CHAPTER III - EXTRAORDINARY DILIGENCE

I. Rationale
II. How Duty is Complied With
III. Effect of Stipulation
a. Goods
b. Passengers
i. Gratuitous Passenger
1. Lara v Valencia 104 SCRA 65 (1958) => Avoidable consequence. Respondent not
liable
IV. Extraordinary Diligence in Carriage by Sea
a. Seaworthiness
i. Delsan Transport v CA 369 SCRA 24 (2001) => Seaworthiness. Insufficient crew. Delsan
Liable
ii. Caltex v Sulpicio Lines 315 SCRA 709 (1999) => chartered unseaworthy vessel. Caltex
not liable.
b. Overloading
i. Navigation v CA 281 SCRA 534 (1997) => Overloading. Family of priv.res died. Petitioner
liable
c. Proper Storage
i. Belgian Overseas Chartering v Phil. First Insurance Co supra => Goods in bad condition
upon delivery. Presumption of negligence. P.Liable
d. Negligence of Captain and Crew
i. Mecenas v CA 180 SCRA 83 (1989) => heirs of deceased parents complaint.
e. Deviation and Transhipment

V. Extraordinary Diligence in Carriage by Land

A. Condition of Vehicle
i. Bayasen v CA 103 SCRA 197 (1981)
B. Traffic Rules
i. Mallari v CA 324 SCRA 147 (2000)
ii. Pestano v Sumayang 346 SCRA 870 (2000)
C. Duty to Inspect
i. Nocum v Laguna Tayabas Bus Co. v CA 83 SCRA 386 (1978)

VI. Extraordinary Diligence in Carriage by Air

a. Korean Airlines v CA 234 SCRA 717 (1994)
b. PAL v CA 106 SCRA 391 (1981)
c. Zalamea v CA
 CHAPTER IV – BILL OF LADING AND OTHER FORMALITIES

I. CONCEPTS
a. Bill of Lading - a written acknowledgement of the receipt of goods and an agreement to
transport and to deliver them at a specified place to a person named or on his or her
order.
b. a written acknowledgment, signed by the master of a vessel or other authorized agent of
the carrier, that he has received the described goods from the shipper, to be transported
on the expressed terms, to the described place of destination, and to be delivered
there to the designated consignee or parties.
i. Macondray and Co. Inc. v Acting Commissioner of Customs 62 SCRA427 (1975) => BOL vs Manifest

DISTINCTIONS BETWEEN A BILL OF LADING AND A CARGO MANIFEST

- Bill of Lading is but a declaration of a specific part of the cargo and is a matter of
business convenience based exclusively on a contract.
- Manifest is a declaration of the entire cargo and is absolutely essential to the
exportation or importation of property in all vessels, The object of a manifest is to:
- Furnish the customs officers with a list to check against;
- Inform our revenue officers what goods are being brought into the country; and
- Provide a safeguard against goods being brought into this country on a vessel
and then smuggled ashore.

c. Kinds of Bill of Lading

1. Clean - does not indicate any defect in the goods.
2. On board - issued when the goods have been actually placed aboard the ship with a
very reasonable expectation that the shipment is as good as on its way.
3. Received - states that the goods have been received for shipment with or without
specifying the vessel by which the goods are to be shipped.
4. Negotiable - states that the goods referred to therein will be delivered to the bearer or to
the order of any person named therein.
5. Non-negotiable - states that the goods referred to therein will be delivered to a specified
person.
6. Foul- contains a notation thereon indicating that the goods covered by it are in bad
condition.
7. Spent - covers goods that already have been delivered by the carrier without a
surrender of a signed copy of the bill.
8. Through - issued by the carrier who is obliged to use the facilities of other carriers as
well as his own facilities for the purpose of transporting the goods from the city of the
seller to the city of the buyer, which bill of lading is honored by the second and other
interested carriers who do not issue their own bills.
9. Port - issued by the carrier to whom the goods have been delivered and the vessel
indicated in the bill of lading by which the goods are to be shipped is already in the port
where the goods are held for shipment.
10. Custody - one where in the goods are already received by the carrier but the vessel
indicated therein has not yet arrived in the port
i. Magellan Manufacturing Marketing Corporation v CA supra => On board BOL.

