TRANSPORTATION LAWS

NOTES AND CASES

JUDGE NOLI C. DIAZ

Presiding Judge, Regional Trial Court

Branch 39, Manila;

Former Presiding Judge, Metropolitan Trial Court

Branch 80, Muntinlupa City;

Former Third Assistant City Fiscal of Manila;

Professorial Lecturer, College of Law,

Pamantasan ng Lungsod ng Maynila and

University of Santo Tomas, Faculty of Civil Law;

Member, Philippine Association of Law Professors;

Member, Philippine Judges Association;

Author: The Law on Sales as Expounded by Jurisprudence and Statutory Construction

Fourth Edition
2018

■ >.

I UNIVERSITY OF THE CORDILLERAS ] l.DRARIES

 CONTENTS

CHAPTER I
PRELIMINARY CONSIDERATIONS
Transportation Laws in the
Philippines ...................................................................... 1

Transportation Laws and the

Constitution .................................................................. 1

May a 100% Foreign Corporation Own a Public

Utility? ........................................... 3
Tawang Multi-Purpose Cooperative v. La Trinidad Water District ...........
6

Article
1732 ..........................................................................................................
................... 9
Common Carrier Defined and
Explained .......................................................... 9
Common Carriers Distinguished from Private
Carriers .................................... 11
First Philippine Industrial Corporation v. Court of
Appeals ...................... 12
Test of a Common
Carrier ................................................................................ 16
Vlasons Shipping, Inc. v. Court of Appeals and National
 Steel
Corporation ...........................................................................
............. 16

Valenzuela Hardwood and Industrial Supply, Inc. v. Court of

Appeals and Seven BrothersShipping

Corporation .................................. 19

Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance

Co.,
Inc ..........................................................................................
............. 22

Article 1733
.........................................................................................
............. 26 Loadstar Shipping Co., Inc. v. Court of Appeals and
the Manila

Insurance Co., Inc ..........................................................................................

28
Faultor Negligence; Proximate Cause,
Defined ..................................................... 29
Sabena Belgian World Airlines v. Hon. Court of Appeals

and Ma. Paula San Agustin ............................................................................

29

Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc ....................
33
 CHAPTER II
VIGILANCE OVER THE GOODS
Article
1734 .....................................................................................................................
36
Eastern Shipping Lines, Inc. v. The Nisshin Fire and Marine

Insurance Co., and Dowa Fire and Marine

Insurance Co.,
Ltd ......................................................................................
38

Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance

Company,
Inc ..........................................................................................
... 41

xv

The Philippine American General Insurance Co.. Inc. v.

Court of

Appeals and Felman Shipping

Lines ................................................ 43
Article
1735 ............................... ..................................................................
.............. 45
Sarkies Tours Philippines. Inc. v. Hon. Court of Appeals and Dr. Elino

G. Fortales. Marisol A. Fortales and

Fatima A.
Fortales ..........................................................................
.. 47

Coastwise Lighterage Corporation v. Court of Appeals and

Philippine General Insurance

Company ........................................... 50

Asian Terminals, Inc. v. Simon Enterprises,

Inc ....................................... 52
Article
1736 ...................................................................................................
.............. 54
Arrastre Operator and Stevedore
Distinguished ............................................... 55 Benito
Macam v. Court of Appeals, China Ocean Shipping Co.

and/or Wallem Philippines Shipping,

Inc ......................................... 56
Billof Lading both as a receipt and a
contract .................................................. 58
Samar Mining Company, Inc. v. Nordeutscher Lloyd and
 C.F. Sharp and Company,
Inc ........................................................ 58 Nedlloyd Lijnen
B.V. Rotterdam and the East Asiatic Co., Ltd. v.

Glow Laks Enterprises,

Ltd ........................................................... 62
Article
1737 ...............................................................................................
............ 66
Article
1738 ...............................................................................................
............ 66
Two Requisites Are Necessary to Avoid Liability of Common
Carriers

Under This
Article .................................................................................
67
Amparo Servando, Clara Uy Bico v. Philippine Steam
Navigation
Co ...............................................................................
67
Concurring
Opinion ....................................................................................
... 69
Article
1739 ...............................................................................................
............ 70
 Article
1740 ...............................................................................................
............ 70
Maersk Line v. Court of Appeals and Effen V.
Castillo ......................... 71
Article
1741 ...............................................................................................
............ 73
Tabacalera Insurance Co., et al. v. North Front Shipping
Services,
Inc. and Court of
Appeals .............................................................. 74
Article
1742 ...............................................................................................
............ 77
Article
1743 ...............................................................................................
............ 78
Intervention of municipal officials, not of a character that
would render impossible the fulfillment by the carrier
of its obligations .......... 79

Mauro Ganzon v. Court of Appeals and Gelacio Tumambing ...............

79
Dissenting
Opinion ..................................................... .... .............................
81 Article
 1744 ...............................................................................................
............ 82

Article
1745 .... ........................................................................................
............. 83

xvi
Loadstar Shipping Co., Inc. v. Court of Appeals and the
Manila

Insurance Co.,
Inc ................................................................................
83

Pedro de Guzman v. Court of Appeals and Ernesto Cendana .............

86

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

90

Estrellita M. Bascos v. Court of Appeals and Rodolfo A.

Cipriano.... 90 Prescillano Necesito, etc. v. Natividad
Paras ...................................... 92 Vector Shipping
Corporation and Francisco Soriano v. Adelfo B.
Macasa, et
al ........................................................................................ 95
Article
1746 ................................................................................................
.................. 98
Article
1747 ................................................................................................
.................. 98

Article
1748 ................................................................................................
.................. 99

Article
1749 ................................................................................................
.................. 99

Article
1750 ................................................................................................
.................. 99
Everett Steamship Corp. v. CA and Hernandez

Trading Co.,
Inc ................................................................................
101

Summa Insurance Corporation v. Court of Appeals and

Metro Port Service,

Inc ........................................................................ I 04 Article
1751 ................................................................................................
................ 107

Article
1752 ................................................................................................
................ 107
Article
1753 ...............................................................................................
................ 108

Eastern Shipping Lines, Inc. v. Intermediate Appellate

Court and

Development Insurance and Surety

Corp .......................................... 108

Article
1754 ................................................................................................
......... 110

CHAPTER HI
SAFETY OF PASSENGERS

Article
1755 ...............................................................................................
................ 113

Aboitiz Shipping Corporation v. Hon. Court of Appeals,

Lucila

Viana, Sps. Antonio and Gorgonia Viana, and Pioneer

Stevedoring
Corporation...................................................................
. 115

Rosito Z. Bacarro, William Sevilla, and Felario

Montefalcon v.
 Geruridio B. Castano and The Court of
Appeals ............................... 118

Trans-Asia Shipping Lines, Inc. v. Court of Appeals and

A tty. Renato T.
Arroyo .....................................................................
122

Nature of the Contract of Air

Carriage ........................................................ 123

Categories of International
Transportation ......................................................... 124
Carlos Singson v. Court of Appeals and Cathay Pacific
Airways,
Inc .................................................................................
..... 125
“Force Majeure,” common carriers are not the insurer of all risks ..............
129
Japan Airlines v. Court of Appeals, Enrique Agana, et
al ................... 129

Compared To: Philippine Airlines v. Court of

Appeals ...................... 132

Japan Airlines v. Jesus

Simangan .............................................................. 133

Article
1756 ...............................................................................................
............... 136
 xvii

Circumstances Indicative of Negligence on the Part of the Driver/

Employee .....................................................................................
.............. 137

Precautions Required of a Driver to Avoid

Accidents ......................................... \ 33 Alberta and
Cresencio Yobido v. Court of Appeals and Leny

Tumboy,
etal .....................................................................................
139

Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio

Garcia

and Leticia Garcia and Julio

Recontique ........................................... 142

Bachelor Express, Inc. and Cresencio Rivera v. The Honorable

Court of Appeals, et
al ....................................................................... 145
Duty of a common carrier to overcome the presumption

of
negligence ....................................................................................
.......... 147

Franklin Gacal and Corazon M. Gacal v.Philippine Airlines ............

147

Herminio Mariano, Jr. v. Idelfonso C. Callejas

 and Edgar De
Boija ........................................................................... 150
Article
1757 ............................................................................................
................... 153 Article
1758 ............................................................................................
................... 153

Sulpicio Lines, Inc. v. The Honorable Court of Appeals

(Twelfth Division) and Jacinta L.
Pamalaran ................................. 154
Article
1759 .........................................................................................................
....... 156
Article
1760 .........................................................................................................
....... 156
1975 Bar
Question ..........................................................................................
. 156

Sulpicio Lines Inc. v. Napoleon Sesante, now Substituted by

Maribel Atilano, Kristine Marie, Christian lone Kenneth

Kerm and Karisna Kate,all sumamed

Sesante ................................ 157
 Article
1761 ......................................................................................................
.......... 161 Article
1762 ......................................................................................................
.......... 161

Travel & Tours Adviser, Incorporated v. Alberto Cruz, Sr.,

Edgar

Hernandez and Virginia

Mufioz ........................................................ 163

Article 1763 .................................................................................... 167

Jose Pilapil v. Court of Appeals and Alatco Transportation

Co.,
Inc ........................................................................................
... 168

Fortune Express, Inc. v. Court of Appeals, Paulie v. Caorong

and minor
children ..........................................................................
171

CHAPTER IV

DAMAGES FOR BREACH OF CONTRACT

 OF COMMON CARRIERS
Article 1764 ...........................................................................................................
175

Sources of obligation under which the carrier-employer and his

driver-employee are liable to passenger or pedestrian in
cases of injury ................... 1'

XVlll

Damages, Computation of Indemnity, Life Expectancy of

Victim as basis in fixing amount recoverable, and

 Earning Capacity ......................................................................................... 182

Villa Rey Transit, Inc. v. The Court of Appeals, Trinidad A.

Quintos, Prima C. Quintos and Julita A. Quintos ........................ 182

Fortune Express, Inc. v. Court of Appeals ............................................ 185

Damages, computization of
indemnity ........................................................ 186 Spouses Dante Cruz
and Leonora Cruz v. Sun Holidays, Inc ............... 186

Dangwa Transportation Co., Inc., and Theodore M. Lardizabal

v. Court of Appeals, Inocencia Cudiamat, et al ........................... 190
Factors to be considered in the award of damages
to accident victim ........................................................................................ 192

Philippine Airlines, Inc. v. Court of Appeals and

Leovigildo A. Pantejo......................................................................... 193

Singapore Airlines Limited v. Andion Fernandez ................................ 197

Philippine Airlines, Inc. v. Vicente Lopez,

Jr. ............................................. 200
 Cathay Pacific Airways, Ltd. v. Spouses Amulfo and

Evelyn
Fuentebella ........................................................................
.... 201

Spouses Jesus Fernando and Elizabeth S. Fernando v.

Northwest Airlines,
Inc ...................................................................... 204

Philtranco Service Enterprises, Inc. and Rogaciano Manilhig

v.

Court of Appeals and Heirs of the late Ramon

Acuesta ............... 211

Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio

Garcia

and Leticia Garcia, and Julio

Recontique ........................................... 215

Trans-Asia Shipping Lines, Inc. v. Court of Appeals and

Atty. Renato T.
Arroyo ....................................................................... 218

Cathay Pacific Airways v. Juanita Reyes, Wilffedo Reyes,

Micheal Roy Reyes, Sixta Lapuz, and Sampaguita

 Travel
Corporation .......................................................................
...... 220

When are attorney’s fees

recoverable? ............................................................... 223
Philippine Airlines Incorporated v. Court of Appeals and
Sps. Manuel S. Buncio and Aurora R.
Buncio ............................. 224
Righteousness of Attorney’s
Fees ....................................................................... 228
Asian Terminals, Inc. v. Allied Guarantee Insurance Co., Inc ..............
228

Carlos Singson v. Court of Appeals and Cathay Pacific

Airways,
Inc ......................................................................................
. 230

Philippine National Railways v. The Honorable Court of

Appeals

and Rosario
Tupang ...........................................................................
233

Moral damages, exemplary damages; where the award of moral

and exemplary damages is eliminated, so must the award for
attorney’s fees be deleted .............. 236
 Collin A. Morris and Thomas P. Whittier v. Court of Appeals

(Tenth Division) and Scandinavian Airlines

System .......................... 236

Sulpicio Lines, Inc. v. Domingo E. Curso, et al.,

(First Division
Decision) .................................................................... 239

xix

Georgia Vda. de Paman, et al. v. Hon. Alberto V. Seneris,

Western Mindanao Lumber Company, and

Teodoro Delos Santos .............................................................................. 242

Pepe Catacutan and Aureliana Catacutan v. Heirs of Norman

Kadusale, Heirs of Lito Amancio and Gil B.

Izon ............................ 245

Baliwag Transit, Inc. v. Hon. Court of Appeals and Sps. Sotero

Cailipan and Zenaida Lopez and George L.

Cailipan ....................... 248
Article
1765 .......................................................................................................
................ 251
 Article
1766 .......................................................................................................
................ 251
The Warsaw Convention has the force and effect of law in this country...
252
Edna Diago Lhuillier v.British
Airways ........................................................... 252
Philippine Airlines, Inc. v. Hon. Adriano Savillo, Presiding
Judge of RTC Branch 30, Iloilo City and Simplicio
Grino ......................... 254

CHAPTER V
CARRIAGE OF GOODS BY SEA ACT

(COMMONWEALTH ACT NO. 65)

TITLE I.
Section
1 ....................................................................................................
............ 259

Section
2 ....................................................................................................
............ 260

Section
3 ....................................................................................................
............ 260
 Section
4 ....................................................................................................
............ 263

Section
5 ....................................................................................................
............ 266

Section
6 .....................................................................................................
........... 266

Section
7 ....................................................................................................
............ 267

Section
8 .....................................................................................................
........... 267
TITLE II.
Section
9 ....................................................................................................
..... 267

Section
10 ..................................................................................................
..... 268

Section
11 ..................................................................................................
..... 268
 Section
12 ..................................................................................................
..... 268

Section
13 ..................................................................................................
..... 268

Section
14 ..................................................................................................
..... 268

Section
15 ..................................................................................................
..... 269

Section
16 ..................................................................................................
..... 269

Cases on Carriage of Goods by Sea Act:

DOLE Philippines, Inc. v. Maritime Company of the
Philippines ......... 269 Asian Terminals, Inc. v. Philam
Insurance Co., Inc.

(now Chartis Philippines Insurance, Inc.) ............................................. 272

Universal Shipping Lines, Inc. v. Intermediate Appellate

Court

and Alliance Assurance Co., Ltd .......................................................... 276

Benjamin Cua (Cua Uian Tek) v. Wallen Philippines Shipping, Inc.

and Advance Shipping Corporation ..................................................... 277

xx

Filipino Merchants Insurance Co;, Inc. v. Hon.

Jose Alejandro and Frota Oceanica
Brasiliera; Filipino Merchants

Insurance Co., Inc. v. Hon. Alfredo Benipayo and

Australia-West

Pacific
Line .......................................................................... 281

Mayer Steel Pipe Corporation and Hongkong

Government Supplies Department v.
Court of Appeals, South Sea Surety and

Insurance Co., Inc. and Charter Insurance

Corporation ........ 284

Mayer Steel Pipe Corporation Case compared to Filipino

Merchants’
case ........................................................................
286 Wallem Philippines Shipping, Inc. v. S.R. Farms,
Inc ................. 288 New World International
Development (Phils.), Inc. v.
NYK Fil-Japan Shipping Corporation, et
al ......................... 291 New World International
Development (Phils.), Inc. v.
 Seaboard-Eastern Insurance Co.,
Inc ......................................... 291

Insurance Company of North America v. Asian Terminals, Inc ...

294

Domingo Ang v. Compania Maritima, Maritime

Company of the Philippines and C.L.

Diokno ...................... 297

Mitsui O.S.K. Lines Ltd. v. Court of Appeals and Lavine

Loungewear Mfg.
Corp ............................................................. 298

International Container Terminal Services, Inc. v. Prudential

Guarantee and Assurance Co.,

Inc ............................................ 301 Belgian Overseas
Chartering and Shipping N.V. v.

Philippine First Insurance Co.,

Inc ............................................ 301

Philippine Charter Insurance Corporation v. Neptune Orient

Lines/Overseas Agency Services,

Inc ....................................... 307
CHAPTER VI
PUBLIC SERVICE
Commonwealth Act No. 146 (Sections 13 to
16) ......................................... 314
 Section
13 .........................................................................................................
314

Batangas Transportation Co. v. Cayetano

Orlanes ....................... 315

Section
14 .........................................................................................................
318

Section
15 .........................................................................................................
318

Section
16 .........................................................................................................
319

Certificate of Public Convenience, Defined .............................................

