agreement with him, without requiring of
him the permission referred to in the preceding

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paragraphs, shall be subsidiarily liable to the captain of the vessel to

which the sailor first belonged for that part of the indemnity, referred to
in the third paragraph of this article, which the sailor could not pay.
ART. 636. If there is no fixed period for which a sailor has been
contracted, he may not be discharged until the termination of the return
voyage to the port where he enlisted.
ART. 637. Neither can the captain discharge a sailor during the
time of his contract except for just cause, the following being considered
as such:
1. The perpetration of a crime, which disturbs order on the
vessel.
2. Repeated offenses of insubordination, of want of discipline, or
of non-fulfilment of the service.
3. Incapacity and repeated negligence in the fulfilment of the
service he should render.
4. Habitual drunkenness.
5. Any occurrence, which incapacitates the sailor to perform
the work under his charge, with the exception of the provisions
contained in Article 644.
6. Desertion.
The captain may, however, before setting out on a voyage and
without giving reason whatsoever, refuse to permit a sailor he may have
engaged to go on board, and he may leave him on land, in w hich case his
w ages have to be paid as if he had rendered services.
The indemnity shall be paid out of the funds of the vessel if the
captain should have acted for reasons of prudence and in the interest of
the safety' and good service of the vessel. Should this not be the case, it
shall be paid by the captain personally.
After the voyage has been begun, and during the same and until
the conclusion thereof, the captain may not abandon any member of his
crew on land or on the sea, unless, by reason of some

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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

crime, his imprisonment and delivery to the competent authority in the first
port of arrival should be proper, which shall be obligatory to the captain.
ART. 638. If, after the crew has been engaged, the voyage is revoked by
the will of the ship agent of the charterers, before or after the vessel has put
to sea, or if the vessel by the same cause, is given a different destination than
that fixed in the agreement with the crew, the latter shall be indemnified by
reason of the rescission of the contract in accordance with the following
cases:
1. If the revocation of the voyage should be decided before the
departure of the vessel from the port, each sailor engaged shall be given one
month salary, besides what may be due him, in accordance with his contract,
for the services rendered to the vessel up to the date of the revocation.
2. If the agreement should have been for a fixed amount for the
whole voyage, what may be due for said month and days shall be determined
in proportion to the approximate duration of the voyage, in the judgment of
the experts, in the manner established by the law of civil procedure; and if
the proposed voyage should be of such short duration that it is calculated at
approximately one month, the indemnity shall be fixed at fifteen days,
discounting in all cases the sums advanced.
3. If the revocation should take place after the vessel has put to sea,
the sailors engaged for a fixed amount for the voyage shall receive in full the
salary which may have been offered to them as if the voyage had terminated;
and those engaged by the month shall receive the amount corresponding to
the time they might have been on board and to the time they may require to
arrive at the port of destination, the captain being obliged, furthermore, to
pay said sailors, in both cases, the passage either to the port of destination or
to the port of embarkation, which ever may be convenient for them.
4. If the ship agent or charterers of the vessel should give her a
destination different from that specified in the agreement and the members
of the crew would not agree thereto, they shall be given by way of indemnity
half of the amount fixed in Subdivision No. 1,
 TRANSPORTATION LAWS

in addition to what may be due them for the part of the monthly wages
corresponding to the days which may have elapsed from the date of their
agreements.
If they accept the alteration, and the voyage, by reason of greater
distance or for other circumstances, should give rise to an increase wages, the
latter shall be adjusted privately or through amicable arbitrators in case of
disagreement. Even if the voyage should be shortened to a nearer point, this
shall not give rise to a reduction in the wages agreed upon.
If the revocation or alteration of the voyage should originate from the
shippers or charterers, the ship agent shall have a right to demand of them the
indemnity, which may be justly due.
ART. 639. If the revocation of the voyage should arise from a just cause
beyond the control of the ship agent and the charterers and the vessel should
not have left the port, the members of the crew shall have no other right than
to collect the wages earned up to the day the revocation was made.
ART. 640. The following shall be just causes for the revocation of the
voyage:
1. A declaration of war or interdiction of commerce with the Power to
whose territory the vessel was bound.
2. The blockade of the port of her destination or the breaking
out of an epidemic after the agreement.
3. The prohibition to receive in said port the goods, which
make up the cargo of the vessel.
4. The detention or embargo of the same by order of the
Government, or for any other cause beyond the control of the ship
agent.
5. The inability of the vessel to navigate.
ART. 641. If, after the voyage has been begun, any of the first
three causes expressed in the foregoing article should occur, the
sailors shall be paid, at the port which the captain may deem proper

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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

to make for the benefit of the vessel and cargo, according to the time they may
have served thereon; but if the vessel is to continue her voyage, the captain
and the crew may mutually demand the enforcement of the contract.
In case of the occurrence of the fourth cause, the crew shall continue to
be paid half wages if the agreement is by month; but if the detention should
exceed three months, the contract shall be rescinded and the crew shall be
paid what they should have earned according to the contract as if the voyage
had been made. And if the agreement should have been made for a fixed sum
for the voyage, the contract must be complied with in the terms agreed upon.
If the fifth case, the crew shall have no other right than to collect the
wages earned; but if the disability of the vessel should have been caused by the
negligence or want of skill of the captain, engineer, or sailing mate, they shall
indemnify the crew for damages suffered, without prejudice always to the
criminal liability which may arise.
ART. 642. If the crew have been engaged to work on shares, they shall
not be entitled, by reason of revocation, delay or greater extension of the
voyage, to anything but proportionate part of the indemnity which may be
paid to the common funds of the vessel by the persons responsible for said
occurrences.
ART. 643. If the vessel and her cargo should be totally lost, by reason of
capture or shipwreck, all rights shall be extinguished, both as regard the right
of the crew to demand wages and the right of the ship agent to recover the
advances made.
If a portion of the vessel or of the cargo, or of both, should be saved, the
crew engaged on wages, including the captain, shall retain their rights on the
salvage, as far as possible, on the remainder of the vessel as well as on the
value of the freight or cargo saved; but sailors who are engaged on shares shall
have no right on the salvage of the hull, but only on the portion of the freight
saved. [If they should have worked to recover the remainder of the
shipwrecked vessel, they shall be given from the value of the salvage an award

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 i V A*.'SPOK7A7/ON !>.*">

in proportion to the efforts made and to the risks encountered in order to

accomplish the salvage.]
ART. 644. A sailor who falls sick shall not Jose his right to wages
during the voyage, unless his sickness is the result of his own fault. At any
rate, the cost of medical attendance and treatment shall be defrayed
from the common funds, in the form of a loan.
If the sickness should be caused by an injury received in the service
or defense of the vessel, the sailor shall be attended and treated at the
expense of the common funds, deducting, before anything else, from the
proceeds of the freight, the costs of the attendance and treatment.
ART. 645. If a sailor should die during the voyage, his heirs shall be
given the wages earned and not yet received, according to his contract
and cause of his death, namely:
If he died a natural death and was contracted on wages, what may
have been earned up to the date of his death shall be paid.
If the contract was for a fixed sum for the whole voyage, half the
amount earned shall be paid if the sailor died on the voyage out, and the
whole amount if he died on the return voyage.
And if the contract was on shares and his death occurred after the
voyage was begun, the heirs shall be paid the entire participation due the
sailor; but if the sailor died before the departure of the vessel from the
port, the heirs shall not be entitled to claim anything.
If death occurred in defense of the vessel, the sailor shall be
considered as living, and his heirs shall be paid, at the end of the voyage,
the full amount of wages or the full participation on the profits which
may be due him, as others of his class.
Likewise, the sailor who was captured while defending the vessel
shall be considered as present, in order to enjoy the benefits as the rest;
but should he have been captured by reason of negligence or other
accident having no relation with the service, he shall only receive the
wages due up to the day of his capture.

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SHIPOWNERS AND SI III* AGEN TS

ART. 646. The vessel with her engines, rigging, equipment and
freight shall be liable for the wages earned by the crew engaged per
month or for the trip, the liquidation and payment to take place
between one voyage and the other.
After a new voyage has been begun, credits of such kind
pertaining to the preceding voyage shall lose their preference.
ART. 647. The officers and the crew of the vessel shall be free
from all obligations contracted, if they deem it proper, in the
following cases:
1. If, before commencing the voyage, the captain attempts to
change it, or if there occurs a naval war with the nation to which the
vessel was destined.
2. If a disease should break out and be officially declared an
epidemic in the port of destination.
3. If the vessel should change owner or captain.
ART. 648. By the complement of a vessel shall be understood
all the persons embarked, from the captain to the cabin boy,
necessary for the management, maneuvers, and service, and,
therefore, in the complement shall be included the crew, sailing
mates, engineers, stockers, and others working on board not having
specific names; but it shall not include the passengers or the persons
whom the vessel is only transporting.

SUPER CARGOES
Super cargo in maritime law is a person especially employed by
the owner of a cargo to take charge of and sell to the best
advantage merchandise which has been shipped, and to purchase
returning cargoes and to receive freight, as he may be authorized.
(Black’s Law Dictionary,
Sixth Ed.)

ART. 649. The supercargoes shall discharge on board the

vessel the administrative duties which the ship agent or shippers
may have assigned to them; they shall keep an account and record

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of their transactions in a book which shall have the same conditions

and requisites as those required for the accounting book of the
captain, and shall respect the latter in his duties as chief of the vessel.
The power and responsibilities of the captain shall cease, when
there is a supercargo, with regard to that part of the administration
legitimately conferred upon the latter, but they shall continue in force
for all acts, which are inseparable from his authority and office.
ART. 650. All the provisions contained in the Second Section of
Title III, Book II, with regard to qualifications, manner of making
contracts, and liabilities of factors, shall be applicable to
supercargoes.
ART. 651. Supercargoes cannot, without authorization or express
agreement, make any transaction for their own account during the
voyage, with the exception of the ventures which, in accordance with
the custom of the port of destination, they are permitted to do.
Neither can they invest in the return voyage more than the profit
from the ventures, unless there is an express authorization from the
principals.

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SPECIAL CONTRACTS OF MARITIME

COMMERCE
CHARTER PARTIES
Forms and Effects of Charter Parties *

ARTICLE 652. A charter party must be drawn in duplicate and

signed by the contracting parties, and when either does not
know how or is not able to do so, by two witnesses at his request.
• v
The charter party shall contain, besides the conditions freely
stipulated, the following circumstances:
1. The kind, name, and tonnage of the vessel.
2. Her flag and port or registry.
3. The name, surname, and domicile of the captain.
4. The name, surname, and domicile of the ship agents if the
latter should make the charter party.
5. The name, surname and domicile of the charterer, and, if he
states that he is acting by commission, that of the person for whose
account he makes the contract.
6. The port of loading and unloading.
7. The capacity, number of tons or weight, or measurement
which they respectively bind themselves to load and transport, or
whether the charter party is total.
8. The freight to be paid, stating whether it is to be a fixed
amount for the voyage or so much per month, or for the space to be
occupied, or for the weight or measurement of the goods making up the
cargo, or in any other manner whatsoever agreed upon.

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 TRANSPORTATION LAWS

9. The amount of primage to be paid the captain.

10. The days agreed upon for loading and unloading.
11. The lay days and extra lay days to be allowed and the demurrage
for each of them to be paid.

Important Terms and Phrases in Charter-Party

1. Definition of Charter-Party
A “charter-party ” is defined as a contract by which an entire ship, or
some principal part thereof, is let by the owner to another person for a specified
time or use; a contract of affreightment by which the owner of a ship or other
vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of
freight, x x x Contract of affreightment may either be time charter, wherein the
vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single or consecutive voyage. In both cases, the
charter-party provides for the hire of the vessel only, either for a determinate
period of time or for a single or consecutive voyage, the ship owner to supply the
ship’s store, pay for the wages of the master of the crew, or defray the expenses for
the maintenance of the ship.

Upon the other hand, the term “common or public carrier ” is defined in Art.
1732 of the Civil Code. The definition extends to carriers either by land, air or water
which hold themselves out as ready to engage in carrying goods or transporting
passengers or both for compensation as a public employment and not as a casual
occupation x x x.

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. (Planters
Products, Inc. v. CA, et ah, G.R. No. 101503, September 15, 1993,
226SCRA 476)
2. Kinds of Charter-Party
The distinction between the two kinds of charter parties (i.e., bareboat or
demise, and contract of affreightment) is more clearly set

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SPECIAL CONTRACTS OF MARITIME COMMERCE:

out in the case of Puromines, Inc. u Court of Appeals, wherein f the Court] ruled:
"Under the demise or bareboat charter of the vessel, the charterer w ill
generally be regarded as the owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes the owner pro hac
vice, subject to liability to others for damages caused by negligence. To create a
demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer, anything short of
such a complete transfer is a contract of affreightment (time or voyage
charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the
vessel leases part or all of its space to haul goods for others.
It is a contract for special service to be rendered by the owner of the vessel and under
such contract the general owner retains the possession, command and navigation of
the ship, the charterer or freighter merely having use of the space in the vessel in
return for his payment of the charter hire, x x x.
“x x x. An owner who retains possession of the ship though the hold is
the property of the charterer, remains liable as carrier and must answer for
any breach of duty as to the care, loading and unloading of the cargo, x x x”
In modem maritime law and usage, there are three distinguishable types of
charter parties: (a) the “bareboat ” or “demise ” charter; (b) the “time ” charter;
and (c) the “voyage ” or “trip ” charter.
A bareboat or demise charter is a demise of a vessel, much as a lease of
an unfurnished house is a demise of real property. The shipowner turns over
possession of his vessel to the charterer, who then undertakes to provide crew and
victuals and supplies and fuel for her during the term of the charter. The
shipowner is not normally required by the terms of a demise charter to provide a
crew. Sometimes, of course, the demise charter might provide that the shipowner
is to furnish a master and crew to man the vessel under the charterer’s direction,
such that the master

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and crew provided by the shipowner become the agents and servants or
employees of the charterer, and the charterer (and not the owner) through the
agency of the master, has possession and control of the vessel during the charter
period.
A time charter, upon the other hand, like a demise charter, is a contract
for the use of a vessel for a specified period of time or for the duration of one or
more specified voyages. In this case, however, the owner of a time-chartered
vessel (unlike the owner of a vessel under a demise or bareboat charter) retains
possession and control through the master and crew who remain his employees.
What the time charterer acquires is the right to utilize the carrying capacity and
facilities of the vessel and to designate her destinations during the term of the
charter.
A voyage charter, or trip charter, is simply a contract of affreightment,
that is, a 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, master and crew remain in the employ of the owner of the vessel.
(Litonjua Shipping Company Inc. v. National Seamen Board and Gregorio
Candongo, G.R. No. 51910, August 10, 1989)
“Considering liability to third parties, a basic distinction is whether the
charter is a demise or bareboat charter, on the one hand, or a time or voyage
charter, on the other. The vital distinction between demise and other charter
parties is whether the charterer is given the exclusive control of the vessel. In a
demise, in contrast to other charters, the charterer is considered the owner pro
hac vice. The charterer is accordingly liable in personam for all liabilities
arising out of the operation of the vessel; he is responsible for the actions of the
master and crew. The shipowner is generally not liable in personam, although
the ship may be liable in rem. Even in this case, the charterer is obliged to
indemnify the owner against liability suffered by the vessel as a consequence of
the charterer’s negligence. The shipowner may be liable, however, where
liability or injury results from unseaworthiness or negligence which existed
prior to delivery of the vessel to the demise charterer.” (Schoenbau, Admiralty
and Maritime Law, pp. 402-403 [1987], cited in Litonjua case, supra)

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SPECIAL CONTRACTS OF MARITIME COMMERCE 3.

Transshipment
Transshipment in maritime law is defined as the act of taking cargo out
of one ship and loading it in another, or “the transfer of goods from the vessel
stipulated in the contract of affreightment to another vessel before the place of
destination named in the contract has been reached,” or “the transfer for
further transportation from one ship or conveyance to another.” Clearly, either
in its ordinary or its strictly legal acceptation, there is transshipment whether
or not the same person, firm or entity owns the vessels. In other words, the fact
of transshipment is not dependent upon the ownership of the transporting
ships or conveyances or in the change of carriers, as the petitioner seems to
suggest, but rather on the fact of actual physical transfer of cargo from one
vessel to another.
Moreover, it is a well-known commercial usage that transshipment of
freight without legal excuse, however competent and safe the vessel into which
the transfer is made, is a violation of the contract and an infringement of the
right of the shipper, and subjects the carrier to liability if the freight is lost even
by a cause otherwise excepted. (70 Am. Jur. 2a, Shipping 608)
4. Demurrage
Demurrage, in its strict sense, is the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the time
agreed on for loading and unloading. Essentially, demurrage is the claim for
damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for
demurrage, using the word in its strictly technical sense, exists only when
expressly stipulated in the contract. Using the term in its broader sense,
damages in the nature of demurrage are recoverable for a breach of the
implied obligation to load or unload the cargo with reasonable dispatch, but
only by the party to whom the duty is owed and only against one who is a
party to the shipping contract. Notice of arrival of vessels or conveyances, or
of their placement for puiposes of unloading is often a condition precedent to
the right to collect demurrage charges.
(80 C.J.S. Shipping 1146-1147)
Note: Notification is needed to take delivery of the goods.

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5. Laytime
“Laytime ” runs according to the particular clause of the charter
party, x x x If laytime is expressed in “running days,” this means
days when the ship would be run continuously, and holidays are not
expected. A qualification of “weather permitting” excepts only those
days when bad weather reasonably prevents the work contemplated.”
In law of shipping, lay days are the days allowed without
penalty to charter parties for loading and unloading the cargo.
(Black’s Law Dictionary, p. 888, Centennial Ed.) Extra lay days,
therefore, are the days that follow the lay days. (See No. 11, Art. 652)
The stipulation "lay days ” (loading and unloading): “Customary
Quick Dispatch” implies that loading and unloading of the cargo should be within a
reasonable period of time. Due diligence should be exercised according to the customs
and usages of the port or ports of call. The circumstances obtaining at the time of
loading and unloading are to be taken into account in the determination of “Customary
Quick |d Dispatch. ”
‘c i

r What is a reasonable time depends on the existing as opposed

to normal circumstances, at the port of loading and the custom of the
port. (NFA v. CA and Hongfil Shipping Corp., 311 SCRA 700, August 4,
1999)
6. W W D S HI N C or Weather, Working Days,
Sundays, and Holidays Included.
£ The running of laytime may be subject
toWWDSHINCand
L. would cease to run in the event unfavorable weather interfered with
the
unloading of cargo.
7. F. I. O. S. T.
The terms “F.I.O.S.T.” which is used in the shipping business is
a standard provision in the Charter Party, which stands for “Freight
In and Out including Stevedoring and Trading, ” which means that the
handling, loading and unloading of the cargoes are the responsibility
of the Charterer.

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8. Primage
“Primage ” is an amount stipulated in the charter party to be paid by the
charterer or shipper as compensation to the captain or master for his particular care
of the goods. (See par no. 9, Art. 652)

Respective rights and duties of a shipper and carrier depends on whether

the contract of carriage is a bill of lading or equivalent shipping
documents on one hand, or a charter party as similar contract on the other.
Caltex (Philippines), Inc. v.
Sulpicio Lines
G.R. No. 131166, September 30, 1999
FACTS: On December 19, 1987, motor tanker MT Vector left Limay,
Bataan, at about 8:00 p.m., en route to Masbate, loaded with 8,800 barrels of
petroleum products shipped by petitioner Caltex. MT Vector is a tramping motor
tanker owned and operated by Vector Shipping Corporation, engaged in the
business of transporting fuel products such as gasoline, kerosene, diesel and crude
oil. During that particular voyage, the MT Vector carried on board gasoline and
other oil products owned by Caltex by virtue of a charter contract between them.
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Dona
Paz left the port of Tacloban headed for Manila with a complement of 59 crew
members including the master and his officers, and passengers totalling 1,493 as
indicated in the Coast Guard Clearance. The MV Dona Paz is a passenger and
cargo vessel owned and operated by Sulpicio Lines, Inc., plying the route of
Manila/Tacloban/ Catbalogan/Manila/Catbalogan/Tacloban/Manila, making
trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the
open sea within the vicinity of Dumali Point between Marinduque and Oriental
Mindoro. All the crewmembers of MV Doha Paz died, while the two survivors
from MT Vector claimed that they were sleeping at the time of the incident.
The MV Doha Paz carried an estimated 4,000 passengers; many indeed, were
not in the passenger manifest. Only 24 survived the

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 TRANSPORTATION LAWS

tragedy after having been rescued from the burning waters by vessels that
responded to distress call. Among those who perished were public school
teacher Sebastian Canezal (47 years old) and his daughter Corazon Canezal
(11 years old), both unmanifested passengers but proved to be on board the
vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No.
653-87 after investigation found that the MT Vector, its registered operator
Francisco Soriano, and its owner and actual operator Vector Shipping
Corporation, were at fault and responsible for its collision with MV Dona
Paz.
On February 13, 1989, Teresita Canezal and Sotera E. Canezal,
Sebastian Canezal’s wife and mother respectively, filed with the Regional
Trial Court, Branch 8, Manila, a complaint for “Damages Arising from
Breach of Contract of Carriage” against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third-party complaint against Francisco
Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc.
Sulpicio alleged that Caltex (Philippines), Inc. chartered MT Vector with
gross and evident bad faith knowing fully well that MT Vector was
improperly manned, ill-equipped, unseaworthy and a hazard to safe
navigation; as a result, it rammed against MV Dona Paz in the open sea
setting MT Vector’s highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing
the third-party complaint against petitioner and holding liable only Sulpicio
Lines for damages.
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc.,
on April 15, 1997, the Court of Appeals modified the trial court’s ruling
and included petitioner Caltex as one of those liable for damages.
Third-party defendants Vector Shipping Co. and Caltex Phils., Inc.
are held equally liable under the third-party complaint to reimburse/
indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages,
attorney’s fees and costs which the latter is adjudged to pay plaintiffs, the
same to be shared half by Vector Shipping Co. (being the vessel at fault for
the collision) and the other half by Caltex Phils., Inc. (being the charterer
that negligently caused the shipping of combustible cargo aboard an
unseaworthy vessel).

524
 CHARTER IX
SPECIAL CONTRACTS Of MARITIME COMMERCE

ISSUE: Whether or not the charterer of a sea vessel is liable for

damages resulting from a collision between the chartered vessel and a
passenger ship.
HELD: The respective rights and duties of a shipper and the carrier
depends not on whether the carrier is public or private, but on whether the
contract of carriage is a bill of lading or equivalent shipping documents on the
one hand, or a charter-party or similar contract on the other.

Petitioner and Vector entered into a contract of affreightment, also

known as a voyage charter.
A charter-party is a contract by which an entire ship, or some principal
part thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment is one by which the owner of a ship or other vessel
lets the whole or part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight.
A contract of affreightment may be either time charter, wherein the
leased vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. In both cases, the charter
party provides for the hire of the vessel only, either for a determinate period of
time or for a single or consecutive voyage, the shipowner to supply the ship’s
store, pay for the wages of the master of the crew, and defray the expenses for
the maintenance of the ship.
Under a demise or bareboat charter on the other hand, the charterer
mans the vessel with his own people and becomes, in effect, the owner for the
voyage or service stipulated, subject to liability for damages caused by
negligence.
If the charter is a contract of affreightment, which leaves the general
owner in possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.
MT Vector is a common carrier.
Charter parties fall into three main categories: (1) Demise or bareboat, (2)
time charter, (3) voyage charter. Does a charter party
 TRANSPORTATION LAWS

agreement turn the common carrier into a private one? We need to

answer this question in order to shed light on the responsibilities of the
parties.
In this case, the charter party agreement did not convert the common
carrier into a private carrier. The parties entered into a voyage charter,
which retains the character of the vessel as a common carrier.
Under the Carriage of Goods by Sea Act:
Sec. 3. (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship.
Thus, the carriers are deemed to warrant impliedly the seaworthiness
of the ship. For a vessel to be seaworthy, it must be adequately equipped for
the voyage and manned with a sufficient number of competent officers and
crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.
The provisions owed their conception to the nature of the business of
common carriers. This business is impressed with a special public duty. The
public must of necessity rely on the care and skill of common carriers in the
vigilance over the goods and safety of the passengers, especially because with
the modem development of science and invention, transportation has become
more rapid, more complicated and somehow more hazardous. For these
reasons, a passenger or a shipper of goods is under no obligation to conduct
an inspection of the ship and its crew, the carrier being obliged by law to
impliedly warrant its seaworthiness.
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

526
 CHAPTER FX
SPECIAL CONTRACTS OF MARITIME COMMERCE

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.
The relationship between the parties in this case is governed by special
laws. Because of the implied warranty of seaworthiness, shippers of goods,
when transacting with common carriers, are not expected to inquire into the
vessel’s seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of
failure exhibits nothing but the futility of our maritime laws insofar as the
protection of the public in general is concerned. By the same token, we cannot
expect passengers to inquire every time they board a common carrier, whether
the carrier possesses the necessary papers or that all the carrier’s employees are
qualified. Such a practice would be an absurdity in a business where time is
always of the essence. Considering the nature of transportation business,
passengers and shippers alike customarily presume that common carriers
possess all the legal requisites in its operation.

Litonjua Shipping Company, Inc. v.

