4B 2020-2021

Notes for Merc Rev 2

A: The smart answer is to sue everybody.

MARCH 11, 2021
That’s why in your outline, the consignee
HEISENBERG
sues the freight forwarder, the common
carrier, the arrastre operator, and even the
TRANSPORTATION LAWS carrier. Let them file cross-claim against each
other.

RECITATION The one liable ultimately is the one under

whose custody or possession the goods were
lost or damaged.
Q: A shipper from a foreign country
engaged the services of a freight forwarder
Q: Is the freight forwarder a common
to look for a common carrier that will ship
carrier?
the goods from the foreign country in
favor of a consignee based in the
GR: Freight forwarder is not a common
Philippines. The freight forwarder loaded
carrier
the goods into the vessel. The shipowner is
a common carrier. The vessel arrived at
XPN: The freight forwarder becomes a
the port of destination and the goods were
common carrier
off loaded from the vessel by the arrastre
operator. Custom broker was engaged by
1) if it arranges or assumes the obligation of
the consignee to take the shipment out of
common carrier in which it undertakes or
the customs after payment. The customs,
deliver the goods to the consignee
not having any vehicle to transport the
goods to the consignee, engaged a trucking
2) if freight forwarder issues a bill of lading.
company which will deliver the goods to
the consignee. Out of the 14 drums to be
The freight forwarder is liable only if there
delivered, 1 is missing. The consignee does
was negligence on its part in choosing the
not know in whose custody or possession
vessel that will consummate the contract of
the goods were lost.
carriage.

The consignee files a claim with the

If the vessel is not seaworthy, for example,
insurance company. The insurance
but vouched for by the freight forwarder, then
company paid the consignee and therefore
the freight forwarder in that case becomes
subrogated to the rights of the consignee.
liable for damages.

If you are the consignee, against whom will

The freight forwarder is not a common
you have a cause of action for the damage
carrier, that is what the Supreme Court said
brought about by the loss of the goods?
in Unsworth v. CA, unless it also undertakes
delivery of the goods to the consignee. If it

Page 1 of 139

only arranges for delivery, then it is not liable
as a common carrier. There are only two
cases where the freight forwarder may be
liable as a common carrier.
Q: What if the goods were not lost but only
damaged while being off loaded in the
vessel? Is the arrastre operator liable as a
common carrier?
A: No, the arrastre operator is not liable as a
common carrier because an arrastre operator
is not a common carrier.
Q: How do you describe the contract
engaged by the arrastre operator? With
whom does it contract with?
A: It contracts with the Philippine Ports
Authority. The Supreme Court said it is not
one contract of carriage but a contract that
emanates from its relationship with the
Philippine Ports Authority.
Since it is not a common carrier, it has no
obligation to exercise extraordinary
diligence. The fault may be negated by
showing not of extraordinary diligence but
simply due diligence in the preservation and
safe keeping of the goods.
Q: What are the principal duties of a
custom broker?
a) Pays import duties,
b) Signs declaration form, and
c) Performs any other task necessary to cause
the release of the shipment to the customs.
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Q: What if the custom broker does not own
any vehicle? Can it be considered a
common carrier?
A: Yes, in Torres-Madrid Brokerage v.
Feb Mitsui, the custom broker does not have
to own a vehicle to contract or to deliver the
goods to the consignee. The custom broker is
a common carrier. The Supreme Court
consistently held that the custom broker is a
common carrier even though its principal
duties do not consist of delivery of the goods
to the consignee. Release of shipment to the
customs does not end the obligation of the
broker. He is engaged by the consignee to
make sure that the goods are turned over to
the consignee. Therefore, transportation is an
integral part of its business or activity.
It is not necessary that the transportation
aspect of your business is a principal activity
to be a common carrier. It can be an ancillary
activity as long as you hold out to the public
that you are engaged to transportation
business.
Q: Is the trucking company a common
carrier?
A: In Loadmasters v. Glodel, if the trucking
company is exclusive to the custom broker, it
is a private carrier. But if it offers its services
to others, even though it may have few
clients, then it becomes a common carrier.
Q: Can the consignee sue the custom
broker for breach of contract of carriage?
A: Yes.

Q: Why is it that the consignee cannot sue
the trucking company for breach of
contract of carriage?
A: In Loadmasters v. Glodel, the Supreme
Court said the consignee can sue the trucking
company but in Torres-Madrid Brokerage
v. Feb Mitsui and a more recent decision, the
Supreme Court said the consignee cannot sue
the trucking company for breach of contract
because it never entered into a contract of
carriage with the trucking company.
It can sue the custom broker for breach of
contract of carriage and can sue the trucking
company for tort or quasi-delict, there being
no contractual relationship.
Q: If the custom broker pays the
consignee, can the custom broker sue the
trucking company for breach of contract
of carriage?
A: Yes, because there is a contract between
the custom broker and the trucking company.
The contract was breached because the goods
were lost. The Supreme Court said that while
the carrier cannot be sued for breach of
contract by the consignee, if the custom
broker pays the consignee for the loss or
damaged incurred, then the custom broker, in
turn, can sue the trucking company.
If the consignee sues the custom broker for
breach of contract, the custom broker can file
a third-party complaint against the trucking
company. If the custom broker is ordered to
pay by the court, he can get reimbursement
from the trucking company.
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Q: Can the party stipulate that the
obligation of the common carrier ends
when the goods are turned over to the
custom authorities?
A: Yes, while the Civil Code says that the
obligation of the common carrier ends when
the goods are received actually or
constructively by the consignee, such
stipulation is valid.
The Supreme Court said in Lu Do & Lu YM
Corporation v. Binamira that the obligation
of the carrier ends when the goods are
entrusted with the government, if stipulated.
Such stipulation is not contrary to public
policy.
If there is no stipulation, it only ends when
the goods are received actually or
constructively by the consignee.
DISCUSSION
1. What is a common carrier?
• A common carrier is a 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 its
services to the public. BAR 1996; Article
1732 of the Civil Code.
The definition is redundant because a
corporation is a person. Association has no
legal personality so you cannot sue an
association.

You can simply say that it is a person
engaged in the business of carrying or
transporting passengers or goods or both, by
land, water or air for compensation, offering
its services to the public.
The word “lawfully” is not prefixed before
business. Business is not qualified by lawful
conduct.
In Guzman v. CA, a certificate of public
convenience is not an element or condition to
be considered a common carrier. A person
engaged in an unlawful business of
transportation may be considered a common
carrier if it offers its services to the public. To
require a common carrier to be lawfully
engaged in the business of transportation
services before it may be considered a
common carrier would make it easy on the
part of any person to avoid the consequences
of being a common carrier. These
consequences are the presumption of fault or
negligence and the obligation to exercise
extraordinary diligence in the vigilance of the
goods and safety of passengers.
2. What is the test to determine whether a
person is a common carrier?
• The test to determine whether a person is
a common carrier is: does it hold out to
the public that it is engaged in the
business of transporting or carrying
passengers or goods, or both as a public
employment and not a casual occupation.
Is it open to the use and service of all
members of the public who may require
the service to the extent of its capacity. If
it is open to the public, the carrier is a
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common carrier. Marshall v. Public
Service Commission, 195 A. 475, 129 Pa.
Super. 272, cited in Perez, Quizzer in
Transportation Law, p. 9, 2009 edition
• It is not the quantity or extent of the
business actually transacted, or the
number and character of the conveyances
used in the activity, but whether the
undertaking is a part of the activity
engaged in by the carrier that he has held
out to the general public as his business
or occupation. If the undertaking is a
single transaction, not a part of the
general business or occupation engaged
in, as advertised and held out to the
general public, the individual or the entity
rendering such service is a private, not a
common, carrier. Spouses Teodoro and
Nanette Pereña v. Spouses Teresita
Philippine Nicolas And L. Zarate, 2012
In this case, the school bus offered its
services indiscriminately to a narrow
segment of the public. The law does not
require that the offering of transportation
services for compensation be made to the
general public. It is enough that it is made
indiscriminately to a narrow segment of the
public.
• The law 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.. the general community or
population, and one who offers services
or solicits business only from a narrow
segment of the general population. Pedro
De Guzman v. Court of Appeals, G.R. No.
L-47822, December 22, 1988.
• It is not also not necessary that the
common carrier be the owner of the
vehicle/vessel who will carry out the
carriage. The public is not required to
inquire as to the ownership of the
vehicle/vessel. Cebu Salvage case and
Torres Madrid Brokerage case.
In Cebu Salvage, the charterer is considered
as a common carrier because it offers
transportation services to the public.
In Torres Madrid Brokerage, the custom
broker does not own a single vehicle. The
Supreme Court said that it is not an element
or condition to be considered a common
carrier.
3. What are the requisites to be a common
carrier?
a) He must be engaged in the business of
transporting passengers or goods generally as
a business, not just as a casual occupation;
b) He must undertake to carry passengers or
goods over established roads by the method
by which the business was conducted; and
c) The transportation must be for hire.
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Spouses Perena, ibid; First Philippine
Industrial Pipeline v. Court of Appeals G.R.
No. 125948, December 29, 1989.
Q: A bus transportation company is
allowed by its franchise to ply the route
from Manila to Baguio. One of its buses
was hired by a group of students for a field
trip from Manila to Laguna. With respect
to the trip from Manila to Laguna, is it a
common carrier?
A: No. It is only considered a common carrier
for the trip from Manila to Baguio. But for
the Manila to Laguna trip, it is not the
established road and the method by which the
business was conducted by the transportation
company. Therefore, for the Manila to
Laguna trip, it is only a private carrier. The
owner of the transportation company can
exempt itself on account of negligence of its
employees if there is stipulation. But that
stipulation is void in case of common
carriers.
4. L MN, Inc, operates a beach resort in a
secluded island off the coast of Puerto
Princesa City, Palawan. It operates three
(3) motorized boats to ferry its guests from
the city proper to the island resort and vice
versa. During one rainy morning, the
guests were informed that the ferry
services for that day were cancelled due to
a storm forecast. In order to appease the
apparent dismay of most of the guests who
will miss their flight back to Manila, the
boat captain of one of LMN, Inc's
motorized Bats decided to push through
with its trip back to the city. Shortly after

the boat sailed, the storm hit and the winds
and waves became stronger, causing
engine trouble to the boat. Unfortunately,
the boat capsized and sank, resulting in the
death of one of the passengers, Mr. X. This
prompted Mr. X's heirs to file a complaint
for damages against LMN, Inc., which
they alleged to be a common carrier. In its
defense, LMN, Inc. maintained that it is
not a common carrier because its boats are
not available to the general public but only
ferry resort guests and employees.
May LMN, Inc. be considered a common
carrier? Explain.
• LMN is a common carrier. Common
carrier are persons engaged in the
business of transporting or carrying
passengers or goods or both, by land, air
and water, offering their services to the
public, for compensation, The test does
not make a distinction whether the
carrying is done as the principal or as an
auxiliary activity or that the carriage was
periodic, occasional, episodic or
unscheduled or has limited clientele. It is
not necessary that the transportation
services be offered to the General public.
Offering the services even to a narrow
segment of the public suffices. Thus, the
fact that the transportation services are
offered only to the guests of the beach
resort is immaterial. Transportation is an
integral part of L MN's business. Spouses
Cruz vs Sun Holidays, GR No. 186312,
June 29, 2010.
5. Are the following persons common
carrier?
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1. Freight forwarder - A freight forwarder
is not a common carrier: It merely chooses or
selects the common carrier, A freight
forwarder's liability is limited to damages
arising from its own negligence in choosing
the carrier; however, where the forwarder
contracts to deliver goods to their destination
instead of merely arranging for their
transportation, it becomes liable as a common
carrier for loss or damage to goods. A freight
forwarder assumes the responsibility of a
carrier, which actually executes the transport,
even though the forwarder does not carry the
merchandise itself. Unsworth Transport
International (Phils.), Inc., v. Court of
Appeals and Pioneer Insurance and Surety
Corporation, G.R. No. 166250, July 26,
2010.
2. Shipowner - The shipowner is a common
carrier. He is engaged in the business of
transporting goods for compensation and
offers his services to the public.
3. Arrastre operator - An arrastre operator
is not a common carrier, The functions of an
arrastre operator involve the handling of
cargo deposited on the wharf or between the
establishment of the consignee or shipper and
the ship's tackle. Being the custodian of the
goods discharged from a vessel, an arrastre
operator's duty is to take good care of the
goods and to turn them over to the party
entitled to their possession. Westwind
Shipping Corporation v. UCPB General
Insurance Co., GR no. 2002289, November
25, 2013; Asian Terminals v Daehan Fire
and Marine Insurance, G.R. No. 171194,
February 4, 2010.

Arrastre operator is akin to a warehouseman.
Therefore, the obligation required of it is
simply ordinary diligence to safekeep and
preserve the goods until they are picked up or
obtained by the consignee.
In Westwind Shipping Corporation v.
UCPB General Insurance Co., the arrastre
operator and common carrier are liable
solidarily to the consignee in case where
there is damage while the goods are being off
loaded from the vessel.
This is the only case where the Supreme
Court said that the arrastre operator and
common carrier are liable solidarily. In all
other cases, not solidary. They are liable but
they have different source of liability or
obligation.
4. Customs Broker - Although its principal
function is to prepare the correct customs
declaration and proper shipping documents
as required by law, the transportation of
goods is, nevertheless, an integral part of a
customs broker, thus, the customs broker is
also a common carrier. For to declare
otherwise would be to deprive those with
whom it contracts the protection which the
law affords them notwithstanding the fact
that the obligation to carry goods for its
customers, is part and parcel of its business.
Westwind Shipping Corporation v. UCPB
General Insurance co., GR no. 2002289,
November 25, 2013. A.F Sanchez Brokerage
v. Court of Appeals, G.R. No. 147079,
December 21, 2004
5. Trucking company - It was held that a
person is a common carrier because it is
engaged in the business of transporting goods
by land, through its trucking service. In this
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case, a customs broker contracted with a
trucking company. The transportation
services are not exclusive to the custom's
broker. Even though it has few clients, the
trucking company was considered a common
carrier. If the trucking company caters only
to the customs broker, then, it is a private
carrier. Loadmasters Customs Services v.
Glodel Brokerage Corporation, G.R. No.
179446, January 10, 2011
6. Cite other examples of common carrier.
1. Barge operator
- Asia Lighterage and Shipping, Inc. v. Court
of Appeals, G.R. No. 147246, August 9, 2003,
409 SCRA 340.
2. Passenger jeepney, bus company, or a
taxi company
- Batangas Transportation v. Orlanes, 52
Phi/ 455, cited in Perez, p. 9
3.Vessels engaged in inter-island shipping
- De Villola v. Stanley, 32 Phil. 541, cited in
Perez, ibid
4. Cargo truck to transport anybody's
goods for a fee
- Benedicto v. IAC, 187 SCRA 547, cited in
Perez, ibid.
7. Is a pipeline operator a common
carrier?
• Yes. 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
 4B 2020-2021
Notes for Merc Rev 2

persons indifferently, that is, to all narrow segment of the public only (like
persons who choose to employ its students whose parents reside in one
services, and transports the goods by land subdivision only).
and for compensation. The fact that the
pipeline operator has a limited clientele 9. Is a travel agency a common carrier?
does not exclude it from the definition of
a common carrier. Moreover, the
• A travel agency is not a common carrier.
definition of "common carriers" in the
It only arranges for the transportation of
Civil Code makes no distinction as to the
its clients for air carriage. As such, it is
means of transporting, as long as it is by
not bound to exercise extraordinary
land, water or air. It does not provide that
diligence in the performance of its
the transportation of the passengers or
obligations. Crisostomo v. Court of
goods should be by motor vehicle First
Appeals, infra.
Philippine Industrial Pipeline v. Court of
Appeals, G.R. No. 125948, December 29,
10. What laws govern transportation
1989.
contracts?

8. Are school bus operators common

Land Transportation
carrier? Primary Suppletory
Contract
Law Law
• Yes. Persons engaged in the business of Common New Civil Code of
transporting students from their Carrier Code Commerce
respective residences to their school and Private
Carrier Code of New Civil
back are considered common carrier.
(Object Commerce Code
Despite catering to a limited clientele, Commerce)
they operated as a common carrier New Civil Code (law on
Object non-
because they held themselves out as a deposit if property/law on
commerce
ready transportation indiscriminately to contracts if passenger)
the students of a particular school living
within or near where they operated the Air Primary Suppletory
service and for a fee. Spouses Pereña v. Transportation Law Law
Spouses Nicolas, G.R. No. 157917, a. Phil. as New Civil Code of
destination Code Commerce
August 29, 2012.
Treaties, Intl
b. Phil. as one
agreement, New Civil
• That a school bus operator is considered of the
Montreal Code
itineraries
common carrier should be viewed in the Convention
context by which the Supreme Court
made such ruling. The school bus Water Primary Suppletory
operator indiscriminately offered its Transportation Law Law
transportation services even though to a

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Inter-island New Civil Code of common carrier because its transportation

shipping Code Commerce services are indiscriminately offered to the
Code of public.
Foreign port to New Civil
Commerce /
Philippine port Code
COGSA
Philippine port Law of the Country of 13. May a Common carrier be converted
to Foreign Port Destination (Art. 1753) to private carrier by stipulation?

11. What is a private carrier? • Yes. A common carrier may be converted

• A private carrier is one who, without
making it his vocation or holding himself
out to the public as ready to act for all
who desire his services, undertakes, by
special arrangement in a particular
instance only, to transport persons or
property from one destination to another,
either gratuitously or for hire. Spouses
Tedoro and Nanette Perena v. Spouses
Teresita Philippine Nicolas and L.
Zarate, G.R. No. 157917, August 29,
2012
12. Give examples of private carriers.
• bareboat charter
• funeral car
• an exclusive contractor for hauling the
products of one particular and no other
entity
• company bus ferrying employees to and
from place of work.
Even if the employees reach 200, it is still a
private carrier because the transportation
service is only limited to the group of
employees.
In Spouses Pereña case, even if there are only
40 passengers, it is still considered as a
to a private carrier in case of bareboat or
demise charter, that is, the ship owner lets
the vessel and the crew insofar as that
particular voyage is concerned. Common
carrier retains its status as such in case of
voyage or time charter, where the charter
is limited to the ship. Caltex
(Philippines), Inc. v. Sulpicio Lines, Inc.,
G.R. No. 131166. September 30, 1999.
• It was held in one case that carrier was
converted into a private carrier
notwithstanding the existence of the Time
Charter Party agreement since the said
agreement was not limited to the ship
only but extends even to the control of its
crew. Despite the denomination as Time
Charter by the parties, their agreement
undoubtedly reflected that their intention
was to enter into a Bareboat Charter
Agreement. Federal Phoenix Assurance
v. Fortune Sea Carrier, G.R. No. 188118,
November 23, 2015
14. Name two characteristics which
differentiate a common carrier from a
private carrier.
Two characteristics that differentiate a
common carrier from a private carrier are:

Page 9 of 139

1. A common carrier offers its service to the
public; a private carrier does not.
2. A common carrier is required to observe
extraordinary diligence; a private carrier is
only required to exercise ordinary diligence.
BAR 2002; Spouses Perena, ibid.
The other distinctions are as follows:
a. The rights and obligations of the parties to
a contract of private carriage are governed
principally by their stipulations. whereas, in
a contract of public carriage, the rights and
obligations of the parties are governed by law
and the terms of the contract of carriage.
b. As to whether or not it may refuse to enter
into a contract of carriage — A common
carrier is bound to carry for all who offer such
goods as he is accustomed to carry and tender
reasonable compensation for carrying them.
A private carrier is not bound to carry for any
reason, unless bound by a contract.
c. As to exemption for negligence of
employees —
A common carrier cannot stipulate that it is
exempt from liability on account of the
negligence of its employees. Such stipulation
is void for being contrary to public policy. A
private carrier may validly enter into such
stipulation because the public is not involved.
Loadstar Shipping v. Court of Appeals, G.R.
No. 131621, September 28, 1999.
Much of the distinction between a "common
or public carrier" and a "private or special
carrier" lies in the character of the business,
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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.
Philippine American General Insurance
Company v. PKS Shipping Company, G.R.
No. 149038, April 9, 2003.
15. Mabuhay Lines, Inc. a common
carrier, entered into a contract with
Company X, whereby it agreed to furnish
Company X, for a fixed amount, a bus for
a company excursion on its anniversary
day. It was agreed that Company X would
have the use of the bus and its driver from
7:00 am to 7:00 pm on the stipulated date,
and that the bus driver would be obliged to
follow the instructions of the company's
general manager as to the places to be
visited. Company X agreed to bear the cost
of the gasoline consumed. The
transportation contract signed by
Company X contained a stipulation that
Mabuhay Lines, Inc. would be exempt
from liability on account of acts or
omissions of its employees. On the return
trip from the excursion site, the bus had an
accident and several employees of
Company X were injured. State the
liability, if any, of Mabuhay Lines, Inc.
• Although a common carrier, Mabuhay
Lines, Inc. was not acting as such in the
instant case but as a private carrier.
Accordingly, the provision applicable to
a common carrier in respect of

extraordinary diligence cannot be
imposed upon the bus company. The
stipulation limiting the liability of
Mabuhay Lines, Inc. is valid and the bus
company cannot be held liable for the
injuries suffered by the employees of
Company X on the basis Of the contract
Of carriage. However, the employees
Who were injured may proceed against
the bus company on the basis of a quasi-
delict (culpa aquiliana) but the party
charging negligence or wrong doing has
the burden of proving the same.
• It has been held that a common carrier is
exempt from the application of the strict
public policy governing common carriers
where the carrier is not acting as such but
as a private carrier. Such strict public
policy has no force where the public at
large is not involved, as when the carrier
charters its bus totally for the use of a
single party, Home Ins. Co. v. American
Steamship Agencies, Inc. v. Luzon
Stevedoring Corp. L25599, April 24,
1968.
• Further, Article 1745 of the Civil Code
declaring a stipulation that the common
carrier shall not be responsible for the
acts or omissions of his or its employees
as unreasonable unjust and contrary to
public policy is not applicable here since
Company X and the bus company have
entered into a contract for private
carriage. Likewise, the presumption
created under Article 1756 of the Civil
Code, that in case of death or injuries to
passengers, common carriers are
presumed to have been at fault or to have
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acted negligently, unless they prove that
they observed extraordinary diligence,
finds no application here. BAR 1984
16. During the elections last May, AB, a
congressional candidate in Marinduque,
chartered the helicopter owned by Lode
Mining Corporation (CMC) for use in the
election campaign. AB paid LMC the same
rate normally charged by companies
regularly engaged in the plane chartering
business. In the charter agreement
between LMC and AB, LMC expressly
disclaimed any responsibility for the acts
or omissions of its pilot or for the defective
condition of the plane's engine. The
helicopter crashed killing AB.
Investigations disclosed that pilot error
was the cause of the accident. LMC now
consults you on its possible liability for
AB's death in the light of the above
findings.
How would you reply to LMC's query?
• I would reply to LMC's query as follows:
LMC is not liable for the death of AB.
LMC is not a common carrier, but a
private carrier, because it did not hold
itself to the public as being engaged in
transportation business, A stipulation
with a private carrier that would exempt
responsibility for simple negligence of
the carrier's employees is a valid
stipulation. Such a stipulation, however,
will not hold in cases of liability for gross
negligence or bad faith, BAR 1987

17. Respondent Ernesto Cendana, a junk
dealer, was engaged in buying up used
bottles and scrap metal in Pangasinan,
Upon gathering sufficient quantities Of
such scrap material, respondent would
bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks
which he owned for hauling the material to
Manila. On the return trip to Pangasinan,
respondent would load his vehicles with
cargo which various merchants wanted
delivered to differing establishments in
Pangasinan. For that service, respondent
charged freight rates which were
commonly lower than regular commercial
rates. Cendana, has no certificate of public
convenience. Petitioner Pedro de Guzman
a merchant and authorized dealer of
General Milk Company (Philippines),
Inco in Urdaneta, Pangasinan, contracted
with respondent for the hauling of 750
cartons of Liberty filled milk from a
warehouse of General Milk in Makati,
Rizal, to petitioner's establishment in
Urdaneta. Accordingly, respondent loaded
in Makati the merchandise on to his
trucks: 150 cartons were loaded on a truck
driven by respondent himself, while 600
cartons were placed on board the other
truck which was driven by Manuel
Estrada, respondent's driver and
employee.
Only 150 boxes Of Liberty filled milk were
delivered to petitioner. The other 600
boxes never reached petitioner, since the
truck which carried these boxes was
hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed
men who took with them the truck, its
Page 12 of 139
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driver, his helper and the cargo. Petitioner
commenced action against private
respondent demanding payment of the
value of the lost merchandise. Petitioner
argued that private respondent, being a
common carrier, and having failed to
exercise the extraordinary diligence
required Of him by the law, should be held
liable for the value of the undelivered
goods.
In his Answer, private respondent denied
that he was a common carrier and argued
that he could not be held responsible for
the value of the lost goods, such loss having
been due to force majeure.
Is private respondent a common carrier?
• Private respondent is properly
characterized as a common carrier even
though he merely "back-hauled" goods
for other merchants from Manila to
Pangasinan, although such backhauling
was done on a periodic or occasional
rather than regular or scheduled manner,
and even though private respondent's
principal occupation was not the carriage
of goods for others. There is no dispute
that private respondent charged his
customers a fee for hauling their goods;
that fee frequently fell below commercial
freight rates is not relevant here.
• 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. Pedro
De Guzman v. Court of Appeals and
Ernesto Cendana, G.R. No. L-47822,
December 22, 1988; BAR 1991 and
1996.
18. Is he liable for the loss of the goods?
• Private respondent is not liable for the
loss of the goods. The occurrence of the
loss must reasonably be regarded as quite
beyond the control of the common carrier
and properly regarded as a fortuitous
event. It is necessary to recall that even
common carriers are not made absolute
insurers against all risks of travel and of
transport of goods, and are not held liable
for acts or events which cannot be
foreseen or are inevitable, provided that
they shall have complied with the
rigorous standard of extraordinary
diligence.
DILIGENCE REQUIRED OF COMMON
CARRIERS
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Notes for Merc Rev 2
19. What is the diligence required of
common carriers?
• 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 passengers
transported by them according to all
circumstances of each case. Thus, under
Article 1735 of the same Code, in all
cases other than those mentioned in
Article 1734 thereof, the common carrier
shall be presumed to have been at fault or
to have acted negligently, in case of death
or injury to passengers or loss or damage
to goods, unless it proves that it has
observed the extraordinary diligence
required by law, American Home
Assurance Company v. Court of Appeals,
G.R. No. 94149, May 5, 199
• The notion of common carriers is
synonymous with public service under
Commonwealth Act No. 146 or the
Public Service Act. Due to the public
nature of their business, common carriers
are compelled to exercise extraordinary
diligence since they will be burdened
with the externalities or the cost of the
consequences of their contract of
carriage if they fail to take the precautions
expected of them.
• Common carriers are mandated to
internalize or shoulder the costs under the
contracts of carriage. This is so because a
contract of carriage is structured in such a
way that passengers or shippers surrender

total control over their persons or goods
to common carriers, fully trusting that the
latter will safely and timely deliver them
to their destination. In light of this
inherently inequitable dynarmcs— and
the potential harm that might befall
passengers or shippers if common
carriers exercise less than extraordinary
diligence— the law is constrained to
intervene and impose sanctions on
common carriers for the parties to
achieve allocative efficiency. Annie Tan
v. Great Harvest Enterprises, G.R. No.
220400, March 20, 2019
• In a contract of carriage, it is presumed
that the common carrier is at fault or is
negligent when a passenger dies or is
injured. In fact, there is even no need for
the court to make an express finding of
fault or negligence on the part of the
common carrier. This statutory
presumption may only be overcome by
evidence that the carrier exercised
extraordinary diligence. The fact that the
driver of the vehicle was acquitted in the
criminal action for reckless imprudence
has no bearing to the liability of the
carrier arising from breach of contract of
carriage. Heirs of Jose Marcia K. Ochoa
v. G&S Transport Corporation, G.R. No.
170071, 170125; 2011
This is yet to be asked in the Bar. It is not the
obligation of the aggrieved party to show
fault or negligence but is incumbent upon the
common carrier to show there was
extraordinary diligence to negate the
presumption of fault.
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Notes for Merc Rev 2
• The trial court is not required to make an
express finding of the common carrier's
fault or negligence. The presumption of
negligence applies so long as there is
evidence showing that: (a) a contract
exists between the passenger and the
common carrier; and (b) the injury or
death took place during the existence of
such contract. In such event, the burden
shifts to the common carrier to prove its
observance of extraordinary diligence,
and that an unforeseen event or force
majeure had caused the injury. However,
for a common carrier to be absolved from
liability in case of force majeure, it is not
enough that the accident was caused by a
fortuitous event. The common carrier
must still prove that it did not contribute
to the occurrence of the incident due to its
own or its employees' negligence.
Sulpicio Lines, Inc. vs. Napoleon Sesante,
Now Substituted By Maribel Atilano, Et
Al., G.R. No. 172682, July 27, 2016.
If the death or injury is caused by its own
employees, the law makes the common
carrier liable. It is not just presumed to be at
fault, but common carrier is liable for the
death or injury caused by its own employees
20. Peter So hailed a taxicab owned and
operated by Jimmy Cheng and driven by
Hermie Cortez. Peter asked Cortez to take
him to his office in Malate. On the way to
Malate, the taxicab collided with a
passenger jeepney, as a result of which
Peter was injured, i.e., he fractured his left
leg. Peter sued Jimmy for damages, based
upon a contract of carriage, and Peter
won. Jimmy wanted to challenge the

decision before the Supreme Court on the
ground that the trial court erred in not
making an express finding as to whether or
not Jimmy was responsible for the
collision and, hence, civilly liable to Peter.
He went to see you for advice. What will
you tell him? Explain your answer.
• I will counsel Jimmy to desist from
challenging the decision. The action of
Peter being based on culpa contractual,
the carrier's negligence is presumed upon
the breach of contract. The burden of
proof instead would lie on Jimmy to
establish that despite an exercise of
utmost diligence the collision could not
have been avoided. BAR 1990
21. Is extra-ordinary diligence required
only in the transportation of passengers
and carriage of goods?
• No. Common carriers are required to
exercise extraordinary diligence in the
performance of its obligations under the
contract of carriage. This extraordinary
diligence must be observed not only in
the transportation of goods and services
but also in the issuance of the contract of
carriage, including its ticketing
operations. The common carrier's
obligation to exercise extraordinary
Page 15 of 139
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Notes for Merc Rev 2
diligence in the issuance of the contract
of carriage is fulfilled, however, by
requiring a full review of the flight
schedules to be given to a prospective
passenger before payment, thus, even
assuming that the ticketing agent encoded
the incorrect flight information, it is
incumbent upon the purchaser of the
tickets to at least check if all the
information is correct before making the
purchase. Once the ticket is paid for and
printed, the purchaser is presumed to
have agreed to all its terms and conditions
Alfredo Manay, Jr., v. Cebu Air, Inc, G.R,
No. 210621, April 04, 2016, Leonen, J.
According to Justice Leonen in Manay v.
Cebu Air, the obligation to exercise
extraordinary diligence is not limited to the
vigilance over the goods or the safety of
passengers. It applies to all aspects of the
obligations of the carrier in the contract of
carriage. It even applies to the issuance of
ticket.
The obligation of the common carrier is
fulfilled as long as the passenger is given
opportunity to examine each and every page
of the ticket. Once the ticket is paid for and
printed, the purchaser is presumed to have
agreed to all its terms and conditions
 4B 2020-2021
Notes forMerc Rev 2

Q: The liability of the common carrier is

MARCH 13, 2021
penned at 90% of the value of the goods. Is
LUGAWISESSENTIAL
that valid?
A: Not valid, same reason, you do not give
RECITATION the shipper the option to declare higher value
or amount to be recovered.

We know that a common carrier may limits

Q: The liability of common carrier is
its liability in case of loss or destruction to
penned at $500 dollars per package unless
goods.
shipper declares higher valuation. Is that
valid?
2 provisions under the Civil Code on the
A: Valid
limitations of liability so far the common
carrier is concern:
Q: Assuming that the loss incurred by the
1. Fixing the liability into a certain
shipper is more than $500 dollars per
amount
package but he did not declare higher
- That stipulation is valid as long as
valuation. Can he recover more from the
it is fairly agreed upon by the
common carrier?
parties
A: No, it is a valid stipulation.

2. Limiting the liability based on the

Q: The loss of the goods was clearly based
value of the goods as declared in the
on the negligence of the common carrier.
Bill of Lading, unless the shipper
Can the shipper recover more than $500
declares higher valuation.
dollars per package?
A: Still no, because there is limit on the
Q: Limiting the liability of common
liability, whether or not there is negligence, it
carrier for 1,000 pesos. Is this valid?
is what stipulated and the shipper agreed to it.
A: Not valid, it must be fair and reasonable
under the circumstances.
Q: The goods were loss, the insured file a
case against the Insurance Company, this
Q: Can you say that it is fairly agreed upon
Company paid the insured the actual
if you don’t give the shipper the option to
amount or loss incurred by the insured. So
declare higher value or amount that can be
there is subrogation on the rights of the
recovered in case of loss or damage to
insured. Can the insurer recover based on
goods?
the amount it paid to the insured shipper
A: NO, it is void. Because you must give the
OR based on the limit of liabilities spelled
shipper the option to declare higher valuation
out in the Bill of Lading?
and to recover higher amount as long as the
A: Based on the limit of liabilities spelled out
shipper pays extra freightage that may be
in the Bill of Lading, that stipulation also
imposed by the common carrier.
binds the Insurance Company. So it cannot

Page 16 of 139

recover based on what he paid because he
merely steps on the shoes of the shipper and
acquires no right remedy better of that of the
insured.
Q: Again, $500 dollars per package unless
shipper declares higher valuation and the
Bill of Lading makes reference to a Letter
of Credit or invoice number. Meaning
there is invoice value that was referred to
in the Bill of Lading and the value is higher
than the limitation of liability spelled out
in the Bill of Lading. In case of loss or
damaged to the goods, how much can be
recovered by the shipper? It is the limit of
liability OR the actual invoice value of the
goods referred to in the Bill of Lading?
A: Still the limit of liability. Making
reference to the Bill of Lading or Letter of
Credit or insertion of invoice number in the
Bill of Lading does not tantamount to higher
declaration of the value of the goods.
Q: What about if the Bill of Lading makes
reference to an invoice number that
contains itemized list of the goods and the
shipper paid extra freightage. How much
can be recovered in case of loss or damage
to the goods? The limitation of liability
spelled out in the Bill of Lading OR the
actual value of the goods as itemized in the
invoice?
A: If there is an Itemized list of goods
referred to in the Bill of Lading and extra
freightage paid that amounts to higher
declaration of the value of the goods that
would entitled the shipper to recover higher
amout, higher than that what penned in the
Bill of Lading.
Page 17 of 139
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Notes forMerc Rev 2
Q: Is there statutory limit of liability under
the Civil Code for loss or damage to goods?
A: NONE
Q: What about under COGSA? Is there
one?
A: Yes, there is limit of liability. It is $500
dollars per package.
Q: What do you mean by per package,
container or per unit?
A: Per container
Q: If a container consists of 14
motorcycles. How much can be recovered,
$500 dollars per container OR $500
dollars per unit of motorcycle?
A: Per container unless the shipper declares
per unit and pays the corresponding freight
amount per unit.
Q: What about stipulation on limitation of
liability with respect to death or injury to
the passengers. So the liability of common
carrier in case of death or injury to
passengers does not exceed 100,000 pesos.
Would that be valid?
A: Not valid
Q: Can there be a case where that
stipulation would be valid?
A: Yes, in case of International Air
transportation. Under the Montreal
Convention, you can fixed the liability of air
carrier for death of injuries to passengers.
BUT not allowed by Law if it is within the
Philippines. If it is the Philippines is the place
of departure of place of destination or a
transaction outside the coverage of
appropriate Convention.
SLIDE
 4B 2020-2021
Notes forMerc Rev 2

CITE JURISPRUDENCE WHERE THE SUPREME Discussion

COURT RULED THAT THE COMMON CARRIER Q: When do we say that the vessel is
BREACHED ITS OBLIGATION TO EXERCISE seaworthy?
EXTRAORDINARY DILIGENCE. A:
1. Adequately equipped for the voyage
2. Adequately manned likewise with
A. WHEN THE COMMON CARRIER
sufficient number of experienced and
COULD NOT PRESENT EVIDENCE
competent number of crews to carry
THAT IT SPECIFICALLY 1INSTALLED
out the voyage
A RADAR WHICH COULD HAVE
ALLOWED THE VESSEL TO
NAVIGATE SAFELY FOR SHELTER SLIDE
DURING A STORM COUPLED WITH
THE NEGLIGENCE OF THE CAPTAIN C. THE TESTIMONIAL EVIDENCE OF
AS FOUND BY THE APPELLATE RESPONDENT SHOWED THAT
COURT WHICH WERE THE PETITIONER, THROUGH ITS BUS
PROXIMATE CAUSES OF THE DRIVER, FAILED TO OBSERVE
SINKING OF THE VESSEL. EXTRAORDINARY DILIGENCE, AND
AMERICAN HOME ASSURANCE WAS, THEREFORE, NEGLIGENT IN
COMPANY V COURT OF APPEALS, TRANSPORTING THE PASSENGERS OF
G.R. NO.94149, MAY 5, 1992 THE BUS SAFELY, SINCE THE BUS
BUMPED A TREE AND A HOUSE, AND
B. THE COMMON CARRIERS ARE CAUSED PHYSICAL INJURIES TO
DEEMED TO WARRANT IMPLIEDLY RESPONDENT. R.
TRANSPORT
THE SEAWORTHINESS OF THE SHIP. CORPORATION V. EDUARDO
FOR A VESSEL TO BE SEAWORTHY, PANTE, G. R. NO. 162104,
IT MUST BE ADEQUATELY EQUIPPED SEPTEMBER 15, 2009
FOR THE VOYAGE AND MANNED D. PETITIONERS FAILED TO PROVE
WITH A SUFFICIENT NUMBER OF THAT THEY DID EXERCISE THE
COMPETENT OFFICERS AND CREW. DEGREE OF DILIGENCE REQUIRED BY
THE FAILURE OF A COMMON LAW OVER THE GOODS THEY
CARRIER TO MAINTAIN IN TRANSPORTED. ASIDE FROM THEIR
SEAWORTHY CONDITION THE PERSISTENT DISAVOWAL OF
VESSEL INVOLVED IN ITS CONTRACT LIABILITY BY CONVENIENTLY
OF CARRIAGE IS A CLEAR BREACH POSING AN EXCUSE THAT THEIR
OF ITS DUTY PRESCRIBED IN EXTRAORDINARY RESPONSIBILITY
ARTICLE 1755 OF THE CIVIL CODE. IS TERMINATED UPON RELEASE OF
VECTOR SHIPPING CORPORATION THE GOODS TO THE PORTS
V. ADELFO MACASA, G.R. NO. AUTHORITY, PETITIONERS FAILED
160219, JULY 21, 2008 TO ADDUCE SUFFICIENT EVIDENCE

Page 18 of 139
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Notes forMerc Rev 2

THEY EXERCISED EXTRAORDINARY Another lesson that we can learn from this
CARE TO PREVENT UNAUTHORIZED case, SC said that if there is a proof that the
WITHDRAWAL OF THE SHIPMENTS. goods are delivered in a good condition and
NEDLLOYD LIJNEN B.V. receiver in bad condition, meaning there is
ROTTERDAM V. GLOW LAKS loss or deterioration or damage to the goods,
ENTERPRISES, G.R. NO. 156330, there is presumption that there is fault on the
NOVEMBER 19, 2014 part of the common carrier.

Likewise, if there is defect or damage to the

Q: Is good faith a defense in this case?
goods but the common carrier did not make
A: No, because the consignee did not get the
proper notation in the Bill of Lading
goods. So no amount of good faith will hold.
tantamount to delivery of the goods in good
The moment he did not deliver the goods to
condition. Therefore, if it was arrived in the
the consignee there is a breach of their
place of destination in bad condition, the
obligation to exercise extra ordinary
carrier is presumed at fault.
diligence.

