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Chapter 1

GENERAL CONCEPTS IN TRANSPORTATION LAW

Contract of Transportation
There is contract of transportation where a person obligates himself to transport persons
or property from one place to another for a consideration.
The contract may therefore involve carriage of passengers or carriage of goods.
The person who obligates himself to transport the goods or passengers may be a common
carrier or a private carrier.

Parties in a contract of carriage
Passenger one who travels in a public conveyance by virtue of contract, express or
implied, with the carrier as to the payment of fare or that which is accepted as an equivalent
thereof (Nueca v. Manila Railroad Co., G.R. 31731-R, Jan. 30, 1968)
Common Carrier one that holds itself out as ready to engage in the transportation of
goods for hire as a public employment and not as a casual occupation. (De Guzman v. CA,
G.R. L-47822, Dec. 22, 1988)

Baliwag Transit v. CA,
G.R. 80447, Jan. 31, 1989
Facts:
The parents of George, who is already of legal age filed a case against Baliwag for breach
of contract alleging that because of the negligent manner by its driver, George was thrown
off the bus as a result of which the latter sustained multiple serious physical injuries.
His parents was seeking reimbursement of their medical expenses and other incidental
expenses incurred by them due to hospitalization of George.
While the case was pending, George signed a waiver of claim in favor of Baliwags insurer,
Fortune Insurance.

Ruling: Since the suit is one for breach of contract of carriage, the release of claims
executed by George, as the injured party, discharging Fortune Insurance and Baliwag from
any and all liability is valid.
Significantly, the contact of carriage was actually between George, as the paying passenger,
and Baliwag, as the common carrier. x x x x Since the contract may be violated only by
the parties thereto, as against each other, in an action upon that contract, the real parties in
interest, either as plaintiff or as defendant, must be parties to said contract.
In the absence of any contract of carriage between Baliwag and Georges parents, the latter
are not real parties in interest in an action for breach of that contract.
Parties in Carriage of Goods
Shipper is the person who delivers the goods to the carrier for transportation. He is the
person who pays the consideration or on whose behalf payment is made.
Consignee is the person to whom the goods are to be delivered. The consignee may be
the shipper himself or a third person who is not actually party to the contract.
Carrier (Ibid)

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Everett Steamship Corp. v. CA
G.R. 122494, Oct. 8, 1998
Facts:
Hernandez Trading imported three crates of bus spare parts from Japan. The crates were
shipped on board "ADELFAEVERETTE," a vessel owned by petitioner's principal, Everett
Orient Lines.
Upon arrival at the port of Manila, it was discovered that one of the crates was missing. The
loss was confirmed and admitted by Everett.

However, Everett offered to pay only One Hundred Thousand (Y100,000.00) Yen, the
maximum amount stipulated under Clause 18 of the covering bill of lading which limits the
liability of petitioner. Hernandez rejected.
The trial found in favor of Hernandez. On appeal, Everett argued that consent of the
consignee to the terms and conditions of the bill of lading is necessary to make such
stipulations binding upon it .

Ruling:
When Hernandez formally claimed reimbursement for the missing goods from Everett and
subsequently filed a case against the it 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.
However, the liability of the carrier under the limited liability clause stands, which is limited
to One Hundred Thousand (Y100,000.00) Yen.
Perfection of Contract involving Carriage In General
If contract to carry, i.e. an agreement to carry the passenger at some future date,
perfection takes place upon mere consent since such contract is consensual in nature.
If contract of carriage, which is a real contract, perfection takes place when the carrier is
actually used and the latter has assumed its obligation as a carrier.
Specific Perfections of Contract of Carriage: AIRCRAFT
If contract to carry, there is perfection even if no tickets have been issued provided there
was meeting of minds with respect to the subject matter and the consideration.
If contract of carriage, there is perfection if it was established that the passenger had
CHECKED IN at the departure counter, passed through customs and immigration, boarded
the shuttle bus and proceeded to the ramp of the aircraft.
Specific Perfections of Contract of Carriage: BUSES, JEEPNEYS, STREET CARS
Once the bus or jeepney stops, it is in effect making a continuous offer to the passengers.
Hence, it is the duty of the driver to stop their conveyances for a reasonable length of time
in order to afford passengers an opportunity to board and enter.
If passenger is injured upon boarding, liability based on contract of carriage already
attaches to the common carrier since the passenger was deemed to be accepting the offer
when he attempted to board. The contract is perfected from that precise moment.
Specific Perfections of Contract of Carriage: TRAINS
Perfection takes place when a person, with bona fide intention to use the facilities of the
carrier and possessing sufficient fare with which to pay for his passage, has presented
himself to the carrier for transportation in the place and manner that he will be transported.
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Where a person has already purchased a LRT token and while waiting on the platform
designated for boarding fell thereon and hit by the train, he was deemed a passenger.

British Airways v. CA,
G.R. 92288, Feb. 9, 1993
Facts:
On two occasions, private respondent recruitment agency was not able to send its workers
to Saudi Arabia despite the fact that its principal there had already purchased pre-paid
tickets because petitioners computers broke down.
Private respondent thereafter filed a case on breach of contract of carriage. Petitioner
argued that there was no perfected contract.


Ruling:
Petitioner's repeated failures to transport private respondent's workers in its flight despite
confirmed booking of said workers clearly constitutes breach of contract and bad faith on
its part.
There is no dispute as to the Petitioners consent to the said contract "to carry" its contract
workers from Manila to Jeddah.

The appellant's consent thereto, on the other hand, was manifested by its acceptance of
the PTA or prepaid ticket advice that ROLACO Engineering has prepaid the airfares of the
Petitioner's contract workers advising the appellant that it must transport the contract
workers on or before the end of March, 1981 and the other batch in June, 1981.
Accordingly, there could be no more pretensions as to the existence of an oral contract of
carriage imposing reciprocal obligations on both parties.

Common Carrier Defined
Art. 1732. Common carriers are persons, corporation, firms or associations engaged in the
business of carrying or transporting passengers or good or both by land, water, or air, for
compensation, offering their services to the public.
A common carrier is also defined as one that holds itself out as ready to engage in the
transportation of goods for hire as a public employment and not as a casual occupation, (De
Guzman v. CA, G.R. L-47822, Dec. 22, 1988)

Concept of Common Carrier analogous to Public Service
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.
Done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed
route.

Whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft.
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Engaged in the transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public
services.
Sorita v. Public Service Commission, G.R. L-20965, Oct. 29, 1966
Held:
In drawing the line between "steamboats, motorships, and steamship lines" on one side
and pontines, ferries, and water crafts" on the other, Congress apparently means to accept
the view that "boat, craft and watercraft" are usually applied to small vessels, while larger
vessels are usually referred to by the terms "steamer, steamship or vessel"
Test in determining whether a party is a common carrier of goods
He must be engaged in the business of carrying goods for others as a public employment,
and must hold himself out as ready to engage in the transportation of goods for person
generally as a business and not as a casual occupation
He must undertake to carry goods of the kind to which his business is confined.
He must undertake to carry by the method by which his business is conducted and over his
established roads.

The transportation must be for hire. [First Philippine Industrial Corp. v. CA, G.R. 125948,
Dec. 29, 1998]
Provided it has space, for all who opt to avail themselves of its transportation service for a
fee [National Steel Corp. v. CA, G.R. No. 112287, Dec. 12, 1997, quoting Mendoza v. PAL,
90 Phil. 836]

Common Carrier: Basic Rules
STILL A COMMON CARRIER:
Even if hauling is only ancillary.
Even if clientele is limited.
Even if it has no fixed and publicly known route, maintains no terminals and issues not
tickets.
Even if means transportation is not through motor vehicle.


Ancillary Activity Immaterial
Art. 1732 makes no distinction between one whose principal business activity is carrying of
persons or goods or both, and one who does such carrying only as an ancillary, nor does it
make distinctions between one who offers the service to the general public or a narrow
segment of the general population.
Therefore, a party who back-hauled goods for other merchants from Manila to
Pangasinan, even when such activity was only periodical or occasional and was not its
principal line of business would be subject to the responsibilities and obligations of a
common carrier. [See De Guzman v. CA, G.R. L-47822, Dec. 22, 1988]
Limited Clientele Not a Defense
Facts:
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Petitioner entered into a contract with SMC for the transfer of paper and kraft board from
the port area to SMCs warehouse.
Held:
She is still a common carrier although she does not indiscriminately hold her services out
to the public but offers the same to select parties with whom she may contract in the
conduct of her business. [Virgines Calvo v. UCPB General Insurance Co., G.R. 148496, Mar.
19, 2002]

Facts:
Respondent shipping company transported the 75,000 bags of cement to Petitioner in its
barge. The bags of cement perished after its barge sank while being towed by a tug boat.
Held:
Respondent is a common carrier because it was engaged in the business of carrying goods
for others for a fee. The regularity of its activities in the area indicates more than just a
casual activity on its part. Neither can the concept of a common carrier change merely
because individual contracts are executed or entered into with the patrons of the carrier.
[Phil. American General Insurance Co., et al. v. PKS Shipping Co., G.R. 149038, Apr. 9, 2003]
No fixed route, No terminal, No Ticket issued also not a Defense
Facts:
Petitioner is involved in the business of carrying goods through its barges. It has no fixed
and publicly known route, maintains no terminals, and issues no tickets.
Held:
Petitioner is still a common carrier because its principal business is that of lighterage and
drayage and it offers its barges to the public for carrying or transporting by water for
compensation. [Asia Lighterage and Shipping, Inc. v. CA, G.R. 147246, Aug. 19, 2003]

Drayage service is usually provided by a national trucking/shipping company or an
International shipment brokerage firm in addition to the transportation of the freight to and
from the exhibit site. Drayage service provides for:
- Completing inbound carrier's receiving documents;
- Unloading and delivery of the goods to your booth/stand space from the
receiving dock;
- Storing of empty cartons/crates and extra products at a on/near-site
warehouse;
- Pickup of the goods from your booth/stand space to the receiving dock and
loading back into the carrier; or
- Completing outbound carrier's shipping documents.

Means used in transporting not material [First Philippine Industrial Corp. v. CA, G.R.
147246, Aug. 19, 2003]
Issue:
Are pipeline operators common carriers as to subject them to business taxes on common
carriers?
Held:
Yes. The Code makes no distinction as to the means of transporting, as long as it is by
land, water or air. It does not provide that the transportation of the passengers or goods
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should be by motor vehicle. In fact, in the US, oil pipe line operators are considered
common carriers. Also under the Petroleum Act of the Philippines (RA 387).
Effect when Common Carrier enters into a charter party
If only by contract of affreightment, whether voyage or time charter, it remains a common
carrier.
If by bareboat or demise charter, a common carrier is transformed into a private carrier.
Planters Products Inc. v. CA,
G.R. 101503, Sept. 15, 1993
It is only when the charter includes both the vessel and its crew, as in a bareboat or demise
that a common carrier becomes private, at least insofar as the particular voyage covering
the charter-party is concerned.
Indubitably, a shipowner in a time or voyage charter retains possession and control of the
ship, although her holds may, for the moment, be the property of the charterer.
Common Carrier v. Private Carrier
(National Steel Corp. v. CA, supra)
The true nature of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a fee.
As a general rule, private carriage is undertaken by special agreement and carrier does not
hold himself out to carry goods for the general public.
In private carriage, the rights and obligations of parties, including liabilities for damage to
cargo, are determined primarily by stipulations in their contract of carriage or charter party
(demise or bareboat. In such case, the burden of proof is on the other party to show that
the private carrier was responsible for the loss of, or injury to the cargo.


FGU Insurance v. G.P. Sarmiento Trucking, G.R. 141910, Aug. 6, 2002
Facts:
GPS, as the exclusive hauler of Conception Industries, undertook to deliver thirty (30) units
of Condura refrigerators from latters plant in Alabang to Dagupan City. While the truck was
traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban,
Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in
damage to the cargoes. Petitioner FGU as subrogee to Concepcion Industries filed a
complaint for damages and breach of contract of carriage against GPS and its driver.

Issue No. 1:
WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER.
Held:
GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or
offering its services to no other individual or entity, cannot be considered a common carrier.
The above conclusion nothwithstanding, GPS cannot escape from liability.

In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure
of its compliance justify, prima facie, a corresponding right of relief.
A breach upon the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered.
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The remedy serves to preserve the interests of the promisee that may include his:
Expectation interest," which is his interest in having the benefit of his bargain by being
put in as good a position as he would have been in had the contract been performed; or

Reliance interest," which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract
not been made; or
Restitution interest," which is his interest in having restored to him any benefit that he has
conferred on the other party

The effect of every infraction is to create a new duty, that is, to make recompense to the
one who has been injured by the failure of another to observe his contractual obligation
unless he can show extenuating circumstances, like proof of his exercise of due diligence
(normally that of the diligence of a good father of a family or, exceptionally by stipulation or
by law such as in the case of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing liability. .


In this case, the delivery of the goods in its custody to the place of destination - gives rise
to a presumption of lack of care and corresponding liability on the part of the contractual
obligor the burden being on him to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault,
may not himself be ordered to pay petitioner.

The driver, not being a party to the contract of carriage between petitioners principal and
defendant, may not be held liable under the agreement.
A contract can only bind the parties who have entered into it or their successors who have
assumed their personality or their juridical position.
Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract
can neither favor nor prejudice a third person.

Petitioners civil action against the driver can only be based on culpa aquiliana, which,
unlike culpa contractual, would require the claimant for damages to prove negligence or
fault on the part of the defendant.


Issue No. 2:
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE.
Held:
Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable where
the thing which caused the injury complained of is shown to be under the latter?s
management and the accident is such that, in the ordinary course of things, cannot be
expected to happen if those who have its management or control use proper care. It affords
reasonable evidence, in the absence of explanation by the defendant, that the accident
arose from want of care
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It is not a rule of substantive law and, as such, it does not create an independent ground of
liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since
it furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific
proof of negligence.
The maxim simply places on the defendant the burden of going forward with the proof.

Resort to the doctrine, however, may be allowed only when (a) the event is of a kind which
does not ordinarily occur in the absence of negligence; (b) other responsible causes,
including the conduct of the plaintiff and third persons, are sufficiently eliminated by the
evidence; and (c) the indicated negligence is within the scope of the defendant's duty to the
plaintiff.
Thus, it is not applicable when an unexplained accident may be attributable to one of
several causes, for some of which the defendant could not be responsible.

Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the
parties.
Nevertheless, the requirement that responsible causes other than those due to defendants
conduct must first be eliminated, for the doctrine to apply, should be understood as being
confined only to cases of pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out, immediately attaches by a
failure of the covenant or its tenor.

In the case of the truck driver, whose liability in a civil action is predicated on culpa
acquiliana, while he admittedly can be said to have been in control and management of the
vehicle which figured in the accident, it is not equally shown, however, that the accident
could have been exclusively due to his negligence, a matter that can allow, forthwith, res
ipsa loquitur to work against him.
Common Carrier v. Towage
In towage, one vessel is hire to bring another vessel to another place. Thus, a tugboat may
be hired by a common carrier to bring the vessel to a port. In this case, the operator of the
tugboat cannot be considered a common carrier.
In maritime law, towage refers to a service rendered to a vessel by towing for the mere
purpose of expediting her voyage without reference to any circumstances of danger. It
usually confined to vessels that have received no injury or damage.
Common Carrier v. Arrastre
An Arrastre operator performs the following functions:
Receive, handle, care for, and deliver all merchandise imported and exported, upon or
passing over Government-owned wharves and piers in the port;
Record or check all merchandise which may be delivered to said port at shipside;
In general, furnish light, and water services and other incidental services in order to
undertake its arrastre service

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Hence, the functions of an arrastre operator has nothing to do with the trade and business
of navigation, nor to the use or operation of vessels.
An arrastre operator is like a depositary or warehouseman.
Even if the arrastre service depends on, assists, or furthers maritime transportation, it may
be deemed merely incidental and does not make its service maritime
Common Carrier v. Stevedoring
The function of stevedores involve the loading and unloading of coastwise vessels calling
at the port.

Governing Laws on Common Carrier
COASTWISE SHIPPING:
- New Civil Code (Arts. 1732-1766)
- Code of Commerce
CARRIAGE FROM FOREIGN PORTS TO PHIL PORTS:
- New Civil Code (primary)
- Code of Commerce (suppletory)
- Carriage of Goods by Sea Act [COGSA] (suppletory)

CARRIAGE FROM PHIL PORT TO FOREIGN PORTS:
- The laws of the country to which the goods are to be transported.
OVERLAND TRANSPORTATION:
- Civil Code (primary)
- Code of Commerce (suppletorily)
- R.A. 4136 [The Land Transportation and Traffic Code]

AIR TRANSPORTATION:
- Civil Code (primary)
- Code of Commerce (suppletorily)
- For international carriage Warsaw Convention [Convention for the Unification of
Certain Rules Relating to the International Carriage by Air]

Nature of Business of Common Carriers, KMU V. Garcia, GR 115381, Dec. 23, 1994
Common carriers are public utilities within the contemplation of the public service law.
Public utilities are privately owned and operated businesses whose services are essential to
the general public.
They are enterprises which specially cater to the needs of the public and conduce to their
comfort and convenience.
When, one devotes his property to a use in which the public has an interest, he, in effect
grants to the public an interest in that use, and must submit to the control by the public for
the common good, to the extent of the interest he has thus created.

Salient Provisions in R.A. 4136 on Registration of Vehicles
Motor vehicle defined: Any vehicle propelled by any power other than muscular power
using the public highways, but excepting road rollers, trolley cars, street-sweepers,
sprinklers, lawn mowers, bulldozers, graders, fork-lifts, amphibian trucks, and cranes if not
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used on public highways, vehicles which run only on rails or tracks, and tractors, trailers
and traction engines of all kinds used exclusively for agricultural purposes.
Trailers having any number of wheels, when propelled or intended to be propelled by
attachment to a motor vehicle, shall be classified as separate motor vehicle with no power
rating.

The distinction between "passenger truck" and "passenger automobile" shall be that of
common usage: Provided, That a motor vehicle registered for more than nine passengers
shall be classified as "truck": And Provided, further, That a "truck with seating
compartments at the back not used for hire shall be registered under special "S"
classifications. In case of dispute, the Commissioner of Land Transportation shall determine
the classification to which any special type of motor vehicle belongs.

Articulated vehicle - means any motor vehicle with a trailer having no front axle and so
attached that part of the trailer rests upon motor vehicle and a substantial part of the
weight of the trailer and of its load is borne by the motor vehicle. Such a trailer shall be
called as "semi-trailer."

Professional driver - means every and any driver hired or paid for driving or operating a
motor vehicle, whether for private use or for hire to the public. Any person driving his own
motor vehicle for hire is a professional driver.
Owner -The actual legal owner of a motor vehicle, in whose name such vehicle is duly
registered with the Land Transportation Commission.


The "owner" of a government-owned motor vehicle is the head of the office or the chief of
the Bureau to which the said motor vehicle belongs.
Parking or parked - A motor vehicle is "parked" or "parking" if it has been brought to a
stop on the shoulder or proper edge of a highway, and remains inactive in that place or
close thereto for an appreciable period of time .

A motor vehicle which properly stops merely to discharge a passenger or to take in a
waiting passenger, or to load or unload a small quantity of freight with reasonable dispatch
shall not be considered as "parked", if the motor vehicle again moves away without delay.

Sec. 5(a) - No motor vehicle shall be used or operated on or upon any public highway of
the Philippines unless the same is properly registered for the current year in accordance
with the provisions of this Act.

Sec. 5(e) Encumbrances of motor vehicles. - Mortgages, attachments, and other
encumbrances of motor vehicles, in order to be valid, must be recorded in the Land
Transportation Commission and must be properly recorded on the face of all outstanding
copies of the certificates of registration of the vehicle concerned.

Section 16. Suspension of registration certificate. - If on inspection, as provided in
paragraph (6) of Section four hereof, any motor vehicle is found to be unsightly, unsafe,
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overloaded, improperly marked or equipped, or otherwise unfit to be operated, or capable
of causing excessive damage to the highways, or not conforming to minimum standards
and specifications, the Commissioner may refuse to register the said motor vehicle, or if
already registered, may require the number plates thereof to be surrendered to him, and
upon seventy-two hours notice to the owner of the motor vehicle, suspend such registration
until the defects of the vehicle are corrected and/or the minimum standards and
specifications fully complied with.

Section 21. Operation of motor vehicles by tourists. - Bona fide tourist and similar
transients who are duly licensed to operate motor vehicles in their respective countries may
be allowed to operate motor vehicles during but not after ninety days of their sojourn in the
Philippines.
After ninety days, any tourist or transient desiring to operate motor vehicles shall pay fees
and obtain and carry a license as hereinafter provided.

If any accident involving such tourist or transient occurs, which upon investigation by the
Commissioner or his deputies indicates that the said tourist or transient is incompetent to
operate motor vehicles, the Commissioner shall immediately inform the said tourist or
transient in writing that he shall no longer be permitted to operate a motor vehicle.

Speed Restrictions
Section 35(a) Any person driving a motor vehicle on a highway shall drive the same at a
careful and prudent speed, not greater nor less than is reasonable and proper, having due
regard for the traffic, the width of the highway, and of any other condition then and there
existing; and
No person shall drive any motor vehicle upon a highway at such a speed as to endanger the
life, limb and property of any person, nor at a speed greater than will permit him to bring
the vehicle to a stop within the assured clear distance ahead.

Exceptions to Rate Speed
A physician or his driver when the former responds to emergency calls;
The driver of a hospital ambulance on the way to and from the place of accident or other
emergency;
Any driver bringing a wounded or sick person for emergency treatment to a hospital, clinic,
or any other similar place;
The driver of a motor vehicle belonging to the Armed Forces while in use for official
purposes in times of riot, insurrection or invasion;

The driver of a vehicle, when he or his passengers are in pursuit of a criminal;
A law-enforcement officer who is trying to overtake a violator of traffic laws; and
The driver officially operating a motor vehicle of any fire department, provided that
exemption shall not be construed to allow useless or unnecessary fast driving of drivers
aforementioned.

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Section 36. Speed limits uniform throughout the Philippines. - No provincial, city or
municipal authority shall enact or enforce any ordinance or resolution specifying maximum
allowable speeds other than those provided in this Act.

Correct Driving
Pass to the right when meeting persons or vehicles coming toward him.
Pass left when overtaking persons or vehicles going the same direction.
Conduct to the right of the center of the intersection of the highway when turning left.
Applicable every person operating a motor vehicle or an animal-drawn vehicle.

Exceptions:
Different course of action is required in the interest of the safety and the security of life,
person or property; or
Because of unreasonable difficulty of operation in its compliance.
Overtaking a vehicle [Sec. 39]
Pass at a safe distance to the left;
Not again drive to the right side of the highway until safety is clear of such overtaken
vehicle.
Exceptions: Passing at right allowed
On highways with two or more lanes; or
When to be overtaken vehicle is turning left.
Duty of Driver of Vehicle to be Overtaken [Sec. 40]
To give way to the overtaking vehicle on suitable and audible signal being given by the
driver of the overtaking vehicle; and
Not to increase the speed of his vehicle until completely passed by the overtaking vehicle.
Restrictions on overtaking and passing [Sec. 41]
Do not drive to the left side of the center line of a highway in overtaking or passing
another vehicle proceeding in the same direction, unless such left side is clearly visible, and
is free of oncoming traffic for a sufficient distance ahead to permit such overtaking or
passing to be made in safety.

Do not overtake:
when approaching the crest of a grade;
upon a curve in the highway;
driver's view along the highway is obstructed within a distance of five hundred feet ahead.
Exception: When on a highway having two or more lanes for movement of traffic in one
direction where the driver of a vehicle may overtake or pass another vehicle: Provided,
Exception to exception: On a highway within a business or residential district, having two
or more lanes for movement of traffic in one direction, overtaking or passing at right is
allowed.

Do not overtake:
at any railway grade crossing;
at any intersection of highways unless such intersection or crossing is controlled by traffic
signal, or unless permitted to do so by a watchman or a peace officer.
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Exception: On a highway having two or more lanes for movement of traffic in one direction
where the driver of a vehicle may overtake or pass another vehicle on the right.
Nothing in this section shall be construed to prohibit a driver overtaking or passing upon
the right another vehicle which is making or about to make a left turn.

Do not overtake, pass or attempt to pass:
between any points indicated by the placing of official temporary warning or caution signs
indicating that men are working on the highway;
in any "no-passing or overtaking zone."
Right of way [Sec. 42]
When two vehicles approach or enter an intersection at approximately the same time:
Driver of the vehicle on the left to yield the right of way to the vehicle on the right;
Driver of vehicle traveling at an unlawful speed forfeits right of way.

Driver of a vehicle approaching but not having entered an intersection:
To yield right of way to a vehicle within such intersection or turning therein to the left
across the line of travel of such first-mentioned vehicle;
Provided, driver of the vehicle turning left has given a plainly visible signal of intention to
turn.

Driver of any vehicle upon a highway within a business or residential district:
To yield right of way to a pedestrian crossing such highway within a crosswalk;
Exception: at intersections where the movement of traffic is being regulated by a peace
officer or by traffic signal.
Every pedestrian crossing a highway within a business or residential district, at any point
other than a crosswalk shall yield the right of way to vehicles upon the highway.

When about to approach through highway or raildroad crossing:
Full stop before traversing;
Provided, That when it is apparent that no hazard exists, the vehicle may be slowed down
to five miles per hour instead of bringing it to a full stop.
Exception to the right of way rule [Sec. 43]
Yield right of way to all vehicles approaching when entering a highway from a private road
or drive;
Yield to police or fire department vehicles and ambulances when such vehicles are
operated on official business and the drivers thereof sound audible signal of their approach;

Yield to all vehicles approaching from either direction when entering a "through highway"
or a "stop intersection.
Provided, That nothing in this subsection shall be construed as relieving the driver of any
vehicle being operated on a "through highway" from the duty of driving with due regard for
the safety of vehicles entering such "through highway" nor as protecting the said driver
from the consequence of an arbitrary exercise off such right of way.