National Seamen Board and Gregorio P. Candongo
G.R. No. 51910, August 10,1989

FACTS: Petitioner Litonjua is the duly appointed local crewing

managing office of the Fairwind Shipping Corporation (Fairwind). The M/V
Dufton Bay is an ocean-going vessel of foreign registry owned by the R.D.
Mullion Ship Broking Agency Ltd. (Mullion). On September 11,1976, while
the Dufton Bay was in the port of Cebu and while under charter by Fairwind,
the vessel’s master contracted the services of, among others, private
respondent Gregorio Candongo to serve as Third Engineer for a period of 12
months with a monthly wage of US$500.
This agreement was executed before the Cebu Area Manning Unit of the NSB.
Thereafter, private respondent boarded the vessel. On December 28, 1976,
before expiration of his contract, private respondent was required to
disembark at Port Kelang, Malaysia, and was returned to the Philippines on
January 5, 1977. The cause of the discharge was described in his Seaman’s
Book as “by owner’s arrange.”

527
 TRANSPORTATION LAWS

Shortly after returning to the Philippines, private respondent filed a

complaint before public respondent NSB, which complaint was docketed as
NSB-1331-77, for violation of contract, against Mullion as the shipping
company and petitioner Litonjua as agent of the shipowner and of the charterer
of the vessel. On February 17, 1977, the hearing officer of the NSB rendered a
judgment by default ordering respondents R.D. Mullion Shipbrokers Co., Ltd.,
and Litonjua Shipping Co., Inc., jointly and solidarily pay complainant unpaid
salaries due the latter as damages corresponding the unexpired portion of the
contract, etc.
HELD: In the instant Petition for Certiorari, petitioner Litonjua assails
the decision of public respondent NSB declaring the charterer Fairwind as
employer of private respondent, and for whose liability petitioner was made
responsible, as constituting a grave abuse of discretion amounting to lack of
jurisdiction. The principal if not the sole issue to be resolved here is whether or
not the charterer Fairwind was properly regarded as the employer of private
respondent Candongo.
Petitioner Litonjua contends that the shipowner, not the charterer, was the
employer of private respondent; and that liability for damages cannot be
imposed upon petitioner which was a mere agent of the charterer. It is insisted
that private respondent’s contract of employment and affidavit of undertaking
clearly showed that the party with whom he had contracted was none other than
Mullion, the shipowner, represented by the ship’s master. Petitioner also argues
that its supercargoes merely assisted Captain Ho King Yiu of the Dufton Bay in
hiring private respondent as Third Engineer. Petitioner also points to the
circumstance that the discharge and the repatriation of private respondent were
specified in his Seaman’s Book as having been “by owner’s arrange.” Petitioner
Litonjua thus argues that being the agent of the charterer and not of the
shipowner, it accordingly should not have been held liable on the contract of
employment of private respondent.
It is well-settled that in a demise or bareboat charter, the charterer is
treated as owner pro hac vice of the vessel, the charterer assuming in large
measure the customary rights and liabilities of the shipowner in relation to third
persons who have dealt with him or with the vessel. In such case, the master of
the vessel is the agent of the charterer and

528
 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

not of the shipowner. The charterer or owner pro hac vice, and not the general
o^Tier of the vessel, is held liable for the expenses of the voyage including the
wages of the seamen.
It is important to note that petitioner Litonjua did not place into the record of
this case a copy of the charter party covering the M/V Dufton Bay. [The Court]
must assume that petitioner Litonjua was aware of the nature of a bareboat or
demise charter and that if petitioner did not see fit to include in the record a copy
of the charter party, which had been entered into by its principal, it was because
the charter party and the provisions thereof were not supportive of the position
adopted by petitioner Litonjua in the present case, a position diametrically
opposed to the legal consequence of a bareboat charter. Treating Fairwind as
owner pro hac vice, petitioner Litonjua having failed to show that it was not such,
the Court believes and so hold that petitioner Litonjua, as Philippine agent of the
charterer, may be held liable on the contract of employment between the ship
captain and the private respondent.
The Court concludes that private respondent was properly regarded as an
employee of the charterer Fairwind and that petitioner Litonjua may be held to
answer to private respondent for the latter’s claims as the agent in the Philippines of
Fairwind. The Court think this result, which public respondent reached, far from
constituting a grave abuse of discretion, is compelled by equitable principles and by
the demands of substantial justice. To hold otherwise would be to leave private
respondent (and others who may find themselves in his position) without any
effective recourse for the unjust dismissal and for the breach of his contract of
employment.
Federal Phoenix Assurance Co., LTD v.
Fortune Sea Carrier, Inc.
G.R. No. 188118, November 23,2015
FACTS: On March 9, 1994, Fortune Sea agreed to lease its vessel M/V Ricky
Rey to Northern Mindanao Transport Co., Inc. (Northern Transport). The Time
Charter Party agreement executed by the parties provides that the vessel shall be
leased to Northern Transport for 90 days to carry bags of cement to different ports
of destination. Later on, the parties extended the period of lease for another 90 days.
Sometime
 TRANSPORTATION TAWS

in June 1994. Northern Transport ordered 2,069 bales of abaca fibers to be

shipped on board MV Ricky Rey by shipper Manila Hemp Trading Corporation
for deliver)' to consignee Newtech Pulp, Inc. (Newtech) in Iligan City. The
shipment was covered by Bill of Lading No. 1, and was insured by petitioner
Federal Phoenix Assurance Co., Ltd. (Federal Phoenix). Upon arrival of MV
Ricky Rey at the Iligan City port on June 16. 1994. the stevedores started to
discharge the abaca shipment the following day. At about 3:00 p.m., however,
on June 18, 1994, the stevedores noticed smoke coming out of the cargo haul
where the bales of abaca where located. Immediately, the fire was put off by the
Iligan City Fire Department. Upon investigation, it was discovered that 60 bales
of abaca were damaged. As a result of the losses, Newtech filed an insurance
claim for P260,000 with Federal Phoenix. After evaluation, Federal Phoenix
paid Newtech PI62,419.25 for the losses it incurred due to the damage and
undelivered bales of abaca. Upon payment, Federal Phoenix was subrogated to
the rights of Newtech, and pursued its claim against Fortune Sea. Despite several
demands to Fortune Sea, however, Federal Phoenix’s claim was not settled. As a
result, Federal Phoenix filed a Complaint for Sum of Money against Fortune Sea
before the Regional Trial Court of Makati.
For its defense, Fortune Sea insisted that it was acting as a private carrier
at the time the incident occurred. It alleged that the Time Charter Party
agreement executed by the parties expressly provided that MV Ricky Rey shall
be under the orders and complete control of Northern Transport.
On May 4, 2006, the Regional Trial Court rendered a Decision in favor of
Federal Phoenix. Fortune Sea filed a Motion for Reconsideration, but was
denied. Aggrieved, Fortune Sea appealed to the Court of Appeals. The Court of
Appeals issued a Decision reversing and setting aside the Decision, dated May 4,
2006, of the Regional Trial Court, and ordered the dismissal of the complaint for
sum of money filed by Federal Phoenix against Fortune Sea for lack of merit.
According to the Court of Appeals, although the agreement between Fortune Sea
and Northern Transport was denominated as Time Charter Party, it found
compelling reasons to hold that the contract was one of bareboat or demise.
Hence, Federal Phoenix filed this instant petition.

530
 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

ISSUE: Whether or not Fortune Sea was converted into a private carrier by
virtue of the charter party agreement it entered into with Northern Transport.
HELD: Admittedly, Fortune Sea is a corporation engaged in the business
of transporting cargo by water, and for compensation, offering its services to the
public. As such, it is without doubt a common carrier. Fortune Sea, however, entered
into a time-charter with Northern Transport. Now, had the time-charter converted
Fortune Sea into a private carrier? This Court rules in the affirmative. Time and
again, this Court have ruled that “in determining the nature of a contract, courts
are not bound by the title or name given by the parties. The decisive factor in
evaluating an agreement is the intention of the parties, as shown, not necessarily
by the terminology used in the contract but their conduct, words, actions, and
deeds prior to, during, and immediately after executing the agreement. ” As
correctly observed by the Court of Appeals, the Time Charter Party agreement
executed by Fortune Sea and Northern Transport clearly shows that the charter
includes both the vessel and its crew thereby making Northern Transport the owner
pro hac vice of M/V Ricky Rey during the whole period of the voyage. Conformably,
M/V Ricky Rey was converted into a private carrier notwithstanding the existence of
the Time Charter Party agreement with Northern Transport since the said agreement
was not limited to the ship only but extends even to the control of its crew. Despite the
denomination as Time Charter by the parties, their agreement undoubtedly reflected
that their intention was to enter into a Bareboat Charter Agreement.
Moreover, the Court of Appeals likewise correctly ruled that the
testimony of Captain Alfredo Canon (Capt. Canon) of M/V Ricky Rey
confirmed that when the whole vessel was leased to Northern Transport, the
entire command and control over its navigation was likewise transferred to it.
Moreover, although the master and crew of the vessel were those of the
shipowner, records show that at the time of the execution of the charter party,
Fortune Sea had completely relinquished possession, command, and navigation
of M/V Ricky Rey to Northern Transport. As such, the master and all the crew
of the ship were all made subject to the direct control and supervision of the
charterer. In fact, the instructions on the voyage and other relative directions or
orders were

531
 TRANSPORTATION LAWS

handed out by Northern Transport. Thus, the Court of Appeals correctly ruled
that the nature of the vessel's charter is one of bareboat or demise charter.

ART. 653. Should the cargo be received without the charter

party' having been signed, the contract shall be understood as executed
in accordance with what appears in the bill of lading w hich shall be
the sole evidence of title with regard to the cargo, for determining the
rights and obligations of the ship agent, of the captain, and of the
charterer.

Charter-Party may be oral.

Market Developers, Inc. (MADE) v.
Hon. Intermediate Appellate Court and Gaudioso Uy
G.R. No. 74978, September 8,1989
FACTS: It appears that on June 20, 1978, petitioner Market Developers,
Inc. (MADE) entered into a written barging and towage contract with private
respondent Gaudioso Uy for the shipment of the former’s cargo from Iligan City
to Kalibo, Aklan, at the rate of PI.45 per bag. The petitioner was allowed four lay
days and agreed to pay demurrage at the rate of P5,000 for every day of delay, or
in excess of the stipulated allowance. On June 26, 1978, Uy sent a barge and a
tugboat to Iligan City and loading of the petitioner’s cargo began immediately. It
is not clear who made the request, but upon completion of the loading on June
29, 1978, the parties agreed to divert the barge to Culasi, Roxas City, with the
cargo being consigned per bill of lading to Modem Hardware in that city. This
new agreement was not reduced to writing. The shipment arrived in Roxas City
on July 13, 1978, and the cargo was eventually unloaded and duly received by
the consignee. There is some dispute as to the time consumed for such
unloading. At any rate, about six months later, Uy demanded payment of
demurrage charges in the sum of P40,855.40 for an alleged delay of eight days
and 4/25 hours. MADE ignored this demand, and Uy filed suit. He was sustained
by the trial court, which ordered the petitioner to pay him the said amount with
interest plus P4,000 attorney’s fees and the cost of the

532
 CHAtM t R l\
St'VVl \l CON VRAC VS Ot M ARVVIMV COMMVRCV

suu. As earlier slated, this decision was fully affirmed on appeal to the
respondent court, which is the reason for this petition.
Agreeing with the trial court, the respondent court held that since the
diversion of the cargo to Roxas City was not covered by a new written
agreement, the original agreement must prevail.
It is this conclusion that is now disputed by the petitioner, which
contends that the first written contract was replaced by a new verbal agreement
that did not contain any stipulation for demurrage. There is the further
insistence that the alleged delay in the unloading of the cargo in Roxas City
should not have been readily assumed as a fact by the trial and respondent
courts because it had not been established by competent evidence and was
based on mere hearsay. The petitioner also argues that the claim for demurrage
was barred by laches, the private respondent having asserted it tardily and
obviously only as an afterthought.
ISSUE: Whether or not the second contract of affreightment was
invalid simply because it was not in writing.
HELD: The contract executed by MADE and Uy was a contract of
affreightment. As defined, a contract of affreightment is a contract with the
shipowner to hire his ship or part of it, for the carriage of goods, and generally
takes the form either of a charter party or a bill of lading.
Article 652 of the Code of Commerce provides that, “a charter party
must be drawn in duplicate and signed by the contracting parties” and
enumerates the conditions and information to be embodied in the contract,
including “the lay days and extra lay days to be allowed and the demurrage to
be paid for each of them.”
But while the rule clearly shows that this kind of contract must be in
writing, the succeeding Article 653 just as clearly provides:
If the cargo should be received without a charter-party!
having been signed\ the contract shall be understood as executed in
accordance with what appears in the bill of lading, the sole
evidence of title with regard to the cargo for determining the rights
and obligations of the ship agent, of the captain and of the
charterer.

533
 TRANSPORTATION LAWS

The Court read this last provision as meaning that the charter- party may be
oral, in which case the terms thereof, not having been reduced to writing, shall be
those embodied in the bill of lading.
Conformably, the Court recognized in Compania Maritima v. Insurance
Company of North America, the existence of a contract of affreightment entered
into by telephone, where it was shown that this oral agreement was later
confirmed by a formal and written booking issued by the shipper’s branch office
and later carried out by the carrier.
The Court see no reason why the second agreement of the parties to deliver
the petitioner’s cargo to Roxas City instead of Kalibo, Aklan, should not be
recognized simply because it was not in writing. Law and jurisprudence support
the validity of such a contract and there is no justification either to incorporate in
such contract, which provided for a different port of destination than that later
agreed upon by the parties. It was precisely this vital change in the second
contract that rendered that first contract ineffectual.
If the rate provided for in the old written contract was maintained in the new
oral contract, it was simply because, as the private respondent himself declared,
the rates for Kalibo, Aklan and Culasi, Roxas City, were the same. But the
demurrage charges cannot be deemed stipulated also in the verbal contract
because the conditions in the ports of Aklan and Roxas City were, unlike the rates,
not the same. In fact, they were vastly different.
The parole evidence rule is clearly inapplicable because that involves the
verbal modification — usually not allowed — of a written agreement admittedly
still valid and subsisting. In the case at bar, the first written agreement had not
merely been modified but actually replaced by the second verbal agreement,
which is perfectly valid even if not in writing like the first.
Regarding the bill of lading, an examination thereof will reveal that there
is no condition or requirement therein for the payment of demurrage charges.
Under the aforequoted Article 653 of the Code of Commerce, therefore, there
was no reason to ready any stipulation for demurrage into the second contract.

534
 CHAITI-R IX
SPFCIAL CONTRACTS 01 MARITIME COMMhRCfc

ART. 654. The charter parties executed with the intervention of a

broker who certifies to the authenticity of the signatures of the contracting
parties as having been signed in his presence, shall be full evidence in
court; and if they should be in discrepancy that which agrees with the copy
which the broker must keep in his registry, if kept in accordance with law,
shall govern.
The charter parties shall also be admitted as evidence, even though a
broker has not intervened, if the contracting parties acknowledge the
signatures in the contracts to be their ow n.
Should no broker have intervened in the charter party and the
signatures be not acknowledged, doubts shall be decided by w hat is
provided for in the bill of lading, and in the absence thereof, by the proofs
submitted by the parties.
ART. 655. Charter-parties executed by the captain in the absence of
the ship agent shall be valid and effective, even though in executing them he
should have acted in contravention of the orders and instructions of the ship
agent or shipowner; but the latter shall have a right of action against the
captain for damages.
ART. 656. Should in the charter party the time in which the loading
and unloading are to take place be not stated, the usages of the port where
these acts take place shall be observed. After the stipulated or customary
period has passed, and there is no express provision in the charter party
fixing the indemnity for the delay, the captain shall have the right to
demand demurrage for the lay days and extra lay days which have elapsed
in loading and unloading.
ART. 657. If during the voyage the vessel should become
unseaworthy, the captain shall be obliged to charter at his expense another
one in good condition to carry the cargo to its destination, for which
purpose he shall be obliged to look for a vessel not only at the port of
arrival but also in the nearby ports within the distance of 150 kilometers.
If the captain should not furnish, through indolence or malice, a
vessel to take the cargo to its destination, the shippers, after requesting the
captain to charter a vessel within an inextensible

535
 TRANSPORTATION LAWS

period, may charter one and apply to the judicial authority for the
summary approval of the charter party which they may have made.
The same authority shall judicially compel the captain to carry
out, for his account and under his responsibility, the charter made by
the shippers.
If the captain, inspite of his diligence, should not find a vessel to
charter, he shall deposit the cargo at the disposal of the shippers, to
whom he shall communicate the facts on the first opportunity, the
freight being adjusted in such cases by the distance covered by the
vessel, with no right to any indemnity whatsoever.
ART. 658. The freight shall accrue according to the conditions
stipulated in the contract, and should they not be expressed, or should
they be ambiguous, the following rules shall be observed:
1. Should the vessel have been chartered by months or by
days, the freight shall begin to run from the day the loading of the
vessel is begun.
2. In charters made for a fixed period, the freight shall begin
from that very day.
3. If the freight is charged according to weight, the payment
shall be made according to gross weight, including the containers, such
as barrels or any other objects in which the cargo is contained.
ART. 659. The goods sold by the captain to pay for the necessary
repairs to the hull, machinery or equipment, or for unavoidable and
urgent needs, shall pay freight.
The price of these goods shall be fixed according to the result of
the voyage, namely:
1. Should the vessel arrive safely at the port of destination, the
captain shall pay the price which the sale of goods of the same kind
brings at that port.
2. Should the vessel be lost, the captain shall pay the price said
goods would have brought in the sale.
The same rule shall be observed in the payment of the freight which shall be
in full if the vessel should reach her port of

536
 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

destination, and in proportion to the distance covered if she should be

lost before arrival.
ART. 660. Goods jettisoned for the common safety, shall not pay
freight; but its latter amount (freight lost) shall be considered as general
average, computing the same in proportion to the distance covered when
they (goods) were jettisoned.
ART. 661. Neither the goods lost by reason of shipwreck of
stranding, nor those seized by pirates or enemies, shall pay freight.
If the freight should have been paid in advance, it shall be
returned, unless there is an agreement to the contrary.
ART. 662. Should the vessel or the goods be recovered or the
effects of the shipwreck be salvaged, the freight corresponding to the
distance covered by the vessel transporting the cargo shall be paid;
and if the vessel, after being repaired, should transport the said cargo
to the port of destination, the full freight shall be paid, without
prejudice to what may be due by reason of the average.
ART. 663. the goods which suffer deterioration or damage
caused by inherent defects or bad quality and condition of the
packing, or fortuitous event, shall pay freight in full and as stipulated
in the charter party.
ART. 664. The natural increase in weight or in size of the
goods loaded on the vessel, shall accrue to the benefit of the owner
and shall pay the corresponding freight fixed in the contract for the
same.
ART. 665. The cargo shall be especially liable for the payment
of freight, for expenses and duties arising therefrom, which must be
reimbursed by the shippers, as well as for the part of the general
average which may correspond to it; but it shall not be legal for the
captain to delay the unloading by reason of fear that the said
obligation may not be complied with.
If there be reasons for distrust, the judge or court, at the
instance of the captain, may order the deposit of the goods until he
has been paid in full.

537
 TRANSPORTATION LA'-VS

ART. 666. The captain may request the sale of the cargo to the
amount necessary to pay the freight, expenses, and average! dae him,
reserving the right to demand the balance due him therefore, if the
proceeds of the sale should not be enough to cover his credit
ART. 667. The goods loaded shall be liable in the first place for
the freight and expenses thereof during twenty days, to be counted
from the date of their delivery or deposit During this period, the sale of
the same may be requested, even though there should be other
creditors and the case of insolvency of the shipper or consignee should
occur.
This right, however, cannot be made use of on the goods which,
after being delivered, were turned over to a third person without
malice on the part of the latter and by onerous title.
ART. 668. Should the consignee be not found or should refuse to
receive the cargo, the judge or court, at the instance of the captain,
must order its deposit and the sale of what may be necessary to pay the
freight and other expenses on the same.
The sale should likewise take place when the goods deposited run
the risk of deteriorating, or, on account of their condition or for other
reasons, the expenses of preservation and custody should be
disproportionate to the value thereof.

Rights and Obligations of Owners

ART. 669. The shipowner or the captain shall observe in charter
parties the capacity of the vessel or that expressly designated in her
registry, a difference greater than 2 percent between that registered
and her true capacity not being permissible.
Should the shipowner or the captain contract to carry a greater
amount of cargo than the vessel can hold, in view of her tonnage they
shall indemnify the shippers whose contract they do not fulfil for the
losses they may have caused them by reason of their default, according
to the cases, viz.:
Should the vessel have been chartered by one shipper only, and
there should appear to be an error or fraud in her capacity,

538
 ( H A P M U IX
SH'.HAl C ON TRACTS ()1 MAPI ! IMP ( OMVH.P^L

and the charterer should not wish to rescind he contract, when he has a
right to do so, the freight shall be reduced in proportion to the cargo the
vessel cannot receive, the person from whom the vessel is chartered being
obliged furthermore to indemnify the charterer for the losses he may have
caused him.
Should there be, on the contrary, several charter parties, and by reason of
want of space all the cargo contracted for cannot be loaded, and none of the
charterers desires to rescind the contract, preferences shall be given to the
person who as already loaded and arranged the cargo in the vessel, and the
rest shall take the place corresponding to them in the order of the dates of
their contracts.
Should there be no priority, the charterers, may load, if they deem
proper, in proportion to the amounts of weight or space they may have
contracted, and the person, from whom the vessel was chartered, shall be
obliged to indemnify them for damages.
ART. 670. If the person from whom the vessel is chartered, after
receiving a part of the cargo, should not find sufficient to make up at least
three-fifths of the amount the vessel can hold, at the price he may have
fixed, he may substitute for the transportation another vessel inspected
and declared suitable for the same voyage, the expenses of transfer and
the increase, should there be any, in the price of the charter, being for his
account. Should he not be able to make this substitution, the voyage shall
be undertaken at the time agreed upon; and if no time has been fixed,
within fifteen days from the time the loading began, should nothing
otherwise have been stipulated.
If the owner of the part of the cargo already loaded should procure
some more at the same transportation charges and under similar or
proportionate conditions to those accepted for the cargo received, the
person from whom the vessel is chartered or the captain cannot refuse to
accept the rest of the cargo; and should he do so, the charterer shall have
a right to demand that the vessel be put to sea with the cargo she may have
on board.
ART. 671. After three-fifth of the vessel is loaded, the person from
whom she is chartered may not, without consent of the

539
 TRANSPORTATION LAWS

charterers or shippers, substitute the vessel designated in the charter

party with another one, under the penalty of making himself thereby
liable for all the damages occurring during the voyage to the cargo of
those who did not consent to the substitution.
ART. 672. If the vessel has been chartered in whole, the captain may
not, without the consent of the charterer, accept cargo from any other
person; and should he do so, said charterer may compel him to unload it
and pay the damages suffered thereby.
ART. 673. The person from whom the vessel is chartered shall be
liable for all the damages caused to the charterer by the voluntary delay
of the captain in putting to sea according to the rules prescribed, provided
he has been requested, notarially or judicially, to put to sea at the proper
time.
ART. 674. Should the charterer carry to the vessel more cargo than
that contracted for, the excess may be admitted in accordance with the
charge stipulated in the contract if it can be well stowed without injuring
the other shippers; but, if to load it will throw the vessel out of trim, the
captain must refuse it or unload it at the expense of its owner.
The captain may likewise, before leaving the port, unload the goods
placed on board clandestinely, or transport them, if he can do so and keep
the vessel in trim, demanding by way of freight the highest price which
may have been stipulated for said voyage.
ART. 675. Should the vessel have been chartered to receive the
cargo in another port, the captain shall appear before the consignee
designated in the charter party; and should the latter not deliver the
cargo to him, he shall inform the charterer and wait for his
instructions, the lay days agreed upon or those allowed by custom in
the port, shall, in the meantime, begin to run, unless otherwise
expressly stipulated.
Should the captain not receive an answer within the time
necessary therefore, he shall make efforts to find cargo; and should he
not find any after the lay days and extra lay days have elapsed, he shall
make a protest and return to the port where the charter was made.