SLIDE
SLIDE

MERE PROOF OF DELIVERY OF THE GOODS IN GOOD THE DRIVER WAS CLEARLY NEGLIGENT WHEN HE
WAS RELATIVELY DRIVING FAST ON A NARROW
ORDER TO A COMMON CARRIER AND OF THEIR
HIGHWAY AND APPROACHING A SIMILARLY
ARRIVAL IN BAD ORDER AT THEIR DESTINATION
NARROW BRIDGE. A BUS IS A SIGNIFICANTLY LARGE
CONSTITUTES A PRIMA FACIE CASE OF FAULT OR
VEHICLE WHICH WOULD BE DIFFICULT TO
NEGLIGENCE AGAINST THE CARRIER. IF NO
MANEUVER AND STOP IF IT WERE TRAVELLING AT A
ADEQUATE EXPLANATION IS GIVEN AS TO HOW THE
HIGH SPEED. ON TOP OF THIS, THE TIME OF THE
DETERIORATION, LOSS, OR DESTRUCTION OF THE
ACCIDENT WAS ON OR ABOUT SUNRISE WHEN
GOODS HAPPENED, THE TRANSPORTER SHALL BE
VISIBILITY ON THE ROAD WAS COMPROMISED, THE
HELD RESPONSIBLE.EASTERN SHIPPING LINES V.
DRIVER SHOULD HAVE BEEN MORE PRUDENT AND
BPI MS INSURANCE, G. R. NO. 182864,
CAREFUL IN HIS DRIVING THE BUS ESPECIALLY
JANUARY 12, 2015
CONSIDERING THAT THE TRANSPORTATION
COMPANY IS A COMMON CARRIER. LINDA CACHO V.
This is the case a while ago, we said that if
the Bill of Lading makes reference to invoice UNIVERSAL ROBINA CORPORATION, G.R.NO.
number but contains itemized list of goods 203081, JANUARY 17, 2018
and shipper pays extra freightage, he can
recover not based on the amount of limitation PART OF THE EXTRAORDINARY RESPONSIBILITY OF
in the Bill of Lading BUT in the actual value COMMON CARRIERS IS THE DUTY TO ENSURE THAT
of the goods. SHIPMENTS ARE RECEIVED BY NONE BUT “THE
PERSON WHO HAS A RIGHT TO RECEIVE THEM”.
COMMON CARRIERS MUST ASCERTAIN THE IDENTITY

Page 19 of 139

OF THE RECIPIENT. FAILING TO DELIVER SHIPMENT
TO THE DESIGNATED RECIPIENT AMOUNTS TO A
FAILURE TO DELIVER. THE SHIPMENT SHALL THEN BE
CONSIDERED LOST, AND LIABILITY FOR THIS LOSS
ENSUES. FEDERAL EXPRESS CORPORATION V.
LUWALHATI ANTONINO, G.R. NO. 199455,
JUNE 27, 2018
AT THE TIME THE CUSTOMS BROKER TURNED OVER
THE CUSTODY OF THE CARGOES TO A COMMON
CARRIER FOR INLAND TRANSPORTATION, IT IS STILL
REQUIRED TO OBSERVE EXTRAORDINARY DILIGENCE
IN THE VIGILANCE OF THE GOODS. FAILURE TO
SUCCESSFULLY ESTABLISH THIS CARRIES WITH IT THE
PRESUMPTION OF FAULT OR NEGLIGENCE, THUS,
RENDERING THE CUSTOMS BROKER LIABLE TO THE
SHIPPER IT CONTRACTED WITH, SUBJECT TO RIGHT
OF REIMBURSEMENT AGAINST THE CARRIER IN
WHOSE POSSESSION, THE GOODS WHERE HIJACKED.
KEIHIN-EVERETT FORWARDING CO. V MARINE
MALAYAN, ET AL., G.R. NO. 212107, JANUARY
28, 2019
There are 3 cases on liability of the
trucking company:
1. Load Masters v. Glodel, the custom
broker hired a trucking company. The
trucking company did not deliver all
the goods to the consignee. Can the
consignee sue both the custom broker
and the trucking company for the
breach of contract of carriage?
- Custom broker is a common
carrier. Therefore, liable to the
consignee.
- In this case, the SC said that the
trucking company is also
common carrier because it does
not limit its service to custom
Page 20 of 139
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Notes forMerc Rev 2
broker. It is not exclusive to
custom broker, it offers its
services to other. Thus, both of
them is liable.
2. Torres Madrid Brokerage Inc. v.
Mitsui Marine (2016), the SC said on
custom broker is liable for breach of
contract of carriage against the
consignee.
- However, the trucking company
hired by custom broker is not
liable for breach of contract to the
consignee because there is no
contract of carriage between the
trucking company and the
consignee. Trucking company
was liable for tort or quasi-delict.
- The trucking company is liable
for breach of contract to custom
broker, the one that contracted its
services.
3. Keihin-Everett v. Marine Malayan,
same principle sa Torres.
SLIDE
WHEN THE LOSS OF THE GOODS WAS NOT
ATTENDED BY GRAVE OR IRRESISTIBLE THREAT,
VIOLENCE, OR FORCE BUT WAS BROUGHT ABOUT BY
CARRIER’S FAILURE TO EXERCISE EXTRAORDINARY
DILIGENCE WHEN SHE NEGLECTED VETTING HER
DRIVER ( WHO ABSCONDED WITH THE GOODS ) OR
PROVIDING SECURITY FOR THE CARGO AND FAILING
TO TAKE OUT INSURANCE ON THE SHIPMENT’S
VALUE. ANNIE TAN V GREAT HARVEST, SUPRA

Theft or robbery is not force majeure,
unless accompanied by grave, irresistible
force, violence or threat.
SLIDE
PETITIONER WAS EXTREMELY REMISS BEFORE AND
DURING THE TIME OF THE VESSEL’S SINKING.
PETITIONER DID NOT ENDEAVOR TO DISPUTE THE
COURT OF APPEAL’S FINDING THAT THE VESSEL’S
CAPTAIN ERRONEOUSLY NAVIGATED THE SHIP, AND
FAILED TO REDUCE ITS SPEED CONSIDERING THE
SHIP’S SIZE AND THE WEATHER CONDITIONS. THE
CREW MEMBERS WERE ALSO NEGLIGENT WHEN
THEY DID NOT MAKE ANY STABILITY CALCULATIONS,
AND PREPARE A DETAILED REPORT OF THE VESSEL’S
CARGO STOWAGE PLAN. THE RADIO OFFICER FAILED
TO SEND AN SOS MESSAGE IN THE
INTERNATIONALLY ACCEPTED COMMUNICATION
NETWORK BUT INSTEAD USED THE SINGLE SIDE
BAND INFORMING THE COMPANY ABOUT THE
EMERGENCY SITUATION. SULPICIO LINES V MAJOR
VICTORIO KARAAN, G.R. NO. 208590, OCTOBER
03, 2018
LIABILITES OF COMMON
CARRIER
Q: Who isliable in case of breach of
contract of carriage? The operator or
driver or both?
A: The operator or the owner of the vehicle is
one liable not the driver. The contract is with
the operator and not with the driver.
The driver can be held liable for quasi-delict
or culpa criminal, as the case may be.
Page 21 of 139
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Notes forMerc Rev 2
Q: Are common carriers liable for the
injuries to passengers even if they have
observed ordinary diligence and care?
Explain.
A: Yes, common carriers are liable to injuries
to passengers even if the carriers observed
ordinary diligence and care because the
obligation imposed upon them by law is to
exercise extra-ordinary diligence. Common
carriers are bound to carry the passengers
safely as far as human care and foresight can
provide, using the utmost diligence of very
cautious persons with a due regard for all the
circumstances. Article 1755 of the Civil
Code.
Q: Is the presumption of fault or
negligence applicable only in case of death
or injury to passengers or loss or damage
to goods?
A: You remember the case of Manay v. Cebu
Air, that presumption of fault and negligence
is not limited to death or injury to passengers
or loss or damage to goods BUT for every
breach of the terms and conditions in the
contract of carriage.
SLIDE
NO, IT ALSO APPLIES IN CASE OF ANY BREACH IN THE
CONTRACT OF CARRIAGE SUCH AS WHEN THE
PASSENGER WAS NOT ABLE TO BOARD DESPITE
BEING GIVEN THE BOARDING PASS. THUS, WHEN AN
AIRLINE ISSUES A TICKET TO A PASSENGER
CONFIRMED ON A PARTICULAR FLIGHT, ON A
CERTAIN DATE, A CONTRACT OF CARRIAGE ARISES,
AND THE PASSENGER HAS EVERY RIGHT TO EXPECT
THAT HE WOULD FLY ON THAT FLIGHT AND ON THAT
DATE. IF THAT DOES NOT HAPPEN, THEN THE

CARRIER OPENS ITSELF TO A SUIT FOR BREACH OF
CONTRACT OF CARRIAGE. IN AN ACTION BASED ON A
BREACH OF CONTRACT OF CARRIAGE, THE
AGGRIEVED PARTY DOES NOT HAVE TO PROVE THAT
THE COMMON CARRIER WAS AT FAULT OR WAS
NEGLIGENT. ALL HE HAS TO PROVE IS THE EXISTENCE
OF THE CONTRACT AND THE FACT OF ITS NON-
PERFORMANCE BY THE CARRIER, THROUGH THE
LATTER’S FAILURE TO CARRY THE PASSENGER TO ITS
DESTINATION.ALFREDO S. RAMOS V. CHINA
SOUTHERN AIRLINES CO. LTD.
IT WAS ALSO HELD THAT IF THE PASSENGER’S
ACCOMMODATION IS DOWNGRADED FROM FIRST
CLASS TO ECONOMY, THE CARRIER IS LIABLE FOR
BREACH OF CONTRACT OF CARRIAGE. CATHAY
PACIFIC AIRWAYS, LTD., VS. SPOUSES ARNULFO
AND EVELYN FUENTEBELLA. G. R. NO. 188283,
JULY 20, 2016.
THE COMMON CARRIER MAY ALSO BE HELD LIABLE
IN CASE OF RUDE OR DISCOURTEOUS CONDUCT ON
THE PART OF THE EMPLOYEES TOWARDS A
PASSENGER. FERNANDO V. NORTHWEST AIRLINES,
INC., G.R. NO. 212038 AND G.R. NO. 212043,
FEBRUARY 8, 2017.
IN ANOTHER CASE, THE CARRIER WAS MADE LIABLE
FOR INSISTING ON THE UPGRADE OF THE
PASSENGER FROM BUSINESS CLASS TO FIRST CLASS
ACCOMMODATION. THE SUPREME COURT HELD
THAT PRIORITY UPGRADING IS A PRIVILEGE WHICH,
LIKE ALL PRIVILEGES, CAN BE WAIVED. BY INSISTING
ON THE UPGRADE, DESPITE THE PASSENGERS’
WAIVER, THE CARRIER BREACHED ITS CONTRACT OF
CARRIAGE. CATHAY PACIFIC AIRWAYS V. SPOUSES
DANIEL VASQUEZ AND MARIA LUISA MADRIGAL
VAZQUEZ, G.R. NO. 150843, MARCH 14, 2003
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SLIDE
Q: X Company loaded 6 metric tons of
Soybean Meal on board the vessel M/V
“Sea Dream” at the Port of U.S.A., for
delivery to the Port of Manila to
respondent Simon Enterprises, Inc., as
consignee. When the vessel arrived in
Manila, the shipment was discharged to
the receiving barges of the arrastre
operator. Consignee later received the
shipment but claimed having received
only 5 metric tons of Soybean Meal. Are
the common carrier and arrastre
operator liable for the shortage?
A: No. Though it is true that common
carriers are presumed to have been at fault
or to have acted negligently if the goods
transported by them are lost, destroyed, or
deteriorated, and that the common carrier
must prove that it exercised extraordinary
diligence in order to overcome the
presumption, the plaintiff must still, before
the burden is shifted to the defendant,
prove that the subject shipment suffered
actual shortage. This can only be done if
the weight of the shipment at the port of
origin and its subsequent weight at the port
of arrival have been proven by a
preponderance of evidence, and it can be
seen that the former weight is considerably
greater than the latter weight, taking into
consideration the exceptions provided in
Article 1734 of the Civil Code. Asian
Terminals, Inc. v. Simon Enterprises,
Inc., C.R. No. 177116, February 27,
2013.

CLASSIFICATION OF TRANSPORT
NETWORK VEHICLE SERVICES
AND TRANSPORT NETWORK
COMPANIES
Q: What are transportation network
companies (TNCs)?
A: These are companies which use online-
enabled platfrom to connect passengers with
drivers using their personal and non-
commercial vehicles. TNCS in the
Philippines include Grab and Uber.
Compared to taxicabs, TNCs offer
advantages to riders including the ability to
request service via mobile map or website,
track the location of driver; and get a receipt
via email. See explanatory note to House
Bill 1260 of the 18th Congress by
Honorable Luis Raymund Villafuerte
Q: Are TNCs considered common carrier?
A: If this will ask in the Bar, how would you
answer? This I propose how you answer.
TNCs are considered common carrier
SLIDE
THE LEGAL AND REGULATORY STATUS OF TNCS IS
NOT YET CLEARLY DEFINED. THEY ARE CURRENTLY
BEING REGULATED BY THE LAND TRANSPORTATION
FRANCHISE REGULATORY BOARD.
IT IS SUBMITTED THOUGH THAT THEY ARE NOT
COMMON CARRIERS. TNCS ARE TECNONOLOGY
COMPANIES THAT DO NOT PROVIDE
TRANSPORTATION SERVICE AND THEY ARE NOT
TRANSPORTATION PROVIDERS. THEY MERELY LINK
THE CUSTOMERS WITH THE THIRD PARTY DRIVERS
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AND ARE NOT PARTIES TO THE TRANSPORTATION
CONTRACT.
ALSO, TNC DRIVERS CAN GO OFFLINE IF DESIRED
AND CAN DECIDE TO ACCEPT OR REJECT A RIDE
REQUEST ACCORDING TO THEIR PERSONAL TRAVEL
ITINERARY AS OPPOSED TO COMMON CARRIERS
WHICH ENGAGE IN A CONTINUOUS OFFER.
Q: What it is then, if it is not common
carrier?
A:
SLIDE
IT IS FURTHER SUBMITTED THAT THEY ARE AKIN TO A
FREIGHT FORWARDER. THEY ONLY ARRANGE THE
VEHICLES/VESSELS FOR THE PASSENGERS AND AS
SUCH, SHOULD NOT BE TREATED AS COMMON
CARRIERS. THEY SHOULD BE HELD LIABLE FOR
DAMAGE THOUGH IF THERE IS NEGLIGENCE IN
VETTING AND CHOOSING THE VEHICLE OWNERS
WHOM THE TNCS ACCREDITED AS PART OF THEIR
SYSTEM. THE HOUSE BILL, CITING CRISOSTOMO V.
COURT OF APPEALS ( G.R. NO. 138334, AUGUST
25, 2003 ), APPLIED BY ANALOGY TNC WITH A
TRAVEL AGENCY WHICH MERELY ARRANGES THE
BOOKING OF A PERSON BUT THE ACTUAL ACT OF
TRANSPORTING THE CUSTOMER IS DONE BY AN
AIRLINE BUT THE AUTHOR BELIEVES THAT THE
APPROPRIATE COMPARISON IS THAT OF THE
FREIGHT FORWARDER.
VIGILANCE OVER GOODS
Q: What are the defenses available to the
common carrier in case of loss,
destruction, or deterioration of the goods?
A: Keyword: FEACOE

1. Force Majeure - Natural disaster or
calamity which is the proximate
cause of the loss (flood, storm,
earthquake, lightning)
- As you can see, fire is not
included right? Thus, it is not
force majeure, as it held in many
cases because fire always requires
human intervention or element.
2. Acts of public Enemy in war,
whether international or civil;
- Public enemy is citizen of another
country with which the Philippine
is at war.
3. Act or omission of the shipper or
passenger;
4. Character of the goods or defects
In the packing or container; (clean
bill of lading)
5. Order or act of competent public
authority;
6. Exercise of extraordinary
diligence.
As we all know, exercise of extraordinary
diligence is not included in exempting causes
BUT we have to include it as a defense in
case of loss or damage to goods.
FORCE MAJEURE
Q: What are the requisites for natural
disaster to be considered an exempting
circumstance in case of loss or damage to
goods?
A:
a. The natural disaster is the proximate
and only cause of the loss;
- it means that, if there is
contributory negligence on the
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part of the carrier, then the
defense of force majeure is not
available.
b. The common carrier should have
exercised due diligence to prevent or
minimize the loss before, during and
after the occurrence of the natural
disaster;
c. The common carrier should not incur
in delay. Central Shipping
Company v. Insurance Company of
North America, G.R. No. 150751,
September 20,2004; Article 1739
and 1740, Civil Code
NOTE: There are many Bar exam
questions, the moment you see at fault or
the failure of the ship owner to made the
vessel seaworthy, right away the defense of
force majeure is unavailing.
SLIDE
IN ONE CASE, IT WAS HELD THAT MONSOONS,
DURING WHICH STRONG WINDS WERE NOT
UNUSUAL, WOULD NOT BE SUFFICIENT TO
CATEGORIZE THE WEATHER CONDITION AS STORM.
WHEN THE LOSS OF THE VESSEL WAS CAUSED NOT
ONLY BY THE SOUTHWESTERN MONSOON BUT ALSO
BY THE SHIFTING OF THE LOGS IN THE HOLD DUE TO
IMPROPER STOWAGE, THE DEFENSE OF FORCE
MAJEURE IS UNAVAILING.
SLIDE
Q: Philip Mauricio shipped a box of
cigarettes to a dealer in Naga City
through Bicol Bus Company (BBC).
When the bus reached Lucena City, the

bus developed engine trouble. The driver
brought the bus to a repair shop in
Lucena where he was informed by the
mechanic that an extensive repair was
necessary, which would take at least 2
days. While the bus was in the repair
shop, Typhoon Coring lashed Quezon
Province. The cargoes inside the bus,
including Mauricio’s cigarettes, got wet
and were totally spoiled. Mauricio sued
BBC for damage to his cargoes. Decide.
A: The BBC is liable for damages to the
cargoes lost by Mauricio. A natural
disaster would relieve liability if it is the
proximate and only cause of the damage.
The carrier itself, in this case, had been
negligent. The presumption of negligence
in culpa contractual is not overcome by
engine trouble which does not preclude its
having been due to the fault of the common
carrier. The fact that an extensive repair
work was necessary which, in fact, took 2
days to complete somehow justifies an
impression that the engine trouble could
have been detected, if not already known,
well before the actual breakdown. BAR
1987
The carrier is liable. The defense of force
majeure is not available because typhoon is
not the only and proximate cause of loss or
damage. There was engine malfunction in
the first place.
Q: A shipment electronic goods arrived
at the Port of Manila for Sony
Philippines, Inc. (Sony). Previous to the
arrival, Sony had engaged the services of
TMBI to facilitate, process, withdraw,
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and deliver the shipment from the port
to its warehouse in Bihan. TMBI — who
did not own any delivery trucks —
subcontracted the services of BMT
Trucking Services (BMT), to transport
the shipment from the port to the Bifian
warehouse. Four BMT trucks picked up
the shipment from the port. However,
only three trucks arrived at Sony’s
Bifian warehouse. The fourth truck
driven by Rufo Reynaldo Lapesura was
found abandoned.
Mitsui, the insurer, paid the claims and
ran after T BMI. TBMI however denied
being a common carrier because it does
not own a single truck to transport its
shipment and it does not offer transport
services to the public for compensation
and hence, it is not bound to observe
extraordinary diligence, Furthermore,
TMBI insists that the hijacking of the
truck was a fortuitous event which
should exonerate its liability.
a. Is TMBI a common carrier?
b. Should TMBI be held liable for
the hijacking of the truck?
c. Should BMT be held liable with
TMBI?
A:
a. Yes, TBMI is a common carrier.
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 from 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
clients’ 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,
TMBl’s customs brokerage
services—including the
transport/delivery of the cargo —
are available to anyone willing to
pay its fees.
b. TMBI is liable for the hijacking of
the truck. 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 a
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. 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
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to Sony/Mitsui for breach of
contract.
c. TMBI and BMT are not solidarily
liable to Mitsui. TMBl’s liability to
Mitsui does not stem from a quasi-
delict (culpa aquiliana) but from its
breach of contract (culpa
contractual). The legal reality that
results from this contractual tie
precludes the application of Article
2194 on solidary liability of the
parties based on quasi-delict.
The Court, however, do not say that TMBI
must absorb the loss. By subcontracting the
cargo delivery to BMT, TMBI entered into
its own contract of carriage with a fellow
common carrier. Since BMT failed to
prove that it observed extraordinary
diligence in the performance of its
obligation to TMBI, it is liable to TMBI for
breach of their contract of carriage.
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.
ACTS OF PUBLIC ENEMY
Q: Who is a public enemy?
A: A public enemy is a citizen of another
country against which the Philippine
government is at war.

Q: If the goods were taken by the Abu
Sayyaf, is the carrier liable or can the
carrier invoke that as exculpatory cause?
A: No, Abu Sayyaf is not a public enemy.
Abu Sayyaf are citizens of the Philippines.
ACTS OR OMISSION OF SHIPPER
Character of the goods or defect in packing
Q: Because of spillage of the rice during
the trip from Davao to Manila due to the
bad condition of the sacks, there was a
shortage in the rice delivered by the
Provident Lines Inc. to the consignee XYZ
Import and Export Corporation. The
carrier accepted the shipment, knowing
that the sacks had holes and some had
broken strings. When sued, Provident
Lines, Inc. alleged that the loss was caused
by the spillage of the rice on account of the
defective condition of the sacks, at the time
it received the shipment, and therefore, it
cannot be held liable. Decide. Give
reasons.
A: The maritime carrier is liable. Where the
fact of improper packing is known to the
carrier or its servants, or apparent upon
ordinary observations, but the carrier accepts
the goods notwithstanding such conditions, it
is not relieved of liability for loss or injury
resulting therefrom. Southern Lines, Inc. v.
Court of Appeals, 4 SCRA 259; BAR 1978
and 1984.
The rule is that if the improper packing or, in
this case, the defect/s in the container, is/are
known to the carrier or his employees or
apparent upon ordinary observation, but he
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nevertheless accepts the same without protest
or exception notwithstanding such condition,
he is not relieved of liability for damage
resulting therefrom. In this case, petitioner
accepted the cargo without exception despite
the apparent defects in some of the container
vans. Hence, for failure of petitioner to prove
that she exercised extraordinary diligence in
the carriage of goods in this case or that she
is exempt from liability, the presumption of
negligence as provided under Art. 1735
holds. Virgines Calvo v. UCPB General
Insurance, G.R. No. 148496, March 19,
2002
Q: Assuming that there is defect or
damages to the goods and it is indicated in
the Bill of Lading and made known to the
shipper. Is the carrier liable?
A: No, the carrier is not liable. Because the
goods were damaged due to the act of the
shipper or improper package.
ORDER OF COMPETENT PUBLIC
AUTHORITY
Q: Y contracted the services of X to haul
tons of scrap iron from Bataan to the port
of Manila on board the lighter “Batman.”
Z sent his lighter to dock at Mariveles,
where Y delivered the scrap irons for
loading which also begun on the same day.
Acting Mayor, together with 3 policemen,
ordered the dumping of the scrap iron
where the lighter was docked and the rest
to be brought to NASSCO compound. Is
the intervention of the municipal officials
considered a force majeure as to exempt
the carrier from any liability?

A: No. The intervention of municipal
officials was not in any case, of a character
that would render impossible the fulfillment
by the carrier of its obligation. The carrier
was not duty bound to obey the illegal order
to dump into the sea the scrap iron. Moreover,
there is absence of sufficient proof that the
issuance of the same order was attended with
such force and intimidation as to completely
overpower the will of the carrier’s
employees. The mere difficulty in the
fulfillment of the obligation is not considered
force majeure. Mauro Ganzon v. Court of
Appeals, G.R. No. L-48757, May 30, 1988.
Q: What could be good example then of
order of the competent public authority?
A: If the goods were seized by the sheriff
pursuant to court judgment or order. Making
it impossible for the carrier to perform its
obligations to deliver the goods to the
consignee.
REQUIREMENT OF ABSENCE OF
NEGLIGENCE
ABSENCE OF DELAY
Q: A, in Manila, shipped on board a vessel
of B, chairs to be used in the restaurant of
consignee C in Cebu. No date for delivery
or indemnity for delay was stipulated. The
chairs, however, were not cl aimed
promptly by C and were shipped by
mistake back to Manila, where it was
discovered and re-shipped to Cebu. By the
time the chairs arrived, the date of
inauguration of the movie house passed by
and it had to be postponed. C brings action
for damages against B, claiming loss of
profits during the Christmas season when
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he expected the movie house to be opened.
Decide the case with reasons.
A: C, may bring action for damages against
B for loss of profits. The obligation of the
carrier to carry cargo includes the duty not to
delay their transportation, so that if the carrier
is guilty of delay in the shipment of the cargo,
causing damages to consignee, it will be
liable. Tan Liao v. American President
Lines, L-7280, January 20, 1956; BAR
1979
NOTE: We can compare this case to Mercs
v. CA and Saludo v. CA. In those cases, the
SC said if there is no stipulation then the
common carrier is not an insurer against
delay.
DUE DILIGENCE TO PREVENT OR
LESSEN THE LOSS
In addition to force majeure, aside from
calamity there has to be exercise of due
diligence on the part of the carrier before,
during, and after the incident to prevent or
lessen the loss.
CONTRIBUTORY NEGLIGENCE
Q: What is the effect of contributory
negligence on the part of the shipper in
case of loss or damage to his goods?
A: If the shipper or owner merely contributed
to the loss, destruction or deterioration of the
goods, the proximate cause thereof being the
negligence of the common carrier, the latter
shall be liable in damages, which however,
shall be equitably reduced.
On the other hand, even if the loss,
destruction, or deterioration of the goods
should be caused by the character of the
goods, or the faulty nature of the packing or
of the containers, the common carrier must

exercise due diligence to forestall or lessen
the loss.
DURAITON OF LIABILTY
Q: In a contract of carriage for goods,
when does the obligation to exercise extra-
disciplinary diligence commence and when
does it end?
A: The extraordinary responsibility of the
common carrier lasts from the time the goods
are unconditionally placed in the possession
of, and received by the carrier for
transportation until the same are delivered,
actually or constructively, by the carrier to
the consignee, or to the person who has a
right to receive them.
SLIDE
THE CARRIER’S LIABILITY AS A COMMON CARRIER
BEGINS WITH THE ACTUAL DELIVERY OF THE GOODS
FOR TRANSPORTATION AND NOT WITH THE MERE
FORMAL EXECUTION OF A RECEIPT OR BILL OF
LADING BECAUSE THE ISSUANCE OF SUCH IS NOT
NECESSARY TO COMPLETE DELIVERY AND
ACCEPTANCE. EVEN WHERE IT IS PROVIDED BY
STATUTE THAT LIABILITY COMMENCES WITH THE
ISSUANCE OF THE BILL OF LADING, ACTUAL DELIVERY
AND ACCEPTANCE ARE SUFFICIENT TO BIND THE
CARRIER.COMPANIA MARITIMA V. INSURANCE
COMPANY OF NORTH AMERICA, G.R. NO. L-
18965, OCTOBER 30, 1964
THE FACT THAT PART OF THE SHIPMENT HAD NOT
BEEN LOADED ON BOARD THE LIGHTER DID NOT
IMPAIR THE SAID CONTRACT OF TRANSPORTATION
AS THE GOODS REMAINED IN THE CUSTODY AND
CONTROL OF THE CARRIER, ALBEIT STILL UNLOADED.
MAURO GANZON V. COURT OF APPEALS, G.R.
NO. L-48757, MAY 30, 1988
IN ONE CASE, IT WAS HELD THAT THE RECEIPT OF THE
GOODS BY THE LIGHTERS (EVEN IF FREE OF CHARGE)
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IS ALREADY DEEMED TO BE A RECEIPT BY THE VESSEL
EVEN THOUGH THE GOODS ARE NOT YET ACTUALLY
SHIPPED.THE RECEIPT OF GOODS BY THE CARRIER
HAS BEEN SAID TO LIE AT THE FOUNDATION OF THE
CONTRACT TO CARRY AND DELIVER, AND IF
ACTUALLY NO GOODS ARE RECEIVED THERE CAN BE
NO SUCH CONTRACT. THE LIABILITY AND
RESPONSIBILITY OF THE CARRIER UNDER A
CONTRACT FOR THE CARRIAGE OF GOODS
COMMENCE ON THEIR ACTUAL DELIVERY TO, OR
RECEIPT BY, THE CARRIER OR AN AUTHORIZED AGENT
AND DELIVERY TO A LIGHTER IN CHARGE OF A VESSEL
FOR SHIPMENT ON THE VESSEL, WHERE IT IS THE
CUSTOM TO DELIVER IN THAT WAY, IS A GOOD
DELIVERY AND BINDS THE VESSEL RECEIVING THE
FREIGHT, THE LIABILITY COMMENCING AT THE TIME
OF DELIVERY TO THE LIGHTER AND, SIMILARLY,
WHERE THERE IS A CONTRACT TO CARRY GOODS
FROM ONE PORT TO ANOTHER, AND THEY CANNOT
BE LOADED DIRECTLY ON THE VESSEL AND LIGHTERS
ARE SENT BY THE VESSEL TO BRING THE GOODS TO
IT, THE LIGHTERS ARE FOR THE TIME ITS
SUBSTITUTES, SO THAT THE BILL OF LANDING IS
APPLICABLE TO THE GOODS AS SOON AS THEY ARE
PLACED ON THE LIGHTERS. COMPANIAMARITIMA
V. INSURANCE COMPANY OF NORTH AMERICA,
G.R. NO. L-18965, OCTOBER 30, 1964.
IN ANOTHER CASE, IT WAS HELD THAT THE LIABILITY
OF A COMMON CARRIER DOES NOT CEASE BY MERE
TRANSFER OF CUSTODY OF THE CARGO TO THE
ARRASTRE OPERATOR. LIKE THE DUTY OF
SEAWORTHINESS, THE DUTY OF CARE OF THE CARGO
IS NON-DELEGABLE AND THE CARRIER IS
ACCORDINGLY RESPONSIBLE FOR THE ACTS OF THE
MASTER, THE CREW, THE STEVEDORE AND HIS
OTHER AGENTS. THE FACT THAT A CONSIGNEE IS
REQUIRED TO FURNISH PERSONS TO ASSIST IN
UNLOADING A SHIPMENT MAY NOT RELIEVE THE
CARRIER OF ITS DUTY AS TO SUCH UNLOADING. IT IS
SETTLED IN MARITIME LAW JURISPRUDENCE THAT
CARGOES WHILE BEING UNLOADED GENERALLY
REMAIN UNDER THE CUSTODY OF THE CARRIER.

SINCE THE DAMAGE TO THE CARGO WAS INCURRED
DURING THE DISCHARGE OF THE SHIPMENT AND
WHILE UNDER THE SUPERVISION OF THE CARRIER,
THE LATTER IS LIABLE FOR THE DAMAGE CAUSED TO
THE CARGO. WESTWIND SHIPPING CORPORATION
VS.UCPB GENERAL INSURANCE CO., GR NO.
2002289, NOVEMBER 25, 2013.
THE SUPREME COURT ALSO RULED THAT WHEN
THERE IS NO DISPUTE THAT THE CUSTODY OF THE
GOODS WAS NEVER TURNED OVER TO THE
CONSIGNEE OR HIS AGENTS BUT WAS LOST INTO THE
HANDS OF UNAUTHORIZED PERSONS WHO SECURED
POSSESSION THEREOF ON THE STRENGTH OF
FALSIFIED DOCUMENTS, THE COMMON CARRIER IS
LIABLE. NEDLLOYD LIJNEN B.V. ROTTERDAM AND
THE EAST ASIATIC CO., LTD. VS. GLOW LAKS
ENTERPRISES, LTD., G.R. NO. 156330,
NOVEMBER 19, 2014.
Q: Does the obligation of the common
carrier to exercise extraordinary diligence
cease when the goods are turned over to
the customs authorities?
A: The delivery to the customs authorities is
not the delivery contemplated by Article
1736 because the owner cannot exercise
dominion over them, it believes that the
parties may agree to limit the liability of the
carrier in connection therewith considering
that the goods have still to go through the
inspection of the customs authorities. The
carrier losses control of the goods because of
a custom regulation and it is unfair that it be
made responsible for what may happen
during the interregnum.
In the corresponding bill of lading, both the
carrier and the consignee have stipulated to
limit the responsibility of the former for the
loss or damage that may occur to the goods
before they are actually delivered. It appears
that the carrier does not assume liability for
any loss or damage once they have been taken
into the custody of customs or other
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authorities or when they have been delivered
at ship’s tackle. These stipulations have been
adopted precisely to mitigate the
responsibility of the carrier considering the
present law on the matter and the Court finds
nothing therein that is contrary to morals or
public policy that may justify their
nullification. Lu Do & Lu Ym
Corporation v L.V. Binamira, G.R. No.
L9840, April 22, 1957
Q: X took the Benguet Bus from Baguio
going to Manila. He deposited his maleta
in the baggage compartment of the bus
common to all passengers. He did not
declare his baggage nor pay its charges
contrary to the regulations of the bus
company. When X got off, he could not
find his baggage which obviously was
taken by another passenger. Determine
the liability of the bus company.
A: The bus company is liable for the loss of
the maleta. The duty of extraordinary
diligence in the vigilance over the goods is
due on such goods as are deposited or
surrendered to the common carrier for
transportation. The fact that the maleta was
not declared nor the charges paid thereon
would not be consequential so long as it was
received by the carrier for transportation.
BAR 1989
NOTE: This was different from hand
carried items. If it was hand carried, the
obligation of the carrier is that of
depositary. But if it is deposited, the
obligation is extraordinary and if there is
loss or damage the presumption is that the
common carrier in at fault.
Q: X delivered 10 boxes of goods in good
order to the carrier. Y, the consignee,
however, received thesame in bad
condition. No proof of negligence was
offered by X or Y. Is the common carrier
liable for damages?

A: Mere proof delivery of the goods in good
order to a common carrier and of their arrival
in bad order at their destination constitutes a
prima facie case of fault or negligence against
the carrier. If no adequate explanation is
given as to how the deterioration, loss, or
destruction of the goods happened, the
transporter shall be held responsible. Eastern
Shipping Lines, Inc. v. BPI/MS Insurance
Corporation and Mitsui Insurance Co.,
Ltd., G.R. No. 182864, January 12, 2015.
RECITATION
Q: X is a passenger of the a bus owned and
operated by XYZ Transportation
Company. It experienced flat tire, the tire
blowout. So they had to park the bus on the
mid of the highway. The bus does not have
early warning device. So to alert the
incoming vehicles that there is bus
stationed in that area, the conductor
placed a fire to warning the other and a
kerosene lamp to alert incoming vehicles.
Unfortunately it was not seen by the driver
of another vehicle. That vehicle slumped
behind the bus resulting an injury to X.
What are causes of action X against the
various parties in this case?
A:
As to XYZ Company – file an action for
breach of contract
As to the driver of the bus – file a case based
on culpa criminal or tort
As to operator or driver of the colliding
vehicle – file a case based on tort or culpa
criminal
Q: What are the defenses available to the
operator of the colliding vehicle?
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A: He can set up the defense that he exercised
due diligence in the selection and supervision
of its employee.
If the cause of action is one of torts, the
available defense is due diligence in the
selection and supervision of employees.
Q: How about the operator of the bus?
A: 2 defenses:
1. Extraordinary diligence
2. FEACO
Q: Is extraordinary diligence not a defense
in torts?
A: SC said that if you exercise extraordinary
diligence it is not in fact you exercise due
diligence. *pero sabi ni dean it does not make
sense daw*
Q: Is the tortfeasor the owner of the
colliding vehicle and the operator of the
bus liable jointly or severally or
individually?
A: Solidarily
But in the case of common carrier and
trucking company, they are not solidary
liable because of different source of liability.
Q: You have the option to file a case only
against the operator of the bus or against
the owner of the colliding vehicle or
against the driver of the colliding vehicle
or the driver of the bus. But you decided to
file a case against the operator of the bus.
The operator of the bus filed a third party
complaint against the owner of the
colliding vehicle and the driver. Based on
the evidence, it appears that the bus was
crossing a regular speed no negligence on
the part of the driver of the bus. It was the
fault of the driver of the colliding vehicle.
So the Judge found liability on the part of
the driver and owner of the colliding

vehicle. Can the court order the operator
and driver of the colliding vehicle to pay X,
even though X did not implead as party
defendants the operator and driver of the
colliding vehicle?
A: Yes, in the case of Patranco v. CA, to
prevent multiplicity of suits.
TEMPORARY LOADING OR
STORAGE
SLIDE
THE OBLIGATION OF THE CARRIER REMAINS IN FULL
FORCE AND EFFECT EVEN WHEN THE GOODS ARE
TEMPORARILY UNLOADED OR STORED IN TRANSIT
UNLESS THE SHIPPER OR OWNER HAS MADE USE OF
THE RIGHT OF STOPPAGE IN TRANSIT. IT CONTINUES
TO BE OPERATIVE EVEN DURING THE TIME THE
GOODS ARE STORED IN A WAREHOUSE OF THE
CARRIER AT THE PLACE OF DESTINATION UNTIL THE
CONSIGNEE HAS BEEN ADVISED OF THE ARRIVAL OF
THE GOODS AND HAS HAD REASONABLE
OPPORTUNITY THEREAFTER TO REMOVE THEM OR
OTHERWISE DISPOSE OF THEM.
Q: What about the exercise of right of
stoppage in transit? What’s the relevance
of this right of the seller with respect of the
obligation of the common carrier?
A: If the seller or shipper exercise right of
stoppage in transit at that point the goods can
be diverted from the consignee back to the
seller. If the delivery is actually diverted from
the consignee to the shipper seller then the
obligation of carrier is not longer
extraordinary but simply ordinary diligence.
Q: In what cases where the obligation of
the common carrier is merely ordinary
diligence?
A:
1. By stipulation
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2. Seller exercise right of stoppage in
transit
3. If the goods are handcarried, in which
case the common carrier is just a
depositary.
4. In case of force majeure
Q: What is the effect of a stipulation
regarding exercise of diligence to less than
extraordinary?
A: In the carriage of goods, the carrier and
shipper may agree on the observance of
diligence to a degree less than extraordinary
(but not total exemption or diligence less than
ordinary) provided the stipulation is: (I) in
writing; (2) supported by a valuable
consideration other than the service rendered
by the carrier; and (3) reasonable, just and not
contrary to public policy.
STIPULATION FOR LIMITATION OF
LIABILITY
Q: Cite stipulation in a contract of
carriage which are considered
unreasonable, unjust and contrary to
public policy.
A:
(I) That the goods are transported at the risk
of the owner or shipper;
(2) That the common carrier will not be liable
for any loss, destruction, or deterioration of
the goods;
(3) That the common carrier need not observe
any diligence in the custody of the goods;
(4) That the common carrier shall exercise a
degree of diligence less than that of a good
father of a family, or of a man of ordinary
prudence in the vigilance over the movables
transported;
(5) That the common carrier shall not be
responsible for the acts or omission Of his or
its employees;

(6) That the common carrier’s liability for
acts committed by thieves, or of robbers who
do not act with grave or irresistible threat,
violence or force, is dispensed with or
diminished;
(7) That the common carrier is not
responsible for the loss, destruction, or
deterioration of goods on account of the
defective condition of the car, vehicle, ship,
airplane or other equipment used in the
contract of carriage.
Q: A condition was printed at the back of
the tickets which provides that any and all
actions arising out of the ticket,
irrespective of where it is issued, shall be
filed before the courts of Cebu City. Is this
stipulation valid and enforceable? Were
the passengers deemed to have acceded to
it when they purchased the tickets and
took the carrier’s vessel for passage and
thus amounted to effective waiver of
venue?
A: The condition is void and unenforceable
for two reasons:
First, it is not just and fair to bind passengers
to the conditions printed in fine letter at the
back of the tickets. It is hardly proper to
expect the passengers to examine their tickets
after they received them from crowded
counters. No reasonable opportunity is given
to them in order to carefully examine the said
condition prior to the purchase of the tickets.
Moreover, it must be noted that the shipping
companies are franchise holders of
certificates of public convenience and
therefore possess a virtual monopoly of the
business of transporting passengers. As such,
they may dictate the terms of passage,
leaving the passengers with no choice but to
buy tickets and avail of their vessels and
facilities.
Second, it subverts the public policy on
transfer of venue of proceedings since the
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same will prejudice the rights and interests of
innumerable passengers. Although venue
may be changed by agreement, such an
agreement will not be held valid where it
practically negates the action of the
claimants, Considering the expense and
trouble a passenger residing outside Of Cebu
City would incur to prosecute a claim in the
said city, he would most probably decide not
to file the action at all. Sweet Lines v. Hon.
Bernardo Teves, G.R. No. L-37750, May
19, 1978
LIMITATION OF LIABILITY TO
FIXED AMOUNT
Q: May a common carrier limit his
liability to a fixed amount in case of loss or
damage to goods?
A: A contract fixing the sum that may be
recovered. by the owner or shipper for the
loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just
under the circumstances, and has been fairly
and freely agreed upon.
The fact that the common carrier has no
competitor along the line or route, or a part
thereof, to which the contract refers shall be
taken into consideration on the question of
whether or not a stipulation limiting the
common carrier’s liability is reasonable, just
and in consonance with public policy.
LIMITATION OF LIABILITY IN
THE ABSENCE OF DECLARATION
OF GREATER VALUE
Q: May a common carrier limit his
liability to the value of the goods?
A: Yes, a stipulation that the common
carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless
the shipper or owner declares a greater value,
is binding.