NO PARKING
(a) Within an intersection
14
(b) On a crosswalk
(c) Within six meters of the intersection of curb lines.
(d) Within four meters of the driveway entrance to and fire station.
(e) Within four meters of fire hydrant
(f) In front of a private driveway
(g) On the roadway side of any vehicle stopped or parked at the curb or edge of the
highway
(h) At any place where official signs have been erected prohibiting parking.

Reckless driving [Sec. 48]
No person shall operate a motor vehicle on any highway recklessly or without reasonable
caution considering the width, traffic, grades, crossing, curvatures, visibility and other
conditions of the highway and the conditions of the atmosphere and weather, or so as to
endanger the property or the safety or rights of any person or so as to cause excessive or
unreasonable damage to the highway.
Right of way for police & other emergency vehicles [Sec. 49]
Upon the approach of any police or fire department vehicle, or of an ambulance giving
audible signal,
The driver of every other vehicle shall immediately drive the same to a position as near as
possible and parallel to the right-hand edge or curb of the highway
Clear of any intersection of highways, and
Shall stop and remain in such position, unless otherwise directed by a peace officer, until
such vehicle shall have passed.
Vehicle Tampering [Sec. 50]
No unauthorized person shall sound the horn, handle the levers or set in motion or in any
way tamper with a damage or deface any motor vehicle.

Prohibition on Vehicle Hitching
[Sec. 51]
No person shall hang on to, ride on, the outside or the rear end of any vehicle; and
No person on a bicycle, roller skate or other similar device, shall hold fast to or hitch on to
any moving vehicle; and
No driver shall knowingly permit any person to hang on to or ride, the outside or rear end
of his vehicle or allow any person on a bicycle, roller skate or other similar device to hold
fast or hitch to his vehicle.
Prohibition on Sidewalk Driving or Parking [Sec. 52]
No person shall drive or park a motor vehicle upon or along any sidewalk, path or alley not
intended for vehicular traffic or parking.

Driving Under The Influence [Sec.53]
No person shall drive a motor vehicle while under the influence of liquor or narcotic drug.
Obstruction of Traffic [Sec. 54]
No person shall drive his motor vehicle in such a manner as to obstruct or impede the
passage of any vehicle;
Nor, while discharging or taking on passengers or loading or unloading freight, obstruct
the free passage of other vehicles on the highway.
15
Duty of Driver In Case of Accident [Sec. 55]
In the event that any accident should occur as a result of the operation of a motor vehicle
upon a highway, the driver present, shall show his driver's license, give his true name and
address and also the true name and address of the owner of the motor vehicle.

No driver of a motor vehicle concerned in a vehicular accident shall leave the scene of the
accident without aiding the victim, except under any of the following circumstances:
1. If he is in imminent danger of being seriously harmed by any person or
persons by reason of the accident;
2. If he reports the accident to the nearest officer of the law; or
3. If he has to summon a physician or nurse to aid the victim.

Traffic Violations
For registering later than seven days after acquiring title to an unregistered motor vehicle
or after conversion of a registered motor vehicle requiring larger registration fee than that
for which it was originally registered, or for renewal of a delinquent registration.
For failure to sign driver's license or to carry same while driving.

Driving a vehicle with a delinquent or invalid driver's license
Driving a motor vehicle with delinquent, suspended or invalid registration, or without
registration or without the proper license plate for the current year
Driving a motor vehicle without first securing a driver's license

Driving a motor vehicle while under the influence of liquor or narcotic drug.
Violation of Section thirty-two, thirty-four (a), (b) and (b-1), thirty-five and forty-six
Violations of Sections forty-nine, fifty and fifty-two.

For making, using or attempting to make or use a driver's license, badge, certificate or
registration, number plate, tag or permit in imitation or similitude of those issued under
this Act, or intended to be used as or for a legal license, badge, certificate, plate, tag or
permit or with intent to sell or otherwise dispose of the same to another, or false or
fraudulently represent as valid and in force any driver's license, badge, certificate, plate, tag
or permit issued under this Act which is delinquent or which has been suspended or
revoked

For using private passenger automobiles, private trucks, private motorcycles, and motor
wheel attachments for hire, in violation of Section seven, subsections (a), (b), and (c), of this
Act
For permitting, allowing, consenting to, or tolerating the use of a privately-owned motor
vehicle for hire in violation of Section seven, subsections (a), (b), and (c), of this Act,

For violation of any provisions of this Act or regulations promulgated pursuant hereto, not
hereinbefore specifically punished
In the event an offender cannot pay any fine imposed pursuant to the provisions of this
Act, he shall be made to undergo subsidiary imprisonment as provided for in the Revised
Penal Code.
16

If, as the result of negligence or reckless or unreasonable fast driving, any accident occurs
resulting in death or injury of any person, the motor vehicle operator at fault shall, upon
conviction, be punished under the provisions of the Revised Penal Code.

Presumption of Negligence
Art. 2185, Civil Code It is presumed that a person driving a motor vehicle is negligent if
at the time of the mishap, he was violating any traffic regulation, unless the contrary.
Registered Owner Rule
The person who is the registered owner of a vehicle is liable for any damage caused by the
negligent operation of the vehicle although the same was already sold or conveyed to
another person at the time of the accident.
This is subject to the right of recourse by the registered owner against the transferee or
buyer.
The registered owner rule is applicable whenever the persons involved are engaged in what
is known as the kabit system.

CLASSIFICATIONS OF MOTOR REGISTRABLE VEHICLES [Sec. 7]
Private passenger automobiles;
Private trucks;
Private motorcycles, scooters, or motor wheel attachments
Public utility automobiles;
Public utility trucks;
Taxis and auto-calesas
Garage automobiles
Garage trucks
Hire trucks;
j) Trucks owned by contractors and customs brokers and customs agents;
k) Undertakes;
l) Dealers;
m) Government automobiles
n) Government trucks;
o) Government motorcycles;
p) Motor vehicles of tourists [for 90 days];
q) Special



Vehicles registered under classification under (a), (b) & (c) cannot be used for hire under
any circumstances and cannot be used to solicit, accept, or be used to transport
passengers or freight for pay.
Laborers necessary to handle freight in private trucks may ride on it (but not to exceed 10
laborers)
Dealers vehicle can be operated only for the purpose of transporting the vehicle itself
from the pier or factory to the warehouse or sales room or for delivery to a prospective
purchaser or for test or demonstration
17

CONCLUSIVE PRESUMPTION OF A VEHICLE IS FOR HIRE
A vehicle habitually used to carry freight not belonging to the registered owner thereof, or
passengers not related by consanguinity or affinity within the fourth civil degree to such
owner, shall be conclusively presumed to be "for hire."

KABIT SYSTEM
It is an arrangement whereby a person who has been granted a certificate of public
convenience allows other persons who own motor vehicles to operate them under his
license, sometime for a fee or percentage of earning.
Such arrangement is void for being contrary to public policy [Abelardo Lim, et al. v. CA, GR
125817, Jan. 16, 2002]

PARTIES IN KABIT SYSTEM COVERED BY IN PARI DELICTO RULE
Ex pact illicito non oritur action No action arises out of an illicit bargain.
Having entered into an illegal contract, parties to the kabit system cannot seek relief from
the courts, and each must bear the consequences of his acts.
Teja Marketing v. IAC, GR 65510, Mar. 9, 1987
Facts: Petitioner was constrained to file an action for damages because private respondent
allegedly failed to pay the balance of the purchase price of its motorcycle sold. The
motorcycle which was used for sidecar remained under the name of petitioner and operated
under its franchise under an arrangement called kabit system.
Held: Dismissal of case sustained. Both parties are in pari delicto. The court will not aid
either party to enforce an illegal contract.

Chapter 2

OBLIGATIONS OF THE PARTIES

OBLIGATION OF CARRIER:
Duty to Accept;
Duty to Deliver Goods On Time;
Duty to Deliver Goods at the Place and to the person named in the BL; and
Duty to Exercise Due Diligence

OBLIGATION OF SHIPPER OR PASSENGER
Duty to exercise due diligence.
Duty to pay the amount of freight or passage on time.
1. Carriers Duty to Accept
A common carrier granted CPC is duty bound to accept passengers or cargo without
any discrimination.
Exceptions:
Dangerous objects or substances including dynamites and other explosives;
Unfit for transportation;
Acceptance would result in overloading;

18
Contrabands or illegal goods;
Goods are injurious to health;
Good will likely be exposed to untoward danger like flood, capture by enemies and the like;
Livestock with disease or exposed to disease;
Strike; and
Failure to tender goods on time
Rule on Hazardous and Dangerous Substances
A carrier may be granted authority to carry goods that are by nature dangerous and
hazardous. A carrier specially designed to carry dangerous chemicals and goods may be
granted CPC for such purpose.
All other carriers may validly refuse to accept such cargoes.

MARINA Memorandum Circular No. 105, Apr. 6, 1995
Documentary Requirements for Special Permit to Carry Dangerous/Hazardous
Cargoes and Goods in Packaged Form:
Letter of Intent
PPA Clearance on packaging, marking and labeling of cargoes or goods in packaged forms
Cargo Stowage Plan
Classification of Dangerous or Hazardous Goods Under MC 105
Class 1 Explosives
Class 2 Gases: Compressed, liquefied or dissolved under pressure
Class 3 Inflammable Liquids
Class 4 Inflammable Solids or Substances: a) Inflammable Solid; b) Inflammable Solids, or
Substances liable to spontaneous combustion; and c) Inflammable Solids, or Substances
which in contact with waters emit inflammable gases;

Class 5 a) Oxidizing Substances; b) Organic Peroxide
Class 6 - a) Poisonous (toxic) substances; b) Infectious Substances
Class 7 Radioactive Substances
Class 8 Corrosives
Class 9 Miscellaneous Dangerous Substances

MARINA Memorandum Circular No. 147
Rules on carriage of vehicles, animals, forest products, fish and aquatic products,
minerals and mineral products & toxic and hazardous materials on board vessels:
Master to accept only if these are covered by necessary clearance from appropriate
agencies;
Non-compliance will subject the shipowner and master administrative penalties without
prejudice to criminal or civil suits
2. Carriers Duty to Deliver The Goods
General Rule:
Carrier is not an insurer against delay in transportation of goods.
Exception:
When there is agreement as to the time of delivery
When delay is deemed reasonable
Ordinary Goods 2 months [Maersk Line v. CA, May 17, 1993]
19
Perishable Goods 2 to 3 days [Dissenting: Tan Chiong Sian v. Inchausti, GR 6092, Mar. 8,
1912]
Rules on Delay on Overland Transportation (Code of Commerce)
Art. 358, Code of Commerce:
If there is no period fixed for the delivery of the goods the carrier shall be bound to
forward them in the first shipment of the same or similar goods which he may make to the
point of delivery; and should he not do so, the damages caused by the delay should be for
his account.
Delay When Period Is Fixed
Art. 370. If a period has been fixed for the delivery of the goods, it must be made within
such time, and, for failure to do so, the carrier shall pay the indemnity stipulated in the bill
of lading, neither the shipper nor the consignee being entitled to anything else. If no
indemnity has been stipulated and the delay exceeds the time fixed in the BL, the carrier
shall be liable for the damages which the delay may have caused.

Procedure in Abandonment by Consignee In Case of Delay (Type 2)
Art. 371. In case of delay through the fault of the carrier referred to in the preceding
articles, the consignee may leave the goods transported in the hands of the former, advising
him thereof in writing before their arrival at the point of destination.
When this abandonment takes place, the carrier shall pay the full value of the goods as if
they had been lost or mislaid.

If the abandonment is not made, the indemnification for the losses and damages by reason
of the delay cannot exceed the current price which the goods transported would have had
on the day and at the place in which they should have been delivered; this same rule is to be
observed in all other cases in which this indemnity may be due.

FIVE TYPES OF ABANDONMENT UNDER MERCANTILE LAW
WHEN DAMAGE IS SO GREAT [Art. 365, Code of Commerce]
WHEN GOODS ARRIVE BEYOND THE DATE AGREED ON [Art. 371, Code of Commerce]
ABANDONMENT BY SHIPOWNER WHEN LIABILITY EXCEEDS VALUE OF VESSEL [Art. 578, Code
of Commerce]
DAMAGE TO GOODS IN LIQUID FORM [Sec. 687, Code of Commerce]
CONSTRUCTIVE LOSS UNDER THE INSURANCE CODE [Sec. 138, Insurance Code of the Phil.]

1
st
Type: WHEN DAMAGE IS SO GREAT
Where the shipper ships goods and goods arrive in damaged condition and damage is so
great that shipper may not use goods for the purpose for which they have been shipped, the
shipper may exercise right of abandonment.
NOTICE TO THE CARRIER IS SUFFICIENT consent of carrier is not necessary and once
perfected, the ownership over damaged goods passes to the carrier and carrier must pay
the shipper market value of goods at point of destination.

2
nd
Type: WHEN GOODS ARRIVE BEYOND DATE AGREE ON
Under this set-up, shipper and carrier agreed in advance that cargo must arrive on a
certain date.
20
The date has passed but the cargo has not yet arrived due to carriers fault.
Shipper/consignee may exercise the right of abandonment by NOTIFYING the carrier.
Once carrier has been notified, ownership over the goods undelivered passes to carrier.
But carrier must pay shipper market value of the goods at the point of destination.

3
rd
Type: ABANDONMENT BY SHIPOWNER WHEN LIABILITY EXCEEDS VALUE OF VESSEL
Reflects the hypothecary nature of maritime transactions.
Instances when vessel carries goods and goods are damaged.
Liability of the carrier over the damage goods exceeds the value of the vessel.
Shipowner of ship agent may exercise right of abandonment by simply NOTIFYING TO THE
SHIPPER.
Liability of the shipowner is now limited to the value of the vessel.

4
th
Type: DAMAGE TO GOODS IN LIQUID FORM
Charterers and shippers may abandon the merchandise damaged if cargo should consist of
liquids;
The contents have leaked out;
What remains in the container is but of its content;
The cause was on account of inherent defect or fortuitous event.

5
th
Type: CONSTRUCTIVE LOSS UNDER THE INSURANCE CODE
Shipowners right of abandonment for constructive loss;
Takes place when vessel suffers damage in excess of of its insured value;
Notice to Insurer from the insured is sufficient;
Thereafter, ownership over the damaged vessel passes to the insurer; and
Insurer must pay insured as if it were an ACTUAL LOSS.
Characteristics of Abandonment
It is unilateral right;
It is perfected by mere notice;
Once perfected, ownership over damaged goods passes to carrier; and
Carrier must pay the shipper market value of goods at the point of destination

Bar, Mercantile Law [1979]
Problem:
A, in Manila, shipped on board a vessel of B, chairs to be used in the moviehouse of
consignee C in Cebu. No date for delivery or indemnity for delay was stipulated. The chairs,
however, were not claimed 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 moviehouse passed by and it had to be postponed. C brings an action
for damages against B claiming loss of profits during the Christmas season when he
expected the moviehouse to be opened. Decide the case with reason

Suggested Answer:
C may sue B for the loss of his profits provided that ample proof thereof are presented in
court. The carrier is obligated to transport the goods without delay. The carrier is liable if he
is guilty of delay in the shipment of cargo, causing damages to the consignee.
21
Mora in Civil Law distinguished from Mora in Mercantile Law
Under Art. 1169, Civil Code requires demand by the creditor in order that delay may exist.
Exceptions:
Obligation or law expressly so provides;
Time is of the essence; and
Demand would be useless.

BUT under the Code of Commerce, demand, as a general rule, is not necessary in
commercial contracts in order for the obligor to incur delay [Arts. 61, 62 & 63, Code of
Commerce].
Exceptions: a) When fixed by contract, b) when recognized or allowed by law.
In commercial contracts, time is always of the essence.

Code of Commerce Provisions on Mora [Arts. 61, 62,& 63]
Art. 61. Day of grace, courtesy or others which under any name whatsoever defer the
fulfillment of commercial obligations, shall not be recognized, except those which the
parties may have previously fixed in contract or which are based on a definite provision of
law.
Art. 62. Obligations which do not have a period previously fixed by the parties or by the
provisions of this Code, shall be demandable ten days after having been contracted if they
give rise only to an ordinary action, and on the next day if they involve immediate
execution.


Art. 63. The effect of default in the performance of commercial obligation shall commence:
1. In contracts with a day for performance fixed by the will of the parties or by
the law, on the day following their maturity;
2. In those which do not have such day fixed, from the day on which the
creditor makes judicial demand on the debtor or notifies him of protest of loss and
damages made against him before a judge, notary or other public official authorized to
admit the same.

SUMMARY: When Debtor incurs Delay in Commercial Contracts
If period of performance is fixed, debtor incurs delay the day following the day fixed,
without need of demand;
If no period fixed, ten (10) days from execution of contract and on 11
th
day, debtor incurs
delay without need of demand;
Potestative period (e.g. when the debtor desires) debtor in delay from date of demand.
Note: distinguish from a potestative condition, e.g. if the debtor desires. Under the Civil
Code and Code of Commerce, such condition is void.

KINDS OF DELAY UNDER CIVIL CODE
Mora solvendi Delay of an obligor to deliver or to perform an obligation:
a. Mora solvendi ex re delay when the obligation is to give or to deliver;
b. Mora solvendi ex persona delay when the obligation is to do or to perform a
personal service.
22
Mora accipiendi Delay of an obligee in accepting the delivery of the thing due;
Compensatio morae Delay in reciprocal obligations (Art. 1169, last par.). Neither party is
in default unless the other is ready to comply with his obligation.
UNDER CIVIL CODE: DEMAND NECESSARY FOR DELAY
In Compania General de Tabacos vs. Araza, 7 Phil. 455, held: The contract does not
provide for the payment of any interest. There is no provision in it declaring expressly that
the failure to pay when due should put the debtor in default. There was therefore no default
which would make him liable for interest until a demand was made. There was no evidence
of any demand prior to the presentation of the complaint. The plaintiff is therefore entitled
to interest only from the commencement of the action.

DEEMED MERCHANCE UNDER THE CODE OF COMMERCE
Those who, having legal capacity to engage in commerce, habitually devote themselves
thereto [Art. 1]
Legal presumption of habituality: From the moment a person who intends to engage in
commerce announces through circulars, newspapers, handbills, posters exhibited to the
public, or in any manner whatsoever, an establishment which has for its object some
commercial operation [Art. 3]

COMMERCIAL CONTRACTS GOVERNED BY CODE OF COMMERCE
Art. 50. Commercial contracts, in everything relative to their requisites, modifications,
exceptions, interpretations, and extinction and to the capacity of their contracting parties,
shall be governed in all matters not expressly provided for in this Code or in special laws,
by the general rules of civil law.
HIERARCHICAL APPLICABILITY OF LAWS TO COMMERCIAL TRANSACTIONS:
1. Code of Commerce
2. Commercial customs (in the absence of #1); and
3. Civil Code (in the absence of 1 & 2)
PERFECTION OF COMMERCIAL CONTRACTS BY CORRESPONDENCE
Art. 54. Contracts entered into by correspondence shall be perfected from the moment an
ANSWER IS MADE ACCEPTING THE OFFER OR THE CONDITIONS by which the latter may be
modified.
Above is in contrast to Art. 1319, NCC where negotiated contracts by correspondence are
perfected only FROM THE TIME THE OFFEROR HAS ACTUAL KNOWLEDGE OF ACCEPTANCE

PERFECTION OF COMMERCIAL CONTRACTS BY AGENT OR BROKER
Art. 55. Contracts in which an agent or broker intervenes shall be perfected WHEN THE
CONTRACTING PARTIES SHALL HAVE ACCEPTED HIS OFFER.
Compare Art. 1989, NCC: If the agent contracts in the name of the principal, exceeding the
scope of his authority, and the principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to secure the principals
ratification.

CONSEQUENCE OF DELAY
23
Art. 1740, NCC: If the common carrier negligently incurs in delay in transporting the
goods, a natural disaster shall not free such carrier from responsibility.
Art. 1747: If the common carrier, without just cause, delays the transportation of the
goods or changes the stipulated or usual route, the contract limiting the common carriers
liability cannot be availed of in case of the loss, destruction or deterioration of the goods

RIGHT OF PASSENGER IN CASE OF DELAY
Code of Commerce: Art. 698
In case a voyage already begun has been interrupted;
Passengers to pay the fare in proportion to the distance covered;
No right to recover for losses and damages if interruption is due to fortuitous event or
force majeure;

Except when interruption was caused by the Captain exclusively.
If interruption is due to disability of the vessel and passenger agrees to await the repair;
He is not required to pay any increased price of passage;
BUT HIS LIVING EXPENSES DURING THE STAY FOR HIS OWN ACCOUNT. (But see MARINA MC
112)

MARINA MEMORANDUM CIRCULAR NO. 112
In case the vessel cannot continue or complete her voyage FOR ANY CAUSE;
Carrier is under obligation to transport the passenger to his/her destination AT THE
EXPENSE OF THE CARRIER including FREE MEALS and LODGING before said passenger is
transported to his destination.

A passenger may opt to have his ticket refunded in full if the cause of the unfinished
voyage is due to the negligence of the carrier; or
To an amount that will suffice to defray transportation cost at the shortest possible route
towards his destination if the cause is fortuitous event.

If arrival is delayed, carrier shall provide for meals, free of charge, during mealtime.
If departure is delayed due to carriers negligence, carrier is also under the obligation to
provide meals, free of charge, during meal time to TICKETED PASSENGERS for the particular
voyage.
If departure is delayed due to fortuitous event, the carrier is under no obligation to serve
free meals to the passengers.

3. CARRIERS DUY TO DELIVER GOODS AT THE PLACE DESIGNATED AND TO PERSON NAME IN
BL
Art. 360 (Code of Commerce):
The shipper may change the consignment of goods, without necessarily changing the place
of delivery;
But must, at the time of ordering the change of consignee in the BL signed by the carrier;
Return the BL to the carrier in lieu of another BL containing the novated contract.
Expenses of the change of consignee at the expense of the shipper.
Bar, Mercantile Law [1975]
24
Bar Question:
If a shipper, without changing the place of delivery changes the consignment of 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 order of the shipper?

Suggested Answer:
Art. 360 of the Code of Commerce provides that 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 shoving the novation of the contract. However, all expenses for the change must
be paid by the shipper.
4. CARRIER DUTY TO EXERCISE EXTRAORDINARY DILIGENCE
Art. 1733 (NCC). Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them, according to all the
circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in Arts.
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of
the passengers is further set forth in Arts. 1755 and 1756.

Art. 1755. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances.

The foregoing provisions in the Civil Code modify Arts. 363, 364 & 365 of the Code of
Commerce:
Art. 363 on the requirement of the carrier to deliver the goods shipped in the same
condition where they were found at the time they were received; and
Art. 364 on when damage is merely diminution in the value of the goods, carriers liability
shall be reduced to the payment of the amount constituting the difference in value
determined by experts.

Art. 365 on instance when goods are rendered useless for sale and consumption for the
purposes they are destined, consignee may not receive them and may demand only their
value at the current price of the day.

PRESUMPTION OF NEGLIGENCE
In case of loss of effects or cargo; or
In case of death or injury of passenger;
Common carrier is presumed to be at fault;
Unless, it can prove that it had observed extraordinary diligence in the vigilance thereof.

BATANGAS TRANSPORT CO. v. CAGUIMBAL, ET AL.,
G.R. L-22985, Jan. 24, 1968
25
In an action based on a contract of carriage, the court need not make an express finding of
fault or negligence on the part of the carrier in order to hold it responsible to pay the
damages sought;
It is sufficient that plaintiff shows: a) there exist a contract between the passenger or the
shipper and the common carrier; and b) the loss, deterioration, injury or death took place
during the subsistence of the contract.

MRASOL v. THE ROBERT DOLLAR COMPANY, G.R. L-29721, Mar. 27, 1929
Facts:
Mirasol is consignee of two cases of Encyclopedia Britannica books that he ordered from
New York, shipped in good order and condition on board MS President Garfield, principal
defendant company. The books arrived in bad order and condition. There was total loss of
one case and partial loss on the other, all in all amounting to P2,080.

Held:
Defendant having received the two boxes in good condition, its legal duty was to deliver
them to the plaintiff in the same condition in which it received them.
As the boxes were damaged while in transit, the burden of proof then shifted, and it
devolved upon the defendant to both allege and prove that the damage was caused by
reason of some fact which exempted it from liability.

As to how the boxes were damaged, was a matter peculiarly and exclusively within the
knowledge of the defendant.
To require plaintiff to prove as to when and how the damage was caused would force him
to call and rely upon the employees of the defendants ship. That is not the law.


The evidence for the defendant shows that the damage was largely caused by sea water,
from which it contends that it is exempt.
Damage by sea water, standing alone and within itself, is not evidence that they were
damaged by force majeure or for a cause beyond defendants control.
The words perils of the sea apply to all kinds of marine casualties, such as shipwreck,
foundering, stranding, etc.
Where the peril is the proximate cause of the loss, the shipowner is excused. But
something fortuitous and out of the ordinary must be involved in both words peril or
accident

DURATION OF DUTY TO EXERCISE EXTRAORDINARY DILIGENCE [Carriage of Goods]
Art. 1736, NCC:
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
the person who has a right to receive them, without prejudice to the provisions of Art.
1738.

Art. 1737 (NCC):
26
The common carriers duty to observe extraordinary diligence over the goods remains in
full force and effect even when they are temporarily unloaded or stored in transit, unless the
shipper or owner has made use of the right of stoppage in transitu.
Note: Right to stoppage in transitu is the right of the unpaid seller who has parted with the
possession of the goods, when the buyer is or becomes insolvent, to stop them and resume
possession while they are in transit. The unpaid seller will become entitled to the same
rigths to the goods, as if he had never parted with possession. [Art. 1530, NCC]

Art. 1738 (NCC):
The extraordinary liability of the common carrier continues to be operative even during the
time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.