II. Nature of Bill of Lading - long standing rule that the BOL operates as follows:
A. As Receipt - for the goods shipped and a contract to transport and deliver the same as
therein stipulated. => “recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks and condition, quality, and value.
 B. As Contract - law between the parties who are bound by its terms and
conditions provided that these are not contrary. => “names the contracting
parties, which include the consignee, fixes the route, destination, and freight
rates or charges, and stipulates the rights and obligations assumed”

III. When Effective - upon its delivery to and acceptance by the shipper.
- presumed that the stipulations of the bill are, in the absence of fraud, concealment or
improper conduct,
- acceptance of the bill without dissent raises the presumption that all the terms therein
were brought to the knowledge of the shipper and agreed to by him.

IV. Bill of Lading as Contract

PARTIES: Shipper and carrier and Consignee by reasons of:
- Relationship of agency by consignee and shipper
- Unequivocal acceptance of BOL delivered to consignee
- Availment of stipulation, consignee as 3rd part

a. Contract of Adhesion - Bills of lading, as well as tickets, constitute a class of contracts

of adhesion. Hence, they are normally construed liberally in favor of the passenger or
shipper who adhered to such a bill of lading or ticket. => take it or leave it basis
- The one who adheres to the contract is in reality free to reject it entirely; if he adheres,
he gives his consent. When the shipper or passenger receives the bill of lading, it is
tantamount to the passenger or shipper‟s adherence to the terms and conditions as
embodied therein. (Ong Yiu v. CA)

b. Parol Evidence Rule - the terms of a contract are rendered conclusive upon the
parties, and evidence aliunde is not admissible to vary or contradict a complete and
enforceable agreement embodied in a document, subject to well-defined exceptions.
i. Accordingly, evidence of a prior or contemporaneous verbal agreement is
generally not admissible to vary, contradict or defeat the operation of a valid
instrument. Exception: is one that is a mistake of fact mutual to the parties.
- To be admitted, mistakes must be put in issue by the pleadings. If not raised in the
complaint, parol evidence cannot be permitted to introduce.
ii. Parol evidence cannot be admitted where the mistake adverted to was
supposedly committed by one party only and was raised by the former rather
belatedly.

c. Bill of Lading as Evidence

- a bill of lading is a contract and as such it expresses the terms and conditions of the
agreement between the parties… Being a contract, it is the law between the parties
who are bound by its terms and conditions provided that these are not contrary.
- the legal evidence of the contract is recognized in the Code of Commerce
ARTICLE 353. The legal evidence of the contract between the shipper and the carrier
shall be the bills of lading, by the contents of which the disputes which may arise
regarding their execution and performance shall be decided, no exceptions being
admissible other than those of falsity and material error in the drafting…

ARTICLE 709. A bill of lading drawn up in accordance with the provisions of this title shall
be proof as between all those interested in the cargo and between the latter and the
insurers, proof to the contrary being reserved for the latter.
- Whenever there is a valid contract of carriage entered into by the carrier and passenger
or shipper and passage tickets or bills of lading have been issued upon which the latter
based his complaint, the tickets and the bills are the best evidence of the contract
between them. All the essential elements of a valid contract, i.e., consent, cause or
consideration and object, are present when such a bill or ticket is issued.

d. Bill of Lading as Actionable Document

- When a shipper enforces a contractual obligation under the contract of carriage as
stated in the bill of lading, such bill of lading can be categorized as an actionable
document under the Rules of Court. Hence bill of lading must be properly pleaded either
as causes of action or defenses;
- If the adverse party failed to controvert the existence and due execution of the bill of
lading, he impliedly admitted the same. Such failure amounts to a judicial admission that
is conclusive.