Q: What if you were not the one who
declared the value of the goods? What if
the Bill of Lading assumes the value of the
goods. Is that valid?
A: Yes, under COGSA unless the shipper is
not given the option to declare higher value
or higher amount.
Q: 1,000 pesos?
A: Valid, as long as the shipper was given the
option to declare higher value or higher
amount of the goods to be recovered and paid
extra freightage.
SLIDE
PURSUANT TO SUCH PROVISION, WHERE THE
SHIPPER IS SILENT AS TO THE VALUE OF HIS GOODS,
THE CARRIER’S LIABILITY FOR LOSS OR DAMAGE
THERETO IS LIMITED TO THE AMOUNT SPECIFIED IN
THE CONTRACT OF CARRIAGE AND WHERE THE
SHIPPER STATES THE VALUE OF HIS GOODS, THE
CARRIER’S LIABILITY FOR LOSS OR DAMAGE THERETO
IS LIMITED TO THAT AMOUNT. A STIPULATION IN A
CONTRACT OF CARRIAGE THAT THE CARRIER WILL
NOT BE LIABLE BEYOND A SPECIFIED AMOUNT
UNLESS THE SHIPPER DECLARES THE GOODS TO HAVE
A GREATER VALUE IS GENERALLY DEEMED TO BE
VALID AND WILL OPERATE TO LIMIT THE CARRIER’S
LIABILITY, EVEN IF THE LOSS OR DAMAGE RESULTS
FROM THE CARRIER’S NEGLIGENCE. LT IS THE DUTY
OF THE SHIPPER TO DISCLOSE, RATHER THAN THE
CARRIER’S TO DEMAND THE TRUE VALUE OF THE
GOODS AND SILENCE ON THE PART OF THE SHIPPER
WILL BE SUFFICIENT TO LIMIT RECOVERY IN CASE OF
LOSS TO THE AMOUNT STATED IN THE CONTRACT OF
CARRIAGE. EASTERN AND AUSTRALIAN STEAMSHIP
CO, LTD V, GREAT AMERICAN INSURANCE CO,
G,R. NO, L-37604, OCTOBER 23, 1981.
AS TO THE INSURANCE COMPANY, IT MUST BE
NOTED THAT AFTER PAYING THE CLAIM OF THE
INSURED, THE FORMER IS MERELY SUBROGATED TO
THE RIGHTS OF THE LATTER. AS SUBROGEE, IT CAN
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RECOVER ONLY THE AMOUNT THAT IS RECOVERABLE
BY THE INSURED. SINCE THE RIGHT OF THE INSURED,
IN CASE OF LOSS OR DAMAGE TO THE GOODS, IS
RESTRICTED BY THE PROVISIONS IN THE BILL OF
LADING, A SUIT BY THE INSURER NECESSARILY IS
SUBJECT TO LIKE LIMITATIONS.
ST. PAUL FIRE &
MARINE INSURANCE CO. V. MACONDRAY & CO,
INC, G.R. NO. L-277 MARCH 25, 1976.
STIPULATION FOR LIMITATION
OF LIABILITY
Q: What are the usual stipulations often
made in a bill of lading regarding the
liability of the common carrier?
A: Three kinds of stipulations have often
been made in a bill of lading.
The first is one exempting the carrier from
any and all liability for loss or damage
occasioned by its own negligence.
The second is one providing for an
unqualified limitation of such liability to an
agreed valuation.
And the third is one limiting the liability of
the carrier to an agreed valuation unless the
shipper declares a higher value and pays a
higher rate of freight
According to an almost uniform weight of
authority, the first and second kinds of
stipulations are invalid as being contrary to
public policy, but the third is valid and
enforceable. Loadstar Shipping Co. V
Court of Appeals, G.R. No. 131621,
September 28, 1999
Q: Juan, a paying passenger, noted the
stipulation at the back of the bus ticket
stating that the liability of the bus
company is limited to P1,OOO in case of
injuries to its passengers and PSOO in case
of loss or damage to baggage caused by the

negligence or willful acts of its employees.
Upon arrival at his destination, Juan got
into an altercation with the ticket
conductor, who pulled out a knife and
inflicted several wounds on Juan. The bus
driver intervened, heaping abusive
language on Juan and completely
destroying Juan’s baggage which
contained expensive goods worth P3,OOO.
The hospital expenses for Juan would
probably amount to at least P6,OOO.
Give the extent of liability of the bus
company, with reasons.
A: The bus company’s liability for the
injuries inflicted upon Juan is at least P6,000,
notwithstanding the stipulation limiting its
liability, and only for P500, the amount
stipulated in the bus ticket, as the damage and
destruction to Juan’s baggage.
With respect to the injuries inflicted upon
Juan, common carriers are liable for the death
or injuries to passengers through the
negligence or willful acts of the former’s
employees, although such employees may
have acted beyond the scope of their
authority or in violation of the orders of the
common carriers. The common carrier’s
responsibility for these acts cannot be
eliminated or limited by stipulation by the
posting of notices, by statements on the
tickets or otherwise.
The rule is different with respect to a
stipulation limiting the carrier’s liability for
the loss, destruction or deterioration of goods
shipped. Under Article 1750, Civil Code, a
contract fixing the sum that may be recovered
by the owner or shipper for the loss,
destruction, or deterioration of the goods is
valid, if it is reasonable and just under the
circumstances and has been fairly and freely
agreed upon. BAR 1984
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Q: Sylvex Purchasing Corporation
delivered to Unsworth Transport
International (UTI ) a shipment of 27
drums of various raw materials for
pharmaceutical manufacturing. UTI
issued a Bill of Lading covering the
aforesaid shipment. The shipment arrived
at the port of Manila wherein it was latter
found to be damaged.
The rejected UTI’s claim that its liability
should be limited to $500 per package
pursuant to the Carriage of Goods by Sea
Act (COGSA) considering that the value of
the shipment was declared pursuant to the
letter of credit and the pro forma invoice.
Is UTI liable for the value of the goods not
stated in the bill of lading?
A: No, UTI is liable only for $ 500 per
package. Sylvex did not declare a higher
valuation of the goods to be shipped. The
insertion of an invoice number in the bill of
lading does not in itself sufficiently and
convincingly show that the common carrier
had knowledge of the value of the cargo.
Unsworth Transport International v.
Court of Appeals, G.R. No. 166250, July
26, 2010.
In another case, however, it was ruled that the
declaration requirement does not require that
all the details must be written down on the
very bill of lading itself. Compliance can be
attained by incorporating the invoice, by way
of reference, to the bill of lading provided
that the former containing the description of
the nature, value and/or payment of freight
charges is duly admitted as evidence.
The Supreme Court clarified that while in
Unsworth Transport International (Phils.),
Inc. v. Court of Appeals, the Court held that
the insertion of an invoice number does not
in itself sufficiently and convincingly show
that petitioner had knowledge of the value of

the cargo. However, the same interpretation
does not squarely apply if the carrier had been
advised of the value of the goods as
evidenced by the invoice and payment of
corresponding freight charges. Eastern
Shipping Lines, Inc v BPI/MS Insurance
Corp., & Mitsui Sumitomo Insurance Co.,
Ltd, G.R. No. 182864, January 12, 2015
LIABILITY FOR BAGGAGE OF
PASSENGERS
Q: What is the Liability of the common
carrier for baggage of passengers?
A: If the baggage is in the custody of the
common carrier (checked-in), the latter is
obliged to observe extraordinary diligence.
The presumption of negligence applies
against the common carrier. Articles 1733 to
1753 of the Civil Code apply.
But if the baggage is in the custody of the
passenger (hand-carried), the carrier is liable
as a depositary provided that (a) notice was
given to him or his employees; and (b) the
passenger took the necessary precaution
which the carrier had advised relative to the
care and vigilance of the baggage. The
baggage in transit Is deemed as a necessary
deposit. The diligence required of the
carrier/depositary is merely ordinary
diligence. In case of loss owing to the fault of
the passenger, the carrier will not be held
liable.
Q: Pasahero, a paying passenger, boarded
a Victory Liner bus bound for Olongapo.
He chose a seat at the front near the bus
driver. Pasahero told the bus driver that
he had valuable items in his bag which was
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placed near his feet. Since he had slept 24
hours, he requested the driver to keep an
eye on the bag should he doze off during
the trip.
A. While Pasahero was asleep,
another passenger took the bag
away and alighted at Guagua,
Pampanga. Is Victory Liner liable
to Pasahero? Explain.
- The responsibility of common
carriers in the case of loss or
damage to hand-carried baggage
is governed by the rule on
necessary deposits. The common
carrier is thus liable for the loss of
the personal property caused by
its employees or by strangers.
B. Supposing the two armed men
staged a hold-up while the bus was
speeding along the North
Expressway. One of them pointed a
gun at Pasahero and stole not only
his bag but also his wallet as well. Is
Victory Liner liable to Pasahero?
Explain.
- The use of arms (in the staging of the
holdup) is force majeure under the
rule on necessary deposits.
Accordingly, Pasahero may not hold
Victory Liner liable.

MARCH 18,2021
HAN SUNG
SAFETY OF PASSENGERS
Recitation:
Q: Passengers:
A - paid in full
B - given a discount
C - gratuitously carried
D - sneaked into the bus by hiding himself
in a bayong
Unfortunately, the bus hit a tree, resulting
to injuries to all of the passengers. What
are the liabilities of the common carrier?
A: Liable to A, B, and C for breach of
contract of carriage. A discount or a
gratuitous carriage is of no moment.
Q: Can you stipulate that the common
carrier can be exempt from liability if the
passenger is carried gratuitously?
A: The law says that a long as you adhere to the principle that it
stipulation limiting the liability for
negligence, but not exempting. It's one thing
to say exempt and another to limit. You can
limit the liability for negligence if the
passenger is carried gratuitously, except for
willful acts of gross negligence.
Q: What about the 4th passenger? Does he
have any cause of action?
A: There may be no contractual liability
because there is no contract of carriage, but
he can sue the operator and the driver for torts
in case he establishes negligence on the part
of the driver.
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Q: When does the obligation to exercise
ordinary diligence starts when it comes to
carriage of passengers?
A: It depends on the carrier involved. When
it comes to air carriage, when the ticket is
issued and is confirmed for a flight on a
particular time and place that the contract is
perfected. For land transportation, when the
offer of the common carrier is accepted.
Q: When is it deemed accepted?
A: Dangwa Transportation vs. CA tells us the
moment the passenger steps into the platform
of the bus even though he has not been issued
a ticket yet, the contract is perfected and
there's an obligation to exercise extra-
ordinary diligence.
Q: Suppose he is just walking towards the
bus and then the bus sped away and hit the
passenger who was about to go to the bus
resulting in injury. is there a perfected
contract?
A: There's no case yet regarding this so as
starts when the passenger accepts the offer of
the common carrier. The SC said that every
time that the bus or a public vehicle makes a
stop, it amounts to a continuous offer and the
moment that the passenger accepts then the
offer is perfected. As to what those acts are
(re acceptance) are not defined by
jurisprudence. No case yet on walking.
Q: What about when the obligation to
exercise extraordinary diligence ends?
A: From the time that the passenger has
alighted and was given a reasonable time and
opportunity to leave the premises.
Q: What is reasonable time and
opportunity? Is 1 hour reasonable?

A: It is reasonable under the circumstances.
Q: Let's say you got off the bus and
loitered the premises for an hour, you got
hit by another bus, can you sue the carrier
or the bus where you were a passenger?
A: It is unreasonable within the
circumstances to stay within the premises for
an hour.
Q: You are waiting for the luggage to be
offloaded from the vessel, you went back to
get your luggage and you got hit by a
crane. You were in the premises for 1 hour,
can you sue the common carrier for breach
of contract of carriage?
A: Yes (Aboitiz Shipping case). SC said 1 hr
is a reasonable time because it takes 1 hr for
the vessel to offload the luggage. Different
from a bus or land transportation wherein
staying within the premises for 1 hr is no
longer reasonable.
C. SAFETY OF PASSENGERS
56. What is the diligence required for
common carriers in the carriage of its
passengers?
A common carrier is bound to carry its
passengers safely as far as human care and
foresight can provide, using the utmost
diligence of very cautious persons, with
due regard to all the circumstances. In a
contract of carriage, it is presumed that the
common carrier was at fault or was
negligent when a passenger dies or is
injured. Unless the presumption is
rebutted, the court need not even make an
express finding of fault or negligence on
the part of the common carrier. This
statutory presumption may only be
overcome by evidence that the carrier
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exercised extraordinary diligence. Victory
Liner, Inc. v. Rosalito Gammad, G.R. No.
159636, November 25, 2004; Articles
1755 and 1756, NCC
57. In a court case involving claims for
damages arising from death and injury of
bus passengers, counsel for the bus
operator files a demurrer to evidence
arguing that the complaint should be
dismissed because the plaintiffs did not
submit any evidence that the operator or its
employees were negligent. If you were the
judge, would you dismiss the complaint?
No. In the carriage of passengers, the
failure of the common carrier to bring the
passengers safely to their destination
immediately raises the presumption that
such failure is attributable to the carrier's
fault or negligence. In the case at bar, the
fact of death and injury of the bus
passengers raises the presumption of fault
or negligence on the part of the carrier. The
carrier must rebut such presumption.
Otherwise, the conclusion can be properly
made that the carrier failed to exercise
extraordinary diligence as required by law.
BAR 1997
Discussion:
There is no obligation on the part of the
passenger to establish the negligence of the
common carrier the moment there is death or
injury. The presumption is overcome only by
evidence of extraordinary diligence. The
moment the contract of carriage is
established and there is death or injury then
there is a presumption of fault, the burden is
shifted to the common carrier to prove the
exercise of extraordinary diligence.

58. X is a passenger of RJT Bus which
suffered injuries due to the collision of the
bus he is riding with a jeepney. X sued RJT
Bus Company for damages. RJT Bus
Company invokes as a defense that it was
the jeepney had the last clear chance to
avoid the injury. Hence, the bus company
cannot be held liable. Is the principle of
last clear chance applicable?
No. The principle of last clear chance only
applies in a suit between owners and
drivers of two colliding vehicles. It does
not arise where a passenger demands
responsibility from the carrier to enforce
its contractual obligations, for it would be
inequitable to exempt the negligent driver
and its owner on the ground that the other
driver was likewise guilty of negligence.
William Tiu v. Pedro Arriesgado, G.R.
No. 138060, September 1, 2004.
Discussion:
If the cause of action is based on breach of
contract of carriage, then the doctrine of last
clear chance will not apply. The doctrine only
applies to tort.
Remember the case where X is a passenger of
a bus owned by XYZ transportation
company, experienced a flat tire or a tire
blowout and had to park the vehicle mid-
highway and the shoulder of the highway.
There was no early warning device that's why
the conductor had to place a rubber
(inaudible) one after the other and had to lit a
kerosene lamp to alert incoming vehicles.
Unfortunately, the lights created by the
kerosene lamp is not enough to alert other
vehicles and a vehicle rams through the rear
of the bus resulting
in injury to X. And we discussed the various
causes of action available to X, he can sue the
operator of the bus for breach of contract of
carriage; he can sue for quasi-delict the driver
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and likewise file a criminal case against the
driver if there is negligence and the operator
of the public bus can be subsidiarily liable in
case of insolvency of the driver; he can sue
for tort the owner and the driver of the
colliding vehicle, likewise he can sue
criminally the driver of the colliding vehicle.
Q: Can the common carrier, the owner
and operator of the bus where X was a
passenger, invoke the doctrine of last clear
chance?
A: No, that principle only applied to tort, the
passenger suing the operator for breach of
contract of carriage, the defense is
extraordinary diligence and not the doctrine.
Compare this to a case later, where the SC
said that tortfeasor and the operator are not
liable solidarily but if the facts are like this
case then your answer should be that they are
liable solidarily.
You remember we discussed the case of
Pantranco vs CA, that the injured passenger
may sue the operator of the bus where he was
a passenger and the owner/driver of the
colliding vehicle in one civil complaint, or he
may just opt to sue the operator of the bus
where he was a passenger. Now, if the
operator files a third party complaint against
the owner of the colliding vehicle and the
judge rules that there is no negligence on the
part of the common carrier, and that the fault
lies on the driver of the colliding vehicle. SC
said the passenger can enforce the judgement
against the driver of the colliding vehicle
even though he was not impleaded in order to
prevent multiplicity of suits.
59. Cite stipulations that are considered
void in a contract of carriage for
passengers.

1. Stipulation dispensing with or lessening
by stipulation, by the posting of notices, by
statements on ticket, or otherwise, the
responsibility of the common carrier for
the safety of passengers.
2. Stipulation limiting the liability for
willful acts or gross negligence.
When a passenger is carried gratuitously, a
stipulation limiting the common carrier's
liability for negligence is valid, but not for
willful acts or gross negligence.
The reduction of fare does not justify any
limitation of the common carrier's liability
Discussion
We said that a stipulation limiting the liability
of the common carrier for the death or injury
is void because of a provision under the civil
code. It's only allowed for international
transportation under the warsaw and
montreal convention.
Q: What about a stipulation limiting
liability for simple negligence?
A: Don't answer "yes". Instead you quote the
provision of the civil code, there is one
instance where you can stipulate or limit the
liability of the common carrier, that is if the
passenger is carried gratuitously. But don't
say that the law reduces the diligence from
extraordinary to ordinary, instead quote the
law that says that if the passenger is carried
gratuitously, a stipulation limiting the
liability is valid, but not for willful acts of
gross negligence. Unlike in carriage of
goods, it is explicit that it can be reduced to
less than extraordinary.
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60. Suppose "A" was riding on an airplane
of a common carrier when the accident
happened and "A" suffered serious
injuries. In an action by "A" against the
common carrier, the latter claimed that (1)
there was a stipulation in the ticket issued
to "A" absolutely exempting the carrier
from liability from the passenger's death or
injuries and notices were posted by the
common carrier dispensing with the
extraordinary diligence of the carrier, and
(2) "A" was given a discount on his plane
fare thereby reducing the liability of the
common carrier with respect to "A" in
particular. Are those valid defenses?
No. These are not valid defenses because
they are contrary to law as they are
in violation of the extraordinary diligence
required of common carriers.
• In the carriage of passengers, the
responsibility of common carriers cannot
be dispensed with or lessened by
stipulation. This rule applies
notwithstanding the reduction of fare. But,
when the passenger is carried gratuitously,
a stipulation limiting liability for
negligence is valid, except for willful acts
or gross negligence.

61. A and his classmates take a bus from
UP to Quiapo. On the way, another
Quiapobound bus tries to overtake them. A
and his classmates dare the bus driver to
run faster and race with the other bus. The
driver takes their dare, to the delight of A
and his friends who cheered him. On
rounding the curve, the bus driver fails to
slow down and the bus turns turtle,
resulting in the death of A and injuries to
the other passengers. The bus carried the
following sign: "Do not talk to driver while
bus is on motion, otherwise the company
will not assume liability for any accident."
Explain briefly the extent of the liability, if
any, of the bus company, giving the legal
provisions and principles involved.
The bus company is liable for damages to
A's heirs and to all the injured passengers.
Under the Civil Code, a common carrier is
duty bound to exercise extraordinary
diligence in carrying its passengers
through the negligence or willful acts of its
employees even if the latter have aced
beyond the scope of their authority or in
violation of their orders. This liability
cannot be eliminated or limited by
stipulation or by posting notices. Although
it may be urged that A was guilty of
contributory negligence, such an argument
loses its force in the face of the driver's
recklessness in taking the dare. And even
if such argument would be accepted, at
most it can only mitigate the amount of
damages, since the proximate cause of the
accident was the driver's willful and
reckless act in running a race with the other
bus. BAR 1983
ii. Duration of Liability
62. In the carriage of passengers, when
does the obligation to exercise
extraordinary diligence commence and
when does it end?
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Discussion:
We made distinction between air carriage and
land transportation. For air carriage it starts
when the ticket is issued, that the passenger
has confirmed for a particular flight, time and
date, and the nature and type of
accommodation, meaning first class,
business class or economy.
Now for land transportation, it starts when
passenger accepts and remains in the proper
charge and care of the carrier and lasts until
the passenger has safely alighted from the
vehicle and was given a reasonable
opportunity to leave the premises. However,
we saw in the case of Dangwa, the operative
act that signals the acceptance of the offer,
while here it says “places himself”, we have
jurisprudence saying that the moment the
offer is accepted then the contract is perfected
and the obligation to exercise extraordinary
diligence likewise commences. So when you
accept the offer, the contract is already
perfected even though you did not have a seat
or issued a ticket yet.
As to what that act is (acceptance) is defined
by jurisprudence, so far we only have
stepping on the platform of the bus.So after
the passenger stepped on the platform, the
driver sped away, as a result the passenger hit
an iron bar and cause injuries. Carrier said the
defense that there was no contract yet, the SC
said wrong because the contract was
perfected the moment the passenger accepted
the offer.
Utmost diligence starts once the passenger
places himself to, and is accepted by, and
while he remains under the proper care and
charge of the carrier. It lasts until such time
that the passenger safely alights from and
is given reasonable opportunity to leave
the premises of the common carrier,

including such time that he looks for and
claims his luggage.
For light rail transit system of
transportation, it was held that a contract of
carriage was created from the moment the
passenger paid the fare at the LRT station
and entered the premises of the latter,
entitling him/ her to all the rights and
protection under a contractual relation.
Light Rail Transit Authority v. Marjorie
Navidad, G.R. No. 145804, February 6,
2003
Discussion:
It starts when a token is purchased by the
passenger not from the time that he is on
board the train or the coach.
Q: So what happens when he purchases a
token and waits for train to arrive and he
was pushed by a security guard into the
railway, and then the train arrives and run
through the passenger. Is there a perfected
contract such that the obligation of the
LRT becomes extraordinary, the moment
there is death or injury, there is a
presumption of fault?
A: SC said yes, the contract was perfected
when the passenger purchased a ticket and
was waiting for the train to arrive.
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63. A and her child boarded the train of
Manila Railroad Company. Upon
approaching Barrio Lagalag, the train
slowed down and the conductor shouted
"Lusacan, Lusacan!" The A walked
towards the train exit carrying her child
with one hand and holding her baggage
with the other. When they were near the
door, the train suddenly picked up speed. A
and her child stumbled from the train
causing them to fall down the tracks and
were hit by an oncoming train, causing
their instant death. Is Manila Railroad
Company carrier liable?
• Yes. It is a matter of common knowledge
and experience about common carriers like
trains and buses that before reaching a
station or flagstop they slow down and the
conductor announces the name of the
place. It is also a matter of common
experience that as the train or bus slackens
its speed, some passengers usually stand
and proceed to the nearest exit, ready to
disembark as the train or bus comes to a
full stop. This is especially true of a train
because passengers feel that if the train
resumes its run before they are able to
disembark, there is no way to stop it as a
bus may be stopped.
It was negligence on the conductor's part to
announce the next flag stop when said stop
was still a full three minutes ahead. That
the announcement was premature and
erroneous is shown by the fact that
immediately after the train slowed down, it
unexpectedly accelerated to full speed.
Manila Railroad Company failed to show
any reason why the train suddenly resumed
its regular speed. The announcement was
made while the train was still in Barrio
Lagalag. This announcement prompted the
victims to stand and proceed to the nearest
exit. Without said announcement, the
victims would have been safely seated in

their respective seats when the train jerked
as it picked up speed. Clemente Brinas v.
People of the Philippines, G.R. No. L-
30309, November 25, 1983.
a. Waiting for carrier or boarding a
carrier
64. A bus of GL Transit on its way to
Davao stopped to enable a passenger to
alight. At that moment, Santiago, who had
been waiting for a ride, boarded the bus.
However, the bus driver failed to notice
Santiago who was still standing on the bus
platform, and stepped on the accelerator.
Because of the sudden motion, Santiago
slipped and fell down, suffering serious
injuries. May Santiago hold GL Transit
liable for breach of contract of carriage?
Explain.
Santiago may hold GL liable for breach of
contract of carriage. It was the duty of the
driver, when he stopped the bus, to do no
act that would have the effect of increasing
the peril to a passenger such as Santiago
while he was attempting to board the same,
When a bus is not in motion there is no
necessity for a person who wants to ride the
same to signal his intention to board.
A public utility bus, once it stops, is in
effect making a continuous offer to bus
riders. It is the duty of common carriers of
passengers to stop their conveyances for a
reasonable length of time in order to afford
passengers an opportunity to board and
enter, and they are liable for injuries
suffered by boarding passengers resulting
from the sudden starting up or jerking of
their conveyances while they are doing so.
Santiago, by stepping and standing on the
platform of the bus, is already considered a
passenger and is entitled to all the rights
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and protection pertaining to a contract of
carriage. BAR 1996.
b. Arrival at destination
65. X, an 80-year old epileptic, boarded the
S/S Tamaraw in Manila going to Mindoro.
To disembark, the passengers have to walk
thru a gang plank. While negotiating the
gang plank, X slipped and fell into the
waters. X was saved from drowning,
brought to a hospital but after a month died
from pneumonia. Except for X, all the
passengers were able walk thru the gang
plank. What is the liability of the owner of
S/S Tamaraw?
The owner of S/S Tamaraw is liable for
the death of X in failing to exercise utmost
diligence in the safety of passengers.
Evidently, the carrier did not take the
necessary precautions in ensuring the
safety of passengers in the boarding of and
disembarking from the vessel, Unless
shown to the contrary, a common carrier is
presumed to have been negligent in cases
of death or injury to its passengers. Since
X has not completely disembarked yet, the
obligation of the ship-owner to exercise
utmost diligence still then subsisted and he
can still be held. BAR 1989

66. The father returned to the bus to get one
of his baggages which was not unloaded
when they alighted from the bus. Racquel,
his child, followed him. However, although
the father was still on the running board of
the bus waiting for the conductor to hand
him the bag or bayong, the bus started to
run. Raquel was run over and killed. Is the
bus operator still liable as a common
carrier?
Yes. The relation of carrier and passenger
does not cease at the moment the passenger
alights from the carrier's vehicle at a place
selected by the carrier at the point of
destination, but continues until the
passenger has had a reasonable time or a
reasonable opportunity to leave the
carrier's premises.
And, what is a reasonable time or a
reasonable delay within this rule is to be
determined from all the circumstances. It
cannot be claimed that the carrier's agent
had exercised the 'utmost diligence' of a
'very cautious person required by Article
1755 of the Civil Code to be observed by a
common carrier in the discharge of its
obligation to transport safely its
passengers.
The presence of said passengers near the
bus was not unreasonable and they are,
therefore, to be considered still as
passengers of the carrier, entitled to the
protection under their contract of carriage.
La Mallorca v.Court of Appeals, G.R.
No. L-20761, July 27, 1966.
67. An hour after the passengers and Viana
had disembarked the vessel, the crane
operator began its unloading operation.
While the crane was being operated, Viana
who had already disembarked the vessel
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remembered that some of his cargoes were
still loaded there. He went back and while
he was pointing to the crew where his
cargoes were, the crane hit him resulting to
his death. A complaint for damages was
filed against Aboitiz Shipping Lines
(Aboitiz) for breach of contract of carriage.
Aboitiz contends that Viana ceased to be a
passenger when he disembarked the vessel
and that consequently his presence there
was no longer reasonable. Is Aboitiz still
liable as a common carrier?
Yes. The rule is that the relation of carrier
and passenger continues until the
passenger has been landed at the port of
destination and has left the vessel owner's
dock or premises. Once created, the
relationship will not ordinarily terminate
until the passenger has, after reaching his
destination, safely alighted from the
carrier's conveyance or had a reasonable
opportunity to leave the carrier's premises.
All persons who remain on the premises a
reasonable time after leaving the
conveyance are to be deemed passengers,
and what is a reasonable time or a
reasonable delay within this rule is to be
determined from all the circumstances, and
includes a reasonable time to see after his
baggage and prepare for his departure.
While the victim was admittedly
contributorily negligent, still petitioner's
aforesaid failure to exercise extraordinary
diligence was the proximate and direct
cause of, because it could definitely have
prevented, the former's death. Aboitiz
Shipping Corporation v. Court Of
Appeals, G.R. No. 84458 November 6,
1989.

c. Liability for acts of others
Employees
68. Is a common carrier liable for the death
or injuries to passengers through the acts of
its employees?
Yes, common carriers are liable for the
death of or injuries to passengers through
the negligence or willful acts of the
former's employees, although such
employees may have acted beyond the
scope of their authority or in violation of
the orders of the common carriers.
Discussion:
As you can see when it comes to death or
injury of passengers caused by negligence or
wilful acts of the employees, its just like the
presumption of fault or negligence, the law
makes the common carrier liable. It is in this
context that the SC said that common carriers
are the insurers of the safety of the passenger
but for acts of its employees not for acts of
strangers or of other passengers.
Let’s say that the operator gave instructions
to the driver and the conductor, to exercise
maximum tolerance even though a passenger
is obnoxious, they should exercise extreme
patience but the conductor was easily
provoked exchange in a (sorry di ko
maintindihan, pero feeling ko suntukan)
resulting in injury. The common carrier is
still liable even though the conductor acted
beyond the scope of his authority in violation
of the order of the common carrier.
In other words, for example, the common
carrier said: don’t bring a gun. The conductor
was able to bring a gun stealthily and then use
it reportedly against one of the passengers.
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Q: Can the common carrier say: “well I gave
an instruction to my employees not to do
so”?
A: No, because the carrier is liable for acts or
negligence of the employees even though they
acted beyond the scope of their authority in
violation of the orders of the common carrier.
69. What is the basis of liability of
common carriers for injuries on passengers
committed by its employees?
The basis of the carrier's liability for
assaults on passengers committed by its
employees rests either on (1) the doctrine
of respondeat superior or (2) the
principle that it is the carrier's implied
duty to transport the passenger safely.
Under the first, which is the minority view,
the carrier is liable only when the act of the
employee is within the scope of his
authority and duty. It is not sufficient that
the act be within the course of employment
only.
Under the second view, upheld by the
majority and also by the later cases, it is
enough that the assault happens within the
course of the employee's duty. It is no
defense for the carrier that the act was done
in excess of authority or in disobedience of
the carrier's orders. The carrier's liability
here is absolute in the sense that it
practically secures the passengers from
assaults committed by its own employees.
Discussion:
The second view was upheld by the SC in the
case of Maranan vs. Perez, a taxi driver stabbed
a passenger. His defense was that he was only
acting in self-defense and that the passenger
assaulted him first. Even assuming that its true,
he may be relieved criminally but the operator
is liable civilly, because of a provision in the

civil code that in case of death or injury to the
passenger, the carrier is liable even though the
employee acted beyond the scope of his
authority or in contravention to the order of the
carrier.
As can be gleaned from Art. 1759, the
Civil Code of the Philippines evidently
follows the rule based on the second view.
At least three very cogent reasons underlie
this rule:
1.) the special undertaking of the
carrier requires that it furnish its
passenger that full measure of
protection afforded by the exercise
of the high degree of care
prescribed by the law, inter alia
from violence and insults at the
hands of strangers and other
passengers, but above all, from the
acts of the carrier's own servants
charged with the passenger's
safety;
2.) said liability of the carrier for the
servant's violation of duty to
passengers, is the result of the
formers confiding in the servant's
hands the performance of his
contract to safely transport the
passenger, delegating therewith the
duty of protecting the passenger
with the utmost care prescribed by
law; and
3.) as between the carrier and the
passenger, the former must bear the
risk of wrongful acts or negligence
of the carrier's employees against
passengers, since it, and not the
passengers, has power to select and
remove them.
• Accordingly, it is the carrier's strict
obligation to select its drivers and
similar employees with due regard not
only to their technical competence and
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physical ability; but also, no less
important, to their total personality,
including their patterns of behavior,
moral fibers, and social attitude.
Maranan v. Perez, et al., G.R. No. L-
22272, June 26, 1967; BAR 2011
• The carrier was made liable in the
foregoing case after his driver stabbed
and killed the passenger despite the
assertion that the driver acted in self-
defense against the passenger who
made the assault first.
70. Marjorie, while waiting for the ZRT
train to arrive, had a fistfight with the
guard on duty. With the injuries she
suffered, she sued ZRT Company for
damages. ZRT Company denied liability
and argued that the guard on duty was not
their employee but of an independent
contractor. Is ZRT Company liable?
• Yes. The foundation of LRTA's
liability is the contract of carriage and
its obligation to indemnify the victim
arises from the breach of that contract
by reason of its failure to exercise the
high diligence required of the
common carrier. In the discharge of
its commitment to ensure the safety of
passengers, a carrier may choose to
hire its own employees or avail itself
of the services of an outsider or an
independent firm to undertake the
task. In either case, the common
carrier is not relieved of its
responsibilities under the contract of
carriage. Light Rail Transit
Authority and Rodolfo Roman v.
Marjorie Natividad, G.R. No.
145804, February 6, 2003.
Discussion:

SC said that the obligation of the carrier
extends not just to the acts of the employees but
to the acts of independent contractor that it
engaged to undertake the task. As if it is the act
of the employee.
71. City Railways, Inc, (CRI) provides
train service, for a fee, to commuters from
Manila to Calamba, Laguna. Commuters
are required to purchase tickets and then
proceed to designated loading and
unloading facilities to board the train.
Ricardo Santos purchased a ticket for
Calamba and entered the station. While
waiting, he had an altercation with the
security guard of CRI leading to a fistfight.
Ricardo Santos fell on the railway just as
the train was entering the station. Ricardo
Santos was run over by the train. He died.
In the action for damages files by the heirs
of Ricardo Santos, CRI interposed lack of
cause of action, contending that the mishap
occurred before Ricardo Santos boarded
the train and that it was not guilty of
negligence, Decide,
• CRI is liable. It has a contract of carriage
with Ricardo, created from the moment the
latter purchased a ticket and entered the
station. The duty of a common carrier like
the CRI is to provide safety to its
passengers, not only during the course of
the trip, but as long as they are within its
premises and where they ought to be in
pursuance to the contract of carriage,
Furthermore, a common carrier is liable for
the death of or injuries to passengers
through the negligence or willful act of its
employees, pursuant to Art. 1759 of the
Civil Code, to wit:
"Art. 1759. Common carriers are liable for
the death of or injuries to passengers
through the negligence or willful acts of
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the former's employees, although such
employees may have acted beyond the
scope of their authority or in violation of
the orders of the common carriers.
The liability of the common carriers does
not cease upon proof that they exercised all
the diligence of a good father Of a family
in the selection and supervision Of their
employees." BAR 2008
72. Tupang boarded a train as a paying
passenger bound for Manila.
Unfortunately, upon passing Iyarn Bridge
at Lucena, Quezon, Tupang fell off the
train resulting in his death.The train did not
stop despite the alarm raised by the other
passengers that somebody fell from the
train. Instead, the train conductor called the
station agent and requested for verification
of the information. Police authorities of
Lucena City were dispatched to the Iyam
Bridge where they found the lifeless body
of Tupang. The train company denied
liability and argued that it was the
passenger who opted to sit in the open
platform which led to his falling off from
the train. Is the train company correct?
• No. The train company has the
obligation to transport its passengers to
their destinations and to observe
extraordinary diligence in doing so. Death
or any injury suffered by any of its
passengers gives rise to the presumption
that it was negligent in the performance of
its obligation under the contract of
carriage. Thus, it failed to overthrow such
presumption of negligence with clear and
convincing evidence.
But while the train company failed to
exercise extraordinary diligence as
required by law, it appears that the

deceased was chargeable with contributory
negligence.
Since he opted to sit on the open platform
between the coaches of the train, he should
have held tightly and tenaciously on the
upright metal bar found at the side of said
platform to avoid falling off from the
speeding train.
Such contributory negligence, while not
exempting the PNR from liability,
nevertheless justified the deletion of the
amount adjudicated as moral damages.
Philippine National Railways v. Court
of Appeals, G.R. No. L-5S347, October
4, 1987.
Discussion:
Even though there is contributory negligence
on the part of the passenger, it does not negate
the liability of the common carrier, it may
mitigate it but not completely negate it.
Other passengers and strangers
73. What is the liability of the common
carrier for death or injuries to passengers
caused by other passengers and/or
strangers?
• A common carrier is responsible
for injuries suffered by a passenger on
account of the willful acts or negligence of
other passengers or of strangers, if the
common carrier's employees through the
exercise of the diligence of a good father
of a family could have prevented or
stopped the act or omission.
The contributory negligence of the
passenger does not bar recovery of
damages for his death or injuries, if the
proximate cause thereof is the negligence
of the common carrier, but the amount of
damages shall be equitably reduced.
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Discussion:
When it comes to the acts of strangers or
other passengers, the standard of diligence
for common carriers is not extraordinary but
ordinary. They can mitigate liability, so
despite death or injury caused by passengers
or strangers, they can establish ordinary
diligence to prevent or stop the accident.
74. Battung boarded a bus in Isabela bound
for Manila. He was seated at the first row
behind the driver and slept during the ride.
When the bus reached the Nueva Ecija, the
bus driver, stopped the bus and alighted to
check the tires. At this point, a man who
was seated at the fourth row of the bus
stood up, shot Battung at his head resulting
to his death. Should the common carrier be
liable for the death of the victim?
Discussion:
Q: Additionally is there an obligation on
the part of the carrier to frisk the
passengers? Will it amount to lack
ordinary diligence if the conductor does
not frisk or conduct a bodily search of the
passenger?
A: SC said no such obligation. The failure to
conduct a bodily search does not amount to
lack of diligence, unless there is something
that arouses suspicion.
While the law requires the highest degree
of diligence from common carriers in the
safe transport of their passengers and
creates a presumption of negligence
against them.
• It does not, however, make the carrier an
insurer of the absolute safety of its
passengers. Further, during the ride, the
driver and the conductor observed nothing
which would rouse their suspicion that the

men were armed or were to carry out an
unlawful activity. With no such indication,
there was no need for them to conduct a
more stringent search (i.e., bodily search)
on the aforesaid men.
By all accounts, therefore, it cannot be
concluded that the common carrier or any
of its employees failed to employ the
diligence of a good father of a family. G.V.
Florida Transport, Inc. v. Heirs of
Romeo L. Battung, Jr., Represented By
Romeo Battung, Sr. G.R. No. 208802,
October 14, 2015.
75. Mariter, a paying bus passenger, was
hit above her left eye by a stone hurled at
the bus by an unidentified bystander as the
bus was speeding through the National
Highway: The bus owner's personnel lost
no time in bringing Mariter to the
provincial hospital where she was confined
and treated.
Mariter wants to sue the bus company for
damages and seeks your advice whether
she can legally hold the bus company
liable?
Mariter cannot legally hold the bus
company liable. There is no showing that
any such incident previously happened so
as to impose an obligation on the part of
the personnel of the bus company to warn
the passengers and to take the necessary
precaution. Such hurling of a stone
constitutes fortuitous event in this case.
The bus company is not an insurer. BAR
1994
Similarly, a tort committed by a stranger
which causes injury to a passenger does
not accord the latter a cause of action
against the carrier. The negligence for
which a common carrier is held
responsible is the negligent omission by
the carrier's employees to prevent the tort
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from being committed when the same
could have been foreseen and prevented by
them. Jose Pilapil v. Court of Appeals,
G.R. No. 52159, December 22, 1989.
Discussion:
The throwing of stones on this case is a force
majeur.
Q: There was a modified bar exam
question, this time the question assumes
that there were incidents of stone throwing
in the area. In one of the trips where the
bus traversed the highway, a bystander
threw a stone and one of the passengers
was injured. Is the carrier liable?
A: The answer this time is yes, there were
previous incidents of stone-throwing, the
carrier should have alerted the passengers
and took the necessary precautions.
• The passenger also argued in this case
that the carrier could have prevented
the injury if something like mesh-work
grills had covered the windows of its
bus but the Court finds the same
untenable. Although the suggested
precaution could have prevented the
injury, the rule of ordinary care and
prudence is not so exacting as to require
one charged with its exercise to take
doubtful or unreasonable precautions to
guard against unlawful acts of
strangers.
• Where the carrier uses cars of the most
approved type used generally by others
engaged in the same occupation, and
exercises a high degree of care in
maintaining them in suitable condition,
the carrier cannot be charged with
negligence in this respect.