323

Philippine Airlines v. Civil Aeronautics Board and Grand

International
Airways ................................................................ 325 First
applicant to operate service be given preference if

financially
competent ........................................................................ 328

Tomas Litimco v. La
Mallorca .......................................................... 328
 Fortunato F. Halili v. Ruperto
Cruz ............................................. 330

Additional Service by Old Operators Raymundo

Transportation
Co ..................................................................... 333

xxi

Intestate Estate of Teofilo M. Tiongson v. The Public Service

Commission and Mario Z.
Lanuza ........................................................... 334

Municipality of Echague v. Hon. Leopoldo M. Abellera and

Avelina
Ballad .........................................................................................
337

EXECUTIVE ORDER NO. 202

CREATING THE LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD

Section 1. Creation of the Land Transportation Franchising

and Regulatory
Board ....................................................................................................... 343

Section 2. Composition of the

Board ................................................................................... 344
 Section 3. Executive Director and Support Staff of the
Board ............................................. 344

Section 4. Supervision and Control Over the

Board ................................................................... 344

Section 5. Powers and Functions of the Land Transportation

Franchising ........................... 344
Section 6. Decision of the Board; Appeals therefrom and/or

Review
thereof .............................................................................................................
..... 346

Section 7. Creation of Regional Franchising and Regulatory

Offices .................................. 347

Section 8.
Appeals .........................................................................................................
............ 347

Section 9.
Appropriations ...............................................................................................
............ 347

Section 10.
Effectivity .......................................................................................................
......... 347

RULES OF PRACTICE AND PROCEDURE BEFORE

THE LAND TRANSPORTATION FRANCHISING

 AND REGULATORY BOARD OF THE

DEPARTMENT OF TRANSPORTATION AND

COMMUNICATIONS

PART I - GENERAL PROVISIONS Rule I -

TITLE AND CONSTRUCTION
Section 1.
Title ......................................................................................................
........ 348

Section 2.
Scope ...................................................................................................
......... 348

Section 3.
Construction ........................................................................................
......... 348

Section 4.
Definitions ............................................................................................
........ 348
Rule 2 - PARTIES
Section 1. Applicant and
Oppositor ........................................................................ 349

Section 2. Complainant, Petitioner and

Respondent ............................................... 349
 Section 3. Appearance by Solicitor
General .................................................................. 349

Section 4. Appearance by Consumers or

Users ............................................................. 349
Rule 3 - PLEADINGS
Section 1. Pleading
allowed...........................................................................................
350

Section 2. Verification and Supporting

Documents ....................................................... 350

Section 3.
Application ...........................................................................................
........ 350

Section 4.
Complaint .............................................................................................
........ 350

Section 5.
Petition .................................................................................................
........ 351

Section 6.
Answer .................................................................................................
........ 351

Section 7.
Amendment .........................................................................................
.. 351
 XXII

Rule 4 - MOTIONS

351

352

Section 1. Scope and Contents

Section 2. Form .......... ................................................. 352

Section 3. Notice ........ ..................................................................

352

Section 4. Proof of Service ................................................. 352

352

Section 5. Ex-Parte Motions ...............

353

Rule 5 - FILING, SERVICE OF PLEADING AND PUBLICATION Section

1. Filing..............................

Section 2. Acceptance for filing .......... .... ...................................... .... .353

Section 3. Service upon parties ............................. 353

Section 4. Service upon Parties represented by Attorneys ..................... 353

Section 5. Service of orders .................................. 353

Section 6. Extension of time ................................. 353

Rule 6 - PRE-HEARING CONFERENCE 353

Section 1. Purpose.................................................................................

Section 2. Scope ....................................................................................

Section 3. Judgment on the pleadings and summary 354

judgment at pre-hearing ................................................................ 354

Section 4. Records of pre-hearing proceedings .....................................

354

355

Rule 7 - APPLICATION

Section 1. How commenced ............................. 355

Section 2. Contents .......................................... 355

Rule 8 - NOTICE OF HEARING

Section 1. Issuance of the Notice of Hearing.

Section 2. Publication and serving ................... 355

356
Rule 9 - OPPOSITION

Section 1. Contents ..........................................

PART II - PROCEDURE IN COMPLAINTS 356

RULE 10 - COMPLAINTS

Section 1. How commenced .............................

Section 2. Filing ...............................................

 Section 3. Prosecution ............... ..................... 356

Section 4. Sufficiency of complaints ................ 356

Section 5. Separate allegations ........................ 356

Rule 11 - SUMMONS 357

357

Section 1. Duty of the Legal Division .............

Section 2. Contents .........................................

Rule 12-ANSWER 357357

Section 1. Contents ..................

357

XXlll

PART II! - SUMMARY PROCEEDINGS

Rule 13 - ORDER TO SHOW CAUSE
Section 1. When applicable ...........................................................
............. i*\

Section 2.
Contents ............................................. ... ............... ...... ...... .....
351

Section 3. Non-
Appearance .......................................... . ............................ 25s
 Section 4. Explanation without
appearance ................................... ............. 55*
PART IV - EVIDENCE
Rule 14 - RECEPTION OF EVIDENCE
Section 1. Composition of the Board ............................................
...... ...... 359

Section 2. Hearing before the Board .............................................

............. 359

Section 3. Uncontested
proceedings ........................................ ............ ~ .... 359

Section 4.
Consolidation ............................................................... .— ------
359

Section 5.
Appearance.......................................................................... ......
360

Section 6. Notice of appearance ..............................................................—

360

Section 7. Order on procedure .................................................................—

360

Section 10.
Deposition ......................................................................... ......
360
 Section 11. Regular
Hearing ......................................................... .. .......... 361

Section 12. Transcript and

records ............................................................... 361
PART V - DECISIONS AND ORDERS Rule
15 - DECISIONS AND ORDERS
Section 1. How rendered .........................................................................—
361

Section 2. Form and

contents ........................................................................... 361

Section 3. Provisional
relief ............................................................................. 361

Section 4.
Decision .........................................................................................
. 362

Section 5. Execution order, ruling, decision, or

resolution ............................... 362

Section 6. Compilation and publication of

decisions ....................................... 362
PART VI - REOPENING, RECONSIDERATION, AND APPEAL Rule 16 -
MOTIONS FOR REOPENING OR RECONSIDERATIONS
Section 1. Motion for re-
opening ................................................................ 363
 Section 2. Motion for reconsideration of
decisions ..................................... 363

Section 3. Service and

hearing .................................................................... 363

Section 4.
Opposition ..................................................................................
363
Rule 17-APPEAL

Section 1.
Appeal .................................................................................... 363

Section 2. Procedure on appealed

cases .................................................. 364

Section 3. Effect of
Appeal ..................................................................... 365

Section 4. Appeal from the order of the

Secretary................................... 365
PART VII - RECONSTITUTION OF RECORDS Rule 18 -
RECONSTITUTION
Section 1. Petition .........................................................................
......... 365

Section 2.
Contents ................................................................................. 366

xxiv
 Section 3. Notice of
publications ............................................................ . ........ 366

Section 4. Applicability of certain

rules .................................................................... 366

Section 5.
Order ................................................................................................
........ 366
PART VIII - MISCELLANEOUS PROVISIONS
Rule 19 - APPLICABILITY OF THE RULES OF COURT
Section 1. Rules of
Court .................................................................................. 366
Rule 20 - APPLICABILITY OF THIS RULE TO THE
REGIONAL FRANCHISING AND REGULATORY OFFICES
Section 1.
Applicability ......................................................................................
...... 366
Rule 21 - REPEALING CLAUSE
Section 1.
Repeal ...............................................................................................
....... 367
Rule 22 - EFFECTIVITY
Section 1.
Effectivity ........................................................................................
367

KABIT SYSTEM (SECTION 20, COMMONWEALTH ACT NO. 146)

Lita Enterprises v. Second Civil Cases Division, Intermediate

Appellate Court, Nicasio M. Ocampo and

Francisca P.
Garcia ............................................................................ 370

Abelardo Lim and Esmadito Gunnaban v. Court of Appeals

and Donato H.
Gonzales .................................................................... 373

MYC Agro-Industrial Corporation v. Purificacion Camerino,

et al. and the Court of

Appeals .......................................................... 376

Y Transit Co., Inc. v. The National Labor Relations Commission

and Yujuico Transit Employees

Union ...................................................... 379

Angel Jereos v. Hon. Court of Appeals and Soledad Rodriguez,

et
al ............................................................................................
................ 382

B. ........................................................................................
............ A. Finance Corporation v. Hon. Court of
Appeals ........................................................ 383

RECENT CASES ON REGISTERED OWNER RULE

PCI Leasing and Finance, Inc. v. UCPB General Insurance
 Co.,
Inc ..........................................................................................
............ 387

Metro Manila Transit Corporation v. Reynaldo Cuevas and

Junnel

Cuevas, represented by Reynaldo

Cuevas ................................................. 389

R Transport Corporation v. Luisito G.

Yu .......................................................... 393

Mariano C. Mendoza and Elvira Lim v. Sps. Leonora J. Gomez

and Gabriel V.
Gomez ...............................................................................
395

Nostradamus Villanueva v. Priscilla R. Domingo and Leandro

Luis R.
Domingo ................................................................................
....... 399

Greenstar Express, Inc. and Fruto L. Sayson Jr. v. Universal

Robina

Corporation and Nissin Universal Robina

Corporation ............................. 402

Boundary System,
defined ................................................................................. 406
 xxv

CHAPTER VII
VESSELS

Admiralty and Maritime Jurisdiction of a

Court .......................................................... 409
Article
573 ............................................................................................................
....................... 4JQ

Article
574 .............................................................................................................
....................... 4JQ

Article
575 ............................................................................................................
....................... 4JQ Article
576 ............................................................................................................
................ 41 j

Article
577 ............................................................................................................
...................... 411
Article
578 ............................................................................................................
...................... 411

Article
579 ............................................................................................................
....................... 412
 Article
580 .............................................................................................................
....................... 413

Article
581 .............................................................................................................
....................... 414
Article
582 ............................................................................................................
....................... 414

Article
583 ............................................................................................................
....................... 414

Article
584 .............................................................................................................
....................... 415

Article
585 ............................................................................................................
....................... 415
Commissioner of Customs v. The Court of Appeals, Arsenio M. Gonong,
Presiding Judge,
RTC, Branch 8, et al ....................................................................................... 417

PRESIDENTIAL DECREE NO. 474

PROVIDING FOR THE REORGANIZATION OF MARITIME

FUNCTIONS IN THE PHILIPPINES, CREATING THE MARITIME

 INDUSTRY AUTHORITY, AND FOR OTHER PURPOSES
Section 1.
Title ..................................................................................................
....... 422

Section 2. Declaration of Policies and

Objectives .................................................... 422

Section 3. Definition of
Terms ................................................................................. 423

A. MARITIME INDUSTRY AUTHORITY

Section 4. Maritime Industry Authority, Creation and Organization
........................ 424 Section 5. Maritime Industry Development
Program ............................................... 424

B. MARITIME INDUSTRY BOARD

Section 6. Powers and Functions of the
Board ......................................................... 425

Section 7. Composition and

Organization ................................................................ 426
C. MANAGEMENT
Section 8. Management
Head .................................................................................. 427

Section 9. The Maritime Administrator and Deputy

Administrators ........................ 427
 Section 10. Authority to Administer
Oath ....................................................................... 428

Section 11. General Powers and Functions of the

Administrator .................................... 428

Section 12. Specific Powers and Functions of the

Administrator .................................... 429

Section 13. Maritime Industry Manpower

Needs ............................................................ 431

Section 14.
Penalties ..........................................................................................
............. 431

D. MISCELLANEOUS PROVISIONS
Section 15.
Auditor .............................................................................................
............ 432

xxvi

Section 16. Reorganization^ Chances

Section 17. Retention nf r • S....................................... 432

of the Ph, inn ^ Functions and Powers Ot the

Philippine Coast Guard

Section 18. Coordination With Other Agencies' ......... 432

Section 19. Transitory Provision ...............1 432

 Section 20. Appropriations 433

433

433

434

RULES J?F PRACTICE AND PROCEDURE OF THE MARITIME INDUSTRY AUTHORITY

MEMORANDUM CIRCULAR NO. 74-A
PARTI

Rule 1. Coverage ..................

Rule 2. Definition of Terms ........... 435

Rule 3. Construction ............................ 435

Rule 4. Venue ......................... 435

Rule 5. Filing of the Application .......................... 436

436

Rule 6. Pre-Trial ................................................. 437

Rule 7. Compromise .................................. ........

437

Rule 8. Summary Procedure ............................... 438

Rule 9. Petition for Rate Increase ........................ 441

Rule 10. Opposition ............................................ 442

Rule 11. Renewals or Extension or Amendments 442

Rule 12. Prohibition ............................................ 442

 Rule 13. Provisional Relief ................................. 443

Rule 14. Contempt .............................................. 443

Rule 15. Decisions .............................................. 441

Rule 16. Appeals ................................................. 444

PART II

Rule 1. Coverage ................. 444

Rule 2. Definition of Terms. 445

Rule 3. Construction ........... 445

445

Rule 4. Venue ................................. '/' I n ........... 446

Rule 5. Commencement of a Complaint ase .........

Rule 6. Prosecution ......................... 446

Rule 7. Effect of the Failure ofPart.es to Appear 444

During Hearing ............................................ 447

Rule 8. Postponements ................................ 447

Rule 9. Compromises ........................................ 450

Rule 11. Pre-Trial ................................... 450

Rule 12. Order of Trial ........................................ 450

Rule 13. Consolidation......................................... 450

Rule 14. Summary Procedure ................................ 450

Rule 15. Contempt................... 451

Rule 16. Provisional Relief ......

xxvn
Rule 17.
Decision ........................................................................
........ 452

Rule 18.
Finality ..........................................................................
........ 452

Signing
Authority .................................................................
....... 452

Accountability of Hearing/Legal
Officers .................................... 452

Repealing
Clause ......................................................................
... 453

Effectivity .................................................................
................... 453
MARINA MEMORANDUM CIRCULAR NO. 90
IMPLEMENTING GUIDELINES FOR VESSEL

REGISTRATION AND DOCUMENTATION

I. Objective ......................................................................
........................ 453
II. Coverage ......................................................................
............................ 454
III. Definition of
Terms ...........................................................................
. 454
IV. General
Provisions .....................................................................
......... 455
V. Specific
Guidelines ....................................................................
............. 455 A. Register of
Vessels ..........................................................................
455
B. Requirements for Registration of
Vessels ....................................... 456
C. Transfer of Rights and
Encumbrances ............................................ 457
D. Deletion of
Vessels .........................................................................
457 VI.
 Validity ..........................................................................
......................... 457
VII. Penalty/
Sanctions .....................................................................
............. 457
VIII. Saving
Clause ..........................................................................
............ 458 IX. Repealing
Clause ..........................................................................
....... 458
X.

Effectivity .............................................................................
............... 458
CHAPTER VIII
PERSONS WHO TAKE PART IN MARITIME
COMMERCE

SHIPOWNERS AND SHIP AGENTS

Article
586 ......................................................................................
................. 459
Article
587 ................................................................................
....................... 459 The Limited Liability
Rule ...................................................................... 459

Chua Yek Hong v. Intermediate Appellate Court,

Mariano Guno

and Dominador
Olit ............................................................. 459

Rationale on the Real and Hypothecary Liability of

Shipowner;
Exceptions ...............................................................
. 461

Effect of the New Civil Code Provisions on

Common Carrier on the Real and
Hypothecary Nature of Liability

Under Maritime
Law ................................................................... 462

Liability of shipowner extends to value of vessel and

insurance
proceeds
thereon ....................................................................
...... 463
Pedro Vasquez, Soledad Ortega, Cleto Bagaipo,
Agustina Virtudez, Romeo Vasquez and
Maximina Cainay v. The Court of
Appeals and Filipinas Pioneer Lines
Inc .............................. 463

xxviii
 Negros Navigation Co., Inc. v. The Court of Appeals, Ramon

Miranda, Sps. Ricardo and Virginia De La Victoria .....................

465

Aboitiz Shipping Corporation v. New India Assurance

Company, Ltd ..............................................................................