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 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCl

The charterer shall pay the freight in full, discounting (lint which
may have been earned on the goods, which may have been carried on
the voyage out, and on the return trip, if carried for the account of third
persons.
The same shall be done if a vessel, having been chartered blithe
round trip, should not be given any cargo for her return.
ART. 676. The captain shall lose the freight and shall indemnify
the charterers if the latter should prove, even against the certificate of
inspection, if one has been made at the port of departure that the vessel
was not in a condition to navigate at the time of receiving the cargo.
ART. 677. The charter party shall remain in force even though a
declaration of war or a blockade should take place during the voyage, if
the captain should not have any instructions from the charterer.
In such case, the captain must proceed to the nearest safe and
neutral port, requesting and awaiting orders from the shippers; and the
expenses and salaries accruing during the detention shall be paid as
general average.
If, by order of the shipper, the cargo should be discharged at the
port of arrival, the freight for the voyage out shall he paid in full.
ART. 678. If the time necessary, in the opinion of the judge or
court, to receive orders from the shipper should have elapsed,
without the captain having received any instructions, the cargo shall
be deposited, and it shall be liable for the payment of the freight and
expenses incurred by reason of the delay which shall be paid from the
proceeds of the part first sold.
Obligations of Charterers
ART. 679. The charterer of an entire vessel may sub-charter
the whole or part thereof on such terms more convenient to him, the
captain not being allowed to refuse to receive on board the eargo
delivered by the second charterers, provided that the conditions of

541
 11< ANSI'OKf A7 U)!i

the first charter are not altered, and that the consideration agreed upon is
paid in full to the person from whom the vessel is chartered, even though
the full cargo is not loaded, subject to the limitation established in the next
article.
ART. 680. A charterer who does not complete the full cargo he
bound himself to ship shall pay the freight of the amount he fails to load, if
the captain does not take other cargo to complete the load of the vessel, in
which case the first charterer shall pay the differences, should there be
any.
Under the law, the cargo not loaded is considered as deadfreight. It is the
amount paid by or recoverable from a charterer of a ship for the portion of the ship’s
capacity, the latter contracted for but failed to occupy. Explicit and succinct is the
law that the liability for deadfreight is on the charterer. The law in point is Article
680 of the Code of Commerce. (NFA v. CA and Hongfil Shipping Corporation,
311 SCRA 700, August 4, 1999)
ART. 681. Should the charterer load goods different from those
mentioned at the time of executing the charter party, without the
knowledge of the person from whom the vessel was chartered or of the
captain, and should thereby give rise to damage, by reason of confiscation,
embargo, detention, or other causes, to the person from whom the vessel
was chartered or to the shippers, the person giving rise thereto shall be
liable with the value of his shipment and furthermore with his property,
for the full indemnity to all those injured through his fault.
ART. 682. If the goods should have been shipped for the purpose of
illicit commerce, and were carried on board with the knowledge of the
person from whom the vessel was chartered or of the captain, the latter,
jointly with the owner of the goods, shall be liable for all the damage which
may be caused to other shippers; and even though it may have been agreed
upon, they cannot demand any indemnity whatsoever from the charterer
for the damage caused to the vessel.
ART. 683. In case of making a port to repair the hull, machinery, or
equipment of the vessel, the shippers must wait until

542
 CIIAITI-K IX
SPI-CIAL CONTRACTS Ol MARIT1MK COMMI-RCI-

the vessel is repaired, being permitted to unload her at their own expense
should they deem it proper.
If, for the benefit of the cargo subject to deterioration, the shippers or
the court, or the consul, or the competent authority in a foreign land, should
order the unloading and of the reloading shall be for the account of the
shippers.
ART. 684. If the charterer, without the occurrence of any of the cases
of force majeure expressed in the foregoing articles, should decide to unload
his goods before arriving at the port of destination, he shall pay the full
freight, the expenses of making a port at his request, and the damages caused
the other shippers, should there be any.
ART. 685. In charters for transportation of general cargo, any of
the shippers may unload the goods before starting the voyage, by paying
one half the freight, the expense of stowing and restowing the cargo, and
any other damage which may be caused the other shippers.
ART. 686. After the vessel has been unloaded and the cargo placed at
the disposal of the consignee, the latter must immediately pay the captain the
freight due and the other expenses for which said cargo may be liable.
The primage must be paid in the same proportion and at the same
time as the freight, all the changes and modifications to which the latter
should be subject also governing the former.
ART. 687. The charterers and shippers may not, for the payment of
freight and other expenses, abandon the goods damaged on account of their
own inherent defect or of fortuitous event.
The abandonment, however, may be done, should the cargo consist of
liquids, which may have leaked out, nothing remaining in the containers but
one-fourth part of their contents.
ART. 688. A charter may be rescinded at the request of the charterer:
1. If, before loading the vessel, he should abandon the charter, paying half
of the freight agreed upon.

543
 TRANSPORTATION LAWS

2. If the capacity of the vessel should be found not to be in

conformity with that stated in the certificate of the tonnage, or should
there be an error in the statement of the flag under which she navigates.
3. If the vessel should not be placed at the disposal of the
charterer within the period and in the manner agreed upon.
4. If, after the vessel has put to sea, she should return to the port
of departure on account of the risk from pirates, enemies or inclement
weather, and the shippers should agree to unload her.
In the second and third cases, the person from whom the vessel w as
chartered, shall indemnify the charterer for the damage he may suffer.
In the fourth case, the person from whom the vessel was chartered
shall have a right to the freight in full for the voyage out.
If the charter should have been made by the month, the charterer
shall pay the full freight for one month if the voyage is to a port in the same
waters, and for two months, if the voyage is to a port in different waters.
From one port to another in the Philippines, the freight for one
month only shall be paid.
5. If, in order to make urgent repairs, the vessel, during the
voyage, should make a port, and the charterer should prefer to dispose of
the goods.
When the delay does not exceed thirty days, the shippers shall pay
the full freight for the voyage out.
If the delay should exceed thirty days, they shall pay only the freight
in proportion to the distance covered by the vessel.
ART. 689. At the request of the person from whom the vessel is
chartered, the charter party may be rescinded:
1. If the charterer, at the termination of the extra lay days, does
not place the cargo alongside the vessel.

544
 ( HAP I IK I X
SPECIAL CONTKAC IS OJ MAPI']/Ml. L

In such cases, the charterer must pay half of the freigM stipulated,
besides the demurrage due for the Jay day* and extra lay days.
2. If the person from whom the vessel was chartered should
sell her before the charterer has begun to load her and the purchaser should
load her for his own account.
In such case, the seller shall indemnify the charterer for the damage he
may suffer.
If the new owner of the vessel should not load her for his own
account, the charter party shall be respected, and the seller shall indemnify
the purchases if the former did not notify him of the charter pending at the
time of making the sale.
ART. 690. The charter party shall he rescinded and all action arising
therefrom shall be extinguished if, before the vessel puts to sea from the port
of departure, any of the following cases should occur:
1. The declaration of war or interdiction of commerce with the Power
to whose ports the vessel was going to make her voyage.
2. The condition of blockage of the port of destination of said vessel,
or the breaking out of an epidemic after the execution of the contract.
3. The prohibition to receive at that port the goods constituting the
cargo of the vessel.
4. The indefinite detention, by reason of an embargo of the vessel by
order of the government, or for other cause beyond the control of the ship
agent.
5. The inability of the vessel to navigate, without fault of the captain
or ship agent.
The unloading shall be made for the account of the charterer.
ART. 691. If the vessel may not put to sea by reason of the closing of the
port of departure or other temporary cause, the

545
 TRANSPORTATION LAWS

charter shall remain in force, with none of the contracting partiei

having right to claim damages.
The subsistence and wages of the crew shall be considered as
general average.
During the interruption, the charterer may, for his own account,
unload or reload at the proper time the goods, paying demurrage if he
delays the reloading after the cause of the detention has ceased.
ART. 692. A charter party shall be partially rescinded, unless
there is an agreement to the contrary, and the captain shall only be
entitled to the freight for the voyage out, if, during the trip, by reason
of a declaration of war, closing of ports, or interdiction of commercial
relations, the vessels should make the port designated for such case in
the instructions of the charterer.
Republic Act No. 9515 also known as an “Act Defining the Liability of
Ship Agents in the Tramp Service and for Other Purposes” defines the liability
of ship agent, general agent and tramp agent, thus: “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 Department of Transportation and
Communication (DTOC) and by the Philippine Shippers Bureau (PSB), under
the Department of Trade and Industry (DTI).

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SPECIAL CONTRACTS OF MARITIME COMMERCE

The same statute which took effect on December 19, 2008 defines die
following terms:
(a) “Ship Agent” shall mean the person entrusted with the provisioning
or representing the vessel in the port in which it may be found.
(b) “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.
(c) “Tramp Agent” shall mean a ship agent appointed by the ship
owner, charterer or carrier 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.
(d) “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.
(e) “Liner Service ” shall mean the operation of a common carrier
which publicly offers its services without discrimination to any
user, has regular ports of call/destination, fixed sailing schedules
and frequencies and published freight rates and attendant charges
and usually carries multiple consignments.
xxx xxx xxx

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 TRANSPORTAVION LAW'S

BILLS OF LADING
ART. "06. The captain and the shipper shall have the obligation
of drawing up the bill of lading wherein the following shall be stated:
1. The name, registry, and tonnage of the vessel.
2. The name of the captain and his domicile.
3. The port of loading and that of unloading.
4. The name of the shipper.
5. The name of the consignee, if the bill of lading is issued in
the name of a specified person.
6. The quantity, quality, number of packages, and marks of
the goods.
7. The freight and the primage stipulated.
The bill of lading may be issued to bearer, to order or in the
name of a specified person, and must be signed within twenty- four
hours after the cargo has been received on board, the shipper being
entitled to demand the unloading thereof at the expense of the captain
if the latter should not sign it, and, in every case, an indemnity for the
damage suffered thereby.

The prescriptive period in the bill does not apply to a violation of a

compromise agreement mutually binding upon the contracting
parties.

Negros Navigation v. Bacquing

G.R. No. 134753, March 9, 2005
FACTS: On November 7, 1988, respondents entered into a contract of
affreightment with petitioner for the shipment of five 10-footer container vans
of crated tomatoes on board petitioner’s M/V Florentina on its advertised
November 10, 1988 voyage from Cagayan de Oro City to Manila. In connection
therewith, and upon respondent’s payment of the corresponding freight charges,
petitioner issued in favor

548
 CHAPTER [X
SPECIAL CONTRACTS OF MARITIME COMMERCE

of the respondents Bill of Lading No. 354068 for the four container vans, and
Bill of Lading No. 0-354067 for the remaining container van. The shipment,
however, was not loaded on board iM/S Sta. Florentma on the scheduled date
of its voyage because the vessel immediately depaned for Iloilo after unloading
passengers and cargoes at the Cagayan de Oro City pier. As shippers,
respondents lodged a protest with Noel Tabor, petitioner’s branch manager in
Cagayan de Oro City, who promised respondents that their cargoes of
tomatoes will be shipped on the next trip. Four days later, or on November 14,
1988, the five vans of crated tomatoes were shipped to Manila. Unfortunately,
the consignee refused acceptance thereof because the tomatoes were already
rotten. In the same month of November 1988, respondents filed their claim
with Tabor. The negotiation resulted in an amicable settlement whereby
petitioner agreed to pay 60% of the value of the shipment or P241.500. Despite
demands, petitioner failed to pay the agreed amount, prompting respondents to
file with the Regional Trial Court at Cagayan de Oro City their complaint
against petitioner for breach of contract, sum of money, and damages.
Petitioner demurred on the ground of prescription.
In an Order dated May 24, 1994, the trial court granted petitioner s
demurrer and accordingly dismissed respondents’ complaint. The court
explained that the cause of action of the plaintiff has really prescribed. The
incident, which led to the filing of this case, allegedly happened sometime on
November 10, 1988, and this case was filed on November 12, 1990, or more
than two years after the alleged incident. The defendant (now petitioner)
claims that under the provisions of the bill of lading, which constitutes as the
contract between the parties, actions for recoveiy of damages under the
contract should be brought by the aggrieved or offended party within one year.
On the other hand, the plaintiffs failed to show to the court that the negotiation
on their claim suspended or tolled the period of prescription. Therefrom,
respondents went to the Court of Appeals, which reversed and set aside the
order of the trial court. In thus deciding, the Court of Appeals reasoned out
that the prescriptive period in the bill of lading was superseded by petitioner’s
offer to pay 60% of the value of the damaged shipment. The offer was
accepted by the respondents, thereby resulting into a compromise agreement
between the parties, which compromise agreement binds the

549
 TRANSPORTATION LAWS

petitioner. In effect, the appellate court viewed respondent’s cause of action as

hinged on the same compromise agreement.
ISSUE: WTiether or not a prescriptive period in the bill of lading applies
to a violation of a compromise agreement.
HELD: The petition is unavailing. It is undisputed that respondents
initially filed their claim with petitioner’s branch manager Noel Tabor, who
concluded an amicable settlement with them, whereunder petitioner agreed to
pay 60% of the value of the shipment or P241,500. However, despite demands,
petitioner failed to pay the agreed amount. Consequently, respondents filed an
action for breach of the compromise agreement. The trial court’s finding of
prescription based on the one- year prescriptive period appearing in the bill of
lading is erroneous. The prescriptive period in the bill does not apply to a
violation of a compromise agreement mutually binding upon the contracting
parties. In this connection, Article 1145 of the Civil Code is pertinent. It
provides, “The following actions must be commenced within six years: (1)
Upon an oral contract; (2) Upon a quasi-contractHere, the parties’
compromise agreement was not reduced to writing. Hence, and conformably
with aforequoted provision of the Civil Code, the action must be commenced
within six years from violation of respondents’ right. Records show that the
parties arrived at an amicable settlement in 1988, and petitioner failed to comply
therewith despite demands. The complaint, having been filed on November 20,
1990, the trial court erred in dismissing the complaint on ground of prescription.

ART. 707. Four true copies of the original bill of lading shall be
made, all of them shall be signed by the captain and by the shipper. Of
these copies, the shipper shall keep one and send another to the
consignee; the captain shall take two, one for himself and another for
the ship agent.
There may also be issued as many copies of the bill of lading as
may be considered necessary by the parties; but, when they are issued
to order to bearer, there shall be stated in all the copies, be they of the
first four or of the subsequent ones, the destination of each one stating
whether it is for the agent, for the captain, for

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SPECIAL CONTRACTS OF MARITIME COMMERCE

the shipper, or for the consignee. If the copy sent to the consignee should
have a duplicate, this circumstance and the fact that it is not valid except
in default of the first one, must be so stated therein.
ART. 708. Bills of lading issued to bearer and sent to the consignee
shall be transferable by actual delivery of the instrument; and those
issued to order, by virtue of an indorsement.
In either case, the person to whom the bill of lading is transferred
shall acquire all the rights and actions of the transferor or indorser with
regard to the goods mentioned in the same.
ART. 709. A bill of lading drawn up in accordance with the
provisions of this title shall be proof as between all those interested in the
cargo and between the latter and the insurers, proof to the contrary being
reserved for the latter.
ART. 710. If there should be discrepancy in the bills of lading
and no alteration or erasure in any of term can be observed, those
possessed by the shipper or consignee signed by the captain shall be
proof against the captain or ship agent in favor of the consignee or
shipper; and those possessed by the captain or ship agent signed by
the shipper shall be proof, against the shipper or consignee in favor of
the captain or ship agent.
ART. 711. The legitimate holder of a bill of lading who fails to present
it to the captain of the vessel before the unloading, obliging the latter by
such omission to unload the cargo and place it in deposit shall be
responsible for the expense of the warehousing and other expenses arising
therefrom.
ART. 712. The captain may not himself change the destination
of the goods. In admitting this change at the instance of the shipper he
must first take up the bills of lading he may have issued, under penalty
of being liable for the cargo to the legitimate holder of the same.
ART. 713. If before the delivery of the cargo a new bill of lading
should be demanded of the captain, on the allegation that the failure to
present the previous ones is due to their loss or to any other just cause, he
shall be obliged to issue it, provided that security for the

551
 TRANSPORTATION LAWS

value of the cargo is given to his satisfaction; but, without changing the
consignment and stating therein the circumstances prescribed in the last
paragraph of Article 707, when dealing with the bills of lading referred to
therein, under penalty, should he fail to do so, of being liable for the said
cargo if improperly delivered through his fault.
ART. 714. If before the vessel puts to sea the captain should die or
should cease to hold his position due to any cause, the shippers shall have
the right to demand of the new captain the ratification of the first bills of
lading, and the latter must do so, provided that all the copies previously
issued be presented or returned to him, and it should appear, from an
examination of the cargo, that they are correct.
The expenses arising from the examination of the cargo shall be
defrayed by the ship agent, without prejudice to his right of action
against the first captain, if the latter ceases to be such through his own
fault. If the said examination should not be made, it shall be understood
that the new captain accepts the cargo as it appears from the issued bills
of lading.
ART. 715. Bills of lading will give rise to a most summary action or
judicial compulsion, according to the case, for the delivery of the cargo
and the payment of the freight and the expenses thereby incurred.
ART. 716. If several persons should present bills of lading issued to
bearer or to order, indorsed in their favor, demanding the same goods,
the captain shall prefer, in making delivery, the person presenting the
copy first issued, except when the subsequent one was issued on proof of
the loss of the first one, and both are presented by different persons.
In such case, as well as when only second or subsequent copies,
issued without that proof, are presented, the captain shall apply to the
judge or court, so that he may order the deposit of the goods, and their
delivery, through his mediation, to the proper person.
ART. 717. The delivery of the bill of lading shall produce the
cancellation of all the provisional receipts of prior date issued by

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the captain or his subordinates for partial deliveries of the cargo,

which may have been made.
ART. 718. After the cargo has been delivered, the bills of
lading signed by the captain, or at least the copy under which the
delivery is made, shall be returned to him with the receipt for the
goods mentioned therein.
The delay on the part of the consignee shall make him liable
for the damages which such delay may cause the captain.

Bill of Lading Explained

It is a long-standing jurisprudential rule that a bill of lading ope-
rates both as a receipt and as a contract. It is a receipt for the goods
shipped and a contract to transport and deliver the same as therein
stipulated. As a contract, it names the parties, which includes the
consignee, fixes the route, destination, and freight rates or charges, and
stipulates the rights and obligations assumed by the parties. Being a
contract, it is the law between the parties. Being a contract, it is the law
between the parties who are bound by its terms and conditions provided
that these are not contrary to law, morals, good customs, public order, and
public policy. A bill of lading usually becomes effective upon its delivery
to and acceptance by the shipper. It is presumed that the stipulations of the
bill were, in the absence of fraud, concealment or improper conduct,
known to the shipper, and he is generally bound by his acceptance whether
he reads the bill or not. (70 Am. Jur. 29, Shipping 598)
The holding in most jurisdiction has been that a shipper who
receives a bill of lading without objection after an opportunity to inspect
it, and permits the carrier to act on it by proceeding with the shipment is
presumed to have accepted it as correctly stating the contract and to have
assented to its terms. In other words, the acceptance of the bill without
dissent raises the presumption that all the terms therein were brought to
the knowledge of the shipper and agreed to by him and, in the absence of
fraud or mistake, he is estopped from thereafter denying that he assented
to such terms. This rule applies with particular force where a shipper
accepts a bill of lading with full knowledge of its contents and

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 f 1'ANSI‘OI'fAfION LAWS

acceptance under such circumstances makes it a binding contract. (30 Am. Jur.
2d, Carriers 278)
While it is true that a bill of lading may serve as the contract of carriage
between the parties, it cannot prevail over the express provision of the voyage
charter that the carrier and the charterer executed. (Cebu Salvage Carp. v. Phil.
Home Assurance Corp., 512 SCRA 667, January 25, 2007)
In cases where a Bill of Lading has been issued by a carrier covering
goods shipped aboard a vessel under a charter party, and the charterer is also the
holder of the bill of lading, “the bill of lading operates as the receipt for goods,
and as document of title passing the property of the goods, but not as varying the
contract between the charterer and the ship owner.” The Bill of Lading becomes,
therefore, only a receipt and not the contract of carriage in a charter of the entire
vessel, for the contract is the Charter Party, and is the law between the parties
who are bound by its terms and condition provided that these are not contrary to
law, morals, good customs, public order and public policy. (National Union
Fire Insurance Company of Pittsburg v. Stolt Nielsen Phil., Inc., 184 SCRA
682, April 26, 1990)
On Board Bill of Lading and Received for Shipment Bill of Lading
An on board bill of lading is one in which it is stated that the goods have
been received on board the vessel which is to carry the goods, whereas, a
received for shipment bill of lading is one in which it is stated that the goods
have been received for shipment with or without specifying the vessel by which
the goods are to be shipped. Received for shipment bills of lading are issued
whenever conditions are not normal and there is insufficiency of shipping space.
An on board bill of lading is issued when the goods have been actually placed
aboard the ship with every reasonable expectation that the shipment is as good as
on its way.

Clean Bill of Lading

A bill of lading, aside from being a contract and a receipt, is also a symbol of the
goods covered by it. A bill of lading, which has no

554
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SPECIAL CONTRACTS OF MARITIME COMMERCE

notation of any defect or damage in the goods, is called a "clean bill of

lading. ” A clean bill of lading constitutes prima facie evidence of the
receipt by the carrier of the goods as therein described. (Lorenzo
Shipping Corp. v. Chubb and Sons, Inc., 431 SCRA 266, June 8,
2004)
Bill of Lading, a Contract of Adhesion
It is conceded that bills of lading constitute a class of contracts of
adhesion. However, as ruled in the earlier case of Ong Yiu v. Court of
Appeals, et al, and reiterated in Servando, et al v. Philippine Steam
Navigation Co., plane tickets as well as bills of lading are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. The respondent court
correctly observed in the present case that “when the appellant received the
bill of lading, it was tantamount to appellant’s adherence to the terms and
conditions as embodied therein.” Party to a maritime contract would require
an on board bill of lading because of its apparent guaranty of certainty of
shipping as well as the seaworthiness of the vessel which is to carry the
goods.
The nature of the bill of lading operates both as a receipt for the good;
and more importantly, as a contract to transport and deliver the same as
stipulated therein. Being a contract, it is the law between the parties thereto,
who are bound by its terms and conditions provided that these are not contrary
to law, morals, good custom, public order and public policy. (Samar Mining
Co., Inc. v. Nordeutsher Lloyd, 132 SCRA 529)
Three kinds of stipulations have often been made in a bill of lading.
The first is one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence. The second is one providing for an
unqualified limitation of such liability to an agreed valuation. And the third is
one limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight. According to an
almost uniform weight of authority, the first and second kinds of stipulations
are invalid as being contrary to public policy, but the third is valid and
enforceable. (Loadstar Shipping Co., Inc. v. Court of Appeals, G.R. No.
131621, September 28, 1999)

555
 TRANSPORTATION LAWS

QUESTION: For failure of the consignee to comply with the required

claim for damages set forth in the first sentence of Stipulation No. 7 of the bill of
lading, petitioner’s complaint was dismissed.
The Bill of Lading provides:
XXX
7. All claims for damages to the goods must be made to the
carrier at the time of delivery to the consignee or his agent if the package or
containers show exterior sign of damage, otherwise to be made in writing to the
carrier within twenty-four hours from the time of delivery.
In support of its complaint, petitioner contends that it is unreasonable for
the consignee to be required to abide by the provisions of Stipulation 7 of the bill
of lading. According to petitioner, since the place of delivery was remote and
inaccessible, the consignee cannot be expected to have been able to immediately
inform its main office and make the necessary claim of damages for the losses and
unrecovered spillages in the subject cargo.
Petitioner further argues that the contents of the bill of lading are printed in
small letters that no one would bother to read them, as they are difficult to read.
Is the petitioner correct?
ANSWER: The petition is bereft of merit.
The bill of lading defines the rights and liabilities of the parties in reference
to the contract of carriage. Stipulations therein are valid and binding in the absence
of any showing that the same are contrary to law, morals, customs, public order,
and public policy. Where the terms of the contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of the stipulations
shall control.
A bill of lading is in the nature of a contract of adhesion, defined as one
where one of the parties imposes a ready-made form of contract which the other
party may accept or reject, but which the latter cannot modify. One party prepares
the stipulation in the contract, while the other party merely affixes his signature or
his “adhesion” thereto, giving

556
 W:

l HAN I K l\
SN-V1 At CON 1 R U TS Ol MAK11IMI ( < >MMI K( I.

no room for negotiation and depriving the latter ol the opportunity to bargain on
equal footing. Nevertheless, these types of contracts have been declared as
binding as ordinary contracts, the reason being that the party who adheres to the
contract is free to reject it entirely.
In other words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge of the
shipper and agreed to by him and, in the absence of fraud or mistake, he is
estopped from thereafter denying that he assented to such terms. (Magellan
Manufacturing Marketing Corp. v. CA, 201 SCRA JO; Provident Insurance
Corp. v. Court of Appeals, 419 SCRA 480, January 15, 2004)

Nature of a Bill of Lading

Keng Hua Paper Products Co., Inc. v.