76. A bus of Fortune Express, Inc. (FEI)
figured in an accident with a jeepney which
resulted in the death of several passengers
including two Maranaos. It was found out
that a Maranao owns said jeepney and
certain Maranaos planned to take revenge
by burning some of FEI's buses. The
operations manager of FEI was advised to
take precautionary measures, however,
three armed Maranaos were able to seize a
bus of FEI and set it on fire, causing the
death of its passenger. Is FEI exempt from
liability?
No. Despite the report of Philippine
Constabulary agent that the Maranaos were
going to attack its buses, FEI took no steps
to safeguard the lives and properties of its
passengers. The seizure of the bus of FEI
was foreseeable and, therefore, was not a
fortuitous event which would exempt
petitioner from liability. Fortune Express,
Inc. v. Court of Appeals, G.R. No.
119756, March 18, 1999.
Discussion:
The passenger was a lawyer. The Maranaos
seized the bus and tied the hands of the driver
to the steering wheel, dosed gasoline to his
body and were about to set him on fire. The
lawyer passenger went back to the bus for
whatever reason, it was not explained and he
was able to save the driver pero siya naman
yung namatay. This is the context.
77. A passenger at the rear portion of the
bus owned by Bachelor Express, Inc.
suddenly stabbed a PC soldier. Because of
the commotion and panic inside the bus,
passengers Beter and Rautraut jumped off
the bus causing their death. Bachelor
Express, Inc. denies liability arguing that
the death of the said passengers was caused
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by a third person who was beyond its
control and supervision, Is Bachelor
Express, Inc, correct?
No. Considering that the bus driver did not
immediately stop the bus at the height of
the commotion; the bus was speeding from
a full stop; the victims fell from the bus
door when it was opened or gave way
while the bus was still running; the
conductor panicked and blew his whistle
after people had already fallen off the bus;
and the bus was not properly equipped
with doors in accordance with law-it is
clear that Bachelor Express, Inc. failed to
overcome the presumption of fault and
negligence found in the law governing
common carriers. It failed to prove that the
deaths of the two passengers were
exclusively due to force majeure and not to
the failure to observe extraordinary
diligence in transporting safely the
passengers to their destinations as
warranted by law, Bachelor Express,
Incorporated, and Cresencio Rivera v.
Court of Appeals, G.R. No. 85691 July
31, 1990.
Liability for delay in the
commencement of the voyage
Liability for defects in the equipment
and facilities

78. Spouses Tumboy and their minor
children boarded Yobido Liner bus. While
on the trip, left front tire of the bus
exploded. The bus fell into a ravine and
stuck a tree. The incident resulted in the
death of Spouses Tumboy and injuries to
other passengers. Is the tire blow-out a
fortuitous event?
No. A fortuitous event is possessed of the
following characteristics:
a) the cause of the unforeseen and
unexpected occurrence, or the failure of
the debtor to comply with his
obligations, must be independent of
human will;
b) it must be impossible to foresee the
event which constitutes the caso
fortuito, or if it can be foreseen, it must
be impossible to avoid;
c) the occurrence must be such as to render
it impossible for the debtor to fulfill his
obligation in a normal manner; and
d) the obligor must be free from any
participation in the aggravation of the
injury resulting to the creditor.
Under the circumstances of this case,
the explosion of the new tire may not be
considered a fortuitous event. There are
human factors involved in the situation.
The fact that the tire was new did not
imply that it was entirely free from
manufacturing defects or that it was
properly mounted on the vehicle.
Neither may the fact that the tire bought
and used in the vehicle is of a brand
name noted for quality, resulting in the
conclusion that it could not explode
within five days use. Be that as it may,
it is settled that an accident caused
either by defects in the automobile or
through the negligence of its driver is
not a caso fortuito that would exempt
the carrier from liability for damages.
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Moreover, a common carrier may not be
absolved from liability in case of force
majeure or fortuitous event alone. The
common carrier must still prove that it
was not negligent in causing the death
or injury resulting from an accident.
While it may be true that the tire that
blew-up was still good because the
grooves of the tire were still visible, this
fact alone does not make the explosion
of the tire a fortuitous event, No
evidence was presented to show that the
accident was due to adverse road
conditions or that precautions were
taken by the jeepney driver to
compensate for any conditions liable to
cause accidents. Alberta Yobido v.
Court of Appeals, G.R. No. 113003,
October 17, 1997
EXTENT OF LIABILITY FOR
DAMAGES
79. What is the extend of damages awarded
in case of death or injury among the
passengers?
• Article 1764 in relation to Article
2206 of the Civil Code, holds the
common carrier in breach of its
contract of carriage that results in
the death of a passenger liable to
pay the following: (1) indemnity
for death, (2) indemnity for loss of
earning capacity, and (3) moral
damages, Victory Liner, Inc. v.
Rosalito Gammad, G.R. No.
159636, November 25, 2004.
• In determining the reasonableness
of the damages awarded under
Article 1764 in conjunction with
Article 2206 of the Civil Code, the
factors to be considered are: (l) life
 4B 2020-2021
Notes for Merc Rev 2

expectancy (considering the health

of the victim and the mortality
table which is deemed conclusive)
and loss of earning capacity; (b)
pecuniary loss, loss of support and
service; and (c) moral and mental
sufferings. The loss of earning
capacity is based mainly on the
number of years remaining in the
persons expected life span, In turn,
this number is the basis of the
damages that shall be computed
and the rate at which the loss
sustained by the heirs shall be
fixed.

Page 52 of 139

MARCH 20, 2021
FREEZER BUNNY
RECIT
Q: Let’s say the bill of lading between the
shipper and the common carrier stipulates
that if the goods are not off-loaded from
the vessel within X number of days, then
demurrage shall be paid. The goods were
shipped. The vessel arrived the port of
destination. The consignee refused to
accept the goods. Given that, the goods
stayed in the vessel for beyond the
stipulated time in the bill of lading. Is the
consignee liable to pay demurrage charge?
A: The consignee is not liable to pay.
Q: Supposing the bill of lading provides a
stipulation for the limit of liability not
more than 500 dollars per package. The
consignee accepted the goods. Is the
consignee bound by the bill lading given
that the bill of lading is between the seller
and the common carrier?
A: Since the consignee accepted the goods,
the consignee is bound by the limitations in
the bill of lading.
Q: What makes him bound by the bill of
lading?
A: When the consignee the accepted the
goods, he accepts the benefit. It is on the
grounds of agency and stipulation pour
autrui.
On agency, the seller may have acted on
behalf of the consignee. Therefore, the action
of the shipper in agreeing to the bill of lading
is binding to the consignee.
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Notes for Merc Rev 2
On stipulation pour autrui, that is a
stipulation for the benefit of a third party. The
third party is the consignee. The consignee
becomes bound by the bill of lading when he
accepts the benefits of the bill of lading.
Q: How come then that the consignee is not
bound to pay demurrage charges?
A: Because in the first case, the goods were
not yet accepted by the consignee.
Q: What if he accepts the goods, is he now
bound to pay demurrage charges?
A: Yes, because he already accepted the
goods. He accepted the benefits of the bill of
lading.
Q: The goods are damaged while being off-
loaded from the vessel. The consignee files
a claim with the insurance company. The
company paid the actual loss incurred by
the consignee which is smaller (feeling ko
dapat larger) than the limited liability in the
bill of lading. How much can the insurance
company can recover from the common
carrier?
A: The insurance company can only recover
what is provided in the bill of lading. The
insurance company steps in the shoes of the
consignee and therefore, the insurance
company is bound by the limited liability
under the bill of lading.
BILL OF LADING
THREE-FOLD CHARACTER
Q: WHAT IS A BILL OF LADING?
A: A bill of lading may be defined as
written acknowledgment of the receipt of
 4B 2020-2021
Notes for Merc Rev 2

goods and an agreement to transport and to charges and other conditions under which
deliver them at a specified place to a the goods are to be delivered.
person named therein or on his order 3. It is the evidence of the contract itself.

A bill of lading is a document issued by the That is why it is three-fold in character.

common carrier. By issuing that bill of
lading, the common carrier acknowledges the Q: If the bill of lading was accepted
receipt of the goods subject to the terms and without any objection, what does it
condition on the payment of the freight imply?
charges. A: The holding in most jurisdictions has
been that a shipper who receives a bill of
Q: WHAT ARE THE THREE MAIN lading without objection after an
CHARACTERISTICS OF A BILL OF LADING? opportunity to inspect it, and permits the
A: carrier to act on it by proceeding with the
shipment is presumed to have accepted it
a. A bill of lading is considered a
as correctly stating the contract and to have
receipt for the goods shipped to the
assented to its terms. In other words, the
common carrier;
acceptance of the bill without dissent raises
b. It also serves as the contract by
the presumption that all the terms therein
which three parties, namely, the
were brought to the knowledge of the
shipper, the carrier and the
shipper and agreed to by him and, in the
consignee undertake specific
absence of fraud or mistake, he is estopped
responsibilities and assumed
from thereafter denying that he assented to
stipulated obligations.
such terms. This rule applies with
c. It is the evidence of the existence of
particular force where a shipper accepts a
the contract of carriage providing
bill of lading with full knowledge of its
for the terms and conditions
contents and acceptance under such
thereof.
circumstances makes it a binding contract.
(Magellan Manufacturing Marketing
1. It is an acknowledgement receipt. Corporation v. Court of Appeals, G.R.
By issuing that, the carrier acknowledges No. 95529, August 22, 1991)
the receipt of the good and therefore,
precluded from denying the contrary.
It implies the terms the acceptance the
2. It is the contract between the seller-
terms and condition of the bill of lading.
shipper and the common carrier. It
specifies the person in whose favor the
goods should be released. If the goods are Q: JRT, Inc, entered into a contract
not released to the consignee, then the with C, Co. of Japan to export anahaw
carrier is liable to the seller-shipper. It fans valued at $23,000. As payment
includes the payment of freight and other thereof, a letter of credit was issued to

Page 54 of 139

JR, Inc. by the buyer. The letter of
credit required was issued to JR, Inc, by
the buyer. The letter of credit required
the issuance of an on-board bill of lading
and prohibited the transhipment. The
President of JRT, inc. then contracted a
shipping agent to ship the anahaw fans
through O Containers Lines, specifying
the requirements of the letter of credit.
However, the bill of lading issued by the
shipping lines bore the notation
"received for shipment" and contained
an entry indicating transshipment in
Hongkong. The President of JRT, Inc,
personally received and signed the bill of
lading and despite the entries, he
delivered the corresponding check in
payment of the freight.
The shipment was delivered at the port
of discharge but the buyer refused to
accept the anahaw fans because there
was no on-board bill of lading, and there
was transshipment since the goods were
transferred in Hongkong from MV
Pacific, the feeder vessel, to MV
Oriental, a mother vessel. The same
cannot be considered transshipment
because both vessels belong to the same
shipping company.
JRT, Inc. further argued that assuming
there was transshipment, it cannot be
deemed to have agreed thereto even if it
signed the bill of lading containing such
entry because it has made known to the
shipping lines from the start that
transshipment was prohibited under the
letter of credit and that; therefore, it had
Page 55 of 139
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Notes for Merc Rev 2
no intention to allow transshipment of
the subject cargo. Is the argument
tenable? Reason.
A: No. JRT is bound by the terms of the
bill of lading when it accepted the bill of
lading with full knowledge of its contents
which included transshipment in
Hongkong Acceptance under such
circumstances makes the bill of lading
binding contract.
The SC said that he (seller, JRT in this case)
should have read the terms and conditions of
the bill of lading. Not interposing any
objection thereto, he is deemed to have
accepted those terms and conditions
including notations on transhipment.
DELIVERY OF GOODS
a. Period of Delivery
Q: If a shipper, without changing the
place of delivery changes the
consignment or consignee of the goods
(after said goods had been delivered to
the carrier), under what condition will
the carrier be required to comply with
the new orders of the shipper?
A: If the shipper should change the
consignee of the goods, without changing
their destination, the carrier shall comply
with the new order provided the shipper
returns to the carrier the bill of lading, and
a new one is issued showing the novation
of the contract. All expense for the change
must be paid by the shipper.
Q: When should the shipment be
delivered?

A: The oft-repeated rule regarding a
carrier's liability for delay is that in the
absence of a special contract, a carrier is
not an insurer against delay in
transportation of goods. When a common
carrier undertakes to convey goods, the
law implies a contract that they shall be
delivered at destination within a
reasonable time, in the absence, of any
agreement as to the time of delivery. But
where a carrier has made an express
contract to transport and deliver properly
within a specified time, it is bound to fulfill
its contract and is liable for any delay, no
matter from what cause it may have arisen.
This result logically follows from the well-
settled rule that where the law creates a
duty or charge, and the default in himself,
and has no remedy over, then his own
contract creates a duty or charge upon
himself, he is bound to make it good
notwithstanding any accident or delay by
inevitable necessity because he might have
provided against it by contract. It was held
that a delay in the delivery of the goods
spanning a period of 2 months and 7 days
was beyond the realm of reasonableness.
Maersk Line v: Court of Appeals
Q: The remains of the plaintiffs' mother
was supposed to be transported from
Chicago to California and from
California to the Philippines. But
because of a mix up, the remains were
sent to Mexico initially, which caused a
delay. The plaintiffs sued Trans World
Airlines and Philippine Airlines for
damages on the ground of delay in
transporting their mother's remains.
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Notes for Merc Rev 2
Is the carrier liable for the delay in the
delivery of a cargo?
A: No, common carriers are not obligated
by law to carry and to deliver merchandise,
and persons are not vested with the right to
prompt delivery, unless such common
carriers previously assume the obligation.
Said rights and obligations are created by a
specific contract entered into by the
parties.
The Supreme Court said that the common
carrier is not liable because the contract did
not provide date when the cargo should be
delivered. Thus, reasonable time is the
consideration.
b. Delivery without surrender of the bill of
lading
Q: May a Common Carrier be held
liable despite non-issuance of a bill of
lading?
A: Yes. There is a complete and
consummated contract of carriage once the
cargo is delivered to the carrier and the
latter takes possession thereof. The
delivery of a bill of lading is not a requisite
for the perfection of the contract of
carriage. As such, the common carrier is
liable despite non-issuance of a bill of
lading.
It is not the issuance of the bill of lading that
consummates the contract of carriage. The
delivery of the goods to the carrier and the
possession thereof by the carrier perfects the
contract of carriage.

Q: What if the passenger loaded his maleta
to the bus and it was stolen even before the
passenger boarded the bus. Is the carrier
liable?
A: Yes, despite the non-issuance of a ticket.
A bill of lading is broad enough to include a
ticket. There was a perfected contract of
carriage because the goods were received by
the carrier
Q: Is the consignee bound by the
contract of carriage between the shipper
and the carrier?
A: Even if the consignee was not a
signatory to the contract of carriage
between the shipper and the carrier, the
consignee can still be bound by the
contract. The right of a party here, to
recover for loss of a shipment consigned to
him under a bill of lading drawn up only
by and between the shipper and the carrier,
springs from either a relation of agency
that may exist between him and the shipper
or consignor, or his status as stranger in
whose favor some stipulation is made in
said contract, and who becomes a party
thereto when he demands fulfillment of
that stipulation, when the consignee
formally claimed reimbursement for the
missing goods from the common carrier
and subsequently filed a case against the
latter based on the very same bill of lading,
it accepted the provisions of the contract
and thereby made itself a party thereto, or
at least has come to court to enforce it.
Thus, it cannot now reject or disregard the
carrier's limited liability stipulation in the
bill of lading. It is now bound by the whole
stipulations in the bill of lading and must
respect the same. Everett Steamship
Page 57 of 139
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Notes for Merc Rev 2
Corporation v. Court of Appeals, G.R.
No. 122494, October 08, 1998.
*same discussion as recit
The receipt of the goods is the acceptance of
the terms of the bill of lading.
Q: May the consignee obtain delivery of
the goods without the surrender of the
bill of lading?
A: In case the consignee, upon receiving
the goods, cannot return the bill of lading
subscribed by the carrier, because of its
loss or of any other cause, he must give the
latter a receipt for the goods delivered, this
receipt producing the same effects as the
return of the bill of lading. The surrender
of the original bill of lading is not a
condition precedent for a common carrier
to be discharged of its contractual
obligation. If surrender of the original bill
of lading is not possible, acknowledgment
of the delivery by signing the delivery
receipt suffices. National Trucking and
Forwarding Corporation v Lorenzo
Shipping Corporation
Note: If the claimant is not the consignee, the
third party claimant shall present the duly
negotiated bill of lading showing that he has
acquired title or interest to the instrument.
Q: The buyer could not produce the bill
of lading covering the shipment not
because it was lost, but because the bill
of lading was retained by the seller
pending buyer's full payment of the
shipment. Buyer and carrier then
entered into an Indemnity Agreement,

wherein the former asked the latter to
release the shipment even without the
surrender of the bill of lading. May the
goods be released even without the
surrender of the bill of lading?
A: Yes. The general rule is that upon
receipt of the goods, the consignee
surrenders the bill of lading to the carrier
and their respective obligations are
considered canceled. Article 353 of the
Code of Commerce, however, provides
two exceptions where the goods may be
released without the surrender of the bill of
lading because the consignee can no longer
return it. These exceptions are:
1. when the bill of lading gets lost or
2. for other just cause.
In either case, the consignee must issue a
receipt to the carrier upon the release of the
goods. Such receipt shall produce the same
effect as the surrender of the bill of lading.
Here, the execution of the Indemnity
Agreement, and the undisputed fact that
the shipment was released to seller
pursuant to it, operates as a receipt in
substantial compliance with the last
paragraph of Article 353 of the Code of
Commerce. Designer Baskets, Inc., V.
Air Sea Transport, Inc. And Asia Cargo
Container Lines, Inc. G.R. No. 184513,
March 09, 2016
The Indemnity Agreement provides that the
consignee shall indemnify the carrier for
whatever suit brought by the shipper. That is
a cause that will allow the release of the
goods even without the surrender of the bill
of lading.
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It is not to say that the seller-shipper cannot
sue the carrier. He can but the carrier can seek
indemnity from the consignee.
c. Refusal of consignee to take delivery
Q: When may the consignee refuse to
accept the goods?
A: According to the Code of Commerce, if
the goods are delivered but arrived at the
destination in damaged condition, the
remedies to be pursued by the consignee
depend on the extent of damage on the
goods. In case the damaged portion of the
goods can be segregated from those
delivered in good condition, the consignee
may reject those in damaged condition and
accept merely those which are in good
condition. If the effect of damage on the
goods consisted merely of diminution in
value, the carrier is bound to pay only the
difference between its price on that day
and its depreciated value as provided under
Article 364 of the Code of Commerce.
Loadstar Shipping Company v.
Malayan Insurance Company, G.R. No.
185565, November 26, 2014.
However, if the goods are rendered useless
for sale, consumption or for the intended
purpose, the consignee may reject the
goods and demand the payment of such
goods at their market price on that day
pursuant to Article 365 of the Code of
Commerce.
Q: So let’s say the sacks of rice were
exposed to seawater. As a result, they got
spoiled but they can be sold as animal

feeds. Can the consignee the reject the
delivery of the goods?
A: Yes, because the goods were rendered
useless for the intended consumption.
Although they can used as animal feeds,
those were not the intended purpose of the
consignee.
Q: In this case of Loadstar Shipping, the
insurance company paid the consignee as
if the goods were totally lost when it was
only a partial lost. There was diminution
only as to the value. So how much can the
insurance company recover from the
carrier?
A: The SC said only the actual loss or damage
incurred by the consignee and not the full
amount. The insurance company steps only in
the shoes of the consignee and acquires no
better right than the consignee.
PERIOD FOR FILING CLAIMS
Q: What is the period to file claim in
case of damage to goods?
A:
For coastwise or inter-island commerce (or
carriage of goods within the Philippines)
• When the damage is apparent, the
claim should be filed immediately
with the common carrier.
• If the damage is not apparent, the
notice must be filed within 24
hours from delivery.
Q: When does the 24-hour period for the
filing of notice commence?
A:
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The twenty-four-hour period within which
claims must be presented does not begin to
run until the consignee has received such
possession of the merchandise that he may
exercise over it the ordinary control
pertinent to ownership. In other words,
there must be delivery of the cargo by the
carrier to the consignee at the place of
destination.
The giving of notice of loss or injury is a
condition precedent to the action for loss or
injury or the right to enforce the carrier's
liability. This notice requirement protects
the carrier by affording it an opportunity to
make an investigation of the claim while
the matter is still fresh and easily
investigated. It is meant to safeguard the
carrier from false and fraudulent claims.
Q: Is the giving of notice of loss or injury
required to the accrual of cause of action?
A: Check whether it is inter-island shipping.
If yes, the lack of notice to the common
carrier precludes the accrual of the cause of
action.
It was also held that where the contract of
shipment contains a reasonable
requirement of giving notice Of loss Of or
injury to the goods, ( in this case 30 days
for filing a claim with the carrier for loss
or damage ) the giving of such notice is a
condition precedent to the action for loss or
injury or the right to enforce the carrier's
liability. Such requirement is not an empty
formalism, The fundamental reason or
purpose of such a stipulation is not to
relieve the carrier from just liability, but

reasonably to inform it that the shipment
has been damaged and that it is charged
with liability therefor; and to give it an
opportunity to examine the nature and
extent of the injury. This protects the
carrier by affording it an opportunity to
make an investigation of a claim while the
matter is fresh and easily investigated so as
to safeguard itself from false and
fraudulent claims. Notice is a condition
precedent and the carrier is not liable if
notice is not given in accordance with the
stipulation, as the failure to comply with
such a stipulation in a contract of carriage.
With respect to notice of loss or claim for
damage bars recovery for the loss or
damage suffered. Philippine American
General Insurance Co v Sweet Lines, Inc.,
G.R. No. 87434, August 5, 1992.
This very different if the shipment is from
foreign port to local port. In this case, the lack
of notice to the carrier is not indispensable to
the accrual of the cause of action.
Q: Y shipped several boxes of goods
from Mindoro to Batangas on board a
vessel owned by Montenegro Shipping
Lines. Inc. Upon opening of the goods, it
was discovered that the goods had been
damaged. It was only after 3 days that a
notice against the carrier was made by
the consignee. Does the shipper have
cause of action against the carrier?
A: No. The notice or claim that is required
to be made against the carrier under Article
366 of the Code of Commerce is a
condition precedent to the accrual of a
right of action against the latter for loss or
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Notes for Merc Rev 2
damage to, the goods transported. Without
such prior notice or claim having been
made within the time allowed, no right of
action against the carrier can rise in favor
of the shipper or consignee.
The aforementioned requirement is a
reasonable condition precedent; it does not
constitute a limitation of action. The
requirement of giving notice of loss of or
injury to the goods is not an empty
formalism, The fundamental reasons for
such a stipulation are (1) to inform the
carrier that the cargo has been damaged,
and that it is being charged with liability
therefor; and (2) to give it an opportunity
to examine the nature and extent of the
injury. This protects the carrier by
affording it an opportunity to make an
investigation of a claim while the matter is
fresh and easily investigated so as to
safeguard itself from false and fraudulent
claims.
Q: X shipped several boxes of goods
from Manila to Cebu on board a vessel
owned by Mabuhay Lines, Inc. Several
boxes externally appeared to have been
damaged. The proprietor of Y Dry
Goods, Inc. paid the freight charges
upon receipt of the goods. However,
when the boxes were opened 2 days
later, it was discovered that the contents
of all the boxes had been damaged. The
proprietor of Y Dry Goods, Inc. seeks
your advice on whether he may proceed
against the carrier for damages. State
your answers with reasons.

A: No action for damages to the goods may
be maintained against the carrier. With
respect to a claim arising from damages
caused to the goods contained in the boxes
where the damage was ascertainable from
the outside part of the packages, Article
366 of the Code of Commerce requires that
the claim against the carrier must be made
at the time of the receipt.
With respect to the goods contained in the
boxes where the damage was not
ascertainable from the outside part of the
packages and such damage was only
ascertainable upon the opening of the
boxes, the claim against the carrier must be
made within 24 hours following receipt of
the merchandise. It does not appear that the
proprietor of Y Dry Goods, Inc. made any
claim for damages to the goods within the
periods set forth in Article 366.
Moreover, as he paid the freight charges
upon his receipt of the goods shipped, it is
too late for the proprietor of Y Dry Goods
Inc. to make a claim against the carrier for
damages to the goods. BAR 1984
Q: Can there be substantial compliance
with the notice requirement?
A: Yes. In the case of Aboitiz Shipping
Corporation v. Insurance Company of
North America, it was held that provisions
specifying a time to give notice of damage
to common carriers are ordinarily to be
given a reasonable and practical, rather
than a strict construction. Understandably,
when the goods were delivered, the
necessary clearance had to be made before
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the package was opened. Upon opening
and discovery of the damaged condition of
the goods, a report to this effect had to pass
through the proper channels before it could
be finalized and endorsed by the institution
to the claims department of the shipping
company.
The call to petitioner was made two days
from delivery, a reasonable period
considering that the goods could not have
corroded instantly overnight such that it
could only have sustained the damage
during transit. Moreover, petitioner was
able to immediately inspect the damage
while the matter was still fresh. In so
doing, the main objective of the prescribed
time period was fulfilled. Thus, there was
substantial compliance with the notice
requirement in this case.
Only one case. Don’t apply this in the bar
exam except when the case is at all fours with
the case of Aboitiz Shipping Corporation v.
Insurance Company of North America.
Ang sinasabi dito, somebody has to decide
when to give notice or not. For example,
binigay sa isang security guard tapos binigay
sa isang clerk pinadaan sa proper channel
until makarating sa proper person who has
the authority to give notice.
This only for practice. The rule is 24 hours
from the receipt of the goods if the damage is
not apparent.
For international carriage (Foreign ports to
Philippine ports)

• If the damage is apparent, the
notice must be filed upon discharge
of goods. If it is not apparent,
notice must be within 3 days from
delivery.
*nagnext lang si dean. So focus sa sinabi niya
kanina na: This very different if the shipment
is from foreign port to local port. In this case,
the lack of notice to the carrier is not
indispensable to the accrual of the cause of
action as long as the action is filed within one
year from date of delivery (delivered but
damaged goods) or the goods should have
been delivered.
PERIOD FOR FILING ACTIONS
Q: What is the prescriptive period for
filing actions?
A:
Coastwise (within Philippines)
• The action should be filed within 6
years if no bill of lading issued.
• However, if a bill of lading was
issued, the prescriptive period is
ten years from the receipt of the
goods. A cause of action based on
a written instrument prescribes in
ten years.
International (Foreign ports to Philippine
ports)
• In case of international carriage of
goods by sea, notice of damage is
not a condition precedent for the
accrual of the cause of action as
long as the action is filed within
one year from date of delivery
(delivered but damaged goods) or
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the goods should have been
delivered (date the vessel left the
port)
• In one case, it was held that the
provision in the Bill of Lading
providing that suits must be filed
within 60 days from accrual of the
right of action violated the one-
year period prescribed under the
COGSA. Hence, it is void and
cannot be applied.
What is jurisdiction in case of international
shipment under COGSA, is not the notice of
the claim but the filing of the suit within 1
year from date of delivery (delivered but
damaged goods) or the goods should have
been delivered.
Q: Can the parties validly reduce the
one-year period for the filing of the
action?
A: No. A stipulation reducing one-year
period for filing the action for recovery on
lost or damaged cargo is null and void.
Loadstar Shipping co., Inc. v. Court of
Appeals, 315 SCRA 339 [1999].
The 1-year period cannot be shortened but it
can be lengthened by agreement of the
parties. To shorten it is contrary to law.
RECIT
Q: In a bareboat or demise charter, the
charterer entered into a contract with
cargo owners and with passengers to
transport them and the goods to a specified
destination. En route, the chartered vessel
capsized and the goods were lost and the

passengers perished. So the cargo owners
and the heirs of the cargo owners filed
claims against the charterer. The
charterer invoked the limited liability rule
to limit liability. Is the invocation of this
rule valid?
Student: No. The doctrine of limited liability
is not applicable to demise or bareboat
charterer because it can only be invoked by
the ship owner of the ship agent.
Dean: In this case, the jurisprudence
applicable is Dela Torre v. CA that the
charterer cannot invoke this rule against
the shipowner. But in this case, he is
invoking it not against the shipowner but
with the cargo owners and the passengers
who boarded the chartered vessel. Will it
be the same rule and consider that in a
bareboat charter, the charterer is the
shipowner in that particular voyage?
Student: Yes, because the bareboat charter is
deemed a pro hac vice owner of the vessel
only. Since the charter has no full ownership
of the vessel, then he cannot invoke the
limited liability rule.
Dean: If I may ask you, why do you say
that this rule only benefits the shipowner
and not the charterer?
Student: To offset against the hazards of
maritime commerce and it is to encourage
ship building.
Dean: Remember the case of Cebu Salvage
v. CA. Insofar as the cargo owners are
concerned, is the bareboat charterer a
common carrier?
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A: If the charterer provides transportation
services to the public, it becomes a common
carrier.
Dean: If it is a common carrier, can you
not say now that as far as those passengers
and cargo owners are concerned, you can
invoke the limited liability rule?
A: No, because this rule only applies to
shipowner.
Dean: The rationale of this rule is to
encourage ship building. That rationale
does not hold true with the charterer. This
is no case yet though where the charterer
invokes this rule against the passengers
and cargo owners. But I agree with you
that the same principle holds. The
rationale of this rule is for the benefit of
the shipowner and not for the charterer.
Dean: What if the document plainly on its
face that it is a time or voyage charter?
Under what conditions that such
agreement may be converted into a private
carrier?
A:
1. If the body or the substance indicates
that the possession and control of the
navigation is with the charterer; or
2. Even though the substance may
support the caption but in actuality
the charterer had the control over the
navigation and he hired the crew
members

MARITIME COMMERCE
Q: What contracts govern maritime
commerce?
A: Contract to carry goods and/or transport
passengers is governed by the Civil Code
provisions on common carriers and the
terms and conditions of the bill of lading.
CHARTER PARTIES
Q: What is a charter party? What are
the kinds of charterer party?
A: A charter party is a contract by which
an entire ship or some principal part
thereof is let by the owner to another
person for a specified time or use. It has
two types. First it can be a contract of
affreightment whereby the use of shipping
space on vessels is leased in part or or a
whole to carry good for others. The charter
party provides for the hire of vessel only,
either for a determinate period of time
(time charter) or for a single or consecutive
voyage (voyage charter). The shipowner
supplies the ship's stores, pay for the wages
of the master and the crew, and defray the
expenses for the maintenance of the ship.
The voyage remains under the
responsibility of the common carrier and is
answerable for the loss of the goods
received for transportation. The charterer
is free from liability to third persons in
respect of the ship. Philam Insurance
Company (now Chartis Philippines
Insurance) v. Heung-A Shipping
Corporation and Wallem Philippines
Shipping, Inc., g.r. No. 187701, July 23,
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2014; Caltex Philippines, Inc. vs. Sulpicio
Lines, Inc., et. al., G.R. No. 131166,
September 30, 1999; National Food
Authority v Court of Appeals, G.R. No.
96453, August 4, 1999
Second, charter by demise or bareboat
charter under which the whole vessel is let
t the charterer with a transfer to him of its
entire command and possession and
consequent control over its navigation,
including the master and the crew, who are
his servants. The charterer mans the vessel
with his own people and becomes in effect
the owner for the voyage or service
stipulated and hence liable for damages or
loss sustained by the goods transported.
Philam Insurance Company (now Chartis
Philippines Insurance v: Heung-A
Shipping Corporation and Wallem
Philippines Shipping, Inc., g.r. No.
187701, July 23, 2014; Caltex Philippines,
Inc. vs. Sulpicio Lines, Inc., et. al., G.R.
No. 131166, September 30, 1999; National
Food Authority v Court Of Appeals, G.R.
NO. 96453, August 4, 1999
A bareboat charter effectively converts a
common carrier to a private carrier. The
shipowner becomes a mere lessor and
ceases to be the owner of the vessel with
respect to a specified navigation. The
shipowner has no liability to the
passengers or cargo owners who
contracted with the charterer in case of
death or injury to the passengers or loss or
damage to the goods.

Three types of charter party
1. Time charter: the vessel is chartered
for a particular period
2. Voyage charter: the vessel is
chartered for a particular voyage
3. Bareboat and demise charter:
possession and control are with the
charterer.
Q: Will it be considered bareboat and
demise charter if the charterer hires the
very ship captain and the crew members of
the ship owner?
A: Yes, with respect to a specific voyage. The
employees of the shipowner become the
employees of the charterer.
Q: Is the shipowner presumed to be at
fault or negligent in case of loss, damage
or deterioration of the goods on board
its vessel or in case of death or injury to
passengers under a charter party
agreement?
A: Yes, in the case of voyage and/or time
charter because in this type of charter party
agreement, the shipowner retains the status
of common carrier. There is no
presumption of fault on the part of the
shipowner, however, in the case of
bareboat or demise charter, because the
shipowner is not a party to the contract for
the shipment of the goods or transportation
of passengers.
Q: A contract of carriage was entered
into where the carrier and shipowner
are not the same person. In case an event
arises wherein the responsibilities of
common carrier attach, who will be
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made liable to the charterer/shipper, the
carrier or the shipowner?
A: The Carrier. The carrier that enters into
a contract of carriage is liable to the
charterer or shipper even if it does not own
the vessel it chooses. 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
common carrier. The shipper (and the
insurer by reason of subrogation) could not
be reasonably expected to inquire about the
ownership of the vessel which the charterer
offered to utilize. 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. Cebu Salvage
Corporation v. Philippine Home
Assurance Corporation, GR. No. 150403,
January 25, 2007.
The charterer acting as the common carrier
shall be liable.
Q: What is a “Jason clause” in a charter
party?
A: The Jason clause derives its name from
The Jason 225 US 32 (1912) decided by
the US Supreme Court under the Harter
Act. By the Jason clause, a shipowner
(provided he had exercised due diligence
to make the ship seaworthy and properly
manned, equipped and supplied) could
claim a general average contribution from
cargo, even where the damage was caused
by faulty navigation of the vessel, provided

that the bill of lading excluded liability for
such faults.
So, halimbawa, lumubog ‘yong vessel.
Pwede ba siya maka-collect ng contribution
sa cargo owners na na-save?
Under this Jason Clause, YES, as long as he
exercised due diligence to make the ship
seaworthy.
Q: Are the rules of common carriers
applicable to Bareboat/ Demise
Charter?
A: No. When the charter included both the
vessel and its crew, as in a bareboat or
demise charter, a common carrier becomes
private, at least in so far as the particular
voyage the charter-party is concerned.
Caltex v. Sulpicio Lines, G.R. No. 131166
September 30, 1999
It is private charter basically.
Bareboat/Demise Charter
Q: Tirso Molina charters a vessel owned
and operated by Star Shipping Co., a
common carrier, for the purpose of
transporting two tractors to his logging
concession. The crane operator of the
shipping company somehow negligently
puts the tractors in a place where they
would tilt each other. During the trip, a
strong wind hits the vessel, causing
severe damage to the tractors.
Tirso Molina sues the shipping company
for damages. The latter cites a
stipulation in the charter agreement
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exempting the company from liability
from loss or damage arising from the
negligence of its agents. Tirso Molina
countered by stating that the
aforementioned stipulation is against
public policy and, therefore, null and
void. Is the stipulation valid? Would you
hold the shipping company liable?
A: Yes. The stipulation in the charter party
is valid, and Star Shipping Co. is not liable.
The Civil Code provision on common
carriers should not apply where the
common carrier is not acting as such but as
a private carrier, as in the case in the above
problem. A common carrier undertaking to
carry a special cargo or chartered to a
special person only, becomes a private
carrier. As a private carrier, a stipulation
exempting the owner (Star Shipping Co.)
from liability for the negligence of its
agent is valid, being not against public
policy, Home Insurance Co. v. American
Steamship Agencies, April 4, 1968; 23
SCRA 24; Bar 1980.
Q: "C" Company shipped 20,000 bags
of soy beans through the S/S Melon,
owned and operated by "X" Shipping
Lines, consigned to the Toyo Factory
and insured by the Surety Insurance
Co., against all risks. "C" Company
hired the entire vessel, with the option to
go north or south, loading, stowing and
discharging at its risk and expense. The
owner and shipper agreed on a
stipulation exempting the owner from
liability for the negligence of its agents.