e. Basic Stipulations - provided in the code of commerce., Stating specifications as to

name, destination, loading and loading as well as terms and conditions.
i. Overland Transportation
ii. Maritime commerce
iii. COGSA
iv. RA 8792

f. Prohibited and Limiting Stipulations

i. Prohibited Stipulations (O.L.D.D.E.E.D.D)
ARTICLE 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of
the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a
good father of a family, or of a man of ordinary prudence in the vigilance over the
movables transported;
(5) That the common carrier shall not be responsible for the acts or 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.

ii. Three kinds of limiting stipulations often made in bill of lading: (NLQ)
1. No Liability - Exempting the carrier from any and all liability for loss or damage
occasioned by its own negligence - invalid;
2. Limited Liability - Unqualified limitation of such liability to an agreed valuation -
invalid; and
3. Qualified Liability - Limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher rate of freight -
valid and enforceable.

- PRESUMPTION OF NEGLIGENCE. The presence of a limiting stipulation does not

remove the duty to exercise extraordinary diligence in the transportation of goods.
 ARTICLE 1752. Even when there is an agreement limiting the liability of the common
carrier in the vigilance over the goods, the common carrier is disputably presumed to
have been negligent in case of their loss, destruction or deterioration.

- Reduction of Diligence Not Allowed for Passenger. No such stipulation reducing the
degree of diligence to be observed by the carrier is allowed for carriage of passengers.
ARTICLE 1757. The responsibility of a common carrier for the safety of passengers as
required in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation,
by the posting of notices, by statements on tickets, or otherwise.

i. Ysmael v Barretto 51 PHIL 90 (1927) => About 4 cases of silk Art 1750
ii. Shewaram v Philippine Airlines 17 SCRA 606 (1966) => Limited liability rule. Baggage & camera
iii. Ong Yiu v CA 91 SCRA 223 (1966) => Luggage with trail documents. Limited liability rule applies
iv. Aboitiz Shipping Corporation v CA 188 SCRA 387 (1990) => Reasonable time for cargo retrieval
v. Sea Land Services, Inc. v IAC 153 SCRA 552 (1987)
vi. Citadel Lines, Inc. v CA 184 SCRA 544 (1990)
vii. Everett Steamship Corp. v CA 297 SCRA 496 (1998)
viii. British Airways v CA 285 SCRA 450 (1998)
ix. H.E. Heacock Co. v Macondray & Co. 42 PHIL 205 (1921)
x. Sweet Lines v Teves 83 SCRA 361 (1978)

1. Carriage of Goods by Sea Act (COGSA)

applies suppletorily to the Civil Code if the goods are to be shipped from a foreign port to the
Philippines. Under the COGSA, the liability of the carrier is US$500 per package in the absence
of a shipper‟s declaration of a higher value in the bill of lading. The condition is deemed part of
the bill of lading even if not expressly stated. Section 4(5) of the COGSA provides:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage
to or in connection with the transportation of goods in an amount exceeding $500 per package of
lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, or the equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be
conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed; Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be liable for
more than the amount of damage actually sustained.
Neither the carrier nor the ship shall be responsible in anyevent for loss damage to or in
connection with the transportation of the goods if the nature or value thereof has been knowingly
and fraudulently misstated by the shipper in the bill of lading.

Meaning of package in COGSA. If the goods are shipped in cartons, each carton is considered
a package even if they are stored in container vans. When what would ordinarily be considered
packages are shipped in a container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of those units and not the container constitutes the
“package” referred to in COGSA.