468

Aboitiz Shipping Corporation v. Court of Appeals, Malayan

Insurance Company, Inc. Compagnie Maritime Des

Chargeurs REunis, et
al ....................................................................... 468

Phil-Nippon Kyoei, Corporation v. Rosalia T. Gudelosao,

on her behalf of minor children Christy Mae T.
Gudelosao, et al ............ 474 Augustin P. Dela Torre
v. The Honorable Court of Appeals,
Crisostomo G. Concepcion, et
al ......................................................... 480
.Article
588 ..................................................................................................................
.. 483

Article
589 .................................................................................................................
... 484
Article
590 ..................................................................................................................
... 484

Article
591 .................................................................................................................
... 484

Article
592 ..................................................................................................................
.. 484

Article
593 .................................................................................................................
... 485

Article
594 ..................................................................................................................
... 485

Article
595 .................................................................................................................
... 485

Article
596 ..................................................................................................................
... 485

Article
597 ..................................................................................................................
... 485
Article
598 .................................................................................................................
... 486

Article
599 ..................................................................................................................
... 486

Article
600 ..................................................................................................................
... 486

Article
601 .................................................................................................................
... 486

Article
602 .................................................................................................................
... 486

Article
603 ..................................................................................................................
... 486

Article
604 ..................................................................................................................
... 487

Article
605 ..................................................................................................................
... 487
 Article
606 ..................................................................................................................
... 487

Article
607 ..........................................................................................................
........... 487 Article
608 ..........................................................................................................
........... 487
CAPTAINS AND MASTERS OF THE VESSEL
Article
609 ..................................................................................................................
... 487

Article
610 ..................................................................................................................
... 489

Article
611 ..................................................................................................................
. 490

Article
612 ..................................................................................................................
... 491
Alejandro Arada v. Court of Appeals and San Miguel Corporation.... 494
Article
613 ..................................................................................................................
... 496
Article
614 ..................................................................................................................
... 496

Article
615 ..................................................................................................................
... 497

Article
616 ..................................................................................................................
... 497

Article
617 ..................................................................................................................
... 497

Article
618 ..................................................................................................................
... 497

Article
619 ..................................................................................................................
... 498

Article
620 ..................................................................................................................
... 498

xxix
Article
621 .....................................................................................................................
.. ^

Article
622 .....................................................................................................................
.. w

Article
623 ....................................................................................................................
........... 4^

Article
624 .....................................................................................................................
......... 4^

Article
625 ....................................................................................................................
........ 5QQ

OFFICERS AND CREW OF THE VESSELS

Article
626 .....................................................................................................................
......... 500
Article
627 ....................................................................................................................
.. 501
Lorenzo Shipping Corp. v. National Power
Corporation ..................................... 502
Article
628 .....................................................................................................................
......... 505

Article
629 .....................................................................................................................
......... 505

Article
630 .....................................................................................................................
......... 506

Article
631 ....................................................................................................................
......... 506

Article
632 .....................................................................................................................
......... 506

Article
633 ....................................................................................................................
......... 508

Article
634 .....................................................................................................................
......... 508

Article
635 .............................................................................................................
................ 509 Article
636 .............................................................................................................
............ 510

Article
637 .................................................................................................................
........ 510

Article
638 .................................................................................................................
........ 511

Article
639 .................................................................................................................
........ 512

Article
640 ..................................................................................................................
........ 512

Article
641 ..................................................................................................................
........ 512

Article
642 ..................................................................................................................
........ 513

Article
643 .................................................................................................................
........ 513
 Article
644 ..................................................................................................................
........ 514

Article
645 ..................................................................................................................
........ 514

Article
646 ..................................................................................................................
........ 515

Article
647 ..............................................................................................................
............ 515 Article
648 .............................................................................................................
............ 515

SUPER CARGOES
Article
649 ..................................................................................................................
........ 515

Article
650 .............................................................................................................
............. 516 Article
651 .............................................................................................................
............. 516

CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE
 CHARTER PARTIES

Forms and Effects of Charter Parties

Article
652 .......................................................................................................
.......... 517

Important Terms and Phrases in Charter-

Party ................................................. 518

Definition of Charter-
Party ............................................................................. 518

XXX

Kinds of Charter-
Party ................................................................................ 518

Transshipment .....................................................................................
........ 521

Demurrage ...........................................................................................
........ 521

Laytime ...............................................................................................
....... 522

WWDSHINC or Weather, Working Days, Sundays, and

Holidays
Included ............................................................................... 522
F.I.O.S.T.......................................................................................
 ............... 522
Primage .......................................................................................
................ 523
Caltex (Philippines.),Inc. v. Sulpicio
Lines ................................................. 523

Litonjua Shipping Company, Inc. v. National Seamen Board

and Gregorio
P.Candongo .................................................................. 527

Federal Phoenix Assurance Co., LTD v. Fortune Sea

Carrier,
Inc ......................................................................................... 529
Article
653 ....................................................................................................................
. 532
Charter-Party may be
oral .................................................................................... 532
Market Developers, Inc. (MADE) v. Hon. Intermediate Appellate

Court and Gaudioso

Uy ...................................................................... 532
Article
654 .....................................................................................................................
. 535

Article
655 ....................................................................................................................
. 535
Article
656 ....................................................................................................................
. 535

Article
657 ....................................................................................................................
. 535

Article
658 ....................................................................................................................
. 536

Article
659 ....................................................................................................................
. 536

Article
660 .....................................................................................................................
. 537

Article
661 ....................................................................................................................
. 537

Article
662 .....................................................................................................................
. 537

Article
663 ....................................................................................................................
. 537
Article
664 .....................................................................................................................
. 537

Article
665 ....................................................................................................................
. 537

Article
666 .....................................................................................................................
538

Article
667 .....................................................................................................................
. 538

Article
668 .....................................................................................................................
538

RIGHTS AND OBLIGATIONS OF OWNERS

Article
669 .....................................................................................................................
. 538

Article
670 .....................................................................................................................
. 539

Article
671 ....................................................................................................................
. 539
Article
672 .....................................................................................................................
. 540

Article
673 ....................................................................................................................
. 540

Article
674 .....................................................................................................................
. 540

Article
675 .....................................................................................................................
. 540

Article
676 .....................................................................................................................
. 541

Article
677 .....................................................................................................................
. 541

Article
678 .....................................................................................................................
. 541

xxxi

OBLIGATIONS OF CHARTERERS
Article
679 ...................................................................................................................
......... 541

Article
680 ...................................................................................................................
... 542

Article
681 ..................................................................................................................
... 542

Article
682 ...................................................................................................................
.......... 542

Article
683 ..................................................................................................................
.......... 542

Article
684 ...................................................................................................................
.......... 543

Article
685 ..................................................................................................................
.......... 543

Article
686 ....................................................................................................................
......... 543
Article
687 ...................................................................................................................
.......... 543

Article
688 ....................................................................................................................
......... 543

Article
689 ...................................................................................................................
.......... 544

Article
690 ...................................................................................................................
.......... 545

Article
691 ...............................................................................................................
............. 545 Article
692 ................................................................................................................
............. 546

BILLS OF LADING
Article
706 ...................................................................................................................
.......... 548
Negros Navigation v.
Bacquing .......................................................................... 548
Article
707 ...................................................................................................................
.......... 550

Article
708 ..................................................................................................................
.......... 551

Article
709 ...................................................................................................................
.......... 551

Article
710 ...................................................................................................................
.......... 551

Article
711 ...................................................................................................................
.......... 551

Article
712 ...................................................................................................................
.......... 551

Article
713 ...................................................................................................................
.......... 551

Article
714 ...................................................................................................................
.......... 552
Article
715 ...................................................................................................................
.......... 552

Article
716 ...................................................................................................................
.......... 552

Article
717 ...................................................................................................................
.......... 552

Article
718 ...................................................................................................................
.......... 553
Bill of Lading
Explained .............................................................................................
553

On Board Bill of Lading and Received for Shipment

Bill of
Lading .................. . ...........................................................................
554

Clean Bill of
Lading ....................................................................... ..................... 554

Bill of Lading, a Contract of

Adhesion........................................................................ 555
 Nature of a Bill of
Lading ........................................................................................... 557
Keng Hua Paper Products Co., Inc. v. Court of
Appeals; Regional Trial Court of Manila,
Branch 21, and Sea

Land Service,
Inc ................................................................................... 557
MOF Company, Inc. v. Shin Yang Brokerage
Corporation ......................... 560
Loans on Bottomry and
Respondentia ......................................................................... 563

Article
719 ...................................................................................................................
.......... 563

Loans on Bottomry
Explained ................................................................................... 563

xxxii

1
Distinction between Loan on Bottomry and Respondentia

from Simple Loan ............................................................ 564

Article 720 ....................................................................................... 564

Article 721 ...................................................................................... 565

Article 722 ...................................................................................... 566

Article 723 ...................................................................................... 566

Article 724 ....................................................................................... 566

Article 725 ...................................................................................... 566

Article 726 ...................................................................................... 566

Article 727 ...................................................................................... 567

Article 728 ...................................................................................... 567

Article 729 ...................................................................................... 567

Article 730 ...................................................................................... 567

Article 731 ....................................................................................... 568

Article 732 ...................................................................................... 568

Article 733 ...................................................................................... 568

Article 734 ....................................................................................... 568

Article 735 ...................................................................................... 569

Article 736 ....................................................................................... 569

CHAPTER X

RISKS, DAMAGES, AND ACCIDENTS

OF MARITIME COMMERCE

AVERAGES
570

Article 806 .................................................................................................

570

Article 807 ................................................................................................

570

Article 808 .................................................................................................

570

Article 809 .................................................................................................

571

Article 810 .................................................................................................

572

Article 811 .................................................................................................

573

Article 812 .................................................................................................

Classification of Averages ................................................................. 573

A. Magsaysay, Inc. v. Anastacia Agan ...................................... 573

Requisites of General Average .......................................................... 575

Article 813 .................................................................................................

576

Article 814 .................................................................................................

577

Philippine Home Assurance Corporation v. Court of Appeals

 and Eastern Shipping Lines, Inc ....................................... 577

Article 815 .................................................................................................

580

Article 816 .................................................................................................

580

Article 817 .................................................................................................

580

Article 818 .................................................................................................

580

xxxm
ARRIVALS UNDER STRESS

Article
819 ..................................................................................................................
........... 581

Article
820 ..................................................................................................................
........... 581

Article
821 ..................................................................................................................
.......... 582

Article
822 ..................................................................................................................
.......... 582
 Article
823 ..................................................................................................................
.......... 582

Article
824 ...............................................................................................................
............. 582 Article
825 ...............................................................................................................
............. 583
COLLISIONS

Article
826 ..................................................................................................................
.. 585

Article
827 ..................................................................................................................
.. 586

Article
828 ..................................................................................................................
.. 586
SulpicioLines, Inc. v. Court of
Appeals .................................................. 586

Article
829 ..........................................................................................................
.......... 587
Article
830 ..................................................................................................................
.. 588

Article
831 ..................................................................................................................
.. 588

Article
832 ..................................................................................................................
.. 588

Article
833 ..................................................................................................................
.. 588

Article
834 ..................................................................................................................
.. 588
Is the master bound by the acts of the Pilot? Is the master
responsiblefor the negligence of the
pilot? ................................................... 589 Who has the
burden of proof that the pilot was
negligent?................................. 590
Article
835 ..................................................................................................................
.......... 591
AugustoLopez v. Juan Duruelo and Alino
Sison ................................................ 591
 Article
836 ..................................................................................................................
.......... 592
Article
837 ..................................................................................................................
.......... 592
Luzon Stevedoring Corporation v. Court of
Appeals ......................................... 592
Article
838 ..............................................................................................................
.............. 597 Article
839 ..............................................................................................................
.............. 597
SHIPWRECKS

Article
840 ..................................................................................................................
.. 597

Article
841 ..................................................................................................................
.. 597

Article
842 ..................................................................................................................
.. 598

Article
843 ..................................................................................................................
.......... 598
 Article
844 ..............................................................................................................
.............. 598 Article
845 ..............................................................................................................
.............. 599
Section I
PROOF AND LIQUIDATION OF AVERAGES Article 846 . 599

XXXIV

Article 8-J' ........ .............................................

600

Article 8-iS ....................................

600

Article 8-to ...........................................................

600

Article 850 ......................................................

600
Section 11

LIQUIDATION OF GROSS AVERAGES

Article S51...................................................... 601

Article 852 .............................................. .........................................................
601

Article 853 .................................... 60)

Article S54.............................................. 602

.Article 855 ............................................ 603

Article 856 .............................. .................................................................. ’ '

603

.Article S57 ............................................. 604

Article 858 .............................................. 604

Article S59....................................................................... 604

Article 860 ........................................................................................................

605

.Article 861 .......................................................................................................

605

.Article 862 .......................................................................................................

605

Article 863 .......................................................................................................

605

.Article 864 .......................................................................................................

605

.Article 865 .......................................................................................................

605
.Article 866 ............................................................................................... .......
606

.Article 867 ................................................................................................ ....

606

Article 868 .......................................................................................................

606

Section III

LIQUIDATION OF ORDINARY AVERAGES

606

Article 869 ........................................................................................................

CHAPTER XI

THE SALVAGE LAW

(Act No. 2616)

Section 1..................................................................................................

Section 2.................................................................................................. 607

Section 3.................................................................................................. 607

Section 4.................................................................................................. 607

Section 5.................................................................................................. 607

Section 6 ................................................................................................. 608

 Section 7.................................................................................................. 608

Section 8 ................................................................................................. 608

Section 9.................................................................................................. 608

Section 10 ................................................................................................ .. 609

Section 11 ................................................................................................ 609

609
xxxv

Section 12 ....................................................................................................... 609

Section 13 ....................................................................................................... 609
Section 14 ....................................................................................................... 610
General Principles Governing
Salvage .................................................... 610

Subjects of
Salvage .................................................................................
611

When is the Ship and her cargo a fit object of

Salvage? ................... 612

Concept of Salvage
Reward..................................................................... 614
Distinction Between Salvage and
Towage ............................................... 616 Honorio M.
Barrios v. Carlos A. Gothong and Co ................... 617
Letter of Instruction No. 134, September 24,
1973 .................................. 618

APPENDICES
APPENDIX A — EXECUTIVE ORDER NO. 125
REORGANIZING THE MINISTRY OF TRANSPORTATION

AND COMMUNICATIONS, DEFINING ITS

POWERS AND FUNCTION AND OTHER
PURPOSES

Section 1.
Title .........................................................................................
621

Section 2.
Reorganization ........................................................................
621

Section 3. Declaration of
Policy................................. ............................. 621

Section 4.
Mandate ..................................................................................
621

Section 5. Powers and

Functions ............................................................. 622

Section 6. Authority and

Responsibility................................................... 625

Section 7. Office of the

Secretary ............................................................ 625
Section 8.
Undersecretaries ......................................................................
625

Section 9. Assistant Secretaries and Service

Chiefs ................................. 626

Section 10. Structural

Organization ......................................................... 627

Section 11. Department Regional

Offices ................................................ 627

Section 12. Maritime Industry

Authority ................................................. 528

Section 13.
Abolition/Transfer/Consolidation .......................................... 529

Section 14. Attached Agencies and

Corporations .................................... 539

Section 15. Transitory

Provisions ............................................................ 631

Section 16. New Structure and

Pattern ..................................................... 534

Section 17. Prohibition Against

Changes ................................................. 635

Section 18. Implementing Authority of

Minister ..................................... 635
 Section 19. Notice or Consent
Requirements .................................................. 635

Section 20.
Funding ........................................................................................
635

Section 21. Change of

Nomenclature .............................................................. 635

Section 22.
Separability ................................................................................
636

Section 23. Repealing

Clause .......................................................................... 636

Section 24.
Effectivity ....................................................................................
636

xxxvi

APPENDIX B — PRESIDENTIAL DECREE NO. 1462

AMENDING CERTAIN SECTIONS OK REPUBLIC ACT

SEVEN HUNDRED AND SEVENTY-SIX

Chapter II - GENERAL PROVISIONS
 Section
1 ..................................................................................................................
....... 637
Chapter III - CIVIL AERONAUTICS BOARD
Section
2 ..................................................................................................................
....... 638

Section
3 ..................................................................................................................
....... 639

Section
4 ..................................................................................................................
....... 639

Section
5 ..................................................................................................................
....... 639

Section
6 ..................................................................................................................
...... 640

