Notes on

TRANSPORTATION & PUBLIC SERVICE LAWS

Compiled by: Atty. Jose I. Lapak, Jr.

(Sources: Aguedo F. Agbayani (AFA); Rufus E. Rodriguez (RER); Lorenzo F. Miravite (LFM); Noli C. Diaz
(NCD); Hernando B. Perez (HBP); Timoteo B. Aquino & Ramon Paul L. Hernando; UP Law Center Answers to
Bar Questions in Commercial Law)

Transportation Contract - one whereby a person, natural or juridical, obligates himself to transport persons or goods, or
both, from one place to another, by land, water or air, for a price or compensation.

State Regulation of Public Utilities and the Transportation Industry

The basis of the power of the State to regulate public utilities including the transportation industry is Police Power.
It is expressly provided for under Art. XII, Sections 11, 17, 18 and 19 of the 1987 Constitution, to wit:

"SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines  at
least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good requires. The
state shall encourage equity participation in public utilities by the General Public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all executive and
managing officers of such corporation or association must be citizens of the Philippines.

SEC. 17. In times of national emergency, when the public interest so requires, the state may, during the emergency
and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest.

SEC. 18. The state may, in the interest of national welfare or defense, establish and operate vital industries and,
upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the
Government.

SEC. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed."

Laws Governing Transportation Contracts

The laws applicable to contracts of transportation by land, sea or air within the Philippines are:

1. The New Civil Code, particularly the section on Common Carriers (Art. 1732 to Art. 1766, Civil Code);

2. On the matters not regulated by the New Civil Code, the Code of Commerce; and

3.   Special laws (Art. 1766, Civil Code) such as the Carriage of Goods by Sea Act; Salvage Law; Public Service Act; Land
Transportation and Traffic Code; Tariff and Customs Code and the Civil Aeronautics Act.

(Introductory Chapter)

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4.  Treaties or other international agreements govern the obligations of the parties in international flights where the
Philippines is merely one of itineraries of the commercial airline. (LFM, P. 94)

Under Article 1766 of the New Civil Code, its provisions primarily govern common carriers, while the provisions of
the Code of Commerce and special laws have only subsidiary application to common carriers.

Accordingly, since the Civil Code contains no provisions regulating liability of ship owners or agents in the event of
total loss or destruction of the vessel, it is the provisions of the Code of Commerce, more particularly Article 587, that govern
in this case.

Law governing carriage of goods by sea from foreign ports to Philippine ports. The repealing clause (Article 2270) of
the New Civil Code neither expressly nor impliedly repeals the Carriage of Goods by Sea Act (Commonwealth Act No. 65).
The new Civil Code contains a proviso to the effect that 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 (Article 1753); and that in all matters not
regulated by the Civil Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and
by special laws (Article 1766).

The Carriage of Goods by Sea Act is a special law which is suppletory to the Code of Commerce, and provides for
whatever deficiencies said Code may have with respect to contracts for carriage of goods by sea (Section 1 of the Carriage of
Goods by Sea Act). Therefore, the provisions of the New Civil Code, more particularly Title VII, Chapter 3, Section 4,
govern the rights and obligations of common carriers in all contracts for the carriage of goods by sea from foreign ports to
Philippine ports. In the absence of any provision therein, the Code of Commerce applies. And in default of either Code, then
the Carriage of Goods by Sea Act governs.

Laws of the Philippines will apply to collision in carriage of goods by sea to Philippines, even if collision occurred
in foreign waters. Where it has been established that the goods in question were being transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which was found to have
been caused by the negligence or fault of both captains of the colliding vessels, the laws of the Philippines will apply, and it
is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan (National Development Co. vs.
CA, 164 SCRA 593).

COGSA applicable up to final port of destination. In a case, the foreign carrier off-loaded the shipment in question in
Manila and transshipped it to Cebu City, the port of destination stipulated in the bill of lading. Held: The port of destination
and the fact that transshipment was made on an interisland vessel did not remove the contract of carriage of goods from the
operation of the Carriage of Goods by Sea Act. (Sea-Land Service, Inc. vs. IAC, 153 SCRA 552, 561).

Kinds of Transportation Contracts

1.  Contract to carry - an agreement to carry the passenger or cargo at some future date; it is consensual and therefore
perfected by mere consent.

There is a consensual "contract to carry" goods when the carrier agrees to accept and transport goods at some future date.
There is a perfected "contract to carry passengers even if no tickets have been issued as long as there is a meeting of the
minds regarding the subject matter and consideration.

2. Contract of carriage - a contract where the passenger boards the carrier or the cargo is loaded on it; this is considered a
real contract because it is only when the carrier is actually used that it can be said to have assumed the obligation as
carrier.

(Introductory Chapter)

There is perfected contract of carriage when a chance passenger had been allowed to check-in at the counter in lieu
of a "no show" confirmed passenger, passed through customs and immigration, boarded the shuttle bus plane and was going
up the staircase to the plane, with his baggage already loaded on the plane. (Korean Airlines vs. CA, 234 SCRA 717, 723)

2
 When the goods are "unconditionally delivered and received by the carrier", the contract of carriage is perfected and
becomes a real contract. It continues until the passenger arrives at his destination or the cargo is delivered to the consignee at
its destination. (British Airways vs. CA, infra)

BRITISH AIRWAYS VS. COURT OF APPEALS

218 SCRA 699 (February 9, 1993)

Facts: Early in March, 1981, ROLACO Eng'g. & Contracting Services paid British Airways (BA) airfare tickets for ninety
(93) contract workers to be transported from Manila to Jeddah, Kingdom of Saudi Arabia on or before March 30, 1981. BA
informed First International Trading and Gen. Services (FITGS) about the Prepaid Ticket Advice (PTA) for the ninety three
(93) OCWs.

Upon instruction from FITGS, ADB Travel & Tours booked the ninety three (93) workers it had recruited for ROLACO
Eng'g. with BA but the latter, without notice or valid reason, failed to transport the workers on their scheduled date(s) of
departure.

Because of this, FITGS had to borrow P304,416.00 to buy tickets from other airlines for the workers who had to leave
immediately because their visas were valid for forty five (45) days only and the Bureau of Employment Services required
that contract workers be sent to the job site within a period of thirty (30) days.

Subsequently, on several later occasions, BA also failed to transport contract workers of FITGS despite confirmed bookings,
which BA cancelled without previous notice.

When sued, BA contended that FITGS had no cause of action, there being no perfected contract of carriage existing between
them as no ticket was ever issued to the contract workers.

Held: Petitioner's contention is untenable. FITGS had a valid cause of action for damages against BA.

There are two (2) aspects of a contract of common carriage of passengers, namely: (a) the contract "to carry (at some
future time)," which contract is consensual and is necessarily perfected by mere consent (Article 1356, Civil Code of the
Philippines) and, (b) the contract "of carriage" or "of common carriage" itself which should be considered as a real
contract, for not until the carrier is actually used can the carrier be said to have already assumed the obligation of a carrier
(citing Paras, Civil Code Annotated, Vol. V, p. 429, Eleventh Ed.).

In the instant case, the contract "to carry" is the one involved which is consensual and is perfected by the mere consent of the
parties.

There is no dispute as to FITGS' consent to the said contract "to carry" its contract workers from Manila to Jeddah. It fully
complied with its obligation with its bookings which showed its willingness for its contract workers to leave for Jeddah.

On the other hand, BA's consent was manifested by the acceptance of the Prepaid Ticket Advice (PTA) that ROLACO
Engineering has prepaid the airfares of the appellee's contract workers advising that it must transport the contract workers on
or before the end of March, 1981 and the other batch in June, 1981. The involvement of BA in the said contract "to carry"
was well-demonstrated when, upon receiving the PTA, BA immediately advised the FITGS thereof.

(Introductory Chapter)

Even if a PTA is merely an advice that an airline is authorized to issue a ticket and thus no ticket was yet issued, the fact
remains that the passage had already been paid and BA had accepted such payment. Thus, the cause or consideration which is
the fare paid for the passengers exists in this case.

The third essential requisite of a contract is an object certain. In this contract "to carry," the object is the transport of the
passengers from Manila to Jedda.

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Accordingly, there could be no more pretensions as to the existence of an oral contract of carriage imposing reciprocal
obligations on both parties.

The facts clearly show that BA was remiss in its obligation to transport the contract workers on their flight despite
confirmation and bookings made by FITGS' travel agent. Besides, BA knew very well that time was of the essence as the
PTA specified the period of compliance therewith. Under the circumstances, BA should have refused acceptance of the PTA
from COLACO Eng'g., or to at least inform FITGS that it could not accomodate the contract workers.

BA's repeated failures to transport FITGS' workers in its flight despite their confirmed bookings clearly constitute breach of
contract and bad faith on its part.

Classes/Kinds of Transportation

According to object: transportation of (1) things or goods; (2) persons or passengers; (and [3] news)

According to means of travel: transportation by (1) land; (2) water; and (3) air. (AFA, P. 1)

Parties to contract of transportation

1.  Carrier or conductor - "One who binds himself to transport persons, things, or news as the case may be," or "one
employed in or engaged in the business of carrying goods for others for hire; those persons or corporations who undertake
to transport or convey goods, property or persons, from one place to another, gratuitously or for hire.

2.  Passenger - The person who is the object of transportation. (LFM, P. 192); In transportation of passengers, the party who
agrees to present his own person or those of others. (AFA, Pp. 3, 4)

3. Shipper or consignor - The party whose goods are to be transported(LFM, P. 192).

4.  Consignee - "The party to whom the carrier is to deliver the things being transported," "or one to whom the carrier may
lawfully make delivery in accordance with its contract of carriage." (AFA, Pp. 3, 4;) the person to whom the goods are
sent (LFM, P. 192). The consignor/shipper and the consignee may be one and the same person.
Freight - The term is used in two senses, namely, (1) to designate the price or compensation paid for the transportation of
goods, i.e., the hire paid for the carriage of goods; or (2) to designate the goods or merchandise transported.

In order to avoid confusion, it is better to use the term freight to designate the goods or merchandise transported,
and freightage for the price or cost of transporting, as it is referred to in the Code of Commerce and in the Insurance Code.

Only the passenger who is of age can execute release of claim. His parents are not parties to the contract of carriage. The
passenger, George Cailipan, executed a release of his claims against the carrier, Baliwag Transit and its insurer, receiving
about P8,000.00 under the release agreement. His parents claimed that

(Introductory Chapter; NCC Art. 1732)

they had spent P200,000.00 for his hospitalization plus P10,000.00 more of incidental expenses. Held: The contract of
carriage was between the carrier and the passenger George. Since the suit is one for breach of contact of carriage, the Release
of Claims executed by him as the injured party discharging Fortune Insurance and Baliwag from any and all liability is valid.
He was then of legal age, a graduating student of Agricultural Engineering, and had the capacity to do acts with legal effect
(Article 37 in relation to Article 402, Civil Code). Thus, he could sue and be sued even without the assistance of his parents.

In the absence of any contract of carriage between Baliwag and George's parents, the latter are not real parties-in-interest in
an action for breach of that contract. (Baliwag Transit vs. CA, 1/31/89, 169 SCRA 849, 854)

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 PROVISIONS OF THE NEW CIVIL CODE ON COMMON CARRIERS

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

1996 BQ, No. 13 --- (1) Define a common carrier.

Ans. --- See Art. 1732

Classes/Kinds of Carriers

Common carriers or public carriers - Persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods, or both, by land, water or air, for compensation, offering their services to the public.
(NCC, Art. 1732).

Private carriers or special carriers - Those who transport or undertake to transport in a particular instance for hire or
reward.

2002 BQ, No. VIII (A) Name two (2) characteristics which differentiate a common carrier from a private carrier.

Ans.: (See below)

Characteristics of a common carrier based on Art. 1732 of the NCC

1. Art. 1732 makes no distinction between one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (De Guzman vs. CA, 168 SCRA 612, infra, P. 8);

2. Art. 1732 does not make any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis (Idem);

3. Art. 1732 does not distinguish between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the population (Id.)

4. A person or entity may be a common carrier even if he has no franchise or a certificate of public convenience (Ibidem).

(NCC, Art. 1732)

5. The Civil Code makes no distinction as to the means of transporting, whether it be by land, water or air (FPIC vs. CA, 300
SCRA 661, infra, P. 11)

6. The Civil Code does not require that the carriage be by motor vehicle only.

7. A person or entity may be a common carrier even if he has no fixed or publicly known route, has no terminal or does not
issue tickets (Asia Lighterage & Shipping vs. CA, G.R. No. 147264, August 19, 2003)

Common carriers distinguished from private carriers

(1) The common carrier holds himself out in common, that is, to all persons who chose to employ him, as ready to carry for
hire; while the private carrier agrees in some special case with some private individual to carry for hire (AFA, P. 7); it
can choose the persons with whom it may contract (LFM, P. 201)

5
(2) A common carrier is bound to carry all such goods as it is accustomed to carry and tender reasonable compensation for
carrying them; a private carrier is not bound to carry for any reason, unless it enters a special agreement;

(3) A common carrier is a public service and is therefore subject to regulation; a private carrier does not hold itself out as
engaged in the business for the public and is therefore not subject to regulation. (AFA, P. 7)

(4) A common carrier is obliged to employ extra-ordinary diligence; a private carrier should employ only ordinary diligence;
it may be absolved from liability through negligence by agreement. (LFM, P. 201)

Tests for a common carrier.

1996 BQ, No. 13(2) What are the tests for determining whether or not one is common carrier?

Ans.: The tests or criteria by which it is determined whether a party is a common carrier of goods are:

(1) He undertakes to carry for all people indifferently; 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 persons generally
as a business, and not a casual occupation;

(2) He must undertake to carry goods of the kind to which his business is confined: he cannot lawfully decline to accept
a particular class of goods for carriage to the prejudice of the traffic in those goods;

(3) He must undertake to carry by the methods by which his business is conducted, and over his established roads or
routes; and;

(4) The transportation must be for hire for public convenience. (NCC, Art. 1732)

(See Fisher vs. Yangco Steamship, 31 Phil 1; US vs. Quinajon and Quitoriano, 31 Phil 189)

De Guzman vs. CA and Ernesto Cendaña

G.R. No. L-47822, December 22, 1988; 168 SCRA 612, 617-618

Facts: Respondent Ernesto Cendaña, a junk dealer, was engaged in buying used bottles and scrap metal in Pangasinan. Upon
gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized
two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent
would load his vehicles with cargo which

(NCC, Art. 1732)

various merchants wanted delivered to different establishments in Pangasinan. For that service, respondent charged freight
rates which were commonly lower that regular commercial rates. However, he does not have a certificate of public
convenience.

Issue: Is it a common carrier and therefore required to observe exraordinary diligence?

Held: Yes. Art. 1732 in defining common carrier carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering its service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e.,
the general community or population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1732 deliberately refrained from making such distinctions.

Private respondent is properly characterized as a common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such back-hauling was done on a periodic or occasional rather than regular
or scheduled manner, and even though private respondent's principal occupation was not the carriage of goods for others.

6
There is no dispute that private respondent charged his customers a fee for hauling their goods; that the fee frequently fell
below commercial freight rates is not relevant here.

It is palpable error to conclude that a person who holds no certificate of public convenience is not a common carrier. A
certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing
common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not
such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and
franchise. To exempt private respondent fronm the liabilities of a common carrier because he has not secured the necessary
certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements. (See also Loadstar Shipping Co., Inc. vs. CA, G.R. No.
131621m Sept, 28, 1999, 113 SCAD 142)

(But see US vs. Tan Pioco, 40 Phil 853)

2000 BQ, No. XII. X has a Tamaraw FX among other cars. Every other day during the workweek, he goes to his
office in Quezon City using his Tamaraw FX and picks up friends as passengers at designated points along the way.
His passengers pay him a flat fee for the ride, usually P20 per person, one way. Although a lawyer, he never
bothered to obtain a license to engage in this type of income-generating activity. He believes that he is not a
common carrier within the purview of the law. Do you agree with him? Explain. (5%)

Ans: No. I do not agree with X. A common carrier holds himself out to the public as engaged in the business of
transporting persons or property from place to place, for compensation, offering his services to the public generally.
The fact that X has a limited clientele does not exclude him from the definition of a common carrier. The law does
not make any distinction between one whose principal business activity is the carrying of persons or goods or both,
and the one who does such carrying only as an ancillary activity or in the local idiom, as a "sideline".

1996 BQ, No. 14 (1). AM Trucking, a small company, operates two trucks for hire on selective basis. It caters to
only a few customers, and its trucks do not make regular or scheduled trips. It does not even have a certificate of
public convenience.

On one occasion, Reynaldo contracted AM to transport, for a fee, 100 sacks of rice from Manila to Tarlac. However,
AM failed to deliver the cargo, because its truck was hijacked when the driver stopped in Bulacan to visit his
girlfriend.

(a) May Reynaldo hold AM liable as a common carrier? Explain.

(b) (NCC, Art. 1732)

(b) May AM set up the hijacking as a defense to defeat Reynaldo's claim?

Ans.: (a) Reynaldo may hold AM Trucking liable as a common carrier. The facts that AM Trucking operates only
two trucks for hire on a selective basis, caters only to a few customers , does not make regular or scheduled trips,
and does not have a certificate of public convenience are of no moment as the law: (i) does not distinguish between
one whose principal business activity is the carrying of persons or goods or both and one who does such carrying
only as an ancillary activity; (ii) avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis; and, (iii) refrains from making a distinction between a carrier offering its services to the general
public and one who offers services or solicits business only from a narrow segment of the general population. (See
Pedro de Guzman vs. CA, et al., supra).

(b) AM Trucking may not set up the hijacking as a (NCC, Art. 1732) defense to defeat Reynaldo's claim as the
facts given do not indicate that the same was attended by the use of grave or irresistible threat, violence or force. It
would appear that the truck was left unattended by its driver and was taken while he was visiting his girlfriend.
(Pedro de Guzman vs. CA, et al., supra)

1991 BQ, No. 16: Alejandro Camaling of Alegria, Cebu, is engaged in buying copra, charcoal, firewood and used
bottles and in reselling them in Cebu City. He uses two (2) big Isuzu trucks for the purpose; however, he has no

7
 certificate of public convenience or franchise to do business as a common carrier. On the return trips to Alegria, he
loads his trucks with various merchandise of other merchants in Alegria and the neighboring municipalities of
Badian and Ginatilan. He charges them freight rates much lower than the regular rates. In one of the return trips,
which left Cebu City at 8:30 P.M., one (1) cargo truck was loaded with several boxes of sardines, valued at
P100,000.00, belonging to one of his customers, Pedro Rabor. While passing the zigzag road between Carcar and
Barili, Cebu, which is midway between Cebu City and Alegria, the truck was hijacked by three (3) armed men who
took all the boxes of sardines and kidnapped the driver and his helper, releasing them in Cebu City only two (2) days
later.

Pedro Rabor sought to recover from Alejandro the value of the sardines. The latter contends that he is not liable
herefore because he is not a common carrier under the Civil Code and, even granting for the sake of argument that
he is, he is not liable for the occurrence of the loss as it was due to a cause beyond his control.

If you were the Judge, would you sustain the contention of Alejandro?

Ans. - If I were the Judge, I would hold Alejandro as having engaged as a common carrier. A person who offers his
services to carry passengers or goods for a fee is a common carrier regardless of whether he has a certificate of
public convenience or not, whether it is his main business or incidental to such business, whether it is scheduled or
unscheduled service, and whether he offers his services to the general public or to a limited few (De Guzman v. CA,
et al., supra).

I will however, sustain the contention of Alejandro that he is not liable for the loss of the goods. A common carrier
in not an insurer of the cargo. If it can be established that the loss, despite the exercise of extraordinary diligence,
could not have been avoided, liability does not insure against the carrier. The hijacking by three (3) armed men of
the truck used by Alejandro is one of such cases. (Idem)

N.B.: See Art. 1745 re acts of robbers/thieves who act with grave or irresistible threat, violence or force.

Carriage of good is not limited to overland, air or water transportation but includes transport of goods like liquid
though pipelines. (First Philippine Industrial Pipeline vs. C.A., infra)
(NCC, Art. 1732)

First Philippine Industrial Pipeline vs. Court of Appeals

104 SCAD 1098, 300 SCRA 661 (1998).

Facts: FPIC, a grantee of a pipeline concession applied for a Mayor's permit with the Office of the Mayor of Batangas City.
It was transporting petroleum products through its pipelines. However, before the permit could be issued, the City Treasurer
required FPIC to pay a local tax on its gross receipts for 1993. FPIC protested the payment of the tax and argued that it was a
pipeline operator engaged in the business of transporting petroleum products from Batangas refineries, and as such, exempted
from paying the gross receipt tax being a common carrier. The Treasurer denied the protest and claimed that FPIC can not be
considered a common carrier engaged in transportation business, and thus cannot claim exemption from the payment of tax
on its gross receipts. Is FPIC a common carrier?

Held: FPIC is a common carrier. A "common carrier" may be defined broadly as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the
public generally. The definition of "Common carrier" in Article 1732 of the Civil Code makes no distinction as to the means
of transporting, as long as it is by land, water or air.

The fact the FPIC has a limited clientele does not exclude it from the definition of common carrier. FPIC is engaged in the
business of transporting or carrying goods, i.e., petroleum products, for hire as a public employment. It undertakes to carry
for all persons indifferently, that is, to all persons who choose to employ its services and transports the goods by land for
compensation. (HBP, P. 5)

Must the carrier's principal activity be the carriage of persons or goods to be considered a common carrier?

8
 Article 1732 of the Civil Code makes no distinction between one, whose principal business activity is the carrying
only of persons or goods or both, and one who does such carrying only as ancillary activity (in local idiom, as "a sideline").
Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a
regular or scheduled basis and one offering transportation service on a regular or scheduled basis and basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering
its services to the "general public," i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1732 deliberately refrained from making such
distinctions (Caltex [Phils.], Inc. vs. Court of Appeals, G.R. 131166, Sept. 30, 1999, 113 SCAD 471). (HBP, P. 3)

Brain Teaser: What about service vehicles of hotels, resorts, etc.?

When an aircraft operator is common carrier. An airplane owner is a common carrier where he "undertakes for hire to
carry all persons who apply for passage indiscriminately as long as there is room and no legal excuse for refusing... there can
be no doubt, under the general law of common carriers, that those air lines and air-craft owners engaged in the passenger
service on regular schedules on definite routes, who solicit patronage of the traveling public, advertise schedules for routes,
times of leaving and rates of fare, and make the usual stipulation as to baggage are common carriers by air. A flying service
company which, according to its printed advertising, will take anyone anywhere at any time, though not operating on regular
routes or schedules, and basing its charges not on the number of passengers but on the operating cost of the plane per mile,
has been held to be a common carrier. (Mendoza vs. PAL, G.R. No. L-3678, Feb. 29, 1952)

Effect of a Charter Party. The previous leading case of on this matter was Home Insurance Co. vs. American Steamship
Agencies (infra) the facts and the ruling were as follows:

(NCC, Art. 1732)

Home Insurance Co. vs. American Steamship Agencies

(23 SCRA 24, April 4, 1968)

Facts: A Peruvian firm shipped fishmeal through the SS Crowborough consigned to the San Miguel Brewery and insured by
the Home Insurance Co. The cargo arrived with shortages. San Miguel Brewery demanded from its insurer payment of said
shortages and Home Insurance Co. paid P14,000 in settlement of said demand. Home Insurance Co., as subrogee, then filed
an action for recovery of said amount. from Luzon Stevedoring Co., and American Steamship Agencies.

The trial court ordered American Steamship agencies to reimburse P14,000 to Home Insurance Co., declaring that Art. 587 of
the Code of Commerce makes the ship agent civilly liable for damages in favor of third persons due to the conduct of the
carrier's captain, and that the stipulation in the charter party exempting the owner of the ship from liability for losses due to
the fault of the vessel's captain or crew is against public policy under Art. 1744, NCC. American Steamship Agencies
appealed.

Held: The law applicable to common carriers is peculiarly rigorous, and it ought not to be extended to a person who has
neither expressly assumed that character nor by his conduct and from the nature of his business justified the belief on the part
of the public that he intended to assume it. Indeed, even a common carrier is exempt from the application of the strict public
policy governing common carriers where it does not act as such but as a private carrier, as when it charters its vessel totally
for use of a single party or a special person only. In such a case the policy loses its force for the public at large is not
involved.

The principle in the Home Insurance case was that the requirement for common carriers to exercise extra-ordinary
diligence is not applicable to private carriers. But this was modified in Planters Products vs. CA (infra) where the Supreme
Court held that conversion from common carrier to private carrier applies only in case of bareboat or demise charter, where
the charterer mans the vessel with his own people and becomes, "pro hac vice", the owner for the voyage or service covered
by the charter party. This change of nature does not occur when the charter is one of affreightment like a time or voyage
charter. Thus:

9
 Planters Products, Inc. vs. CA
226 SCRA 476; 483-486 (Sept. 15, 1993)

Facts: Planters Products, Inc. (PPI) purchased from Mitsubishi International Corp. of USA metric tons of Urea fertilizer
which the latter shipped aboard the cargo vessel owned by private respondent KKKK from America to Poro Point in La
Union. Prior to its voyage, a time charter-party on the vessel was entered into between Mitsubishi as shipper/charterer and
KKKK as shipowner. Upon arrival, there was a shortage of 106.726 MT and portion of the Urea was contaminated.

Held: The distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not a part of the general business or occupation, although
involving the carriage of goods for a fee, the person or corporation offering such service is a private carrier...

When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ
of the shipowner and therefore continued to be under its direct supervision and control. Hardly then can we charge the
charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer did not have any
control of the means in doing so... It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in
(NCC, Art. 1732)

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, 23 SCRA 24, is
misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charger-party
exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects of a special charter on
common carriers. The rule in the United States that a ship

(NCC, Art. 1732)

chartered by a single shipper to carry special cargo is not a common carrier, does not find application in our jurisdiction, for
we have observed that the growing concern for safety in the transportation of passengers and/or carriage of goods by sea
requires a more exacting interpretation of admiralty laws, more particularly, the rules governing common carriers.
Respondent carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption of negligence.

However, this distinction between the effect of a bareboat of demise charter from that of an affreightment on the
nature of the contract of carriage, was not discussed at all in Valenzuela Hardwood and Industrial Supply, Inc. vs. Court
of Appeals and Seven Brothers Shipping Corporation ( infra). Instead, the Supreme Court ruled that “that a stipulation
exempting the owner (of the vessel) from liability for the negligence of its agent is not against public policy and is deemed
valid” citing Home Insurance Co., Inc. v. American Steamship Agencies (supra).

Valenzuela Hardwood and Industrial Supply, Inc. vs. Court of Appeals

and Seven Brothers Shipping Corporation
G.R. No. 102316, June 30, 1997, 84 SCAD 105

Facts: On 16 January 1984, Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into a charter party with Seven
Brothers Shipping Corp. whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former's lauaan
round logs at the port of Maconacon, Isabela for shipment to Manila.

The charter party between VHIS and 7 Bros. stipulated that the shipowner "shall not be responsible for loss, shortlanding,
breakages and any kind of damages to the cargo arising from the negligence of the captain." The vessel sank on 25 January
1984 (NCC, Arts. 1733-1734) resulting in the loss of the VHIS's insured logs. The proximate cause of the sinking of M/V
Seven Ambassadors resulting in the loss of its cargo was the "snapping of the iron chains and the subsequent rolling of the
logs to the portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to
fortuitous event." The respondent contracted to transport the cargo of VHIS as a private carrier.

Issue: Is the stipulation in the charter party exempting the carrier from liability for the loss of shipper's logs arising from the
negligence of the vessel's captain valid?

10
Held: Yes, the stipulation is valid. The provisions of our Civil Code on common carriers were taken from Anglo-American
law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person
only, becomes a private carrier. As a private carrier, a stipulation exempting the owner (of the vessel) from liability for the
negligence of its agent is not against public policy and is deemed valid.

In a contract of private carriage, the parties may freely stipulate their duties and obligations, which would be binding on
them. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Compared to the
general public, a charterer in a contract of private carriage is not similarly situated. It can and in fact it usually does, enter into
a free and voluntary agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's obligations
and liabilities over the shipment which, in turn, determine the price or consideration of the charter. Thus, a charterer in
exchange for convenience and economy, may opt to set aside the protection from common carriers. In this case, he took a
normal business risk.

Is an arrastre operator a common carrier? Arrastre distinguished from stevedoring service.

Arrastre, a Spanish word which refers to hauling of cargo, comprehends the handling of cargo on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. On the other hand, stevedoring refers to
the handling of the cargo in the holds of the vessel or between the ship's tackle

(NCC, Art. 1732)

and the holds of the vessel. (Compania Maritima vs. Allied Free Workers Union, 77 SCRA 24). (NCC, Art. 1732)

An arrastre operator is not a common carrier. Therefore, the one-year prescriptive period within which an action can
be filed against a common carrier as provided for in the Carriage of Goods by Sea Act does not apply to an arrastre operator.
(Ins. Co. of North America vs. Phil. Ports Terminal, Inc., 97 Phil. 288; Asked, 1988 Bar Exams.) (HBP, P. 9)

Are maritime laws applicable to arrastre operators?

The determination of the questions of whether or not the arrastre operator had fully discharged its obligation to
deliver the goods to the party entitled thereto, and, in the negative case, the amount of indemnity which said operator is
bound to pay, does not require the application of any maritime commerce (Macondray & Co., Inc. vs. Delgado Brothers, Inc.,
L-13118, April 28, 1960; Asked, 1965 and 1988 Bar Exams.) The reasons for this is that both as to the nature of the functions
and the place of their performance (upon wharves and piers shipside), an arrastre operator's services are clearly not maritime
(Delgado Brothers, Inc. vs. Home Insurace Co., 1 SCRA 854) (HBP, P. 10)

Nature of the relationship between an arrastre operator and the consignee

The relationship between an arrastre operator and the consignee is akin to that of a warehouseman and depositor
(Lua Kian vs. Manila Railroad Co., et al., 19 SCRA 5). Both as to the nature of the functions and the place of their
performance, an arrastre operator's services are clearly not maritime; they are no different from those of a depositary or
warehouseman (Insurance Co. of North America vs. Manila Port Service, 3 SCRA 553) (HBP, Pp. 9-10).

Fireman's Fund Insurance Co. vs. Metro Port Service

182 SCRA 455

Facts: Vulcan Industrial Mining imported machinery. Upon arrival in Manila, the carrier turned over the cargo to the arrastre
operator in complete and good condition. The cargo was loaded on a tractor owned by the carrier and operated by an
employee of the arrastre operator. The cargo fell from the tractor thereby causing damage thereto. The Court of Appeals
limited the liability for the damage to the cargo only to the carrier, because while the tractor was operated by the employee of
the arrastre operator, he was technically and strictly performing a duty that properly pertained to the carrier when he drove
the tractor. Is the carrier solely liable for the damage to the cargo?

11
Held. No. Both the arrastre operator and the carrier are charged with and obligated to deliver the goods in good condition to
the consignee. The legal relationship between the consignee and the arrastre operator is akin to that of a depositor are
warehouseman. The relationship between the consignee and the common carrier is similar to that of the consignee and the
arrastre operator. Since it was the duty of the arrastre operator to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such responsibility also devolves upon the carrier. (HBP, P. 10)

Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be
easy for him by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person,
or to one who possesses no property with which to respond financially for the damage or injury done. A victim of
recklessness on the public highways is without means to discover or identity the person actually causing the injury or
damage. He has no means other than by a recourse to the registration in the Motor Vehicle Office to determine who is the
owner. The protection that the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership. (Vargas vs. Langcay, L-17459, Sept. 29, 1992)

(NCC, Art. 1732)

Jose G. Tamayo vs. Inocencio Aquino, et al.

105 Phil. 949, May 29, 1959

Facts: Aquino's wife was a passenger of a truck, operated by Tamayo, which bumped a culvert on the side of the road in
Pangasinan. Aquino's wife was thrown from the truck and two pieces of wood were embedded in her skull resulting to her
death, Aquino brought an action against Tamayo, who alleged that he was no longer interested in said truck as he sold it to
Silvestre Rayos before the accident.

The truck was one of the trucks of Tamayo under a certificate of public convenience issued to him; that he had sold it to
Rayos in March, 1953, but did not inform the Public Service Commission of the sale until June 30, 1953, one month after the
accident.

The Pangasinan CFI ordered Tamayo and Rayos to pay Aquino jointly and severally compensatory and moral damages, and
authorized either who should pay the entire amount to recover from the other. Upon appeal, the Court of Appeals affirmed
the CFI decision. Tamayo filed this petition for certiorari questioning the damages awarded.

Held: "As Tamayo is the registered owner of the truck, his responsibility to the public or to any passenger riding in the
vehicle or truck must be direct, for the reasons given in our decision in the case of Erezo vs. Jepte, supra, as quoted above.
But as the transferee, who operated the vehicle when the passenger died, is the one directly responsible for the accident and
death he should in turn be made responsible to the registered owner for what the latter may have been adjudged to pay. In
operating the truck without transfer thereof having been approved by the Public Service Commission, the  transferee acted
merely as agent of the registered owner and should be responsible to him (the registered owner), for any damages that he may
cause the latter by his negligence.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage
caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual
owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant. (Citing Erezo
vs. Jepte, 104 Phil., 103).

Zamboanga Trans. Company, Inc. vs. Court of Appeals

30 SCRA 719, Nov, 29, 1969

Facts: In the evening of August 13, 1955, the spouses Ramon and Josefina Dagamanuel boarded a bus at Manicahan,
Zamboanga City, to attend a benefit dance at the Bunguiao Elementary School, also in Zamboanga City. Although the
Zamboanga Rapids Co., Inc. (Zambraco) appeared to be the registered owner, Zamboanga Transportation Co., Inc.
(Zamtranco) was in fact the operator. At the time, the sale and merger of Zambraco with Zamtranco was to be the subject of
application with the Public Service Commission. Pending such approval, the bus was registered in the name of the Zambraco.

12
After the dance, the couple boarded the same bus to return to Manicahan. At around 1:00 a.m. in the early morning of August
14, 1955, the bus which was driven by Valeriano Marcos fell off the road and pinned to death the said spouses and several
other passengers. Action was brought against the defendants Zamtranco and Zambraco for breach of contract of carriage,
alleging that the accident was due to the fault and negligence of the driver in operating the bus and due to the negligence of
the defendant companies in their supervision of their driver.

Held: "While it is true that according to previous decisions of this court, a transfer of a certificate of public convenience to
operate a transportation service without the approval of the Public Service Commission is not effective and binding insofar as
the responsibility of the grantee under the franchise in its relation to the public is concerned and that, in contemplation of law,
the transferor of such certificate continous to be the operator of the service and as such operator, he is the one responsible
jointly and severally with his driver for the damages suffered by passengers or third persons as a consequence of injuries of
deaths resulting from the operation of such service, we do not find any need for applying those rulings to the present
petitioners for the simple reason that in their respective third party complaints, noted by the Court of

(NCC, Art. 1732)

Appeals, they both admitted that they are owners of the bus involved in the incident in question and that Valeriano Marcos,
the driver of said bus at the time of said incident, was in their employ. Both the owner of record and the actual operator of the
bus in question should be adjudged jointly and severally liable with the driver.

Liability of registered Owner of Public Utility Vehicle vis-à-vis the true owner. The true owner of a passenger jeep
is solidarily liable with the registered owner in a civil action for damages. (Jereos vs. CA, 117 SCRA 795).

Ma. Luisa Benedicto vs. IAC and Greenhills Wood Industries, Co., Inc.
G.R. No. 70876, July 19, 1990; 187 SCRA 547

The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the
operations of the carrier, even though the specific vehicle involved may already have been transferred to another person. This
doctrine rests upon the principle that in dealing with vehicles registered under the Public Service Law, the public has the right
to assume that the registered owner is the actual or lawful owner thereof It would be very difficult and often impossible as a
practical matter, for members of the general public to enforce the rights of action that they may have for injuries inflicted by
the vehicles being negligently operated if they should be required to prove who the actual owner is. The registered owner is
not allowed to deny liability by proving the identity of the alleged transferee. The general public is not required to go beyond
the vehicle's certificate of registration to ascertain the owner of the carrier.

In this case, the concerned truck remained registered in the name of Benedicto notwithstanding its earlier sale
because the buyer had paid her only P50,000.00 of the total agreed price of P68,000.00.

Transferee is liable solidarily with registered owner and the driver 

In the earlier cases (Erezo vs. Jepte, 104 Phil., 103; Tamayo vs. Aquino, et al., 105 Phil. 949, May 29, 1959; Perez
vs. Gutierrez, 53 SCRA 150), the Supreme Court ruled that a registered owner and his transferee may not be held guilty of
tort or a quasi-delict for failure to carry out their passenger safely, as their case does not fall under Art. 2194 of the new Civil
Code, and their responsibility is not solidary. The registered owner's responsibility to the public or to any passenger riding in
his vehicle is direct, but since the transferee, who operated the vehicle when the passenger died, is the one directly
responsible for the accident and death, he should in turn be made responsible to the registered owner for what the latter may
have been adjudged to pay. The transferee acted merely as agent of the registered owner and should be responsible to him
(the registered owner), for any damages that he may cause the latter by his negligence.

But in the later cases of Zamboanga Transportation Co., Inc. v. Court of Appeals (30 SCRA 719, Nov, 29, 1969) and
Jereos vs. CA (117 SCRA 795), the Supreme Court affirmed the ruling of the Court of Appeals that "it is for the better
protection of the public that both the owner of record and the actual operator should be adjudges jointly and severally
liable with the driver." This being the latest ruling, it must be deemed to be the controlling law on the matter.

13
 MYC Agro Industrial vs. Vda. de Caldo
132 SCRA 10, Sept. 7, 1984

Facts: On March 21, 1971, a Toyota truck owned by MYC and operated by Ceferino Arevalo hit the right center side of a
passenger jeepney owned by Nicanor Silla and operated by Alfredo Rodolfo. As a consequence, the jeepney, which was
parked at the time of the impact, turned turtle and was pushed to a cemented fence owned by Lucila Reyes. Seven (7) of the
passengers died while the rest of the fifteen (15) passengers suffered various injuries on the different parts of their bodies.
The jeepney and the cement fence were also damaged.

(NCC, Art. 1732)

MYC admitted ownership of the Toyota truck but alleged that the same, together with nine (9) other units were transferred to
the Jaguar Transportation, Inc. by way of lease with sale. NCC, Art. 1732

During the 3-year period of the contract, before full payment of the supposed installment price, all the leased trucks
continued to be under the effective dominion of MYC. The trucks were not covered by any mortgage; neither was the lease
registered with the proper government agency.

Held: It "is undisputed that the registered owner of the Toyota truck is the petitioner MYC. As held in Vargas vs. Langcay, 6
SCRA 174, the registered owner/operator of a passenger vehicle is jointly and severally liable with the driver for damages
incurred by passengers or third persons as a consequence of injuries (or death) sustained in the operations of said vehicles...
Regardless of who the actual owner of a vehicle is, the operator or record continues to be the operator of the vehicles as
regards the public and third persons, and as such is directly responsible for the consequences incident to its operation, so that,
in contemplation of law, such owner/operator of record is the employer of the driver, the actual operator and employer being
considered merely as his agent."

2005BQ No. XIII(3). Baldo is a driver of Yellow Cab Co. under the boundary system. While cruising along the
South Superhighway, Baldo's cab figured in a collision, killing his passenger, Pietro. The heirs of Pietro sued
Yellow Cab Co. for damages, but the latter refused to pay the heirs, insisting that it is not liable because Baldo is
not an employee.

Resolve with reasons.

Ans.: The contention of Yellow Cab has no merit. The Supreme Court has held that a driver of a public utility
vehicle under the "boundary system" is an employee of the operator. (National Labor Union vs. Dinglasan (98
Phil 648) The fact that such drivers do not receive fixed wages but only get that in excess of the so-called
"boundary" they pay to the owner/operator is not sufficient to withdraw the relationship between them from that
of employer and employee. (Jardin, et al. vs. NLRC, G.R. No. 119268, Feb. 23, 2000)

Liability of the parties in case of unregistered lease. Lease of vehicle which is covered by a franchise not approved by
PSC is binding between the parties, but not upon public or third persons. If the property covered by a franchise is transferred
or leased without the transfer or lease being registered, liability remains with the registered owner.

The registered owner or lessor, is not however without recourse. He has a right to be indemnified by the lessee for
the amount that said lessee may be required to pay as damages for the injury caused to the injured party, since the lease
contract in question, although not effective against the public for not having been approved by the Public Service
Commission, is valid and binding between the contracting parties. (Gelisan vs. Alday, Sept. 30, 1987, 154 SCRA 388, 393-
394.)

1988 BQ No. 18: Mr. Villa, a franchise holder and the registered owner of a truck for hire, entered into a lease
contract with Mrs. Santos for the lease by the latter of said truck. The lease contract was not brought to the
knowledge of the Land Transportation, Franchising and Regulatory Board and was therefore not approved by
the Land Transportation, Franchising and Regulatory Board. One stormy night, the said truck which was speeding
along EDSA, skidded and ran over X who died of the spot. The parents of X brought an action for damages
against Mr. Villa for the death of their son.

14
 (a) Will the action against Mr. Villa prosper? Reasons.
(b) What recourse, if any, does X have?

Ans. : (a) Yes, the action will prosper. Both the registered owner and the actual user or operator of a motor
vehicle are liable for damages sustained in the operation thereof (see MYC Agro-

(NCC, Art. 1732)

Industrial vs. Caldo, 132 SCRA 10; Jereos vs. Ca, 117 SCRA 795). Hence, the action against Villa can prosper.

(b) The heirs of X may likewise bring an action for tort against Mrs. Santos and/or the driver of the vehicle. The
latter may also be charged criminally.

1976 BQ No. IV-b:  A is registered owner of a truck for hire. He sold the truck to B and possession was
immediately delivered to B who operated the same. The truck, however, remained registered in the name of A.
While operating the truck, B's driver ran over a child who died thereafter. The heirs of the child sued A for
damages. A's defense is that he cannot be held liable as he had already sold the truck to B and it was B's driver
who was responsible for the accident. Decide with reasons.

Ans. A is liable to the heirs of the victim. As far as third persons without knowledge are concerned, the registered
owner of a motor vehicle is its true owner regardless of any unregistered sale of the vehicle.

Liability of the parties in case of "kabit" or "attached" system

2005 BQ No. XIII(1): Discuss the "kabit system" in land transportation and its legal consequences.

Ans.: (See below)

"Kabit" or "Attached" System – A system where a vehicle is registered under an operator with a franchise but is actually
operated by its true owner. A jeepney registered in the name of an operator, but actually owned by another under the "kabit'
system, may be sold at public auction to satisfy a court's award for damages to a pedestrian. The vehicle cannot be considered
"strangers' property." The remedy of the real owner is to go against the actual operator who was responsible for the accident.
(Santos vs. Sibug, 104 SCRA 520).

1990 BQ No.11: Johnny owns a Sarao Jeepney. He asked his neighbor Van if he could operate the said jeepney
under Van's certificate of public convenience. Van agreed and, accordingly, Johnny registered his jeepney in
Van's name.

On June 10, 1990, one of the passenger jeepneys operated by Van bumped Tomas. Tomas was injured and in due
time, he filed a complaint for damages against Van and his driver for the injuries he suffered. The court rendered
judgment in favor of Tomas and ordered Van and his driver, jointly and severally, to pay Tomas actual and moral
damages, attorney's fees, and costs. (NCC, Art. 1732)

The Sheriff levied on the jeepney belonging to Johnny but registered in the name of Van. Johnny filed a third-
party claim with the Sheriff alleging ownership of the jeepney levied upon and stating that the jeepney was
registered in the name of Van merely to enable Johnny to make use of Van's certificate of public convenience.

May the Sheriff proceed with the public auction of Johnny's jeepney? Discuss the reasons.

Ans. Yes, the Sheriff may proceed with the auction sale of Johnny's jeepney. In contemplation of law as regards
the public and third persons, the vehicle is considered the property of the registered operator (Santos v. Sibug, 104
SCRA 520).

15
 (NCC, Art. 1732)

Effect of Pari Delicto in "kabit" or "attached" system

Lita Ent. vs. Intermediate Appellate Court

129 SCRA 79

Facts: The spouses Ocampo purchased five (5) Toyota cars to be used as taxicabs. Since they had no franchise to operate
taxicabs, they contracted with petitioner LE Inc., for the use of the latter's certificate of public convenience. To effectuate
said agreement, the aforesaid cars were registered in the name of petitioner LE Inc. Possession, however, remained with the
spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.

In March 1973, Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner to turn over the
registration papers to him, but the latter allegedly refused. Hence, the spouses filed a complaint against LE, Inc. for
reconvenyance of motor vehicles with damages, with the CFI of Manila. The said court rendered a decision in favor of
plaintiff. The Intermediate Appellate Court modified the decision.

Held: The parties herein operated under an arrangement commonly known as the "kabit system", whereby a person who has
been granted a certificate of convenience allows another person who owns motor vehicles to operate under such franchise for
a fee. Although not outrighly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to
public policy and, therefore, void and inexistent under Article 1409 of the Civil Code. It is fundamental principle that the
court willl not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise,
it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their
predicament.

Article 1412 of the Civil Code denies them such aid. Where the parties are in pari delicto, no affirmative relief of any kind
will be given to one against the other.

TEJA MARKETING v. INTERMEDIATE APPELLATE COURT

148 SCRA 247

Facts: The Private Respondent purchased fromTeja Marketing a motorcycle with sidecar but it remained registered in the
name of the Petitioner and was operated by the Private Respondent the Petitioner's franchise under the "kabit system" or
"attached system". The Petitioner filed an action for failure of the Private Respondent to pay the balance of the purchase
price. 

Held: The Supreme Court affirmed the dismissal of the case by the lower court on the ground that the parties were in "pari
delicto."

2005 BQ No. 2: Procopio purchased an Izusu passenger jeepney from Enteng, a holder of a certificate of public
convenience for the operation of a public utility vehicle plying the Calamba-Los Baños route. While Procopio
continued offering the jeepney for public transport services, he did not have the registration of the vehicle
transferred in his name. Neither did he secure for himself a certificate of public convenience for its operation.
Thus, per record of the Land Transportation Franchising and Regulatory Board, Enteng remained its registered
owner and operator. One day, while the jeepney was travelling southbound, it collided with a ten-wheeler truck
owned by Emmanuel. The driver of the truck admitted responsibility for the accident, explaining that the truck
lost its brakes.

Procopio sued Emmanuel for damages, but the latter moved to dismiss the case on the ground that Procopio is not
the real party in interest since he is not the registered owner of the jeepney.

Resolve the motion with reasons.

16
 (NCC, Arts. 1732-1733)

Ans.: The motion should be denied. It is submitted that the principle of "pari delicto" applied in the cases of Lita
Enterprises and Teja Mktg. (supra) is applicable only in cases where both parties are "at fault". It does not apply
here because only one party, i.e., Procopio, was involved in the "kabit system" with Enteng. Hence, Emmanuel
cannot evade responsibility for the fault of his driver which caused the accident and the damage to Procopio.

Diligence Required of Common Carriers in Transportation of Goods

Art. 1733 - Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.

Extraordinary diligence required of common carriers required by the law means that they must render service with
the greatest skill and utmost foresight. Such extraordinary diligence in the vigilance over the goods (NCC, Art. 1733) is
further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in Articles 1755 and 1756.

Rationale for requiring extraordinary diligence.

The nature of the business of common carriers and the exigencies of public policy demand that they observe
extraordinary diligence. The public must of necessity rely on the care and skill of common carriers in the vigilance over the
goods and safety of the passengers. Furthermore, with the development of science and invention, transportation has become
more rapid, but more complicated and hazardous, so the public is forced to trust all the more in the utmost diligence and
foresight of common carriers, whether by land, sea, or air. (AFA citing the Code Commission)

The purpose or requiring extraordinary diligence is to curb the recklessness of drivers which is a common sight in
crowded areas and in the highways throughout the country (Nocum vs. Laguna Tayabas Bus Co., 30 Phil. 69) It is for the
safety of the passengers as well as the crew operating the carrier (Phil. Air Lines, Inc. vs. CA, 195 Phil. 560 and 106 SCRA
291) (HBP, P. 11)

Eastern Shipping Lines, Inc. vs. IAC

150 SCRA 463, May 29, 1987

Facts: These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of
the M/S ASIATICA, operated by petitioner Easten Shipping Lines, Inc. when it caught fire, resulting in the total loss of ship
and cargo.

In G.R. No. 69044, the M/S ASIATICA loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of colorized lance
pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts
valued at P92,36.75 consigned to Central Textile Mills, Inc. Both set of goods were insured against marine risk for their
stated value with respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, the same vessel took on board 128 cartons of garment fabrics and accessories, in two (2) containers,
consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured by respondent Nisshin Fire & Marine Insurance Co., and Dowa Fire &
Marine Insurance Co., Ltd. (RFR, P. 43)

The cargos in question were, according to witnesses for the defendant, placed in hatches Nos. 2 and 3 of the vessel.
Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3;

(NCC, Art. 1733)

17
that when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24) hours before the
same was noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatch covers of No. 2 hold
for commencement of fire fighting by sea water; that all of these efforts were not enough to control the fire. (AFA, P. 17)

Held: (1) "Pursuant to Article 1733, common carriers are bound to observe extraordinary diligence in the vigilance over the
goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent
occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show the amount of diligence made by
the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage.

(2) Also, neither may petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act. It is provided
therein that:

"Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

"(a) x x x.

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

“x x x"

(3) There was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was
already big; that the fire must have started twenty-four 24 hours before the same was noticed;" and that "after the cargoes
were stored in the hatches, no regular inspection was made as to theircondition during the voyage." The foregoing suffices to
show that the circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its
servants were negligent in connection therewith. Consequently, the defense afforded by the COGSA when loss results from
fire is unvailing to Petitioner Carrier.

Due to the extraordinary diligence required, common carriers are given wide discretion in the selection and
supervision of its employees who transport passenger or handle the goods.

PAL VS. NLRC

Sept. 2, 1983, 124 SCRA 583

Facts: At around 10:30 p.m. of February 27, 1980, Salvador Gempis, a PAL pilot with the rank of captain, while at the lobby
of Triton Hotel in Cebu City, forced two subordinate co-pilots to drink six (6) bottles of beer each within a span of thirty (30)
minutes. He knew that the two have flight schedules the next day as early as 7:10 a.m. and as late as 12:00 noon. Unable to
do so, Gempis ordered them to stand erect and boxed them on the stomach. PAL sought clearance to dismiss Gempis on the
grounds of serious misconduct and violation of the liquor ban and company policies from the National Labor Relations Board
(NLRB).

Held: Application for clearance approved. The business of PAL is such that whenever a passenger dies or is injured, the
presumption is that it is at fault... Thus, extraordinary measures and diligence should beexercised by it for the safety of its
passengers and their belongings. Needless to state, a pilot must be sober all the time for he may be called upon to fly a plane
even before his regular scheduled hours; otherwise, so many lives will be in danger if he is drunk. It would be unjust for an
employer like PAL to be compelled to continue with the employment of a person whose continuance in the service is
obviously inimical to its interests.

(NCC, Arts. 1733-1735)

Presumption of negligence; Shifting of the burden of proof. 

18
 In an action for damages arising brom breach of transportation contract, the shipper must prove only: (a) the
existence of the contract of carriage; and, (b) that the goods were delivered to, and received by the carrier in good order and
condition. He is not required to prove that the damage or loss was due to the negligence of the carrier because Art. 1735 of
the New Civil Code presumes such negligence.

Thereafter, the burden of proof shifts and it devolves upon the carrier to both allege and prove, either that the goods
were lost or damaged inspite of the extraordinary diligence it exercised (NCC, Arts. 1733 and 1735), or that the loss of
damage was caused by any of the circumstances which legally exempts it from liability under Art. 1734 of the New Civil
Code.

To require the shipper to prove as to when and how the damage was done would force him to rely upon the
employees of the carrier, which is equivalent to saying that the shipper or consignee cannot recover for such loss of damage.
(Ynchausti Steamship Co. vs. Dexter, 41 Phil, 289, Dec. 14, 1920; Mirasol vs. Dollar, 53 Phil. 124, Mar. 27, 1929)

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

Art. 1735. In all cases other than those mentioned in Nos. 1,2,3,4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in article 1733.

The defenses in Art. 1734 is a closed list. No other defense may be raised by the common carrier. The carrier is
liable if the cause of the damage or loss is not one of those enumerated. Examples of defenses not allowed are the defense of
exercise of due diligence in the selection and supervision of employees, and the doctrine of last clear chance or doctrine
of discovered peril, both of which are is available in tort or quasi-delict, but not in a civil action for breach of transportation
contract.

A common carrier, both from the nature of its business and for insistent reasons of public policy, is burdened by the
law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers, but also in caring for
goods transported by it. The loss or destruction or deterioration of goods turned over to the common carrier for conveyance to
a designated destination, raises instantly a presumption of fault or negligence on the part of the carrier, save only where such
loss, destruction or damage arises from extreme circumstances such as a natural disaster or calamity or act of the public
enemy in time of war, or from an act or omission of the shipper himself or from the character of the goods of their packaging
or container.

(NCC, Arts. 1734-1735)

This presumption may be overcome only by proof of extraordinary diligence on the part of the carrier. (Ma. Luisa
Benedicto vs. IAC and Greenhills Wood Industries, Co., Inc., G.R. No. 70876, July 19, 1990; 187 SCRA 547)

19
Par. 1. Natural disaster or calamity

Requisites of "caso fortuito" that would exempt a carrier or person from responsibility:

(1) The cause of the event must be independent of human will;

(2) It must have been impossible to foresee or, if it could be foreseen, must have been impossible to avoid;

(3) The occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner;

(4) The obligor must be free of participation in, or aggravation of, the injury to the debtor. There must be an entire exclusion
of human agency from the cause of injury or loss.

(Vasquez vs. CA, 138 SCRA 553; Juntilla vs. Funtanar, 136 SCRA 624; Servando vs. Philippine Steam Navigation).

Conditions for natural disaster to exempt from liability.

(1) The natural disaster must be the proximate and only cause of the loss (NCC, Art. 1739);

(2) The common carrier must exercise due diligence to prevent or minimize the loss before, during and after the calamity
(Idem);

(3) There was no negligent delay on the part of the carrier (NCC, Art. 1740).

PHILAMGEN INS. CO., INC. v. COURT OF APPEALS

222 SCRA 155, May 17, 1993

Facts: On September 4, 1985, Davao Union Marketing Corporation shipped on board M/V "Crazy Horse" operated by
Transpacific Towage, Inc. cargo consisting of GI sheets and union Portland Cement. The cargo was consigned to Bicol
Union Center of Pasacao, Camarines Sur, with Pedro Olivan as "notify-party". The cargo was insured by the Philippine
American General Insurance, Co. (PhilAmGen)

A month after the arrival of the cargo at the port of Pasacao, super typhoon "Saling" hit the town at storm signal no. 3. The
discharging of the cargo was thus suspended. At 5:20 a.m. of 18 October 1985, as typhoon "Saling" continued to batter the
Pasacao area, the shipmaster ordered the vessel to be moved about 300 meters seaward amidst strong winds and rough sea in
order that it would not hit the catwalk, or bridge, or wharf or the rocks. The vessel's lines snapped, causing her to be dragged
against the rocks and causing the vessel to sustain holes. When water started to enter the engine room and later the engine
broke down, the shipmaster had no choice but to order the ship to be abandoned, but he sought police assistance to prevent
pilferage of the vessel and its cargo.

The vessel later broke into two (2) parts and sank partially. The shipmaster then reported the incident to the Philippine Coast
Guard, but unfortunately, despite the presence of three coast guards, nothing could be done to stop the pilferage as almost the
entire barrio folk came to loot the vessel and its cargo including the G.I. sheets.

The total number of cement bags damaged and/or lost was 26,424, while there were 4,000 pieces of GI sheets unrecovered.
PhilAmGen paid the shipper the sum of P1,511,210. Thereafter, said insurer demanded

(NCC, Arts. 1734-1735)

that Transpacific Towage Inc. pay the said amount as subrogee of the insured. The latter refused to pay, so the petitioner filed
a complaint. The trial court held the carrier liable for exposing the property to the accident. On the other hand, the Court of
Appeals ruled instead that private respondent is not liable for the loss of the cargo as said loss was due to fortuitous event.

20
Held: Although there was delay, it was due not to negligence but to several factors, to wit: (1) the bouys were installed only
on September 11, 1985, the fourth day after the arrival of the cargo; (2) the consignee secured the discharge permit only on
September 13; (3) a catwalk and wharf extension had to be made which was completed only on September 16, 1985; (4) there
were intermittent rains.

The cargo having been lost due to typhoon "Saling" and the delay incurred in unloading not being due to negligence, and
with the records also showing that before, during and after the occurence of the typhoon, the carrier through its shipmaster
exercised due diligence to prevent or minimize the loss of the cargo, the carrier is exempt from liability pursuant to Article
1740 of the Civil Code.

Fire is not a fortuitous event to exempt a common carrier (a merchant vessel) from liability for loss, unless the fire is caused
by lightning or by any other natural disaster, (Eastern Shipping vs. IAC, 150 SCRA 463, Pp. 23-24 supra).

This was reiterated in Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance Company (G.R. No. 146018, June
25, 2003) where petitioner's vessel, sank due to a fire caused by a crack in the auxiliary engine fuel oil service tank. Fuel
spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was
located on the side of the fuel oil tank, which had a mere two inch gap from the engine room walling, thus precluding
constant inspection and care by the crew. The Supreme Court held that the sinking of the vessel was not considered as
fortuitous event. The fire started because of an unchecked crack in the fuel oil service tank, and could not have been caused
by force majeure.

Hijacking of the carrier does not fall among the fivecategories of exempting causes. In case of hijacking, the presumption of
negligence under Art. 1735 of the New Civil Code still applies unless there is a proof of extraordinary diligence on the part of
the common carrier, or the hijacking was committed by thieves or of robbers who acted with grave or irresistible threat,
violence or force, which would exempt the carrier from liability under Art. 1745 of the New Civil Code (See De Guzman vs.
Court of Appeals, supra).

Par. 2. Public enemy

Conditions for act of public enemy to exempt from liability.

(1) The act of public enemy must be the proximate and only cause of the loss (NCC, Art. 1739)

(2) The common carrier must exercise due diligence to prevent or minimize the loss before, during and after the act was
being committed by the public enemy (Idem).

According to Justice Edgardo Paras, pirates are included in the concept of public enemy since piracy is a crime against
nations.

Par. 3. Act or omission of the shipper or owner of the goods.

Par. 4. Character of the goods or defects in the packing.

(NCC, Arts. 1734-1736)

Conditions for act of the shipper or character of the goods or defect in the packaging to exempt from liability.

(1) The act or omission of the shipper or owner of the goods, or the character of the goods. or the defects in the packaging
must also be the proximate and only cause of the loss;

21
(2) The common carrier must exercise due diligence to prevent or minimize the loss before, during and after the calamity.

(3) Under Art. 1741, if the shipper or owner merely contributed to the loss, destruction or deterioration of the goods the
proximate cause being the negligence of the common carrier, the latter shall still be liable for damages. However, the
damages shall be equitable reduced.

Art. 356 of the Code of Commerce provides that carriers may refuse packages which
appear unfit for transportation; if the carriage is to made by railway and the shipment is insisted
upon, the carrier shall transport them, being exempt from all responsibility if its objections, is
made to appear in the bill of lading.

Duty to accept passengers or goods; Grounds for valid refusal of the carrier to receive goods

The law forbids failure or refusal to receive persons or property for carriage which have the effect of giving an
unreasonable or unnecessary preference or advantage to any person, locality of particular kind of traffic, or of unreasonable
prejudice or discrimination. For example, Section 16 of Republic Act No. 9295 passed in May 2004 makes it illegal for
domestic ship operators to refuse to accept or carry passengers or cargo without just cause.

With respect to passengers, it has been explained that the vessel generally engaged as a common carrier of
passengers is bound to receive for carriage, without discrimination all persons who desire it and properly offer to become
passengers unless some sufficient excuse exists for refusing them.

In connection with air transportation, the applicable rule for passengers with confirmed tickets who were not
allowed to board, is Civil Aeronautic Board's Economic Regulation No. 7 as amended. The said rules provide for denied
boarding compensation and priority boarding rules. It should be noted that the said rules provide for liquidated damages as a
result of the carrier's failure to provide the passenger with confirmed reserved space. In addition, the passenger shall have
priority booking for the next available flight using the same ticket for which he was denied boarding.

However, no compensation is required if the reasons for the refusal are: (1) government requisition of the space, (2)
substitution of equipment of lesser capacity when required by operational and or safety and/or other causes beyond the
control of the carrier (including force majeure),and (3) if arrangements have been made for the passenger to take another
flight in a comparable air transportation which will arrive not later than three hours after the time the flight on which the
confirmed space is held is supposed to arrive.

Instances when the carrier may refuse to accept goods:

1) When the goods sought to be transported are dangerous objects or chemicals, or substances including dynamites and
other explosives, and the carrier is not properly equipped to transport such dangerous cargo;

(NCC, Arts. 1734-1735)

2) The goods are unfit for transportation;

3) Acceptance would result in overloading;

4) The goods are considered contrabands or illegal goods;

5) Goods are injurious to health;

6) Goods will be exposed to untoward danger like flood, capture by enemies and the like;

22
7) Goods like livestock will be exposed to diseases;

8) Strike; and

9) Failure to tender goods on time

10) Shipments which are not authorized by the appropriate government agency like the Maritime Industry Authority
(MARINA) such as vehicles, animals, forest products, fish and aquatic products, minerals and mineral products and
toxic and hazardous materials, unless they are covered by the necessary clearance from appropriate government
agencies. Non-compliance with the requirement will subject the ship-owner and the master to administrative penalties
without prejudice to the institution of criminal and/or civil action with the regular courts against those who are
responsible.

Carriers are allowed to refuse acceptance of goods that are unfit for transportation or are unfit because of improper
packaging or defect in their containers. However, the carrier may choose to transport such goods and limit its liability by
stipulation.

If the fact of improper packing is known to the carrier or his servants, or apparent upon ordinary observation, but he
accepts the goods notwithstanding such condition, he is not relieved from liability for loss or injury resulting therefrom. (9
Am Jur. 869; Southern Lines, Inc. vs. Court of Appeals, 4 SCRA 259).

Southern Lines, Inc. vs. CA and City of Iloilo

G.R. No. L-16629, Jan. 21, 1962, 4 SCRA 258

Facts: On August 24, 1948, NARIC shipped 1,726 sacks of rice from Manila consigned to the City of Iloilo on board the S/S
"General Wright" belonging to the Southern Lines Inc. The entire shipment as indicated in the bill of lading had a total
weight of 120,450 kilos.

On September 3, 1948, the City of Iloilo received the shipment and paid the amount of P163,115.50. However, it was noted
at the foot of the bill of lading that the City of Iloilo "received the above mentioned merchandise apparently in same
condition as when shipped, save as noted below: actually received 1,685 sacks with a gross weight of 116,131 kilos upon
actual weighing. Total shortage ascertained 13,319 kilos." The shortage was equivalent to 41 sacks of rice with a net weight
of 13,319 kilos, the proportionate value of which was P6,486.35.

Southern Lines, Inc. was sentenced to pay the amount of P4,931.41 which is the difference between the sum of P6,486.35 and
P,554.94 representing the latter's counterclaim for handling and freight. The Southern Lines, Inc., appealed to the Court of
Appeals which affirmed the judgment of the trial court.

Issue: Whether of not the petitioner Southern Lines is liable for the loss or shortage of the rice shipped.

Held: "Under the provisions of Article 361, the carrier, in order to free itself from liability, was only obliged to prove that the
damages suffered by the goods were by virtue of the nature or defect of the articles. Under the provisions of Article 362, the
shipper, in order to hold the defendant liable, was obliged

(NCC, Arts. 1734-1735)

to prove that the damages to the goods by virtue of their nature, occurred on account of its negligence or because the
defendant did not take the precaution adopted by careful persons.

Petitioner claims exemption from liability by contending that the shortage in the shipment of rice was due to such factors as
the shrinkage, leakage or spillage of the rice on account of the bad condition of sacks at the time it received the same and the
negligence of the agents of respondent City of Iloilo in receiving the shipment. The contention is untenable, for if the fact of
improper packing is known to the carrier or his servants, or apparent upon ordinary observation, but it accepts the goods
notwithstanding such condition, it is not relieved of liability for loss or injury resulting therefrom. Furthermore, the carrier
admitted that the strings that tied the bags of rice were broken; some bags were with holes and plenty of rice were spilled

23
inside the hull of the boat, and that the personnel of the boat collected no less than 26 sacks of rice which they had distributed
among themselves. This finding, which is binding upon this Court, shows that the shortage resulted from the negligence of
petitioner.

1985 BQ No.3. Archipelago Lines, Inc., a carrier, accepted for shipment from Iloilo to Manila a cargo
consisting of 800 sacks of rice, knowing that some sacks had big holes and others had their openings just
loosely tied with strings. Due to spillage of the rice during the trip, there was shortage in the rice delivered by
the carrier to the consignee. When sued, Archipelago Lines, Inc. interposed the defense that the carrier was not
liable because the spillage was due to the defective condition of the sacks.

As a judge, how would you rule on the liability of the carrier? Reasons.

(See Answer to the next bar question)

1978 BQ No. V-b. Because of spillage of the rice during the trip from Davao to Manila due to the bad condition
of the sacks, there was a shortage in the rice delivered by the Provident Lines Inc. to the consignee XYZ Import
and Export Corporation. The carrier accepted the shipment, knowing that some of the sacks had holes and some
had broken strings. When sued, Provident Lines, Inc. alleged that the loss was caused by the spillage of the rice
on account of the defective condition of the sacks, at the time it received the shipment, and, therefore, it cannot
be held liable.

Decide. Give reasons.

Ans. --- The maritime carrier is liable. Where the fact of improper packing is known to the carrier or its
servants, or apparent upon ordinary observations, but the carrier accepts the goods notwithstanding such
condition, it is not relieved of liability for loss or injury resulting therefrom. (See Southern Lines, Inc. vs. Court
of Appeals, 4 SCRA 259.)

Par. 5. Competent public authority.

Conditions for act of competent public authority to exempt from liability.

(1) The order or act of the public authority must be the proximate and only cause of the loss, destruction or deterioration of
the goods;

(2) The common carrier must exercise due diligence to prevent or minimize the loss, destruction or deterioration of the
goods;

(3) Under Art. 1743, the public authority must have the power or competence to perform the act or issue the order.

(NCC Arts. 1734-1736)

Mauro Ganzon vs. CA and Gelacio Tumambing

G.R. No. L-48757, May 30, 1988; 161SCRA 646.

Facts: Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons of scrap iron from Mariveles,
Bataan, to the port of Manila on board the lighter LCT "Batman". Pursuant to this agreement, Mauro B. Ganzon sent his
lighter "Batman" to Mariveles where it docked.

On December 1, 1956, Gelacio Tumambing delivered the scrap iron to defendant Filomeno Niza, captain of the lighter, for
loading which was actually began on the same date by the crew of the lighter under the captain's supervision.

24
When about half of the scrap iron was already loaded, Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded
P5,000.00 from Tumambing. The latter resisted the shake down and after a heated argument between them, Mayor Advincula
drew his gun and fired at Tumambing. Gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga,
Bataan, for treatment.

After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor Basilio Rub,
accompanied by three policemen, ordered Captain Filomeno Niza and his crew to dump the scrap iron where the lighter was
docked. The rest was brought to the compound of NASSCO. Acting Mayor Rub issued a receipt stating that the Municipality
of Mariveles had taken custody of the scrap iron.

Held: Under Art. 1743, for act of competent authority to be a defense, the public authority must have the power to issue the
order to seize or destroy the goods.

There is no "caso fortuito" in this case. It must be shown that the acts of Mayor Advincula in demanding money from the
shipper, drawing his gun and firing at the latter and that of Acting Mayor Rub ordering the part of the scrap iron dumped and
the rest brought to the NASSCO compound (although a receipt was issued by the Municipality) was lawful or done under
legal process of authority... 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. There is absence of sufficient proof that the issuance of the same order was attended with such force or
intimidation as to completely overpower the will of the petitioner's employees.

Justice Melencio-Herrera's dissenting opinion: The loss of the said cargo was due to an order or act of competent
authority. The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose Advincula's
intervention, who was a "competent public authority". Petitioner had no control over the situation as in fact, Tumambing
himself, the owner of the cargo, was impotent to stop the "act" of said official and even suffered a gunshot wound on the
occasion. (NCC Arts. 1734-1736)

Through the "order" or "act" "competent public authority", therefore, the performance of a contractual obligation was
rendered impossible. The scrap iron that was dumped into the sea was "destroyed" while the rest of the cargo was "seized".
The seizure is evidenced by the receipt issued by Acting Mayor Rub stating that the Municipality of Maraviles had taken
custody of the scrap iron. Apparently, therefore, the seizure and destruction of the goods was done under legal process or
authority so that petitioner should be freed from responsibility.

Art. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them, without prejudice to the provisions of article 1738.

(NCC Art. 1736)

When the cargo is considered to have been "unconditionally placed in the possession of, and received by the carrier
for transportation; or the transportation contract and the obligation of the common carrier to exercise extraordinary
diligence starts.

Whenever the cargo have been delivered to the common carrier and nothing remains to be done by the shipper, such that
control and possession of goods has passed to the carrier, then the relation of shipper and carrier has been established and the
obligation to exercise extraordinary diligence starts.

Compañia Maritima v. Insurance Company of North America

G.R. No. L-18965, Oct. 30, 1964; 12 SCRA 213

25
Facts: Macleod & Co. contracted by telephone the services of Cia. Maritima to ship hemp from Macleod's private wharf at
Sasa, Davao City to Manila for transhipment to Boston, Mass. USA. The contract was later confirmed by a formal written
booking issued by Macleod and delivered to Cia Maritima's office in Davao City which sent two (2) lighters to Macleod's
private wharf. The patrons of the two (2) lighters signed the receipt for the hemp loaded into the lighters in accordance with
their authority, and then left Macleod's wharf for the marginal Davao City where they docked while waiting for the S.S.
Bowline Knot, another vessel of Maritima where the cargo was to be loaded. One of the barges sank resulting to the loss or
damage to the hemp worth P64,018.55. No bill of lading had yet been issued at the time of the loss.

Issues: Was there a valid transportation contract between Macleod and Cia. Maritima?

Held: Yes. The fact that the carrier sent its lighters free of charge to take the hemp from McCleod's wharf at Sasa preparatory
to its loading unto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the
carier and the shipper, for that preparatory step is but part and parcel of said contract. The lighters were merely employed as
the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the rights and
obligations of the parties attached thereby, subjecting to the principles and usages of the maritime law.

While under Art. 350 of the Code of Commerce, the parties may mutually demand for the issuance of a bill of lading, this is
not indispensable to the contract. The Code of Commerce does not demand the delivery of a bill of lading for the validity of a
transportation contract, but only gives the parties the right to mutually demand the delivery of such bill.

To whom must the carrier deliver the goods transported? Is delivery by the common carrier to the customs authorities
considered as delivery to the consignee so as to end the carrier's extraordinary responsibility over the goods?

LU DO V. BINAMIRA
101 Phil. 120, April 22, 1957

Facts: Delta Company of New York shipped six cases of films and photographic supplies consigned to Binamira. The ship
arrived in Cebu and discharged her cargo, placing it in the possession and custody of the arrastre operator appointed by the
Bureau of Customs. The cargo was checked both by the stevedoring company as well as by the arrastre operator of the port
and was found in good order. It was stipulated in the contract of carriage that the carrier would no longer liable after delivery
of the cargo to the hands of the customs authorities. The cargo was later delivered to Binamira and a marine surveyor found
that some were missing valued at P324.63. Lower court held the carrier liable.

Held: Delivery of the cargo to the customs authorities is not delivery to the consignee or "to the person who has the right to
receive them" as contemplated in Article 1736 of the New Civil Code, because in such case the goods are still in the hands of
the Government and the owner cannot exercise dominion over them. However, the parties may agree to limit the liability of
the carrier considering that the goods have still to go through the inspectation of the customs authorities before they are
actually turned over to the consignee. This is a situation where the carrier loses control of the goods because of a custom
regulation

(NCC Art. 1736)

and it is unfair that it be made responsible for any loss or damage that may be caused to the goods during the interregnum (Lu
Do & Lu Ym Corp. vs. Binamira, 101 Phil. 120).

Meaning of "constructive delivery" to the consignee which will terminate the transportation contract and end the
obligation of the common carrier to exercise extraordinary diligence start. There is constructive delivery when the carrier
notifies the consignee of the arrival of the good and the latter has had reasonable opportunity to remove or take the goods.
(See NCC, Art. 1738)

Servando vs. Philippine Steam Navigation Co.

117 SCRA 832, October 23, 1982

Facts: On November 6, 1963, Clara Uy Bico and Amparo Servando shipped from Manila to Pulupandan, Negros Occidental
through the Phil. Steam Navigation, the following cargoes:

26
Clara Uy Bico - 1,528 cavans of rice valued at P40,907.50;

AmparoServando - 44 cartons of colored paper, toys and general merchandise valued at P1,070.50.

Upon arrival of the vessel at Pulupandan in the morning of November 18,1963, the cargoes were discharged, complete and in
good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the same day, said warehouse
was razed by a fire of unknown origin, destroying appellee's cargoes. Before the fire, however, appellee Uy Bico was able to
take delivery of 907 cavans of rice. The shipper's claims for the value of the lost goods were rejected by the carrier.

Held: There is nothing in the record to show that the carrier incurred delay in the performance of its obligation. Not only did
it notify the shippers of the arrival of their shipment, but had demanded that the same be withdrawn.

Nor can the carrier or its employees be charged with negligence. The storage of the goods in the customs warehouse pending
withdrawal thereof by the shippers was undoubtedly made with their knowledge and consent. Since the warehouse belonged
to and was maintained by the government, it would be unfair to impute negligence to the appellant, the latter having no
control whatsoever over to the same.

From the time goods in question were deposited in the Bureau of Customs' warehouse in the morning of their arrival up to
two o'clock in the afternoon of the same day, when the warehouse was burned, Amparao Servando and Clara Uy Bico, the
consignees, have reasonable opportunity to remove the goods. In fact, Clara Uy Bico had removed 907 cavans of rice, or
more than one-half of the rice consigned to her, before the burning of the warehouse.

Moreover, the shipping company had no more control and responsibility over the goods after they were deposited in the
customs warehouse by the arrastre and stevedoring operator. No amount of extraordinary diligence on the part of the carrier
could have prevented the loss of the goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable to the consignees for the loss of the goods.
The consignees should bear the loss which was due to a fortuitous event.

Art. 1737. The common carrier's duty to observe extraordinary diligence in the vigilance
over the goods remains in full force and effect even when they are temporarily unloaded or stored
in transit, unless the shipper or owner has made use of the right of stoppage in transitu.

(NCC Arts. 1737-1741)

Stoppage in transitu - The act by which the unpaid vendor of goods stops their progress and resumes possession of them,
while they are in the course of transit from him to the purchaser, and not yet actually delivered to the latter.

Responsibility of the carrier when right is exercised. When the buyer of the goods is or becomes insolvent, when the
goods being transported are temporarily unloaded or stored in transit by reason of the exercise by the vendor of his right of
stoppage in transitu, the extraordinary responsibility of the common carrier ceases. The carrier thereafter holds the goods in
the capacity of an ordinary bailee or warehouseman and is liable only as such, upon the theory that the exercise of such right
terminates the contract of carriage. Thus, the diligence required is only ordinary, or such care as a reasonable careful owner
would exercise.

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

Where goods carried by a common carrier have not been turned over to the arrastre operator, although already
unloaded from the carrier, and are lost, responsibility is still with the carrier, against whom the presumption of fault and

27
negligence exists, unless it can be shown by the carrier that the loss was due to fortuitous event or other excepted cause.
(Citadel Lines vs. CA, 184 SCRA 544).

Art. 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the common
carrier must exercise due diligence to prevent or minimize loss before, during and after the
occurence of flood, storm or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is
incumbent upon the common carrier in case of an act of the public enemy referred to in article
1734, No. 2.

Art. 1740. If the common carrier negligently incurs in delay in transporting the goods, a
natural disaster shall not free such carrier from responsibility.

(See Philamgen Ins. Co., Inc. v. CA, 222 SCRA 155, May 17, 1993, Pp. ________, supra)

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.

COMPANIA MARITIMA v. COURT OF APPEALS

164 SCRA 685, August 29, 1988

Facts:  Vicente E. Concepcion, shipped his construction equipment consisting of one (1) unit payloader, four (4) units 6 x 6
Reo trucks and two (2) pieces of water tanks to Cagayan de Oro City. He furnished Compania Maritima with an inaccurate
weight of 2.5 tons for the payloader instead of its actual weight of 7.5 tons.

These equipment were loaded abroad the MV Cebu of Compania Maritima. The Reo trucks and water tanks were safely
unloaded within a few hours after arrival in Cagayan de Oro. While unloadingthe payloader,

(NCC Arts. 1741-1743)

the swivel pin of the heel block of the port of Hatch No. 2 gave way, causing the payloader to fall and was damaged.

Issue: Was the act of Concepcion in furnishing Compania Maritima with an inaccurate weight of 2.5 tons instead of the
payloader's actual weight of 7.5 tons the proximate and only cause of the damage on the Payloader when it fell while being
unloaded by petitioner's crew, such that the petitioner would be absolutely exempt from liability for damages under paragraph
3 of Article 174 of the Civil Code.

