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)

Other matters not regulated by NCC with regards the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special
laws.

TRANSPORTATION LAWS AND THE CONSTITUTION

The Constitution is the Supreme Law of the land. If there is conflict between a
statute and the Constitution, the statute shall yield to the Constitution. (Diaz,
Statutory Construction, p. 249, 2000 Ed.)

The Constitution (Article XII of the National Economy and Patrimony) provides
some restrictions in the issuance of franchise to public utilities, which includes
transportation industries.

“Sec. 11. (GR) No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be granted
(EXC) 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.

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

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 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 xxx.”
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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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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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.

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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

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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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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.

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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

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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.

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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

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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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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.

17
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.”

18
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
 w

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

*

FACTS: It appears that on 16 January 1984, plaintiff (Valenzuela

r

t
Hardwood and Industrial Supply, Inc.) entered into a charter party with the
m

defendant Seven Brothers (Shipping Corporation) whereby the latter

e

s
undertook to load on board its vessel M/V Seven Ambassador the former’s
e

lauan round logs numbering 940 at the port of Maconacon, Isabela for
o

shipment to Manila.
s

:
The said vessel M/V Seven Ambassador sank on January 25,1984
s

resulting in the loss of the plaintiff’s insured logs. There is no dispute

o

between the parties that the proximate cause of the sinking of M/V Seven
n

a
r

T
-

Ambassadors resulting in the loss of its cargo was the “snapping of the
K

B
iron chains and the subsequent rolling of the logs to the portside due to the
B
-

Q
negligence of the captain in stowing and securing the logs on board the
f

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

19
TRANSPORTATION LAWS

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

20
CHAPTER I
 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

21
TRANSPORTATION LAWS

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
TRANSPORTATION LAWS

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

J
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
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
- U
of its duty prescribed in Article 1755 of
the Civil Code.”
F

CHAPTER 1 Neither do the Court agrees with

PRELIMINARY CONSIDERATIONS
PGA1 was later dropped as a party
defendant after it paid the insurance
proceeds to LOADSTAR.
LOADSTAR’S argument that the
“limited liability” theory should be
applied in this case. The doctrine of
limited liability does not apply where
there was negligence on the part

The Regional Trial Court of Manila

CW8
£ - c determined to be moderate.
Since it was remiss in the
of the vessel owner or agent. performance of its duties,
LOADSTAR was at fault or LOADSTAR cannot hide
negligent in not maintaining behind the “limited liability”
a seaworthy vessel and in doctrine to escape
having allowed its vessel to responsibility for the loss of
sail despite knowledge of an the vessel and its cargo.
approaching typhoon. In any Fault or Negligence;
event, it did not sink Proximate Cause, Defined
because of any storm that
may be deemed as force Sabena Belgian World and Ma. Paula San Agustin
majeure, inasmuch as the Airlines v. Hon. Court of G.R. No. 104685, March
wind condition in the area Appeals 14,1996
where it sank was FACTS: On August 21,
1987, plaintiff was a
passenger on board Flight
SN 284 of defendant airline
originating from Casablanca J DIVERSITY OF THE
to CORDILLERAS |

29
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

32
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.

35
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.

37
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.
 38
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. 39

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.

40
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.

43
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

44
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
 46
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
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.”

K

Although a charter party may transform a common carrier into a private

o

one, the same however is not true in a contract of affreightment on account of

the S

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