Chapter IV — CERTIFICATE OF PUBLIC CONVENIENCE AND

NECESSITY

Section
7 ..................................................................................................................
....... 640
 Section
8 ..................................................................................................................
...... 641
Chapter VII — VIOLATION AND PENALTIES
Section
10 ................................................................................................................
....... 641

Section
11 ................................................................................................................
....... 642

Section
12 ................................................................................................................
....... 642

APPENDIX C — REPUBLIC ACT NO. 4136

AN ACT TO COMPILE THE LAWS RELATIVE TO LAND

TRANSPORTATION AND TRAFFIC RULES, TO CREATE

A LAND TRANSPORTATION
COMMISSION AND FOR OTHER
PURPOSES

Chapter I - Preliminary Provisions Article I - Title and Scope of Act

Section 1. Title of
Act ............................................................................................ 643
 Section 2. Scope of
Act .......................................................................................... 643
Article II - Definitions
Section 3. Words and Phrases
Defined ................................................................... 643
Article III - Administration of Act
Section 4. Creation of the
Commission .................................................................. 646

Chapter II — Registration of Motor Vehicles

Article I — Duty to Register, Reports, Applications, Regulations
Section 5. Compulsory Registration of Motor
Vehicles ......................................... 649

Section 6. Application and Payments for

Registrations .......................................... 651

Section 7. Registration
Classification ..................................................................... 651

xxxvn
Article II — Registration Fees
Section 8. Schedule of Registration
Fees .............................................................. 552

Section 9. Permissible Weights and Dimensions of Vehicles

 in Highways
Traffic ..................................................................................... 554
Section 10. Special Permits, Fees
for .................................................................... 555

Section 11. Additional

Fees .................................................................................. 655

Section 12. Fee for Original Registration for Part of

Year .................................... 656

Section 13. Payment of taxes upon

registration ..................................................... 656
Article III — Registration Certificates, Records, Number Plates
Section 14. Issuance of Certificates of
Registration .............................................. 656

Section 15. Use and Authority of Certificate of

Registration ................................ 657

Section 16. Suspension of Registration

Certificate ............................................... 657

Section 17. Number Plates, Preparation and Issuances

of ..................................... 658

Section 18. Use of Number

Plates ......................................................................... 659
Chapter III — Operation of Motor Vehicles
Article I — License to Drive Motor Vehicles
Section 19. Duty to Have
License ......................................................................... 659

Section 20. (Repealed by BP Big. 398, May 18,

1983) ......................................... 659 Section 21. Operation of
Motor Vehicles by Tourists ........................................... 659
Section 22. Application for Driver’s License, Fees,
Examination ......................... 660

Section 23. Issuances of Driver’s License, Fees and

Validity ............................... 661

Section 24. Use of Driver’s License and Identification

Card ................................ 662

Section 25. Driver’s

Records ................................................................................ 662

Section 26. Renewal or Replacement of Lost

License .......................................... 662

Section 27. Authority to suspend, revoke and reinstate

driver’s
license.............................................................................................
663 Section 28. Driver’s
Bond ..................................................................................... 664

Section 29. Confiscation of Driver’s

License ........................................................ 665

Section 30. Student-Driver’s

Permit ..................................................................... 665
Article II — Illegal Use of Licenses, Number Plates, etc.
Section 31. Imitation and False
Representations ................................................... 666

Article III — Passengers and Freight

Section 32. Exceeding Registered Capacity, Issuance

of Conductor’s License, Validity and

Fee .................................................... 666 Section 33. Passenger or

Freight Capacity Marked on Vehicle ............................. 667

Article IV — Accessories of Motor Vehicles

Section 34. Tires of Motor
Vehicles ..................................................................... 667
Chapter IV — Traffic Rules
Article I — Speed Limit and Keeping to the Right
Section 35. Restrictions as to
speed ...................................................................... 670

Section 36. Speed Limits Uniform Throughout

the
Philippines .......................................................................................
...... 671

xxxviii

Section o7. Driving on Right Side of 671

Highway .............................................. Section 38. 672
Classification of
 Highways..........................................................
Article II — Overtaking and Passing a
Vehicle, and Turning at Intersections
Section 39. Overtaking a
Vehicle ...................................................................
Section 40. Driver to Give Way to Overtaking 672
Vehicle ................................. Section 41. Restrictions on 672
Overtaking and Passing ...................................... 673
Article 111 — Right of Way and Signals
Section 42. Right of 674
Way ............................................................................... 674
Section 43. Exception to the right of Way 675
Rule ............................................. Section 44. Signals on
Starting, Stopping or Turning .................................... 675
Article IV — Turning and Parking 675
676
Section 45. Turning at
Intersections ...............................................................
Section 46. Parking Prohibited in Specified 676
Places ........................................ Section 47. Parked 676
Vehicle ............................................................................ 677
677
Article V — Miscellaneous Traffic Rules
677
Section 48. Reckless
Driving ......................................................................... 677
Section 49. Right of Way for Police and Other Emergency 677
Vehicles.. 677
Section 50. Tampering With
 Vehicles............................................................ Section 51. 678
Hitching to a 680
Vehicle ................................................................... Section 680
52. Driving or Parking on
Sidewalk ..................................................
Section 53. Driving While Under the Influence of Liquor 68
or Narcotic 1
Drug ................................................................................... 68
Section 54. Obstruction of 1
Traffic .................................................................. Section 55. 68
Duty of Driver in Case of 2
Accident .............................................
Chapter V — Penal and Other Provisions 68
Article 1 — Penalties 2
Section 56. Penalty for 68
Violation ................................................................... Section 3
68
57. Punishment for Other
3
Offenses ................................................... Section 58. Duty
68
of Clerks of Court ...............................................................
3
Article 11 — Collection of Fees, Taxes and Fines, Liens, 68
Allotment of Funds 3
Section 59. Collection of Fees; National and Local Taxes; Toll
Fees
Section 60. The Lien Upon Motor
Vehicles ................................................... Section 61.
Disposal of Monies
Collected......................................................
Article HI — Final Provisions
Section
62 ............................................................................................
.......... Section 63. Repeal of Laws and
Ordinances .................................................. Section 64.
Appropriation .........................................................................
..... Section 65.
Separability .............................................................................
.... Section 66.
Elfectivity ................................................................................
...
XXXIX

APPENDIX D — THE WARSAW CONVENTION ON AIR

TRANSPORT ...............................................................................................
....... 684

CHAPTER I — SCOPE-DEFINITIONS

Article
1 ...............................................................................................................
685

Article
2 ...............................................................................................................
686

CHAPTER II — TRANSPORTATION DOCUMENTS

Section I — Passenger Ticket
 Article
3 ...............................................................................................................
686

Section II — Baggage Check

Article
4 ...............................................................................................................
687
Section III — Air Waybill
Article
5 ...............................................................................................................
688

Article
6 ...............................................................................................................
688

Article
7 ...............................................................................................................
688

Article
8 ...............................................................................................................
689

Article
9 ..............................................................................................................
690
 Article
10 .............................................................................................................
690

Article
11 .............................................................................................................
690

Article
12 .............................................................................................................
690

Article
13 .............................................................................................................
691

Article
14 .............................................................................................................
691

Article
15 .............................................................................................................
692

Article
16 .............................................................................................................
692
CHAPTER III — LIABILITY OF THE CARRIER

Article
17 .............................................................................................................
692
Article
18 .............................................................................................................
692

Article
19 .............................................................................................................
693

Article
20 .............................................................................................................
693

Article
21 .............................................................................................................
693

Article
22 ............................................................................................................
693

Article
23 ............................................................................................................
694

Article
24 .............................................................................................................
694

Article
25 .............................................................................................................
694
 Article
26 .............................................................................................................
695

Article
27 .............................................................................................................
695

Article
28 .............................................................................................................
695

Article
29 .............................................................................................................
696

Article
30 .............................................................................................................
696
CHAPTER IV — PROVISIONS RELATING TO COMBINED TRANSPORTATION
Article
31 .............................................................................................................
696

CHAPTER V — GENERAL AND FINAL PROVISIONS

Article
32 .............................................................................................................
697

xl
Article
33 ................................................................................................................
........ 697

Article
34 ................................................................................................................
........ 697

Article
35 ...............................................................................................................
........ 697

Article
36 ................................................................................................................
........ 697

Article
37 ................................................................................................................
........ 698

Article
38 ................................................................................................................
........ 698

Article
39 ................................................................................................................
........ 698

Article
40 ...............................................................................................................
........ 699
 Article ........................................................................................................
........... 69*

APPENDIX E — BAR EXAMINATION QUESTIONS ON

TRANSPORTATION
700
LAWS .................................................................................
xli
 CHAPTER I
PRELIMINARY CONSIDERATIONS

TRANSPORTATION LAWS IN THE PHILIPPINES

Transportation laws in the Philippines

whether by land, sea, or air, are generally
governed by the New Civil Code (Arts. 1732-
1766) thus, it declared:

“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 the absence, therefore, of any provision of
the New Civil Code on the rights and obligations
of common carriers, the Code of Commerce and
other special laws such as the Carriage of Goods
By Sea Act, Salvage Law, and other special laws
insofar as pertinent may be applied. (See National
Development Company v. The Court of Appeals and Development
Insurance and Surety Corporation, No. L-49409, August 19, 1998 ;
Maritime Company of the Philippines v. The Court of Appeals and
Development Insurance and Surety Corporation, No. L-49467, August
19, 1988; Eastern Shipping Lines, Inc. v. IAC, No. L-69044, March 29,
1987; Maritime Company of the Philippines v. Court of Appeals and
Rizal
Surety and Insurance Co., G.R. No. 47004, March 8, 1989)

TRANSPORTATION LAWS AND THE CONSTITUTION

It is time honored that the Constitution is

the Supreme Law of the land. It is the law of all
laws. If there is conflict between a statute and
the [Constitution, the statute shall yield to the
[C]onstitution.
(Diaz, Statutory Construction, p. 249, 2000 Ed.)

1
 TRANSPORTATION LAWS

The 1987 Philippine Constitution provides, some

restrictions or limitations in the issuance of franchise to
public utilities, which includes transportation industries.
Article XII of the National Economy and Patrimony
provides, thus:
“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 such
franchise or right be granted except under the
condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the
common good so requires. The State shall encourage
equity participation in public utilities by the general
public. The participation of foreign investors in the
governing body of any public utility enterprise shall
be limited to their proportionate share in its capital,
and all the executive and managing officers of such
corporation or association must be citizens of the
Philippines. xxx xxx xxx
 Sec. 16. The Congress shall not, except by
general law, provide for the formation, organization,
or regulation of private corporations. Government-
owned or -controlled corporations may be created
or established by special charters in the interest of
the common good and subject to the test of
economic viability.
Sec. 17. In times of national emergency, when
the public interest so requires, the State may, during
the emergency and under reasonable terms
prescribed by it, temporarily take over or direct the
operation of any privately owned public utility or
business affected with public interest.
Sec. 18. The State may, in the interest of
national welfare or defense, establish and operate
vital industries and, upon payment of just
compensation, transfer to public ownership utilities
and other private enterprises to be operated by the
government.

2
CHAPTER I
PRELIMINARY CONSIDERATIONS

Sec. 19. The State shall regulate or prohibit

monopolies when the public interest so requires.
 No combinations in restraint of trade or unfair
competition shall be allowed.”
Likewise, Article XVI on the general provisions states that:
“Sec. 11.(1) The ownership and management of
mass media shall be limited to citizens of the
Philippines, or to corporations, cooperatives or
associations, wholly-owned and managed by such
citizens.
The Congress shall regulate or prohibit
monopolies in commercial mass media when the
public interest so requires. No combinations in
restraint of trade or unfair competition therein shall
be allowed.
(2) The advertising industry is impressed with
public interest, and shall be regulated by law for the
protection of consumers and the promotion of the
general welfare.
Only Filipino citizens or corporations or
associations at least seventy per centum of the capital
of which is owned by such citizens shall be allowed
to engage in the advertising industry.
The participation of foreign investors in the
governing body of entities in such industry shall be
limited to their proportionate share in the capital
thereof, and all the executive and managing officers
of such entities must be citizens of the Philippines.”
MAY A 100% FOREIGN CORPORATION OWN A PUBLIC
UTILITY?
 Apparently, this question was answered in the case
of the People of the Philippines v. William M. Quasha, L-6055,
June 12, 1953 and the landmark decision in Tatad, et al. v.
Sec. Garcia and EDSA LRT Corporation Ltd., G.R. No. 114222,
April 16, 1995.
The Supreme Court, when confronted with the
issue of whether respondent EDSA LRT Corporation,
Ltd., a foreign corporation can own EDSA LRT III, a public
utility, said: “The phrasing of the question is erroneous,
it is loaded. What private respondent owns are the rail

3
TRANSPORTATION LAWS

tracks, rolling stocks like the coaches, rail stations,

terminals and the power plant, not a public utility. While
a franchise is needed to operate these facilities to serve
the public, they do not, by themselves, constitute a
public utility. What

constitute a public utility is not their ownership but their

use to serve the public.” (Iloilo Ice & Cold Storage Co. v. Public
Service Board, 44 Phil. 551, 557-558 [1923])

The Constitution, in no uncertain terms, requires a

franchise for the operation of a public utility. However, it
does not require a franchise before one can own the
facilities needed to operate a public utility so long as it
does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
“No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive in character or
for a longer period than fifty years xxx.”

In law, there is a clear distinction between the

“operation” of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership is defined, as a relation in law, by virtue
of which a thing pertaining to one person is completely
subjected to his will in everything not prohibited by law
or the concurrence with the rights of another. (Tolentino, II
Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992])

The exercise of the rights encompassed in

ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility
unless the operator has a franchise. The operation of a
rail system, as a public utility, includes the transportation
of passengers from one point to another point, their
loading and unloading at designated places and the
movement of the trains at prescheduled times, (cf.
Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz 282, 180
 4
CHAPTER I PRELIMINARY
CONSIDERATIONS

P. 159, 7 A.L.R. 1149 [1919]; United States Fire Ins. Co. v. Northern PR.
Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948])
The right to operate a public utility may exist
independently and separately from the ownership of the
facilities thereof. One can own said facilities without
operating them as a public utility, or conversely, one
may operate a public utility without owning the facilities
used to serve the public. The devotion of property to
serve the public may be done by the owner or by the
person in control thereof who may not necessarily be
the owner thereof.
This dichotomy between the operation of a public
utility and the ownership of the facilities used to serve
the public can be very well appreciated when we
consider the transportation industry. Enfranchised
airline and shipping companies may lease their aircraft
and vessels instead of owning them themselves.
Since DOTC shall operate the EDSA LRT III, it shall
assume all the obligations and liabilities of a common
carrier. For this purpose, DOTC shall indemnify and hold
harmless private respondent from any losses, damages,
injuries or death which may be claimed in the operation
or implementation of the system, except losses,
damages, injury or death due to defects in the EDSA LRT
III on account of the defective condition of equipment or
 facilities or the defective maintenance of such
equipment or facilities.
In sum, private respondent will not run the light rail
vehicles and collect fees from the riding public. It will
have no dealings with the public and the public will have
no right to demand any services from it.
Indeed, a mere owner and lessor of the facilities
used by a public utility is not a public utility. (Providence
and W.R. Co. v. United States, 46 F. 2d 149,152 [1930]; Chippewa
Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903,
188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, III. 35 S.
Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]) Neither are
owners of tank, refrigerator, wine, poultry and beer cars
who supply cars under contract to railroad companies
considered as public utilities. (Crystal Car Line v. State Tax
Commission, 174 P. 2d 984, 987 [1946])

5
TRANSPORTATION LAWS

Even the mere formation of a public utility corporation

does not ipso facto characterize the corporation as one
operating a public utility. The moment for determining the
requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for
that purpose. (People v. Quasha, 93 Phil 333 [1953]; Francisco Tatad,
John Osmeha and Rodolfo Biazon v. Hon. Jesus Garcia, Jr. and EDS A LRT
Corporation Ltd., G.R. No. 114222, April 6, 1995)

The President, the Congress, and the Court cannot create

directly franchises that are exclusive in character. What the
President, Congress, and the Court cannot legally do
directly, they cannot not do indirectly.

Tawang Multi-Purpose Cooperative v.