ART. 1736 CONSTRUED

[Macam v. CA, G.R. 125524, Aug. 25, 199]
Facts:
Ben-Mac Enterprises shipped on board MV Nen Jiang, represented by local agent Wallem
Shipping, 3,500 boxes of watermelons valued at $5,950 and 1,611 boxed of fresh mangoes
valued at $14,273 with Pakistan Bank (Hongkong) as consignee and Great Prospect Co.,
Hongkong as Notify Party.
In the BL, it was stipulated that One of the Bills of Lading must be surrendered duly
endorsed in exchange for the goods or delivery order.

As per letter of credit requirement, copies of the BL and commercial invoices were
submitted by Ben-Mac to SolidBank. The latter then paid Ben-Mac the total value of the
shipment.
Upon arrival in Hongkong, the shipment was delivered directly to GPC, not to Pakistan Bank
and without the required BL having been surrendered.


GPC failed to pay Pakistan Bank. Pakistan Bank refused to pay Ben-Mac through Solidbank.
Since SolidBank already pre-paid Ben-Mac the value of the shipment, it demanded payment
from Wallem but was refused. Ben-Mac was forced to refund SolidBank.

Held:
We emphasize that the extraordinary responsibility of the common carriers lasts until
actual or constructive delivery of the cargoes to the consignee or TO THE PERSON WHO HAS
A RIGHT TO RECEIVE THEM.
Pakistan Bank was indicated in the BL as consignee whereas GPC was the notify party.
However, in the export invoices GPC was clearly named as buyer/importer. Ben-Mac also
referred to GPC as such in his demand letter to Wallem.
This premise draws us to conclude that the delivery to GPC as buyer/importer which,
conformably with Art. 1736 had, other than the consignee, the right to receive them was
proper.
27

DURATION OF DUTRY TO EXERCISE DILIGENCE [Carriage of Passengers]
For Trains: Starts from the moment the person who purchases the ticket (or token or card)
from the carrier presents himself at the proper place and in a proper manner to be
transported with bona fide intent to ride the coach. Same for Ships & Aircrafts.
For jeepneys/buses: Starts from the time the person steps on the platform.

WHEN CONTRACT OF CARRIAGE ENDS
The relation of carrier does not cease at the moment the passenger alights from the
carriers vehicle but continues until the passenger has had a reasonable time or a
reasonable opportunity to leave the carriers premises.

La Mallorca v. CA, G.R. L-20761, July 27, 1966
Facts:
Plaintiffs, as husband and wife boarded Pambusco Bus No. 352 together with their (3)
minor daughters from San Fernando, Pampanga to Anao, Mexico, Pampanga.
All alighted at the designated place of unloading but Mariano, the father had to return to
the bus to get one of his bayong left under his seat.
Unknown to him, her daughter Raquel followed him. She was ran over by the bus when it
started to run again.

Held:
There can be no controversy that as far as the father is concerned, when he returned to the
bus for his bayong which was not unloaded, the relation of passenger and carrier does not
necessarily cease where the latter, after alighting from the car, aids the carriers conductor
in removing his baggage.

The issue to be determined here is whether as to the child, who was already led by the
father to a place about 5 meters away from the bus, the liability of the carrier for her safety
under the contract of carriage also persisted.
In the present case, the father returned to the bus to get one of his baggages which was
not unloaded when they alighted from the bus.
Raquel, the child that she was, must have followed the father.

However, although the father was still on the running board of the bus awaiting for the
conductor to hand him the bag or bayong, the bust started to run, so the even the father
had to ump down from the moving vehicle.
It was at this instance that the child, who must be near the bus, was run over and killed. In
the circumstances, it cannot be claimed that the carriers agent had exercised the utmost
diligence required under Art. 1755.
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.
\ABOITIZ SHIPPING v. CA, G.R. 84458, Nov. 6, 1989
Facts:
28
Anacleto was a passenger of MV Antonia from San Jose, Mindoro to Manila. Upon reaching
Pier 4, North Harbor, he disembarked from the ship by jumping from the 3
rd
deck which is
at level with the pier.
After 1 hour when all the passengers have already disembarked and the crane started
unloading the cargoes, Anacleto went back to the vessel after realizing that he left some of
his cargoes there.
It was while he was pointing to the crew the place where his cargoes were loaded that the
crane hit him. He later died. His heir sued Aboitiz for breach of contract of carriage.

Held:
In consonance with common shipping procedure as to the minimum time of 1 hr. allowed
for the passengers to disembark, it may be presumed that the victim had just gotten off the
vessel when he went to retrieve his baggage.
Yet, even if he had already disembarked an hour earlier, his presence in petitioners
premises was not without cause. The victim had to claim his baggage which was possible
only one (1) hour after the vessel arrived since it was admittedly standard procedure in the
case of petitioners vessels that the unloading operations shall start only after that time.
Consequently, the victim Anacleto is still deemed passenger at the time of his tragic death.

DEFENSES OF COMMON CARRIERS [Art. 1734, NCC]
Flood, storm, earthquake, lightning, or other natural disaster or calamity;
Act of public enemy in war, whether international or civil;
Act or omission of the shipper or owner of the goods;
The character of the goods or defects in the packing or in the containers; and
Order or act of competent public authority.
Note: The enumeration is exclusive; no other defense may be raised by the CC.


DEFENSE NO. 1: FORTUITOUS EVENT
Requisites:
Independent of human will;
Impossible to foresee or if it can be foreseen, impossible to avoid;
Must be such as to render it impossible for the obligor to fulfill the obligation in a normal
manner; and
Obligor must be free from any participation in or the aggravation of the injury [Lasam v.
Smith, No. 19495, Feb. 2, 1924]


For fortuitous event to be a valid defense:
It must be the PROXIMATE AND ONLY CAUSE OF THE LOSS;
Carrier must be free from any participation in causing the damage or injury;
It must exercise due diligence to prevent or minimize the loss BEFORE, DURING AND AFTER
the fortuitous event. [Art. 1739, NCC]

TAN CHIONG SIAN v. INCHAUSTI,
G.R. No. 6092, March 8, 1921
29
Justice Moreland speaking:
An act of God cannot be urged for the protection of a person who has been guilty of gross
negligence in not trying to avert its results.
One who has accepted responsibility for pay can not weakly fold his hands and say that he
was prevented from meeting that responsibility by an act of God, when the exercise of the
ordinary care and prudence would have averted the results flowing from that act.

One who has placed the property of another, intrusted to his care, in an unseaworthy craft,
upon dangerous waters, cannot absolve himself by crying, an act of God, when every effect
which a typhoon produced upon that property could have been avoided by the exercise of
common care and prudence.
When the negligence of the carrier concurs with an act of God producing a loss, the carrier
is not expempted from liability by showing that the immediate cause of the damage was the
act of God, or, as it has been expressed, when the loss is caused by the act of God, if the
negligence of the carrier mingles with it as an active and cooperative cause, he is still
liable.

FIRE NOT A NATURAL DISASTER OR CALAMITY [Cokaliong v. UCPB Gen. Insurance, G.R.
146018, June 25, 2003]
Facts:
M/V Tandag sank after a crack from her auxiliary engines fuel tank caused the spurt of
fuel towards the heating exhaust manifold ignited a fire in the engine room


Held:
Fire is not considered a natural disaster or calamity. This must be so as it arises almost
invariably from some act of man or by human means.
It does not fall within the category of an act of God unless caused by lighting or by other
natural disaster or calamity.

HIJACKING NOT AN EXEMPTING CAUSE
A Common Carrier can be held liable for failing to prevent a hijacking by frisking
passengers and inspecting their baggages, especially when it had received prior notice of
such threat. (Fortune Express v. CA, 305 SCRA 14)

BATANGAS TRANS. v. CAGUIMBAL, 22 SCRA 171 (1967)
Problem: A BLTB Bus going north stopped on the highway because a passenger wanted to
alight. Another bus was going south fast and recklessly, trying to pass a carretela. In trying
to overtake the carretela, the driver of the approaching bus made a miscalculation and hit
the bus of BLTB. The passenger who was then alighting was thrown out and killed. The heirs
of the victim sought recovery. BLTB raised the defense of fortuitous event.

Answer: BLTB is still liable. In civil law, where a fortuitous event concurs with negligence,
liability is not extinguished. The BLTB bus was then in a stop position but since it did not
stop on the shoulder of the road at the time the passenger was alighting, the same can be
30
considered negligence that concurred with fortuitous event and did not operate to
extinguish the liability.

FIRECRACKERS EXPLODING FROM PASSENGER BAGGAGE: CARRIER EXCUSED (Nocum v. LTD,
30 SCRA 69)
Facts:
One of the bus passengers had firecrackers inside his bag. They exploded after another
passenger smoked cigarettes causing injuries to another passenger. The injure passenger
sought to recover from the carrier.
Held:
Carrier not liable. The carrier cannot be expected to examine and search each and every
piece of baggage of passengers, otherwise the bus may not all together be able to leave.
This is only true so long as the cause of the accident was not apparent and the carrier or its
employees are not guilty of negligence.

RULE ON MECHANICAL DEFECTS [Necesito v. Paras, 104 Phil. 75]
Facts:
A Phil. Rabbit Bus was traveling fast. During the trip the driver sensed that the wheels did
not respond to the movement of the steering wheel.
The bus hit a rut (pothole) and it turned turtle, killing a passenger.
The mechanic of the bus company discovered that the worn-out gear of the steering wheel
had a crack, which could not be seen by the naked eye from the outside.
The bus company proved that the defect was attributable to General Motors, manufacturer
of the bus and that the defect could not have been discovered by expert mechanics.

Held:
As a rule, a passenger is entitled to recover damages from a carrier for injury resulting
from a defect in an appliance purchased from a manufacturer PROVIDED IT APPEARS THAT
THE DEFECT WOULD HAVE BEEN DISCOVERED BY THE CARRIER IF IT HAD EXERCISED THE
DEGREE OF CARE WITH REGARD TO INSPECTION AND APPLICATION OF THE NECESSARY
TESTS.
When the defect is LATENT, i.e. cannot be discovered by the application of any known
tests, then it qualifies as a fortuitous event to exempt the common carrier from liability.

YOBIDO v. CA, G.R. 113003, Oct. 17, 1997
Held:
The explosion of a new tire cannot by itself be considered a fortuitous event to exempt the
common carrier from liability in the absence of showing on the part of the carrier that other
human factors that could have intervened to cause the blowout of the new tire did not in
fact occur.
Moreover, a common carrier may not be absolved from liability in case of force majeure or
fortuitous event alone. It must still prove that it was not negligent in causing the death or
injury resulting from the accident.

PESTANO v. SUMAUYANG, 346 SCRA 870 (2000)
Held:
31
The fact that the driver was able to use a bus with a faulty speedometer shows that the
employer was remiss in the supervision of its employees and in the proper care of its
vehicles. Under Arts. 2180 and 2176 of the Civil Code, owners and managers are
responsible for damages caused by their employees.

SPS. LANDINGAN v. PANTRANCO, 33 SCRA 284
Facts: A married couple with two children were passengers in a bus going to Baguio. While
negotiating Kennon Road, the motor suddenly stopped and the bus backed down. The
driver expertly guided the bus to rest on the mountainside of the road. But because of the
noise, the two children became frightened and they jumped out of the bus and were killed.
Held: The bus when it stopped, was not in perfect running condition. It is the carriers duty
to see to it that the bus is always in perfect condition. Here, the defect was not latent.

TRANS-ASIA v. CA, 254 SCRA 260 (1996)
Held:
Before commencing the contracted voyage, the carrier undertook some repairs on one of
the vessels two engines, but even before it could finish these repairs, it allowed the vessel
to leave the port of origin on only one functioning engine, instead of two.
Moreover, even the lone functioning engine was not in perfect condition as sometime after
it had run its course, it conked out. Plainly, the vessel was unseaworthy even before the
voyage began.

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 common carrier to maintain in seaworthy condition its vessel is clear breach
of its duty prescribed under Art. 1755 of the Civil Code, which binds the carrier to carry the
passengers safely as far as human care and foresight could provide, using the utmost
diligence of a very cautious person, with due regard for all the circumstances.

OTHER INVALID CAUSES
Explosion Damage to cargo from explosion of another cargo is not ordinarily attributable
to peril of the sea or accidents of navigation particularly where it occurs after the vessel has
ended its voyage and is finally moored to unload;
Worms & rats Whenever the ship is damaged by worms resulting in damage to cargo, the
same cannot be cited as an excuse. The same is true with respect to damage of cargo by
rats whether the cargo was directly damaged by the rats or by water let in through holes
gnawed by rats in the ship or her fixtures.

Water Damage: Damage by sea water is not a valid excuse where the water gains entrance
through a port which had been left open or insufficiently fastened on sailing.
Barratry: The shipowner cannot escape liability to third persons if the cause of damage is
barratry. It is an act committed by the master or crew of the ship for some unlawful or
fraudulent purpose, contrary to their duty to the owner. Intentional fraud or breach of trust
or willful violation of law is necessary to constitute barratry. Barratry includes theft by the
purser of a specie shipped on board and fraudulently running the ship ashore.

32
OTHER CASES/BAR PROBLEMS

Problem: P shipped a box of cigarettes to a dealer in Naga City through Bicol Bus. When
the bus reached Lucena City, it 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 at least take two days. While the bus was in the repair shop,
Typhoon Coring lashed at Quezon Province. The cargoes inside the bus, including
Mauricios cigarettes, got wet and were totally spoiled. Mauricio sued BBC for the damage to
his cargoes. (Bar 1987)

Answer: The bus company is liable. While a typhoon is a natural disaster, the same cannot
be considered the only cause of the loss. The engine trouble is foreseeable and could have
been detected if only the bus company exercised reasonable case. Moreover, carriers
employee should have secured the cargoes while the bus was being repaired for two days.

Problem: P boarded a Victory Liner bus bound for Olongapo. He chose a seat at the front
near the bus driver. P told the bus driver that he had valuable items in his bag which was
placed near his feet. Since he had not slept for 24 hours, he requested the driver to keep an
eye on the bag should he doze off during the trip. Upon arrival at his destination, the bag
was nowhere found.
Answer: P may not hold the carrier liable. The driver could not have set his eyes on the
luggage as his attention was on the road during the trip.

Problem: M, a paying passenger was hit above her left eye by a stone hurled at the bus by
an unidentified bystander as he bus was speeding through the National Highway. The bus
owners personnel lost no time in bringing M to the provincial hospital where she was
confined and treated. M wants to sue the bus company for damages and seeks your advise.
(Bar 1994)
Answer: M cannot legally hold the bus company if the stone throwing was entirely
unforeseeable and the carrier exercised utmost diligence. However, I will also inform her
that the burden is on the carrier to prove such exercise of due diligence. If she decides to
file a case, all that she will prove is that she was a passenger and she was injured while on
board the bus

RAYNERA v. HICENTA, 306 SCRA 102 (1999)
Held:
Drivers of vehicles who bump the rear of another vehicle must be presumed to be the
cause of the accident, unless contradicted by other evidence, since the rear driver is deemed
to have the last clear chance of avoiding the accident, and therefore deemed negligent.
Bar Problem 1992
Facts:
Marino was a passenger on a train. Another passenger, Juancho, had taken a gallon of
gasoline placed in a plastic bag into the same coach where Mariano was riding. The gasoline
ignited and exploded causing injury to Marino who filed a civil suit for damages against the
railway company claiming that Juancho should have been subjected to inspection by its
conductor.
33

The railway company disclaimed liability resulting from the explosion contending that it
was unaware of the contents of the plastic bag and invoking the right of Juancho to privacy.
A) Should the railway company be held liable for damages? B) If it were an airline company
involved, would your answer be the same? Explain your answer briefly.

Held:
A) No. The railway company is not liable for damages. This is subject to the qualification
that the company should prove that it, through the exercise of extraordinary diligence,
cannot detect the presence of gasoline. It should be noted that in overland transportation,
the common carrier is not bound nor empowered to make an examination on the contents
of packages or bags particularly those handcarried by passengers.
B) No, my answer would not be the same. If an airline company was involved, it is duty
bound to inspect each and every cargo this brought into the aircraft (R.A. 6235). Exercise of
extraordinary diligence would therefore result in the discovery of the gasoline.

DEFENSE NO. 2: PUBLIC ENEMY
Presupposes the existence of an actual state of war, and refers to the government of a
foreign nation at war with country to which the carrier belongs.
Thieves, rioters, robbers, and insurrectionists, thought at war with social order, are not in a
legal sense classed as public enemies.
Reason for the defense: The exception concerning the acts of public enemies is
understandable because the government itself is called upon to protect its subjects from
loss or from such hazard and private citizens have no power to furnish the security and
protection required.
Public enemy is also an exception under COGSA.

DEFENSE NOS. 3 & 4: ACT OR OMISSION OF OWNER & IMPROPER PACKING
COGSA also provides for similar defense, i.e. carrier shall not be liable for (1) wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or vice of
goods, (2) insufficiency of packing, (3) insufficiency or inadequacy of the marks, or (4) latent
defect not discoverable by due diligence.
However, common carrier are still required to exercise due diligence to forestall or lessen
the loss notwithstanding the existence of improper packing.

SOUTHERN LINES v. CA, G.R. No. L-16629, Jan. 31, 1962
Facts: More than a thousand sacks of rice were shipped through the vessel of petitioner
Southern Lines. There was shortage when the sacks of rice were delivered to the consignee
although it was alleged that the shortage in the shipment was due to shrinkage, leakage or
spillage of the rice on account of the bad condition of the sacks at the time it received
them.
Held: Carrier still liable because it was aware of the condition of the sacks when it received
the goods.

VIRGENES CALVO v. UPCB GEN. INSURANCE, G.R. 148496, Mar. 19, 2002
Held: Art. 1734 cannot apply where the carrier accepted the goods despite such defects.
34
For this provision to apply, the rule is that if the improper packing or, in this case, the
defect in the container is known to the carrier or his employees or apparent upon ordinary
observation, but it nevertheless accepts the same without protest or exception
notwithstanding such condition, the carrier is not relieved of liability for the resulting
damage.

BELGINA OVERSEAS CHARTERING & SHIPPING v. PHIL. FIRST INSURANCE CO., G.R. 143133,
June 5, 2002
Facts: Carrier tried to escape liability by citing the notation metal envelopes rust stained
and slightly dented printed in the BL as evidence that the character of the goods or defect
in the packing or the containers was the proximate cause of the damage.

Held:
It cannot be reasonably concluded that the damage to the four coils was due to the
condition noted on the BL.
The aforecited exception refers to cases when goods are lost or damaged while in transit
as a result of the natural decay of perishable goods or the fermentation or evaporation of
substances liable therefor, the necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural propensities of animals. None of these is
present.
Even if the fact of improper packing was known to the carrier or its crew or was apparent
upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom,
once it accepts the goods notwithstanding such condition.

DEFENSE NO. 5: ORDER OF PUBLIC AUTHORITY
Requisite: Such public authority must had power to issue the order.

GANZON v. CA & TUMAMBING, G.R. L-48757, May 30, 1988
Facts: Tumambing contracted the service of Ganzon to haul 305 tons of scrap iron from
Mariveles, Bataan to Manila on board LCT Batman. While loading about half of the total
cargo, the elected Mayor arrived and demanded P5,000 from Tumambing. The latter refused
hence was shot and later hospitalized.
After sometime, the loading resumed. But, the Acting Mayor accompanied by 3 policemen
order the captain to dump some of the scrap iron at sea and the rest were brought to by the
former, which issued a receipt in behalf of the municipality.

Held:
The intervention of the municipal officials was not of a character that would render
impossible the fulfillment by the carrier of its obligation.
The petitioner was not duty bound to obey the illegal order to dump into the sea the scrap
iron. Moreover, there is absence of sufficient proof that the issuance of the same order was
attended with such force or intimidation as to completely overpower the will of the
petitioners employees.
The mere difficulty in the fulfillment of the obligation is not considered force majeure.

DEFENSES IN CARRIAGE OF PASSENGERS
35
Art. 1759: Common carriers are liable for the death of or injuries to passengers through
the negligence or willful acts of the formers employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common
carriers.
The liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

Art. 1763: A common carrier is responsible for the injuries suffered by a passenger on
account of the willful acts or negligence of other passengers or of strangers, if the common
carriers employees through the exercise of the diligence of a good father of a family could
have prevented or stopped the act or omission

CARRIER LIABLE FOR ACTS OF ITS EMPLOYEES
Unlike in quasi-delict, a common carrier cannot escape liability by claiming the he
exercised due diligence in the selection and supervision of the employee.
It is not a defense that the employee acted beyond the scope of his authority because the
riding public is not expected to inquire from time to time before they board the carrier
whether or not the driver or any other employee is authorized to drive the vehicle or that
said driver is acting within the scope of his authority and observing the existing rules and
regulations required of him.
Willful acts of the employees include theft.

YU CON v. IPIL, GR No. L-10195, Dec. 29, 1916
Held:
It is well and good that the shipowner be not held criminally liable for such crimes or
quasi-crimes; but he cannot be excused from liability for the damage and harm which, in
consequence of those acts, may be suffered by the third parties who contracted with the
captain, in his double capacity of agent and subordinate of the shipowner himself.

In maritime commerce, the shippers and passengers in making contracts with the captain
do so through the confidence they have in the shipowner who appointed him; they presume
that the owner made a most careful investigation before appointing him, and above all, they
themselves are unable to make such an investigation, and even though they should do so,
they could not obtain complete security, inasmuch as the shipowner can, whenever he sees
fit, appoint another captain instead.
The shipowner is in the same case with respect to the members of the crew, for, though he
does not appoint directly, he expressly or tacitly, he contributes to their appointment.


On the other hand, if the shipowner derives profits from the results of the choice of the
captain and the crew, when the choice turns out successful, it is also just that he should
suffer the consequences of an unsuccessful appointment, by application of the rule of
natural law contained in the Partidaz, viz., that he who enjoys the benefits derived from a
thing must likewise suffer the losses that ensue therefrom.

3 REASONS UNDERLYING RULE [Art. 1759, NCC]
36
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
all, from the acts of the carriers own servants charged with the passengers safety;

Said liability of the carrier for the servants violation of duty to passengers, is the result of
the formers confiding in the servants hands the performance of his contract to safely
transport the passenger, delegating thereiwth the duty of protecting the passenger with the
utmost care prescribed by law; and
As between the carrier and the passenger, the former must bear the risk of wrongful acts
or negligence of the carriers employees against passengers, since it, and not the
passengers, has power to select and remove them. (Maranan v. Perez, infra.)

PAL v. CA, 275 SCRA 621 (1997)
Held:
Even assuming arguendo that airline passengers have no vested right to hotel
accommodation allowances in case a flight is cancelled due to force majeure, nevertheless
the airline company would be liable for damages when its employees blatantly refused to
accord the so-called amenities equally to all its stranded passengers, and there was no
compelling or justifying reason advanced for such discriminatory and prejudicial conduct.

BACHELOR EXPRESS v. CA, G.R. 85691, July 31, 1990
Held:
The act of passenger stabbing another passenger in the bus is considered as force
majeure.
However, to be absolved from liability in the case of force majeure, the common carrier
must still prove that it was not negligent in causing the injuries resulting from such
accident. Otherwise, it would still be held liable.

BARITUA v. MERCADE (350 SCRA 86)
Held:
A common carrier, by the nature of its business and for reasons of public policy, is bound
to carry passengers safely as far as human care and foresight can provide. It is supposed to
do so by using the utmost diligence of very cautious persons, with due regard for all the
circumstances.
In case of death or injuries to passengers, it is presumed to have been at fault or to have
acted negligently, unless it proves that it observed extraordinary diligence as prescribed in
Arts. 1733 and 1755 of the Civil Code.

FORTUNE EXPRESS v. CA,
305 SCRA 14
Held:
A common carrier can be held liable for failing to prevent a hijacking by frisking
passengers and inspecting their baggage, especially when it had received prior notice of
such threat.
Note: Compare with Nocum v. LTD, infra.
37

NOCUM v. LTD, G.R. L-23733, Oct. 31, 1969
Facts: One of the bus passengers had firecrackers inside his baggage, which ignited when
another passenger smoked cigarettes, causing injuries to another passenger. The injured
passenger sought to recover damages from the carrier.
Held: Carrier is not liable. The reason is that the carrier cannot be expected to examine and
search each and every piece of baggage of passengers, otherwise the bus may not
altogether be able to leave.
Note: This in only true so long as the cause of the accident was not apparent and the
carrier or its employees are not guilty of negligence.

FABRE v. CA, 259 SCRA 426 (1996) [on due diligence in selection and supervision of
employees]
Held:
For a bus company, due diligence in selection of employees is not satisfied by finding that
the applicant possessed a professional drivers license. The employer should also examine
the applicant for his qualifications, experience and record of service.
Due diligence in supervision, on the other hand, requires the formulation of rules and
regulations for the guidance of employees and issuance of proper instructions as well as
actual implementation and monitoring of consistent compliance with the rules.

CARRIER ALSO LIABLE FOR ACTS OF STRANGERS AND OTHER PASSENGERS
But subject to defense of EXERCISE BY THE CARRIER OF DUE DILIGENCE TO PREVENT OR
STOP THE ACT OR OMISSION.
Defense is not available if the carriers driver allowed another person who is not an
employee or a regular driver to take over the task of driving the vehicle.

MARANAN v. PEREZ, 20 SCRA 413
Facts: A taxi driver tried to hold-up his passenger, who resisted and was killed. His heirs
sued based on culpa contractual against the taxi company, which denied liability on the
ground that the driver acted beyond the scope of his authority.
Held: It may be true that the taxi driver was acting beyond the scope of his authority, but
Art. 1759 of the Civil Code expressly provides that the owner is liable for negligence of the
employees even if such acts are beyond the scope of his authority.
Note: This case repealed the doctrine in De Gillaco v. Manila Railroad, 97 Phil. 884 which
absolved the carrier for liability caused by its security guard who killed one of its
passengers while already off-duty.

MANILA RAILROAD v. BALLESTEROS, 6 SCRA 641
Facts: A bust of the Manila Railroad reached one of the towns along its route. The bus
driver stopped the bus and went down to answer a call of nature. While the driver was
outside the bus, one of the passengers went into the drivers seat and drove off the bus. It
met an accident causing injuries to other passengers.