Court of Appeals; Regional Trial Court of Manila, Branch 21,
and Sea Land Service, Inc.
G.R. No. 116863, February 12,1998
FACTS: Plaintiff (herein respondent), a shipping company, is a foreign
corporation licensed to do business in the Philippines. On June 29,1982,
plaintiff received at its Hong Kong terminal a sealed container, Container No.
SEAU 67523, containing 76 bales of “unsorted waste paper” for shipment to
defendant (herein petitioner), Keng Hua Paper Products Co., in Manila. A bill
of lading to cover the shipment was issued by the plaintiff.
On July 9, 1982, the shipment was discharged at the Manila International
Container Port. Notices of arrival were transmitted to the defendant but the
latter failed to discharge the shipment from the container during the “free time”
period or grace period. The said shipment remained inside the plaintiff’s
container from the moment the free time period expired on July 29, 1982 until
the time when the shipment was unloaded from the container on November 22,
1983, or a total of 481 days. During the 481-day period, demurrage charges
accrued. Within the same period, letters demanding payment were sent by the
plaintiff to the defendant who, however, refused to settle its obligation which

557
 TRANSPORTATION I.AWS

eventually amounted to P67,340. Numerous demands were made on the

defendant hut the obligation remained unpaid. PlaintifT thereafter commenced
this civil action for collection and damages.
In its answer, defendant, by way of special and affirmative defense,
alleged that it purchased 50 tons of waste paper from the shipper in Hong Kong,
Ho Kec Waste Paper, as manifested in Letter of Credit No. 824858 issued by
Equitable Banking Corporation, with partial shipment permitted; that under the
letter of credit, the remaining balance of the shipment was only 10 metric tons as
shown in Invoice No. H-15/82; that the shipment plaintiff was asking defendant
to accept was 20 metric tons which is ten metric tons more than the remaining
balance; that if defendant were to accept the shipment, it would be violating
Central Bank rules and regulations and custom and tariff laws; that plaintiff had
no cause of action against the defendant because the latter did not hire the former
to carry the merchandise; that the cause of action should be against the shipper
which contracted the plaintiff’s services and not against defendant; and that the
defendant duly notified the plaintiff about the wrong shipment through a letter
dated January 24, 1983.
In its decision, the RTC found petitioner liable for demurrage, attorney’s
fees and expenses of litigation. The petitioner appealed to the Court of Appeals,
arguing that the lower court erred in: (1) awarding the sum of P67,340 in favor
of the private respondent; (2) rejecting petitioner’s contention that there was
overshipment; (3) ruling that petitioner’s recourse was against the shipper; and
(4) computing legal interest from date of extrajudicial demand.
Respondent Court of Appeals denied the appeal and affirmed the lower
court’s decision in toto. In a subsequent resolution, it also denied the
petitioner’s motion for reconsideration.
ISSUES: 1) When does a bill of lading become binding on a consignee?
2) Whether or not the alleged overshipment justifies the consignee’s refusal to
receive the goods described in the bill of lading.
HELD: A bill of lading serves two functions. First, it is a receipt for the
goods shipped. Second, it is a contract by which three parties, namely, the
shipper, the carrier, and the consignee undertake specific responsibilities and
assume stipulated obligations. A “bill of lading

558
 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

delivered and accepted constitutes the contract of carriage even though not
signed because the acceptance of a paper containing the terms of a proposed
contract generally constitutes an acceptance of the contract and of all of its terms
and conditions of which the acceptor has actual or constructive notice.” In a
nutshell, the acceptance of a bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that the same was a
perfected and binding contract.
In the case at bar, both lower courts held that the bill of lading was a valid
and perfected contract between the shipper (Ho Kee), the consignee (Petitioner
Keng Hua), and the carrier (Private Respondent Sea-Land). Section 17 of the bill
of lading provided that the shipper and the consignee were liable for the payment
of demurrage charges for the failure to discharge the containerized shipment
beyond the grace period allowed by the tariff rules.
Petitioner admits that it “received the bill of lading immediately after the
arrival of the shipment” on July 8, 1982. Having been afforded an opportunity to
examine the said document, petitioner did not immediately object to or dissent
from any term or stipulation therein. It was only six months later, on January 24,
1983, that petitioner sent a letter to private respondent saying that it could not
accept the shipment. Petitioner’s inaction for such a long period conveys the
clear inference that it accepted the terms and conditions of the bill of lading.
Petitioner’s reliance on the Notice of Refused or On Hand Freight, as proof
of its non-acceptance of the bill of lading, is of no consequence. Said notice was
not written by petitioner; it was sent by private respondent to petitioner in
November 1982, or four months after petitioner received the bill of lading. If the
notice has any legal significance at all, it is to highlight petitioner’s prolonged
failure to object to the bill of lading. Contrary to petitioner’s contention, the
notice and the letter support — not belie — the findings of the two lower courts
that the bill of lading was impliedly accepted by petitioner.
Petitioner’s attempt to evade its obligation to receive the shipment on the
pretext that this may cause it to violate customs, tariff and central bank laws
must likewise fail. Mere apprehension of violating said laws,

559
 TRANSPORTATION LAWS

without a clear demonstration that taking delivery of the shipment has

become legally impossible, cannot defeat the petitioner’s contractual
obligation and liability under the bill of lading. (See also Iron Bulk
Shipping Philippines Company, Ltd. v. Remington Industrial Sales
Corp., 417 SCRA 229, January 8, 2003)
MOF Company, Inc. v.
Shin Yang Brokerage Corporation
G.R. No. 172822, December 18,2009
FACTS: On October 25, 2001, Halla Trading Co., a company based
in Korea, shipped to Manila secondhand cars and other articles on board the
vessel Hanjin Busan 023 8W. The bill of lading covering the shipment, i.e.,
Bill of Lading No. HJSCPUS114168303, which was prepared by the carrier
Hanjin Shipping Co. Ltd., (Hanjin), named respondent Shin Yang
Brokerage Corporation (Shin Yang) as the consignee and indicated that
payment was on “Freight Collect” basis, i.e., that the consignee/receiver of
the goods would be the one to pay for the freight and other charges in the
total amount of P57,646.
The shipment arrived in Manila on October 29, 2001. Thereafter,
petitioner MOF Company, Inc. (MOF), Hanjin’s exclusive general agent in
the Philippines, repeatedly demanded the payment of ocean freight,
documentation fee and terminal handling charges from Shin Yang. The
latter, however, failed and refused to pay contending that it did not cause the
importation of the goods, that it is only the consolidator of the said
shipment, that the ultimate consignee did not endorse in its favor the original
bill of lading and that the bill of lading was prepared without its consent.
ISSUE: Whether a consignee, who is not a signatory to the bill of
lading, is bound by the stipulations thereof. Corollarily, whether respondent,
who was not an agent of the shipper and who did not make any demand for
the fulfillment of the stipulations of the bill of lading drawn it its favor, is
liable to pay the corresponding freight and handling charges.
HELD: While it is true that a bill of lading serves two functions: first, it is a
receipt for the goods shipped; second, it is a contract by which

560
 ( HAn I «: K I X
Sl’l < IAI C ONTRACTSOI MARITIMIs COMMKRO;

ihivc parties, namely, the shipper, the carrier and the consignee who undertake
specific responsibilities and assume stipulated obligations (My inn ( herseas
Chartering and Shipping N. V. v. Phil. First Insurance Co.. Inc.. 3S3 SCRA 23), x
x x if the same is not accepted, it is as if one party does not accept the contract. Said
the Supreme Court: “A bill of lading delivered and accepted constitutes the
contract of carriage, even though not signed, because the acceptance of a paper
containing the terms of a proposed contract generally constitutes an acceptance of
the contract and of all its terms and conditions of which the acceptor has actual or
constructive notice.” (Keng Hua Paper Products Co., Inc. v. CA. 2S6 SCRA 257)
The bill of lading is oftentimes drawn up by the shipper/consignor and the
carrier without the intervention of the consignee. However, the latter can be bound
by the stipulations of the bill of lading when a) there is a relation of agency between
the shipper or consignor and the consignee; or b) when the consignee demands
fulfillment of the stipulation of the bill of lading which was drawn up in its favor.
In Keng Hua Paper Products Co., Inc. v. Court of Appeals, it was held
that once the bill of lading is received by the consignee who does not object to any
terms or stipulations contained therein, it constitutes as an acceptance of the contract
and of all of its terms and conditions, of which the acceptor has actual or constructive
notice.
In sum, a consignee, although not a signatory to the contract of carriage
between the shipper and the carrier, becomes a party to the contract by reason of
either a) the relationship of agency between the consignee and the shipper/consignor;
b) the unequivocal acceptance of the bill of lading delivered to the consignee, with
full knowledge of its contents; or c) availment of the stipulation pour autrui, i.e.,
when the consignee, a third person, demands before the carrier the fulfillment of the
stipulation made by the consignor/shipper in the consignee’s favor, specifically the
delivery of the goods/cargoes shipped.
In the instant case, Shin Yang consistently denied in all of its pleadings that it
authorized Halla Trading Co., to ship the goods on its behalf, or that it got hold of the
bill of lading covering the shipment, or that it demanded the release of the cargo.
Basic is the rule of evidence

561
 TRANSPORTATION LAWS

that the burden of proof lies upon him who asserts it, not upon him who denies,
since, by the nature of things, he who denied a fact cannot produce any proof of
it. Thus, MOF has the burden to controvert all these denials, it being insistent that
Shin Yang asserted itself as the consignee and the one that caused the shipment of
the goods to the Philippines.

QUESTION: May a common carrier release the goods to the consignee

even without the surrender of the bill of lading?

ANSWER: A carrier is allowed by law to release the goods to the

consignee even without the latter’s surrender of the bill of lading. The third
paragraph of Article 353 of the Code of Commerce is enlightening: “Article
353. The legal evidence of the contract between the shipper and the carrier
shall be the bills of lading, by the contents of which the disputes, which may
arise regarding their execution and performance, shall be decided, no
exceptions being admissible other than those of falsity and material error in
the drafting. " After the contract has been complied with, the bill of lading,
which the carrier has issued, shall be returned to him, and by virtue of the
exchange of this title with the thing transported, the respective obligations and
actions shall be considered, unless in the same act the claim, which the parties
may wish to be reduced to writing, with the exception of that provided for in
Article 366.

In case the consignee, upon receiving the goods, cannot return the bill of
lading subscribed by the carrier, because of its loss or any other cause, he must
give the latter a receipt for the goods delivered, this receipt producing the same
effects as the return of the bill of lading. (Emphasis supplied)

The general rule is that upon receipt of the goods, the consignee surrenders
the bill of lading to the carrier, and their respective obligations are considered
cancelled. The law, however, provides two exceptions where the goods may be
released without the surrender of the bill of lading because the consignee can no
longer return it. These exceptions are when the bill of lading gets lost or other
cause. In either case, the consignee must issue a receipt to the carrier upon the
release of the
 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

goods. Such receipt shall produce the same effect as the surrender of the bill of
lading.
The Court have already ruled that non-surrender of the original bill of
lading does not violate the carrier’s duty of extraordinary diligence over the
goods. In Republic v. Lorenzo Shipping Corporation, the Court found that the
carrier exercised extraordinary diligence when it released the shipment to the
consignee, not upon the surrender of the original bill of lading, but upon signing
the delivery receipts and surrender of the certified true copies of the bills of
lading. Thus, the Court held that the surrender of the original bill of lading is not a
condition precedent for a common carrier to be discharged of its contractual
obligation. (Designer Baskets, Inc. v. Air Sea Transport, Inc., and Asia Cargo
Container Lines, Inc., G.R. No. 184513, March 9, 2016)
LOANS ON BOTTOMRY AND RESPONDENTIA
ART. 719. A loan in which, under any condition whatsoever, the
repayment of the sum loaned and of the premium stipulated depends
upon the safe arrival in port of the effects (“efectos”) on which it is
made, or of the value in case of accident, shall be considered a loan on
bottomry or respondentia.
LOAN ON BOTTOMRY EXPLAINED
A contract in the nature of mortgage, by which the owner of a ship
borrows money for the use, equipment, or repair of the vessel, and for a
definite term, and pledges the ship (or the keel and bottom of the ship, pars
pro toto) as a security for its repayment, with maritime or extraordinaiy
interest on account of the marine risks to be borne by the lender; it being
stipulated that if the ship be lost in the course of the specified voyage, or
during the limited time, by any of the perils enumerated in the contract, the
lender shall also lose his money. (Black’s Law Dictionary)
Loan on respondentia, explained. — When the loan is not made
upon the ship, but on the goods laden on board, and which are to be sold, or
exchanged in the course of the voyage, the borrower’s personal
responsibility is deemed the principal security for the performance of the

563
 TRANS PORTATI ON LAWS

contract, which is therefore called “respondentia. "And in a loan upon

respondentia. the lender must be paid his principal and interest though the ship
perishes, provided the goods are saved. In most other respects, the contracts of
bottomry and of respondentia stand substantially upon the same footing.
(Bouvier's Law Dictionary)

Distinction between Loan on Bottomry and Respondentia from Simple

Loan
1. In loan on bottomry or respondentia, the rate of interest although
beyond the lawful rate of interest is not subject to Usury Law,
whereas in simple loan, the rate of interest is subject to the said
Law.
2. In the former, there must necessarily exist a bona fide marine risk,
whereas in the latter, the existence of a marine risk or uncertainty
of transactions is not necessary.
3. In the former, when the loan is made during the voyage, the last
lender has preference over the previous one (the reason for this
exception to the general rule is that the last loan contributes to the
preservation of the things pledged), whereas in the latter, the prior
lender has a right of preference on the security over the subsequent
ones.
4. In the former, the contract must be reduced at least to writing to
give rise to judicial action, whereas in the latter, said requisite is
not always necessary.
5. In the former, the action pertaining to the lender is extinguished by
the absolute loss of the effects on which the loan is made, whereas
in the latter, not extinguished, the lender being reduced merely to
unsecured creditor.
6. In the former, the loan should be recorded in the registry of
vessels, to be effective against third persons, whereas, in the latter,
registration is not necessary.

ART, 720. Loans on bottomry or respondentia may be executed:

1. By means of public instrument.

564
 ;sv-Tv A
c;v . O C ^ V - A v A i f CV>V\ ; xO:

1. By rue*n> of a polk) signed by the contracting parties AE4 rhe broker liking pan
therein.

5. By means of a prr. ate instrument.

Under whichever of these forms the contract is executed, it shall be entered in the
certificate of the registry of the vessel atui 'hall be recorded in the registry of vessels, without w
hich retjuisifes. the credits of this kind shall not have, with regard to other credits* the
preference which, according to their nature, they should have although the obligation shall be
valid between the contracting parties.

The contracts made during a voyage shall be governed by the provisions of Articles 583
and 611. and shall be effective with regard to third persons from the date of their execution, if
they should be recorded in the registry of vessels of the port of registry of the vessel before the
lapse of eight days from the date of her arrival. Should the said eight days elapse without the
record having been made in the registry of vessels, the contracts made during the voyage of the
vessel shall produce no effect with regard to third persons, except from the day and date of
their inscription.
In order that the policy of the contracts executed in accordance with No. 2 may have
binding force, they must conform to the registry of the broker w ho took part therein. With
respect to those executed in accordance w ith No. 3 the acknowledgment of the signature
shall be required.
Contracts which are not reduced to writing shall not give rise to judicial action.

ART. 721. In a contract on bottomry or respondentia the following must be stated:

1. The kind, name, and registry of the vessel.
2. The name, surname, and domicile of the captain.
3. The names, surnames, and domiciles of the person giving and the person
receiving the loan.
4. The amount of the loan and the premium stipulated.

565
 TRANSPORTATION LAWS

5. The time for repayment.

6. The objects pledged to secure repayment.

7. The voyage during which the risk is run.

ART. 722. The contracts may be made to order, in which case they shall be
transferable by indorsement, and the indorsee shall acquire all the rights and shall
incur all the risks corresponding to the indorser.
ART. 723. Loans may be made in effects and in goods, by fixing their value in
order to determine the principal of the loan.
ART. 724. The loans may be constituted jointly or separately:

1. On the hull of the vessel.

2. On the rigging.

3. On the equipment, provisions, and fuel.

4. On the engine, if the vessel is a steamer.

5. On the goods loaded.
If the loan is constituted on the hull of the vessel, it shall also be considered
that the rigging, equipment and other effects, provisions, fuel steam engines, and the
freight earned during the voyage on which the loan is made, are included in the
liability for the loan.
If the loan is made on the cargo, all that which constitutes the same shall be
subject to the repayment; and if on a particular object of the vessel or of the cargo,
only the object concretely and specifically mentioned shall be liable.
ART. 725. No loans on bottomry may be made on the salaries of the crew, or
on the profits, which may be expected.
ART. 726. If the lender should prove that he loaned an amount larger than
the value of the object liable for the bottomry loan on account of fraudulent means
employed by the borrower, the loan shall be valid only for the amount at which said
object is appraised by experts.

566
 < »i\rit it is
SIM i 1 SI i i >N l K At ISOI MAin ilMI n iMMH* i I

The surplus principal shall bo returned with legal Intercut fur the entire time
required tor the repayment.
ART. 727. It the t\ill imimtiil of the tonii contracted in order to load the vessel
should he used for the cargo, the balance shall he returned before starting the voyage.

I'be same proeetlure shall be observed with regard to the goods taken as a loan If
all of them could not have been loaded.

ART. 728. The loan which the captain takes at the point of residence ol the owners
of the vessel shall only affect that part of the vessel which belongs to the captain, if the
other owners or their agents should not have given their express authorization therefore
or should not have taken part in the transaction.

If one or more of the owners should be requested to furnish the amount

necessary to repair or provision the vessel, and they should not do so within twenty-four
hours, the interest which the parties iu default may have in the vessel shall be liable for the
loan in the proper proportion.
Outside of the residence of the owners the captain may contract loans in
accordance with the provisions of Articles 583 and 611.

ART. 729. Should the effect on which money is taken not be subjected to risk, the
contract shall be considered a simple loan, with the obligation on the part of the borrower to
return the principal and interest at the legal rate, if that agreed upon should not be lower.

ART. 730. Loans made during the voyage shall have preference over those made
before the clearing of the vessel, and they shall be graduated in the inverse order of their
dates.

The loans for the last voyage shall have preference over prior
ones.

Should several loans have been made at the same port of arrival under stress and
for the same purpose, all of them shall be paid pro rata.

567
 TRANSPORTATION LAWS

ART. 731. The actions pertaining to the lender shall be extinguished by

the absolute loss of the effects on which the loan was made, if it arose from an
accident of the sea at the time and during the voyage designated in contract, and
it is proven that the cargo was on board; but this shall not take place if the loss
was caused by the inherent defect of the thing, or through the fault or malice of
the borrower, or through barratry on the part of the captain, or if it was caused
by damages suffered by the vessel as a consequence of being engaged in
contraband, or if it arose from having loaded the goods on a vessel different from
that designated in the contract, unless this change should have been made by
reason of force majeure.
Proof of the loss as well as the existence in the vessel of the effects declared
to the lender as the object of the loan, is incumbent upon him who received the
loan.
ART. 732. Lenders on bottomry or respondentia shall suffer in
proportion to their respective interest, the general average which may take place
in the things on which the loan was made.
In particular averages, in the absence of an express agreement between
the contracting parties, the lender on bottomry or respondentia shall also
contribute in proportion to his respective interest, should it not belong to the kind
of risks excepted in the preceding article.
ART. 733. Should the period during which the lender shall run the risk
not have been stated in the contract, it shall last, with regard to the vessel,
engines, rigging, and equipment, from the moment said vessel puts to sea until
she drops anchor in the port of destination; and with regard to the goods, from
the time they are loaded on the shore or wharf of the port of shipment until they
are unloaded in the port of consignment.
ART. 734. In case of shipwreck, the amount for the payment of the loan
shall be reduced to the proceeds of the effects saved, after deducting the costs of
the salvage.

568
 If the loan should he on the vessel or any of her parts, the freight earned
during the voyage for which said loan was con icfecJ shall also be liable for its
payment, as far as it may reach.
ART. 735. If the same vessel or cargo should be the object of a loan on
bottomry or respondentia and marine insurance, the value of what may be
saved in case of shipwreck shall be divided between the lender and the insurer,
in proportion to the legitimate interest of each one, taking into consideration,
for this purpose only, the principal with respect to the loan, and without
prejudice to the right of preference of other creditors in accordance with
Article 580.

ART. 736. If there should be delay in the repayment of the principal and
premium of the loan, only the former shall bear legal interest.
 CHAPTER X

RISKS, DAMAGES, AND ACCIDENTS

OF MARITIME COMMERCE

AVERAGES
ART. 806. For the purposes of this Code the following shall be considered
averages:
1. All extraordinary or accidental expenses which may be incurred
during the voyage for the preservation of the vessel or cargo, or both.
2. All damages or deterioration which the vessel may suffer from the
time she puts to sea at the port of departure until she casts anchor at the port of
destination, and those suffered by the goods from the time they are loaded in the
port of shipment until they are unloaded in the port of their consignment.
ART. 807. The petty and ordinary expenses incident to navigation, such as
those pilotage of coast and ports, lighterage and towage, anchorage, inspection,
health, quarantine, lazaretto, and other so-called port expenses, costs of barges,
and unloading, until the goods are placed on the wharf, and other usual expenses
of navigation shall be considered ordinary expenses to be defrayed by the
shipowner, unless there is an express agreement to the contrary.

ART. 808. Averages shall be:

1. Simple or particular.

2. General or gross.
ART. 809. As a general rule, simple or particular averages include all the
expenses and damage caused to the vessel or to her cargo which have not inured to
the common benefit and profit of

570
 I'll API IK \
R I S K S . D A M M i l S . AND Al V I D l ' N I S ( > l M A K I I I M I < < > M M I l «

all (he persons interested in the vessel and her cargo, especially the following:

1. The damage suffered by the cargo from the time of its embarkation until
it is unloaded, either oil account of the inherent defect of the goods or by reason of a
marine accident or force majeun\ and the expenses incurred to avoid and repair the
same.
2. The damage and expenses suffered by the vessel in her hull, rigging,
arms, and equipments, for the same causes and reasons, from the time she puts to sea
from the port of departure until she anchors in the port of destination.
3. The damage suffered by the goods loaded on deck, except in coastwise
navigation, if the marine ordinances allow it.
4. The wages and victuals of the crew when the vessel is detained or
embargoed by a legitimate order or force majeure, if the charter has been contracted
for a fixed sum for the voyage.
5. The necessary expenses on arrival at a port, in order to make repairs or
secure provisions.
6. The lowest value of the goods sold by the captain in arrivals under stress
for the payment of provisions and to save the crew, or to meet any other need of the
vessel against which the proper amount shall be charged.
7. The victuals and wages of the crew while the vessel is in quarantine.
8. The damage inflicted upon the vessel or cargo by reason of an impact
or collision with another, if it is accidental and inevitable. If the accident should
occur through the fault or negligence of the captain, the latter shall be liable for all
the damage caused.
9. Any damage suffered by the cargo through the fault, negligence, or
barratry of the captain or of the crew, without prejudice to the right of the owner to
recover the corresponding indemnity from the captain, the vessel, and the freight.
ART. 810. The owner of the things, which gave rise to the expenses or
suffered the damage shall bear the simple or particular averages.

571
 TRANSPORTATION LAWS

ART. 811. General or gross averages shall, as a general rule, include all the
damages and expenses which are deliberately caused in order to save the vessel,
her cargo, or both at the same time, from a real known risk, and particularly the
following:
1. The effects of cash invested in redemption of the vessel or the cargo
captured by enemies, privateers, or pirates, and the provisions, wages, and
expenses of the vessels detained during the time the settlement or redemption is
being made.
2. The effects jettisoned to lighten the vessel, whether they belong to the
cargo, to the vessel, or to the crew, and the damage suffered through said act by
the effects, which are kept on board.
3. The cables and masts which are cut or rendered useless, the anchors
and the chains which are abandoned, in order to save the cargo, the vessel, or
both.
4. The expenses of removing or transferring a portion of the cargo in
order to lighten the vessel and place it in condition to enter a port or roadstead,
and the damage resulting therefrom to the effects removed or transferred.
5. The damage suffered by the effects loaded as cargo by the opening
made in the vessel in order to drain her and prevent her from sinking.
6. The expenses caused in order to float a vessel intentionally stranded
for the purpose of saving her.
7. The damage caused to the vessel, which had to be opened, scuttled or
broken in order to save the cargo.
8. The expenses for the treatment and subsistence of the members of
the crew who may have been wounded or crippled in defending or saving the
vessel.
9. The wages of any member of the crew held as hostage by enemies,
privateers, or pirates, and the necessary expenses, which he may incur in his
imprisonment, until he is returned to the vessel or to his domicile, should he
prefer it.

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RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

10. The wages and victuals of the crew of a vessel chartered by

the month, during the time that she is embargoed or detained by
force majeure or by order of the Government, or in order to repair
the damage caused for the common benefit.
11. The depreciation resulting in the value of the goods sold at
arrivals under stress in order to repair the vessel by reason of gross
average.
12. The expenses of the liquidation of the average.
ART. 812. In order to satisfy the amount of the gross or
general averages, all the persons having an interest in the vessel and
cargo therein at the time of the occurrence of the average shall
contribute.
Average in maritime law is loss or damage accidentally happening to a vessel
or to its cargo during a voyage. Also a small duty paid to masters of ships, when goods
are sent in another man’s ship, for their care of the goods, over and above the freight.
(Blacks Law Dictionary, Sixth Ed.)
Classification of Averages
A. Magsaysay, Inc. v.
Anastacia Agan
No. L-6393, January 31, 1955
FACTS: The SS “San Antonio,” a vessel owned and operated by plaintiff,
left Manila on October 6, 1949, bound for Basco, Batanes, via Aparri, Cagayan,
with general cargo belonging to different shippers, among them the defendant. The
vessel reached Aparri on the 10th of that month, and after a day’s stopover in that
port, weighed anchor to proceed to Basco. But while still in port, it ran aground at
the mouth of the Cagayan River, and, attempts to refloat it under its own power
having failed, plaintiff had it refloated by the Luzon Stevedoring Co., at an agreed
compensation. Once afloat, the vessel returned to Manila to refuel and then
proceeded to Basco, the port of destination. There the cargoes were delivered to
their respective owners or consignees, who, with the exception of defendant, made
a deposit or signed a bond to answer for their contribution to the average.