When the cargo was delivered to the
consignee, there were shortages
amounting to P10,500. The insurance
company paid for the damage and
sought reimbursement from the "X"
Shipping Lines as carrier. Is the carrier
liable?
A: The carrier is not liable. A common
carrier undertaking to carry a special cargo
or chartered to a special person only,
becomes a private carrier. The provisions
of the New Civil Code on common carriers
should not be applied where the carrier is
not acting as such but as a private carrier.
As a private carrier, a stipulation
exempting the ship-owner from liability
for the negligence of its agents is not
against public policy and is deemed valid.
Home Insurance Co. v. American
Steamship Agencies, Inc., April a, 1968;
23 SCRA 25; BAR 1981.
Q: If it is bareboat/demise charter, there
can be a stipulation exempting the
shipowner from loss or damage to goods
even on account of negligence of its
employees. What if there is no stipulation?
Does that mean the shipowner is liable?
A: Not necessary because in a
bareboat/demise charter, the shipowner
becomes a mere lessor. That is why he is not
bound by the contract entered by the charterer
with the cargo owners or passengers.
Time Charter
Q: X owns the ship M/V Aguinaldo. He
bareboat chartered the ship to Y who
appointed all its crew members from the
captain down to its last official. Y then
transported a shipment of 10,000 bags of
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sugar belonging to Z. Thru the
negligence of the ship captain, half of the
sugar was damaged due to sea water.
Since Y is bankrupt, Z sued the captain
and X. Will the suit prosper?
A: The action could prosper against the
ship captain whose negligence caused the
damage but not against X who merely was
a lessor of the vessel and who was neither
a party to the contract for the shipment of
the goods nor an employer of the ship
captain, BAR 1989
Q: Who is liable for the expenses of the
voyage including the wages of the
seamen in a bareboat or demise charter?
A: It is well settled that in a demise or
bareboat charter, the charterer is treated as
owner pro hac vice of the vessel, the
charterer assuming in large measure the
customary rights and liabilities of the
shipowner in relation to third persons who
have dealt with him or with the vessel. In
such case, the Master of the vessel is the
agent of the charterer and not of the
shipowner. The charterer or owner pro hac
vice, and not the general owner of the
vessel, is held liable for the expenses of the
voyage including the wages of the seamen.
Litonjua Shipping Company v. National
Seamen Board , G.R. No. L-51910, August
10, 1989.
Q: X entered into a time charter A with
ABC Shipping Company.
Unfortunately, the vessel containing few
cargoes sank during its voyage. No
insurance was taken by X over the

cargoes. Who should be held liable for
the lost cargoes?
A: ABC Shipping Company. Where the
agreement executed by the parties was a
time charter where the possession and
control of the vessel was retained by the
owner, the latter is, therefore, a common
carrier legally charged with extraordinary
diligence in the vigilance over the goods
transported by him. The sinking of the
vessel created a presumption of negligence
and/or unseaworthiness which the barge
owner failed to overcome and gave rise to
his liability for the charterer's lost cargo
despite the latter's failure to insure the
same. Oceaneering Contractrors (Phils),
Inc. vs. Nestor Barreto, doing business as
NNB Lighterage, G.R. No. 184215,
February 9, 2011.
Voyage/Trip Charter
Q: Who controls the master and the
crew in a Voyage/Trip Charter?
A: A voyage charter is simply a contract of
affreightment where the master and crew
remain in the employ of the ship owner.
Under a voyage charter, the shipowner
retains the possession, command and
navigation of the ship, the charterer or
freighter merely having use of the space in
the vessel in return for his payment of
freight. An owner who retains possession
of the ship remains liable as carrier and
must answer for loss or non-delivery of the
goods received for transportation. Cebu
Salvage Corporation v. Philippine Home
Assurance Corporation, G.R. No. 150403,
JANUARY 25, 2007
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In one case, it was held that a 'slot charter
arrangement' where there is a reserved a
space in the vessel is a contract of
affreightment. The arrangement did not
divest the ship owner its character as the
common carrier nor relieve it of any
accountability for the shipment. Philam
Insurance v Heung-A Shipping, supra
Q: What is a slot charter agreement?
A: It is a contract of affreightment. Meaning,
only space was entrusted to the charter.
Basically, it’s either time or voyage charter.
It does not divest the ship owner the control
of the vessel.
Q: Is the charterer of a sea vessel liable
for damages resulting from a collision
between the chartered vessel and a
passenger ship?
A: No. If the charter is a contract of
affreightment, which leaves the general
owner in possession of the ship as owner
for the voyage, the rights and the
responsibilities of ownership rest on the
owner. The charterer is free from liability
to third persons in respect of the ship. A
The charterer is free from liability to third
persons in respect of the ship.
On the other hand, under a demise or
bareboat charter, the charterer mans the
vessel with his own people and becomes,
in effect, the owner for the voyage or
service stipulated, subject to liability for
damages caused by negligence. Caltex
Philippines, Inc. v. Sulpicio Lines, Inc.,
G.R. No. 131166, September 30, 1999.

LIABILITY OF SHIP OWNERS AND
SHIPPING AGENTS
Q: Who is a ship agent?
A: A ship agent is "the person entrusted
with provisioning or representing the
vessel in the port in which it may be
found."
It was held that whether acting as agent of
the owner of the vessel or as agent of the
charterer, a person will be considered as
the ship agent and may be held liable as
such, as long as the latter is the one that
provisions or represents the vessel.
Macondray & Co. Inc. v Provident
Insurance Corporation, G.R. No. 154305,
December 9, 2004.
Republic Act No. 9515 provides for the
distinctions between a general agent and a
tramp agent.
Under the Code of Commerce and RA 9515,
the definition of the ship agent is the same.
"General Agent" shall mean a ship agent
appointed by the ship owner or carrier in
the liner service for all voyages and
covered by a General Agency Agreement
whereby the agent assumes the role and
responsibility of its principal within the
Philippine territory including but not
limited to solicitation of cargo and freight,
payment of discharging or loading
expenses, collection of shipping charges
and issuing/releasing bills of lading and
cargo manifest;
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"Tramp Agent" shall mean a ship agent
appointed by the ship owner, charterer or
carrier to carry the tramp service for one
particular voyage whose authority is
limited to the customary and usual
procedures and formalities required for the
facilitation of the vessel's entry, stay and
departure in the port and does not include
the assumption of the ship owner's,
charterer's, or carrier's obligations with the
shipper or receiver for the goods carried by
the ship;
Tramp Service shall mean the operation of
a contract carrier which has no regular and
fixed routes and schedules and schedules
but accepts cargo wherever and whenever
the shipper desires, is hired on a
contractual basis, or chartered by any one
or few shippers under mutually agreed
terms and usually carried bulk or break
bulk cargoes.
General agent: same responsibility as a ship
agent so jointly liable to cargo owners in case
of loss or damage to the goods.
Tramp agent: does not have the liability of
a ship agent.
Q: What are the liabilities of the ship
agent?
A:
The Code of Commerce provides for the
liabilities of the ship agent, as follows:
• The shipowner and the ship agent
shall be civilly liable for the acts of
the captain and for the obligations

contracted by the latter to repair,
equip, and provision the vessel,
provided the creditor proves that
the amount claimed was invested
for the benefit of the same."
• The ship agent shall also be civilly
liable for the indemnities in favor
of third persons which may arise
from the conduct of the captain in
the care of the goods which he
loaded on the vessel; but he may
exempt himself therefrom by
abandoning the vessel with all her
equipments and the freight it may
have earned during the voyage.
Republic Act No. 9515, in turn, provides
that the responsibility or liability, if any, of
the ship agent, general agent and tramp
agent shall continue to be governed by the
pertinent provisions of the Code of
Commerce:
1. Provided, that in the case of the
tramp agent, his liability shall not
extend to the obligations assumed
by the ship owner, charterer or
carrier with the shipper or receiver
for the goods carried by the ship:
2. Provided, further, That it is the duty
of the tramp agent, however, to
assist the shipper or receiver in
making cargo liability claims
against the ship owner, charterer or
carrier:
3. Provided, finally, That failure or
inaction to perform the aforesaid
duty shall subject the tramp agent
to applicable administrative
sanctions based on the
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Implementing Rules and
Regulations (IRR) to be formulated
thereon by the Maritime Industry
Authority (MARINA) under the
Department of Transportation and
Communication (DOTC) and by
the Philippine Shippers Bureau
(PSB) under the Department of
Trade and Industry (DTI).
It says civilly liable and yet the Supreme
Court said ship agent is liable solidarily with
the ship owner.
So even though the goods were under the
custody of the common carrier, the ship agent
shall be liable with the ship owner (even
though the ship agent did not contract with
the passengers and cargo owners).
Q: Can the ship agent invoke the Civil
Code provisions that as long as it is acting
on behalf of the principal and within the
scope of his authority and not liable
personally?
A: No. This defense holds true only to an
agent under the Civil Code and not a ship
agent under the Code of Commerce.
Regardless of fault or lack of fault of the ship
agent, the ship agent is liable solidarily with
the ship owner.
Q: You all know that the shipowner is
liable for all authorized acts of the captain
and same with ship agent. What about for
unauthorized acts or contracts?
A: Only in one case. That is for obligations
contracted by the ship captain for the repair
of the ship even though it is not authorized.

Q: "S" shipped goods from Australia on
board a foreign vessel owned and
operated by "X", a shipping company,
based in Australia and represented in
the Philippines by "R". The goods were
consigned to "T" of Manila and insured
by "U" against all risks. Upon arrival in
Manila Bay, the goods were discharged
from the vessel to a lighter owned by the
Bay Brokerage Co. When delivered to
and received by "T", the goods were
found to have sustained losses or
damages. Evidence disclosed that the
damage occurred while the goods were
in the custody of the carrier.
The insurance company paid the
amount of the loss but sought
reimbursement from "X" and/or "R".
"R" disclaimed any liability alleging
that he is a mere agent of "X", and
having acted as agent of a disclosed
principal is, therefore, not liable.
a) Can the insurance company recover
from "R"? Reasons.
b) What is the liability, if any, of Bay
Brokerage Co.? Explain.
A:
a) Yes, the insurance company can recover
from "R". A ship agent ("R") under the
Code of Commerce is liable solidarily with
its principal (X), in an amount representing
the value of the good lost or damaged.
Switzerland General Insurable Co., Ltd. v.
Ramirez, February 21, 1980; 96 SCRA 297
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b) The Bay Brokerage Co. is not liable.
The evidence disclosed that the damage
occurred while the goods were yet in the
custody of the carrier, before that goods
were discharged from the vessel to a
lighter owned by the Bay Brokerage Co.
BAR 1981
Q: X Mining Co. shipped a cargo of
machineries on board the S/S Good Ship
which was chartered by the Able
Shipping Co., a foreign corporation
represented in the Philippines by its
agent, Best Lines, Inc. When the goods
were delivered to the consignee, Y
Corporation, they were found to have
sustained losses. The insurer, Sunshine
Insurance Co., paid for the losses,
thereby subrogating itself to the rights
of X Mining Company or Y Corporation
vis-à-vis the shipping company and the
shipping agent.
Upon arrival of the S/S Good Ship in
Manila, Best Lines, Inc. took charge of
the following: (a) unloading of the cargo
and issuing of cargo receipts in its own
name for the purpose of evidencing the
condition and discharge of the cargo
from the vessel to the arrastre operator
and/or unto the barge lighters; (b) filing
and processing of claims against the
vessel S/S Good Ship for damages/ losses
sustained by the cargo.
When Sunshine Insurance Co. sued
both Able Shipping Co. and Best Lines,
Inc. the latter contended that it was a
disclosed agent and could not therefore

be held liable, despite the insolvency of
Able Shipping Co. Rule on the
contention of Best Lines, Inc., with
reasons.
A: It is clear that Best Lines, Inc. is the
entity that represents the vessel in the port
of Manila and hence is a ship agent within
the meaning and context of Article 586 of
the Code of Commerce: "the person who
represents the vessel in the port in which
she happens to be." Best Lines, Inc. cannot
be considered as a "mere agent" of a
disclosed principal under the civil law on
agency. The doctrine having reference to
the relation between principal and agents
cannot be applied in the case of ship agents
and ship owners. Yu Biao Suntua & Co. v.
Ossorio, 43 Phil. 51; BAR 1984.
The Code of Commerce provides that the
ship agent shall be liable for indemnities in
favor of third persons which arise from the
conduct of the captain in the care of the
goods which the vessel carried. The
insolvency of Able Shipping Co. has no
bearing insofar as the liability of Best
Lines, Inc. is concerned. The law does not
make the liability of the ship agent
dependent upon the solvency or insolvency
of the ship owner. Best Lines, Inc., as ship
agent, is liable solidarily with its principal,
Able Shipping Co., for the amount of the
losses damages sustained by the goods.
Switzerland General Insurance Co., Ltd.
V. Ramirez, 96 SCRA 297, 1980.
In this bar exam question, there is no fact
stating that Best Lines is a ship agent. Best
Lines was pertained to only as an agent. The
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functions described in the question pertained
to the duties of the ship agent. So if you see
these functions, it has the obligation and
liability of a ship agent. Best Lines is liable
solidarily.
RECIT
Q: Let’s say a ship owner contracted with
cargo owners as well as passengers to
transport them to Cebu and
unfortunately, the vessel collided with
another vessel. It resulted in the loss of all
cargoes and the death of the passengers.
Based on investigation, the driver of the
vessel X was drunk and the driver of vessel
Y accepted more passengers than the
vessel can carry. Can the shipowners of
vessels X and Y invoke the limited liability
rule to negate the claims of the cargo
owners and passengers of the relatives of
the deceased passengers?
A: With regard to Vessel X, the ship owner
can invoke the limited liability rule since
there was no fault on the part of the ship
owner. The negligence was with the captain
who was drunk.
With regard to Vessel Y, the ship owner
cannot invoke the limited liability rule if he
has knowledge and has approved the
overloading of Vessel Y.
Bottomline: If there was negligence on the
part of the ship captain, the ship owner can
invoke this rule.
Q: Is this an exception to the rule that in
case of death or injury to the passengers,
the ship owner is presumed to be at fault?

A: Yes, in effect it is an exemption because
he has no more liability if the vessel is lost.
Q: One of the exceptions to this rule is
claims of the employees under the ECC.
What about other benefits granted by
statute not just the Labor Code, not just
the ECC, and any other benefits imposed
by statute? Can they be claimed from the
ship owner despite the loss of the vessel?
A: Yes, as long as they are claims by the
crew members. Their heirs can file their
claims against the ship owner as long as they
are provided by law.
Q: What if a law was passed giving
benefits to the cargo owners. Can this be
claimed against the ship owner? Or are
you talking about employees?
A: Yes, only with the employees or the crew
members.
Dean: So there is this one case where the
benefits granted by the statute were
claimed against the ship owner. But those
claims were only with regard to the claims
of the laborers or crew members and not
claims due to any persons. To make it
clear, it must be a benefit imposed by the
statute for the benefit of the crew
members.
LIABILITY FOR ACTS OF CAPTAIN
Q: What is the liability of the shipowner
and the ship agent for the acts of, and
obligations contracted by the captain?
A: The shipowner and the ship agent shall
be civilly liable for the acts of the captain
and for the obligations contracted by the
latter to repair, equip and provision the
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vessel, provided the creditor proves that
the amount claimed was invested therein.
Q: Give instances when the shipowner
and ship agent are liable for culpa
contractual arising from the acts of the
captain.
A:
a. The owner of the property which has
been jettisoned or cast overboard by order
of the captain should have a right of action
against the shipowner for the breach of any
duty which the law may have imposed on
the captain with respect to such cargo.
Standard Oil Co. v Lopez Castelo, 42 Phil
256, cited in Perez, p. 135
b. In case the captain, without any valid
cause or reason and without any
unforeseen accident or stress of weather,
willfully abandoned the lorcha under a
contract of towage resulting in the loss
thereof, the shipowner and ship agent are
liable for the acts of the captain. Guzman
v. Behn, Meyer & Co, 9 Phil, 112, cited in
Perez, ibid.
c. The shipowner and ship agent are liable
for the negligence of the captain in
unloading the cargo on the pier on account
of which the cargo accumulated thereon
sank. Ohta Development Co. v. Steamship
Pompey, 49 Phil. 117, cited in Perez, ibid
Q: X chartered the ship of Y to
transport his logs from Zamboanga to
Manila. In the course of their voyage,
the ship met a storm and had to dock in

Cebu for 3 days. Z, the captain of the
ship, borrowed P20,000 from X on the
pretext that he would need the money
for the repair of the ship. Z
misappropriated the money and
converted it to his own benefit. What is
the liability of Y, if any?
A: A ship-owner would only be liable for
contracts made by the captain (a) when
duly authorized or (b) even when
unauthorized, for ship repairs, or for
equipping or provisioning the vessel when
the proceeds are invested therein. Since the
loan by the captain from X does not fall
under any of the foregoing cases, the
amount borrowed shall be considered a
personal liability of Z, the captain, and Y,
the ship-owner, cannot thus be held liable.
BAR 1989
Q: Under a charter party XXO Trading
Company shipped sugar to CocaCola
Company through SS Negros Shipping
Corp., insured by Capitol Insurance
Company. The cargo arrived but with
shortages. Coca-Cola demanded from
Capital Insurance Co. P500,000 in
settlement for XXO Trading. The MM
RTC, where the civil suit was filed,
"absolved the insurance company,
declaring that under the Code of
Commerce, the shipping agent is civilly
liable for damages in favor of third
persons due to the conduct of the
carrier's captain, and the stipulation in
the charter party exempting the owner
from liability is not against public
policy. Coca-Cola appealed. Will its
appeal prosper? Reason briefly.
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A: No. The appeal of Coca-Cola will not
prosper. Under Article 587 of the Code of
Commerce, the shipping agent is civilly
liable for damages in favor of third persons
due to the conduct of the carrier's captain,
and the shipping agent can exempt himself
therefrom only by abandoning the vessel
with all his equipment and the freight he
may have earned during the voyage. On the
other hand, assuming there is bareboat
charter, the stipulation in the charter party
exempting the owner from liability is not
against public policy because the public at
large is not involved.
Limited Liability Rule
Q: What is the doctrine of Limited
Liability?
A: The limited liability rule, also known as
the real or hypothecary nature of maritime
law, simply means that the liability of the
carrier in connection with losses related to
maritime contract is limited to his interest
in the vessel which is hypothecated for
such obligations or which stands as the
guaranty for their settlement.
This rule may best be explained by the
doctrine: “No vessel, no liability".
Carrier includes both ship owner and ship
agent.
It means that the loss of the vessel erases the
maritime claims against the ship owner and
ship agent.

Q: What is the rationale for the Limited
Liability Rule?
A: It was designed to offset the adverse
conditions of maritime trade and to
encourage people and venture into
maritime commerce despite the risks and
prohibitive cost of shipbuilding. Aboitiz
Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, 217
SCRA 359, 1993.
That is why the charterer cannot invoke this
rule because its ownership is just fictional
and not for real.
Q: Pablo Esparadon, a duly-licensed
ship captain of the M/V Don Jose was
drunk while he was on duty as such, and
while M/V Don Jose was sailing from
Manila to the Visayas. As a consequence
thereof, the M/V Don Jose rammed
another vessel near Corregidor, causing
both vessel to sink completely and thus
become total losses. The cargo owners of
both sunken vessels sued the owner of
the M/V Don Jose for their losses. Is the
shipowner of M/V Don Jose liable?
Explain your answer.
A: No. The shipowner of M/V Don Jose is
not liable. The civil liability of the
shipowner of a vessel, in maritime
collision which is caused by the fault of the
captain, as in this problem (being drunk),
is merely coexistent with his interest in the
vessel (M/V Don Jose), such that the total
loss thereof, results in the extinction of
such liability.
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Just look at the facts of the bar question. If
there is negligence on the part of the ship
captain but no negligence on the part of the
ship owner, no matter how staggering the
negligence maybe of the ship captain, the
ship owner can invoke this limited liability
rule.
Q: Captain Hook, the ship captain of
M.V. Peter Pan, overloaded the M.V.
Peter Pan, as a consequence of which the
vessel sank in the middle of the Sulu Sea,
and nothing whatsoever was recovered.
The owners of the cargo and the heirs of
the three passengers of the vessel filed
an action for damages in the amount of
P500,000 against Mr. Wendy, the
owner. Will the action prosper?
Reasons.
A: The total loss or the lawful
abandonment of the vessel precludes
further liability on the part of the
shipowner, except to the extent of earned
freightage or proceeds of insurance, if any,
for the loss of cargo arising from the
“conduct of the captain in the care of
goods". Under the limited liability rule, the
loss of the vessel extinguishes the liability
of the shipowner for loss of the goods on
board the vessel even if the loss was due to
the negligence of the ship captain;
provided that there is no negligence on the
part of the shipowner, as in this case. BAR
1988
Q: MV Mariposa, one of five passenger
ships owned by the Marina Navigation
Company, sank off the coast of Mindoro
while en route to Iloilo City. More than

200 passengers perished in the disaster.
Evidence showed that the ship captain
ignored typhoon bulletins issued by
PAGASA during the 24-hour period
immediately prior to the vessel's
departure from Manila. The bulletins
warned all types of sea crafts to avoid
the typhoon's expected path near
Mindoro. To make matters worse, he
took more load than was allowed for the
ship's rated capacity. Sued for damages
by the victim's surviving relatives,
Marina Navigation Company
contended: (I) that its liability, if any,
had been extinguished with the sinking
of MV Mariposa; and (2) that assuming
it had not been so extinguished, such
liability should be limited to the loss of
the cargo. Are these contentions
meritorious in the context of applicable
provisions of the Code of Commerce?
A: Yes, the contentions of Marina
Navigation Company are meritorious. The
captain of MV Mariposa is guilty of
negligence in ignoring the typhoon
bulletins issued by PAGASA and in
overloading the vessel. But only the
captain of the vessel MV Mariposa is
guilty of negligence. The shipowner is not.
Therefore, the shipowner can invoke the
doctrine of limited liability. BAR 2000
Q: In a collision between MIT Manila, a
tanker, and M/V Don Claro, an inter-
island vessel, M/V Don Claro sank and
many of its passengers drowned and
died. All its cargoes were lost. The
collision occurred at nighttime but the
sea was calm, the weather fair and
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visibility was good. Prior to the collision
and while still 4 nautical miles apart,
M/V Don Claro already sighted M/T
Manila on its radar screen. M/T Manila
had no radar equipment. As for speed,
M/V Don Claro was twice as fast as M/T
Manila.
At the time of the collision, M/T Manila
failed to follow Rule 19 of the
International Rules of the Road which
required 2 vessels meeting head on to
change their course by each vessel
steering to starboard (right) so that each
vessel may pass on the port side (left) of
the other, M/T Manila signaled that it
would turn to port side and steered
accordingly, thus resulting in the
collision. M/T Don Claro's captain was
off-duty and was having a drink at the
ship's bar at the time of the collision. If
M/V Don Claro was at fault, may the
heirs of the passengers who died and the
owners of the cargoes recover damages
from the owner of said vessel?
A: Yes, but subject to the doctrine of
limited liability. The doctrine is to the
effect that the liability of the shipowners is
confined to their interest in the vessel and
as such, would be to the extent of any
remaining value of the vessel, proceeds of
insurance, if any, and earned freightage.
The doctrine applies given that based on
the factual settings, the shipowner himself
was not guilty of negligence. BAR 1991
Q: A chartered vessel (bareboat or
demise) sank due to improper unloading

of the cargo by the charterer. Can the
charterer use the Limited Liability Rule
against the shipowner?
A: No, the only person who could avail of
this is the shipowner. He is the very person
whom the Limited Liability Rule has been
conceived to protect and the one who is
supposed to be supported and encouraged
to pursue maritime commerce. Thus, it
would be absurd to apply the Limited
Liability Rule against him who, in the first
place, should be the one benefitting from
the said rule.
The charterer does not completely and
absolutely step into the shoes of the
shipowner or even the ship agent because
there remain conflicting rights between
them as derived from their charter
agreement. The charterer's possession was
therefore, the uncertain title of lease, not
possession of the owner. Therefore, even if
the contract is for a bareboat or demise
charter where possession, free
administration and even navigation are
temporarily surrendered to the charterer,
dominion over the vessel remains with the
shipowner. Ergo. the charterer or the sub-
charterer, whose rights cannot rise above
that of the former, can never set up the
Limited Liability Rule against the very
owner of the vessel. Augustin P. Dela
Torre, et al., v. Court of Appeals, Et Al.,
G.R. No. 160565, 2011.
Exceptions to the Limited Liability Rule
Q: In what cases is the Limited Liability
Rule inapplicable?
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A: The limited liability rule does not apply
in any of the following cases:
a. Expenses for repairs contracted
before the vessel is lost;
b. When the injury or death of the
passenger is due to the fault of the
shipowner, or the negligence of the
shipowner and the captain;
c. Claims of the crew under the
Workmen's Compensation Act;
Thus, the employees and laborers,
or heirs or dependents in cases of
injury received by or inflicted upon
them while in the performance of
their work or employment shall be
compensated.
It was ruled that the limited liability
rule found in the Code of
Commerce is inapplicable in a
liability created by statute to
compensate employees and
laborers, or the heirs and
dependents, in cases of injury
received by or inflicted upon them
while engaged in the performance
of their work or employment
Akin to the death benefits under the
Labor Code, death benefits under
the POEASEC are given when the
employee dies due to a work-
related cause during the term of his
contract. The liability of the
shipowner or agent under the
Philippine Overseas Employment
Administration Standard

Employment Contract (POEA-
SEC) has likewise nothing to do
with the provisions of the Code of
Commerce regarding maritime
commerce. But while the nature of
death benefits under the Labor
Code and the POEA-SEC are
similar, the death benefits under the
POEA-SEC are intended to be
separate and distinct from, and in
addition to, whatever benefits the
seafarer is entitled to under
Philippine laws, including those
benefits which may be claimed
from the State Insurance Fund.
In other words, the limited liability
rule found in the Code of
Commerce is inapplicable in a
liability created by statute to
compensate employees and
laborers, or the heirs and
dependents, in cases of injury
received by or inflicted upon them
while engaged in the performance
of their work or employment. Phil-
Nippon Kyoei, corp. v. Gudelosao,
G.R. No. 181375, July 13, 2016.
d. When the vessel is insured, in
which case, the liability of the
shipowner or ship agent is limited
to the extent of the insurance
proceeds;
This simply means that in case of a
lost vessel, the claimants may go
after the proceeds of the insurance
covering the vessel.
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e. When the vessel is not abandoned.
Abandonment, however, is only
necessary in case of constructive
total loss. There is no need to
abandon if the vessel sunk.
f. In case the voyage is not maritime
but only in river, bay or gulf; and,
g. In case the vessel is not a common
carrier.
In all of these cases, the shipowner and/or
ship agent shall be liable in case of loss or
damage to goods or death or injury to
passengers.
Keyword: CRIN nAMC
C – crew members’ claims
R - repairs
I – if it is insured
N – negligence on the part of the ship owner
whether actual, direct or contributory
n – not
A- Not abandoned
M- Not maritime commerce
C- Not common carrier
Jurisprudence:
Thus, the doctrine does not apply in these
cases:
• When the shipowner reconfigured the
bulkhead of the deck of the ship to load
excessive amount of cargo which made
the vessel unseaworthy. LOADSTAR
was at fault or negligent in not
maintaining a seaworthy vessel and in
having allowed its vessel to sail despite

knowledge of an approaching typhoon.
The doctrine of limited liability does
not apply where there was negligence
on the part of the vessel owner or
agent.
• When the shipowner himself, was
guilty of such fault or negligence in not
making certain that the passenger
vessel is not overloaded, as well as and
is having failed to provide sufficient
life belts on board the vessel.
Philippine General Insurance
Company vs Court of Appeals, C.R.
No. 116940, June 11, 1997, BAR 2016.
• If the injury or damage is caused by the
shipowner's fault as where he engages
the services of an inexperienced and
unlicensed captain or engineer, he
cannot avail of the provisions of
Article 837 of the Code by abandoning
the vessel. He is personally liable for
the damages arising thereby. Luzon
Stevedoring Corporation v. Court of
Appeals, G.R. No. L-58897, December
3, 1987.
• For a vessel to be seaworthy, it must be
adequately equipped for the voyage
and manned with a sufficient number
of competent officers and crew. The
failure of a common carrier to maintain
in seaworthy condition its vessel
involved in a contract of carriage is a
clear breach of its duty prescribed in
Article 1755 of the Civil Code.
Loadstar Shipping Co. v Court of
Appeals, G.R. No. 131621, September
28, 1999.
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Q: Judgement creditors of a vessel that
sank wish to enforce their claims. The
shipowner asserts that the execution
must be stayed as not all the cases
occasioned by the subject sinking have
been completed. Is the shipowner's
claim tenable?
A: Yes. The rights of a vessel owner or
agent under the limited liability rule are
akin to those of the rights of shareholders
to limited liability under our corporation
law. More to the point, the rights may be
compared to those creditors against an
insolvent corporation whose assets are not
enough to satisfy the totality of claims as
against it. In both insolvency of a
corporation and the sinking of a vessel, the
claimants or creditors are limited in their
recovery to the remaining value of
accessible assets. In the case of insolvent
corporation, these are the residual assets of
the corporation left over from its
operations. In the case of a lost vessel,
these are the insurance proceeds and
pending freightage for the particular
voyage. There is therefore a need to
collate all claims preparatory to their
satisfaction from the insurance proceeds
on the vessel and its pending freightage
at the time of its loss. No claimant can be
given precedence over the others by the
simple expedience of having filed or
completed its action earlier than the rest.
Thus, execution of judgment in earlier
completed cases even those already final
and executory, must be stayed pending
completion of all cases occasioned by the
subject sinking. Aboitiz Shipping
Corporation vs General Accident Fire and

Life Assurance Corporation, 217 SCRA
359, 1993.
ACCIDENTS AND DAMAGES IN
MARITIME COMMERCE
Q: What are averages?
A: Averages are all extraordinary or
accidental expenses which may be
incurred during the voyage for the
preservation of the vessel or cargo, or both,
as well as damages or deterioration which
the vessel may suffer from the time she
puts to the sea at the port of departure until
she casts anchor at the port of destination
and those suffered by the goods from the
time they are loaded in the port of shipment
until they are unloaded in the port of their
consignment.
The usual expenses of navigation shall be
considered as ordinary expenses and shall
be defrayed by the shipowner unless there
is stipulation to the contrary.
Q: What is Simple Average?
A: Simple or particular averages include
all the expenses and damage caused to the
vessel or to her cargo which have not
inured to the common benefit and profit of
all persons interested in the vessel and her
cargo. The owner of the things which give
rise to expenses or suffered damage shall
bear the simple or particular averages.
Example
Damage suffered by the cargo from the
time of embarkation until it is loaded either
on account of the inherent defect of the
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goods or by reason of marine accident or
force majeure and the expenses incurred to
avoid and repair the same.
It may not be deliberately caused. Therefore,
it is borne only by the owner of the cargo and
cannot be shared by the other owners of the
other cargoes.
General and Particular Averages
Q: What is a General Average?
A: General or gross averages shall, as a
general rule, include all damages and
expenses which are deliberately caused in
order to save the vessel, her cargo, or both
at the same time, from a real known risk.
In order to satisfy the amount of the gross
or general average, all the persons having
an interest in the vessel and cargo therein
at the time of the occurrence of the average
shall contribute.
Examples
• Effects jettisoned to lighten the vessel,
whether they belong to the cargo, to the
vessel, or to the crew and the damage
suffered through said act by the effects
which are kept on board.
• The expenses of removing or
transferring a portion of the cargo in
order to lighten the vessel and place it
in a condition to enter a port or
roadstead and the damage resulting
therefrom to the effects removed or
transferred
The owner of the jettisoned thing can recover
from the owner of the vessel and the owner
of the other cargoes that were saved.

Q: What are the requisites of a General
Average?
A:
a. There must be a common danger to
the ship and cargo after it has been
loaded;
b. A portion of the vessel or some of
the cargoes or both are sacrificed
deliberately for the common
safety;
c. The vessel or cargo is successfully
saved; and
d. The expenses are incurred after
taking the formalities provided for
under Articles 813 and 814 of the
Code of Commerce, as follows:
i. Assembly to be called by
captain of all the cargo
owners and other officers
of the vessel;
ii. Deliberation with the
sailing mate and the other
officers of the vessel and
after hearing the persons
interested in the cargo who
may be present;
iii. Resolution of the captain to
cause damage which
constitutes general average;
iv. Entry of resolution in the
logbook stating the motives
and reasons on which it is
based, the votes against it
and the reason for the
dissent should there be and
the irresistible and urgent
causes which impelled the
captain, if he acted on his
own accord;
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v. Delivery of the minutes of
the meeting to the maritime
judicial authority of the
first port of arrival within
24 hours from arrival;
vi. Ratification by captain
under oath
For the formalities, para ka lang may
meeting. May assembly then deliberation
then may resolution and entry of the
resolution.
Q: What are the distinctions between
particular and general average?
A:
a. Particular averages have not
inured to the common benefit and
profit of all persons interested in
the vessel and her cargo, while
general averages are caused for the
benefit of those interested in the
vessel and her cargo.
b. General averages are deliberately
caused in order to save the vessel
and/ or her cargo, while particular
averages may be due to causes
other than a deliberate act
c. Particular averages are borne by
the owner of the things damaged
while general or gross averages
shall be shared and contributed by
having all persons having an
interest in the vessel and cargo.
Q: MV SuperFast, a passenger-cargo
vessel owned by SF Shipping Company
plying the inter-island routes, was on its
way to Zamboanga City from the

Manila port when it accidentally, and
without fault or negligence of anyone on
the ship, hit a huge floating object. The
accident caused damage to the vessel
and loss of an accompanying crated
cargo of passenger PR, In order to
lighten the vessel and save it from
sinking and in order to avoid risk of
damage to or loss of the rest of the
shipped items (none of which was
located on the deck), some had to be
jettisoned. SF Shipping had the vessel
repaired at its port of destination. SF
Shipping thereafter filed a complaint
demanding all the other cargo owners to
share in the total repair costs incurred
by the company and in the value
jettisoned cargoes, In answer to the
complaint, the shippers' sole contention
was that, under the Code Of Commerce,
each damaged party should bear its or
his own damage and those that did not
suffer any loss or damage were not
obligated to make any contribution in
favor of those who did. Is the shippers'
contention valid? Explain.
A: No. The shippers' contention is not
valid. The owners of the cargo jettisoned,
to save the vessel from sinking and to save
the rest of the cargoes, are entitled to
contribution. The jettisoning of said
cargoes constitute general average loss
which entitles the owners thereof to
contribution from the owner of the vessel
and also from the owners of the cargoes
saved. Shipping is not entitled to
contribution/reimbursement for the cost of
repairs on the vessel from the shippers.
BAR 2000
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Q: Global Transport Services, Inc
(GTSI) operates a fleet of cargo vessels
plying interisland routes, One of its
vessels, MV Donna Juana, left the port
of Manila for Cebu laden with, among
other goods, 10,000 television sets
consigned to Romualdo, a TV retailer in
Cebu.
When the vessel was about 10 nautical
miles away from Manila, the ship
captain heard on the radio that a
typhoon which, as announced by PAC-
ASA, was on its way out of the country,
had suddenly veered back into
Philippine territory. The captain
realized that MV Dona Juana would
traverse the storm's path, but decided to
proceed with the voyage. True enough,
the vessel sailed into the storm. The
captain ordered the jettison of the
10,000 television sets, along with some
other cargo, in order to lighten the vessel
and make it easier to steer the vessel out
of the path of the typhoom Eventually,
the vessel, with its crew intact, arrived
safely in Cebu.
a. Will you characterize the jettison of
Romualdo's TV sets as an average? If so,
what kind of an average, and why? If
not, why not?
b. Against whom does Romualdo have a
cause of action for indemnity of his lost
TV sets? Explain.
A:
a. The jettison of Romualdols TV sets
resulted in a general average loss,
which entitles him compensation
or indemnification from the

shipowner and the owners of the
cargoes saved by the jettison.
b. Romualdo has a cause of action for
his lost TV sets against the
shipowner and the owners of the
cargoes saved by the jettison. The
jettison of the TV sets resulted in a
general average loss, entitling
Romualdo to indemnity for the lost
TV sets. BAR 2009
Q: An importer of Christmas toys
loaded 100 boxes of Santa Clause talking
dolls aboard a ship in Korea bound for
Manila. With the intention of smuggling
1/2 of his cargo, he took a bill of lading
for only 50 boxes to save the more
precious cargo. Is the importer entitled
to receive any indemnity for average?
A: No. The importer is not entitled to
receive any indemnity for average. In order
that the goods jettisoned may be included
in the general average and the owner be
entitled to indemnity, it is necessary that
their existence on board be proven by
means of the bill of lading. BAR 2010
COLLISIONS
Q: State the rules on collision of vessels.
A:
a. Collision refers to the contact of two
moving vessels. If one vessel is
moving while the other is stationary,
this is known as allision.
b. But collision is used in a broad sense to
include allision
c. The vessel at fault shall indemnify the
damages sustained or losses incurred.
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d. If both vessels are at fault, each shall
suffer its own damages, and both shall
be solidarity liable for losses or
damages to the cargoes.
In this situation, the common carrier
operating the vessel is precluded from
interposing the defense of due diligence in
the selection and supervision of its
employees in an action against it by a
shipper of the other colliding vessel.
When we say at fault, it refers to the
negligence of the ship owner.
If there is fault with only one vessel, the ship
owner shall be liable to the cargo owners
including the owners of the cargoes loaded in
the other vessel.
If both are at fault, each of the vessels shall
suffer its own damages, and both shall be
solidarily liable.
Q: Vessel X and Vessel Y. Both were at
fault. What about the cargoes which are
loaded in Vessel Y? Can the cargo owners
file a claim against Vessel X?
A: Yes. Even though they don’t have privity
of contract, the law makes Vessel X
solidarily liable with Vessel Y. Similarly, the
cargo owners of the cargoes in Vessel X can
sue Vessel Y.
The same rule applies if it is not sure if which
vessel was at fault (rule when both vessels
were at fault).
- This is the Doctrine of Inscrutable
Fault
- It is as if both vessels were at fault.