2. International Air Transportation

- WARSAW CONVENTION - carrier shall be made liable for damages for the delay in the
transportation by air passengers, luggage and goods. The convention purport to limit the
liability of the carrier:
- Under the Warsaw Convention, an air carrier is made liable for damages for:
 a. The death, wounding or other bodily injury of a passenger if the accident causing it took
place on board the aircraft or I the course of its operations of embarking or
disembarking;
b. The destruction or loss of, or damage to, any registered luggage or goods, if the
occurrence causing it took place during the carriage by air; and
c. Delay in the transportation by air of passengers, luggage or goods

a. Alitalia v IAC 192 SCRA 9 (1990) => Delayed luggage. Warsaw convention
b. Pan American Airways v IAC 164 SCRA 268 (1988) => Applicability of Limited Liability rule
c. China Airlines v Chiok 407 SCRA 433 (2003)
d. Santos III v Northwest 210 SCRA 256 (1992)
e. United Airlines v Uy 318 SCRA 576 (1999)

V. Bill of Lading as Receipt

- “(t)he issuance of a bill of lading carries the presumption that the goods were delivered
to the carrier issuing the bill, for immediate shipment, and it is nowhere questioned that a
bill of lading is prima facie evidence of the receipt of the goods by the carrier.... In the
absence of convincing testimony establishing a mistake, recitals in the bill of lading
showing that the carrier received the goods for shipment on a specified date control.”
- Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery
of the goods to the carrier normally precedes the issuance of the bill;
- A bill of lading, when properly executed and delivered to a shipper, is evidence that the
carrier has received the goods described therein for shipment.
a. Saludo v CA 207 SCRA 498 (1992) => Switched remains. Not liable

VI. Bill of Lading as Document of Title

a. Negotiability
The presence of words of negotiability makes the document of title negotiable. Thus, Article
1507 of the Civil Code provides:
Art. 1507. A document of title in which it is stated that the goods referred to therein will
be delivered to the bearer, or to the order of any person named in such document is a
negotiable document of title, (n)

b. How Negotiated - The mode of negotiation depends on the type of document. Negotiation
differs if the document of title is a bearer instrument and if the instrument is an order instrument.
The Code of Commerce provides:
ARTICLE 708. Bills of lading issued to bearer and sent to the consignee shall be transferable by
actual delivery of the instrument; and those issued to order, by virtue of an Indorsement.
In either case, the person to whom the bill of lading is transferred shall acquire all the rights and
actions of the transferor or indorser with regard to the merchandise mentioned in the same.

c. Effects of Negotiation - Negotiability of a document merely indicates that the transfer of a

document of title through negotiation has the effect of transferring possession of the goods.72
Negotiation of the document has the effect of manual delivery so as to constitute the transferee
the owner of the goods.
 CHAPTER V – ACTIONS AND DAMAGES IN CASE OF BREACH

I. DISTINCTIONS
Passengers and shippers who suffered damages because of the breach of the contractual
obligation of the carrier may sue the latter for damages. The source of obligation is culpa
contractual. This source of obligation is separate and distinct from quasi-delict under Article
2176 of the Civil Code. A cause of action ex contractu was distinguished from a cause of action
based on quasi-delict in Cangco v. Manila Railroad Company:

Point of Distinction CULPA CONTRACTUAL CULPA-AQUILIANA

Source of Obligation Contract Quasi-Delict

Liability of Employee No liability there being no privity of contract Solidarily liable with the Employer

Availability of Defense Due diligence in the selection and Due diligence in the selection and
supervision of the employee is not a supervision of the employee is a
defense. defense under Article 2180.

In What Capacity Liable Liable as a contracting party. Liable as an Employer.