573

Ar
 TRANSPORTATION LAWS

On the theory that the expenses incurred in floating the vessel constitute
general average to which both ship and cargo should contribute, plaintiff
brought the present action in the Court of First Instance of Manila to make
defendant pay his contribution, which, as determined by the average adjuster,
amounts to P841.40.
After trial, the lower court found for plaintiff and rendered judgment
against the defendant for the amount of the claim, with legal interests. From this
judgment defendant has appealed directly to this Court.
ISSUE: Whether or not the floating of a vessel unintentionally stranded
inside a port and at the mouth of the river during a fine weather constitutes
general average, which should be shared by the cargo owners.
HELD: The law on averages is contained in the Code of Commerce.
Under the law, averages are classified into simple or particular and general or
gross. Generally speaking, simple or particular averages include all expenses
and damages caused to the vessel or cargo which have not inured to the common
benefit (Art. 809), and are, therefore, to be borne only by the owner of the
property which gave rise to the same (Art. 810); while general or gross
averages include “all the damages and expenses which are deliberately caused
in order to save the vessel, its cargo, or both at the same time, from a real and
known risk.” (Art. 811) Being for the common benefit, gross averages are to be
borne by the owners of the articles saved. (Art. 812)
In classifying averages into simple or particular and general or gross and
defining each class, the Code (Arts. 809 and 811) at the same time enumerates
certain specific cases as coming specially under one or the other denomination.
Going over the specific cases enumerated, we find that while the expenses
incurred in putting plaintiff’s vessel afloat may well come under number 2 of
Article 809 — which refers to expenses suffered by the vessel “by reason of an
accident of the sea or force majeure” — and should therefore be classified as
particular average, the said expenses do not fit into any of the specific cases of
general average enumerated in Article 811, No. 6 of this article does mentioned
“expenses caused in order to float a vessel,” but it specifically refers to “a vessel
intentionally stranded for the purpose of

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saving it” and would have no application where, as in the present case, the stranding
was not intentional.
It is deliverance from an immediate, impending peril, by a common sacrifice,
that constitutes the essence of general average. (The Columbian Insurance
Company of Alexandria v. Ashby & Stribling, et al, 13 Peters 331; 10 L-Ed.,
186) In the present case, there is no proof that the vessel had to be put afloat to save it
from an imminent danger. What does appear from the testimony of plaintiff’s
manager is that the vessel had to be salvaged in order to enable it “to proceed to its
port of destination.” But as was said in the case just cited, it is the safety of the
property, and not of the voyage, which constitutes the true foundation of general
average.

REQUISITES OF GENERAL AVERAGE

The following are the requisites for general average: (1) There must be a
common danger; (2) for the common safety part of the vessel or of the cargo or both
is sacrificed deliberately; (3) from the expenses or damages caused follows the
successful saving of the vessel and cargo; and (4) the expenses or damages should
have been incurred or inflicted after taking proper legal steps and authority.
(Magsaysay, Inc. v. Agan, supra)
In a much earlier case (Compagnie de Commerce, etc. v. Hamburg
America, etc., March 31, 1917), the Supreme Court expounded on these requisites
of general average by citing two leading American cases decided by the Supreme
Court of the United States:
In the case of The Star of Hope v. Annan (76 U.S. 203), Justice Clifford,
speaking for the court said:
“Such claims have their foundation in equity, and rest upon the doctrine
that whatever is sacrificed for the common benefit of the associated interests
shall be made good by all the interests which are exposed to the common peril
and which were saved from the common danger by the sacrifice. Much is
deferred in such an emergency to the judgment and decision of the master; but
the authorities, everywhere, agree that three things must concur in order to
constitute a valid claim for general average contribution:

575
 I RANSI’OH IAI ION I.AWS

First, there must be a common danger to which the ship. and crew were all
exposed, and that danger must be imminent and apparently inevitable, except
by incurring a loss of a portion of the associated interests to save the
remainder. Second, there must be the voluntary sacrifice of a part for the
benefit of the whole, as for example, a voluntary jettison or casting away of
some portion of the associated interests for the purpose of avoiding the
common peril, or a voluntary transfer of the common peril from the whole to
a particular portion of those interests. Third, the attempt so made to avoid the
common peril to which all those interests were exposed must be to some
practical extent successful, for if nothing is saved there cannot be any such
contribution in any case.” (Barnard v. Adams, 10 How., 303; Patten v.
Darling, 1 Cliff., 262; 2 Pars., Ins., 278)
“In the next case which came before this court, Mr. Justice Grier, in
delivering judgment, defined these requisites, somewhat more fully, as
follows: ‘In order to constitute a case of general average, three things must
concur: (1) a common danger, a danger in which ship, cargo and crew all
participate; a danger imminent and apparently inevitable, except by
voluntarily incurring the loss of a portion of the whole to save the remainder;
(2) there must be a voluntary jettison, jactus, or casting away of some portion
of the joint concern for the purpose of avoiding this imminent peril, periculi
imminentis evitandi causa, or, in other words, a transfer of the peril from
the whole to a particular portion of the whole; (3) this attempt to avoid the
imminent peril must be successful.’”

ART. 813. In order to incur the expenses and cause the

damage corresponding to gross average, there must be a
resolution of the captain, adopted after deliberation with the
sailing mate and other officers of the vessel, and after hearing
the persons interested in the cargo who may be present.
If the latter should object, and the captain and officers or a
majority of them, or the captain, if opposed to the majority,
should consider certain measures necessary, they may be
executed under his responsibility, without prejudice to the right
of the shippers to

576
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RISKS. DAMACiFS, AND ACCIM NTS <)| MARH IMI COMMFKCF

proceed against the captain before tfie competent judge or court, if

they can prove that he acted with malice, lack of skill, or negligence.
If the persons interested in the cargo, being on board the vessel,
have not been heard, they shall not contribute to the gross average,
their share being chargeable against the captain, unless the urgency
of the case should be such that the time necessary for previous
deliberation was wanting.
ART. 814. The resolution adopted to cause the damage which
constitutes general average must necessarily be entered in the log
books, stating the motives and reasons on which it is based, the
votes against it and the reason for the dissent, should there be any,
and the irresistible and urgent causes which impelled the captain, if
he acted of his own accord.
In the first case the minutes shall be signed by all the persons
present who could do so before taking action, if possible, and if not,
at the first opportunity. In the second case, it shall be signed by the
captain and the officers of the vessel.
In the minutes, and after the resolution, shall be stated in
detail all the objects jettisoned, and mention shall be made of the
injuries caused to those kept on board. The captain shall be
obliged to deliver one copy of these minutes to the maritime
judicial authority of the first port he may make, within
twenty-four hours after his arrival, and to ratify it immediately
under oath.
“Where the formalities prescribed under Articles 813 and 814 of the Code
of Commerce in order to incur the expenses and cause the damage corresponding to
gross average were not complied with, the carrier cannot claim for contribution
from the consignees for additional freight and salvage charges.”

Philippine Home Assurance Corporation v.

Court of Appeals and Eastern Shipping Lines, Inc.
G.R. No. 106999, June 20,1996
FACTS: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern
Explorer in Kobe, Japan, the following shipment for carriage to

577
 TRANSPORTATION LAWS

Manila and Cebu, freight prepaid and in good order and condition. .* (a) two boxes
internal combustion engine pans, consigned to William Lines. Inc. under Bill of
Lading No. 0422S3: (b) 10 metric tons (334 bags) ammonium chloride, consigned
to Orca's Company under Bill of Lading No. KCE-12: (c) 200 bags Glue 300.
consigned to Pan Oriental Match Company under Bill of Lading No. KCE-8: and
(d) garments, consigned to Ding Velavo under Bills of Lading Nos. K.MA-73 and
KMA-74.
While the vessel was off Okinawa. Japan, a small flame was detected on the
acetylene cylinder located in the accommodation area near the engine room on the
main deck level. As the crew was trying to extinguish the fire, the acetylene
cylinder suddenly exploded sending a flash of flame throughout the
accommodation area, thus causing death and severe injuries to the crew and
instantly setting fire to the whole superstructure of the vessel. The incident forced
the master and the crew to abandon the ship.
Thereafter, SS Eastern Explorer was found to be a constructive total loss and
its voyage was declared abandoned. Several hours later, a tugboat under the control
of Fukuda Salvage Co., arrived near the vessel and commenced to tow the vessel
for the port of Naha, Japan.
Fire fighting operations were again conducted at the said port. After the fire
was extinguished, the cargoes, which were saved, w^ere loaded to another vessel
for delivery to their original ports of destination. ESLI charged the consignees
several amounts corresponding to additional freight and salvage charges.
The charges were all paid by Philippine Home Assurance Corporation
(PHAC) under protest for and in behalf of the consignees.
PHAC, as subrogee of the consignees, thereafter filed a complaint before the
Regional Trial Court of Manila, Branch 39, against ESLI to recover the sum paid
under protest on the ground that the same were actually damages directly brought
about by the fault, negligence, illegal act and/or breach of contract of ESLI.
In its answer, ESLI contended that it exercised the diligence required by law
in the handling, custody and carriage of the shipment;

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RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

that the fire was caused by an unforeseen event; that the additional freight charges
are due and demandable pursuant to the Bill of Lading and that salvage charges are
properly collectible under Act No. 2616, known as the Salvage Law.
The trial court dismissed PH AC’s complaint and ruled in favor of ESLI,
which was affirmed on appeal by the Court of Appeals.
ISSUE: Whether or not the expenses incurred in saving the cargo are
considered general average.
HELD: it is worthy to note at the outset that the goods subject of the present
controversy were neither lost nor damaged in transit by the fire that razed the
carrier. In fact, the said goods were all delivered to the consignees, even if the
transhipment took longer than necessary. What is at issue therefore is not whether
or not the carrier is liable for the loss, damage, or deterioration of the goods
transported by them but who, among the carrier, consignee or insurer of the goods,
is liable for the additional charges or expenses incurred by the owner of the ship in
the salvage operations and in the transhipment of the goods via a different carrier.
In absolving respondent carrier of any liability, respondent Court of
Appeals sustained the trial court’s finding that the fire that gutted the ship was a
natural disaster or calamity. Petitioner takes exception to this conclusion and the
Court agrees.
In our jurisprudence, fire may not be considered a natural disaster or
calamity since it almost always arises from some act of man or by human means.
It cannot be an act of God unless caused by lightning or a natural disaster or
casualty not attributable to human agency.
As a rule, general or gross averages include all damages and expenses,
which are deliberately caused in order to save the vessel, its cargo, or both at
the same time, from a real and known risk. While the instant case may
technically fall within the purview of the said provision, the formalities
prescribed under Articles 813 and 814 of the Code of Commerce in order to
incur the expenses and cause the damage corresponding to gross average were
not complied with. Consequently, respondent ESLI’s claim for contribution
from the consignees of the cargo at the time of the occurrence of the average
turns to naught.

579
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 TRANSPORTATION LAWS

Prescinding from the foregoing premises, it indubitably follows that the

cargo consignees cannot be made liable to respondent carrier for additional
freight and salvage charges. Consequently, respondent carrier must refund to
herein petitioner the amount it paid under protest for additional freight and
salvage charges in behalf of the consignees.

ART. 815. The captain shall direct jettison, and shall order
the effects cast overboard in the following order:
1. Those which are on deck, beginning with those which
embarrass the maneuver or damage the vessel, preferring, if
possible, the heaviest ones with the least utility and value.
2. Those which are below the upper deck, always
beginning with those of the greatest weight and smallest value,
to the amount and number absolutely indispensable.
ART. 816. In order that the effects jettisoned may be
included in the gross average and the owners thereof be entitled
to indemnity, it shall be necessary in so far as the cargo is
concerned that their existence on board be proven by means of
the inventory prepared before the departure, in accordance
with the first paragraph of Article 612.
ART. 817. If in lightening a vessel on account of storm, in
order to facilitate her entry into a port or roadstead, part of her
cargo should be transferred to lighters or barges and be lost, the
owner of said part shall be entitled to indemnity, as if the loss
had originated from a gross average, the amount thereof being
distributed between the vessel and cargo from which it came.
If, on the contrary, the goods transferred should be saved
and the vessel should be lost, no liability may be demanded of
the salvage.
ART. 818. If, as a necessary measure to extinguish a fire in
a port, roadstead, creek, or bay, it should be decided to sink any
vessel, this loss shall be considered gross average, to which the
vessels saved shall contribute.

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 (IIAPTHK X
RISKS. DAMACiFS. AND ACCIDENTS OF MAKITIMf, COMMU'f f,

ARRIVALS UNDER STRESS

ARRIVAL UNDER STRESS is the arrival of a vessel at the nearest
and most convenient port upon the instance of the captain, if during the
voyage the vessel cannot continue the trip to the port of destination on
account of the lack of provisions, well-founded fear of seizure, privateers or
pirates, or by reason of any accident of the sea disabling it to navigate.

ART. 819. If during the voyage the captain should believe that the
vessel cannot continue the trip to the port of destination on account of the
lack of provisions, well-founded fear of seizure, privateers, or pirates, or by
reason of any accident of the sea disabling her to navigate, he shall assemble
the officers and shall summon the persons interested in the cargo who may be
present, and who may attend the meeting without the right to vote; and if,
after examining the circumstances of the case, the reason should be
considered well-founded, the arrival at the nearest and most convenient port
shall be agreed upon, drafting and entering in the log book the proper
minutes, which shall be signed by all.

The captain shall have the deciding vote, and the persons interested in the cargo
may make the objections and protests they may deem proper, which shall be entered in
the minutes in order that they may make use thereof in the manner they may consider
advisable.

ART. 820. An arrival shall not be considered lawful in the following

cases:
1. If the lack of provisions should arise from the failure to take the
necessary provisions for the voyage according to usage and custom, or if
they should have been rendered useless or lost through bad stowage or
negligence in their care.
2. If the risk of enemies, privateers, or pirates should not have
been well known, manifest, and based on positive and provable facts.
3. If the defect of the vessel should have arisen from the fact that
she was not repaired, rigged, equipped, and prepared in a

58!
 TRANSPORTATION LAWS

manner suitable for the voyage, or from some erroneous orders of the
captain.
4. Whenever malice, negligence, lack of foresight, or want of
skill on the part of the captain exists in the act causing the damage.
ART. 821. The expenses of an arrival under stress shall always be
for the account of the shipowner or ship agent, but they shall not be
liable for the damage which may be caused the shippers by reason of the
arrival, provided the latter is lawful.
ART. 822. If in order to make repairs to the vessel or because there
is danger that the cargo may suffer damage, it should be necessary to
unload, the captain must request authorization from the competent
judge or court for the removal, and carry it out with the knowledge of
the person interested in the cargo, or his representative, if there be any.

In a foreign port, it shall be the duty of the Filipino consul,

where there is one, to give the authorization.
In the first case, the expenses shall be for the account of the ship
agent or owner and in the second, they shall be chargeable against the
owners of the goods for whose benefit the act was performed.
If the unloading should take place for both reasons, the expenses
shall be divided proportionately between the value of the vessel and
that of the cargo.

ART. 823. The custody and preservation of the cargo, which has
been unloaded shall be entrusted to the captain, who shall be
responsible for the same, except in cases offorce majeure.
ART. 824. If the entire cargo or part thereof should appear to be
damaged, or there should be imminent danger of its being damaged,
the captain may request of the competent judge or court, or of the
consul in a proper case, the sale of all or of part of the former, and the
person taking cognizance of the matter shall authorize it, after an
examination and declaration of experts, advertisements, and other
formalities required by the case, and an entry in the book, in
accordance with the provisions of Article 624.

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RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

The captain shall, in proper case, justify, the legality of his conduct, under
the penalty of answering to the shipper for the price the goods would have brought
if they had arrived in good condition at the port of destination.

ART. 825. The captain shall be liable for the damage caused by his
delay, if after the cause of the arrival under stress has ceased, he should
not continue the voyage.
If the cause of the arrival should have been the fear of enemies,
privateers, or pirates, a deliberation and resolution in a meeting of the
officers of the vessel and persons interested in the cargo who may be
present, in accordance with the provisions contained in Article 819, shall
precede the departure.
In Compagnie de Commerce (36 Phil. 590), a charter-party was
executed between Compagnie de Commerce and the owners of the vessel
Sambia, under which the former as charterer loaded on board the Sambia, at the
port of Saigon, certain cargoes destined for the Ports of Dunkirk and Hamburg
in Europe. The Sambia, flying the German flag, could not, in the judgment of its
master, reach its ports of destination because World War I had been declared
between Germany and France. The master of the Sambia decided to deviate
from the stipulated voyage and sailed instead for the Port of Manila.
Compagnie de Commerce sued in the Philippines for damages arising from
breach of the charter party and unauthorized sale of the cargo. In affirming the
decision of the trial court dismissing the complaint, our Supreme Court held that
the master of the Sambia had reasonable grounds to apprehend that the vessel
was in danger of seizure or capture by the French authorities in Saigon and was
justified by necessity to elect the course which he took — i.e., to flee Saigon for
the Port of Manila — with the result that the shipowner was relieved from
liability for the deviation from the stipulated route and from liability for damage
to the cargo. The Court said:

“The danger from which the master of the Sambia fled was a real
and not merely an imaginary one as counsel for shipper contends. Seizure
at the hands of an ‘enemy of the King,’ though not inevitable, was a
possible outcome of a failure to leave the port

583
 l UANSrOKTAIION I,AW*,

of Saigon; and wo cannot say that under the conditions e/.ni:.'? at

the time when the master elected to Jlee from that port, tner* were no
grounds for a 'reasonable apprehension of danger ’for seizure by the
French authorities, and therefore no necezut. for flight
The word ‘necessity’ when applied to mercantile affern where
the judgment must in the nature of things be exercized cannot, of
course, mean an irresistible compelling power. Whs is meant by it in
such cases is the force of circumstances, whicn determine the course a
man, ought to take. Thus, where by- the force of circumstances, a man
has the duty cast upon him oftaking some action for another, and
under that obligation adopts a course which, to the judgment of a
wise and prudent man, is apparently the best for the interest of the
persons for whom he acts in a given emergency, it may properly be
said of the course so taken that it was in a mercantile sense necessary to
take it.” (Italics supplied !
Compagnie de Commerce contended that the shipowner should at all
events, be held responsible for the deterioration in the value of the cargo
incident to its long stay on board the vessel from the date of its arrival in
Manila until the cargo was sold. The Supreme Court, in rejecting this
contention also, declared that:
“But it is clear that the master could not be required to act on the
very day of his arrival; or before he had a reasonable opportunity to
ascertain whether he could hope to carry out his contract and earn his
freight; and that he should not be held responsible for a reasonable delay
incident to an effort to ascertain the wishes of the freighter, and upon
failure to secure prompt advice, to decide for himself as to the course
which he should adopt to secure the interests of the absent owner of the
property aboard the vessel.
The master is entitled to delay for such a period as may be
reasonable under the circumstances, before deciding on the course he
will adopt. He may claim a fair opportunity of carrying out a contract,
and earning the freight, whether by repairing or transhipping. Should the
repair of the ship be undertaken, it must be proceeded with diligently; and
if so done, the freighter will have

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RISKS. DAMAGES. AND ACCIDENTS OF MARITIME COMMERCE

no ground of complaint- although the consequent delay he a long one. unless,

indeed, the cargo is perishable, and likely to he injured by the delay. Where
that is the case, it ought to he forwarded, or sold, or given up, as the case may
be, without waiting for repairs.
A shipowner or shipmaster (if communication with the shipowner is
impossible), will be allowed a reasonable time in which to decide w'hat course
he will adopt in such cases as those under discussion; time must be allowed to
him to ascertain the facts, and to balance the conflicting interests involved, of
shipowner, cargo owner, underwriter on ship and freight. But once the time
has elapsed, he is bound to act promptly according as he has elected either to
repair, or abandon the voyage, or tranship. If he delays, and owing to that
delay a perishable cargo suffers damage, the shipowner will be liable for that
damage; he cannot escape that obligation by pleading the absence of definite
instructions from the owners of the cargo or their underwriters, since he has
control of the cargo and is entitled to elect.” ('See Inter-Orient Maritime
Enterprises, Inc. v. NLRC, 235 SCRA 268, August 11, 1994)
COLLISIONS
ART. 826. If a vessel should collide with another, through the
fault, negligence, or want of skill of the captain, sailing mate, or any
other member of the complement, the owner of the vessel at fault shall
indemnify the damages suffered, after an expert appraisal.
COLLISIONS — In maritime law, strictly speaking, the impact of two
vessels both of which are moving.
In its broad sense, it includes also allision, which refers to the striking of
a moving vessel against one that is stationaiy and perhaps other species of
encounters between vessels, or a vessel and other floating, though
non-navigable objects. Thus, the provision of the Code of Commerce on
collision may be applicable to cases of allision. (Moreno, Philippine Law
Dictionary, p. 167, 1988 Ed., citing Cebu Stevedoring Co. v. Universal
Lumber Co., 60874-R, January 11, 1982)
There is a presumption of fault against a moving vessel that strikes a
stationaiy object such as a dock or navigation aid. In admiralty,

585
 TRANSPORTATION LAWS

this presumption does more than merely require the ship to go

forward and produce some evidence on the presumptive matter.
The moving vessel must show that it was without fault or that the
collision was occasioned by the fault of the stationary object or
was the result of inevitable accident. It has been held that such
vessel must exhaust every reasonable possibility, which the
circumstances admit and show that in each, they did all that
reasonable care required. In the absence of sufficient proof in
rebuttal, the presumption of fault attaches to a moving vessel,
which collides with a fixed object and makes a prima facie case of
fault against the vessel. Logic and experience support this
presumption. (Far Eastern Shipping Company v. Court of Appeals and
Philippine Ports Authority, G.R. No. 130068, October 1, 1998)
ART. 827. If the collision is imputable to both vessels, each one
shall suffer her own damage, and both shall be solidarity liable for
the damages occasioned to their cargoes.
ART. 828. The provisions of the preceding article are
applicable to the case in which it cannot be determined which of the
two vessels has caused the collision.
The above article is also known as inscrutable fault and specify the
liability of the parties is the same as prescribed in Article 827.
Sulpicio Lines, Inc. v.
Court of Appeals
G.R. No. 93291, March 29,1999
FACTS: The question to be determined is whether the collision
between M/V Don Sulpicio and F/B Aquarius ‘G’ was due to the
negligence of the defendants or of the plaintiff. It is admitted in the
evidence that at a distance of about four miles M/V Don Sulpicio has
sighted two fishing boats, namely: F/B Aquarius *C* and F/B Aquarius
‘G’ although defendants maintained it was F/B Aquarius ‘B.’ From the
evidence it appears that the two fishing boats had a speed of about 7.5 to 8
knots per hour while M/V Don Sulpicio was running about 15.5 knots per
hour. It would appear that the speed of M/V Don Sulpicio was more than
twice as fast as the speed of the two fishing boats. The weather at

586
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RISKS, DAMAOhS, A NO A'S.U/L' • / 0 Of MAW7 IMK OOMMf>Of.

that lime the accident happened was clear and visibility was good, Jr, other words, from
the distance of about four miles at via, the men of Don SuJpicio could clearly see the two
fishing boats which were ahead about four miles and likewise, the men of the two fishing
boats could clearly see M/V Don Sulpicio following. 7he plaintiff claims that they
continued on their speed in their course and while maintaining their speed they were
rammed by M/V Don Sulpicio.
Defendants claim that plaintiff was negligent and that the collision was due
to the negligence of the men manning F/B Aquarius hB? and submit that considering
that F/B Aquarius ‘B’ had no lookout and that the fishing boat was ahead, F/B
Aquarius ‘B’ should have given way to M/V Don Sulpicio which was following in
order to avoid collision. And considering that F/B Aquarius ‘B’ was at fault, it should
suffer its own damage.
HELD: Whether the collision sued upon occurred in a crossing situation is
immaterial as the Court of Appeals, relying on Rule 24- C, Regulations for Preventing
Collision at the Sea, ruled that the duty to keep out of the way remained even if the
overtaking vessel cannot determine with certainty whether she is forward of or aft
more than two points from the vessel. It is beyond cavil that M/V “Don Sulpicio”
must assume responsibility as it was in a better position to avoid the collision. It
should have blown its horn or given signs to warn the other vessel that it was to
overtake it.
Assuming argumenti ex gratia that F/B Aquarius ‘G’ had no lookout during the
collision, the omission does not suffice to exculpate Sulpicio Lines from liability. M/V
“Don Sulpicio” cannot claim that it was a privileged vessel being in the port side, which
can maintain its course and speed during the collision. When it overtook F/B Aquarius
‘G, ’ it was duty bound to slacken its speed and keep away from other vessels, which it
failed to do. The stance of petitioners that F/B Aquarius ‘G ’is a burdened vessel, which
should have kept out of the way of M/V “Don Sulpicio,” is not supported by facts.

ART. 829. In the cases above mentioned, the civil action of the
shipowner against the person causing the injury as well as the criminal
liabilities, which may be proper, are reserved.

587
 TRANSPORTATION LAWS

ART. 830. If a vessel should collide with another, through

fortuitous event or force majeure, each vessel and her cargo shall
suffer their own respective damage.
ART. 831. If a vessel should be forced by a third vessel to collide
w ith another, the shipowner of the third vessel shall indemnify the
damages caused, the captain thereof being civilly liable to said owner.
ART. 832. If, by reason of a storm or other cause of force
majeure, a vessel which is properly anchored and moored should
collide with those nearby, causing them damages, the injury
occasioned shall be considered as particular average of the vessel run
into.
ART. 833. A vessel which, upon being run into, sinks
immediately, as well as that which, having been obliged to make a
port to repair the damage 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.
ART. 834. If the vessels colliding with each other should have
pilots on board discharging their duties at the time of the collision,
their presence shall not exempt the captains from the liabilities they
incur, but the latter shall have the right to be indemnified by the
pilots, without prejudice to the criminal liability, which the latter
may incur.