Held: The Court of Appeals found that Compania Maritima used a 5-ton capacity lifting apparatus to lift and unload a visibly
heavy cargo like a payloader. Concepcion has, likewise, sufficiently established the laxity and carelessness of petitioner's
crew in their methods of ascertaining the weight of heavy cargoes offered for shipment before loading and unloading them, as
is customary among careful persons.

While Cia. Maritima proved that Concepcion furnished it with an inaccurate weight of the payloader, it is nonetheless liable,
for the damage caused to the machinery could have been avoided by the exercise of reasonable skill and attention on its part
in overseing the unloading of such a heavy equipment.

There was a "jumbo" crane in the MV Cebu which had the capacity of lifting 20 to 25 tons cargoes, but the boom operator of
Compania Maritima chose not to use it, because according to him, the ordinary boom has a capacity of 5 tons while the
payloader was only 2.5 tons.

28
The act of Concepcion in furnishing the carrier with an inaccurate weight of the payloader constitutes a contributory
circumstance to the damage caused on the payloader, which only mitigates and reduces the liability for damages of the carrier
under Article 1741 of the Civil Code, but cannot be used as an excuse to avoid liability for the damage caused.

Art. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods, or the
faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or lessen the
loss.

There is no absolute obligation on a vessel to accept a cargo. It should not be accepted unless it can be given the type of
storage that its character requires. When a vessel accepts cargo for shipment, it takes the risk of delivering it in good
condition as when it was loaded. (AFA, P. 31-32, citing Domestic Ins. vs. Barker Lines [CA] 57 OG P. 85, May 21, 1960)

To relieve itself from liability, the carrier should not issue a "clean" bill of lading, but rather a "foul" bill of lading, i.e. one
indicating the bad condition of the cargo when it was received. Then, it will be justified in delivering the cargo in such bad
condition. (Cf.: Southern Lines vs. CA, Pp. 31-32, supra)

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

(See Ganzon vs. CA, P. 33, supra)

Art. 1744. A stipulation between the common carrier and the shipper or the 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;

(NCC, Arts. 1744-1745)

(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.

Samar Mining Co., Inc. vs. Norduetscher Lloyd

132 SCRA 529

Facts: "A" imported wedge wire sieves and shipped the same with "B". The bill of lading issued by "B" provided that the
carrier shall not be liable after the goods leave the ship's tackle to be discharged, transshipped or forwarded. Upon arrival of
the shipment in Manila, the cargo was unloaded and delivered in good order and condition to the bonded warehouses of "C".
The goods were never delivered to, nor received by A at the port of destination, Davao. Was the carrier liable?

Held: No liability for the loss of the shipment was incurred. The stipulation in the bill of lading exempting the carrier from
liability for loss or damage to the goods when the same are not in its actual custody is valid. Since the shipment had already
been unloaded in Manila for delivery to Davao, the carrier was no longer liable for the loss thereof.

1979 BQ No. VIII-b: A, in Holland, shipped on board a vessel owned by B, five hundred cases of canned milk
to consignee C in Iloilo. Upon arrival, the vessel discharged the canned milk into the custody and possession of
the arrastre operator appointed by the Bureau of Customs. In the Bill of Lading, it was stipulated that the vessel
is no longer liable for the cargo upon its delivery to the hands of the customs authorities. The cargo checker of

29
 the arrastre found the cargo to be in good order. Upon delivery to the consignee, a marine surveyor found
twenty cases of milk missing. C sued B for the value of the twenty missing cases on the ground that under the
contract of carriage B was obliged to deliver the cargo safely to the consignee and that the stipulation limiting
the liability of the carrier is contrary to morals and public policy. B disclaims liability for short delivery. Decide
the dispute, with reasons.

Ans. --- Yes, B may disclaim liability for short delivery. The stipulation is valid because nothing therein is
contrary to morals or public policy, said stipulation being adopted to mitigate the responsibility of the carrier.
(See Lu Do & Ym Corporation vs. Binamira, L-9840, April 22, 1957, Supra, P. 27).

Art. 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:

(1) That the goods are transported at the risk of the owner or shipper;

(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the
goods;

(3) That the common carrier need not observe any diligence in the custody of the goods;

(4) That the common carrier shall exercise a degree of diligence less than that of a good father of
a family or of a man of ordinary prudence in the vigilance over the movables transported;

(NCC, Art. 1745)

(5) That the common carrier shall not be responsible for the acts or omissions of his or its
employees;

(6) That the common carrier's liability for acts committed by thieves or of robbers who do not act
with grave or irresistible threat, violence or force, is dispensed with or diminished;

(7) That the common carrier is not responsible for the loss,  destruction, or deterioration of goods
on account of the defective condition of the car, vehicle, ship, airplane or other equipment used
in the contract of carriage.

Three kinds of stipulations often made in the bill of lading concerning the liability of the common carrier.

1. Stipulations exempting the carrier from liability for loss or damage occasioned by the negligence of its captain or crew.

2. Stipulations providing for an unqualified limitation on such liability to an agreed valuation.

3. Stipulations limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a
higher rate of freight.

According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being
contrary to public policy, but the third is valid and enforceable (Loadstar Shipping Co., Inc. vs. Court of Appeals, infra).

A stipulation that the cargo was being shipped at "owner's risk" or that the common carrier need not observe any
diligence in the custody of the goods, is null and void and contrary to public policy (Art. 1745 [1 & 2])

30
 Loadstar Shipping Co., Inc. vs. Court of Appeals
and the Manila Insurance Co., Inc.
G.R. No. 131621, September 28, 1999, 113 SCAD 142

Facts: On November 19, 1984, LOADSTAR received on board its M/V "Cherokee" for shipment goods worth P6,067,178
which were insured for same amount with MIC against various risks including "Total loss by loss of the vessel."

The vessel, along with its cargo, sank off Limasawa Islands. The consignee made a claim with LOADSTAR which ignored
the same. As insurer, MIC paid P6,075,000 to the insured. As subrogee, MIC filed a complaint against LOADSTAR, alleging
that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees.

LOADSTAR denied any liability for the loss of the shipper's goods and claimed that the sinking of its vessel was due to force
majeure, arguing that, as a private carrier, any agreement limiting its liability, such as what transpired in this case, is valid.
Since the cargo was being shipped at "owner's risk." LOADSTAR was not liable for any loss or damage to the same.

It invoked the ruling in the case of St. Paul Fire & Marine Insurance Co. vs. Macondray & Co., Inc., and National Union Fire
Insurance Company of Pittsburg vs. Stolt-Nielsen Phils., Inc. where the Supreme Court ruled that after paying the claim of
the insured for damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can
recover only the amount that may, in turn, be

(NCC, Art. 1745)

recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or restricted by the
provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and
restrictions.

Issue: Whether or not the stipulation in the bill of lading that the cargo was being shipped at owner's risk is valid.

Held: Petition denied. The cases relied on by LOADSTAR involved a limitation on the carrier's liability to an amount fixed
in the bill of lading which the parties may enter into, provided that the same was freely and fairly agreed upon. On the other
hand, the stipulation in the case provides that the carrier is not liable for any loss or damage to shipments made at
"owner's risk." Such stipulation is obviously null and void for being contrary to public policy. Since the stipulation in
question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights which the latter has
against the common carrier, LOADSTAR.

A provision that the common carrier shall not be responsible for the acts or omissions of his or its employees (Art. 1745 [5])
applies only to common carriers, but not to private or special carriers.

A stipulation in the charter party absolving the ship owner from liability for loss due to the negligence of its agent would be
void only if strict public policy governing common carriers is applied. Such policy has no force where the public at large is
not involved, as in the case of ship totally chartered for the use of a single party. The stipulation exempting the shipowner
from liability for negligence of its agent is not against public policy and is deemed valid. Recovery cannot be had for loss or
damage to the cargo against the shipowner or its manager, as distinguished from agents or employees. (Home Insurance Co.
vs. American Steamship Agencies 23 SCRA 24, P. 13, supra; but again, cf. Planters Products vs. CA, 226, SCRA 476, Pp.
12-13, supra)

1981 BQ No. 7.  "C" Company shipped 20,000 bags of soy beans through the S/S Melon, owned and operated
by "X" Shipping Lines, consigned to the Toyo Factory and insured by the Surety Insurance Co., against all
risks. "C" Company hired the entire vessel, with the option to go north or south, loading, stowing and
discharging at its risk and expense. The owner and shipper agreed on a stipulation exempting the owner from
liability for the negligence of its agents.

When the cargo was delivered to the consignee, there were shortages amounting to P10,500.00. The insurance
company paid for the damage and sought reimbursement from the "X" Shipping Lines as carrier.

Is the carrier liable? Select the correct answer from the following and explain.

31
 The carrier is:

(A) Liable, because the stipulation exempting its owner from liability for the negligence of its agent is against
public policy, hence, void.

(B) Liable, because in case of loss, destruction or deterioration of goods, common carriers are presumed at fault
under Article 1735 of the Civil Code.

(C) Not liable because it exercised due diligence in stowing the goods.

(D) Not liable because it is not a common carrier and the parties to a contract, as such, may enter into a
stipulation exempting the owner from liability for the negligence of its agents.

(NCC, Art. 1745)

Ans. --- The carrier is not liable. A common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. The provisions of the New Civil Code on carriers should not be applied
where the carrier is not acting as such but as private carrier. As a private carrier, a stipulation exempting the
shipowner from liability for the negligence of its agents is not against public policy and is deemed valid. (See
Home Insurance Co. vs. American Steamship Agencies, Inc., April 4, 1968, 23 SCRA 25.)

1980 BQ No.14. Tirso Molina charters a vessel owned and operated by Star Shipping Co., a common carrier,
for the purpose of transporting two tractors to his logging concession. The crane operator of the shipping
company somehow negligently puts the tractors in a place where they would tilt each other. During the trip, a
strong wind hits the vessel, causing severe damage to the tractors.

Tirso Molina sues the shipping company for damages. The latter cites a stipulation in the charter agreement
exempting the company from liability for loss or damage arising from the negligence of its agents. Tirso Molina
countered by stating that the aforementioned stipulation is against public policy and, therefore, null and void.

Is the stipulation valid? Would you hold the shipping company liable?

Ans. --- Yes, the stipulation in the charter party is valid, and the Star Shipping Co. is not liable. The Civil Code
provisions on common carriers should not apply where the common carrier is not acting as such but as a private
carrier, as in the case in the above problem. A common carrier undertaking to carry a special cargo or chartered
to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner (Star
Shipping Co.) fromliability for the negligence of its agent is valid, being not against public policy. (Home
Insurance Co. v. American Steamship Agencies, April 4, 1968; 23 SCRA 24)

Common carrier's liability for acts committed by thieves or of robbers who act with grave or irresistible threat,
violence or force (Art. 1745 [6])

Hijacking on land is not a fortuitous event. The instances cited in Art. 1734 is exclusive. Thus, a common carrier is
held responsible --- and will not be allowed to divest or to diminish such responsibility --- even for acts of strangers like
thieves or robbers except where such thieves or robbers in fact acted "with grave or irresistible threat, violence or force"
under Art. 1745(6). The carrier is not an insurer of the goods. The limits of the duty of extraordinary diligence in the
vigilance over the goods carried are reached where the goods are lost as a result of a force robbery, which is attended by
"grave or irresistible threat, violence or force." The cause of the loss must reasonably be regarded as beyond the control of the
common carrier and properly regarded as a fortuitous event. In this case, three (3) of the five (5) hijackers were armed with
firearms. They not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province. The hijacked truck was later found in Quezon City. The hijackers
were all convicted by the Court of First Instance. (De Guzman vs. Court of Appeals, 168 SCRA 612; facts in P. ____, supra)

32
Grave and irresistible force must be proved in cases of hijacking

Estrellita M. Bascos vs. CA and Rodolfo A. Cipriano

G.R. No. 101089, April 7, 1993

Facts: Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE) entered into a hauling contract with
Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's 2,000m/tons of soya meal from
Manila to Calamba Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita
Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 at the rate of P50.00 per metric
ton. Petitioner failed to deliver

(NCC, Art. 1745)

the said cargo. Because of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in accordance
with the contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-delivery or damages
to the cargo during transport at market value, x x x"

CIPTRADE demanded reimbursement from the petitioner but she refused to pay. Cipriano sued.

In her answer, petitioner interposed the following defenses: that there was no contract of carriage since CIPTRADE leased
her cargo truck to load the cargo from Manila Port Area to Laguna: that the truck carrying the cargo was hijacked along
Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE,
and that the petitioner and the police exerted all efforts to locate the hijacked properties; that after preliminary investigation,
an information for robbery and carnapping were filed against Jose Opriano, et al., and that hijacking being a force majeure,
exculpated petitioner from any liability to CIPTRADE. To establish grave and irresistible force, petitioner presented her
accusatory affidavit, Jesus Bascos' affidavit, and Juanito Morden's "Salaysay."

Issue: Whether or not the hijacking in this case was a force majeure.

Held: Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them.
Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. There are very few instances when the presumption of negligence does not attach and these instances are
enumerated in Article 1734. In those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption.

In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the provisions of Article 1734, must
be dealt with under the provisions of Article 1745 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, be must prove that the robbers or the hijackers acted
with grave or irresistible threat, violence, or force.

Both the trial court and Court of Appeals have concluded that the affidavits in support of the claim of hijacking were not
enough to overcome the presumption. Petitioner's affidavit about the hijacking was based on what had been told her by
Juanito Morden. It was not a first-hand account. While it had been admitted in court for lack of objection on the part of
private respondent, the respondent Court had discretion in assigning weight to such evidence. We are bound by the
conclusion of the appellate court. In a petition for review on certiorari, we are not to determine the probative value of
evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the hijacking took
place.

The subsequent filing of the information for carnapping and robbery against the accused named in said affidavits did not
necessarily mean that the contents of the affidavits were truebecause they were yet to be determined in the trial of the
criminal cases.

33
The presumption of negligence was raised against petitioner. it was petitioner's burden to overcome it. Thus, contrary to her
assertion, private respondent need not introduce any evidence to prove her negligence. Her own failure to adduce sufficient
proof of extraordinary diligence made the presumption conclusive against her. Petition Dismissed. Decision Affirmed.

1995 BQ No. 14: Dizon Trucking (DIZON) entered into a hauling contract with Fairgoods Corporation
(FAIRGOODS) whereby the former bound itself to haul the latter's 2,000 sacks of soya bean meal from Manila
Port Area to Calamba, Laguna. To carry out faithfully its obligation DIZON subcontracted with Enrico Reyes
the delivery of 400 sacks of the soya bean meal. Aside from the driver, three male employees of Reyes rode on
the truck with the cargo. While the truck was on its way to Laguna two strangers suddenly stopped the truck and
hijacked the cargo. Investigation by the police disclosed that one of the hijackers was armed

(NCC, Arts. 1745-1748)

with a bladed weapon while the other was unarmed. For failure to deliver the 400 sacks, FAIRGOODS sued
Dizon for damages. DIZON in turn set up a third-party complaint against Reyes which the latter resisted on the
ground that the loss was due to force majeure.

Did the hijacking constitute force majeure to exculpate Reyes from any liability to Dizon? Discuss fully.

Ans.  No. The hijacking in this case cannot be considered force majeure. Only one of the two hijackers was
armed with a bladed weapon. As against four (4) male employees of Reyes, two (2) hijackers, with only one of
them being armed with a bladed weapon, cannot be considered force majeure. The hijackers did not act with
grave or irresistible threat, violence or force.

Where a domestic commercial plane is hijacked and valuables of a passenger taken by the hijackers, the armed
robbery is a case of force majeure, freeing the carrier from liability for said loss. (Quisumbing et al vs. CA and PAL, 189
SCRA 205).

Defective condition of the car, vehicle, ship, airplane or other equipment (Art. 1745 [7])

1987 BQ No. 9: During the elections last May, AB, a congressional candidate in Marinduque, chartered the
helicopter owned by Lode Mining Corporation (LMC) for use in the election campaign. AB paid LMC the same
rate normally-charged by companies regularly engaged in the plane chartering business. In the charter
agreement between LMC and AB, LMC expressly disclaimed any responsibility for the acts or omissions of its
pilot or for the defective condition of the plane's engine. The helicopter crashed killing AB. Investigations
disclosed that pilot error was the cause of the accident. LMC now consults you on its possible liability for AB's
death in the light of the above findings.

How would you reply to LMC's query?

Ans.: I would reply to LMC's query as follows: Lode Mining Corporation may not be held liable for the death
of AB. A stipulation with a private carrier that would disclaim responsibility for simple negligence of the
carrier's employees is a valid stipulation. Such a stipulation, however, will not hold in cases of liability for gross
negligence or bad faith.

Art. 1746. An agreement limiting the common carrier's liability may be annulled by the
shipper or owner if the common carrier refused to carry the goods unless the former agreed to
such stipulation.

Art. 1747. If the common carrier, without just cause, delays the transportation of the
goods or changes the stipulated or usual route, the contract limiting the common carrier's
liability cannot be availed of in case of the loss, destruction, or deterioration of the goods.

34
 Art. 1748. An agreement limiting the common carrier's liability for delay on account of
strikes or riots is valid.

Although generally valid, a provision limiting the liability of a common carrier may be annulled if the shipper was
forced to agree to such limitation because the carrier would not receive his freight (Art. 1746). The same limitation may
not be availed of by the carrier where it is guilty of the delay in the

(NCC, Arts. 1746-1749)

transportation or of changing the usual route without reasonable cause (Art. 1747), unless agreement specifically includes
delays due to strikes or riots (Art. 1748).

Art. 1749. A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.

A stipulation in the bill of lading limiting the common carrier's liability to a certain sum unless the shipper or owner
declares a greater value is sanctioned by law. Contracts of adhesion wherein one party imposes a ready-made form of
contract on the others are contracts, which are not entirely prohibited. The one who adheres to the contract is in reality free to
reject it even entirely; but if he adheres, he gives his consent thereto and shall be bound by such contract.

2002 BQ No. IX.  Discuss whether or not the following stipulations in a contract of carriage of a common
carrier are valid:

1. a stipulation limiting the sum that may be recovered by the shipper or owner to 90% of the value of the goods
in case of loss due to theft.

2. a stipulation that in the event of loss, destruction or deterioration of goods on account of the defective
condition of the vehicle used in the contract of carriage, the carrier's liability is limited to the value of the
goods appearing in the bill of lading unless the shipper or owner declares a higher value. (5%)

Ans: 1. The stipulation is considered unreasonable, unjust and contrary to public policy under Article 1745 (6)
of the Civil Code.

2. The stipulation limiting the carrier's liability to the value of the goods appearing in the bill of lading unless
the shipper or owner declares a higher value, is expressly recognized in Article 1749 of the Civil Code.

The doctrine that a contract of carriage may limit the carrier's liability for goods shipped to a certain amount, unless
the shipper declares a higher value and pays an ad valorem charge on said value, applies to airway bills and luggage of a
plane passenger. (Ong Yui vs. CA and PAL, infra).

Ong Yui vs. CA and PAL

91 SCRA 223, Jan. 29, 1979

Facts: On August 26, 1967, Petitioner, a lawyer, boarded a PAL flight from Mactan, Cebu to Butuan City to attend a hearing.
He checked in one (1) piece of luggage which could not be found when the plane arrived in Butuan City.

Upon Petitioner's complaint, PAL Butuan sent a message to Cebu inquiring about the missing luggage. The message was
transmitted at 3:45 p.m. of the same day and was relayed to PAL Manila at 3:59 the same afternoon. PAL Manila replied that
the luggage was carried to Manila by mistake and would be returned to Cebu City on Flight 345 of the same day, with the
instruction to be immediately forwarded to Butuan City the next available flight. At 5:00 p.m. of the same afternoon, PAL
Cebu sent a message to PAL Butuan that the luggage would be forwarded on flight 963 the following day, August 27, 1967,

35
but this message was not received by PAL Butuan since there was no more incoming flight and all the personnel had already
left.

At 10:00 p.m. that evening, the Petitioner, worried about his luggage which contained documents to used as exhibits in his
case, wired PAL Cebu demanding its delivery before noon of the next day, otherwise, he would hold PAL liable for damages
due to its gross negligence. The PAL supervisor in Mactan was

(NCC, Art. 1749)

notified of the telegram in the morning of the next day and, since the luggage had already been loaded on the plane to Butuan
City, he assumed that the plane and luggage would arrrive in Butuan City earlier than a reply telegram. Early the next day,
the Petitioner went to the Butuan City airport to inquire about his luggage, but did not wait for the morning flight which
arrived at 10:00 a.m. with his luggage. The PAL porter paged the Petitioner but the latter had already left. Emilio Dagorro, a
"colorum" driver, volunteered to bring the luggage to the Petitioner. The porter, knowing Dagorro to be the same driver used
by the Petitioner whenever he was in Butuan City, gave him the luggage. (NCC, Art. 1749)

On the PAL counter, Dagorro examined the lock, pressed it and it opened. He called the attention of the porter who merely
looked at the contents but did not touch them, after which Dagorro delivered the luggage to the Petitioner with the
information that the lock was open.

Upon inspection, a folder containing certain exhibits, transcripts and private documents, as well as two (2) gift items, were
missing. Petitioner refused to accept the luggage, Dagorro returned it to the PAL porter clerk who sealed it and forwarded it
to PAL Cebu. Petitioner demanded compensation in the amount of P250,000.00 for actual and moral damages arising from
breach of transportation contract, which PAL denied.

Held: Although PAL incurred in delay in delivering Petitioner's luggage, there was no bad faith. Bad faith means a breach of
a known duty through some motive of interest or ill will. It was PAL's duty to look for Petitioner's luggage which duty it
exerted due diligence in complying with. In the absence of a wrongful act or omission or of fraud or bad faith, Petitioner is
not entitled to moral damages.

The actual damage due to the Petitioner is only P100.00, under Par. 8 of the Conditions of Carriage at the back of the plane
ticket which limits the liability of the airline to P100.00 per ticket unless a passenger declares a higher valuation. Petitioner
did not declare any higher value. Even if the Petitioner had not signed the plane ticket, he is bound by its provisions. They are
printed in reasonably and fairly big letters, and are easily readable. The Petitioner had been a frequent PAL passenger and, as
a lawyer and businessman, should be aware of those conditions.

1983 BQ No. 10. A takes a plane from Manila bound for Cagayan de Oro via Cebu, where there was a change
of planes. A arrived at Cagayan de Oro safely, but to his dismay, his two suitcases were left behind in Cebu.
The airline company assured him that the suitcases would come in the next flight, but they never did.

A claims P1,000 damages for the loss of both suitcases, but the airline is willing to pay only P400 of the ground
that the airline ticket stipulates that unless a higher valued is declared, any claim for loss cannot exceed P200
for each piece of luggage.

A had not declared a greater value, despite the fact that the clerk had called his attention to the stipulation in the
ticket.

Is A entitled to P1,000 or only P400? Explain.

Ans.: A is entitled to only P400. Under the Civil Code, a stipulation limiting a common carrier's liability to the
value of the goods as stated on th bill of lading unless the shipper declares a greater value, is binding (Art.
1749). Under Art. 1754, this provision of Art. 1749, along with others, is made applicable to a passenger's
baggage which is not in his personal custody. A cannot claim lack of knowledge of the limitation since his
attention was called to it. He can therefore not insist on claiming P1,000.00.

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 1985 BQ No. 4. Doña Buding checked in at the PAL counter of the Manila Domestic Airport on a flight to
Bacolod. Noticing that Doña Buding had two big baggages being checked in, the counter clerk called her
attention to the stipulation in the plane ticket and asked if she was going to make any declaration on the value of
the same, but Doña Buding just looked at him

(NCC, Art. 1749)

and did not say anything. The plane arrived in Bacolod, but the two baggages could nowhere be found. PAL
promised to deliver the two baggages the next day, but it never did.

Doña Buding sued PAL, claiming P10,000.00 damages for the loss of the two baggages. PAL answered that it
was liable only for P200.00 for the plane ticket clearly stipulated that: "That total liability of the carrier for lost
or damaged baggage is limited to P100.00 per baggage, unless the passenger declares a higher valuation in
excess of P100.00 but not in excess, however, of a total valuation of P1,000.00, and unless additional charges
are paid pursuant to Carrier's Tariffs". The trial court ruled in favor of PAL.

Comment on the legality of the court's decision.

Ans.: The ruling of the trial court, against Doña Buding, is legal, being in accordance with the New Civil Code
provisions on common carriers. A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. (Art.
1749, N.C.C.; Freixas & Co. vs. Pacific Mail Steamship Co., 42 Phil. 198; Northern Motors, Inc. vs. Prince
Lines, 107 Phil. 254 and Eastern and Australian Steamship Co. vs. Great American Ins. Co., Oct. 23, 1981, 108
SCRA 248)

1993 BQ No. 15:  "A" shipped thirteen (13) pieces of luggage through LG Airlines from Teheran to Manila as
evidenced by LG Air Waybill which disclosed that the actual gross weight of the luggage was 180 kilograms.
She did not declare an inventory of the contents or the value of the thirteen (13) pieces of luggage. After the
said pieces of luggage arrived in Manila, "X", the consignee was able to claim from the cargo broker only
twelve (12) pieces, with a total weight of 174 kilograms. "X" advised the airline of the loss of one of the
thirteen (13) pieces of luggage and of the contents thereof. Efforts of the airlines to trace the missing luggage
were fruitless. Since the airlines failed to comply with the demand of X to produce the missing luggage, X filed
an action for breach of contract with damages against the LG Airlines. In its answer, LG Airlines alleged that
the Warsaw Convention which limits the liability of the carrier, if any, with respect to cargo to a sum of $20 per
kilo or $9.07 per pound, unless a higher value is declared in advance and additional charges are paid by the
passenger and the conditions of the contract as set forth in the air waybill, expressly subject the contract of the
carriage of cargo to the Warsaw Convention. May the allegation of LG Airlines be sustained? Explain.

Ans.: Yes. Unless the contents of a cargo are declared or the contents of a lost luggage are proved by the
satisfactory evidence other than the self-serving declaration of one party, the contract should be enforced as it is
the only reasonable basis to arrive at a just award. The passenger or shipper is bound by the terms of the
passenger ticket or the waybill. (Pan Am vs. Rapadas, 209 SCRA 67).

Take note, however, of the decision in the later case of Sabena Belgian Airlines vs. CA, infra)

Sabena Belgian World Airlines vs. Court of Appeals

69 SCAD 494, 255 SCRA 38 (1996)

Facts: San Agustin was a passenger of the Sabena Belgium World Airlines (Sabena) from Casablanca to Brussels on her way
back to Manila. She stayed overnight at Belgium leaving her luggage containing valuables on board the plane. San Agustin
arrived in Manila without her luggage, but was informed that the Brussels Office of Sabena found the luggage and that it
would be shipped to Manila. Later however, San Agustin was informed that the luggage was lost for the second time. San
Agustin demanded the money value of the luggage but Sabena claimed that the former was guilty of contributory negligence
as she should have retrieved her luggage in Brussels. Sabena further claimed that its liability for the loss should be limited to
$20.00 per kilo unless a higher value is declared, pursuant to the Warsaw Convention. Are the contentions of Sabena correct?

37
 (NCC, Art. 1749)

Held: Sabena is not completely off-track when it has raised in its defense the tort doctrine of proximate cause. But the said
doctrine cannot support its defense in this case, because the loss of the baggage, not only once, but twice, underscores the
negligence and lack of care on the part of the carrier.

The Warsaw Convention denies the carrier availment of the provisions which exclude or limit its liability if the damage is
caused by its willful misconduct or by such default on its part which may be considered to be equivalent to willful
misconduct, or if the damage is similarly caused by any agent of the carrier acting within the scope of his employment. The
attendance of gross negligence holds the common carrier liable for all damages, which can be reasonably attributed, although
unforessen, to the non-performance of the obligation, including moral and exemplary damages.

1998 BQ No. II. X took a plane from Manila bound for Davao via Cebu where there was a change of planes. X
arrived in Davao safely but to his dismay, his two suitcases were left behind in Cebu. The airline company
assured X that the suitcases would come in the next flight but they never did.

X claimed P2,000.00 for the loss of both suitcases, but the airline was willing to pay only P500.00 because the
airline ticket stipulated that unless a higher value as declared, any claim for loss cannot exceed P250.00 for each
piece of luggage. X however reasoned out that he did not sign the stipulation and in fact had not even read it.

X did not declare a greater value despite the fact that the clerk had called his attention to the stipulation in the
ticket. Decide the case.

Ans.: Even if he did not sign the ticket, X is bound by the stipulation that any claim for loss cannot exceed
P250.00 for each luggage. He did not declare a higher value. X is entitled to P500.00 for the two luggages lost.

Is the stipulation in the bill of lading agreed to by the shipper binding on the consignee? May the consignee refuse to
honor such stipulation in the ground that he was not privy to the contract of carriage?

The contract between the shipper and the carrier partakes the nature of a stipulation in favor of the consignee who
accepts it by demanding delivery or suing on the basis of the said contract. The right of the consignee to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier springs from
either a relation of agency that may exist between him and the shipper or consignor, or his status as a stranger in whose favor
some stipulation is made in said contract (pour autrui) and who becomes a party thereto when he demands fulfillment of that
stipulation, i.e., the delivery of the goods or cargo. In neither party can he assert personally, in bar to any provision of the bill
of lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being in such fine print
as to be hardly readable. (AFA, Pp. 57-58, citing Sea- Land Service, Inc. vs, IAC, 153 SCRA 552, 560, Aug. 31, 1978 citing
Mendoza vs. PAL, Inc., 90 Phil 836, 845-46)

Everette Steamship Corporation vs. Court of Appeals

99 SCAD 272, 297 SCRA 496 (1998)

Facts: Hernandez imported three crates of bus spare parts from Japan. The crates were shipped by the supplier from Japan to
Manila on board a vessel owned by Everett Orient Lines. Upon arrival in Manila it was discovered that one of the crates
costing Y1,552,500 was missing. The carrier offered to pay only Y100,000, the maximum amount stipulated under Clause 18
of the covering bill of lading which limits the liability of the carrier. Hernandez claimed that he was not bound by such clause
since he was not a signatory to the bill of lading.

(NCC, Arts. 1749-1750)

Issue: Was the limited liability clause in the bill of lading on the consignee?

Held: Even if a consignee was not a signatory to the contract of carriage between the shipper and the carrier; the consignee
can still be bound by the contract. When the consignee formally claims reimbursement for the missing goods from the

38
common carrier and subsequently files a case against the latter on the very same bill of lading, he accepts the provisions of
the contract and hereby makes him a party thereto.

Cases considered as declaration of the actual value of cargo or goods, to which the provision limiting liability is
subordinated.

1. Where a bill of lading fixes the carrier's liability to the declared C.I.F. value of the goods, that amount is the extent of the
recovery of the shipper. (St. Paul's Fire and Marine Insurance vs. Macondray, 70 SCRA 122).

2. The amount of insurance covering the goods reflected in the bill of lading is taken as the true value of the shipment.
(Aboitiz Shipping vs. CA, et al., 188 SCRA 387).

3. The amount stated in the letter of credit attached to the bill of lading (National Development Corporation vs. Court of
Appeals, G.R. L-49407, and Maritime Co., vs. Court of Appeals, G.R. L-49469, 18 August 1988)

1989 BQ No. 11 (1). X shipped thru M/V Kalayaan, spare parts worth P500,000.00. The Bill of Lading limits
the liability of the carrier to P500.00 and contains a notation indication the amount of the letter of credit (i.e.,
P500,000.00) which X obtained from a bank to import the spare parts. The spare parts were not delivered to X
so X sued the carrier for P500,000.00. Decide.

Ans.: The limit of liability stipulated in a bill of lading is subordinated to a declaration therein of the actual
value of the goods. Since the bill of lading itself contains a notation indicating the true value of the goods
shipped (supported by the letter of credit), X can sue the carrier on the basis of such true value. (see National
Development Corporation vs. Court of Appeals, G.R. L-49407, and Maritime Co., vs. Court of Appeals, G.R.
L-49469, 18 August 1988).

Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

A bill of lading providing among others that the carrier's liability for loss of damage shall be restricted to $500 per
package unless the nature and value of such goods have been declared and the corresponding ad valorem freight is charged,
is a valid stipulation being in consonance with Section 4 of the Carriage of Goods by Sea Act. (Phoenix Assurance vs.
Macondray, 64 SCRA 15).

Contracts of adhesion wherein one party imposes a ready-made form of contract on the others are contracts which
are not entirely prohibited. The one who adheres to the contract is in reality free to reject it even entirely; but if he adheres, he
gives his consent thereto and shall be bound by such contract. (Everette Steamship Corporation vs. CA, 99 SCAD 272, 297
SCRA 496 [1998] supra, P. 48)

(NCC, Art. 1750)

Citadel Lines, Inc. vs. Court of Appeals

184 SCRA 544, April 25, 1990

Facts: Citadel Lines, Inc. was the general agent of the vessel"Cardigan Bay Strait Enterprise" which was contracted to
transport one hundred twenty (120) cartons weighing 24.82 kilos each of Dunhill cigarettes from England consigned to
Manila Wine Merchants. Clause 6 of the bill of lading limits the liability of the carrier to $2.00 per kilo. No value appears in
the bill of lading. Upon arrival, ninety (90) carton were missing. How much compensation is the consignee entitled to?

39
Held:  A contract fixing the sum that may be recovered by the owner of shipper for the loss, destruction, or deterioration of
the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon (Art. 1750).
Thus, a stipulation limiting the liability of the carrier to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a higher value, is binding on the consignee

Shewaram vs. Philippine Airlines

L-20099, July 7, 1966

Facts: On November 23, 1959, Shewaram took a flight from Zamboanga City for Manila, checking in three (3) pieces of
baggage, one of them a suitcase under lock and key. When he arrived in Manila, the suitcase was missing. The last unclaimed
luggage, one similar to the missing one, was given to Petitioner but he refused to accept after it was opened because it was
not his. Also, a pistol found in said luggage was not his. His clothes were all white and he had a transistor radio and a camera
in his missing suitcase.

It turned out that the suitcase delivered to Mr. Shewaram belonged to another co-passenger in the same flight from
Zamboanga, while his own luggage was mis-tagged by PAL personnel and mis-sent to Iligan City. When the luggage finally
arrived in Manila on November 24, 1959, the suitcase was unlocked by PAL personnel who found the transistor radio and
camera missing. Shewaram demanded payment of their actual value, but PAL refused to pay, invoking Art. 1750 of the NCC
and the Conditions of Carriage printed at the back of the plane ticket limiting its liability to P100.00 each ticket.

Held: There was negligence on the part of PAL. First, there was the mistake in tagging Shewaram's luggage. Second,
tampering was apparent when the PAL personnel opened the suitcase upon arrival in Manila when Mr. Shewaram said it was
locked when checked-in. The possibility of unauthorized opening was shown when the other suitcase was opended by PAL
pesonnel in Manila, and the same could have happened to Sherawam's luggage in Iligan City. Thus, the Court believed that
the transistor radio and camera were really in his suitcase and should be held liable for it.

PAL failed to meet the requirements of Art. 1750. The conditions at the back of the ticket stub were so small that they were
hard to read and would not warrant the presumption that Shewaram was aware of those conditions. Thus, he is not bound by
thos conditions.

N.B.: Compare Shewaram vs. PAL, L-20099, July 27, 1966 with Ong Yui vs. CA, June 29, 1979, 91 SCRA 223 (Pp.
________, supra)

In Ysmael & Co. vs. Barreto, 51 Phil. 90, it was held that the carrier cannot limit its liability for injury to or loss of
goods shipped where such injury or loss was caused by its own negligence.

1978 BQ No. V-a: In a plane ticket stub of Air Manila Inc. (AMI), there appears a statement that the liability "if
any loss the damage of checked baggage or for delay in the delivery thereof" of the AMI "is limited to its value
and unless the passenger declares in advance a higher valuation and pays an additional charge therefor, the
value shall be conclusively deemed not to exceed P100 for each ticket." A passenger whose baggage was lost in
transit from Manila to Cebu sued for a higher amount, i.e. P5,000.00. May AMI successfully claim

(NCC, Art. 1750-1754)

that the above statement precludes the plaintiff from asking more than P100? Decide . Give reasons for your
answer.

Ans.: No. AMI may not successfully claim that the plaintiff was precluded from asking more than P100 for
each ticket. The liability of a common carrier may by contract be limited to a fixed amount,  but said agreement
must be in writing signed the shipper or owner of the goods, besides the other requirements of the law, but said
requirements have not been met by the carrier, AMI. (See Arts. 1744 &1750, New C.C.)

1987 BQ No. 10.  Martin Nove shipped an expensive video equipment to a friend in Cebu. Martin had bought
the equipment from HongKong for U.S. $5,000. The equipment was shipped through M/S Lapu-Lapu under a
bill of lading which contained the following provision in big bold letters:

40
 "The limit of the carrier's liability for any loss or damage to cargo shall be P200 regardless of the actual value of
such cargo, whether declared by its shipper or otherwise."

The cargo was totally damaged before reaching Cebu. Martin Nove claimed for the value of his cargo ($5,000
or about P100,000) instead of just P200 as per the limitation on the bill of lading.

Is there any legal basis for Nove's claim?

Ans. --- There is legal basis for the claim of Martin Nove. The stipulation limiting the carriers liability up to a
certain amount "regardless of the actual value of such cargo, whether declared by its shipper or otherwise", is
violative of the requirement of the "Civil Code" that such limiting stipulations should be fairly and freely agreed
upon (Ars. 1749-1750 Civil Code). A stipulation that denies of the shipper the right to declare the actual value
of his cargoes and to recover, in case of loss or damage, on the basis would be invalid.

Art. 1751. The fact that the common carrier has no competitor along the line or route, or a
part thereof, to which the contract refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier's liability is reasonable just and in
consonance with public policy.

Art. 1752. Even when there is an agreement limiting the liability of the common carrier in
the vigilance over the goods, the common carrier is disputably presumed to have been negligent in
case of their loss, destruction or deterioration.

An agreement limiting the liability of a common carrier does not do away with the
obligation of the common carrier to observe diligence, such that in case of death, injury, loss,
damage or deterioration, the carrier is still prima facie presumed to be negligent.

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

Art. 1754. The provisions of articles 1733 to 1753 shall apply to the passenger's baggage
which is not in his personal custody or in that of his employees.

(NCC, Art. 1754)

As to other baggage, the rules in articles 1998 and 2000 to 2003 concerning the responsibility of
hotel-keepers shall be applicable.

The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody
or in that of his employees.

As to the other baggage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers
shall be applicable (Art. 1754, Civil Code; Asked, 1983, 1986, 1996 and 1997 Bar Exams.) Hence, with respect to the
passenger's baggage, which is in his personal custody or in that of his employees, the following rules shall apply:

(1) The common carrier shall be responsible as depositaries for the effects brought by the passengers, provided that notice
was given to them, or to their employees, of the effects brought in by the passengers and that on the part of the latter,
they take the precautions which said common carrier advised relative to the care and vigilance of their effects (Art. 1998,
Civil Code; Asked, 1997 Bar Exams.);

(2) For the effects brought in by the passengers as mentioned above, the common carrier shall be responsible for the loss or
injury thereto that may be caused by the servants or employees of the common carrier as well as by strangers; but not

41
 that which may proceed from any force majeure. The fact that the passengers are constrained to rely on the vigilance of
the common carrier shall be considered in determining the degree of care required of him (Art. 2000, Civil Code; Asked,
1986 and 1997 Bar Exams.);

(3) The act of a thief or robber, who has entered the vehicle is not deemed force majeure, unless it is done with the use of
arms or through an irrestible force (Art. 2001, Civil Code; Asked, 1986 and 1995 Bar Exams.);

(4) The common carrier is not liable for compensation if the loss is due to the acts of the passenger, his family, servants or
visitors, or if the loss arises from the character of the things brought in the vehicle (Art. 2002. Civil Code);

(5) The common carrier cannot free himself from responsibility by posting notices to the effect that he is not liable for the
articles brought by the passengers. Any stipulation between the common carrier and the passenger whereby the
responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished, shall be void (Art. 2003,
Civil Code; Asked, 1989 Bar Exams.)

With respect however, to the effects checked-in or entrusted by the passenger to the carrier, the provisions on the
liability of the common carriers shall apply.

SARKIES TOURS PHILS.,INC. VS. CA and FORTALES

G.R. No. 108897, Oct. 2, 1997, 87 SCAD 573

Facts: Fatima Fortales boarded Sarkies Tours' bus bound for Legaspi City. She had three pieces of luggage placed in the
baggage compartment of the bus. During the stopover in Daet, it was discovered that only one bag remained in the open
compartment. The others, including Fortales' things, were missing and might have dropped along the highway. The baggage
compartment was not properly locked and must haveopened during the trip. Some of the passengers suggested retracing the
route of the bus to try to recover the lost items, but the driver ignored them and proceeded to Legaspi City. Sarkies Tours
merely offered P1,000 for each piece of luggage lost. Fortales asked assistance from the radio stations and even from
Philtranco bus drivers who plied the same route. The effort paid off when one of the bags was recovered.

(NCC, Art. 1754)

Fortales then demanded payment from Sarkies of the value of the lost luggage but the latter denied liability on the ground
that Fortales did not declare any excess baggage upon boarding its bus and no freightage was charged on the lost luggages.
Was the refusal of Sarkies Tours to pay the value of the lost pieces of luggage correct?

Held: The refusal of Sarkies Tours to pay for the value of the lost luggage was not correct. The cause of the loss was Sarkies
Tour's negligence in not ensuring that the doors of the bus' baggage compartment were securely fastened. As a result of this
lack of care, almost all of the luggage was lost, to the prejudice of the paying passengers. As the CA correctly ruled:

"x x x. Where the common carrier accepted its passenger's baggage for transportation and even it had placed on the vehicle
by its own employee, its failure to collect the freight charge is the common carrier's own lookout. It is responsible for the
consequent loss of the baggage. In the instant case, Sarkies Tour's own employee even helped load the luggages/baggages in
the bus baggage compartment, without requiring that they be weighed, declared, receipted or paid for. Neither was this
required of the other passengers."

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 transported by them, and this liability "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 consignee, or to the person who has a right to receive them." Hence, the carrier
was liable for actual damages, moral and exemplary damages due to its negligence and bad faith.

1989 BQ No. 11 (2):  X boarded an airconditioned Pantranco Bus bound for Baguio. X was given notice that
the carrier is not liable for baggage brought in by passengers. X kept in his custody his attache case containing

42
$10,000.00. In Tarlac, all the passengers, including X, were told to get off and to take their lunch, the cost of
which is included in the ticket. X left his attache case on his seat as the door of the bus was locked. After lunch
and when X returned to the bus, he discovered that his attache case was missing. A vendor said that a man
picked the lock of the door, entered the bus and ran away with the attache case. What, if any, is the liability of
the carrier?

Ans.: Hand-carried luggages of passengers are governed by the rules on necessary deposits. Under Article 2000
of the Civil Code the responsibility of the depository shall, among other cases, include the loss of property of
the guest caused by strangers but not that which may proceed from force majeure. Article 2001 of the same
Code considers an act of a thief as not one of force majeure unless done with the use of arms or through an
irresistible force. Accordingly, the carrier may, given the factual setting in the problem, still be held liable (See
Art. 1754, Civil Code).

1989 BQ No.12 (1):  X took the Benguet Bus from Baguio going to Manila. He deposited his maleta in the
baggage compartment of the bus common to all passengers. He did not declare his baggage nor pay its charges
contrary to the regulations of the bus company. When X got off, he could not find his baggage which obviously
was taken by another passenger. Determine the liability of the bus company.

Ans.: The bus company is liable for the loss of the maleta. The duty of extraordinary diligence in the vigilance
over the goods is due on such goods as are deposited or surrendered to the common carrier for transportation.
The fact that the maleta was not declared nor the charges paid thereon, would not be consequential so long as it
was received by the carrier for transportation (Art. 1754, in relation to Arts. 1733-1753, Civil Code).

1997 BQ No. 15:  Antonio, a paying passenger, boarded a bus bound for Batangas City. He chose a seat at the
front row, near the bus driver, and told the bus driver that he had valuable items in his hand-carried bag which
he then placed beside the driver's seat. Not having slept for 24 hours, he requested the driver to keep an eye on
the bag should he doze off during the

(NCC, Art. 1754-1755)

trip. While Antonio was asleep, another passenger took the bag away and alighted at Calamba, Laguna. Could
the common carrier be held liable by Antonio for the loss?

Ans.:  Yes. Ordinarily, the common carrier is not liable for acts of other passengers. but the common carrier
cannot relieve itself from liability if the common carrier's employees could have prevented the act or omission
by exercising due diligence. In this case, the passenger asked the driver to keep an eye on the bag which was
placed beside the driver's seat.

If the driver exercised due diligence, he could have prevented the loss of the bag.

Alt. Ans.:  No. The common carrier is not liable for the loss. It is not the duty of the driver to watch over the
baggages of passengers. His attention should be directed at driving the bus.

1986 BQ No. 8:  Pasahero, a paying passenger, boarded a Victory Liner bus bound for Olongapo. He chose a
seat at the front near the bus driver. Pasahero told the bus driver that he had valuable items in his bag which was
placed near his feet. Since he had not slept 24 hours, he requested the driver to keep an eye on the bag should he
doze off during the trip. While pasahero was asleep, another passenger took the bag away and alighted at
Guagua, Pampanga.

(a) Is Victory Liner liable to Pasahero? Explain.

(b) Supposing the two armed men staged a hold-up while the bus was speeding along the North Expressway.
One of them pointed a gun at Pasahero and stole not only his bag but his wallet as well. Is Victory Liner liable
to Pasahero? Explain.

43
 Ans.: (a) The responsibility of common carriers in the case of loss or damage to hand-carried baggage is
governed by the rule on necessary deposits. The common carrier is thus liable for the loss of the personal
property caused by its employees or by strangers.

(b) The use of arms (in staging of the hold-up) is force majeure under the rule on necessary deposits.
Accordingly, Pasahero may not hold Victory Liner liable.

Carriage of Passengers

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.

Degree of diligence required of common carriers

(1) In transportation of goods, extraordinary diligence (Art. 1733 and Art. 1735, New Civil Code);

(2) In transportation of passengers, utmost diligence of very cautious persons, with due regard for all the circumstances (Art.
1755, New Civil Code);

(3) In preventing or stopping injuries to a passenger caused by the willful act or negligence of other passengers or of
strangers, diligence of a good father of a family (Art. 1763, New Civil Code).

Cases of Failure to Observe Extraordinary Diligence

The officers and crew were aware that typhoon "Klaring" was buillding up at 260kms east of Surigao. In fact, they
had lashed all the cargo in the hold before sailing in anticipation of strong winds and

(NCC, Art. 1755)

rough waters. They proceeded on their way, as did other vessels that day. Upon reaching Romblon, they received the weather
report that the typhoon was 154 kms. east southwest of Tacloban and was moving west northwest. Since they were still not
within the radius of the typhoon and the weather was clear, they deliberated and decided to proceed with the course. At
Jintotolo Island, the typhoon was already reported to be reaching Samar. They still decided to proceed noting that the weather
was still "good" although, according to the Chief Forecaster of the Weather Bureau, they were already within the typhoon
zone. At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the typhoon was in the area quite close to Catbalogan, placing
Taguingui also within the typhoon zone. Despite knowledge of that fact, they again decided to proceed relying on the forecast
that the typhoon would weaken upon crossing the mainland Samar. After about half an hour navigation towards Chocolate
Island, there was a sudden fall of the barometer accompanied by the heavy downpour, big waves, and zero visibility.

The Captain of the vessel decided to reverse course and face the waves in the open sea but because the visibility did
not improve, they were in total darkness and, as a consequence, the vessel ran aground a reef and sank near Malapascua
Island north of the island of Cebu. Thus, in so doing, they failed to observe that extraordinary diligence required of them with
due regard for all circumstances, and unneccessarily exposed the vessel and passengers to the tragic mishap. They failed to
overcome that presumption of fault or negligence that arises in cases of death or injuries to passengers. (Vasquez v. Court of
Appeals, Sept. 13, 1985, 138 SCRA 553, 552-558)

The obligation of the carrier to transport its passengers safely is such that the New Civil Code requires "utmost"
diligence from the carriers (Art. 1755) who are "presumed to have been at fault or to have acted negligently unless they prove
that they have observed extraordinary diligence (Art. 1756). Where the driver improperly parked his jeepney on the
pavement, he was negligent. The driver and the owner of the vehicle must answer for injuries to its passengers resulting from
the negligence of the driver. (Anuran, et al. vs. Buño et al. 17 SCRA 224, Infra, P. _____).

44
 The sideswiping of a jeepney by a truck where both were running parallel to each other to approach a narrow bridge
which cannot accommodate both vehicles, is not a fortuitous event to free the jeepney operator from liability for injury to
passengers. (Bacarro vs. Castano, 118 SCRA 187).

The carrier's negligence consisting in its failure to cover the right side of the bus in question with a bar or some other
contrivance to safeguard and protect passengers falls within the category of the misconduct mentioned in Article 2220 of the
New Civil Code. (Laguna Tayabas Bus Company, vs. Cornista, 11 SCRA 181).

Bataclan vs. Medina

102 Phil. 181

Facts:  Due to the driver's negligence, a bus overturned and fell into a canal. Some persons carrying lighted torch approached
the bus whose gasoline had leaked. The gasoline ignited and the bus was burned causing the death of a passenger. Was the
bus operator liable for the death of the passenger?

Held: Yes. The carrier was liable as the event was not due to a fortuitous event. The proximate cause of the death of the
passenger was still the negligence of the driver. (HBP, Pp. 12-13)

Seaworthiness of a vessel. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned
with a sufficient number of competent officers and crew. The failure of a common

(NCC, Art. 1755)

carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed
in Article 1755 of the Civil Code.

Obligation to observe utmost diligence extends to employees.

The duty to exercise the utmost diligence on the part of the common carriers is for the safety of the passengers as
well as for the members of the crew or complement operating the carrier, the airplane in the case at bar. And this must be so
for any omission, lapse or neglect thereof will certainly result to the damage, prejudice, injuries and even death to all aboard
the plane, passengers and crew members alike. (Phil. Air Lines vs. Court of Appeals, et al., 106 SCRA 391).

Duration of Exercise of Extraordinary Diligence

The relationship between the common carrier and the passenger starts when the former gives to the latter, the
opportunity to avail of its services without need for said passenger to have boarded the vehicle, to have seated himself or to
have been given a ticket. If in the course of boarding a vehicle which had slowed down to allow a prospective passenger to
board, the passenger suffers an injury or is killed, the liability of the carrier is contractual.

Del Prado vs. MERALCO

52 Phil 900

Facts: Manila Electric Co. (MERALCO0) was engaged in operating street cars. One afternoon, a MERALCO coach stopped
at its appointed place for taking on and letting off passengers, and resumed its course at a moderate speed. The coach had
proceeded only a short distance, however, when Del Prado ran across the street and raised his hand as a signal of his desire to
board the coach. The motorman slowed down a little in response, without stopping. Del Prado tried to board the car but
before his feet reached the platform, the motorman applied the power which caused his feet to slip and he lost his grip on the
hand post. He fell on the ground and his feet were crushed by the car resulting in amputation.

45
Held: Although the motorman of the tramcar was not bound to stop to let Del Prado on, it was his duty to do no act that
would increase Del Prado's peril while he was attempting to board the car. The premature acceleration of the car was a breach
of this duty. Del Prado's negligence in attempting to board the moving car was not the proximate cause of the injury. The
direct and proximate cause of the injury was the act of MERALCO's motorman in putting on the power prematurely. A
person boarding a moving car assumes the risk of injury from boarding the car under the conditions open to his view, but he
cannot fairly be held as to assume risk that the motorman, having the situation in view, will increase his peril by accelerating
the speed of the car before he is planted safely on the platform.

When the bus is not in motion, there is no necessity for a person who wants to ride the same to signal his intention to board.
A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it becomes the duty of the
driver and the conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a
passenger while he was attempting to board the same. The premature acceleration of the bus in this case was a breach of such
duty. (NCD, p. 83, citing Dangwa Transportation Co., Inc. vs. Court of Appeals, 202 SCRA 574, infra)

Dangwa Transportation Co., Inc. vs. Court of Appeals

G.R. No. 95582, October 7, 1991; 202 SCRA 574

Facts: A passenger bus belonging to Dangwa Transportation came to a full stop to allow one of its passengers to alight. The
bus was at full stop when the victim, Pedrito Cudiamat, boarded the same. While standing on the bus' platform, the driver
suddenly accelerated the bus. The victim lost his balance, fell from the platform off the bus and was run over by the rear right
tires of the vehicle.

(NCC, Art. 1755)

Instead of bringing him to the nearest hospital, the driver, without regard to the welfare of the victim, first brought the rest of
his passengers to their respective destinations before bringing said victim to Lepanto Hospital where he expired.

Private respondents filed a complaint for damages for the death of Pedrito. Petitioner Dangwa contended that there was no
transportation contract yet because the driver and the conductor had no knowledge that the victim would ride on the bus,
since the latter supposedly did not manifest his intention to board the same.

Held: Petitioner's contention does not merit consideration. The victim, by stepping and standing on the platform on the bus,
is already considered a passenger and is entitled to all the rights and protection pertaining to such a contractual relation.
Hence, ... the duty which the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those
alighting therefrom.

It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, motorbus, to stop their
conveyances of a reasonable length of time in order to afford passengers an opportunity to board and enter, and they are
liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of their conveyances while
they are doing so.

Further, even assuming that the bus was moving... it is not negligence per se, or as a matter of law, for one to attempt to
board a train or streetcar which is moving slowly. An ordinarily prudent person would have made the attempt to board the
moving conveyance under the same or similar circumstances. The fact that passengers board and alight from slowly moving
vehicle is a matter of common experience and both driver and conductor in this case could not have been unaware of such an
ordinary practice.

Moreover, the circumstances under which the driver and the conductor failed to bring the gravely injured victim immediately
to the hospital for medical treatment is a patent and inconvertible proof of their negligence.

1996 BQ No. 14 (2). A bus of GL Transit on its way to Davao stopped to enable a passenger to alight. At that
moment, Santiago, who had been waiting for a ride, boarded the bus. However, the bus driver failed to notice
Santiago who was still standing on the bus platform, and stepped on the accelerator. Because of the sudden
motion, Santiago slipped and fell down, suffering serios injuries.

46
 May Santiago hold GL Transit liable for breach of contract of carriage? Explain.

Ans.: Santiago may hold GL Transit liable for breach of contract of carriage. It was the duty of the driver,
when he stopped the bus, not to do any act that would have the effect of increasing the peril to a passenger such
as Santiago while he was attempting to board the same. When a bus is not in motion there is no necessity for a
person who wants to ride the same to signal his intention to board. A public utility bus, once it stops, is in effect
making a continuous offer to bus riders. It is the duty of common carriers of passengers to stop their
conveyances for a reasonable length of time in order to afford passengers as opportunity to board and enter, and
they are liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of
their conveyances while they are doing so. Santiago, by stepping and standing on the platform of the bus, is
already considered a passenger and is entitled to all the rights and protection pertaining to a contract of carriage.
(See Dangwa Transportation Co., Inc., et al., vs. CA, et al., supra)

The relationship ends when the passenger after reaching destination safely alighted and had the reasonable
opportunity to leave the common carrier's premises, which includes the time to look for his baggage and claim them.

(NCC, Art. 1755)

La Mallorca vs. Court of Appeals et al.

17 SCRA 739-740

Facts: Plaintiffs, husband and wife, together with minor daughters, namely, Milagros, 13 years old, Rafaela, about 4-1/2
years old, and Fe, over 2 years old, boarded a Pambusco bus. Upon reaching their destination, plaintiffs and all their
daughters alighted from the bus and the father led his companions to a shaded spot about four to five meters away from the
vehicle. The father returned to the bus to get a piece of baggage which was not unloaded when he alighted from the bus.
Rafaela, child that she was, must have followed the father. However, although the father was still on the running board of the
bus waiting for the conductor to give him the bag or bayong, the bus started to run, so that the father had to jump down from
the moving vehicle. It was at this instance that the child, who must have been near the bus, was run over and killed.

Held: In the circumstances, it cannot be said that the carrier's agent had executed the utmost diligence of a very cautious
person required by Article 1755 of the Civil Code to be observed by a common carrier in the discharge of its obligation to
transport safely its passengers. In the first place, the driver, although stopping the bus, nevertheless did not put off the engine.
Secondly, he started to run the bus even before the bus was still unloading part of the baggage of the passengers Mariano
Beltran and family. The presence of said passengers near the bus was not unreasonable and they are therefore to be
considered still passengers of the carrier, entitled to protection under their contract of carriage.

Aboitiz Shipping vs. CA 

179 SCRA 95, Nov. 6, 1989

Facts: On May 11, 1975, Anacleto Viana boarded the vessel M/V Antonia, owned by Aboitiz Shipping, at the port of San
Jose, Occidental Mindoro, bound for Manila. On May 12, 1975, the said vessel arrived at Pier 4, North Harbor, Manila, and
the passengers therein disembarked, a gangplank having been provided connecting the side of the vessel to the pier. Instead
of using said gangplank, Anacleto Viana disembarked from the third deck which was on the level with the pier. After said
vessel had landed, the Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded on said vessel.

The crane owned by Pioneer Stevedoring and operated by its crane operator Alejo Figueroa was placed alongside the vessel
and one (1) hour after the passengers of said vessel had disembarked, started unloading the cargoes from said vessel. While
the crane was being operated, Anacleto Viana, remembering that some of his cargoes were still loaded in the vessel, went
back to the vessel, and it was while he was pointing to the crew of the said vessel to the place where his cargoes were loaded
that the crane hit him, pinning him between the side of the vessel and the crane. He was brought to the hospital where he
expired on May 15, 1975.

Issue: Whether or not the victim's presence in the vessel after one (1) hour from his disembarkation was no longer reasonable
and he consequently ceased to be a passenger.

47
Held: The relation of carrier and passenger continues until the passenger has been landed at the port of destination and has
left the vessel owner's dock or premises. Once created, the relationship will not ordinarily terminate until the passenger has,
after reaching his destination, safely alighted from the carrier's conveyance or had a reasonable opportunity to leave the
carrier's premises. All persons who remain on the premises for a reasonable time after leaving the conveyance are to be
deemed passengers, and what is reasonable time or a reasonable delay within this rule is to be determined from all the
circumstances, and includes a reasonable time to look after his baggage and prepare for his departure. The carrier-passenger
relationship is not terminated merely by the fact that the person transported has been carried to his destination if, for example,
such person remains in the carrier's premises to claim his baggage.

By the very nature of Aboitiz Shipping's business, the passengers of vessels are allotted a longer period of time to
disembarked from the ship than other common carriers such as a passenger bus. With respect to the bulk of cargoes and the
number of passengers it can load, such vessels are capable of accomodating a bigger volume of both compared to the
capacity of a regular commuter bus. Consequently, a ship passenger

(NCC, Art. 1755-1756)

will need at least an hour as is the usual practice, to disembark from the vessel and claim his baggage whereas a bus can
easily get off the bus and retrieve his luggage in a very shortperiod of time. Verily, Aboitiz cannot categorically claim,
through the bare expedient of comparing the period of time entailed in getting the passenger's cargoes, that the ruling in La
Mallorca is inapplicable to the case at bar. On the contrary, if are to apply the doctrine enunciated therein to the instant
petition, we cannot in reason doubt that the victim, Anacleto Viana, was still a passenger at the time of the incident. When the
accident occurred, the victim was in the act of unloading his cargoes, which he had every right to do, from petitioner's vessel.
As earlier stated, a carrier is duty bound not only to bring its passengers safety to their destination but also to afford them a
reasonable time to claim their baggage.

Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they proved that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.

Presumption of Fault or Negligence

In case of death or injury to passengers, common carriers are presumed to have been at fault, or negligent, unless
they prove that they observed extraordinary diligence. The doctrine of "res ipsa loquitur" applies to this provision for several
reasons, to wit:

a. The contract between the carrier and the passenger imposes on the carrier the obligation to transport the passenger safely,
hence the burden of explaining should fall on the carrier;

b. The cause of the accident is better known to the carrier than to the passenger; and

c. The accident could not have happened if due care was exercised by the carrier.

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 for by the passenger. By the contract of carriage,
the carrier assumes the express obligation to transport the passenger to his destination safely and to observe extraordinary
diligence with a due regard for all the circumstances, and any injury that might be suffered by the passenger is right away
attributable to the fault or negligence of the carrier. (Art. 1756, New Civil Code). This is an exception to the general rule that
negligence must be proved. (Sy vs. Malate Taxicab, et al., L-8937, Nov. 29, 1957; Batangas Transportation Company vs.
Caguimbal, 22 SCRA 171-172).

1982 BQ No. 8 (B):  In an action grounded on the contract of carriage, is there need for the court to make an
express finding of fault or negligence on the part of the carrier in order to hold it liable for claims filed in behalf

48
 of the injured or deceased passengers? Explain. Is there any exception to any answer you may give on this
question? (2%)

Ans.: In case of death or injuries to pasengers, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed the utmost diligence of very cautious persons, with a due
regard for all the circumstances. (Arts. 1755 and 1756, N. C.C.)

1990 BQ No. 9.  Peter So hailed a taxicab owned and operated by Jimmy Cheng and driven by Hermie Cortez.
Pete ask Cortez to take him to his office in Malate. On the way to Malate, the taxicab collided with a passenger
jeepney, as a result of which Peter was injured, i.e., he fractured his left leg.

(NCC, Art. 1756)

Peter sued Jimmy for damages, based upon a contract of carriage, and Peter won. Jimmy wanted to challenge
the decision before the Supreme Court on the ground that the trial court erred in not making an express finding
as to whether or nor Jimmy was responsible for the collision and, hence, civilly liable to Peter. He went to see
you fo advice. What will you tell him? Explain your answer.

Ans.: I will counsel Jimmy to desist from challenging the decision. The action of Peter being based on culpa
contractual, the carrier's negligence is presumed upon the breach of contract. The burden of proof instead would
lie on Jimmy to establish that despite an exercise of utmost diligence the collision could not have been avoided.
(Sy vs. Malate Taxicab, et al., L-8937, Nov. 29, 1957).

1997 BQ No. 16: In a court case involving claims for damages arising from death and injury of bus passengers,
counsel for the bus operator files a demurrer to evidence arguing that the complaint should be dismissed
because the plaintiffs did not submit any evidence that the operator or its employees were negligent. If you were
the judge, would you dismiss the complaint?

Ans:  No. In the carriage of passengers, the failure of the common carrier to bring the passengers safely to their
destination immediately raises the presumption that such failure is attributable to the carrier's fault or
negligence. In the case at bar, the fact of death and injury of the bus passengers raises the presumption of fault
or negligence on the part of the carrier. The carrier must rebut such presumption. Otherwise, the conclusion can
be properly made that the carrire failed to exercise extraordinary diligence as required by law.

In the absence of satisfactory evidence as to how the accident (plane crash) happened, the presumption is that the
common carrier was a fault. It is not necessary for the court to make an express finding as to fault or negligence on the
carrier's part in order to hold it liable for damage. By a contract of carriage, a carrier assumes the express obligation to
transport the passenger to his destination safely, and to observe extraordinary diligence, and any injury which might be
suffered is right away attributable to the fault or negligence of the carrier. This is an exception to the general rule that
negligence must be proved. (Abeto vs. PAL, 115 SCRA 489).

1989 BQ No. 14 (2):  X, an 80-year old epileptic, boarded the S/S Tamaraw in Manila going to Mindoro. To
disembark, the passengers have to walk thru a gang-plank. While negotiating the gang-plank, X slipped and fell
into the waters. X was saved from drowning, brought to a hospital but after a month died from pneumonia.
Except for X, all the passengers were able to walk thru the gang plank. What is the liability of the owner of S/S
Tamaraw?

Ans.: The owner of S/S Tamaraw is liable for the death of X in failing to exercise utmost diligence in the safety
of passengers. Evidently, the carrier did not take the necessary precautions in ensuring the safety of passengers
in the boarding of and disembarking from the vessl. Unless shown to the contrary, a common carrier is
presumed to have been negligent in cases of death or injury to its passengers (Arts. 1755-1756, Civil Code).
Since X has not completely disembarked yet, the obligation of the shipowner to exercise utmost diligence still
then subsisted and he can still be held liable.

49
Options of the victim of the breach; Advantages of suing carrier for breach of contract. 

In case of death or injury to the passenger, or loss or damage to the goods being transported, the victim of his heirs,
or the owner of the goods, has three (3) options to protect his interests: (a) sue for breach of transportation contract (based on
culpa contractual); (b) sue on tort or quasi-delict; or (c) file a criminal case against the driver of the vehicle at fault (based
on culpa criminal).

(NCC, Art. 1756)

(a) In a suit for breach of contract of carrier (culpa contractual), the obligation under the law to exercise extra-ordinary
diligence or utmost diligence carries with it the presumption of liability of the carrier upon mere proof of death or injury
to the passenger, or loss or damage to the goods being transported. The passenger or plaintiff is relieved from the duty to
establish the fault or negligence of the carrier or of his employees, and the burden is shifted to the carrier to prove that it
was due to an unforeseen event or to force majeure. Moreover, the carrier may not escape liability by proving that it has
exercised due diligence in the selection and supervision of its employees, or that the other driver has the last clear chance
of avoiding the accident. The liability of the carrier and the driver is solidary. The degree of proof required is
preponderance of evidence.

(b) On the other hand, in a suit for tort or quasi-delict, the passenger or plaintiff has the burden of proving fault or negligence
on the part of the carrier-defendant who may raise the defenses of due diligence in the selection and supervision of its
employees, or the doctrine of last clear chance of avoiding the accident. The degree of proof required is also
preponderance of evidence.

(c) But in a suit based on culpa criminal the passenger-plaintiff has the burden of proving beyond reasonable doubt the
fault or criminal negligence on the part of the driver of the carrier who is primarily liable to the victim or his heirs. The
carrier or owner of the vehicle is only secondarily liable, upon proof of the insolvency of the driver. Again, the
defenses of due diligence in the selection and supervision of its employees, or the doctrine of last clear chance of
avoiding the accident are available to the carrier or vehicle owner.

Of these three (3) options, the best is the first, i.e., suit for breach of contract, because there is no need of proving
fault or negligence on the part of the carrier to drier since it is a legal presumption, the degree of proof required is only
preponderance of evidence and the liability of the driver and the carrier or owner of the vehicle is joint and several.
Moreover, the defenses of due diligence in the selection and supervision of its employees, and the doctrine of last clear
chance of avoiding the accident is not available to the defendants.

When Presumption is Rebutted

The presumption of fault or negligence on the part of the common carrier may be rebutted by the presentation of
proof by the carrier that its failure to bring the goods or the passengers safely to their destination was due to anyone of the
following circumstances:

(1) Natural disaster like flood, storm, lightning, etc:

(2) Act or omission of the shipper;

(3) Act of the public enemy in time of war:

(4) Character of the goods or defect in their packing; and

(5) Order of the competent authority, under the provisions of Art. 1734 of the Civil Code. (Maritime Company vs. CA, 171
SCRA 6).

50
If the cause appears to be fortuitous but is not included in Art. 1734 of the Civil Code, then Art. 1735 (on extra-ordinary
diligence) applies. (Ibid)

Sweet Lines vs. CA

121 SCRA 769, April 28, 1983

Facts: Private respondents purchased first class tickets from petitioner's office in Cebu City for Catbalogan, Western Samar.
The back of the ticket contained conditions in small print which read:

(NCC, Art. 1756)

"The passenger's acceptance of this ticket shall be considered as an acceptance of the following conditions:

"3. In case the vessel cannot continue or complete the trip of any cause whatsoever, the carrier reserves the
right to bring the passenger to his/her destination at the expense of the carrier or to cancel the tickets and
refund the passenger the value of his/her ticket;

xxx

"11. The sailing schedule of the vessel for which this ticket was issued is subject to change without previous
notice."

Their vessel, M/V Sweet Grace, was scheduled to depart at about midnight of July 8, 1972. Instead the vessel set sailed at
3:00 a.m. of July 9, 1972, only to be towed back to Cebu due to engine trouble, arriving there at 4:00 p.m. of the same day
(July 9, 1972).

Petitioner did not notify private respondents of the change of schedule of the vessel. Knowing fully well that it would take no
less than fifteen (15) hours to repair the damaged engine, petitioner instead announced assurances that that the vessel would
leave within as short period of time. When private respondents wanted to leave the port and to give up the trip, petitioner's
employees would say "we are leaving already".

Repairs having been accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 a.m. Upon management's
instruction, the vessel skipped docking at Catbalogan, Samar, the first port of call, and vessel proceeded direct to Tacloban
City, Leyte. Private Respondents had no recourse but to disembark in Tacloban and board a ferryboat to Catbalogan.

Petitioner neither offered to refund private respondents' tickets nor provide them with transportation from Tacloban to
Catbalogan.

Held: There was no fortuitous event or force majeure which prevented the vessel from undertaking its obligation. In the first
place, mechanical defects in the vessel are not considered a "caso fortuito" that exempts the carrier from responsibility.

In the second place, even granting arguendo that the engine failure were a fortuitous event, it accounted only for the delay in
departure. When the vessel left Cebu City on July 10, 1972 after the repairs, there was no longer any "force majeure" which
justified by-passing a port of call. In fact, after docking at Tacloban City, the vessel left the next day for Manila to complete
its voyage.

Petitioner cannot rely on the conditions at the back of its ticket because they cannot prevail over arts. 614 and 698 of the
Code of Commerce. Even assuming that those conditions were squarely applicable, the petitioner did not comply with the its
reserved right to cancel the tickets or refund their value or to bring the passengers at their destination at its expense.

Circumstances showing lack of diligence by carrier to prevent or minimize loss due to natural disaster.   The carrier
cannot claim it had no information of the typhoon where, according to the Weather Bureau, it was highly improbable that it
had not issued any typhoon bulletin at any time during the day to the shipping companies... it is inconceivable for Maritima to
be totally in the dark of "Welming". In allowing the ship to depart late from Manila despite the typhoon advisories, Maritima

51
displayed lack of foresight and minimum concern for the safety of tis passengers taking into account the surrounding
circumstances of the case.

Furthermore, carrier Maritima did not install a radar which could have allowed the vessel to navigate safely for
shelter during a storm. Consequently, the vessel was left at the mercy of "Welming" in the open sea because although it was
already in the vicinity of the Aklan river, it was unable to enter the

(NCC, Art. 1756)

mouth of the river to get into New Washington, Aklan due to darkness and the Floripon Lighthouse at the entrance of the
Aklan River was not functioning or could not be seen at all, and an important device such as the radar could have enabled the
ship to pass through the river and to safety. (Heirs of Amparo Santos vs. CA, June 21, 1990, 186 SCRA 649).

Fortune Express, Inc. vs. Court of Appeals

G.R. No. 119756, March 18, 1999, 104 SCAD 750

Facts: Fortune Express, a bus company, was threatened by some Maranaos that its bus will be burned by way of revenge for
the death of Maranaos in a vehicular accident involving a bus of said company. Although informed of the threat, no steps
were taken by the carrier to protect its passengers. Three Maranaos boarded the a bus of the company, seized it, then forced
the driver to stop, shot the driver in the arm. Another Maranao poured gasoline on the bus and the driver while another held
the passengers at bay with a gun. One of the passengers, Atty. Caorong pleaded with the Maranaos to spare the driver as he
was innocent and was only trying to make a living. During the exchange, the driver climb out of the window and crawled to a
canal. Atty. Caorong was shot to death. Should the carrier beliable for the death of its passenger?

Held: The carrier should be made liable because it did not exercise the diligence required by law. Despite the threat that
Maranaos were planning to take revenge by burning some of the carrier's buses, it did nothing to protect the safety of its
passengers. It should have frisked its passengers and inspected their baggages. Aside from that, had the carrier and its
employees been vigilant, they would not have failed to see that the malefactors had a large quantity of gasoline with them. It
is evident that the carrier's employees failed to prevent the attack because they did not exercise due diligence. Fortune
Express should be held liable.

Mechanical defects are not considered as fortuitous events

A factory defect to a motor vehicle or its parts (like a tire) is not a fortuitous event, and will not exempt the carrier
from liability because the manufacturer of the vehicle or any of its parts is deemed a servant or agent of the common carrier.
(Juntilla vs. Fontanar et al, 136 SCRA 624).

The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the carrier in
the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer
or vendor of the defective equipment, the passenger has no remedy against him. While the carrier is not an insurer of the
safety of his passengers, it should nevertheless be held to answer for the flaws of his equipment if such flaws were at all
discoverable.

Where the cause of the blow-out, which precipitated he accident, was known in that the inner tube of the left front
tire was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel, a mechanical
defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a more
thorough or rigid check-up before it took to the road, the owner of the vehicle is liable for the accident. It was not due to
force majeure. Moreover, the bus was running fast. (La Mallorca and Pampanga Bus Company vs. De Jesus et al., 17 SCRA
23).

52
 The mere fact that the bus whose cross-joint broke was inspected the day before the accident is not sufficient to
rebut the presumption of negligence, where the bus was overloaded inspite of the fact that its route consisted of mountainous,
circuitous and ascending roads. (Landingin vs. Pantranco, 33 SCRA 284).

Where the brakes of the passenger bus are defective, the accident consequent to the defect is not fortuitous. (Vergara
vs. CA, 15 SCRA 564).

(NCC, Arts. 1756-1757)

The "Principle of Last clear chance" rule or "Discovered Peril Doctrine" is not applicable to contracts of
carriage. The principle of "last clear chance" applies in a suit between the owners and drivers of two colliding vehicles. It
does not apply where a passenger demands responsibility from the carrier to enforce its contractual obligation. It would be
iniquitous to exempt the driver and his employer on the ground that the other driver was also negligent. (Anuran, et al. vs.
Buno et al., infra)

Anuran vs. Buño

17 SCRA 224, May 20, 1966

Facts: A passenger jeepney was parked in such a way that its left wheels were on the asphalted pavement while the right
wheels were in the road shoulder. A truck negligently bumped it from behind, killing three passengers of the jeepney and
injuring two others.

Held: The New Civil Code requires "utmost diligence" (Art. 1755), and presumes "carrier to be at fault or to have acted
negligently unless they prove they have observed extraordinary diligence" (Art. 1756). Where the driver improperly parked
his jeepney in such a way that its left wheels were on the asphalted pavement, he was negligent. The driver and the owner of
the jeepney must answer for injuries to its passengers resulting from the negligence of the driver.

The "last clear chance" principle applies in a suit between owners and drivers of two colliding vehicles. It does not apply
where a passenger demands responsibility from the carrier to enforce its contractual obligation. It would be inequitable to
exempt negligent driver and his employer on the ground that the other driver was also negligent.

The doctrine of "last clear chance" may be invoked in a criminal action for negligence resulting in death or injury or damage
to property, or in an action for tort or quasi-delict, but not in a suit for breach of transportation contract.

Liability if the Driver of Other Vehicle is Negligent

To permit a passenger in a BTCO bus to disembark, at a time when a "calesa" is coming from an opposite direction,
with a Biñan bus about 100 meters behind the rig, the BTCO driver should drive his bus towards the right shoulder of the
road and exercise extraordinary diligence in a manner that the BTCO bus will be completely and fully within the shoulder
thereof to afford the Biñan bus sufficient space to overtake the calesa and go through safely. And if under the situation stated,
said BTCO driver failed to exercise that degree of diligence required of him by law, and the calesa and the BTCO bus itself
were hit and wrecked by the Binan bus as the latter attempted to pass and overtake the rig, as a consequence of which two (2)
passengers of the BTCO died (apart from others who were injured), it is clear that said carrier - the BTCO - is liable for
damages. It is clear that the driver of Biñan bus should have slowed down or stopped, and, hence, was reckless in not doing
so; he had no special obligations towards the passengers of the BTCO, unlike the driver of the latter whose duly was to
exercise "utmost" or "extraordinary" diligence for their safety. The driver of the BTCO was thus under obligation to avoid a
situation which will be hazardous for his passengers, and not make their safety dependent upon the diligence of the Binan
driver. (Batangas Transportation Company vs. Caguimbal, 2 SCRA 171).

In case of injury to a passenger due to the negligence of the driver of the bus in which he was riding and of the
driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages.
(Gutierrez vs. Gutierrez, 56 Phil. 177; Viluan vs. CA, 16 SCRA 742-743).

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 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.

(NCC, Art. 1757)

2001 BQ No. XX.  Suppose "A" was riding on an airplane of a common carrier when the accident happened
and "A" suffered serious injuries. In an action by "A" against the common carrier, the latter claimed that - (1)
there was a stipulation in the ticket issued to "A" absolutely exempting the carrier from liability from the
passenger's death or injuries and notices were posted by the common carrier dispensing with the extraordinary
diligence of the carrier, and (2) "A" was given a discount on his plane fare thereby reducing the liability of the
common carrier with respect to "A" in particular.

(a) Are those valid defenses?

(b) What are the defenses available to any common carrier to limit or exempt it from liability?