La Trinidad Water District

GR. No. 166471, March 22, 2011

FACTS: Tawang Multi-Purpose Cooperative (TMPC) is a
cooperative, registered with the Cooperative Development
Authority, and organized to provide domestic water services
in Barangay Tawang, La Trinidad, Benguet. La Trinidad Water
District (LTWD) is a local water utility created under P.D. No.
198, as amended. It is authorized to supply water for
domestic, industrial, and commercial purposes within the
municipality of La Trinidad, Benguet. On October 9, 2000,

TMPC Filed with the National Water Resources Board

(NWRB) an application for a Certificate of Public
Convenience (CPC) to operate and maintain waterworks
system in Barangay Tawang. LTWD opposed TMPC’s
application. LTWD claimed that under Section 47 of P.D. No.
198, as amended, its franchise is exclusive. Section 47 states
that:
 Sec. 47. Exclusive Franchise. - No franchise shall be
granted to any other person or agency domestic,
industrial or commercial water service within the
district or any portion thereof unless and except to
the extent that the board of directors of said district
consents thereto by resolution duly adopted, such
resolution, however, shall be subject to review by
the Administration.

6
CHAPTER I
PRELIMINARY CONSIDERATIONS

In its Resolution No. 04-0702, dated July 23, 2002,

the NWRB approved TMPC’s application for a CPC. In its
August 15, 2002 Decision, the NWRB held that LTWD’s
franchise cannot be exclusive since exclusive franchises
are unconstitutional and found that TMPC is legally and
financially qualified to operate and maintain a
waterworks system. LTWD filed a motion for
reconsideration. In its November 18, 2002 Resolution,
the NWRB denied the motion. LTWD appealed to the
Regional Trial Court (RTC).
In its October 1, 2004 Judgment, the RTC set aside
the NWRB’s July 23, 2002 Resolution and August 15,
2002 Decision, and canceled TMPC’s CPC. The RTC held
that Section 47 is valid.
ISSUE: Whether or not the RTC erred in holding that
Section 47 of P.D. No. 198, as amended, is valid.
 HELD: The President, the Congress, and the Court
cannot create directly franchises for the operation of a
public utility that is exclusive in character. The 1935,
1973, and 1987 Constitutions expressly and clearly
prohibit the creation of franchises that are exclusive in
character. Section 8, Article XIII of the 1935 Constitution
states that: “No franchise, certificate, or any other form
of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to
corporations or other entities organized under the laws
of the Philippines, sixty per centum of the capital of which
is owned by citizens of the Philippines, nor shall such
franchise, certificate or authorization be exclusive in character
or for a longer period that fifty years.” (Emphasis
supplied)
Section 5, Article XIV of the 1973 Constitution and
Section 11, Article XII of the 1987 Constitution similarly
provides the same prohibition.
Plain words do not require explanations. The 1935,
1973, and 1987 Constitutions are clear — franchises for
the operation of a public utility cannot be exclusive in
character. The 1935, 1973, and 1987 Constitutions
expressly and clearly states that “nor shall franchise xxx be
exclusive in character, ” There is no exception.

When the law is clear, there is nothing for the courts to

do but to apply it.

The duty of the Court is to apply the law the way it is worded.
 7
TRANSPORTATION LAWS

Indeed, the President, the Congress, and the Court

cannot create directly franchises that are exclusive in
character. What the President, the Congress, and the
Court cannot legally do directly, they cannot do
indirectly. Thus, the President, the Congress, and the
Court cannot create indirectly franchises that are
exclusive in character by allowing the Board of Directors
(BOD) of a water district and the Local Water Utilities
Administration (LWUA) to create franchises that are
exclusive in character.
In P.D. No. 198, as amended, former President
Ferdinand E. Marcos (President Marcos) created
indirectly franchises that are exclusive in character by
allowing the BOD of LTWD and the LWUA to create
directly franchises that are exclusive in character. Section
47 of P.D. No. 198, as amended, allows the BOD and the
LWUA to create directly franchises that are exclusive in
character.
In case if conflict between the Constitution and a
statute, the Constitution always prevails because the
Constitution is the basic law to which all other laws must
conform to. The duty of the Court is to uphold the
Constitution and to declare void all laws that do not
conform to it.
 Section 47 gives the BOD and LWUA the authority to
make an exception to the absolute prohibition in the
Constitution. In short, the BOD and the LWUA are given
the discretion to create franchises that are exclusive in
character. The BOD and the LWUA are not even
legislative bodies. The BOD is not a regulatory body but
simply a management board of a water district. Indeed,
neither the BOD nor the LWUA can be granted the power
to create any exception to the absolute prohibition in the
Constitution, a power that Congress itself cannot
exercise. Nonetheless, while the prohibition in Section 47
of P.D. No. 198 applies to the issuance of CPCs for the
reasons discussed above, the same provision must be
deemed void ab initio being irreconcilable with Section 5,
Article XIV of the 1973 Constitution, which was ratified
on January 17, 1973, the Constitution in force when P.D.
No. 198 was issued on May 25, 1973. Since Section 47 of
P.D.

No. 198, which vests and “exclusive franchise” upon

public utilities, is clearly repugnant to Section 5, Article
XIV of the 1973 Constitution, it is unconstitutional

8
CHAPTER I PRELIMINARY
CONSIDERATIONS

and may not, therefore, be relied upon by petitioner in

support of its opposition against respondent’s
application for CPC and the subsequent grant thereof
by the NWRB.

ARTICLES 1732 AND 1733

ARTICLE 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation,
offering their services to the public.
Common Carrier Defined and Explained.
The Civil Code defines “common carriers ” in the
following terms:
“Common carriers are persons, corporations,
firms or associations engaged in the business of
carrying or transporting passengers or goods or
both, by land, water, or air for compensation
offering their services to the public.”
The above article makes no distinction between one
whose principal business activity is the carrying of
persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as “a
sideline”). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic,
or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the
“general public,” i.e.9 the general community or
population, and one who offers services or solicits
business only from a narrow segment of the general
population. Article 1732 deliberately refrained from
making such distinctions.
So understood, the concept of “common carriers”
under Article 1732 may be seen to coincide neatly with
the notion of “Public Service,” under the Public Service
Act (Commonwealth Act No. 1416, as amended) which
at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13,
paragraph (b) of the Public Service Act, “public service ”
includes:

9
TRANSPORTATION LAWS

“x x x every person that now or hereafter may

own, operate manage, or control in the Philippines,
for hire or compensation, with general or limited
clientele, whether permanent, occasional, or
accidental, and done for general business purposes,
any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
 steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage
system, wire or wireless communications systems,
wire or wireless broadcasting stations and other
similar public services, x x x” (Emphasis supplied.)
A certificate of public convenience is not a requisite
for the incurring of liability under the Civil Code
provisions governing common carriers. That liability
arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has
also complied with the requirements of the applicable
regulatory statute and implementing regulations and has
been granted a certificate of public convenience or other
franchise. To exempt private respondent from the
liabilities of a common carrier because he has not
secured the necessary certificate of public convenience,
would be offensive to sound public policy; that would be
to reward private respondent precisely for failing to
comply with applicable statutory requirements. The
business of a common carrier impinges directly and
intimately upon the safety and well-being and property
of those members of the general community who
happen to deal with such carrier. The law imposes duties
and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law
cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations. (De Guzman v. Court of
Appeals, No. L-47822, December 12, 1988; Bascos v. Court of Appeals,
G.R. No. 101089, April 7, 1993; Loadstar Shipping Co., Inc. v. Court of
Appeals, G.R. No. 131627, September 28, 1999; Calvo

10
CHAPTER I PRELIMINARY
CONSIDERATIONS

v. UCPB General Insurance Company; Inc., 379 SCRA 510, March 19, 2002;
Asia Lighterage Shipping, Inc. v. Court of Appeals, 409 SCRA 340,
August 19, 2003)
The above statutory provision and jurisprudential
discussion laid down the following elements of a common
carrier:
1. Any persons, corporations, firms or associations;
2. Such persons, corporations, firms or associations
must be engaged in the business of carrying or
transporting passengers or goods or both;
3. The means of carriage or transporting passengers,
goods or both is by land, water or air;
4. The carrying or transporting of passengers or
goods or both is for a fee or compensation; and
5. The services are offered to the public without
distinction.
COMMON CARRIERS DISTINGUISHED FROM PRIVATE
CARRIERS
By definition, a contract of carriage or
transportation is one whereby a certain person or
association of persons obligate themselves to transport
persons, things, or news from one place to another for a
fixed price. Such person or association of persons are
regarded as carriers and are classified as private or
special carriers and common or public carriers. (Crisostomo
v. Court of Appeals, 409 SCRA 528, August 28, 2003)
The nature of the contractual relation between
carrier and passenger is determinative of the degree of
care required in the performance of the latter’s
obligation under the contract. For reasons of public
policy, a common carrier in a contract of carriage is
bound by law to carry passengers as far as human care
and foresight can provide using the utmost diligence of
very cautious persons and with due regard for all the
circumstances.
Private carrier is not bound under the law to observe
extraordinary diligence in the performance of its obligation.

11

TRANSPORTATION LAWS

The standard of care required of private carriers is

that of a good father of a family under Article 1173 of the
Civil Code. This connotes reasonable care consistent with
that which an ordinarily prudent person would have
observed when confronted with a similar situation.
(Crisostomo v. CA, supra)

Much of the distinction between a “common or public

carrier” and a “private or special carrier” lies in the
character of the business, such that if the undertaking is an
isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry
the goods for the general public or to a limited clientele,
although involving the carriage of goods for a fee, the
person or corporation providing such service could very
well be just a private carrier. The concept of a common
carrier does not change merely because individual
contracts are executed or entered into with patrons of the
carrier — such restrictive interpretation would make it easy
for a common carrier to escape liability by the simple
expedient of entering into those distinct agreements with
clients. (Philippine-American General Insurance Company v. PKS
Shipping Company, 401 SCRA 222, April 9, 2003)

Test for determining whether a party is a common carrier of goods.

First Philippine Industrial Corporation v. Court of Appeals

G.R. No. 125948, December 29,1998

FACTS: Petitioner is a grantee of a pipeline concession

under R.A. No. 387, as amended, to contract, install and
operate oil pipelines. The original pipeline concession was
granted in 1967 and renewed by the Energy Regulatory
Board in 1992.
 Sometime in January 1995, petitioner applied for a
mayor’s permit with the Office of the Mayor of Batangas
City. However, before the mayor’s permit could be issued,
the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code. The respondent
City Treasurer assessed a business tax on the petitioner
amounting to P956,076.04 payable in four installments
based on the gross receipts for

12
CHAPTER I
PRELIMINARY CONSIDERATIONS
products pumped at GPS-1 for the fiscal year 1993 which
amounted to P181,681,151.00. In order not to hamper
its operations, petitioner paid the tax under protest in
the amount of P239,019.01 for the first quarter of 1993.
On June 15, 1994, petitioner filed with the Regional
Trial Court of Batangas City a complaint for tax refund
with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in
her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of
the business tax on its gross receipts violates Section 133
of the Local Government Code; (2) the authority of cities
to impose and collect a tax on the gross receipts of
“contractors and independent contractors” under
Sections 141(e) and 151 does not include the authority
to collect such taxes on transportation contractors for,
as defined under Section 131 (h), the term “contractors”
excludes transportation contractors; and

(3) the City Treasurer illegally and erroneously imposed and

collected the said tax, thus meriting the immediate refund
of the tax paid.
Traversing the complaint, the respondents argued
that petitioner cannot be exempt from taxes under
Section 133(j) of the Local Government Code as said
exemption applies only to “transportation contractors
and persons engaged in the transportation by hire and
common carriers by air, land and water.” Respondents
assert that pipelines are not included in the term
“common carrier” which refers solely to ordinary carriers
such as trucks, trains, ships and the like. Respondents
further posit that the term “common carrier” under the
said Code pertains to the mode or manner by which a
product is delivered to its destination.
ISSUE: Whether or not petitioner is a common
carrier so that in the affirmative, he is not liable to pay
the carriers tax under the Local Government Code of
1991.
HELD: There is merit in the petition.
A “common carrier” may be defined, broadly, as one
who holds himself out to the public as engaged in the
business of transporting persons or property from place
to place, for compensation, offering his services to the
public generally.

13

TRANSPORTATION LAWS

Article 1732 of the Civil Code defines a “common

as “any person, corporation, firm or
carrier ”
association engaged in the business of carrying or
transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services
to the public.”
The test for determining whether a party is a
common carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and
must hold himself out as ready to engage in the
transportation of goods or person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by
which his business is conducted and over his
established roads; and
 4. The transportation must be for hire.
Based on the above definitions and
requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of
transporting or carrying goods, i.e., petroleum
products, for hire as a public employment. It
undertakes to carry for all persons indifferently, that
is, to all persons who choose to employ its services,
and transports the goods by land and for
compensation. The fact that petitioner has a limited
clientele does not exclude it from the definition of a
common carrier. In De Guzman v. Court of Appeals, the
Court ruled that:
“The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such
carrying only as ancillary activity (in local idiom, as a sideline).
Article 1732 xxx avoids making any distinction between a person
or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the ‘general
public, ’ i.e., the general community or population, and one who

14
CHAPTER I PRELIMINARY
CONSIDERATIONS

offers services or solicits business only from a narrow segment of

the general population. We think Article 1732 deliberately refrained
from making such distinctions. ”
 So understood, the concept of “common carrier” under
Article 1733 may be seen to coincide neatly with the
notion of “public service,” under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers
set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, “public service” includes:
“Every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with
general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice refrigeration plant, canal, irrigation system
gas, electric light heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar
public services. ” (Underscoring supplied.)

Also, respondent’s argument that the term "common

carrier” as used in Section 133(j) of the Local Government
Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by
land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition
of “common carriers” in the Civil Code makes no distinction
as to the means of transporting as long as it is by land,
water, or air. It does not provide that the transportation
of the passengers or goods should be by motor vehicle.
In fact, in the United States, oil pipeline operators are
considered common carriers.

15
TRANSPORTATION LAWS

Under the Petroleum Act of the Philippines (R.A. No. 387),

petitioner is considered a “common carrier.” Thus, Article 86
thereof provides that:
“Art. 86. Pipeline concessionaire as common carrier. — A
pipeline shall have the preferential right to utilize
installations for the transportation of petroleum
owned by him, but is obligated to utilize the
remaining transportation capacity pro rata for the
transportation of such other petroleum as may be
offered by others for transport, and to charge
without discrimination such rates as may have been
approved by the Secretary of Agriculture and
Natural Resources.”

Test of a Common Carrier

Vlasons Shipping, Inc. v. Court of

Appeals and National Steel
Corporation

G.R. No. L-112350, December 12,1997

 FACTS: On July 17, 1974, plaintiff National Steel
Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a
Contract of Voyage Charter Hire whereby NSC hired
VSI’s vessel, the MV ‘VLASONS I’ to make one (1)
voyage to load steel products at Ilagan City and
discharge them at North Harbor, Manila.
The vessel arrived with the cargo at Pier 12, North Harbor,
Manila, on
August 12,1974. The following day, August 13,1974,
when the vessel’s three (3) hatches containing the
shipment were opened by plaintiff’s agents, nearly all
the skids of tinplates and hot rolled sheets were
allegedly found to be wet and rusty. The cargo was
discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August
24,1974 after incurring a delay of eleven (11) days due
to the heavy rain, which interrupted the unloading
operations.
On September 6, 1974, on the basis of the
aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the
downgrading of the damaged tinplates in the amount
of
 16
CHAPTER I
PRELIMINARY CONSIDERATIONS

P941,145.18. Then on October 3, 1974, plaintiff formally

demanded payment of said claim but defendant VSI
refused and failed to pay. Plaintiff filed its complaint
against defendant on April 21, 1976, which was docketed
as Civil Case No. 23317, CFI, Rizal.
ISSUE: Whether or not the provisions of the CivilCode
of the Philippines on common carriers pursuant to which
there exist(s) a presumption of negligence against the
common carrier in case of loss or damage to the cargo are
applicable to a private carrier.
HELD: At the outset, it is essential to establish
whether VSI contracted with NSC as a common carrier or
as a private carrier. The resolution of this preliminary
question determines the law, standard of diligence and
burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common
carrier as “persons, corporations, firms or associations
engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.” It
has been held that the true test of a common carrier is
the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its
transportation service for a fee. A carrier, which does not
qualify under the above test, is deemed a private carrier.
Generally, “private carriage is undertaken by special
agreement and the carrier does not hold himself out to
carry goods for the general public. The most typical,
although not the only form of private carriage, is the
charter party, a maritime contract by which the
charterer, a party other than the shipowner, obtains the
use and service of all or some part of a ship for a period
of time or a voyage or voyages.”
In the instant case, it is undisputed that VSI did not
offer its services to the general public. As found by the
Regional Trial Court, it carried passengers or goods only
for those it chose under a “special contract of charter
party.” As correctly concluded by the Court of Appeals,
the MV Vlasons I “was not a common but a private
carrier.” Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to
the cargo, are determined primarily by stipulations in
their contract of private carriage or charter party.