Q: What about the doctrine of last clear
chance?
A: It does not apply to collisions. It is only
applicable to torts and not to collisions.
Q: Is protest necessary in an action for
the recovery of damages arising from
collisions?
A: The action for the recovery of damages
arising from collisions cannot be admitted
if a protest or declaration is not presented
within 24 hours before the competent
authority of the port where the collision
took place, or that of the first port of
arrival, if in Philippine territory, and to the
Filipino consul, if it occurred in a foreign
country. However, with respect to the
damage caused to persons to the cargo, the
absence of a protest may not prejudice the
persons interested who were not on board
or were not in a condition to make known
their wishes.
Q: What is the liability of the
shipowners in case of collision?
A: The liability of the shipowners in case
of collision is based on the doctrine of
limited liability. It is limited to the value of
the vessel with all her appurtenances and
freight earned during the voyage. The loss
of the vessel extinguishes the liability of
the shipowner or ship agent of a vessel for
the loss and damage to goods or death or
injuries to passengers caused by the
collision. However, where such vessel is
insured and the insurance is collected by
the shipowner, the insurance substitutes
the vessel and the shipowner become liable
to the extent of the insurance collected and
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if the vessel is not insured, then the freights
earned shall answer for the civil liability of
the shipowner.
These are all based on the assumption that
the there was no actual or contributory
negligence on the part of the shipowners.
Q: Vessel "U" and "V” collided with
each other causing damage to both
vessels. Vessel "U" had the last clear
chance to avoid the collision but failed to
do so.
a. Is the doctrine of last clear chance in
tort applicable to collisions of vessels at
sea under the Code of Commerce?
Which vessel should shoulder liability
for the damage suffered by both vessels
and by the cargo?
b. Assume that the negligence of the
captain of vessel U was the proximate
cause of collision, while the
A:
a. The doctrine of last clear chance in tort
is not applicable to collision of vessels
at sea under the Code of Commerce,
and the case is deemed as if the
collision is imputable to both vessels;
thus, each one of the vessels shall
suffer her own damage, and both shall
be solidarily liable for the damages
occasioned to their cargoes. C. B.
Williams v. Yangco, 27 Phil. 68;
Sarasola v. Sontua, 47 Phil 365.
b. The collision shall be deemed
imputable also to both vessels, as in the
preceding answer to No. 1 question.
Since the "doctrine of contributory

negligence" in tort is not also
applicable to collisions of vessel at sea
under the Code of Commerce, the case
is deemed as if the collision is
imputable to both vessels. Gov't of the
Phil. v. Phil. Steamship co. Inc., 44
Phil. 359; BAR 1980.
Q: In a collision between M/T Manila, a
tanker, and M/V Don Claro, an inter-
island vessel, M/V Don Claro sank and
many of its passengers drowned and
died. All its cargoes were lost. The
collision occurred at nighttime but the
sea was calm, the weather fair and
visibility was good. Prior to the collision
and while still 4 nautical miles apart,
M/V Don Claro already sighted MIT
Manila on its radar screen. MIT Manila
had no radar equipment. As for speed,
M/V Don Claro was twice as fast as M/T
Manila.
At the time of the collision, M/T Manila
failed to follow Rule 19 of the
International Rules of the Road which
required 2 vessels meeting head on to
change their course by each vessel
steering to starboard (right) so that each
vessel may pass on the port side (left) of
the other. M/T Manila signaled that it
would turn to port side and steered
accordingly, thus resulting in the
collision. M/T Don Claro's captain was
off-duty and was having a drink at the
ship's bar at the time of the collision.
Who would you hold liable for the
collision?
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A: I could hold the 2 vessels liable. In the
problem given, whether on the basis of the
factual settings or under the doctrine of
inscrutable fault, both vessels can be said
to have been guilty of negligence. The
liability of the 2 carriers for the death or
injury of passengers and for the loss of or
damage to the goods arising from the
collision is solidary. Neither carrier may
invoke the doctrine of last clear chance
which can only be relevant, if at all,
between the 2 vessels but not on the claims
made by passengers or shippers. BAR
1991
Q: Two vessels coming from opposite
directions collided with each other due
to fault imputable to both. What are the
liabilities of the two vessels with respect
to the damage caused to them and their
cargoes? Explain.
Which party should bear the damage to
the vessels and the cargoes if the cause
of the collision was a fortuitous event?
Explain.
A: Each vessel must bear its own damage.
Both of them are at fault. No party shall be
held liable since the cause of the collision
is fortuitous event. The carrier is not an
insurer.
Q: TRUE OR FALSE. There is a
presumption of negligence against a
moving vehicle that strikes a stationary
object.
A: TRUE. In American jurisprudence there
is a presumption of fault against a moving
vessel that strikes a stationary object such

as a dock or navigational aid. In admiralty,
this presumption does more than merely
require the ship to go forward and produce
some evidence on the presumptive matter.
The moving vessel must show that it was
without fault or that the collision was
occasioned by the fault of the stationary
object or was the result of inevitable
accident. It has been held that such vessel
must exhaust every reasonable possibility
which the circumstances admit and show
that in each, they did all that reasonable
care required. In the absence of sufficient
proof in rebuttal, the presumption of fault
attaches to a moving vessel which collides
with a fixed object and makes a prima facie
case of fault against the vessel. Far Eastern
Shipping Company v. Court of Appeals,
G.R. No. 130068, October 1, 1998.
Q: A severe typhoon was raging when
the vessel SS Masdaam collided with the
M/V Princess. It is conceded that the
typhoon was the major cause of
collision, although there was a very
strong possibility that it could have been
avoided if the captain of the SS
Masdaam was not drunk and the
captain of the M/V Princess was not
asleep at the time of the collisions. Who
should bear the damages to the vessels
and their cargoes?
A: The shipowners of the SS Masdaam and
M/V Princess shall each bear their
respective loss of vessels. For the losses
and damages suffered by their cargoes,
both shipowners are solidarily liable. BAR
1998, 1987
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Q: In case of collision, is abandonment
necessary to claim the limited liability
rule?
A: Yes, abandonment is necessary to claim
the limited liability wherein it shall be
limited to the value of the vessel with all
the appurtenances and freightage earned in
the voyage. However, if the injury was due
to the ship owner's fault, the ship owner
may not avail of his right to avail of limited
liability by abandoning the vessel.
The real nature of the liability of the ship
owner or agent is embodied in the Code of
Commerce. Articles 587, 590 and 837 are
intended to limit the liability of the ship
owner, provided that the owner or agent
abandons the vessel. Although Article 837
does not specifically provide that in case of
collision there should be abandonment, to
enjoy such limited liability, said article is a
mere amplification of the provisions of
Articles 587 and 590 which makes it a
mere superfluity.
The exception to this rule in Article 837 is
when the vessel is totally lost in which case
there is no vessel to abandon, thus
abandonment is not required. Because of
such loss, the liability of the owner or
agent is extinguished. Luzon Stevedoring
Corporation v. Court of Appeals.
Q: Two vessels figured in a collision
along the Straits of Guimaras resulting
in considerable loss of cargo. The
damaged vessels were safely conducted
to the Port of Iloilo. Passenger A failed

to file a maritime protest. B, a non-
passenger but a shipper who suffered
damage to his cargo, likewise did not file
a maritime protest at all.
a. What is a maritime protest?
b. Can A and B successfully maintain an
action to recover losses and damages
arising from the collision? Reason
briefly.
A:
a. A maritime protest is a sworn statement
made within 24 hours after a collision in
which the circumstances thereof are
declared or made known before a
competent authority at the point of
accident or the first port of arrival if in the
Philippines or the Philippine consul in a
foreign country.
b. B, the shipper, can successfully maintain
an action to recover losses and damages
arising from the collision notwithstanding
his failure to file a maritime protest since
the filing thereof is required only on the
part of A, who, being a passenger of the
vessel at the time of the collision, was
expected to know the circumstances of the
collision. A's failure to file a maritime
protest will therefore prevent him from
successfully maintaining an action to
recover his losses and damages. BAR
2007; 1988; 1977
RECIT
Q: From international port to Philippine
port. The vessel arrived on March 14,
2020. It left on March 16, 2020. No cargo
goods were delivered to the consignee.
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Within what period a suit be filed against
the ship owner and the ship agent?
A: Within 1 year from March 16.
Q: With that hold true in case of damage
to goods?
A: No. That period only applies in case of
loss. In case of damage to goods, it is one year
from delivery or the time it should have been
delivered.
Q: What if there was damage to the goods
but not received by the consignee and the
vessel return to its port of origin without
being received by its consignee?
A: Still 1 year from the date it should have
been delivered. In this case, March 16.
Q: So can he file the suit on March 14,
2021?
A: Yes.
Q: Let’s say the consignee received the
goods. They were damaged. Assuming it
came from foreign port and then, coming
to Philippine Port and therefore governed
by COGSA. The goods were damaged so
the consignee has 2 options: either to file in
insurance claim or file the suit with the
ship owner/ ship agent. Let’s say he filed a
claim with the insurance company and the
insurance company paid to the consignee
on the 5th month from delivery. Within
what period can the insurance company
sue the ship owner and the ship agent?
A: The balance of the remaining period
because the insurer steps in the shoes of the
insured only.

Q: What if the insured forgoes the claims
against the ship owner and files a claim
with the insurance company. Within what
period in case the claim is denied, within
what period can the consignee sue the
insurance company?
A: It depends on the stipulation in the
insurance contract. If there is no stipulation,
then 10 years.
Q: If there is stipulation, can it be reduced
to less than 1 year?
A: No. Cannot be less than 1 year from the
accrual of the cause of action.
Q: When does the cause of action accrue?
A: From the rejection of the claim not from
the receipt of the goods.
Q: What about if the goods were damaged
in the custody of the arrastre operator?
Within what period may the suit be filed
against the arrastre operator?
A: 4 years based on the contract with the
Philippine Ports Authority.
Q: The insurance company required
documents not contemplated by the policy.
There was delay in the processing of the
claim. It went beyond 1 year from the time
the goods were received by the consignee.
What’s the consequence? The consignee
was not able to sue the ship owner. Given
that there was fault on the part of the
insurance company, can the consignee still
sue the shipowner?
A: Since the fault was with the insurance
company, the claim must be filed with the
insurance company and not with the ship
owner. The SC said, it should bear the loss
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for the damaged caused to the consignee due
to the inordinate delay in the processing of
the claims.
CARRIAGE OF GOODS BY SEA
ACT (COGSA)
Application
Q: To what kinds of contracts of
carriage does COGSA apply?
A: COGSA is applicable to all contracts of
carriage of goods by sea to and from
Philippine ports in foreign trade. COGSA
is likewise applicable up to the final port of
destination and the fact that transshipment
was made on an interisland vessel did not
remove the contract of carriage of goods
from the operation of the said Act. Sea-
Land Service, Inc. v. Intermediate
Appellate Court, G.R. No. 75118, August
31, 1987.
COGSA covers loss or damage to goods
arising from contracts of carriage by sea
from foreign port to Philippine port. It does
not cover carriage of goods from
Philippine port to foreign port as such
provision of COGSA has been superseded
by the Civil Code of the Philippines.
So COGSA covers only 2. Loss or damage to
goods arising from contracts of carriage by
sea from foreign port to Philippine port.
So initially it is applicable whether the port of
destination is a foreign or a Philippine port.
With the passage of the Civil Code, it was
changed since the Civil Code provides that
the law of the port of destination should appy.

Therefore, if the goods were transported from
Philippine port to foreign port, COGSA has
no application.
Q: What if the goods originated from New
York with transhipment in Cebu before
the goods were to be delivered here in port
of Manila? Will it be taken out of
COGSA?
A: The SC said NO. As long as the bill of
lading indicates New York for import and last
destination is your local port, COGSA will
apply. The fact that the goods were removed
from the mother vessel and transferred to
another vessel not owned by the common
carrier will not take it out from the operation
of COGSA.
Q: What are the legal consequences of
the application of COGSA in case of loss
or damage to goods?
A:
a. If the contract of carriage is governed
by COGSA, the prescriptive period to
file an action against the ship owner or
ship agent in case of loss or damage to
goods is not ten years even though the
contract of carriage may be in writing.
The prescriptive period is one year
from delivery of the goods or the date
the goods should have been delivered.
The one-year period of limitation is
designed to meet the exigencies of
maritime hazards. Mitsui O.S.K. Lines
Ltd., represented by Magsaysay
Agencies, Inc. v. Court of Appeals,
G.R. No. 119571, March Il, 1998.
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b. COGSA also provides under Section 4,
Subsection 5 that an amount
recoverable in case of loss or damage
shall not exceed US$500 per package
or per customary freight unless the
nature and value of such goods have
been declared by the shipper before
shipment and inserted in the bill of
lading.
Prescriptive Period
If the suit was field beyond the 1-year period,
the suit will no longer prosper.
Statutory limitation in COGSA: $500 per
package
XPN: The shipper declared a higher
valuation.
Q: What law will apply in case of loss of
goods shipped from foreign country to
the Philippines?
A: The law of the country to which the
goods are to be transported governs the
liability of the common carrier in case of
their loss, destruction or deterioration.
Thus, the rule was specifically laid down
that for cargoes transported from Japan to
the Philippines, the liability of the carrier
is governed primarily by the Civil Code
and in all matters not regulated by said
Code, the rights and obligations of
common carrier shall be governed by the
Code of commerce and by laws. Hence, the
Carriage of Goods by Sea Act, a special
law, is merely suppletory to the provision
of the Civil Code. National Development
Company v. Court of Appeals, G.R. No.
L49469, August 19, 1988. BAR 2013.

Laws to apply:
1. Civil Code
2. Code of Commerce
3. COGSA
Q: What is the meaning of loss under
COGSA?
A: The term "loss" under COGSA
contemplates merely a situation where no
delivery at all was made by the shipper of
the goods because the same had perished,
gone out of commerce or disappeared in
such a way that their existence is unknown
or they cannot be recovered.
(Dean: Loss in value is not the loss referred
to under COGSA. If there is loss in value,
the suit can be filed with 10 years.)
It was ruled that when the goods are not
transshipped immediately with the result
that the shipment arrived beyond the
delivery date and the consignee paid only
one half the value of the goods on the
ground that they did not arrive until the
offseason in the country, the loss incurred
by the shipper is not the loss contemplated
by COGSA. Thus, the one-year
prescriptive period for bringing the suit
will not apply. Mitsui OSK Lines Ltd v.
Court of Appeals, GR No 119571, March
11, 1998.
However, where the suit is predicated not
upon loss or damage but on alleged
misdelivery (or conversion) of the goods,
the applicable rule on prescription is not
the one-year period provided for in Section
paragraph 4 of the Carriage of Goods by
Sea Act, which short period is designed
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merely to meet the exigencies of maritime
hazards but that found in the Civil Code,
namely, either ten years for breach of a
written contract or four years for
quasidelict. (Arts. 1144 [1] 1146, Civil
Code. Ang v. Compania Maritima, 133
SCRA 600 [1984]; BAR 1975; Ang v.
American Steamship, G.R. No. L-22491,
January 27, 1967.
In a case where the goods shipped were
neither lost nor damaged in transit but
were, on the contrary, delivered in port to
someone who claimed to be entitled
thereto, the situation is different, and the
special need for the short period of
limitation in cases of loss or damage
caused by maritime perils does not obtain.
Q: Let’s say you have Christmas decors to
be brought to the Philippines before
December. There were delivered on
February. Because of the delay, payment
was reduced by ½. If the consignee sues the
carrier, within what period should it be?
A: 10 Years.
Q: AA entered into a contract with BB
thru CC to transport ladies' wear from
Manila to France with transshipment at
Taiwan. Somehow the goods were not
loaded at Taiwan on time. Hence, when
the goods arrived in France, they
arrived "off-season" and AA was paid
only % for value by the buyer. AA
claimed damages from the shipping
company and its agent. The defense of
the respondents was prescription.

Considering that the ladies' wear
suffered "loss value", as claimed by AA,
should the prescriptive period be one
year?
A: The applicable prescriptive period is 10
years under the Civil Code. The 1-year
prescriptive period under the COGSA
applies in cases of loss or damage to the
cargo. The term "loss" contemplates a
situation where no delivery at all was made
by the carrier of the goods because the
same had perished or gone out of
commerce deteriorated or decayed while in
transit. In the present case, the shipment of
ladies' wear was actually delivered. The
"loss of value" is not the total loss
contemplated by the COGSA. BAR 2004
Q: M/V Meryem Ana received a
shipment of Prilled Urea Fertilizer from
Ukraine. The ship sailed on to Tabaco,
Albay, to unload the cargo. The
fertilizer unloaded at Albay appeared to
have a gross weight of 7,700 metric tons.
When the cargo was subsequently
weighed, it was discovered that only
7,350.35 metric tons of fertilizer had
been delivered. Because of the alleged
shortage of 349.65 metric tons, Fertiphil
filed a claim with Mafre Asian
Insurance Corporation for
PI,617,527.37. which was found
compensable. After paying the claim of
Fertiphil, Mafre Asian Insurance
Corporation demanded reimbursement
from Transimex Co., the ship agent of
the common carrier, on the basis of the
right of subrogation. In support of its
claim, Mafre Asian Insurance
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Corporation presented a Report of
Survey and a Certification from David
Cargo Survey Services to prove the
shortage. In the report, the adjuster also
stated that the shortage was attributable
to the melting of the fertilizer while
inside the hatches, when the vessel took
on water because of the bad weather
experienced at sea.
a. Is the transaction governed by the
provisions of the Civil Code on common
carriers or by the provisions of
COGSA?
b. Is Transimex Co. liable for the loss or
damage sustained by the cargo because
of bad weather?
A: a. The provisions of the Civil Code on
common carriers are applicable.
As expressly provided in Article 1753 of
the Civil Code, "the law of the country to
which the goods are to be transported shall
govern the liability of the common carrier
for their loss, destruction or deterioration."
Since the cargo in this case was transported
from Odessa, Ukraine, to Tabaco, Albay,
the liability of Transimex Co. for the
alleged shortage must be determined in
accordance with the provisions of the Civil
Code on common carriers.
b. Transimex Co. is liable for the shortage
incurred by the shipment.
It must be emphasized that not all instances
of bad weather may be categorized as
"storms" or "perils of the sea" within the
meaning of the provisions of the Civil
Code and COGSA on common carriers.

With respect to storms, this Court has
explained the difference between a storm
and ordinary weather conditions in Central
Shipping Co. Inc, v. Insurance Company
of North America:
According to PAGASA, a storm has a
wind force of 48 to 55 knots, equivalent to
55 to 63 miles per hour or 10 to 11 in the
Beaufort Scale. The second mate of the
vessel stated that the wind was blowing
around force 7 to 8 on the Beaufort Scale.
Consequently, the strong winds
accompanying the southwestern monsoon
could not be classified as a "storm." Such
winds are the ordinary vicissitudes of a sea
voyage.
Even assuming that the inclement weather
encountered by the vessel amounted to a
"storm" under Article 1734(1) of the Civil
Code, Transimex Co. cannot be asbsolved
from liability for loss or damage to the
cargo because there is no proof that the bad
weather encountered by M/V Meryem Ana
was the proximate and only cause of
damage to the shipment and that
Transimex Co, failed to establish that it
had exercised the diligence required from
common carriers to prevent loss or damage
to the cargo. Transimex Co. v. Mafre Asian
Insurance Corp., G.R. No. 190271,
September 14, 2016.
Answers according to Dean:
a. The provisions of the Civil Code are
applicable but the provisions of the
COGSA applies suppletorily.
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b. The SC said that not all cases of bad
weather can be categorized as storms or
perils of the sea within the meaning of the
provisions of the Civil Code and COGSA
on common carriers.
Notice of Loss or Damage
Q: Under the provisions of Section 3 of
the Carriage of Goods by Sea Act, notice
must be given of loss or damage to the
goods. Within what period must notice
be given, if the loss or damage is not
apparent?
A: Notice of loss must be given within
three days from the delivery of the goods,
if the damage is not apparent. BAR 1975
Q: Is notice necessary to enable the
consignee to be able to recover from the
carrier in case of loss or damage to the
goods?
A: COGSA provides for the procedure in
case of loss or damage of the cargo. To be
able to recover from the carrier, a notice of
loss or damage should be given in writing
to the carrier or his agent at the port of
discharge or at the time of the removal of
the goods into the custody of the person
entitled to delivery thereof under the
contract of carriage. If the loss or damage
is not apparent, the notice must be given
within three days of delivery.
The notice in writing need not be given if
the state of the goods has at the time of
their receipt been the subject of joint
survey inspection.

The action for loss or damage under
COGSA should be brought within one year
after delivery of the goods or the date when
the goods should have been delivered,
otherwise, the carrier and ship shall be
discharged from all liability for such loss
or damage. If the notice of loss is not given
as provided for by law, the fact shall not
affect or prejudice the right of the shipper
to bring suit within one year after delivery
of the goods or the date when the goods
should have been delivered.
A request for, and the result of a bad order
examination, done within the reglementary
period for furnishing notice of loss or
damage to the carrier or its agent serves the
purpose of a claim. Moreover, failure to
comply with the notice requirement shall
not affect or prejudice the right of the
shipper to bring suit within one year after
delivery of the goods, Asian Terminals vs
Philam Insurance co , GR No. 181262, July
24, 2013.section 3 ( 6 ) COGSA.
In other words, under COGSA, while
notice to the carrier should be given in case
of loss or damage to goods, the lack of
notice does not affect the cause of action of
the shipper as long as the suit is filed
within one year from delivery of the goods
or the goods should have been delivered.
What is jurisdictional is the one-year period
to file the suit.
Period of Prescription
Q: When should the one-year
prescriptive period for bringing an
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action for loss or damage of good
delivered commence?
A: The one-year period within which the
consignee should sue the carrier is
computed from "the delivery of the goods
or the date when the goods should have
been delivered". The sensible and practical
interpretation is that delivery within the
meaning of section 3(6) of the Carriage of
Goods by Sea Law means delivery to the
arrastre operator. That delivery is
evidenced by tally sheets which show
whether the goods were landed in good
order or in bad order, a fact which the
consignee or shipper can easily ascertain
through the customs broker.
(Dean: Not from the time the goods were
received by the consignee but by the
arrastre operator. This is applicable if there
is an arrester operator if any furnished by
the consignee.)
To use as basis for computing the one-year
period the delivery to the consignee would
be unrealistic and might generate
confusion between the loss or damage
sustained by the goods while in the
carrier's custody and the loss or damage
caused to the goods while in the arrastre
operator's possession. Union Carbide
Philippines, Inc. v. Manila Railroad co.,
G.R. NO. L-27798, June 15, 1977. BAR
2000 and 1975.
On the other hand, if no delivery is made,
then the period should be computed from
the date the goods should have been
delivered. Thus, if the carrier arrived on
November 2, 1962 and left on November

4, 1962 without delivering the cargo, it was
on the latter date that the carrier had the last
opportunity to deliver the goods. Hence,
the one-year period within which the
carrier could be sued commenced to run on
November 2, 1962 and expired on
November 4, 1963. Rizal Surety &
Insurance co. v. Macondray & co, 22
SCRA 902, cited in Perez, p. 257
Q: In what circumstances can the one-
year prescriptive period to bring an
action under COGSA be interrupted?
A: The one-year period is interrupted in
the following cases:
a. One-year period is interrupted in case
an action has already been filed in
court. F.H. Stevens & Co v.
Nordeutscher Llloyd, 6 SCRA 180,
cited in Perez, p. 256.
It was held that upon dismissal of the
suit, not on the merits, the consignee
may commence a new action within
one year from dismissal.
(Dean: Dismissal must not be on the
merits. If the case was dismissed not on
the merits, a fresh one year period is
given to the consignee to sue the ship
owner and the ship agent. So, not just
the balance.
If the case is dismissed on the merits,
the case cannot be refiled anymore.)
b. When there is an express agreement by
the parties that an extrajudicial claim
for damages will suspend the running
of the prescriptive period for in such
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case, their agreement becomes the law
for them, Tan Liao v. American
President Lines, Ltd. L-7280, January
20, 1956, cited in Perez, ibid.
(Dean: Demands for payment,
settlement, discussions will not
suspend the running of the one year
period. What will suspend it is the
agreement by the parties to suspend it.)
Q: Does the filing of insurance claim by
the consignee for loss or damage to
cargo interrupt the running of the one-
year prescriptive period under
COGSA?
A: No. In fact, if the insurer finds the
documents in support of the insurance
claim for loss or damage to cargo as
unsubstantiated, it should formally reject
the claim so that the consignee can file a
suit against the carrier within the one-year
prescriptive period under COGSA. The
delay in the rejection of the claim and the
consequent expiration of the one-year
prescriptive period makes the insurer liable
to pay the value stated in the policy. Had
the insurer processed and examined the
claim promptly, the claimant or the insurer
itself, as subrogee, could have taken the
judicial action on time. By making an
unreasonable demand for an itemized list
of damages which caused delay, the
insurer should bear the loss with interest.
New World International Development
Corporation v. NYK-FilJapan Shipping
Corporation, GR No. 171468, August 24,
2011.
Note: The consignee has to options:

1. File a claim with the insurance
company. Upon payment by the
insurance company, the insurance
company has the balance of the
remaining period to institute the case
against the ship owner and the ship
agent.
Take note, it is the balance of the
remaining period. In Henson v.
UCPB General Insurance, the
insurance company only inherits the
remaining period insofar as the
insured is concerned.
Q: What if the consignee filed a
claim with the insurance company?
Can he still file a suit against the
ship owner?
A: Of course, yes. However, he
cannot recover twice. If the insurance
company pays him, the insurance
company takes the place of the
insured in the suit filed against the
ship owner and the ship agent.
2. File a suit against the ship owner and
ship agent.
Q: A local consignee sought to enforce
judicially a claim against the carrier for
loss of a shipment of drums of
lubricating oil from Japan under the
COGSA after the carrier had rejected
its demand. The carrier pleaded in its
Answer the affirmative defense of
prescription under the provisions of the
same Act in as much as the suit was
brought by the consignee after 1 year
from delivery of the goods. In turn, the
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consignee contended that the period of
prescription was suspended by the
written extrajudicial demand it had
made against the carrier within the I-
year period, pursuant to Article 1155 of
the Civil Code providing that the
prescription of actions is interrupted
when there is a written extrajudicial
demand by the creditors.
Has the action, in fact, prescribed?
Why?
A: The action taken by the local consignee
has, in fact, prescribed. The period of 1
year under the COGSA is not interrupted
by a written extrajudicial demand. The
provision of Article 1155 of the Civil Code
merely apply to the prescriptive periods
provided for in said Code and not the
special laws except when otherwise
provided. BAR 1992; Dole Philippines v
Maritime Company of the Philippines,
G.R. No. L-61352, February 27, 1987.
Q: On December 1, 2010, Kore A
Corporation shipped from South Korea
to LT Corporation in Manila some
300,000 sheets of high-grade special
steel. The shipment was insured against
all risk by NA Insurance (NA). The
carrying vessel arrived at the Port of
Manila on January 10, 2011. When the
shipment was discharged, it was noted
that 25,000 sheets were damaged and in
bad order. The entire shipment was
turned over to the custody of ATI, the
arrastre operator, on January 21, 2011
for storage and safekeeping, pending its

withdrawal by the consignee's
authorized customs broker, RVM.
On January 26 and 29, 2011, the subject
shipment was withdrawn by RVM from
the custody of ATI. On January 29,
2011, prior to the withdrawal of the last
batch of the shipment, a joint inspection
of the cargo was conducted per the
Request for bad Order Survey (RBO)
dated January 28, 2011. The
examination report showed that 30,000
sheets of steel were damaged and in bad
order.
NA Insurance paid LT Corporation the
amount of P30 M for the 30,000 sheets
that were damaged, as shown in the
Subrogation Receipt dated January 13,
2013. Thereafter, NA Insurance
demanded reparation against ATI for
the goods damaged in its custody, in the
amount of PSM. ATI alleged that the
COGSA applies in this case since the
goods were shipped from a foreign port
to the Philippines. NA Insurance claims
that the COGSA does not apply, since
ATI is not a shipper or carrier. Who is
correct?
A: NA Insurance is correct. The term
"carriage of goods" covers the period from
the time when the goods are loaded to the
time when they are discharged from the
ship; thus, it can be inferred that the period
of time when the goods have been
discharged from the ship and given to the
custody of the arrastre operator is not
covered by the COGSA. Under COGSA,
the carrier and the ship may put up the
defense of prescription if the action for
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damages is not brought within one year
after the delivery of the goods or the date
when the goods should have been
delivered. However, the COGSA does not
mention that an arrastre operator may
invoke the prescriptive period of one year;
hence, it does not cover the arrastre
operator. Insurance Company of North
America v. Asian Terminals, Inc., G.R.
No. 180784, February 15, 2012.
The arrastre operator's responsibility and
liability for losses and damages and the
periods to file a claim and enforce liability
are set forth in the Contract for Cargo
Handling Services executed between the
Philippine Ports Authority and the arrastre
operator.
The suit may be filed against the arrastre
operator within four years from receipt of
the goods by the arrastre operator.
Insurance Company of North America v.
Phil. Ports Terminal, Inc., L-6420, July 18,
1955 cited in Perez, p. 258
In this case, the damages were sustained at
the time the goods were with the arrastre
operator. When the goods were with the
arrastre operator, it is not a contract of
carriage and not a contract of maritime even.
Q: Is the one-year period to file a suit
against the carrier and ship agent
applicable also to the insurer of the
goods?
A: No. The one-year prescriptive period
only applies in a suit against the common
carrier, shipowner or charterer (and even

the ship agent). It applies to a suit by the
insurer against the ship owner or ship agent
but not to a suit against the insurer. Mayer
Steel Pipe Corporation vs Court of
Appeals, GR No. 124050, June 19, 1997.
Under Section 3(6) of COGSA, only the
carrier's liability is extinguished if no suit
is brought within one year. The ruling in
Filipino Merchants Insurance Co., Inc. v.
Alejandro should apply only to suits
against the carrier filed by the shipper, the
consignee or the insurer, not to suits by
insured against the insurer. When the
Court said in Filipino Merchants that
Section 3(6) of the COGSA applies to the
insurer, it meant that the insurer, like the
shipper, may no longer file a claim against
the carrier beyond the one-year period
provided in the law. But it does not mean
that the shipper may no longer file claims
against the insurer because the basis of the
insurer's liability is the insurance contract.
Such claim prescribes jn 10 years, in
accordance with Article 114 of the Civil
Code.
(Dean: Claim with the insurance company
is within 10 years except when the time to
file the claim is reduced but not less than 1
year from date of accrual of cause of
action. Accrual of cause of action means
rejection for the first time of the claim by
the insurer.)
Otherwise, what the Act intends to prohibit
after the lapse of the one-year prescriptive
period can be done indirectly by the
shipper or owner of the goods by simply
filing a claim against the insurer even after
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the lapse of one year. This could not have
been the intention of the law which has
also for its purpose the protection of the
carrier and the ship from fraudulent claims
by having "matters affecting transportation
of goods by sea be decided in as short a
time as possible" and by avoiding incidents
which would "unnecessarily extend the
period and permit delays in the settlement
of questions affecting the transportation.
Filipino Merchants Insurance Company,
Inc. v. Hon. Jose Alejandro, G.R. No. L-
54140, October 14, 1986.
However, as previously stated, where there
is inordinate delay in the processing of the
insurance claim, as when the insurer made
an unreasonable demand for an itemized
list of the damaged units, parts and
accessories with corresponding values
when it appeared settled that the loss was
total and the insurance policy did not
require the production of such list in the
event of a claim, and as a consequence, the
insured failed to file a suit against the
carrier within the one year period, the ship
owner is relieved from liability but the
insurer must make good the loss incurred
by the insured. New World International
Development v. NYK-FilJapan Shipping
Corp., G.R.. Nos. 171468 and 174241,
August 24, 2011.
Q: A cargo shipment for ABC Inc., the
consignee, was discharged at the port of
Manila on April 15, 1992 on board a
vessel owned and operated by XYZ Ltd.
Because of a cargo shortage, a suit for
damages was filed by ABC Inc. against

XYZ Ltd. on March 11, 1993. An
amended pleading was filed by ABC Inc.
on June 7, 1993 to implead Wallem
Philippines Shipping Inc. ("Wallem"),
the ship agent of XYZ Inc. Can the
action against Wallem prosper
considering the one-year?
A: No, the action against Wallem cannot
prosper.
The filing of an amended pleading does not
retroact to the date of the filing of the
original; hence, the statute of limitation
runs until the submission of the
amendment. It is true that, as an exception,
this Court has held that an amendment
which merely supplements and amplifies
facts originally alleged in the complaint
relates back to the date of the
commencement of the action and is not
barred by the statute of limitations which
expired after the service of the original
complaint. The exception, however, would
not apply to the party impleaded for the
first time in the amended complaint. The
claim against Wallem, was therefore filed
out of time under the COGSA, Wallem
Philippines Shipping, Inc., v. S.R. Farms,
Inc., (2009).
Here, the amendment of the complaint was
done beyond the one-year prescriptive
period. Thus, the suit will not prosper.
Q: What happens to the argument that
both are solidarily liable and thus, it is
okay to amend the complaint to include
Wallem?
Amendment is different from supplementary
complaint. If you are impleading for the first
time a ship agent, it is not a supplementary
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complaint. It is an amended complaint. The
amendment could be done of course but it
should be within the one-year prescriptive
period.
Q: On Jan. 13, 2012, Chillies Export
House Ltd., turned over to APL Co. Pte.
Ltd. (APL) 250 bags of chili pepper for
transport from the port of India to
Manila. The shipment, with a total
declared value of $12,272.50, was loaded
on board M/V Wan Hai 262. In turn,
BSFIL Technologies, Inc. (BSFIL), as
consignee, insured the cargo with
petitioner Pioneer Insurance and Surety
Corporation (Pioneer Insurance). On
Feb. 2, 2012, the shipment arrived at the
port of Manila and was temporarily
stored at North Harbor, Manila. On
Feb. 6, 2012, the bags of chili were
withdrawn and delivered to BSFIL.
Upon receipt thereof, it discovered that
76 bags were wet and heavily infested
with molds. The shipment was declared
unfit for human consumption and was
eventually declared as a total loss. As a
result, BSFIL made a formal claim
against APL and Pioneer Insurance.
Having been subrogated to all the rights
and cause of action of BSFIL, Pioneer
Insurance sought payment from APL,
but the latter refused. This prompted
Pioneer Insurance to file a complaint for
sum of money against APL.
APL invoked a clause in the Bill of
lading which absolves the carrier from
any liability unless a case is fled within
nine months after delivery of the goods,
Is the clause valid?

A: No. The present case involves lost or
damaged cargo. It has long been settled
that in case of loss or damage of cargoes,
the one-year prescriptive period under the
Carriage of Goods by Seas (COGSA)
applies. It is at this juncture where the
parties are at odds, with Pioneer Insurance
claiming that the one-year prescriptive
period under the COGSA governs;
whereas APL insists that the nine-month
prescriptive period under the Bill of
Lading applies.
A reading of the Bill of Lading between the
parties reveals that the nine-month
prescriptive period is not applicable in all
actions or claims. As an exception, the
nine-month period is inapplicable when
there is a different period provided by a
law for a particular claim or action—unlike
in Philippine American General Insurance
Co., Inc. v. Sweet Lines, Inc. where the
Bill of Lading stipulated a prescriptive
period for actions without exceptions.
Thus, it is readily apparent that the
exception under the Bill of Lading became
operative because there was a compulsory
law applicable which provides for a
different prescriptive period. Hence,
strictly applying the terms of the Bill of
Lading, the one-year prescriptive period
under the COGSA should govern because
the present case involves loss of goods or
cargo. Pioneer Insurance and Surety Corp.
v. APL Co. Pte. Ltd., G.R. No. 226345,
August 2, 2017.
This is the case where there is a conflict
between COGSA and the bill of lading. In
case of conflict, COGSA prevails.
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Q: The liability of the common carrier
under COGSA is US$ 500 per package
unless the shipper declares higher
valuation. Does the term "package
"mean container or number of units?
A: The term " package " means container
unless the bill of lading disclosed the
contents of the containers, the number of
cartons or units, as well as the nature of the
goods, in which case, each of those units
and not the container constitutes the
"package "referred to in the liability
limitation provision of the COGSA.
Eastern Shipping Lines v. Intermediate
Appellate Court, G.R. No. L-69044, May
29, 1987.
For example, you have 14 motorcycles in one
container. The US$500 applies to all the
motorcycles and not per motorcycle.
XPN: When the shipper declares each unit
and pays the corresponding freightage.
Q: Is the liability limitation binding on
the parties to the contract of carriage
even though it is not incorporated in the
bill of lading?
A: Yes. The Civil Code does not limit the
liability of the common carrier to a fixed
amount per package. In all matters not
regulated by the Civil Code, the right and
the obligations of common carriers shall be
governed by the Code of Commerce and
special laws. Thus, the COGSA, which is
suppletory to the provisions of the Civil
Code, supplements the latter by
establishing a statutory provision limiting
the carrier's liability in the absence of a

shipper's declaration of a higher value in
the bill of lading. The provisions on limited
liability are as much a part of the bill of
lading as though physically in it and as
though placed there by agreement of the
parties. Belgian Overseas Chartering and
Shipping v. Philippine First Insurance
Company, G.R. 143133, June 5, 2002.
In the same case, there was no stipulation
in the Bill of Lading limiting the carrier's
liability. Neither did the shipper declare a
higher valuation of the goods to be
shipped. It was held that this fact
notwithstanding, the insertion of the words
"L/C No. 90/02447", cannot be the basis
for the carriers' liability. First, a notation in
the Bill of Lading which indicated the
amount of the Letter of Credit obtained by
the shipper for the importation of steel
sheets did not effect a declaration of the
value of the goods as required by the bill.
That notation was made only for the
convenience of the shipper and the bank
processing the Letter of Credit. Second, a
bill of lading is separate from the Other
Letter of Credit arrangements. The
carriers' liability was thus computed based
on US$500 per package and not on the per
metric ton price declared in the Letter of
Credit.
The value of the goods which the carrier
must pay in cases of loss or misplacement
shall be determined in accordance with that
declared in the bill of lading, the shipper
not being allowed to present proof that
among the goods declared therein there
were articles of greater value and money."
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In case, however, of the shipper's failure to
declare the value of the goods in the bill of
lading the carrier nor the ship shall in any
event be or become liable for any loss or
damage to or in connection with the
transportation of goods in an amount
exceeding $500 per package. Philam
Insurance Company v. Heung-A Shippng
Corporation, C.R. No. 187701, July 23,
2014,
You have 3 cases that have the issue on what
will constitute higher declaration of the
value of the goods and higher recovery.
1. Insertion of invoice number not
enough to constitute higher
declaration;
2. Reference to LC number is not
enough to constitute higher
declaration.
3. Reference to invoice value that
contains itemization of the goods and
their respective values plus payment
of the extra freights amount to higher
declaration of the value of the goods
(ONLY CASE THAT WILL
CONSTITUTE HIGHER
DECLARATION)
Q: Can the $500 limitation on liability be
enforced even if not incorporated in the
bill of lading?
A: The SC said yes. It is part of the law that
is deemed read into the bill of lading.
 4B 2020-2021
Notes for Merc Rev 2
one territory, the Warsaw/Montreal
MARCH 25, 2021
Convention shall still apply if the agreed
DORY SIEF
stopover adheres to the Warsaw/Montreal
Convention.
AIR TRANSPORTATION
Q: What are the legal effects of the
Warsaw Convention and the Montreal
RECITATION Convention on the liabilities of an air
carrier in international air
transportation?
Q: What laws govern air transportation
carriers?
• As to prescriptive period
Primary Suppletory
Law Law Warsaw Convention
PH as New Civil Code of The action will prescribe if it is not brought
destination Code Commerce within two years:
Treaties, Int’l. - from date of arrival at the destination; or
PH as one of agreement, New Civil - from date on which the aircraft ought to
itineraries Montreal Code have arrived; or
Convention
- from date on which the carriage stopped.

The Warsaw Convention has been supplanted

Compare with local laws, e.g.:
by the Montreal Convention. However, the
- four years if based on tort
Warsaw Convention is in the 2020 Bar Exam
- ten years if based on contract of carriage
Syllabus in Commercial law.
Montreal Convention
Q: The itinerary based on the plane ticket
The Montreal Convention retained this
is “San Francisco – Tokyo – Manila – San
provision. However, it added time limits in
Francisco.” Juan dela Cruz was not able to
case of filing claims against the carrier:
claim his baggage… there was a delay. Is
- In case of damage to baggage: The
this covered by the Warsaw/Montreal
complainant must file his or her written
Convention?
complaint within seven (7) days from the
Based on Northwest vs. Santos,
date of receipt of the checked-in baggage.
Warsaw/Montreal Convention is not
- In case of delay of delivery: The
applicable because the place of departure and
complaint must be made at the latest
the place of destination are located in only
within twenty-one (21) days from the date
one country. Hence, local laws will apply.
of receipt of the baggage.
This is debatable because under the
These time limitations are important since no
Warsaw/Montreal Convention, even if the
action can lie against the carrier if the
place of destination and departure are in only

Page 101 of 139


complaints were made beyond the period
stated, save in the cases where the carrier
employed fraud.
• As to limitation on liability for death or
injury to passengers
Warsaw Convention
The liability does not exceed USD 25,000.
Montreal Convention
The Montreal Convention established a two-
tier liability for death or bodily injury to a
passenger:
The first tier is on the basis of a strict
liability where an airline carrier shall be made
liable for damage sustained in case of death
or bodily injury of a passenger on the
condition that the accident which caused the
death or injury took place on board the
aircraft or in the course of any of the
operations of embarking or disembarking
(Article 17). Under this first tier of liability,
the carrier cannot limit or exclude its liability
provided the damages sustained does not
exceed 113,100 Special Drawing Rights
(“SDRs”). An SDR is a type of foreign
exchange reserve asset created by the
International Monetary Fund. Its value is
based on an artificial basket of currencies
consisting of the US dollar, the euro, the
pound and the Japanese yen. The liability
limits are reviewed every five years.
In this regard, the carrier may be held liable
even if it is not negligent or at fault. (Article
21) The carrier is thus presumptively liable
up to the amount of 113,100 SDRs. The
carrier’s liability may be reduced or
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exonerated only in case where damage was
caused by contributory or sole negligence of
the passenger or person claiming
compensation. (Article 20)
Under the second tier of liability, or for all
damages higher than 113,100 SDRs (or
approximately up to USD 170,000 based on
current IMF valuation), the carrier shall be
liable unless it can show that the damage was
not due to its negligence or wrongful act or
omission, or that the damage was solely due
to the negligence or wrongful act or omission
of a third party. (Article 21) Otherwise stated,
for those claims above 113,100 SDRs, the
carrier shall not be liable under this tier only
if it shall prove that it was not negligent or at
fault. To emphasize, the burden of proof is on
the carrier.
This two-tier liability is a departure from the
liability regime under the Warsaw
Convention (and its subsequent amendments)
where the carrier’s liability was limited to
USD 25,000.00 (or its equivalent) regardless
whether the airline was at fault or not. Also,
the full defense that the carrier or its agents
has taken all reasonable measures to avoid
damage is not already availing under the
Montreal Convention.
• As to limitation on liability for checked
baggage
Warsaw Convention
The limit is USD 20 or 9.07 pound per kilo,
unless the shipper declares higher valuation.
Montreal Convention

In the case of destruction, or loss of, or of
damage to, checked baggage, the carrier shall
be liable for damages as long as the
destruction, loss, or damage took place on
board the aircraft or during any period within
which the checked baggage was under the
carrier’s custody. The carrier may be held not
liable if and to the extent that the damage
resulted from the inherent defect, quality, or
vice of the baggage.
In those cases where the carrier is held liable,
the carrier’s liability shall be up to 1,131
SDRs for each passenger, or approximately
USD 70 per kg luggage (per current
valuation). This is an apparent increase from
the previous limit under the Warsaw
Convention of only up to USD 20 per kg
luggage. The passenger may only claim
above the limit of 1,131 SDR if he has made
a special declaration of interest at the time of
check-in, and has paid a supplementary sum
if the case so requires. In such case, the
carrier will be liable to pay a sum not
exceeding the declared sum.
It was ruled that the limitation on liability is
deemed waived if it is not timely invoked.
• As to limitation on liability for
unchecked baggage
Warsaw Convention
The limit is USD 400.
Montreal Convention
In case of unchecked baggage, including
personal items, the carrier shall be liable if the
damage resulted from its faults or that of its
agents. (Article 17)
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In those cases where the carrier is held liable,
the carrier’s liability shall be up to 1,131
SDRs for each passenger, or approximately
USD 70 per kg luggage (per current
valuation). This is an apparent increase from
the previous limit under the Warsaw
Convention of only up to USD 20 per kg
luggage.
It was ruled that the limitation on liability is
deemed waived if it is not timely invoked.
If the case is governed by the Warsaw/
Montreal Convention, can the plaintiff sue
under local laws instead?
No. Article 24 of the Warsaw Convention
excludes other remedies by further providing
that “(1) in the cases covered by articles 18
and 19 (of the Convention), any action for
damages, however founded, can only be
brought subject to the conditions and limits
set out in this convention.” Therefore, a claim
covered by the Warsaw Convention can no
longer be recovered under local law, if the
statute of limitations of two years has already
lapsed. The same principle applies under the
Montreal Convention.
Did the Montreal Convention supplement
or supplant the Warsaw Convention?
It supplanted the Warsaw Convention. The
Warsaw Convention is now defunct.