Held: Carrier is liable. Its driver is guilty of negligence in leaving the key on the ignition.
Had he taken the key with himself, the passenger could not have driven off the bus. The
38
carrier is liable for the injuries of other passengers when the carriers employees could have
prevented the injuries through the exercise of the diligence of a good father of a family.

RULES ON PASSENGER BAGGAGE
Art. 1754: The provision of Articles 1733 to 1753 shall apply to the passengers baggage
which is not in his personal custody or in that of his employee. As to other baggage, the
rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall
be applicable.
Art. 1998: The deposit of effects made by the travelers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them as
depositaries, PROVIDED THAT NOTICE WAS GIVEN TO THEM, or to their employees, of the
effects brought by the guests and that, on the part of the latter, they take the precautions
which said hotel-keepers or their substitutes advised relative to the care and vigilance of
their effects.

Art. 1998: The deposit of effects made by the travelers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them as
depositaries, PROVIDED THAT NOTICE WAS GIVEN TO THEM, or to their employees, of the
effects brought by the guests and that, on the part of the latter, they take the precautions
which said hotel-keepers or their substitutes advised relative to the care and vigilance of
their effects.

Art. 2000: The responsibility referred to in the two preceding articles shall include the loss
of, or injury to the personal property of the guests caused by the servants or employees of
the keepers of hotels or inns as well as strangers; but not that which may proceed from any
force majeure. The fact that travelers are constrained to rely on the vigilance of the keeper
of the hotels or inns shall be considered in determining the degree of care required of him.
Art. 2001: The act of a thief or robber, who has entered the hotel is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force.

Art. 2002: The hotel-keeper is not liable for compensation if the loss is due to the acts of
the guests, his family, servants or visitors, or if the loss arises from the character of the
things brought into the hotel.
Art. 2003: The hotel-keeper cannot free himself from responsibility by the posting notices
to the effect that he is not liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the responsibility of the former as set
forth in Articles 1998 to 2001 is suppressed or diminished shall be void.

SARKIES TOURS PHIL. v. CA, 280 SCRA 58
Held:
Where a common carrier accepts its passengers baggage for transportation and even had
it placed in the vehicle by its own employee, its failure to collect the freight charge is the
common carriers own lookout, and the common carrier is responsible for the consequent
loss of the baggage.

PAL v. IAC, 216 SCRA 334
39
Held:
Although the baggage of a passenger was eventually delivered to him, that did not
constitute a case of mere delay in delivery since the baggage was not delivered at all to the
passenger for the purpose of the trip in contravention of a common carriers undertaking to
transport the goods from the place of embarkation to the ultimate point of destination.
The non-delivery of luggage during the entire length of passengers stay abroad is a
breach of carriers obligation.

OBLIGATION OF SHIPPER & PASSENGER
The shipper and passenger have the corresponding obligation to exercise due diligence in
avoiding damage to the goods or injury to himself.
However, contributory negligence on the part of the passenger is not a defense that will
excuse the carrier from liability. It will only mitigate such liability.
BUT IF HIS CONTRIBUTORY NEGLIGENCE IS THE SOLE AND PROXIMATE CAUSE, CARRIER IS
ABSOLVED.

WHAT IS PROXIMATE CAUSE
Proximate cause is that which, in the natural and continuous sequence, unbroken by an
efficient intervening cause, produces injury and without which the result would not have
occurred. [Sabena Belgian World Airlines v. CA, 255 SCRA 38]

Art. 1741: If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of the
common carrier, the latter shall be liable in damages, which however, shall be equitably
reduced.
Art. 1761: The passenger must observe the diligence of a good father of a family to avoid
injury to himself.
Art. 1762: The contributory negligence of the passenger does not bar recovery of damages
for his death or injuries, if the proximate cause thereof is the negligence of the common
carrier, but the amount of damages shall be equitably reduced.

ISAAC v. AMMEN TRANSPORT, 101Phil. 1046 (On contributory negligence)
Facts: The road on which the bus was passing was wide enough for 2 buses only. A
passenger placed his elbow outside the window railing of the bus. An oncoming bus hit the
passengers elbow, injuring it in such a manner that it had to be amputated.
Held: Carrier is not liable because the proximate cause of the injury was the passengers
own contributory negligence. This is a complete defense to the common carrier, and
absolves it from liability.
Note: While contributory negligence will only serve to diminish the liability of the carrier
under Art. 1761, NCC, the same will not apply if the proximate cause of his injury is his
contributory negligence and not that of carriers negligence.

CERVANTES v. CA, GR 125138, Mar. 2, 1999
Facts: PAL issued a round trip ticket to Petitioner which expressly provides for an expiry
date of 1-year from issuance. A separate written agreement provides that the 1-year period
40
may be extended provided that the petitioner sends a letter to the airlines counsel asking
for extension. Petitioner failed to do the terms in the agreement.
Held: Petitioner cannot sue PAL for breach when he was not allowed to board. Although he
was booked for the flight through PALs agent, the latter was not authorized to change the
agreement.

DOCTRINE ON AVOIDABLE CONSEQUENCES
The party suffering loss or injury must exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission in question. (Art. 2203, NCC)

DOCTRINE OF LAST CLEAR CHANCE INAPPLICABLE TO PASSENGER CLAIM
The principle of last clear chance applies in a suit between the owners and drivers of
colliding vehicles.
It does not arise where a passenger demands responsibility from the carrier to enforce its
contractual obligations.
It would be inequitable to exempt the negligent driver of the jeepney and its owner on the
ground that the other driver was likewise guilty of negligence.

DOCTINE ON ASSUMPTION OF RISK
That passengers must take such risks incident to the mode of travel he takes since carriers
are not insurers of the lives of their passengers.
In air travel, adverse weather conditions or extreme climactic changers are some of the
perils involved, the consequence of which the passenger must assume or expect. (Japan
Airlines v. CA, GR No. 118664, Aug. 7, 1998).
But there is no assumption of risk in case the passenger voluntarily boarded a carrier that
was overloaded.

YOBIDO v. CA, 281 SCRA 1 (1997)
Held:
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the
mode of travel he has taken, since after all, a carrier is not an insurer of the safety of its
passengers and is not bound absolutely and at all e vents to carry them safely and without
injury.
However, when a passenger is injured or dies while traveling, the law under Art. 1755 of
the Civil Code presumes that the common carrier is negligent, and therefore the burden of
proof is upon such common carrier to prove that it has exercised the extraordinary
diligence required under the law to avoid damage or injury to the passenger.

However, when a passenger is injured or dies while traveling, the law under Art. 1755 of
the Civil Code presumes that the common carrier is negligent, and therefore the burden of
proof is upon such common carrier to prove that it has exercised the extraordinary
diligence required under the law to avoid damage or injury to the passenger.

CALALAS v. CA, G.R. 122039, May 31, 2000
Facts: A student took a passenger jeepney operated by petitioner. As the jeepney was filled
to capacity of about 24 passengers, the student was given by the conductor an extension
41
seat. The jeepney stopped on its way to let a passenger off and the student gave way to the
outgoing passenger. Just as she was doing so, a truck bumped the rear end portion of the
jeepney. She suffered injuries as a result.

Held:
Construing the taking of an extension seat as an implied assumption of risk is akin to
arguing that the injuries to the many victims of the tragedies in our seas should not be
compensated merely because those passengers assumed a greater risk of drowning by
boarding an overloaded ferry.

COMPANA MARITIMA v. CA & CONCEPCION, G.R. L-31379, Aug. 29, 1988
Facts:
Respondent Concepcion loaded his construction equipment aboard MV Cebu to Cagayan de
Oro City.
Upon arrival, one of his cargoes, a payloader fell on the pier while being unloaded and
damaged. He claimed for replacement of the unit. Petitioner denied the claim contending
that Respondent furnished it with inaccurate weight of his equipment. The excess weight
caused the crane cables to snap.

Held:
While the act of private respondent in furnishing petitioner with an inaccurate weight of the
payloader cannot successfully be used as an excuse by petitioner to avoid liability, said act
constitute a contributory circumstance to the damage which mitigates the liability of
petitioner.
We find equitable the conclusion of the CA reducing the recoverable amount of damages by
20% or 1/5 of the value of the payloader.

CANGCO v. MANILA RAILROAD CO., G.R. 12191, Oct. 14, 1918
Facts:
Cangco was clerk of Manila Railroad with a monthly wage of P25. In going to his workplace
daily, he rode on the trains to from his town of San Mateo, Rizal.
One day while returning home and while the train was slowing down alighted from his
coach but one of feet came in contact with a sack of watermelon causing him to fell
violently on the platform. He sustained serious injuries.

Held:
The test by which to determine whether the passenger has been guilty of negligence in
attempting to alight from a moving railway train, is that of ordinary reasonable care.
It is to be considered whether an ordinarily prudent person, of the age, sex and condition
of the passenger, would have acted as the passenger acted under the circumstances
disclosed by the evidence.
This care has been defined to be, not the care which may or should be used by the prudent
man generally, but the care which a man of ordinary prudence would use under similar
circumstance, to avoid injury.

42
Or, if we prefer to adopt the mode of exposition used by this court in Picart v. Smith (37
Phil. 809), we may say that the test is this: Was there anything in the circumstances
surrounding the plaintiff at the time he alighted from the train which would have
admonished a person of average prudence that to get off the train under the conditions
then existing was dangerous?
If so, the plaintiff should have desisted from alighting; and his failure so to desist was
contributory negligence.
Our conclusion is that the conduct of the plaintiff in undertaking to alight while the train
was yet slightly under way was not characterized by imprudence and that therefore he was
not guilty of contributory negligence.

Plaintiff was earning P25 a month. His expectancy of life, according to the standard
mortality tables, is approximately 33-years.
We are of the opinion that a fair compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also entitled to recover of
defendant the additional sum of P790.25 for medical attention, etc.

Note: Net Earning Capacity = Life Expectancy [2/3 x 80 less the age of the plaintiff] x Gross
Annual Income less Living Expenses [computed @ 50% of Gross Annual Income]

DEL PRADO v. MANILA ELECTRIC CO., G.R. 29462, Mar. 7, 1929
Facts:
Manila Electric operated a street in Manila for conveyance of passengers. While still moving,
plaintiff ran across the street to catch the car, his approach being made from the left. The
car was of the kind having entrance and exit at either end, and the movement of plaintiff
was so timed that he arrived at the front entrance of the car at the moment when the car
was passing.
Upon approaching the car, plaintiff raised his hand as an indication to the motorman of his
desire to board. In response, the latter eased up a little, without stopping.

Upon this the plaintiff seized, with his left hand, the front perpendicular handpost, at the
same time placing his left foot upon the platform.
However, before the plaintiffs position had become secure, and even before his raised
right foot had reached the platform, the motorman applied power which caused plaintiffs
foot to slip. He fell to the ground and his right foot crushed by the moving car.

Held:
Although the motorman was not bound to stop to let the plaintiff on, it was his duty to do
no act that would have the effect of increasing the plaintiffs peril while he was attempting
to board the car. The premature acceleration of the car was a breach of this duty.
As to contributory negligence of plaintiff, it should be treated as a mitigating circumstance.
It is obvious that the plaintiffs negligence in attempting to board the moving car was not
the proximate cause of the injury. The direct and proximate cause was the act of appellants
motorman in putting on the power prematurely.

DUTY TO PAY FREIGHT
43
Rates charged by vessels for hire is now deregulated (R.A. 9295).
However, on overland transportation, deregulated rates are applied only to aircon buses.
Person to pay: The shipper or the consignee if carrier and shipper stipulates in the BL.
Time to pay: NCC is silent but Art. 374 provides for 24-hr period to pay the freight.

CARRIERS LIEN
If consignee fails to pay the freight within the period prescribed, the carrier may exercise it
lien in accordance with Art. 375 of the Code of Commerce.
Art. 375: The goods transported shall be especially bound to answer for the cost of
transportation and for the expenses and fees incurred for them during their conveyance and
until the moment of delivery.
This special right shall PRESCRIBED EIGHT (8) DAYS AFTER THE DELIVERY HAS BEEN MADE,
and once prescribed, the carrier shall have no other action that that corresponding to him
as an ordinary creditor.

DEMMURRAGE
In its strict sense, it is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. It is
essentially a claim for damages for failure to accept delivery.
In its broad sense, every improper detention of a vessel may be considered demurrage.

Liability for demurrage, viewed in its strict sense, exists only when expressly stipulated in
the contract.
In its broader sense, damages in the nature of demurrage are recoverable for a breach of
the implied obligation to load or unload the cargo with reasonable dispatch, but only by the
party to whom the duty is owed and only against one who is a party to the shipping
contract. Notice of arrival of the vessel or conveyance, or their placement for purposes of
unloading is CONDITION PRECEDENT to the right to collect demurrage charges.

Chapter 3

EXTRAORDINARY DILIGENCE
RATIONALE IN THE REQUIREMENT OF UTMOST DILIGENCE
A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard
for all circumstances.
This extraordinary diligence required of common carriers is calculated to protect the
passengers from the tragic mishaps that frequently occur in connection with rapid modern
transportation.
This high standard of care is imperatively demanded by the preciousness of human life and
by the consideration that every person must in every way be safeguarded against all injury.
[Report of the Code Commission, pp. 35-36]

HOW DUTY IS COMPLIED WITH
44
Source of common carriers legal liability is contract of carriage binding itself to carry the
passengers safely as far as human care and foresight can provide, using the utmost
diligence of a very cautious person, with due regard for all the circumstances.
It is not enough to exercise ordinary diligence; what is required is extraordinary diligence.
There is, however no fixed definition on what extraordinary diligence means. In most
cases, exercise of extraordinary diligence are given meaning by way of illustrative examples.

EXTRAORDINARY DILIGENGE APPLICALBE TO THIRD PERSONS
Primarily, the duty is owed by the common carrier to its passengers and cargoes.
But, the duty also extends to:
- the members of the crew or complement;
- the pedestrians; and
- even to the owners and passengers of other vehicles.

KAPALARAN BUS LINES v. CORONADO, GR 85331, Aug. 25, 1989
Judicial notice is made on the gross negligence and the appalling disregard of the physical
safety and property of other so commonly exhibited today by the drivers of passenger
buses and similar vehicles on our highways.
In requiring the highest possible degree of diligence from common carriers and crating a
presumption of negligence against them, the law compels them to curb the recklessness of
their drivers.
While the immediate beneficiaries of the standard of extraordinary diligence are, of course
the passengers and owners of cargo carried by a common carrier, they are not the only
persons that the law seeks to benefit.


For if common carriers carefully observed the statutory standard of extraordinary diligence
in respect of their own passengers,
They cannot help BUT SIMULTANEOUSLY BENEFIT PEDESTRIANS AND THE OWNERS AND
PASSENGERS OF OTHER VEHICLES who are equally entitled to the safe and convenient use of
our roads and highways.
The law seeks to stop and prevent the slaughter and maiming of people (whether
passenger or not) and the destruction of property (whether freight or not) on our highways
by buses, the very size and power of which seem often to inflame the minds of their drivers.

EFFECT ON STIPULATION LOWER THAN THE REQUIRED DEGREE
On Goods:
Art. 1744: A stipulation between the common carrier and the shipper or owner limiting the
liability of the former for the loss, destruction, or deterioration of the goods to a degree less
than extraordinary diligence shall be valid, provided it be:
1. In writing, signed by the shipper or owner;
2. Supported by a valuable consideration other than the service rendered by the
common carrier; and
3. Reasonable, just and not contrary to public policy.

On passengers in general:
45
Art. 1757: The responsibility of a common carrier for the safety of passengers as required
in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the
posting of notices, by statements on tickets, or otherwise.
On gratuitous passengers:
Art. 1758: When a passenger is carried gratuitously, a stipulation LIMITING THE COMMON
CARRIERS 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 carriers
liability.

LARA v. VALENCIA,
GR 9907, June 30, 1958
Facts:
The deceased Lara was inspector of the BFD at Davao City. Defendant Valencia was
engaged in the business of exporting logs from his timber concession in Cotabato. Lara
went to Valencias area upon instruction of his chief to classify the logs of Defendant.
After six days of work, Lara, who was then eager to return home asked Valencia if he could
take him in his pick-up truck to which defendant agreed.
Lara was with the five other passengers who were with Lara at the back of the pick-up. Lara
was seated on a bag.
While the pick-up was cruising along Km 96, Lara accidentally fell from the pick-up and
died.


After six days of work, Lara, who was then eager to return home asked Valencia if he could
take him in his pick-up truck to which defendant agreed.
Lara was with the five other passengers who were with Lara at the back of the pick-up. Lara
was seated on a bag.
While the pick-up was cruising along Km 96, Lara accidentally fell from the pick-up and
died.

Held:
Deceased were merely accommodation passengers who paid nothing for the service and so
they can be considered invited guests within the meaning of the law.
The rule is established by the weight of authority that the owner or operator of an
automobile owes the duty to an invited guest to exercise reasonable care in its operation,
and not unreasonably to expose him to danger and injury by increasing the hazard of travel.
Note: Lara is not controlling upon common carriers since Valencia was a private carrier who
accommodated Lara.

EXTRAORDINARY DILIGENCE IN CARRIAGE BY SEA
WARRANTY OF VESSELS SEAWORTHINESS
First step in complying with the required extraordinary degree of vigilance.
Seaworthiness of vessel is impliedly warranted under the Insurance Code and the Carriage
of the Goods by the Sea Act (COGSA).
46
Shippers when transacting with common carriers are not expected to inquire into the
vessels seaworthiness, genuineness of its license and compliance with all maritime laws.
Also true with passengers.
The burden of proof on seaworthiness is with the carrier.

SEAWORTHINESS DEFINED
Generally, seaworthiness is that strength, durability and engineering skill made a part of s
ships construction and continued maintenance, together with a competent and sufficient
crew, which would withstand the vicissitudes and dangers of the of the elements which
might reasonably be expected or encountered during her voyage without loss or damage to
her particular cargo. [Delsan Transport Lines v. CA, GR 127897, Nov. 15, 2001]

STATUTORY PROVISIONS ON SEAWORTHINESS
Section 116, Code of Commerce: A warranty of seaworthiness extends not only to the
condition of the structure of the ship itself, but requires that it be properly laden, and
provided with a competent master, a sufficient number of competent officers and seamen,
and the requisite appurtenances and equipment, such as ballasts, cables and anchors,
cordage and sails, food, water, fuel and lights, and other necessary or proper stores and
implements for the voyage.

Sec. 119, Insurance Code: A ship is seaworthy for the purpose of an insurance upon the
ship may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for
the purpose of insurance upon the cargo.

Sec. 3[1] COGSA: The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling chambers, and all other parts
of the ship in which goods are carried, fit and safe for their reception, carriage
and preservation.
Sec. 3[2] COGSA: The carrier shall properly and carefully load, handle, stow, carry, keep,
care for, and discharge the goods carried.

SUMMATION OF THE REQUIREMENT ON SEAWORTHINESS
A vessel must have such degree of fitness which an owner who is exercising extraordinary
diligence would require his vessel to have at the commencement of the voyage, having
regard to all the probable circumstances of it.
Seaworthiness includes fitness of the vessel itself to withstand the vicissitudes of the
voyage, fitness of the vessel to store the cargoes and accommodate passengers to be
conveyed and adequately equipped with and properly manned with sufficient and
competent officers and crew.

FITNESS OF VESSEL: HOW PROVED
It was drydocked and inspected by the PGC before it proceeded to its destination.
PGC cleared it as searworthy, fitted, equipped and met all the requirement for trading.
47
Note: A ship will not normally sink if the sea is moderate and if it is seaworthy or if the
carrier and its employees were not negligent. [Loadstar Shipping v. CA, G.R. 131621, Sept.
28, 1999]
CARGOWORTHY
Ship must not only be seaworthy. IT MUST ALSO BE CARGO WORTHY.
To be cargo-worthy, the ship must be an efficient storehouse for her cargo.
Cargo-worthiness means that the vessel must be sufficiently strong and equipped to carry
the particular kind of cargo which she has contracted to carry and her cargo must be so
loaded that it is safe for her to proceed on her voyage. [Lord Chorley and O.C. Siles,
Shipping Law, 6
th
Ed., p. 120]

ADEQUATELY EQUPPED AND PROPERLY MANNED
Competency of Masters or Captains is required.
The rule is violated if a carrier embarked on a voyage with unlicensed captain or patron.
It cannot claim to have exercised extraordinary diligence by placing a person whose
navigational skill are questionable, at the helm of the ship.
Qualifications of Masters, Captains and Crew of ships are governed by the Philippine
Merchant Rules and Regulations (PMRR).

Art. 609, Code of Commerce: Captains, masters or patrons of vessels must be Filipinos,
have legal capacity to contract in accordance with this code, and proven skill, capacity, and
qualifications necessary to command and direct the vessel, as established by marine or
navigation laws, ordinances, or regulations, and must not be disqualified according to the
same for the discharge of the duties of the position
If the owner of a vessel desires to be the captain thereof, without having the
legal qualifications therefor, he shall limit himself to the financial administration of the
vessel, and shall instrust the navigation to a person possessing the qualifications required
by said ordinances and regulations.

OVERLOADING
Duty to exercise due diligence also includes the duty to take passengers or cargoes that
are within the carrying capacity of the vessel.
A carrier fails in this requirement where it allowed on 1,004 passengers when it total
passenger capacity is only 864 [Negros Navigation v. CA, G.R. 110398, Nov. 7, 1997]

REQUIREMENT OF PROPER STORAGE
It is not enough that vessel must be suited for the cargo it contracted. It must also be
properly stored.
Hence, where it was found out that the cause of explosion was due to the improper storage
of an acetylene cylinder which caught fire which was placed in the accommodation area near
the engine room instead at the storage, the common carrier was held to be negligent. [Phil.
Home Assurance Corp. v. CA, G.R. 106999, June 20, 1996]

LIMITED LIABILITY RULE
48
The liability of the carrier in connection with losses related to maritime contracts is
confined to the vessel, which is hypothecated for such obligations or which stands as the
guaranty for their settlement.
No vessel, no liability rule

NEGLIGENCE OF CAPTAIN & CREW
If the negligence of the captain or crew can be traced to the fact that they are incompetent
and that the ship owner was negligent in their selection, the Limited Liability Rule will not
apply.
If simple negligence only by the captain or crew, who are otherwise competent to discharge
their duties, at the time of the accident, the rule applies.

RULES ON PASSENGER SAFETY AND COURTESY DUE HIM
Failure to comply with MARINA rules and regulations constitutes negligence on the part of
the captain and crew and of the shipowner.
MARINA Memorandum Circular 112 provides that passengers have the right to be treated
by the carrier and its employees with kindness, respect, courtesy and due consideration.
The are entitled to be protected against personal misconduct, injurious language,
indignities and abuses from the carrier and its employees.

MEMORANDUM CIRCULAR NO. 114
Provisions on:
Emergency exits
Handling of Handcarried Luggage
Lifevests or Lifejackets
Watertight doors, potholes, ramps and manholes
Wearing of proper prescribed uniform by Ships officers and crew.
Other safety measures

DEVIATION
Art. 359, CoC: If there is an agreement between the shipper and the carrier as to the road
over which the conveyance is to be made, the carrier may not change the route, unless it be
by reason of force majeure; and should he do so without this cause, he shall be liable for all
the losses which he goods he transports may suffer from any of other cause, beside paying
the sum which may have been stipulated for such case.
When on account of said cause of force majeure, the carrier had to take another route
which produced an increase in transportation charges, he shall be reimbursed for such
increase upon formal proof thereof.

TRANSSHIPMENT
The act of taking cargo out of one ship and loading it in another; or
The transfer of goods from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been reached; or
The transfer for further transportation from one ship or conveyance to another.
Notes: Improper deviation and Transshipment without consent of the shipper is violation of
the required standard of care. Improper deviation may be a valid ground to deny a marine
49
insurance claim; while transshipment of freight without legal excuse is a violation of the
contract of carriage.

EXTRAORDINARY DILIGENCE IN CARRIAGE BY AIR
AIRWORTHINESS

Airworthiness means that an aircraft, it engines, propellers, and other components and
accessories, are of proper design and construction, and are safe for air navigation purposes,
such design and construction being consistent with accepted engineering practice and in
accordance with aerodynamic laws and aircraft science. (R.A. 779)

IT MUST BE PROVIDED WITH COMPETENT AND WELL TRAINED CREW.
- Assigning a pilot inflicted with a tumor for a long time fails in the requirement.
IT MUST FOLLOW THE DESIGNATED ROUTE.
- A plane did not take the designated route resulting to the tragic crash. The tragic
crash could have been avoided had it taken said designated route. (Abeto v. PAL, 115 SCRA
489)
IT MUST INSPECT ALL CARGO AND/OR BAGGAGE FOR LOADING. (R.A. 6235)


Saludo v. CA, G.R. 95536, Mar. 23, 1992
Held:
Where a common carrier has reasonable ground to suspect that the offered goods are of a
dangerous or illegal character, the carrier has the right to know the character of such goods
and to insist on an inspection, if reasonable and practical under the circumstances, as a
condition of receiving and transporting such goods.
Northwest Airlines v. Laya, G.R. 146020, May 29 2002
Held:
Thorough inspection of the briefcase of Plaintiff as deemed justified pursuant to the
directive of the FAA of the US brought about by the tragic event that unfolded on Sept. 11,
2001.
The fact that Plaintiff was greatly inconvenienced by the fact that his attache case was
subjected to further inspection does not warrant imposition of liability because he was not
singled out and discriminated by the employees of the carrier.

Protection of passengers must take precedence over convenience. Nevertheless, the
implementation of the security measures must be ATTENDED BY BASIC COURTESIES.
Hence, the carrier was made liable not for implementing the security measure BUT FOR
TREATING THE

PLAINTIFF IN A RUDE, BRUSQUE, ARROGANT AND DOMINEERING manner that caused his
humiliation.
PAL v. CA & ZAPATOS, GR 82619, Sept. 15, 1993
Facts:
On Aug. 2 1976, Zapatos, together with 20 other passengers, boarded PAL flight 477 from
Cebu-Ozamis. The flight route was Cebu-Ozamis-Cotabato.
50
While on flight, the pilot received a radio message that the Ozamis airport was closed due
to heavy rains and inclement weather and that the plane should instead proceed to
Cotabato.