Ans:  (a) No. These are not valid defenses because they are contrary to law as they are in violation of the
extraordinary diligence required of common carriers. (Article 1757, 1758 New Civil Code)

The defenses available to any common carrier to limit or exempt it from liability are: observance of
extraordinary diligence, or the proximate cause of the incident is fortuitous event or force majeure, 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, without the common carrier being guilty of even
simple negligence. (Article 1734, New Civil Code)

1984 BQ No. 8: Mabuhay Lines, Inc. a common carrier, entered into a contract with Company X, whereby it
agreed to furnish Company X, for a fixed amount, a bus for a company excursion on its anniversary day. It was
agreed the Company X would have the use of the bus and its driver from 7:00 a.m. to 7:00 p.m. on the
stipulated date, and that the bus driver would be obliged to follow the instructions of the company's general
manager as to the places to be visited. Company X agreed to bear the cost of the gasoline consumed.

The transportation contract signed by Company X contained a stipulation that Mabuhay Lines, Inc. would be
exempt from liability on account of acts or omissions of its employees.

On the trip from the excursion site, the bus had an accident and several employees of Company X were injured.

State the liability, if any, of Mabuhay Lines, Inc.

Answer furnished by the Office of Justice Plana: . ---

Although a common carrier, Mabuhay Lines, Inc. was not acting as such in the instant case but as a private
carrier. Accordingly, the provision applicable to a common carrier in respect of extraordinary diligence cannot
be imposed upon the bus company.

The stipulation limiting the liability of Mabuhay Lines, Inc. is valid and the bus company cannot be held liable
for the injuries suffered by the employees of Company X on the basis of the contract of carriage. However, the
employees who were injured may proceed against the bus company on the basis of a quasi-delict (culpa
aquiliana) but the party charging negligence or wrong doing has the burden of proving the same.

It has been held that a common carrier is exempt from the application of the strict public policy governing
common carriers where the carrier is not acting as such but as a private carrier. Such strict public policy has no

54
 force where the public at large is not involved, as when the carrier charters its bus totally for the use of a single
party (see Home Ins. Co. v. American Steamship Agencies, Inc. vs. Luzon Stevedoring Corp. L-25599, April
24, 1968)

(NCC, Arts. 1757-1758)

Article 1745 of the Civil Code declaring a stipulation that the common carrier shall not be responsible for the
acts or omissions of his or its employees as unreasonable unjust and contrary to public policy is not applicable
here since Company X and the bus company have entered into a contract for private carriage. Likewise, the
presumption created under Article 1756 of the Civil Code, that in case of death or injuries to passengers,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they
observed exraordinary diligence, finds no application here.

Suggested Answer. ---

Liable is the Mabuhay Lines, Inc. for the injuries of several employees of Company X, which it carried for fixed
amount. Its responsibility, as a common carrier for the safety of passsengers, cannot be dispensed with or
lessened by stipulation. (See Articles 1757 & 1764; New Civil Code.)

N.B.: The suggested answer is more in accordance with the current jurisprudence. The answer provided by Justice Plana
(who was the bar examiner) was based on the case of Home Ins. Co. v. American Steamship Agencies, Inc. vs. Luzon
Stevedoring Corp. L-25599, April 24, 1968) which had been abandoned and superseded by Planters Products vs. CA
(226 SCRA 476; 483-486 [Sept. 15, 1993]) where the Supreme Court held that conversion from common carrier to private
carrier applies only in case of demise charter, where the charterer becomes the owner, "pro hac vice", of the vehicle for
service covered by the charter party. This change of nature does not occur when the charter is one of affreightment like a time
or voyage charter.

Art. 1758. When a passenger is carried gratuitously, a stipulation limiting the common carrier's
liability for negligence is valid, but not for wilful acts or gross negligence. The reduction of fare does not
justify any limitation of the common carrier's liability.

Just because a passenger is carried gratuitously does not relieve the carrier from responsibility to such passenger.
The common carrier is only allowed to stipulate with the passenger carried gratuitously that the former is not responsible for
simple negligence. In the absence of a stipulation, the carrier is still liable for negligence. But even with a stipulation, the
carrier cannot be exempted from liability for willful acts or gross negligence to a non-paying passenger. And a mere discount
or reduction in fare does not justify any limitation on the carrier's liability.

Lara vs. Valencia

104 Phil. 65, June 30, 1958

Facts:  Lara was an inspector of the Bureau of Forestry who went to classify logs of the defendant in the latter's concession
in Cotabato. After the inspection, he, with five others, requested the defendant to ride in the latter's pick-up from Parang to
Davao. Before leaving Parang, the defendant who was the owner and driver of the pick-up, invited Lara to sit with him in the
front seat. Lara, who was afflicted with malaria, refused prefering to sit on a bag in the middle at the back of the pick-up. All
the passengers were merely accomodation or invited passengers without paying for their transportation fees. While on the
way, Lara accidentally fell from the pick-up resulting his death, caused by the bumpy roads full of stones.

Held: As accommodation passengers or invited guests, defendant as owner and driver of the pick-up, owes to them merely
the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, "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 travels.
(NCC, Art. 1758)

This rule, as frequently stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary or
reasonable care to avoid injuring him. Since one riding in an automobile is no less a

55
 (NCC, Arts. 1758-1759)

guest because he asked for the privilege of doing so, the same obligation of care is imposed upon the driver as in the case of
one expressly invited to ride. In the case at the bar, the deceased himself chose the place where he would sit and he was half-
asleep when the accident took place so that the incident is attributable to his lack of care considering that the pick-up was
open and he was then in a crouching position. On the other hand, there is no showing that the defendant has failed to take the
precaution necessary to conduct his passengers safely to their place of destination. Defendant is, therefore, not liable for
damages.

1989 BQ No. 12 (2):  X brought seven (7) sacks of palay to the PNR. He paid its freight charges and was issued Way Bill
No. 1. The cargo was loaded on the freight wagon of the train. Without any permission, X boarded the freight wagon and not
the passenger coach. Shortly after the train started, it was derailed. The freight wagon fell on its side, killing X. There is no
evidence that X bought a ticket or paid his fare at the same time that he paid the freight charges for his cargo. Is X a
passenger of PNR?

Ans.: No, X was not a "passenger" (see Nueca vs. Manila Railroad, 65 O.G. 3153). A "stowaway", being a trespasser, has
been held to assume the risk of damage (see Pontillas vs. Cebu Autobus Co. 13 CA Reps., 211).

Alt. Ans: The act of the passenger who "did not declare his baggage nor pay its charges contrary to the regulations of the bus
company" conveys a surreptitious act on his part which constitutes an act of bad faith and would therefore disentitle recovery.

A child going on a train or car with its mother, or in charge of another person who has a ticket or pays fare for
herself or himself, is a passenger, although no fare is paid for such child (Ball V. Mobile Light Co., 39 So. 584, 146 Ala.309,
119 Am.S.R. 32, 9 Ann. Cas. 962). But this rule does not apply where the child is unaccompanied by one having it in charge
(Gulf R. Co. v. Dawkins, 12 S.W. 982, 77 Tex. 228) and to newsboys or children who are permitted to ride on a car
gratuitously by an employee who has no authority to do so (Meloon v. Davis, C.C.A.N.H., 292 F. 82).

M. Ruiz Highway Transit vs. Court of Appeals

11 SCRA 98

Facts: A child and her parents were passengers of a bus. Only the parents had paid tickets while the child was not a paying
passenger. The rear tire of the bus exploded blasting a hole where the parents and the child were located. As a result, the child
fell through the hole and died. The bus, at the time of the accident was overcrowded and over-speeding, and the floor thereof
was weak. Was the carrier liable?

Held: The carrier was liable. The absence of a contract of carriage between the deceased child and the carrier was no
defense, her parents being paying passengers; the carrier was duty bound to transport them, using the utmost diligence of
very cautious persons which itfailed to do. That the bus was overcrowded and overspeeding, and that the floor was weak
were persuasive indications of negligence of the carrier and the accident cannot be attributed to an Act of God.

Art. 1759. Common carriers are liable for the death of or injuries to passengers through
the negligence or willful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers 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.

Liability for Assaults of Employees

Unlike the old Civil Code, the New Civil Code expressly makes the common carrier liable for intentional assaults
committed by its employees upon its passengers. (Art. 1759). This rule was adapted from Anglo-American Law, where the

56
majority view, as distinguished from the minority view based on "respondeat superior", is that the carrier is liable as long as
the assault occurs within the course of the performance of the employee's duty. It is no defense for the carrier that the act was
done in excess of authority or in disobedience of the carrier's orders. The carrier's liability is absolute in the sense that it
practically secures the passengers from assaults committed by its own employees. (Maranan vs. Perez, 20 SCRA 412-413,
infra).

The special undertaking of the carrier requires that it furnishes its passengers that full measure of protection afforded
by the exercise of the high degree of care prescribed by law, inter alia, from violence and assaults at the hands of strangers
and other passengers, but above all from the acts of the carrier's own servants charged with the passenger's safely. The
performance of that undertaking is confided by the carrier to its employees. As between the carrier and the passenger, the
former must bear the risk of wrongful acts of the former's employees against passengers, since the carrier, not the passengers,
has the power to select and remove them. (Idem)

Maranan vs. Perez

20 SCRA 413, 416-417

Facts: Corachea was a passenger in a taxicab owned and operated by Perez when he was stabbed and killed by the driver,
Valenzuela. Valenzuela claimed that the deceased was killed in self-defense, since he first assaulted the driver by stabbing
him from behind. Valenzuela was prosecuted and convicted of homicide. Valenzuela appealed. While the appeal was
pending, Maranan, the mother of Corachea filed a civil action against Perez and Valenzuela. The judgment of conviction was
affirmed by the Court of Appeals and became final.

Perez claimed that as common carrier, he was under no absolute liability for assaults of its employees upon the passengers.
Was the carrier liable?

Held: The killing of Corachea was perpetrated by the driver of the very cab transporting the passenger, in whose hands the
carrier entrusted the duty of executing the contract of carriage. In other words, the killing of the passenger took place in the
course of duty of the guilty employee and when the employee was acting wihtin the scope of his duties. Hence, Perez was
liable as Art. 1759 of the Civil Code made the common carrier liable for the intentional assaults committed by its employees
upon its passengers.

However, Valenzuela, the driver was not liable since plaintiff's action was predicated on breach of contract of carriage, and
the cab driver was not a party thereto. His civil liability was covered in the criminal case wherein he was convicted by final
judgment.

Briñas vs. People

125 SCRA 687, No. 25, 1983

Facts: 55 year-old Martina Bool and her 3 year-old granddaughter Emelita Gesmundo, boarded the train at Tagkawayan,
Quezon bound for Barrio Lusacan, Tiaong, of same province. Upon approaching Barrio Lagalag in Tiaong at about 8:00
p.m., the train slowed down and the train conductor Clemente Briñas shouted "Lusacan", "Lusacan". Thereupon, the old
woman walked toward the left front door facing the direction of Tiaong, carrying the child with one hand ahd holding her
baggage with the other. When Martina and Emelita were near the door, the train suddenly picked up speed. As a result, the
old woman and the child stumbled and they were seen no more. It took three minutes more before the train stopped at
Lusacan, and the victims were not among the passengers who disembarked thereat.

Next morning, two (2) corpses which were later identified as those of Martina Bool and Emelita Gesmundo were found along
the railroad tracks at Barrio Lagalag. Blood, pieces of scattered brain and pieces of clothes were at the scene.

(NCC, Art. 1759)

Held:  It is common knowledge and experience about common carriers like trains and buses that before reaching a station of
flagstop they slow down and that the conductor announce the name of the place. It is also a matter of common experience
that as the train or bus slackens its speed, some passengers usually stand and proceed to the nearest exit, ready to disembark
as the train or bus comes to a full stop. This is especially true of a train because passengers feel that if the trains resumes its
run before they are able to disembark, there is no way to stop it as a bus may be stopped.

57
It was negligence on the conductor's part to announce the next flag stop when said stop was still a full three minutes ahead.
That the announcement was premature and erroneous is shown by the fact that immediately after the train slowed down, it
unexpectedly accelerated to full speed. The announcement was made while the train was still in Barrio Lagalag.

The proximate cause of the death of the victims was the premature and erroneous announcement of petitioner-appellant
Briñas. This announcement prompted the two victims to stand and proceed to the nearest exit. Without said announcement,
the victims would have been safely seated in their respective seats when the train jerked as it picked up speed. The
connection between the premature and erroneous announcement of petitioner and the deaths of the victims is direct and
natural, unbroken by any intervening efficient causes.

Reasons for making the common carrier liable for injuries or death caused by the negligence or willful acts of its
employees:

(1) The special undertaking of the carrier requires that it furnish its passenger that full measure of protection afforded by the
exercise of the high degree of care prescribed by law, inter alia from violence and insults at the hands of strangers and
other passengers, but above all, from the acts of the carrier's own employees charged with the passenger's safety;

(2) Said liability of the carrier for its employee's violation of duty to passengers, is the result of the former's confiding in its
employee's hands the performance of his contract to safely transport the passenger, delegating therewith the duty of
protecting the passenger with the utmost care prescribed by law; and

(3) As between the carrier and the passenger, the former must bear the risk of wrongful acts of negligence of the carrier's
employees against passengers since it, and not the passengers has power to select and remove them. (Maranan vs. Perez,
infra)

Aside from these, the riding public is not expected to inquire from time to time before they board the passenger bus
whether or not the driver who is at the steering wheel was authorized to drive said vehicle or that said driver is acting within
the scope of his authority and observing the existing rules and regulations required of him by the management (Marchan vs.
Mendoza, 24 SCRA 889).

The carrier is exempt from acts of employee which were not done in line of duty. The carrier is exempt from
liability where the employee who committed the assault was never in a position in which it became his duty to his employer
to represent him in discharging any duty towards the passenger, as when the passenger has not come within the sphere of
duty of that employee as indicated by his employment. Thus, where the shooting of the passenger was committed because of
a personal grudge nurtured since the Japanese occupation by a train guard who had no duties to discharge in connection with
the transportation of the victim, inasmuch as the guard was not yet on duty and was himself awaiting transportation , the
crime stands on the same footing as if committed by a stranger or co-passenger, since the killing was not done in line of duty.
(Gillaco vs. MRR, Nov. 18, 1955, 51 OG No. 10, 5596)

Applicability of the defense of the exercise of all the diligence of a good father in the selection and supervision of
employees. The defense of the exercise of all the diligence of a good father in the selection

(NCC, Art. 1759)

and supervision of their employees is appropriate only in quasi-delict or culpa aquiliana (Art. 2180, Civil Code). It is not
available, however, in culpa contractual and therefore, a common carrier cannot raise such defense in action brought by its
passengers (HBP, P. 45 citing Art. 1759, Civil Code).

CANGCO VS.MANILA RAILROAD CO.

38 Phil. 768, October 14, 1918

Facts: Plaintiff Cangco, an employee of MRR, was riding on its train. As it drew up to the station, the plaintiff made his exit.
As he alighted, his foot stepped on a sack of watermelons causing him to slip and his right arm was crushed. This occurred

58
between 7 and 8 p.m. and, as the railroad station was lighted dimly by a single light, object on the platform were difficult to
see. Plaintiff sought to recover damages. CFI dismissed the case.

Held: Culpa aquiliana should be distinguished from culpa contractual. In this case, the foundation of the legal liability of the
defendant is the contract of carriage and the obligation arises from the breach of that contract by reason of the failure of
defendant to exercise due care in its performance. MRR failed to exercise due care in not providing for safe exit of its
passengers. The watermelons could have been removed from the platform. MRR also failed to provide adequate lighting for
its station.

Failure to perform a contract cannot be excused upon the ground that the breach was due to the negligence of a servant of the
obligor, and that the latter exercised due diligence in the selection and control of the servant.

Cangco entitled to damages, Judgment reversed.

CASTRO VS. ACRO TAXICAB CO.

82 Phil. 359

Facts:  X was a passenger in a bus. The bus driver negligently bumped a car owned by Y, thereby causing damage to the car
and injuries to X. X and Y filed separate actions for damages against the owner of the bus. The common carrier raised the
defense that it exercised the diligence of a good father of the family in the selection and supervision of its drivers. Is such
defense appropriate?

Held:  In the action filed by Y for the damage caused to the car, the defense that the bus owner exercised the diligence of a
good father of the family in the selection and supervision of its drivers is a proper defense because such defense is available
in quasi-delict or culpa aquiliana (Art. 2180, Civil Code). The action filed by a non-passenger against the common carrier
based on the negligence of the latter's employees is based on quasi-delict.

On the other hand, the action of X is based on his contract of carriage with the owner of the bus or premised on culpa
contractual where the defense of diligense of a good father of the family in the selection and supervision of its employees
isnot available ((HBP, P. 45 citing Art. 1759, Civil Code and Del Prado vs. Manila Electric Co., 52 Phil.900).

1986 BQ No.9:  The vessel M/V Sweet Perceptions, commanded by Kapitan, its captain, was unloading goods
at a private wharf in Naval, Leyte, when the ship bumped the wharf of the pier causing it to collapse into the
sea. It turned out that Kapitan failed to drop the vessel's bow anchors and to fasten the vessel properly to the
pier. The vessel was pushed by the combined action of the currents in the Biliran Island Strait and the usual
southwest monsoon winds of the season. As a result, Pantalan, the owner of the wharf, lost not only the wharf
but also the goods that had just been unloaded on the per pending their delivery to him. Pantalan sued both the
owner of the M/V Sweet Perceptions and Kapitan for the loss of the cargoes and the destruction of the wharf of
the pier. The vessel's owner, who is in Manila, states that he exercised due diligence in the selection and
supervision of Kapitan.

(NCC, Arts. 1759-1760)

Can the vessel's owner and Kapitan be held liable for the loss of the wharf and the cargoes? Explain.

Ans.: The vessel's owner is not liable for the loss of or damage to the wharf but he can be held liable for the
loss of the cargo. The cause of action on the loss of or damage to the wharf is one of culpa acquiliana where due
diligence in the selection and supervision of employees is a valid defense against liability. That defense,
however, is not available for the loss of the cargo since the cause of action is one of culpa contractual (the goods
had not yet been delivered to the consignee).

Providing the vehicle with a professional driver is not sufficient compliance with the common carrier's duty to
observe extraordinary diligence. It is not even sufficient proof of exercise of the diligence of a good father of a family
(Campo vs. Camarote, L-9147, Nov. 29, 1956).

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 Art. 1760. The common carrier's responsibility prescribed in the preceding article cannot
be eliminated or limited by stipulation, by the posting of notices, by statements on the tickets or
otherwise.

The common carrier's responsibility prescribed in the preceding article cannot be eliminated or limited by
stipulation, by posting of notices, by statements on the tickets or otherwise (Art. 1760, Civil Code; Asked, 1984 Bar Exams.)

Example: The ticket issued by the common carrier stated that it is not be liable for the negligence or willful acts of its
employees. A passenger was injured due to the negligence of the driver of the common carrier. In such case, the common
carrier is still liable notwithstanding the disclaimer of liability stated in the ticket. Such stipulation is void for being against
public policy. (HBP, Pp. 47-48 citing Curtiss-Wright Flying Service v. Glose, C.C.A.N.J., 66 F.2d 710).

1984 BQ No.7:  Juan a paying passenger, noted the stipulation at the back of the bus ticket stating that the
liability of the bus company is limited to P1,000 in case of injuries to its passengers and to P500 in case of loss
or damaged to baggage caused by the negligence or willful acts of its employees.

Upon arrival at his destination, Juan got into an altercation with the ticket conductor, who pulled out a knife and
inflicted several wounds on Juan. The bus driver intervened, heaping abusive language on Juan and completely
destroying Juan's baggage which contained expensive goods worth P3,000. The hospital expenses for Juan
would probably amount to at least P6,000.00.

Give the extent of the liability of the bus company, with reasons.

Answer furnished by Office of Justice Plana:

The bus company's liability or the injuries inflicted upon Juan is at least P6,000, notwithstanding the stipulation
limiting its liability , and only for P500, the amount stipulated in the bus ticket, as to the damage and destruction
to Juan's baggage.

With respect to the injuries inflicted upon Juan, common carriers are liable for the death or injuries to passenges
through the negligence or willful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers (Art. 1759, Civil Code).
The common carrier's responsibility for these acts cannot be eliminated or limited by stipulation by the posting
of notices, by statements on the tickets or otherwise (Art. 1760, Civil Code).

(NCC, Art. 1760-1762)

The rule is different with respect to a stipulation limiting the carrier's liability for the loss, destruction or
deterioration of goods shipped. Under Article 1750, Civil Code, a contract fixing the sum that may be recovered
by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just
under the circumstances and has been fairly and freely agreed upon.

Suggested Answer:

The bus company, being a common carrier, is liable to Juan, a paying passenger, for damages in the amount of
P3,000 for goods and P6,000 for hospital expenses. The stipulation at the back of the bus ticket stating that the
liability is limited to P1,000 in case of injuries to its passengers caused by negligence or willful acts of its
employees, is void, since the responsibility of a common carrier for the safety of passengers cannot be
dispensed with or lessened by stipulation or statements on tickets or otherwise. As to stipulation in the ticket to
be liable only to P500 in case of loss or damage to baggage caused by the negligence or willful acts of its
employees, that is void being unreasonable, unjust and contrary to public policy. (See Articles 1744, 1745, 1757
and 1764, new Civil Code).

The suggested answer is more in consonance with the letter and spirit of the law.

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 Art. 1761. The passenger must observe the diligence of a good father of a family to avoid
injury to himself.

Where the proximate cause of the injury to the passenger was his own negligence, the carrier cannot be held liable
(Lara vs. Valencia, L-9907, June 30, 1958, Supra, Pp. 54-55).

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.

Even when the common carrier failed to exercise extraordinary diligence as required by law, the contributory
negligence of the passenger, while not exempting the carrier from liability, nevertheless justified the deletion of the award of
moral damages. By the same token, the award of exemplary damages must be set aside. Exemplary damages may be allowed
only in cases where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner (HBP, P. 48
citing Philippine National Railways vs. Court of Appeals, 139 SCRA 87).

Where the train of Philippine National Railways (PNR) was overloaded, compelling the passenger to sit on the open
platform without holding tenaciously to the upright metal bar found on the said platform such that he fell off the train and
died, such passenger was ruled to be guilty of contributory negligence. Nonetheless, PNR was held liable for the payment of
damages for its failure to exercise extraordinary diligence, but no award of moral and exemplary damages was allowed.
(Idem, Pp. 48-49)

1983 BQ No. 9:  A and his classmates take a bus from U.P. to Quiapo. On the way, another Quiapo-bound bus
tries to overtake them. A and his classmates dare the bus driver to run fate and race with the other bus. The
driver takes their dare, to the delight of A and his friends who cheered him. On rounding a curve, the bus driver
fails to slow down and the bus turns turtle, resulting in the death of A and in injuries to the other passengers.

The bus carried the following sign: "Do not talk to driver while bus is in motion, otherwise the company will
not assume liability for any accident."

(NCC, Art. 1762-1763)

Explain briefly the extent of the liability, if any, of the bus company, giving the legal provisions and principles
involved.

Ans.: The bus company is liable for damages to A's heirs and to all th injured passengers. Under the Civil Code
(Arts. 1733 and 1755), a common carrier is duty bound to exercise extaordinary diligence in carrying its
passengers to their points of destination. It is liable for death or injury to passengers through the negligence or
willful acts of its employees even if the latter have acted beyond the scope of their authority or in violation of its
orders (Art. 1759).

This liability cannot be eliminated or limited by stipulation or by posting notices (Art. 1757). Although it may
be urged that A was guilty of contributory negligence, such an argument loses its force in the face of the driver's
recklessness in taking the dare. And even if such argument could be accepted, at most it can only mitigate the
amount of damages, since the proximate cause of the accident was the driver's wilful and reckless act in running
a race with the other bus. (Art. 1762).

Liability for acts of passengers

Art. 1763. A common carrier is responsible for injuries suffered by a passenger on account
of the wilful acts or negligence of other passengers or of strangers, if the common carrier's

61
employees through the exercise of the diligence of a good father of a family could have prevented
or stopped the act or omission.

The sudden act of the passenger who stabbed another passenger inside a bus is within the context of force majeure.
However, to be absolved from liability, the common carrier must prove that it was not negligent in causing the injuries
resulting from such accident, and observed extraordinary diligence in safeguarding the lives of the passengers. The factual
findings of the Court of Appeals that the driver did not stop the bus at the height of commotion, the victims fell from the bus
door when it was opened while the bus was still running, the conductor panicked and blew his whistle after passengers had
already fallen off the bus, and that the bus was not properly equipped with doors in accordance with law --- it is clear that the
common carrier failed to overcome fault and negligence found in the law on common carriers (Bachelor Express et al. vs.
CA, et al., 188 SCRA 216).

Nocum vs. Laguna Tayabas Bus Company

30 SCRA 70

Facts: A passenger was injured as a consequence of the explosion of firecrackers, contained in a box loaded in the passenger
bus and declared to its conductor as containing clothes and miscellaneous items by a co-passenger.

Held: Fairness demands that in measuring a common carrier's duty towards its passengers, allowances must be given to the
reliance that should be reposed o the sense of responsibility of all the passengers in regard to their common safety. It is to be
presumed that a passenger will not take with him anything dangerous to the lives and limbs of his co-passengers, not to
speakof his own. Not to be lighty considered must be the right to privacy to which each passenger is entitled. He cannot be
subjected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to indicate the
contrary, as in the case at bar. There is need for evidence of circumstances indicating the cause or causes for apprehension
that the passenger's baggage is dangerous and that it is the failure of the common carrier's employee to act in the face of such
evidence that constitutes the cornerstone of the common carrier's liability.

1992 BQ #4. 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 Marino was riding. The

(NCC, Art. 1763)

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.

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.

Ans.: (a) No. The railway company is not liable for damages. In overland transportation, the common carrier is
not bound nor empowered to make an examination on the contents of packages or bags, particularly those hand
carried by passengers.

(b) If it were an airline company, the common carrier should be made liable. In the case of air carriers, it is not
lawful to carry flammable materials in passenger aircrafts, and airline companies may open and investigate
suspicious packages and cargoes (Republic Act No. 6235).

N.B.: Although under R.A. No. 6235, an airline is authorized to frisk passengers to search for prohibited items and has the
right to deny passage to passengers who refuse to be searched, this case occurred during martial law when the military had
taken over airport security, including frisking of passengers and inspection of luggages. This rendered impossible for PAL to
perform its obligations in a normal manner and cannot be faulted with negligence in the performance of a duty which had
been taken over by the AFP. The hijacking of a PAL plane by the MNLF during martial law is attributable, not to PAL, but to

62
the military authorities who relaxed in the frisking of passengers and in inspecting their baggage. (Gacal vs. PAL, 183 SCRA
189).

Liability for Acts of Strangers

Pilapil vs. CA and ALATCO

G.R. No. 52159, Dec. 22, 1989

Facts:  Petitioner Jose Pilapil, a paying passenger, boarded respondent ALATCO's at San Nicolas, Iriga City bound for Naga
City. Upon reaching the vicinity of the cemetery of the Municipality of Baao, Camarines Sur, on the way to Naga City, an
unidentified man, a bystander along the national highway, hurled a stone at the left side of the bus, which hit petitioner above
his left eye. Private respondent's personnel lost no time in bringing the petitioner to the provincial hospital in Naga City
where he was confined and treated. Despite the treatments, the petitioner lost partially his left eye's vision and sustained a
permanent scar above the left eye.

Issue:  Whether stoning of the bus by a stranger resulting in injury to a passenger is a risk which a common carrier may be
exempted from liability despite the law requiring the highest degree of diligence from common carriers.

Held: While the law requires the highest degree of diligence from common carriers in the safe transport of their passengers
and creates a presumption of negligence against them, it does not, however, make the carrier an insurer of the absolute safety
of its passengers... Neither the law nor the nature of the business of a transportation company makes it an insurer of the
passenger's safety, but that its liability for personal injuries sustained by its passenger rests upon its negligence, its failure to
exercise the degree of diligence that the law requires.

(NCC, Art. 1763 - Air Transportation)

The presumption of fault or negligence against the carrier is only a disputable presumption. It gives in where contrary facts
are established proving either that the carrier had exercised the degree of diligence required by law or the injury suffered by
the passenger was due to a fortuitous event. Where, as in the instant case, the injury sustained by the petitioner was in no way
due to any effect in the means of transport or in the method of transporting or to the negligent or willful acts of private
respondent's employees, with the injury arising wholly from causes created by strangers over which the carrier had no control
or even knowledge or could not have prevented, the presumption is rebutted and the carrier is not and ought not to be held
liable. To rule otherwise would make the common carrier the insurer of the absolute safety of its passengers which is not the
intention of the lawmakers.

Clearly under the above provisions, a tort committed by a stranger which causes injury to a passenger does not accord the
latter a cause of action against the carrier. The negligence for which a common carrier is held responsible is the negligent
omission by the carrier's employees to prevent the tort from being committed when the same could have been foreseen and
prevented by them. Further, under the same provision, it is to be noted that when the violation of the contract is due to the
willful acts of strangers, as in the instant case, the degree of care essential to be exercised by the common carrier for the
protection of its passenger is only that of a good father of a family.

1994 BQ No. 10: Mariter, a paying bus passenger, was hit above her left eye by a stone hurled at the bus by an
unidentified bystander as the bus was speeding through the National Highway. The bus owner's personnel lost
no time in bringing Mariter to the provincial hospital where she was confined and treated.

Mariter wants to sue the bus company for damages and seeks your advice whether she can legally hold the bus
company liable.

What will you advise her?

Ans.:  Mariter can not legally hold the bus company liable. There is no showing that any such incident
previously happened so as to impose an obligation on the part of the personnel of the bus company to warn the
passengers and to take the necessary precaution. Such hurling of a stone constitutes fortuitous event in this case.
The bus company is not an insurer. (Pilapil v. Court of Appeals, 180 SCRA 346).

63
 1986 BQ No. 8 (c):  There have been incidents of unknown persons throwing stones at passing vehicles from
the overpasses in the North Expressway. While the bus was traversing the superhighway, a stone hurled from
the Sto. Domingo over pass smashed the front windshield and hit Pasahero in the face. Pasahero lost an eye and
suffered other injuries. Can Pasajero hold the bus company liable for damages? Explain.

Ans. --- Pasahero can hold the bus company liable because of its failure to exercise utmost diligence. Since
incidents of stone-throwing had earlier been known, it behooved upon the common carrier to warn its
passengers against sitting themselves close to the windshield or to provide other precautionary measures for its
passengers.

AIR TRANSPORTATION

Air Carrier Defined --- An Air Carrier is a person who undertakes, whether directly or indirectly, or by a lease or any other
arrangements, to engage in air transportation or air commerce (Sec. 3[f], R.A. No. 776, as amended).

(Air Transportation - Warsaw Convention and Montreal Convention)

Requirement for engaging in air commerce

No person shall engage in air commerce and/or air transportation, foreign and/or domestic unless there is in force a
Certificate of Public Convenience and Necessity issued by the Civil Aeronautics Board (Sec. 11, R.A. No. 776, as amended
by PD 1462).

General powers of the Civil Aeronautics Board

1. Regulate the economic aspect of air transportation;

2. Have general supervision and regulation of, and jurisdiction and control over:

a. Air carriers

b. General sales agents, cargo sales agents, and air-freight forwarders as well as their property, property rights,
equipment, facilities, and franchise, insofar as may be necessary for the purpose of carrying out the provisions of this
Act

(Sec. 10[A[, R.A. No. 776, as amended by PD 1462).

Authority of airlines over the baggages of passenger or shipper

Aircraft companies which operate as public utilities or operators of aircraft which are for hire are authorized to open
and investigate suspicious packages and cargoes in the presence of the owner or shipper, of his authorized representatives if
present; if the owner, shipper or his representative refuses to have the same opened and inspected, the airline or air carrier is
authorized to refuse tp accept the baggage. (R.A. No. 6235, Sec. 8)

The airline company is liable for the death of all the passengers of an airplane caused by an explosion of a bomb in a
luggage loaded on board the aircraft. The ruling in the case of Nocum vs. Laguna Tayabas Bus Co., 30 SCRA 69 (supra, P.
73) cannot apply in this case because while there is no law that authorizes bus operators to open the luggage of their
passengers, R.A. No. 6235 gives the airline companies operating as public utilities the authority to open and investigate

64
packages and cargoes being loaded on board the aircraft. Should the personnel of the airline company fail to discover the
explosive devise, it could only be due to their failure to exercise the utmost diligence of very cautious persons for which the
air carrier could be made liable (Asked, 1971 and 1992 Bar Exams.).

Note however, the cases of Quisumbing vs. PAL and Gacal vs. PAL, supra, Pp. ___ and ______ respectively)

General features of the Warsaw Convention

The full title of the "Warsaw Convention" is "Warsaw Convention for Unification of Certain Rules Relating to
International Carriage by Air." This was signed at Warsaw, Poland on 12 October 1929. It provides for rules applicable to
international transportation by air (Mapa vs. Court of Appeals, 84 SCAD 383, 275 SCRA 286, 287, citing Philippine Treaty
Series, Vol. II, 577-590). By its own terms, the Convention applies to all international transportation of persons performed by
aircraft for hire. (Santos III vs. Northwest Orient Airlines, 210 SCRA 256, 264).

The Warsaw Convention was concurred in by the Senate, through Resolution No. 19, on May 16, 1950. The
Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950. The Convention became
applicable to the Philippines of February 9, 1951. On 23 September 1955, President Ramon Magsaysay issued Proclamation
No. 201, declaring the Philippines' formal adherence

(Air Transportation - Warsaw Convention)

thereto, "to the end that the same and every article and clause thereof may be observed and fulfilled in good faith by the
Republic of the Philippines and the citizens thereof" (Santos III vs. Northwest Orient Airlines, 210 SCRA 256, 260).

The Warsaw Convention has the force and effect of a law in the Philippines, being a treaty commitment assumed by
the Philippine Government. (Cathay Pacific Airways Ltd. vs. Court of Appeals, 219 SCRA 520, 527; Santos III vs.
Northwest Orient Airlines, 210 SCRA 256, 261; Asked, 1993 Bar Exams.)

The Warsaw Convention was subsequently amended by the The Hague Protocol dated September 28, 1955, the
Guatemala City Protocol signed on March 8, 1971, and by the Convention for the Unification of Certain Rules for
International Carriage by Air signed on May 28, 1999 in Montreal, Canada, also known as the MONTREAL
CONVENTION.

Philippine Airlines, Inc. vs. Court of Appeals

70 SCAD 661, 257 SCRA 33 1996

Facts: Dr. Miranda and his wife took a Philippine Airlines (PAL) flight from the US back to the Philippines. Their itinerary
included the Manila-Cebu-Surigao City portion. Upon arrival in Manila, they missed their connecting flights because they
had to wait for their baggage which were off-loaded in Honolulu allegedly due to weight limitations. The couple were not
informed and their baggage would be off-loaded in Honolulu and it turned out that their baggage were off-loaded to give
preference to newly-loaded baggage in Honolulu.

The couple was on their Surigao bound flight from Cebu when the plane had to return due to mechanical problems. They
were booked for the afternoon flight but the same was also cancelled. PAL denied Miranda's request for accommodations at
the Cebu Plaza claiming that the hotel was fully booked. When Miranda called the hotel, he learned that they could be
accommodated. PAL eventually agreed for their overnight stay at the hotel but they were told that their baggage had been
loaded on an earlier flight to Surigao. They proceeded to the hotel without their baggage.

The Mirandas demanded damages from PAL. PAL claimed on the other hand, that under the Warsaw Convention, it can be
made liable only for US $20 per kilo of baggage delayed, unless the passengers declared higher valuation. Was PAL liable
for damages beyond what the Warsaw Convention provides?

Held: PAL was liable for damages beyond the limitation provided by the Warsaw Convention because it was guilty of bad
faith. The off-loading of the Miranda's baggage was done in bad faith because it was not really for the purpose of complying
with weight limitations but to give undue preference to newly-loaded baggage in Honolulu. This was followed by another

65
mishandling of said baggage in the twice-cancelled connecting flight from Cebu to Surigao. The Mirandas' sad experience
was further aggravated by the misconduct of PAL's personnel in Cebu, who lied to the Mirandas in denying their request to
be billeted at Cebu Plaza Hotel.

The Warsaw Convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for
breach of contract of carriage or as an absolute limit of the extent of that liability --- it must not be construed to preclude the
operation of the Civil Code and pertinent laws. A contract of carriage generates a relation attended with public policy and any
discourteous conduct on the part of the carrier's employees toward a passenger gives the latter an action for damages and,
more so, where there is bad faith. Inattention to and lack of care for the interest of its passengers who are entitled to its utmost
consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to an award for moral
damages. What the law considers as bad faith, which may furnish the ground for an award of moral damages would be bad
faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of
deceit.

(Air Transportation - Warsaw Convention and Montreal Convention)

Coverage of the Warsaw and Montreal Conventions

"International transportation by air" under the Warsaw Convention covers two categories :

1. That where the place of departure and the place of destination are situated within the territories of two High Contracting
Parties, regardless of whether or not there be a break in the transportation or a transshipment; and

2. That where the place of departure and the place of destination are within the territory of a single High Contracting Party, if
there is an agreed stopping place within a territory subject to the sovereignty, mandate, or authority of another power, even
though the power is not a party to the Convention (Mapa vs. Court of Appeals, 84 SCAD 383, 275 SCRA 286 [1997],
infra).

The Montreal Convention adopts the same coverage under the term "international carriage of persons, baggage or cargo
performed by aircraft" whether "for reward" (compensation) or "gratuitous" (Art. 1, Par. 1). It further covers:

3. Air carriage "performed by the State or by legally constituted public bodies", carriage of postal items, although in this last
case, the liability of the carrier is only to the "relevant postal administration" (Art. 2); and

4. In case of combined carriage performed partly by air and partly by any other mode of carriage, only to the carriage by air,
provided the carriage falls within the first two categories above (Art. 38, Par. 1)

The signatories to the Warsaw Convention and those which subsequently adhered to it are called "High
Contracting Parties"; a signatory to the Montreal Convention is called "State Party".

Mapa vs. Court Appeals

84 SCAD 383, 275 SCRA 286 (1997)

Facts: Plaintiffs purchased from TWA two airline tickets in Bangkok, Thailand for Los Angeles-New York-Boston-St.
Louis-Chicago, all in the U.S.A. The domicile of carrier TWA was Kansas City, Missouri, U.S.A., where its principal place
of business was likewise located. The place of business of TWA where the contracts were made was in Bangkok, Thailand.
The destination was Chicago, U.S.A. The plaintiffs left Manila on board Philippine Airlines for Los Angeles. From Los
Angeles, they left for New York, on board TWA. From New York, the plaintiffs departed for Boston on TWA's carrier. They
checked in seven (7) pieces of luggage at the TWA counter in the JFK Airport, New York. They failed to board the plane
because they went to the wrong gate. They were however, allowed to take a later TWA plane to Boston which was delayed
because of the thunderstorm. Upon arrival in Boston, plaintiffs found only three out of the seven pieces of luggage they
checked in.

66
Plaintiffs immediately reported the loss of the four pieces of baggage. The total value of the lost items amounted to
$11,283.79. Plaintiffs demanded payment of the lost items plus damages. TWA unilaterally declared the payment of $2,560
as constituting full satisfaction of the plaintiff's claim. Plaintiffs accepted the check for $2,560 as partial payment for the
actual cost of their lost baggage and their contents.

Plaintiffs then filed a case against TWA in the Philippines. TWA claimed lack of jurisdiction on the ground that pursuant to
Section 28(1) of the Warsaw Convention, the action could only be brought either in Bangkok where the contract was entered
into, or in Boston which was the place of destination, or in Kansas City which was the carrier's domicile and principal place
of business. Plaintiffs on the other hand, claimed that the Warsaw Convention was not applicable because the plaintiffs'
contract of transportation did not constitute "international transportation." The court dismissed the complaint for lack of
jurisdiction. Was the order dismissal correct?

(Air Transportation - Warsaw Convention and Montreal Convention)

Held: The order of dismissal was not correct. The Warsaw Convention was not applicable because the contracts did not
involve an international transportation. Whether the contract were of international transportation was to be determined from
the TWA tickets issued to the plaintiffs in Bangkok, Thailand, which showed that their itinerary was Los Angeles-New York-
Boston-St. Louis-Chicago.

There are two categories of international transportation, viz., (1) that where the place of departure and the place of destination
are situated within the territories of two High Contracting Parties regardless of whether or not there be a break in the
transportation or a trasshipment; and (2) that where the place of departure and the place of destination are within the territory
of a single High Contracting Party if there is an agreed stopping place within a territory subject to the sovereignty, mandate,
or authority of another power, even though the power is not a party to the Convention.

It is obvious that the place of departure (Los Angeles) and the place of destination (Chicago) are both within the territory of
the United States, or of a single High Contracting Party. Therefore, the contracts cannot come within the purview of the first
category of international transportation. Neither can it be under the second category since there was NO agreed stopping
place within a territory subject to the sovereignty, mandate, or authority of another power. Therefore, the contracts did not
constitute "international transportation" as defined in the Warsaw Convention.

Venue of actions for damages arising from violation of a contract of international air transportation

Under the Warsaw Convention (Art. 28[1]) and the Montreal Convention (Art. 33[1]), an action for damages must
be brought at the option of the plaintiff in the territory of one of the High Contracting Parties or States Parties:

a. Before the court of the domicile of the carrier;

b. The court of its principal place of business;

c. The court where it has a place of business through which thecontract had been made;

d. The court of the place of destination

(Santos III vs. Northwest Orient Airlines, 210 SCRA 256).

e. In case of damage due to death or injury of a passenger, an action may be brought before one of the above-stated or in the
territory of a State Party in which at the time of the accident the passenger has his or her principal and permanent
residence and to or from which the carrier operates services for the carriage of passengers by air, either on its own aircraft
or on another carrier's aircraft... and in which that carrier conducts its business of carriage of passengers by air from
premises leased or owned by the carrier itself or by another carrier with which it has a "commercial agreement". (The
Montreal Convention, Art. 33, Par. 2)

67
 "Principal and permanent residence" means the one fixed and permanent abode of the passenger at the time of the
accident. The nationality of the passenger shall not be the determining factor in this regard. (Idem, Art. 33, Par. 3)

"Commercial Agreement" means an agreement, other than an agency agreement, made between carriers and relating to
the provision of their joint services for their joint services for carriage of passengers by air;

(Air Transportation - Warsaw Convention and Montreal Convention)

f. Any action for damages against an "actual carrier" or a "contracting carrier" or both, must be brought, at the option of the
plaintiff, in the territory of one of the State Parties, either before a court in which an action may be brought against the
contracting carrier... or before the court having jurisdiction at the place where the actual carrier has its domicile or its
principal place of business. (Idem, Art. 46)

Santos III vs. Northwest Orient Airlines

210 SCRA 256)

Facts: Northwest Orient airlines (Northwest) is a foreign corporation with principal office in Minnesota, U.S.A., and licensed
to do business in the Philippines. Plaintiff is a minor and a resident of the Philippines. Plaintiff purchased from Northwest a
round-trip ticket in San Francisco, U.S.A., for his flight from San Francisco to Manila via Tokyo and back. No date was
specified for his return to San Francisco. On December 19, 1986, plaintiff checked in at the Northwest counter in San
Francisco for his scheduled departure to Manila. Despite a previous confirmation and re-confirmation, he was informed that
he had no reservation for his flight from Tokyo to Manila. he therefore had to be wait-listed. Plaintiff sued Northwest in
Makati but the latter filed a motion to dismiss for lack of jurisdiction. Northwest contended that the Philippines was not its
domicile nor was this its principal place of business. Neither was the plaintiff's ticket issued in this country nor was his
ultimate destination Manila but San Francisco in the United States. The court dismissed the case. Was the dismissal correct?

Held: The dismissal of the case was correct. Under Art. 28(1) of the Warsaw Convention, the complaint for damages for
violation of an international air carriage should be filed only in the territory of one of the High Contracting Parties, before:
(1) the court of the domicile of the carrier; (2) the court of its principal place of business; (3) the court where it has a place of
business through which the contract had been made; and (4) the court of the place of destination. The domicile of Northwest
was U.S.A., not the Philippines, and its principal place of business was in Minnesota, U.S.A. The contract was made in San
Francisco, U.S.A. where the ticket was issued. The ticket was from San Francisco, U.S.A to Manila via Tokyo and back to
San Francisco, and therefore the final destination was San Francisco. Manila should be considered merely as an agreed
stopping place and not the destination. A citizen does not necessarily have the right to sue in his own courts simply because
defendant airline has a place of business in his country. His right is limited by the provisions of the Warsaw Convention.

When the Warsaw Convention is not applicable

In Sabena Belgian World Airlines vs. Court of Appeals (69 SCAD 494, 255 SCRA 38 [1996]), it was held that the
Warsaw Convention denies to the carrier availment of the provisions which exclude or limits its liability in the following
instances:

a. if the damage is caused by its willful misconduct or by such default on his part, which is considered to be equivalent to
willful misconduct;

b. if the damage is similarly caused by any agent of the carrier acting within the scope of his employment

These exceptions are enunciated in the Montreal Convention which provides that the limit of liability therein "shall
not apply 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; provided that, in the case of such act
or omission of a servant or agent, it is also proved that such servant or agent was acting within the scope of its employment."

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(Art. 22, Par. 5) "The limits prescribed in Article 21 and in this Article shall not prevent the court from awarding, in
accordance with its own law, in addition, the whole or part of the court costs and of the other expenses of the litigation
incurred by the plaintiff, including interest..."

(Air Transportation - Warsaw Convention and Montreal Convention)

Philippine Airlines v. Court of Appeals

207 SCRA 100, March 6, 1992

Facts: Plaintiff Isidro Co, accompanied by his wife and son, arrived at the Manila International Airport aboard PAL flight
No. 107 from California, U.S.A. Plaintiff, upon proceeding to the baggage retrieval area, was able to claim his eight (8)
luggages, but despite diligent search, he failed to locate his ninth luggage. The plaintiff's lost luggage was a Samsonite
suitcase worth about US$20.00 and containing various personal effects said to be worth U.S.$ 1,243.01, in addition to the
presents entrusted to them by friends amounting from US$500.00 to US$600.00. It appeared, however, that plaintiff
surrendered all the nine claim checks corresponding to the nine baggages, including the one that was missing, to the PAL
officer. Co sued the airline for damages. Trial court found PAL liable. Such decision was affirmed by the Court of Appeals.

Held: In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC, 164 SCRA 268), the Warsaw
Convention limiting the carrier's liability was applied because of a simple loss of baggage without any improper conduct on
the part of the officials or employees of the airline, or other special injury situated by the passengers. The petitioner therein
did not declare a higher value for his luggage, much less did he pay an additional transportation charge.

Petitioner contends that under the Warsaw convention, its liability, if any, cannot exceed US$20.00 based on weight as
private respondent Co did not declare the contents of his baggage nor pay additional charges before the flight.

We find no merit in that contention. In Samar Mining Company, Inc. v. Nordeutscher Lloyd (132 SCRA 529), this court
ruled:

"The liability of the common carrier for the loss, destruction, or deterioration of goods transported from a foreign country to
the Philippines is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by Special Laws."

The provisions of the New Civil Code on Common carriers are articles 1733, 1735, and 1753. Since the passenger's
destination in this case was the Philippines, Philippine law governs the liability of the carrier for the loss of the passenger's
luggage.

In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the private respondent's
evidence, proving that the carrier's negligence was the proximate cause of the loss of his baggage. Furthermore, petitioner
acted in bad faith in faking a retrieval receipt to bail itself out of having to pay Co's claim.

The Court of Appeals therefore did not err in disregarding the limits of liability under the Warsaw Convention.

Northwest Airlines, Inc. vs. Court of Appeals

90 SCAD 373, 284 SCRA 408 [1998]; 1993 Bar Exams.)

Facts: Torres took a Northwest Airlines flight from Chicago to Manila. Before boarding, he presented for inspection two
identical baggages, one of which contained firearms he purchased for the Philippine Senate. Upon arrival in Manila, Torres
was not able to claim the baggage containing the firearms at it was recalled by Northwest for US Customs verification. The
Northwest personnel in Tokyo or Narita Airport where the plane had a stop-over just guessed which baggage contained the
firearms and just sent the same back to Chicago. The baggage arrived after several days without the firearms. Northwest
argued that the Warsaw Convention and the contract of carriage limited its liability to $9.07 per pound, or a total of $640 as
the box contained 70 pounds. Can Northwest's liability be limited to that prescribed in the Warsaw Convention?

69
 (Air Transportation - Warsaw Convention and Montreal Convention)

Held:  Northwest's liability may not be limited to that prescribed by the Warsaw Convention. The Warsaw Convention does
not operate as an exclusive enumeration of the instances of an airlines liability. Such a proportion is not borne out by the
language of the Convention. It should be deemed a limit of liability only in those cases where the cause of the death or injury
to person, or destruction, loss or damage to property or delay in its transport, is not attributable to or attended by any willful
misconduct on the part of any official or employee for which the carrier is responsible, and there is no other special or
extraordinary form of resulting injury.

The Convention's provisions, in short, do not "regulate or exclude liability for other breaches of contract by the carrier" or
misconduct of its officers and employees, or for some particular or exceptional type of damage.

Other Relevant Provisions of the Montreal Convention

Article 12 - Right of disposition of cargo

1. Subject to its liability to carry out all its obligations under the contract of carriage, the consignor has the right to dispose
of the cargo by withdrawing it at the airport of departure or destination, or by stopping it in the course of the journey on
any landing, or by calling for it to be delivered at the place of destination or in the course of the journey to a person other
than the consignee originally designated, or by requiring it to be returned to the airport of departure. The consignor must
not exercise this right of dispostion in such a way as to prejudice the carrier or other consignors and must reimburse any
expenses occasioned by the exercise of this right.

2. If it is impossible to carry out the instructions of the consignor, the carrier must so inform the consignor forthwith.

3. If the carrier carries out the instructions of the consignor for the disposition of the cargo without requiring the production
of the part of the air waybill or the cargo receipt delivered to the latter, the carrier will be liable, without prejudice to its
right of recovery from the consignor, for any damage which may be caused thereby to any person who is lawfully in
possession of that part of the air waybill or the cargo receipt.

4. The right conferred on the consignor ceases at the moment when that of the consignee begins in accordance with Article
13. Nevertheless, if the consignee declines to accept the cargo, or cannot be communicated with, the consignor resumes
its right of disposition.

Article 13 - Delivery of the cargo

1. Except when the consignor has exercised its right under Article 12, the consignee is entitled, on arrival of the cargo at the
place of destination, to require the carrier to deliver the cargo to it, on payment of the charges due and on complying with
the conditions of carriage.

2. Unless it is otherwise agreed, it is the duty of the carrier to give notice to the consignee as soon as the cargo arrives.

3. If the carrier admits the loss of the cargo, or if the cargo has not arrived at the expiration of  seven days after the date on
which it ought to have arrived, the consignee is entitled to enforce against the carrier the rights which flow from the
contract of carriage.

Article 17 - Death and injury of passengers - damage to baggage

1. The carrier is liable for damage sustained in case of death or bodily injury of a passenger upon condition only that the
accident which caused the death or injury took place on board the aircraft or in course of any of the operations of
embarking or disembarking.

(Air Transportation - Montreal Convention)

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2. The carrier is liable for damage sustained in case of destruction or loss of, or damage to, checked baggage upon
condition only that the event which caused the destruction, loss or damage took place on board the aircraft or during any
period within which the checked baggage was in the charge of the carrier. However, the carrier is not liable if and to the
extent that the damage resulted from the inherent defect, quality or vice of the baggage. In the case of unchecked
baggage, including personal items, the carrier is liable if the damage resulted from its fault or that of its servants or
agents.

3. If the carrier admits the loss of the checked baggage, or if the checked baggage has not arrived at the expiration
of twenty-one days after the date on which it ought to have arrived, the passenger is entitled to enforce against the carrier
the rights which flow from the contract of carriage.

4. Unless otherwise specified, in this Convention the term "baggage" means both checked baggage and unchecked baggage.

Article 18 - Damage to cargo

1. The carrier is liable for damage sustained in the event of the destruction or loss of or damage to, cargo upon condition
only that the event which caused the damage so sustained took place during the carriage by air.

2. However, the carrier is not liable if and to the extent it proves that the destruction, or loss of, or damage to, the cargo
resulted from one or more of the following:

(a) inherent defect, quality or vice of that cargo;

(b) defective packing of that cargo performed by a person other than the carrier or its servants or agents;

(c) an act war or an armed conflict;

(d) an act of public authority carried out in connection with the entry, exit or transit of the cargo.

3. The carriage by air within the meaning of paragraph 1 of this Article comprises the period during which the cargo is in
the charge of the carrier.

4.  The period of the carriage by air does not extend to any carriage by land, by sea or by inland waterway performed
outside an airport. If, however, such carriage takes place in the performance of a contract for carriage by air, for the
purpose of loading, delivery or transhipment, any damage is presumed, subject to proof to the contrary, to have been the
result of an event which took place during the carriage by air. If a carrier, without the consent of the consignor,
substitutes carriage by another mode of transport for the whole or part of a carriage intended by the agreement between
the parties to be carriage by air, such carriage by another mode of transport is deemed to be within the period of carriage
by air.

Article 19 - Delay

The carrier is liable for damage occasioned by delay in the carriage by air of passengers, baggage or cargo. Nevertheless, the
carrier shall not be liable for damage occasioned by delay if it proves that it and its servants and agents took all measures that
could reasonably be required to avoid the damage or that it was impossible for it or them to take such measures.

(Air Transportation - Montreal Convention)

Article 20 - Exoneration

71
If the carrier proves that the damage was caused or contributed to by the negligence or other wrongful act or omission of the
person claiming compensation, or the person from whom he or she derives his or her rights, the carrier shall be wholly or
partly exonerated from its liability to the claimant to the extent that such negligence or wrongful act or omission caused or
contributed to the damage. When by reason of death or injury of a passenger compensation is claimed by a person other than
the passenger, the carrier shall likewise be wholly or partly exonerated from its liability to the extent that it proves that the
damage was caused or contributed to by the negligence ot other wrongful act or omission of that passenger. This Article
applies to all the liabilty provisions in this Convention, including paragraph 1 of Article 21.

Article 21 - Compensation in case of death or injury of passengers

1. For damages arising under paragraph 1 of Article 17 not exceeding 100,000 Special Drawing Rights for each passenger,
the carrier shall not be able to exclude or limit its liability.

2. The carrier shall not be liable for damages arising under paragraph 1 of Article 17 to the extent that they exceed for each
passenger 100,000 Special Drawing Rights if the carrier proves that:

(a) such damage was not due to the negligence or other wrongful act or omission of the carrier or its servants or agents;
or

(b) such damage was solely due to the negligence or other wrongful act or omission of a third party.

Article 22 - Limits of liability in relation to delay, baggage and cargo

1. In the case of damage caused by delay as specified in Article 19 in the carriage of persons, the liability of the carrier for
each passenger is limited to 4,150 Special Drawing Rights.

2. In the carriage of baggage, the liability of the carrier in the case of destruction, loss, damage or delay is limited to 1,000
Special Drawing Rights for each passenger unless the passenger has made, at the time when the checked baggage was
handed over to the carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if
the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless it proves
that the sum is greater that the passenger's actual interest in delivery at destination.

3. In the carriage of cargo, the liability of the carrier in the case of destruction loss, damage or delay is limited to a sum
of 17 Special Drawing Rights per kilogram, unless the 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 supplementary sum if the case
so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless it proves that the
sum is greater than the consignor's actual interest in delivery at destination.

4. In the case of destruction, loss, damage or delay of part of the cargo, or of any object contained therein, the weight to be
taken into consideration in determining the amount to which the carrier's liability is limited shall be only the total weight
of the package or packages concerned. Nevertheless, when the destruction, loss, damage, or delay of a part of the cargo,
or of an object contained therein, affects the value of other packages covered by the same air waybill, or the same receipt
or, if they were not issued, by the same record preserved by the other means referred to in paragraph 2 of Article 4, the
total weight of such package or packages shall also be taken into consideration in determining the limit of liability.

5. The foregoing provisions of paragraphs 1 and 2 of this Article shall not apply 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

(Air Transportation - Montreal Convention)

damage or recklessly and with knowledge that damage would probably result; provided that, in the case of such act or
omission of a servant or agents, it is also proved that such servant or agent was acting within the scope of its
employment.

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6. The limits prescribed in Article 21 and in this Article shall not prevent the court from awarding, in accordance with its
own law, in addition, the whole or part of the court costs and of the other expenses of the litigation incurred by the
plaintiff, including interest. The foregoing provision shall not apply if the amount of the damages awarded, excluding
court costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the
plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement
of the action. if that is later.

Article 23 - Conversion of monetary units

1. The sums mentioned in terms of Special Drawing Rights in this Convention shall be deemed to refer to the Special
Drawing Right as defined by the International Monetary Fund. Conversion of the sums into national currencies shall, in
case of judicial proceedings, be made according to the value of such currencies in terms of the Special Drawing Right at
the date of the judgment...

Article 25 - Stipulate on limits

A carrier may stipulate that the contract of carriage shall be subject to higher limits of liability than those provided for in this
Convention or to no limits of liability whatsoever.

Article 26 - Invalidity of contractual provisions

Any provision tending to relieve the carrier of liability or to fix a lower limit than that which is laid down in this Convention
shall be null and void, but the nullity of any such provision does not involve the nullity of the whole contract, which shall
remain subject to the provisions of this Convention.

Article 28 - Advance payments

In the case of aircraft accidents resulting in death or injury of passengers, the carrier shall, if required by its national law,
make advance payments without delay to a natural person or persons who are entitled to claim compensation in order to meet
the immediate economic needs of such persons. Such advance payments shall not constitute a recognition of liability and may
be offset against any amounts subsequently paid as damages by the carrier.

Article 31 - Timely notice of complaints

1. Receipt by the person entitled to delivery of checked baggage or cargo without complaint is prima facie evidence that the
same has been delivered in good condition and in accordance with the document of carriage or with the record preserved
by the other means referred to in paragraph 2 of Article 3 and paragraph 2 of Article 4.

2 In the case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the
damage, and, at the latest, within seven days from the date of receipt in the case of checked baggage and fourteen days
from the date of receipt in the case of cargo. In the case of delay, the complaint must be made at the latest within twenty-
one days from the date on which the baggage or cargo have been placed at his or her disposal.

3. Every complaint must be made in writing and given or dispatched within the times aforesaid.

4. If no complaint is made within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on its
part.

(Air Transportation - Montreal Convention)

Article 35 - Limitation of actions

1. The right to damages shall be extinguished if an action is not brought within a period of two years, reckoned from the
date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which
the carriage stopped.

73
2. The method of calculating that period shall be determined by the law of the court seized of the case.

Article 36 - Successive carriage

1. In the case of carriage to be performed by various successive carriers and falling within the definition set out in
paragraph 3 of Article 1, each carrier which accepts passengers, baggage or cargo is subject to the rules set out in this
Convention and is deemed to be one of the carriage which is performed under its supervision.

2. In the case of carriage of this nature, the passenger or any person entitled to compensation in respect of him or her can
take action only against the carrier which performed the carriage during which the accident or the delay occurred, save in
the case where, by express agreement, the first carrier has assumed liability for the whole journey.

3. As regards baggage or cargo, the passenger or consignor will have a right of action against the first carrier, and the
passenger or consignee who is entitled to delivery will have a right of action against the last carrier, and further, each
may take action against the carrier which performed the carriage during which the destruction, loss, damage or delay
took place. These carriers will be jointly and severally liable to the passenger or to the consignor or consignee.

Article 38 - Combined Carriage

1. In the case of combined carriage performed partly by air and partly by any other mode of carriage, the provisions of this
Convention shall, subject to paragraph 4 of Article 18, apply only to the carriage by air, provided that the carriage by air
falls within the terms of Article 1.

2. Nothing in this Convention shall prevent the parties in the case of combined carriage from inserting in the document of
air carriage conditions relating to other modes of carriage, provided that the provisions of this Convention are observed
as regards the carriage by air.

Article 39 - Contracting carrier - actual carrier

The provisions of this Chapter apply when a person (hereinafter referred to as "the contracting carrier") as a principal makes
a contract of carriage governed by this Convention with a passenger or consignor or with a person acting on behalf of the
passenger or consignor, and another person (hereinafter referred to as "the actual carrier") performs, by virtue of authority
from the contracting carrier, the whole or part of the carriage, but is not with respect to such part a successive carrier within
the meaning of this Convention. Such authority shall be presumed in the absence of proof to the contrary.

Article 40 - Respective liability of contracting and actual carriers

If an actual carrier performs the whole or part of carriage which, according to the contract referred to in Article 39, is
governed by this Convention, both the contracting carrier and the actual carrier shall, except as otherwise provided in this
Chapter, be subject to the rules of this Convention, the former for the whole of the carriage contmeplated in the contract, the
latter solely for the carriage which it performs.

(Air Transportation - Montreal Convention; New Civil Code, Art. 1764)

Article 41 - Mutual liability

1. The acts and omission of the actual carrier and of its servants and agents acting within the scope of their employment
shall, in relation to the carriage performed by the actual carrier, be deemed to be also those of the contracting carrier.

2. The acts and omissions of the contracting carrier and of its servants and agents acting within the scope of their
employment shall, in relation to the carriage performed by the actual carrier, be deemed to be also those of the actual
carrier. Nevertheless, no such act or omission shall subject the actual carrier to liability exceeding the amounts referred
to in Articles 21, 22, 23, and 24. Any special agreement under which the contracting carrier assumes obligations not

74
 imposed by this Convention or any waiver of rights or defences conferred by this Convention or any special declaration
of interest in delivery at destination contemplated in Article 22 shall not affect the actual carrier unless agreed to by it.

Article 42 - Addressee of complaints and instructions

Any complaint to be made or instruction to be under this Convention to the carrier shall have the same effect whether
addressed to the contracting carrier or to the actual carrier. Nevertheless, instructions referred to in Article 12 shall only be
effective if addressed to the contracting carrier.

Article 52 - Definition of days

The expression "days" when used in this Convention means calendar days not working days.

Damages Recoverable in Transportation Contracts

Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title
XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger
cause by the breach of contract by a common carrier.

Under Article 1764 of the New Civil Code, damages that may be recovered are:

1. Actual or compensatory;

2. Moral;

3. Nominal;

4. Temperate;

5. Liquidated:

6. Exemplary or corrective.

Actual or Compensatory Damages

Definition: Actual damages are those that are the natural and probable consequence of the breach and which the parties had
foreseen or could have reasonably foreseen at the time the obligation was constituted. (Cariaga v. LTB Co. & MRR, 110
Phil. 346)

(New Civil Code, Art. 1764)

Actual/Compensatory damages include:

1. In cases where the breach caused the death of a passenger:

The heirs of the deceased passenger are entitled to recover from the carrier:

(a) Future support consisting of the total earnings for the life expectancy of the deceased less expenses necessary for the
creation of such earnings less living and other incidental expenses the deceased passenger would have spent if he
had lived a full life;

75
 (b) Indemnity (presently fixed at P100,000.00) for his death;

(c) Hospital and medical expenses, if any;

(d) Burial or funeral expenses;

(e) Attorney's fees;

(Villa Rey Transit vs. Court of Appeals, 31 SCRA 511).

(f) Amount of cash which was lost (AFA, P. 102 citing Peñalosa vs. Eastern Tayabas Bus Co., (CA) 53 OG No. 22, p.
8137)

(g) Court expenses;

(h) Value of merchandise carried by the deceased and lost;

(Idem, citing Heirs of Amparo delos Santos vs. CA, 186 SCRA 649)

(i) Lost baggage containing medicines, boxes and personal belongings. (Idem, P. 103 citing Carampatana vs. Juliano
Bros.. CA Report, 2nd Series, P. 379)

2. Where the breach did not result in death of a passenger

(a) Loss of income (Cariaga vs. LTB Co., 110 Phil. 346)

(b) Hospitalization and medical expenses, including reasonable expenses for plastic surgery to remove scar on the face
resulting from injury in a vehicular collision (Araneta vs. Areglado, 104 Phil. 529; Gatchalian vs. Delim, 203 SCRA
126)

(c) Attorney's fees and court expenses;

(d) Amount of cash which was lost due to the accident;

(e) Value of merchandise carried by the deceased and lost;

(f) Lost baggage and contents; (Sarkies Tours Philippines,Inc. vs. CA and Fortales, G.R. No. 108897, October 2, 1997,
87 SCAD 573)

(g) Actual expenses in efforts to recover lost items or to reconstitute documents lost. (Idem)

(h) Transportation expenses to attend hearings; (Ibidem)

(NCC, Art. 1764)

1988 BQ No. 16 (b). What are the remedies if a passenger is injured or dies due to the negligence of a common
carrier?

Ans.  In case of injuries of a passenger due to the negligence of the common carrier, the passenger may go after
the common carrier for actual damages for medical and hospital expenses if any, and for loss of income or
earning power based on life expectancy; no moral damages may be claimed unless there was malice on the part
of the carrier. (NCC, Art. 1764, Imperial vs. PAL, GR No. L-4923, June 22, 1954).

76
 In case of death, the carrier shall be liable for actual damages which includes lost income computed based on
life expectancy, future support, medical and hospital expenses if any, funeral expenses, loss of merchandise or
baggage and moral damages. (Villa Rey Transit vs. CA, infra)

VILLA REY TRANSIT, INC. v. COURT OF APPEALS

31 SCRA 511, February 18, 1970

Facts:  Policronio Quintos, Jr. boarded a Villa Rey Transit bus at Lingayen, Pangasinan for Manila and was seated on the
first right seat. As the bus approached a bridge in Minalin, Pampanga, it frontally hit the rear end of a bull cart and the end of
a bamboo pole tied to the cart penetrated through the windshield landing on Quinto's face resulting to his death. The sister of
the deceased brought an action to recover damages.

Held: The determination of the amount depends mainly upon two factors, namely: 1) the number of years on the basis of
which the damages shall be computed, and 2) the rate at which the losses sustained by said heirs should be fixed. The first
factor shall be based upon the life expectancy of Quintos, Jr., which is 33 and one-third years -- he being over 29 years of age
or around 30 years for purposes of computation at the time of his demise -- by applying the formula adopted in the American
Expectancy Table of Mortality (two-third x 80-30 = life expectancy). Thus, life expectancy is, not only relevant, but also, an
important element in fixing the amount recoverable, although it is sole element determinative of said amount.

All things considered, it is fair and reasonable to fix the deductible living and other expenses of the deceased, who was
earning P2,184 a year as an employee, at the sum of P1,184 a year or about P100 a month, and that, consequently, the loss
sustained by his sisters may be roughly estimated at P1,000 a year, or P33,333.33 for the 33 and one-third years of life
expectancy. To this sum must be added 1) P12,000 pursuant to Arts. 104 and 107 of the Revised Penal Code, in relation to
Art. 2206, NCC; 2) amount of actually spent by said sisters for medical and burial expenses; and 3) attorney's fee.

The liability of the carrier being contractual, the passenger or his heirs can recover not only actual damages but also
consequential or compensatory damages. The life expectancy of a deceased passenger of a common carrier is 2/3 of 80 less
his age at the time of his death (Davila vs. PAL, 49 SCRA 479).

The amounts recoverable by the heirs of a deceased passenger from a liable common carrier are: Loss of earning
capacitycomputed at 2/3 multiplied by 80 less age at the time of death multiplied by the net earnings; straight death
indemnity of P30,000 (now P50.000) under Art. 2206 of the Civil Code; moral damages for mental anguish of the heirs and
attorney's fees. (Bachelor Express et al vs. CA, et al, 188 SCRA 216).

Computation of future support based on the Villa Rey, Davila and Bachelor Express cases:

Assuming that the passenger was 35 years old and had a monthly income of P20,000.00 at the time of death. He was
living with his parents who were dependent on him for support. His life expectancy (LE) is determined by applying the
formula: 2/3 (80 less Age at the Time of Death).

(NCC, Art. 1764)

Thus: LE = 2/3 (80-35)

LE = 2/3 (45)

LE = 2/3 of 45 = 30

LE = 30 years

Monthly Income less fifty percent necessary living expenses equals net Income:

Monthly income P20,000.00

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Less Necessary Living Expenses (50%) _10,000.00

Monthly support for parents P10,000.00

Therefore:

30 years LE x 12 (mos. in a year) = 360 months

P10,000.00 monthly support x 360 months = P3,600,000.00

==========

N.B.: In P.P. vs. QUILATON, 114 SCRA 16 (1993), the Supreme Court computed the life expectancy of the deceased at 2/3
multiplied by 100 less age of the deceased or 2/3 (100 less ATD), on the ground that, because of recent advances in medicine,
improved nutrition and food supply, the life expectancy has increased.

Under Arts. 1764 and 2206 (1) of the Civil Code, the award of damages for death is computed on the basis of the life
expectancy of the deceased passenger, not of his beneficiary. (PAL vs. CA, 185 SCRA 110).

Cariaga v. LTB Co. & MRR

110 Phil. 346, December 29, 1960

Facts:  Edgardo Cariaga, a fourth year medical student of the University of Santo Tomas, was a passenger of an LTBC bus
which bumped against a train of MRR on the national highway crossing a railroad tract. Cariaga suffered severe injuries on
the head making him unconcious during the first 35 days after the accident, reducing his intelligence by 50%, and rendering
him in a helpless condition, virtually invalid, both physically and mentally. LTBC paid all medical expenses plus allowance
during convalescence.

Cariaga's parents brought an action to recover damages from LTBC & MRR in the amount of P312,000 as actual,
compensatory, moral and exemplary damages. LTBC disclaimed liability and filed a cross-complaint against MRR for
recovery of expenses paid by it to the plaintiff, placing MRR negligent for not providing a crossing bar at the national
highway track. The Laguna CFI dismissed the cross-complaint against MRR and held LTBC liable for P10,490 as
compensatory damages with interest. Plaintiff and LTBC appealed.

Held:  The locomotive driver was not negligent. It's LTBC's driver only who was negligent. Considering the nature and after
effects of the physical injuries suffered by Cariaga, P10,490 compensatory damages is inadequate.

(NCC, Art. 1764)

Under Art. 2201, NCC, the common carrier shall be liable for actual damages; those that are the natural and probable
consequnce of the breach and which the parties had foreseen or could have reasonably foreseen at the time the obligation was
constituted, provided such damages have been duly proved. Thus, upon this premise not only the actual damages suffered by
an injured passenger, who is a medical student, consisting of medical and other expenses are within the category, but also the
income which he could earn if he should finish the medical course must be deemed to be within the same category, because
they could have been foreseen by the parties. Since at the time he boarded the bus, he was already a fourth year student in
medicine in a reputable university, it is sufficient to justify the assumption that he could have finished the course and would
have passsed the board test in due time.

As regards the income he could possibly earn as medical practitioner, the amount of P300 could easily be expected as the
minimum monthly income had he finished his studies. Upon consideration of all facts, compensatory damages should be
increased to P25,000. The claim for moral damages could not be granted because Art. 2219, NCC enumerates the instances
when moral damages may be recovered and the present case does not fall under any of them. Present action could not come
under Art. 2219(2), NCC because it is not one of quasi-delict and could not be considered as such because of a pre-existing
contractual relation betwee LTBC and cariaga. Neither could LTBC be liable for moral damages under Art. 2220, NCC on
account of breach of contract of carriage because LTBC did not act fraudulently or in bad faith.

78
Attorney's fees could not be granted also because this case does not fall under any of the instances enumerated in Art. 2208,
NCC. The claim by the parents for actual and compensatory damages is also without merit. As far as LTBC is concerned,
since the present action is based upon a breach of contract of carriage and the parents of Cariaga were not a party thereto and
were not themselves injured as a result of the collision, their claim must fail.

Gatchalian vs. Delim

203 SCRA 126, October 21, 1991

Facts:  Reynalda Gatchalian boarded respondent's minibus at Aringay, La Union bound for Bauang. While the bus was
running along the highway, a "snapping sound" was suddenly heard at one part of the bus and, shortly thereafter, the vehicle
bumped a cement flower pot on the side of the road, turned turtle and fell into the ditch. Several passengers, including
petitioner, were injured. Upon medical examination, petitioner was found to have sustained physical injuries on the leg, arm
and forehead.

Held:  A person is entitled to the physical integrity of his or her body; if that integrity is violated or diminished, actual injury
is suffered for which actual or compensatory damages are due and assessable. Petitioner Gatchalian is entitled to be placed as
nearly as possible in the condition that she was before the mishap. A scar, especially one on the face of the woman, resulting
from the infliction of injury upon her, is a violation of bodily integrity, giving rise to a legitimate claim for restoration to her
"conditio ante". If the scar is relatively small and does not grievously disfigure the victim, the cost of surgery may be
expected to be correspondingly small.

In Araneta vs. Areglado, 104 Phil. 529 this Court awarded actual or compensatory damages for, among other things, the
surgical removal of the scar on the face of a young boy who had been injured in a vehicular collision. We consider that the
amount of P15,000.00 to cover the cost of such plastic surgery is not unreasonable.

Korean Airlines Co., LTD. v. Court of Appeals

234 SCRA 717, August 3, 1994

Facts:  Sometime in 1980, Juanito C. Lapuz, an automotive electrician, was contracted for employment in Jeddah, Saudi
Arabia, for a period of one year through Pan pacific Overseas Recruiting Services, Inc. Lapuz was supposed to leave on
November 8, 1980, via Korean Airlines. Initially, he was "waitlisted". When two of such passengers did not appear, Lapuz
and another person by the name of Perico were given the two unclaimed seats.

(NCC, Art. 1764)

Lapuz was allowed to check in with one suitcase and one shoulder bag at the check-in counter of KAL. He passed through
the customs and immigration sections for routine check-up and was cleared for departure. He rode in the shuttle bus and
proceeded to the ramp of the KAL aircraft for boarding. However, when he was at the third or fourth rung of the stairs, a
KAL officer pointed to him and shouted "Down! Down! and was barred from taking the flight. When he later asked for
another booking, his ticket was cancelled by KAL. Consequently, he was unable to report for his work in Saudi Arabia within
the stipulated 2-weekperiod and so lost his employment.

Held:  A perusal of the plaintiff-appellant's contract of employment shows that the effectivity of the contract is for only one
year, renewable every year for five years. Although plaintiff-appellant intends to renew his contract, such renewal will still be
subject to his foreign employer; hence, there can be no basis as to whether his contract will be renewed by his foreign
employer of not. Thus, the damages representing the loss of earnings of plaintiff-appellant in the renewal of the contract of
the employment is at most speculative. Damages may not be awarded on the basis of speculation or conjecture (Gatchalian
vs. Delim, 203 SCRA 126).

Defendant-appellant's liability is limited to the one year contract only. Plaintiff-appellant is, therefore, entitled only to his lost
earning for one year, i.e. P60,000.00, which is 1/5 of P300,000.00, the total amount of actual damages, representing lost
earnings for five years prayed for in the Complaint. (NCC, Art. 1764)

The legal interest of 6% on the damages awarded to private respondent should commence from the date of the decision of the
trial court on November 14, 1990.

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 Pan American World Airways v. IAC
153 SCRA 521, August 31, 1987

Facts:  Teofista P. Tinitigan, filed a complaint against petitioner Pan-Am for damages arising from defendant's alleged
refusal to accommodate her on Pan Am Flight No. 431 from Sto. Domingo, Republica Dominica to San Juan, Puerto Rico on
April 29, 1973 notwithstanding the fact the she possessed a confirmed plane ticket purchased from Pan Am's Office at Sto.
Domingo and thus causing her loss of business opportunity and to suffer mental anguish, serious anxiety, besmirched
reputation, wounded feelings and social humiliation.

Held:  It is clear from the evidence that defendant issued a Passenger Ticket and Baggage Check No. 0266443466114 with
assigned seat 3-A and the corresponding pass and baggage claim symbol. Plaintiff was made to pay the fare and terminal fee.
At the immigration section, plaintiff's passport was stamped accordingly. Plaintiff's name was included in the passenger
manifest of PAN AM for Flight 431 dated April 29, 1973.

These show that plaintiff was indeed a confirmed passenger of defendant's Flight 431. There was, therefore, a contract or
carriage perfected between plaintiff and defendant for the latter to take plaintiff to her place of destination.

By not allowing plaintiff Tinitigan to board Flight 431 on April 29, 1973, plaintiff was not able to sign a contract with Mrs.
Lilibeth Warner who had earlier placed an order for a sizeable number of "capiz" shells in which transaction plaintiff
expected to derive a profit of US$1,000.00. Plaintiff had to return to the Hotel El Embajador from the aircraft costing her
US$20.00. She had to pay for additional accommodations in said hotel for US$26.15 and the damage to her personal property
amounted to US$500.00. Defendant should be liable to the plaintiff in the amount of US$1,546.15 or its equivalent in
Philippine Currency at the present rate of exchange as actual or compensatory damages.

1977 BQ No. VIII: X, a businessman boarded a PANTRANCO bus bound for Dagupan City where he would
meet Y, to arrange a business transaction. Somewhere in San Fernando, Pampanga, Z, the Deputy Sheriff of
Pampanga, intercepted and seized the PANTRANCO at the instance of W who had earlier obtained from the
court a writ of attachment. As a result of the seizure by the Sheriff, X failed to reach Dagupan City where he
was supposed to transact

(NCC, Art. 1764)

business. Feeling aggrieved by the loss of an otherwise juicy transaction, sued PANTRANCO for breach of
contract. Decide with reasons.

Ans.: It is undeniable that there is a pre-existing contractual relation of carriage between X and the
PANTRANCO Bus. and that X failed to reach his destination in breach of the PANTRANCO Bus' obligation to
trasport him to the same. However, it is notable that there was no fraud, bad faith, malice or wanton attitude on
the part of the carrier.