A pilot, in maritime law, is a person duly qualified, and licensed, to

conduct a vessel into or out of ports, or in certain waters. In a broad sense,
the term “pilot” includes both: (1) those whose duty it is to guide vessels
into or out of ports, or in particular waters; and (2) those entrusted with the
navigation of vessels on the high seas. However, the term “pilot ” is more
generally understood as a person taken on board at a particular place for the
purpose of conducting a ship through a river, road or channel, or from a
port.
Under English and American authorities, generally speaking, the pilot
supersedes the master for the time being in the command and 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

588
 CHARTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME 'JX/Mr.'Ok

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 effective control of the
vessel, or to decline to act as pilot. Under 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 in localities where
pilotage is compulsory.
It is quite common for states and localities to provide for compulsory
pilotage, and safety laws have been enacted requiring vessels approaching their
ports, with certain exceptions to take on board pilots duly licensed under local law.
The purpose of these law s is to create a body of seamen thoroughly acquainted
with the harbor, to pilot vessels seeking to enter or depart, and thus protect life and
property from the dangers of navigation.
Is the master bound by the acts of the Pilot? Is the master responsible for
the negligence of the pilot?
While it is indubitable that in exercising his functions, a pilot is in sole
command of the ship and supersedes the master for the time being in the
command and navigation of a ship and that he becomes master pro hac vice of a
vessel piloted by him, there is overwhelming authority to the effect that the
master does not surrender his vessel to the pilot and the pilot is not the master.
The master is still in command of the vessel notwithstanding the presence of a
pilot. There are occasions when the master may and should interfere and even
displace the pilot, as when the pilot is obviously incompetent or intoxicated and
the circumstances may require the master to displace a compulsory pilot
because of incompetency or physical incapacity. If, however, the master does
not observe that a compulsory pilot is incompetent or physically incapacitated,
the master is justified in relying on the pilot, but not blindly.
The master is not wholly absolved from his duties while a pilot is on board his
vessel, and may advise with or offer suggestions to him.
He is still in command of the vessel, except so far as her navigation is
concerned, and must cause the ordinary work of the vessel to be properly
carried on and the usual precaution taken. Thus, in particular.

589
 TRANSPORTATION LAWS

he is bound to see that there is sufficient watch on deck, and that the men are
attentive to their duties, also that engines are stopped, tow-lines cast off, and the
anchors clear and ready to go at the pilot’s order.
As early as 1869, the U.S. Supreme Court declared, through Mr. Justice
Swayne, in The Steamship China v. Walsh, that it is the duty of the master to
interfere in cases of the pilot’s intoxication or manifest incapacity, in cases of
danger, which he does not foresee, and in all cases of great necessity. The master
has the same power to displace the pilot that he has to remove any subordinate
officer of the vessel, at his discretion.
In sum, 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 to 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.

Who has the burden of proof that the pilot was negligent?
Since the colliding vessel is prima facie responsible, the burden of
proof is upon the party claiming benefit of the exemption from liability. It
must be shown affirmatively that the pilot was at fault, and that there was no
fault on the part of the officers or crew, which might have been conductive to
the damage. 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

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RISKS. DAMAGES. AND ACCIDENTS OF MARITIME COMMERCE

the pilot, and they must be left to recover the amount as well as they
can against him. It cannot be maintained that the circumstance of
having a pilot on board, and acting in conformity to his directions
operates as a discharge of responsibility of the owners. Except
insofar as their liability is limited or exempted by statute, the vessel
or her owners are liable for all damages caused by the negligence or
other wrongs of the owners of those in charge of the vessel. Where
the pilot of a vessel is not a compulsory one in the sense that the
owners or master of the vessel are bound to accept him, but is
employed voluntarily, the owners of the vessel are, all the more,
liable for his negligent act.
In the United States, the owners of a vessel are not personally liable for
the negligent acts of a compulsory pilot, but by admiralty law; the fault or
negligence of a compulsory pilot is imputable to the vessel and it may be held
liable therefor in rem. Where, however, by the provisions of the statute the
pilot is compulsory only in the sense that his fee must be paid, and is not in
compulsory charge of the vessel, there is no exemption from liability. Even
though the pilot is compulsory, if his negligence was not the sole cause of
the injury, but the negligence of the master or crew contributed thereto,
the owners are liable. But the liability of the ship does not release the pilot
from the consequences of his own negligence. The rationale for this rule is that
the master is not entirely absolved of responsibility with respect to navigation
when a compulsory pilot is in charge.

ART. 835. The action for the recovery of damages arising from
collisions cannot be admitted if a protest or declaration is not
presented within twenty-four hours before the competent authority of
the point where the collision took place, or that of the first port of
arrival of the vessel, if in Philippine territory, and to the Filipino
consul if it occurred in a foreign country.
Augusto Lopez v.
Juan Duruelo and Alino Sison
G.R. No. 29166, October 23,1928
ISSUE: Whether or not the protest required under Article 835 of the Code of
Commerce applies to collision of minor crafts engaged in river and bay traffic.

591
 TRANSPORTATION LAWS

HELD: No. The article in question (£35, Code of Commen t') j$ found in
the section dealing with collisions, and the context shows the collisions intended
are collisions of sea-going vessels. Said article cununi be applied to small boats
engaged in river and bay traffic. The t hird Book of the Code of Commerce,
dealing with Maritime Commerce, of which the section on Collisions forms a
part, was evidently intended to define the law relative to merchant vessels and
marine shipping; and, as appears from said Code, the vessels intended in that
Book are such as are run by masters having special training, with the elaborate
apparatus of crew and equipment indicated in the Code. The word "vessel"
(Spanish, “buque“nave”), used in the section referred to was not intended to
include all ships, craft or floating structures of every kind without limitation, and
the provisions of that section should not be held to include minor craft engaged
only in river and bay traffic. Vessels which are licensed to engage in maritime
commerce, or commerce by sea, whether in foreign or coastwise trade, are no
doubt regulated by Book III of the Code of Commerce. Other vessels of a minor
nature not engaged in maritime commerce, such as river boats and those carrying
passengers from ship to shore, must be governed, as to their liability to
passengers, by the provisions of the Civil Code or other appropriate special
provisions of law.

ART. 836. With respect to the damage caused to persons or to the

cargo, the absence of a protest may not prejudice the persons interested
who were not on board or were not in a condition to make known their
wishes.
ART. 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.

Luzon Stevedoring Corporation v.

Court of Appeals
G.R. No. L-58897, December 3, 1987
FACTS: On May 30, 1968 at past 6:00 in the morning, a maritime
collision occurred within the vicinity of the entrance to the North

592
 « IIAl'II l< ?
U IM\ Y I > AM At ll *♦, At II» A< < II M II | I H MAI M I f Mf ' // MMJ V< Y,

MlUUllI luMWVt‘11 I III* lllllkri I O <f//iw J \,y ]/)//#,

Stcvodomig ( oipoinliou and MV 'Tciimndo Kvyano" n owned by lli|os dr I*'
Ibirnno, lia\, an a n;?>ull ol v/bich -vM slup sunk. An ai lion in lulmiinily
wan filial by Jfjjon de \. hKW), Jr/*., ami Domestic Insurance (ompimy
ol’llic Philippine;; against the \jy/j/u Stevedoring Company (I ,SC) in the
Court of Mrnt Instance of Cebu. In the course of the trial, the trial court
appointed two cormmv>iorjeri representing the plaint i Us and defendant to
determine the value of the l SCO “CAVITF,.” Said Commissioners found
the value thereof to be P I 80, 000.
After trial on the merits, a decision was rendered on January 24. 1974
finding that LSCO “Cavite” was solely to blame for the collision and the
principle of Article 837 of the Code of Commerce does not apply here. The
Court of Appeals affirmed in toto this decision of the trial court.
In a resolution of February 26, 1982, the Supreme Court denied the
petition for lack of merit.
A motion for reconsideration of said resolution was filed by petitioner
limiting the issue to the legal question of whether under Article 837 of the
Code of Commerce, abandonment of vessel at fault is necessary in order that
the liability of owner of said vessel shall be limited only to the extent of the
value thereof, its appurtenances and freightage earned in the voyage. After
respondents submitted their comment to the motion as required, on
September 29, 1982 this Court denied the motion for reconsideration for
lack of merit.
With leave of court petitioner filed a second motion for
reconsideration of said resolution raising the following:
ISSUES:
1. Whether or not abandonment is required under Article
837 of the Code of Commerce. The decision of this Honorable Court
cited by the parties in support of their respective positions only imply
the answer to the question, and the implied answers are
contradictory.
2. If abandonment is required under Article 837 of the Code
of Commerce, when should it be made? The Code of

593
 TRANSPORTATION LAWS
f

Commerce is silent on the matter. The decision of this Honorable

Court in Yangco v. Laserna, 73 Phil. 330, left the question open and
no other decision, as far as petitioner can ascertain, has resolved the
question.
3. Is the decision of this Honorable Court in Manila
Steamship Co., Inc. v. Abdulhaman, 100 Phil. 32, wherein it was
held that the international rule to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowner’s own
fault, invoked by private respondents and apparently a major
consideration in the denial of the motion for reconsideration,
applicable to petitioner under the circumstances of the case at bar.
HELD: From the foregoing, it is clear that in case of collision of
vessels, in order to avail of the benefits of Article 837 of the Code of
Commerce, the shipowner or agent must abandon the vessel. In such case,
the civil liability shall be limited to the value of the vessel with all the
appurtenances and freight earned during the voyage. However, where the
injury or average is due to the shipowner’s fault as in said case, the
shipowner may not avail of his right to limited liability by abandoning the
vessel.
The Court reiterates what [W]e said in previous decisions that the real
and hypothecary nature of the liability of the shipowner or agent is embodied in the provisions of
the Maritime Law, Book III, Code of Commerce. Articles 587, 590, and 837 of the same code
are precisely i ! intended to limit the liability of the shipowner or agent to the value of the
y vessel, its appurtenances and freightage earned in the voyage, provided
that owner or agent abandons the vessel. Although it is not specifically
provided for in Article 837 of the same code that in case of collision there
should be such abandonment to enjoy such limited liability, said Article on
collision of vessels is a mere amplification of the provisions of Articles 587
and 590 of same code where abandonment of the vessel is a precondition.
Even without said article, the parties may avail of the provisions of Articles
587 and 590 of same code in case of collision. This is the reason why Article
837 of the same code is considered a superfluity.

594
 niAPTKR X
RISKS. 1VVM A^i S. ANO AlVIDl NTS Ol- MARITIMli COMMIsRCIi

Hence. the rule is that in ease of collision, there should be

abandonment of the vessel by the shipowner or agent in order to enjoy the
limited liability provided for under said Article 837.
The exception to this rule is when the vessel is totally lost in which
case there is no vessel to abandon so abandonment is not required. Because
of such total loss, the liability of the shipowner or agent for damages is
extinguished. Nevertheless, the shipowner or agent is personally liable for
claims under the Workmen’s Compensation Act and for repairs of the vessel
before its loss.
In case of illegal or tortuous acts of the captain, the liability of the
shipowner and agent is subsidiary. In such instance, the shipowner or agent
may avail of the provisions of Article 837 of the Code by abandoning the
vessel.
However, if the injury or damage is caused by the shipowner’s fault as
where he engages the services of an inexperienced and unlicensed captain or
engineer, he cannot avail of the provisions of Article 837 of the code by
abandoning the vessel. He is personally liable for the damages arising
thereby.
In the case now before the Court, there is no question that the action
arose from a collision and the fault is laid at the doorstep of LSCO “Cavite”
of petitioner. Undeniably, petitioner has not abandoned the vessel. Hence,
petitioner cannot invoke the benefit of the provisions of Article 837 of the
Code of Commerce to limit its liability to the value of the vessel, all the
appurtenances and freightage earned during the voyage.
In the light of the foregoing conclusion, the issue as to when
abandonment should be made need not be resolved.
Notes: In the case of Yangco v. Laserna which involved the steamers
SS “Negros” belonging to Yangco which after two hours of sailing from
Romblon to Manila encountered rough seas as a result of which it capsized
such that many of its passengers died in the mishap; several actions for
damages were filed against Yangco for the death of the passengers in the
Court of First Instance of Capiz. After rendition of the judgment for damages
against Yangco, by a verified pleading, he

595
 I KANSI’OR'I A'l ION LAWS

sought to abandon the vessel to the plaintiffs in the three cases together with
all the equipment without prejudice to the right to appeal. The Court, in
resolving the issue, held as follows:
“Brushing aside the incidental issues, the fundamental question
here raised is: May the shipowner or agent, notwithstanding the total loss of
the vessel as a result of the negligence of its captain, be properly held liable
in damages for the consequent death of its passengers? We are of the
opinion and so hold that this question is controlled by the provision of
Article 587 of the Code of Commerce. Said article reads:
“The agent shall also be civilly liable for the indemnities in favor
of third persons which arise from the conduct of the captain in the care
of goods which the vessel carried; but he may exempt himself therefrom
by abandoning the vessel with all her equipments and the freight he may
have earned during the voyage.
The case of Manila Steamship Company, Inc. v. Insa Abdulhaman and Lim
Hong To is a case of collision of the ML “Consuelo V” and MS “Bowline
Knot” as a result of which the ML “Consuelo V” capsized and was lost where
nine passengers died or were missing and all its cargoes were lost. In the
action for damages arising from the collision, applying Article 837 of the Code
of Commerce, this Court held that in such case where the collision was
imputable to both of them, each vessel shall suffer her own damages and both
shall be solidarity liable for the damages occasioned to their cargoes. Thus, the
Court Held:
“In fact, it is a general principle, well-established maritime law and
custom, that shipowners and ship agents are civilly liable for the acts of the
captain (Code of Commerce, Article 586); and for the indemnities due the
third persons (Article 587); so that injured parties may immediately look for
reimbursement to the owner of the ship, it being universally recognized that
the ship master or captain is primarily the representative of the owner
(Standard Oil Co. v. Lopez Castelo, 42 Phil. 256, 280). This direct liability
moderated and limited by the owner's right of abandonment of the vessel and
earned freight (Article 587) has

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RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

been declared to exist, not only in case of breached contracts, but

also in cases of tortuous negligence (Yu Biao Sontua v. Osorio, 43
Phil. 511, 515). ”

ART. 838. When the value of the vessel and her appurtenances
should not be sufficient to cover all the liabilities, the indemnity due by
reason of the death or injury of persons shall have preference.
ART. 839. If the collisions should take place between Philippine
vessels in foreign waters, or if having taken place in the open seas, and
the vessels should make a foreign port, the Filipino consul in said port
shall hold a summary investigation of the accident forwarding the
proceedings to the Secretary of the Department of Foreign Affairs for
continuation and conclusion.

SHIPWRECKS
SHIPWRECKS — A ship, which has received injuries rendering her
incapable of navigation.
The loss of a vessel at sea, either by being swallowed up by the waves, by
running against a thing at sea, or on the coast. (Moreno, Philippine Law
Dictionary, p. 881, 1988 Ed., citing Philippine American General Insurance
Co. v. Delgado Stevedoring Co., 36109- R, July 9, 1974)

Shipwreck — the demolition or shattering of a vessel, caused by

her driving ashore or on rocks and shoals in the midseas, or by the
violence of winds and waves in tempests. (Black fs Law Dictionary, Sixth
Ed.)

ART. 840. The damage and deteriorations suffered by a vessel and

her cargo by reason of shipwreck or stranding shall be individually for
the account of the owners, the part which may be saved belonging to
them in the same proportion.
ART. 841. If the wreck or stranding should be caused by the
malice, negligence, or lack of skill of the captain, or because the vessel
put to sea was insufficiently repaired and equipped, the ship

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agent or the shippers may demand indemnity of the captain for the damage
caused to the vessel or to the cargo by the accident, in accordance with the
provisions contained in Articles 610, 612, 614, and 621.
ART. 842. The goods saved from the wreck shall be especially bound
for the payment of the expenses of the respective salvage, and the amount
thereof must be paid by the owners of the former before they are delivered to
them, and with preference over any other obligation if the goods should be
sold.
ART. 843. If several vessels sail under convoy, and any of them should
be wrecked, the cargo saved shall be distributed among the rest in
proportion to the amount, which each one is able to take.
If any captain should refuse, without sufficient cause, to receive what
may correspond to him, the captain of the wrecked vessel shall enter a
protest against him, before two sea officials, of the losses and damages
resulting therefrom ratifying the protest within twenty-four hours after
arrival at the first port, and including it in the proceedings he must institute
in accordance with the provisions contained in Article 612.
If it is not possible to transfer to the other vessels the entire cargo of
the vessel wrecked, the goods of the highest value and smallest volume shall
be saved first, the designation thereof to be made by the captain with the
concurrence of the officers of his vessel.
ART. 844. A captain who may have taken on board the goods saved
from the wreck shall continue his course to the port of destination, and on
arrival shall deposit the same, with judicial intervention, at the disposal of
their legitimate owners.
In case he changes his course, if he can unload them at the port to
which they were consigned the captain may make said port if the shippers or
supercargoes present and the officers and passengers of the vessel consent
thereto; but he may not do so, even with said consent, in time of war or when
the port is difficult and dangerous to make.

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The owners of the cargo shall defray all the expenses of this
arrival as well as the payment of the freight, which, after taking into
consideration the circumstances of the case, may be fixed by
agreement or by a judicial decision.
ART. 845. If on the vessel there should be no person interested
in the cargo who can pay the expenses and freight corresponding to
the salvage, the competent judge or court may order the sale of the
part necessary to cover the same. This shall also be done when its
preservation is dangerous, or when in a period of one year it should
not have been possible to ascertain who are its legitimate owners.
In both cases the proceedings shall be with the publicity and
formalities prescribed in Article 579, and the net proceeds of the sale
shall be safely deposited, in the discretion of the judge or court, so
that they may be delivered to the legitimate owners thereof.

SECTION I
PROOF AND LIQUIDATION OF AVERAGES
ART. 846. Those interested in the proof and liquidation of
averages may mutually agree and bind themselves at any time with
regard to the liability, liquidation and payment thereof.

In the absence of agreements, the following rules shall be observed:

1. The proof of the average shall take place in the port where the
repairs are made, should any be necessary, or in the port of unloading.
2. The liquidation shall be made in the port of unloading, if it is a
port in the Philippines.
3. If the average occurred outside of the jurisdiction waters of the
Philippines, or the cargo has been sold in a foreign port by reason of an
arrival under stress, the liquidation shall be made in the port of arrival.
4. If the average has occurred near the port of destination, so that
said port can be made, the proceedings mentioned in rules 1 and 2 shall be
held there.

599
 TRANSPORTATION LAWS

ART. 847. In the case where the liquidation of the averages is made
privately by virtue of agreement, as well as when a judicial authority
intervenes at the request of any of the parties interested who do not agree
thereto, all of them shall be cited and heard, should they not have
renounced this right.
Should they not be present or should they have no legal
representative, the liquidation shall be made by the consul in a foreign
port, and where there is none, by the competent judge or court, according
to the laws of the country and for the account of the proper party.
When the representative is a person well known in the place where
the liquidation is made, his intervention shall be admitted and shall
produce legal effects, even though he be authorized only by a letter of the
ship agent, the shipper, or the insurer.
ART. 848. Claims for averages shall not be admitted if they do not
exceed 5 per cent of the interest which the claimant may have in the vessel
or in the cargo if it be gross average, and 1 per cent of the goods damaged
if particular average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary.
ART. 849. The damages, averages, loans on bottomry and
respondentia and their premiums, and any other losses, shall not earn
interest by reason of delay until after the lapse of the period of three days,
to be counted from the day on which the liquidation may have been
concluded and communicated to the persons interested in the vessel, in the
cargo, or in both at the same time.
ART. 850. If by reason of one or more accidents of the sea,
particular and gross averages of the vessel, of the cargo, or of both, should
take place on the same voyage, the expenses and damages corresponding
to each average shall be determined separately in the port where the
repairs are made, or where the goods are discharged, sold, or utilized.
For this purpose the captain shall be obliged to demand of the expert
appraisers and of the contractors making the repairs, as well as of those
appraising and taking part in the unloading,

600
 I IIA I' 11 I' X
RISKS. DAMAdlS, AND A< < IIMMISOI M Af'111MI, TOM Ml ,f'f I,

repairs. Mile, or iilili/atlon of tIn* goods, that in their

appraisements or estimates and accounts they set down separately
and accurately the expenses and damages pertaining to each
average, and in those of each average those corresponding to the
vessels and to the cargo, also stating separately whether or not there
are damages proceeding from inherent defect of the thing and not
from accident of the sea; and in case there should be expenses
common to the different averages and to the vessel and her cargo,
the amount corresponding to each must be estimated and stated
distinctly.

SECTION II
LIQUIDATION OF GROSS AVERAGES
ART. 851. At the instance of the captain, the adjustment,
liquidation, and distribution of gross averages shall be held privately,
with the consent of all the parties in interest.
For this purpose, within forty-eight hours following the arrival of
the vessel at the port, the captain shall convene all the persons interested
in order that they may decide as to whether the adjustment or liquidation
of the gross average is to be made by experts and liquidators appointed by
themselves, in which case it shall be so done if the interested parties
agree.
If an agreement is not possible, the captain shall apply to the
competent judge or court, who shall be the one in the port where these
proceedings are to be held in accordance with the provisions of this Code,
or to the Filipino consul should there be one, and should there be none, to
the local authority when they are to be held in a foreign port.
ART. 852. If the captain does not comply with the provisions of
the preceding article, the ship agent or the shippers shall demand the
liquidation, without prejudice to the action they may bring to demand
indemnity from him.
ART. 853. After the experts have been appointed by the persons
interested, or by the court, and after the acceptance, they shall proceed
to the examination of the vessel and of the repairs

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 TRANSPORTATION LAWS

required and to the appraisal of their cost, separating these damages

from those arising from the inherent defect of the things.
The experts shall also declare whether the repairs may be made
immediately, or whether it is necessary to unload the vessel in order to
examine and repair her.
With regard to the goods, if the average should be visible at a
mere glance, the examination thereof must be made before they are
delivered. Should it not be visible at the time of unloading, said
examination may be made after the delivery, provided that it is done
within forty-eight hours from the unloading, and without prejudice to
the other proofs which the experts may deem proper.
ART. 854. The valuation of the objects which are to contribute to
the gross average, and that of those which constitute the average, shall
be subject to the following rules:
1. The goods saved which are to contribute to the payment of
the gross average shall be valued at the current price at the port of
unloading, deducting the freight, customs duties, and expenses of
unloading, as may appear from a material inspection of the same,
without taking the bills of lading into consideration, unless there is an
agreement to the contrary.
2. If the liquidation is to be made in the port of departure, the
value of the goods loaded shall be determined by the purchase price,
including the expenses until they are placed on board, the insurance
premium excluded.
3. If the goods should be damaged, they shall be appraised at
their time value.
4. If the voyage having been interrupted, the goods should
have been sold in a foreign port, and the average cannot be estimated,
the value of the goods in the port of arrival, or the net proceeds
obtained at the sale thereof, shall be taken as the contributing capital.
5. Goods lost, which constitute the gross average, shall be
appraised at the value which goods of their kind may have in the port
of unloading, provided that their kind and quality appear in the bill of
lading; and should they not appear, the value shall be that

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 CHAPTER X
RISKS. D AV XGES. AND ACCIDENTS OF MARITIME. COMMERCE

stated in the invoices of the purchase issued in the port of shipment,

adding thereto the expenses and freight subsequently arising.
6. The masts cut down, the sails, cables, and other equipments of
the vessel rendered useless for the purpose of saving her, shall be
appraised at the current value, deducting one-third by reason of the
difference betw een new and old.
This deduction shall not be made with respect to anchors and chains.
7. The vessel shall be appraised at her true value in the condition
in which she is found.
8. The freight shall represent 50 percent by way of contributing
capital.
ART. 855. The goods loaded on the upper deck of the vessel shall
contribute the gross average should they be saved; but there shall be no
right to indemnity if they should be lost by reason of having been
jettisoned for common safety except when the marine ordinances allow
their shipment in this manner in coastwise navigation.
The same shall take place with that which are on board and are not
included in the bills of lading or inventories, according to the cases.
In any case the shipowner and the captain shall be liable to the
shippers for the damages from the jettison, if the storage on the upper
deck was made without the consent of the latter.
ART. 856. Provisions and ammunitions of war, which the vessel
may have on board, and the clothing used by the captain, officers, and
crew, shall not contribute to the gross average.
The clothing used by the shippers, supercargoes, and passengers,
who may be on board at the time of the jettison, shall also be accepted.
Neither shall the goods jettisoned contribute to the payment of the
gross averages, which may occur to the goods saved in a different and
subsequent risk. *

603
 VK \NSIH>R I'AMON 1 AWS

ART. S57. After the appraisement of the goods saved and of those lost
which constitute the gross average, has been concluded by the experts, the
repairs, if any, made on the vessel, and in this case, the accounts of the same
approved by the persons interested or by the judge or court, the entire record
shall be turned over to the liquidator appointed, in order that he may proceed
with the distribution of the average.
ART. 858. In order to effect the liquidation, the liquidator shall
examine the protest of the captain, comparing it, if necessary, w ith the
logbook, and all the contracts, which may have been made among the
persons interested in the average, the appraisement, expert examinations,
and accounts of repairs made. If, as a result of this examination, he should
find any defect in the procedure, which might injure the rights of the
persons interested or affect the liability of the captain, he shall call
attention thereto in order that it may be corrected, if possible, and
otherwise he shall include it in the exordial of the liquidation.
Immediately thereafter he shall proceed with the distribution of
the amount of the average, for which purpose he shall fix:
1. The contributing capital, which he shall determine by the
value of the cargo, in accordance with the rules established in Article 854.
2. That of the vessel in her actual condition, according to a
statement of experts.
3. The 50 percent of the amount of the freight, deducting the
remaining 50 percent for wages and maintenance of the crew.
After the amount of the gross average has been determined in
accordance with the provisions of this code, it shall be distributed pro rata
among the goods, which are to cover the same.
ART. 859. The insurers of the vessel, of the freight, and of the
cargo shall be obliged to pay for the indemnification of the gross average,
in so far as is required of each one of these objects respectively.