Upon arrival at Cotabato, PAL agent informed the passengers of their option to return to
Cebu on-board Flight 560 on the same day and take the next available flight to Ozamis City
on Aug. 5, 1975. Zapatos chose the option offered but was not accommodated on the
return flight to Cebu because he was checked in as passenger no. 9 on Flight 477. He
insisted to be given priority over confirmed passengers but the station agent refused.
He tried to stop the departure of Flight 560 as his personal belongings, including a
package containing a camera was still on board.


Held:
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting
standard required by law. PALs diversion of its flight due to inclement weather was a
fortuitous event.
Nonetheless, such occurrence did not terminate it contract with its passengers. Being in
the business of air carriage and the sole one to operate in the country, PAL is deemed
equipped to deal with situations as in the case at bar.

What we said in one case once again must be stressed, i.e. the relation of carrier and
passenger continues until the latter has been landed at the port of destination and has left
the carriers premises.
Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding
the comfort, convenience and safety of its stranded passengers until they have reached their
final destination.

ABETO v. PAL, GR L-28692, July 30, 1982
Facts: Judge Abeto boarded PAL flight from Iloilo to Manila on Nov. 23, 1960. The plane did
not reach Manila. After 3 days, it was ascertained that it crashed at Mt. Baco, Mindoro. All
passengers perished.
Held: It is clear that the pilot did not follow the designated route for his flight between
Romblon and Manila. The weather was clear and he was supposed to cross airway Amber I
over Romblon. Instead, he made a straight flight to Manila in violation of any traffic rules.

Baliwag Transit Inc. v. CA (256 SCRA 746)
Held:
A common carrier breaches its contract of carriage when it failed to deliver its passengers
to their destination safe and sound. A common carrier is bound to carry its passengers
safely as far as human care and foresight can provide, using the utmost diligence of a very
cautious person, with due regard for all the circumstances.

In contract of carriage, it is presumed that the common carrier was at fault or was
negligent when a passenger dies or is injured.
51
Unless 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 exercised extraordinary diligence as prescribed in
Arts. 1733 and 1755 of the Civil Code.

Chapter 4

BILL OF LADING
CONCEPT OF BL
A bill of lading, like a passage ticket, is not necessary for the perfection of a contract of
carriage.
Art. 354, Code of Commerce: In the absence of a bill of lading, disputes shall be
determined by the legal proofs which the parties may present in support of their respective
claims, according to the general provisions established in this Code for commercial
transaction.
Note: If involving common carrier, disputes without BL is governed by the Civil Code. In
respect to electronic commerce, it is governed by R.A. 8792 of the Electronic Commerce
Act.

BILL OF LADING DEFINED
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. [70 Am Jur 2d 924]

KINDS OF BILLS OF LADING
Negotiable or Non-negotiable Bill of Lading
Clean Bill of Lading or Foul Bill of Lading
On-board Bill or Received-For-Shipment Bill of Lading
Spent Bill of Lading
Through Bill of Lading
Custody Bill of Lading
Port Bill of Lading

Negotiable or Non-negotiable Bill of Lading
When delivered to the Order or to bear, negotiable.
Otherwise, non-negotiable.
Clean Bill of Lading or Foul Bill of Lading
When it does not contain any notation indicating any defect in the goods Clean BL
Otherwise, it is Foul BL
On-board Bill or Received-For-Shipment Bill of Lading

On-board BL is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods
Received for shipment BL is one which it is stated that the goods have been received for
shipment with or without specifying the vessel by which the goods are to be shipped.
52
Custody Bill of Lading
One which states that the goods are already received by the carrier but the vessel indicated
therein has not yet arrived at port.
Port Bill of Lading
One which state that the vessel indicated in the BL that will transport the goods is already
in the port.

NATURE OF BILL OF LADING
It operates both as:
1. A receipt for the goods shipped; and
2. A contract to transport and deliver the goods as stipulated therein. Being a
contract, it is the law between the parties who are bound by its terms and conditions sol
longs as they are not contrary to law, morals, good customs, public order and public policy.
It is also a document of title.

DOCUMENT OF TITLE
Includes any bill of lading, dock warrant, quedan, or warehouse receipt or order for the
delivery of goods, or any other document used in the ordinary course of business in the sale
or transfer of goods, as proof of the possession or control of the goods, or authorizing or
purporting to authorize the possessor of the document to transfer or receive either by
endorsement or by delivery, goods represented by such document. [Art. 1636, NCC]

EFFICACY OF BL
Upon delivery to and acceptance by the shipper.
It is presumed that the stipulations of the BL were known to the shipper, in the absence of
fraud, concealment or improper conduct, and he generally bound by his acceptance whether
he reads the bill or not.

A shipper who receives a BL without objection after an opportunity to inspect it, and
permits the carrier to act on it by proceeding with the shipment is presumed to have
accepted it as correct and assented to its terms.
A BL accepted without dissent raises the presumption that all the terms therein were
brought to the knowledge of the shipper and agreed to by him, and in the absence of fraud
or mistake, he is estopped from thereafter denying that he assented to such terms.

BL AS CONTRACT OF ADHESION
BLs, like tickets constitute a class of contracts of adhesion.
Construed liberally in favor of the passenger or shipper.
But, they are not ENTIRELY prohibited.
One who adheres to the contract is in reality free to reject it entirely.
If he adheres, he gives his consent.
Receipt of the BL or ticket is tantamount to adherence to the stipulation embodied therein
Qua Chee Gan v. Law Union and Rock Insurance Co., 25 SCRA 70 [1968]
Held: The courts cannot ignore that nowadays, monopolies, cartels and concentration of
capital endowed with overwhelm economic power, manage to impose upon parties dealing
with them cunningly prepared agreements that the weaker party may not change one with
53
his participation in the agreement being reduced to the alternative to take it or leave it,
labelled since Raymond Sleilles contracts of adherence (contracts d adhesion) in contrast
(of which policies of insurance and international bill of lading are prime examples) obviously
cap for greater strictness and vigilance on the part of the court with view to protecting the
weaker party from abuses and imposition, and prevent their becoming traps of the unwary.

RULE ON PROTECTION OF THE DISADVANTAGED
Art. 24, NCC: In all contractual property or other relations, when one of the parties is at the
disadvantage on account of his moral dependence, ignorance, indigence, mental weakness,
tender age and other handicap, the courts must be vigilant for his protection.
Servando, et al. v. Phil. Steam Navigation Co., G.R. No. L-36481-2 October 23, 1982
Held:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is
nevertheless bound by the provisions thereof.
Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the
regulation.

It is what is known as a contract of 'adhesion', in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract on the
other, as the plane ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent.
Magellan Manufacturing Marketing Corp. v. CA, G.R. 95529, Aug. 22, 1991
Issue 1: On the argument that there could have been no agreement in the transshipment
even if the BL contained such since the same is prohibited in the Letter of Credit, and that,
therefore, it had no intention to allow transshipment of the subject cargo, it was:

Held:
As between such stilted thesis of petitioner and the contents of the bill of lading
evidencing the intention of the parties, it is irremissible that the latter must prevail.
The terms of the contract as embodied in the bill of lading are clear and thus obviates the
need for any interpretation. The intention of the parties which is the carriage of the cargo
under the terms specified thereunder and the wordings of the bill of lading do not
contradict each other.

The terms of the contract being conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of petitioner, to wit: personally receiving and
signing the bill of lading and paying the freight charges, there is no doubt that petitioner
must necessarily be charged with full knowledge and unqualified acceptance of the terms of
the bill of lading and that it intended to be bound thereby.

Issue No. 2: Can a consignee refuse a bill of lading on the ground that there was
overshipment of goods than the quantity covered by the letter of credit?
Held: In a letter of credit, there are three distinct and independent contracts: (1) the
contract of sale between the buyer and the seller; (2) the contract of the buyer with the
54
issuing bank; and (3) the letter of credit proper in which the bank promises to pay the seller
pursuant to the terms and conditions stated therein.

It is clearly settled in law that the three contracts which make up the letter of credit
arrangement are to be maintained in a state of perpetual separation.
A transaction involving the purchase of goods may also require, apart from a letter of
credit, a contract of transportation specially when the seller and the buyer are not in the
same locale or country, and the goods purchased have to be transported to the latter.

Hence, the contract of carriage, as stipulated in the bill of lading must be treated
independently of the contract of sale between the seller and the buyer, and the contract for
the issuance of a letter of credit between the buyer and the issuing bank.
Any discrepancy between the amount of goods described in the commercial invoice in the
contract of sale and the amount allowed in the letter of credit will not affect the validity and
enforce-ability of the contract of carriage as embodied in the bill of lading.


As a bank cannot be expected to look beyond the documents presented to it by the seller
pursuant to the letter of credit, neither can the carrier be expected to go beyond the
representations of the shipper in the bill of lading and to verify their accuracy vis--vis the
commercial invoice and the letter of credit.

Having no actual knowledge of the kind, quantity, or condition of the contents of the
container, the carrier issues the corresponding bill of lading based on the declaration of the
shipper, and the bill of lading simply states the contents of the container either as advised
by the shipper or prefaced by the phrase said to contain.
The matter of quantity, description and conditions of the cargo inside the container is the
sole responsibility of the shipper.

PAROLE EVIDENCE RULE
Sec. 9, Rule 130, Rules of Court: When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between
the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.
BL is covered by the parole evidence rule.

EXCEPTIONS TO PAROLE EVIDENCE RULE
However, a party may present evidence to modify, explain or add to the terms of the
written agreement if he puts in issue in his pleading:
a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
b) The failure of the written agreement to express the true intent and agreement of
the parties thereto;
c) The validity of the written agreement; or
d) The existence of other terms agreed to by the parties or their successors in interest
after the execution of the written agreement.
The term agreement includes wills.
55

SUBSTANTIVE PROVISIONS ON BILL OF LADING
Art. 353, Code of Commerce: 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 the those of falsity and material error in the drafting.

After the contract has been complied with, the bill of lading which the carrier has issued
shall be returned to him, and by virtue of the exchange of this title with the thing
transported, the respective obligations and actions shall be considered cancelled, unless in
the same act the claim which the parties may wish to reserve be reduced to writing, with the
exception of that provided for in Article 366
In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or 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.

Art. 709, Code of Commerce: A bill of lading drawn up in accordance with the provisions of
this title shall be proof as between all those interested in the cargo and between the latter
and the insurers, proof to the contrary being reserved for the latter.
Art. 710, Code of Commerce: If the bills of lading are contradictory, and no change or
erasure can be observed in any of them, those possessed by the shipper or consignee
signed by the captain shall be proof against the captain or ship agent in favor of the
consignee or shipper; and those possessed by the captain or ship agent signed by the
shipper shall be proof against the shipper or consignee in favor of the captain or ship agent.


Sec. 3[4] & [5], COGSA, C.A. No. 65:
[4] Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the
goods as therein described in accordance with paragraphs 3(a), (b), and (c), of this section.
[5] The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time
of the shipment of the marks, number, quantity, and weight, as furnished by him; and the
shipper shall indemnify the carrier against all loss, damages, and expenses arising or
resulting from inaccuracies in such particulars. The right of the carrier to such indemnity
shall in no way limit his responsibility and liability under the contract of carriage to any
person other than the shipper.

MATTERS TO BE ENTERED IN A BL OR AIRWAY BILL
For BL (Art. 706, Code of Commerce):
Name, registry and tonnage of the vessel
Name of captain and his domicile [not anymore applicable as of present]
Port of loading and unloading
Name of shipper
Name of consignee
Quantity, quality, number of packages and marks of the merchandise; and
Freight and primage
56

For Airwaybill (Art. 3[1], Warsaw Convention on Air Transport:
Place and date of issue
Place of departure and destination;
Agreed stopping places, provided the carrier may reserve the right to alter the stopping
places in case of necessity, and that if he exercises that right, the alteration shall not have
the effect of depriving the transportation of its international character;
Name and address of the carrier or carriers; and
Statement that the transportation is subject to the rules relating to liability in this
convention.

KINDS OF STIPULATIONS IN A BILL OF LADING
First kind: One exempting the carrier from any and all liability for loss or damage
occasioned by its own negligence VOID;
Second kind: One providing for an unqualified limitation of such liability to an agreed
valuation VOID; and
Third kind: 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 VALID.
[H.E. Heacock Co. v. Macondray & Co., G.R. 16598l, Oct. 3, 1991]

LIABILITY OF CARRIER UNDER COGSA
If goods are to be shipped from a foreign port to the a Philippine, COGSA is applicable
suppletority to the Civil Code.
Liability of the carrier is US$500 per package, in the absence of a shippers declaration of a
higher value in the BL.
The above condition is deemed part of the BL even if not expressly stated.

MEANING OF PACKAGE
If goods are shipped in cartons Each carton is considered a package even if they are
stored in container vans.
If what ordinarily considered as packages are shipped in a container supplied by the carrier
and the number of such unit is disclosed in the BL Each of those units (not the container)
constitutes the package referred to in COGSA.

Belgian Overseas Chartering v. Phil. First Insurance Co., G.R. 143133, June 5, 2002
Facts: Steel sheets numbering 242 coils were shipped on board a vessel of Petitioner in
Germany to Manila. The coils were shipped inside the container vans provided by the
carrier. The LC covering the shipment state the per metric ton price of the coils. Upon
arrival, it was found out that 4 coils were damaged.
Held: Each coil is considered one package. The liability of the carrier should not be based
on the price declared in the Letter of Credit.

WARSAW CONVENTION ON AIR TRANSPORT
Liability to passenger P250,000 francs (passenger & carrier may agree to a higher limit of
liability
57
Liability to baggage and cargo P250 francs per kg (unless the passenger or consignor has
made, at the time when the package was handed over to the carrier, a special declaration of
interest in delivery at destination and has paid a sup- plementary sum not exceeding the
declared sum, unless he proves that sum is greater than the actual value to the consignor at
delivery.


In case of loss, damage or delay of part of registered baggage or cargo, or of any object
contained in the waybill The weight shall be taken into consideration in determining the
amount and carriers liability is limited to the TOTAL WEIGHT OF THE PACKAGE/S
However, when the loss, damage or delay of a part of the registered baggage or cargo, or
of an object contained therein, affects the value of other packages covered by the same
baggage check of the same airway bill, the TOTAL WIEHT OF SUCH PACKAGE/S shall also be
taken into consideration in determining the limit of liability.


Liability to hand carried items 5,000 francs per passenger
The above limitations are without prejudice to the local courts award in accordance to its
own law, in addition, the whole or part of the court cost and other expenses of litigation
incurred by plaintiff.

Not applicable if the amount of damages awarded, excluding court costs and other
expenses of litigation, does not exceed the sum which the carrier has offered in writing to
plaintiff within 6 months from the date of occurrence causing the damage or before
commencement of the action, if that is later.
If damage is caused by willful misconduct or by such default on the part of the carrier:
Carrier cannot invoke the provisions in Warsaw Convention on limited liability.

HAGUE PROTOCOL AMENDMENT TO WARSA CONVENTION ON AIR TRANSPORT
Removed the provision that exculpates the airline completely if it took all necessary steps
to avoid the damage.
The protocol declares that the stated limits of liability are not applicable if it is proved that
the damage resulted from an act or omission of the carrier, its servants or agents, done
with intent to cause damage or recklessly and with knowledge that damage would probably
result.
Note: Montreal Agreement of 1966 allows a passenger to recover unlimited damages upon
proof of willful misconduct.

LIABILITY UNDER COGSA
If no value is state Maximum: US$500.
If value is stated Rule on Qualified Liability.
Qualified Liability Rule:
A carrier may fix a maximum liability in the event the shipper does not declare any value or
a valude up to a certain amount. Should shipper declare a higher value, and willing to pay
higher freightage, the carrier shall accordingly be liable for greater damage.

58
CASES INVOLVING BILLS OF LADING

Maersk Line v. CA, 222 SCRA 108
Held:
Bill of lading, although contracts of adhesion, are not prohibited and the terms thereof
binding, since the other party is free to reject it, and yet has accepted the terms thereof. But
the terms of the bill of lading which create an absurd situation as having the effect of
practically leaving the date of arrival of the shipment to the sole determination and will of
the carrier cannot be enforced.

Telengtan Bros. v. CA, 236 SCRA 617
Held:
A bill of lading is both a receipt and a contract. As a contract, its terms and conditions are
conclusive on the parties, including the consignee, as to the route, destination, freight rates
or charges, and stipulates the rights and obligations assumed by the parties.

Saludo, Jr. v. CA, 207 SCRA 498
Held:
A bill of lading is a written acknowledgment of the receipt of the goods and an agreement
to transport and deliver them at a specific place to a person named or on his order.
Acceptance thereof without dissent raises the presumption that all the terms therein were
brought to the knowledge of the shipper and agreed to by him and estops him thereafter
from denying the same.
United States Lines v. Commissioner of Customs, 151 SCRA 189
Held:
The containerization system was devised to facilitate the expeditious and economical
loading, carriage and unloading of cargoes.
Under that system, the shipper loads his cargoes in a specially designed container, seals
the container and delivers it to the carrier for transportation.
The carrier does not participate in the counting of the merchandise for loading into the
container, the actual loading thereof nor the sealing of the container.

Everett Steamship v. CA, 287 SCRA 496
Held:
A stipulation printed in BL limiting common carriers liability for loss or destruction of a
cargo to a certain sum, unless shipper or owner declare a greater value is sanctioned by law,
particularly Arts. 1749 and 1750 of the Civil Code, provided such stipulation must be
reasonable and just under the circumstances and has been freely and fairly agreed upon.
The printing of such limiting stipulation in a small print on the BL does not make the BL
invalid nor can it be argued that the stipulation has not been fairly and freely agreed upon
as to be binding on the carrier.

At most, the situation only calls for a greater vigilance on the part of courts when dealing
with such contracts of adhesion in that said contracts must be carefully scrutinized in order
to shield the unwary (or weaker party) from deceptive schemes contained in ready-made
covenants.
59
In this case, since the shipper is engaged in trading business, it cannot be said to be
ignorant of the business transactions it entered into involving the shipment of its goods to
its customers.
The shipper could have known, or should know the stipulations in the BL and there it
should have declared a higher valuation of the goods shipped.

Valenzuela Hardwood v. CA, 274 SCRA 642
Held:
A stipulation in a charter party that the owners shall not be responsible for loss, split,
short-landing, breakages and any kind of damage to the cargo, is NOT VOID as being
contrary to public policy, when it is clear from the arrangement that the carrier merely acted
as private carrier under the terms of the charter party.
In a contract of private carriage, the parties may validly stipulate the responsibility for the
cargo rests solely on the charterer, exempting the shipowner from liability for loss of or
damage to the cargo caused even by the negligence of the ship captain.

PAL v. CA, 255 SCRA 48 on the period provided in Way bill
Held:
Where the failure to file the formal claim within the prescriptive period contemplated in the
air waybill was largely due to the fault of carriers representatives, the condition was
deemed fulfilled considering the collective action of the carriers personnel in tossing
around the claim and leaving it unresolved for an indefinite period of time, which was
tantamount to voluntarily preventing its fulfillment, and therefore the filing of the baggage
freight claim constituted substantial compliance with the requirement of the filing of a
formal claim

Chapter 5

PRESCRIPTIVE PERIODS IN CLAIMS
FILING OF CLAIM IN INTER-ISLAND COMMERCE (Art. 366, Code of Commerce)
If goods arrived in damaged condition:
Apparent Must file a claim immediately (oral or written)
Not apparent Must file a claim within 24 hours from deliver

FILING OF ACTION IN INTERISLAND TRADE
Period to file action if claim is filed but CARRIER REFUSES TO PAY:
6 years if no BL
10 years if there is BL
Note: Filing of the claim under Art. 366, CoC is CONDITION PRECEDENT for recovery. If no
claim is filed, there will be no recovery, even if an action therefor is meritorious since the
claim is part of the cause of action

FILING OF CLAIMS IN OVERSEAS TRADE
If damage is APPARENT CLAIM SHOULD BE FILED IMMEDIATELY.
If damage is NOT APPARENT CLAIM SHOULD BE FILED WITHIN 3 DAYS.
FILING OF ACTION IN OVERSEAS TRADE
60

1 year from the time vessel departs from port without making delivery; or
1 year from the date the damaged cargo is delivered to arrastre.
Note: the 1 year period applies also to collision cases.
If mis-delivered: 10 years; If claim is based on delay: 10 years.
Note: Filing of claim is NOT A CONDITION PRECEDENT in the filing of action.

Rizal Surety v. Macondray, 22 SCRA 902
Facts: A vessel arrived in Manila on Oct. 25. It left Manila on Oct. 31. The BL showed that
the cargo was aboard the vessel, but it was never delivered. The shipper brought an action
against the carrier for non-delivery.
Held: Since there was no tally sheet AND NO DELIVERY, the 1- year prescriptive period for
filing the action should be counted from the LAST DAY ON WHICH THE CARRIER HAD AN
OPPORTUNITY TO MAKE THE DELIVERY, i.e. Oct. 31 when the vessel departed from port.

Union Carbide v. Manila Railrod, 77 SCRA 359
Held:
In the case when the vessel docked at the pier, where the cargo has been unloaded and
delivered to the arrastre, the 1-year period begins to run from the date of delivery to the
arrastre operator.
Ang v. American SS Agencies, 19 SCRA 631
Held:
Where there was delivery to the wrong person, the prescriptive period is (10) years because
there is a violation of contract, and COGSA does not apply to misdelivery.

US Insurance v. Cia. Maritima, 21 SCRA 998
Facts:
Cargo was loaded in New York for Davao City. Since most of the cargo was for Manila, the
carrier unloaded all the cargo, including that for Davao City, in Manila and did not make a
trip to Davao. Instead, the goods for Davao were transshipped on an inter-island vessel.
The cargo arrived in a damaged condition.

Held:
The 1-year period provided in COGSA shall still apply since the contract of carriage is from
New Yor to Davao. The inter-island vessel from Manila to Davao is considered merely a
connecting vessel and the transshipment did not constitute a separate contract of carriage.

Filipino Merchants Ins. Co. v. Alejandro, 145 SCRA 42
Held:
The insurer of the goods is also bound by the 1-year prescriptive period under the
Carriage of Goods by Sea Act.
Dole Philippines v. Maritime Co., 148 SCRA 118
Held:
The written extrajudicial demand by creditor DOES NOT TOLL the running of the 1-year
prescriptive period under COGSA since an action must be filed within the period.

61
Mitsui O.S.K. Lines v. CA, 287 SCRA 366
Facts:
Carrier undertook loading. However, while in Taiwan, goods were not transshipped
immediately, with the result that goods arrived in France late during the off-season.
Consignee paid only half of the value of the goods and balance was charged against loss
sustained due to late arrival. Shipper now seeks to recover unpaid balance from the carrier
which opposes the same since the loss or damage to goods shipped under Sec. 3(6) of the
Carriage of the Goods by Sea Act has been barred by the lapse of 1-year period.

Held:
Indeed, what is in issue here is not the liability of carrier of its handling of goods as
provided under Sec. 3(6) of COGSA, but its liability under its contract of carriage with
shipper as covered by the laws of more general application.
Since the concept of loss or damage involves he deterioration of goods DUE TO DELAY in
their transportation, the claims of shipper DO NOT CONSTITUTE LOSS OR DAMAGE within
the meaning of COGSA which requires the suit to be brought within 1-year from the time
the cause of action accrued.
The 1-year prescriptive period under COGSA is inapplicable. What is applicable is Art. 1144
of the Civil Code providing for a 10-year prescriptive period.

Mayer Steel Pipe Corp. v. CA, 274 SCRA 432
Facts:
The shipper has insured the merchandise against all risks with South Sea Surety. During
the voyage, the merchandise were damaged. Insurer opposed claim on the ground, inter
alia, that it was filed more than one (1) year from discovery of the damage to the
merchandise and therefore barred by the provisions under COGSA.

Held:
The provision applies only to carriers liability which is extinguished if no suit is brought
within one year.
The liability of the insurer is not extinguished because the insurers liability is based not on
the contract of carriage but on the contract of insurance.
COGSA governs relationship between carrier and shipper, the consignee and/or the insurer
on the other hand and defines the obligations of the carrier under the contract of carriage.
It does not, however, affect the relationship between shipper and insurer which is governed
by Insurance Code.

MEANING OF DAMAGES
The pecuniary compensation, recompense, or satisfaction for an injury sustained; or
The pecuniary consequences which the law imposes for the breach of some duty or
violation of some rights.

DAMAGES RECOVERABLE
Actual Damages (dano emergente)
Unrealized Profits (lucro cesante)
Moral Damages
62
Nominal Damage
Temperate or Moderate Damages
Liquated Damages
Exemplary or Corrective Damages
Other damages

ACTUAL & COMPENSATORY DAMAGES
Art. 2205, NCC: 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 plaintiffs business standing or commercial credit.
Amount of damages in case of death: P100,000 per passenger for overland; P200,000 for
marine transportation.

LOSS OF EARNING CAPACITY UNDER ART. 2206
Formula:
Net Earning Capacity = Life Expectancy [2/3 x 80 age at death] x Gross Annual Income
less Necessary Living Expenses [fixed at 50% of the gross income in the absence of proof]

MORAL DAMAGES (Art. 2219, Civil Code)
Include
Physical suffering,
Mental anguish,
Fright,
Serious anxiety,
Besmirched reputation,
Wounded feelings,
Moral shock,
Social humiliation, and
Similar injury

PRINCIPLES INVOLVING AWARD OF MORAL DAMAGES
As a general rule, no moral damages may be awarded where the breach of contract is NOT
MALICIOUS.
Moral damages may be awarded if the contractual negligence is considered gross
negligence.
Though incapable for pecuniary estimation, moral damages may be recovered if they are
the proximate result of the defendants wrongful act or omission.
The award of moral damages is designed to compensate the claimant for actual injury and
is not meant to enrigh the complainant at the expense of the defendant.