17
TRANSPORTATION LAWS

In view of the aforementioned contractual

stipulations, NSC must prove that the damage to its
shipment was caused by VSI’s willful negligence or
failure to exercise due diligence in making MV Vlasons I
seaworthy and fit for holding, carrying and safekeeping
the cargo. Ineluctably, the burden of proof was placed
on NSC by the parties’ agreement.
This view finds further support in the Code of Commerce,
which pertinently provides:
“Art 361. Merchandise shall be transported at the risk and
venture of the shipper, if the contrary has not been expressly
stipulated. ”
Therefore, the damage and impairment suffered by
the goods during the transportation, due to fortuitous
event .force majeure, or the nature and inherent defect of
the things, shall be for the account and risk of the
shipper.
The burden of proof of these accidents is on the carrier.
“Art 362. The carrier, however, shall be liable for damages
arising from the causes mentioned in the preceding article if proofs
against him show that they occurred on account of his negligence or
his omission to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading,
making him believe that the goods were of a class or quality
different from what they really were. ”
Because the MV Vlasons I was a private carrier, the
shipowner’s obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil
Code which, as a general rule, places the prima facie
presumption of negligence on a common carrier. It is a
hornbook doctrine that:
“In an action against a private carrier for loss
of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or
unseaworthy, and the fact that the goods were
 lost or damaged while in the carrier’s custody
does not put the burden of proof on the carrier.”

18
CHAPTER I
PRELIMINARY CONSIDERATIONS

In a contract of private carrier, the parties may freely stipulate their

duties and obligations which perforce be binding on them. Unlike in
a contract involving common carrier, private carriage does not
involve the general public.

Valenzuela Hardwood and Industrial Supply, Inc. v. Court

of Appeals and Seven Brothers Shipping Corporation
eo.vmt o*w

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

am or

FACTS: It appears that on 16 January 1984,

SfQ. -3BBACK-Transpo Laws: Nows ana oasesmto

plaintiff (Valenzuela Hardwood and Industrial

Supply, Inc.) entered into a charter party with the
defendant Seven Brothers (Shipping Corporation)
whereby the latter undertook to load on board its
vessel M/V Seven Ambassador the former’s lauan
round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.
The said vessel M/V Seven Ambassador sank on
January 25,1984 resulting in the loss of the plaintiff’s
insured logs. There is no dispute between the
parties that 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.” Likewise undisputed is the status
of private respondent Seven Brothers as a private
carrier when it contracted to transport the cargo of
petitioner Valenzuela. Even the latter admits this in
its petition.
The trial court deemed the charter party stipulation
void for being contrary to public policy, citing Article 1745
of the Civil Code.
Petitioner Valenzuela adds that the stipulation is
void for being contrary to Articles 586 and 587 of
the Code of Commerce and Articles 1170 and 1173
of the Civil Code. Citing Article 1306 and paragraph
1, Article 1409 of the Civil Code, petitioner further
contends that said stipulation “gives no duty or
obligation to the private respondent to observe the
diligence of a good father of a family in the custody
and transportation of the cargo.”
ISSUE: Whether or not respondent Court (of Appeals)
committed a reversible error in upholding the validity of the
stipulation in the

19
TRANSPORTATION LAWS
charter party executed between the petitioner and the
private respondent exempting the latter from liability
for the loss of petitioner’s logs arising from the
negligence of its (Seven Brothers) captain.
HELD: The Court is not persuaded. As adverted
earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioner’s
lauan logs. Thus, Article 1745 and other Civil Code
provisions on common carriers, which were cited by
petitioner, may not be applied unless expressly
stipulated by the parties in their charter party.
In a contract of private carriage, the parties may
validly stipulate that responsibility for the cargo rests
solely on the charterer, exempting the shipowner from
liability for loss of or damage to the cargo caused even
by the negligence of the ship captain. Pursuant to
Article 1306 of the Civil Code, such stipulation is valid
because it is freely entered into by the parties and the
same is not contrary to law, morals, good customs,
public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We
stress that in a contract of private carriage, the parties
may freely stipulate their duties and obligations, which
perforce would be binding on them. Unlike in a
contract involving a common carrier, private carriage
does not involve the general public. Hence, the
stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably
be applied to a ship transporting commercial goods as
a private carrier. Consequently, the public policy
embodied therein is not contravened by stipulations in
a charter party that lessen or remove the protection
given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised
by petitioner are not novel; they were resolved long ago
by this Court in Home Insurance Co.

v. American Steamship Agencies, Inc. In that case, the trial

court similarly nullified a stipulation identical to that
involved in the present case for being contrary to
public policy based on Article 1744 of the Civil Code
and Article 587 of the Code of Commerce.
Consequently, the trial court held the shipowner liable
for damages resulting from the partial loss of the cargo.
This Court reversed the trial

20
CHAPTER I PRELIMINARY
CONSIDERATIONS

court and laid down, through Mr. Justice Jose P. Bengzon, the
following well-settled observation and doctrine:
“The provisions of our Civil Code on common carriers were
taken from Anglo-American Law. Under American jurisprudence,
a common carrier undertaking to carry a special cargo or
chartered to special person only, becomes a private carrier. As a
private carrier, a stipulation exempting the owner from liability for
the negligence of its agent is not against public policy, and is
deemed valid.
 Such doctrine we find reasonable. The Civil Code provisions
on common carriers should be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the
charter party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy
governing common carriers is applied. Such policy has no force
where the public at large is not involved, as in this case of a ship
totally chartered for the use of a single party . "
Indeed, where the reason for the rule ceases, the
rule itself does not apply. The general public enters into
a contract of transportation with common carriers
without a hand or a voice in the preparation thereof.
The riding public merely adheres to the contract; even
if the public wants to, it cannot submit its own
stipulations for the approval of the common carrier.
Thus, the law on common carriers extends its
protective mantle against one-sided stipulations
inserted in tickets, invoices or other documents over
which the riding public has no understanding or, worse,
no choice. Compared to the general public, a charterer
in a contract of private carriage can stipulate the
carrier’s obligations and liabilities over the shipment,
which, in turn, determines the price or consideration of
the charter. Thus, a charterer, in exchange for
convenience and economy, may opt to set aside the
protection of the law on common carriers. When the
charterer decides to exercise this option, he takes a
normal business risk.
The naked assertion of petitioner that the
American rule enunciated in Home Insurance is not the rule
 in the Philippines deserves scant consideration. The
Court there categorically held that said rule was

“reasonable” and proceeded to apply it in the resolution

21
TRANSPORTATION LAWS

of that case. Petitioner miserably failed to show such

circumstances or arguments, which would necessitate a
departure from a well-settled rule. Consequently, our
ruling in said case remains a binding judicial precedent
based on the doctrine of stare decisis and Article 8 of the
Civil Code which provides that “(j) judicial decisions
applying or interpreting the laws or the Constitution shall
form part of the legal system of the Philippines.”
In fine, the respondent appellate court aptly stated,
“(in the case of) a private carrier, a stipulation exempting
the owner from liability even for the negligence of its
agent is valid.”
Article 6 of the Civil Code provides that “rights may
be waived, unless the waiver is contrary to law, public
order, public policy, morals, or good customs, or
prejudicial to a person with a right recognized by law.” As
a general rule, patrimonial rights may be waived as
opposed to rights to personality and family rights, which
may not be made the subject of waiver. Being patently
 and undoubtedly patrimonial, petitioner’s right conferred
under said articles may be waived. This, the petitioner did
by acceding to the contractual stipulation that it is solely
responsible for any damage to the cargo, thereby
exempting the private carrier from any responsibility for
loss or damage thereto. Furthermore, as discussed above,
the contract of private carriage binds petitioner and
private respondent alone; it is not imbued with public
policy considerations for the general public or third
persons are not affected thereby.

A customs broker, whose principal business is the

preparation of the correct customs declaration and the
proper shipping documents, is still considered a common
carrier if it also undertakes to deliver the goods for its
customers.

Torres-Madrid Brokerage, Inc. v. FEB Mitsui

Marine Insurance Co., Inc. and Benjamin P.
Manalastas, doing business under the name of
BMT Trucking Services G.R. No. 194121, July 11,
2016
FACTS: On October 7, 2000, a shipment of various electronic
goods from

Thailand and Malaysia arrived at the Port of Manila for Sony

 22
CHAPTER I
PRELIMINARY CONSIDERATIONS

Philippines, Inc. (Sony). Previous to the arrival, Sony had

engaged the services of TMBI to facilitate, withdraw, and
deliver the shipment from the port to its warehouse in
Binan, Laguna. TMBI, who did not own any delivery trucks,
subcontracted the services of Benjamin Manalastas’
company, BMT Trucking Services (BMT), to transport the
shipment from the port to the Binan warehouse. In the
early morning of October 9, 2000, the four trucks left
BMT’s garage for Laguna. However, only three trucks
arrived at Sony’s Binan warehouse. At around 12:00 noon,
the truck driven by Rufo Reynaldo Lapesura (NSF-391) was
found abandoned along the Diversion Road in Filinvest,
Alabang, Muntinlupa City. Both the driver and the
shipment were missing. Later that evening, BMT’s
Operations Manager Melchor Manalastas informed Victor
Torres, TMBI’s General Manager, of the development.
They went to Muntinlupa together to inspect the truck
and to report the matter to the police. Victor Torres also
filed a complaint with the National Bureau of Investigation
(NBI) against Lapesura for “hijacking.” The complaint
resulted in a recommendation by the NBI to the Manila
City Prosecutor’s Office to prosecute Lapesura for
qualified theft. TMBI notified Sony of the loss through a
letter. It also sent BMT a letter demanding payment for
the lost shipment. BMT refused to pay, insisting that the
goods were “hijacked.” In the meantime, Sony filed an
insurance claim with the Mitsui, the insurer of the goods.
After evaluating the merits of the claim, Mitsui paid Sony
P7,293,386.32 corresponding to the value of the lost
goods.
After being subrogated to Sony’s rights, Mitsui sent a
demand letter for payment of the lost goods. TMBI
refused to pay Mitsui’s claim. As a result, Mitsui filed a
complaint against TMBI on November 6,2001. TMBI, in
turn, impleaded Benjamin Manalastas, the proprietor of
BMT, as a third-party defendant. TMBI alleged that BMT’s
driver, Lapesura, was responsible for the theft/hijacking of
the lost cargo and claimed BMT’s negligence as the
proximate cause of the loss. TMBI prayed that in the event
it is held liable to Mitsui for the loss, it should be
reimbursed by BMT. On August 5, 2008, the Regional Trial
Court (RTC) found that TMBI and Benjamin Manalastas
jointly and solidarily liable to pay Mitsui

P7,293,386.23 as actual damages, attorney’s fees equivalent to

25% of the amount claimed, and the costs of the suit. The

23
TRANSPORTATION LAWS

RTC held that TMBI and Manalastas were common

carriers and had acted negligently. Both TMBI and BMT
appealed the RTC’s verdict. The Court of Appeals (CA)
affirmed the lower court’s decision.
TMBI denied that it was a common carrier required
to exercise extraordinary diligence because it does not
own a single truck to transport its shipment and it does
not offer transport services to the public for
compensation. It emphasized that Sony knew TMBI did
not have its own vehicles and would subcontract the
delivery to a third- party. Further, TMBI insists that the
service it offered was limited to the processing of
paperwork attendant to the entry of
Sony’s goods. It denies that delivery of the shipment was
a part of its obligation. It maintains that it exercised the
diligence of a good father of a family, and should be
absolved of liability because the truck was “hijacked,” and
it was a fortuitous event. BMT claimed that it had
exercise extraordinary diligence over the lost shipment,
and argued as well that the loss resulted from a fortuitous
event.
ISSUE: (1) Whether or not a brokerage may be considered
as a common carrier; (2) Whether or not hijacking is a
fortuitous event.
HELD: Common carriers are persons, corporations,
firms, or associations, engaged in the business of
transporting passengers, or goods, or both, by land,
water, or air, for compensation, offering their services to
the public. By nature of their business, and for reasons of
public policy, they are bound to observe extraordinary
diligence in the vigilance over the goods, and in the safety
of their passengers. In A.F. Sanchez Brokerage, Inc. v. Court of
Appeals, the Court held that a custom broker, whose
principal business is the preparation of the correct
customs declaration and the proper shipping documents,
is still considered a common carrier if it also undertakes
to deliver the goods for its customers. The law does not
distinguish between one, whose principal business
activity is the carrying of goods, and one, who undertakes
this task only as an ancillary activity. This ruling has been
reiterated in Schmitz Transport & Brokerage Corp. v.
Transport Venture, Inc.; Loadmasters Customs Services, Inc. v. Glodel
Brokerage Corporation; and, Westwind Shipping Corporation v. UCPB
General Insurance Co., Inc.

24
CHAPTER I PRELIMINARY
CONSIDERATIONS

Despite TMBI’s present denials, the Court finds that

the delivery of the goods is an integral, albeit ancillary,
part of its brokerage services. TMBI admitted that it was
contracted to facilitate, process, and clear the shipments
from the customs authorities, withdraw them for the
pier, then transport and deliver them to Sony’s
warehouse in Laguna. That TMBI does not own trucks and
has to subcontract the delivery of its client’s goods is
immaterial. As long as an entity holds itself to the public
for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle
used or has to actually hire one. Lastly, TMBI’s customs
brokerage services, including the transport/delivery of
the cargo, are available to anyone willing to pay its fees.
Given these circumstances, the Court finds it undeniable
that TMBI is a common carrier. Consequently, TMBI
should be held responsible for the loss, destruction, or
deterioration of the goods it transports unless it results
from five exemptions under Article 1734 of the Civil Code.
For all other cases, such as theft or robbery, a
common carrier is presumed to have been at fault or to
have acted negligently, unless it can prove that it
observed extraordinary diligence. Simply put, the theft or
the robbery of the goods is not considered a fortuitous
event or a force majeure. Nevertheless, a common carrier
may absolve itself of liability for resulting loss: (1) if it
proves that it exercised extraordinary diligence in
transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its
liability for the loss, destruction, or deterioration of the
goods to a degree less than extraordinary diligence.
However, a stipulation diminishing or dispensing with the
common carrier’s liability for acts committed by thieves
or robbers, who do not act with grave or irresistible
threat, violence, or force is void under Article 1745 of the
Civil Code for being contrary to public policy.
Jurisprudence, too, has expanded
Article 1734’s five exemptions. De Guzman v. Court of Appeals
interpreted Article 1745 to mean that a robbery attended
by “grave or irresistible threat, violence or force” is a
fortuitous event that absolves the common carrier from
liability.
In the present case, the shipper, Sony, engaged the
services of TMBI, a common carrier, to facilitate the release of
its shipment and

25
TRANSPORTATION LAWS

deliver the goods to its warehouse. In turn, TMBI

subcontracted a portion of its obligation, the delivery of the
cargo, to another common carrier, BMT. Despite the
subcontract, TMBI remained responsible for the cargo.
Under Article 1736, a common carrier’s extraordinary
responsibility over the shipper’s goods lasts from the time
these goods are unconditionally placed in the possession of,
and received by, the carrier for transportation, until they
are delivered, actually or constructively, by the carrier, to
the consignee. That the cargo disappeared during the
transit while under the custody of BMT, TMBI’s
subcontractor, did not diminish nor terminate TMBI’s
responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault. Instead of showing that it had
acted with extraordinary diligence, TMBI simply argued that
it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish
this premise carries with it the presumption of fault or
negligence, thus, rendering it liable to Sony/ Mitsui for
breach of contract.

Specifically, TMBI’s current theory, that the hijacking was attended

by force or intimidation, is untenable.

ART. 1733. Common carriers, from the nature of their

business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods
is further expressed in Articles 1734,1735, and 1745, Nos. 5,6, and
7, while the extraordinary diligence for the safety of the
passengers is further set forth in Articles 1755 and 1756.