In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the breach for the obligation and which the parties have
forseen at the time the obligation was constituted.

In the case at bar, it can reasonably be assumed that the claim for damages refers to the profits which X failed to
obtain. In determining the extent of the liability for PANTRANCO Bus the first paragraph of Art. 2201 of the
Civil Code is applicable. Under this provision, the company is liable for all the natural and probable
consequences of the breach of the bligation which the parties have foreseen or could have reasonably foreseen
at the time the obligation was constituted. In this regard the loss of profits from the would-be business
transaction is not only a natural and probable consequences of the breach; it could have been reasonably
foreseen by the parties at the time X boarded the bus. At that time he was bound for Dagupan City to arrange a
business transaction and we can very well assume that the said transaction would be consumated and that he
could have possibly gained from the said transaction. Therefore, the claim for damages will prosper.

80
 A passenger's claim for lost profits when their contract to show films in Guam and San Francisco were cancelled,
cannot be granted where the plans to exhibit those films and their preparation for the exhibitions such as providing for the
necessary promotional and advertising materials were not called to the carrier's attention. (AFA, P. 93, citing Pan Am vs.
IAC, Aug. 11, 1988, 164 SCRA 268, 277 and Mendoza vs. PAL, 90 Phil. 836)

Sarkies Tours Philippines, Inc. vs. CA and Fortales

G.R. No. 108897, October 2, 1997, 87 SCAD 573

(Facts in P. ____, supra)

Held: Sarkies questions the award of actual damages to the respondent Fortales. On this point, we likewise agree with the
trial and appellate court's conclusions. There is no dispute that of the three pieces of luggage of Fatima, only one was
recovered. The other two contained optometry books, materials, equipment, as well as vital documents and personal
belongings. Respondents had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During the
trial, Fatima and Mirasol had to travel from the United States just to be able to testify. Expenses were also incurred in
reconstituting their lost documents. Under these circumstances, the Court agrees with the Court of Appeals in awarding
P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagree with the deletion of the award of
moral and exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault of
Sarkies Tours having been duly established, should be granted to respondents in the amount of P20,000.00 and P5,000.00
respectively.

Moral and Exemplary Damages

Moral damages are generally not recoverable in actions for damages predicated on breach of contract of
transportation except:

(1) when the mishap results in death of a passenger, or

(NCC, Art. 1764)

(2) when the carrier was guilty of fraud or bad faith, even if death did not result. (Phil. Rabbit vs. Esguera, 177 SCRA 741;
Sabena Airlines vs. CA, 171 SCRA 620; China Air Lines vs. IAC, 169 SCRA 226; Roque vs. Buan, 21 SCRA 643).

Inattention and lack of care by a carrier resulting in failure of the passenger to be accommodated on the class
contracted amounts to bad faith entitling the passenger to moral damages under Art. 2220, Civil Code. The breach becomes
graver where a foreign white passenger is given preference over a Filipino. (Ortigas vs. Luftansa, infra).

Ortigas vs. Lufthansa

64 SCRA 610, June 30, 1975

Facts:  Plaintiff took a first class accommodation on Lufthansa Airlines in Rome for his trip to Manila, with confirmation of
the airlines office, but its employee on seeing plaintiff's Filipino nationality in his passport, disallowed him to take his first
class seat which was given to a Belgian. Plaintiff, having heart ailment, was advised by his physician to take only first class
but he was compelled to take an economy seat with a promise of the Lufhansa employee that plaintiff will be transferred to
first class in Cairo and onward to Hongkong.

Upon arrival in Cairo, the promise was not complied with. Similar false representations were made to him at Dharhan and
Calcutta. After arriving in Hongkong, Plaintiff took another airline to Manila. Plaintiff sued Lufthansa for damages. The trial
court awarded plaintiff moral and exemplary damages.

Held: Lufthansa is liable for moral and exemplary damages. When it comes to contracts of common carriage, inattention and
lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for,
amounts to bad faith or fraud which entitles the passenger to the award of moral damages in accordance with Art. 2220,
NCC.

81
In the instant case, the breach appears to be of a graver nature, since the preference given to the Belgian passenger over
plaintiff was done willfully and in wanton disregard of plaintiff's rights and his dignity as a human and as a Filipino who may
not be discriminated against with impunity. What worsened the situation of the plaintiff was that Lufhansa succeeded in
keeping him as its passenger by assuring him that he would be given first class accommodation at Cairo, then at Dharhan and
Calcutta which were false representations. Moral damages should be increased to P150,000, and exemplary damages should
be increased to P100,000.

Judgment affirmed with modification.

Pan American World Airways v. IAC

153 SCRA 521, August 31, 1987

(Facts on P. _____, supra)

Held: When Pan Am's employee ordered plaintiff Tinitigan to step out of line because her ticket was not confirmed despite
plaintiff's pleas that she should be in San Juan, Puerto Rico that day, this caused plaintiff embarrassment because so many
people heard the same and plaintiff was prevented from boarding the plane at all while her seat (3-A) was given to another
passenger (a white man). For being subjected to such indignities, plaintiff suffered social humilation, wounded feelings,
serious anxiety, and mental anguish. Defendant should be held liable to plaintiff for moral damages (P200,000.00).

The bumping off of a passenger with a confirmed ticket, with a dishonest purpose and conscious doing of wrong on the part
of the airline's employees, amounts to bad faith, entitling the passenger to moral and exemplary damages. Exemplary
damages may be awarded even though not expressly pleaded or proved. (PAL vs. CA et al, 188 SCRA 461).

(NCC, Art. 1764)

Philippine Airlines, Inc. vs. CA

188 SCRA 461, August 13, 1990

Facts:  The lower Court found clear evidence of discrimination by employees of the Philippines Airlines (PAL) when for
unexplained and unwarranted reasons --- evidently the desire to cater to the good graces of a politico --- they
unceremoniously bumped off the plaintiffs from the flight. PAL alleged fortuitous event, supposedly consisting of the
unlawful acts of Governor Alberto and Mayor Antonio, which allegedly caused fear ion the part of its employees and allowed
the governor and the mayor to board Flight 296R in excess of the number passengers alloted to them and with full knowledge
that the said flight for Manila was fully booked.

Held: Moral damages are recoverable in a breach of contract of carriage where the air carrier through its agents acted
fraudulently or in bad faith. Here, the trial court and the Court of Appeals are in agreement that petitioner through its agents
acted in bad faith in bumping off private respondents.

One essential characteristic of a fortuitoius event is that it was independent of the will of the obligor or of his employees,
which fact is lacking in this case. The bumping off of the plaintiff was not independent of the will of herein petitioner but was
cause by the very act of its agents. The impossibility of the Plaintiff's being accommodated was necessarily foreseable.

The fear spoken of by witness Asuela is speculative, fanciful and remote. The statement attributed to governor Alberto and/or
the mayors, that if they cannot board the plane there will be something that will happen, is vague. The threat, if ever it was,
was not of such a serious character and imminence as to create in the mind of defendant-appelant's employees fear of greater
injury if they would not allow Governor Alberto and the mayors to remain in the plane which was then scheduled to fly to
Manila.

Petitioner's agents, by giving permission to board Flight 296R to persons who were not among those with valid confirmations
and who consequently had no right to be given preference in taking said flight, deliberately created a situation that would
place, as it did place, petitioner in errant violation of its contract with private respondents who were bumped off by reason
thereof. Petitioner, having unlawfully deprived private respondents of their seats, without any regard at all to their feelings
and convenience just so it could accommodate other persons who had no better right thereto, cannot now relieve itself from
liability by invoking of fortuitous event, a defense as erroneous as it is is contrived.

82
We, therefore, find no error on the part of respondent Court of Appeals in awarding moral and exemplary damages as well as
attorney's fees. The findings that petitioner had breached its contract of carriage in bad faith and in wanton disregard of
private respondent's rights as passengers lay the basis and justification for such awards.  The imposition of exemplary
damages is necessary to deter petitioner or other airlines from committing similar breaches of contract in the future, although
there are still reported instances thereof.

A passenger who suffered physical injuries because of the carrier's negligence (culpa contractual) cannot be
considered in the descriptive expression "analogous cases used in Art 2119" for which the new Civil Code authorizes
indemnification for moral damages in favor of the injured party. (Mercado vs. Lira, 3 SCRA 124).

Cachero vs. Manila Yellow Taxicab

101 Phil. 523, May 23, 1957

Facts:  Plaintiff, a lawyer, while a passenger in a taxicab of the defendant, suffered slight physical injuries, when the driver
collided said taxicab against a Meralco post. After the driver was prosecuted and convicted criminally, defendant offered to
settle the case amicably. Plaintiff refused and instituted an action to recover the sum of P79, 245.65 as damages, against the
defendant without including the driver as party defendant. The Manila CFI ordered the defendant to pay the plaintiff P700 for
medicine and transportation, P3,000 as attorney's fee which plaintiff failed to get in one of his case, P200 as professional fee
in another of plaintiff's case, and P2,000 as moral damages.

(NCC, Art. 1764)

Both parties appealed, plaintiff claiming that the moral damages awarded was inadequate, and defendant alleging error on the
part of CFI in granting damages.

Held:  While under the law, employers are made responsible for the damages caused by their employees acting within the
scope of their assigned task, plaintiff in this case did not maintain his action against all persons who might be liable for the
damage caused but on an alleged breach of contract of carriage. However, defendant has not committed any criminal offense
resulting in physical injuries against the plaintiff. It was the driver who committed the offense against the plaintiff, but he was
not made a party defendant to the case. Plaintiff is, therefore, not entitled to compensation for moral damages as his case does
not come within Art. 2219(i), NCC.

Quasi-delict would not also be the basis of the recovery because this refers to obligations not arising from law, contract etc.
The present case does not come under any of the items in Art. 2208, NCC, specially paragraph 2 because the defendant's
failure to meet his responsibility was not the cause that compelled plaintiff to litigation or to incur expenses to protect his
interests. The present action was instituted because the plaintiff demanded an exorbitant amount for moral damages and
naturally defendant could not yield to such a demand. This is neither a case that comes under paragraph 11 ofArt. 2208, NCC
because the lower court did not deem it justand equitable to award any amount for attorney's fee. Plaintiff should, therefore,
only be entitled to P700 for medicine and transportaion, P2,000 as attorney's fee which plaintiff failed to get in one of his
cases, P200 as professional fee in another case, but moral damages should not be awarded to plaintiff.

Judgment affirmed with modification.

Air France v. Carrascoso

18 SCRA 155, September 28, 1966

Facts:  Air France through its authorized agent, Philippine Air Lines, issued to Carrascoso, a civil engineer, a first class
round trip ticket from Manila to Rome. From Manila to Bangkok, Carrascoso travelled in first class, but at Bangkok, the
Manager of the airline forced him to vacate the first class seat that he was occupying because there was a white man, who,
the manager alleged, had a better right to the seat.

When asked to vacate his first class seat, Carrascoso, as was to be expected, refused, and a commotion ensued. Many of the
Filipino passengers got nervous in the tourist class when they found out that Carrascos was having a hot discussion with the
Manager, and they came all across to Carrascoso and pacified him to give his seat to the white man. Carrascoso relunctantly
gave his first class seat in the plane.

83
In an action for damages, the Manila CFI awarded Carrascoso moral and exemplary damages, attorney's fees, and an amount
representing the difference between the first class and tourist class ticket fare. Upon appeal, the Court of Appeals affirmed
the decision except the plane fare which it reduced. Air France asked to review on certiorari.

Held: The manager not only prevented Carrascoso from enjoying his right to a first class seat but also imposed his arbitrary
will, forcibly ejecting Carrascoso from his seat, making him suffer humiliation of having to go to the tourist class
compartment --- just to give way to another passenger whose right thereto has not been established. Such an action
constitutes bad faith.

There was a contract to furnish Carrascoso a first class passage covering, among others, the Bangkok-Teheran leg, that said
contract was breached when the carrier failed to furnish the first class transportation at Bangkok and there was bad faith when
the carrier's employee compelled Carrascoso to leave his first class accomodation berth after he was already seated and to
take a seat in the tourist class, by reason of which he suffered inconvenience, embarrassment and humilation, thereby causing
him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting in moral damages. The manner of
ejectment of Carrascoso from his first class seat fits into the legal precept for awarding exemplary damages in addition to
moral damages. Carrascoso is, therefore, entitled to all the damages awarded by the lower court to him.

(NCC, Art. 1764)

Zulueta vs. Pan-Am

49 SCRA 1, January 8, 1973

Facts: The plaintiffs, the Zulueta spouses and their daughter, were passengers aboard Pan-Am plane from Honolulu to
Manila, the first leg of which was Wake Island. As the plane landed on said island, the passengers were advised that they
could disembark for a stop-over of about 30 minutes. Mr. Zulueta, having found the need to relieve himself, went to the
men's comfort room at the terminal building, but finding it full of soldiers, he walked down the beach some 100 yards away.

Meanwhile, the flight was called and when the passengers had boarded the plane, Zulueta's absence was noticed. The take-off
was accordingly delayed and search for him was made. Minutes later, Zulueta walked back towards the ramp of the plane.
The captain and the other employees of Pan-Am, with ugly stare subjected Zulueta to abusive and insulting language with
highly scornful reference to the plaintiffs as "three monkeys". Mr. Zulueta was arbitrarily not allowed to board the plane, and
was left at Wake Island.

In an action for damages, the Rizal CFI awarded Zulueta actual, moral and exemplary damages and attorney's fees. Pan-Am
appealed.

Held: Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct, injurious
language, indignities and abuses from such employees. So it is, that any rude or discourteous conduct on the part of
employees towards a passenger gives the latter an action for damages against the carrier.

In the case at bar, the defendant did not only fail to comply with its obligation to transport the plaintiff to Manila, but also,
acted in a manner calculated to humiliate him, to chastise him, to make him suffer, to cause to him the greatest
inconvenience, by leaving him in a desolate island, in the expectation that he would stranded there. It is obvious that in off-
loading the plaintiff at Wake Island, under the circumstances heretofore averted to, the defendant's agents had acted with
malice aforethought and evident bad faith. If gross negligence warrants the award of exemplary damages, with more reason is
its imposition justified when the act performed is deliberate, malicious and tainted with bad faith. Actual damages should be

sustained at P5,502.85, moral damages should be increased to P500,000.00, exemplary damages should be reduced to
P200,000.00 and attorney's fees should be reduced to P75,000.00.

Bad faith, fraud or malice justifying moral damages must be in securing, execution and enforcement of the contract of
carriage, or any other kind of deceit which may have been used by the carrier.  Accordingly, where the transferor-operator
merely violated the rules and regulations of the Public Service Commission, prohibiting transfer of public utility vehicles,
without the Commission's approval, there is no bad faith on their part and they cannot be held for moral damages.

84
 Alitalia v CA
July 24, 1990, 187 SCRA 763, 771

Passengers must be spared from the indignity and inconvenience of being refused a confirmed seat on the last
minute. The employees of Alitalia brushed aside the complaining passengers, the Julianos, several times and ordered them to
fall in line. Despite the fact the line (queue) was not moving, some passengers were being escorted ahead of the lines to be
checked in. Julianos had confirmed tickets. What is plain to see is that the airline had deliberately overbooked and in doing
so, took the risk of having to deprive some passengers of their seats in case all of them would show up for check-in.

That Alitalia had no intention to accommodate all who had confirmed their flight reservations could be seen in the
absence of any measure to contact all possible passengers for each flight who might be

(NCC, Art. 1764)

within the airport premises. (Citing Air France v. Carrascoso, Sept 28, 1966, 18 SCRA 168, infra, Pp. 94-95).

The mere carelessness of the driver does not infer bad faith or malice on the part of the carrier.

Fores vs. Miranda

105 Phil. 266, March 4, 1959

Facts:  Respondent was a passenger of a jeep registered in the name of Fores but actually operated by Carmen Sackerman.
While the jeep was descending the Sta. Mesa bridge at an excessive speed, the driver lost control of it causing it to swerve
and hit the bridge wall resulting to injuries to its passengers including respondent who suffered a fracture of the upper right
humerus. In an action for damages, the Manila CFI awarded the respondent actual damages. Upon appeal, the Court of
Appeals reduced the actual damages and added moral damages and attorney's fee. Petitioner asked for review on certiorari of
the Court of Appeals' decision, assailing the award of attorney's fee on the ground that CFI did not provide it and no appeal
was interposed for such, therefore the Court of Appeals cannot motu proprio award it.

Held: Moral damages are generally not recoverable in breach of contracts of transportation in view of Arts. 2218 and 2220,
NCC. The exception is a mishap resulting to the death of a passenger, in which case Art. 1764 makes the carrier subject to
Art. 2206, NCC. Where the injured passenger does not die, as in the case at bar, moral damages are not recoverable unless it
is proved that the carrier was guilty of malice or bad faith. Mere carelessness of the carrier's driver does not per se constitute
or justify an inference of malice or bad faith on the part of the carrier. While it is true that negligence may be occasionally so
gross as to amount to malice, that fault must be shown in evidence. A carrier's bad faith should not be lightly inferred from a
mere finding that the contract wa breached thru the negligence of the carrier's employee. In the case at bar, no evidence of
malice is shown to support the award of moral damages by the Court of Appeals. Respondent is not entitled to moral
damages.

Effect of contributory negligence

While contributory negligence does not exempt the common carrier from liability, a passenger who commits such
contributory negligence is not entitled to recover moral and exemplary damages. (PNR vs. CA, 139 SCRA 87).

If the breach is not wanton, fraudulent, oppressive, or malevolent, exemplary damage is not recoverable. (China Air
Lines vs. IAC, 169 SCRA 226).

Nominal Damages

85
 Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plantiff for any loss suffered by
him. (Art. 2221, NCC)

Northwest vs. Cuenca

14 SCRA 1063, 1965

Facts: The respondent boarded petitioner's plane in Manila with a first class ticket to Tokyo. Upon arrival at Okinawa, an
agent of the petitioner rudely compelled him, in the presence of other passengers, to move to the tourist class. Respondent
protested, revealing that he was in his official capacity as delegate of the Republic of the Philippines to a conference in
Tokyo. But in order to reach the conference on time, the respondent obeyed.

(NCC, Art. 1764)

Held: Having been given first class accommodation as he took petitioner's plane in Manila, respondent was entitled to
believe that this was a confirmation of his first class reservation and that he would keep the sameuntil his ultimate
destination, Tokyo. Since the offense had been committed with full knowledge of the fact that respondent was a
representative of the Republic of the Philippines, the sum of P20,000 awarded as damages may well be considered as merely
nominal. At any rate, considering that petitioner's agent had acted in a wanton, reckless and oppressive manner, said award
may also be considered as one for exemplary damages.

Saludo Jr. v. CA
207 SCRA 498, March 23, 1992

Facts: After the death of plaintiff's mother, Crispina Saludo, Pomierski and Son Funeral Home of Chicago brought the
remains to Continental Mortuary Air Services which booked the shipment of the remains from Chicago to San Francisco by
TWA and from San Francisco to Manila with PAL. The remains were taken to the Chicago Airport, but it turned out that
there were two bodies in the said airport. Somehow the two bodies were switched, the casket bearing the remains of plaintiffs
mother was mistakenly sent to Mexico and was opened there. The shipment was immediately loaded to PAL flight and
arrived in Manila a day after its expected arrival on October 29, 1976. Plaintiff filed a damages suit with CFI of Leyte,
contending that Trans World Airlines and PAL were liable for mis-shipment, the eventual delay in the delivery of the cargo
containing the remains, and of the discourtesy of its employees to them.

Trial court absolved the two airline companies of any liability. The Court of Appeals affirmed such decision.

Held: The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five hours, over the
possibility of losing their mortal remains, unattended to and without any assurance from the employees of TWA that they
were doing anything about the situation. This is not to say that petitioners were to be regarded with extra special attention.
They were, however, entitled to the understanding and the extraordinary diligence required for common carriers, and not the
cold insensitivity to their predicament.

It is hard to believe that the airline's counter personnel were totally helpless about the situation. Common sense could and
should have dictated that they exert a little extra effort in making a more extensive inquiry, by themselves or through their
superiors, rather than just shrug off the problem with a callous and uncaring remark that they had no knowledge about it.
With all the modern communications equipment readily available to them, which could have easily facilitated said inquiry
and which are used as a matter of course by airline companies in their daily operations, TWA's apathetic stance which not
legally reprehensible is morally deplorable.

Losing a loved one, especially one's parent, is a painful experience. Our culture accords the tenderest human feelings toward
and in reverence to the dead. That the remains of the deceased were subsequently delivered, albeit, belatedly, and eventually
laid in her final resting place is of little consolation. The imperviousness displayed by TWA's personnel, even for just that
fraction of time, was especially condemnable particularly in the hours of bereavement of the family of Crispina Saludo,
intensified by anguish due to the uncertainty of the whereabouts of their mother's remains. Hence, it is quite apparent that
private respondent's personnel were remiss in the observance of that genuine human concern and professional attentiveness
required and expected of them.

86
The foregoing observations, however, do not appear to be applicable or imputable to respondent PAL or its employees. No
attribution of discourtesy or indifference has been made against PAL by petitioners and, in fact, petitioner Maria Saludo
testified that it was to PAL that they repaired after failing to receive confirmation that their mother's remains would be on the
same flight to Manila with them.

The facts show that petitioner's right to be treated with due courtesy in accordance with the degree of diligence required by
law to be exercised by every common carrier was violated by TWA and this entitles them, at least, to nominal damages from
TWA alone. Articles 2221 and 2222 of the Civil Code make it clear that nominal damages are not intended for
indemnification of loss suffered but for the vindication or

(NCC, Art. 1764)

recognition of the right violated or invaded. They are recoverable where some injury has been done but the amount of which
the evidence fails to show, the assessment of damages being left to the discretion of the court according to the circumstances
of the case. In the exercise of our discretion, we find an award of P40,000.00 as nominal damages in favor of petitioners to be
a reasonable amount under the circumstances of this case.

A common carrier is liable in nominal damages for failure of carrier to bring its passenger to his destination. There
is no doubt that a passenger suffers damages where the carrier fails to bring him to his destination in violation of his right as
passenger and of the obligations of the carrier and, therefore, is entitled to nominal damages under Article 2221 of the Civil
Code of the Philippines. But mere violation of a contract of carriage does not warrant recovery of moral damages. (AFA, P.
120, citing Quijano vs. PAL, CA-G.R. No. 21804-R, June 24, 1960)

Temperate and Liquidated damages

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

Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. (Art.
2226, NCC)

Attorney's Fees and Interest

Attorney's fees may be awarded in favor of the heirs of the deceased passengers, on the following just and equitable
grounds: (1) the accident on question took place on April 25, 1954, and the Caguimbals have been constrained to litigate for
over thirteen (13) years to vindicate their rights; and (2) it is high time to impress effectively upon public utility operators the
nature and extent of their responsibility in respect of the safety of their passengers and their duty to exercise greater care in
the selection of drivers and conductors and in supervising the performance of their duties. (Batangas Transportation
Company vs. Caguimbal, 22 SCRA 172).

Legal interest and attorney's fees may be awarded to a complainant even if he did not appeal. Interest starts from the
rendition by the trial court of the decision. (De Rama vs. LTB Company, 160 SCRA 70).

Although the CFI did not provide for attorney's fee and no appeal was interposed on the point, it was not error for
the Court of Appeals to award it motu proprio because attorney's fee is included in the concept of actual damages under the
New Civil Code and may be awarded whenever courts deem it just and equitable. Fores vs. Miranda, 105 Phil. 266, March 4,
1959; Facts in P. _____, supra)

An airline passenger who has filed an action for tort or quasi-delict cannot change his theory to breach of contract on
appeal as it would be unfair to the adverse party who would have no more opportunity to present further evidence. (AFA, Pp.
121-122, citing China Airlines, Ltd. vs. CA, May 18, 1990, 185 SCRA 449)

87
Effect of filing an independent civil action

In criminal actions for reckless imprudence resulting in death, injury, damage of loss of property, a separate civil
action may be filed and proceed independently of the criminal case. But, the parents of the

(NCC, Art. 1764-1766; Bill of Rights for Air Passengers)

victim filed a separate civil action against the driver, the latter's insolvency does not give the victim's heirs the right to claim
against the employer of the driver for subsidiary liability. (Jamelo vs. Serrano, 44 SCRA 464).

A driver absolved from criminal liability for a collision may be made to pay damages to the passengers. (Ongsiako
vs. IAC), 152 SCRA 627).

A money claim against a deceased operator of a public utility vehicle should be filed in his estate proceedings, and
cannot be filed against the heirs. (Bautista vs. de Guzman, 125 kSCRA 676).

Art. 1765. The Public Service Commission may on its own motion or on petition of any
interested party, after due hearing, cancel the certificate of public convenience granted to any
common carrier that repeatedly fails to comply with his or its duty to observe extraordinary
diligence as prescribed in this Section.

A petition to cancel the certificate of public convenience of a common carrier is an administrative proceeding where
only substantial evidence is required.

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

-oOo-

88
 JOINT DOTC-DTI ADMINISTRATIVE ORDER NO. 01; Series of 2012

SUBJECT: PROVIDING FOR A BILL OF RIGHTS FOR AIR PASSENGERS AND CARRIER
OBLIGATIONS

WHEREAS, pursuant to the Republic Act No. 776, otherwise known as the Civil Aeronautics Act of the
Philippines, the Department of Transportation and Communications (DOTC), through the Civil Aeronautics
Board (CAB), is mandated by law to regulate the economic aspect of aviation, and develop and promote the
air potential of the Philippines, with due regard to public interest and convenience;

WHEREAS, pursuant to Republic Act No. 7394, otherwise known as the Consumer Act of the Philippines, the
Department of Trade and Industry (DTI) is the agency mandated to protect the consumers against deceptive,
unfair and unconscionable sales acts or practices and from misleading advertisements and fraudulent sales
promotions, other than those falling under the jurisdiction of the Department of Health;

WHEREAS, the Philippine aviation industry, under a liberalized aviation regime, and especially with the
emerging dominance of low cost carriers, has dramatically expanded, as shown by the unprecedented and
consistent double digit growth rates of domestic and international travel in the last five (5) years;

WHEREAS, it is the thrust of public policy to encourage the entry of more players in the air transportation
industry and promote greater competition among air carriers, which, in turn will enhance air service
availability and create more options for better, safer, and more efficient and affordable air transportation, in
support of trade, tourism and public convenience;

WHEREAS, it is equally the objective of public policy to maintain a level playing field in the air transportation
industry, conducive to sound, healthy and fair competition among industry players, as against disastrous and
ruinous competition that can undermine public interest;

WHEREAS, an air carrier ticket constitutes a contract of carriage between an air carrier and a passenger, whereby
the air carrier, for consideration, obligates itself to transport a passenger by air safely, efficiently and
conveniently along a stipulated route at a given date and time, subject to certain conditions and/or
restrictions;

WHEREAS, such a contract of carriage creates an asymmetrical relationship between an air carrier and a
passenger, considering that, while a passenger has the option to buy or not to buy the service, the decision
of the passenger to buy the ticket binds such passenger, by adhesion, to all the conditions and/or restrictions
attached to the air carrier ticket on an all-or-nothing basis, without any say, whatsoever, with regard to the
reasonableness of the individual conditions and restrictions attached to the air carrier ticket;

WHEREAS, there is a need to infuse a certain measure of balance, fairness and reasonableness between the
precarious position of a passenger vis-à-vis the vast resources at the disposal of the air carrier, especially in
a liberalized and highly competitive aviation environment, which, if unfettered can lead to unsound
business policies and practices of air carriers that are prejudicial to the rights and interests of the passengers;

NOW, THEREFORE, this Order is hereby prescribed for the information, guidance, and compliance of all
concerned.

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 CHAPTER I
GENERAL PROVISIONS

Section 1. Title of Regulation. This Regulation shall be known and cited as the “Air Passenger Bill of
Rights”.

Section 2. Definition. For the purpose of this Regulation:

2.1 “Air Carrier” refers to a Philippine-based carrier operating scheduled or non-scheduled domestic and/or
international flights to or from or serving a point within the Philippines, or a foreign carrier operating
scheduled or non-scheduled international flights from the Philippines. Air carriers are also generally
referred to as airlines.

2.2 “Baggage” is any personal property carried by the passenger, either by check-in or hand-carry. “Off-loaded
Baggage” refers to baggage which has been checked in but has either not been put in or been
subsequently removed from the cargo hold of the carrier.

2.3 “Cancellation” is the act of calling off a flight. This shall include the following instances:

(a) Cancellation by the air carrier before the estimated time of departure (ETD) with or without its fault;

(b) Cancellation by the air carrier after an unduly long delay;

(c) Cancellation by the passenger holding a regular fare/ticket, or a situation deemed cancelled as
contemplated in Section 12.2;

2.4 “Check-in deadline” refers to the point in time before the published ETD on or before which a passenger must
present himself/herself to the air carrier at the latter’s check-in counter, which is usually not less than
forty-five (45) minutes before such ETD.

2.5 “Check-in period” is the time when the air carrier’s check-in counters are open for accepting and processing
passengers checking in for their flights, which starts at least two (2) hours before the ETD in
international airports and in other airports designated by the DOTC. In other airports, the check-in
period shall start at least one (1) hour before the ETD.

2.6 “Confirmed Reserved Seat” means a seat on a specific date and on a specific flight and class of service of a
carrier, which has been requested by a passenger, and which the carrier or its agent has verified, by
appropriate notation on the ticket, as being reserved for the accommodation of the passenger.

2.7 “Convention” refers to the applicable international agreement, convention, or treaty on carriage of goods or
persons by air signed and/or ratified by the Philippines.

2.8 “Delay” is the result of the deferment of a flight to a later time. “Terminal Delay” is a delay that occurs while
passengers are still inside the terminal waiting for boarding, while “Tarmac Delay” is a delay that
occurs while passengers are already on board the aircraft.

2.9 “Denied Check-in” takes place when a passenger, who has presented himself/herself for check-in at the
appointed area and at the appointed time, is denied or not processed for boarding a particular flight.
“Denied Boarding” takes place when a passenger, who holds a confirmed reserved seat, and who has
presented himself/herself for carriage at the proper time and place and fully complied with the carrier’s
check-in and reconfirmation procedures, and who is acceptable for carriage under the carrier’s tariff,
was not allowed to board the aircraft.

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2.10 “Fare” is payment in consideration for the carriage of a passenger. “Regular Fare” is any fare that is offered
on a regular basis and does not qualify as promotional fare. “Promotional Fare”, which is generally
lower than a regular fare, is applied for before, and approved as such by, the CAB.

2.11 “Government requisition of space” refers to a formal request by the government or its agencies to an air
carrier company for the use of an aircraft, or any part thereof, for regulatory, safety, security, and/or
emergency purposes.

2.12 “No-show” is the failure of the passenger to appear at the check-in counter within the check-in deadline or to
show up at the boarding gate at the time indicated on the boarding pass.

2.13 “Overbooking” is the practice by air carriers of selling confirmed reserved space beyond the actual seat
capacity of the aircraft.

2.14 “Passenger” shall refer herein to a person actually travelling by air. A person who is named in the flight
ticket shall be considered a passenger for the purpose of these rules.

2.15 “Person with disability” or “PWD” includes those who have long-term physical, mental, intellectual or
sensory impairments, which, in interaction with various barriers, may hinder their full and effective
participation in society on an equal basis with others.

2.16 “Sales Promotion” means techniques intended for broad consumer participation which contain promises of
gain, such as prizes, in cash or in kind, as reward for the purchase of a product, security, service or
winning in a contest, game, tournament, and other similar competitions which involve determination
of winner/s and which utilize mass media and/or widespread media of information. It also means
techniques purely intended to increase the sales, patronage and/or goodwill of a product.

2.17 “Senior citizen” refers to any resident citizen of the Philippines at least sixty (60) years old. Passengers may
be asked to present identification documents, in line with Republic Act No. 9994, otherwise known as
the Expanded Senior Citizens Act of 2010, and its Implementing Rules and Regulations, in order to
avail of benefits and privileges reserved for senior citizens.

Section 3. Scope. This Regulation shall apply to all aspects of contracts of carriage for flights or portions
of a flight into, from, and within the territory of the Philippines operated by Philippine air carriers, and flights or
portions of a flight from the territory of the Philippines operated by foreign air carriers.

Provided, that the compensation rules shall not apply to carriers flying into the territory of the
Philippines, if the laws of the country of origin provide similar or higher compensation. Otherwise, these rules
shall apply in full.

CHAPTER II:

RIGHT TO BE PROVIDED WITH ACCURATE

INFORMATION BEFORE PURCHASE

Section 4. Right to Full, Fair, and Clear Disclosure of the Service Offered and All the Terms and
Conditions of the Contract of Carriage.Every passenger shall, before purchasing any ticket for a contract of
carriage by the air carrier or its agents, be entitled to the full, fair, and clear disclosure of all the terms and

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conditions of the contract of carriage about to be purchased. The disclosure shall include, among others,
documents required to be presented at check-in, provisions on check-in deadlines, refund and rebooking policies,
and procedures and responsibility for delayed and/or cancelled flights. These terms and conditions may include
liability limitations, claim-filing deadlines, and other crucial conditions.

4.1 An air carrier shall cause the disclosure under this Section to be printed on or attached to the passenger
ticket and/or boarding pass, or the incorporation of such terms and conditions of carriage by reference.
Incorporation by reference means that the ticket and/or boarding pass shall clearly state that the complete
terms and conditions of carriage are available for perusal and/or review on the air carrier’s website, or in
some other document that may be sent to or delivered by post or electronic mail to the passenger upon
his/her request.

4.2 The air carrier must also ensure that passengers receive an explanation of key terms identified on the ticket
from any location where the carrier’s tickets are sold, including travel agencies. In case of online bookings,
the air carrier must establish a system wherein the purchaser is fully apprised of the required disclosures
under this Section twice prior to the final submission of his/her online offer to purchase.

4.3 Aside from the printing and/or publication of the above disclosures, the same shall likewise be verbally
explained to the passenger by the air carrier and/or its agent/s in English and Filipino, or in a language that is
easily understood by the purchaser, placing emphasis on the limitations and/or restrictions attached to the
ticket.

4.4 The key terms of a contract of carriage, which should include, among others, the rebooking, refunding,
baggage allowance and check-in policies, must be provided to a passenger and shall substantially be stated in
the following manner and, if done in print, must be in bold letters:

(English)

“NOTICE:

The ticket that you are purchasing is subject to the following conditions/restrictions:

1.      _______________
2.      _______________
3.      _______________

Your purchase of this ticket becomes a binding contract on your part to follow the terms and conditions of
the ticket and of the flight. Depending on the fare rules applicable to your ticket, non-use of the same may
result in forfeiture of the fare or may subject you to the payment of penalties and additional charges if you
wish to change or cancel your booking.

For more choices and/or control in your flight plans, please consider other fare types.”

(Filipino)

“PAALALA:

Angtiketnaito ay binibilininyonang may mgakondisyon/ restriksyon:

1.      ________________
2.      ________________
3.      ________________

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Sapagpili at pagbili ngtiket na ito, kayo ay sumasang-ayon sa mgakondisyon at restriksyon na nakalakip
dito, bilang kontrata ninyo sa air carrier. Depende sa patakarang angkop saiyong tiket, ang hindi paggamit
nito ay maaaring magresulta sa pagwawalang bias sa inyong tiket o sa paniningil ng karagdagang bayad
kung nais ninyong baguhin o kanselahin ang inyong tiket.

Para sa mas maraming pagpipilian at malawakna control sa inyong flight, inaanyayahan kayong bumili ng
iba pang klaseng tiket galling sa air carrier.”

4.5 Any violation of the afore-stated provisions shall be a ground for the denial of subsequent applications for
approval of promotional fare, or for the suspension or recall of the approval made on the advertised fare/rate.

Section 5. Right to Clear and Non-Misleading Advertisements of, and Important Reminders Regarding
Fares. Advertisements of fares shall be clear and not misleading.

5.1 Major restrictions, such as those on rebookability or refundability, which may be attached to certain fare
types, shall be disclosed in full and in such a way that the passenger may fully understand the consequences
of purchasing such tickets and the effect of non-use thereof.

5.2 Every air carrier causing the publication of fare advertisements in any medium, shall likewise disclose
the following:

(a) Conditions and restrictions attached to the fare type;

(b) Refund and rebooking policies, if any;

(c) Baggage allowance policies;

(d) Government taxes and fuel surcharges;

(e) Other mandatory fees and charges;

(f) Contact details of the carrier (i.e. phone number, website, e-mail, etc.); and

(g) Other information necessary to apprise the passenger of the conditions and the full/total price of the ticket
purchased.

Provided, that, in case of promotional fares, the additional information shall be included:

(h)  Number of seats offered on a per sector basis;

(i)   The duration of the promo; and

(j)   The CAB Approval No. of Fares.

Provided, further, that, where there are differing conditions, such as fuel surcharge in relation to the points
of destinations or origin, the advertisements of these carriers may provide only the range thereof and not the
actual surcharge of each route.

5.3 The above-mentioned required disclosures shall occupy not less than one-third (1/3) of the advertising
material. A copy of the same shall be printed on or attached to the ticket in English and Filipino.

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 In the case of broadcast media, it shall be enough that the air carrier and/or advertising agent incorporate the
foregoing terms and conditions by reference, as provided for in Section 4.1.

Section 6. Right Against Misleading and Fraudulent Sales Promotion Practices. Consistent with the
declared policy of the State to protect the interests of the consumers, which includes protection from misleading
and fraudulent sales promotion practices, all sales promotion campaigns and activities of air carriers shall be
carried out with honesty, transparency and fairness, and in accordance with the requirements of the Consumer Act
of the Philippines, and its Implementing Rules and Regulations.

Air carriers shall provide to DTI a copy of its promotional materials for post audit not later than the
publication, release, or launch date whichever is earlier.

It is understood that professional authorities for those engaged in advertising, sales and promotion may
impose additional standards or measures to regulate their industry.

CHAPTER III

RIGHT TO RECEIVE THE FULL VALUE OF THE SERVICE PURCHASED

Section 7. Right to Transportation and Baggage Conveyance. Every passenger is entitled to

transportation, baggage conveyance and ancillary services, in accordance with the terms and conditions of
contract of carriage with the air carrier. Thus, any violation of the terms and conditions of the contract of carriage
due to the fault or negligence of the air carrier shall entitle the passenger to compensation or alternative
arrangements, as provided in this Air Passenger Bill of Rights, which are acceptable to the passenger.

Section 8. Right to be Processed for Check-In. In accordance with the usual air carrier procedures, a
passenger holding a confirmed ticket, whether promotional or regular, with complete documentary requirements,
and who has complied with the check-in procedures, shall be processed accordingly at the check-in counter within
the check-in deadline. The airline shall, therefore, and subject to infrastructure limitations, clearly designate the
boundaries of its assigned check-in area/s or counter/s.

A passenger within the air carrier’s cordoned or other designated check-in area as herein defined at least
one (1) hour before the published ETD shall not be considered late or a no-show, and shall not be denied check-
in. The carrier shall exert utmost diligence in ensuring that passengers within the cordoned or other designated
check-in area and/or lined up at the check-in counters are checked in for their flights before the check-in deadline.

A passenger who is late in accordance with the preceding paragraph may be denied check-in and directed
to a standby or rebooking counter, as the case may be, for proper processing.

Any dispute under this Section shall be resolved by the air carrier on-site. For this purpose, the air carrier
must present to the passenger proof, including, but not limited to, closed-circuit television monitor recordings,
processing or number slips issued at the entrance of the check-in area, and other applicable or available means,
that the latter failed to appear within the prescribed time for the check-in procedure.

Section 9. Right to Sufficient Processing Time. Passengers shall be given enough time before the
published ETD within which to go through the check-in and final security processes. For this purpose, air carriers
operating in international airports and in other airports designated by the DOTC shall open their check-in counters
in such airports at least two (2) hours before the ETD. In other airports, air carriers shall open their check-in
counters at least one (1) hour before the ETD.

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9.1 Air carriers operating in international airports and in other airports designated by the DOTC shall open a
separate dedicated counter for a flight nearing check-in deadline to facilitate the checking in of passengers at
least one (1) hour before the published ETD.

9.2 To ensure that PWDs and senior citizens shall have equal access to air transportation services, air carriers
shall at all times and in all instances adhere to the mandate of Batas PambansaBlg. 344, otherwise known as
An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings, Institutions,
Establishments and Public Utilities to Install Facilities and Other Devices, the provisions of the Expanded
Senior Citizens Act of 2010, and other related laws. Accordingly, an air carrier shall designate at least one (1)
check-in counter which will prioritize PWDs, senior citizens, and persons requiring special assistance or
handling. If this is not practicable, the air carrier shall instead provide for priority handling and processing of
such passengers. The air carrier shall likewise coordinate with the appropriate authorities for the use of proper
airport equipment, entryways, and/or aerobridges, as the case may be, when the same are available, to
facilitate transactions, movement, boarding, and/or disembarkation of PWDs, senior citizens, and/or persons
requiring special equipment, at the airport.

Persons accompanying a PWD, a senior citizen, or a person requiring special assistance or handling should
also be accommodated at the designated check-in counter mentioned in the preceding paragraph. It is the duty
of an air carrier or its authorized agent to inform its passengers if additional costs will be incurred for the use
of facilities designed for passengers needing special assistance in airports located in other countries.

It is the responsibility of a PWD to declare his/her need for special assistance or handling to the airline, upon
booking his/her flight. If the PWD fails to do so, the airline may not be held liable for any services it was not
able to provide the passenger and/or for any additional costs incurred for the use of special assistance
facilities.

Section 10. Right to Board Aircraft for the Purpose of Flight. A passenger checked in for a particular
flight has the right to board the aircraft for the purpose of flight, except when there is legal or other valid cause,
such as, but not limited to, immigration issues, safety and security, health concerns, non-appearance at the
boarding gate at the appointed boarding time, or government requisition of space as provided for in Section 10.2.
Other than these causes, no passenger may be denied boarding without his/her consent.

10.1 While it is an accepted practice for an air carrier to overbook its flights, any expense, consequence, or
inconvenience caused to affected passengers must be borne by the air carrier, as follows:

(a) The air carrier shall determine the number of passengers in excess of the actual seat capacity of the
aircraft.

(b) The air carrier shall announce that the flight is overbooked, and that it is looking for volunteers willing
to give up their seats in exchange for air carrier compensation.

(c) The air carrier shall provide the interested passengers or volunteers a list of amenities and offers, which
they can choose from, which list of amenities shall always include the option to be given priority
booking in the next flight with available space or to be endorsed to another air carrier upon payment
of any fare difference, and provided that space and other circumstances permit such accommodation,
at the option of the passenger, and/or a cash incentive.

(d) In case the number of volunteers is not enough to resolve the overbooking, the air carrier shall
increase the compensation package by certain degrees or by adding more amenities/services until the
required number of volunteers is met.

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10.2 Government agencies and/or officials wanting to acquire aircraft space for official government purposes
shall submit a written request justifying the requisition to the CAB, which shall then make the request to
the air carrier concerned, detailing:

(a) The number, identities, and affiliation of the persons requesting for space;

(b) The date and time (if applicable) of the flight; and

(c)   The destination.

Should government requisition result in passengers having to forego their confirmed space, the air carrier
shall look for volunteers in accordance with Section 10.1.

Provided, that the air carrier shall have the right to claim from the requesting government entity the full-
fare value of the seats requisitioned by the latter.

10.3 The settling of compensation for passengers pursuant to this Section shall not be an excuse for the undue
delay of the flight’s ETD.

CHAPTER IV

RIGHT TO COMPENSATION

Section 11. Right to Compensation and Amenities in Case of Cancellation of Flight. In case of

cancellation of flights, the following shall be observed:

11.1 In case of flight cancellation attributable to the carrier, a passenger shall have the right to:

(a) Be notified beforehand via public announcement, written/published notice and flight status update
service (text);

(b) Be provided with the following, if he/she is already at the airport at the time of the announcement of the
flight cancellation: sufficient refreshments or meals (e.g. snacks consisting of at least a bottle of water
and a sandwich, or breakfast, lunch, or dinner, or a voucher for the same, as the case may be); hotel
accommodation (conveniently accessible from the airport); transportation from the airport to the hotel,
v.v.; free phone calls, text or e-mails, and first aid, if necessary; and

(c) Reimbursement of the value of the fare, including taxes and surcharges, of the sector cancelled, or
both/all sectors, in case the passenger decides not to fly the ticket or all the routes/sectors; or

(d) Be endorsed to another air carrier without paying any fare difference, at the option of the passenger, and
provided that space and other circumstances permit such re-accommodation; or

(e) Rebook the ticket, without additional charge, to the next flight with available space, or, within thirty (30)
days, to a future trip within the period of validity of the ticket. However, for rebooking made in excess
of the aforementioned thirty (30) days for a trip likewise within the validity of the ticket, fees and/or
fare difference shall apply.

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 Provided, that in case a carrier cancels a flight at least twenty-four (24) hours before the ETD, it shall not
be liable for the foregoing amenities, except, it shall be obliged to notify the passenger, and, in accordance with
the preceding provisions, to rebook or reimburse the passenger, at the option of the latter.

11.2 In case the air carrier cancels the flight because of force majeure, safety and/or security reasons, as certified
by the Civil Aviation Authority of the Philippines, a passenger shall have the right to be reimbursed for the
full value of the fare.

11.3 The provisions of this Section shall be the minimum entitlement of a passenger in case of cancellation, and
shall not prohibit the air carrier from granting more favourable conditions or recourses, as it may deem
appropriate.

Section 12. Right to Compensation and Amenities in Case of Flight Delay and Exceptions Thereto.

12.1 In case of Terminal Delay of at least three (3) hours after the ETD, whether or not such is attributable to the
carrier, a passenger shall have the right to:

(a) Be provided with refreshments or meals (sufficient snacks, breakfast, lunch, or dinner, as the case may
be), free phone calls, text or e-mails, and first aid, if necessary; and

(b) Rebook or refund his/her ticket in accordance with the preceding Section or be endorsed to another
carrier, in accordance with the preceding Section.

12.2 In case such Terminal Delay extends to at least six (6) hours after the ETD for causes attributable to the
carrier, it shall be deemed cancelled for the purpose of making available to the passenger the rights and
amenities required to be provided in case of actual cancellation, as provided for in Section 11.1; and in
addition, an affected passenger shall be given the following:

(a) Additional compensation equivalent to at least the value of the sector delayed or deemed cancelled to be
paid in the form of cash or voucher, at the discretion of the air carrier; and

(b) The right to board the flight if it takes place more than six (6) hours after the ETD and the affected
passenger has not opted to rebook and/or refund. For this purpose, the air carrier is obliged to exert all
efforts to contact the passenger for the flight.

12.3 A passenger shall likewise have the right to be provided with sufficient food and beverage, in cases of
Tarmac Delay of at least two (2) hours after the ETD, reckoned from the closing of the aircraft doors, or
when the aircraft is at the gate with the doors still open but passengers are not allowed to deplane.

12.4 The provisions of this Section shall be the minimum entitlement of a passenger in case of delay and shall not
prohibit the air carrier from granting more favourable conditions or recourses, as it may deem appropriate.

Section 13. Compensation under Section 10 as Liquidated Damages. The compensation provided in

Section 10, if accepted by the passenger, shall constitute liquidated damages for all damages incurred by the
passenger as a result of the air carrier’s failure to provide the passenger with a confirmed reserved seat.

Provided that, while a confirmed reservation is necessary to make a passenger eligible for compensation, a
written confirmation issued by the air carrier or its authorized agent qualifies the passenger in this regard, even if
the air carrier cannot find the reservation in the electronic records, as long as the passenger did not cancel the
reservation or miss a reconfirmation deadline.

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 Section 14. Right to Compensation for Delayed, Lost, and Damaged Baggage. A passenger shall have the
right to have his/her baggage carried on the same flight that such passenger takes, subject to considerations of
safety, security, or any other legal and valid cause.

14.1 In case a checked-in baggage has been off-loaded for operational, safety, or security reasons, the air carrier
shall inform the passenger at the soonest practicable time and in such manner that the passenger will readily
know of the off-loading (i.e. that his/her baggage has been off-loaded and the reason therefor). If the
passenger’s baggage has been off-loaded, the air carrier should make the appropriate report and give the
passenger a copy thereof, even if it had already announced that the baggage would be on the next flight.

The air carrier shall carry the off-loaded baggage in the next flight with available space, and deliver the same
to the passenger either personally or at his/her residence. For every twenty-four (24) hours of delay in such
delivery, the air carrier shall tender an amount of Two Thousand Pesos (Php2,000.00) to the passenger, as
compensation for the inconvenience the latter experienced. A fraction of a day shall be considered as one day
for purposes of calculating the compensation.

For the purposes of this section, the twenty four (24)-hour period shall commence one (1) hour from the
arrival of the flight of the passenger carrying such baggage.

14.2 Should such baggage, whether carried on the same or a later flight, be lost or suffer any damage attributable
to the air carrier, the passenger shall be compensated in the following manner:

(a) For international flights, the relevant convention shall apply.

(b) For domestic flights, upon proof, a maximum amount equivalent to half of the amount in the relevant
convention (for international flights) in its Peso equivalent.

14.3 For compensation purposes, a passenger’s baggage is presumed to have been permanently and totally lost, if
within a period of seven (7) days, counted from the time the passenger or consignee should have received
the same, the baggage is not delivered to said passenger or consignee.

Section 15. Right to Compensation In Case of Death or Bodily Injury of a Passenger. For international

flights, in case of death or bodily injury sustained by a passenger, the relevant Convention and inter-carrier
agreement shall apply. However, for an international carriage performed under the 1966 Montreal Inter-Carrier
Agreement, which includes a point in the United States of America as a point of origin, a point of destination or
agreed stopping place, the limit of liability for each passenger for death, wounding or other bodily injury shall be
the sum of Seventy-Five Thousand United States Dollars (US$75,000.00), inclusive of legal fees and
costs. Provided, in the case of a claim brought in a state where a provision is made for a separate award for legal
fees and costs, the limit shall be the sum of Fifty-Eight Thousand United States Dollars (US$58,000.00),
exclusive of legal fees and costs.

For domestic flights, the compensation shall be based on the stipulated amount in the relevant convention
which governs international flights, the same to be given in Peso denominations.

Section 16. Right to Immediate Payment of Compensation. An air carrier liable for any and all
compensations provided by these rules shall make the same available to the affected passenger at the air carrier’s
counters at the airport on the date when the occasion entitling the passenger to compensation occurred, or at the
main office or any branch of the air carrier at the discretion of the passenger. The air carrier shall tender a check
for the amount specified, or cash, or the document necessary to claim the compensation or benefits mentioned
above; Provided, that such document shall be convertible to cash within fifteen (15) days from the date when the
occasion entitling the passenger to such compensation occurred.

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 CHAPTER V

ADMINISTRATIVE MATTERS

Section 17. Air Carrier and CAB Complaint and Assistance Desks. Air carriers shall provide Customer
Service Representatives who can address common problems, such as arranging for meals and hotel rooms for
stranded passengers, settling denied boarding compensation, arranging luggage resolutions, and settling other
routine claims or complaints, on the spot. In addition, the CAB may provide Complaints and Assistance Desks in
all airports. These shall be manned by CAB or CAB-deputized personnel, who shall assist passengers whose
rights to the service have not been fully satisfied by the air carrier. The said personnel shall assist in the filing and
prosecution of the complaints of passengers whose rights have been violated and who wish to go after the
concerned air carriers.

Section 18. Refund of Other Fees. Every air carrier must refund checked baggage fees and other
optional service fees (i.e. insurance, donation to WWF, seat selector fee, etc.), if the passenger did not use his/her
ticket provided, that the said ticket is refundable and that the passenger is not at fault. Provided, further, that
refund of checked baggage fees will also apply, if the baggage was not delivered to the passenger within twenty-
four (24) hours from the arrival of flight, on top of the compensation fee as mentioned in Section 14.1.

Section 19. Written Reports. Air carriers shall submit a monthly report to the CAB on the following:

(a) The number of regular and promotional fare passengers who have been denied boarding, or whose flights
were delayed or cancelled;

(b) The number of regular and promotional fare passengers whose baggage was lost, damaged, or off-loaded; and

(c) The number of regular and promotional fare passengers who died or sustained an injury during the course of
the flight or performance of the contract of carriage, as well as the reasons and other circumstances of such
occurrences.

Provided, that the air carriers shall maintain a database containing the names, addresses, and/or other
particulars of such passengers, their flights, concerns or complaints, as well as records of the air carrier’s
personnel regarding the same, if any, and other pertinent information, available to the CAB upon request.

CHAPTER VI

FINAL PROVISIONS

Section 20. Periodic review. This Order shall be reviewed periodically by an inter-agency body

consisting of representatives from the DOTC, the DTI, the CAB, and airport operators, in consultation with the air
carrier companies and/or other directly affected stakeholders. Such review may include the assessment,
modification, removal, and/or update of provisions in accordance with issues arising from the implementation of
this Order.

Section 21. Separability Clause. If any section(s) or any part of this Regulation is declared
unconstitutional by a competent authority, the remaining sections or parts thereof shall not be affected thereby.

Section 22. Repealing Clause. All other orders, guidelines, economic regulations, and other issuances of
the CAB, the DTI and the DOTC, which are inconsistent with these provisions, are hereby amended, repealed or
modified accordingly. Otherwise, provisions not deemed inconsistent shall be of suppletory application.

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 Section 23. Violations and Penalties. All violations of this Joint Administrative Order shall be penalized
in accordance with the pertinent provisions of the Civil Aeronautics Act of the Philippines, save for violations
pertaining to Sections 5 and 6 which are governed by the relevant provisions of the Consumer Act of the
Philippines, the implementing agency of which is DTI.

Section 24. Effectivity. This Regulation shall take effect ten (10) days after its publication in a newspaper
of general application. A copy of this Regulation shall be deposited with the University of the Philippines Law
Center in compliance with Revised Administrative Code.

-oOo-

(Code of Commerce, Arts. 349-351)

CODE OF COMMERCE PROVISIONS ON OVERLAND TRANSPORTATION

Art. 349 - A contract of transportation by land or waterways of any kind shall be considered
commercial.

1. When it has for its object merchandise or any article of commerce.

2. When, whatever its object may be, the carrier is a merchant or is habitually engaged in transportation
for the public.

Art. 350 - The shipper as well as the carrier of merchandise or goods may mutually demand that a
bill of lading be made, stating:

1. The name, surname and residence of the shipper.

2. The name, surname and residence of the carrier.

3. The name, surname and residence of the person to whom or to whose order the goods are to be sent or
whether they are to be delivered to the bearer of said bill.

4. The description of the goods, with a statement of their kind, of their weight, and of the external marks or
signs of the packages in which they are contained.

5. The cost of transportation.

6. The date on which shipment is made.

7. The place of delivery to the carrier.

8. The place and the time at which delivery to the consignee shall be made.

9. The indemnity to be paid by the carrier in case of delay, if there should be any agreement on this matter.

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 1965, 1966 and1998 BQ: What is a bill of lading?

1998 BQ No. I (1). What do you understand by a "bill of lading?"

Ans. (See below)

Bill of Lading defined. A bill of lading is a written acknowledgment of the receipt of goods issued by the carrier agreeing to
transport the goods described therein to a specific place to a person named or to his order.

A bill of lading is an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it,
stating the name of the consignor, the terms of the contract of carriage, and agreeing or directing that the freight be delivered
to the order or assigns of a specified person at a specified place (Black's Law Dictionary).

(CC, Arts. 351-353)

Art. 351 - In transportation made by railroads or other enterprises subject to regulation rate and
time schedules, it shall be sufficient for the bills of lading or the declaration of shipment furnished by the
shipper to refer, with respect to the cost, time and special conditions of the carriage, to the schedules and
regulations the application of which he requests; and if the shipper does not determine the schedule, the
carrier must apply the rate of those which appear to be the lowest, with the conditions inherent thereto,
always including a statement or reference to them in the bill of lading which he delivers to the shipper.

Art. 352 - The bills of lading, or tickets in cases of transportation of passengers, may be diverse,
some for persons and others for baggage; but all of them shall bear the name of the carrier, the date of
shipment, the points of departure and arrival, the cost, and, with respect to the baggage, the number and
weight of the packages, with such other manifestations which may be considered necessary for their easy
identification.

Freight tickets issued by the bus companies may be regarded as bills of lading, a term which includes the receipts for
cargo transported and which is not restricted to those issued by masters of vessels alone but comprehends all forms of
transportation. The use of the word "place" after "port" and of the word "receipt" for goods shipped on land are included
(Mindanao Bus Company vs. Collector of Internal Revenue, 1 SCRA 538). Ambiguity in a bill of lading is construed against
the carrier, the contract being one of adhesion. (Eastern Shipping vs. Margarine Union, 93 SCRA 267).

Art. 353 - The legal evidence of the contract between the shipper and the carrier shall be the bills of
lading, by the contents of which the disputes which may arise regarding their execution and performance
shall be decided, no exceptions being admissible other than those of falsity and material error in the
drafting.

After the contract has been complied with, the bill of lading which the carrier has issued shall be
returned to him, and by virtue of this exchange of 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 of bill of lading subscribed by the
carrier, because of its loss or any other cause, he must give the latter a receipt for the goods delivered, the
receipt producing the same effects as the return of the bill of lading.

Under Art. 353, Par. 2, the carrier is entitled to the return of the bill of lading which he has issued upon delivery of
the goods. However, when the carrier has been instructed by the shipper to deliver the perishable goods shipped without
awaiting for the bill of lading, or if it was the established practice for the shipper to request the shipping lines to immediately
release perishable cargoes through telephone calls, the carrier is justified in making delivery to the person named in the
instruction even without the presentation of the bill of lading (Macam vs. Court of Appeals, infra).

101
 The "provisions of Article 366" referred to as exception in the second paragraph of Art. 353 are the claims for
damages made after receipt of the goods by the consignee.

(CC, Arts. 353-354)

Macam vs. Court of Appeals

G. R. No. 125524, August 25, 1999, 111 SCAD 255

Facts: Macam shipped watermelons and fresh mangoes to Hongkong with Pakistan Bank as consignee and GPC, the buyer
as notify party. Upon arrival in Hongkong, the carrier delivered the shipment directly to GPC, not to Pakistan Bank, and
without the bills of lading having been surrendered, because of the telex sent by Macam to the carrier instructing delivery
without presentation of the bills of lading. Apart therefrom, it turned out that in the duration of the two-year relationship with
Macam concerning similar shipments to GPC, deliveries were effected without the presentation of the bills of lading. Is the
carrier liable to the shipper for releasing the goods to GPC without the bills of lading?

Held: The carrier is not liable. It has been the practice of Macam to request the shipping lines to immediately release
perishable cargoes such as watermelons and fresh mangoes even without the presentation of the bills of lading. Such practice
and the telex sent by Macam to the carrier are sufficient to justify delivery even without presentation of the bills of lading.
Such instructions meant that Macam no longer required presentation of the bills of lading as a condition to releasing the
goods. The bills of lading were deemed superseded by the telex instruction.

Art. 354 - 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 contracts.

Two-fold Aspect of a Bill of Lading

 A bill of lading is two-fold in its character. It is a receipt which indicates the quantity and condition of the good
received; like any other receipts, it may be explained, varied or even contradicted; the contents may be varied by parole
evidence. It is also a contract wherein the carrier agrees to transport the goods therein. As a contract, unless ambiguity can be
shown, it cannot be varied. (Magellan Manufacturing vs. CA, 201 SCRA 1021; Reyna Brokerage vs. Philippine Home
Assurance, 202 SCRA 56A). It shall be the basis for deciding all disputes between the parties between the parties regarding
the execution and performance of the contract. The law admits no exceptions other than those of falsity and material error in
its drafting.

It is said that a bill of lading has a third aspect, that of a symbol of the goods stated therein. Thus, when a negotiable bill of
lading is endorsed by the consignee to a third party, it is actually a negotiation of the goods stated in such bill of lading. In
other words, it is really the goods in the bill of lading that is being negotiated.

1998 BQ No. I (2): Explain the two-fold character of a "bill of lading."

Ans.: (See above)

In maritime commerce, a bill of lading can be treated as a contract only if there is no charter party. If there is a
charter party, the latter is the contract itself and the bill of lading will only be treated as a receipt or a symbol of the goods.

(See further discussion under Art. 706 of the Code of Commerce, Pp. _________, infra).

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Necessity for Creation of Contract. A bill of lading is not indispensable for the creation of a contract of carriage.
(Compania Maritima vs. Insurance Company of North America, 12 SCRA 213).

(CC, Arts. 354-357)

Effect of the issuance by a carrier of an unsigned bill of lading when accepted by the shipper or consignee.

A bill of lading delivered and accepted constitutes the contract of carriage even though not signed, because the
acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of a contract and of all
of its terms and conditions which the acceptor has actual or constructive notice. In a nutshell , the acceptance of a bill of
lading by the shipper and the consignee with full knowledge of its contents gives rise to the presumption that the same was a
perfected and binding contract (Keng Hua Paper Products Co., Inc. vs. Court of Appeals, 286 SCRA 257).

Effect of a bill of lading wherein the goods are made deliverable to the order of the shipper

In case the goods described in the bill of lading were deliverable to the order of the shipper, the carrier was under a
duty not to deliver the merchandise mentioned in the bill of lading, except upon presentation of the bill of lading duly
indorsed by the shipper. Considering that the bill of lading covering the goods has been made to the order of the shipper,
which means that said goods cannot be delivered without previous payment of the value thereof, it is evident that, the said
goods having been delivered without the payment of the price of the same, these facts constitute misdelivery and not non-
delivery, because there was in fact delivery of merchandise (Tan Pho vs. Hassamal Dalamal, 39 O.G. 1529).

Where the carrier has not proved delivery to the shipper or the consignee, it is liable for the merchandise stated in the bill of
lading. Upon the common carrier rests the burden of proof to establish actual delivery of the merchandise called for in the bill
of lading (Keller & Co. Ltd. vs. Buncknall Steamship Co., Ltd., 38 Phil 514).

Art. 355 - The responsibility of the carrier shall commence from the moment he receives the
merchandise, personally or through a person charged for the purpose, at the place indicated for receiving
them.

Duration of Carrier's Responsibility

Compare this article with NCC Art. 1736 which provides that the carrier's responsibility starts from the moment he receives
unconditionally the merchandise personally or through an agent, and lasts until he delivers them actually or constructively to
the consignee or to his agent.

Art. 356 - Carriers may refuse packages which appear unfit for transportation; and if the carriage is to made by railway, and
the shipment is insisted upon, the company shall transport them, being exempt from all responsibility if its objections, is
made to appear in the bill of lading.

Compare with NCC Art. 1734, Par. 4, pages 29-32, and Southern Lines vs. CA, 4 SCRA 258.

Art. 357 - If by reason of well-founded suspicion of falsity in the declaration as to the contents of a
package the carrier should decide to examine it, he shall proceed with his investigation in the presence of
witness, with the shipper or consignee in attendance.

If the shipper or consignee who has to be cited does not attend, the examination shall be made before a notary, who
shall prepare a memorandum of the result of the investigation, for such purposes as may be proper.

If the declaration of the shipper should be true, the expense occasioned by the examination and that of carefully
repacking the packages shall be for the account of the carrier and in a contrary case for the account of the shipper.

103
 (CC, Art. 358)

Art. 358 - 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 where he
must deliver them; and should he not do so, the damages caused by the delay should be for his account.

When the carrier should deliver the goods

(1) Should there be no period of time previously fixed for the delivery of the goods, the carrier shall be under obligation to
forward them with the first shipment of the same or similar merchandise he may make to the point where he must deliver
them; and should he not do so, the damages occasioned by the delay shall be suffered by him (Art. 358, Code of
Commerce).

(2) In case a period for delivery has been agreed upon, the carrier must deliver within the period agreed upon (Art. 370,
Code of Commerce; Del Viso, p. 320);

Where the common carrier incurs in delay, it shall be liable for damages (Art. 368, Code of Commerce), or for the
indemnity provided and if there is no stipulation for indemnity, for the damages caused by such delay (Art. 370, Code of
Commerce).

If the delay is due to negligence, a natural disaster shall not free such carrier from responsibility (NCC, Art. 1740).

A stipulation limiting the liability is not available as a defense if the delay is without just cause. (NCC, Art. 1747)

1979 BQ No. V-a:  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 movie house passed by and it had to be
postponed. C brings action for damages against B, claiming loss of profits. Decide the case with reasons.

Ans.: C may bring action for damages against B for loss of profits. The obligation of the carrier to carry cargo
includes the duty not to delay their transportation, so that if the carrier is guilty of delay in the shipment of
cargo, causing damages to consignee, it will be liable. (See Tan Liao vs. American President Lines, L-7280,
January 20, 1956)

Alternative Ans.: C may not bring action for damages against B for loss of profits. Since the chairs were not
claimed promptly or within reasonable time after the consignee would have been notified by the carrier of
arrival at the place of destination, the extra-ordinary liability of the common carrier ceases to be operative. (See
Article 1738, NCC; Mendoza vs. PAL, 90 Phil. 836)

Art. 359 - 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 the
goods he transports may suffer from any other cause, beside paying the sum which may have been
stipulated for such case.

(CC, Arts. 359-361)

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 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.

Art. 360 - The shipper without changing the place where the delivery is to be made, may change the
consignment of the goods which he delivered to the carrier, provided that at the time of ordering the
change of consignee the bill of lading signed by the carrier, if one has been issued, be returned to him, in
exchange for another wherein the novation of the contract appears. The expenses which they change of
consignment occasions shall be for the account of the shipper.

Change of Consignee on Orders of Shipper

 A shipper who after delivering the goods to the carrier and having been issued a bill of lading designating a
consignee and a place of consignment, wants to change the consignee of the goods, can be required by the carrier to surrender
all copies of the bill of lading in order that a new one may be issued now bearing the name of the consignee. Expenses
incurred in the process will have to borne by the shipper. This can only be done if shipment has not been made yet.

1975 BQ No. VIII: If a shipper, without changing the place of delivery changes the consigment or consignee of
the goods (after said goods had been delivered to the carrier), under what condition will the carrier be required
to comply with the new orders of the shipper?

Ans.: If the shipper should change the consignee of the goods, without changing their destination, the carrier
shall comply with the new order provided the shipper returns to the carrier the bill of lading, and a new one is
issued showing the novation of the contract. All expenses for the change must be paid by the shipper. (Art. 360,
Code of Commerce)

Art. 361 - The merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated. As a consequence, all the losses and deteriorations which the
goods may suffer during the transportation by reason of fortuitous event, force majeure, or the inherent
nature and defect of the goods, shall be for the account and risk of the shipper.

There is no presumption of negligence, but proof of these accidents is incumbent upon the carrier.

Reconciliation with NCC Art. 1735. 

CC Art. 361 has been interpreted to mean that "when goods are delivered to the ship in good order and condition and
the shipowner delivers them to the shipper in bad order and condition, it devolves upon the shipowner to allege and prove
that the damage was due to a legally exempting cause. In other words, transportation of the merchandise "at the risk and
venture of the shipper" means that the shipper will suffer losses and deterioration arising from fortuitous event, force
majeure, or inherent nature and defects of the goods. It does not mean that the carrier is free from liability for losses or
damage arising from his negligence or fault, which is presumed. (AFA, P. 147)

N.B.:  It appears that because of Art. 1735 of the New Civil Code, Art. 361of the Code of Commerce now applies only in the
case of private carriers, in which case there is no presumption of negligence and the shipper which have to prove negligence;
if the contract was with a common carrier, Art. 1735 shall prevail and the requirement to exercise extra-ordinary diligence
applies, such that it is incumbent for the carrier to

(CC, Arts. 361-362)

prove that the loss of damage was caused by any of the circumstances enumerate in Art. 1734, or inspite of is exercise of
extra-ordinary diligence.

105
 Vlasons Shipping, Inc. vs. Court of Appeals and National Steel Corporation
G.R. No. L-112350, December 12, 1997

Facts:  On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc.
(VSI) as Owner entered into a Contract of Voyage Charter Hire whereby NSC hired VSI's vessel, the MV 'VLASONS I' to
make one (1) voyage to load steel products at Iligan City and discharge them at North Harbor, Manila.

When the vessel's three (3) hatches containing the shipment were opened by plaintiff's agents after arrival at the destination,
nearly all the skids of tinplates and hot rolled sheets were found to be wet and rusty. Is the presumption of negligence against
a common carrier applicable?

Held: It is undisputed that VSI did not offer its services to the general public. As found by the RTC, it carried passengers or
goods only for those it chose under a "special contract of charter party." As correctly concluded by the Court of Appeals, the
MV Vlasons I was not a common but a private carrier." Consequently, the rights and obligations of VSI and NSC, including
their respective liability for damage to the cargo, are determined primarily by stipulations in their contract of private carriage
or charter party.

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was caused by VSI's
willful negligence or failure to exercise due diligence in making MV Vlasons I seaworhty and fit for holding, carrying and
safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the parties' agreement.

The Code of Commerce provides:

"Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has
not been expressly stipulated."

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitious event, force
majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

"Art. 362. The carrier, however, shall be liable for damages arising from the causes mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his omission
to take the precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of
lading, making him believe that the goods were of a class or quality different from what they really were."

Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the foregoing provisions of the
Code of Commerce and not by the Civil Code which, as a general rule, places the prima facie presumption of negligence on a
common carrier.

Art. 362 - Nevertheless, the carrier shall be liable for the losses and damages resulting from the
causes mentioned in the preceding article if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established among
careful persons, unless the shipper has committed fraud in the bill of lading, representing the goods to be of
a kind or quality different from what they really were.

(CC, Arts. 362-366)

If, notwithstanding the precautions referred to in this article, the goods transported run the risk of
being lost, on account of their nature or by reason unavoidable accident, there being no time for their
owners to dispose of them, the carrier may proceed to sell them, placing them for this purpose at the
disposal of the judicial authority or of the officials designated by special provisions.

106
 Art. 363 - Outside of the cases mentioned in the second paragraph of Article 361, the carrier shall
be obliged to deliver the goods shipped in the same condition in which, according to the bill of lading, they
were found at the time they were received, without any damage or impairment, and failing to do so, to pay
the value which those not delivered may have at the point and at the time at which their delivery should
have been made.

If those not delivered form part of the goods transported, the consignee may refuse to receive the
latter, when he proves that he cannot make use of them independently of the others.

Correlate with CC Arts. 365 and 371 as the first ground for abandonment of the goods to the carrier and conversion.

Art. 364 - If the effect of the damage referred to in Article 361 is merely a diminution in the value of
the goods, the obligation of the carrier shall be reduced to the payment of the amount which, in the
judgment of experts, constitutes such difference in value.

Art. 365 - If, in consequence of the damage, the goods are rendered useless for sale and
consumption for the purposes for which they are properly destined, the consignee shall not be bound to
receive them, and he may have them in the hands of the carrier, demanding of the latter their value at the
current price on that day. If among the damaged goods there should be some pieces in good condition and
without any defect, the foregoing provision shall be applicable with respect to those damaged and the
consignee shall receive those which are sound, this segregation to be made by distinct and separate pieces
and without dividing a single object, unless the consignee proves the impossibility of conveniently making
use of them in this form. The same rule shall be applied to merchandise in bales or packages, separating
those parcels which appear sound.

Correlate with CC Arts. 363 and 371 as the second ground for abandonment of the goods to the carrier.

Art. 366 - Within the twenty-four hours following the receipt of the merchandise, the claim against
the carrier for damage or average which may be found therein upon opening the packages, may be made,
provided that the indications of the damage or average which gives rise to the claim cannot be ascertained
from the outside part of such packages, in which case the claim shall be admitted only at the time of
receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in which the goods transported were delivered.

Claims Against the Carrier for Damage. Where the goods are damaged and the same are externally visible, such fact
should appear on the bill of lading on the date of receipt of the damaged merchandise by

(CC, Arts. 366-369)

the consignee. If the damage can be determined only upon opening of the packages, the consignee must file a claim within 24
hours from his receipt of the goods from the carrier.

A request by a consignee of goods for a bad order examination within the period for filing a formal claim, is
equivalent to a formal claim and tolls the running of the period. A formal claim filed 70 days later retroacts to the date of
request for a bad order examination. (New Zealand Insurance vs. IAC 131 SCRA 482).

It has been held that Article 366 is applicable to maritime transportation.

New Zealand Ins. Co. Ltd. vs. Choa Joy

107
 97 Phil. 646

Facts:  Lee Teh & Co., Inc. shipped its cargo on board the ship Jupiter in Catarman, Samar, to be delivered to the consignor's
office in Manila. The cargo never reached Manila nor was it ever delivered to the consignee because the ship ran aground
upon entering Laoang Bay, Samar on the same day of the shipment. Lee Teh & co., Inc. failed to file its claim for damages to
the cargo with the carrier within twenty-four hours as required by Art. 366 of the Code of Commerce. May the carrier be
made liable for the loss of the cargo?

Held:  The carrier is still liable. Article 366 of the Code of Commerce does not have application because the cargo was never
received by the consignee, which undertaking was never complied with. The carrier, therefore, breached its contract, and, as
such, it forfeited its right to invoke in its favor the condition required by Article 366.

Art. 367 - If doubts and disputes should arise between the consignee and the carrier with respect to
the condition of the goods transported at the time their delivery to the former is made, the goods shall be
examined by experts appointed by the parties, and, in case of disagreement, by a third one appointed by the
judicial authority, the results to be reduced to writing; and if the interested parties should not agree with
the expert opinion and they do not settle their differences, the merchandise shall be deposited in a safe
warehouse by order of the judicial authority, and they shall exercise their rights in the manner that may be
proper.

Art. 368 - The carrier must deliver to the consignee, without any delay or obstruction, the goods
which he may have received, by the mere fact of being named in the bill of lading to receive them; and if he
does not do so, he shall be liable for the damages which may be caused thereby.

Art. 369 - If the consignee cannot be found at the residence indicated in the bill of lading, or if he
refuses to pay the transportation charges and expenses, or if he refuses to receive the goods, the municipal
judge, where there is none of the first instance, shall provide for their deposit at the disposal of the shipper,
this deposit producing all the effects of delivery without prejudice to third parties with a better right.

Cf. with CC Art. 668, P. 188, infra.

It is however, the duty of the carrier to exercise due diligence and give the consignor a note, within reasonable time,
of the consignee's failure or refusal to accept the goods. A delay of eight months by the carrier in notifying the consignor
after the consignee refused to accept the goods is no longer reasonable (Oriental Commercial Co., Inc. vs. La Granja, Inc.,
[CA] 40 O.G., 2319).

(CC, Arts. 369-371)

Even where the consignee did not sign the bill of lading, he is bound to pay the freight charges, as agent of the
shipper, or by ratification, it he presents the bill of lading to the carrier and accepts the goods, (Sea Land Services vs. IAC,
153 SCRA 55).

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 to 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 bill of lading, the carrier shall be liable for the damages which the delay may
have caused.

Correlate with CC Art. 358, Pp. 121-122, supra.

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.

108
 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 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.

Consequence of Delay. Mere delay in the delivery of the goods to the consignee by the common carrier does not give to the
consignee the right to refuse the goods. There is just a breach of contract, which entitles the consignee to damages.

But if delay is unreasonable, the consignee may refuse to accept the goods, and make the carrier liable for
conversion.

Thus, where a carrier fails to deliver the goods within a reasonable time, although he thereby makes himself liable
for the damages incurred by reason of the delay, the consignee cannot refuse to accept the goods for him. However, where
property in the hands of a common carrier is not delivered within a reasonable time after it has reached its destination, the
carrier, in absence of any legal exemption and after demand has been made and delivery is refused, is liable for a conversion
of the property. And a delay of more than two years in making delivery is conclusively unreasonable (Uy Chaco & Sons vs.
The Admiral Line, 46 Phil. 418).

Correlate with CC Arts. 363 and 365 as the third ground for abandonment of the goods to the carrier.

Cases when consignee may abandon goods under the Code of Commerce.

(1) Under Art. 363 in case of partial non-delivery, where the consignee proves that he cannot make use of the goods
delivered independently of those not delivered;

(2) Under Art. 365, where the goods are rendered useless for sale and consumption for the purposes for which they are
properly destined;

(3) Under Art. 371, where there is delay through the fault of the carrier. (AFA, Pp. 151-152).

(CC, Arts. 372-373)

Art. 372 - The value of the goods which the carrier must pay in cases of loss or misplacement shall
be determined in accordance with that declared in the bill of lading, the shipper not being allowed to
present proof that among the goods declared therein there were articles of greater value and money.
Horses, vehicles, vessels, equipment and all other principal and accessory means of transportation shall be
especially bound in favor of the shipper, although with respect to railroads said liability shall be
subordinated to the provisions of the laws of concession with respect to the property, and to what this Code
established as to the manner and form of effecting seizures and attachments against said companies.

Art. 373 - The carrier who makes the delivery of the merchandise to the consignee by virtue of
combined agreements or services with other carriers shall assume the obligations of those who preceded
him in the conveyance, reserving his right to proceed against the latter if he was not the party directly
responsible for the fault which gave rise to the claim of the shipper or consignee.

Definitions

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Initial carrier --- A common carrier which receives property for transportation which it afterwards delivers to another carrier
for further carriage (Barrett v. Northern Pac. Ry. Co., 157 P. 1016, 29 Idaho 139).

Connecting carrier --- one of several common carriers whose lines or parts thereof united constitute the route over which a
shipment is to pass, and which participate in the transportation of such shipment (Veitch v. Illinois Cent. R. Co., 6 So.
575, 14 Ala. App. 146). It is a common carrier furnishing a necessary link in the transportation under a bill of lading
(nanson v. Jacob, 12 Mo. App. 125, 127). It has also been defined as one whose route, not being the first one, lies
somewhere between the point of shipment and the point of destination (Ibid.).