II. Concurrent Causes of Action

- Hence, the cause of action of a passenger or shipper against the common carrier can be
culpa contractual or culpa aquiliana while the basis of liability on the part of the driver is
either culpa delictual or culpa aquiliana. The driver of the carrier is not liable based on
contract because there is no privity of contract between him and the passenger or
shipper.
- The direct and primary liability of drivers based on quasi delict and delict equally applies
to the captain, officers and crew of the vessel or the captain and other personnel of the
air carrier in proper cases where they committed the negligent act or omission.
a. Fabre v CA supra
b. Air France v Carrascoso 18 SCRA 155 (1966)
c. Tiu v Arriesgado 437 SCRA 427 (2004)

A. Third person liability - The driver alone may be held criminally liable and civil liability may be
imposed on him based on delict. In the latter case, the employer is subsidiarily liable.
- In case of injury to a passenger due to the negligence of the driver of the vehicle on which he was
riding and the driver of another vehicle, the drivers and the owners of the two vehicles are jointly
and severally liable for damages.
- SOLIDARY LIABILITY. In case the negligence of the carrier‟s driver and a third person
concurs, the liability of the parties — carrier and his driver, third person — is joint and
several.5
- ALTERNATIVE COMPENSATION SCHEME.- Special laws provide for mandatory
insurance coverage for passengers and cargo.
- With respect to motor vehicles, a Compulsory Motor Vehicle Liability Insurance is
mandated under Sections 374 to 389 of the Insurance Code of the Philippines.8

III. Notice of Claim and Prescriptive Period

a. Overland Transportation of Goods and Coastwise Shipping
i. Phil American General Insurance v Sweet Lines 212 SCRA 194 (1992) b. COGSA
ii. Dole Philippines v Maritime Co. of the Phils. 148 SCRA 118 (1987)
iii. Maritime Agencies v CA 187 SCRA 846 (1990)
 IV. Recoverable Damages
“Damages” is the pecuniary compensation, recompense, or satisfaction for an injury
sustained, or as otherwise expressed, the pecuniary consequences that the law imposes for the
breach of some duty or violation of some rights.

a. Extent of Recovery
Art. 2201. In contracts and quasi/'-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the
obligation. (1107a)

b. Kinds of Damages
i. Actual / Compensatory Damages
- Art 2199. “except, as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages.”
- Article 2200 provides that indemnification for damages shall comprehend not only the value of
the loss suffered, but also that of the profits that the obligee failed to obtain.
Kinds of Actual Damage: Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or
permanent personal injury;
(2) For injury to the plaintiff‟s business standing or commercial credit.
1. Zulueta v Pan Am 43 SCRA 397 (1972)
2. Gatchalian v Delim 203 SCRA 126 (1991)
3. Marchan v Mendoza 24 SCRA 888 (1968)
4. De Caliston v CA 122 SCRA 958 (1983)

ii. Moral Damages

- include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury.
- REQUISITES. Generally, no moral damages may be awarded where the breach of
contract is not malicious. The presence of contractual negligence is insufficient for such
an award. However, moral damages may be awarded if the contractual negligence is
considered gross negligence.
When Awarded:
- Land transportation, moral damages was awarded where the driver of a taxi overtook
another taxi while in a “fly-over”
- Air Transportation, luggage of the passenger was lost and the only action taken by the
petitioner to locate respondent‟s luggage were telex searches. No explanation as to the
loss of luggage with no attention and due care to the passenger who reported a loss.
1. Trans World Airlines v CA 165 SCRA 143 (1988)

iii. Nominal Damages

“Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.

Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in Article 1157, or in every case where any property right has been invaded.
 Art. 2223. The adjudication of nominal damages shall preclude further contest upon the right
involved and all accessory questions, as between the parties to the suit, or their respective heirs
and assigns.”

iv. Temperate or Moderate Damages

Art. 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has
been suffered but its amount can not, from the nature of the case, be provided with certainty.