CASES WHEN MORAL DAMAGES MAY BE AWARDED (Arts. 2219 & 2220, NCC)
Criminal offense resulting in physical injuries;
Quasi-delicts causing physical injuries
Seduction, abduction, rape, or other lascivious acts
Adultery or concubinage
63
Illegal or arbitrary detention or arrest
Illegal search
Libel, slander or any other form of defamation
Malicious prosecution
Acts mentioned in Art. 309 [disrespect to the dead, or wrongful interference with a funeral]
Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 [on human
relations]

In culpa contractual, moral damages may be awarded:
Where the mishap resulted in the death of the passenger. (Art. 1764 in relation to Art.
2206)
When the carrier was guilty of fraud or bad faith, even if death did not result. (Art. 2220;
Sabena Belgian World Airlines v. CA, 171 SCRA 620)
Note: If the cause of action is culpa aquiliana where the passenger suffered physical
injuries, there is no more need to prove that the carrier acted fraudulent or in bad faith (Art.
2210[2], Civil Code)

Lopez v. Pan Am, 16 SCRA 431 (1966)
Facts:
VP Lopez with his wife, daughter and son-in-law had tickets for 1
st
class bound for SF.
When they arrived in Tokyo, the planes crew found out that the 1
st
class tickets had been
overold, and Lopez and his family were compelled to take the economy seats.
When the plane arrived at SF, Filipino official and the Filipino community with a band
waited for Lopez to appear from the 1
st
class section. It caused him humiliation.

Held:
Pan-Am should have informed Lopez of the possible downgrading to prevent his
humiliation
The court award Lopez P300,000 in moral damages and P150,000 in attorneys fees.
The substantial amount of damages was awarded in view of the importance of the person
of the passenger

Zulueta v. Pan-Am (1972)
Facts: Zulueta was a passenger on a Pan-Am flight with his wife and children from SF to
Manila. On stopover at Wake Island, the passengers were told that the plane would leave in
30 minutes. After 30 mins. Zulueta failed to show up, the crew had to look for him. When he
was found, the plane captain called him a brown monkey. Bitter exchanged followed. The
captain then order the crew to unload Zuluetas baggage and he was left behind.
Held: Zulueta is entitled to moral damages of P500,000 and Attorneys fees of P50,000

Ong Yui v. CA, 91 SCRA 223
Held:
In repealing the Shewaran Doctrine, the SC ruled that the qualified liabilityappearing on the
ticket is binding even if the passenger did not sign it.

ARRASTRE
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In its generic term, it refers to a contract for the unloading of goods from a vessel.
In maritime law, arrastre applies only to overseas trade.
When a person brings in cargo from abroad, he cannot unload and deliver the cargo by
himself. This is done through the arrastre operator, which will be obligated to deliver the
cargo to the importer.

Firemens Fund v. Cia. General de Tabacos, 34 SCRA 392 (1970)
Held:
The Arrastre operator, for the privilege of those undertaking signs a Management Contract
with the Philippine Government. But among the stipulations in the MC are provisions that
adversely affect the importer.
The management contract contains stipulations pour autrui and there is stamped across
the Delivery Permit that the importer received the goods subject to the management
contract, then he shall be bound by the same.

PARTIES IN ARRASTRE CONTRACT
The Government (RP)
The Arrastre Operator being awarded the privilege of operating an arrastre service
Third party beneficiary, who is the shipper or person being serviced by the arrastre.

4 STIPULATIONS IN THE REVISED MANAGEMENT CONTRACT AFFECTING THE IMPORTER OR
SHIPPER
Formal claim against arrastre:
- Within 30 days from date of final entry with the Bureau of Customs supported by
invoices and other shipping documents. (A condition precedent)
Action on claim by arrastre: 60 days from receipt. (A condition precedent)

If claim is refused: Action to be filed within 1 years.
If claim is not acted upon: The 1 year period begins to run from the date of the expiry of
the 60-day period.
Qualified liability of arrastre: P2,000 per package unless higher value is declared.
NATURE OF LIABILITY OF ARRASTRE & CARRIER: Solidary
Metro Port Services v. IAC, 213 SCRA 103 (1992)
Held: A provision limiting the liability of arrastre operator through the imposition of a
requirement that a formal claim must be made within 30 days from filing of entry is
complied with when the consignee filed a provisional claim within the 30-day period.
As of that date, the arrastre operator was given reasonable opportunity to check the
validity of the claim while the facts were still fresh in the minds of the person who took part
in the transaction and while pertinent documents were still available.
It did not matter that the provisional claim was for the whole amount of the invoice. It is
sufficient as long as the name of the carrying vessel, its date of arrival and BL are attached.
Firemens Fund v. Tabacalers, 34 SCRA 392
Held:
The adverse stipulations of the Revised Management Contract will affect the importer only
if the delivery permit is stamped: subject to RMC.
Where there is none, the importer cannot be bound.
65

DEGREE OF DILIGENCE REQUIRED IN ARRASTRE
In the performance of its obligations, an arrastre operator should observe the same degree
of diligence as that required of a common carrier and a warehouseman, i.e.
EXTRAORDINARY DILIGENCE.
Being custodian of the goods discharged from a vessel, an arrastre operators duty is to
take good care of the goods and to turn them over to the party entitled to their possession.
[Summa Insurance v. CA, 253 SCRA 175]

BURDEN OF PROOF IN ARRASTRE CLAIMS
In a claim for loss filed by a consignee, the burden of proof to show compliance with the
obligation to deliver the goods to the appropriate party devolves upon the arrastre operator.
The reason is because the safekeeping of the goods rest within its knowledge. Hence, it
must prove that the losses were not due to its negligence or that of its employee. [ICTSI v.
Prudential Guarantee & Assurance Co., Inc., 320 SCRA 244]

SHIPPERS LOAD & COUNT SHIPMENT
When consigned goods are shipped under shippers load and count, the shipper is solely
responsible for the containers load as the carrier would then be oblivious of the contents of
the shipment.
Protection against pilferage of the shipment are then the consignees lookout.
The arrastre operator is, like any ordinary depositary, duty-bound to take good care of the
goods received from the vessel and to turn the same over to the party entitled to their
possession, subject to such qualification as may have validly been imposed in the contract
between the parties.

The arrastre operator is not required to verify the contents of the container received and to
compare them with those declared by the shipper because the cargo was at the shippers
load and count, and is expected to deliver to the consignee only the container received from
the carrier.

COMMERCIAL TERMS WHEN CARRIER INTERVENES
FOB (Free on Board) Delivery to the vessel is delivery to the buyer. Carrier becomes the
AGENT OF THE BUYER.
FAS (Free Alongside Ship) The seller pays all charges and bears the risk until the goods
are placed alongside overseas vessel and within the reach of its loading tackle. The same
presumption as FOB.

CIF (Cost, Insurance & Freight) The quotation price quotation on CIF presumes that the
seller shall pay the cost of rating and packaging, insurance and the freightage. Carrier is
deemed the agent of the seller and ownership is retained by him throughout the trip. It
passes to the buyer only upon reaching the port of destination and the cargo is discharged
and delivered to the buyer. Insurable interest is with the SELLER. Taxes are not yet due since
the sale is not yet deemed perfected until the cargo reaches the port of destination.

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PART II
MARITIME LAW

Chapter 6

GENERAL CONCEPTS

MARITIME LAW
The system of laws 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.
Includes:
Book II, Code of Commerce (Maritime Commerce
Act No. 2616 (The Salvage Law)
C.A. No. 65 (Carriage of Goods by Sea Act)
P.D. 1521 (Ship Mortgage Decree of 1978)
R.A. 9295 (The Domestic Shipping Act of 2004)
Other special laws relating to maritime commerce

ORIGINS OF SHIPPING
Mans first use of the sea started 3,000 years ago Fishing developed into highly
organized activity.
At that time, ships were used to carry large and heavy piece of cargo which neither man
nor beast of burden can carry.
In one account, the Queen of Ancient Egypt move her stone obelisks weighing 700 tons
through the entire length of Egypt on the Nile River.
Egyptians were credited in revolutionizing shipping when they invented the SAIL.

But it is the ROMANS who conceived the basic principle of marine transport on economic
dimension of shipping when they found out that carting a large quantity of grain to the
empires frontier 75 miles away would cost more than to ship it by sea.

CODE OF HAMURRABI
In 2000 BC, Babylonian Ruler Hamurrabi codified the following maritime laws on:
- Marine Collisions
- Bottomry
- Reimbursement for Leased Watercraft

DEVELOPMENT OF UNIVERSAL MARITIME LAW
Phoenicians Sea Law
Code of Rhodes, which regulated Greek Commerce for a very long time
Roman Maritime Law

RHODIAN - ROMAN MARITIME LAW
1
st
Section (MARE) Deals with the sea and concerns of public law of the sea. Mare liberium
did not exist yet.
67
2
nd
Section (NAVIS) Deals with the ship and enunciates the classification of watercrafts
into freighter or passenger vessels and seagoing or inland crafts.
3
rd
Section (MERX) Deals with cargo and the admiralty principles as known today.
4
th
Section (OBLIGACIONES) - Deals with the responsibilities of ship owners and masters.
5
th
Section (ACTIONS) Deals with dispute settlement arising from shipping transactions.
EVOLUTION OF MODERN LAW ON MERCHANT SHIPPING
1896: Comite Maritime Internationale (CMI) organized for the purposed of unification of
merchant marine rules.
Conference Diplomatique De Droit Maritime (Brussels) - 16 International Conventions and
protocols approved, i.e. collision at sea, salvage, bill of lading, carriage of goods by sea, etc.

UN AGENCIES IN MARITME LAW
International Maritime Organization (IMO) established the Technical Regulation of
Shipping.
United Nations Conference on Trade and Development (UNCTAD) established the
Economic Regulations of Shipping.
International Labor Organization (ILO) established the International Merchant Labor
Regulations Standards.
UN Conferences Established UNCLOS (1982), Geneva Conventions on the Law of the Sea
(1958/1960)

REAL AND HYPOTHECARY NATURE MARITIME LAW
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, and the many securities of
a real nature that maritime customs from time immemorial, the laws, the codes, and the
later jurisprudence, have provided for the protection of the various and conflicting interest
which are ventured and risked in maritime expeditions. [Phil. Shipping Co. v. Vergara, G.R.
No. 16000, June 1, 1906]

MEANING OF REAL AND HYPOTHECARY NATURE
The liability of the carrier in connection with losses related to maritime contracts is
confined to the vessel, which is hypothecated for such obligations or which stands as the
guaranty for their settlement.
NO VESSEL, NO LIABILITY RULE.

SUMMARY OF THE NATURE OF MARINE TRANSACTIONS
REAL A vessel is essentially a personal property because it is movable. But the Supreme
Court characterized maritime transactions as having a real nature insofar as these
transactions are similar to transactions over real property with respect to effectivity against
third persons which are effected through registration. Registration of vessels now lodged at
MARINA.
HYPOTHECARY The liability of the owner of the vessels is limited to the vessel itself. If he
vessel sinks, generally the liability of the owner is extinguished, although he may have other
properties

EVIDENCE OF REAL NATURE OF MARITIME LAW
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Limitation of the liability of the agents to the actual value of the vessel and the freight
money; and
Right to retain the cargo and the embargo and detention of vessel even in cases where the
ordinary civil law would not allow more than a personal action against the debtor or person
liable. [Luzon Stevodoring v. CA, 156 SCRA 169]

Aboitiz Shipping v. General Accident Fire Ins., 217 SCRA 359
Held:
The rights of 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.
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.

Monarch Insurance v. CA,
333 SCRA 71
The Limited Liability Rule in Maritime Law has not been rendered obsolete by the advances
in modern technology which have considerably lessen the risks involved in maritime trade,
and the courts continue to apply the said rule in appropriate cases.

ICTSI v. PRUDENTIAL GUARANTEE, 320 SCRA 244
Held:
As both nature of the function and the place of their performance, an arrastre operators
service are clearly not maritime in character.
The legal relationship between an arrastre operator and a consignee is akin to that between
a warehouseman and a depositor.

PROVISIONS ON LIMITED LIABILITY RULE
Art. 587, CoC: The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with
all her equipment and the freight it may have earned during the voyage.
Art. 590: The co-owners of the vessel shall be civilly liable in the proportion of their
contribution to the common fund for the results of the acts of the captain, referred to in
Art. 587.
Each co-owner may exempt himself from this liability by the abandonment,
before a notary, of that part of the vessel belonging to him

Art. 643 (Ibid): 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 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 remainder of the vessel as well as on the amount of 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
69
recover the remainder of the shipwrecked vessel they shall be given from the amount of the
salvage an award in proportion of the efforts made and to the risks encountered in order to
accomplish the salvage.

Art. 837 (Ibid): 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.
Notes: Art. 837 applies to collision cases only.

EXCEPTIONS
Where the injury or death to a passenger is due either to the fault of the ship owner or to
the CONCURRING NEGLIGENCE OF THE SHIP OWNER AND THE CAPTAIN.
Where the vessel is insured.
In workmens compensation claims.
Where vessel is partially lost.
Liability on repairs made prior to the loss of the vessel.
Foreclosure of mortgage on the ship

SHIPOWNERS FAULT

The well-entrenched rule in our jurisprudence is that a ship owner may be held liable for
injuries to passengers notwithstanding the exclusively real and hypothecary nature of
Maritime Law, if fault can be attributed to the ship owner. [Negros Navigation v. CA, 281
SCRA 534]

CONCURRENT NEGLIGENCE OF SHIPOWNER & CAPTAIN
Although the ship agent is liable for the negligent act of the captain in the care of goods
loaded on the vessel, this liability can be limited through abandonment of the vessel, its
equipment and freightage as provided in Art. 387.
Nonetheless, there are exceptional circumstances wherein the ship agent could still be held
answerable despite the abandonment as where loss or injury was due to fault OF
SHIPOWNER AND CAPTAIN.
Manila Steamship v. Abdulhman, 100 Phil. 32
Facts:
Abdulhaman bought a submarine chaser of WWII vintage, which he converted into a
passenger ship. The chaser, being at fault collided with a new steel vessel of Manila
Steamship and it sank. Manila Steamship sued to recover damanges as Adbulhaman had
other properties.
The latter put up the defense that his liability was extinguished by the loss of the chaser.
It was proven that the chaser, being of a certain tonnage, should have been commanded by
one having qualifications of captain and not a mere patron.

Held:
Abdulhaman is still liable. The hypothecary nature will not apply when the ship owner is
personally at fault due to:
- Lack of proper equipment; or
70
- Lack of proper technical training of the officers and crew.
PARTIAL LOSS
In the event the vessel is not entirely lost, the hypothecary nature of the maritime
transaction under Art. 837 of the Code of Commerce will not apply, unless the shipowner or
agent abandons the vessel. [Luzon Stevedoring v. CA, 156 SCRA 169]

REPAIRS ON VESSEL
The limited liability rule in maritime law does not apply in case where the liability was for
repairs on the vessel that was completed before her loss. [Government of P.I. v. Insular
Maritime Co.. 45 Phil. 805]

LOSS COVERED BY INSURANCE
Where vessel is at fault sinks but is insure, the insurance takes the place of such vessel.
The liability subsists but only to the extent of the insurance proceeds.
The excess is still subject to the hypothecary rule. [Pedro Vazquez v. CA, 138 SCRA 553]

Abueg v. San Diego, 77 Phil. 32
Facts:
A vessel of San Diego, a shipping operator, sank and one crew member died. When the
heirs of the deceased sought compensation under the Workmens Compensation Law, San
Diego put up the defense of the hypothecary nature of maritime transactions to avoid
liability.

Held:
San Diego is still liable. Workmens compensation is an exception to the hypothecary
nature of maritime transactions in view of two reason, to wit:
(1) The Code of Commerce was promulgated in 1880 while the Workmens
Compensation Law was enacted in 1925. In case of conflict, the latter prevails.
(2) Provisions on hypothecary nature of maritime transactions contained in the
Code of Commerce are general provisions while that in Workmens Compensation Law are
specific. In case of conflict, specific provisions of law prevail.

Loadstar Shipping v. CA,
315 SCRA 339
Held:
Failure of common carrier to maintain in seaworthy condition its vessel involved in a
contract of carriage is a clear breach of its duty prescribed in Art. 1755 of the Civil Code.
The doctrine of limited liability will not apply.

ABANDONMENT OF VESSEL
Abandonment of the vessel, its appurtenances and freightage is an indispensable
requirement before the shipowner can enjoy the benefits o the limited liability principle.
In case of collision, abandonment of the vessel is necessary in order to limit the liability of
the shipowner or the agent to the value of the vessel, its appurtenances and freightage
earned in the voyage.
71
Only instance abandonment is dispensed with is when the vessel was entirely lost. [Phil.
Shipping Co. v. Garcia, 6 Phil. 281

Protest
A written statement by the master of a vessel or any authorized officer, attested by a
proper officer or a notary, to the effect that damages has been suffered by the ship.
Protest is required under the Code of Commerce in the following cases:
1. Arrival under stress
2. Shipwrecked
3. Gone through a hurricane or the captain believes that the cargo has suffered
damage or average
4. Maritime collisions
Admiralty Jurisdiction
RTC or MTc, depending on the amount of the demand or claim.
Amount determines jurisdiction of the court.
The proceeding is in rem.

Chapter 7

Vessels
Ship or vessel
Ship or Vessel - means any kind, class or type of craft or artificial contrivance capable of
floating in water, designed to be used, or capable of being used, as a means of floating in
water transport in the domestic trade for the carriage of passengers or cargo, or both,
utilizing its own motive power or that of another. [R.A. 9295]

Prescriptive Period on Vessels
Acquisitive prescription: Good faith 4 years; bad faith 8 years. Prescription doesnt run
in favor the captain since he holds the position that of a trustee. [Art. 573]
Right of pre-emption and legal redemption available to co-owners to be exercised within
30-days from sale of the vessel. [Art. 575]

Rules on Co-ownership of Vessel
Co-ownership of vessel gives rise to a partnership ipso jure. No agreement is needed
before a partnership is created. {Note: This is one instance of a partnership coming into
existence by mere operation of law. Another instance when there is commingling of similar
good of fungible nature.}
Majority may perform acts of administration but acts of ownership require the concurrence
of all the co-owners.
Majority is determined in accordance to the following: 1 vote given to the co-owner who
contributed the least capital, 2 votes to the one who gave double, et sequitur.

Importance of the Definition
The word vessel (Spanish: buque or nave) was not intended to include all ships, craft or
floating structures of every kind without limitation, and the provisions of that section
should not be held to include minor craft engaged only in river and bay traffic.
72
The word nave, which is used inter-changeably with buque means a SHIP, A VESSEL
WITH DECKS AND SAILS. A deck is not a feature of the smallest types of watercraft.
Such type of watercraft is not contemplated in Art. 835 requiring protest in case of
collision. [Lopez v.Dureolo, 52 Phil. 229]

It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not
required to make protest as a condition precedent to his right of action for the injury
suffered by him in the collision described in the complaint. Art. 835 does not apply.
Nevertheless, under Article 836, it is provided that want of protest cannot prejudice a
person not in a condition to make known his wisher.
An individual who has suffered a compound fracture of the femur and received other
physical injuries sufficient to keep him in a hospital for many months, cannot be supposed
to have been in a condition to make protest within 24-hours of such occurrence.
Peculiar nature of vessels (Philippine Refining Co. v. Jarque, G.R. 41506, Mar. 25, 1935)
Vessels are considered personal property under civil law. Similarly under the common law,
vessels are personal property although referred to as a peculiar kind of personal property.
Since the term personal property includes vessels, they are subject to mortgage agreeably
to the provisions of the Chattel Mortgage Law (Act No. 1508, Sec. 2).

The only difference between a chattel mortgage of a vessel and of other personalty is that
it is not now necessary for a chattel mortgage of a vessel to be noted in the register of
deeds, but it is essential that a record of documents affecting title to a vessel be entered in
the record of the Collector of Customs (now with MARINA by virtue of M.C. 90) at the port of
entry (now at the port of registry, in case of coastwise vessel).
Otherwise, a mortgage on a vessel is generally like other chattel mortgages as to its
requisites and validity.

Mortgage of Ship (P.D. 1521)
Sec. 3. Mortgage of Vessel of Domestic Ownership; records
(a) No mortgage is valid in respect to such vessel against any person other than the
mortgagor, his heir or assign, and a person with actual notice thereof unless recorded with
the PCG (now MARINA)
Sec. 4. Preferred Mortgages: Mortgage is preferred based on the date of recording if:
- It is recorded with PCG (MARINA)
- An affidavit in good faith is filed together with the record of mortgage.
- No waiver of preferred status.
Suit in Admiralty
(Sec. 10. P.D. 1521)
Preferred mortgage constitutes as a lien upon the vessel. In case of default, the mortgage
lien may be enforced by SUIT IN REMAINING ADMIRALTY, wherein the vessel itself may be
made a party defendant and be arrested in accordance with Sec. 11.
Original jurisdiction: CFI (now depending on the amount of the claim)
Requirement of notice by publication and actual notice to:
- the master or other ranking officer, or caretaker of the vessel; and
- Any person who has recorded a notice of claim of an un-discharged lien upon the
vessel.
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Arrest of Vessels
[Sec. 11, P.D. 1521]
Upon filing of petition for judicial foreclosure of a Preferred Ship Mortgage or immediately
thereafter,
Applicant may apply ex-parte for an order for the arrest of the mortgaged vessel.
Judge to immediately issue arrest order, if it is made to appear by affidavit of the applicant,
or of some other person who personally know the facts that a default in the mortgage has
occurred and that applicant files a bond executed to the adverse party in an amount to be
fixed by the judge, not exceeding the applicants claim, conditioned that the latter will pay
all the costs which may be adjudged to the adverse part and all damages sustained.

Procedure in discharge of arrest
(Sec. 12, P.D. 1521)
File counter-bond in an amount double of the claim; or
Apply for order on the ground of improper or irregular issuance of order.
Extrajudicial Foreclosure of Vessel (Sec. 14, P.D. 1521)
Applicable provisions in Chattel Mortgage Law govern.
For purpose of taking possession of the vessel, the foreclosing creditor to secure from RTC
Judge of the province where the vessel may be our or where the creditor or debtor resides,
an order for the arrest or seizure of the vessel.
Upon issuance of the order, the sheriff to immediately take possession of the vessel for the
purpose of foreclosure and sale.

Foreign Ship Mortgage
(Sec. 15, P.D. 1521)
Preferred mortgage in foreign ship includes those duly recorded by virtue of Sec. 4 (supra)
and:
Preferred mortgage lien in foreign ship is subordinate to maritime liens for repairs,
supplies towage, use of drydock or marine railway, or other necessaries performed or
supplied in the Philippines.
How proceeds of sale disposed
(Sec. 17, P.D. 1521)
Preferred mortgaged lien takes priority over all claims against the vessel. Exceptions:
1. Expenses and fees allowed and costs taxed by the court and taxes due to the
government.
2. Crews wages.
3. General average.
4. Salvage, including contract salvage.
5. Maritime liens arising prior in time to the recording of the preferred mortgage.
6. Damages arising out of tort.
7. Preferred mortgaged registered prior in time.


If proceeds of the sale is not sufficient to pay all creditors included in one number or
grade, the residue shall be divided among them pro rata.
74
All credits not paid, whether fully or partially shall subsist as ordinary credits enforceable
by personal action against the debtor.
Suit in Personam in Admiralty upon Default (Sec. 18. P.D. 1521)
Allows the creditor to bring suit in personam in admiralty against the mortgagor for the
amount of the outstanding mortgage indebtedness even if secured by the vessel.
If the debt is also secured by other realty or personalty, the creditor may proceed upon the
same.
Maritime Lien for Necessaries
(Sec. 21, P.D. 1521)
Repairs, supplies, towage, use of drydock or marine railway, or other necessaries were
furnished to the vessel.
The work is done on orders of the ship owner or person authorized by the owner.
Such credit must be alleged or proved that it was given to the vessel.
Enforceable by suit in rem.
MARINA M.C. 100 (Guidelines on Annotation/Cancellation of Mortgage)
Documentary requirements:
Letter of Intent & Duly accomplished application form;
Duly notarized mortgage contract;
Proof of payment of documentary stamp tax with the BIR; and
Original copy of CO and CVR.
Note: The annotation of mortgage to be reflected at the back of the CVR and CO.
Other applicable MARINA regulations on vessels
M.C. No. 48 Measure to control overcrowding/ overloading and scalping of tickets in the
interisland vessels.
M.C. No. 72 Guidelines on the Implementation of at least 10-minute film on safety
features of each specific passenger/passenger-cargo vessels as amended by M.C. No. 136.
M.C. No. 83 Guideline on the issuance of endorsement certificates in accordance with the
STCW (Standards for Training, Certification and Watchkeeping) 1978 Convention.
M.C. No. 89 Implementing guidelines for vessel safety regulations as amended by 89-B.

M.C. No. 114 Preventive Safety Measure and other concerns
M.C. No. 123 Wearing of lifejackets during boarding and/or prior to departure by all
passenger vessels with open deck accommodation.
M.C. No. 135 Rules on the implementation of voice tape on the safety features of a
vessel.
M.C. No. 143 Rules and regulations to implement the International Safety Management
(ISM) Code in Domestic Shipping ( M.C. No. 159 for NSM).

Republic Act 9295
The Domestic Shipping Development Act of 2004
State policies on shipping
(Sec. 2)
(a) promote Filipino ownership of vessels operated under Philippine flag;
(b) attract private capital to invest in the shipping industry by creating a healthy and
competitive investment and operating environment;
75
(c) provide necessary assistance and incentives for the continued growth of the Philippine
domestic merchant marine fleet;

(d) encourage the improvement and upgrading of the existing domestic merchant marine
fleet and Filipino crew to meet international standard;
(e) ensure the continued viability of domestic shipping operations; and
(f) encourage the development of a viable shipbuilding and ship repair industry to support
the expansion and modernization of the Philippine domestic merchant marine fleet and its
strict adherence to safety standards which will ensure the seaworthiness of all sea-borne
structures.
Important terms in R.A. 9295 & IRR
Domestic Shipping - means the transport of passengers or cargo, or both, by ships duly
registered and licensed under Philippine law to engage in trade and commerce between
Philippine ports and within Philippine territorial or internal waters, for hire or compensation,
with general or limited clientele, whether permanent, occasional or incidental, with or
without fixed routes, and done for contractual or commercial purposes.
Domestic Trade - means the sale, barter or exchange of goods, materials or products
within the Philippines.