Forwarding carrier --- The carrier which transports goods to the delivering carrier (Brunk v. Ohio, etc., R. Co., 105 S.W.
443, 444, 127 Ky. 304).

Delivering carrier --- The carrier which delivers the goods transported at the point of destination (See Charles D. Stone &
Co. v. New York Cent. R., Co., 214 Ill. App. 483)

.
Under Art. 373 of the Code of Commerce, in case of combined agreements or services with other carriers, it is the
delivering carrier who shall assume the obligations of those who preceded him in the conveyance, but with the right to
proceed against the latter if he was not the party directly responsible for the fault which gave rise to the claim of the shipper
or consignee.

Example: "A" accepted from B the shipment of carpets from Marrakesh, Morroco to Batangas City, Philippines, with the
agreement that A would obtain the combined services of various carriers to be able to deliver the carpets to the point of
destination. Pursuant to the agreement, A shipped the carpets with C Railway Co., from Marrakesh to Casablanca; with
Lufthansa Airlines from Casablanca to Bangkok; with Philippine Airlines from Bangkok to Manila. "A" carried the goods
from Manila to Batangas City.

(a) Who is the initial carrier, connecting carrier, forwarding carrier and delivering carrier?

(b) What are the liabilities of each one of them?

(c) What is the responsilibity of A, as the carrier who entered into a contract of combined services of various carriers?

(CC, Arts. 373-378)

"A" is both the initial and delivering carrier being the one who received the carpets for transportation and the one who
delivered the same to the consignee.

C Railway Co., Lufthansa and Philippine Airlines are the connnecting carriers being the carriers between the point of
shipment and the point of destination.

Philippines Airlines, aside from being a connecting carrier, is also the forwarding carrier, having transported the goods to the
delivering agent.

"A" who entered into a contract for the combined services of various carriers and as delivering carrier, assumes the
responsibility of conveyance but has the right against any of the connecting or forwarding carrier who was responsible for the
damage or loss. (Art. 373, Code of Commerce). A connecting carrier in possession of the goods at the time of the loss cannot
evade liability upon the ground that it was acting as the agent of another carrier. (Galveston Wharf Co. v. Galveston, H &
S.A. Ry. Co., 52 S.Ct., 342, 285 U.S. 127, 76 L.Ed. 659). So the fact that it acts in the transportation as the agent of the
contracting carrier furnishes no legal reason why it should not be held liable (Makeevr v. Georgia Southern & F. Ry. Co., 294
S. W. 144, 219 Ky. 699).

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 Art. 374 - The consignees to whom the shipment was made may not defer the payment of the
expenses and transportation charges of the goods they receive after the lapse of twenty-four hours
following their delivery; and in case of delay in this payment, the carrier may demand the judicial sale of
the goods transported in an amount necessary to cover the cost of transportation and the expenses
incurred.

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 their
delivery. This special right shall prescribe eight (now 30 days as per NCC Art. 2241, Sec. 9) days after the
delivery has been made, and once prescribed, the carrier shall have no other action than that
corresponding to him as an ordinary creditor.

This is part of the hypothecary nature of maritime contracts.

Carrier's Lien on Goods. The goods transported are bound for this obligation, and the carrier acquires a 30-day lien over
these goods during which the goods may be sold to satisfy the credit of the carrier. (As amended by NCC Art. 2241, Sec. 9)

Art. 376 - The preference of the carrier to the payment of what is owed him for the
transportation and expenses of the goods delivered to the consignee shall not be cut off by the
bankruptcy of the latter, provided it is claimed within the eight (now 30 days as per NCC Art.
2241, Sec. 9) days mentioned in the preceding article.

Art. 377 - The carrier shall be liable for all the consequences which may arise from his
failure to comply with the formalities prescribed by the laws and regulations of the public
administration, during the whole course of the trip and upon arrival at the point of destination,
except when his failure arises from having been led into error by falsehood on the part of the
shipper in the declaration of the merchandise. If the carrier has acted by virtue of a formal order
of the shipper or consignee of the merchandise, both shall become responsible.

(CC, Arts. 372-373)

Art. 378 - Agents for transportation shall be obliged to keep a special registry, with the
formalities required by Article 36, in which all the goods the transportation of which is
undertaken shall be entered in consecutive order of number and dates, with a statement of the
circumstances required in Article 350 and others following for the respective bills of lading.

Art. 379 - The provisions contained in Articles 349 and following shall be understood as equally
aplicable to those who, although they do not personally effect the transportation of the merchandise,
contract to do so through others, either as contractors for a particular or definite operation, or as
agents for transportations and conveyances. In either case they shall be subrogated in the place of the
carriers themselves, with respect to the obligations and responsibility of the latter, as well as with regard to
their rights.

VESSELS

"Vessels" or "Watercraft" Defined --- Any barge, lighter, bulk carrier, passenger ship freighter, tanker, container ship,
fishing boats or other artificial contrivance utilizing any source of motive power, designed, used or capable of being
used as a means of water transportation operating either as common contract carrier, including fishing vessels covered

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 under Presidential Decree No. 43, except (1) those owned and/or operated by the Armed Forces of the Philippines and
by foreign governments for military purposes, and (ii) bancas, sailboats and other waterborne contrivance of less than
three gross tons capacity and not motorized." (P.D. No. 474 [Providing for the Reorganization of Maritime Functions
in the Philippines, Creating the Marine Industry Authority, and for other purposes, Sec. 3)

Art. 573 - Merchant vessels constitutes property which maybe acquired and transferred by any of
the means recognized by law. The acquisition of a vessel must appear in a written instrument, which shall
not produce any effect with respect to third persons if not inscribed in the registry of vessels. The
ownership of a vessel shall likewise be acquired by possession in good faith, continued for three years, with
a just title duly recorded. In the absence of any of these requisites, continous possession for ten years shall
be necessary in order to acquire ownership. A captain may not acquire by prescription the vessel of which
he is in command.

Merchant Vessels Defined. A merchant vessel is a vessel engaged in maritime commerce, whether foreign or otherwise.

Modes of Acquiring Ownership of vessels.

(1) Purchase, whether a voluntary ornecessary sale; (2) Construction;

(3) Prescription;

(4) Capture;

(5) Donation; (6) Succession;

(7) Other lawful modes of acquisition.

(CC, Art. 573; EO No. 125-A )

Necessity of Registration.

The acquisition of a vessel must appear in a written instrument, which shall not produce any effect with respect to
third persons if not inscribed in the registry of vessels. It is the Administrator of the Marine Industry Authority who has the
authority to "issue Certificate of Philippine Registry for all vessels being used in Philippine waters, including fishing vessels
covered by Presidential Decree No. 43 except transient civilian vessels of foreign registry, vessels owned and/ or operated by
the Armed Forces of the Philippines or by foreign governments for military purposes, and bancas, sailboats and other
watercraft which are not motorized, or less than three gross tons. (P.D. No. 474, Sec. 12)

EXECUTIVE ORDER NO. 125-A (AMENDING EXECUTIVE ORDER NO. 125, ENTITLED
"REORGANIZING THE MINISTRY OF TRANSPORTATION AND COMMUNICATIONS,
DEFINING ITS POWERS AND FUNCTIONS, AND FOR OTHER PURPOSES" , provides:

" Sec. 12. The Maritime Industry Authority is hereby retained and shall have the following functions:

"x x x.

"c. Issue Certificates of Public Convenience for the operation of domestic and overseas water carriers.

"d. Register as well as issue certificates, licenses or documents necessary or incident thereto.

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"x x x."

Vessels that are eligible for bay and river license

To be eligible for bay and river license, a vessel must be built in the Philippines, and the ownership of such vessel must be
vested in: (a) citizens of the Philippines; (b) domestic corporations or companies seventy-five per centum (75%) of whose
corporate capital belongs to citizens of the Philippines (Sec. 911, R.A. No. 1937).

Water crafts are exempted from bay and river license

1. Vessels of three tons net weight or less;

2. Yachts, launches and other crafts used exclusively for pleasure and recreation;

3. Ship's boats and launches bearing the name and home port of the mother vessel plainly marked thereon; and

4. Vessels owned by the Government of the Philippines.

However, the exemption of any vessel shall at once cease if it engages in the business of transporting cargo or
passengers (Sec. 912, R.A. No. 1937).

Under Sec. 806 of P.D. 34 (Tariff and Customs Code) as amended by P.D. 761, a vessel of more than 3 tons owned
by Filipino citizens or corporations and associations at least 60% of the capital of which belongs to said citizens shall be
registered with the Philippine Coast Guard under P.D. 1064. The registration of those 3 tons, or less, is optional. Thereafter,
if the vessel is more than 15 tons gross, it shall

(EO No. 125-A )

be issued a certificate of Philippine registry. The taking of a certificate of Philippine registry on vessels 15 tons or less is
optional. However, if a domestic vessel not less than 5 tons does not take a certificate of Philippne registry, it shall be issued
a certificate of ownership. A foreign-owned vessel under charter or lease to a Filipino national may be issued a temporary
certificate of registration under the following conditions: (1) said charter or lease is with the approval of MARINA; (2)
duration is not less than one year; (3) used exclusively in coastwise trade unless otherwise permitted by MARINA to be used

for overseas trade; (4) operation entirely in the hands of Filipinos; and (5) vessel manned by a completely Filipino crew (P.D.
760 as amended by P.D. 886).

Effects of Registration

MOREY v. LAO
10 Phil. 258, February 29, 1908

Facts: Plaintiff, a resident of Thursday Island, Australia, was the owner of a schooner called Gwendoline which was stolen
by the Japanese in Thursday Island and was afterwards found in the possession of the Defendant at Tacloban. Plaintiff
brought this action against defendants from Leyte, to recover a schooner in the possession of defendant Bustillo. Judgment
was rendered in favor of plaintiff for possession or for its value. Appeal.

Held: Among the errors assigned by the appellant is the admission in evidence of Exh. D, which is the certificate of registry
issued by the customs authorities of Thursday Island in favor of plaintiff. Even if the admission of this document were error,
it could not prejudice appellant, because there is still sufficient evidence aside from said certificate.

Whatever other effect the documents of the defendants may produce, they certainly are not sufficient to show that they have
duly become the owner of the schooner. Cebu Customs Collector had no jurisdiction to determine that question as against the
plaintiff upon an ex-parte aplication of which plaintiff had o notice. Documents issued by a collector of customs relating to
the proprietorship of a vessel are not conclusive proof against the real owner. Judgment affirmed.

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 ARROYO v. YU
54 Phil. 511, February 28, 1930

Facts: The appeal of Yu relates to the preferences to the two lorchas as between herself and the PNB. Among the facts found
by the trial judge is that they were owned by Lim Ponzo Navigation Co. They were mortgaged to Po Pauco to guarantee a
loan of P20,000. This was duly registered with the register of deeds. Po Pauco later mortgaged them in favor of PNB and
registered with register of deeds but was recorded in the office of Collector of Customs much later. Meanwhile, Yu secured a
judgment against Lim Ponzo Navigation Co. The notice of seizure was recorded by the Collector of customs of Iloilo on
which date the records of the office disclosed the vessels as free from encumbrances.

Held: Sec. 1171 of the Administrative Code has modified the provisions of the Chattel Mortgage Law, particularly Sec. 4
thereof. It is now not necessary for a chattel mortgage of the vessel to be noted in the register of deeds. But it is essential that
a record of documents affecting the title of a vessel be entered in the office of the collector of customs at a port of entry. This
is designed to protect persons who deal with vessel on the strength of the record title. Mortgages on vessels, although not
recorded, are good as between the parties. But as against creditors of the mortgagor, an unrecorded mortgage is valid.

However, we find an explanation of the delay of registration with the collector of customs - because of doubts entertained by
the latter relative to the applicability of Act. No. 3324 to a mortgage executed in 1918 in favor of a Chinese subject. This
uncontradicted fact must be taken as curing the bank's defective title. That the collector did not perform his duty was no fault
of PNB.

(EO No. 125-A; CC, Art. 575-578)

Judgment affirmed in part in the sense that as between Yu and PNB, the latter has a superior right to its claim for P20,000,
and set aside in part in the sense that the records are remanded for further proceedings.

RUBISO v. RIVERA
37 Phil. 72, October 30, 1917

Facts: Defendant Rivera acquired by purchase the pilot boat Valentina on a date prior to that of the purchase and
adjudication at public auction by plaintiff Rubiso. But the sale at public auction to Rubiso was recorded in the office of the
collector of customs on Jan. 27, 1915 and in the commercial registry on March 4, 1915, while the sale to Rivera was entered
in the customs registry only on March 17, 1915. Lower court decided for plaintiff. Defendant appealed.

Held: The requisite of registration in the registry of the purcahse of a vessel is necessary and indispensable in order that the
purchaser's right may be maintained against a claim filed by a third person. Such registration is required by both Art. 573 of
the Code of Commerce in connection with Sec. 2 of Act No. 1900 which Act amended said article. The amendment solely
consisted in charging the Insular Collector of Customs, as at present, with the fulfillment of the duties of the commercial
register concerning the registering of vessels; so that the registration of a bill of sale of a vessel shall be made in the Insular
Collector of Customs, who, since May 18, 1909, has been performing the duties of the commercial registry in place of this
latter official. In view of said legal provisions, it is undeniable that defendant's right cannot prevail over those acquired by
plaintiff in the ownership of said boat, inasmuch as defendant's registration came after plaintiff's registration. Judgment
affirmed.

(Correlate with CC Art. 582, P. ______, infra)

Art. 574 - Builders of vessel may employ the materials and follow, with respect to their construction
and rigging, the systems most suitable to their interests. Ship owners and seamen shall be subject to what
the laws and regulations of the public administration on navigation, customs, health, safety of vessels, and
other similar matters.

Art. 575 - Co-owners of vessels shall have the right of repurchase and redemption in sales made to
strangers, but they may exercise the same only within the nine days following the inscription of the sale in
the registry, and by depositing the price at the same time.

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 Art. 576 - In the sale of a vessel it shall always be understood as included the rigging, masts, stores
and engine of a steamer appurtenant thereto, which at the time belongs to the vendor. The arms, munitions
of war, provisions and fuel shall not be considered as included in the sale. The vendor shall be under the
obligation to deliver to the purchaser a certified copy of the record sheet of the vessel in the registry up to
the date of the sale.

Art. 577 - If the alienation of the vessel should be made while it is on a voyage, the freightage which
it earns from the time it receives its last cargo shall pertain entirely to the purchaser, and the payment of
the crew and other persons who make up its complement for the same voyage shall be for his account. If
the sale is made after the vessel has arrived at the port of its destination, the freightage shall pertain to the
vendor, and the payment of the crew and other individuals who make up its complement shall be for his
account, unless the contrary is stipulated in either case.

Repairs made on a vessel ultimately redound to the benefit of the new owner, for without said repairs, the vessel will
be unseaworthy. Such acts give rise to "solutio indebitii" under Art. 2142 of the Civil Code and should be paid by the party
benefitted. (BPI vs. Pineda, 156 SCRA 404)

(CC, Arts. 578 - 580)

Art. 578 - If the vessel being on a voyage or in a foreign port, its owner or owners should
voluntarily alienate it, either to Filipinos or to foreigners domiciled in the capital or in a port of another
country, the bill of sale shall be executed before the consul of the Republic of the Philippines at the port
where it terminates its voyage and said instrument shall produce no effect with respect to third persons if it
is not inscribed in the registry of the consulate. The consul shall immediately forward a true copy of the
instrument of purchase and sale of the vessel to the registry of vessels of the port where said vessel is
inscribed and registered.

In every case the alienation of the vessel must be made to appear with a statement of whether the
vendor receives its price in whole or in part, or whether he preserves in whole or in part any claim on said
vessel. In case the sale is made to a Filipino, this fact shall be stated in the certificate of navigation. When a
vessel, being on a voyage, shall be rendered useless for navigation, the captain shall apply to the competent
judge or court of the port of arrival, should it be in the Philippines; and should it be in a foreign country, to
the consul of the Republic of the Philippines, should there be one, or, where there is none, to the judge or
court or to the local authority; and the consul, or the judge or court, shall order an examination of the
vessel to be made. If the consignee or the insurer should reside at said port, or should have representatives
there, they must be cited in order that they may take part in the proceedings on behalf of whoever may be
concerned.

Correlate with CC Art. 582, P. _____, infra.

Art. 579 - After the damage to the vessel and the impossibility of her being repaired, in order to
continue the voyage had been shown, its sale at public auction shall be ordered, subject to the following
rules:

1. The hull of the vessel, its rigging, engines, stores, and other articles shall be appraised, after making an
inventory, said proceedings to be brought to the notice of the persons who may wish to take part in the
auction.

2. The order or decree ordering the auction to be held shall be posted in the usual places, an
announcement thereof to be inserted in the Official Gazette and in two of the newspapers of the largest
circulation of the port where the auction is to be held, should there be any. The period which may be
fixed for the auction shall not be less than twenty days.

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3. These announcements shall be repeated every ten days, and their publication shall be made to appear in
the records.

4. The auction shall be held on the day fixed, with the formalities prescribed in the common law for
judicial sales.

5. If the sale should take place while the vessel is in a foreign country, the special provisions governing
such cases shall be observed.

(Art. 580 - In all judicial sales of any vessel for the payment of creditors, the following shall have
preference in the order stated:

(CC, Art. 580)

1. The credit in favor of the public treasury proven by means of an official certificate of competent authority.

2. The judicial costs of the proceedings, according to an appraisement approved by the judge or court.

3. The pilotage charges, tonnage dues, and the other sea or port charges, proven by means of proper certificates of the officers
entrusted with the collection thereof.

4. The salaries of the depositaries and keepers of the vessel and any other expenses for its preservation from the time of
arrival at the port until the sale, which appear to have been paid or be due by virtue of an account verified and approved
by the judge or court.

5. The rent of the warehouse where the rigging and stores of the vessel have been take care of, according to contract.

6. The salaries due the captain and crew during its last voyage, which shall be verified by means of the liquidation to be made
in view of the lists and of the books of account of the vessel, approved by the chief Bureau of Merchant Marine, where
there is one, and in his absence by the consul or judge or court.

7. The reimbursement for the goods of the freight which the captain may have sold in order to repair the vessel, provided that
the sale has been ordered through a judicial proceedings held with the formalities required in such cases, and recorded in
the certificate of registry of the vessel.

8. The part of the price which has not been paid to the last vendor, the unpaid credits for materials and labor in the
contruction of the vessel, when it has not navigated, and those arising from the repair and equipment of the vessels and
from its provisioning with victuals and fuel during the last voyage.

In order that the credits provided for in this subdivision may enjoy this preference, they must appear by contracts recorded in
the registry of vessels, or if they were contracted for the vessel while on a voyage and said vessel has not returned to the
port where it is registered, they must be made with the authorization required for such cases and annotated in the
certificate of registration of the vessel.

9. The amount borrowed on bottomry on the hull, keel, tackle, and stores of the vessel before its departure, proven by means
of the contract executed according to law and recorded in the registry of vessels; those borrowed during the voyage with
the authorization mentioned in the preceding subdivision, satisfying the same requisites; and the insurance premium,
proven by the insurance policy or a certificate taken from the books of the broker.

10. The indemnity due the shipper for the value of the goods shipped which were not delivered to the consignees, or for
averages suffered for which the vessel is liable, provided that either appear in a judicial or arbitration decision.)

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N.B. The provisions of Arts. 580 and 584 of the Code of Commerce regarding preference in favor of creditors of a
vessel for unpaid sales price, for materials and work in the construction of the vessel, for repairs, for equipping and
provisioning the vessel, have been amended by P.D. 214 which has created a preferential lien in favor of a mortgage
bank or financial institution funding the construction, acquisition or purchase of the vessel. (DP, Lub Oil Marketing
Center vs. Nicolas et al, 191 SCRA 423).

The preference of credits under R.A. 6106, P.D. 214 Sec. 2 and PD 1521, Sec. 17 are as follows:

Expenses and fees allowed and costs taxed by the court and taxes due to the government;

(Arts. 580 and 583 as amended by R.A. 6106, P.D. 214, Sec. 2 and PD 1521, Sec. 17)

2. Crew's 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 mortgage registered prior in time.

Between a mortgage right on the vessel, and the claim of persons who successfully salvaged the vessel, the latter is
entitled to better preference. (PAIC vs. Malayan Towage, May 24, 1989).

1994 BQ #19: Gigi obtained a loan from JOJO Corporation, payable in installments. Gigi executed a chattel
mortgage in favor of JOJO whereby she transferred "in favor of JOJO, its successors and assigns, all her title,
rights xxx to a vessel of which Gigi is the absolute owner." The chattel mortgage was registered with the
Philippine Coast Guard pursuant to Presidential Decree No. 1521. Gigi defaulted and had a total accountability
of P3,000,000.00. But JOJO could not foreclose the mortgage on the vessel because it sank during a typhoon.

Meanwhile, Lutang Corporation which rendered salvage services for refloating the vessel sued Gigi.

Whose lien should be given preference, that of JOJO or of Lutang?

Ans. : Lutang Corporation's lien should be given preference. The lien of JOJO by virtue of a loan on bottomry
was extinguished when the vessel sank. Under such loan on bottomry JOJO acted not only as creditor but also
as insurer. JOJO's right to recover the amount of the loan is predicated on the safe arrival of the vessel at the
port of destination. The right was lost when the vessel sank (Sec. 17, P.D. No. 1521.)

Art. 581 - If the proceeds of the sale should not be sufficient to pay all the creditors included in one
number or grade, the residue shall be divided among them pro rata.

Art. 582 - After the bill of the judicial sale at public auction has been executed and inscribed in the
registry of vessels, all the other liabilities of the vessel in favor of the creditors shall be considered
extinguished. But if the sale should have been voluntary and should have been made while the vessel was on
a voyage, the creditors shall preserve their rights against the vessel until it returns to the port of her
registry, and three months after the inscription of the sale in the registry of vessel or the arrival.

Art. 583 - If while on a voyage the captain should find it necesary to contract one or more of the
obligations mentioned in subdivision 8 and 9 of Article 580, he shall apply to the judge or court if he is in

117
the Philippine territory, and otherwise to the consul of the Republic of the Philippines, should there be one,
and, in his absence, to the judge or court or proper local authority, presenting the certificate of the
registration sheet treated of in Article 612 and the instruments proving the obligation contracted.

The judge or court, the consul, or the local authority, as the case may be, in view of the result of the
proceedings instituted, shall make a temporary memorandum of their

(CC, Arts. 583-586)

result in the certificate, in order that it may be recorded in the registry when the vessel returns to the port
of its registry, or so that it can be admitted as a legal and preferred obligation in case of sale before its
return, by reason of the sale of the vessel on account of a declaration of unseaworthiness. The omission
of this formality shall make the captain personally liable for the credits prejudiced on his account.

(Art. 584 - The vessels subject to liability for the credits mentioned in Article 580 may be attached and
judicially sold in the manner prescribed in Article 579, in the port in which they may be found, at the instance of
any of the creditors; but if they should be loaded and ready to sail, the attachment may not be effected except for
the same voyage, and even then the attachment shall be dissolved if any person interested in its sailing should
give a bond for the return of the vessel within the period fixed in the certificate of navigation, binding himself to
pay the undebtedness insofar as it may be legal, should it fail to do so, even if this failure be due to fortuitous
event. For debts of any other kind whatsoever not comprised within the said Article 580, the vessel may be
attached only in the port of her registry.)

The maritime creditor may attach the vessel without waiting for the settlement of his right. (Chua vs. IAC, 166
SCRA 183).

Art. 585 - For all purposes of law not modified or restricted by the provisions of this Code, vessels
shall continue to be considered as personal property.

Classification as Property. Vessels are movable property, hence, may be the subject of a chattel mortgage. The contract
should however be registered with the Bureau of Coast Guard.

PERSONS WHO TAKE PART IN MARITIME COMMERCE

Art. 586 - The shipowners and the ship agent shall be civilly liable for the acts of the captain and for
the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor
proves that the amount claimed was invested for the benefit of the same. By ship agent is understood the
person entrusted with provisioning or representing the vessel in the port in which it may be found.

Participants in Maritime Commerce.

1. Ship Owner --- the person who has possession, control and management of the vessel and the consequent right to direct her
navigation and receive the freight earned and paid, while his possession continues.

2. Ship Agent --- a person entrusted with provisioning and representing the vessel in the port in which it may be found (Art.
586, Par. 2). The term "ship agent" is broad enough to include the shipowner. (AFA, P. 204)

3.Husbanding agent --- the general agent of the owner in relation to the ship, with powers, among others, to engage the vessel
for general freight and the usual conditions, settles freight and adjusts averages with the merchant. (Commissioner of
Internal Revenue vs. United States Lines, 5 SCRA 175)

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4.Captain or Master of the Vessel; (AFA, P. 204)

5.Other Officers of the vessel like the Chief or Sailing Mate, Quartermaster or Second Mate, and the Engineer; (Idem)

(CC, Art. 586)

6.Supercargo - a person who discharges administrative duties assigned to him by the ship agent or the shippers, keeping an
account and record of transactions as required in the accounting book of the captain (CC, Art. 649).

7.Charterer.

An agent of a charterer whose obligation under the charter contract is to unload the goods, is not a ship agent and
therefore not solidarily liable for loss or damage to the goods during the voyage. (Maritime Agencies vs. CA et al 187 SCRA
246; Union Ins. vs. CA, et al, 187 SCRA 346).

Civil Liability of Ship Agent and/or Shipowner. The civil liability of the shipowner and/or the ship agent extends to: (1) all
contracts of the captain, whether authorized or unauthorized, to repair, equip and provision the vessel, and: (2) loss and
damage to the goods loaded on the vessel without prejudice to the ship owner or ship agent freeing themselves from liability
by abandoning the vessel to the creditors.

1981 BQ No. 8: "S" shipped goods from Australia on board a foreign vessel owned and operated by "X", a
shipping company, based in Australia and represented in the Philippines by "R". The goods were consigned to
"T" of Manila and insured by "U" against all risks. Upon arrival in Manila Bay, the goods were discharged from
the vessel to a lighter owned by the Bay Brokerage Co.

When delivered to and received by "T", the goods were found to have sustained losses or damages. Evidence
disclosed that the damage occured while the goods were in the custody of the carrier.

The insurance company paid the amount of the loss but sought reimbursement from "X" and/or "R". "R"
disclaimed any liability alleging that he is a mere agent of "X", and having acted as agent of a disclosed
principal is, therefore, not liable.

(a) Can the insurance company recover from "R"? Reasons.

(b) What is the liability, if any, of Bay Brokerage Co.? Explain.

Ans. --- (a) Yes, the insurance company can recover from "R". A ship agent ("R") under the Code of Commerce
(Art. 586) is liable solidarily with its principal (X), in an amount representing the value of the good lost or
damaged. (See Switzerland General Insurance Co., Ltd. vs. Ramirez, February 21, 1980), SCRA 297).

(b) The Bay Brokerage Co. is not liable. The evidence disclosed that the damage occured while the goods were
yet in the custody of the carrier, before that goods were discharged from the vessel to a lighter owned by the
Bay Brokerage Co.

It is universally recognized that the captain is the representative of the owner and both under Art. 586, Com.
Code are civilly liable for acts of the master. When jettison of cargo occurs, it is the duty of the captain to effect the
adjustment, liquidating and distribution of the general average; his failure gave rise to liability for which the owner of
the ship must answer. (CC, Arts. 586-587)

The owner of the ship ordinarily has vastly more capital embarked upon a voyage than has any shipper of cargo.
Moreover, the shipowner, in captain's person, has complete and exclusive control of the crew and ship navigation. It is

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therefore proper that any person whose property may have been cast should have the right of action directly against the
shipowner for breach of duty which the law imposed on the

(CC, Art. 586 - 587)

captain with respect to such cargo. The evident intention of the Com. Code, is to place primary liability upon the person who
has actual control over the conduct of the voyage and who has most capital in the venture, namely, the shipowner, leaving
him to obtain recourse, as it is very easy to do, from other individuals who have been drawn into the venture as shippers.
(Standard Oil vs. Castelo, 42 Phil. 256, Oct. 18, 1921)

LIMITED LIABILITY or REAL AND HYPOTHECARY NATURE OF MARITIME LAW

Art. 587 - The ship agent shall also be civilly liable for the indemnities in favor of third persons
which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but
he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may
have earned during the voyage.

1982, 1985 BQ: Explain the limited liability rule or the so-called real or hypothecary nature of maritime law.
1997 BQ No. 17: Explain the Doctrine of Limited Liability in Maritime accidents.

Ans.: (See below)

The limited liability rule or the so-called real or hypothecary nature of maritime law means that the liability of the ship
owner or agent, arising from the operation of a ship, is limited to the vessel, equipment and freight during the voyage,
so that if the vessel is lost or sinks, or if the ship owner or agent abandons the vessel, equipment and freight, his
liability would be extinguished. Thus, the saying "No vessel, no liability."

Origin and Rationale of the Rule. The limited liability rule has its origin by reason of the conditions and risks attending
maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since vessels had to
go through largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and to encourage
people and entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the
liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its
equipment, freight, and insurance, if any, which limitation served to induce capitalists into effectively wagering their
resources against the consideration of the large profits attainable in the trade. (Aboitiz Shipping Corp. vs. Gen. Accident Fire
and Life Ass. Corp., 217 SCRA 359, Jan. 21, 1993)

Reconciliation of the limited liability rule with the provisions of the Civil Code on common carriers.

Considering the "real and hypothecary nature" of liability under maritime law, these provisions would not have any
effect on the principle of limited liability for shipowners or shipagents. Article 1766 of the Civil Code provides:

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

In other words, the primary law is the Civil Code (Arts. 1732-1766) and in default thereof, the Code of Commerce
and other special laws are applied. Since the Civil Code contains no provisions regulating liability of shipowners or agents in
the event of total loss of destruction of the vessel, it is the provisions of the Code of Commerce, more particularly Article
587, that govern in this case. (Chua Yek Hong v. IAC, 166 SCRA 183, September 30, 1988, with facts in P. 124, infra)

(CC, Art. 587)

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 YANGCO v. LASERNA
73 Phil. 330, October 29, 1941

Facts: Petitioner's Yangco's vessel SS Negros left Romblon. The captain was duly advised and his attention was called by the
passengers that typhoon signal No. 2 was up. But the boat proceeded to sail after some loading. As the sea became very
violent, the captain ordered that the ship return to the port but was caught by waves causing it to capsize and sink. Many
passengers died. Respondent heirs of deceased filed separate civil actions against the petitioner to recover damages which the
lower court awarded. Petitioner, however, in a pleading sought to abandon the vessel to plaintiffs/respondents with all its
equipment. Abandonment was denied. CA affirmed the judgment. Hence this petition for review on certiorari.

Held: If the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising fom
the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, the fact is not ignored that the SS
Negros, as a vessel engaged in interisland trade, is a common carrier, and that the relationship between the petitioner and the
passengers who died in the mishap rest on a contract of carriage. But assuming that petitioner is liable for a breach of contract
of carriage, the exclusively "real and hypothecary" nature of maritime law operates to limit such liability to the value of the
vessel, or to the insurance thereon, if any.

CHUA YEK HONG v. IAC

166 SCRA 183, September 30, 1988

Facts: Petitioner Chua is a duly licensed copra dealer based at Puerto Galera, Oriental Mindoro, while private respondents
are the owners of the vessels, "M/V Luzviminda I," a common carrier engaged in coastwise trade from the different ports of
Oriental Mindoro to the Port of Manila.

In October 1977, petitioner loaded 1,000 sacks of copra valued at P101,227.40, on board the vessel "M/V Luzviminda I" for
shipment from Puerto Galera, Oriental Mindoro, to Manila. Said cargo, however, did not reach Manila because somewhere
between Cape Santiago and Calatagan, Batangas, the vessel capsized and sank with all its cargo.

Held: The term "ship agent" as used in Art. 587 of the Code of Commerce is broad enough to include the shipowner
[Standard Oil Co. v. Lopez Castelo, 42 Phil. 256 (1921)]. Pursuant to said provision, therefore, both the shipowner and ship
agent are civilly and directly liable for the indemnities in favor of third persons, which may arise from the conduct of the
captain in the care of goods transported, as well as for the safety to passengers transported. [Yangco v. Laserna, supra;
Manila Steamship Co., Inc. v. Adbulhaman, et al., 100 Phil. 32 (1956)].

However, under the same Article, this direct liability is moderated and limited by the ship agent's or shipowner's right of
abandonment of the vessel and earned freight. This expresses the universal principle of limited liability under maritime law.
The most fundamental effect of abandonments is the cessation of the responsibility of the ship agent/owner (Switzerland
General Insurance Co., Lt. v. Ramirez, L-48264, February 21, 1980, 96 SCRA 297).

The shipowner's or agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in
its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The total destruction of the vessel
extinguishes maritime lines as there is no longer any res to which it can attach [Govt. Insular Maritime Co. v. The Insular
Maritime, 45 Phil. 805, 807 (1924)].

The limited liability rule, however, is not without exceptions, Namely: (1) where the injury or death to a passenger is due
either to the fault of the shipowner, or to the concurring negligence of the shipowner and the captain (Manila Steamship Co.,
Inc. v. Abdulhaman, supra); (2) where the vessel is insured; and (3) in workmen's compensation claims (Abueg vs. San
Diego, supra). In this case, there is nothing in the records

(CC, Art. 587)

to show that the loss of the cargo was due to the fault of the private respondents as shipowners, or to their concurrent
negligence with the captain of the vessel.

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xxx

Since the ship agent's or shipowner's liability is merely co-extensive with this interest in the vessel such that a total loss
thereof results in its extinction (Yangco v. Laserna, supra), and none of the exceptions to the rule on limited liability being
present, the liability of private respondents for the loss of the cargo of copra must be deemed to have been extinguished.
There is no showing that the vessel was insured in the case.

1978 BQ #IV-b:  Pablo Esparadon, a duly-licensed ship captain of the M/V Don Jose was drunk while he was
on duty as such, and while M/V Don Jose was sailing from Manila to the Visayas. As a consequence thereof,
the M/V Don Jose rammed another vessel near Corregidor, causing both vessel to sink completely and thus
become total losses. The cargo owners of both sunken vessels sued the owner of the M/V Don Jose for their
losses. Is the shipowner of M/V Don Jose liable? Explain your answer.

Ans.: No. the shipowner of M/V Don Jose is not liable. The civil liability of the shipowner of a vessel, in
maritime collision which is caused by the fault of the captain, as in this problem (being drunk), is merely co-
existent with his interest in the vessel (M/V Don Jose), such that the total loss thereof, results in the extinction
of such liability. (See Arts. 826 & 827, Code of Commerce: Urrutia & Co. vs. Baco River Plantation Co., 26
Phil. 362: Guan vs. Cia Maritime (SC), 38 Off. Gaz. 2536; etc.)

1991 BQ #13: In a collision between M/T Manila, a tanker, and M/V Don Claro, an inter-island vessel, M/V
Don Claro sank and many of its passengers drowned and died. All its cargoes were lost. The collision occurred
at night time when the sea was calm, the weatherfair and visibility was good. Prior to the collision and while
still four (4) nautical miles apart, M/V Don Claro already sighted M/T Manila on its radar screen. M/T Manila
had no radar equipment. As for speed , M/V Don Claro was twice as fast as M/T Manila.

At the time of the collision, M/T Manila failed to follow Rule 19 of the International Rules of the Road which
requires two (2) vessels meeting head on to change their course by each vessel steering to starboard (right) so
that each vessel may pass on the port side (left) of the other. M/T Manila signaled that it would turn to portside
and steered accordingly, thus resulting in the collision. M/V Don Claro's captain was off-duty and was having a
drink at the ship's bar at the time of the collision.

(a) x x x.

(b) If M/V Don Claro was at fault, may the heirs of the passengers who died and the owners of the cargoes
recover damages from the owner of said vessel?

Ans.: Yes, but subject to the doctrine of limited liability. The doctrine is to the effect that the liability of the
shipowners would only be to the extent of any remaining value of the vessel, proceeds of insurance, if any, and
earned freightage. Given the factual settings, the shipowner himself was not guilty of negligence and, therefore,
the doctrine can well apply (Amparo de los Santos v. CA, 186 SCRA 69).

Exceptions to the limited liability rule:

(1) Injury or death of the passenger, or loss or damage to the cargo due to the shipowner's fault or the concurrent negligence
of the ship owner and the captain (Art. 588, Code of Commerce; Manila

(1) (CC, Art. 587)

Steamship Co., Inc. vs. Abdulhaman L- 9534, Sept. 29, 1956; and Home Ins. Co. vs. American Steamship Agencies,
Inc., April 4, 1968, 23 SCRA 25, etc.)

(2) When the vessel is insured;

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(3) Claims under the Workmen's Compensation Law or similarlabor laws (Chua vs. IAC, 166 SCRA 183; Luzon
Stevedoring vs. Escano, 156 SCRA 169);

(4) Repairs on the vessel before its sinking not covered by loans on bottomry or respondentia (BPI vs. Pineda, 156 SCRA
404).

(5) In case the voyage is not maritime, but only in river, bay, or gulf; (HBP, P. 101)

(6) I n case the vessel is not a common, but special carrier. (Idem)

1985 BQ #5 (b):  What are the exceptions to the "limited liability rule" also known as the "real or hypothecary
nature of maritime law"?

Ans.: (See above)

1994 BQ #11:  Toni, a copra dealer, loaded 1,000 sacks of copra on board the vessel M/V Tonichi (a common
carrier engaged in coastwise trade owned by Ichi) for shipment from Puerto Galera to Manila.

The cargo did not reach Manila because the vessel capsized and sank with all its cargo.

When Toni sued Ichi for damanges based on breach of contract, the latter invoked the "limited liability rule."

(1) What do you understand of the "rule" invoked by Ichi?

(2) Are there exceptions to the "limited liability rule"?

Ans.:  (1) See definition in P. 135, supra.

(2) See Above

The doctrine of "limited liability" does not apply where there was negligence on the part of the vessel owner or agent.
LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite
knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed as force
majeure, inasmuch as the wind condition in the area where it sank was determined to be moderate. Since it was remiss in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape responsibility for the loss
of the vessel and its cargo. (Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila Insurance Co., Inc. G.R. No.
131621, September 28, 1999, 113 SCAD 142, Additional facts in Pp. 34-35)

MANILA STEAMSHIP CO. vs ABDULHAMAN

100 Phil. 32, September 29, 1956

Facts: Consuelo V., owned by Lim Hong To, collided with M/V Bowline Knot, owned by Manila Steamship Co., a few
kilometers from San Ramon Beach, Zamboanga City. This action is recover damages for the death of plaintiff's five children
and loss of personal properties on board the M/L Consuelo V.

(CC, Art. 587)

As to the cause of the collision, the CA affirmed the findings of the Board of Marine Industry, that both were negligent. CA
held the owners of both vessels solidarily liable under Art. 827 of the Com. Code, but exempted the owner of M/L Consuelo
from liability by reason of the sinking and total loss of his vessel, and ordered Manila Steamship to pay all of P20,784.
Appeal.

Held: Shipowners and ship agents are civilly liable for the acts of the captain (Art. 586) and for the indemnities due to third
persons (Art. 587). This direct liability, moderated and limited by the owner's right of abandonment of the vessel and earned

123
freight (Art. 587), has been declared to exist, not only in case of breached contracts, but also in cases of tortious negligence
(Yu Biao v. Osorio).

The right of abandonment of vessels, as a legal limitation of a shipowner's liability does not apply to cases where the injury
of the average is due to shipowner's own fault. To hold that the owner of M/L Consuelo may limit his liability to the value of
his vessel is to erase all differences between owners who comply with the law and those that deliberately disregard the law.
The owner having caused the vessel to sail without licensed officers, is liable for the injuries caused by the collision over and
beyond the value of said launch. Owner of M/L Consuelo is therefore solidarily liable with Manila Steamship of P20,784.

1988 BQ #16:  Captain Hook, the ship captain of M.V. Peter Pan, overloaded the M.V. Peter Pan, as a
consequence of which the vessel sank in the middle of the Sulu Sea, and nothing whatsoever was recovered.
The owners of the cargo and the heirs of the three passengers of the vessel filed an action for damages in the
amount of P500,000.00 against Mr. Wendy, the owner.

(a) Will the action prosper? Reasons.

Ans.: The total loss or the lawful abandonment of the vessel precludes further liability on the part of the
shipowner, except to the extent of earned freightage or proceeds of insurance, if any, for the loss of cargo
arising from the "conduct of the captain in the care of the goods" (Art. 587 in relation to Art. 590, Code of
Commerce). This right of abandonment likewise applies to collisions and shipwreck but in the latter case only
for unpaid wages (Arts. 643 and 838, Code of Commerce).

Accordingly, the action filed by the owners of the lost cargo, absent any remaining value of the vessel, earned
freightage or insurance proceeds, may not prosper. The action filed by the heirs of the deceased passengers may,
however prosper since, except in collisions, the shipowners are not granted the right of abandonment.

2000 BQ:  M/V Mindoro, a vessel owned by Compania Maritima (Maritima) left Manila for Aklan crowded
with passengers and heavy with cargo. Although the vessel was cleared for departure by the Coast Guard at
2:00 a.m., its departure was delayed for four hours. During the delay, unmanifested cargo and passengers were
loaded resulting to overloading of the vessel. The vessel met a typhoon on the Sibuyan area and due to the
strong waves, the vessel sank causing the drowning ofseveral passengers. The Board of Marine inquiry found
that the captain and officers were negligent in operating the vessel. The captain of the vessel perished with the
vessel. The heirs of the victims sued Maritima. The court ruled that since the vessel sank, Maritima cannot be
made liable on the principle of limited liability of the shipowner or ship agent. Was such ruling correct?

Ans.:  The ruling of the court was not correct. While the limited liability doctrine applies to cases wherein the
shipowner or ship agent may properly be held liable for the negligent or illicit acts of the captain, however,
Article 587 of the Code of Commerce speaks only of situations were fault or negligence is committed solely by
the captain. Maritima shares equally in the captain's negligence. While the vessel's departure was delayed for
four hours notwithstanding the clearance from the Coast Guard, Maritima could not be excused for the

(CC, Art. 587)

delay because it did not check from the captain the reason for the delay. It was due to this interim that
unmanifested cargo and passengers were loaded during the four-hours interval. A closer supervision could have
prevented the overloading. If it were not for the delay, the vessel could have avoided the effects of the typhoon
and reached its destination safely (Heirs of Amparo de los Santos vs. Court of Appeals, 186 SCRA 649)

2000 BQ No. XIV (a):  MV Mariposa, one of five passenger ships owned by the Marina Navigation Company,
sank off the coast of Mindoro while en route to Iloilo City. More than 200 passengers perished in the disaster.
Evidence showed that the ship captain ignored typhoon bulletins issued by PAGASA during the 24-hour period
immediately prior to the vessel's departure from Manila. The bulletins warned all types of sea crafts to avoid the
typhoon's expected path near Mindoro. To make matter worse, he took more load than was allowed for the

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 ship's rated capacity. Sued for damages by the victim's surviving relatives, Marina Navigation Company
contended 1) that its liability, if any, had been extinguished with the sinking of MV Mariposa; and 2) that
assuming it had not been so extinguished, such liability should be limited to the loss of the cargo. Are these
contentions meritorious in the content of applicable provisions of the Code of Commerce? (3%)

Ans:  Yes. The contentions of Marina Navigation Company are meritorious. The captain of MV Mariposa is
guilty of negligence in ignoring the typhoon bulletins issued by PAGASA and in overloading the vessel. But
only the captain of the vessel MV Mariposa is guilty of negligence. The shipowner is not. Therefore, the
shipowner can invoke the doctrine of limited liability.

Philamgen vs. Court of Appeals

83 SCAD 226, 273 SCRA 262 [1997]

Facts: Coca-Cola Bottlers loaded on board MV Asilda, a vessel owned and operated by Felman, 7,500 cases of 1-liter Coca-
Cola bottles to be transported from Zamboanga City to Cebu City. The vessel left Zamboanga in fine weather but it sank the
following morning, bringing down her entire cargo. It turned out that the vessel was top-heavy, as 2,500 cases of Coca-Cola
bottles were improperly stowed on deck. The inordinate loading of cargo on deck resulted in the decrease of the vessel's
metacentric height thus making it unstable. After the loss, Felman abandoned all its rights, interest and ownership over the
vessel for the purpose of limiting and extinguishing its liability under Article 587 of the Code of Commerce. Did the
abandonment of the vessel relieve Felman of its liability?

Held: No. There are exceptional circumstances wherein the ship agent or ship owner could still be held answerable despite
the abandonment, as where the loss or injury was due to the fault of the ship owner or the captain. The international rule is to
the effect that the right of abandonment of vessels as a legal limitations of the ship owner's liability does not apply to cases
where the injury or average was occasioned by the ship owner's fault. It must be stressed that Article 587 of the Code of
Commerce speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is
likewise to be blamed, Article 587 will not apply, and such situation will be covered by the provisions of the Civil Code on
common carriers. In the event of loss of goods, common carriers are presumed to have acted negligently.

1989 BQ #14 [1]. X, a rich trader, boarded the M/V Cebu, a small vessel with a value of P3 M and owned by Y.
plying the route Cotabato to Pagadian City. X had in his possession a diamond worth P5 M. The vessel had a
capacity of 40 passengers. Near Pagadian, the vessel met squally weather and was hit by six foot waves every
three seconds . Soon, water entered the engine room and the hull of the vessel. The patron of the vessel ordered
the distribution of life belts to the passengers. He told them the vessel was sinking and for them to take care of
themselves. The vessel turned out to be overloaded by 20 passengers and had no sufficient life

(CC, Art. 587)

belts. X failed to get a life belt and died when the vessel totally sunk. The heirs of X sued Y for P10 M
damages. Y raised the defense of limited liability. Decide.

Ans.: The doctrine of limited liability does not apply when death or injury or damage sustained is attributable to
the fault or negligence of the shipowner or shipagent or to the concurring fault or negligence of the shipowner
or shipagent and the captain (or patron) of the vessel (see Chua vs. Intermediate Appeallate Court, G.R. 74811,
30 September 1988). Undoubtedly, the shipowner himself, was guilty of such fault or negligence in not making
certain that the passenger vessel is not overloaded, as well as and is having failed to provide sufficient life belts
on board the vessel.

1999/2000 BQ: When MV "Pioneer Cebu" left Manila for Cebu, it was overloaded with passengers as it was
authorized to carry only 260 passengers but carried 322 passengers. It lacked safety devices for 322 passengers.
When the vessel left Manila, its officers were already aware of a typhoon building up in Mindanao. During the
voyage, the vessel encountered the typhoon and struck a reef, and subsequently sunk.

The vessel was covered by insurance. Some passengers died.

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(a) Was the death of the passengers caused by a fortuitous event?

(b) Did the loss of the vessel extinguish the liability of the shipowner and ship agent?

Ans.: (a) To constitute fortuitous event, it must be impossible to foresee, or if it could be foreseen, must have
been impossible to avoid. There must be an entire exclusion of human agency from the cause of injury or loss.
In this case, the officers of the vessel were negligent not only in proceeding with the voyage with an impending
typhoon but also in overloading the vessel and failing to provide the vessel with safety devices (Vasquez vs.
Court of Appeals, 138 SCRA 553; Asked,

(b) Since the vessel was insured, the liability of the shipowner and ship agent vould be extended to the proceeds
of the insurance. Despite the total loss of the vessel therefore, its insurance answers for the damages that a
shipowner or agent may be held liable for by reason of death of its passengers (Vasquez vs. Court of Appeals)

1999 BQ No. XIV:  Thinking that the impending typhoon was still 24 hours away, MV Pioneer left port to sail
for Leyte. That was a miscalculation of the typhoon signals by both the ship-owner and the captain as the
typhoon came earlier and overtook the vessel. The vessel sank and a number of passengers disappeared with it.

Relatives of the missing passengers claimed damages against the shipowner. The shipowner set up the defense
that under the doctrine of limited liability, his liability was co-extensive with his interest in the vessel. As the
vessel was totally lost, his liability had also been extinguished.

(a) How will you advice the claimants? Discuss the doctrine of limited liability in maritime law.

(b) Assuming that the vessel was insured. May the claimants go after the insurance proceeds?

ANS.:  (a) Under the doctrine of limited liability in maritime law, the liability of the shipowner arising from
the operation of a ship is confined to the vessel, equipment, and

(CC, Arts. 587-588)

freight, or insurance, if any, so that if the shipowner abandoned the ship, equipment, and freight, his liability is
extinguished. However, the doctrine of limited liability does not apply when the shipowner or captain is guilty
of negligence.

(b) Yes. In case of a lost vessel, the claimants may go after the proceeds of the insurance covering the vessel.

1998 BQ:  Miranda purchased four special cabin tickets from Negros Navigation for his family. The tickets
were for the Manila-Bacolod trip of the M/V Don Juan. The vessel sank when it collided off the Tablas Straight
in Mindoro with M/T Tacloban City, an oil tanker owned by PNOC. The collision was due to the negligence of
the crew of M/T Tacloban City although the crew of M/V Don Juan were likewise guilty of negligence. The
incident resulted in the loss of numerous passengers including the relatives of Miranda, whose bodies were
never found. Miranda sued Negros Navigation which raised the defense that it could not be liable because its
liability was limited to the value of the vessel hich was totally lost and hence, its liability, if any, was
extinguished. Was the contention of Negros Navigation correct?

Ans.: The defense of Negros Navigation was not correct. A shipowner may be held liable for injuries to or
death of passengers notwithstanding the exclusively real and hypothecary nature of its liability under maritime
law if fault can be attributed to the shipowner. Although the proximate cause of the mishap was the negligence
of the crew of M/T Tacloban City, the crew of M/V Don Juan were equally negligent as they failed to take steps
to prevent the collision or at least delay the sinking of the ship and supervise the abandonment of the ship
(Negros Navigation Co., Inc. vs. Court of Appeals, 88 SCAD 876, 281 SCRA 532 [1997].

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 2000 BQ, No. XIII (a):  X Shipping Company spent almost a fortune in refitting and repairing its luxury
passenger vessel, the MV Marina, which plied the inter-island routes of the company from La Union in the
north to Davao City in the south. The MV Marina met an untimely fate during its post-repair voyage. It sank off
the coast of Zambales while en route to La Union from Manila. The investigation showed that the captain alone
was negligent. There were no casualties in that disaster. Faced with a claim for the payment of the refitting and
repair, X Shipping Company asserted exemption from liability on the basis of the hypothecary or limited
liability rule under Article 587 of the Code of Commerce. Is X Shipping Company's assertion valid? Explain.

Ans: No. The assertion of X Shipping Company is not valid. The total destruction of the vessel does not affect
the liability of the shipowner for repairs on the vessel completed before its loss.

Defense of a "good father of a family in the selection of employees is not a defense.

Manila Steamship's plea of bonus paterfamilias in the selection of its employees is untenable. While it is true
that plaintiff's action is based on a tort or quasi-delict, the tort in question is not a civil tort under the Civil Code, but a
maritime tort resulting in a collision at sea, governed by Arts. 826-939 of the Com. Code. Under Art. 827, there is
solidary liability. In making the "vessels" solidarily liable for the damages due the maritime collision, the law
emphasizes the direct nature of the responsibilities incurred by the shipowner under the maritime law as distinguished
from the civil law and mercantile law in general. This direct responsibility is recognized in Art. 618 of the Com. Code,
under which the captain shall be third persons.

Shipowners and ship agents are civilly liable for the acts of the captain (Art. 586) and for the indemnities due to
third persons (Art. 587). This direct liability, moderated and limited by the

(CC, Arts. 587 - 588)

owner's right of abandonment of the vessel and earned freight (Art. 587), has been declared to exist, not only in case of
breached contracts, but also in cases of tortious negligence (Yu Biao v. Osorio).

To allow the defense of bonus paterfamilias would render nugatory the solidary liability established in Art. 827.
To look for the crew for indemnity would be an illusory remedy, as they are mere wage earners.

The case of Walter Smith & Co. v. Cadwallader is not in point. Said case treated of a civil tort, in that the vesel
of the defendant, allegedly negligently managed by its captain in course of its manuevers to moor at plaintiff's wharf,
struck the same and partially demolished it causing damage to the plaintiff. The present case, involves tortious conduct
resulting in a maritime collision between two vessels, not a case of vessel ramming a wharf, and is governed by Co.
Code and not by the Civil Code. (Manila Steamship Co. vs Abdulhaman, 100 Phil. 32, Sept. 29, 1956, with facts in P.
______, supra)

2002 BQ, No. VIII (B):  Why is the defense of due diligence in the selection and supervision of an employee
not available to a common carrier? (2%)

Ans.:  The defense of due diligence in the selection and supervision of an employee is not available to a
common carrier because the degree of diligence required of a common carrier is not the diligence of a good
father of a family but extraordinary diligence, i.e., diligence of the greatest skill and outmost foresight.

Art. 588 - Neither the shipowner nor the ship agent shall be liable for the obligations contracted by
the captain, if the latter exceeds the powers and privileges pertaining to him by reason of his position or
conferred upon him by the former. Nevertheless, if the amounts claimed were invested for the benefit of the
vessel, the responsibility therefor shall devolve upon its owner or agent.

1989 BQ: When are the shipowner and ship agent not liable for the obligations contracted by the captain?

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 Ans.: Neither the shipowner nor the ship agent shall be liable for the obligations contracted by the captain if the
latter exceeded his powers and privileges pertaining to him by reason of his position or conferred upon him by
the former.

However, if the amounts claimed were used for the benefit of the vessel, the owner or agent shall be liable (Art.
588, Code of Commerce).

Art. 589 - If two or more persons should be part owners of a merchant vessel, a partnership
shall be presumed as established by the co-owners. This partnership shall be governed by the
resolutions of the majority of the members. If the part owners should be not more than two, the
disagreement of views, if any, shall be decided by the vote of the member having the largest interest.
If the interests are equal, it should be decided by lot. The person having the smallest share in the
ownership shall have one vote; and proportionately the other part owners as many votes as they have
parts equal to the smallest one. A vessel may not be detained, attached or levied upon in execution in
its entirety, for the private debts of a part owner, but the proceedings shall be limited to the interest
which the debtor may have in the vessel, without interfering with the navigation.

(CC, Arts. 589 - 591)

If there is a co-ownership with others, then a partnership is presumed established, and they
shall be governed by the rule of the majority - the co-owner with the smallest share being entitled to
one vote, and the others, that number of votes in proporttion to the smallest.

Art. 590 - The co-owners of a vessel shall be civilly liable in the proportion of their interests in
the common fund, for the results of the acts of the captain, referred to in Article 587. Each co-owner
may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.

Abandonment of the vessel includes the following objects: (1) the vessel itself, (2) equipment, (3) freightage
and (4) insurance proceeds, if any. (Chua vs. IAC, 166 SCRA 183).

Abandonment of a vessel is necessary to limit the liability of the shipowner or the ship agent to the value of
the vessel, its appurtenances and freightage expected. The only instance where such abandonment is dispensed with is
where the vessel is entirely lost. In such a case, the obligation is thereby extinguished as a general rule. Where the
vessel, not being a total loss, is not abandoned by its owners, they are liable to its creditors. (Luzon Stevedoring vs.
IAC, 156 SCRA 169).

Art. 591 - All the part owners shall be liable, in proportion to their respective ownership, for the expenses for
repairing the vessel, and for other expenses which are incurred by virtue of a resolution of the majority. They shall
likewise be liable in the same proportion for the expenses for the maintenance, equipment, and provisioning of the
vessel, necessary for navigation.

Art. 592 - The resolution of the majority with regard to the repair, equipment, and provisioning of
the vessel in the port of departure shall bind the minority, unless the minority members renounce their
interests, which must be acquired by the other co-owners, after a judicial appraisement of the value of the
portion or portions assigned.

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 Art. 593 - The owners of a vessel shall have preference in her charter over other persons, under the
same conditions and price. If two or more of them should claim this right, the one having the greater
interest shall be preferred; and should they have equal interests, the matter shall be decided by lot.

Art. 594 - The co-owners shall elect the manager who is to represent them in the capacity of ship
agent. The appointment of director or ship agent shall be revocable at the will of the members.

Art. 595 - The ship agent whether he is at the same time the owner of the vessel, or a manager for
an owner or for an association of co-owners, must have the capacity to trade and must be recorded in the
merchant's registry of the province. The ship agent shall represent the ownership of the vessel, and may, in
his own name and in such capacity, take judicial and extrajudicial steps in matters relating to commerce.

Art. 596 - The ship agent may discharge the duties of captain of the vessel, subject in every case to
the provision of Article 609. If two or more co-owners apply for the position of captain, the disagreement
shall be decided by a vote of the members; and if the vote should result in a tie, it shall be decided in favor
of the co-owner having the larger interest in the

(CC, Arts. 596 - 565)

vessel. If the interest of the applicants should be equal, ant there should be a tie, the matter shall be decided
by lot.

Art. 597 - The ship agent shall designate and come to terms with the captain, and shall contract in
the name of the owners, who shall be bound in all that refer to repairs, details of equipment, armament,
provisions of food and fuel, and freight of the vessel, and, in general, in all that relate to the requirements
of navigation.

Art. 598 - The ship agent may not order a new voyage, or make contracts for a new charter, or
insure the vessel, without the authorization of its owner or resolution of the majority of the co-owners,
unless these powers were granted him in the certificate of his appointment. If he insures the vessel without
authorization therefor, he shall be subsidiary liable for the solvency of the insurer.

Limitation of Powers. The ship agent cannot order a new voyage or make contract for a new charter, or insure the vessel
without authority from the owner. He cannot discharge a captain or crew member appointed by him for a definite period or
voyage except for cause. Neither can he discharge a captain by virtue of a special agreement contained in the articles.

Art. 599 - The ship agent managing for an association shall render to his associates an account of
the results of each voyage of the vessel, without prejudice to always having the boods and correspondence
relating to the vessel and to its voyages at their disposal.

Art. 600 - After the account of the managing agent has been approved by a relative majority, the
co-owners shall pay the expenses in proportion to their interest, without prejudice to the civil or criminal
actions which the minority may deem fit to institute afterwards.

Art. 601 - Should there be any profits, the co-owners may demand of the managing agent the
amount corresponding to their interest by means of an executory action ("accion ejecutiva"), without any
other requisite than the acknowledgment of the signatures on the instrument approving the account.

Art. 602 - The ship agent shall indemnify the captain for all the expenses he may have incurred with
funds of his own or of others, for the benefit of the vessel.

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 Art. 603 - Before the vessel sets out to sea the ship agent may at his discretion discharge the captain
and members of the crew whose contracts are not for a definite period or voyage, paying them salaries
earned according to their contracts, and without any indemnity whatsoever, unless there is an express and
specific agreement in respect thereto.

Art. 604 - If the captain or any other member of the crew should be discharged during the voyage,
they shall receive their salary until they return to the port where the contract was made, unless there
should be just cause for the discharge, all in accordance with Article 636 and following of this Code.

Art. 605 - If the contracts of the captain and members of the crew with the ship agent should be for
a definite period or voyage, they may not be discharged until after the fulfillment of their contracts, except
by reason of insubordination in serious matters, robbery, theft, habitual drunkeness, or damage caused to
the vessel or to its cargo through malice or manifest or proven negligence.

(CC, Arts. 605 - 607)

INTER-ORIENT MARITIME ENTERPRISES INC. v. NLRC

235 SCRA 268, August 11, 1994

Facts: Pursuant to an employment contract, private respondent Captain Tayong, assumed command of petitioner's vessel at
the Port of Hongkong. While the vessel was en route to Singapore, Captain Tayong reported that the vessel had stopped in
mid-ocean for 6 hours and 45 minutes due to leaking economizer. When it arrived at the port of Singapore, the Chief
Engineer reminded Captain Tayong that oxygen and acetylene supplies had not been delivered. The technical adviser of the
shipowner received a call from Captain Tayong informing him that the vessel cannot sail without oxygen and acetylene. Mr.
Clark replied that by shutting off the water to the turbo charger and using the auxillary broiler, there should be no further
problems, to which he acceded.

When the vessel arrived at the port of South Africa, Captain Tayong was repatriated to the Philippines without informing him
(CC, Arts. 605-608)

of the charges against him. He then left and filed a complaint for illegal dismissal. POEA dismissed the complaint on the
ground that the delay was caused by Captain Tayong as oxygen and acetylene were not indispensable for running the vessel.
NLRC reversed the decision of the POEA.

Held: It is well settled in this jurisdiction that confidential and managerial employees cannot be arbitrarily dismissed at any
time, and without cause a reasonably established in an appropriate investigation. Such employees, too, are entitled to security
of tenure, fair standards of employment and the protection of labor laws.

The captain of a vessel is a confidential and managerial employee within the meaning of the above doctrine. A master or
captain, for purposes of maritime commerce, is one who has command a vessel. A captain commonly performs three (3)
distinct roles: (1) he is a general agent of the shipowner; (2) he is also commander and technical director of the vessel; (3) he
is a representative of the country under whose flag he navigates. Of these roles, by far the most important is the role
performed by the captain as commander of the vessel;

Under all the circumstances of this case, We, along with the NLRC, are unable to hold that Captain Tayong's decision
(arrived at after consultation with the vessel's Chief Engineer) to wait seven (7) hours in Singapore for the delivery on board
the Oceanic Mindoro of the requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and
the economizer equipment of the vessel, constituted merely arbitrary, capricious or grossly insubordinate behaviour on his
part.

Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery needed supplies before sailing from
Singapore, and may have changed their estimate of their ability to work with him and his capabilities as a ship captain.
Assuming that to be petitioner's management prerogative, that prerogative is nevertheless not to be exercised, in the case at
bar, at the cost of loss of Captain Tayong's right under his contract with petitioners and under Philippine law.

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 Art. 606 - If the captain should be a co-owner of the vessel, he may not be discharged unless the
ship agent returns to him the amount of his interest therein, which, in the absence of agreement the parties,
shall be appraised by experts appointed in the manner established i the law of civil procedure.

Art. 607 - If the captain who is a co-owner should have obtained the command of the vessel by
virtue of a special agreement contained in the articles of association, he may not be deprived of his office
except for the causes mentioned in Article 605.

(CC, Arts. 608-610)

Art. 608 - In case of the voluntary sale of the vessel, all contracts between the ship agent and the
captain shall terminate, reserving to the latter his right to the indemnity which may pertain to him,
according to the agreements made with the ship agent.

The vessel sold shall remain subject to the security of the payment of said indemnity if, after the action against the
vendor has been instituted, the latter is found to be insolvent.

Art. 609 - Captains, masters or patrons of vessels must be Filipinos, have legal capacity to contract
in accordance with this code, and prove the 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 fo0000r 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
therefore, he shall limit himself to the financial administration of the vessel, and shall entrust the
navigation to a person possessing the qualifications required by said ordinances and regulations.

Qualifications of a Captain. To be a captain or master, a person must be a Filipino, with contractual capacity and must have
passed the required physical and mental examinations required for licensing him as such.

Nature of Captain's Position. A captain or master has a triple position: (a) he is the general agent of the shipowner; (b) he
is the technical director of the vessel; and lastly, (c) he represents the government of the country under whose flag he
navigates.

Art. 610 - The following powers shall be inherent in the position of captain, master or patron of a
vessel:

1. To appoint or make contracts with the crew in the absence of the ship agent, and to propose said crew,
should said agent be present; but the ship agent, and to propose said crew, should said agent be
present; but the ship agent may not employ any member against the captain's express refusal.

2. To command the crew and direct the vessel to the port of its destination, in accordandance with the
instructions he may have received from the ship agent.

3. To impose, in accordance with the contracts and with the laws and regulations of the merchant marine,
and when on board the vessel, correctional punishment upon those who fail to comply with his orders
or are wanting in discipline, holding a preliminary hearing on the crimes committed on board the
vessel on the seas, which crimes shall be turned over to the authorities having diction over the same at
the first port touched.

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4. To make contracts for the charter of the vessel in the absence of the ship agent or of its consignee, acting
in accordance with the instructions received and protecting the interests of the owner with utmost care.

5. To adopt all proper measures to keep the vessel well supplied and equipped, purchasing all that may be
necessary for the purpose, provided there is no time to request instruction from the ship agent.

(CC, Arts. 610-612)

6. To order in similar urgent cases while on a voyage, the repairs on the hull and engines of the vessel and
in its rigging and equipment, which are absolutely necessary to enable it to continue and finish its
voyage; but if he should arrive at a point where there is a consignee of the vessel, he shall act in
concurrence with the latter. 

Art. 611 - In order to comply with the obligations mentioned in the preceding article, the captain,
when he has no funds and does expect to receive any from the ship agent, shall obtain the same in the
successive order stated below:

1. By requesting said funds from the consignee of the vessel or correspondents of the ship agent.

2. By applying to the consignees of the cargo or to those interested therein.

3. By drawing on the ship agent.

4. By borrowing the amount required by means of a loan on bottomry.

5. By selling a sufficient amount of the cargo to cover the sum absolutely indispensable for the repair of the
vessel and to enable it to continue its voyage.

In these two last cases he must apply to the judicial authority of the port, if in the Philipines, and to
the consul of the Republic of the Philippines if in a foreign country, and where there is none, to the local
authority, proceeding in accordance with the provisions of Article 583, and with the provisions fo the law of
civil procedure.

Where to Obtain Funds to Comply with Powers Inherent in Position.

Where the captain does not expect to receive any fund from the ship agent, he shall obtain the same from the following, in
successive order:

1. From the consignee of the vessel;

2. From the consignee of the cargo;

3. By drawing on the ship agent;

4. By a loan on bottomry;

5. By sale of part of the cargo.

Art. 612 - The following obligations shall be inherent in the office of captain:

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1. To have on board before starting on a voyage a detailed inventory of the hull, engines, rigging, spare-
masts, tackle, and other equipment of the vessel; the royal or the navigation certificate; the roll of the
persons who make up the crew of the vessel, and the contracts entered into with them; the lists of
passengers; the bill of health; the certificate of the registry proving the ownership of the vessel and all
the obligations which encumber the same up to that date; the charter parties or authenticated copies

(CC, Art. 612)

thereof; the invoices or manifests of the cargo, and the memorandum of the visit or inspection by
experts, should it have been made at the port of departure.

2. To have a copy on this code on board.

3. To have three folioed and stamped books, placing at the beginning of each one a memorandum of the
number of folios it contains, signed by the maritime authority, and in his absence by the competent
authority.

In the first book, which shall be called "log book," he shall enter day by day the condition of the
atmosphere, the prevailing winds, the courses taken, the rigging carried, the power of the engines used
in navigation, the distances covered, the manuevers executed, and other incidents of navigation; he
shall also enter the damage suffered by the vessel in her hull, engines, rigging, and tackle, no matter
what its cause may be, as well as the impairment and damage suffered by cargo, and the effect and
importance of the jettison, should there be any; and in cases of serious decisins which require the
advice or a meeting of the officers of the vessel, or even of the crew and passengers, he shall record the
decisions adopted. for the information indicated he shall make use of the binnacle book and of the
steam of engine book kept by the engineer.

In the second book called the "accounting book," he shall record all the amounts collected and paid for
the account of the vessel, entering specifically article by article, the source of the collection and the
amounts spent for provisions, repairs, acquisitions of equipment or goods, fuel, food, outfits, wages and
other expenses of whatever nature they may be. He shall furthermore enter therein a list of all the
members of the crew, stating their domiciles, their wages and salaries, and the amounts they may have
received on account, directly or by delivery to their families.

In the third book, called "freight book," he shall record the loading and discharge of all the goods,
stating their marks and packages, names of the shippers and of the consignees, ports of loading and
unloading, and the freightage they give. In this same book he shall record the names and places of
sailing of the passengers, the number of packages in their baggage, and the price of passage.

4. Before receiving cargo, to make with the officers of the crew and two experts, if required by the
shippers and passengers, an examination of the vessel, in order to ascertain whether it is water-tight,
with the rigging and engines in good condition, and with the equipment required for good navigation,
preserving under his responsibility a certificate of the memorandum of his inspection, signed by all
those who may have taken part therein.

The experts shall be appointed, one by the captain of the vessel and another by those who request its
examination, and in case of disagreement a third shall be appointed by the marine authority of the port
or by the authority exercising his functions.

5. To remain constantly on board the vessel with the crew while the cargo is being taken on board and to
carefully watch the stowage thereof; not to consent to the loading of any merchandise or matter of a

133
 dangerous character, such as inflammable or explosive substances, without the precautions which are
recommended for their packing, handling and isolation; not to permit the carriage on deck of any
cargo which by reason of its arrangement, volume, or weight makes the work of the sailors difficult,
and which

(CC, Art. 612)

might endanger the safety of the vessel; and if, on account of the nature of the merchandise, the special
character of the shipment, and principally the favorable season in which it is undertaken, merchandise
may be carried on deck, he must hear the opinion of the officers of the vessel and have the consent of
the shippers and of the ship agent.

6. To demand a pilot at the expense of the vessel whenever required by the navigation, and principally
when he has to enter port, canal, or river, or has to take a roadstead or anchoring place with which
neither he nor the officers and crew are acquainted.

7. To be on deck on reaching land and to take command on entering and leaving ports, canals, roadsteads,
and rivers, unless there is a pilot on board discharging his duties. He shall not spend the night away
from the vessel except for serious causes or by reason of official business.

8. To present himself, when making a port in distress, to the maritime authority if in the Philippines and to
the consul of the Republic of the Philippines if in a foreign country, before twenty-four hours have
elapsed, and to make a statement of the name registry, and port of departure of the vessel, of its cargo,
and the cause of arrival which declaration shall be visaed by the authority or the consul, if after
examining the same it si found to be acceptable, giving the captain the proper certificate proving his
arrival in distress and the reasons therefor. In the absence of the maritime authority or of the consul,
the declaration must be made before the local authority.

9. To take the necessary steps before the competent authority in order to record in the certificate of the
vessel in the registry of vessels the obligations which he may contract in accordance with Article 583.

10. To place under good care and custody all the papers and belongings of any members of the crew who
might die on the vessel, drawing up a detailed inventory, in the presence of passengers, or, in their
absence, of members of the crew as witnesses.

11. To conduct himself according to the rules and precepts contained in the instructions of the ship agent,
being liable for all that which he may do in violation thereof.

12. To inform the ship agent from the port at which the vessel arrives, of the reason of his arrival, taking
advantage of the semaphore, telegraph, mail, etc., as the case may be; to notify him of the cargo he may
have received, stating the names and domiciles of the shippers, freightage earned, and amounts
borrowed on bottomry loan; to advise him of his departure, and of any operation and date which may
be of interest to him.

13. To observe the rules with respect to situation, lights and manuevers in order to avoid collisions.

14. To remain on board, in case the vessel is in danger, until all hope to save it is lost, and before
abandoning it, to hear the officers of the crew, abiding by the decision of the majority; and if the boats
are to be taken to, he shall take with him, before anything else, the books and papers, and then the
articles of most value, being obliged to prove, in case of the loss of the books and papers, that he did all
he could to save them.

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 (CC, Art. 612)

15. In case of wreck, to make the proper protest in due form at the first port of arrival, before the
competent authority or the Philippine consul, within twenty-four hours, specifying therein all the
incidents of the wreck, in accordance with subdivision 8 of this article.

16. To comply with the obligations imposed by the laws and regulations on navigation, customs, health, and
others.

Duties of the Captain

1. To bring on board the proper certificate and documents;

2. To have a copy of the Code of Commerce on board;

3. To keep a Log Book, Accounting Book and Freight Book;

4. To examine the ship before the voyage;

5. To stay on board during the loading and unloading of the cargo;

6. To demand a pilot while entering or leaving port;

7. To be on deck while entering or leaving port;

8. To protest arrivals in distress;

9. To register necessary documents;

10. To hold in custody properties left by the deceased passengers and crew members;

11. To follow instructions of the ship agent;

12. To render an accounting to the ship agent;

13. To observe rules to avoid collisions;

14. To leave the vessel last in case of wreck;

15. To protest shipwreck;

16. To comply with requirements of customs, health, etc. authorities at the port of arrival.

Books that a captain must maintain:

1.   Log Book where he shall enter day by day (a) the condition of the atmosphere, (b) the prevailing winds, (c) the courses
taken, (d) the rigging carried, (e) the power of the engines used in navigation, (f) the distances covered, (g) the
manuevers executed, and other incidents of navigation; (h) any damage suffered by the vessel in her hull, engines,
rigging, and tackle, regardless of cause, (i) impairment and damage suffered by cargo, (j) the effect and importance of

135
 the jettison, if any; and (k) in cases of serious decisions which require the advice or a meeting of the officers of the
vessel, or even of the crew and passengers, the decisions adopted.

(CC, Art. 612 - 616)

2.  Accounting Book where he shall record (a) all the amounts collected and/or paid for the account of the vessel, (b) article
by article, the source of the collection and the amounts spent for provisions, repairs, acquisitions of equipment or goods,
fuel, food, outfits, wages and other expenses of whatever nature they may be (c) a list of all the members of the crew, with
their domiciles, their wages and salaries, and the amounts they may have received on account, directly or by delivery to
their families.

3.  Freight Book where he shall record (a) the loading and discharge of all the goods, with their marks and packages, names
of the shippers and of the consignees, ports of loading and unloading, and the freightage; (b) the names and places of
sailing of the passengers, the number of packages in their baggage, and the price of passage.

Probative value of entries in the log book. The vessel's log book is an official record entries made by a person in the
performance of a duty required by law are prima facie evidence of the facts stated therein (Haverton Shipping Ltd. vs. NLRC,
infra).

Haverton Shipping Ltd. vs. NLRC

135 SCRA 685

Facts: Haverton Shipping hired Benitez as boatswain on board a ship for one year. About two months later, Benitez had a
fight with two other crew members. The ship authorities conducted an investigation, entered the incident in the ship's log
book and repatriated Benitez. Benitez filed a complaint for illegal dismissal. The National Seamen Board dismissed the entry
in the log book as not legally binding and hearsay. The decision was affirmed by NLRC. Was the entry in the log book
concerning the cause of dismissal of Benitez legally binding?

Held: In declaring that the entry in the ship's log book was not binding for being hearsay, the NLRC overlooked the fact that
under our laws the ship's captain is obligated to keep a "log book" where, among others, he records the decisions he has
adopted. Even according to the law of the vessel's registry, that book is also "required by law" as disclosed by the entry itself.
Entries made in the log book are prima facie evidence of the facts stated therein.

Art. 613 - A captain who navigates for freight in common or on shares may not make any separate
transaction for his own account; and should he do so, the profit which may accrue shall belong to the other
persons interested, and the losses shall be borne by him exclusively.

Art. 614 - A captain who, having made an agreement to make a voyage, fails to perform his
undertaking, without being prevented by fortuitous accident or force majeure, shall indemnify for all the
losses which he may cause, without prejudice to the criminal penalties which may be proper.

Art. 615 - Without the consent of the agent, the captain cannot have himself substituted by another
person; and should he do so, besides being liable for all the acts of the substitute and bound to the
indemnities mentioned in the foregoing articles, the captain as well as the substitute may be discharged by
the ship agent.

Art. 616 - If the provisions and fuel of the vessel should be consumed before arriving at the port of
destination, the captain shall order, with the consent of the officers of the same, the arrival at the nearest
port to get a supply of either; but if there are persons on board who have provisions of their own, he may
force them to deliver said provision for the common consumption of all those who may be on board, paying
the price thereof at the same time, or at the latest, at the first port reached.

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 (CC, Arts. 617-618)

Art. 617 - The captain may not contract loans on respondentia secured by the cargo; and should he
do so, the contracts shall be void.

Neither may he borrow money on bottomry for his own transactions, except on the portion of the
vessel he owns, provided no money has been previously borrowed on the whole vessel, and there does not
exist any other kind of lien or obligation chargeable against the vessel. If he may do so, he must state what
interest he has in the vessel.

In case of violation of this article, the principal, interest, and costs shall be for the personal account
of the captain, and the ship agent may furthermore discharge him.

1975 BQ No. IX: Under what conditions, if any, may a ship captain borrow on bottomry for his own
transactions?

Ans. : The captain may borrow on bottomry for his own transactions on the portion of the vessel he owns,
provided no money has been previously borrowed on the whole vessel, and there is no other lien or obligation
chargeable against the vessel. He must state his interest in the vessel. (Art. 617, Code of Commerce)

Art. 618 - The captain shall be civilly liable to the ship agent, and the latter to the third persons who
may have made contracts with the former;

1. For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence on his
part. If a misdmeanor or crime has been committed he shall be liable in accordance with the Penal
Code.

2. For all the thefts committed by the crew, reserving his right of action against the guilty parties.

3. For the losses, fines and confiscations imposed an account of violation of customs, police, health, and
navigation laws and regulations.

4. For the losses and damages caused by mutinies on board the vessel or by reason of faults committed by
the crew in the service and defense of the same, if he does not prove that he made timely use of all his
authority to prevent or avoid them.

5. For those caused by the misuse of the powers and the nonfulfillment of the obligations pertaining to him
in accordance with Articles 610 and 612.

6. For those arising by reason of his going out of his course or taking a course which he should not have
taken without sufficient cause, in the opinion of the officers of the vessel, at a meeting with the shippers
or supercargoes who may be on board. No exeptions whatsoever shall exempt him from this obligation.

7. For those arising by reason of his voluntarily entering a port other than that of his destination, outside of
the cases or without the formalities referred to in Article 612.