Art. 2225. Temperate damages must be reasonable under the circumstances.

v. Exemplary or Corrective Damages

- Requisites:
(1) They may be imposed by way of example in addition to compensatory damages, and only
after the claimant‟s right to them has been established;
(2) They cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant;
(3) The act must be accompanied by bad faith or done in wanton, fraudulent, oppressive or
malevolent manner.
- Governing Laws:
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated.
Art. 2235. A stipulation whereby exemplary damages are renounced in advance shall be null and
void.”
1. Prudenciado v Alliance Transport 148 SCRA 440 (1987)
 CHAPTER VI – GENERAL CONCEPTS
I. Maritimes Law
Maritime law
- Is the system of law which particularly relates to the affairs and business of the sea, to
ships,their crews and navigation, and to marine conveyance of persons and property.
- A corpus of rules, concepts and legal practices governing certain centrally important
concerns of the business of carrying goods and passengers by water.
- That system of law which particularly relates to marine commerce and navigation, to
business transacted at sea or relating to navigation, to ships and shipping, to seamen, to
the transportation of persons and property by sea and to marine affairs generally.

Governing Laws:
1. New Civil Code - primary law on maritime commerce
2. Book III Code of Commerce- applied suppletorily
3. Special Laws: Salvage Law (Act 2616); Carriage of Goods by Sea Act; Ship Mortgage of
1978 (PD 1521)

II. Real and Hypothecary Nature

- That which distinguishes the maritime from the civil law and even from the mercantile
law in general is the real and hypothecary nature of the former
- As evidence of this “real” nature of the maritime law:
□ the limitation of the liability of the agents to the actual value of the vessel and the
freight money
□ The right to retain the cargo and the embargo and detention of the vessel even in
cases where the ordinary civil law would not allow more than a personal action against the
debtor or person liable.

Two reasons why it is impossible to do away with these privileges:

● The risk to which the thing is exposed
● The ‘real’ nature of maritime law, exclusively real, according to which the liability of the
parties is limited to a thing to which is at mercy of the waves.
a. Yangco v Laserna 73 PHIL 330 (1941)

i. Limited Liability Rules

- Means that the liability of a shipowner for damages in case of loss is
limited to the value of his vessel.
- No vessel, no liability
- The shipowner’s or agent’s liability is merely co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction.
- If the vessel is co-owned, the limited liability to third persons shall be
satisfied by the co-owners.
1. Chua Yek Hong v IAC 166 SCRA 183 (1988)
2. Heirs of Amparo de los Santos v CA 186 SCRA 649 (1990)

Statutory Provisions. The statutory provisions that provide for the limited liability rule are Articles
587 ( liability to third persons), 643 and 837 (collision cases) of the code of commerce which
provide as follows:
Art. 587 (Liability to third persons). 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.
 Art. 643. If the vessel and her cargo should be totally lost, by reason of capture or wreck, all
rights shall be extinguished, both as regards the crew to demand any wages whatsoever, and as
regards the ship agent to recover the advances made.
If a portion of the vessel or of the cargo, or of both, should be saved, the crew engaged
on wages, including the captain, shall retain their rights on the salvage, so far as they go, on the
raminder of the vessel as well as on the amount of the freightage of the cargo saved; but sailors
who are engaged on shares shall not have any right whatsoever on the salvage of the hull, but
only on the portion of the freightage saved. If they should have worked to recover the remainder
of the shipwrecked vessel they shall be given from the amount of the salvage on award in
proportion of the efforts made and to the risks, encountered in order to accomplish the salvage.

Art. 837. The civil liability incurred by the shipowners in the cases prescribed in this section,
shall be understood as limited to the value of the vessel with all her appurtenances and freight
earned during the voyage.

COVERAGE OF LIMITED LIABILITY

Article 837 - applies the principle of limited liability in cases of collision
Article 587 and 590 - embody the universal principle of limited liability in all cases

Note:
If the vessel is co-owned, the limited liability to third persons shall be satisfied by the
co-owners with the following rules:
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
contribution to the common fund for the results of the acts of the captain, referred to in
Article 587.
Each co-owner may exempt himself from this liability by the abandonment, before
a notary, of that part of the vessel belonging to him.