The law itself (Art. 1733) provides what kind of diligence

is required of common carriers. This is in view of the nature
of the business of common carrier and for reasons of public
policy.
To overcome the presumption of negligence in the
case of loss, destruction or deterioration of the goods, the
common carrier must prove that it exercised extraordinary
diligence. (Asia Litherage and Shipping, Inc. v. Court of Appeals, 409
SCRA 340, August 19, 2003)
 26

J
CHAPTER I
PRELIMINARY CONSIDERATIONS

The extraordinary diligence in the vigilance over

the goods tendered for shipment requires the common
carrier to know and to fol low the required precaution
for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires
common carriers to render service with the greatest
skill and foresight and “to use all reasonable means to
ascertain the nature and characteristic of goods
tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their
nature requires.” (Compania Maritima v. Court of Appeals, 164
SCRA 685)

As a rule, the diligence required of every obligor is

ordinary diligence, i.e., diligence of a good father of a
family. However, the requirement of proper diligence
may be controlled by law or stipulation of the parties
(Art. 1163, NCC), thus, the extraordinary diligence required
of common carriers may be limited by the parties
themselves as Articles 1744 and 1748 provide.
Non-ownership of the vessel or vehicle use by the
carrier does not render ineffective observance of
extraordinary diligence in the vigilance over the goods
and for the safety of passengers transported by the
carrier.
“The fact that it did not own the vessel it decided
to use to consummate the contract of carriage did not
negate its character and duties as a common carrier. As
a practical matter, it is very difficult and often
impossible for the general public to enforce its rights of
action under a contract of carriage if it should be
required to know who the actual owner of the vessel is.
To permit a common carrier to escape its responsibility
for the goods it agreed to transport (by the expedient of
alleging non-ownership of the vessel it employed)
would radically derogate from the carrier’s duty of
extraordinary diligence. It would also open the door to
collusion between the carrier and the supposed owner
and to the possible shifting of liability from the carrier
to one without any financial capability to answer for the
resulting damages.” (Cebu Salvage Corp. v.
Philippine Home Assurance Corp., 512 SCRA 667, January 25, 2007)

27
TRANSPORTATION LAWS
For a vessel to be seaworthy, it must be adequately equipped
for the voyage and manned with a sufficient number of
competent officers and crew.

Loadstar Shipping Co., Inc. v. Court of Appeals

and the Manila Insurance Co., Inc.
G.R. No. 131621, September 28, 1999
FACTS: On November 19, 1984, LOADSTAR
received on board its M/V “Cherokee” (hereafter, the
vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and
others; and
c) 49 bundles of moulding R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178 were insured for
the same amount with MIC against various risks including
“TOTAL LOSS BY TOTAL LOSS

OF THE VESSEL.” The vessel, in turn, was insured by Prudential

Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On
November 20, 1984, on its way to Manila from the port of
Nasipit, Agusan del Norte, the vessel, along with its cargo, sank
off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with LOADSTAR, which, however,
ignored the same. As the insurer, MIC paid P6,075,000 to the
insured in full settlement of its claim and the latter executed a
subrogation receipt therefore.
On February 4, 1985, MIC filed a complaint against
LOADSTAR and PGAI, alleging that the sinking of the
 vessel was due to the fault and negligence of LOADSTAR
and its employees. It also prayed that PGAI be ordered
to pay the insurance proceeds from the loss of the
vessel directly to MIC, said amount to be deducted from
MIC’s claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the
loss of the shipper’s goods and claimed that the sinking
of its vessel was due to force majeure. PGAI, on the other
hand, averred that MIC had no cause of action against it,
LOADSTAR being the party insured. In any event,

28
CHAPTER 1
PRELIMINARY CONSIDERATIONS

PGA1 was later dropped as a party defendant after it paid

the insurance proceeds to LOADSTAR.
The Regional Trial Court of Manila rendered
judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the Court of Appeals, which,
however, agreed with the trial court and affirmed
its decision in toto.
ISSUE: Whether or not Loadstar observed due
and/or ordinary diligence in these premises.
HELD: M/V “Cherokee” was not seaworthy
when it embarked on its voyage on November 19,
1984. The vessel was not even sufficiently manned
 at the time. “For a vessel to be seaworthy, it must
be adequately equipped for the voyage and
manned with a sufficient number of competent
officers and crew. The failure of a common carrier
to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach
of its duty prescribed in Article 1755 of the
Civil Code.”
Neither do the Court agrees with LOADSTAR’S
WCFU-

argument that the

“limited liability” theory should be applied in this
8

case. 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.
Fault or Negligence; Proximate Cause, Defined
 Sabena Belgian World Airlines v. Hon. Court
of Appeals and Ma. Paula San
Agustin

G.R. No. 104685, March 14,1996

FACTS: On August 21, 1987, plaintiff was a passenger on
board

Flight SN 284 of defendant airline originating

from Casablanca to 29

J DIVERSITY OF THE CORDILLERAS |

TRANSPORTATION LAWS

Brussels, Belgium, on her way back to Manila. Plaintiff

checked in her luggage, which contained her valuables,
namely: jewelries valued at $2,350; clothes, $1,500;
shoes/bag, $150; accessories $75; luggage itself, $ 10.00; or a
total of $4,265.00, for which she was issued Tag No. 71423.
She stayed overnight in Brussels and her luggage was left on
board Flight SN 284.
Plaintiff arrived at Manila International Airport on
September 2, 1987 and immediately submitted her Tag No.
71423 to facilitate the release of her luggage, but the luggage
was missing. She was advised to accomplish and submit a
Property Irregularity Report, which she submitted and filed
on the same day.
 She followed up her claim on September 14, 1987, but the
luggage remained to be missing.
On September 15, 1987, she filed her formal complaint with
the Office of Ferge
Massed, defendant’s Local Manager, demanding immediate
attention.
On September 30, 1987, on the occasion of plaintiff’s
following up of her luggage claim, she was furnished copies
of defendant’s telexes with an information that the Brussels’s
Office of defendant found the luggage and that they have
broken the locks for identification. Plaintiff was assured by
the defendant that it has notified its Manila Office that the
luggage will be shipped to Manila on October 27, 1987. But
unfortunately plaintiff was informed that the luggage was
lost for the second time.
At the time of the filing of the complaint, the luggage with
its contents had not been found.
Plaintiff demanded from the defendant the money
value of the luggage and its contents amounting to $4,265 or
its exchange value, but defendant refused to settle the claim.
Defendant asserts in its Answer and its evidence tends
to show that while it admits that the plaintiff was a
passenger on board Flight No. SN 284 with a piece of checked
in luggage bearing Tag No. 71423, the loss of the luggage was
due to plaintiff’s sole if not contributory negligence; that she
did not declare the valuable items in her checked
 30
CHAPTER I PRELIMINARY
CONSIDERATIONS

in luggage at the flight counter when she checked in for

her flight from Casablanca to Brussels so that either the
representative of the defendant at the counter would
have advised her to secure an insurance on the alleged
valuable items and required her to pay additional
charges, or would have refused acceptance of her
baggage as required by the generally accepted practices
of international carriers; that Section 9(a), Article IX of
General Conditions of carriage requiring passengers to
collect their checked baggage at the place of stopover,
plaintiff neglected to claim her baggage at the Brussels
Airport; that plaintiff should have retrieved her
undeclared valuables from her baggage at the Brussels
Airport since her flight from Brussels to Manila will still
have to visit for confirmation inasmuch as only her flight
from Casablanca to Brussels was confirmed; that
defendant incorporated in all Sabena Plane Tickets,
including

Sabena Ticket No. 082422-72502241 issued to plaintiff in

Manila on August 21, 1987, a warning that “Items of
value should be carried on your person” and that some
carriers assume no liability for fragile, valuable or
perishable articles and that further information may be
obtained from the carrier for guidance; that granting
without conceding that defendant is liable, its liability is
limited only to

US$20.00 per kilo due to plaintiff’s failure to declare a higher

value on the contents of her checked in luggage and pay
additional charges thereon.
The trial court rendered judgment, ordering
petitioner Sabena Belgian World Airlines to pay private
respondent Ma. Paula San Agustin — actual, moral, and
exemplary damages, and attorney’s fees. Said decision
was affirmed in toto by the Court of Appeals in its decision
of February 27, 1992.
ISSUE: Whether or not there was negligence on the part of
petitioner airline.
HELD: Fault or negligence consists in the omission of
that diligence which is demanded by the nature of an
obligation and corresponds with the circumstances of the
person, of the time, and of the place. When the source of
an obligation is derived from a contract, the mere breach
or non-fulfillment of the prestation gives rise to the
presumption of fault on the part of the obligor. This rule
is no different in the case of common carriers in the
carriage of goods, which indeed,

31
TRANSPORTATION LAWS
are bound to observe not just the due diligence of a
good father of a family but that of “extraordinary”
care in the vigilance over the goods. The appellate
court has aptly observed:
“x x x Art. 1733 of the (Civil) Code provides that from the
very nature of their business and by reasons of public policy,
common carriers are bound to observe extraordinary diligence
in the vigilance over the goods transported by them. This
extraordinary responsibility, according to Art. 1736, lasts from
the time the goods are unconditionally placed in the possession
of and received by the carrier until they are delivered actually or
constructively to the consignee or person who has the right to
receive them. Article 1737 states that the common carriers duty
to observe extraordinary diligence in the vigilance over the
goods transported by them remains in full force and effect when
they are temporarily unloaded or stored in transit. And Art. 1735
establishes the presumption that if the goods are lost, destroyed
or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they had
observed extraordinary diligence as required in Article 1733.
“The only exceptions to the foregoing extraordinary
responsibility of the common carrier is when the loss,
destruction, or deterioration of the goods is due to any of the
following causes:
‘(1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity;
‘(2) Act of the public enemy in war, whether international or
civil;
‘(3) Act or omission of the shipper or owner of the goods;
‘(4) The character of the goods or defects in the packing or in the
containers;
‘(5) Order or act of competent public authority.
Not one of the above excepted causes obtains in this case. ”
The above rules remain basically unchanged even when
the contract is
 breached by tort although non-contradictory principles

32
CHAPTER I PRELIMINARY
CONSIDERATIONS

on quasi-delict may then be assimilated as also forming

part of the governing law. Petitioner is not thus entirely
off track when it has likewise raised in its defense the
tort doctrine of proximate cause. Unfortunately for
petitioner, however, the doctrine cannot, in this
particular instance, support its case. Proximate causes is
that which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces
injury and without which the result would not have
occurred.
Under domestic law and jurisprudence (the
Philippines being the country of destination), the
attendance of gross negligence (given the equivalent of
fraud or bad faith) holds the common carrier liable for
all damages, which can be reasonably attributed,
although unforeseen, to the non-performance of the
obligation, including moral and exemplary damages.

Spouses Dante Cruz and Leonora Cruz

v. Sun Holidays, Inc.

 G.R. No. 186312, June 29, 2010
FACTS: Spouses Dante and Leonora Cruz
(petitioners) lodged a Complaint on January 25,2001
against Sun Holidays, Inc. (respondent) with the Regional
Trial Court (RTC) of Pasig City for damages arising from
the death of their son Ruelito C. Cruz (Ruelito), who
perished with his wife on September 11, 2000 on board
the boat M/B Coco Beach III that capsized en route to
Batangas from Puerto Galera, Oriental Mindoro where
the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
On September 11, 2000, as it was still windy,
Miguel C. Matute (Matute), a scuba diving instructor,
and 25 other Resort guests including petitioner’s son
and wife trekked to the other side of the Coco Beach
mountain that was sheltered from the wind where they
boarded M/B Coco Beach III, which was to ferry them to
Batangas. Shortly after the boat sailed, it started to rain.
As it moved farther away from Puerto Galera and into
the open seas, the rain and wind got stronger, causing
the boat to tilt from side to side, and the captain step
forward to the front, leaving the wheel to one of the
crew members.

The waves got more unwieldy. After getting hit by two big waves,
which came

33
TRANSPORTATION LAWS
after the other, M/B Coco Beach III capsized, putting all
passengers underwater. The passengers, who had put on
their lifejackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers,
who reached the surface, asked him what they could do
to save the people who were still trapped under the boat.
The captain replied, “Iligtas ninyo na lang ang sarili ninyo ” (Just
save yourselves).
At the time of Ruelito’s death, he was 28 years old
and employed as a contractual worker for Mitsui
Engineering & Shipbuilding Arabia, Ltd., in Saudi Arabia,
with a basic monthly salary for S900. Petitioners, by letter
of October 26, 2000, demanded indemnification from
respondent for the death of their son in the amount of at
least P4,000,000.
Replying, respondent denied any responsibility for
the incident, which it considered to be a fortuitous event.
It nevertheless offered, as an act of commiseration, the
amount of PI0,000 to petitioners upon their signing of a
waiver.
By Decision of February 16, 2005, Branch 267 of the
Pasig RTC dismissed petitioners’ Complaint and
respondent’s Counterclaim. Petitioner’s Motion for
Reconsideration, having been denied, they appealed to
the Court of Appeals.
By Decision of August 19, 2008, the appellate court
denied petitioners’ appeal, holding, among other things,
that the trial court correctly ruled that respondent is a
private carrier, which is only required to observe ordinary
diligence; that respondent in fact observed extraordinary
diligence in transporting its guests on board M/B Coco
Beach III; and that the proximate cause of the incident
was a squall, a fortuitous event.
ISSUE: Whether or not the respondent is a common carrier.
HELD: The petition is impressed with merit.
Indeed, respondent is a common carrier. Its ferry
services are so intertwined with its main business as to be
properly considered ancillary thereto. The constancy of
respondent’s ferry services in its resort operations is
underscored by it having its own Coco Beach boats. And
the tour packages it offers, which include the ferry
services, may

34
CHAPTER F PRELIMINARY
CONSIDERATIONS

be availed of by anyone who can afford to pay the same. These

services are thus available to the public.
That respondent does not charge a separate fee or
fare for its ferry services is of no moment. It would be
imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort
operators offering tour packages to factor the
transportation fee in arriving at the tour package price.
That guests who opt not to avail of respondent’s ferry
services pay the same amount is likewise inconsequential.
These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code
defining “common carriers” has deliberately refrained
from making distinctions on whether the carrying of
persons or goods is the carrier’s principal business,
whether it is offered on a regular basis, or whether it is
offered to the general public. The intent of the law is thus
to not consider such distinctions. Otherwise, there is no
telling how many other distinctions may be concocted by
unscrupulous businessmen engaged in the carrying of
persons or goods in order to avoid the legal obligations
and liabilities of common carriers.
The evidence shows that PAGASA issued 24-hour
public weather forecasts and tropical cyclone warnings for
shipping on September 10 and 11, 2000, advising of
tropical depressions in Northern Luzon, which would also
affect the province of Mindoro. By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA,
squalls are to be expected under such weather condition.
A very cautious person exercising the utmost
diligence would thus not brave such stormy weather and
put other people’s lives at risk. The extraordinary
diligence required of common carriers demands that they
take care of the goods or lives entrusted to their hands as
if they were their own. This respondent failed to do so.
 35

CHAPTER II VIGILANCE OVER

THE GOODS
ARTICLES 1734 to 1754

ARTICLE 1734. Common carriers are responsible for

the Loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes
only:
(1) Flood, storm, earthquake, lightning, or other
natural disaster or calamity;
(2) Act of the public enemy in war, whether
international or
civil;
(3) Act or omission of the shipper or owner of
the goods;
(4) The character of the goods or defects in the
packing or in the containers;
(5) Order or act of competent public authority.

It is important to point out that the above list of

causes of loss, destruction or deterioration, which
exempts the common carrier for responsibility,
therefore, is a closed list. Causes falling outside the
foregoing list even if they appear to constitute specie of
force majeure, fall within the scope of Article 1735. In other
words, if the goods are lost, destroyed, or deteriorated
 by causes other than those mentioned in Article 1734,
the common carrier must present clear and convincing
evidence that they are not negligent.
The general rule for fortuitous events provide that
except in cases provided by law, or when it is otherwise
declared by stipulation or when the nature of the
obligation requires the assumption of risk, no person

36
CHAPTER II VIGILANCE
OVER THE GOODS

shall be responsible for those events which could not be

foreseen, or which though foreseen, were inevitable. (Art. 1174,
NCC)

In order that an obligor may be exempted from a

breach of an obligation due to caso fortuito or an Act of God,
the following requisites must concur:
1. The cause of the breach of the obligation must be
independent of the will of the debtor;
2. The event must be unforeseen or unavoidable;
3. The event must be such as to render it impossible
for the debtor to fulfill his obligation in a normal
manner; and
4. The debtor must be free from any participation in,
or aggravation of the injury to the creditor.
 Broadly speaking, force majeure generally applies to a
natural accident, such as that caused by a lightning, an
earthquake, a tempest, or a public enemy. Hence, fire is
not considered a natural disaster or calamity.
This must be so as it arises almost invariably from
some act of man or by human means. It does not fall
within the category of an act of God unless caused by
lightning or by other natural disaster or calamity. It may
even be caused by the actual fault or privity of the carrier.
(Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance
Company, Inc., 404 SCRA 70, June 25, 2003)

Note:The principle embodied in the act of God

doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to
be excluded from creating or entering into the cause of
the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his
active intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the rules
applicable to the acts of God.
Common carrier presumed at fault or acted negligently in cases other
than those mentioned in Article 1734. Fire not considered a natural
disaster or calamity.