Domestic Ship Operator" or "Domestic Ship Owner" - means a citizen of the Philippines, or
a commercial partnership wholly owned by Filipinos, or a corporation at least sixty percent
(60%) of the capital of which is owned by Filipinos, which is duly authorized by the Maritime
Industry Authority (MARINA) to engage in the business or domestic shipping.
Shipper - means any person, partnership or corporation who shall procure for itself the
services of a domestic ship operator for the carriage of its cargo in the domestic trade upon
payment of proper compensation.

Certificate of Public Convenience - means the license or authority issued by MARINA to a
domestic ship operator to engage in domestic shipping.
Cargo Handling Equipments - means any machinery gear or equipment used by the ship
operator or a duly authorized and licensed port operator to service or handle cargo, on
board the vessel, at the pier, or in the terminal or container yard such as, but not limited to,
cranes, forklifts, top lift, stacker, tractor heads, containers, pallet boards, and the like,
including all spare parts, replacement parts, appurtenances, accessories, articles, supplies,
and material thereof.

Shipbuilding - means the design, construction, launching and outfitting of all types of
ships and watercraft;
Ship repair - means the overhaul, refurbishment, renovating, improvement, or alternation
of the hull, machineries, equipment, outfits and components of all types of ships;
Shipyard - means the shipbuilding or repair facilities which have the capability to lift
vessels above the waterline in order to effect ship work vessels, appendages, structure,
machinery and equipment.
Investment incentives to domestic shipping industry (Sec. 4)
76
(a) Exemption from value-added tax on the importation and local purchase of passenger
and/or cargo vessels of one hundred fifty (150) tons and above, including engine and spare
parts of said vessels.
Vessels to be imported must comply with the age limit requirement, at the time of
acquisition counted from the date of the vessels original commissioning, as follows: 1) For
passenger and/or cargo vessels, the age limit is fifteen (15) years old, 2) For tankers, the
age limit is ten (10) years old, and 3) For high-speed passenger craft, the age limit is five (5)
years old;

(b) Exemption from value-added tax on the importation of life-saving equipment, safety
and rescue equipment and communication and navigational safety equipment, steel plates,
and other metal plates including marine-grade aluminum plates, used for transport
operations.

CONDITIONS IN THE GRANT OF (a) & (b):
Not manufactured domestically in sufficient quantity, of comparable quality and at
reasonable prices;
Directly imported by a MARINA-registered domestic shipping operator;

Reasonably-needed and will be used exclusively by the registered domestic shipping
operators in its transport operations;
Approval of a MARINA was obtained prior to the importation of said articles;
Valid up to ten (10) years from effectivity.
Deregulation of the Domestic Shipping Industry (Sec. 8)
Domestic ship operators authorized to establish their own domestic shipping rates
provided that effective competition is fostered and public interest is served.
MARINA shall monitor all shipping operations and exercise regulatory intervention where it
is established, after due process that public interest needs to be protected and safeguarded.
Safety Standards
(Sec. 9)
All vessels shall at all times be in seaworthy condition, properly equipped with adequate
life-saving, communication, safety and other equipment, operated and maintained in
accordance with the standards set by MARINA, and manned by duly licensed and competent
vessel crew.
The MARINA given the power to inspect vessels and all equipment on board vessels to
ensure compliance with safety standards.

Jurisdiction of MARINA
(Sec. 10)
Register vessels;
Issue certificates of public convenience, or any extensions or amendments thereto,
authorizing the operation of all kinds, classes and types of vessels in domestic shipping:
Provided, That no such certificate shall be valid for a period of more than twenty-five (25)
years;
Modify, suspend or revoke at any time, upon notice and hearing, any certificate, license or
accreditation it may have issued to any domestic ship operator;
77
Establish and prescribe routes, zones of areas of operations of domestic ship operators;

Require any domestic ship operator to provide shipping services to any coastal area, island
or region in the country where such services are necessary for the development of the area,
to meet emergency sealift requirements, or when public interest so requires;
Set safety standards for vessels in accordance with applicable conventions and regulations;

Require all domestic ship operators to comply with operational and safety standards for
vessels set by applicable conventions and regulations, maintain its vessels in safe and
serviceable condition, meet the standards of safety of life at sea and safe manning
requirements, and furnish safe, adequate, efficient, reliable and proper service at all times;
Inspect all vessels to ensure and enforce compliance with safety standards and other
regulations;


Ensure that all domestic ship operators shall have the financial capacity to provide and
sustain safe, reliable, efficient and economic passenger or cargo service, or both;
Determine the impact which any new service shall have to the locality it will serve;
Adopt and enforce such rules and regulations which will ensure compliance by every
domestic ship operator with required safety standards and other rules and regulations on
vessels safety;

Adopt such rules and regulations which ensure the reasonable stability of passengers and
freight rates and, if necessary, to intervene in order to protect public interest;
Hear and adjudicate any compliant made in writing involving any violation of this law or the
rules and regulations of the Authority;
Impose such fines and penalties on, including the revocation of licenses of, any domestic
ship operator who shall fail to maintain its vessels in safe and serviceable condition, or who
shall violate or fail to comply with safety regulations;

Investigate any complaint made in writing against any domestic ship operator, or any
shipper, or any group of shippers regarding any matters involving violations of the
provisions of this Act;
Upon notice and hearing, impose such fines, suspend or revoke certificates of public
convenience or other license issued, or otherwise penalize any ship operator, shipper or
group of shippers found violating the provisions of this Act; and

Issue such rules and regulations necessary to implement the provisions of this Act:
Provided, That such rules and regulations cannot change or in any way amend or be
contrary to the intent and purposes of this Act.
Prohibited Acts and Practices of Domestic Ship Operators (Sec. 16)
Operate without a valid certificate of public convenience, accreditation or other form of
authority required by this Act;
Refuse to accept or carry any passenger or cargo without just cause;
Fail to maintain its vessels in safe and serviceable condition, or violate safety rules and
regulations;
78
Fail to obtain or maintain adequate insurance coverage;
Fail to meet or maintain safe manning requirements; and
Such other acts which the MARINA shall determine, after due notice and hearings, to be
detrimental or prejudicial to the safety, stability and integrity of domestic shipping.

CPC Issuance (Sec. 2, Rule IV, IRR of R.A. 9295 on Deregulation)
Power of MARINA to issue CPC or any amendments/extensions/renewals.
Requirements:
Economic and beneficial effect which the proposed service shall have to the port, province
or region which it proposes to serve; and
Financial capacity of the domestic shipowner/operator to provide and sustain safe,
reliable, adequate, efficient and economical service in accordance with the standards set by
government regulations.
Amendment to CPC
(Sec. 3, Rule IV IRR)
Permanent Addition or Deletion of a route/port/link; or,
Permanent Addition/ Reduction/ Replacement of Ship/Fleet or Change in Ships Name; or,
Permanent Addition/ Reduction/ Replacement of Ship/Fleet or Change in Ships Name; or,
Change in name of the entity/corporation/partnership/cooperative.
Validity of CPC
(Sec. 5, Rule IV IRR)
Qualification Requirements
(Sec. 6, Rule IV, IRR)
Must be a MARINA-registered shipowner/operator per MARINA MC 79/79-A or their
subsequent amendments.
Must be financially capable to provide and sustain safe, reliable, adequate, efficient and
economical service in undertaking the proposed shipping service.

Formula on Financial Capability: Capitalization = (Equity fixed assets net of long-term
liabilities) + total depreciation
Must provide a service that has economic and beneficial effect on the port, province or
region it proposes to serve.

Jurisdictional Requirements
(Sec. 8, Rule IV, IRR)
Affidavit of publication with the newspaper clipping;
Copy of the whole newspaper where the Order was published;
Photographs showing proof of the required posting of Order.

Safety Standards
(Sec. 1, Rule VI, IRR)
All ships shall, at all times, be in seaworthy condition as to their hull and machinery
Properly outfitted with adequate navigational aids and equipment, firefighting, life-saving,
communication, and other safety appliances/equipment.
Operated and maintained in accordance with prescribed standards, and manned by duly
licensed and competent ship crew.
79

Rates
(Sec. 1, Rule VIII, IRR)
Domestic shipowners/operators are authorized to establish/fix their own domestic
shipping rates, passenger or cargo rates or both.
Limitation: Effective competition is fostered and public interest is served.
Effectivity: 7 calendar days from the date of publication.

Conditions in Fixing Rates
(Sec. 2, Rule VIII, IRR)
Shipowners/operators with Entity/Company CPC to submit under oath with the MARINA
their Notice for the adoption of initial/ subsequent upward or downward adjustment of
deregulated rates in a prescribed form.
The notice shall indicate, among others, the name of covered ship(s), authorized
route(s)/link(s), rate(s) per route/link and the grounds for the adjustment.

Publication Requirement of
Adjusted Rates
The notice shall be published in any of the five (5) major newspapers of national
circulation, if the route(s)/area(s) of operation to be served is national and/or inter-regional
in scope.
If the route(s)/area(s) to be served is local or intra-regional in scope, publication in a
newspaper of local circulation is sufficient.
And, posting of the notice in in all conspicuous places at the affected port(s), vessel(s),
company premises, passenger terminals and ticketing office(s).

Instances Warranting MARINA Intervention (Sec. 4, Rule VIII, IRR)
Monopoly of a route/link, lack of effective competition in a route/link, and practices which
constitute combinations in restraint of trade.
Any complaint against the rates charged and/or services rendered by the
shipowners/operators provided sufficient basis/justification is submitted.
Any adverse findings/recommendations as a result of monitoring activities undertaken by
the MARINA.
Other analogous instances.

Compulsory Insurance Coverage (Sec.1, Rule IX, IRR)
(1) Not less than Php 200,000.00 per manifested passenger;
(2) Adequate insurance coverage for cargo, in an amount to be computed in accordance
with existing laws, rules and regulations, and the total amount of such coverage shall be
equivalent to the total cargo capacity being offered by the vessel.
(3) If a domestic shipowner/operator should offer both passenger and cargo service, then
the total insurance coverage shall be in the total sum equivalent to that stipulated in
paragraphs (1.1) and (1.2) of this Section.

Amount of Insurance If Operating more than (1) ship
80
The amount equivalent to the total authorized number of passengers, or total cargo
capacity, or both, of the largest operating ship.
But must not exceed the value of such ship.

Prohibited Acts
(Sec. 1, Rule XII, IRR)
Operating without a valid certificate of public convenience, accreditation or other form of
authority.
Refusal to accept or carry any passenger or cargo without just cause, except for tramp
operations.
Failure to maintain the vessels in safe and serviceable condition, or violation of the safety
rules and regulations.
Failure to obtain or maintain adequate insurance coverage.
Failure to meet or maintain safe manning requirements.

Failure to submit the required Quarterly Report and an audited Annual Report of
Operations and Finances, attaching the copy of the Official Receipt (OR) of Quarterly and
Monthly Common Carriers Tax Payments to the

Bureau of Internal Revenue.
Other detrimental or prejudicial to the safety, stability and integrity of domestic shipping.
Those prohibited acts defined in existing MARINA Circulars.

Powers of MARINA
(Rule XIV, IRR)
Power to Investigate
Power to Hear and Adjudicate
Power to Issue Summons
Rules on Appeals to MARINA Regional Offices CPC Decisions (Rule XV, IRR)
Order, ruling, decision or resolution rendered by MARINA Regional Office relating to CPC
application
MR 15 days from receipt;
If denied, appeal to Administrator 15 days from receipt.
If denied by MARINA Administrator:
- ADMINISTRATIVE APPEAL to the MARINA Board within 15 days from receipt; or
- Special Civil Action on Certiorari with CA within 30 days from receipt.

All other Decisions
MR 15 days from receipt;
If denied, appeal to MARINA Administrator 15 days from receipt.
If denied by MARINA Administrator: ADMINISTRATIVE APPEAL to the MARINA Board within
15 days from receipt.

Perfection of Appeal
File a Notice of Appeal with the MARINA Administrator and the concerned CO/MRO
Director/OIC.
81
Copy to be served upon the adverse party.
Within 15 days from receipt of the appealed from decision, etc.
Payment of Docket Fee of P1,000.

Temporary Take-Over of Operations (Sec. 1, Rule IX, IRR)
In times of national emergency;
When the public interest so requires;
Under reasonable terms prescribed by the Flag state;
Flag state may temporarily take over or direct the operations of any vessel engaged in
domestic trade and commerce or prescribe its rates or routes of operation.
Immediately upon the cessation of the emergency, the State shall immediately reinstate to
the domestic shipowner/operator the operation of the ship under the same terms and
conditions existing prior to the occurrence of the emergency.

Chapter 8
Persons Who Take Part In Maritime Commerce
Ship owner and Ship agent
Ship owner the person primarily liable for damages sustained in the operation of vessel.
Ship agent the person entrusted with provisioning of the vessel, or who represents her in
the port in which she happens to be.
Both are civilly liable for the acts of the captain and for the obligations contracted by the
him to repair, equip, and provision the vessel. [Art. 586, Code of Commerce]

Domestic Shipowner/operator
A citizen of the Philippines, or a commercial partnership wholly owned by Filipinos, or a
corporation at least sixty percent (60%) of the capital of which is owned by Filipinos, which
is duly accredited by the MARINA under Memorandum Circular No. 79/79-A or their
subsequent amendments to engage in the business of domestic shipping, which may
include cooperative or association duly registered with relevant government agency. [IRR,
R.A. 9295]

Captain and Masters
Captain those who govern vessels that navigate the high seas or ships of large
dimensions and importance, although they may be engaged in coastwise trade.
Masters those who command smaller ships engaged exclusively in the coastwise trade.
Note: For purposes of maritime commerce, both have the same meaning, i.e. they command
ships.

Powers & Functions of Captains (Masters)
Nature of his position: confidential and managerial.
3 distinct roles he performs:
(1) As general agent. If he is also a co-owner, his agency becomes one coupled with
interest. He may not be dismissed if he is a co-owner or the partnership agreement
stipulates as a condition as ship captain [see Art. 602 & 606 -607];
(2) As commander and technical director of the vessel; and
(3) As representative of the country under whose flag he navigates.
82

Vessel Pilot
A person duly qualified, and licensed, to conduct a vessel into or out of ports, or in certain
waters.
In a broad sense, the term pilot includes:
- Those whose duty it is to guide vessels into or out of ports, or in particular waters;
and
- Those entrusted with navigation of vessels on the high seas.
Compulsory pilotage is enforced in the Port of Manila, Port of Cebu, Port of Tacloban,
among others.

Pro Hac Vice Nature of Position of Pilot
Under English and American authorities, generally speaking, the pilot supersedes the
master for the time being in the command and navigation of the ship, and his order must
be obeyed in all matters connected with her navigation.
He becomes master pro hac vice and should give all directions as to speed, course,
stopping and reversing, anchoring, towing and the like.
And when a licensed pilot is employed in a place where pilotage is compulsory, it is his
duty to insist on having effective control of the vessel or to decline as pilot. [Far Eastern
Shp., v. CA, G.R. No. 130068, Oct. 1, 1998]
Occasions When Master May Interfere or Even Displace Pilot
When Pilot is obviously incompetent or intoxicated;
In cases of danger which pilot does not foresee;
In all cases of great necessity.
To advise or offer suggestions to the pilot considering that he is still in command of the
vessel, except so far as her navigation is concerned.
To see that there is sufficient watch on deck and that the men are attentive to their duties,
etc.
Failure on the part of the Master to comply with above duties makes him personally liable
for resulting damage cause. [Ibid]

Liability of Pilot
Rule: a pilot is personally liable for damages caused by his own negligence or default to the
owners of the vessel and to third parties for damages sustained in a collision.
Negligence of Pilot is known as MARITIME TORT
As held In Far Eastern Shipping:
In the United States, the owners of a vessel are not personally liable for the negligent acts
of a compulsory pilot, but by admiralty law, the fault or negligence of a compulsory pilot is
imputable to the vessel and it may be held liable therefor in rem.

Where, however, by the provisions of the statute the pilot is compulsory only in the sense
that his fee must be paid, and is not in compulsory charge of the vessel, there is no
exemption from liability.
Even though the pilot is compulsory, if his negligence was not the sole cause of the injury,
but the negligence of the master or crew contributed thereto, the owners are liable.
83
But the liability in rem does not release the pilot from the consequences of his own
negligence. The rationale for this rule is that the master is not entirely absolved of
responsibility with respect to navigation when a compulsory pilot is in charge.

Other Officers and Crew
Deck Officer an officer qualified in accordance with the provision of the International
Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW)
1978, as amended, Chapter II.
Chief Engineer a senior licensed marine engine officer responsible for the mechanical
propulsion and the operation and maintenance of the mechanical and electrical installations
of the ship.
Engineer Officer an officer qualified in accordance with the provision of (STCW) 1978, as
amended, Chapter III.

Radio Officer a person holding an appropriate certificate issued and recognized by the
MARINA under the provisions of the Radio regulations.
Ratings a member of the ships crew other than the master or an officer.
Major Patron (MAP) a marine deck officer duly registered and certificated to act as officer
or master of vessel of not more than 500 GT navigating in the major coastwise trade routes
within the territorial limits of the Philippines.

Minor Patron (MIP) a marine deck officer duly registered and certificated to act as officer
or master of vessel of not more than 250 GT navigating within a specified body of water in
the minor coastwise trade route in the Philippines.
Marine Diesel Mechanic (MDM) a person authorized by MARINA to operate and maintain
the ships diesel engines or the qualification/license to act as such.

Supercargoes administrative officers of the ship with duties to keep an account and
record of their transaction. Powers and duties of the captain with regard to that part of the
administration shall cease when thee is a supercargo.
Supernumerary - a person who is not a regular member of the crew but performing
functions appropriate to the certificate possessed.

Chapter 9
Charter Party
Definition of a Charter Party
A written contract whereby the ship owner or the ship agent leases the vessel to transport
passengers or cargo for a fixed price. [Art. 652, Code of Commerce]
A contact by which an entire ship or some principal part thereof, is left by the owner to
another person for a specified time or use. [Caltex Philippines, Inc. v. Sulpicio Lines, Inc.,
315 SCRA 709]
National Union Fire Insurance v. Stolt-Nielsen Phil., 184 SCRA 682
Held:
Where BL has been issued covering goods shipped aboard a vessel under a charter party,
and charterer remains the holder of the BL, it operates as a receipt for the goods, and as
84
document of title passing the property of the goods, but not as varying the contract
between the charterer and ship owner.
The BL becomes merely a receipt and not the contract of carriage in a charter of the entire
vessel.

Ouano vs. CA, 211 SCRA 740
Held:
Even if a charter party has a condition against sub-chartering, and the vessel was in fact
sub-chartered without knowledge on the part of the sub-charterer of the prohibition, no
cause of action arises in favor of the owner of the vessel against the sub-charterer.
Neither does such owner have any lien against the cargo of sub-charterer.
Carrier has a lien on the goods only while he retains possession of the goods

Obligation of the Charterer
Charterer, before transporting its cargo, is of no obligation to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier as
it is the one engaged in public service. [Caltex v. Sulpicio Lines, infra]

Important Terms Used in Charter Party
Primage the bonus to be paid to the captain after a successful voyage.
Demurrage A penal clause intended to compensate the owner of the vessel for its non-
use.
Lay days The period when the vessel will be delayed in port for loading and unloading.
Deadfreight The portion of the cargo under a charter not loaded. It is also used as the
amount recoverable by the ship owner from the charterer for that portion of the ships
capacity that the latter failed to occupy despite the stipulation in the charter party.

Cases on Demurrage
In its strict sense, demurrage is the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the lay time or that period of time
agreed on for loading and unloading of cargo and is given to compensate the ship owner
for the non-use of the vessel. [National Steel v. CA, 283 SCRA 45]
Demurrage is the sum fixed in a charter party as remuneration to the ship owner for the
detention of his vessel beyond the number of days allowed by the charter party for loading
or unloading or for sailing. [NFA v. CA, 311 SCRA 700]

NFA v. CA, 311 SCRA 700
The shipper or charter is liable for the payment of demurrage claims when he exceeds the
period of loading or unloading as agreed upon or the agreed lay days. The period for such
may or may not be stipulated in the contract. A charter party may either provide for a fixed
lay days or contain general or indefinite words such as customary quick dispatch or as
fast as the steamer can load.
Customary quick dispatch implies that loading and unloading of the cargo should be within
a reasonable period of time. Due diligence should be exercised according to the customs
and usages of the port or ports of call.

85
The circumstances obtaining at the time of loading and unloading are to be taken into
account.
When the provision is for demurrage/dispatch: NONE it will be deemed a waiver of the
right to claim demurrages.
Delay in loading or unloading, to be deemed as demurrage, runs against the charterer as
soon as the vessel is detained for an unreasonable length of time from the arrival of the
vessel because no available berthing space was provided for the vessel due to the
negligence of the charterer or by reason of the circumstances caused by the fault of the
chartere.

Keng Hua Paper Products v. CA, 286 SCRA 257
Held:
A claim for demurrage by carrier involves an obligation NOT ARISING from a loan or
forbearance of money. The applicable interest rate is 6% P.A. pursuant to Art. 2209, NCC.
When the BL does not specify the demurrage amount, and the total amount claimed by the
carrier increased as the days went by, the total amount demanded cannot be deemed to
have been established with reasonable certainty until the trial court rendered its judgment.
Hence, the 6% is to be computed from the date of the trial courts decision imposing
demurrage charges against the consignee.

Kinds of Charter Party
Contract of Affreightment one whereby the owner of the vessel leases a part or all of its
space to haul goods for others. It is a contract for special services to be rendered by the
ship owner. The ship owner RETAINS the possession, command and navigation of the ship,
the charterer merely having use of the space in the vessel in return for his payment.
Bare-boat or Demise Charter where the shipowner turns over possession of his vessel to
the charterer, with the latter undertaking to provide the crew, victuals, supplies and fuel
during the term of the charter. Charterer is owner PRO HAC VICE.

Two Classes of Contract of Affreightment
Voyage Charter The vessel is leased to the chartered for a single voyage only;
Time Charter The vessel is leased for a fixed period of time.

Substantive Provisions Relating to Charter Party
If charterers cargo is not sufficient to fill up 3/5 of the capacity of the vessel, carrier has
the right to unload the cargo and put it on a smaller vessel at the expense of the charterer.
If cargo exceeds 3/5 of the cpacity, the carrier cannot exercise the right. [Arts. 670 & 671,
CoC]
If vessel has been chartered in whole by one party, the owner cannot receive the cargo of
any other person as the charter party becomes an exclusive contract. [Art. 672]
The owner of the vessel is liable to the charterer for damages in case the captain unduly
delays the voyage. [Art. 673]

If charterer brings more than that agreed upon, the carrier may accept the increase in
cargo and demand increase of freightate provided the vessel is not overloaded. [Art. 674]
86
If vessel has been chartered to load cargo in another port and upon arrival in that port
there is no cargo delivered, the captain has two options:
a) Look for other cargo; or
b) After expiry of lay days there is still no cargo, the captain should file a marine
protest and return to home port in full ballast. The charterer should pay freightage in full.
[Art. 675]

No right to freightage if charterer can prove that the vessel is not in condition to navigate.
[Art. 676]
Charter may sub-charter where there is no express prohibition. [Art. 679]
Charterer who cannot fill the vessel is liable for full freightage. [Art. 680]
Charterer is liable for damages if loaded cargo subjects the vessel to forfeiture or
confiscation. Under Art. 356, carrier can open the packages of shipper to find out whether
they contain items which may subject the vessel to forfeiture. [Art. 681]

If merchandise should have been shipped for purpose of illicit commerce, and were taken
on board with knowledge of the person from whom the vessel was chartered or of the
captain, the captain is jointly liable with the ship owner for all the losses which may cause
the other shippers. [Art. 682]
Where the vessel is in need of repairs, chartere must wait until vessel is repaired. [Art. 683]
Before beginning of the trip, charterer may unload the cargo by paying of the freightage.
[Art. 685 in relation to Art. 688]

Charterer is under obligation to pay the freightage after the discharge of the cargo. [Art.
686]
Charterer and shippers cannot abandon the cargo unless it consist of liquids and leaks
out due to inherent defect of the cargo and with not more than remaining in the
container. [Art. 687]
Other rules affecting charter party and cargo
If merchandise sold to make necessary repairs, charterer shall still pay for the freightage.
[Art. 659]
If merchandise is jettisoned, lost at sea or seized by pirates, no obligation to pay
freightage. Considered as general average. [Arts. 660 & 661]
Merchandise damaged due to inherent defect: pay full freightage. [Art. 663]

Where payment is based on weight and the cargo increases in weight during the voyage,
the charterer must pay the increase. [Art. 664]
Cargo carried is subject to retaining lien by the ship owner. Retaining lien while in
possession; Carriers lien subsists up to 30 days from date of release of cargo. [Arts. 665
- 667]

Valid Rescission By Charterer of Charter Party (Arts. 688 690, CoC)
Before loading by paying of the freightage agreed upon. The consent of ship owner is
NOT NECESSARY. Mere notice to him is sufficient. {Note: This is the 1
st
distinction between
charter party and in ordinary lease. In lease, none of the parties may unilaterally cancel the
contract without paying the full consideration plus damages};
87
When the vessel is not up to the capacity agreed upon or the flag under which she sails
differs from that agreed upon. No obligation to pay the freightage.
When the vessel is not place at the disposal of the charterer. No obligation to pay the
freightage.