SHIPOWNER ENTITLED TO LIMITED LIABILITY. It is the shipowner who is entitled to the

benefit of limited liability. The shipowner is the very person for whom the Limited Liability Rule
has been convinced to protect. The shipowner is the one who is supposed to be supported and
encouraged to pursue maritime commerce.

EXCEPTIONS TO LIMITED LIABILITY:

1. Where the injury or death to a passenger is due either to the fault of the shipowner, or to
the concurring negligence of the shipowner and the captain
2. Where the vessel is insured
3. In workmen’s compensation claims.
 CHAPTER VII – VESSELS
I. General Concepts
1. Philippine Refining Corporation v Jarque 61 PHIL 229 (1935)

Vessel or watercraft
- Any barge, lighter, bulk carrier, passenger ship freighter, tanker, container ship, fishing
boats, or other artificial contrivance utilizing any source of motive power, designed, used
or capable of being used as a means of any source of motive power, designed, used or
capable of being used as means of transportation operating either as a common carrier,
including fishing vessels covered under P.D. 43.
Exceptions:
1. Those owned and/or operated by the Armed Forces of the Philippines and by the
Foreign governments for military purposes
2. Bancas, sailboat and other waterbone contrivance of less than three tons capacity and
not motorized.

KINDS OF VESSELS
1. A passenger ship is a ship which carries more than twelve passengers
2. A cargo ship is any ship which is not a passenger ship
3. A tanker is cargo ship constructed or adapted for the carriage in bulk of liquid cargoes of
an inflammable-nature
4. A fishing vessel is a vessel used for catching fish, whales, seals, walrus or other living
resources of the sea
5. A nuclear ship is a ship provided with a nuclear power plant
6. New ship means a ship the keel of which is laid or which is at a similar stage of
construction on or after the date of coming into force of the SOLAS 1974.
7. Existing ship means a ship which is not a new ship.

II. Ownership

CHAPTER VIII – SHIP MORTGAGE AND MARITIME LIENS

CHAPTER IX – PERSONS WHO TAKE PART IN MARITIME COMMERCE

I. Ship Owners and Ship Agents; Captains and Masters of Vessels; Officers and Crew,
Supercargoes
a. Chua Yek Hong v IAC supra
b. Philippine American General Insurance Co. v CA 272 SCRA 262 (1997)
c. Sweet Lines v CA 121 SCRA 769 (1983)

II. Arrastre Operator

a. Fireman’s Fund Insurance Co. v Metro Port Services 182 SCRA 455 (1990)
b. ICTSI v Prudential 320 SCRA 244 (1999)

III. Pilots
a. Far Eastern Shipping v CA 297 SCRA 301 (1999)
 CHAPTER X – CHARTER PARTIES (ARTICLES 652 – 718)
I. Definition and Concept
Charter party
- A contract whereby an entire ship, or some principal part of the said ship, is let by the
owner thereof to a merchant or other person for a specified time or use for the
conveyance of goods, in consideration of the payment of freight.
- Charter contract is often referred to as “mercantile lease” for it involves a charterer, who
is most often a merchant himself or herself, who desires to lease a ship or vessel owned
by another for the transport of his or her goods for commercial purposes.

II. Different Kinds of Charter Parties

a. Litonjua Shipping Co. v NSB 176 SCRA 189 (1989)

1. BAREBOAT CHARTER . The shipowner leases to the charter the whole vessel,
transferring to the latter the entire command, possession and consequent control over
the vessel’s navigation, including the master and the crew, who thereby become the
charterer’s “servants.” Thus, the charterer becomes the owner “pro hac vice” of the
vessel since he mans the vessel with his own set of master and crew.

2. CONTRACT OF AFFREIGHTMENT. The Charterer hires the vessel only, either for a
determinate period of time or for a single or consecutive voyage, with the shipowner
providing for the provisions of the ship, the waves of the master and crew, and the
expenses for the maintenance of the vessel.
a. Time charter. The vessel is leased to the charter for a fixed period of time.
b. Voyage charter. The vessel is leased for a single or particular voyage.