DISCUSSION
AIR TRANSPORTATION
a. The Warsaw Convention
The Warsaw Convention has been supplanted
by the Montreal Convention. It is included in
this book because it is in the 2020 Bar Exam
Syllabus in Commercial law and for purposes
of comparison with the Montreal Convention.
165. What laws govern persons engaged in
air transportation business?
• The Civil Code, particularly the
provisions on common carriers, is the
primary law governing air transportation.
This is on the premise that the place of
departure and place of destination are
situated in the Philippines and there is no
agreed stopover in any country that
adheres to the Warsaw (now Montreal)
Convention.
• The provisions of the Code of Commerce
shall apply suppletorily.
• It is not entirely correct that say that
Philippine laws particularly the Civil
Code shall be the primary law governing
air transportation just because the place of
destination is the Philippines. If the place
of departure is a country that adheres to
the Warsaw Convention, the latter is the
governing law even though place of
destination is the Philippines.
The place of departure and the place of
destination must be in countries that adhere
to the Convention.
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The place of departure and the place of
destination must be in countries that are
signatories or adherents to the Warsaw (now
Montreal) Convention in order for the
Convention to apply.
If both the place of departure and the place of
destination are located in one country, then
local laws shall apply.
The only exception is if the Philippines is an
agreed stopover. Even if the place of
destination and the place of departure are in
one and the same country, if there is an
agreed stopover in the Philippines, then the
Convention applies.
However, as we said a while ago, there is one
case where the Supreme Court did not apply
this rule – Northwest vs. Santos. The ticket
shows “San Francisco – Tokyo – Manila –
San Francisco.” The ultimate place of
destination is San Francisco.
The Supreme Court said that it is the ultimate
place of destination that will apply. Because
both place of departure and place of
destination are in San Francisco, USA, then
the Convention will not apply.
• The relevant convention that the country
now adheres to is the Convention for the
Unification of Certain Rules for
International Carriage by Air, Montreal,
28 May 1999, otherwise known as the
Montreal Convention or “MC99.”
• It is designed to be a single, universal
treaty, governing airline liability around

the world relative to carriage of
passengers, baggage and cargo. It
amended the now defunct Warsaw
Convention and its related protocols —
which compensation system, over time
has become outdated. MC99 espouses a
more modern and fair liability regime
than its Warsaw counterpart.
• MC99 was ratified by the Philippine
Senate on 10 August 2015, and became
effective on 12 December 2015. To date,
132 of the 191 contracting states of
International Civil Aviation Organization
are parties to the MC99.
• With the Philippines’ accession to MC99,
it has the force and effect of law in this
country.
166. What are the obligations of an air
carrier under a contract of air
transportation?
• The nature of an airline’s contract of
carriage partakes of two types; namely:
contract to deliver a cargo or merchandise
to its destination and to transport
passengers to their destination. Air
carrier, like any other common carrier, is
required to exercise extraordinary
diligence in the care and preservation of
goods placed in its possession. It is also
required to ensure the safety of
passengers as far as human care and
foresight can provide using the utmost
diligence of a very cautious person with
due regard to all circumstances. British
Airways v. Court of Appeals
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It being a common carrier, of course, there
are twin obligations: (1) to deliver the cargo
or the merchandise; and (2) to ensure the
safety of the passengers, make sure that he
arrives at the place of destination.
The same standard of responsibility or
diligence applies – extraordinary diligence in
the care and preservation of the cargo, the
baggage, or the merchandise and/or ensure
the safety of the passengers as far as human
care and foresight can provide. It is the
“utmost diligence of a very cautious person
with due regard to all circumstances.”
167. When is a contract of air
transportation perfected?
• The contract of carriage for air
transportation commences when an
airline issues a ticket to a passenger,
confirmed for a particular flight on a
certain date. The passenger has every
right to expect that he be transported on
that flight and on that date and it becomes
the carrier’s obligation to carry him and
his luggage safely to the agreed
destination. If the passenger is not so
transported or if in the process of
transporting he dies or is injured, the
carrier may be held liable for breach of
contract of carriage. Ramos v. China
Southern Airlines Co. Ltd., G.R. No.
213418, September 21, 2016.
Q: Is it correct to say that it is perfected
from the moment the passenger expresses
his intention to avail himself of the services
of the air carrier, just like in Dangwa
Transportation vs. Court of Appeals? If

you step on the platform of the airplane,
does the contract of carriage arise?
A: As you know, a different rule applies to air
carrier. The Supreme Court said that the
contract is perfected the moment the airline
issues a ticket to the passenger that he is
confirmed for a particular flight, on a certain
date, and for a certain type of
accommodation.
This is the case of Ramos vs. China
Southern Airlines, but I had to add in our
manuscript that it has to include the type of
accommodation.
Once the ticket is issued to the passenger that
he is confirmed for this particular flight, time,
and date, then the passenger has every right
to expect that he will be transported through
that flight, on that date, and at that time, with
his luggage, if any. If he is not transported
under said conditions and during the process
of transportation, he dies, he is injured, and/or
his luggage gets lost or damaged, then the
carrier is liable for breach of contract of
carriage.
• In an action based on a breach of contract
of carriage, the aggrieved party does not
have to prove that the common carrier
was at fault or was negligent. All he has
to prove is the existence of the contract
and the fact of its non-performance by the
carrier, through the latter’s failure to
carry the passenger to its destination.
Fuentebella v. Court of Appeals, supra.
Just like other common carriers, there is a
presumption of fault negligence if there is
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death or injury to passengers, or loss or
damage to his baggage or cargo.
• Non-performance of contract includes the
downgrading of type of accommodation
of the passenger from first class to
economy or upgrading from business
class to first class accommodation.
Spouses Vasquez v. Cathay Pacific
Airways, supra.
As held in Fuentebella vs. CA, it is not just
death or injury, not just loss, damage,
deterioration, or destruction of the cargo or
the baggage, that has a presumption of fault,
negligence, or liability. Any violation of the
terms and conditions of the contract of
carriage creates a presumption of fault on the
part of the carrier.
In Fuentebella vs. CA, Speaker Fuentebella
was downgraded from First Class to
Economy.
In Sps. Vasquez vs. Cathay Pacific, they
were upgraded from Business Class to First
Class.
Because the terms of the contract were not
fulfilled, then there is a breach of contract.
The presumption of fault lies in the part of the
air carrier.
168. When does the obligation to exercise
extraordinary diligence commerce?
Q: Does it start when you have a ticket?
A: Obviously not.

Q: What if you get injured on the way to
the airport? Can you sue the air carrier or
the airline company?
A: Of course not. Again, a different rule
applies for air transportation.
Q: When does the obligation to exercise
extraordinary diligence start?
A: It starts when the luggage is placed in the
possession of the air carrier, and the
passenger, after check-in, is within the
premises of the carrier.
If the luggage gets lost, destroyed, or
damaged at that point, then the air carrier is
liable.
If the passengers are injured while waiting for
their flight, then the air carrier should be held
liable.
• Unlike a contract of carriage of
passengers in land transportation where
the obligation to exercise due diligence
commences upon perfection of the
contract, a different rule should be
applied in air transportation. Obviously,
the passenger cannot sue the air carrier if
he sustains injuries on his way to the
airport just because the contract for air
carriage has been perfected by the
issuance of the ticket. The responsibility
should commence when his luggage is
placed in the possession of the air carrier
and when the passenger is within the
premises of the air carrier after checking-
in for the flight.
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169. What governs the relationship
between the passengers/consignors and the
air carrier?
• The laws governing air transportation and
the terms of the contract of carriage.
The terms of the contract of carriage
supplement the laws governing air
transportation.
Let us look at some examples based on
jurisprudence.
170. Morris and Whittier were booked in
as first-class passengers in Scandinavian
Airlines System (SAS) Manila-Tokyo
flight. They then proceeded to the SAS
check-in counter and presented their
tickets, passports, immigration cards and
travel documents. Morris and Whittier
were informed that there were no more
seats on the plane for which reason they
could not be accommodated on the flight.
SAS claimed that petitioners were denied
boarding because of their late arrival for
check-in at the international airport, since
they checked-in at 3:10 in the afternoon
and the flight was scheduled at 3:50 in the
afternoon.
Can SAS be faulted for not entertaining
the passenger tickets of Morris and
Whittier who arrived after the closure of
the manifest?
Usually, a ticket says that you have to be in
the airport two or three hours before the flight
for international flights, and at least one hour
before the flight for local flights.

In this particular case, the passenger checked
in at 3:10 in the afternoon, and the flight was
schedule at 3:50 in the afternoon.
Q: Can the airline company be faulted for
not entertaining the passenger tickets of
Morris and Whittier who arrived after the
closure of the manifest?
• No. For having arrived at the airport after
the closure of the flight manifest,
respondent’s employee could not be
faulted for not entertaining petitioners’
tickets and travel documents for
processing, as the checking in of
passengers for SAS Flight was finished.
There was no fraud or bad faith as would
justify the court’s award of moral
damages. Morris v. Court of Appeals,
G.R. No. 127957, February 21, 2001
The Supreme Court said that the airline
company is not liable because the terms of the
contract of carriage say that they had to be in
the airport – they should have checked in two
or three hours before the flight.
I did not include here another case because
what I would like to establish here is the
applicability of the terms of the contract of
carriage to the governing laws on air
transportation to determine the liability of the
air carrier.
But there is a case – Alitalia vs. CA – that
provides an exception. There were
passengers who were Filipinos. They were
late – they arrived close to boarding time. But
they saw other passengers being escorted by
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flight attendants and the staff of Alitalia.
They requested for the same accommodation.
Instead of being given the same
accommodation accorded to other passengers
who were non-Filipinos, they were scolded
by the staff and crew of Alitalia – something
like, “You’re idiots.”
The Supreme Court said even though they
may have been late, it was different to be
given rude treatment. Hence, Alitalia was
made liable in this case.
171. Edmundo Ongsiako, with one piece of
checked-in luggage, was a paying
passenger on the Pan American (PAN AM)
that left Manila for Honolulu, Hawaii.
Upon arriving at Honolulu, Ongsiako
discovered that his luggage was not carried
on board, and it was left at PAN AM’s
airport office in Manila where it was found
a week later. A PAN AM employee in
Honolulu, instead of helping him search
for his bag, arrogantly threatened to
“bump him off” in Honolulu should he
persist in looking for his bag. An action for
damages was brought against PAN AM. In
its defense, PAN AM alleged that
Ongsiako checked in at the last minute and
that there was insufficient time to load his
bag in the plane.
Can PAN AM be held liable for damages
under the circumstances?
If you check in, you also check in your
luggage. In the foregoing case, the passenger
was late. He checked in last minute. It was
accepted by the air carrier, but there was not
enough time to load his bag in the plane.

When he arrived at the place of destination,
wala ‘yung kanyang luggage.
Q: Can PAN AM be held liable for
damages under the circumstances?
• Yes. It is not a valid excuse to claim that
the passenger checked in at the last
minute and that there was insufficient
time to load his bag in the plane.
Accepting last minute passengers and
their baggage with no definite assurance
that the carrier can comply with its
obligation due to lack of time amounts to
negligence so gross and reckless as to
amount to malice or bad faith. Pan
American World Airways, Inc. v.
Intermediate Appellate Court, and
Edmundo P. Ongsiako, G.R. No. L-68988
June 21, 1990
This is the lesson learned by many air
carriers: Don’t accept last minute passengers
unless you have the time to load his luggage
or baggage into the aircraft. Otherwise, the
carrier shall be liable.
172. When is the Warsaw (now Montreal)
Convention applicable?
Let us take a look first at the Warsaw
Convention, and then let us make an
observation as to whether the provision was
retained or changed under the Montreal
Convention (again for the purpose of the bar
examinations).
Q: If it is given as a question in the Bar
exam, how do you answer?
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A: Cite the Warsaw Convention because it is
the subject covered in the syllabus, but you
have to add the rule under the Montreal
Convention, just to be sure.
Q: When does the Convention apply?
• The Warsaw Convention applies to all
international carriage of persons,
luggage, or goods performed by aircraft
for hire. It applies equally to gratuitous
carriage by aircraft performed by an air
transport undertaking.
• The expression “international carriage”
means any carriage in which, according
to the contract made by the parties, the
place of departure and the place of
destination, whether or not there be a
break in the carriage or a transshipment,
are situated either within the territories of
two High Contracting Parties, or within
the territory of a single High Contracting
Party, if there is an agreed stopping place
within a territory subject to the
sovereignty, suzerainty, mandate, or
authority of another Power, even though
that Power is not a party to this
Convention. A carriage without such an
agreed stopping place between territories
subject to the sovereignty, suzerainty,
mandate, or authority of the same High
Contracting Party is not deemed to be
international for the purposes of the
Convention.
“High Contracting Party” means signatory or
adherent to Convention. You either sign up to
it, or after the Convention is already in effect,
you adhered to the Convention.

What is clear in this provision of the
Convention is that if your place of departure
and destination are both located within the
territory of two countries that are parties to
the Convention, then the Convention applies.
Q: What if the place of destination or
departure are located in only one country?
A: Local laws shall apply, except if there is
an agreed stopover in another country that is
a signatory or a party of the Convention.
However, as I said a while ago, that was not
applied in the case of Northwest Airlines vs.
Santos.
• Thus, when the place of departure and the
place of destination in a contract of
carriage are situated within the territories
of two High Contracting Parties, said
carriage is deemed an “international
carriage.” The High Contracting Parties
referred to are the signatories to the
Warsaw Convention and those which
subsequently adhered to it.
• The Montreal Convention retained this
provision.
• As to what is the final place of destination
is determined by the contract of carriage.
In one case, the passenger bought a ticket
in San Francisco, USA from Northwest
Airlines. His flight itinerary is San
Francisco – Tokyo – Manila – San
Francisco. Despite reconfirmation, he
was informed that he had no reservation
for his fight from Tokyo to Manila and
therefore had to be waitlisted. He sued in
RTC Manila. It was ruled that the
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Philippine court has no jurisdiction
because the place of departure and
destination are both in San Francisco.
Q: How come the Philippine courts have
no jurisdiction?
A: It is because both the place of departure
and destination based on the ticket are both in
San Francisco, USA. Hence, the four
jurisdictional rules (where the case can be
filed in the Philippines) will not apply.
173. What are the liabilities of the air
carrier under the Warsaw Convention?
Under the Warsaw Convention, the air carrier
is liable in any of the following instances:
a. Death or injury to the passenger while on
board, embarking, and disembarking; and
This is very important because:
Q: Which law should apply if there is
death or injury to the passenger while not
on board or while waiting for his flight?
A: It is not the Convention that will apply.
Therefore, the prescriptive period of two
years will not apply.
For the Convention to apply, it has to be death
or injury to the passenger while on board,
embarking, or disembarking.
b. Loss, destruction and damage to goods
during the carriage.
• This means simple loss of luggage
without any improper conduct on the part
of carrier’s officials and employees. Pan
America v. IAC

• The period of responsibilities includes
during which the baggage or goods are in
the charge of the carrier whether in an
airport or any place whatsoever.
• If the loss or damage to the goods occur
after check-in but before the carriage, the
Civil Code provisions apply. [Dean said
that this should be removed.]
Q: What about loss, destruction, and
damage to goods during the carriage?
A: The moment they are entrusted to the
carrier, no matter where they may be lost, the
Conventions still applies, as we will see later.
But for passengers, it is important that he be
on board, embarking, or disembarking, for
the Convention to apply.
Q: What about simple loss of luggage?
A: The Convention will apply.
Q: What about loss of luggage with
improper conduct or tortious act on the
part of the airline employees and staff?
A: Local laws will now apply.
For loss of luggage, it is governed by the
Convention, unless accompanied by a
tortious act or misconduct on the part of the
airline and its employees and staff.
Q: What about for baggage?
A: “The period of responsibilities includes
during which the baggage or goods are in the
charge of the carrier whether in an airport or
any place whatsoever.” Hence, if the baggage
was lost during the stopover, it is still
governed by the Convention. If the baggage
was lost during check-in, the Convention will
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still apply even if there is no actual boarding
yet.
c. Delay in the flight.
Getting bumped off, however, is not delay.
Q: Is getting bumped off the same as
delay?
A: No, getting bumped off is not delay. For
delay, the Convention applies. If you get
bumped off, local laws will apply.
• It was held that Section 2, Article 30 of
the Warsaw Convention does not
contemplate the instance of “bumping-
off” but merely of simple delay. In its
ordinary sense, “delay” means to prolong
the time of or before; to stop, detain, or
hinder for a time, or cause someone or
something to be behind in schedule or
usual rate of movement in progress.
“Bumping-off,” which is the refusal to
transport passengers with confirmed
reservation to their planned and
contracted destinations, totally forecloses
said passengers’ right to be transported,
whereas delay merely postpones for a
time being the enforcement of such right.
Consequently, Section 2, Article 30 of the
Warsaw Convention cannot provide a
handy excuse for the air carrier as to
exculpate it from any liability to its
passenger.
This is the case of Antiporda vs. Lufthansa.
Bumping-off is not the same as delay.
Therefore, the two-year prescriptive period
under the Warsaw Convention will not apply.

174. What are the legal effects of the
Warsaw Convention on the liabilities of air
carrier engaged in international
transportation?
This is why we are studying the Convention
– because of these two consequences or
effects.
They are as follows:
a. The action will prescribe if it is not brought
within two years from date or arrival of the
air carrier at the destination, or should have
arrived, or from the date on which the
transportation stopped.
The Montreal Convention retained this
provision.
The first, the prescriptive period to file a suit
against the air carrier in case of loss or
damage, or death or injury to passenger.
• The Montreal Convention, however,
added time limits in case of filing claims
against the carrier. In case of damage to
baggage, the complainant must file his or
her written complaint within seven (7)
days from the date of receipt of the
checked-in baggage. In case of delay of
delivery, on the other hand, the complaint
must be made at the latest within twenty-
one (21) days from the date of receipt of
the baggage. These time limitations are
important since no action can lie against
the carrier if the complaints were made
beyond the period stated, save in the cases
where the carrier employed fraud.
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On top of the two-year prescriptive period,
there are periods to file claims against the
carrier.
If there is fraud, the Convention will not
apply. Instead, local laws will apply.
b. There is a limitation on the liability on the
air carrier in case of loss or damage to goods
or death or injury to passengers.
With respect to goods, the limit is US$ 20 or
9.07 pound per kilo unless the shipper
declares higher valuation. For unchecked
baggage, it is US$ 400.
For death or injury to passengers, the liability
does not exceed US$ 25,000.
For death or injury to passengers under the
Warsaw Convention, it is per kilo.
While there are conventions that increase the
amount to US$ 100,000, we are not parties to
those conventions. The Philippines did not
sign up or adhere to those protocols that
increased the amount to US$ 100,000.
Therefore, as far as we are concerned, it was
US$ 25,000.
Q: What about Montreal Convention?
175. Under the Montreal Convention, the
liability of the air carrier has been
modified, as follows:
a. Death or injury to passengers
• The Montreal Convention established a
two-tier liability for death or bodily injury

to a passenger. The first tier is on the basis
of a strict liability where an airline carrier
shall be made liable for damage sustained
in case of death or bodily injury of a
passenger on the condition that the
accident which caused the death or injury
took place on board the aircraft or in the
course of any of the operations of
embarking or disembarking (Article 17).
Under this first tier of liability, the carrier
cannot limit or exclude its liability
provided the damages sustained does not
exceed 113,100 Special Drawing Rights
(“SDRs”). An SDR is a type of foreign
exchange reserve asset created by the
International Monetary Fund. Its value is
based on an artificial basket of currencies
consisting of the US dollar, the euro, the
pound, and the Japanese yen. The liability
limits are reviewed every five years.
Under the first tier, with or without
negligence on the part of carrier, this is the
liability. It should not exceed 113,100 Special
Drawing Rights. The counterpart of 113,100
Special Drawing Rights is about
US$ 170,000 (more than Php 8 million).
• In this regard, the carrier may be held
liable even if it is not negligent or at fault.
(Article 21) The carrier is thus
presumptively liable up to the amount of
113,100 SDRs. The carrier’s liability may
be reduced or exonerated only in case
where damage was caused by
contributory or sole negligence of the
passenger or person claiming
compensation. (Article 20)
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That is the first tier of liability. That is not to
say that the liability is outright 113,100
Special Drawing Rights. It depends on the
extent of the injury suffered by the passenger.
For death, of course, it is 113,100 Special
Drawing Rights right away.
If there is negligence on the part of the air
carrier, then the amount could go even higher
under the so-called second tier of liability.
• Under the second tier of liability, or for
all damages higher than 113,100 SDRs
(or approximately up to US$ 170,000
based on current IMF valuation), the
carrier shall be liable unless it can show
that the damage was not due to its
negligence or wrongful act or omission,
or that the damage was solely due to the
negligence or wrongful act or omission of
a third party. (Article 21) Otherwise
stated, for those claims above 113,100
SDRs, the carrier shall not be liable under
this tier only if it shall prove that it was
not negligent or at fault. To emphasize,
the burden of proof is on the carrier.
• This two-tier liability is a departure from
the liability regime under the Warsaw
Convention (and its subsequent
amendments) where the carrier’s liability
was limited to $25,000.00 (or its
equivalent) regardless whether the airline
was at fault or not. Also, the full defense
that the carrier or its agents has taken all
reasonable measures to avoid damage is
not already availing under the Montreal
Convention.

They can no longer say that they have taken
all measures to make sure that the employees
act within the scope of their authority. That
defense is no longer available, just like our
Philippine laws. That kind of defense for acts
of employees is no longer available.
b. Destruction, loss damage or delay in
carrying baggage
• In the case of destruction, or loss of, or of
damage to, checked baggage, the carrier
shall be liable for damages as long as the
destruction, loss, or damage took place on
board the aircraft or during any period
within which the checked baggage was
under the carrier’s custody. The carrier
may be held not liable if and to the extent
that the damage resulted from the
inherent defect, quality, or vice of the
baggage. In case of unchecked baggage,
including personal items, the carrier shall
be liable if the damage resulted from its
faults or that of its agents. (Article 17)
That is why we had to remove that third point
above which says: “If the loss or damage to
the goods occur after check-in but before the
carriage, the Civil Code provisions apply.”
Under Article 17 of the Montreal
Convention, as long as the goods, luggage,
baggage, or cargo have been placed in the
carrier’s custody, then the liability limit sets
in.
• In those cases where the carrier is held
liable, the carrier’s liability shall be up to
1,131 SDRs for each passenger, or
approximately USS70 per kg luggage
(per current valuation). This is an
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apparent increase from the previous limit
under the Warsaw Convention of only up
to US$20 per kg luggage. The passenger
may only claim above the limit of 1,131
SDR if he has made a special declaration
of interest at the time of check-in, and has
paid a supplementary sum if the case so
requires. In such case, the carrier will be
liable to pay a sum not exceeding the
declared sum.
Q: Is it possible to recover a higher
amount? What again is their liability?
A: Under this Convention, the liability is up
to 1,131 Special Drawing Rights, but it is for
each passenger, not for each luggage.
Q: Can the passenger claim more than
1,131 Special Drawing Rights?
A: Yes, if he makes a special declaration of
interest at the time of check-in and he pays a
supplementary sum. This is the equivalent of
making higher valuation and paying extra
freightage, but the language employed by the
Convention is “special declaration of
interest” and “payment of supplementary
sum” so that he could recover higher than the
limit indicated by the Convention.
• It was ruled that the limitation on liability
is deemed waived if it is not timely
invoked. British Airways v. Court of
Appeals January 1998
There is this interesting case: British
Airways vs. CA. The Supreme Court said
that the limitation on liability is deemed
waived if it is not timely invoked. The
moment there is testimony in excess of the
amount set forth in the Convention, the

counsel for the air carrier must object so you
do not admit evidence to the contrary. If the
counsel fails to object, the Supreme Court
said that it is a waiver of the limit of liability
under the Convention. This is Warsaw
Convention, but the same principle applies
under the Montreal Convention.
To summarize:
176. May the passenger recover an amount
greater than the amount set forth in the
Convention?
The passenger may recover a greater amount
in the following cases:
a. If at the time the packages were handed
over to the carrier, the passenger made a
special declaration of the value at delivery
and has paid a supplementary sum; and,
b. When the air carrier failed to raise timely
objections during the trial when questions
and answers regarding the actual claims and
damages sustained by the passenger were
asked. British Airways v. Court of Appeals,
G.R. No. 121824, January 29, 1998
177. Where should the action be filed?
Under the Warsaw Convention, you have the
so-called four jurisdictional rules.
• Under Article 28(1) of the Warsaw
Convention, the plaintiff may bring the
action for damages before: 1.) the court
where the carrier is domiciled; 2.) the
court where the carrier has its principal
place of business; 3.) the court where the
carrier has an establishment by which the
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contract has been made; or 4.) the court of
the place of destination. Edna Diego
Lhuillier v. British Airways, G.R. No.
171092, March 15, 2010
Remember what happened in the case of
Lhuillier vs. British Airways. She
purchased a ticket from British Airways. She
was supposed to go to Italy. She requested the
help of the flight attendant to place her hand-
carried item into the overboard bin of the
aircraft. Instead of extending a hand to
Lhuillier, she was told by the flight attendant,
“It’s not my duty to help you, and if I help
you, I will be forced to help others, and I will
have a very bad back afterwards.” Basically,
she was not accommodated in her requests.
When she complained to the manager,
instead of being given sympathy, she was
scolded and taught as to proper protocols.
When she came back to the Philippines, she
filed a tort case in Makati, where she lives,
against British Airways. The Supreme Court
dismissed the complaint following the so-
called four jurisdictional rules.
Q: Where was the ticket purchased?
A: In London, UK.
Q: Where is British Airways domiciled?
A: UK
Q: Where is its principal place of business?
A: UK.
Q: Where was she going?
A: Italy.
Q: Hence, where should she file the case?
A: In any of those courts.

Q: What about the fact that she is suing
based on tort and not based on breach of
contract of carriage?
A: The Supreme Court said that tort is not a
magic wand. The allegation of tort is not a
magic wand that will instantaneously take it
out of the Warsaw Convention.
Of course, we all know that before this case,
the consistent ruling of the Supreme Court is
that if there is a tortious act on the part of the
air carrier, its employee, its staff, or its agent,
then it is out of the Warsaw Convention, and
local laws will apply, except for this case.
That is why it is a very bad case. It is bad in
the sense that it completely set aside previous
jurisprudence (that the moment there is tort,
local laws will apply) without saying that it is
abandoned.
Anyway, what is clear about this case is that
if it is governed by the Convention, then the
four jurisdictional rules will apply.
Q: What about the Montreal Convention?
• The Montreal Convention retained the
jurisdictional rules under the Warsaw
Convention but as a supplement, the
MC99 also allows, in respect of damage
resulting from death or injury of a
passenger, the filing of action in the
territory of a State Party in which at the
time of the accident the passenger has his
principal and permanent residence and to
and from which the carrier operates
services for the carriage of passengers by
air.
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That is the modification under the Montreal
Convention. Hence, you now have five,
basically: the old rules plus the place of
residence of the plaintiff.
178. If a claim is covered by the Warsaw
Convention, may the passenger bring the
legal action under local laws?
• Article 24 of the Warsaw Convention
excludes other remedies by further
providing that “(1) in the cases covered
by articles 18 and 19 (of the Convention),
any action for damages, however
founded, can only be brought subject to
the conditions and limits set out in this
convention.” Therefore, a claim covered
by the Warsaw Convention can no longer
be recovered under local law, if the
statute of limitations of two years has
already lapsed.
• The same principle applies under the
Montreal Convention.
If the two-year period has already prescribed,
you cannot resurrect your claim by pursuing
it under local laws. Basically, the Warsaw
Convention excludes the cause of action
under local laws as long as it is within the
ambit or contemplation of the Convention.
If it is outside the Convention (like tort), you
are not bound by the two-year prescriptive
period.
179. Cite jurisprudence where the
Supreme Court ruled that the Warsaw
Convention does not apply.

• Jurisprudence recognizes that the
Warsaw Convention does not
“exclusively regulate” the relationship
between passenger and carrier on an
international flight. For instance, the
Supreme Court distinguished between the
(1) damage to the passenger’s baggage
and (2) humiliation he suffered at the
hands of the airline’s employees. The first
cause of action was covered by the
Warsaw Convention which prescribes in
two years, while the second was covered
by the provisions of the Civil Code on
torts, which prescribes in four years. Had
the case merely consisted of claims
incidental to the airlines’ delay in
transporting their passengers, the
passenger’s complaint would have been
time-barred under Article 29 of the
Warsaw Convention. Philippine Airlines,
Inc. v. Hon. Adrjano Savillo, et al., G.R.
No. 149547, July 4, 2008
Philippine Airlines vs. Savillo: If the
passenger experiences humiliation in the
hands of the airline employee, what rule will
apply? The Supreme Court said that it is one
thing for a luggage to get lost (or if there is
delay in delivery), but another thing for the
passenger to suffer humiliation. For the first,
the cause of action is governed by the
Convention, and it prescribes in two years.
For the second, it is covered by the Civil
Code provisions on tort, and it prescribes in
four years.
The following cases are illustrative.
I chose only four cases to illustrate when to
apply and when not to apply the Convention.
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As we said, in case of delay, the Convention
applies. In case of loss, the Convention
applies.
First:
a. Consuelo and Rufino were planning a
world tour which would require them to fly
on different airlines. The KLM Royal Dutch
Airlines (KLM) secured seat reservations for
the Consuelo and Rufino and their two
companions from the carriers which would
ferry them throughout their trip, with the
exception of Aer Lingus. When the Consuelo
and Rufino left the Philippines, they were
issued KLM tickets for their entire trip.
However, their coupon for the Aer Lingus
portion was marked “RQ” which meant “on
request.” After sightseeing in American and
European cities, the Consuelo and Rufino
arrived in Germany. They went to a KLM
office there and obtained a confirmation from
Aer Lingus of seat reservations on a flight.
Consuelo and Rufino then went to the
Barcelona airport to take their plane. At the
airport, the manager of Aer Lingus directed
the Consuelo and Rufino to check in. They
did so as instructed and were accepted for
passage. However, although their daughter
and niece were allowed to take the plane,
Consuelo and Rufino were off-loaded on
orders of the Aer Lingus manager who
brusquely shoved them aside with the aid of
a policeman and who shouted at them,
“Coños! Ignorantes Filipinos!”
The Aer Lingus manager shoved Filipino
passengers at shouted at them, “Coños!
Ignorantes Filipinos!” Coño is a very bad
word ( ͠° ͟ʖ ͠°)

The Supreme Court said that because of this
inhumane treatment and rude conduct, it is
out of the Convention.
The Supreme Court ruled that Article 30 of
the Warsaw Convention has no application in
the case at bar which involves, not an
accident or delay, but a willful misconduct on
the part of the KLM's agent, the Aer Lingus.
Article 25 of the same Convention provides
that the carrier shall not be entitled to avail
himself of the provisions of this convention
which exclude or limit his liability, if the
damage is caused by his willful misconduct
or by such default on his part as, in
accordance with the law of the court to which
the case is submitted, is considered to be
equivalent to willful misconduct. That article
presupposes the occurrence of either an
accident or a delay, neither of which took
place at the Barcelona airport; what is here
manifest, instead, is that the Aer Lingus,
through its manager, refused to transport the
respondents to their planned and contracted
destination.
Similarly, the carrier shall not be entitled to
avail himself of the said provisions, if the
damage is caused under the same
circumstances by any agent of the carrier
acting within the scope of his employment.
(Koninklijke Luchtvaart Maatschappij N.V.
v. Court Of Appeals, G. R. No. L-31150, July
22, 1975)
Second:
b. Dr. Felipa Pablo, a UP Professor, booked a
flight with ALITALIA to attend a United
Nations research engagement in Ispra, Italy.
Upon arrival in Milan, her luggage which
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contains her scientific papers and slides were
missing. She returned to Manila without
attending the meeting. It turned out that her
suitcases were located but only after her
scheduled appearance in the UN meeting.
The suitcases were returned only after 11
months.
Dr. Felipa Pablo was supposed to give a talk
about molecular fusion. Unfortunately, when
she arrived in Milan, her luggage (which
contains her scientific papers) went missing.
She was not able to go give the lecture in
Italy. She returned to Manila without
attending the meeting. Her suitcase was
located only after 11 months.
Q: Is this governed by the Convention or
not?
It was ruled that ALITALIA cannot apply the
Warsaw Convention to limit it liability. The
Supreme Court said that the Warsaw
Convention has invariably been held
inapplicable, or as not restrictive of the
carrier's liability, where there was
satisfactory evidence of malice or bad faith
attributable to its officers and employees. In
the case at bar, no bad faith or otherwise
improper conduct may be ascribed to the
employees of the airline; and Dr. Pablo’s
luggage was eventually returned to her,
belatedly, it is true, but without appreciable
damage.
However, some special species of injury was
caused to Dr. Pablo because ALITALIA
misplaced her baggage and failed to deliver it
to her at the time appointed — a breach of its
contract of carriage, to be sure — with the

result that she was unable to read the paper
and make the scientific presentation that she
had painstakingly labored over, at the
prestigious international conference, to
attend which she had traveled hundreds of
miles, to her chagrin and embarrassment and
the disappointment and annoyance of the
organizers. She felt, not unreasonably, that
the invitation for her to participate at the
conference, extended by the United Nations,
was a singular honor not only to herself, but
to the University of the Philippines and the
country as well, an opportunity to make some
sort of impression among her colleagues in
that field of scientific activity. The
opportunity to claim this honor or distinction
was irretrievably lost to her because of
ALITALIA's breach of its contract.
Certainly, the compensation for the injury
suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed
by the Warsaw Convention for delay in the
transport of baggage.
There is no bad faith on the part of the officer
or employee of the airline company. Dr.
Pablo suffered a special species of injury –
do not forget those words: “special species of
injury.” If there is no bad faith on the part of
the air carrier, even if a special species of
injury is caused to the passenger, the
Convention is not applicable.
Q: What is that special species of injury?
A: Not being able to give the lecture. She was
deprived of the honor of representing the
University of the Philippines and the whole
country. That is the special species of injury
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that was suffered by Dr. Felipa Pablo that
took this case outside the Convention.
Third:
c. Sometime on January 27, 1990, Mejia took
PAL from San Francisco, U.S.A. to Manila,
Philippines. Her baggage included a slightly
used microwave oven with the brand name
Sharp. When shipped, it was in good
condition with its front glass intact. The
stipulated limit is US$20 per kilogram of
cargo in the event of loss or damage. She did
not declare its value upon the advice of
defendants personnel at San Francisco. On
her arrival, it was discovered that the front
glass of the microwave oven was already
broken and cannot be repaired because of the
danger of radiation. She demanded
P30,000.00 for the damages although a brand
new one costs P40,000.00, but PAL refused
to pay.
This involves a second-hand microwave
oven. Passenger checked in San Francisco
airport coming back home to Manila. She
wanted to check in a microwave oven that, as
we said, is second-hand. She wanted to
declare a higher valuation, but she was
prevented from doing so.
When she arrived at the Philippines, nasira
‘yung glass ng microwave oven. She asked
that she be recompensed Php 30,000 for
damages caused to the microwave oven.
Philippine Airlines insisted on the limit of
liability under the ticket, which is US$ 20 per
kilo, which, in turn, was based on the then
Warsaw Convention.