When the vessel returns due to pirates or to bad weather and charterer decides to unload.
He must pay the full freightage.
When the vessel returns for repairs. If repairs take less than 30 days, charterer must pay in
full the freightage; if it exceeds 30 days, he must pay that portion of the freightage
proportionate to the distance covered.
Total Rescission by the Ship owner (Art. 689)
When the charterer fails to load the vessel and lay days have expired. In this case, charterer
is under obligation to pay of the freightage.
When the owner sells the vessel and the new owner, despite knowledge of the charter
party, decides to load the vessel with his own cargo. There is no obligation on the part of
the ship owner to compensate the charterer. But if the new owner has no cargo to load, he
must respect the charter party. {Note: This is the 2
nd
distinction between charter party and
in ordinary lease. In ordinary lease contract, if the buyer of the object of lease was aware of
the lease, he must respect the contract.}
Total Rescission Due to Fortuitous Event (Art. 690)
War
Blockade
Prohibition to receive cargo
Embargo of vessel by a Government
Inability of vessel to navigate due to no fault of the captain or ship agent.

Chapter 10

Bottomry & Respondentia
Concepts of Bottomry & Respondentia
Bottomry: A maritime contract whereby the owner of a ship borrows for the use, equipment
or repair of the vessel, for a definite term, and pledges the ship (or the keel or bottom of
the ship pars pro toto) as security, with the stipulation that if the ship is lost during the
voyage or during the limited time on account of the perils enumerated, the lender shall lose
his money.
Respondentia: A maritime contract where it is the goods, or some part thereof, are
hypothecated as security for a loan, the repayment of which is dependent upon maritime
risks.

Distinguished from Simple Loan
Firstly, in bottomry & respondentia, rate of interest is not subject to the Usury Law on
account of the extraordinary risks involved while in simple loan, the rate of interest must
not exceed the ceiling fixed by the Usury Law (note: read now as unconscionable).
Secondly, in the former, there must necessarily be a marine risk, the existence of which
must be duly established while there is no need for such risk under the latter.
88
Thirdly, in the former, it must be executed in accordance with form and manner required in
the Code of Commerce while in the latter, the formal requisites on contract apply.

Fourthly, loan on bottomry or respondentia must be recorded in the registry of vessels in
order to bind third persons while no such registration is required in simple loan.
Lastly, in the former, preference is extended to the last lender if there are several lenders
upon the theory that were it not for the last lender, then the prior lenders would not have
benefited from the preservation of the security. Whereas in the latter, the first lender, as a
general rule, enjoys preference over subsequent ones. [Art. 730, CoC]

Characteristics/Common Elements of Bottomry & Respondentia
Exposure of security to marine peril. [Art. 732]
Obligation of debtor conditioned only upon the safe arrival of the security at the point of
destination.

Who May Contract Bottomry or Respondentia
Bottomry: General rule only the owner. If owner is absent the captain. [Art. 728]
Respondentia: only the owner of the cargo.

Hypothecary Nature of Bottomry & Respondentia (Art. 731)
General Rule:
The loss of the security, i.e. vessel in bottomry or cargo in respondentia, extinguishes the
obligation.
Exceptions:
Due to inherent defect (cargo);
Due to barratry on the part of the captain, i.e. malfeasance;
Due to fault or malice of borrower;
Vessel was engaged in contraband; and
Cargo loaded different from that agreed upon.

Other Relevant Provisions on Bottomry & Respondentia
No bottomry on the salaries of the crew. [Art. 725]
If loan given in excess of security through overvaluation by borrower, the excess must be
returned with legal interest. [Art. 726]
When respondentia loan is not all utilized for the cargo, the excess must be returned. [Art.
727]
If the security in bottomry or respondentia is not subject to a marine peril, it becomes an
ordinary loan. [Art. 729]

Lenders of bottomry and respondentia must contribute to the general average once jettison
has made possible the safe arrival of the security. [Art. 732]
Exposure to marine peril takes place from the time the anchors are a weighed at the port of
departure until anchors are dropped at the port of destination. [Art. 733]
In case of shipwreck and there is salvage, loan will depend on the repayment on what may
be salvaged. [Art. 734]

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The concurrence of bottomry loan with insurance, the insurable interest of the owner of the
vessel is the value of the vessel less the loan in bottomry, in reference to Sec. 101 of the
Insurance Code. [Art. 735]
Failure to pay the premium on time of bottomry or respondentia loans gives rise to liablility
for legal interest (delay ex re). [Art. 736]

Chapter 11
Averages
Average Defined
Any damage deliberately caused, or any expense deliberately incurred due to a marine peril
and because of which the vessel and/or cargo is saved.
Art. 806: All extraordinary or accidental expenses which may be incurred during the
voyage in order to preserve the vessel, the cargo, or both.
Excludes: Petty and ordinary expenses incident to navigation, e.g., pilotage, lighterage,
towage, anchorage, inspection, health, quarantine, lazaretto [i.e., quarantine station for
maritime travellers] , and other so-called port expenses, costs of barges and unloading
until the merchandise is place in the wharf, and any other usual expenses in navigation.

Kinds of Average
Particular (or Simple) Average All the damages and expenses caused to the vessel or to
her cargo which have NOT INURED TO THE COMMON BENEFIT AND PROFIT of all the persons
interested in the vessel and her cargo. The damages sustained shall be borne by the owner
of the vessel or the goods only. [Art. 809]
General Average All the damages and expenses which are DELIBERATELY caused in order
to save the vessel, its cargo or both, AT THE SAME TIME, from REAL AND KNOW RISKS. [Art.
811]
Examples of Particular Average
(Art. 809)
Losses suffered by the cargo from the time of its embarkation until it is unloaded, either on
account of inherent defect of the goods or by reason of an accident of the sea or force
majeure, and the expenses incurred to avoid and repair the same.
Losses and expenses suffered by the vessel in its hull, rigging, arms, and equipment, for
the same causes and reasons, from the time it puts to sea from the port of departure until it
anchors and lands in the port of destination.
Losses suffered by the merchandise LOADED ON DECK, except in coastwise navigation, if
the marine ordinances allow it.

The wages and victuals of the crew when the vessel is detained or embargoed by legitimate
order or force majeure, it the charter has been contracted for a fixed sum for the voyage.
The necessary expenses on arrival at a port, in order to make repairs or secure provisions.
The lowest value of the goods sold by the captain in arrivals under stress for the payment
of provisions and in order to save the crew, or to meet any other need of the vessel, against
which the proper amount shall be charged.

The victuals and wages of the crew while the vessel is in quarantine.
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The loss inflicted upon the vessel or cargo by reason of an impact or collision with another,
if it is accidental and unavoidable. If the accident should occur through the fault or
negligence of the captain, the latter shall be liable for all the losses caused.
Any loss suffered by the cargo through the fault, negligence, or barratry of the captain or
of the crew, without prejudice to the right of th owner to recover the corresponding
indemnity from the captain, the vessel, and the freightage.

Requisites of General Average
There must be common danger;
That for the common safety, part of the vessel or of the cargo or both is sacrificed
DELIBERATELY;
That from the expenses or damages caused follows the successful saving of the vessel and
cargo; and
That the expenses or damages should have been incurred or inflicted after taking proper
legal steps and authority

Procedure in General Average
Before the loss is caused or the expenses incurred, the captain must call a meeting with
the chief mate and other officers and any cargo owner who may be on board;
They shall decide by voting on a resolution of the captain. If majority disagrees with the
captain, the latter shall have the final decision;
The minutes must be entered in the deck log book, signed by all the persons present and
stating in detail all the goods jettisoned and the injuries caused to those kept on board;
Copy of the minutes to be filed within 24 hours after arrival at first port of entry.

Examples of General Average
The goods or cash invested in the redemption of the vessel or of the cargo captured by
enemies, privateers, or pirates, and the provisions, wages, and expenses of the vessel
detained during the time the settlement or redemption is being made.
The goods 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 goods which are kept on
board.
The cables and masts which are cut or rendered useless, the anchors and the chains which
are abandoned, in order to save the cargo, the vessel or both.

The expenses of removing or transferring a portion of the cargo in order to lighten the
vessel and place it in condition to enter a port or roadstead, and the damage resulting
therefrom to the goods removed or transferred.
The damage suffered by the goods of the cargo by the opening made in the vessel in order
to drain it and prevent its sinking.
The expenses caused in order to float a vessel intentionally stranded for the purpose of
saving it.
The damage caused to the vessel which had to be opened, scuttled or broken in order to
save the cargo.

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The expenses for the treatment and subsistence of the members of the crew who may have
been wounded or crippled in defending or saving the vessel.
The wages of any member of the crew held as hostage by enemies, privateers, or pirates,
and the necessary expenses which he may incur in his imprisonment, until he is returned to
the vessel or to his domicile, should he prefer it.

The wages and victuals of the crew of a vessel chartered by the month, during the time that
it is embargoed or detained by force majeure or by order of the government, or in order to
repair the damage caused for the common benefit.
The depreciation resulting in the value of the goods sold at arrival under stress in order to
repair the vessel by reason of gross average.
The expenses of the liquidation of the average.
Who Will Contribute for the General Average
Those who benefited from the sacrifice: the ship owner and owners of the cargoes that
were saved.
Contribution may also be imposed on the insurers of the vessel or cargoes that were saved
as well as lenders on bottomry or respondentia.

Who Are Entitled To The General Average
All the owners whose goods were sacrificed pro rata.
Exceptions:
Goods carried on deck unless the law or customs of the place allow such stowage.
Goods that are not recorded in the books or records of the vessel.
Fuel for the vessel if there is more than sufficient fuel for the voyage.

American Home Assurance v. CA,
208 SCRA 343

Held:
A particular average presupposes that the loss or damage is due to an inherent defect of
the goods, an accident of the sea, or a force majuere or the negligence of the crew of the
carrier governed by the Code of Commerce.
The claims for damages due to the negligence of the common carrier are governed by the
Civil Code provisions on common carriers.

Magsaysay Inc. vs. Agan,
96 Phil. 504
Facts: An interisland vessel of petitioner sailed from Manila to Aparri. The vessel entered
the Aparri river where she stopped to load and unload. Overnight, a sand bar formed at the
mouth of the river. On her way out, the vessel hit the sand bar and got stuck. A tug boat
was sent by the owner to town the vessel. In Manila, the captain demanded from Agan and
other cargo owners to reimburse him for the expenses of hiring the tugboat.
Held: Particular average only. The cargo was not benefited since it was not perishable nor
the cargo owner in a hurry. Even assuming it was general average, the captain did not call
the meeting.

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Philippine Home Assurance v. CA, 257 SCRA 468
Facts:
A vessel, with cargo on board, caught fire due to a small flame coming from the acetylene
cylinder which were stored in the accommodation area near the engine room and which
exploded despite efforts to extinguish the fire. The vessel was subsequently towed to port
with the expenses of having the cargo transshipped to port of destination was charged to
the consignees. Petitioner sought recovery as subrogee.

Held: The consignee of the cargo cannot be made to share with the carrier for additional
freight and salvage charges.
Fire cannot be considered a natural disaster or calamity since it almost always arises from
some act of man. It cannot be an act of God unless caused by a lightning or a natural
disaster or casualty not attributable to human agency.
While the facts of the case may technically fall within the purview of general average, the
formalities prescribed were not complied with. Consequently, the carriers claim for
contribution from the consignees cannot be enforced.

Jettison of Cargo
Cargo on deck shall be first to be jettisoned followed by those from the lower deck then
those of bigger bulk but of smaller value. [Art. 815]
Cargo jettisoned, to be entitled to reimbursement for general average, must be covered by
a bill of lading. [Art. 816]
Expenses to lighten a vessel by the transfer of goods to other vessels is general average.
Also when there is fire on port and there is need to sink the vessel to save the goods. [Arts.
817 & 818]
Liquidation of Average
Whether general or particular average, the person benefited by the damage or expense
incurred must contribute his proportionate share, to be determined by the amount of
damages or expenses incurred and apportioned among the those benefited in proportion to
the value of their property save.
In particular average, it is implied that there is only one interest involved and the
proportion pertains to him 100%.

The York-Antwerp Rules
Allow deck cargo on coastwise shipping but prohibits it on overseas trade.
Hence, a deck cargo stowed on deck, with consent of the shipper in an overseas trade must
always contribute to general average. But if it is the one jettisoned, it will not be entitled to
reimbursement.
On the other, a deck cargo stowed on deck in a coastwise trade with consent of the shipper
while also must contribute to general average is likewise entitle to reimbursement if
jettisoned.

Chapter 12

Collisions
Collision & Allision
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Collision occurs when both vessels are on motion.
Allision happens when one of the vessels is stationary.
Rule on Collision: The guilty vessel shall pay for the damage caused by the collision.
Exception: If guilty vessel sinks due to the hypothecary nature of maritime transactions.
Exception to exception: When there is negligence of ship owner [see Abdulhaman case]

Five Cases Covered by Collision/ Allision
One vessel is at fault Vessel at fault is liable for the damage caused to the innocent vessel
as well as to the damage suffered by the owners of cargo of both vessels.
Both vessels at fault Each vessel must bear its own loss, but the shippers of both vessels
may go against the ship owners, being solidarily liable to them.
Vessel at fault is unknown Same rule when both vessels are at fault.
Third vessel at fault Same rule as when one vessel is at fault.
Fortuitous Event No liability; res perit domino.

Three stages in Collision
When the 2 vessels approach each other.
When the vessel are so near each other that contact is imminent.
Actual contact or collision.
Note: The foregoing rule was laid down in Urrutia v. Baco River Plantation, 26 Phil. 623 to
apply the doctrine of last clear chance. But this ruling was abandoned in Williams v. Yangco,
27 Phil. 68 (infra)

Williams v. Yangco,
27 Phil. 68 (1914)
Held:
The doctrine of last clear chance is inapplicable for marine collision since the rule of
liability in this jurisdiction for maritime accidents such as that now under consideration is
clearly, definitely, and unequivocally laid down in Art. 827 of the Code of Commerce.
Under the rule, the evidence disclosing that both vessels were at fault gives neither of the
owners an action against the other for the loss or injury sustained by their respective vessel.

Villacarlos v. Everett Steamship,
4 CA Reports 961
Facts:
A fishing vessel of Philippine registry collided with a vessel from Europe. The foreign vessel
was at fault but its owner was beyond the jurisdiction of the courts. The owner, however,
had a shipping agent in the Philippines who, nonetheless denied liability.
Held:
The agent is liable in the absence of the ship owner. The shipping agent or naviero acts as
owner in the absence of the ship owner.

Code of Commerce uses the word buque in reference to collision of vessel, i.e.a draft with
deck. A fishing vessel here had no deck, hence, not a buque so that Art. 835 on marine
protest does not apply.
Failure of the captain of the fishing vessel to file marine protest does not bar recovery.
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Duty of the Overtaking or Crossing Vessel (Sulpicio Lines v. CA, 305 SCRA 478)
Under Rule 24-C of the Regulations for Preventing Collision at Sea, the duty of overtaking
or crossing vessel to keep out of the way subsists even if the overtaking vessel cannot
determine with certainty whether she is at forward or aft more than two points from the
vessel being overtaken.
In case of collision, it would be beyond cavil that the overtaking vessel must assume
responsibility as she was in a better position to avoid the collision.
She should have blown its horn or given signs to warn the other vessel that she was
overtaking her.
When moving vessel strikes stationary object (Far Eastern Shipping v. CA, 297 SCRA 30)

Held:
American evidentiary rule provided for 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 (allision) was occasioned by the fault of the stationary
object or was the result of inevitable accident.

Chapter 13
Arrival Under Stress & Shipwrecks
Steps To Be Taken In Determination Of Propriety Of Arrival Under Stress
Captain to determine during voyage if there is well-founded fear of seizure, privateers or
other valid grounds.
He then assembles all the officers.
He summons the persons interested in the cargo who are present and who may attend.
They have no right to vote.
Officers to be determined and agree if there is well-founded reason after examining the
circumstances. The captain has the deciding vote.
Agreement to be drafted and minutes to be signed and entered in the deck log book. Also
objections.
Instances of Arribada
Lack of provision or fuel
Pirates
Inability to navigate.
Note: If the lack of fuel or provision is not due to lack of foresight, or the fear of pirates is
well-founded or the inability to navigate is not attributable to fault of captain or crew, then
these arrivals under stress becomes particular average of the vessel. Shippers must wait.
No damage needs to be paid to the shippers. But if due to bad faith, the damages
must be paid to shippers for delay and the vessel bears the loss.
Improper Arribada
If lack of provisions should rise from the failure to take the necessary provisions for the
voyage according to usage and customs, or if they should have been rendered useless or
lost through bad stowage or negligence in their care.
If the risk of enemies, privateers, or pirates should not have been well-known, manifest,
and based on positive and provable facts.
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If the defect of the vessel should have arisen from the fact that it was not repaired, rigged
equipped, and prepared in a manner suitable for the voyage, or from some erroneous order
of the captain.

When malice, negligence, want of foresight, or lack of skill on the part of the captain exists
in the act causing the damage.
Expenses. [Art. 820, Code of Commerce]

Shipwreck (Agrounding)
The demolition or shattering of a vessel caused by her driving ashore or on rocks and
shoals in the midseas, or by the violence of winds and waves in tempests.
Rules on Shipwrecks (Arts. 840-845)
Losses/deterioration due to shipwreck or stranding to the account of the owners & ship
owner.
If caused by malice, negligence, or lack of skill of the captain or because vessel put to sea
was insufficiently repaired and equipped: Shippers can demand indemnity from the captain.
The goods saved from the wreck to be specially bound for the payment of the expenses of
the respective salvage.
If several vessels sail under convoy, and any of them should be wrecked, the cargo saved
will be distributed among the rest in proportion to the amount which each one is able to
take.

If any captain should refuse, without sufficient cause, to receive what may correspond to
him, the captain of the wrecked vessel to enter a marine protest against him.
If it is not possible to transfer to the other vessels the entire cargo of the vessel wrecked,
the goods of the highest value and smallest volume to be saved first. Designation to be
made by the captain with concurrence of his officers.
The captain taking on-board the goods saved from the wreck to continue his course to the
port of destination and upon arrival he should deposit the goods for disposal to their
owners.

In case the captain changes his course, and if he can unload them at the port of which they
were consigned, he may make said port if the shippers or supercargoes present and the
officers and passengers of the vessel consent thereto. But he is not required to do so even if
he has the consent during time of war or when the port is difficult and dangerous to make.
The owners of the cargo to defray all the expenses of this arrival and the payment of the
freightage.
If cannot be, proceed to judicial sale complying with the formalities and on publicity.

Chapter 14
Salvage

Definition and Philosophy of Salvage
Salvage is a service which one person renders to the owner of a ship or goods, by his own
labor, preserving the goods or the ship which the owner or those entrusted with the care of
them have either abandoned in distress at sea, or are unable to protect and secure.
96
Salvage Law provides for the compulsory reward to those who brave the perils of the sea to
save the cargo or vessel in order to encourage such services. Whether the owner of the
property save likes it or not, he must give a reward. The maximum amount is 50% of the
value of the property save.

Kinds of Salvage Services
Voluntary compensation is dependent on the success.
Under contract for a per diem or per horam wage, payable at all event.
Under contract for compensation payable only in case of success.

Requisites For Salvage Reward
Valid object of salvage.
Such object must be exposed to marine peril.
Must be rendered voluntarily.
Must be successful.

Derelict
A vessel or cargo badly damaged and abandoned by the crew to the mercy of the sea.
Mere abandonment does not make such vessel or cargo res nullius.
Proper procedure must be followed by the salvors to be entitled of the reward.

Procedure In Derelict
If vessel is abandoned, salvor must tow her to the nearest port where it will be delivered to
the municipal treasurer or collector of customs who will advertise the fact of salvage.
If owner of salvaged vessel or cargo appears, he may take possession of vessel or cargo
and pay the reward amount not exceeding 50% of the value of the vessel.
Reward is determined by considering:
- the value of the property save; zeal employed; danger posed to the salvors; number
of persons who took part; services render; and expenses incurred.

If no claim for the vessel is made within 3 months after publication, the municipal treasurer
to sell the property salvaged at public auction. The reward and expenses will be deducted
from the proceeds. The balance to be deposited with the treasury.
If no one claims for the balance after 3 years, will go to the salvors and the other half to
the government.
If one vessel saves another:
- to the ship owner of the saving vessel.
- to the captain
- to the crew

Honorio Barrios v. Go Thong & Co.,
G.R. L-17192, March 30, 1963
Facts: Go Thong is the owner of a vessel plying the route from Mindanao to Cebu. The
engine of his vessel conked out while she was in the middle of the sea. The captain radioed
the owner and was advised that a sister ship was on its way to tow the vessel. The sea at the
time was calm. The radio message was picked up by another vessel which thereafter
97
proceeded to the stranded vessel of Go Thong. The captain agreed that the vessel be towed.
The owner of the towing vessel knew the owner of the stranded vessel. He waived charges
of towing. But the captain and the crew the responding vessel complained of their
respective shares in the reward.

Issue: Was there salavage or towage?
Held: There was no salvage because there was no marine peril at the time. There was no
danger for the stranded ship. The sea was calm and a sister ship was nearby. Hence, no
reward is due. Also, there is no need for compensation for the towage because of the waiver
of the towing vessel.

Chapter 15

COGSA
History of COGSA
Originally passed by Congess of the US on April 16, 1936 as Public Act No. 521.
Adopted by the Phil Commonwealth on October 22, 1936 as Commonwealth Act No. 65.
When the New Civil Code took effect on August 30, 1950, it became the primary law on
carriage of goods by sea.
Art. 1753, NCC: The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration.
COGSA remains suppletory law for international trade

Chapter 16

Public Service Laws
Meaning and Concept of Public Utility
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. [National Power Corporation v. Court of Appeals, G.R. No. 112702,
September 26, 1997]
In a very real sense, a public utility is engaged in public service-- providing basic
commodities and services indispensable to the interest of the general public. [Republic v.
Meralco, G.R. No. 141314, April 9, 2003]

When, therefore, one devotes his property to a use in which the public has an interest, he,
in effect grants to the public an interest in that use, and must submit to the control by the
public for the common good, to the extent of the interest he has thus created. [Kilusang
Mayo Uno Labor Center v. Hon. Jesus B. Garcia Jr., G.R. No. 115381, December 23, 1994
citing Pantranco v. Public Service Commission, 70 Phil.221]
Constitutional Provisions
Public utilities must be owned by Filipino citizen or 60% owned by Filipino citizens. [Art.
XII, Sec. 11]
Mass media must 100% Filipino.
Government take-over: In times of national emergency, when the public interest so
requires, the State may, during the emergency and under reasonable terms, temporarily
98
take over or direct the operation of any privately owned public utility or business affected
with public interests. [Art. XII, Sec. 17]

Operation of vital industries: The State, may, in the interest of national welfare or defense,
establish and operate vital industries and upon payment of just compensation, transfer to
public ownership utilities and other private enterprises to be operated by the government.
[Art. XII, Sec. 18]
Prohibition against monopolies: The State shall regulate or prohibit monopolies when the
public interest so requires; no combination in restraint of trade or unfair competition shall
be allowed. [Art. XII, Sec. 19]
Public Service
Includes every person who 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, fraction railway, subway motor vehicle, steamboat, or steamship line ferries, and
water craft, shipyard, ice plant, electric light, heat and power or any other public utility.
[Sec. 13(b), Act. 146]

PAL V. CAB, 270 SCRA 538
Held: The terms convenience and necessity if used together is a statute, are usually held
not to be separable, but are construed together. Both words modify each other and must be
construed together. The word necessity is so connected, not as an additional requirement
but to modify and qualify what might otherwise be taken as the strict significance of the
word necessity.
Public convenience and necessity exists when the proposed facility will meet a reasonable
want of the public and supply a need which the existing facilities do not adequately afford.

It does not mean or require an actual physical necessity or an indispensable thing.
The use of the word necessity, in conjunction with public convenience in a certificate of
authorization to a public service entity to operate, does not in any way modify the nature of
such certification, or the requirements for the issuance of the same.
It is the law which determines the requisite for the issuance of such certification, and not
the title indicating the certificates.

Public Utilities
Public utilities are privately owned and operated businesses whose services are essential to
the general public. They are enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public utility services are impressed
with public interest and concern. The same is true with respect to the business of common
carrier which holds such a peculiar relation to the public interest that there is superinduced
upon it the right of public regulation when private properties are affected with public
interest, hence, they cease to be juris privati only.

When, therefore, one devotes his property to a use in which the public has an interest, he,
in effect grants to the public an interest in that use, and must submit to the control by the
public for the common good, to the extent of the interest he has thus created. [Kilusang
99
Mayo Uno Labor Center v. Hon. Jesus B. Garcia Jr., G.R. No. 115381, December 23, 1994
citing Pantranco v. Public Service Commission, 70 Phil.221]
Difference Between Operation of a Public Utility and Ownership of Facilities
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 clear distinction between the operation of a public utility and the ownership
of the facilities and equipment used to serve the public. [Ibid]

Telecommunications
Radio Industry
Broadcasting

Broadcast is an undertaking the object of which is to transmit over-the-air commercial
radio or television messages for reception of a broad audience in a geographic area.
Cable Television Operations (E.O. 436, Sept. 9, 1997)
Classified as mass media

Essential components:
Reception facilities which extract the broadcast signal from the air, or microwave
transmission.
Input equipment, which converts and amplifies the signal received; and
Distribution system, which consists of feeder or trunk lines originating from the input
equipment; smaller distribution cables which carry the signal to the immediate vicinity of
the subscriber; and drop lines which carry the signal into the subscribers premises.

Electronic Commerce Act
Internet and Value Added-Services
Electronic Mail (Email)
Bulletin Board System (BBS)
World Wide Web (www)

,Mass Media
Electric Power Industry Reform Act of 2001 (R.A. 9136)
Build-Operate-Transfer Law (R.A. 6957, as amended by R.A. 7718)
BOT Schemes
Build-Operate-and-Transfer (BOT
Build-and-Transfer (BT)
Build-Own-Operate (BOO)
Build-Lease-Transfer (BLT
Build-Transfer-and-Operate (BTO)
Contract-Add-and-Operate (CAO)
Develop-Operate-and-Transfer (DOT)
Rehabilitate-Operate-and-Transfer (ROT)
Rehabilitate-Own-and-Operate (ROO)
End of Subject
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