III. Effect of Charter on Character of Carrier

GR: the character of the common carrier as such is not affected by the charter party if
the same is a contract of affreightment.
Exception: when the charter includes both the vessel and its crew, as in a bareboat or
demise that a common carrier becomes private.
a. Planters Products v CA supra
b. Caltex v Sulpicio Lines 315 SCRA 709 (1999)

IV. Persons Who Make Charter. The owner or owners of the vessel, either in whole or in
majority part, who have legal control and possession of the vessel, may validly enter into
charter parties with a charterer. A third person called a broker may, however, intervene
in the execution of the charter between the principals.

a. CHARTERER. The charter, by himself, may subcharter the entire vessel to a third
person but only in the event that there is no prohibition in the original charter regarding
any subcharter.
Note: The subcharter, where entered into, is an independent contract by itself involving
only the charterer and the subcharterer and therefore does not give rise to any
contractual relation between the general owner and the subcharter.

b. PART OWNERS. Part owners of the vessel are not precluded from chartering the same
for their own commercial purposes.
 c. SHIP AGENT. The ship agent is not allowed to make contracts for a new charter unless
he is probably or duly authorized by the owner, or by virtue of an authority given by a
resolution of the majority of the co-owners.

d. CAPTAIN OR MASTER. It is one of the inherent powers of the captain or master of the
vessel to enter into valid and binding charter parties, but only in the event of absence of
the ship agent or consignee, and only if the said captain or master acts in accordance
with the instructions of the agent or owner and protects the latter’s interests.

Note: The validity of the charter is not affected by the circumstance that the Captain or master
who executed the charter violated the orders or instructions of the agent or owner.

V. Requisites
1. Consent of the contracting parties
2. An existing vessel which should be placed at the disposition of the shipper
3. Freight
4. Compliance with the formal requirements prescribed under Article 652 of the
Code of Commerce which include the requirements that the charter party must
be:
❖ In writing
❖ Drawn in duplicate
❖ Signed by parties

VI. Freight. The parties themselves may fix the manner or form in which the charter price or
money shall be satisfied.

Accrual of Freightage.
GR: it shall accrue according to the conditions stipulated in the contract.
Exception: The following rules shall apply if there is no stipulation to that effect, or there is but
the same is ambiguous:
❖ The freight shall begin to run from the day of loading on the vessel
❖ In charters with a fixed period, the freight shall begin upon that very day
❖ If the freight is charged according to weight, the payment thereof shall be made
according to the gross weight, including the weight of the containers.

Cases when Freightage is not Due:

1. Jettisoned goods that are considered general average loss
2. Merchandise that are lost because of shipwreck or stranding
3. Goods that are lost due to seizure by pirates or enemies. However, if the freight should
have been paid in advance, then the same should be returned unless there is an
agreement to the contrary.

VII. Demurrage and Deadfreight

DEMURRAGE.
- Article 652 (par. 10) provides that the time for loading and unloading shall be
provided for in the Charter Party. The period so stipulated is what is known as the
“lay days.”
- Sum of money due by express contract for the detention of the vessel in loading
or unloading, beyond the time allowed for that purpose in that charter party.
 COMPUTATION OF LAY DAYS. The stipulated lay days do not begin to run against the
consignee until the vessel has arrived at berth or other usual and customary place for loading or
unloading, and is in actual readiness to discharge its cargo in accordance with its legal
obligation. If no lay day is provided, it is understood that the charterer will unload and discharge
the cargoes within a reasonable time or with reasonable diligence.

DEADFREIGHT. On the other hand, where the charter failed to occupy the leased
portion of the vessel, he may thereby be made liable by the shipowner for the
deadfreight that occurred.

VIII. Rights and Obligations

IX. Effect of Bill of Lading
X. Code of Commerce Provisions