8. For those arising by reason of non-observance of the provisions contained in the regulations on situation
of lights and maneuvers for the purpose of preventing collisions.

(CC, Art. 618)

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Liabilities of Ship Agent and of Ship Owner for Acts Done by Captain Towards Passengers and Cargoes, Making
Them Solidarily Liable to Latter.

1. Damages to vessel and to cargo due to lack of skill and negligence;

2. Thefts and robberies of the crew;

3. Losses and fines for violation of laws;

4. Damages due to mutinies;

5. Damages due to misuse of powers;

6. For deviations;

7. For arrivals under stress;

8. Damages due to non-observance of marine regulations.

YU v. OSSORIO
43 Phil. 511, June 14, 1922

Facts: Cases of petroleum and gas were loaded in M/B Alfonso near the engine boiler. Fire in the boat engine burst out, with
explosion followed by expulsion of the petroleum and gas. Owing to the proximity of the boat to plaintiff's steamer, the fire
spread to said streamer. Plaintiff brought this action to recover damages amounting to P67,400 which lower court awarded to
plaintiff. Defendant appealed claiming that damages were caused by fortuitous event and not imputable to negligence of
defendant or his employees and agent.

Held: There was negligence imputable to persons having charge of the boat Alfonso at the time of the occurrence. After
several transhipments of more than 8,000 cases of gasoline and 2,000 cases of petroleum, there is bound to be a leakage due
to the fact that the loading was effected by means of straps supporting 10 to 12 cases at a time which bump each other. Also,
gases apt to accumulate in the compartment without sufficient ventilation, causing the gases to ignite. It having been proven
that the fire was due to employees's negligence, who were agents of shipowners or ship agent, the latter is liable for the
negligent acts committed by the former. Where a vessel is one of freight, a public concern or public utility, its owner or agent
is liable for the tortious acts of his agents (Arts. 587, 613 of Com. Code and Arts. 1902, 1903 and 1908 of Civil Code).

Although the duties enumerated in Art. 612 of Com. Code are inherent in the master, the civil liability arising from the non-
fulfillment thereon is not limited to the latter, since while the master is responsible to the ship agent, the ship agent, in turn, is
liable to third person as is clearly provided in Art. 618 of Com Code, which in its subsections 5 & 7 expressly mentions such
duties enumerated in Art. 612. Plaintiff is entitled to recover P54,486.70.

YU CON v. IPIL
41 Phil. 770, December 29, 1916

Facts: A certain sum of money was delivered by the plaintiff to Ipil, master, and Justo Solanco, supercargo, of a small craft
engaged in the coastwise trade in Philippine waters, to be carried together with various merchandise from the Cebu port to
Catmon, Cebu, upon payment of a fixed sum. This money disappeared from said craft while still at Cebu port, and it was not
proven nor was there any indication that it was stolen

(CC, Arts. 618-622)

by persons not belonging to the boat, nor that its disappearance or loss was due to fortuitous event. Lower court decided for
plaintiff. Defendant appealed.

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Held: As Ipil and Solance, carriers of said sum of P450 received from Yu Con for its delivery to a shop in the town of
Catmon where it had been consigned, were vested with the character of depositaries of the same, and as they failed to
exercise, in its safekeeping, the diligence required by the nature of the obligation assumed by them and required the
circumstances of the time and the place, they are liable, pursuant to Arts. 1601 and 1602, in relation of Arts. 1783, 1784 and
1770 of old Civil Code, for its loss or misplacement, and are obliged to deliver it to Yu Con, with the corresponding interest
as an indemnity for the damages caused him through the loss of the same.

The shipowner, under the Com. Code, is civilly liable also for the loss suffered by those who contracted with the captain, in
consequence of the misdemeanors and crimes committed by the latter or by crew members.

Art. 619 - The captain shall be liable for the cargo from the time it is delivered to him at the dock or
afloat alongside the ship at the port of loading, until he delivers it on the shore or on the discharging wharf
at the port of unloading, unless the contrary has been expressly agreed upon.

Art. 620 - The captain shall not be liable for the damages caused to the vessel or to the cargo by
force majeure; but he shall always be so for those arising through his own fault, no agreement to the
contrary being valid.

Neither shall he be personally liable for the obligations he may have contracted for the repair,
equipment, and provisioning of the vessel, which shall devolve upon the ship agent, unless the former has
expressly bound himself personally or has signed a bill of exchange or promissory note in his name.

Art. 621 - A captain who borrows money on the hull, engine, rigging or tackle of the vessel, or
pledges or sells merchandise or provisions outside of the cases and without the formalities prescribed in
this Code, shall be liable for the principal, interests, and costs, and shall indemnify for the damages he may
cause.

He who commits fraud in his accounts shall pay the amount defrauded and shall be subject to the
provisions of the Penal Code.

Art. 622 - If while on a voyage the captain should learn of the appearance of privateers or men of
war against his flag, he shall be obliged to make the nearest neutral port, inform his agent or shippers, and
await on occasion to sail under convoy, or until the danger is over or he has received express orders from the ship agent
or the shippers.

Word Meanings

Corsair - a pirate ship

Privateer - a private vessel or ship commissioned by a belligerent power or nation to carry on hostilities by sea or make war
on the enemy, usually by preying on the latter's commerce. A privateersman who accepted letters of marquee from both
belligerents was regarded as a pirate.

Man o' war or Men o' war - are battleships or war ships of the navy of a government.

(CC, Arts. 623-624)

Art. 623 - If he should be attacked by a privateer, and, after having tried to avoid the encounter
and having resisted the delivery of the effects of the vessel or its cargo, they should be forcibly taken away
from him, or he should be obliged to deliver them, he shall make an entry thereof in his freight book and

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shall prove the fact before the competent authority at the first port he touches. After the force majeure has
been proved, he shall be exempted from liability.

Art. 624 - A captain whose vessel has gone through a hurricane or who believes that the cargo has
suffered damages or averages, shall make a protest thereon before the competent authority at the first port
he touches, within twenty-four hours following his arrival and shall ratify it within the same period when
he arrives at his destination, immediately proceeding with the proof of the facts, and he may not open the
hatches until after this has been done.

The captain shall proceed in the same manner, if, the vessel having been wrecked; he is saved alone
or with part of his crew, in which case he shall appear before the nearest authority, and make a sworn
statement of facts.

The authority or the consul shall verify the said facts receiving sworn statements of the members of
the crew and passengers assist in arriving at the facts he shall make a statement of the result of the
proceedings in the log book and in that of the sailing mate, and shall deliver to the captain the original
record of the proceedings, stamped and folioed, with a memorandum of the folios, which he must rubricate,
in order that it may be presented to the judge or court of the port of destination.

The statement of the captain shall be accepted if it is accordance with those of the crew and
passengers; if they disagree, the latter shall be accepted, always saving proof to the contrary.

Maritime or Marine Protest - a written statement under oath, made by the master of a vessel, attested by a proper judicial
officer or a notary, after the occurrence of an accident or disaster in which the vessel or cargo is lost or injured, with
respect to the circumstances attending such occurrence.

It must be presented within twenty four (24) hours before the competent authority of the port nearest to where the
collision had taken place, or the first port of arrival or, if it occurs in a foreign country, the Philippine consular
representative.

1977 BQ No. IX-b/1988 BQ9: Explain a maritime protest.

Ans. (See above)

A marine protest is usually intended to show that the loss or damage resulted from a peril of the sea, or from some
other cause for which neither the master nor the owner was responsible, and concludes with the protestation against any
liability of the owner for such loss or damage (Goro vs. William Lines, Inc., 59 O.G. 6486)

An action to recover losses and damages arising from collisions cannot be admitted if such protest is not made (Art.
835, Code of Commerce). The lack of protest, however, will not prejudice such action by owners of cargo who were not on
board the vessel or who were not in a condition to make known their wishes (Art. 836, Code of Commerce).

(CC, Arts. 624-626)

A maritime protest should be made:

(a) When a vessel has gone through a hurricane;

(b) When the captain believes that the cargo has suffered damage or averages;

(c) If the vessel having been wrecked, the captain is saved alone or part of his crew.

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(d) In case of arrival under stress;

(e) In case of maritime collission.

The marine protest shall be made by the captain before the competent authority at the first port he touches, within
twenty-four (24) hours following the arrival of the vessel. Upon arrival at the place of destination, the captain shall ratify the
protest within the same period of twenty-four (24) hours when he arrives at his desination. (Art. 624, Code of Commerce).

1998 BQ No. 17(b). When and where should a maritime protest be filed?

Ans.  See above.

Art. 625 - The captain, under his personal responsibility, as soon as he arrives at the port of
destination, should get the necessary permission from the health and customs officers, and perform the
other formalities required by the regulations of the administration, delivering the cargo without any
defalcation, to the consignee, and in a proper case, the vessel, rigging, and freightage to the ship agent.

If by reason of the absence of the consignee or on account of the nonappearance of a legal holder of
the bills of lading, the captain should not know to whom he is to legally make the delivery of the cargo, he
shall place it at the disposal of the proper judge or court or authority, in order that he may determine what
is proper with regard to its deposit, preservation and custody.

OFFICERS AND CREW OF VESSELS

Art. 626 - In order to be a sailing mate it shall be necessary: 

1. To have the qualifications required by the marine or navigation laws or regulations.

2. Not to be disqualified in accordance therewith for the discharge of his duties.

Art. 627 - The sailing mate, as the second chief of the vessel, and unless the agent orders otherwise, shall take
the place of the captain in cases of absence, sickness, or death, and shall then assume all his powers, duties, and
responsibilities.

Art. 628 - The sailing mate must provide himself with charts of the seas in which he will navigate with the
astronomical tables and instruments for observation which are in use and which are necessary for the discharge of his
duties, being liable for the accidents which may arise by reason of his omission in this regard.

(CC, Arts. 629-632)

Art. 629 - The sailing mate shall particularly and personally keep a book, folioed and stamped on
all its pages, denominated "Binnacle Book" with a memorandum at the beginning stating the number of
folios it contains, signed by the competent authority, and shall enter therein daily the distance, the course
travelled, the variations of the needle, the leeway, the direction and force of the wind, the condition of the
atmosphere and of the sea, the rigging set, the latitude and longtitude observed, the number or furnace
heated, the steam pressure, the number of revolutions, and under the title "incidents," the manuevers
made, the meeting with other vessels, and all the details and incidents which may occur during the voayage.

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 The sailing mate shall maintain the"Binnacle Book" which shall contain (1) a memorandum at the
beginning stating the number of folios it contains, signed by the competent authority, and shall enter
therein daily (2) the distance, (3) the course travelled, (4) the variations of the needle, (5) the leeway, (6) the
direction and force of the wind, (7) the condition of the atmosphere and of the sea, (8) the rigging set, (9)
the latitude and longitude observed, (10) the number or furnace heated, (11) the steam pressure, (12) the
number of revolutions, and (13) under the title "incidents," (a) the manuevers made, (b) the meeting with
other vessels, and (c) all the details and incidents which may occur during the voyage.

Art. 630 - In order to change the course and to take the one most convenient for a good voyage of
the vessel, the sailing mate shall come to an agreement with the captain. If the latter should object, the
sailing mate shall state to him the proper observations in the presence of the other officers of the sea. If the
captain should still insist on his negative decision, the sailing officer, in the log book, and shall obey the
captain who alone shall be responsible for the consequences of his decision.

Art. 631 - The sailing mate shall be responsible for all the damages caused to the vessel and the
cargo by reason of his negligence or want of skill, without prejudice to the criminal liability which may
arise, if a felony or misdemeanor has been committed.

Powers and duties of the Sailing (First) Mate. The first mate as second chief of the vessel takes the place of the captain in
case of absence, sickness, or death, and shall then assume all of his duties. He must:

(1) provide himself with maps and charts with astronomical tables necessary for the discharge of his duties;

(2) keep the Binnacle Book; and,

(3) change the course in consultation with the captain and other officers of the boat, following the captain's decision in case
of disagreement.

Art. 632 - The following shall be the obligations of the second mate:

1. To watch over the preservation of the hull and rigging of the vessel, and to take charge of the
preservation of the tackle and equipment which make up her outfit, suggesting to the captain the
repairs necessary and the replacement of the goods and implements which are rendered useless and are
lost.

2. To take care that the cargo is well arranged, keeping the vessel always ready for maneuver.

(CC, Arts. 632)

3. To reserve order, discipline, and good service among the crew, requesting the necessary orders
and instructions of the captain, and giving him prompt information of any occurrence in which the
intervention of his authority may be necessary.

4. To assign to each sailor the work he is to do on board, in accordance with the instruction received and to
see that it is promptly and accurately carried out.

5. To take charge under inventory of the rigging and all the equipment of the vessel, if it should be laid up,
unless the ship agent has ordered otherwise.

With regard to engineers the following rules shall govern:

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1. In order to be taken on board as a marine engineer forming part of the complement of a merchant
vessel. It shall be necessary to have the qualifications which the laws and regulations require, and not
be disqualified in accordance therewith for the discharge of his duties. Engineers shall be considered
officers of the vessel but they shall have no authority or intervention except in matters referring to the
motor apparatus.

2. When there are two or more engineers on board a vessel, one of them shall be the chief, and the other
engineers and all the personnel of the engines shall be under his orders; he shall also have charge of the
motor apparatus, the spare parts, the instruments and tools pertaining thereto, the fuel, the lubricating
material and, finally, whatever is entrusted to an engineer on board a vessel.

3. He shall keep the engines and boilers in good condition and state of cleanliness, and shall order what
may be proper in order that they may always be ready to work with regularity, being liable for the
accidents or damages which his negligence or want of skill may cause to the motor apparatus, to the
vessel and to the cargo, without prejudice to the criminal liability which may be proper if there has
been a felony or misdemeanor.

4. He shall not make any change in the motor apparatus, or proceed to repair the averages he may have
noticed in the same, or change the normal speed of its movement without the prior authorization of the
captain, to whom, if he should object to their being made, he shall state the proper ovservations in the
presence of the other engineers or officers; and if, notwithstanding this, the captain should insist on his
objection, the chief engineer shall make the proper protests, entering the same in the engine book, and
shall obey the captain, who, alone shall be responsible for the consequences of his decision.

5. He shall inform the captain of any average which may occur in the motor apparatus, and shall advise
him whenever it may be necessary to stop the engines for some time, or when it any other incident
occurs in his department of which the captain should be immediately informed, besides frequently
advising him of the consumption of fuel and lubrication material.

6. He shall keep a book or registry called the "engine book," in which shall be entered all the data
referring to the work of the engines, such as, for example, the number of furnaces heated, the vacuum
in the condenser, the temperature, the degree of saturation of the water in the boilers the consumption
of fuel and lubricating material, and under the heading of "noteworthy occurences," the averages and
maladjustments which occur in the engines and boilers, the causes thereof and the means employed
to repair the

(CC, Arts. 632-634)

same likewise, the force and direction of the wind, the rigging set and the speed of the vessel shall be
stated, taking the information from the Binnacle Book.

Art. 633 - The second mate shall take command of the vessel in case of the inability or
disqualification of the captain and the sailing mate, assuming in such case their powers and responsibility.

Powers of the Second Mate. The second mate takes command of the vessel in case of the inability or disqualification of the
captain and the sailing mate. (See Smith Bell and Co. vs. CA, 197 SCRA 201, AFA, Pp. 335-336)

Duties of the Second Mate. The second mate shall:

(1) preserve the hull and rigging of the vessel;

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(2) arrange well the cargo;

(3) discipline the crew;

(4) assign work to crew members;

(5) inventory the rigging and equipment of the vessel, if laid up; and

(6) take command in case of disability of the captain and the first mate.

Engineer and his Duties. The engineer is an officer of the vessel but has no authority except in matters referring to the
motor apparatus. When two or more are hired, one of them shall be the chief engineer. His duties are:

(1) He shall have the charge of the motor apparatus, spare parts, instruments, etc. pertaining to the engines;

(2) he shall keep the engines and boilers in good condition;

(3) he shall not change or repair an engine without authority from the captain;

(4) he shall inform the captain of any average to the motor apparatus;

(5) he shall keep an Engine Book where he shall enter (1)all the data referring to the work of the engines, such as, for
example, (a) the number of furnaces heated, (b) the vacuum in the condenser, (c) the temperature, (d) the degree of
saturation of the water in the boilers, (e) the consumption of fuel and lubricating material, and under (2) the heading of
"noteworthy occurences," (a) the averages and maladjustments which occur in the engines and boilers, (b) the causes
thereof and (c) the means employed to repair the same; (3) likewise, (a) the force and direction of the wind, (b) the rigging
set and (c) the speed of the vessel, taking the information from the Binnacle Book;

(6) all personnel maintaining the engines shall be under his order.

Art. 634 - The captain may make up the crew of his vessel with such number of men as he may
consider proper, and in the absence of Filipino sailors, he may take on foreigners

(CC, Arts. 634-635)

residing in the country, the number thereof not to exceed one fifth of the crew. If in foreign ports the
captain should not find a sufficient number of Filipino sailors, he may complete the crew with foreigners,
with the consent of the consul or marine authorities.

The agreement which the captain may make with the members of the crew and others who go to
make up the complement of the vessel, to which reference is made in Article 612, must be reduced to
writing in the account book, without the intervention of a notary public or clerk of court ("escribano"),
signed by the parties thereto and visaed by the marine authority if they be executed in Philipine authority
or by the consuls or consular agents of the Republic of the Philippines if executed abroad, stating therein
all the obligations which each one contracts and all the rights he acquires, said authorities taking care that
these obligations and rights are recorded in a clear and definite manner which give no room for doubts or
claims.

The captain shall take care to read to them the articles of this Code which concern them, stating in
said document that they were read.

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 If the book contains the requisites prescribed in Article 612, and there should not appear any signs
of alterations in its entries, it shall be admitted as evidence in questions which may arise between the
captain and the crew with respect to the agreements contained therein and the amounts paid on account of
the same.

Every member of the crew may demand of the captain a copy, signed by the latter, of the
agreement and of the liquidation of his wages, as they appear in the book.

Who Hires Crew Members. Crew members are hired by the ship agent, where he is present, but he cannot hire a crew
member over the captain's objection; in the absence of the ship agent, the captain hires them, preferring Filipinos, and in their
absence, he may take in foreigners, but not exceeding 1/5 of the crew.

But under Sec. 829 of the Tariff and Customs Code, in case of Philippine vessels operating in the coastwise trade or
on the high seas, no officer or member of the crew may be hired who is not a citizen of the Philippines.

Art. 635 - A seaman who has been contracted to serve on a vessel may not rescind his contract or
fail to comply therewith except by reason of a legitimate impediment which may have happened to him.

Neither may he transfer from the service of one vessel to another without obtaining the written
permission of the captain of the vessel on which he may be.

If, without obtaining said permission, the seaman who has signed for one vessel should sign for
another one, the second contract shall be void, and the captain may choose between forcing him to fulfill
the service to which he first bound himself, or at his expense to look for a person to substitute him.

Furthermore, he shall lose the wages earned on his first contract, to the benefit of the vessel for
which he had signed.

A captain who, knowing that a seaman is in the service of another vessel, should have made a new
agreement with him without having required of him the permission

(CC, Arts. 635-637)

referred to in the preceding paragraphs, shall be subsidiarily responsible to the captain of the vessel to
which the seaman first belonged, for that part of the indemnity, referred to in the third paragraph of this
article, which the seaman may not be able to pay.

Art. 636 - If there is no fixed period for which a seaman has been contracted he may not be
discharged until the end of the return voyage to the port where he enlisted.

Classes of Seaman's Contracts. The most common classes are (1) by the voyage; (2) by the month; (3) by share of profits of
freightage.

Art. 637 - Neither may the captain discharge a seaman during the time of his contract except for
just cause, the following being considered as such:

1. The perpetration of a crime which disturbs order on the vessel.

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2. Repeated insubordination, want of discipline, or non-fulfillment of the service.

3. Repeated incapacity and negligence in the fulfillment of the service he should render.

4. Habitual drunkenness.

5. Any occurrence which incapacitates the seaman to perform the work entrusted to him, with the
exception of that provided in Article 644.

6. Desertion.

The captain may, however, before getting out on a voyage and without giving any reason, refuse to
permit a seaman whom he may have engaged to on board, and leave him on land, in which case he will be
obliged to pay him his wages as if he had rendered services.

This indemnity shall be paid from the funds of the vessel if the captain should have acted for
reasons of prudence and in the interest of the safety and good services of the former. Should this not be the
case, it shall be paid by the captain personally.

After the voyage has begun, during the same, and until the conclusion thereof, the captain may not
abandon any member of his crew on land or on sea, unless, by reason of some crime, his imprisonment and
delivery to the competent authority in the first port touched should be proper, a matter obligatory for the
captain.

Just Causes for Discharge of Seaman While Contract Subsists:

(1) perpetration of a crime;

(2) repeated in subordination, want of discipline;
(3) repeated incapacity and negligence;
(4) habitual drunkenness;
(5) physical incapacity; and
(6) desertion.

MADRIGAL v. OGILVIE
104 Phil. 748, October 30, 1958

Facts: The captain, employed by Madrigal Shipping, engaged the services of several seamen to fetch and man the vessel SS
Bridge owned by the latter from Sasebu, Japan to the port of Manila. The seamen were flown to Sasebu and they manned the
vessel. Upon arrival of the vessel in Hongkong, the seamen were dismissed, replaced by a Chinese crew and were flown back
to Manila and paid their salaries up to the date of their discharge. The seamen brought this action to collect their salaries and
subsistence allowance from day of dismissal to the date when the vessel arrived in Manila. CFI dismissed complaint on the
ground that the respondents failed to prove that the petitioner is a corporation organized under Phil. laws and therefore it has
no jurisdiction over the subject matter of the action. CA reversed CFI decision and ordered petitioner to pay respondents.
Petition for certiorari.

Held: Petition denied. The services of the respondents were engaged by the petitioner to man its vessel for a determinate time
or voyage with an express stipulation that "this contract expires on the arrival of thisboat at the port of Manila." Art. 605 of
Com. Code gives the causes for dismissal. Not having been discharged for any of the causes enumerated in the foregoing
articles, the respondents are entitled to the amounts they respectively seek to collect from the petitioner.

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 Art. 638 - If, after the crew has been engaged, the voyage is revoked by the will of the ship agent or
of the charterers before or after the vessel has put to sea, or if the vessel is for the same reason given a
destination different from that fixed in the agreement with the crew, the latter shall be indemnified on
account of the rescission of the contract, according to the cases, as follows: (CC, Arts. 638-640)

1. If the revocation of the voyage should be decided upon before the departure of the vessel from the port,
each sailor engaged shall be given one month's salary, besides what may be due him, in accordance with
his contract, for the services rendered to the vessel up to the date of the revocation.

2. If the agreement should have been for a fixed amount for the whole voyage, that which may be due for
said month and days shall be determined in proportion to the approximate number of days the voyage
should have lasted, in the judgement of experts, in the manner established in the law of Civil Procedure;
and if the proposed voyage should be of such short duration that it is calculated at approximately one
month, the indemnity shall be fixed for fifteen days, discounting in all cases the sums advanced.

3. If the revocation should take place after the vessel has put to sea, the seamen engaged for a fixed amount
for the voyage shall receive in full the salary which may have been offered them as if the voyage had
terminated; and those engaged by the month shall receive the amount corresponding to the time they
might have been on board and to the time they may require to arrive at the port of destination, the
captain being obliged, furthermore, to pay the seamen in both cases, the passage to the said ort or to the
port of sailing of the vessel, as may be convenient for them.

4. If the ship agent or the charterers of the vessel should give it a destination different from that fixed in the
agreement, and the members of the crew should not agree thereto, they shall be given by way of
indemnity half the amount fixed in case No. 1, besides what may be owed them for the part of the
monthly wages corresponding to the days which have elapsed from the date fo their agreements.

(CC, Arts. 638-641)

If they accept the change, and the voyage, on account of the greater distance or of other reasons, should
give rise to an increase of wages, the latter shall be adjusted privately or through amicable arbitrators in
case of disagreement. Even though the voyage should be shortened to a nearer point, this shall not give
rise to a reduction in the wages agreed upon.

If the revocation or change of the voyage should come from the shippers or charterers, the agent shall
have a right to demand of them the indemnity which may be justly due.

Art. 639 - If the revocation of the voyage should arise from a just cause independent of the will of
the ship agent and charterers, and the vessel should not have left the port, the members of the crew shall
have no other right than to collect the wages earned up to the day on which the revocation took place.

Art. 640 - The following shall be just causes for the revocation of the voyage.

1. A declaration of war or interdiction of commerce with the power to whose territory the vessel was
bound.

2. The blockade of the port of its destination, or the breaking out of an epidemic after the agreement.

3. The prohibition to receive in said port the goods which make up the cargo of the vessel.

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4. The detention or embargo of the same by order of the government, or for any other reason independent
of the will of the ship agent.

5. The inability of the vessel to navigate.

Interdiction of commerce between two countries - a governmental prohibition of commercial intercourse intended to

bring about an entire cessation for the time being of all trade whatever. It is also referred to as "interdiction of
commercial intercourse."

Embargo - A proclamation or order of a state, usually issued in time of war or threatened hostilities, prohibiting the deparure
of ships or goods from some or all the ports of such state until further order.

Blockade - A sort of circumvallation of a place by which all foreign connection and correspondence is, as far as human
power can effect it to be cut off. The actual investment of a port or place by hostile force, fully competent under ordinary
circumstances, to cut off all communications thereto, so arranged or diposed as to be able to apply its force to every point
of practicable access or approach to the port or place so invested.

Art. 641 - If, after a voyage has been begun, any of the first three causes mentioned in the foregoing
article should occur, the sailors shall be paid at the port which the captain may deem advisable to make for
the benefit of the vessel and cargo, according to the time they may have served thereon; but if the vessel is
to continue its voyage, the captain and the crew may mutually demand the enforcement of the contract.

In case of the occurrence of the fourth case, the crew shall continue to be paid half wages, if the
agreement is by month; but if the detention should exceed three months, the

(CC, Arts. 641-643)

contract shall be rescinded and the crew shall be paid what they should have earned according to the
contract if the voyage had been concluded. And if the agreement should be for a fixed sum for the voyage,
the contract must be complied within the terms agreed upon.

In the fifth case, the crew shall have no other right than to collect the wages earned; but if the
disability of the vessel should have been caused by the negligence or lack of skill of the captain, engineer, or
sailing mate, they shall indemnify the crew for the damages suffered, always without prejudice to the
criminal liabillity which may be proper.

Art. 642 - If the crew have been engaged on shares, they shall not be entitled, by reason of the
revocation, delay, or greater extension of the voyage, to anything but the proportionate part of the
indemnity which may be paid into the common funds of the vessel by the persons liable for said
occurrences.

Effects of Revocation of Voyage

A seaman's contract may be revoked by will of the ship agent entitling the seaman to certain payments depending on
the nature of the contract and the time when the revocation was made. However, there are just causes for revocation of the
voyage producing a corresponding effect on the seaman's contract. These are: (1) war; (2) blockade; (3) prohibition to receive
cargo at destination; (4) embargo and (5) inability of the vessel to navigate.

In the foregoing cases, a form of a partnership is formed between the shipowner and the sailors for which both of
them should share in the profits and losses, and therefore, in case the voyage is revoked or delayed, the sailors are not entitled
to anything other than a proportionate part of the indemnity which may be paid to the common funds of the vessel.

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 Art. 643 - If the vessel and her cargo should be totally lost, by reason of capture or wreck, all rights
shall be extinguished, both as regards the crew to demand any wages whatsoever, and as regards the ship
agent to recover the advances made.

If a portion of a vessel or of the cargo, or of both, should be saved, the crew engaged on wages,
including the captain, shall retain their rights on the salvage, so far as they go, on the remainder of the
vessel as well as on the amount of the freightage of the cargo saved; but sailors who are engaged on shares
shall not have any right whatsoever on the salvage of the hull, but only on the portion of the freightage
saved. (As amended by Act No. 2616, the Salvage Law, Sec. 8).

The above provision has no effect on the right of the crew under the Employee's Compensation provision of the
Labor Code of the Philippines (P.D. 412, as amended). Thus, the widows of the captain, machinists and patron of a vessel
who perished as a result of the sinking of the vessel where they were working, are entitled to compensation under the said
law (HBP, citing Enciso vs. Dy-Liaco, 57 Phil. 446; Abueg, et al. vs. San Diego, 44 O.G. 80).

Art. 644 - A seaman who falls sick shall not lose his right to wages during the voyage, unless the
sickness is the result of his own fault. At any rate, the costs of the attendance and cure shall be defrayed
from the common funds, in the form of a loan.

(CC, Arts. 644-645)

If the sickness should come from an injury received in the service or defense of the vessel, the
seaman shall be attended and cured at the expense of the common funds deducting, before anything else,
from the proceeds of the freightage the cost of the attendance and cure.

Moreover, the sailor shall be entitled to the benefits provided for under the Labor Code. (HBP, citing Abueg, et al.
vs. San Diego, 44 O.G. 80).

Art. 645 - If a seaman should die during the voyage, his heirs will be given the wages earned and
not received according to his contract and the cause of his death, namely-

If he died a natural death and was engaged on wages, that which may have been earned up to the
date of his death shall be paid.

If the contract was for a fixed sum for the whole voyage, half the amount earned shall be paid if the
seamen died on the voyage out, and the whole amount if he died on the return voyage.

And if the contract was on shares and death occurred after the voyage was begun, the heirs shall be
paid the entire portion due the seaman; but if the latter died before the departure of the vessel from the
port, the heirs shall not be entitled to claim anything.

If death occurred in the defense of the vessel, the seaman shall be considered as living, and his heirs
shall be paid, at the end of the voyage, the full amount of wages or the integral part of the profits which
may be due him as to others of his class.

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 In the same manner, the seaman captured while defending the vessel shall be considered present so
as to enjoy the same benefits as the rest; but should he have been captured on account of carelessness or
other accident not related to the service, he shall only received the wages due up to the day of his capture.

Benefits under the Code of Commerce in case of death of the seaman. The seaman's heirs are entitled to payment as
follows:

(1) natural death

(a) if engaged on wages, compensation up to time of death;

(b) if engaged for a sixed sum for the whole voyage, half if he died on the voyage out and whole amount if he died on
the return voyage;

(c) if engaged based on shares, none, if he died before departure and full amount if he died after departure;

(2) death in defense of vessel - full payment;

(3) if captured in defense of vessel - full pay;

(4) if captured due to carelessness - wages up to the date of capture.

(Arts. 646 – 650)

Art. 646 - The vessel with her engines, rigging, equipment, and freightage shall be liable for the
wages earned by the crew engaged per month or for the trip, the liquidation and payment to take place
between one voyage and the other.

After a new voyage has been undertaken, credits of such kind pertaining to the preceding voyage
shall lose their right of preference.

The lien created in favor of the crew for their wages take preference over a lien created by giving the ship as security
for money borrowed. The crew, therefore, have a prior lien upon a ship over the lien created by a chattl mortgage
(McMicking vs. El Banco Espanol-Filipino, 13 Phil. 429), and the purchaser of the vessel would be obliged to respect the
liens created by unpaid wages of the crew (Philippine Shipping Co. vs. Garcia, 6 Phil. 281).

Art. 647 - The officers and the crew of the vessel shall be free from all obligations if they deem it proper, in
the following cases:

1. If, before beginning the voyage, the captain attempts to change it, or a naval war with the power to which the vessel
was destined occurs.

2. If a disease should break out and be officially declared an epidemic in the port of destination.

3. If the vessel should change owner or captain.

Art. 648 - By the complement of a vessel shall be understood all the persons on board, from the
captain to the cabin boy, necessary for the management, maneuvers, and service, and therefore, the
complement shall include the crew, the sailing mates, engineers, stokers and other employees on board not

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having specific designations; but it shall not include the passengers or the persons whom the vessel is
transporting.

Art. 649 - Supercargoes shall discharge on board the vessel the administrative duties which the ship
agent or the shippers may have assigned to them; they shall keep an account and record of their
transactions in a book which shall have the same conditions and requisites as required for the accounting
book of the captain, and they shall respect the latter in his capacity as chief of the vessel.

The powers and responsibilities of the captain shall cease, when there is a supercargo, with regard
to that part of the administration legitimately conferred upon the latter, but shall continue in force for all
acts which are inseparable from his authority and office.

Supercargo - a person who discharges administrative duties assigned to him by the ship agent or the shippers, keeping an
account and record of transactions as required in the accounting book of the captain.

Art. 650 - All the provisions contained in the second section of Title III, Book II, with regard to
capacity, manner of making contracts, and liabilities of factors, shall be applicable to supercargoes.

(Arts. 651 - 652)

Art. 651 - Supercargoes may not, without special authorization or agreement, make any transaction
for their own account during the voyage, with the exception of the ventures which, in accordance with the
custom of the port of destination, they are permitted to do.

Neither shall he be permitted to invest in the return trip more than the profits from the ventures,
unless there is an express authorization from the principals.

SPECIAL CONTRACTS OF MARITIME COMMERCE

The Special contracts of maritime commerce are: (1) Charter Parties; (2) Bills of Lading; (3) Contracts of Transportation
of Passengers on Sea Voyages; (4) Loans on Bottomry; (5) Loans on Respondentia; and, (6) Marine Insurance (which is
now governed by the Insurance Act)

Nature of Maritime Contracts. To give admiralty jurisdiction over a contract as marine, such contract must relate to the
trade and business of the sea; it must provide for maritime services, maritime transactions; or maritime casualties. (In Re
James T. Furber, 129 Fed. 808, cited in 66 L.R.A. 212; Insurance Company of North America vs. Delgado Brothers, Inc. 4
SCRA 691).

Before B.P. 129, the 1980 Judiciary Reorganization Law, Regional Trial Courts (RTCs) had exclusive original
jurisdiction over all admiralty and maritime cases, regardless of the amount or claim involved. But under Sec. 19 (3) of B.P.
129, the RTCs retained exclusive original jurisdiction over admiralty and maritime cases where the claim or demand exceeds
P20,000.00.

Necessarily, if the claim or demand is P20,000.00 or less, the case is cognizable by Metropolitan, Municipal and
Municipal Circuit Trial Courts, and where the claim is P10,000.00 or less, the case may be tried by these lower courts under
the Rule on Summary Procedure for Special Cases.

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 1988 BQ #16. The goods imported from the United States were unloaded by the carrier in Manila. While in the
custody of the arrastre operator, part of the shipment worth P1,000.00 was lost. Does the case involve admiralty
and maritime commerce so that the action for short delivery has to be filed in the Court of First Instance
regardless of the amount? Reasons.

Ans.: No; the matter does not involve admiralty or maritime commerce which relate only to incidents occuring
during the sea voyage. Even assuming that the case involves an admiralty and maritime case, under B.P. 129,
jurisdiction now also lies with the Metropolitan, Municipal Trial Courts and Municipal Circuit Trial Courts if
the amount involved does not exceed P20,000.

CHARTER PARTY

Art. 652 - A charter party must be drawn in duplicate and signed by the contracting parties, and
when either does not know how or is not able to do so, by two witnesses at his request.

The charter party shall contain, besides the conditions freely stipulated, the following
circumstances:

1. The kind, name, and tonnage of the vessel.

(CC, Arts. 652)

2. Its flag and port of registry.

3. The name, surname and domicile of the captain.

4. The name, surname and domicile of the ship agent, if the latter should make the charter party.

5. The name, surname, and domicile of the charterer; and if he states that he is acting by
commission, that of the person for whose account he makes the contract.

6. The port of loading and unloading.

7. The capacity, number of tons or the weight or measurement which they respectively bind themselves to
load and to transport, or whether the charter party is total.

8. The freightage to be paid, stating whether it is to be a fixed amount for the voyage or so much per
month, or for the space to be occupied, or for the weight or measure of the goods of which the cargo
consists, or in any other manner whatsoever agreed upon.

9. The amount of primage to be paid to the captain.

10. The days agreed upon for loading and unloading.

11. The lay days and extra lay days to be allowed and the demurrage to be paid for each of them.

Charter Party - A contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a
specified time or use, a contract of affreightment by which the owner of a ship or other vessel lets the whole or part of
her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight. (Planters Products, Inc. vs. CA, 226 SCRA 476, 44 SCAD 860, Sept. 15, 1993)

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 1989 BQ #13 (1):  X owns the ship M/V Aguinaldo. He bareboat chartered the ship to Y who appointed all its
crew members from the captain down to its last official. Y then transported a shipment of 10,000 bags of sugar
belonging to Z. Thru the negligence of the ship captain, half of the sugar was damaged due to sea water. Since
Y is bankrupt, Z sued the captain and X. Will the suit succeed?

Ans.: The action could prosper against the ship captain whose negligence caused the damage but not against X
who merely was the lessor of the vessel and who was neither a party to the contract for the shipment of the
goods nor an employer of the ship captain.

Form and Contents of Charter Party. The contract must be drawn in duplicate, signed in the parties, and should contain
besides conditions freely stipulated, the following:

(1) kind, name and tonnage of the vessel;

(2) flag and port of registry;
(3) name, surname and domicile of the captain, ship agent and charterer;
(4) port of loading and unloading;
(5) capacity, number of tons or weight agreed to be transported;
(6) freightage;

(CC, Arts. 652-653)

(7) primage;
(8) days for loading and unloading and (9) lay days and extra lay days allowed.

MARIMPERIO COMPAÑIA NAVIERA, S.A. v. CA

156 SCRA 368, Dec. 14, 1987

Facts: Respondents Philin Traders Corporation and Union Import & Export Corporation entered into a joint business venture
for the purchase of copra from Indonesia for sale in Europe.

Peter Yap of Philin found one P.T. Karkam in Dumai, Sumatra who had around 4,000 tons of copra for sale. Exequiel Toeg
of Interocean was commissioned to look for a vessel and he found a vessel "SS Paxoi" of Marimperio available. Philin and
Union authorized Toeg to negotiate for its charter but with instruction to keep confidential the fact that they are the real
charterers.

A "Uniform Time Charter" for the hire of vessel "Paxoi" was entered into by the owner, Marimperio Compania Naviera, S.A.
through its agents N. & J. Vlassopulos, Ltd. and Matthews, representing Interocean Shipping Corporation, which was made
to appear as charterer, although it merely acted in behalf of the real charterers, private respondents Philin Traders Corp. and
Union Import & Export Corp.

Issue: Whether or not respondents have the legal capacity to bring the suit for specific performance against petitioner based
on the charter party.

Held: Article 652 of the Code of Commerce provides that the charter party shall contain, among others, the name, surname,
and domicile of the charterer, and if he states that he is acting by commission, that of the person for whose account he makes
the contract. It is obvious from the disclosure made in the charter party by the authorized broker, the Overseas Steamship Co.,
Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and Export
Corporation which in turn sublet it to Philin Traders Corporation).

In a sub-lease, there are two leases and two distinct judicial relations, although intimately connected and related to each other,
unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there
only remains in the judicial relation two persons, the lessor and the assignee who is converted into a lessee. (Moreno,
Philippine Law Dictionary, 2nd ed., p. 594).

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In other words, in a contract of sub-lease, the personality of the lesee does not disappear; he does not transmit absolutely his
rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action against the owner of the
premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa  (Manresa,
Spanish Civil Code, 438).

In the instant case, it is clear that the sub-lessee as such cannot maintain the suit they filed up with the trial court  (See A.
Maluenda and Co. v. Enriquez, 46 Phil. 916).

Art. 653 - If the cargo should be received without the charter party having been signed, the contract
shall be understood as executed in accordance with what appears in the bill of lading, the sole evidence of
title with regard to the cargo for determining the rights and obligations of the ship agent, of the captain,
and of the charterer.

Market Developers,Inc. (MADE) vs. IAC and Gaudioso Uy

G.R. No. 74978, September 8, 1989

Facts: On June 20, 1978, petitioner Market Developers, Inc. (MADE) entered into a written barging and towage contract
with private respondent Gaudioso Uy for the shipment of the former's cargo from Iligan

(CC, Art. 653)

City to Kalibo, Aklan, at the rate of P1.45 per bag. The petitioner was allowed 4 lay days and agreed to pay demurrage at the
rate of P5,000.00 for every day of delay, or in excess of the stipulated allowance. On June 26, 1978, Uy sent a barge and a
tugboat to Iligan City and loading of the petitioner's cargo began immediately. It is not clear who made the request, but upon
completion of the loading on June 29, 1978, the parties agreed to divert the barge to Culasi, Roxas City, with the cargo being
consigned per bill of lading to Modern Hardware in that city. This new agreement was not reduced to writing. The shipment
arrived in Roxas City on July 13, 1978, and the cargo was eventually unloaded and duly received by the consignee. There is
some dispute as to the time consumed for such unloading. At any rate, about six months later. Uy demanded payment of
demurrage charges in the sum of P40,855.40 for an alleged delay of eight days and 4/25 hours. MADE ignored this demand,
and Uy filed suit. He was sustained by the trial court, which ordered the petitioner to pay him the said amount with interest
plus P4,000.00 attorney's fees and the cost of the suit.

Agreeing with the trial court, the respondent court held that since the diversion of the cargo to Roxas City was not covered by
a new written agreement, the original agreement must prevail. Petitioner disputes this conclusion, contending that the first
written contract was replaced by a new verbal agreement that did not contain any stipulation for demurrage.

Issue: Whether or not the second contract of affreightment was invalid simply because it was not in writing.

Held: The contract executed by MADE and Uy was a contract of affreightment, which is defined as a contract with the
shipowner to hire his ship or part of it, for the carriage of goods, and generally takes the form either of a charter party or a bill
of lading.

Article 652 of the Code of Commerce provides that, "a charter party must be drawn in duplicate and signed by the contracting
parties" and enumerates the conditions and information to be embodied in the contract, including "the lay days and extra lay
days to be allowed and the demurrage to be paid for each of them."

This implies that a charter party be in writing, but Art. 653 provides that "If the cargo should be received without the charter
party having been signed, the contract shall be understood as executed in accordance with what appears in the bill of lading,
the sole evidence of title with regard to the cargo for determining the rights and obligations of the ship agent, of the captain,
and of the charterer."

This means that a charter party may be oral, in which case the terms thereof shall be those embodied in the bill of lading.

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We see no reason why the second agreement of the parties to deliver the petitioner's cargo to Roxas City instead of Kalibo,
Aklan, should not be recognized simply because it was not in writing. Law and jurisprudence support the validity of such a
contract and there is no justification either to incorporate in such contract which provided for a different port of destination
than that later agreed upon by the parties. It was precisely this vital change in the second contract that rendered that first
contract ineffectual. The rates between Iligan and Kalibo and between Iligan and Roxas are the same.

But the demurrage charges cannot be deemed stipulated also in the verbal contract because the conditions in the ports of
Aklan and Roxas City were, unlike the rates, not the same. In fact, they were vastly different.

An examination of the bill of lading will reveal that there is no condition or requirement therein for the payment of
demurrage charges. Under the afore-quoted Article 653 of the Code of Commerce, therefore, there was no reason to read any
stipulation for demurrage into the second contract.

Art. 654 - The charter parties executed with the intervention of a broker, who certifies to the
authenticity of the signatures of the contracting parties because they were signed in his presence, shall be
full evidence in court; and if they should be conflicting, that

(CC, Arts. 654-656)

which accords with one which the broker must keep in his registry, if kept in accordance with law, shall
govern.

The contracts shall also be admitted as evidence, even though a broker has not taken part therein, if
the contracting parties acknowledge the signatures to be the same as their own.

If no broker has intervened in the charter party and the signatures are not acknowledged, doubts
shall be decided by what is provided for in the bill of lading and in the absence thereof, by the proofs
submitted by the parties.

Art. 655 - Charter parties executed by the captain in the absence of the ship agent shall be valid and
effective, even though in executing them he should have acted in violation of the orders and instructions of
the ship agent or shipowner; but the latter shall have a right of action against the captain for
indemnification of damages.

Art. 656 - If in the charter party the time in which the loading and unloading are to take place is
not stated, the usages of the port where these acts take place shall be observed. After the stipulated or the
customary period has passed, and there is no express proviso in the charter party fixing the indemnity for
the delay, the captain shall be entitled to demand demurrage for the lay days and extra lay days which may
have elapsed in loading and unloading.

Lay days, extra lay days, defined. "Lay days' are the days allowed to charter parties for loading and unloading the cargo.
"Extra lay days" are the days that follow after the lay days have elapsed.

The stipulation "lay days" (loading and unloading): Customary Quick Dispatch" implies that loading and unloading
of the cargo should be within a reasonable period of time. Due diligence should be exercised according to the customs and
usages of the port or ports of call. The circumstances obtaining at the time of loading and unloading are to be taken into
account in the determination of Customary Quick Dispatch."

What is a reasonable time depends on the existing as opposed to normal circumstances, at the port of loading and the
custom of the port. (NFA vs. CA and Hongfil Shipping Corp., 110 SCAD 300, 311 SCRA 700, August 4, 1999).

W WDS H I N C means Weather, Working Days, Sundays and Holidays INCluded.

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 The running of laytime may be subject to W W D S H INC and would cease to run in the event unfavorable weather
interfered with the unloading of cargo.

F.I.O.S.T. as a standard provision in the Charter Party, stands for "Freight In and Out including Stevedoring and Trading,"
which means that the handling, loading and unloading of the cargoes are the responsibility of the Charterer.

Demurrage, defined -  The sum which is fixed by the contract of carriage, or which is allowed, as remuneration to the owner
of a ship for the detention of his vessel beyond the number of days allowed by the charter party for loading and
unloading or for sailing. The term has also been applied to a claim for damages for failure of the consignee to accept
delivery of the goods. (See NCD, Pp. 365-366) It is only an extended freight or reward to the vessel, or penalty to the
charterer, to compensate for the earnings she is improperly caused to lose.

(CC, Arts. 656-658)

Liability for demurrage exists only when clearly stipulated in the contract.

Dispatch or Dispatch Money Defined. A reward to the charterer of a ship for loading or unloading in shorter time time than
provided for or stipulated as "lay days".

Art. 657 - If during the voyage the vessel should be rendered unseaworthy, the captain shall be
obliged to charter at his expense another one in good condition to receive the cargo and carry it to its
destination, for which purpose he shall be obliged to look for a vessel not only at the port of arrival but also
in the neighborhood within distance of 150 kilometers.

If the captain, through indolence or malice, should not furnish a vessel to its destination, the
shippers, after requiring the captain to charter a vessel within an inextendible period, may charter one and
petition the judicial authority to summarily approve the charter party which they may have made.

The same authority shall judicially ("por la via de apremio") compel the captain, to carry out, for
his account and under his responsibility, the charter made by the shippers.

If the captain, notwithstanding his diligence, should not find a vessel for the charter, he shall
deposit the cargo at the disposal of the shippers, to whom he shall communicate the facts on the first
opportunity which presents itself, the freight being adjusted in such cases by the distance covered by the
vessel, with no right to any indemnification whatsoever.

Art. 658 - The freightage shall accrue according to the conditions stipulated in the contract, and
should they not be expressed, or should they be ambiguous, the following rules shall be observed:

1. If the vessel has been chartered by months or by days, the freightage shall begin to run from the day the
loading of the vessel is begun.

2. In charters made for a fixed period, the freightage shall begin to run from that very day.

3. If the freightage is charged according to weight, the payment shall be made according to gross weight,
including the containers, such as barrels or any other objects in which the cargo in contained.

Classes of Charter Party

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1. Bareboat or Demise Charter - The whole vessel is let to the charterer with a transfer to him of its entire command and
possession and consequent control over its navigation, including the master and the crew, who are his servants. (Planters
Products, Inc. vs. CA, 226 SCRA 476, 44 SCAD 860)

The charterer provides the crew, food and fuel. He is liable for the consequences of the voyage as if he were the owner,
except where the liability arises from unseaworthiness of the vessel.

(CC, Art. 658)

2.  Contract of Affreightage or of Affreightment - The ship owner leases the boat or a part of it for the carriage of goods. It
may take the form of a charter party or a carriage under a bill of lading. (Litonjua Shipping vs. National Seamen's Board,
176 SCRA 189; Maritime Agencies and Services, Inc. vs. CA et al; Union Ins. vs. CA, et al, 187 SCRA 346).

A Contract of Affreightment may either be a time charter or a voyage charter.

a.  Time Charter --- The vessel is chartered for a period of time or duration of the voyage. The charterer acquires the right
to use the carrying capacity, facilities of the vessel, and he could designate the destinations. The owner retains
possession and control of the vessel.

b.  Voyage or Trip Charter --- A contract for the hire of a vessel for one or a series of voyages, usually for the purpose of
transporting goods for the charterer.

In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a
single or consecutive voyages, the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and
defray the expenses for the maintenance of the ship.

In an Affreightage Charter or Contract of Afreightment, which leaves the general owner in possession of the
ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship. (Caltex (Philippines), Inc. vs. Sulpicio Lines, G.R. No. 131166, September 30,
1999, 113 SCAD 471).

In Demise or Bareboat Charter, the charterer is regarded as owner "pro hac vice". The charterer will generally
be regarded as the owner for the voyage or service for the period of time stipulated. The charterer mans the vessel with his
own people, subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must
completely and exclusively relinquish possession, command and navigation thereof to the charterer. Anything short of such a
complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all." (NCD, P. 363)

In a bareboat or demise charter, there is an entire surrender of the vessel by the owner to the charterer, who provides
the officers and the provisions. Entire control and management is given to the charterer. The owner loses his lien for freight
and is substituted by the charterer in whose favor the lien continues to exist when goods are taken on freight. (Ouano vs. CA
et al. GR 95900, July 23, 1992).

1989, 1991 BQ: What is the meaning of "owner pro hac vice" of the vessel? In what kind of charter party does
this obtain?

Ans.: An "owner pro hac vice" is a demise charterer to whom the owner of the vessel has completely and
exclusively relinquished possession, command, and navigation of the vessel (Gilmore and Black, pp. 171, 216).
In this kind of charter, the charterer mans and equips the vessel and assumes all responsibility for its navigation,

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 management and operation. He thus acts as the owner of the vessel in all important aspects during the duration
of the charter.(Guzman v. Pichirilo, 389 U.S. 698)

Does a charter party convert a common carrier to private carrier?

Planters Products, Inc. vs. CA

226 SCRA 476, 44 SCAD 860, Sept. 15, 1993

(The facts of the case are in P. 10, supra)

(CC, Arts. 658-660)

Held: It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier, transporting
goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers
and compliment were under the employ of the shipowner and therefore continued to be under its direct supervision and
control. Hardly then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo
when the charterer did not have any control of the means in doing so. This is evident in the present case considering that the
steering of the ship, the manning of the decks the determination of the course of the voyage and other technical incidents of
maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the shipowner.

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage-
charter. 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 posession and control of the ship, although her holds may, for the moment, be the property of
the charterer. (Reiterated in Caltex [Phils.,], Inc. vs. Court of Appeals, G.R. No. 131166, Sept. 30, 1999, 113 SCAD 471).

These cases are supposed to have modified the ruling in Home Insurance vs. American Steamship Agencies, 23
SCRA 24. (See P. 10 supra). Again, as already noted above, this distinction between the effect of a bareboat of demise
charter from that of an affreightment on the nature of the contract of carriage, turning a common carriage to a private
carriage, was not discussed at all in Valenzuela Hardwood and Industrial Supply, Inc. vs. Court of Appeals and
Seven Brothers Shipping Corporation ( G.R. No. 102316, June 30, 1997, 84 SCAD 105, Page 12, supra). Instead, the
Supreme Court ruled that “that a stipulation exempting the owner (of the vessel) from liability for the negligence of its agent
is not against public policy and is deemed valid” citing Home Insurance Co., Inc. v. American Steamship Agencies.

Art. 659 -The merchandise sold by the captain to pay for the necessary repairs to the hull,
machinery or equipment, or for unavoidable and urgent needs, shall pay freightage.

The price of his merchandise shall be fixed according to the result of the voyage, namely;

1. If the vessel should arrive safely at the port of destination, the captain shall pay the price which the sale
of merchandise of the same kind brings at that port.

2. If the vessel should be lost, the captain shall pay the price realized from said merchandise in the sale.

The same rule shall be observed in the payment of the freightage, which shall be in full if the vessel
arrives at her destination, and in proportion to the distance covered if she should be lost before arrival.

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 Art. 660 - Merchandise jettisoned for the common safety shall not pay freightage; but the amount
of the latter shall be considered as general average computing the same in proportion to the distance
covered when they were jettisoned.

(CC, Arts. 660 - 665)

Jettison - the act of throwing overboard from a vessel part of the cargo, in case of extreme danger, to lighten the ship
(Black's Law Dictionary). The things so cast out are called "jetsam" (Ibid.).

Art. 661 - Neither merchandise lost by reason of shipwreck or stranding nor those seized by the
pirates or enemies, shall pay freightage.

If the freightage should have been paid in advance, it shall be returned, unless there is an
agreement to the contrary.

Goods that are not liable for the payment of freightage

1. Goods jettisoned for the common safety, but the amount of freight lost shall be considered as general average, computing
the same in proportion to the distance covered when they (goods) were jettisoned (Art. 660, Code of Commerce).

2. Goods lost by reason of shipwreck or stranding (Art. 661, Code of Commerce).

3. Those seized by pirates or enemies (Ibidem).

If the freightage had been paid in advance, it shall be returned, unless there is an agreement to the contrary (Ibid.)

Art. 662 - If the vessel or the merchandise should be redeemed, or the effects of the shipwreck be
salvaged, the freightage corresponding to the distance covered by the vessel transporting the cargo shall be
paid; and should the vessel, after being repaired, transport said merchandise to the port of destination, the
full freightage shall be paid, without prejudice to what may be due by reason of the average.

Art. 663 - Merchandise which suffer deterioration or diminutions on account of inherent defects or
bad quality and condition of the packing, or because of fortuitous event, shall pay freightage in full and as
stipulated in the charter party.

Art. 664 - The natural increase in weight or size of the merchandise loaded on the vessel shall
accrue to the benefit of the owner, and shall pay the proper freightage fixed in the contract for the same.

Art. 665 - The cargo shall be specially liable for the payment of the freightage, expenses and duties
arising therefrom, which must be reimbursed by the shippers, as well as for the part of the general average
which may correspond to it; but it shall not be legal for the captain to delay unloading on account of
suspicion that this obligation may not be complied with.

Should there be reasons for distrust, the judge or court, at the instance of the captain, may order
the deposit of the merchandise until he has been paid in full.

1957, 2000 BQ: What is the liability of the goods for general average?

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 (CC, Arts. 665-669)

Ans.: The cargo shall be especially liable for the payment of freight, for expenses and duties arising therefrom,
which must be reimbursed by the shippers, as well as for the part of the general average which may correspond
to it; (Par. 1 Art. 665, Code of Commerce)

National Rice and Corn Corp. vs. Macadaeg

L-9025, Sept. 27, 1957

Facts: The shipper imported rice from Thailand. The agreement with the shipper was for the freight was to be paid upon
discharge of the cargo in Manila. Upon arrival in Manila, the shipper was unable to pay the freight but offered to post a bond
to answer for the amount of the freight. The carrier refused to deliver the rice despite the bond posted by the shipper. May the
carrier be compelled to deliver the rice?

Held: The carrier cannot be compelled to deliver the rice notwithstanding the posting of the bond to answer for the amount of
the freight. The fact that bond has been given for the payment of such freight does not make it compulsory for the carrier to
deliver the cargo before freight has actually been paid After all, a bond does not produce the effect of payment until it is
cashed.

Art. 666 - The captain may request the sale of the cargo to the amount necessary to pay the
freightage, expenses, and averages due him, reserving the right to demand the balance due him therefore if
the proceeds of the sale should not suffice to cover his credit.

Art. 667 - The goods loaded shall be liable in the first place for the freight and expenses thereof
during twenty days, to be counted from the date of their delivery or deposit. During this period, the sale of
the same may be requested, even though there be other creditors and the bankruptcy of the shipper or
consignee should occur.

This right may not be made use of, however, on the goods, which after being delivered, were turned
over to a third person without malice on the part of the latter and for a valuable consideration.

Art. 668 - If the consignee should not be found or should refuse to receive the cargo, the judge or
court, at the instance of the captain, shall order its deposit and the sale of what may be necessary to pay the
freightage and other expenses on the same.

The sale shall likewise be allowed when the goods deposited run the risk of deteriorating, or by
reason of their condition or other circumstances the expenses of preservation and custody should be
disproportionate.

Correlate with CC Art. 369, P. ______, supra

RIGHTS AND OBLIGATIONS OF SHIPOWNERS

Art. 669 - The shipowner or the captain shall observe in charter parties the capacity of the vessel or
that expressly designated in its registry, a difference greater than 2 per cent between that stated and her
true capacity not being permissible.

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 If the shipowner or the captain should contract to carry a greater amount of cargo than the vessel
can carry in view of her tonnage, they shall indemnify the shippers whose

(CC, Arts. 669-674)

contracts they do not fulfill for the losses they may have caused when by the reason of their default,
according to the following cases, viz:

If the vessel has been chartered by one shipper only, and there should appear to be an error or
fraud in her capacity, and the charterer should not wish to rescind the contract, when he has a right to do
so, the freightage shall be reduced in proportion to the cargo which the vessel cannot receive, the person
from whom the vessel is chartered being furthermore obliged to indemnify the charterer for the losses he
may have caused him.

If, on the contrary there should be several charter parties, and by reason of want of space all the
cargo contracted for cannot be loaded, and none of the charterers desires to rescind the contract,
preference shall be given to the person who has already loaded and arranged the freight in the vessel, and
the rest shall take the places corresponding to them in order of the dates of their contracts.

Should there be no priority, the charterers may load, if they wish, in proportion to the amounts of
weight or space for which each may have contracted, and the person from whom the vessel was chartered
shall be obliged to indemnify them for losses and damages.

Art. 670 - If the person from whom the vessel is chartered, after receiving a part of the freight,
should not find sufficient to make up at least three fifths of the amount which the vessel may hold, at the
price he may have fixed, he may substitute for the transportation another vessel inspected and declared
suitable for the same voyage, the expenses of transfer and the increase in the price of the charter, should
there be any, being for his account. Should he not be able to make this change, he shall undertake the
voyage at the time agreed upon; and should no time have been fixed, within fifteen days from the time the
loading began, unless otherwise stipulated.

If the owner of the part of the freight already loaded should procure some more at the same price
and under similar or proportionate conditions to those accepted for the freight received, the person from
whom the vessel is chartered or the captain can not refuse to accept the rest of the cargo; and should he do
so, the shipper shall have a right to demand that the vessel put to sea with the cargo which it may have on
board.

Art. 671 - After three-fifths of the vessel has been loaded, the person from whom she is chartered
may not, without the consent of the charterers or shippers, substitute the vessel designated in the charter
party by another one, under the penalty of making himself thereby liable for all the losses and damages
occurring during the voyage to the cargo of those who did not consent to the change.

Art. 672 - If the vessel has been chartered in whole, the captain may not, without the consent of the
charterer, accept cargo from any other person; and should he do so, said charterer may oblige him to
unload it and to indemnify him for the losses suffered thereby.

Art. 673 - The person from whom the vessel is chartered shall be liable for all the losses caused to
the charterer by reason of the voluntary delay of the captain in putting to sea, according to the rules
prescribed, provided he has been requested, notarially or judicially, to put to sea at the proper time.

Art. 674 - If a charterer should carry to the vessel more cargo than that contracted for, the excess
may be admitted in accordance with the price stipulated in the contract, if it

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 (CC, Arts. 674 - 677)

can be well stowed without injuring the other shippers; but if in order to load it, the vessel would be thrown
out of trim, the captain must refuse it or unload it at the expense of its owner.

In the same manner, the captain may, before leaving the port, unload merchandise clandestinely
placed on board, or transport them, if he can do so with the vessel in trim, demanding by way of freightage
the highest price which may have been stipulated for said voyage.

 
Art. 675 - If the vessel has been chartered to receive the cargo in another port, the captain shall
appear before the consignee designated in the charter party; and, should the latter not deliver the cargo to
him, he shall inform the charterer and wait his instructions, the lay days agreed upon or those allowed by
custom in the port beginning to run in the meantime, unless there is an express agreement to the contrary.

Should the captain not receive an answer within the time necessary therefor, he shall make efforts
to find freight; and should he not find any after the lay days and extra lay days have elapsed, he shall make
a protest and return to the port where the charter was made.

The charterer shall pay the freightage in full, discounting that which may have been earned on the
merchandise which may have been carried by the voyage out or on the return trip, if carried for the
account of third persons.

The same shall be done if a vessel, having been chartered for the round trip, should not be given
any cargo on its return.

Art. 676 - The captain shall lose the freightage and shall indemnify the charterers if the latter
should prove, even against the certificate of inspection, if one has been made at the port of departure, that
the vessel was not in a condition to navigate at the time of receiving the cargo.

Art. 677 - The charter party shall subsist if a declaration of war or a blockade should take place
during the voyage, the captain not having any instructions from the charterer. In such case the captain
must proceed to the nearest safe and neutral port, requesting and awaiting orders from the shipper, and
the expenses and salaries paid during the detention shall be paid as general average.

If, by orders of the shipper, the cargo should be discharged at the port of arrival, the freightage for
the voyage out shall be paid in full.

International Harvester (Russia) vs. Hamburg American Line

42 Phil. 845

Facts: Before the war broke out between Germany and the United States, a German vessel undertook to carry merchandise,
the property of an American corporation, from Hamburg to Vladivostok. War broke out between Germany and Russia and
the ship went to the port of Manila where it was interned. Are the goods subject of general average to satisfy the payment of
freight and expenses by reason of the delay?

(CC, Arts. 677 - 681)

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Held:  No. The goods on board a merchant vessel carrying the flag of belligerent nation, and belonging to a neutral power,
are not subject of general average to satisfy the costs and expenses, incident to the internment of the ship in a neutral port. In
such case, there is no common danger to vessel and cargo, and hence, no case for general average.

Art. 678 - If the time necessary, in the opinion of the judge or court, to receive the orders of the
shipper should have elapse, without the captain having received any instructions, the cargo shall be
deposited, and it shall be liable for the payment of the freightage and expenses on its account during the
delay, which shall be paid from the proceeds of the part first sold.

Summation of the Rights and Obligations of Ship Owner or Ship Agent:

(1) If the vessel is chartered wholly - not to accept cargo from others;

(2) To observe represented capacity;

(3) To unload cargo clandestinely placed;

(4) To substitute another vessel if load is less than 3/5 capacity;

(5) To leave the port if the charterer does not bring the cargo within the lay days and extra lay days allowed;

(6) To place the vessel in a condition to navigate, otherwise freightage lost; and

(7) To bring cargo to nearest neutral port in case of war or blockade.

OBLIGATIONS OF CHARTERERS

Art. 679 - The charterer of an entire vessel may sub-charter the whole or part thereof on such
terms as he may consider most convenient, the captain not being allowed to refuse to receive on board the
freight delivered by the second charterers, provided that the conditions of the first charter are not changed,
and that the price agreed upon is paid in full to the person from whom the vessel is chartered, even though
the full cargo is not embarked, with the limitation established in the next article.

Art. 680 - A charterer who does not complete the full cargo he bound himself to ship shall pay the
freightage of the amount he fails to ship, if the captain does not take other freight to complete the load of
the vessel, in which case the first charterer shall pay the difference, should there be any.

Under the law, the cargo not loaded is considered as deadfreight. It is the amount paid by or recoverable from a
charterer of a ship for the portion of the ship's capacity the latter contracted for but failed to occupy. Explicit and succinct is
the law that the liability for deadfreight is on the charterer. The law in point is Article 680 of the Code of Commerce. (NFA
vs. CA and Hongfil Shipping Corporation, 110 SCAD 300, 311 SCRA 700, August 4, 1999).

(CC, Arts. 681-687)

Art. 681 - If the charterer should load goods different from those stated at the time of executing the
charter party, without the knowledge of the person from whom the vessel was chartered or of the captain,
and should thereby give rise to losses, by reason of confiscation, embargo, detention, or other causes, to the

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person from whom the vessel was chartered or to the shippers, the person giving rise thereto shall be liable
with the value of his shipment and furthermore with his property, for the full indemnity to all those injured
through his fault. 

Art. 682 - If the merchandise should have been shipped for the purpose of illicit commerce, and
were taken on board with the knowledge of the person from whom the vessel was chartered or of the
captain, the latter, jointly with the owner of the same, shall be liable for all the losses which may be caused
the other shippers; and even though it may have been stipulated, they can not demand any indemnity
whatsoever from the charterer for the damage caused to the vessel.

Art. 683 - In case of making a port to repair the hull, machinery, or equipment of the vessel, the
shippers must await until the vessel is repaired, being permitted to unload it at their own expense should
they deem it proper.

If, for the benefit of the cargo subject to deterioration, the shippers or the court, or the consul, or
the competent authority in a foreign country, should order the merchandise to be unloaded, the expenses of
unloading and reloading and reloading shall be for the account of the former.

Art. 684 - If the charterer, without the occurrence of any of the cases of force majeure mentioned in
the foregoing article, should wish to unload his merchandise before arriving at the port of destination, he
shall pay the full freightage, the expenses of the arrival made at his request, and the losses and damages
caused the other shippers, should there be any.

Art. 685 - In charters for transportation of general freight, any of the shippers may unload the
merchandise before the beginning of the voyage, paying one-half of the freightage, the expense of stowing
and restowing the cargo, and any other damage which for his reason he may cause the other shippers.

Art. 686 - After the vessel has been unloaded and the cargo placed at the disposal of the consignee,
the latter must immediately pay the captain the freightage due and the other expense for which said cargo
may be liable.

The primage must be paid in the same proportion and at the same time as the freightage, all the
changes and modifications to which the latter should be subject also governing the former.

Art. 687 - The charterers and shippers may not abandon merchandise damaged on account of
inherent defect or fortuitous event, for the payment of the freightage and other expenses.

The abandonment shall be proper, however, if the cargo should consist of liquids and they have
leaked out, nothing remaining in the containers but one-fourth part of their contents.

(CC, Arts. 687-688)

Rights and Obligations of Charterer:

(1) To pay the agreed charter price;

(2) To pay freigtage on unboarded cargo;

(3) To pay losses to others for loading uncontracted cargo and illicit cargo;

(4) To wait if the vessel needs repair, and

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(5) To pay expenses for deviation.

TOTAL OR PARTIAL RESCISSION OF CHARTER PARTIES

Art. 688 - A charter party may be rescinded at the request of the charterer:

1. If before loading the vessel he should not agree with that stated in the certificate of tonnage, or if there
should be an error in the statement of the flag under which she sails.

2. If the vessel should not be placed at the disposal of the charterer within the period and in the manner
agreed upon.

3. If after the vessel has put to sea, she should return to the port of departure, on account of risk from
pirates, enemies, or bad weather, and the shippers should agree to unload her.

In the second and third cases the person from whom the vessel was chartered shall indemnify the
charterer for the voyage out.

4. If the charter should have been made by the months, the charterers shall pay the full freightage for one
month, if the voyage is for a port in different waters.

From one port to another of the Philippines and adjacent islands, the freightage for one month only
shall be paid.

5. If the vessel should make a port during the voyage in order to make urgent repairs, and the charterers
should prefer to dispose of the merchandise.

When the delay does not exceed thirty days, the shippers shall pay the full freightage for the voyage
out.

Should the delay exceed thirty days, they shall only pay the freightage in proportion to the distance
covered by the vessel.

The charterer may rescind the charter party:

(1) By abandoning the charter and paying half of the freightage;

(2) When there is error in tonnage or flag;

(CC, Arts. 688-689)

(3) In case of failure to place the vessel at the charterer's disposal;

(4) If the vessel returns because of the presence of pirates, enemies or due to bad weather; and

(5) Upon arrival at a port for repairs.

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 Art. 689 - At the request of the person from whom the vessel is chartered the charter party may be
rescinded:

1. If the charterer, at the termination of the extra lay days, does not place the cargo alongside the vessel.

In such case the charterer must pay half the freight stipulated, besides the demurrage due for the lay
days and extra lay days.

2. If the person from whom the vessel was chartered should sell it before the charterer has begun to load it,
and the purchaser should load it for his own account.

In such case the vendor shall indemnify the charterer for the losses he may suffer.

If the new owner of the vessel should not load it for his own account, the charterer party shall be
respected, and the vendor shall indemnify the purchaser if the former did not inform him of the charter
pending at the time of making the sale.

1991 B.Q.: When may a charter party be rescinded upon request of the person from whom the vessel is
chartered?

Ans.: A charter party may be rescinded upon the instance of the person from whom the vessel is chartered
under the following circumstances:

1. If the charterer, at the termination of the extra lay days, does not place the cargo alongside the vessel.

In such case, the charterer must pay half of the freightage stipulated, aside from the demurrage due for the lay
days and extra lay days.

2. If the person from whom the vessel was chartered should sell her before the charterer has begun to load her
and the purchaser should load her for his own account.

In such case, the seller shall indemnify the charterer for the damage he may suffer;

If the new owner of the vessel should not load her for his own account, the charter party shall be
respected, and the seller shall indemnify the purcahser if the former did not notify him of the charter pending
at the time of making the sale. (Art. 689, Code of Commerce)

Art. 690 - The charter party shall be rescinded and all actions arising therefrom shall be extinguished, if,
before the vessel puts to sea from the port of departure, any of the following cases should occur:

(CC, Arts. 690-692)

1. A declaration of war or interdiction of commerce with the power to whose ports the vessel was to make
its voyage.

2. A condition of blockade of the port of destination of said vessel, or the breaking out of an epideminc after
the contract was executed.

3. The prohibition to receive at the said port the merchandise constituting the cargo of the vessel.

4. An indefinite detention, by reason of an embargo of the vessel by order of the government, or for any
other reason independent of the will of the ship agent.

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5. The inability of the vessel to navigate, without fault of the captain or ship agent.

The unloading shall be made for the account of the charterer.

Art. 691 - If the vessel cannot put to sea on account of the closing of the port of departure or any
other temporary cause, the charter shall remain in force, with neither one of the contracting parties having
a right to claim damages.

The subsistence and wages of the crew shall be considered as general average.

During the interruption, the charterer may at the proper time and for his own account, unload and
load the merchandise, paying demurrage if he delays the reloading after the cause for the detention has
ceased.

Art. 692 - A charter party shall be partially rescinded, unless there is an agreement to the contrary,
and the captain shall only be entitled to the freightage for the voyage out, if, by reason of a declaration of
war, closing of ports, or interdiction of commercial relations during the voyage, the vessel should make the
port designated for such a case in the instructions of the charterer.

Fortuitous Causes which are grounds for rescission of a charter party:

(1) War

(2) Blockade

(3) Prohibition to receive cargo at the port of destination

(4) Embargo and

(5) Inability of the vessel to navigate.

(CC, Arts. 693-698)

Part 5 - PASSENGERS ON SEA VOYAGES

Art. 693 - If the passage price has not been agreed upon, the judge or court shall summarily fix it,
after a declaration of experts.

Art. 694 - Should the passenger not arrive on board at the time fixed, or should leave the vessel
without permission from the captain when the latter is ready to leave the port, the captain may continue
the voyage and demand the full passage price.

Art. 695 - The right to passage, if issued to a specified person, may not be transferred without the
consent of the captain or of the consignee.

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 Art. 696 - If before beginning the voyage the passenger should die, his heirs shall only be obliged to
pay half of the fare agreed upon.

If the expenses of subsistence are included in the price stipulated, the judge or court, after hearing
experts if he considers it necessary, shall be fix the amount which has to be left for the benefit of the vessel.

Should another passenger be received in the place of the deceased, no payment shall be made by
said heirs.

Art. 697 - If before the voyage is begun it is suspended through the exclusive fault of the captain or
ship agent, the passengers shall have the right to a refund of their fares and to recover losses and damages;
but if the suspension is due to fortuitous events, or to force majeure, or to any other cause independent of
the captain or ship agent, the passengers shall only be entitled to the return of the fare.

Art. 698 - In case a voyage already begun should be interrupted, the passengers shall be obliged to
pay the fare in proportion to the distance covered, without right to recover for losses and damages if the
interruption is due to fortuitous event or to force majeure, but with a right to indemnity if the interruption
should have been caused by the captain exclusively. If the interruption should be caused by the disability of
the vessel, and a passenger should agree to await the repairs, he may not be required to pay any increased
price of passage, but his living expenses during the stay shall be for his own account.

In case of delay in the departure of the vessel, the passengers have the right to remain on board and
to be furnished with food for the account of the vessel unless the delay is due to fortuitous events or to force
majeure. If the delay should exceed ten days, passengers requesting the same shall be entitled to the return
of the fare; and if it is due exclusively to the fault of the captain or ship agent, they may also demand
indemnity for losses and damages.

A vessel exclusively devoted to the transportation of passengers must take them directly to the ports
of destination, no matter what the number of passengers may be, making all the stops indicated in its
itinerary.

Mechanical defects in the carrier are not considered "caso fortuito" that exempts the carrier from responsibility.
Granting arguendo that the engine failure was fortuitous event, it accounted only for delay in departure. It does not justify the
carrier's ordering the passenger to disembark in Tacloban because it would by-pass Catbalogan to catch up with its schedule.
The passenger is not bound by the condition at the back

(CC, Arts. 698-705)

of the ticket giving the carrier the right to bring the passenger to his destination at its expense, or to cancel the ticket and
refund the passenger its value. (Sweet Lines vs. CA, 121 SCRA 769, April 28, 1983)

Art. 699 - If the contract is rescinded, before or after the commencement of the voyage, the captain
shall have a right to claim payment of what he may have furnished the passengers.

Art. 700 - In all matters pertaining to the preservation of order and discipline on board the vessel
passengers shall be subject to the orders of the captain, without any distinction whatsoever.

Art. 701 - The convenience or the interest of the passengers shall not obligate or empower the
captain to stand in shore or enter places which may take the vessel out of her course, or to remain in the
ports he must or in under necessity of touching for a period longer than that required by the needs of
navigation.

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 Art. 702 - In the absence of an agreement to the contrary,  it shall be understood that the
subsistence of the passengers during the voyage is included in the price of the passage; but should it be for
the account of the latter, the captain shall be under obligation, in case of necessity, to furnish the supply of
food necessary for their sustenance at a reasonable price.

Art. 703 - A passenger shall be considered a shipper insofar as the goods he carries on board are
concerned, and the captain shall not be responsible for what the former may keep under his immediate and
special custody, unless the damage arises from an act of the captain or of the crew.

Art. 704 - The captain, in order to collect the passage-money and expenses of sustenance, may
retain the goods belonging to the passenger, and in case of the sale of the same he shall be given preference
over other creditors acting the same way as in the collection of freightage.

Art. 705 - In case of the death of a passenger during the voyage, the captain shall be authorized,
with regard to the body, to take the steps required by the circumstances, and shall carefully take care of the
papers and goods which may be on board belonging to the passenger, observing the provisions of case No.
10 of Article 612 with regard to members of the crew.

Carriage of Passengers

The fare is usually fixed before boarding, but if not fixed, a court will summarily fix it. The fare includes subsistence
unless the contrary is stated in the ticket. The ticket is non-transferable without the captain's consent. If a passenger dies
before the voyage, his heirs pay one half, unless a substitute passenger takes his place. If the voyage is suspended, the fare is
returned, with or without damages depending on the captain's fault. If interruption takes place after the voyage is begun, the
fare is returned in proportion to the distance travelled with or without damages depending again on the existence of the
captain's fault.

Venue of actions. A provision in the shipping ticket that all actions arising out of the conditions and provisions of the ticket,
irrespective of where issued, shall be filed in Cebu City is void as it was prepared solely at petitioner's instance without
participation of respondents. Courts take judicial notice of the fact

(CC, Arts. 702-706)

that passengers availing of shipping facilities come from the low income group (Sweet Lines vs. Teves, 83 SCRA 931).

Part 6 - BILLS OF LADING

Art. 706 - The captain of the vessel and the shipper shall have the obligation of drawing up the bill
of lading in which shall be stated:

1. The name, registry, and tonnage of the vessel.

2. The name of the captain and his domicile.

3. The port of loading and that of unloading.

4. The name of the shipper.

5. The name of the consignee, if the bill of lading is issued in the name of a specified person.

6. The quantity, quality number of packages and marks of the merchandise

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7. The freightage and the primage stipulated.

The bill of lading may be issued to bearer, to order, or in the name of a specified person, and must
be signed within twenty-four hours after the cargo has been received on board, the shipper being entitled to
demand the unloading at the expense of the captain should the latter not sign it, and, in every case, the
losses and damages suffered thereby.

Correlate with Arts. 350, 352 and 354, Code of Commerce (supra)

Form and Contents. A bill of lading is prepared in four copies and contains the following data: (1) name and domicile of the
captain, shipper and consignee; (2) name, registry and tonnage of the vessel; (3) port of loading and unloading; (4) quantity,
quality, and number of packages and (5) freightage and primage stipulated.

Kinds of Bill of Lading

1. Negotiable Bill of Lading - One where the goods are deliverable to bearer, or to the order of the person named therein.

2. Non-Negotiable Bill of Lading (also called "straight" or "flat" bill of lading) - One where the goods are to be delivered to a
specified person.

3. Received for Shipment Bill of Lading - One in which it is stated that the goods have been received for shipment without
specifying the vessel by which the goods are to be shipped.

4. On-Board Bill of Lading - one in which it is stated that the goods have already been received on board the vessel which is
to carry the goods.