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RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

ART. 860. If, notwithstanding the jettison of goods, breakage of

masts, ropes, and equipment, the vessels should be lost running the same
risk, no contribution whatsoever by reason of gross average shall be
proper.
The owners of the goods saved shall be liable for the
indemnification of those jettisoned, lost, or damaged.
ART. 861. If, after the vessel has been saved from the risk which
gave rise to the jettison, she should be lost through another accident
taking place during the voyage, the goods saved and existing from the
first risk shall continue liable to contribution by reason of the gross
average according to their value in the condition in which they may be
found, deducting the expenses incurred in saving them.
ART. 862. If, in spite of having saved the vessel and the cargo in
consequence of the cutting down of masts or of any other damage
deliberately done to the vessel for said purpose, the goods should
subsequently be lost or stolen, the captain cannot demand of the
shippers of consignees that they contribute to the indemnity for the
average, unless the loss should occur by reason of an act of the owner
or consignee himself.
ART. 863. If the owner of the jettisoned goods should recover them
after having received the indemnity for gross average, he shall be obliged to
return to the captain and to the other persons interested in the cargo the
amount he may have received, deducting the amount of the damage caused
by the jettison and of the expenses incurred in their recovery.
In this case, the amount returned shall be distributed among the
vessel and the persons interested in the cargo in the same proportion
in which they contributed to the payment of the average.
ART. 864. If the owner of the goods jettisoned should recover
them without having demanded any indemnity, he shall not be
obliged to contribute to the payment of the gross average, which may
have been suffered by the rest of the cargo after the jettison.
ART. 865. The distribution of the gross average shall not be
final until it has been agreed to, or in the absence thereof, until it

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 TRANSPORTATION LAWS

has been approved by the judge or court, after an

examination of the liquidation and a hearing of the persons
interested who may be present or of their representatives.
ART. 866. After the liquidation has been approved, it
shall be the duty of the captain to collect the amount of the
contribution, and he shall be liable to the owners of the goods
averaged for the damage they may suffer through his delay or
negligence.
ART. 867. If the persons contributing should not pay the
amount of the contribution at the end of the third day after
having been required to do so, the goods saved shall be
proceeded against, at the request of the captain, until
payment has been made from their proceeds.
ART. 868. If the person interested in receiving the goods
saved should not give security sufficient to answer for the
amount corresponding to the gross average, the captain may
defer the delivery thereof until payment has been made.

SECTION III
LIQUIDATION OF ORDINARY AVERAGES
ART. 869. The experts whom the court or the persons
interested may appoint, as the case may be, shall proceed with
the examination and appraisement of the averages in the
manner prescribed in articles 853 and 854, rules 2 to 7,
insofar as they are applicable.

606
 CHAPTER XI

THE SALVAGE LAW

(Act No. 2616)

Section 1. When in case of shipwreck, the vessel or its

cargo shall be beyond the control of the crew, or shall have
been abandoned by them and picked up and conveyed to a
safe place by other persons, the latter shall be entitled to a
reward for the salvage.
Those who, not being included in the above paragraph,
assist in saving a vessel or its cargo from shipwreck shall be
entitled to reward.
Section 2. If the captain of the vessel, or the person acting
in his stead, is present, no one shall take from the sea, or from
the shores or coasts, merchandise or effects proceeding from a
shipwreck, or proceed to the salvage of the vessel, without the
consent of such captain or person acting in his stead.
Section 3. He who shall save or pick up a vessel or
merchandise at sea, in the absence of the captain of the vessel,
owner, or a representative of either of them, they being
unknown, shall convey and deliver such vessel or
merchandise, as soon as possible, to the collector of customs, if
the port has a collector, and otherwise to the provincial
treasurer or municipal mayor.
Section 4. After the salvage is accomplished, the owner or
his representative shall have a right to the delivery of the
vessel or things saved, provided that he pays, or gives a bond
to secure, the expenses and the proper reward.
The amount and sufficiency of the bond, in the absence of
agreement, shall be determined by the Collector of Customs
or by the Judge of Court of First Instance of the province in
which the things saved may be found.
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 TRANSPORTATION LAWS

Section 5. The Collector of Customs, provincial treasurer,

or municipal mayor, to whom salvage is reported, shall order:
a. That the things saved be safeguarded and
inventoried.
b. The sale at public auction of the things saved which
may be in danger of immediate loss or of those whose
conservation is evidently prejudicial to the interests of the
owner, when no objection is made to such sale.
c. The advertisement within the thirty days subsequent
to the salvage, in one of the local newspapers or in the nearest
newspaper published, of all the details of the disaster, with a
statement of the mark and number of the effects, requesting all
interested persons to make their claims.
Section 6. If, while the vessel or things saved are at the
disposition of the authorities, the owner or his representative
shall claim them, such authorities shall order their delivery to
such owner or his representative, provided that there is no
controversy over their value, and a bond is given by the owner
or his representative to secure the payment of the expenses and
the reward. Otherwise, the delivery shall not be made until the
matter is decided by the Court of First Instance of the province.
Section 7. No claim being presented in the three months
subsequent to the publication of the advertisements prescribed
in subsection (c) of Section five, the things saved shall be sold at
public auction, and their proceeds, after deducting the
expenses and the proper reward, shall be deposited in the
Insular Treasury. If three years shall pass without anyone
claiming it, one half of the deposit shall be adjudged to him who
saved the things, and the other half to the Insular Government.
Section 8. The following shall have no right to a reward for
salvage or assistance:
a. The crew of the vessel shipwrecked or which was in
danger of shipwreck;
b. He who shall have commenced the salvage in spite of
opposition of the captain or of his representative;

608
 c. He >vho shall have failed to comply with the provisions
of Section three:
d. Those who did not succeed in saving the ship; and
e. When the expenses exceed the salvage reward.
Section 9. If, during the danger, an agreement is entered
into concerning the amount of the reward for salvage or
assistance, its validity may be impugned because it is excessive,
and it may be required to be reduced to an amount proportionate
to the circumstances.
Section 10. In a case coming under the last preceding
section, as well as in the absence of an agreement, the reward for
salvage or assistance shall be fixed by the Court of First Instance
of the province where the things salvaged are found, taking into
account principally the expenditures made to recover or save the
vessel or the cargo or both, the zeal demonstrated, the time
employed, the services rendered, the excessive expenses
occasioned, the number of persons who aided, the danger to
which they and their vessels were exposed, as well as that which
menaced the things recovered or salvaged, and the value of such
things after deducting the expenses.
Section 11. From the proceeds of the sale of the things
saved shall be deducted, first, the expenses of their custody,
conservation, advertisement, and auction, as well as whatever
taxes or duties they should pay for their entrance; then there
shall be deducted the expenses of salvage; and from the net
amount remaining shall be taken the reward for the salvage or
assistance, which shall not exceed fifty percent of such amount
remaining.
Section 12. If in the salvage or in the rendering of
assistance different persons shall have intervened, the reward
shall be divided between them in proportion to the services,
which each one may have rendered, and, in case of doubt, in
equal parts.
Those who, in order to save persons, shall have been
exposed to the same dangers shall also have a right to
participation in the reward.
Section 13. If a vessel or its cargo shall have been assisted
or saved, entirely or partially, by another vessel, the reward for
 TRANSPORTATION LAWS

salvage or for assistance shall be divided between the owner, the

captain, and the remainder of the crew of the latter vessel, so as
to give the owner a half, the captain a fourth, and all the
remainder of the crew the other fourth of the reward, in
proportion to their respective salaries, in the absence of an
agreement to the contrary. The expenses of salvage, as well as
the reward for salvage or assistance, shall be a charge on the
things salvaged or their value.
Section 14. This Act shall take effect on its passage.
Enacted, February 4,1916.
General Principles Governing Salvage
The general rule and principles governing salvage services and salvage
awards are well settled. This branch of the law of the sea dates back to the early
history of navigation. We find recorded in the Laws of Oleron, which were
promulgated sometime before the year 1266.

The courts of the United States and England have, in a long line of
adjudicated cases, discussed the various phases of this important subject. In
general, salvage may be defined as a service which one person renders to the
owner of a ship or goods, by his own labor, preserving the goods or the ship which
the owner or those entrusted with the care of them have either abandoned in
distress at sea, or are unable to protect and secure. The Supreme Court of the
United States and the other Federal Courts of the United States have had occasion
numerous times to quote with approval the following definition from Flanders on
Maritime Law:

“Salvage is founded on the equity of remunerating private and

individual services performed in saving, in whole or in part, a ship or its
cargo from impending peril, or recovering them after actual loss. It is a
compensation for actual services rendered to the property charged with it,
and is allowed for meritorious conduct of the salvor, and in consideration
of a benefit conferred upon the person whose property he has saved. A
claim for salvage rests of the principle that, unless the property be in fact
saved by those who claim the compensation, it can not be allowed,
however benevolent their intention and however heroic their conduct”

610
 C HAIM I K XI
HU SAtVACi l l,AW

(The Job H. Jackson. 16! Fed Rep.. 1015, 1017; The Amelia, 1
Cranch 1; The Alberta, 9 Cranch, 369; Clarke v. Docile Nealy, 4
Wash. C.C.. 651; Fed Cas. No. 2849)
In the case of Williamson v. The Alphonso (Fed. Cas., No. 17749; 30
Fed. Cas. 4, 5), the court laid down practically the same rule:
“The relief of property from an impending peril of the sea, by
the voluntary exertions of those who are under no legal obligation to
render assistance, and the consequent ultimate safety of the property,
constitute a case of salvage. It may be a case of more or less merit,
according to the degree of peril in which the property was, and the
danger and difficulty of relieving it; but these circumstances effect the
degree of the service and not its nature.”
In Blackwall v. Saucelito Tug Company (10 Wall., 1, 12), the
[C]ourt said:
“Salvage is the compensation allowed to persons by whose
assistance a ship or her cargo has been saved, in whole or in part, from
impending peril on the sea, or in recovering such property from actual
loss, as in case of shipwreck, derelict, or recapture.”
It will be noticed from the above definitions that there are certain
definite conditions, which must always exist, in a case of pure salvage. The
Supreme Court of the United States, speaking through Mr. Justice Clifford,
in the case of The Mayflower v. The Sabine (101 U.S., 384) makes those
conditions three:
“Three elements are necessary to a valid salvage claim: (1) A
marine peril; (2) Service voluntarily rendered when not required as
an existing duty or from a special contract; and (3) Success, in whole
or in part, or that the service rendered contributed to such success.”
Subjects of Salvage
1. The ship itself.
2. Jetsam — Goods, which are cast into the sea, and there sink
and remain under water.

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 TRANSPORTATION LAWS

3. Floatsam or Flotsan — Goods that float upon the sea when cast
overboard. “Jetsam” differs from “flotsam,” in this: that in the
latter, the goods float, while in the former, they sink, and remain
under water.
4. Ligan or Lagan — Goods cast into the sea tied to a buoy, so that
they may be found again by the owners. (Blacks Law Dictionary,
citing jurisprudence)

When is the Ship and her cargo a fit object of Salvage?

The question whether or not a particular ship and her cargo is a fit object
of salvage depends upon her condition at the time the salvage services are
performed. In the present case, the plaintiff-appellant claims that the Nippon
was a derelict or quasi-derelict and that their claim should be adjudged upon this
basis. A derelict is defined as “A ship or her cargo which is abandoned and
deserted at sea by those who were in charge of it, without any hope of
recovering it (sine spe recuperandi'), or without an intention of returning to it.
(sine animo revertendi). Whether property is to be adjudged derelict is
determined by ascertaining what was the intention and expectation of those in
charge of it when they quitted it. If those in charge left with the intention of
returning, or of procuring assistance, the property is not derelict, but if they
quitted the property with the intention of finally leaving it, it is derelict, and a
change of their intention and an attempt to return will not change its nature.”
(Abbott’s Law of Merchant Ships and Seamen, Fourteenth Ed.,
p. 994)
“When a vessel is found at sea, deserted, and has been abandoned by the
master and crew without the intention of returning and resuming the possession,
she is, in the sense of the law, derelict, and the finder who takes the possession
with the intention of saving her, gains a right of possession, which he can
maintain against the true owner. The owner does not, indeed, renounce his right
of property. This is not presumed to be his intention, nor does the finder acquire
any such right. But the owner does abandon temporarily his right of possession,
which is transferred to the finder, who becomes bound to preserve the property
with good faith, and bring it to a place of safety for the owner’s use; and he
acquires a right to be paid for his services a reasonable and proper

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 CHAPTER XI
THE SALVAGE LAW

compensation, out of the property itself. He is not bound to part with the
possession until this is paid, or it is taken into the custody of the law,
preparatory to the amount of salvage being legally ascertained. Should the
salvors meet with the owner after an abandonment, and he should tender his
assistance in saving and securing the property, surely this ought not, without
good reasons, to be refused, as this would be no bar to the right of salvage, and
should it be unreasonably rejected it might affect the judgment of a court
materially, as to the amount proper to be allowed. Still, as 1 understand the law,
the right of possession is in the salvor. But when the owner, or the master and
crew who represent him, leave a vessel temporarily, without any intention of a
final abandonment, but with the intent to return and resume the possession, she
is not considered as a legal derelict, nor is the right of possession lost by such
temporary absence for the purpose of obtaining assistance, although no
individual may be remaining on board for the purpose of retaining possession.
Property is not, in the sense of the law, derelict and the possession left vacant
for the finder, until the spes recuperandi is gone, and the animus revertendi is
finally given up. (The Aquila, 1 C. Rob. Adm., 41) But when a man finds
property thus temporarily left to the mercy of the elements, whether from
necessity or any other cause, though not finally abandoned and legally derelict,
and he takes possession of it with the bona fide intention of saving it for the
owner, he will not be treated as a trespasser. On the contrary, if by his exertions
he contributes materially to the preservation of the property, he will entitle
himself to a remuneration according to the merits of his service as a salvor.”
The [Cjourt allowed salvage in this case. They held that the master had
taken insufficient precautions to protect his vessel and although the ship was
not a legal derelict, the libellants were salvors and entitled to salvage.
Prima facie, a vessel found at sea in a situation of peril with no one
aboard of her, is a derelict; but where the master and crew leave such
vessel temporarily, without any intention of final abandonment, for the
purpose of obtaining assistance, and with the intent to return and resume
possession, she is not technically a derelict. It is not of substantial
importance to decide that question. She was what may be

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 TRANSPORTATION LAWS

called a quasi-derelict; abandoned, helpless, her sails gone, entirely without power
in herself to save herself from a situation not of imminent, but of considerable
peril; lying about midway between the Gulf Stream and the shore, and about 30
miles from either. An east wind would have driven her upon one, and a west wind
into the other, where she would have become a total loss. Lying in the pathway of
commerce, resume possession, it was a highly meritorious act upon the part of the
Shawmut to take possession of her, and the award must be governed by the rules
which govern in case of derelicts; the amount of it to be modified in some degree in
the interest of the owners in consideration of their prompt, intelligent, and
praiseworthy efforts to resume possession of her, wherein they incurred
considerable expense.

Concept of Salvage Reward

“Compensation as salvage is not viewed by the admiralty courts merely as
pay on the principle of quantum meruit or as a remuneration pro opere et labore,
but as a reward given for perilous services, voluntarily rendered, and as an
inducement to mariners to embark in such dangerous enterprises to save life and
property.” (The Mayflower v. The Sabine, 101 U.S., 384)
“A salvor, in the view of the maritime law, has an interest in the property; it
is called a lien, but it never goes, in the absence of a contract expressly made, upon
the idea of a debt due by the owner to the salvor for services rendered, as at
common law, but upon the principle that the service creates a property in the thing
saved. He is, to all intents and purposes, a joint owner, and if the property is lost he
must bear his share like other joint owners.
“This is the governing principle here. The libellant and the owners must
mutually bear their respective share of the loss in value by the sale. If the libellant
has been unfortunate and has spent his time and money in saving a property not
worth the expenditure he made, or if, having saved enough to compensate him, it is
lost by the uncertainties of a judicial sale for partition, so to speak, it is a
misfortune not uncommon to all who seek gain by adventurous speculations in
values. The libellant says in his testimony that he relied entirely on his rights as a
salvor. This being so, he knew the risk he ran and it was his own

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 CHAPTER X!
THE SALVAGE LAW

folly :o expend more money in the service than his reasonable share wouid have been
worth under all circumstances and contingencies. He can rely neither on the common law
idea of an implied contract to pay for work on and about one's property what the work is
reasonably worth with a lien attached by possession for satisfaction, nor upon any motion
of an implied maritime contract for the service, with a maritime lien to secure it, as in the
case of repairs, or supplies furnished a needy vessel, or the like. In such a case the owner
would lose all if the property did not satisfy the debt, when fairly sold. But this doctrine
has no place in the maritime law of salvage. It does not proceed upon any theory of an
implied obligation, either of the owner or the res, to pay a quantum meruit, nor actual
expenses incurred, but rather on that of a reasonable compensation or reward, as the case,
may be, to one who has rescued the res from danger of total loss. If he gets the whole, the
property had as w ell been lost entirely, so far as the owner is concerned. (Smith v. The
Joseph Stewart, Fe. Cas. No. 13070)
While salvage is of the nature of a reward for meritorious service, and for
determination of its amount the interests of the public and the encouragement of others to
undertake like service are taken into consideration, as well as the risk incurred, and the
value of the property saved, and where the proceeds for division are small, the proportion
of allowance to the salvor may be enlarged to answer these purposes, nevertheless, the
doctrine of salvage requires, as a prerequisite to any allowance, that the service must be
productive of some benefit to the owners of the property salved; for however meritorious
the exertions of alleged salvors may be if they are not attended with benefit to the owners,
they cannot be compensated as such. (Abb. Shipp. [London
E. , 1892], 722) The claim of the libellant can only be supported as one for
salvage. It does not constitute a personal demand, upon quantum meruit, against the
owners, but gives an interest in the property saved, which entitled the salvor to a liberal
share of the proceeds.
“One of the grounds for liberality in salvage awards is the risk assumed by the
salvor — that he can have no recompense for service or expense unless he is successful in
the rescue of property, and that his reward must be within the measure of success. He
obtains an interest in the property, and in its proceeds when sold, but accompanied by the

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same risk of any misfortune or depreciation, which may occur to reduce its
value. In other words, he can only have a portion, in any event; and the fact that
his exertions were meritorious and that their actual value, or the expense actually
incurred, exceeded the amount produced by the service, cannot operate to absorb
the entire proceeds against the established rules of salvage.” (The Carl
Schurz, Fed. Cas. No. 2414)
“There is no fixed rule for salvage allowance. The old rule in cases of a
derelict was 50 percent of the property salved; but under modem decisions and
practice, it may be less, or it may be more. The allowance rests in the sound
discretion of the court or judge, who hears the case acquainted with the
environments of the rescue. An allowance for salvage should not be weighed in
golden scales, but should be made as a reward for meritorious voluntary services,
rendered at a time when danger of loss is imminent, as a reward for such services
so rendered, and for the purpose of encouraging others in like services.”

Distinction Between Salvage and Towage

“It often becomes material too, for courts to draw a distinct line between
salvage and towage, for the reason that a reward ought sometimes to be given
to the crew of the salvage vessel and to other participants in salvage services; and
such reward should not be given if the services were held to be merely towage.”
(The Rebecca Shepherd, 148 F. 731)
“The master and members of the crew of a tug were not entitled to
participate in payment by liberty ship for services rendered by tug which were
towage services and not salvage services.” (Sause, et al. v. United States,
etal., supra)
“The distinction between salvage and towage is of importance to the crew
of the salvaging ship, for the following reasons: If the contract for towage is in
fact towage, then the crew does not have an interest or rights in the remuneration
pursuant to the contract. But if the owners of the respective vessels are of a
salvage nature, the crew of the salvaging ship is entitled to salvage, and can look
to the salvaged vessel for its share.” (I Norris, The Law of Seamen, Sec.
222)

616
 i t O /' /// a -

VI JUrrP* / < * , 1* A **<■ O*

*'*• cr/m JKA

7
" /-'"1^/;, Jr/4 '*'/ :s* A.1PSS,*,SA
,U
*‘ ,#/
MUM; j//4* f/i ,v# 5^ ; >.*;
dll Ming ulov/ly V/Uf)r//a;d Szt;u {A \'i//s;.'/r T’Sf'P/, " "''.ft
up'n < lun;> V,a at f)w m^y/ </i ''> ',’,/f/vtfK **>#&'■> * "A A V<*r >*rt MM 'r*
#
» duvfmM by ' / ] ; • : , M V Htr.r/ 1 '<r&»■*£'''.%
''.ft
disMctyx’d Signal arid v/)f;; tv; '/r,fi/v/‘ KA <:/;-*y-/sjp 'Z 'i'Jt 'jz.'jzr:. mi<l/of
M»;n*.i<',r of MV bon Alf/cAo ;,//S'S-S/'A. ";>•> :/* MVA V'^X <t rj;,f‘’ !>,;,< 4‘
where it ym/sJcavyj to M7 l/./? a titter V::t '£ Sr/• S*:tAA Ml die vicinity of Apo
hfondt of Tegr/t rjr.ec3L.
William J,incj>, Jric. owner of MV Hevry ' eri AI f^r
damage;, ;>nd remuneration, However, Hooor:o zz:r//. c^pcarr. ' MV I
lemy I claimed salvage reward. 7Ve co-i^rt. fiv.r:.iv/Zi ±e ^,.
ISSUE: Whether or riot ur.der toe faet* of toe caoe. t'c ser*:ce rendered by
plaintiff to defendant cwrithetec or ~'zr*c%st7
and if so, whether or riot plaintiff may recover frorr. 5eter.'Csr~ compensation for
such service.
HELD: Was there a marine peril, in the instant case, to justify a valid
salvage claim by plaintiff against defendant? Like the trial court, the Court does
not think there was. It appears that although the defendant’s vessel in question
was, on the night of May L 1958, in a helpless condition due to engine failure, it
did not drift too far from the place where it was. As found by the court a quo the
weather was fair, clear, and good. 7he waves were small and too slight so much so
that there were only ripples on the sea, which was quite smooth. During the towing
of the vessel on the same night, there was moonlight. Although said vessel was
drifting towards the open sea, there was no clanger of its floundering or being
stranded, as it was far from any island or rocks. In case of danger of stranding, its
anchor could be released, to prevent such occurrence. There was no danger that
defendant’s vessel would sink, in view of the smoothness of the sea and the
fairness of the weather. That there was absence of danger is shown by the fact that
said vessel or its crew did not even find it necessary to lower its launch and two
motorboats, in order to evacuate its passengers aboard. Neither did they find
occasion to jettison the vessel’s cargo as a safety measure. Neither

on

j£.
 TRANSPORTATION LAWS

the passengers nor the cargo were in danger of perishing. All tr#t v>t vessel's
crewmembers could not do was to move the vessel or, it$ ov.r, power. That did not
make the vessel a quasi-derelict, considering even before the appellant extended the
help to the distressed ship, * sister vessel was known to be on its way to succor it.
If plaintiff’s service to defendant does not constitute “salvager” within the
purview of the Salvage Law, can it be considered as a quasi- contract of “towage”
created in the spirit of the new Civil Code? The answer seems to incline in the
affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant
(through the captain of its vessel MV Don Alfredo) thereby impliedly entered into
a juridical relation of “towage” with the owner of the vessel MV Henry I,
captained by plaintiff, the William Lines, Incorporated.
If the contract thus created, in this case, is one for towage, then only the
owner of the towing vessel, to the exclusion of the crew of the said vessel, may be
entitled to remuneration. And, as the vessel- owner, William Lines, Incorporated,
had expressly waived its claim for compensation for the towage service rendered
to defendant, it is clear that plaintiff, whose right if at all depends upon and not
separate from the interest of his employer, is not entitled to payment for such
towage service.
Neither may plaintiff invoke equity in support of his claim for
compensation against defendant. There being an express provision of law (Art.
2144, Civil Code) applicable to the relationship created in this case, that is, that
of a quasi-contract of towage where the crew is not entitled to compensation
separate from that of the vessel, there is no occasion to resort to equitable
considerations.