PAL was made liable. The Supreme Court
ruled while the Warsaw Convention has the
force and effect of law in the Philippines,
being a treaty commitment by the
government and as a signatory thereto, the
same does not operate as an exclusive
enumeration of the instances when a carrier
shall be liable for breach of contract or as an
absolute limit of the extent of liability, nor
does it preclude the operation of the Civil
Code or other pertinent laws. The passenger
could and would have complied with the
conditions stated in the air waybill, i.e.,
declaration of a higher value and payment of
supplemental transportation charges,
entitling her to recovery of damages beyond
the stipulated limit of US$20 per kilogram of
cargo in the event of loss or damage, had she
not been effectively prevented from doing so
upon the advice of PALs personnel for
reasons best known to themselves. The
passenger can hardly be faulted for relying on
the representations of PAL’s own personnel.
Under the Convention, the limit of liability is
US$ 20 per kilo, unless the passenger makes
a special declaration of interest and pays a
supplementary sum.
She did not make a special declaration of
interest. She did not pay a supplementary
sum.
Q: Is she bound by the US$ 20 per kilo
limitation?
A: We do not apply the Convention here,
because she was prevented from making
higher declaration. She wanted to declare.
She wanted to pay extra, but she was
prevented from doing by the airline
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employee. Therefore, the Convention will not
apply.
This is a case that dragged for more than
seven years. It only involved Php 30,000. The
fees paid to the lawyers exceeded Php
100,000. This is why the Supreme Court said
in its ponencia that this could have been
settled if the two parties are willing to talk to
amicably settle.
Fourth:
d. On October 3, 1993, Simplicio and his
companions took the PAL flight to
Singapore. Upon their arrival, they proceeded
to the Singapore Airlines office to check-in
for their flight to Jakarta. Singapore Airlines
rejected their because they were not endorsed
by PAL. It was explained to them that if
Singapore Airlines honored the tickets
without PAL’s endorsement, PAL would not
pay Singapore Airlines for their passage.
Stranded at the airport in Singapore and left
with no recourse, Simplicio was in panic and
at a loss where to go; and was subjected to
humiliation, embarrassment, mental anguish,
serious anxiety, fear and distress. Eventually,
they were forced to purchase tickets from
Garuda Airlines and board its last flight
bound for Jakarta. After the series of nerve-
wracking experiences, private respondent
became ill and was unable to participate in
the tournament that they were supposed to
attend. He sent a demand letter to PAL for
damages on December 20, 1993 and another
to Singapore Airlines on March 21, 1994.
Complaint was however filed on August 15,
1997. PAL now moved to dismiss the case
since the Complaint was filed more than three

years after PAL received the demand letter;
hence, it was already barred by prescription.
This one will tell you how to couch your
complaint to take it out of the Convention or
to recover a higher amount. You have to
dramatize your emotion. It all depends on
how you couch your language in your
complaint, in your pleading.
Take a look at this. Do you really think that a
flight attendant of Singapore Airlines can be
so rude, so apathetic, so indifferent to the
plight of passengers? Unheard of, right? But
look at the way the complaint was couched.
It was ruled that the action is not barred by
prescription under the Warsaw Convention.
The emotional harm suffered by the
passenger as a result of having been
unreasonably and unjustly prevented from
boarding the plane should be distinguished
from the actual damages which resulted from
the same incident. Under the Civil Code
provisions on tort, such emotional harm gives
rise to compensation where gross negligence
or malice is proven. Had the present case
merely consisted of claims incidental to the
airlines’ delay in transporting their
passengers, the private respondent’s
Complaint would have been time-barred
under Article 29 of the Warsaw Convention.
However, the present case involves a special
species of injury resulting from the failure of
PAL and/or Singapore Airlines to transport
private respondent from Singapore to Jakarta
— the profound distress, fear, anxiety and
humiliation that private respondent
experienced when, despite PAL’s earlier
assurance that Singapore Airlines confirmed
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his passage, he was prevented from boarding
the plane and he faced the daunting
possibility that he would be stranded in
Singapore Airport because the PAL office
was already closed.
As if Singapore Airport is the worst airport in
the whole world, right? Singapore Airport is
one of the best airports in the whole world. It
all depends on how you couch your
complaint.
Q: Based on these four cases, when is it out
of the Warsaw (now Montreal)
Convention?
Based on the foregoing cases, the Warsaw
Convention does not apply if there is bad
faith, misconduct, or tortious act on the part
of the air carrier and its employees or agents;
and some special species of injury were
caused to the passenger arising from the act
or omission of the air carrier.
The principles enunciated in the foregoing
cases are still applicable under the Montreal
Convention.
180. Are death and injuries to passengers
or loss, destruction and damage to goods
the only causes of liability of air carrier?
No, the air carrier can also be held liable in
case of tortious conduct of employees or
other cases of breach of contract.
 4B 2020-2021
Notes for Merc Rev 2
Q. What about if it is not mortgaged or
MARCH 27, 2021
pledged but assigned to the bank?
ALEX SINTHUYON
A. It is not valid. The CPC is not a property
to be assigned.
RECIT
Q. This time the bank files a collection suit,
Q. ABC is a public utility corporation. It
obtained judgement, can the bank garnish
obtained a loan secured by a mortgage on
the CPC?
the buses as well aas on the franchise . The
A. No.
loan was not paid. Can the bank foreclose
the mortgage on the buses and the CPC?
Q. Can it ask the approval of LTFB that it
A: The bank can foreclose the mortgage on
be transferred in its name?
the buses but not the CPC.
A. No. The bank cannot own a franchise for
public utility or CPC. A bank can be a
Q: No condition required before the bank
sttockholder of a corporation that is engaged
can foreclose the buses?
in transportation but the bank cannot engage
A: No condition.
in transportation business itself. This is
because the bank can be stockholder of a non-
Q. Should the mortgage require the
allied undertaking but it can never engage in
approval of the LTFRB before its actual
transportation business.
execution?|
A. No, approval is not condition precedent to
Q. What if the lender is not a bank but a
the validity of the encumbrance.
person possessing all the qualifications
required to be granted CPC, can the
Q. Can those buses be use for the same
lender attach or garnished the certificate
purpose intended or allowed for the
of public convenience with the approval of
borrower corporation?
LTFRB?
A. No, only the holder of CPC is allowed to
A. No, the CPC or franchise is personal in
use those buses in such manner. The buses
nature that cannot be transferred to others.
can be used if there is approval of the
LTFRB.
PUBLIC SERVICE ACT
Approval of the LTFRB is necessary to bind
third parties. Without the approval, the Q: What are the purposes for the
mortgage is valid only between the enactment Public Service Act?
contracting parties but not the government. A:
a. To secure adequate, sustained service for
Q. What about the foreclosure of the the public at the least possible cost;
certificate of public convenience?
A. It is not valid.

Page 122 of 139


b. To protect the public against
unreasonable charges and poor inefficient
service;
c. To protect and secure investments in
public services; and
d. To prevent ruinous competition.
Luzon Stevedoring Co., Inc. v. Public
Service Commission, G.R. No. L-5458,
September 16, 1953; Tan Sima v.
Hacbang, G.R. No. 37321, March 3, 1933.
The first two are carried out by the
appropriate government agencies in terms
of fixing rates, like water rates and
electricity rates. They are regulated by the
State.
The fourth is achieved, among others, by
determining who will be allowed to
provide public service in a particular area.
Thus, there is the first operator rule which
gives preferential right to the first operator
to perform service and a second operator
shall be allowed only if indeed public
interest will be served.
Q: The City of Manila passed an
ordinance banning provincial buses
from the city. The ordinance was
challenged as invalid under the Public
Service Act by X who has a certificate of
public convenience to operate auto-
trucks with fixed routes from certain
towns in Bulacan and Rizal to Manila
and within Manila. Firstly, he claimed
that the ordinance was null and void
because, among other things, it in effect
amends his certificate of public
convenience, a thing which only the
Public Service Commission can do so
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under Section 16(m) of the Public
Service Act. Under said section, the
Commission is empowered to amend,
modify, or revoke a certificate of public
convenience after notice and hearing.
Secondly, he contended that even if the
ordinance was valid, it is only the
Commission which can require
compliance with its provisions under
Section 17(j) of said Act and since the
implementation of the ordinance was
without sanction or approval of the
Commission, its enforcement was
unauthorized and illegal.
a. May the reliance of X on Section
16 (m) of the Public Service Act
be sustained? Explain.
b. Was X correct in his contention
that, under Section 17(j) of the
Public Service Act, it is only the
Commission which can require
compliance with the provision of
the ordinance? Explain.
A:
a. No. The power vested in the Public
Service Commission under Section 16(m)
is subordinate to the authority of the City
of Manila under Section 18(hh) of its
revised charter, to superintend, regulate, or
control the streets of the City of Manila.
BAR 1993.
b. No. The powers conferred by law upon
the Public Service Commission were not
designed or supersede the regulatory
power of local governments over motor
traffic in the streets subject to their control.
BAR 1993

Q: A was granted by the Board of
Transportation (BOT) a certificate of
public convenience to operate 50
provincial buses, plying between Ilocos
Norte and Manila passing through Rizal
Avenue Extension then right on Doroteo
Jose. Because of traffic congestion
between the hours of seven (7) and nine
(9) o'clock in the morning, and four (4)
to eight (8) o'clock in the evening, a
municipal ordinance was passed
prohibiting provincial buses from
entering Manila on those hours but
allowing them to use one (1) shuttle bus
for every five (5) buses. A challenged the
validity of the ordinance, on the ground
that it infringes on his certificate of
public convenience, and that he had
acquired a vested right to enter Manila
at anytime of the day, thru
aforementioned route. Decide with
reasons.
A: The ordinance is valid. Under its
charter, the City of Manila has the power
to regulate the use of its streets. This
charter is a special law and therefore
prevails over the Public Service Act.
Consequently, the power of the BOT to
grant certificates is subject to this
provision of the charter of Manila. A has
thus not acquired any vested right as
alleged by him. Lagman v. City of Manila,
G.R. No.- L-23305, June 30, 1966; BAR
1976.
Q: Define “public utility”
A: • Public utility, unlike the term
"public service", is not defined by statute.
Public service is defined specifically by
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Commonwealth Act No. 454 or the Public
Service Act, as follows:
The term 'public service' includes every
person that now or hereafter may own,
operate, manage, or control in the
Philippines, for hire or compensation, with
general or limited clientele, whether
permanent, occasional or accidental, and
done for general business purposes, any
common carrier, railroad, street railway,
traction railway, sub-way, 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 railways, 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, telephone, wire or
wireless communications system, wire or
wireless broadcasting stations and other
similar public services:
Provided, however, That a person engaged
in agriculture, not otherwise a public
service, who owns a motor vehicle and
uses it personally and/or enters into a
special contract whereby said motor
vehicle is offered for hire or compensation
to a third party or third parties engaged in
agriculture, not itself or themselves a
public service, for operation by the latter
for a limited time and for specific purpose
directly connected with the cultivation of

his or their farm, the transportation,
processing, and marketing of agricultural
products of such third party or third parties
shall not be considered as operating a
public service for the purpose of this Act.
As amended by Comm. Act No. 454
(1939) and Rep. Act No. 1270 (1955).
While the concepts of public service and
public utility are related, they do not have
the same legal meaning. In contrast to a
public service which has a statutory
definition, the definition of public utility
has been laid down by the Supreme Court,
thus: J. Tinga, Separate Opinion, J.G.
Summit Holding, Inc. v. Court of Appeals,
G.R. Np. 124293, 24 September 2003.
'a] 'public utility' is a business or service
engaged in regularly supplying the public
with some commodity or service of public
consequence such as electricity, gas, water,
transportation, telephone, or telegraph
service. The term implies public use and
service." NAPOCOR v. Court Of Appeals,
G.R. NO. 112702, sept. 26, 1997.
Basically, public service is common carrier.
Your keywords for public utility: regularly
supplying the public with some commodity
or service of public consequence.
Q: Is a drugstore as public utility?
A: NO. It is a store but not a public utility.
Q: Does the fact that a business offers
services or goods that promote public good
and serve the interest of the public
automatically make it a public utility?
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A: NO. To constitute a public utility, the
facility must be necessary for the
maintenance of life and occupation of the
residents. However, the fact that a business
offers services or goods that promote
public good and serve the interest of the
public does not automatically make it a
public utility. Public' use is not
synonymous with public interest. As its
name indicates, the term "public utility"
implies public use and service to the
public. The principal determinative
characteristic of a public utility is that of
service to, or readiness to serve, an
indefinite public or portion of the public as
such which has a legal right to demand and
receive its services or commodities. Stated
otherwise, the owner or person in control
of a public utility must have devoted it to
such use that the public generally or that
part of the public which has been served
and has accepted the service, has the right
to demand that use or service so long as it
is continued, with reasonable efficiency
and under proper charges.
Private property devoted to public use may be
acquired by another private entity as long as
it is for private use.
Public utility cannot deny the public the use
of the facilities or to receive services.
Unlike a private enterprise which
independently determines whom it will
serve, a "public utility holds out generally
and may not refuse legitimate demand for
service." JG Summit Holdings v. Court of
Appeals, G.R. No. 124293, September 24,
2003.

The Supreme Court has adopted the
pronouncement in Allen vs. Railroad
Commission of the State of California that
a public utility is characterized by such
devotion to public use where the public has
the legal right to demand that the service
shall be conducted. 179 Cal., 68; 8 A. L.
R., 249 (1918), as cited in Iloilo Ice and
Cold Storage, G.R. No. 19857, Mar. 2,
1923.
Q: Can a shipyard be considered a
public utility?
A: No. A shipyard or a place/enclosure
where ships are built or repaired cannot be
considered a public utility because its
nature dictates that it serves but a limited
clientele whom it may choose to serve at its
discretion. While it offers its facilities to
whoever may wish to avail of its services,
a shipyard is not legally obliged to render
its services indiscriminately to the public.
It has no legal obligation to render the
services sought by each and every client.
The fact that it publicly offers its services
does not give the public a legal right to
demand that such services be rendered. JG
Summit Holdings v. Court of Appeals,
G.R. No. 124293, September 24, 2003.
Q: What is the basic requirement for the
operation of a public utility?
A: • No public service shall operate in
the Philippines without having first
secured from the Commission a certificate,
which shall be known as Certificate of
Public Convenience or as Certificate of
Public Convenience and Necessity, as the
case may be, to the effect that the operation
of said service and the authorization to do
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Notes for Merc Rev 2
business will promote the public interests
in a proper and suitable manner.
Q: What is a Certificate of Public
Convenience and Necessity?
A: A Certificate of Public Convenience
and Necessity (CPCN) is a written
authority issued by the government to
enable a person to engage in public service,
for which service a legislative franchise is
required. e.g. air transpo, shippping,
railroad, telecom; subject to the existence
of a need.
So that is the basic distinction. If CPC, it does
not require a franchise from Congress. If
CPCN, it requires a franchise.
For example, an electric cooperative requires
a CPCN from Congress.
Cebu Pacific needs a franchise from
Congress.
Q: What about buses? What about
jeepneys operated as common carrier?
A: They don’t need CPCN. They need CPC
because it does not require franchise from
Congress but they need authority from
government just the same.
Q: What is a Certificate of Public
Convenience?
A: A Certificate of Public Convenience
(CPC) is a written authority issued by the
government to enable a person to engage in
public service.
Q: The Batong Bakal Corporation filed
with the Board of Energy an application

for a Certificate of Public Convenience
for the purpose of supplying electric
power and lights to the factory and its
employees living within the compound.
The application was opposed by the
Bulacan Electric Corporation
contending that the Batong Bakal
Corporation has not secured a franchise
to operate and maintain an electric
plant. Is the opposition's contention
correct?
A: No. A certificate of public convenience
may be granted to Batong Bakal
Corporation, though not possessing a
legislative franchise, if it meets all the
other requirements. There is nothing in the
law nor the Constitution, which indicates
that a legislative franchise is necessary or
required for an entity to operate as supplier
of electric power and light to its factory and
its employees living within the compound.
Q: What industries are expected to the
requirement of a certificate
(CPCN/CPC)?
A:
a. Warehouses;
b. Animal drawn vehicles and bancas
moved by oar or sail;
c. Airships, except for the fixing of
maximum for fare and freight;
d. Radio companies, except for rates
fixing;
e. Public services owned or operated by the
government, except as to rates fixing;
Surigao Electric v. Municipality of
Surigao, G.R. No. L22766, August 30,
1968.
f. Ice plants; and
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g. Public markets Chambers of Filipino
Retailers v. Villegas, G.R. No. L 29864,
February 28, 1969.
Q: Does the issuance of CPC/N confer
property right?
A: No. The certificate constitutes neither a
franchise nor a contract, confers no
property right, and is a mere license or
privilege. The holder of said certificate
does not acquire a property right in the
route covered thereby. Nor does it confer
any property right, interest or interest in the
public highways. Revocation of this
certificate deprives him of no vested right.
New and additional burdens, alteration of
the certificate, or even revocation or
annulment thereof is reserved to the State.
Luque vs. Villegas, G.R. No. L-22545,
November 28, 1969.
Q: Where should entities engaged in
transportation obtain the necessary
certificated of public convenience?
A: The appropriate certificates of public
convenience may be obtained by entities
engaged in transportation as follows:
a. Those engaged in public land
transportation services by motorized
vehicles, from the Land Transportation
Franchising and Regulatory Board;
b. Those engaged in the operation of
domestic and overseas water carriers, from
the Maritime Industry Authority;
c. Those engaged in air commerce
and/or air transportation, foreign and/or
domestic, from the Civil Aeronautics
Board; and
d. Those engaged in providing land
transportation by the use of tricycles, from

the local Sangguniang Bayan or
Sangguniang Panglungsod.
Perez: Quizzer and reviewer on
Commercial Laws Vol. IV - Transportation
Laws and Public Service Act, 2009 ed.,
p.284.
Q: What government agencies govern
other entities engaged in public service
other than transporation?
A: The government agencies governing
other entities engaged in public service
other than transportation are:
a. Radio, television, telephone, and other
telecommunications entities - National
Telecommunications Commission;
b. Electric companies and cooperatives —
National Electrification Administration;
c. Local water utilities — Local Water
Utilities Administration;
d. Express and/or messenger service —
Philippine Postal Corporation.
Perez: Quizzer and reviewer on
Commercial Laws Vol. IV - Transportation
Laws and Public Service Act, 2009 ed.,
p.285.
Q: What are the instance where a
CPC/N may be revoked or cancelled?
A:
a. The facts and circumstances on the
strength of which said certificate was
issued have been misrepresented or
materially changed.
b. The holder thereof has violated or
willfully and contumaciously refused to
comply with any order, rule or regulation
of the Commission or any provision of the
Act.
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c. Where the holder is a mere dummy; (real
owner foreigner). Pecson vs. Pecson, , G.R.
No. 45516, July 30, 1938.
d. Where the operator ceased operation and
placed his buses on storage; and Paredes
vs. Public Service Commission, L-7111,
May 30, 1955.
e. Where the operator abandons, totally the
service. Collector vs. Buan, L-11438, July
31, 1958; Regodon vs. Public Service
Commission, L-11899, Sept. 23, 1958;
Paez vs. Marcelo, L-1530, March 30, 1962.
Q: Robert is a holder of a certificate of
public convenience to operate a taxicab
service in Manila and suburbs. One
evening, one of his taxicab units was
boarded by three robbers as they
escaped after staging a hold-up. Because
of said incident, the LTFRB revoked the
certificate of public convenience of
Robert on the ground that said operator
failed to render safe, proper and
adequate service as required under Sec
19(a) of the Public Service Act.
a. Was the revocation of the certificate
of public convenience of Robert
justified?
b. When can the Commission (Board)
exercise its power to suspend or revoke
certificate of public convenience?
A:
a. No. A single hold-up incident which
does not link Robert's taxicab cannot be
construed that he rendered a service that is
unsafe, inadequate and improper.
Manzanal v Ausejo 164 s 36; BAR 1993.

b. b. Under Sec 19(a) of the Public
Service Act, the Commission (Board) can
suspend or revoke a certificate of public
convenience when the operator fails to
provide a service that is safe, proper or
adequate, and refuses to render any service
which can be reasonably demanded and
furnished. BAR 1993
Q: Pepay, a holder of a certificate of
public convenience, failed to register the
complete number of units required by
her certificate. However, she tried to
justify such failure by the accidents that
allegedly befell her, claiming that she
was so shocked and burdened by the
successive accidents and misfortunes
that she did not know what she was
doing, she was confused and thrown off
tangent momentarily, although she
always had the money and financial
ability to buy new trucks and repair the
destroyed one. Are the reasons given by
Pepay sufficient grounds to excuse her
from completing units? Explain.
A: No. The reasons given by Pepay are not
sufficient grounds to excuse her from
completing her units. The same could be
undertaken by her children or by other
authorized representatives. Section 16[n],
Public Service Act; Halili v Herras, G.R.
No. L-18889-90, April 30, 1964; BAR
1993.
Q: What requirements must be met
before a certificate of public
convenience may be granted under the
Public Service Act?
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A: The following are the requirements for
the granting of a certificate of public
convenience, to wit:
i. The applicant must be a citizen of the
Philippines, or a corporation, copartnership
or association organized under the laws of
the Philippines and at least 60% of the
stock or paid-up capital of which must
belong to citizens of the Philippines.
(Citizenship)
ii. The applicant must prove public
necessity. (Public Necessity)
iii. The applicant must prove that the
operation of the public service proposed
and the authorization to do business will
promote the public interest in a proper and
suitable manner. (Promotion of Public
Interest)
iv. The applicant must be financially
capable of undertaking the proposed
service and meeting the responsibilities
incident to its operation. (Financial
Capability)
Q: What constitutional provision
governs the citizenship requirement for
public utilities?
A: Section 11, Article Xll of the 1987
Constitution governs the citizenship
requirement for public utilities. It 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, 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.
Q: To what does “capital” in Section 1,
Article XII of the 1987 Consituition
refer?
A: The term "capital" refers to shares with
voting rights, as well as with full beneficial
ownership. This is precisely because the
right to vote in the election of directors,
coupled with full beneficial ownership of
stocks, translates to effective control of a
corporation.
Consequently, what the Constitution
requires is full and legal beneficial
ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of
the voting rights which must rest in the
hands of Filipino nationals. Roy Ill v.
Herbosa, G.R. No. 207246, November 22,
2016.
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Can a foreign corporation own the
facilities by which a public utility may
operate?
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. 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 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. Tatad v. Garcia, Jr., G.R. No.
114222, April 6, 1995
Q. Can you appoint foreigners to manage
the public utility?
A. No, it would violate the constitution and
the Anti-dummy Law. The last sentence of
Sec.11, Article XII, the 1987 Constitution –
“The participation of foreign investors in a
public utility shall be limited to its
proportionate share of the capital.” They can
be on the board but they cannot manage the
affairs of the public utility.
Differentiate operation of public utility
and ownership of facilities and
equipment.

While the Constitution in no uncertain
terms requires a franchise for the operation
of a public utility, 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.
In law, there is a clear distinction between
"operation" of a public utility and
"ownership" of its facilities and equipment.
WWW Communications Inc., is an e-
commerce company whose present
business activity is limited to providing
its clients with all types of information
technology hardware. It plans to re-
focus its corporate direction of
gradually converting itself into a full
convergence organization. Towards this
objective, the company has been
aggressively acquiring
telecommunications businesses and
broadcast media enterprises, and
consolidating their corporate structures.
The ultimate plan is to have only two
organizations: one to own the facilities of
the combined businesses and to develop
and produce content materials, and
another to operate the facilities and
provide mass media and commercial
telecommunications services. WWW
Communications will be the flagship
entity which will own the facilities of the
conglomerate and provide content to the
other new corporation which, in turn,
will operate those facilities and provide
the services. WWW seeks your
professional advice on whether or not its
reorganized business activity would be
considered a public utility requiring a
franchise or certificate or any other
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form of authorization from the
government. What will be your advice?
Explain.
The reorganized business activity of
WWW Communications Inc. would not be
considered a public utility requiring a
franchise or certificate or any other form of
authorization from the government. It
owns the facilities, but does not operate the
same. BAR 2000
Prior Operator Rule
What is the prior operator rule?
It is the rule allowing an existing
franchised operator to invoke a preferential
right within the authorized territory as
long as he renders satisfactory and
economical service.
The policy is not to issue a certificate to a
second operator to cover the same field and
in competition with a first operator who is
rendering sufficient, adequate and
satisfactory service. The prior operator
must first be given an opportunity to
improve its service, if inadequate or
deficient. Where the operator either fails or
neglects to make the improvement or effect
the increase in services, especially when
given the opportunity, new operators
should be given the chance to give the
services needed by the public.
In other words, a public utility operator
should be shielded from ruinous
competition by affording him an
opportunity to improve his equipment and
service before allowing a new operator to

serve in the same territory he covers.
Mandbusco v. Francisco, 32 SCRA 405,
cited in Perez, ibid
Mr. Mangasiwa applied for a certificate
of public convenience to operate 5
jeepneys from Batasang Pambansa area
to Cubao, Quezon City. The application
was opposed by Hallelujah Transit and
Kingdom Bus Co., which were already
serving the area. They invoked the
"prior or old operator rule" in their
opposition. Mangasiwa, in turn, invoked
the "prior applicant rule". Discuss the
"prior or old operator rule" and the
limitations or provisos on its application.
In case of conflict between the "prior or
old operator rule" and the "prior
applicant rule", which rule shall
prevail? Explain.
The "prior or old operator rule" allows an
existing franchised operator to invoke
preferential right to render the public
service within the authorized territory as
long as he does so satisfactorily and
economically.
In case of conflict between the "prior or old
operator rule" and the prior applicant rule",
the former will apply as long as again the
operator is able to render satisfactory and
economically service.
What is the prior applicant rule?
This rule presupposes a situation when two
interested persons apply for a certificate to
operate a public utility in the same
community over which no person has as
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yet granted any certificate. If it turns out
after the hearing, that the circumstances
between the two applicants are more or less
equal, then the applicant who applied
ahead of the latter will be granted the
certificate.
It is similar to first to file rule
A bus line's service between Manila and
Malolos is satisfactory. A new road is
opened between said points, and a new
carrier applies for a certificate of public
convenience to operate a bus line along
the new road. The old bus line opposes,
claiming that it should first be given an
opportunity to extend its service. Which
party should prevail? Reason.
Where all conditions being equal, priority
in the filing of the application for a
certificate of public convenience becomes
an important factor in the granting thereof;
so the new carrier who applies first shall
prevail. Batangas Transportation Co., v.
Orlanes, G.R. No. L-28865, December 19,
1928; BAR 1979.
. Bayan Bus Lines had been operating
satisfactorily a bus service over the route
Manila to Tarlac and vice versa via the
McArthur Highway. With the
upgrading of the new North
Expressway, Bayan Bus Lines service
became seemingly inadequate despite its
efforts of improving the same. Pasok
Transportation, Inc., now applies for the
issuance to it by the Land
Transportation Franchising and
Regulatory Board of a certificate of

public convenience for the same Manila-
Tarlac-Manila route. Could Bayan Bus
Lines, Inc., invoke the 'prior operator"
rules against Pasok Transportation,
Inc.? Why?
No, Bayan Bus Lines, Inc., cannot invoke
the "prior operator" rules against Pasok
Transportation, Inc. because such "Prior or
Old Operator Rule" under the Public
Service Act only applies as a policy of the
law of the Public Service Commission to
issue a certificate of public convenience to
a second operator when prior operator is
rendering sufficient, adequate and
satisfactory service, and who in all things
and respects is complying with the rule and
regulation of the Commission.
• In the facts of the case at bar, Bayan Bus
Lines service became seemingly
inadequate despite its efforts of improving
the same. Hence, in the interest of
providing efficient public transport
services, the use of the 'prior operator' and
the 'priority of filing' rules is untenable in
this case. BAR 2003
What are the exceptions to the prior
operator rule?
A:
a. Where public interest would better be
served by the new operator; as when the
operator has failed, despite ample time and
opportunity given to it by the Commission,
to render adequate, sufficient and
satisfactory service; Guico v. Estate of F.P.
Buan, L-9769, August 30, 1957, cited in
Perez: Quizzer and Reviewer in
Commercial Law Vol. IV, 2009 ed., p291.
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b. Where the old operator failed to make an
offer to meet the increase in traffic; Manila
Yellow Cab v. Castelo, L-13910, May 30,
1960, cited in Perez, ibid.
c. Where the CPC granted to the new
operator is a maiden certificate;
Mandbusco v. Francisco, 32 SCRA 405,
cited in Perez, ibid.
d. When the application of the rule would
be conducive to monopoly and contrary to
the principle that promotes healthy
competition Villa Rey Transit v.
Pangasinan Trans. Inc, 5 SCRA 234,
cited in Perez, ibid
What is the policy behind the prior
operator rule?
A: The policy behind the Prior Operator
Rule is the general principle that public
utility operators must be protected from
ruinous competition, such that before
permitting a new operator to serve in a
territory already serviced by another
operator, the latter should first be given
opportunity to improve his equipment and
service.
Note, however, that this policy is not
without any exceptions. The primary
consideration will always be public
convenience. Halili v. Cruz, G.R. No. L-
21061, June 27, 1968.
What is the “protection of investment”
rule?
"Protection of investment" rule means that
one of the purposes of the Public Service
Law is to protect and conserve investments
which have already been made for that

purpose by public service operators.
Batangas Trans. Co. vs. Orlanes, 52 Phil.
455 cited in Perez: Quizzer and reviewer
on Commercial Laws Vol. IV -
Transportation Laws and Public Service
Act, 2009 ed., p.291
What is “rate”?
Rate is a charge, payment, or price fixed
according to a ratio, scale, or standard. It is
an amount paid or charged for a good or
service. National Power Corp. v.
Philippine Electric Plant Owners
Association, Inc., G.R. No. 159457, April
7, 2006.
How are rates fixed?
Rates are fixed on the basis of the
investment amount or property value that
the public utility is allowed to earn an
amount value otherwise called "rate base."
A just rate is founded on conditions that are
fair and reasonable to both the public
utility and the public. This stipulation
means that the public utility must have, as
profit, a fair return on the reasonable value
of the property. The imposition of the
maximum rates it charges cannot be
confiscatory. As to the public,
reasonableness requires entitlement to the
service at an affordable cost. National
Power Corp. v. Philippine Electric Plant
Owners Association, Inc., G.R. No.
159457, April 7, 2006.
What is the standard in the fixing of
rates?
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In the fixing of rates, the only standard
which the legislature is required to
prescribe for the guidance of the
administrative authority is that the rate be
reasonable and just. It has been held that
even in the absence of an express
requirement as to reasonableness, this
standard may be implied. What is a just and
reasonable rate is a question of fact calling
for the exercise of discretion, good sense,
and a fair, enlightened and independent
judgment. The requirement of
reasonableness comprehends such rates
which must not be so low as to be
confiscatory, or too high as to be
oppressive. Republic v. Manila Electric
co., G.R. Nos. 141314 & 141369,
November 15, 2002.
What are the major factors to be
considered in determining just and
reasonable fees?
In determining the just and reasonable rates
to be charged by a public utility, three
major factors are considered by the
regulating agency:
a. rate of return;
b. rate base; and
c. the return itself or the computed
revenue to be earned by the public utility
based on the rate of return and rate base.
What other factors are considered in
determining reasonable rates?
There are many factors considered in
ascertaining reasonable rates, such as:
a. The original cost of construction;

b. the amount expended in permanent
improvements;
c. the amount and market value of the
bonds and stock of the public utility;
d. the present cost compared with the
original cost of construction;
e. the probable earning capacity of the
property under the particular rates
prescribed; and
f. the sum required to meet operating
expenses.
It must be noted that the government is not
bound to apply any particular method or
formula for determining rates. National
Power Corp. v. Philippine Electric Plant
Owners Association, Inc., G.R. No.
159457, April 7, 2006.
What is the policy behind the fixing of
rates?
In regulating rates charged by public
utilities, the State protects the public
against arbitrary and excessive rates while
maintaining the efficiency and quality of
services rendered. However, the power to
regulate rates does not give the State the
right to prescribe rates which are so low as
to deprive the public utility of a reasonable
return on investment. Thus, the rates
prescribed by the State must be one that
yields a fair return on the public utility
upon the value of the property performing
the service and one that is reasonable to the
public for the services rendered. The fixing
of just and reasonable rates involves a
balancing of the investor and the consumer
interests. Republic v. Manila Electric co.,
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Notes for Merc Rev 2
G.R. Nos. 141314 & 141369, November
15, 2002.
What is rate of return?
The rate of return is a judgment percentage
which, if multiplied with the rate base,
provides a fair return on the public utility
for the use of its property for service to the
public: The rate of return of a public utility
is not prescribed by statute but by
administrative and judicial
pronouncements. This Court has
consistently adopted a 12% rate of return
for public utilities. The rate base, on the
other hand, is an evaluation of the property
devoted by the utility to the public service
or the value of invested capital or property
which the utility is entitled to a return.
Republic v. Manila Electric co., G.R. Nos.
141314 & 141369, November 15, 2002.
What is the policy behind the fixing of
rates?
The regulation of rates to be charged by
public utilities is founded upon the police
powers of the State and statutes prescribing
rules for the control and regulation of
public utilities are a valid exercise thereof.
When private property is used for a public
purpose and is affected with public
interest, it ceases to be juris privati only
and becomes subject to regulation. The
regulation is to promote the common good.
Submission to regulation may be
withdrawn by the owner by discontinuing
use; but as long as use of the property is

continued, the same is subject to public
regulation.
Can a public utility include income tax
payments as part of its operating
expenses in determining the base of its
returns?
Unlawful Arrangements
No. Income tax paid by a public utility is
inconsistent with the nature of operating
expenses. In general, operating expenses
are those which are reasonably incurred in
connection with business operations to
yield revenue or income. They are items of
expenses which contribute or are
attributable to the production of income or
revenue.
Income tax, it should be stressed, is
imposed on an individual or entity as a
form of excise tax or a tax on the privilege
of earning income. In exchange for the
protection extended by the State to the
taxpayer, the government collects taxes as
a source of revenue to finance its activities.
Clearly, by its nature, income tax payments
of a public utility are not expenses which
contribute to or are incurred in connection
with the production of profit of a public
utility. Income tax should be borne by the
taxpayer alone as they are payments made
in exchange for benefits received by the
taxpayer from the State. No benefit is
derived by the customers of a public utility
for the taxes paid by such entity and no
direct contribution is made by the payment
of income tax to the operation of a public
utility for purposes of generating revenue
or profit. Accordingly, the burden of
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Notes for Merc Rev 2
paying income tax should not be shifted to
the consumers by including the same in the
computation of public utilities' operating
expenses. Republic v. Manila Electric co.,
G.R. Nos. 141314 & 141369, November
15, 2002.
1. Boundary System
Define boundary system.
It is an arrangement whereby a driver is
engaged to drive the owner/operator's unit
and pays the latter a fee commonly called
'boundary" for the use of the unit.
Whatever he earned in excess of that
amount is his income. Paguio Transport
Corp. v. NLRC, G.R. No. 119500, Aug. 28,
1998
Baldo is a driver of Yellow Cab
Company under the boundary system.
While cruising along the South
Expressway, Baldo’s cab figured in a
collision, killing his passenger, Pietro.
The heirs of Pietro sued Yellow Cab
Company for damages, but the latter
refused to pay to the heirs, insisting that
it is not liable because Baldo is not an
employee. Resolve with reasons.
Yellow Cab Company is liable because
there exists an employer-employee
relationship between a jeepney owner and
a driver under the boundary system
arrangement in accordance with Art. 103
of the RPC [where the employer is made
subsidiarily liable]. Indeed to exempt from
liability the owner of a public vehicle who
operates it under the “boundary system” on

the ground that he is a mere lessor would
not only to abet a flagrant violations of the
Public Service Law but also to place the
riding public at the mercy of reckless and
irresponsible drivers – reckless because the
measure of their earnings depends largely
on the number of trips they make and,
hence, the speed at which they drive; and
irresponsible because most, if not all of
them, are in no position to pay the damages
they might cause.
X owns a fleet of taxicabs. He operates it
through what is known as boundary
system. Y drives one of such taxicabs
and pays X a fixed amount of P1,000
daily under the boundary system. This
means that anything above P1,000
would be the earnings of Y. Y, driving
recklessly, hit an old lady crossing the
street. Which statement is most
accurate? (BAR 2012)
a. X as the owner is exempt from
liability because he was not the one
driving;
b. X as the owner is exempt from
liability because precisely the arrangement
is one under the “boundary system”;
c. X will not be exempt from
liability because he remains to be the
registered owner and the boundary
system will not allow the circumvention
off the law to avoid liability;
d. Y is the only one liable because he
drove recklessly.
2. Kabit System
Discuss the “kabit system” in land
transportation and its legal
consequences.
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The "kabit system" is an arrangement
whereby a person who has been granted a
certificate of public convenience allows
another who owns a motor vehicle to
operate under his certificate for a fee or a
percentage of the earnings. The owner of
the certificate of public convenience and
the actual owner of the motor vehicle
should be held jointly and severally liable
for damages to third persons as a
consequence of the negligent operation of
the motor vehicle. BAR 2005
Although the parties to such an agreement
are not outrightly penalized by law, the
kabit system is invariably recognized as
being contrary to public policy and
therefore void and inexistent under Art,
1409 of the Civil Code. In the early case of
Dizon v. Octavio the Court explained that
one of the primary factors considered in the
granting of a certificate of public
convenience for the business of public
transportation is the financial capacity of
the holder of the license, so that liabilities
arising from accidents may be duly
compensated. The kabit system renders
illusory such purpose and, worse, may still
be availed of by the grantee to escape civil
liability caused by a negligent use of a
vehicle owned by another and operated
under his license. If a registered owner is
allowed to escape liability by proving who
the supposed owner of the vehicle is, it
would be easy for him to transfer the
subject vehicle to another who possesses
no property with which to respond
financially for the damage done. Thus, for
the safety Of passengers and the public
who may have been wronged and deceived

through the baneful kabit system, the
registered owner of the vehicle is not
allowed to prove that another person has
become the owner so that he may be
thereby relieved of responsibility.
Subsequent cases affirm such basic
doctrine. It would seem then that the thrust
of the law in enjoining the kabit system is
not so much as to penalize the parties but
to identify the person upon whom
responsibility may be fixed in case of an
accident with the end view of protecting
the riding public, The policy therefore
loses its force if the public at large is not
deceived, much less involved. Lim v.
Court of Appeals, G.R. No. 125817,
January 16, 2002.
What are the effects of the Kabit
System?
a. The transfer, sale, lease or
assignment of the privilege granted is valid
between the contracting parties but not
upon the public or third persons. Gelisan v.
Alday, G.R. No. L-30212, September 9,
1987.
b. The registered owner is primarily
liable for all the consequences flowing
from the operations of the carrier.
Benedicto v. IAC, G.R. No. 70876, July
19, 1990.
c. The thrust of the law in enjoining
the kabit system is to identify the person
upon whom responsibility may be fixed
with the end in view of protecting the
riding public. Lim. v. CA, G.R. No.
125817, January 16, 2002.
d. The registered owner cannot
recover from the actual owner and the latter
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cannot obtain transfer of the vehicle to
himself, both being in pari delicto. Teja
Marketing v. IAC, (G.R. No. L-65510,
March 9, 1987.
e. For the better protection of the
public, both the registered owner and the
actual owner are jointly and severally
liable with the driver. Zamboanga
Transportation v. CA, G.R. No. L-25292,
November 29, 1969.
Procopio purchased an Isuzu passenger
jeepney from Enteng, a holder of a
certificate of public convenience for the
operation of public utility vehicle plying
the Calamba-Los Baäos route. While
Procopio continued offering the jeepney
for public transport services, he did not
have the registration of the vehicle
transferred in his name. Neither did he
secure for himself a certificate of public
convenience for its operation. Thus, per
the records of the Land Transportation
Franchising and Regulatory Board,
Enteng remained its registered owner
and operator. One day, while the
jeepney was traveling southbound, it
collided with a ten-wheeler truck owned
by Emmanuel. The driver of the truck
admitted responsibility for the accident,
explaining that the truck lost its brakes.
Procopio sued Emmanuel for damages,
but the latter moved to dismiss the case
on the ground that Procopio is not the
real party in interest since he is not the
registered owner of the jeepney. Resolve
the motion with reasons

The motion to dismiss should be denied
because Procopio, as the real owner of the
jeepney, is the real party in interest.
Procopio falls under the Kabit system.
However, the legal restriction as regards
the Kabit system does not apply in this case
because the public at large is not deceived
nor involved. Lim v. Court of Appeals,
G.R. No. 125817, January 16, 2002, citing
Baliwag Transit v. Court of Appeals, G.R.
No. 57493, January 7, 1987.
In any event, Procoprio is deemed to be
"the agent" of the registered owner. First
Malayan Leasing v. Court of Appeals, G.R.
No. 91378, June 9,1992; and "F" Transit
CO., Inc. v. NLRC, G.R. Nos, 88195-96,
January 27, 1994; BAR 2005.
Approval of Sale, encumbrance or lease of
property
What are the rules governing the sale,
encumbrance or lease of public utilities'
properties?
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Notes for Merc Rev 2
that there are just and reasonable grounds
for making the mortgage or encumbrance,
for liabilities of more than one year
maturity, or the sale, alienation, lease,
merger, or consolidation to be approved,
and that the same are not detrimental to the
public interest, and in case of a sale, the
date on which the same is to be
consummated shall be fixed in the order of
approval.
Is the Commission's approval of the sale,
encumbrance or lease a condition
precedent to the validity of the contract?
No. Under Sec. 20(g) of the Public Service
Act, the sale, encumbrance, or lease of
properties may be negotiated and
completed before the approval by the
proper authority. Its approval is not a
condition precedent to the validity of the
contract. The approval is necessary only to
protect public interest. XX

Under Section 20 of the Public Service

Act, it shall be unlawful for any public
service or for the owner, lessee or operator
thereof to sell, alienate, mortgage,
encumber or lease its property, franchises,
certificates, privileges, or rights, or any
part thereof; or merge or consolidate its
property, franchises, privileges or rights, or
any part thereof, with those of any other
public service without the prior approval
and authorization of the Commission.

The approval shall be given, after notice to

the public and after hearing the persons
interested at a public hearing, if it be shown

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