5. Clean Bill of Lading - One which does not indicate any defect in the goods.

6. Foul Bill of Lading - One which contains a notation that the goods are in bad order or condition.

(CC, Arts. 706-713)

7. Spent Bill of Lading - One which covers goods already delivered without the signed copy being surrendered

Art. 707 - Four true copies of the original bill of lading shall be made, and all of them shall be
signed by the captain and the shipper. Of these, the shipper shall keep one and send another to the
consignee; the captain shall take two, one for himself and another for the ship agent.

There may also be drawn up as many copies of the bill of lading as may be considered necessary by
the person interested; but when they are issued to order or to bearer, they shall be stated in all the copies,
be they the first four or the subsequent ones, the destination of each one, stating whether it is for the agent,
for the captain, for the shipper, or for the consignee. If the copy sent to the latter should have a duplicate,
this circumstance and the fact that it is not valid except in default of the first one must be stated therein.

Art. 708 - Bills of lading issued to bearer and sent to the consignee shall be transferable by actual
delivery of the instrument; and those issued to order, by virtue of an indorsement.

In either case, the person to whom the bill of lading is transferred shall acquire all the rights and
actions of the transferor or indorser with regard to the merchandise mentioned in the same.

Art. 709 - A bill of lading drawn up in accordance with the provisions of this title shall be proof as
between all those interested in the cargo and between the latter and the insurers, proof to the contrary
being reserved for the latter.

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 Art. 710 - If the bills of lading do not agree, 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.

Art. 711 - The legitimate holder of a bill of lading who fails to present it to the captain of the vessel
before the unloading obliging the latter thereby to unload it and place it in deposit, shall be responsible for
the expenses of warehousing and other expenses arising therefrom.

Art. 712 - The captain may not by himself change the destination of the merchandise. In admitting
this change at the instance of the shipper, he must first take up the bill of lading which he may have issued,
under pain of being liable for the cargo to the legitimate holder of the same.

Art. 713 - If before the delivery of the cargo a new bill of lading should be demanded of the captain,
on the allegation that the failure to present the previous ones is due to their loss or to any other just cause,
he shall be obliged to issue it, provided that security for the value of the cargo is given to his satisfaction,
but without changing the consignment, and stating therein the circumstances prescribed in the last
paragraph of Article 707, under penalty, should he not so state, of being held liable for said cargo if
improperly delivered through this fault.

(CC, Arts. 715-719)

Art. 714 - If before the vessel puts to sea the captain should die or should cease to hold his position
through any cause, the shippers shall have the right to demand of the new captain the ratification of the
first bills of lading, and the latter must do so provided that all the copies previously issued be presented or
returned to him, and it should appear from all examination of the cargo that they are correct.

The expenses arising from the examination of the cargo shall be defrayed by the ship agent, without
prejudice to the right of action of the latter against the first captain if he ceased to be such through his own
fault. Should said examination not be made, it shall be understood that the new captain accepts the cargo
as it appears from the bills of lading issued.

Art. 715 - Bills of lading will give rise to a most summary action or to judicial compulsion ("accion
sumarisima o de apremios"), according to the case, for the delivery of the cargo and the payment of the
freightage and the expenses thereby incurred.

Art. 716 - If several persons should present bills of lading issued to bearer or to order, indorsed in
their favor, demanding the same merchandise, the captain shall prefer, in making delivery the person who
presents the copy first issued, except when the latter one was issued on proof of the loss of the first, and
both are presented by different persons.

In such case, as well as when only second or subsequent copies, issued without this proof, are
presented, the captain shall apply to the judge or court, so that he may order the deposit of the
merchandise and their delivery, through him, to the proper person.

Art. 717 - The delivery of the bill shall effect the cancellation of all the provisional receipts of prior
date given by the captain or his subordinates for partial deliveries of the cargo which may have been made.

Art. 718 - After the cargo has been delivered the bill of lading which the captain signed, or at least
the copy by reason of which the delivery is made, shall be returned to him, with the receipt for the
merchandise mentioned therein.

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 The delay on the part of the consignee shall make him liable for the damages which such delay may
cause the captain.

LOANS ON BOTTOMRY AND RESPONDENTIA

Art. 719 - A loan in which under any condition whatever, the repayment of the sum loaned and of
the premium stipulated depends upon the safe arrival in port of the goods on which it is made, or of the
price they may receive in case of accident, shall be considered a loan on bottomry or respondentia.

Loans on Bottomry and Respondentia defined

Loan on Bottomry - a loan made by the shipowner or ship agent guaranteed by the vessel itself, and repayable on safe
arrival of the vessel at destination.

Loan on Respondentia - a loan, taken on security of the cargo laden on a vessel, and repayable on the safe arrival of the
cargo at destination.

(CC, Arts. 719-720)

It is also defined as a loan with things exposed to maritime risks as collateral to be paid if the collateral are safely
transported and the lender shall lose his money if the latter are lost. It is a loan on bottomry where the security is a vessel, and
respondentia where the security is cargo (Perez, Insurance Code and Insolvency Law, 1999 Ed., p. 207, citing Black's Law
Dictionary; Asked, 1961 and 1966 Bar Exams.)

Distinguished from ordinary or simple loans

A loan on bottomry or respondentia is differentiated from a simple loan from the following viewpoints:

1. The former is not subject to the laws or jurisprudence limiting interest rates; whereas in simple loan, the rate of interest is
limited by the said laws or jurisprudence.

2. The liability of the borrower in the former is contingent on the safe arrival of the vessel or cargo at destination, such that
the loan obligation is extinguished by the absolute loss of the vessel or cargo; whereas an ordinary loan is not dependent
on any contingency; liability is not extinguished even if the collateral is lost; the lender is merely reduced to an unsecured
creditor;

3. In the former, the last lender has preference over the previous one (one reason for this exception to the general rule is that
the last loan contributes to the preservation of the things pledged), whereas in the latter, the prior lender has a right of
preference on the security over the subsequent ones.

4. In the former, there must necessarily exist a bona fide marine risk, whereas in the latter, the existence of a marine risk or
uncertainty of transactions is not necessary.

5. In the former, the contract must be reduced at least to writing to give rise to judicial action; whereas in the latter, said
requisite is not always necessary.

6. In the former, the loan should be recorded in the registry of vessels, to be effective against third persons and to get the
preference it has; whereas, in the latter, registration is not necessary.

Art. 720 - Loans on bottomry or respondentia may be executed:

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1. By means of a public instrument.

2. By means of a policy signed by the contracting parties and the broker taking part therein

3. By means of a private instrument

Under whichever of these forms the contract is executed, it shall be entered in the certificate of the
registry of the vessel and shall be recorded in the registry of vessels, without which requisites the credits of
this kind shall not have, with regard to other credits, the preference which, according to their nature, they
should have, although the obligation shall be valid between the contracting parties.

The contracts made during a voyage shall be governed by the provisions of Articles 583 and 611,
and shall be effective with regard to third persons from the date of their execution, if they should be
recorded in the registry of the vessels of the port of registry of the vessel before the lapse of eight days
following its arrival. If said eight days should elapse without the record having been made in the
corresponding registry, the contracts made

(CC, Arts. 720-721)

during the voyage of a vessel shall produce no effect with regard to third persons, except from the day and
date of their inscription.

In order that the policy of the contracts executed in accordance with No. 2 may have binding force,
they must conform to the registry of the broker who took part therein. With respect to those executed in
accordance with No. 3 the acknowledgment of the signature shall be required.

Who can constitute the contract

A loan on bottomry may be executed by the shipowner or ship agent. Outside of the residence of the owners, the
captain can enter into this contract only to comply with his inherent powers under Art. 611 of the Code of Commerce. A loan
on respondentia can be entered only by the owner of the cargo.

1980 BQ No. 15: "S", a shipowner, secured a loan on bottomry for P1 million from "T" for the repair of a
vessel, payable 120 days after date (estimated time for the return voyage), and as security for its repayment
mortgages the keel and bottom of the vessel. In addition to the usual terms and conditions for this type of loan,
"T", because of the risk of losing his money, imposes an interest rate of 30% to which "S" reluctantly agrees.

Could "S" later on question the validity of the interest rate of 30% as being violative of the Usury Law?

Ans.: No; S cannot question the validity of the interest rate of 30% as being violative of the Usury Law. In
usury statute, it is essential to constitute usury, that the principal sum be repayable absolutely; and therefore,
usury statute has no application to loans on bottomry; thus the perils of marine navigation have been always
considered sufficient to take bottomry or respondential loans out of the usury law. (See Lloyd v. Scott, 4 Pet.
205, 7 L. Ed. 833; Lughlin v. Irwin, 262 ILL. App. 40; Webb on Usury, p. 47.)

Art. 721 - In a contract on bottomry or respondentia the following must be stated:

1. The kind, name, and registry of the vessel.

2. The name surname, and domicile of the captain.

3. The names, surnames, and domicile of the person giving and the person receiving the loan.

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4. The amount of the loan and the premium stipulated.

5. The time for repayment.

6. The goods pledged to secure repayment.

7. The voyage during which the risk is run.

Form and Contents. The contract of loan on respondentia or bottomry may be executed by means of a public instrument, a
policy signed by the parties, or a private instrument. The contract should contain the following details: (1) name, kind and
registry of the vessel; (2) name, surname and domicile of the captain,

(CC, Arts. 721-728)

borrower and lender; (3) amount of loan, and premium stipulated; (4) time of payment; (5) goods offered as security (6)
voyage during which the risk is to run.

Art. 722 - The contract may be made to order, in which case they shall be transferable by
indorsement, and the indorsee shall acquire all the rights and shall incur all the risks corresponding to the
indorser.

Art. 723 - Loans may be made in goods and in merchandise, fixing their value in order to determine
the principal of the loan.

Art. 724 - The loans may be constituted jointly or separately:

1. On the hull of the vessel.

2. On the rigging.

3. On the equipment, provisions, and fuel.

4. On the engine, if the vessel is a steamer.

5. On the merchandise loaded.

If the loan is constituted on the hull of the vessel, the rigging, equipment and other goods,
provisions, fuel, steam engines, and the freightage earned during the voyage on which the loan is made
shall also be considered as included in the liability for the loan.

If the loan is made on the cargo, all that which constitutes the same shall be subject to the
repayment; and if on a particular object of the vessel or of the cargo, only the object concretely and
specifically mentioned shall be liable.

Art. 725 - No loans on bottomry may be made on the salaries of the crew or on the profits expected.

Art. 726 - If the lender should prove that he loaned an amount larger than the value of the object
liable for the bottomry loan, on account of fraudulent measures employed by the borrower, the loan shall
be valid only for the amount at which said object is appraised by experts.

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 The surplus principal shall be returned with legal interests for the entire time required for
repayment.

Art. 727 - If the full amount of the loan contracted in order to load the vessel should not be used for
the cargo, the balance shall be returned before clearing.

The same procedure shall be observed with regard to the goods taken as loan, if they were not
loaded.

Art. 728 - The loan which the captain takes at the point of residence of the owners of the vessel shall
only affect that part thereof which belongs to the captain, if the other owners

(CC, Arts. 728-731)

or their agents should not have given their express authorization therefor or should not have taken part in
the transaction.

If one or more of the owners should be requested to furnish the amount necessary to repair or
provision the vessel, and they should not do so within twenty-four hours, the interest which the parties in
default may have in the vessel shall be liable for the loan in the proper proportion.

Outside of the residence of the owners the captain may contract loans in accordance with the
provisions of Articles 583 and 611.

Art. 729 - Should the goods on which money is taken not be subjected to risk, the contract shall be
considered a simple loan, with the obligation on the part of the borrower to return the principal and
interest at the legal rate, if that agreed upon should not be lower.

Instances when the contract is considered a simple loan and not a loan on bottomry or respondentia.

1. When the loan on bottomry is larger than the value of the object liable for such loan, on account of fraudulent means
employed by the borrower, the excess over the value of the object as appraised by experts is a simple loan (Art. 726, Code
of Commerce).

2. If the amount of the loan contracted in order to load the vessel should be used for the cargo, the balance shall be
considered as a simple loan (Art. 727, Code of Commerce).

3. Should the effects on which money is taken is not subjected to risk, the contract shall be considered a simple loan, with
the obligation on the part of the borrower to return the principal and interest at the legal rate, if that agreed upon should
not be lower (Art. 729, Code of Commerce).

Art. 730 - Loans made during the voyage shall have preference over those made before the clearing
of the vessel, and they shall be graduated in the inverse order of their dates.

The loans for the last voyage shall have preference over prior ones.

Should several loans have been made at the same port of arrival under stress and for the same
purpose, all of them shall be paid pro rata.

Art. 731 - The actions pertaining to the lender shall be extinguished by the absolute loss of the
goods on which the loan was made, if it arose from an accident of the sea at the time and during the voyage

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designated in the contract, and it is proven that the cargo was on board; but this shall not take place if the
loss was caused by the inherent defect of the thing, or through the fault or malice, of the borrower, or
barratry on the part of the captain, or if it was caused by damages suffered by the vessel as a consequence
of being engaged in contraband, or if it arose from having loaded the merchandise on a vessel different
from that designated in the contract, unless this change should have been made by reason of force majeure.

Proof of the loss as well as of the existence in the vessel of the goods declared to the lender as the
object of the loan is incumbent upon him who received the loan.

(CC, Arts. 731-732)

Effects of the total loss of the collateral on the loan on respondentia; Exceptions

The total loss of the collateral of the loan on respondentia extinguishes the same if it arose from an accident of the
sea at the time and during the voyage designated in the contract, and it is proven that the cargo was on board (Art. 731, Code
of Commerce).

Exceptions:

1. If the loss was caused by the inherent defect of the thing;

2. If the loss was caused by the fault or malice of the borrower;

3. If the loss was caused by barratry of the captain;

4. If it was caused by damages suffered by the vessel as a consequence of being engaged in contraband;

5. If it arose from having loaded the goods on a vessel different from that designated in the contract, unless the change
should have been made by reason of force majeure (Art. 731, Code of Commerce).

Barratry defined - any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent
purpose without the consent of the owners, and to the prejudice of the owner's interest (Perez, Insurance Code and
Insolvency Law, 1999 Ed., p. 202, as cited in HBP, P. 167).

Art. 732 - Lenders on bottomry or respondentia shall suffer, in proportion to their respective
interest, the general average which may take place in the goods on which the loan is made.

In particular averages, in the absence of an express agreement between the contracting parties, the
lender on bottomry or respondentia shall also contribute in proportion to his respective interest, should it
not belong to the kind of risks excepted in the foregoing article.

Hypothetical Question. A obtained a loan on respondentia amounting to P100,000 from B and hypothecated to the latter his
cargo worth P150,000, to secure the payment of the loan. Later, the vessel on which the cargo was loaded met a typhoon. To
lighten the load of the vessel, other cargoes were thrown overboard. As a consequence, the vessel and other cargoes were
saved. Upon determination of the value of the cargoes jettisoned, it turned out that A's contribution for the general average
amounts to P30,000.

(a) From whom shall the contribution to the general average be collected?

(b) Suppose A's cargo had a damage which did not redound to the benefit of anyone, to the extent of P120,000, how should
the amount of the damage be apportioned?

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Answer. (a) The general average contribution of A's cargo that was saved, to the owners of the other cargoes that were
thrown overboard to lighten the load of the vessel, shall be shared between A, as owner and B, as lender on respondentia, in
proportion to their respective interests. Since the loan amounts to 2/3 of the value of the cargo, the lender, B must share the
general average in the same proportion, while A shall bear 1/3 of the general average. Thus, A shall share P10,000 while B
share P20,000.

(b) For the particular average, the owner of the cargo and the lender on respondentia shall likewise share the damage to the
extent of their respective interests unless otherwise agreed upon by the parties. Thus, A's share is 1/3 of the damage or
P40,000 while B's share is 2/3 of the particular average or P80,000.

(CC, Arts. 733-736; 806 - 807)

Art. 733 - Should the period during which the lender shall run the risks not have been stated in the
contract, it shall last, with regard to the vessel, engines, rigging, and equipment, from the moment said
vessel puts to sea until she drops anchor in the port of destination; and with regard to the merchandise,
from the time they are loaded at the shore or wharf of the port of shipment until they are unloaded in the
port of consignment.

Art. 734 - In case of shipwreck, the amount liable for the payment of the loan shall be reduced to
the proceeds of the goods saved, after deducting the costs of the salvage.

If the loan should be on the vessel or any of its parts, the freightage earned during the voyage for
which said loan was contracted shall also be liable for its payment, as far as it may reach.

Art. 735 - If the same vessel or cargo should be the object of a loan on bottomry or respondentia
and marine insurance, the value of what may be saved in case of shipwreck shall be divided between the
lender and the insurer, in proportion to the legitimate interest of each one, taking into consideration, for
this purpose only, the principal with respect to the loan, and without prejudice to the right of preference of
other creditors in accordance with Article 580.

Art. 736 - If there should be delay in repayment of the principal and premiums of the loan, only the
former shall bear legal interest.

Title Four

RISKS, DAMAGES AND ACCIDENTS OF MARITIME COMMERCE

Risks, damages, etc. of maritime commerce. The risks, damages, and accidents of maritime commerce are: (1) averages, both
general and particular; (2) arrivals under stress; (3) collisions; and (4) shipwrecks.

Section One - A V E R A G E S

Art. 806 - For the purposes of this code the following shall be considered averages:

1. All extraordinary or accidental expenses which may be incurred during the voyage in order to preserve
the vessel, the cargo, or both.

2. Any damages or deteriorations which the vessel may suffer from the time it puts to sea from the port of
departure until it casts anchor in the port of destination, and those suffered by the merchandise from
the time they are loaded in the port of shipment until they are unloaded in the port of their consignment.

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 Art. 807 - The petty and ordinary expenses incident to navigation, such as those of pilotage of coasts
and ports, those of lighterage and towage, anchorage, inspection, health, quarantine, lazaretto, and other
so-called port expenses, costs of barges and unloading until the merchandise is placed on the wharf, and
any other usual expenses of navigation, shall be considered ordinary expenses to be defrayed by the
shipowner, unless there is an express agreement to the contrary.

(CC, Arts. 808-811)

Art. 808 - Averages shall be:

1. Simple or particular

2. General or gross

Art. 809 - As a general rule, simple or particular averages shall include all the expenses and damages caused
to the vessel or to her cargo which have not incured to the common benefit and profit of all the persons interested in
the vessel and her cargo, and especially the following:

1. The 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.

2. The 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.

3. The losses suffered by the merchandise loaded on deck, except in coastwise navigation, if the marine ordinances
allow it.

4. The wages and victuals of the crew when the vessel is detained or embargoed by legitimate order or force majeure,
if the charter has been contracted for a fixed sum for the voyage.

5. The necessary expenses on arrival at a port, in order to make repairs or secure provisions.

6. The lowest value of the goods sold by the captain in arrivals under stress for the payment of provisions and in order
to save the crew, or to meet any other need of the vessel, against which the proper amount shall be changed.

7. The victuals and wages of the crew while the vessel is in quarantine.

8. The loss inflicted upon the vessel or cargo by reason of an impace 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.

9. 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 the owner to recover the corresponding indemnity from the captain, the
vessel, and the freightage.

Art. 810 - The owner of the goods which gave rise to the expense or suffered the damage shall bear
the simple or particular averages.

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 Art. 811 - As a general rule, general or gross averages shall include all the damages and expenses
which are deliberately caused in order to save the vessel, its cargo, or both at the same time, from a real
and known risk, and particularly the following:

1. 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.

(CC, Arts. 808 - 811)

2. The goods jettisoned to lighten the vessel, whether they belong to the cargo, to the vessel, or to the crew,
and the damages suffered through said act by the goods which are kept on board.

3. The cables and masts which are cut or rendered useless, the anchors and the chains which are
abandoned, in order to save the cargo, the vessel, or both.

4. The expenses of removing or transfering a porion 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.

5. 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.

6. The expenses caused in order to float a vessel intentionally stranded for the purpose of saving it.

7. The damage caused to the vessel which had to be opened, scuttled or broken in order to save the cargo.

8. The expenses for the treatment and subsistence of the members of the crew who may have been wounded
or crippled in defending or saving the vessel.

9. The wages of any member of the crew held as hostage by enemies, privateers, or pirates, and the
necessary expenses which he may incur in his imprisonment, until he is returned to the vessel or to his
domicile, should he prefer it.

10. 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.

(CC, Art. 811)

11. 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.

12. The expenses of liquidation of the average.

Averages Defined. An average is an extraordinary or accidental expense incurred during the voyage in order to preserve the
cargo, the vessel or both and all damages or deterioration suffered by the vessel from departure to the port of destination,
and to the cargo from the port of loading to the port of consignment.

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Classes of Average

Simple or Particular Average includes expenses and damages caused to the vessel or cargo which have not inured to the
common benefit, and borne by their respective owners.

Gross or General Average  includes all damages and expenses which are deliberately caused in order to save the vessel, its
cargo, or both at the same time, from a real and known risk.

(CC, Arts. 808-811)

Distinctions between gross or general averages and simple or particular averages

1. General or gross averages are caused for the benefit of those interested in the vessel and her cargo, while particular or
simple averages have not inured to the common benefit and profit of all persons interested in the vessel and her cargo.
(Arts. 809 and 811, Code of Commerce).

2. General or gross averages are deliberately caused in order to save the vessel and/or her cargo, whereas particular or simple
averages may be due to causes other than a deliberate act. (Ibid.).

3. General or gross averages shall be shared and contributed by all persons having an interest in the vessel and cargo while
particular or simple averages are borne by the owner of the things damaged. (Arts. 810 and 812, Code of Commerce).

Requisites of General Average: (1) common danger; (2) deliberate sacrifice; (3) success; and (4) proper formalities and
legal steps.

A. Magsaysay, Inc. vs. Anastacia Agan

No. L-6393, January 31, 1955

Facts: The SS "San Antonio," a vessel owned and operated by plaintiff, left Manila on October 6, 1949, bound for Basco,
Batanes, via Aparri, Cagayan, with general cargo belonging to different shippers, among them the defendant. The vessel
reached Aparri on the 10th of that month, and after a day's stopover in that port, weighed anchor to proceed to Basco. But
while still in port, it ran aground at the mouth of the Cagayan river, and attempts to refloat it under its own power having
failed, plaintiff had it refloated by the Luzon Stevedoring Co. at an agreed compensation. Once afloat, the vessel returned
Manila to refuel and then proceeded to Basco, the port of destination. There the cargoes were delivered to their respective
owners or consignees, who, with the exception of defendant, made a deposit or signed a bond to answer for their contribution
to the average.

Plaintiff brought the present action claiming that the expenses incurred in floating the vessel constitute general average to
which both ship and cargo should contribute to make defendant pay his contribution, which, as determined by the average
adjuster, amounted to P841.40. The lower court found for plaintiff and rendered judgment against the defendant for the
amount of the claim, with legal interests.

Issue: Whether or not the floating of vessel unintentionally stranded inside a port and at the mouth of the river during a fine
weather constitutes general average which should be shared by the cargo owners.

Held:  In classifying averages into simple or particular and general or gross and defining each class, the Code (Arts. 809 and
811) at the same time enumerates certain specific cases as coming specially under one or the other denomination. Going over
the specific cases enumerated, we find that while the expenses incurred in putting plaintiff's vessel afloat may well come
under number 2 of Article 809 --- which refers to expenses suffered by the vessel "by reason of an accident of the sea or force
majeure" --- and should therefore be classified as particular average, the said expenses do not fit into any of the specific cases
of general average enumerated in Article 811, No. 6 of this article does mentioned "expenses caused in order to float a
vessel," but it specifically refers to "a vessel intentionally stranded for the purpose of saving it" and would have no
application where, as in the present case, the stranding was not intentional.

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It is deliverance from an immediate, impending peril, by a common sacrifice, that constitutes the essence of general average.
(The Columbian Isurance Company of Alexandria vs. Ashby & Stribling, et al., 13 Peters 331; 10 L-Ed., 186). In the present
case, there is no proof that the vessel had to be put afloat to save it from an imminent danger. What does appear from the
testimony of plaintiff's manager is that the vessel had to be salvaged in order to enable it "to proceed to its port of
destination." But as was said in the case just cited, it is the safety of the property, and not of the voyage, which constitutes the
true foundation of general average.

(CC, Arts. 808-811)

BQ 1982 No. 6:  The vessel "General Mascardo" was loaded with 5,000 tons of gold and copper concentrates
by Syndicated Ores, Inc. (the charterer) for delivery to the U.S. The master of the vessel issued the
corresponding bill of lading which contained a prohibition against the loading of dangerous cargo per se or
cargo which may become dangerous and make the voyage unsafe. The master has had 10 years of experience as
a captain, but this was his first experience with cargo of gold and copper concentrates. The cargo was loaded,
stowed and trimmed at the sole risk and expense of Syndicated Ores, Inc. While en route to its destination, the
vessel met a typhoon and because of the heavy stress, the shifting boards or compartments constructed by
Syndicated broke, causing the cargo of ore concentrates to shift. Since the vessel was listing on its side to
almost 14 degrees for several hours, the master, in the hope of saving the vessel, decided to jettison some cargo
belonging to other shippers. At this point, a powerful tugboat offered to help in maneuvering the vessel, which
the master accepted on no-cure, no-pay basis. To save the vessel and the remaining cargo, the master, after
consulting with his officers, deviated to Japan, the nearest port, instead of proceeding to the U.S. Thereafter, the
cargo of gold and copper concentrates were examined by international surveyors who declare that the moisture
content of said concentrates was beyond transportable limit and that the same was much higher than as certified
by Syndicated. The master and the shipowner, after declaring that the cargo was of dangerous nature and
condition, unladed the cargo in Japan, abandoned the boyage and informed the cargo owners to tranship their
cargo at their own cost and expense. The master and the shipowner also slapped a lien on said cargo for freight
up to Japan as well as other expenses.

(a) Was there a general average situation? Did the vessel have the right to jettison other cargo, hire salvors and
deviate the vessel to Japan?

(b) Assuming Syndicated Ores, Inc. refused general average, may the vessel declare the cargo as dangerous, unload
the same, store the cargo in Japan and abandon the voyage, at the same time slapping a lien on cargo for
freightage, expenses for unloading, expenses for jettison, salvage and/or general average? (3%)

(c) Does Syndicate Ores, Inc. have the right to insist that the vessel carry the cargo to the U.S. per bill of lading, or
that the shipowner hire a substitute vessel to complete the contracted voyage in accordance with the
"extraordinary diligence" required or common carriers line the carriage of goods? (3%)

Ans.: (a) As to General Average (First suggested answer):  No, there was no general average situation, the
requisites of a general average being not present. (Second suggested Answer): Assuming that the missing facts
for requirements (there are 4 requisites) were present, then there was general average. (A. Magsaysay, Inc. vs.
Agan, L-6393, Jan. 31, 1955; Arts 813-815, Code of Commerce)

As to Jettison (First Suggested Answer): Since the requisites of a general average were not existing, the captain
had no right to jettison other cargo. (Second Suggested Answer): If the requisites of general average were
present (there are four), then the captain had the right to jettison the other cargo. (Arts. 812, 813-815, Code of
Commerce)

As to hiring salvor (First Suggested Answer): Yes, because the cargo of the vessel was beyond the control of the
crew. (Second Suggested Answer): No, because the requisites of a valid salvage claim were not present (there
are three). (See Sec. L, Salvage Law)

As to deviation (First suggested answer):  The vessel/captain had no right to deviate the vessel to Japan, because
the requisites of arrival under stress were not present. (Art. 819, Code of Commerce).  (Second Suggested
Answer): Yes, the vessel/ captain had the right to deviate the vesel to Japan, because made in good faith, upon

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 reasonable grounds of belief in its necessity to avoid a peril. (Sec. 124, Insurance Code, to apply by analogy;
and Art. 657, Code of Commerce).

(CC, Arts. 808 - 813)

(b) It depends. If the requisites of law as to general average, salvage work and deviation of the vessel to Japan,
would not be present or satisfied, as discussed above, under question letter (a), then the vessel/captain may not
do these acts/things stated in question letter (b) to the prejudice of the shipper. If otherwise, then vessel/captain
may.

(c) It depends. If during the voyage the vessel should become unseaworthy, the captain shall be obliged to
charter at his expense another one in good condition to carry the cargo to its destination, U.S.A. If the captain
should not furnish thru indolence or malice, a vessel to take the cargo to its destination, the shippers may charter
one at the expense of the captain/shipowner. (Art. 657, Code of Commerce)

Art. 812 - In order to satisfy the amount of the gross or general averages, all the persons having an
interest in the vessel and cargo therein at the time of the occurrence of the average shall contribute.

2000 BQ, No. XIII (b):  MV SuperFast, a passenger-cargovessel owned by SF Shipping Company plying the
inter-island routes, was on its way to Zamboanga City from the Manila port when it accidentally, and without
fault or negligence of anyone on the ship, hit a huge floating object. The accident caused damage to the vessel
and loss of an accompanying crated cargo of passenger PR. In order to lighten the vessel and save it from
sinking and in order to avoid risk of damage to or loss of the rest of the shipped items (none of which was
located on the deck), some had to be jettisoned. SF Shipping had the vessel repaired at its port of destination. SF
Shipping thereafter filed a complaint demanding all the other cargo owners to share in the total repair costs
incurred by the company and in the value of the lost and jettisoned cargoes. In answer to the complaint, the
shippers' sole contention was that, under the Code of Commerce, each damaged party should bear its or his own
damage and those that did not suffer any loss or damage were not obligated to make any contribution in favor pf
those who did. Is the shippers' contention valid? Explain. (2%)

Ans: No. The shippers' contention is not valid. The owners of the cargo jettisoned, to save the vessel from
sinking and to save the rest of the cargoes, are entitled to contribution. The jettisoning of said cargoes constitute
general average loss which entitles the owners thereof to contribution from the owner of the vessel and also
from the owners of the cargoes saved.

SF Shipping is not entitled to contribution/ reimbursement for the costs of repairs on the vessel from the
shippers.

Art. 813 - In order to incur the expenses and cause the damages corresponding to gross average,
there must be a resolution of the captain, adopted after deliberation with the sailing mate and other officers
of the vessel and after hearing the persons interested in the cargo who may be present.

If the latter shall object, and the captain and officers or a majority of them, or the captain, if
opposed to the majority, should consider certain measures necessary, they may be executed under his
responsibility, without prejudice to the right of the shippers to proceed against the captain before the
competent judge or court, if they can prove that he acted with malice, lack of skill, or negligence.

If the persons interested in the cargo, being on board the vessel, have not been heard, they shall not
contribute to the gross average, their share being chargeable against

(CC, Art. 813-814)

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the captain, unless the urgency of the case should be such that the time necessary for previous deliberations
was wanting.

1983 BQ No. 8:  The M/V Maliksi, laden with cargo, was on its way from Manila to Davao. Typhoon Bebeng
which had been last reported as leaving the Philippine area, suddenly changed its course without giving enough
time for warning, and met M/V Maliksi with all her strength. In order to lighten the vessel and prevent it from
sinking, the Captain, after taking the proper steps, decided to jettison past of the cargo. Among those jettisoned
were 20 barrels of petroleum which had been loaded on deck with the consent of the shipper, Juan Reyes. Some
big crates below deck were also jettisoned.

The storm gradually subsided, and the M/V Maliksi, although it suffered some damage, remained seaworthy
and continued on its way to Davao. Visibility was still poor so that the vessel kept its lights on.

About two hours later, the captain and the crew of M/V Maliksi suddenly saw that another ship, without any
lights on, was a few meters away from its portside and would apparently cross its path. They blew their whistles
to warn the other vessel, at the same time trying to veer from its path. Inspite of this, the M/V Maliksi was hit
on its portside and subsequently sank. It appeared that the watch of the other vessel, the M/V Malakas, had
fallen asleep.

The M/V Malakas took the captain and the crew of the M/V Maliksi on board and was able to salvage part of
the M/V Maliksi's cargo and carried this also on board.

Discuss briefly the rights and/or liabilities, if any, of Juan Reyes, the owners of the crates jettisoned, the owners
of the cargo saved, and the owners of M/V Maliksi and M/V Malakas, respectively.

Ans.: Juan Reyes and the other owners of the cargo jettisoned are entitled to contribution for general average.
all the requisites for a proper general average are present; the jettisoning was made deliberately for the purpose
of saving both the vessel and the cargo and the vessel and remaining cargo was saved. This right to contribution
subsists although the ship suddenly sank because the sinking was due to another and subsequent accident. Juan
Reyes has the right to contribution although his goods were loaded on deck because petroleum due to its
inflamable nature, is allowed to be and infact must be loaded on deck and not in the hold (Art. 855, Code of
Commerce). Besides, Reyes knew and consented to his cargo being loaded on deck. However, only the cargo
saved from both risks (i.e. typhoon and collision,) can be made subject to such contribution, after deducting the
expense for saving them (Art. 861). The cargo saved during the typhoon but lost as a result of the collision
cannot be made to contribute although they also benefitted from the jettisoning (Art. 826). Their complete loss
extinguished any obligation on their part to be subject to contribution for general average.

The owner of the MV Malakas is of course liable for the damages to the MV Maliksi as well as to owner of the
cargo lost due to the collision, because such collision was due to the negligence of its watchman. However, such
civil liability is limited to the value of the vessel MV Malakas with all its appurtenances and freightage earned
during the voyage. (Art. 837), unless of course it is covered by insurance.

Art. 814 - The resolution adopted to cause the damages which constitute general average must
necessarily be entered in the logbook, stating the motives and reasons for the dissent, should there be
any, and the irresistible and urgent causes which impelled the captain if he acted of his own accord.

(CC, Art. 814)

In the first case the minutes shall be signed by all the persons present who could do so before taking
action, if possible; and if not, at the first opportunity. In the second case, it shall be signed by the captain
and by the officers of the vessel.

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 In the minutes, and after the resolution, shall be stated in detail all the goods jettisoned, and
mention shall be made of the injuries caused to those kept on board. The captain shall be obliged to deliver
one copy of these minutes to the maritime judicial authority of the first port he may make, within twenty-
four hours after his arrival, and to ratify it immediately under oath.

Philippine Home Assurace Corporation vs.

Court of Appeals and Eastern Shipping Lines, Inc.
G.R. No. 106999, June 20, 1996, 71 SCAD 199

Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, the following shipment for
carriage to Manila and Cebu, freight pre-paid and in good order and condition, viz.: (a) two (2) boxes internal combustion
engine parts, consigned to William Lines, Inc.; (b) ten (10) metric tons (334 bags) ammonium chloride, consigned to Orca's
Company; (c) two hundred (200) bags Glue 300, consigned to Pan Oriental Match Company; and (d) garments, consigned to
Ding Velayo.

While the vessel was off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in the accommodation
area near the engine room on the main deck level. As the crew was trying to extinguish the fire, the acetylene cylinder
suddenly exploded sending a flash of flame throughout the accommodation area, thus causing death and severe injuries to the
crew and instantly setting fire to the whole superstructure of the vessel. The incident forced the master and the crew to
abandon the ship.

Thereafter, SS Eastern Explorer was found to be a constructive total loss and its voyage was declared abandoned. A tugboat
under the control of Fukuda Salvage Co. arrived near the vessel and commenced to tow the vessel for the port of Naha,
Japan.

Fire fighting operations were again conducted at the said port. After the fire was extinguished, the cargoes which were saved
were loaded to another vessel for delivery to their original ports of destination. ESLI charged the consignees several amounts
corresponding to additional freight and salvage charges.

The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for and in behalf of the
consignees.

PHAC, as subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of Manila, Branch 39,
against ESLI to recover the sum paid under protest on the ground that the same were actually damages directly brought about
by the fault, negligence, illegal act and/or breach of contract of ESLI.

In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody and carriage of the
shipment; that the fire was caused by an unforeseen event; that the additional freight charges are due and demandable
pursuant to the Bill of Lading and that salvage charges are properly collectible under the Salvage Law.

The trial court dismissed PHAC's complaint and ruled in favor of ESLI, which decision was affirmed by the Court of
Appeals.

Issue: Who, among the carrier, consignee or insurer of the goods, is liable for the additional charges or expenses incurred by
the owner of the ship in the salvage operations and in the transhipment of the goods via different carrier.

(CC, Art. 814)

Held:  In absolving respondent carrier of any liability, respondent Court of Appeals sustained the trial court's finding that the
fire that gutted the ship was natural disaster or calamity. Petitioner takes exception to this conclusion and we agree.

In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost arises from some act of man or
by human means. It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to
human agency.

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As a rule, general or gross averages includes all damages and expenses which are deliberately caused in order to save the
vessel, its cargo, or both at the same time, from real and known risk. While the instant case may technically fall within the
purview of the said provision, the formalities prescribed under Article 813 and 814 of the Code of Commerce in order to
incur the expenses and cause the damage corresponding to gross average were not complied with. Consequently, respondent
ESLI's claim for contribution from the consignees of the cargo at the time of the occurrence of the average turns to naught.

Prescinding from the foregoing premises, it indubitably follows that the cargo consignees cannot be made liable to
respondent carrier for additional freight and salvage charges. Consequently, respondent carrier must refund to herein
petitioner the amount it paid under protest for additional freight and salvage charges in behlf of the consignees.

Judgment reversed and set aside.

Art. 815 - The captain shall direct the jettison, and shall order the goods cast overboard in the following
order:

1. Those which are on deck, beginning with those which embarrass the maneuver or damage of the vessel, preferring,
if possible, the heaviest ones with the least utility and value.

2. Those which are below the upper deck, always beginning with those of the greatest weight and smallest value, to
the amount and number absolutely indispensable.

Ordinarily, the loss of cargo carried on deck shall not be considered as general average loss, as expressed in the
York-Antwerp Rules. This rule, first made during the days of sailing vessels, has changed and it is now generally held that
jettisoned goods carried on deck, according to the customs of trade, by steam vessels navigating coastwise and inland waters,
are entitled to contribution as general average loss. The reason for this, in coastwise trade, is that boats are small and voyages
are short, with the result that the coasting vessel can use more circumspection about the condition of the weather at departure
time. The loss of the petroleum jettisoned from the deck is a general average with the result that shipper is entitled to recover
an amount bearing such proportion to its total loss as the value of both ship and cargo saved bears to the value of ship and
entire cargo before jettison was affected. (Standard Oil vs. Castelo, 42 Phil. 256, Oct. 18, 1921)

Art. 816 - In order that the goods jettisoned may be included in the gross average and the owners
thereof be entitled to indemnity, it shall be necessary insofar as the cargo is concerned that their existence
on board be proven by means of the bill of lading; and with regard to those belonging to the vessel, by
means of the inventory prepared before in accordance with the first paragraph of Article 812.

Art. 817 - If in lightening a vessel on account of a storm, in order to facilitate its enty into a port or
roadstead, part of the cargo should be transferred to lighters or barges and be lost, the owner of said part
shall be entitled to indemnity, as if the loss had originated from

(CC, Arts. 817-820)

a gross average, the amount thereof being distributed between the vessel and cargo from which it came.

If, on the contrary, the merchandise transferred should be saved and the vessel should be lost, no
liability may be demanded of the salvage.

Art. 818 - If, as necessary measure to extinguish a fire in a port, roadstead, creek, or bay, it should
be decided to sink any vessel, this loss shall be considered gross average, to which the vessels saved shall
contribute.

Section Two - ARRIVALS UNDER STRESS

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 Art. 819 - If during the voyage the captain should believe that the vessel cannot continue the trip to
the port of destination on account of the lack of provisions, well-founded fear of seizure, privateers, or
pirates, or by reason of any accident of the sea disabling it to navigate, he shall assemble the officers and
shall summon the persons interested in the cargo who may be present, and who may attend the meeting
without the right to vote; and if, after examining the circumstances of the case, the reason should be
considered well-founded, the arrival at the nearest and most convenient port shall be agreed upon, drafting
and entering the proper minutes, which shall be signed by all, in the log book.

The captain shall have the deciding vote, and the persons interested in the cargo, may make the
objections and protests they may deem proper, which shall be entered in the minutes in order that they
may make use thereof in the manner they may consider advisable.

Arrival Under Stress defined. Arrival under stress means the arrival of a vessel at the nearest and most convenient port
because of its failure to reach its original port of destination, on account of lack of provisions, well-founded fear of
seizure, privateers, or by reason of any accident of the sea disabling it to navigate.

Art. 820 - An arrival shall not be considered lawful in the following cases:

1. If the lack of provisions should arise from the failure to take the necessary provisions for the voyage
according to usage and customs, or if they should have been rendered useless or lost through bad
stowage or negligence in their care.

2. If the risk of enemies, privateers, or pirates should not have been well known, manifest, and based on
positive and provable facts.

3. If the defect of the vessel should have arisen from the fact that it was not repaired, rigged, equipped, and
prepared in a manner suitable for the voyage, or from some erroneous order of the captain.

4. When malice, negligence, want of foresight, or lack of skill on the part of the captain exists in the act
causing the damage.

(CC, Arts. 820-824)

The arrival under stress is not lawful:

(1) when the lack of provisions is due to failure to carry the provisions necessary according to usage and customs;

(2) if the risk of enemies is not well-known and manifest;

(3) when the defect of the vessel is a consequence of an improper repair; and

(4) if the damage was caused by malice, negligence, lack of foresight, lack of skill of the captain.

Art. 821 - The expenses of an arrival under stress shall always be for the account of the shipowner
or agent, but they shall not be liable for the damages which may be caused the shippers by reason of the
arrival, provided the latter is legitimate.

Otherwise, the ship agent and the captain shall be jointly liable.

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 The expenses for arrivals under stress are borne by the ship owner, but not those damages to the
owners of the cargo and the passengers provided the such arrival is lawful; otherwise, or if the arrival
under stress is unlawful, the ship agent and the captain shall be jointly liable for the said damages incurred
by the shippers or passengers.

Art. 822 - If in order to make repairs to the vessel or because there is danger that the cargo may
suffer damage, it should be necessary to unload, the captain must request authorization from the
competent judge or court for the removal, and carry it out with the knowledge of the person interested in
the cargo, or his representative, should there be any.

In a foreign port, it shall be the duty of the Philippine Consul, where there is one, to give the
authorization.

In the first case, the expenses shall be for the account of the ship agent or owner, and in the second,
they shall be chargeable against the owners of the merchandise for whose benefit the act was performed.

If the unloading should take place for both reasons, the expenses shall be devided proportionately
between the value of the vessel and that of the cargo.

Art. 823 - The custody and preservation of the cargo which has been unloaded shall be entrusted to
the captain, who shall be responsible for the same, except in cases of force majeure.

Art. 824 - If the entire cargo or part thereof should appear to be damaged, the captain may request
of the competent judge or court, or of the consul in a proper case, the sale of all or of of the former, and the
person taking cognizance of the matter shall authorize it, after an examination and declaration of experts,
advertisements, and other formalities required by the case, and an entry in the book, in accordance with
the provisions of Article 624.

(CC, Arts. 824-826)

The captain shall, in a proper case, justify the legality of his conduct, under the penalty of
answering to the shipper for the price the merchandise would have brought if they had arrived in good
condition at the port of destination.

Art. 825 - The captain shall be responsible for the damages caused by his delay, if after the cause of
the arrival under stress has ceased, he should not continue the voyage.

If the cause of arrival should have been the fear of enemies, privateers, or pirates, a deliberation
and resolution in a meeting of the officers of the vessel and persons interested in the cargo who may be
present, in accordance with the provisions contained in Article 819, shall precede the departure.

Section Three - COLLISIONS

Art. 826 - If a vessel should collide with another, through the fault, negligence, or lack of skill of the
captain, sailing mate, or any other member of the complement, the owner of the vessel at fault shall
indemnity the losses and damages suffered, after an expert appraisal.

Collision Defined. Collision is the impact of two vessels, both of which are moving.

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 In a broad sense, the term "collision" includes allision which refers to the striking of a moving vessel against one
that is stationary and perhaps other species of encounters between vessels, or a vessel and other floating, though non-
navigable objects. (NCD, P. 419, citing Moreno, Philippine Law Dictionary, P. 167, 1988 ed., citing Cebu Stevedoring Co.
vs. Universal Lumber Co., 60874-R, Jan. 11, 1982)

Zones of Time in the Collision of Vessels

First Zone, which covers all the time up to the moment when the risk of collision begins;

Second Zone covers the time between the moment when the risk of the collision begins and the moment it becomes a
practical certainty;

Third Zone covers the time when collision is certain and the time of impact.

The owner of the vessel at fault during the second zone and his ship agent are solidarily liable to the owner of the
innocent vessel and to the cargo owners for all of their losses and damages. (NDC vs. CA, 164 SCRA 593).

1958 BQ:. Explain the term "error in extremis" in collision of vessels.

Ans.: Where a navigator, suddenly realizing that a collision is imminent by no fault of his own, in the confusion
and excitement of the moment, does something which contributes to the collision or omits to do something by
which the collision might be avoided, such act or omission is ordinarily considered to be "in extremis" and the
ordinary rules of strict accountability do not apply (The Norne, C.C.A.La., 59 F. 2d 145 - Royal Mall Steam
Packet Co. v. Comapnhia De Navegacao Lloyd Brasileiro, D.C.N.Y., 50 F. 2d 207).

(CC, Arts. 826-828)

Before the rule of "error in extremis" can be allowed, it must appear that there was an imminent danger, for the
error of judgment is excusable only if it was committed during such peril. (The William A. Paine, C.C.A.
Ohio, 39 F.2d 586). Furthermore, it is the actual risk of danger and not apprehension merely that determines the
question whether the error is one "in extremis" (The Pangussett, D.C.N.Y., 9 F. 109). What the rule does mean
is that a navigator handling a ship "in extremis" is not to be held to the exercise of that cool and deliberate
judgment which facts developing later indicate to have been the proper or better course (A. H. Bull S.S. Co. v.
U.S., C.C.A.N.Y., 34 F.2d 614).

It should not be overlooked that in case of an imminent peril, it is proper for a navigator to disregard regulations
in order to avert disaster (The Wyomissing. D.C.N.J., 2 F.Supp.954).

Art. 827 - If the collision is imputable to both vessels, each one shall suffer its own damages, and
both shall be solidarily responsible for the losses and damages occasioned to their cargoes.

Art. 828 - The provisions of the preceding article are applicable to the use in which it cannot be
determined which of the two vessels has caused the collision.

1997 BQ No. 17: Explain the Doctrine of Inscrutable Fault in Maritime accidents.

Ans.: (See below)

Doctrine/Principle of Inscrutable Fault

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 The Doctrine or Principle of Inscrutable Fault under Arts. 827 - 828 of the Code of Commerce states that if the
collision is imputable to both vessels (both vessels are at fault), or it cannot be determined which between the two vessels
was at fault, both vessels bear their respective damage, but both are solidarily liable for damage to the cargo of both vessels.

Thus, in a collision under these circumstances, suppose that A's vessel suffers damage worth P20,000.00, while B's
vessel suffers damage worth P30,000.00. A will bear his loss of P20,000.00 while B will bear his loss of P30,000.00.
Suppose further that A carried the cargo of C and D worth P100,00, while B carried the cargo of E and F, worth P150,000,
making a total of P250,000.00 all of which were totally damaged. Both A and B will be solidarily liable for the whole amount
of P250,000.00 to the extent of the value of their respective vessels and the freightage thereof.

1995 BQ No. 13: (1) Two vessels coming from opposite directions collided with each other due to fault
imputable to both. What are the liabilities of the two vessels with respect to the damage caused to them and
their cargoes? Explain.

(2) If it cannot be determined which of the two vessels was at fault resulting in the collision, which party should
bear the damage caused to the vessels and the cargoes? Explain.

(3) Which party should bear the damage to the vessels and the cargoes if the cause of the collision was a
fortuitous even? Explain.

Ans.: (1) Each vessel must bear its own damage. Both of them are fault. (Art. 827, Code of Commerce)

(2) Each of them should bear their respective damages. Since it cannot be determined as to which vessel is at
fault. This under the doctrine of "inscrutable fault".

(3) No party shall be held liable since the cause of the collision is fortuitous event. The carrier is not the
insurer.

1998 BQ No.III.:  A severe typhoon was raging when the vessel SS Masdaam collided with M/V Princess. It is
conceded that the typhoon was the major cause of collision, although there was a very strong possibility that it
could have been avoided if the captain of the SS Masdaam was not drunk and the captain of the M/V Princess
was not asleep at the time of collisions.

Who should bear the damages to the vessels and their cargoes? [5%]

Ans.:  Under Art. 827 of the Code of Commerce, the shipowners of SS Masdaam and M/V Princess shall each
bear their respective loss of vessels.

For the losses and damages suffered by their cargoes, both shipowners are solidarily liable.
1

987 BQ No. 7.:  There was a severe typhoon when the vessel M/V Fortuna collided with M/V Suerte. It is
conceded that the typhoon was a major cause of the collision, although there was a strong possibility that it
could have been avoided if the captain of M/V Fortuna was not drunk and the captain of M/V Suerte was not
asleep at the time of the collision.

Who should bear the damages to the vessels and their cargoes?

Ans. : Under the doctrine of inscrutable fault, neither of the carriers may go after the other.

The shippers may claim damages against the shipowners and the captains of both vessels, having been both
negligent. Their liability is solidary.

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 The shipowners have the right to recover damages from the masters of the vessels who were both guilty of
negligence. The presence of a typhoon in the area had in fact warranted a greater degree of alertness on their
part.

1991 BQ No. 13:  In a collision between M/T Manila, a tanker, and M/V Don Claro, an inter-island vessel, M/V
Don Claro sank and many of its passengers drowned and died. All its cargoes were lost. The collision occurred
at night time but the sea was calm, the weather fair and vissibility was good. Prior to the collision and while still
four (4) nautical miles apart, M/V Don Claro already sighted M/T Manila on its radar screen. M/T Manila had
no radar equipment. As for spedd, M/V Don Claro was twice as fast as M/T Manila.

At the time of the collision, M/T Manila failed to follow Rule 19 of the International Rules of the Road which
requires two (2) vessels meeting head on to change their course by each vessel steering to starboard (right) so
that each vessel may pass on the port side (left) of the other. M/T Manila signaled that it would turn to port side
and steered accordingly, thus resulting in the collision. MV Don Claro's captain was off-duty and was having a
drink at the ship's bar at the time of the collision.

(a) Who would you hold liable for the collision?

(b) If M/V Don Claro was at fault, may the heirs of the passengers who died and the owners of the cargoes
recover damages from the owner of said vessel?

Ans.: (a) I can hold the two (2) vessels liable. In the problem given, whether on the basis of the factual settings
or under the doctrine of inscrutable fault, both vessels can be said to have been guilty of negligence. The
liability of the two carriers for the death or injury of passengers and for the the loss of or damage to the goods
arising from the collision is solidary. Neither

(CC, Arts. 827-832)

carrier may invoke the doctrine of last clear chance which can only be relevant, if at all, between the two (2)
vessels but not on the claims made by passengers or shippers (Litonjua Shipping v. National Seamen Board,
G.R. 51910, 10 August 1989).

(c) Yes, but subject to the doctrine of limited liability. The doctrine is to the effect that the liability of the
shipowners would only be to the extent of any remaining value of the vessel, proceeds of the insurance, if any,
and earned freightage. Given the factual settings, the shipowner himself was not guilty of negligence and,
therefore, the doctrine can well apply (Amparo de los Santos v. CA, 186 SCRA 69).

Art. 829 - In the cases above mentioned the civil action of the owner against the person causing the
injury as well as the criminal liabilities, which may be proper, are reserved.

Art. 830 - If a vessel should collide with another, through fortuitous event or force majeure, each
vessel and its cargo shall bear its own damages.

Art. 831 - If a vessel should be forced by a third vessel to collide with another, the owner of the
third vessel shall indemnify the losses and damages caused, the captain thereof being civilly liable to said
owner.

Art. 832 - If by reason of a storm or other cause of force majeure, a vessel which is properly
anchored and moored should collide with those nearby, causing them damages, the injury occasioned shall
be considered as particular average of the vessel run into.

Rules/Presumptions

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(1) If a steamship and a sailing vessel approach each other from opposite directions, the sailing vessel should keep her
course, and the steamship should watch the movements of the sailing vessel and adjust its own movements to the latter.
If they approach each other in intersecting lines, the steamship must give way. (Asked, 1958 Bar Exams.)

(2) When two vessels meet, the smaller should give the right of way to the larger one.

(3) A vessel leaving port should leave the way clear for another which may be entering the same port.

(4) The vessel which leaves later is presumed to have collided against one which has left earlier.

(5) A privileged vessel (one having the right of way), when approaching another vessel charged with the obligation of
avoiding her, must keep her course to enable the other (burdened) vessel to keep out of the way (International Rules Art.
21, 26 U.S. St. at L. 327, p. 802).

(6) There is also a presumption against the vessel which sets sail in the night.

(7) The presumption also works against the vessel with spread sails which collides with another which is at anchor and
cannot move.

(8) The vessel which is not properly moored or does not observe the proper distances, has the presumption against itself.

(CC, Art. 832)

(9) The vessel which is moored at a place not used for the purpose, or which is improperly moored or does not have
sufficient cables, or which has been left without a watch, has also against itself the presumption.

(10) The same rule applies to those vessels which do not have buoys to indicate the location of its anchors to prevent damage
to those vessels which may approach it.

(11) When crossing ahead (passing or overtaking), the vessel required to keep out of the way shall, if the circumstances of the
case admit, avoid coming ahead of the other; a crossing vessel on the starboard side (right side when the observer is
facing forward) is privileged, but waives her privilege by assenting to the crossing of the other vessel across her bows
(International Rules Art. 22, 26 U.S. St. at L. 327, p. 802; The Albatross, 184 Fed. 363). However, where the burdened
vessel attempts to cross the other's bows, she assumes the risk of the maneuver, and the privileged vessel will not be
held at fault for not stopping, unless danger is apparent (The Captain Bennett, 171 Fed. 973; The Zouave, 90 Fed. 440).

Sulpicio Lines, Inc. vs. Court of Appeals

G.R. No. 93291, March 29, 1999, 105 SCAD 259

Facts: At a distance of about 4 miles, M/V Don Sulpicio, owned by Supilcio Lines had sighted 2 fishing boats, namely: F/B
Aquarius "C" and F/B Aquarius "G". The two fishing boats had a speed of about 7.5 to 8 knots per hour, while the M/V Don
Sulpicio was running at about 15.5 knots per hour. The weather was clear and visibility was good. M/V don Sulpicio was
overtaking F/B Aquarius "G" and in the process, rammed F/B Aquarius "G" causing said vessel to sink. Don Sulpicio Lines
claimed that the collision was due to the negligence of the men manning the F/B Aquarius "G", considering that it did not
have a lookout and that being ahead, it should have given way to M/V/ Don Sulpicio to avoid being rammed. Which vessel
was responsible for the collision?

Held: The M/V Don sulpicio must assume the responsibility as it was in a better position to avoid the collision. It should
have blown its horn or given signs to warn the other vessel that it was to overtake it. Assuming "argumenti ex gratia" that F/B
Aquarius "G" had no lookout during the collision, the omission does not suffice to exculpate Sulpicio Lines from liability.
M/V Don sulpicio cannot claim that it was a privileged vessel being in the portside which can maintain its course and speed

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during the collision. When it overtook F/B Aquarius "G", it was duty bound to slacken its speed and keep away from other
vessels, which it failed to do.

Smith Bell vs. CA

197 SCRA 201

Ruling: The vessel Don Carlos was negligent for three reasons:

(1) It failed to follow Rule 18 (a) of the International Rules fo the Road by not altering her course to the starboard;

(2) It did not have a look-out properly trained and who is given no other duty save to act as a lookout and who is stationed
where he can see and hear best, and maintain good communication with the officer in charge of the vessel, and who of
course must be vigilant.

(3) The second mate was in command immediately before and during the collision and there was no showing that the captain
or first (chief) mate was under disability or otherwise disqualified.

(CC, Art. 832)

JOSE P. MECENAS, ET AL. v. HON. COURT OF APPEALS, ET AL.

180 SCRA 83, G.R. No. 88052, December 14, 1989.

On the evening of April 22, 1980, at about 10:30 o'clock, the "Tacloban City", owned by the Philippine National Oil Co.
(PNOC) and operated by PNOC Shipping, collided with the "Don Juan", an passenger vessel owned and operated by the
Negros Navigation Co. (NENACO) at the Tablas Strait near Mindoro. When the collision occurred, the sea was calm, the
weather fair and visibilitygood. As a result of this collision, the M/V "Don Juan" sank and hundreds of its passengers
perished.

On 29 December 1980, petitioners, the seven (7) surviving legitimate children of the spouses Perfecto Mecenas and Sofia
Mecenas, passengers of the "Don Juana" whose bodies were never found despite intensive search, filed a complaint for quasi-
delict before the CFI of Quezon City, private respondents Negros Navigation and Capt. Roger Santisteban, the captain of the
"Don Juan", but without either PNOC or PNOC Shipping.

Another complaint, for breach of contract against NENACO and quasi-delict against PNOC and PNOC Shipping, was filed
in the same court by Lilia Ciocon claiming damages against Negros Navigation, PNOC and PNOC Shipping for the death of
her husband Manuel Ciocon, another of the luckless passengers of the "Don Juan" whose body was never found, either.

The two cases were consolidated and heard jointly and, after hearing, the trial court concluded:

M/V "Don Juan" and "Tacloban City" became aware of each other's presence in the area by visual contact at a distance of
something like 6 miles from each other. They were fully aware that if they continued or their course, they will meet head on.
"Don Juan" steered to the right; "Tacloban City" continued its course to the left. There can be no excuse for them not to
realize that, with such maneuvers, they will collide. They executed maneuvers inadequate, and too late, to avoid collision.

The Court is of the considered view that the defendants are equally negligent and are liable for damages.

On appeal, the Court of Appeals reached the same conclusion.

There is no question that the "Don Juan' was at least as negligent as the M/T "Tacloban City" in the events leading up to the
collision and the sinking of the "Don Juan".

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In the firstplace, the report of the Philippine Coast Guard Commandant (Exhibit "10"), while holding the "Tacloban City" as
"primarily and solely [sic] at fault and responsible for the collision," did itself set out that there had been fault or negligence
on the part of Capt. Santisteban and his officers and crew before the collision and immediately after contract of the two (2)
vessels. The decision of Commodore Ochoco said:

"M/S Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the time of collision. Moreover,
after the collision, he failed to institute appropriate measures to delay the sinking of MS Don Juan and to supervise properly
the execution of his order of abandonship. As regards the officer on watch, Senior 3rd Mate Rogelio Devera, he admitted that
he failed or did not call or inform Capt. Santisteban of the imminent danger of collision and of the actual collision itself Also,
he failed to assist his master to prevent the fast sinking of the ship. The record also indicates that Auxiliary Chief Mate
Antonio Labordo displayed laxity in maintaining order among the passengers after the collision.

The behaviour of the captain of the "Don Juan" in this instance-playing mahjong "before and up to the time of collision
constitutes behaviour that is simply unacceptable on the part of the master of a vessel to whose hands the lives and welfare of
at least seven hundred fifty (750) passengers had been entrusted. Whether or not Capt. Santisteban was "off-duty" or "on-
duty" at or around the time of actual collision is quite immaterial; there is, both realistically speaking and in contemplation of
law, no such thing as "off-duty" hours for the master of a vessel at sea that is a common carrier upon whom the law imposes
the duty of extraordinary diligence --- the duty to carry the passengers safetly as far as human care and foresight can

(CC, Art. 832)

provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.Negros Navigation
in permitting, or in failing to discover and correct such behaviour, must be deemed grossly negligent.

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the collision, "to institute
appropriate measures to delay the sinking of M/V Don Juan." This appears to us to be a euphemism for failure to maintain the
sea-worthiness or the water-tight integrity of the "Don Juan." The record shows that the "Don Juan" sank within ten (10) to
fifteen (15) minutes after initial contact with the "Tacloban City." While the failure of Capt. Santisteban to supervise his
officers and crew in the process of abandoning the ship and his failure to avail of measures to prevent the too rapid sinking of
his vessel after collision, did not cause the collision by themselves, such failures doubtless contributed materially to the
consequent loss of life and, moreover were indicative of the kind and level of diligence exercised by Capt. Santisteban in
respect of his vessel and his officers and men prior to actual contact between the two (2) vessels. The officer-on-watch in the
"Don Juan" admitted that he had failed to inform Capt. Santisteban not only for not only of the "imminent danger of
collision" but even of "the actual collision itself."

There is also evidence that the "Don Juan" was carrying more passengers than she had been certified as allowed to carry.

The report of the Philippine Coast Guard (Exhibit "10") stated that the "Don Juan" had been "officially cleared with 878
passengers on board when she sailed from the port of Manila on April 22, 1980 at about 1:00 p.m." The head-count of 878
passengers when the "Don Juan" sailed from Manila "did not include the 126 new crew members, children below three (3)
years old and two (2) years old half-paying passengers" which had been counted as one adult passenger. Thus, the total
number of persons on board the "Don Juan" on that ill-starred night of 22 April 1980 was 1,004, or 140 persons more than the
maximum number that could be safety carried by the "Don Juan," per its own Certificate of Inspection. In addition, only 750
passengers had been listed in its manifest for the voyage; in other words, at least 125 passengers on board had not even been
entered into the "Don Juan's" manifest.

The "Don Juan's" Certificate of Inspection showed that she carried life boat and life raft accommodations for only 864
persons, the maximum number of persons she was permitted to carry; in other words, she did not carry enough boats and life
rafts for all the persons actually on board that tragic night of 22 April 1980.

Under these circumstances, a presumption of gross negligence on the part of the vessel (her officers and crew) and of its ship-
owner arises; this presumption was never rebutted by Negros Navigation.

The grossness of the negligence of the "Don Juan" is underscored when one considers the foregoing circumstances in the
context of the following facs: Firstly, the "Don Juan" was more than twice as fast as the "Tacloban City." The "Don Juan's
top speed was 17 knots; while that of the "Tacloban City" was 6.3. knots. Secondly, the "Don Juan" carried the full

193
complement of officers and crew members specified for a passenger vessel of her class. Thirdly, the "Don Juan" was
equipped with radar which was functioning that night. Fourthly, the "Don Juan's" officer on-watch had sighted the "Tacloban
City" on his radar screen while the latter was still four (4) nautical miles away. Visual confirmation of radar contact was
established by the "Don Juan" while the "Tacloban City" was still 2.7 miles away. In the total set of circumstances which
existed in the instant case, the "Don Juan," had it taken seriously its duty of extraordinary diligence, could have easily
avoided the collision with the "Tacloban City," Indeed, the "Don Juan" might well have avoided the collision even if it had
exercised ordinary diligence merely.

It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the Road which requires two (2)
power-driven vessels meeting end on or nearly end on each to alter her course to starboard (right) so that each vessel may
pass on the port side (left) of the other. The "Tacloban City," when the two (2) vessels were only three-tenths (0.3) of a mile
apart, turned (for the second time) 150 to port side while the "Don Juan" veered hard to starboard. This circumstance, while it
may have made the collision immediately inevitable, cannot, however, be viewed in isolation from the rest of the factual
circumstances obtaining before and up to the collision. In any case, Rule 18, like all other International Rules of the Road,

(CC, Art. 832)

are not to be obeyed and construed without regard to all the circumstances surrounding a particular encounter between two
(2) vessels. In ordinary circumstances, a vessel discharges her duty to another by a faithful and literal observance of the Rules
of Navigation, and she cannot be held at fault for so doing even though a different course would have prevented the collision.
This rule, however, is not be applied where it is apparent, as in the instant case, that her captain was guilty of negligence or of
a want of seamanship in not perceiving the necessity for, or in so acting as to create such necessity for, a departure from the
rule and acting accordingly. In other words, "route observance" of the International Rules of the Road will not relieve a
vessel from responsibility if the collision could have been avoided by proper care and skill on her part or even by a departure
from the rules.

The "Don Juan" having sighted the "Tacloban City" when it was still a long way off was negligent in failing to take early
preventive action and in allowing the two (2) vessels to come to such close quarters as to render the collision inevitable when
there was no necessity for passing so near to the "Tacloban City" as to create that hazard or inevitability, for the "Don Juan"
could choose its own distance. It is noteworthy that the "Tacloban City," upon turning hard to port shortly before the moment
of collision, signaled its intention to do so by giving two (2) short blasts with horn. The "Don Juan" gave no answering horn
blast to signal its own intention and proceeded to turn hard to starboard.

Therefore, Capt. Santisteban and Negros Navigation are properly held liable for gross negligence in connection with the
collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan" leading to the death of hundreds of
passengers.

In allision, there is a presumption of fault against a moving vessel that strikes a stationary object such as a dock or navigation
aid. In admiralty, this presumption does more than merely require the ship to go forward and produce some evidence on the
presumptive matter. The moving vessel must show that it was without fault or that the collision was occasioned by the fault
of the stationary object or was the result of inevitable accident. It has been held that such vessel must exhaust every
reasonable possibility which the circumstances admit and show that in each, they did all that reasonable care required. In the
basence of sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides with a fixed object
and makes a prima facie case of fault against the vessel. Logic and experience support this presumption. (NCD, P. 419, citing
Far Eastern Shipping Company vs. Court of Appeals and Philippine Ports Authority, G.R. No. 130068, October 1, 1998, 99
SCAD 347).

The Doctrine of Last Clear Chance, also referred to as the Principle of Discovered Peril is not applicable in collision of
vessels.

1980 BQ No. 16: Vessels "U" and "V" collided with each other causing damage to both vessels. Vessel "U" had
the last clear chance to avoid the collision but failed to do so.

(1) Is the doctrine of last clear chance in tort applicable to collisions of vessels at sea under the Code of
Commerce? Which vessel should shoulder liability for damage suffered by both vessels and by the cargo?

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 (2) Assume that the negligence of the captain of vessel "U" was the proximate cause of the collision, while the
negligence of the captain of vessel "V" was merely contributory. To which vessel should the collision be deemed
imputable?

Ans. : (1) The doctrine of last clear chance in tort is not applicable to collisions of vessels at sea under the
Code of Commerce, and the case is deemed as if the collision is imputable to both vessels; thus, each one of the
vessels shall suffer her own damage, and both shall be solidarilly liable for the damages occasioned to their
cargoes. (See arts. 827 & 828, Code of Commerce; C.B. Williams v. Yanco, 27 Phil 68; Sarasola v. Sontua, 47
Phil. 365.)

(2) The collision shall be deemed imputable also to both vessels, as in the preceding answer to No. (1)
question. Since the doctrine of "contributory negligence" in tort is not also

(CC, Arts. 832-835)

applicable to collisions of vessel at sea under the Code of Commerce, the case is deemed as if the collision is
imputable to both vessels. (Arts. 827 & 828, Code of Com.; Gov't. of P.I. v. Phil. Steamship co. Inc., 44 Phil.
359).

Art. 833 - A vessel which, upon being run into, sinks immediately, as well as that which, having
been obliged to make a port to repair the damages caused by the collision, is lost during the voyage or is
obliged to be stranded in order to be saved, shall be presumed as lost by reason of collision.

Art. 834 - If the vessels colliding with each other should have pilots on board discharging their
duties at the time of the collision, their presence shall not exempt the captains from the liabilities they
incur, but the latter shall have the right to be indemnified by the pilots, without prejudice to the criminal
liability which the latter may incur.

Art. 835 - The action for the recovery of losses and damages arising from collisions cannot be
admitted if a protest or declaration is not presented within twenty-four hours before the competent
authority of the point where the collision took place, or that of the first port of arrival of the vessel, if in
Philippine territory, and to the consul of the Republic of the Philippines if it occurred in a foreign country.

Pre-requisite to Recovery

A Maritime Protest should be made within 24 hours before the competent authority at the point of collision or at the
first port of arrival, if in the Philippines, and to a Philippine consul, if the collision took place abroad. Injuries to persons, and
damage to the cargo of owners not on board or collision time, need not be protested.

Augusto Lopez vs. Juan Duruelo and Alino Sison

G.R. No. 29166, October 23, 1928

Issue:  Whether or not the protest required under Article 835 of the Code of Commerce applies to collision of minor crafts
engaged in river and bay traffic.

Held:  No. The article in question (835, Code of Commerce) is found in the section dealing with collisions, and the context
shows the collisions intended are collisions of sea-going vessels.

Said article cannot be applied to small boats engaged in river and bay traffic. The Third Book of the Code of Commerce,
dealing with Maritime Commerce, of which the section on Collisions forms a part, was evidently intended to define the law

195
relative to merchant vessels and marine shipping; and, as appears from said Code, the vessel intended in that Book are such
as are run by masters having special training, with the elaborate apparatus of crew and equipment indicated in the Code. The
word "vessel" (Spanish, "buque," "nave"), use in the section referred to was not intended to include all ships, craft or floating
structures of every kind without limitation, and the provisions of that section should not be held to include minor craft
engaged only in river and bay traffic... vessels of a minor nature not engaged in maritime commerce, such as river boats and
those carrying passengers from ship to shore, must be governed, as to their liability to passengers, by the provisions of the
Civil Code or other appropriate special provisions of law.

1977 No. IX-a: In the morning of April 2, 1977, the South-bound FS-190 belonging to William Lines, Inc.
reached the waters of the Verde Island Passage. About the same time, the

(CC, Arts. 835-836)

M.S. General Del Pilar, another interisland vessel owned by the General Shipping, was likewise in the same
waters, steaming northward to Manila. The vessels, coming from opposite directions and towards each other,
suddenly, collided at a certain point of the passage which resulted in the sinking of FS-190, together with all its
cargoes, part of which belonged to Tanya, who was a paying passenger and Rafael, who was a shipper.

Tanya and Rafael brought action in court to recover for their losses and for damages arising from the collision.

Were they under obligation to file a maritime protest for a succesful maintenance of the action? Why?

Ans.: No, Tanya and Rafael are not under obligtion to file a maritime protest. Art. 835 of the Code of
Commerce states that "the action for recovery of damages and losses arising from collisions cannot be admitted
without a previous protest or declaration presented by the captain within twenty-four hours before the
competent authority of the point where the collision took place, or for the first port of arrival." Therefore, a
marine protest is required to be made by the master of the vessel not by the passenger or shipper (Goro v.
William Lines, 3 CA Rep.)

Art. 836 - With respect to damages caused to persons or to the cargo, the absence of protest may
not prejudice the persons interested who were not on board or were not in a condition to make known their
wishes.

Instances when a marine protest after a collision is not necessary

1. When the action is based on quasi-delict. (Lopez vs. Duruelo, 52 Phil. 229).

2. In case of collision of a motor boat engaged in conveying passengers between the ship and the shore, and a larger vessel,
since the provision on collision is intended to cover collisions of sea-going vessels (Lopez vs. Duruelo, supra).

3. When the person interested in the damage was not on board or was not in a condition to make known his wishes (Art. 836,
Code of Commerce; Asked, 1977 Bar Exams.).

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

Yangco vs. Laserna

40 O.G. 4296 (Asked, 1991 Bar Exams.).

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Facts: The M/V Romblon collided with M/V Mindoro due to the negligence of the captain of the former. M/V Romblon
sunk, resulting in the death of several passengers. The heirs of the passengers filed an action for damages against the
shipowner on the ground that the latter was guilty of breach of contract of carriage. The shipowner, on the other hand, raised
the defense that since the vessel sunk, he is no longer liable for damages. Is the defense tenable?

Held: The defense is tenable. Assuming that the shipowner is liable for a breach of contract of carriage, the exclusively "real
and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon.
The liability of the shipowner or ship agent for injury to or death of

(CC, Arts. 836-841)

passengers arising from the negligence of the captian in cases of collisions or shipwrecks, is merely co-existent with his
interest in the vessel such that a total loss thereof results in its extinction.

Luzon Stevedoring Corporations vs. CA

G.R. No. L-58897, December 3, 1987

Issue: Whether abandonment is required under Article 837 of the Code of Commerce.

Held: The real and hypothecary nature of liability of the shipowner or agent is embodied in the provisions of the Maritime
Law, Bokk III, Code of Commerce. Articles 587, 590 and 837 of the same code are precisely intended to limit the liability of
the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage, provided that owner
or agent abandons the vessel. Although it is not specifically provided for in Article 837 of the same code that in case of
collision there should be such abandonment to enjoy such limited liability, said article on collision of vessels is a mere
amplification of the provisions of Articles 587 and 590 of same code where abandonment of the vessel is a pre-condition.
Even without said article, the parties may avail of the provisions of Articles 587 and 590 of same code in case of collision.
This is the reason why Article 837 of the same code is considered a superfluity.

Hence, the rule is that in case of collision, there should be abandonment of the vessel by the shipowner or agent in order to
enjoy the limited liability provided for under said article 837.

Art. 838 - When the value of the vessel and her appurtenances should not be sufficient to cover all
the liabilities, the indemnity due by reason of the death or injury of persons shall have preference.

Art. 839 - If the collision should take place between Philippine vessels in foreign waters, or if having
taken place in the open seas, and the vessels should make a foreign port, the Consul of the Republic of the
Philippines in said port shall hold a summary investigation of the accident, forwarding the proceedings to
the Secretary of the Department of Foreign Affairs for continuation and conclusion.

Section Four - SHIPWRECKS

Art. 840 - The losses and deteriorations suffered by a vessel and her cargo by reason of shipwreck
or stranding shall be individually for the account of the owners, the part which may be saved belonging to
them in the same proportion.

Art. 841 - If the wreck or stranding should be caused by the malice, negligence, or lack of skill of
the captain, or because the vessel put to sea was insufficiently repaired and equipped, the ship agent or the
shippers may demand indemnity of the captain for the damages caused to the vessel or to the cargo by the
accident in accordance with the provisions contained in Articles 610, 612, 614, and 621.

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Shipwreck defined.  A shipwreck is the loss of a vessel at sea as a consequence of its grounding, or being swallowed up by
the waves, or by running against a thing at sea, or on the coast. (Moreno, Philippine Law dictionary, 1988 Ed., P. 881)

Also, a ship which has received injuries rendering her incapable of navigation.

(CC, Arts. 842 - 837)

Art. 842 - The goods saved from the wreck shall be specially bound for the payment of the expenses
of the respective salvage, and the amount thereof must be paid by the owners of the former before they are
delivered to them, and with preference over any other obligation if the merchandise should be sold.

Art. 843 - If several vessels sail under convoy, and any of them should be wrecked, the cargo saved
shall be distributed among the rest in proportion to the amount which each one is able to take.

If any captain should refuse, without sufficient cause, to receive waht may correspond to him, the
captain of the wrecked vessel shall enter a protest against him, before two sea officials, of the losses and
damages resulting therefrom, ratifying the protest within twenty-four hours after arrival at the first port,
and including it in the proceedings he must institute in accordance with the provisions contained in Article
612.

If it is not possible to transfer to the other vessels the entire cargo of the vessel wrecked, the goods
of the highest value and smallest volume shall be saved first, the designation thereof to be made by the
captain with the concurrence of the officers of his vessel.

Art. 844 - A captain who may have taken on board the goods saved from the wreck shall continue
his course to the port of destination, and on arrival shall deposit the same, with judicial intervention, at the
disposal of their legitimate owners.

In case he changes his course, if he can unload them at the port of which they were consigned, the
captain may make said port if the shippers or supercargoes present and the officers and passengers of the
vessel consent thereto; but he may not so so, even with said consent, in time of war or when the port is
difficult and dangerous to make.

The owners of the cargo shall defray all the expenses of this arrival as well as the payment of the
freightage which, after taking into consideration the circumstances of the case, may be fixed by agreement
or by a judicial decision

Art. 845 - If on the vessel there should be no person interested in the cargo who can pay the
expenses and freightage corresponding to the salvage, the competent judge or court may order the sale of
the part necessary to cover the same. This shall also be done when its preservation is dangerous, or when in
a period of one year it should not have been possible to ascertain who are its legitimate owners.

In both cases the proceedings shall be with the publicity and formalities prescribed in Article 579,
and the net proceeds of the sale shall be safely deposited, in the discretion of the judge or court, so that they
may be delivered to the legitimate owner thereof.

Title Five - PROOF AND LIQUIDATION OF AVERAGES

Section One - PROVISIONS COMMON TO ALL KINDS OF AVERAGES

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 Art. 846 - Those interested in the proof and liquidation of averages may mutually agree and bind
themselves at any time with regard to the liability, liquidation, and payment thereof.

(CC, Arts. 846-849)

In the absence of agreements, the following rules shall be observed:

1. The proof of the average shall take place in the port where the repairs are made, should any be
necessary, or in the port of unloading.

2. The liquidation shall be made in the port of unloading, if it is a Philippine port.

3. If the average occurred outside of the jurisdiction waters of the Philippines, or the cargo has been sold in
a foreign port by reason of an arrival under stress, the liquidation shall be made in the port of arrival.

4. If the average has occurred near the port of destination, so that said port can be made, the proceedings
mentioned in Rules 1 and 2 shall be held there.

Art. 847 - In the case where the liquidation of the averages is made privately by virtue of
agreement, as well as when a judicial authority intervened at the request of any of the parties interested
who do not agree thereto, all of them shall be cited, and heard, should they not have renounced this right.

Should they not be present or should they have no legal representative, the liquidation shall be
made by the Consul in a foreign port, and where there is none, by the competent judge or court, according
to the laws of the country and for the account of the proper party.

When the representative is a person well known in the place where the liquidation is made, his
intervention shall be admitted and shall produce legal effects, even though he be authorized only by a letter
of the ship agent, the shipper, or the insurer.

Proof and Liquidation

Venue.  Proof is made at the port of repairs, if any is made, or in the port of unloading. Liquidation is done in the port of
unloading if in the Philippines; or in the port of arrival, if in foreign country. Common carriers cannot limit their liability for
injury or loss of goods where such injury or loss was caused by its negligence. Otherwise stated, the law on averages under
the Code of Commerce cannot be applied where there is negligence. (American Home Ins. vs. CA, 208 SCRA 343).