LETTER OF INSTRUCTION NO. 134

September 24,1973

TO: The Commissioner

Bureau of Customs
Manila
In order to hasten the completion of the Pasig River Development Project through a
sustained and continuous clearing of the Pasig River,

618
 CHAPTER XI
THE SALVAGE LAW

adjoining esteros and waterways within the Greater Manila Area of

derelicts and other discarded matters, and to enable the authorized
salvers or salved derelicts to recover the early return of their
investment and thereby replenish their operating capital, I hereby
direct that settlement of the salvage claim on and/or disposition of
those salved derelicts be expedited by adopting, as an exception to the
technical requirements of the Salvage Law, the following procedures:
1. That, upon receipt of the salver’s report on the successful
salvage of any derelict, known owner(s) and rightful
party(ies) thereto must immediately be informed thereof
in seventy-two (72) hours within which to file their claim,
otherwise the same shall immediately be awarded to the
salving party by way of salvage compensation.
2. With respect to those the owner(s) or rightful party(ies) of
which are unknown, the salved derelicts shall be
published for public bidding for three successive days in a
newspaper of general circulation, after which, bidding
shall immediately be held as scheduled. Should there be
no bidder and/or shall the highest bid offered thereon is
insufficient to cover the reasonable salvage claim, such
bid shall be denied and the salved derelict shall be
awarded to the salving party.
For immediate compliance.

619
 Appendix A

EXECUTIVE ORDER NO. 125

(As Amended by Executive Order No. 125-A dated 13 April 1987
and Executive Order No. 201 dated 19 June 1987)
REORGANIZING THE MINISTRY OF TRANSPORTATION
AND COMMUNICATIONS, DEFINING ITS POWERS AND
FUNCTION AND FOR OTHER PURPOSES.
RECALLING that the reorganization of the government is mandated
expressly in Article II, Section 1 (a), and Article III of the Freedom
Constitution;
HAVING IN MIND that pursuant to Executive Order No. 5 (1986), it is
directed that necessary and proper changes in the organizational and functional
structures of the government, its agencies and instrumentalities, be effected in
order to promote efficiency and effectiveness in the delivery of public services;
CONSIDERING that viable and dependable transportation
communications networks are necessary tools for economic recovery;
CONSIDERING further that rapid technological advances in
communication facilities require a distinct response to the peculiar problems of
this field;
REALIZING that the growing complexity of the transportation sector
has necessitated its division into various sub-sectors to facilitate the regulation
and promotion of the sector as a whole; and
REALIZING further that the State needs to regulate these networks and
promote their continuous upgrading in order to preserve their viability and
enhance their dependability;
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the
Philippines, by virtue of the powers vested in me by the sovereign

620
 Am-'NOW A
EXFCTTIYF OROVR NO i:>

will of the Filipino people and the Freedom Constitution, do hereby order:
Section l. Title. — This Executive Order shall otherwise be knovm as the
“Reorganization Act of the Ministry of Transportation and Communications."
Section 2. Reorganization. —The Ministry of Transportation and
Communications is hereby reorganized, structurally and functionally, in
accordance with the provisions of this Executive Order.
Section 3. Declaration of Policy. — The State is committed to the
maintenance and expansion of viable, efficient and dependable transportation and
communications systems as effective instruments for national recovery and
economic progress. It shall not compete as a matter of policy with private
enterprise and shall operate transportation and communications facilities only in
those areas where private initiatives are inadequate or non-existent.
Section 4. Mandate. — The Ministry shall be the primary policy, planning,
programming, coordinating, implementing, regulating and administrative entity of
the Executive Branch of the government in the promotion, development and
regulation of dependable and coordinated ' networks of transportation and
communications systems, as well as in the fast, safe, efficient, and reliable postal,
transportation and communications services.
To accomplish such mandate, the Ministry shall have the following
objectives:
a) Promote the development of dependable and coordinated
networks of transportation and communications systems;
b) Guide government and private investments in the development
of the country’s inter-modal transportation and communications systems in
a most practical, expeditious and orderly fashion for maximum safety,
service and cost effectiveness;
c) Impose appropriate measures so that technical, economic and
other conditions for the continuing economic viability of the transportation
and communications entities are not

621
 TRANSPORTATION I. AWS

jeopardized and do not encourage inefficiency and distortion of

traffic patronage;
d) Develop an integrated plan for a nationwide transmis-
sion system in accordance with national and international tele-
communications service requirements including, among others,
radio and television broadcast relaying, leased channel services and
data transmission;
e) Guide government and private investments in the
establishment, operation and maintenance of an international
switching system for incoming and outgoing telecommunications
services;
f) Encourage the development of a domestic telecommu-
nications industry in coordination with the concerned entities par-
ticularly the manufacture of communications/electronics equipment
and components to complement and support, as much as possible,
the expansion, development, operation and maintenance of the
nationwide telecommunications network; and
g) Provide for a safe, reliable and efficient postal system for
the country.
Section 5. Powers and Functions. — To accomplish its mandate,
the Department shall have the following powers and functions:
a) Formulate and recommend national policies and
guidelines for the preparation and implementation of integrated and
comprehensive transportation and communications systems at the
national, regional and local levels;
b) Establish and administer comprehensive and integrated
programs for transportation and communications, and for this
purpose, may call on any agency, corporation, or organization,
whether public or private, whose development programs include
transportation and communications as an integral part thereof, to
participate and assist in the preparation and implementation of such
programs;

622
 \ITI Nni\ A
t At VI' l!\ 1 OKDI K NO i:%

c) Assess, review ami provide cli reel ion l<> Imnspor f;if ion and
communications research ami development programs of the government in
coordination with other institutions concerned;
d) Administer and enforce all laws, rules and regulations in the held of
transportation and communications;
e) Coordinate with the Department of Public Works and Highways in
the design, location, development, rehabilitation, improvement, construction,
maintenance and repair of all infrastructure projects and facilities of the
Department. However, government corporate entities attached to the
Department shall be authorized to undertake specialized telecommunications,
ports, airports and railways projects and facilities as directed by the President of
the Philippines or as provided by law; (As amended by EO 125-A)
f) Establish, operate and maintain a nationwide postal system that
shall include mail processing, delivery services, and money order services
and promote the art of philately;
g) Issue certificates of public convenience for the operation of
public land and rail transportation utilities and services; (As added by EO
125-A)
h) Accredit foreign aircraft manufacturers and/or international
organizations for aircraft certification in accordance with established
procedures and standards;
i) Establish and prescribe rules and regulations for identification
of routes, zones and/or areas of operation of particular operators of public
land services; (As added by EO 125- A)
j) Establish and prescribe rules and regulations for the
establishment, operation and maintenance of such telecommunications
facilities in areas not adequately served by the private sector in order to
render such domestic and overseas services that are necessary with due
consideration for advances in technology; (As added by EO 125-A)

623
 TRANSPORT VTtON LAWS

kj Establish and prescribe rules and regulations for the operation

and maintenance of a nationwide postal system that shall include mail
processing, delivery services, money order services and promotion of
philately; (As added by EO 125-A)
l) Establish and prescribe rules and regulations for the
issuance of certificate of public convenience for public land
transportation utilities, such as motor vehicles, trimobiles and railways;
(As added by EO 125-A)
m) Establish and prescribe rules and regulations for the
inspection and registration of air and land transportation facilities, such
as motor vehicles, trimobiles, railways and aircrafts; (As added by EO
125-A)
n) Establish and prescribe rules and regulations for the
issuance of licenses to qualified motor vehicle drivers, conductors, and
airmen; (As added by EO 125-A)
o) Establish and prescribe the corresponding rules and
regulations for the enforcement of laws governing land transportation,
air transportation and postal services, including the penalties for
violations thereof, and for the deputation of appropriate law
enforcement agencies in pursuance thereof; (As added by EO 125-A)
p) Determine, fix and/or prescribe charges and/or rates
pertinent to the operation of public air and land transportation utility
facilities and services, except such rates and/or charges as may be
prescribed by the Civil Aeronautics Board under the charter, and, 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; (As added by EO 125-A)
q) Establish and prescribe the rules, regulations, procedures
and standards for the accreditation of driving schools; (As added by
EO 125-A)

624
 At'I'f 'ihl/ A
rxi/ u t r / f f r i ' i J k h <i(> \v>

0 Administer mid operate the Civil Aviation 'training ( Viiln ((

A'l( ') mid the National Telecommunications Training tnot111ill' (M i
l l) (As added by HO I25-Aj; and
a) Perform midi other powers and functions as may be
prescribed by law, or as may be necessary, incidental, or proper to its
mandate, or as may be assigned from time to time by the President of
the Republic of the Philippines. (As amended by EG U S A )
Sect hm 6. Authority and Responsibility. — The authority and
responsibility for the exercise of the mandate of the Ministry and for the
discharge of its powers and functions shall be vested in the Minister of
Transportation and Communications, hereinafter referred to as the
Minister, who shall have supervision and control over the Ministry and
shall be appointed by the President.
Section 7. Office of the Secretary. — The Office of the Secretary
shall consist of the Secretary, his immediate staff, the Franchising Review
Staff and the Investigation, Security and Law Enforcement Staff.
The Franchising Review Staff shall be headed by a Review Staff
Director with the same rank, salary and privileges of a Department
Regional Director who shall be appointed by the President upon the
recommendation of the Secretary. The Franchising Review Staff shall
assist the Secretary in the review of cases and matters pertaining to, among
others, grants of franchises and the regulation thereof.
The Investigation, Security and Law Enforcement Staff shall be
headed by a Staff Director with the same rank, salary and privileges of a
Department Service Chief. The Investigation, Security and Law
Enforcement Staff shall be responsible for: (a) providing security and
intelligence for the Department; (b) coordinating security and intelligence
activities of security units of its offices and attached agencies; (c)
undertaking law enforcement functions and activities relating to land
transportation. (As amended by EO 201)
Section 8. Undersecretaries. — The Secretary shall be assisted
by four (4) Undersecretaries appointed by the President upon the
recommendation of the Secretary. (As amended by EO 125-A)

625
 TPANSf'OKTAl ION UkW>

Section 9. Assistant Secretaries and Service Chiefs. — The

Secretary shall also be assisted by eight (8) Assistant Secretaries
appointed by the President upon recommendation of the Secretary, each
of whom shall be respectively responsible for the four (4) staff offices
composed of eight (8) services and four (4) line offices, and shall report to
the respective Undersecretaries assigned by the Secretary, which
Undersecretary shall have control and supervision over said respective
services and offices:
a) Office of the Assistant Secretary for Administrative and
Legal Affairs:
1. Administrative Service, and
2. Legal Service.
b) Office of the Assistant Secretary for Finance and Comptrol-
lership:
1. Finance and Management Service, and
2. Comptrollership Service.
c) Office of the Assistant Secretary for Planning and Project
Development:
1. Planning Service, and
2. Project Development Service.
d) Office of the Assistant Secretary for Management Informa-
tion Service and Project Management:
1. Management Information Service, and
2. Project Management Service.
e) Office of the Assistant Secretary for Land Transportation;
f) Office of the Assistant Secretary for Postal Service;
g) Office of the Assistant Secretary for Telecommunications;
h) Office of the Assistant Secretary for Air Transportation.
Each of the above-named services shall be headed by a service
chief appointed by the President upon the recommendation of the
Secretary. (As amended by EO 125-A)

626
 Al'lM Nl)IX A
i \» ( trilVI OKDI K NO |/*j

The Offices ot' the Assistant Secretaries !<>t I,and '1 ranspv/tfcS'/;^
Postal Ser\ ices, Teleeommunicalions, and Ail rranH|)<nfaiion; ^m\\KWA
have an Executive Director who shall assist I lie respective Assist*?,'/*
Secretaries in the implementation and enforcement of the policies,
programs and projects, and the pertinent laws on their respective <z/c<sts
of responsibilities. ( Tv added by FA) 201)
Section 10. Structural Organization, ----- The Department, aside
from the Department proper, which is comprised, of the Offices of the
Secretary, Undersecretary and Assistant Secretaries shall include the
Department Regional Offices and the attached agencies and corporations
referred to in Section 14 hereof.
The Office of the Secretary shall have direct line supervision and
control over the Department regional offices. The Department proper
shall be responsible for developing and implementing policies, plans,
programs and projects for the Department. (As amended by EO 125-A)
Section 11. Department Regional Offices. — The Department
shall have three (3) Department Regional Offices in each of the
administrative regions of the country: the Department Regional Office for
Land Transportation, the Department Regional Office for
Telecommunications and the Department Regional Office for Postal
Services. The present Regional Offices of the Land Transportation
Commission are hereby abolished and their functions are transferred to
the respective Department Regional Offices for Land Transportation. The
present Regional Offices of the Bureau of Telecommunications are
hereby abolished and their functions are transferred to the respective
Department Regional Offices for Telecommunications. The present
Regional Offices of the Bureau of Posts are hereby abolished and their
functions are transferred to the corresponding Department Regional
Offices for Postal Services. Each Department Regional Office shall be
headed by a Department Regional Director and assisted by a Department
Assistant Regional Director. The present Airport Offices of the Bureau of
Air Transportation are hereby abolished and their functions are
transferred to the Department Airport Offices. The abolition of the herein
Regional Offices and the transfer of their functions shall be governed by
the provisions of Section 15(b) hereof.

627
 TRANSPORTATION TAWS

The Department Regional Offices shall essentially he line in character

and shall be responsible for the delivery of all front line services of the
Department.
For such purposes, the Department Regional Offices shall have, within
their respective administrative regions, the following functions:
a) Implement laws, and policies, plans, programs, projects,
rules and regulations of the Department;
b) Provide efficient, and effective service to the people;
c) Coordinate with regional offices of other departments,
offices and agencies;
d) Coordinate with local government units;
e) Perform such other functions as may be provided by law.
(As amended by EO 125-A)
Section 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;

628
 APPENDIX A
EXECUTIVE ORDHK NO. 125

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, ship repair, shipbreaking, domestic and
overseas shipping, ship management and agency;
j) Issue and register the continuous discharge book of Filipino
seamen;
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. (As amended by EO 125-A)
Section 13. Abolition/Transfer/Consolidation. —
a) The Land Transportation Commission is hereby abolished
and its staff functions are transferred to the service offices of the
Department Proper and its line functions are transferred to the
Department Regional Offices for Land Transportation as provided in
Section 11 herein. Such transfer of functions is subject to the
provisions of Section 15(b) hereof. The quasi-judicial powers and
functions of the Commission are transferred to the Department. The
corresponding position structure and staffing

629
 TRANSPORTATION l AWS

pattern shall be approved and prescribed by the Secret 1117 pursuant

to Section 1 e> hereof.
b) PNL Leasing, Inc. is hereby abolished and its functions
are transferred to Philippine National Lines, Inc. subject to the
provisions of Section 15(b) hereof. The Secretary of Transportation
and Communications or his designated representative shall be the
Chairman of the Board.
c) The National Aero Manufacturing, Inc. and the Philip-
pine Aero Systems, Inc. are hereby abolished in accordance with the
provisions of Section 15(a) hereof.
d) The Civil Aeronautics Board is hereby transferred from
the Department of Tourism to the Department as an attached agency
in accordance with the provision of Section 15(a) hereof. The
Secretary of Transportation and Communications or his designated
representative shall be the Chairman of the Board.
e) The Maritime Training Council’s function of issuing
certificates of competency to seamen under LOI 1404 is hereby
transferred to the Maritime Industry Authority. (As amended by EO
125-A)
Section 14. Attached Agencies and Corporations. —
a) The following agencies and corporations are attached
to the Ministry: the Philippine National Railways, the Maritime
Industry Authority, the Philippine National Lines, the Philippine
Aerospace Development Corporation, the Metro Manila Transit
Corporation, the Office of Transport Cooperatives, the Philippine
Ports Authority, the Philippine Merchant Marine Academy, the
Toll Regulatory Board, the Light Rail Transit Authority, the
Transport Training Center, the Civil Aeronautics Board, the
National Telecommunications Commission and the Manila
International Airport Authority.
b) An Airport Security Center is hereby created within
the Manila International Airport Authority, to plan, supervise,
control, coordinate, integrate and direct intelligence and
operational activities of all police and military units, security and
safety

630
 \m;vo\\ A
b'WCVTW V ORDt R NO. 1YS

service units, government monitoring mul intelligence units and other

security operating units employed by government entities and or by private
agencies in the Manila International An port. The Center is under the direct
supervision and control of the MIAA General Manager. Moreover, the
Authority shall be authorized to organize a Manila International Airport
Police Force with all the police powers necessary to implement the
objectives of the Center.
The exercise of supervision and control by the Airport Security’
Center does not include the transfer of appropriation, equipment and
personnel to the said Authority : Provided, That the Airport Security
Center may cause the deployment of equipment and personnel in such
manner it deems necessary in the discharge of its functions.
Section 15. Transitory Provisions. — In accomplishing the acts of
reorganization herein prescribed, the following transitory provisions shall be
complied with, unless otherwise provided elsewhere in this Executive Order:
a) The transfer of a government unit shall include the functions,
appropriations, funds, records, equipment, facilities, chooses in action,
rights, other assets and liabilities, if any, of the transferred unit as well as the
personnel thereof, as may be necessary, who shall, in a hold over capacity,
continue to perform their respective duties and responsibilities and receive
the corresponding salaries and benefits unless in the meantime they are
separated from government service pursuant to Executive Order No. 17
(1986) or Article III of the Freedom Constitution. Those personnel of the
transferred unit whose positions are not included in the Ministry’s new
position structure and staffing pattern approved and prescribed by the
Minister or who are not reappointed shall be deemed separated from the
service and shall be entitled to the benefits provided in the second paragraph
of Section 16 hereof.
b) The transfer of functions which results in the abolition of the
government unit that has exercised them shall include the

631
 I KANSI'ORIAI ION I.AWS

appropriations, funds, records, equipment, facilities, choscs in action,

rights, other assets and personnel as may be necessary to the proper
discharge of the transferred functions. The abolished unit's remaining
appropriations and funds, if any, shall revert to the General Fund and its
remaining assets, if any, shall be allocated to such appropriate units as the
Minister shall determine or shall otherwise be disposed in accordance with
the Government Auditing Code and other pertinent laws, rules and
regulations. Its liabilities, if any, shall likewise be treated in accordance
with the Government Auditing Code and other pertinent laws, rules and
regulations. Its personnel shall, in a hold over capacity, continue to perform
their duties and responsibilities and receive the corresponding salaries and
benefits unless in the meantime they are separated from the service pursuant
to Executive Order No. 17 (1986) or Article III of the Freedom
Constitution. Its personnel, whose positions are not included in the
Ministry’s new position structure and staffing pattern approved and
prescribed by the Minister under Section 16 hereof or who are not
reappointed, shall be deemed separated from the service and shall be
entitled to the benefits provided in the second paragraph of the same Section
16.
c) The transfer of functions which does not result in the abolition
of the government unit that has exercised them shall include the
appropriations, funds, records, equipment, facilities, chooses in action,
rights, other assets and personnel as may be necessary to the proper
discharge of the transferred functions. The liabilities, if any, that may have
incurred in connection with the discharge of the transferred functions, shall
be treated in accordance with the Government Auditing Code and other
pertinent laws, rules and regulations. Such personnel shall, in a hold-over
capacity, continue to perform their respective duties and responsibilities
and receive the corresponding salaries and benefits unless in the meantime
they are separated from the service pursuant to Executive Order No. 17
(1986) or Article III of the Freedom Constitution. Personnel, whose
positions are not included in the Ministry’s new position structure and
staffing pattern approved and prescribed by the Minister under Section 16
hereof or who

632
 MM'INI’IV \
IMi I'llN I \ Mil MM Nl » \ )‘\

Ivi'v » U M Krn ivappointed. shall In* deemed sepiuntrd hotn tin: i\ \wy \'
u\ y \ ho t’nlifIt'll to llu' benefits provided in tin; second l* M ojoiph o( the
same Section 16.
'll In ease oflhe abolition of a government unit which dees not
«vsnlt in the transfer of its functions to another unit, the unions nnil
funds of the abolished unit shall revert to the 'Amoral fund while the
records, equipment, facilities, chooses in aeiion. lights, and other assets
thereof shall be allocated to such appiopnato units as the Minister shall
determine or shall otherwise Iv disposed in accordance with the
Government Auditing Code and other pertinent laws, rules and regulations.
The liabilities of the abolished unit shall be treated in accordance with the
Government Auditing C ode and other pertinent laws, rules and
regulations , while the personnel thereof, whose positions are not included
in the Ministry's new position structure and staffing pattern ap proved and
prescribed by (he Minister under Section 16 hereof or who have not been
reappointed, shall be deemed separated from the service and shall be entitled
to the benefits provided in the second paragraph of the same Section 16.
e) In case of merger or consolidation of government units, the new or
surviving unit shall exercise the functions (subject to the reorganization herein
prescribed and the laws, rules and regulations pertinent to the exercise of such
functions) and shall acquire the appropriations, funds records, equipment,
facilities, chooses in action, rights, other assets, liabilities if any, and
personnel, as may be necessary, of (1) the units that compose the merged unit
or (2) the absorbed unit, as the case may be, Such personnel shall, in a hold
over capacity, continue to pci form their respective duties and responsibilities
and receive the corresponding salaries and benefits unless in the meantime they
arc separated from the service pursuant to Executive Order No.
17 (1986) or Article 111 of the Freedom Constitution. Any such personnel,
whose position is not included in the Ministry’s new position structure and
staffing pattern approved and prescribed by the Minister under Section 16
hereof or who is not reappointed, shall be deemed separated from the
service and shall be entitled
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to the benefits provided in the second paragraph of the same Section 16.
fj In case of termination of a function which does not result in the
abolition of the government unit which has performed such function, the
appropriations and funds intended to finance the discharge of such
function shall revert to the General Fund, while the records, equipment,
facilities, chooses in action, rights and other assets used in connection with
the discharge of such function shall be allocated to the appropriate units as
the Minister shall determine or shall otherwise be disposed in accordance
with the Government Auditing Code and other pertinent laws, rules and
regulations. The liabilities, if any, that may have been incurred in
connection with the discharge of such function shall likewise be treated in
accordance with the Government Auditing Code and other pertinent laws,
rules and regulations. The personnel who have performed such function,
whose positions are not included in the Ministry’s new position structure
and staffing pattern approved and prescribed by the Minister under
Section 16 hereof or who have not been reappointed, shall be deemed
separated from the service and shall be entitled to the benefits provided in
the second paragraph of the same Section 16.
Section 16. New Structure and Pattern. — Upon approval of this
Executive Order, the officers (the term “officer” as used in this Executive Order
is intended to be within the meaning of the term “official” as used in the
Freedom Constitution) and employees of the Ministry shall, in a hold over
capacity, continue to perform their respective duties and responsibilities and
receive the corresponding salaries and benefits unless in the meantime they are
separated from government service pursuant to Executive Order No. 17 (1986)
or Article III of the Freedom Constitution.
The new position structure and staffing pattern of the Ministry shall be
approved and prescribed by the Minister, for the Ministry, within one hundred
twenty (120) days from the approval of this Executive Order and the authorized
positions created thereunder shall be filled with regular appointments by him or
by the President as the

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case may he. Those incumbents whose positions are not included therein or who
are not reappointed shall be deemed separated from the service. Those separated
from the service shall receive the retirement benefits to which they may be entitled
under existing laws, rules, and regulations. Otherwise, they shall be paid the
equivalent of one-month basic salary for every year of service, or the equivalent
nearest fraction thereof favorable to them on the basis of the highest salary
received, but in no case shall such payment exceed the equivalent of 12 month’s
salary.
No court or administrative body shall issue any writ or preliminary
injunction or restraining order to enjoin the separation/replacement of any officer
or employee effected under this Executive Order.
Section 17. Prohibition Against Changes. — No change in the
reorganization herein prescribed shall be valid except upon prior approval of
the President for the purpose of promoting efficiency and effectiveness in the
delivery of public service.
Section 18. Implementing Authority of Minister. — The Minister shall
issue such orders, rules, regulations and other issuances as may be necessary to
ensure the effective implementation of the provisions of this Executive Order.
Section 19. Notice or Consent Requirements. — If any
reorganizational change herein authorized is of such substance or materiality
as to prejudice third persons with rights recognized by law or contract such
that notice to or consent of creditors is required to be made or obtained
pursuant to any agreement entered into with any of such creditors, such notice
or consent requirement shall be complied with prior to the implementation of
such reorganizational change.
Section 20. Funding. — Funds needed to carry out the provisions of
this Executive Order shall be taken from funds available in the Ministry.
Section 21. Change of Nomenclature. — In the event of the
adoption of a new Constitution, which provides for a presidential form of
government, the Ministry shall be called Department of Transportation and
Communications and the titles of Minister, Deputy Minister, and

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Assistant Minister shall be changed to Secretary, Undersecretary and

Assistant Secretary, respectively.
Section 22. Separability. — Any portion or provision of this
Executive Order that may be declared unconstitutional shall not have the
effect of nullifying other portions or provisions hereof, as long as such
remaining portions or provisions hereof, as long as such remaining portions
or provisions can still consist and be given effect in their entirety.
Section 23. Repealing Clause. — Presidential Decree No. 890, Letter
of Instruction Nos. 263 and 371, Executive Order No. 1011 dated March 20,
1985 are hereby repealed. All laws, ordinances, rules, regulations, other
issuances of parts thereof which are inconsistent with this Executive Order
are hereby repealed or modified accordingly.
Section 24. Ejfectivity. — This Executive Order shall take effect
immediately upon its approval.
DONE in the City of Manila, Philippines, this 30th day of January in
the year of Our Lord, Nineteen Hundred and Eighty-Seven.

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