Procedure. Liquidation is done by private agreement, or if the parties cannot agree, then by judicial authority.

Art. 848 - Claims for averages shall not be admitted if they do not exceed 5 percent of the interest
which the claimant may have in the vessel or in the cargo if it be gross average and 1 percent of the goods
damage if particular average, deducting in both cases the expenses of appraisal, unless there is an
agreement to the country.

Art. 849 - The damages, averages, loans on bottomry and respondentia and their premiums and
any other losses, shall not earn interest by reason of delay until after the lapse of the period of three-days,
to be counted from the day on which the liquidation may have been conluded and communicated to the
persons interested in the vessel, in the cargo, or in both at the same time.

(CC, Arts. 850 - 864)

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 Art. 850 - If by reason of one or more accidents of the sea, particular and gross averages of the
vessel, of the cargo, or of both, should take place on the same voyage, the expenses and damages
corresponding to each average shall be determined separately in the port where the repairs are made, or
where the merchandise are discharged, sold, or utilized.

For this purpose the captains shall be obliged to demand of the expert appraisers and of the
contractors making the repairs, as well as of those appraising and taking part of the unloading, repair, sale
or utilization of the merchandise, that in their appraisements or estimates and accounts they set down
separately and accurately the expenses and damages pertaining to each average, and in those of each
average those corresponding to the vessel and to the cargo, also stating separately whether or not there are
damages proceeding from inherent defect of the thing and not from accident of the sea; and in case there
should be expenses common to the different averages and to the vessel and its cargo, the amount
corresponding to each must be estimated and stated distinctly.

Section Two - LIQUIDATION OF GROSS AVERAGES

Art. 851 - At the instance of the captain, the adjustment, liquidation, and distribution of gross
averages shall be held privately, with the consent of all the parties in interest.

For this purpose, within forty-eight hours following the arrival of the vessel at the port, the captain
shall convene all the persons interested in order that they may decide as to whether the adjustment or
liquidation of the gross average is to be made by experts and liquidators appointed by themselves, in which
case it shall be so done if the interested parties agree.

If an agreement is not possible, the captain shall apply to the competent judge or court, who shall
be the one in the port where these proceedings are to be held in accordance with the provisions of this code,
or to the consul of the Republic of the Philippines should there be one, and should there be none, to the
local authority when they are to be held in a foreign port.

Art. 852 - If the captain does not comply with the provisions of the preceding article, the ship agent
or the shippers shall demand the liquidation without prejudice to the action they may bring to demand
indemnity from him.

Art. 853 - After the experts have been appointed by the persons interested , or by the court, and
after the acceptance, they shall proceed to the examination of the vessel and of the repairs required and to
the appraisal of their cost, separating these losses and damages from those arising from the inherent defect
of the things.

The experts shall also declare whether the repairs may be made, immediately, or whether it is
necessary to unload the vessel in order to examine and repair it.

With regard to the merchandise, if the average should be visible at a mere glance, the examination
thereof must be made before they are delivered. Should it not be visible at the time of unloading, said
examination may be made after the delivery, provided that it is done within forty-eight hours from the
unloading, and without prejudice to the other proofs which the experts may deem proper.

(CC, Arts. 854-856)

Art. 854 - The valuation of the objects which are to contribute to the gross average, and that of
those which constitute the average, shall be subject to the following rules:

200
1. The merchandise saved which are to contribute to the payment of the gross average shall be valued at
the current price at the port of unloading, deducting the freightage, customs duties, and expenses of
unloading, as may appear from a material inspection of the same, without taking the bills of lading into
consideration, unless there is an agreement to the contrary.

2. If the liquidation is to be made in the port of departure, the value of the merchandise loaded shall be
determined by the purchase price, including the expenses until they are placed on board, the insurance
premium excluded.

3. If the merchandise should be damaged, they shall be appraised at their true value.

4. If the voyage having been interrupted, the merchandise should have been sold in a foreign port, and the
average cannot be estimated, the value of the merchandise in the port of arrival, or the net proceeds
obtained at the sale thereof, shall be taken as the contributing capital.

5. Merchandise lost, which constitute the gross average, shall be appraised at the value which merchandise
of its kind may have in the port of unloading, provided that its kind and quality appear in the bill of
lading; and should they not appear, the value shall be that stated in the invoices of the purchase issued
in the port of shipment, adding thereto the expenses and freightage subsequently arising.

6. The masts cut down, the sails, cables, and other equipment of the vessel rendered useless for the purpose
of saving it, shall be appraised at the current value, deducting one-third by reason of the difference
between new and old.

This deduction shall not be made with respect to anchors and chains.

7. The vessel shall be appraised at its value in the condition in which it is found.

8. The freightage shall represent 50 percent by way of contributing capital.

Art. 855 - The merchandise loaded in the upper deck of the vessel shall contribute to the gross
average should they be saved; but there shall be no right to indemnify if they should be lost by reason of
having been jettisoned for common safety, except wnen the marine ordinances allow their shipment in this
manner in coastwise navigation.

The same shall take place with that which is on board and is not included in the bills of lading or
inventories, according to the cases.

In any case the shipowner and the captain shall be liable to the shippers for the damages from the
jettison, if the storage on the upper deck was made without the consent of the latter.

Art. 856 - Provisions and munitions of war which the vessel may have on board, and the clothing
used by the captain, officers, and crew, shall not contribute to the gross average.

(CC, Arts. 856-861)

The clothing used by the shipper, supercargoes, and passengers who may be on board at the time of
the jettison, shall also be excepted.

Neither shall the goods jettisoned contribute to the payment of the gross averages which may occur
to the merchandise saved in a different and subsequent risk.

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 Art. 857 - After the appraisement of the goods saved and of those lost which constitute the gross
average, has been concluded by the experts, the repairs, if any, made on the vessel, and , in this case, the
accounts of the same approved by the persons interested or by the judge or court, the entire record shall be
turned over to the liquidator appointed, in order that he may proceed with the distribution of the average.

Art. 858 - In order to effect the liquidation, the liquidator shall examine the protest of the captain,
comparing it, if necessary, with the log book, and all the contracts which may have been made among the
persons interested in the average, the appraisements, expert examinations, and accounts of repairs made.
If, as a result of this examination, he should find any defect in the procedure which might injure the rights
of the person interested or affect the liability of the captain, he shall call attention thereto in order that it
may be corrected, if possible, and otherwise he shall include it in the exordial of the liquidation.

Immediately thereafter he shall proceed with the distribution of the amount of the average, for
which purpose he shall fix:

1. The contributing capital, which he shall determine by the value of the cargo, in accordance with the rules
established in Article 854.

2. That of the vessel in her actual condition, according to a statement of experts.

3. The 50 percent of the amount of the freightage, deducting the remaining 50 percent for wages and
maintenance of the crew.

After the amount of the gross average has been determined in accordance with the provisions of
this Code, it shall be distributed pro rata among the goods which are to cover the same.

Art. 859 - The insurers of the vessel, of the freightage, and of the cargo shall be obliged to pay for
the indemnifications of the gross average, insofar as is required of each one of those objects respectively.

Art. 860 - If, notwithstanding the jettison of merchandise, breakage of masts, ropes and equipment,
the vessel should be lost running the same risk, no contribution whatsoever by reason of gross average shall
be proper.

The owners of the goods saved shall not be liable for the indemnification of those jettisoned, lost, or
damaged.

Art 861 - If, after the vessel has been saved from the risk which gave rise to the jettison, it should be
lost through another accident taking place during the voyage, the goods saved and existing from the first
risk shall continue liable to contribution by reason of the gross average according to their value in the
condition in which they may be found, deducting the expenses incurred in saving them.

(CC, Arts. 862 - 869)

Art. 862 - If, in spite of having saved the vessel and the cargo in consequence of the cutting down of
masts or of any other damage deliberately done to the vessel for said purpose, the merchandise should
subsequently be lost or stolen, the captain cannot demand of the shippers or consignees that they contribute
to the indemnity for average, unless the loss should occur by reason of an act of the owner or consignee
himself.

Art. 863 - If the owner of the jettisoned goods should recover them after having received the
indemnity for gross average, he shall be obliged to return to the captain and to the other persons interested

202
in the cargo the amount he may have received, deducting the amount of the damage caused by the jettison
and of the expenses incurred in their recovery.

In this case, the amount returned shall be distributed among the vessel and the person interested in
the cargo in the same proportion in which they contributed to the payment of the average.

Art. 864 - If the owner of the goods jettisoned should recover them without having demanded any
indemnity, he shall not be obliged to contribute to the payment of the gross average which may have been
suffered by the rest of the cargo after the jettison.

Art. 865 - The distribution of the gross average shall not be final until it has been agreed to, or in
the absence thereof, until it has been approved by the judge or court, after an examination of the
liquidation and a hearing of the persons interested who may be present or of their representatives.

Art. 866 - After the liquidation ha been approved, it shall be the duty of the captain to collect the
amount of the contrbutions, and he shall be liable to the owners of the goods averaged for the damages they
may suffer through his delay or negligence.

Art. 867 - If the person contributing should not pay the amount of the contribution at the end of the
third day after having been required to do so, the goods saved shall be proceeded against, at the request of
the captain, until payment has been made from their proceeds.

Art. 868 - If the person interested in receiving the goods saved should not give security sufficient to
answer for the amount corresponding to the gross average, the captain may defer the delivery thereof until
payment has been made.

Section Three - LIQUIDATION OF ORDINARY AVERAGES

Art. 869 - The experts whom the court or the persons interested may appoint, as the case may be,
shall proceed with the examination and appraisement of the averages in the manner prescribed in Articles
853 and 854, Rules 2 to 7, insofar as they are applicable.

- oOo -

CARRIAGE OF GOODS BY SEA ACT

Applicability. The Carriage of Goods by Sea Act (COGSA) is suppletory to the Civil Code and the Code of Commerce in
the carriage of goods from foreign ports to the Philippines. (Eastern Shipping vs. IAC, 150 SCRA 463). (LFM)

Sec. 1 of C.A. No. 65 which provides that the COGSA applies to all contracts for carriage of goods  to and from
Philippine ports in foreign trade is deemed amended by Art. 1753 of the New Civil Code which provides that 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. (Law of Destination)

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 American Insurance Co. vs. Compania Maritima
21 SCRA 998

Facts: Cargo was shipped from New York, U.S.A., aboard the M/S Toreador with freight prepaid for Cebu City, pursuant to
the bill of lading. Since the final port of call of the M/S Toreador was Manila, the carrier transhipped the cargo after its
discharge in Manila to S/S Siquijor, an inter-island vessel which discharged it in Cebu City. Is the Carriage of Goods by Sea
Act applicable in this case considering that S/S Siquijor carried the goods only from Manila to Cebu City and not from a
foreign port?

Held: The COGSA is applicable. The transshipment via an inter-island vessel from Manila to Cebu did not operate to remove
the transaction from the operation of COGSA because it was not a separate transaction from that originally entered into by
the ship agent of M/S Toreador, as it was part of the obligation of the ship agent of M/S Toreador under the contract of
carriage. The contract of carriage was up to the final port of destination, which was Cebu City, for which the corresponding
freight had been prepaid

Notice of Damage. If the damage is externally apparent, then notice of the damage should be given upon receipt of the
goods; if the damage is not externally visible, then within three (3) days from receipt.

Claim for Lost Goods. When there was partial delivery, a claim for the lost goods against a merchant vessel must be made
within 30 days from receipt of the last package of the goods.

But if there was total loss of the shipment, the 30-day period should be counted made from the date when the goods
should have been delivered, or when the carrier had the last opportunity to deliver it.

These periods must be distiguished from those provided under Art. 366 of the Code of Commerce.

The notice in writing need not be given if the state of the goods have, at the time of their receipt, been the subject of
joint survey inspection.

If a notice of loss or damage, either apparent or concealed, is not given, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been
delivered.

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the goods (Sec. 3[6]).

Effect of Failure to Give Notice.

In E.E. Elser, Inc. vs. CA (infra), the Supreme Court held that failure to give notice does not bar the filing of the suit
if made within one year.

(COGSA)

E.E. Elser, Inc. vs. Court of Appeals

L-6517, Nov. 29, 1954

Facts: The bill of lading provides that a notice of claim must be given by the consignee to the carrier within 30 days after
receipt of the cargo. The consignee failed to give such notice but filed the action against the carrier within one year from
delivery of the shipment. Has the action been properly brought notwithstanding the consignee's failure to give notice as
required by the bill of lading?

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Held: The action was properly brought. The said clause in the bill of lading is null and void, being contrary to Par. 4, Sec.
3(6) Par. 4 of the Carriage of Goods by Sea Act, under which, regardless of whether the notice of loss or damage has been
given, the shipper can still bring action to recover said loss or damage within one year after the delivery of the goods. It
appearing that the action was brought within one year after the delivery of the shipment in question, the action has not yet
lapsed or prescribed, and therefore, has been properly brought.

But in Phil Am Gen Ins. vs. CA et al. (Aug. 5, 1992), it was held that in case of partial delivery, failure to file a
claim for the lost goods against a merchant vessel within 30 days from receipt of the last package of the goods is fatal as it is
a condition precedent to the accrual of the cause of action against the carrier. (Phil Am Gen Ins. vs. CA et al, Aug. 5, 1992).

N.B.: Considering these two cases, it appears that notice or claim is a pre-requisite for a suit only in case of partial delivery
(Elser, Inc. vs. Court of Appeals, L-6517, Nov. 29, 1954), but not in cases of damage to or total loss of goods (Phil Am Gen
Ins. vs. CA et al, Aug. 5, 1992).

2000 BQ No. XIV. (b)  RC imported computer motherboards from the United States and had them shipped to
Manila aboard an ocean-going cargo ship owned by BC Shipping Company. When the cargo arrived at the
Manila seaport and delivered to RC, the crate appeared intact; but upon inspection of the contents, RC
discovered that the items inside had all been badly damaged. He did not file any notice of damage or anything
with anyone, least of all with BC Shipping Company. What he did was to proceed directly to your office to
consult you about whether he should have given a notice of damage and how long a time he had to initiate a suit
under the provisions of the Carriage of Goods By Sea Act (C.A. 65). What would your advice be?

Ans.: My advice would be that RC should give notice of the damage sustained by the cargo within three (3)
days and that he has to file the suit to recover the damage sustained by the cargo within one (1) year from the
date of the delivery of the cargo to him.

Prescription. The suit for loss or damage to the cargo should be brought within one year from delivery, or from the date
when the goods should have been delivered. (Sec. 3 [6])

The new Civil Code did not impliedly repeal the period of prescription under the COGSA. As a special law,
COGSA prevails over the general provisions of the Civil Code on prescription of actions (Union Carbide, Philippines, Inc.
vs. Manila Railroad Co., 77 SCRA 359; Maritime Agencies & Services, Inc. vs. Court of Appeals, 187 SCRA 346).

(COGSA)

Rizal Surety & Insurance Co. vs. Macondray & Co., Inc.
22 SCRA 902

In case delivery has been made, the action should be brought within one year after delivery of the goods. On the other hand,
if no delivery is made, then the period should be computed from the date when the goods should have been delivered. Thus,
if the carrier arrived on November 2, 1962 and left on November 4, 1962 without delivering the cargo, it was on the latter
date that the carrier had the last opportunity to deliver the goods. Hence, the one-year period within which the carrier could
be sued commenced to run on November 2, 1962 and expired on November 4, 1963.

Jurisprudence on reckoning of the one-year prescriptive period to file the suit for lost or damaged goods.

205
1. Starts to run from the date of delivery of goods to the arrastre operator, not directly to the consignee. (infra)

Union Carbide Philippines, Inc. vs. Manila Railroad Co.

77 SCRA 359

Issue: In case the goods are delivered by the carrier to the arrastre operator who in turn delivered the goods to the
consignee, from what time should the period of prescription be computed? Should it be from the date the arrastre operator
recieved the cargo or from the date the goods were delivered to the consignee?

Held: The one-year period of prescription should be computed from the date of delivery of the goods to the arrastre
operator which is the sensible and practical interpretation of Section 3(6) of the Carriage of Goods by Sea Act. To use as
basis for computing the one-year period, the delivery to the consignee would be unrealistic and might generate confusion
between the loss or damage sustained by the goods while in the carrier's custody and the loss or damage caused to the
goods while in the arrastre operator's possession

2. It starts to run from the day the last item was delivered to the consignee (Maritime Agencies & Services, Inc. vs. Court of
Appeals, infra)

Maritime Agencies & Services, Inc. vs. Court of Appeals

187 SCRA 346

Facts: On October 20, 1979, the last item shipped was delivered to the consignee. An action was filed by the consignee
against the carrier on September 19, 1980, and on April 20, 1981, an action was filed against the ship agent. Have the
actions prescribed?

Held: The one-year period of prescription of actions under the COGSA should commence on October 20, 1979 when the
last item was delivered to the consignee. All actions should have been filed before October 20, 1980. Hence, the action
against the carrier has not prescribed as it was filed at least one month before the lapse of the prescribed. But the suit
against the ship agent has prescribed as it was filed only on April 20, 1981 or more than a year since the delivery of the
cargo.

3. It starts to run from the time the damaged cargo is delivered to the consignee, if directly delivered to him. (Aetna Insurance
vs. Barber Steamship, infra).

(COGSA)

Aetna Insurance vs. Barber Steamship

62 SCRA 11

Facts: The cargo was delivered on February 25, 1964. The action against Barber Steamship Lines, Inc. was filed on
February 22, 1965. Upon motion, the complainant was dismissed on the ground that the defendant was not the proper party
in interest, and it ahould have been filed against Barber Line Far East Service. The complaint was refiled on April 7, 1965
against Barber Line Far East Service. Has the action against Barber Line Far East Service prescribed?

Held: The action has prescribed. The one-year statutory prescriptive period had already expired when the action was filed
on April 7, 1965. The one-year period commenced on February 25, 1964 when damaged cargo was delivered. In this case,
the first action was filed against the wrong party, Barber Steamship Lines, Inc. and hence, it did not interrupt the
prescriptive period of the action against the proper party, Barber Line Far East Service.

206
4. Against the arrastre operator, the suit should be preceded by a claim filed within 15 days from the discharge of the last
cargo, and the suit itself should be filed within two years from said discharge if the arrastre operator failed to act on the
claim within one (1) year. (Union Carbide vs. Manila Railroad, infra).

Union Carbide vs. Manila Railroad

77 SCRA 361

Having complied with the condition precedent for the filing of a claim within the 15 day period, the claimant against the
arrastre operator could file the court action within one year either from Dec. 19, 1961 or from Dec. 19, 1962. This second
date is regarded as the expiration of the period within which the arrastre operator should have acted on the claim. In other
words, the claimant or consignee has a two year prescriptive period, counted from the date of the discharge of the goods
within which to file the action in the event the contractor has not rejected or admitted liability.

In case of inaction on the part of the arrastre operator, he shall be deemed to have rejected or denied the importer's claim
upon expiration of one year from the date when the last package was discharged and that the one year period within which
to file the suit starts to run from the expiration to the one year period of inaction by the arrastre operator. (Filipro vs.
Manila Railroad, 97 SCRA 629).

F.H. Stevens & Co., Inc. vs. Nordeutscher Llyod

GR No. L-17730, Sept. 29, 1962

Facts: A shipment arrived in Manila and delivery was made on May 21, 1959. There were missing items, hence an action
was commenced by the shipper against the carrier in the Municipal Court of Manila, on April 27, 1960. The case was
dismissed on June 13, 1960, or over twenty (20) days after the expiration of the period of one (1) year, beginning from
May 21, 1959, within which plaintiff's action could be brought. Another case was filed in the Court of First Instance on
June 24, 1960. Has the action prescribed?

Held: The action has not prescribed. Under Section 49 of Act. No. 190, the period within which plaintiff could initiate the
present case was renewed for another year, beginning from June 14, 1960. Since the case was commenced on June 24,
1960, it was within the period last mentioned.

1975 BQ No. X:  Under the provisions of Section 3 of the Carriage of Goods by Sea Act, notice must be given
of loss or damage to the goods.

(COGSA)

Within what period must notice be given, if the loss or damage is not apparent? Does the term "loss" in this Act
cover delivery to the wrong person? Explain.

Ans.:  Notice of loss must be given within three days from the delivery of the goods, if the loss is not apparent.

The Supreme Court has held in one case that "loss" under this Act does not cover misdelivery or delivery to the
wrong person.

In case the goods are lost or damaged by reason of an unreasonable delay, the carrier is liable because the obligation
of the carrier to carry the goods includes the duty not to delay their transportation. The action is still basically one for damage
to the goods, and must be filed within the period of one year from delivery of the goods or the date when the goods should
have been delivered, as provided by the Carriage of Goods by Sea Act (Tan Liao s. American President Lines Ltd., L-7280,
Jan. 20, 1956).

207
Loss or Non-Delivery distinguished from Misdelivery. As defined in Article 1189 of the New Civil Code and as applied to
Paragraph 4, Section 3 (6) of the Carriage of Goods by Sea Act, "loss" or "non-delivery" contemplates a situation where no
delivery at all was made to the consignee of the goods because the same had perished, gone out of commerce, or disappeared
in such a way that their existence is unknown or they cannot be recovered. It does not include a situation where there was
delivery --- but to the wrong person --- or misdelivery. Non-delivery should be distinguished from misdelivery.

Prescription in case of Misdelivery. An action for misdelivery of cargo prescribes in ten (10) years under the Civil Code.
The one (1) year prescriptive period under the Carriage of Goods by Sea Act is applicable to loss or damage of cargo, but not
to its misdelivery. (Ang vs. American Steamship Agencies, Inc., 19 SCRA 123).

The applicable rule on prescription is that found in the New Civil Code, either ten (10) years for breach of a written
contract or four (4) years for quasi-delict.

Where the imported goods were delivered to the wrong person, the one-year time bar in paragraph 4, Section 3 (6)
of the Carriage of Goods by Sea Act, which refers to "loss or damage", does not apply. Said one year period of limitation is
designed to meet the exigencies of maritime hazards. In a case where the goods shipped were neither lost nor damaged in
transit but were, on the contrary, delivered in port to someone who claimed to be entitled thereto, the situation is different and
the special need for the short period of limitation in cases of loss or damage caused by maritime perils does not obtain. (Ang
vs. American Steamship Agencies, Inc., 19 SCRA 123)

Where the suit is filed against an arrastre operator, the ordinary prescriptive period of four (4) years fixed by law for
breach of contract under the New Civil Code will apply.

Insurance Co. of North America vs. Phil. Ports Terminal, Inc.

L-6420, July 18, 1955

Facts: The consignee sued the arrastre operator for its failure to deliver the merchandise shipped from the abroad which the
latter received from the carrier for delivery to the consignee. The action was brought within the period of four years, but after
the lapse of one year, from the date when the goods should have been delivered. The case was dismissed on the ground that it
was filed after one year from the time that the cause of action accrued. Was the dismissal of the action correct?

(COGSA)

Held: The dismissal of the action was not correct. The defendant was neither a charterer nor a shipowner. Consequently, the
Carriage of Goods by Sea Act does not apply to it. The ordinary period of four years fixed by law will apply. The action in
this case was brought within that time. (Asked, 1965 and 1978 Bar Exams.)

Effect of Extra-Judicial Demand/Failed Negotiations. The period of prescription is not interrupted or tolled by an

extrajudicial demand. The general provisions of the new Civil Code (Art. 1155) cannot be made to apply, as such application
would have the effect of extending the one-year period of prescription fixed in the law. It is desirable that matters affecting
transportation of goods by sea be decided in as short a time as possible; the application of the provisions of Art. 1155 of the
new Civil Code would unnecessarily extend the period and permit delays in the settlement of questions affecting
transportation, contrary to the clear intent and purpose of the law (The Yek Tong Fire & Maritime Insurance Co., Ltd. vs.
American President Lines, Inc., 103 Phil. 1125).

The same is true in cases where negotiations for amicable settlement of the claim is not resolved. The action must
have been filed within the one-year period of prescription. (Chua Kuy vs. Everett Steamship Corp., L-5554, May 27, 1953).

Dole Philippines, Inc. vs. Maritime Co. of the Philippines

148 SCRA 118

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Facts: The cargo was discharged to the custody of the consignee on December 18, 1971, and the corresponding claim was
filed by Dole, the consignee with Maritime, the carrier on May 4, 1972. The complaint was filed on June 11, 1973. The
defendant filed a motion to dismiss on the ground of prescription. Dole, on the other hand, maintained that the that its written
claim for loss or damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt
prescription under Art. 1155 of the New Civil Code, and the latter operated to toll prescription also in actions under the
Carriage of Goods by Sea Act. Did the extrajudicial demand interrupt the period of prescription?

Held: The extrajudicial demand did not interrupt the period of prescription. Even assuming that the period of prescription
was suspended and a new period of one year was granted to Dole from the date of the extrajudicial demand on May 4, 1972,
still more than one year had already elapsed from said date until the action was filed on June 11, 1973. (Asked, 1992 Bar
Exams.)

Effect of the prescriptive period under the Carriage of Goods by Sea Act on the liability of the insurer.

The one-year period allowed the shipper or consignee for the filing of a suit against the carrier applies also to an
insurer of the cargo availing of his right of subrogation against the carrier. (Fil. Merchants vs. Alejandro, 145 SCRA 42).

Under the Carriage of Goods by Sea Act, the insurer, like the shipper, may no longer file a claim against the carrier
beyond the one-year period provided by law. The carrier and the shipowner shall be discharged from any liability for loss or
damage to the goods if no suit is filed within one year after delivery ofthe goods or date when they should be delivered (Sec.
3[6], Carriage of Goods by Sea Act). Under this provision, only the carrier's liability is extinguished if no suit is brought
within one year from delivery of the goods.

But it does not mean that the shipper may no longer file a claim against the insurer. The liability of the insurer is not
extinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance. The
Carriage of Goods by Sea Act does not apply to an insurer whose liability is

(COGSA)

governed by the Insurance Code (Mayer Steel Pipe Corporation vs. Court of Appeals, 83 SCAD 881, 274 SCRA 432 [1997]).

Instances when the one-year period of prescription under the COGSA is interrupted

1. When an action has been filed in court (F. H. Stevens & Co. vs. Norduetscher Lloyd, 6 SCRA 180);

2. When there is an express agreement that an extra-judicial claim for damages will suspend the running of the prescriptive
period. (Tan Liao vs. American President Lines, Ltd., L-7280, Jan. 20, 1956; Phoenix Assurance Co. Ltd., vs. United
States Lines, 22 SCRA 674; Universal Shipping Lines, Inc. vs. Intermediate Appellate Court, 188 SCRA 170).

Amount of Liability. The liability limit set at $500 per package or the actual amount of the loss sustained under Sec. 4(5) of
the Carriage of Goods by Sea Act, is deemed incorporated in the bill of lading even if not mentioned in it. (Eastern Shipping
vs. IAC, 150 SCRA 463). (LFM)

Carriage of goods by merchant vessels from abroad to the Philippines is governed primarily by the Civil Code and
suppletorily by the Code of Commerce and by the Carriage of Goods by Sea Act. When the Bill of Lading does not contain
any declaration by the shipper, the $500 per package limit in Sec. 4(5) of the Carriage of Goods by Sea Act is deemed
incorporated in the Bill of Lading, and if the number of cartoons inside a container is mentioned in the Bill of Lading, the
$500 limit per package applies to each carton, not to the container where they are contained. (Eastern Shipping vs. IAC, 150
SCRA 463). (LFM)

It is the duty of the shipper to disclose rather than for the carrier to demand, the true value of the goods, and silence
on the shipper's part is sufficient to limit liability to what is stated in the bill of lading. (Eastern and Australian Steamship vs.
Great American Insurance, infra)

209
 Eastern and Australian Steamship Co., Ltd. vs. Great American Ins. Co.
108 SCRA 248

Facts: The bill of lading stipulated that the liability of the carrier for loss of the shipment is limited to L100 Sterling or its
peso equivalent of P1,544.40. On the other hand, Sec. 4 (5) provides for a liability of $500 or its peso equivalent of
P3,217.50. Which one shall prevail?

Held: The stipulated amount of liability shall prevail. There is no inconsistency between Section 4 (5) of the Carriage of
Goods by Sea Act and the bill of lading. The first part of the provision of Section 4 (5) of the Carriage of Goods by Sea Act
limits the maximum amount that may be recovered by the shipper in the absence of an agreement as to the nature and value
of goods shipped. Said provision does not prescribe the minimum and hence, it could be any amount which is below $500.
By providing that $500 is the maximum liability, the law does not disallow an agreement for liability at a lesser amount. And
such maximum amount of liability prevails unless the shipper or owner declares a greater value (See also, Sea-Land Service,
Inc. vs. Intermediate Appellate Court, 153 SCRA 552).

The admiralty law provision that a claim for average should be at least 5% of the claimant's interest, does not apply
to carriage of goods where the parties expressly agree to be bound by the Carriage of Goods by Sea Act. (Eastern Shipping
vs. Margarine Union, 93 SCRA 267). (LFM)

Losses and damages for which the carrier and the ship are not liable:

1. Those arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make
the ship seaworthy;

(COGSA)

Wherever loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence shall be
on the carrier orother persons claiming exemption under the paragraph (1) of Section

2. Those caused by the act, neglect, or default of the master, mariner, pilot, or the servant of the carrier in the navigation or
in the management of the ship;

3. Those losses or damages due to fire, unless caused by the actual fault or privity of the carrier;

4. Those caused by perils, dangers, and accidents of the sea or other navigable waters;

5. Those due to an act of God;

6. Those caused by war or act of public enemies;

7. Those arising from arrest or restraint of governments, or people, or seizure under legal process;

8. Due to quarantine restrictions;

9. Caused by act or omission of the shipper or owner of the goods, his agent or representative;

10. Arising from strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or general;
however, this shall not be construed as to relieve a carrier from responsibility for its own acts;

11. Caused by riots and civil commotions;

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12. Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods;

13. Those caused by insufficient packing;

14. Those due to insufficiency or inadequacy of marks:

15. Caused by latent defects not discoverable by due diligence;

16. Those arising from other cause arising without the actual fault and privity of the carrier and without the fault or neglect
of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this
exception to show fault or neglect of the agents or servants of the carrier contribute to the loss or damage.

17. Those occasioned by saving or attempting to save life or property at sea;

Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to
be an infringement or breach of the COGSA or of the contract of carriage, and the carrier shall not be liable for any loss
or damage resulting therefrom, but if the deviation is for the purpose of loading or unloading cargo or passengers it shall,
prima facie, be regarded as unreasonable (Sec. 4[4]).

Goods of imflammable, explosive, or dangerous loaded without the knowledge/consent of the carrier, master or agent
of the carrier. Goods of an inflammable, explosive, or dangerous nature to the shipment, whereof the carrier, master or
agent of the carrier has not consented, or consented with knowledge of their nature and character,  may at any time before
discharge be landed at any place or destroyed or rendered

(COGSA)

innocuous by the carrier without compensation, and the shipper of such goods shall be liable for all damages and expenses
directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and
consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered
innocuous by the carrier without liability on the part of the carrier except to general average if any (Sec. 4[6]).

Surrender of the carrier's rights and immunities, or increase his responsibilities. A carrier shall be at liberty to surrender
in whole or in part all or any of his rights and immunities or to increase any of his responsilities and liabilities under this Act,
provided such surrender or increase shall be embodied in the bill of lading issued to the shipper.

What the law allows the carrier to do is to increase any of his responsibilities, but not to unilaterally diminish the
same. He is also allowed to surrender any of his rights and immunities, but not to unilaterally increase his rights and
immunities.

N.B.: Secs. 10 and 12 of the COGSA is not applicable in the Philippines.

-oOo-

211
 THE SALVAGE LAW (ACT 2616)

Salvage may be understood as a service or as a compensation.

As a service, salvage is the service rendered by one person to a vessel or her cargo or both in case of shipwreck or
abandonment of the vessel if the latter is beyond control by the crew.

The compensation for such service is also called a salvage.

Section 1 of the Salvage Law says that "when in case of shipwreck, the vessel or its cargo shall be beyond the
control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the
latter shall be entitled to a reward for the salvage." Those who, not being included above should assist in saving a vessel or its
cargo from shipwreck shall likewise be entitled to a reward. (Ibid) Section 1 of the Salvage Law, from its wording, views
salvage as a service.

Derelict defined. Derelict refers to the vessel or cargo abandoned at sea by those entrusted with such vessel or cargo.

Elements or requisites of salvage

(1) Existence of marine peril;

(2) Service is voluntarily rendered and is not required as a duty or contractual obligation; and

(3) Success is attained, either wholly or partially by reason of the service rendered. (See Erlanger & Galinger vs. Swedish
East Asiatic Co., Ltd. 34 Phil. 178; see also Barrios vs. Carlos Go Thong & Co., L-17192, March 30, 1963.)

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Contract of Towage is one whereby one vessel, usually motorized, pulls another, whether loaded or not with merchandise,
from one place to another, for a compensation. It is a contract for services (lease contract) rather than a contract of
carriage.

Towage is not salvage.  If a vessel is in helpless condition due to engine failure, there being a fair and clear weather and
another vessel towed the helpless vessel to safety, there arises a quasi-contract of towage and not that of salvage, there being
no marine peril involved. If the contract is one of towage, it is the owner of the towing vessel who is entitled to compensation
to the exclusion of the crew members of the towing vessel. Should the owner of the latter vessel waive compensation, the
crew members of the towing vessel are not entitled to compensation. (Barrios vs. Carlos Go Thong and Co., 7 SCRA 535).

1977 BQ No. XI. At about 8:00 o'clock in the evening of March 20, 1974, X as captain of the MV Christina
received an S.O.S. or distress signal by blinkers,from the MV Rosario, owned by Y. Answering the S.O.S. call,
X altered the course of his vessel which was then sailing from Dumaguete City, and headed towards the
beckoning MV Rosario. X found the MV Rosario to be in trouble due to engine faillure and the loss of her
propeller, for which reason, it was drifting slowly southward from Negros Island towards Borneo in the open
China Sea, at the mercy of a moderate easterly wind. About 8:25 p.m. on the same day, the MV Christina
succeeded in getting near the MV Rosario-in fact as near as about seven meters from the latter ship. With the
consent and knowledge of th captain and/or master of the MV Rosario, X caused the MV Rosario to be tied to,
or well-secured and connected with tow lines from the MV Christina. The MV Christina had the MV Rosario in
tow and proceeded towards the direction fo Dumaguete City, as evidenced by a written certificate to this effect
executed by the Master, the Chief Engineer, the Chief Officers, and the Second Engineer of the MV Rosario,
who were then on board the ship at the time of the occurrence stated above.

(Salvage Law)

(a) Did the service rendered by X to Y constitute "salvage" or "towage"? Why?

(b) May X recover from Y compensation for such service? Why?

Ans. (a) The circumstances all show that there was no marine peril, and the vessel was not a quasi-derelict, as to
warrant a valid salvage claim for the towing of the vessel. X's service to Y can be considered as a quasi-contract
of "towage" because in consenting to X's offer to tow the vessel, Y thereby impliedly entered into a juridical
relation of "towage" with the owner of the towing vessel, captained by X.

(b) No. Where the contract created is one of towage, only the owner of the towing vessel, to the exclusion of the
crew of the said vessel, may be entitled to compensation. Should the owner of the latter vessel waive
compensation, the crew members of the towing vessel are not entitled to compensation (Barrios v. Carlos A. Go
Thong & Co., supra)

1979 BQ No. V-b: While at sea, the captain of vessel A received distress signals from vessel B, and vessel A
responded and found vessel B with engine failuire and drifting off-course. Upon acceptance by vessel B of
vessel A's offer, vessel A connected tow lines to vessel B and towed it safely to port. There was no grave
marine peril because the sea was smooth and vessel B was far from the rocks. In a suit for compensation for
towage, who are entitled to recover, the owner, the crew, or both? Give brief reasons.

Ans.:  Where the contract created is one for towage, and not for salvage, like that stated in the question, only the
shipowner of the towing vesel, to the exclusion of the crew of the said vessel, may be entitled to compensation.
The towage in question was not salvage of the vessel B, since there was then no marine peril which would
endanger the said vessel. (See Barrios vs. Carlos A. Go thong & Co.,supra).

Even though a vessel or her cargo is not abandoned, it may be the object of valid salvage if at the time of rendition
of voluntary service, the vessel or cargo is threatened by a danger constituting a marine peril. If towage is done in such case,

213
the same will be considered merely incidental. (See Alhambra Cigar and Cigarette Factory vs. La Granja, 40 O.G. 11th Supp.
252).

If the captain or his representative is present in shipwrecked vessel. --- If the captain of the vessel, or the person
acting in his stand, is present, no one shall take from the sea, or from the shores or coast merchandise or effects proceeding
from a shipwreck, or proceed to the salvage of the vessel, without the consent of such captain or person acting in his stead.
(Sec. 2, SL).

Procedure for salvage

In case of rendition of the service of salvage, the salvor shall deliver the vessel or merchandise as soon as possible to the
Collector of Customs, if any, and otherwise, to the provincial treasurer or municipal mayor. (Sec. 3, SL.)

The collector or treasurer or mayor shall order the following:

(1) Inventory and safeguarding of the vessel and/or merchandise;

(2) Sale at public auction of things saved which may suffer immediate loss; or

(Salvage Law)

(3) Advertisement in the local newspaper of all details of disaster with statement of the mark and number of the effects,
requesting all interested persons to present their claims. (Sec. 5, SL)

No claims being presented within three (3) months subsequent to the publication, the things saved shall be sold at
public auction and the proceeds, after deducting the expenses and proper reward, shall be deposited in the national treasury. If
three years shall pass without anyone claiming it, one-half shall be adjudged to him who saved the things and the other half to
the national government (Sec. 7, SL.). If the owner should appear and make proper claim, he is entitled to delivery of the
thing salvaged but he must give a bond to secure the expense and the proper reward or he may pay such expenses and reward.
( Secs. 5 and 6, SL).

It was held that the salvors have a lien over the things salvaged so much so that they are even considered joint
owners of those things saved by them. Thus, if the salvaged things are lost, the salvors bear the risk of not being paid their
compensation.

 1994 BQ #19: Gigi obtained a loan from JOJO Corporation, payable in installments. Gigi executed a chattel
mortgage in favor of JOJO whereby she transferred "in favor of JOJO, its successors and assigns, all her title,
rights xxx to a vessel of which Gigi is the absolute owner." The chattel mortgage was registered with the
Philippine Coast Guard pursuant to Presidential Decree No. 1521. Gigi defaulted and had a total accountability
of P3,000,000.00. But JOJO could not foreclose the mortgage on the vessel because it sank during a typhoon.

Meanwhile, Lutang Corporation which rendered salvage services for refloating the vessel sued Gigi.

Whose lien should be given preference, that of JOJO or of Lutang?

Ans. Lutang Corporation's lien should be given preference. The lien of JOJO by virtue of a loan on bottomry
was extinguished when the vessel sank. Under such loan on bottomry JOJO acted not only as creditor but also
as insurer. JOJO's right to recover the amount of the loan is predicated on the safe arrival of the vessel at the
port of destination. The right was lost when the vessel sank (Sec. 17, P.D. No. 1521.)

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Amount of reward in salvage

In the absence of an agreement, the reward for salvage or assistance shall be fixed by the Court of First Instance
(now the Regional Trial Court) of the province where the things salvaged are found, taking into account the following
factors:

(1) Expenditures in saving the vessels or cargo or both;

(2) Zeal demonstrated;

(3) Time employed;

(4) Services rendered;

(5) Danger to which the vessels and the salvors were exposed;

(6) Number of salvors; and

(7) Value of the things salvaged.

(Salvage Law)

If, during the danger, an agreement is entered into concerning the amount of the reward for salvage or assistance, its
validity may be impugned because it is excessive, and it may be required to be reduced to an amount proportionate to the
circumstances. (Section 9, SL).

From the proceeds of the sale of the things saved shall be deducted, first expenses for their custody, conservation,
advertisement and auction as well as taxes or duties; then, there shall be deducted the expenses of salvage; and from the net
amount remaining shall be taken the reward for the salvage or assistance which shall not exceed fifty (50%) per cent of such
amount remaining. (Sec. 11, SL)

If the salvage be rendered by different persons, the reward shall be divided in proportion to their services and in case
of doubt, equally among them. (Sec. 12, SL). Those who, in order to save persons shall have been exposed to the same
dangers, shall also have right to participation in the reward. (Ibid.)

If a vessel saved another vessel or the latter's cargo, the reward for salvage shall be divided as follows:

(1) One-half shall go to the owner of the saving vessel;

(2) One-fourth shall go to the captain; and

(3) One-fourth shall be divided among the members of the crew in proportion to their salaries. (See Sec. 13, SL)

The expenses of salvage, as well as the reward for salvage or assistance shall be a charge on the things salvaged or their
value (Ibid).

1975 BQ No. XI: If the cargo of a vessel is saved entirely by another vessel, who in the latter vessel will be
entitled to the salvage reward?

Ans.: If the cargo of a vessel is saved entirely by another vessel, the salvage reward shall be divided between
the owner, the captain, and the remainder of the crew of the latter vesel, so as to give the owner a half, the

215
 captain a fourth, and all the remainder of the crew the other fourth, in the absence of an agreement to the
contrary.

1979 BQ No. VI-a: When as a result of a succesful salvage, both ship A and the cargo therein are saved, against
whom should the salvage allowance be charged and in what proportion, if any?

Ans.: The salvage allowance shall be a charge on the owner of the ship or ship itself, and the owners of the
cargo or cargo itself, so salvaged, and in proportion to their respective value. (Sections 11 and 13, SL)

Presidential Decree No. 890 (Feb. 9, 1976) penalizes unauthorized salvage of vessels, derelict and other hazards to navigation
as well as cargoes carried by sunken vessels. It provides for the following:

(1) Henceforth, it shall be unlawful for any person to engage in the business or operation of salvaging vessels, wrecks,
derelicts and other hazards to navigation, or of salvaging cargoes carried by sunken vessels, without first securing the
required salvage permit from competent authority pursuant to LOI No. 263, and any violator hereof shall, upon
conviction, be punished by a fine of not less than thirty (30) days nor more than six (6) months, or both, at the discretion
of the Court.

(Salvage Law)

(2) If the offender is a juridical person, the President or the manager, or any official in charge of the management thereof, as
the case may be, shall suffer the penalties herein provided.

(3) Any watercraft, equipment, tools, paraphernalia or instruments used in the salvage of vessels, wreck derelicts, and other
hazards to navigation, as well as the cargoes carried by the vessel which are recovered in violation hereof, shall be
impounded and forfeited in favor of the government.

(4) Independently of the criminal liability herein provided, the Secretary of National Defense is hereby empowered to
impose, in the exercise of his discretion, an administrative fine for violation hereof at such rates as may be fixed by him
which in no case shall exceed the amount of P1,000.00.

LOI No. 263 (March 1, 1975) authorizes the Philippine Coast Guard to issue permits to salvage derelicts and sunken
vessels or wrecks, and for the Bureau of Customs to issue permits to salvage cargoes carried by sunken vessels.

-oOo-

216
 THE PUBLIC SERVICE ACT (C.A. 146 As Amended)

Public Service Defined. The term "public service" includes every person that now or hereafter may own, operate, manage, or
control in the Philippines for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, shipyard, iceplant, electric light, heat and power
or any other utility. (Sec. 13 b, CA, 146 as amended).

Public Utility Defined. A "public utility" is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence, such as electricity, gas, water, transportation, telephone or telegraph
service. (National Power Corporation vs, CA, 279 SCRA 408, citing 64 AMJUR 549 cited as footnote in Albano vs.
Reyes, 175 SCRA 264).

Basis for State Regulation of Public Utilities. Regulation of public utilities is founded upon the police power of the State,
and statutes prescribing rules for the control and regulation of public utilities are considered valid exercise thereof.

The exercise of police power is justified because whenever private property is used for a public purpose and is
affected with public interest, it ceases to be "juris privati" only and becomes subject to regulation. The regulation is to
promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as
use of the property is continued, the same is subject to public regulation.

Regulation of Ownership of Public Utilities

Ownership of public utilities is subject to regulation by the State under Section 11 of Article XII of the Constitution.
The Constitutional provision states that "no franchise, certificate or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws
of the Philippines at least sixty per centum (60%) of whose capital is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive in character for a longer period than fifty years."

In this regard, concerned government agencies may impose certain requirements to persons or entities who wish to
operate as public utilities, including capitalization requirement and other similar impositions.

217
 However, the Supreme Court clarified in Tatad v. Garcia, Jr. (243 SCRA 436 [1995] that the limit imposed by the
Constitution on foreign equity applies only to the operation of a public utility and not to ownership of the facilities.

Regulation of Rates. The regulation of public utilities include the regulation of the rates that they charge the public. This is
in line with the policy of the State to protect the public against arbitrary and excessive rates while maintaining the efficiency
and quality of services rendered. (Sec. 15, [c] of the Public Service Act)

Offices Presently Charged with Enforcement of Public Service Law

Pres. Decree No. 1 on the Integrated Reorganization Plan of the Executive Department of Government created three
boards to replace the Public Service Commission. These boards were: (1) the Board of Transportation, (2) theBoard of Power
and Waterworks, and (3) the Board of Communications, operating under the then Ministry of Public Works, Communications
and Transportation.

(Public Service Act)

Subsequently, these three boards were renamed into (1) Land Transportation Commission under Executive Order
No. 1011, (2) Board of Power and Waterworks under P.D. 358, and (3) National Telecommunications Commission created
under Executive Order No. 546, all under the administrative supervision of the them Ministry of Transportation and
Communications.

Later, the implementation and enforcement of the Public Service Law as amended have been farmed out to several
government agencies and offices.

The Department of Transportation and Communications (DOTC) is now vested, under Executive Order No. 125A,
with certain functions connected with land and rail transportation and telecommunications. Under the administrative
supervision and control of the above department (DOTC) are:

(1) The Land Transportation Franchising and Regulatory Board (LTFRB), created under Executive Order No. 202,
which possesses, among others, the following functions:

(a) to prescribe and regulate routes oftransportation companies;

(b) to issue, amend, or cancel certificates of public convenience;

(c) to prescribe rates and charges; and

(d) to review decisions rendered by Regional Regulatory Offices.

The LTFRB is manned by a Chairman and two members and decisions by it will have to bear the signatures of at least
two of them. These decisions may be reviewed motu propio by the Department of Transportation and Communications,
or appealed to it by a party to the case within thirty days from receipt of the Board's decision.

(2)  The Land Transportation Office (LTO) which handles the registration of motor vehicles and issuance of driver's
licences, as well as the implementation of the Land Transportation and Traffic Code;

(3) The Maritime Industry Authority (MARINA) which is responsible for the registration of vessels and regulation of
transportation by water.

(4)  The Philippine Coast Guard (PCG) which is tasked with safety in water transportation.

(5) The Civil Aeronautics Administration (CAA) which regulates air transportation by approving the routes, landing rights,
fixing rates and charges of airlines.

218
(6) The Air Transportation Office (ATO) which undertakes the maintenance and operation of airports and other similar
facilities; registers aircrafts and other incidents concerning the same and provides safety regulations in air transportation.

(7) The National Telecommunications Commission (NTC) which regulates communication utilities and services, radio
communications systems, wire or wireless telephone and telegraph systems, radio and television broadcasting systems
and other similar public utilities.

(8) The Philippine Ports Authority which handles the maintenance and operation of wharves and ports and regulates the
operations of arrastre and stevedoring services.

(Public Service Act)

Other agencies tasked with supervision/regulation of public utilities

(1) The Energy Regulatory Board (ERB) for electric or power companies and oil companies.

(2) The National Water Resources Council (NWRC) for water resources.

(3) The National Electrification Administration for the operations of electric utilities.

Judicial Rules are not Binding on the Commission and its successors. They are:

1. Not strictly bound by the technical rules of procedure and evidence;

2. Not bound by the rule of preponderance of evidence, provided there is some evidence to support its decisions. Substantial
evidence is enough to formulate a decision on any issue.

The fundamental principle is that, while the PSC (predecessor of the Board of Power and Waterworks) is not a court,
but an administrative tribunal possessed of judicial powers, and as such "free from the rigidity of certain procedural
requirements", it cannot in justiciable cases coming before it, entirely ignore or disregard the fundamental and essential
requirements of due process. (Municipality of Daet vs. Board of Power and Waterworks, 138 SCRA 265).

Where the petition for review disputes merely the sufficiency of evidence, the finding cannot be disturbed. It is not
for the court to determine credibility and preponderance of proof nor to examine the proof de novo and determine for itself
whether or not the preponderance of evidence justifies the decision. It is not to substitute its decision for that of the Public
Service Act

Public Service Commission on questions of fact. The lack of wisdom of the conclusion reached by the Public
Service Commission affects neither its authority to decide nor the validity of the decision. (R.C. Ledesma vs. PSC, et al., 31
SCRA 805).

Where the Public Service Commission has reached a conclusion, after weighing the conflicting evidence, that public
necessity and convenience warrant the putting of additional public utility service, that conclusion must be respected and will
not be disturbed by the Supreme Court unless it appears that said conclusion is not supported by evidence. (Red Line
Transportation Company, Inc. vs. Santo Tomas, 19 SCRA 148).

As a general rule, the qualification or disqualification of an applicant is determined by the evidence submitted to the
Commission, and the latter's findings on this matter deserve the respect of the appellate court. However, it is also true that the
rule on finality of factual findings of the Public Service Commission is not without exception. Thus, where it clearly appears
that the factual findings of the body are not supported by substantial evidence, or that in reaching a certain conclusion the
Commission committed grave abuse of discretion, such findings of fact may be modified or ignored. (Del Pilar Transit, Inc.

219
vs. Silva, 17 SCRA 647; Halili vs. Daplas, 14 SCRA 14). (Central Taxicab Corp. vs. Public Service Commission, 22 SCRA
616).

Finality must be written on cases decided by the Public Service Commission just as public policy demands that it be
written on judicial controversies. Once a question has been definitely decided and the decision has become final, that same
question cannot be raised again between the same parties. Public interest requires that proceedings already terminated should
not be altered at every step. The rule of "non quieta movere" prescribes that what has already been terminated should not be
disturbed. As a corollary, a record of a case once closed, should not be reopened to permit presentation of evidence which
could have been offered before the close of the record. (Phil. Long Distance Telephone Company, vs. Medina, 20 SCRA 659-
660).

(Public Service Act)

A Court of First Instance cannot issue an injunction against the BOT, they being bodies of equal rank. (BOT vs.
Castro 125 SCRA 410).

A party to a case initially heard and decided by any one of the three boards which replaced the Public Service
Commission may file a petition for review or certiorari, in the proper cases from a decision of the Secretary of Transportation
and Communications to whom the decision of any of the three boards is required to be appealed. (Sec. 6, Executive Order
No. 202)

Powers Requiring Prior Notice and Hearing

a. Granting of franchise

b. Suspension/revocation of franchise

c. Permanent increase of rates

d. Fixing of standards and classifications;

e. Fixing of standards for measuring quantity;

f. Establishment of rules to secure accuracy of all meters and measuring appliances;

g. Compel operators to furnish proper service;

h. Extension of facilities.

Required Notices

The notice by publication, and the individual notices to affected parties mentioned in the Petition, are conjunctive,
not alternative requirements. Failure to comply with one is fatal to the proceedings. (Cordero vs. PSC, 121 SCRA 249).

The town where the ferry service will be operated is entitled not only to notice by publication but to a personal
notice as an affected party. Besides under the Revised Administrative Code, prior approval of the municipality of a franchise
should precede the filing of an application of a certificate of public convenience. (The Mun. of Echague vs. Abellera 146
SCRA 180).

Powers Exercisable Without Prior Notice and Hearing

220
1. Investigation of public utility companies;

2. Valuation of properties of public services;

3. Examination and test of measuring appliances;

4. Grant of special/provisional permits;

5. Provisional increase of rates;

(Public Service Act)

6. Uniform accounting system;

8. Investigation of accidents.

The grant by the PSC of a provisional authority to increase rates may be challenged in a new case filed with the
Board of Communications not by an appeal of an old case to the Supreme Court. (Gonzales vs. PSC, 61 SCRA 504).

Under the Public Service Law, the Commission or any of its successors (like National Telecommunications
Commission) is empowered to approve provisional rates without prior hearing. (RCPI vs. National Telecommunications
Commission, 184 SCRA 517).

1979 No. X-a: On September 1, 1971, the then Public Service Commission in BC Case No. 70-3496 made
permanent and effective immediately the provisional increase of rates by PLDT previously so authorized on the
ground among others, that public interest would be served thereby.

Pending appeal to the Supreme Court of BC Case No. 70-3496, PLDT filed on February 27, 1973 with the
Board of Communications (successor to the Public Service Commission) another application for an across-the-
board increase of 40% of its present authorized rates docketed as BC Case No. 73-011.

On April 27, 1973, the Board of Communications issued an Order hich provisionally authorizd PLDT to charge
a 35% across-the-board increase of its present authorized rates Public Service Act subject to the conditions
stated therein.

In the case at bar, has the Board of Communications, as successor to the defunct Public Service Commission,
the power to amend, modify or revoke rates to be charged by the PLDT? Explain.

No. X-b: May the order or decision of said Board on rates be stayed by a petition for certiorari in the Supreme
Court? Why?

Ans. to No. X-a.: The power of the Board of Communications, as successors to the defunct Public Service
Commission to amend, modify or revoke or establish rates in lieu of those set forth in the final decision is
affirmed in section 16 (c) of the Public Service Act, as amended (PLDT v. Medina, 20 SCRA 659), which rates
shall immediately be operative (Sec. 33, Public Service Act), as amended, provided a new case is filed therefore
under a separate docket in the Public Service Commmision. The 1973 BC Case No. 73-011 is new and separate
from the 1970 BC Case No. 70-3496.

Ans. to No. X-b.:  The order or decision of the Board or Public Service Commission and now the Board of
Communications cannot be stayed by the institution of a petition for certiorari, or other special remedies in the
Supreme Court, unless the Supreme Court shall so direct . (Gonzales v. Public Service Commission, 61, SCRA
504)

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 1987 Bar Q. No. II: The Manila Transportation Company applied for upward adjustment of its rate before the
Transportation Regulatory Board. Pending the petition, the TRB, without previous hearing, granted a general
nationwide provisional increase of rates. In another Order, TRB required the company to pay the unpaid
supervisory fees collectible under the Public Service Law. After due notice and hearing, on the basis of the
evidence presented by Manila

(Public Service Act)

Transportation Company and the Oppositors, TRB issued an Order reducing the rates applied for by one-fourth
(1/4).

Characterize the powers exercised by the TRB in this case and determine whether under the present
constitutional system, the Transportation Regulatory Board can be validy conferred the powers exercised by it
in assuming the Orders given above. Explain.

Ans.: The orders in this case involve the exercise of quasi-judicial function by an administrative agency and,
therefore, as a general rule, the cardinal primary rights enumerated in Ang Tibay v. CIR (69 Phil. 635 [1940])
must be observed. In Vigan Electric Light Co. vs. PSC (10 scra 46 [1964]), it was held that a rate order, which
applies exclusively to a particular party and is predicated on a finding of fact, partakes of the nature of a quasi-
judicial, rather than legislative, function.

The first order, granting a provisional rate increase without hearing is valid if justified by urgent public need,
such as increase in the cost of Public Service Act

fuel. The power of the Public Service Commission to grant such increase was upheld in several cases. (Silve v.
Ocampo, 90 Phil. 777 [1952]; Halili v. PSC, 92 Phil. 1036 [1953]).

The second order requiring the company to pay unpaid supervisory fees under the Public Service Act cannot be
sustained. The company has a right to be heard before it may be ordered to pay. (Ang Tibay v. CIR, 69 Phil.
635 [1940]).

The third order can be justified. The fact that the TRB has allowed a provisional rate increase does not bind it to
make the order permanent if the evidence later submitted does not justify increase but on the contrary, warrants
to reduction of rates.

The National Telecommunications Commission (NTC) may grant a provisional permit to a telecommunications entity
to install, operate and maintain a Cellular Mobile Telephone System in Metro Manila. This provisional permit may even be
granted motu probio by the NTC even in the absence of a motion from the applicant. There are differences between a
certificate of public convenience and necessity and a provisional permit: the latter is limited in scope with a fixed duration,
and may be revoked. (PLDT vs. NTC et al, 190 SCRA 717).

A provisional permit is not automatically revoked on its expiry date, if there is a pending motion to extend the period.
The revocation of the provisional authority to operate a utility line cannot be just ordered upon a mere whim or caprice.
(Samala vs. Saulog, 63 SCRA 215; Arrow Transportation vs. Board of Transportation, 63 SCRA 193).

A petition for an expanded route is within the jurisdiction of the BOT (now LTFRB) and the filing of a suit with the
Regional Trial Court does not oust the BOT from its jurisdiction. (Qualitrans Limousines vs. Royal Class Limousines, 179
SCRA 569).

Approval of Franchise

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 The PSC upon prior notice and hearing may approve or disapprove a franchise granted by a political subdivision.

(Public Service Act)

In the case of legislative franchise, where the law embodying the franchise makes the grant of the certificate
dependent on the discretion of the PSC, then the PSC may validly refuse the grant of the certificate.

Not all public services need franchises from Congress. Licensing is vested in many cases on quasi-judicial bodies
like (1) LTFRB; (2) Energy Regulatory Board under E.O. 112; and (3) Phil. Port Authority with respect to the Manila
International Container Port under E.O. 30 and P.D. 857 (Albano vs. Reyes, 175 SCRA 264).

The requirement of the municipal franchise under the provisions of Act. No. 667 was intended to apply exclusively
to any person or corporation who desires a franchise to construct and maintain an electric line or power plant and a line for
business purposes; it should not be made to apply to one who, like respondent, applies for a certificate of public convenience
and necessity to operate and maintain an electric plant exclusively for its own use in connection with the operation of its
cement factory and for free use of its employees living within the compound of the factory. (Teresa Electric and Power
Company, Inc. vs. Public Service Commission 21 SCRA 198).

1998 BQ No. IV:  The Batong Bakal Corporation filed with the Board of Energy an application for a Certificate
of Public Convenience for the purpose of supplying electric power and lights to the factory and its employees
living within the compound. The application was opposed by the Bulacan Electric Corporation, contending that
the Batong Bakal Corporation has not secured a franchise to operate and maintain an electric plant.

Is the opposition's contention correct? [5%]

Ans.: No. A certificate of public convenience may be granted to Batong Bakal Corporation, though not
possessing a legislative franchise, if it meets all the other requirements. There is nothing in the law nor the
Constitution, which indicates that a legislative franchise is necessary or required for an entity to operate as
suppler of electric power and light to its factory and its employees living within the compound.

1981 BQ No. 9: The Continental Marble Corporation filed with the Board of Energy an application for a
Certificate of Public Convenience for the purpose of supplying electric power and light to its factory and its
employed living within its compound. The application was opposed by Norzagaray Electric & Power Co., Inc.,
contending that the Continental Marble Corporation has not secured a franchise to operate and maintain an
electric plant.

Rule on the merits of the oppositor's contention with supporting reasons.

Ans.: A franchise in this case is not necessary to operate and maintain an electric plant. Such a franchise is
necessary only in order to operate and maintain an electric line or power plant and line for business purpose,
that is , to render service to the general public for compensation. Clearlly, therefore, it should not be made to
apply to Continental Marble Corporation which will only supply the electric power and light to its factory and
its employees living within its compound. (See Teresa Electric & power Co., Inc. vs. Public Service
Commission, Sept. 25, 1967, 21 SCRA 198).

Certificate of Public Convenience and Certificate of Public Convenience and Necessity

Certificate of Public Convenience - an authorization issued by the Board for the operation of public services for which no
franchise, either municipal or legislative, is required by law, such as common carriers.

(Public Service Act)

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Certificate of Public Convenience and Necessity - is an authorization issued by the Board for the operation of public
services for which a prior franchise is required by law such as electric, telephone and other services.

Public services owned and/or operated by government entities or by government owned or controlled corporations
are regulated by the Public Service Commission (or its successors), in the same way as privately owned and operated public
services, but they shall not be required to procure a certificate of public convenience or a certificate of public convenience
and necessity. (Olongapo Electric vs. NPC and City of Olongapo, 149 SCRA 153).

A certificate of public convenience is "property" and having a considerable value, can be the subject of sale by the
holder (Cogeo-Cubao Operators and Drivers Assn. vs. CA, 207 SCRA 343).

San Pablo vs. Pantranco

153 SCRA 189

The twenty three kilometer sea separating Matnog and Allen cannot be served by a ferry service but by a coastwise or
interisland vessel, and cannot be considered a part of the land route of Pantranco. Hence, it should apply for a certificate of
public convenience to serve the sea portion of the route, complying with the publication and hearing requirements of the
proper Regulatory Board or Commission, instead or merely having the BOT amend its certificate to include the Matnog-
Allen route, and allowing Pantranco to operate its own shipping service. ().

1983 BQ No. 11::  Acme Transportation Co. has a certificate of public convenience to operate buses in
Southern Luzon and the Estern Visayas, including the Manila-Bicol-Samar-Leyte route. In order to get to
Samar, its buses take a ferry from Matnog, Sorsogon, across the Babuyan Channel, an 8-kilometer ride more or
less to the coastal town of Allen in Samar. Acme Transportation Co. finds that the fees it pays for the ferry
come to a quite substantial amount each year and it calculates that it will be more economical to have its won
ferry to transport its buses. It therefore, applies for an authorization to operate such a fery as an additional unit
of equipment for the exclusive use of its buses on the Manila-Leyte route.

X Lighterage service Co. which has been operating a ferry service on the said route for the past six years,
objects on the following grounds:

(a) the certificate of public convenience of Acme is to operate land transportation and this does not include
ferry service which is already inter-island shipping. It therefore needs a new certificate of public
convenience to operate inter-island transportation, a mere authority to acquire and operate an additional
unit not being sufficient, and

(b) granting that the operation of said ferry is within Acme's certificate of public convenience, X
Lighterage Service Co. is a prior operator, and since it is giving adequate service, there is no need for an
additional ferry service on said route. In fact Acme Transportation Co. has been availing itself of the ferry
service of X Lighterage Service Co. for several years.

Ans.: Acme Transportation may be given the permit it seeks. As to the first objection, it is generally held that
where a ferry service which connects two points on opposite sides of an arm of the sea such as a bay or the like,
and which does not involve too great a distance or too long a time to navigate, it is considered merely a
continuation or extension of the highway. Therefore, the ferry service in question may still be considered land
transportation within the scope of Acme's present certificate of public convenience. There is no need for Acme
to

(Public Service Act)

obtain another certificate for interisland transportation. As to the second objection, even assuming that S, a prior
operator, is rendering adequate service and there is no need for a new ferry operator on said route, Acme's
petition is to use the ferry for its purposes exclusively, and therefore will not compete with X. The fact that X

224
 will lose Acme as a customer is no justification to prevent the latter from ferrying its own buses to lessen its
expenses, as long as it does not offer its services to others.

Alt. Ans.: Acme Transportation Co. will need a franchise from political subdivisions having jurisdiction of the
territorial points covered by the said proposed ferry, of Matnog, Sorsogon and Allen, Samar and then
subsequently, also the approval of th Board of Transportation which may issue the "Certificate of Public
Convenience and Necessity". X Literage Service Co., may not successfully object to the application for said
ferry service, merely because it was a prior operator of a ferry service between said points in Sorsogon and
Samar, said ferry service applied for, being exclusively to be used only for the buses of the applicant. (Sec. 16,
B, Public Service Act).

A grantee of a legislative franchise cannot operate a telecommunications system without first securing a certificate of
public convenience and necessity from the National Telecommunications Commission (RCPI vs. NTC, 150 SCRA 450).

Matters to prove to obtain a franchise:

(a) Financial capacity of applicant;

(b) Public interest and convenience;

(c) Experience;

(d) Availability of facilities;

(e) Reliability of applicant

(f) Filipino citizenship, if controverted by an oppositor. (Sec. 16, CA 146, as amended; Lat vs. PSC, 158 SCRA 180).

In determining who among several applicants for a certificate of public convenience and necessity to operated a
public service should be preferred, the cardinal rule is to adhere to what is best for the interest of the public, and favor what
would best serve the public convenience. Where the facts disclosed at the rehearing before the Public Service Commission
point to the meagerness of an applicant's resources and negative his alleged capability to render satisfactory service while on
the other hand, it would appear that the other applicant has a clear superiority over the former, insofar as financial means,
technical resources and experience are concerned, the reversal of the commission's award to the latter in the previous decision
of this court was, therefore, without adequate justification. (Papa vs. Santiago, 19 SCRA 760).

While it is true that operators of public convenience and necessity deserve protection from unlawful or unnecessary
competition, yet the rule is that nobody has any exclusive right to secure a franchise or a certificate of public convenience.
Public service and interest are primordial considerations taken into account in the granting of franchises and certificates of
public convenience and necessity. (Teresa Electric and Power Company, Inc. vs. Public Service Commission, 21 SCRA 198).

(Public Service Act)

Grounds for Suspension or Revocation of Certificate:

When the holder:

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1) violates or contumaciously refuses to comply with any rule, order or regulation of the commission;

2) is a mere dummy;

3) ceases operations by placing his buses in storage;

4) abandons the service.

Cases on Suspension or Revocation of Certificate

1. A certificate of public convenience constitutes neither a franchise nor a contract, confers no property right, and is not a
license or privilege. The holder of such certificate does not acquire a property right in the route covered thereby. Nor does
it confer upon the holder any proprietary right or interest or franchise in the public highways. Revocation of this
certificate deprives him of no vested right. New and additional burdens, alteration of the certificate, and even revocation
or annulment thereof is reserved to the state. (Luque vs. Villegas, 30 SCRA 409).

2. The power of the Public Service Commission to suspend the operations of a public utility operator for wilful and
contumacious refusal to comply with any order, rule, regulation of the Commission or any provision of the Public Service
Law can be exercised only on prior notice and hearing. The only exception is where the suspension is necessary to avoid
serious and irreparable damage or inconvenience to the public or to private interest, in which case, a suspension not
exceeding 30 days may be made by the Commission, prior to the hearing. (Soriano vs. Medina, 35 SCRA 335).

3. A simple hold-up incident where one unit was used by the holduppers as the getaway car, without any evidence to link
the operator to the holdup, is not a ground for revoking the certificate. (Manzanal vs. Ausejo, 164 SCRA 36).

4. In the absence of a showing that there is a wilful and contumacious violation on the part of a public utility operator, no
certificate of public convenience may be validly revoked. In the exercise of the power to grant or cancel a certificate of
public convenience, the BOT is guided by public convenience and necessity as primary considerations. (Pantranco South
vs. BOT et al., 191 SCRA 581).

Rate Fixing

Meaning of Just and Reasonable Rate. A just and reasonable rate is one which yields to the carrier a fair rate upon the
value of the property employed in performing the service, and which, at the same time, is fair to the public for the service
rendered.

Necessity of Prior Notice and Hearing in Rate Fixing

The Public Service Commission may not reduce or increase the rates established in a final judgment without proper
notice and hearing. A new case should be filed for that purpose. An alteration of the rates without such notice is void.
(Philippine Long Distance Telephone Company, vs. Medina, 20 SCRA 660).

(Public Service Act)

Elements to be Considered in Rate-Fixing

1. Nature and extent or risk involved in the investment;

2. Whether monopoly exists in this field;

3. Expenses of operation including depreciation;

226
4. Valuation of property used and useful to the public service concerned.

Theories of Ascertaining What Constitute a Fair Return on the Reasonable Value of the Property

1. Net earnings rule;

2. Original cost;

3. Cost of reproduction

4. Outstanding capitalization;

5. Present value.

The last theory --- present value --- is followed in the Philippines.

The controlling standard in fixing the rates a public utility may charge its customers is the present or market value of
its properties. (Republic vs. Medina, 41 SCRA 660).

A 12% return on investment (value of property actually used is a reasonable rate of return in public utilities. (Manila
Electric vs. PSC, 18 SCRA 651).

Prior Operator Rule

Under this rule, before permitting a new operator to invade the territory of another already established with a
certificate of public convenience, the prior operator and applicant must first be given the opportunity to extend its service in
order to meet public needs in the matter of transportation. (Mandaluyong Bus vs. Francisco, 32 SCRA 405).

Exceptions to the Prior Operator Rule

1. The granting of preference to an old operator applies only when said operator has made an offer to meet the increase in
traffic or demand for the service and not when another operator, even a new one, has made the offer to serve the new line
or increase the service on said line. The rule of preference protects only those who are vigilant in meeting the needs of the
travelling public. (Tiongson vs. PSC, 34 SCRA 241)

In view of the universal and widespread demand for ice, no evidence is necessary to show that an ice plant in the locality
is much more advantageous to the general public as to facility in acquiring said commodity, not to say domestic necessity,
without loss of weight than a plant some kilometers away from said locality, even if said old operator has a nice
depository in said locality, and also even if said prior operator proves that it is capable of filling up the deficiency at any
time. It should have filed an

(Public Service Act)

application to increase its capacity before the new applicant presented its application. (Martinez vs. PSC, 67 SCRA 192).

2. It is to the best interest of the public to have two companies in the field to stimulate business,  prevent monopoly, to go
along with the constitutional mandate of equitable distribution of opportunities, income and wealth and for the state to
regulate and prohibit monopolies. (Qualitrans Limousines vs. Royal Class Limousines, 179 SCRA 569).

3. Where the prior operator either fails or neglects to make the improvement or effect the increase in services, especially
when given that opportunity;

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4. When the pioneer operator had completely failed to comply with the requirement to register and operate the additional
units for more than three years, or the failure of a transportation company to register 28 units it is authorized to operate,
and the fact that it has leased to others its right to 30 other units thus giving the impression that he had  completely
abandoned the service

5. Where none of the six other operators on a particular route have opposed the application, with the exception of one, and
there is evidence showing the need of adequate transportation service in the region to be served, the Commission is
justified in granting a certificate of public convenience to a new operator.

6. Where the certificate of public convenience granted to the applicant is a maiden franchise covering a new route, albeit
overlapping with that of the old operator.

1979 BQ No. VI-b: A bus line's service between Manila and Malolos is satisfactory. A new road is opened
between said points, and a new carrier applies for a certificate of public convenience to operate a bus line along
the new road. The old bus line opposes, claiming that it should first be given an opportunity to extend its
service. Which party should prevail? Reason.

Ans.: Where all conditions being equal, priority in the filing of the application for a certificate of public
convenience becomes an important factor in the granting thereof; so the new carrier who applies first shall
prevail. (See Batangas Transportation Co. vs. Orlanes, 52 Phil., 455).

Alternative Ans.: Where all conditions are not equal, priority in the filing of the application is not ordinarily of
sufficient importance and the Board of Transportation is authorized to determine which of the applicants can
best subserve the public interest. Therefore, under the above-stated rule, A should be granted the certificate of
public convenience on the said new road, if proved that it can better subserve the public interest than the new
carrier. (See Guico vs. Estate of F. Buan, L-9769, August 30, 1957).

Jurisdiction Over Private Aspect of Agreements Entered into by Operator

The Public Service Commission is authorized by law to pass upon the question of whether or not the transferee in a
sale or assignment of public service franchise is qualified to serve the public interest. But the questions tendered to the court a
quo for determination under the allegations of the complaint, namely, the validity of the auction sale, especially and
particularly in reference to the certificate of public convenience, the due execution and genuiness of the instrument covering
the sale, and fraud in connection therewith, properly belong to the exclusive jurisdiction of the courts of justice and not of the
Public Servie Act, can be deduced from the legal authority that empowers the Public Service Commission to hear, determine
and decide the aforementioned causes of action. (Teresa Electric and Power Company, Inc. vs. Public Service Commission,
21 SCRA 1008).

(Public Service Act)

Under Section 16 (b) of Act. No. 3108, the sale, alienation, etc. of the property of a utility without the consent of the
Public Service Commission was void. However, under Section 20 (g) of Commonwealth Act No. 146, the sale, etc. may be
negotiated and completed before the approval by the Commission. Its approval is not a condition precedent to the validity of
the contract. The approval is necessary only to protect public interest. (Montoya vs. Ignacio, 94 Phil. 182; Darang vs.
Bellizar, 19 SCRA 215)

.
The approval of a sale and transfer of a Certificate of Public Convenience (CPC) is grounded on the present validity
of the CPC. Where a sufficient cause exists for the cancellation of a CPC, like a breach of one of the conditions of the grant,
the grantee could not legally sell and transfer his CPC to another. (Cohon vs. CA, et al., 188 SCRA 719).

The Public Service Commission cannot act on an application which involves the resolution of a dispute of the
parties as to the terms of a lease agreement as that would amount to exercising the functions of a purely judicial tribunal. It

228
has no jurisdiction over the private aspect of the lease agreements, the private rights of the parties in their relation to each
other as lessor and lessee. But where the matter involves the public interest or the public aspect, the Public Service
Commission has jurisdiction. (Batangas Laguna Tayabas Bus Company vs. Cadiao, 22 SCRA 988).

Control Over Manila Streets and Traffic

Ordinance 4986 of the City of Manila approved on July 13, 1964, rerouting traffic on roads and streets in the City of
Manila is valid. First, Republic Act No. 409, as amended, otherwise known as the Revised Charter of the City of Manila, is a
special law and of later enactment than Commonwealth Act No. 548 and the Public Service Law (Commonwealth Act No.
548 and the Public Service Law (Commonwealth Act No. 146, as amended) so that even if a conflict exist between the two,
Republic Act No. 409 should prevail as a later Act than Commonwealth Acts Nos. 548 and 146. Second, the powers
conferred by law upon the Public Service Commission were not designed to deny or supersede the regulatory power of local
governments over motor traffic in streets subject to their control. (Luque vs. Villegas, 30 SCRA 408).

The powers conferred by law upon the Public Service Commission were not designed to deny or supersede the
regulatory power of local governments over motor traffic in the streets subject to their control. This evident from section 17
(j) of the Public Service Law. The very fact that the commission is empowered but not required to demand compliance with
apposite laws and ordinances proves that the commission's powers are merely supplementary to those of state organs, such as
the police, upon which the enforcement of laws primarily rests. (Lagman vs. City of Manila, et al., 17 SCRA 579-580).

Although the Public Service Commission is empowered, under Section 16 (m) of Commonwealth Act No. 146, to
amend, modify or revoke certificates of public convenience after notice and hearing, there is no provision which can be found
in this statute vesting power in the Public Service Commission to superintend, regulate or control the streets of the City of
Manila or suspend its power to license or prohibit the occupancy thereof. On the other hand, this authority is conferred upon
the City of Manila. The power vested in the Public Service Commission under Section 16 (m) is, therefore, subordinate to the
authority granted to the said city under Section 18 (hh) of its revised charter. (Laguna vs. City of Manila, et al., 17 SCRA
579).

1976 BQ No. IV-a: A was granted by the Board of Transportation a certificate of public convenience to operate
50 provincial buses, plying between Ilocos Norte and Manila, passing thru Rizal Avenue Extension then right
on Doroteo Jose. Because of traffic congestion between the hours of 7 and 9 o'clock in the morning, and 4 to 8
o'clock in the evening, a municipal ordinance was passed prohibiting provincial buses from entering manila on
those hours but allowing them to use one shuttle bus for every 5 buses. A challenged the Public Service Act
validity of the ordinance, on the ground that it infringes on his certificate of

(Public Service Act)

public convenience, and that he had acquired a vested right to enter Manila at anytime of the day, thru the
aforementioned route. Decide with reasons.

Ans.: The ordinance is valid. Under its charter, the City of Manila has the power to regulate the use of its
streets. This charter is a special law and therefore prevails over the Public Service Act. Consequently, the power
of the BOT to grant certificates is subject to this provision of the charter of Manila. A has thus not acquired
anyu vested right as alleged by him. (Lagman v. City of Manila, G.R. No. L-23305, June 30, 1966).

Suits for Breach of Obligations

Where RCPI is sued for breach of obligation by failure to deliver the telegrams, the proper forum should be the
courts of justice, not the Board of Communications. (RCPI vs. Board of Communications, 80 SCRA 471).

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 The National Telecommunications Commission, as successor to the Board of Communications, has no jurisdiction
to impose fines on a telegraph company for delayed delivery of telegrams. This is without prejudice to the aggrieved party to
file the proper action in the proper forum. (National Telecom vs. CA, et al., G.R. No. 93237, Nov. 9, 1992).

The wanton, reckless negligence and fault of RCPI employees in sending the wrong telegram, entitles the sender to
actual, compensatory, examplary and moral damages. (RCPI vs. CA, 103 SCRA 359).

Between a finding by an administrative body, the Board of Marine Inquiry (BMI), where the insurer, General
Accident Fire and Life Assurance Corporation, had no opportunity to participate, that the loss of the goods was due to
fortuitous events, and the findings of facts by both the Trial Court and the Court of Appeals, that the common carrier failed to
observe extraordinary diligence in the carriage of goods, the findings of the two courts will have to be relied upon and are
binding on the Supreme Court. (Aboitiz Shipping vs. CA, et al., 188 SCRA 287)

-oOo-

Q. When shall a "shipped bill of lading" be issued?

A. After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier to the shipper shall,
if the shipper so demands, be a "shipped" bill of lading: Provided, That, if the shipper shall have previously taken up any
document of title to such goods, he shall surrender the same as against the issue of the "shipped" bill of lading, but at the
option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with the
name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so
noted the same shall for the purpose of this section be deemed to constitute a "shipped" bill of lading (No. 7, Sec. 3)

230