37
TRANSPORTATION LAWS
 Eastern Shipping Lines, Inc. v. The Nisshin
Fire and Marine Insurance Co., and Dowa
Fire and Marine Insurance Co., Ltd.
No. L-71478, May 29, 1987

FACTS: Sometime in or prior to June 1977, the M/S

Asiatica, a vessel operated by petitioner Eastern Shipping
Lines, Inc., took on board 128 cartons of garment fabrics
and accessories, in two containers, consigned to Mariveles
Apparel Corporation, and two cases of surveying
instruments consigned to Aman Enterprises and General
Merchandise. The 128 cartons were insured for their stated
value by respondent Nisshin Fire & Marine Insurance Co.,
for US$46,583, and the two cases by respondent Dowa Fire
& Marine Insurance Co., Ltd., for US$11,385.
En routefrom Kobe, Japan, to Manila, the vessel caught
fire and sank, resulting in the total loss of ship and cargo.
The respective respondent Insurers paid the corresponding
marine insurance.
On June 16, 1978, respondents Nisshin Fire & Marine
Insurance Co. (NISSHIN, for short), and Dowa Fire & Marine
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the
insured, filed suit against petitioner Carrier for the recovery
of the insured value of the cargo lost with then Court of
First Instance of Manila, Branch II (Civil Case No. 116151),
imputing unseaworthiness of the ship and non-observance
of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal
grounds that the fire which caused the sinking of the ship is
an exempting circumstance under Section 4(2)(b) of the
Carriage of Goods by Sea Act (COGSA); and that when the
loss by fire is established, the burden of proving negligence
of the vessel is shifted to the cargo shipper.
On September 15,1980, the Trial Court rendered judgment
in favor of NISSHIN and DOWA in the amounts of US$46,583
and US$11,385,

respectively, with legal interest, plus attorney’s fees of

P5,000 and costs. On appeal by petitioner, the then Court
of Appeals on September 10, 1984, affirmed with
modification the Trial Court’s judgment by decreasing the
amount recoverable by DOWA to US$1,000 because of
$500 per package limitation of liability under the COGSA.

38
CHAPTER II
VIGILANCE OVER THE GOODS

ISSUE:Who has the burden of proof to show negligence of

the carrier?
HELD: Under the Civil Code, common carriers, from
the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in
the vigilance over goods, according to all the
circumstances of each case. Common carriers are
responsible for the loss, destruction, or deterioration of
the goods unless the same is due to any of the following
causes only:
“(0 Flood, storm, earthquake, lightning or other
natural disaster calamity;

xxx xxx xxx

Petitioner Carrier claims that the loss of the vessel

by fire exempts it from liability under the phrase “natural
disaster or calamity.” However, [W]e are of the opinion
that fire may not be considered a natural disaster or
calamity. This must be so as it arises almost invariably
from some act of man or by human means. It does not
fall within the category of an act of God unless caused by
lightning or by other natural disaster or calamity. It may
even be caused by the actual fault or privity of the
carrier.
As the peril of fire is not comprehended within the
exceptions in Article 1734, supra, Article 1735 of the Civil
Code provides that in all cases other than those
mentioned in Article 1734, the common carrier shall be
presumed to have been at fault or to have acted
negligently, unless it proves that it has observed the
extraordinary diligence required by law.
In this case, the respective insurers, as subrogees of
the cargo shippers, have proven that the transported
goods have been lost. Petitioner Carrier has also proven
that the loss was caused by fire. The burden then is upon
Petitioner Carrier to prove that it has exercised the
extraordinary diligence required by law. In this regard,
the Trial Court, concurred in by the Appellate Court,
made the following finding of fact:
“The cargoes in question were, according
to the witnesses for the defendant, placed in
hatches Nos. 2 and 3 of the vessel.

39
TRANSPORTATION LAWS

Boatswain Ernesto Pastrana noticed that smoke was

coming out from Hatch No. 2 and Hatch No. 3; that
when the smoke was noticed, the fire was already
big; that the fire must have started twenty-four (24)
hours before the same was noticed; that carbon
dioxide was ordered released and the crew was
ordered to open the Hatch Covers of No. 2 hold for
commencement of fire fighting by sea water; that all
of these efforts were not enough to control the fire.
“Pursuant to Article 1733, common carriers are
bound to observe extraordinary diligence in the
vigilance over the goods. The evidence of the
defendant did not show that extraordinary vigilance
was observed by the vessel to prevent the occurrence
of fire at hatches numbers 2 and 3.
 Defendant’s evidence did not likewise show the
amount of diligence made by the crew, on orders, in
the care of the cargoes. What appears is that after
the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the
voyage. Consequently, the crew could not have even
explain what could have caused the fire. The
defendant, in the Court’s mind, failed to satisfactorily
show that extraordinary vigilance and care had been
made by the crew to prevent the occurrence of the
fire. The defendant, as a common carrier, is liable to
the consignees for said lack of diligence required of it
under Article 1733 of the Civil Code.”
Having failed to discharge the burden of proving that
it had exercised the extraordinary diligence required by
law, Petitioner Carrier cannot escape liability for the loss
of the cargo.
And even if fire were to be considered a “natural
disaster” within the meaning of Article 1734 of the Civil
Code, it is required under Article 1739 of the same Code
that the “natural disaster” must have been the “proximate
and only cause of the loss,” and that the carrier has
“exercised due diligence to prevent or minimize the loss
before, during or after the occurrence of the disaster.”
This Petitioner Carrier has also failed to establish
satisfactorily.
 40
CHAPTER II
VIGILANCE OVER THE GOODS

Force majeure generally applies to a natural accident, such as that

caused by a lightning, earthquake, a tempest or a public enemy.
Hence, fire is not considered a natural disaster or calamity.

Edgar Cokaliong Shipping Lines, Inc. v. UCPB General

Insurance Company, Inc.
G.R. No. 146018, June 25, 2003

FACTS: Sometime on December 11, 1991, Nestor

Angelia delivered to the Edgar Cokaliong Shipping Lines,
Inc. (now Cokaliong Shipping Lines) petitioner for
brevity, cargo consisting of one carton of Christmas
decor and two sacks of plastic toys to be transported on
board the M/V Tandag on its Voyage No. T-189
scheduled to depart from Cebu City, on December 12,
1991, for Tandag, Surigao del Sur. Petitioner issued Bill
of Lading No. 58, freight prepaid, covering the cargo.
Nestor Angelia was both the shipper and consignee of
the cargo valued, on the face thereof, in the amount of
P6,500. Zosimo Mercado likewise delivered [the] cargo
to petitioner consisting of two cartons of plastic toys and
Christmas decor[s], one roll of floor mat, and one bundle
of various or assorted goods for transportation thereof
from Cebu City to Tandag, Surigao del Sur. Petitioner
issued Bill of Lading No. 59 covering the cargo which, on
the face thereof, was valued in the amount of PI4,000.
Under the Bill of Lading, Zosimo Mercado was both the
shipper and consignee of the cargo.
 On December 12, 1991, Feliciana Legaspi insured
the cargo covered by Bill of Lading No. 59 with the UCPB
General Insurance Co., Inc., respondent for brevity, for
the amount of P100,000 “against all risks” under Open
Policy No. 002/91/254 for which she issued, by
respondent, Marine Risk No. 18409 on said date. She
also insured the cargo covered by Bill of Lading No. 58
with respondent, for the amount of P50,000, under
Open Policy No. 002/91/254 on the basis of which
respondent issued Marine Risk No. 18410 on said date.
When the vessel left port, it had 34 passengers and
assorted cargo on board, including the goods of Legaspi.
After the vessel had passed by the Mandaue Mactan
Bridge, fire ensued in the engine room, and despite
earnest efforts of the officers and crew of the vessel, the
fire

41
TRANSPORTATION LAWS

engulfed and destroyed the entire vessel resulting in the

loss of the vessel and the cargoes therein. The Captain
filed the required Marine Protest. Shortly thereafter,
Feliciana Legaspi filed a claim, with respondent, for the
value of the cargo insured, which the respondent
approved.
 On July 14, 1992, respondent, as subrogee of
Feliciana Legaspi, filed a complaint anchored torts
against petitioner with the Regional Trial Court of Makati
City, for the loss of the cargo alleging that the loss of the
said cargo was due to the negligence of the petitioner.
Whether or not the cause of the loss of the said
ISSUE:
cargoes was due to force majeure.
HELD: Petitioner argues that the cause of the loss of
the goods, subject of this case, was force majeure. It adds
that its exercise of due diligence was adequately proven
by the findings of the Philippine Coast Guard. The Court
is not convinced. The uncontroverted findings of the
Philippine Coast Guard show that the M/V Tandag sank
due to a fire, which resulted from a crack in the auxiliary
engine fuel oil service tank. Fuel spurted out of the crack
and dripped to the heating exhaust manifold, causing the
ship to burst into flames. The crack was located on the
side of the fuel oil tank, which had a mere two-inch gap
from the engine room walling, thus precluding constant
inspection and care by the crew.
Having originated from an unchecked crack in the
fuel oil service tank, the fire could not have been caused
by force majeure. Broadly speaking, force majeure generally
applies to a natural accident, such as that caused by
lightning, earthquake, a tempest, or a public enemy.
Hence, fire is not considered a natural disaster or
calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
 Court, the Court explained: “...This must be so as it arises
almost invariably from some act of man or by human
means. It does not fall within the category of an act of
God unless caused by lighting or by other natural disaster
or calamity. It may even be caused by the actual fault or
privity of the carrier.”
Article 1680 of the Civil Code, which considers fire
as an extraordinary fortuitous event refers to leases or
rural lands where a reduction of the rent is allowed when
more than one-half of the fruits

42
CHAPTER II VIGILANCE OVER THE
GOODS

have been lost due to such event, considering that the law
adopts a protective policy towards agriculture.
As the peril of fire is not comprehended within the
exceptions in Article 1734, supra, Article 1735 of the Civil
Code provides that in all cases other than those mentioned
in Article 1734, the common carrier shall be presumed to
have been at fault or to have acted negligently, unless it
proves that it has observed the extraordinary diligence
required by law.
(See also DSR Senator Lines v. Federal Phoenix Assurance Company, Inc.,
413 SCRA 14, October 7, 2003)
 The Philippine American General Insurance Co., Inc.
v. Court of Appeals and Felman Shipping Lines

G.R. No. 116940, June 11,1997

FACTS: On July 6, 1983, Coca-Cola Bottlers Philippines,
Inc. loaded on board “MV Asilda,” a vessel owned and
operated by respondent Felman Shipping Lines (FELMAN),
7,500 cases of one- liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for
consignee Coca-Cola Bottlers Philippines, Inc., Cebu.
The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN), under
Marine Open Policy No. 100367-PAG.
“MV Asilda” left the port of Zamboanga in fine
weather at 8:00 in the evening of the same day. At around
eight forty-five the following morning, July 7, 1983, the
vessel sank in the waters of Zamboanga del Norte bringing
down her entire cargo with her, including the subject 7,500
cases of one-liter Coca-Cola softdrink bottles.
On July 15, 1983, the consignee Coca-Cola Bottlers
Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of
the loss of its softdrink bottles that sank with “MV Asilda.”
Respondent denied the claim thus prompting the consignee
to file an insurance claim with PHILAMGEN which paid its
claim ofP755,250.
 43
TRANSPORTATION LAWS

Claiming its right of subrogation, PHILAMGEN

sought recourse against respondent FELMAN, which
disclaimed any liability for the loss. Consequently, on
November 29, 1983 PHILAMGEN sued the shipowner
for sum of money and damages.
In its complaint PHILAMGEN alleged that the
sinking and total loss of “MV Asilda” and its cargo were
due to the vessel’s unseaworthiness, as he was put to
sea in an unstable condition. It further alleged that the
vessel was improperly manned and that its offices were
grossly negligent in failing to take appropriate measures
to proceed to a nearby port or beach after the vessel
started to list.
On February 28, 1992, the trial court rendered judgment in
favor of
FELMAN. It ruled that “MV Asilda” was seaworthy when
it left the port of Zamboanga as confirmed by
certificates issued by the Philippine Coast Guard and
the shipowner’s surveyor attesting to its seaworthiness.
Thus, the loss of the vessel and its entire shipment
could only be attributed to either a fortuitous event, in
which case, no liability should attach unless there was a
stipulation to the contrary, or to the negligence of the
captain and his crew, in which case, Article 587 of the
Code of Commerce should apply.
 ISSUE: Whether or not “MV Asilda” was seaworthy
when it left the port of Zamboanga.
HELD: “MV Asilda” was unseaworthy when it left
the port of Zamboanga. In a joint statement, the
captain as well as the chief mate of the vessel
confirmed that the weather was fine when they left the
port of Zamboanga. According to them, the vessel was
carrying 7,500 cases of one-liter Coca-Cola softdrink
bottles, 300 sacks of seaweeds, 200 empty carbon
dioxide cylinders and an undetermined quantity of
empty boxes for fresh eggs. They loaded the empty
boxes for eggs and about 500 cases of Coca-Cola bottles
on deck. The ship captain stated that around 4:00 in the
morning of July 7, 1983, he was awakened by the officer
on duty to inform him that the vessel had hit a floating
log. At that time, he noticed that the weather had
deteriorated with strong southeast winds inducing big
waves. After 30 minutes, he observed that the vessel
was listing slightly to starboard and would not correct
itself despite the heavy rolling and pitching. He then
ordered his crew to shift

44
CHAPTER II VIGILANCE OVER THE
GOODS

the cargo from starboard to portside until the vessel was

balanced. At about 7:00 in the morning, the master of the
vessel stopped the engine because the vessel was listing
dangerously to portside. He ordered his crew to shift the
cargo back to the starboard. The shifting of cargo took
about an hour after which he rang the engine room to
resume full speed.
At around 8:45, the vessel suddenly listed to portside
and before the captain could decide on his next move,
some of the cargos on deck were thrown overboard and
seawater entered the engine room and cargo holds of the
vessel. At that instance, the master of the vessel ordered
his crew to abandon ship. Shortly, thereafter, “MV Asilda”
capsized and sank. He ascribed the sinking to the entry of
seawater through a hole in the hull caused by the vessel’s
collision with a partially submerged log.
The Court subscribes to the findings of the Elite Adjusters,
Inc., and the

Court of Appeals that the proximate cause of the sinking

of “MV Asilda” was its being top-heavy. Contrary to the
ship captain’s allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were
stowed on deck. Several days after “MV Asilda” sank, an
estimated 2,500 empty Coca-Cola plastic cases were
recovered near the vicinity of the sinking. Considering
that the ship’s hatches were properly secured, the empty
Coca-Cola cases recovered could have come only from the
vessel’s deck cargo. It is settled that carrying a deck cargo
raises the presumption of unseaworthiness unless it can
be shown that the deck cargo will not interfere with the
proper management of the ship. However, in this case it
was established that “MV Asilda” was not designed to
carry substantial amount of cargo on deck. The inordinate
loading of cargo on deck resulted in the decrease of the
vessel’s metacentric height thus making it unstable. The
strong winds and waves encountered by the vessel are
but the ordinary vicissitudes of a sea voyage and as such
merely contributed to its already unstable and
unseaworthy condition.
ISSUE: Whether or not the limited liability under Article
587 of the Code of Commerce should apply.
HELD: On the second issue, Article 587 of the Code of
Commerce is not applicable to the case at bar. Simply put,
the ship agent is liable for the negligent acts of the
captain in the care of goods loaded on the

45
TRANSPORTATION LAWS

vessel. This liability, however, can be limited through

abandonment of the vessel, its equipment and freightage
as provided in Article 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could
still be held answerable despite the abandonment, as
where the loss or injury was due to the fault of the
shipowner and the captain. The international rule is to the
effect that the right of abandonment of vessels, as a legal
limitation of shipowner’s liability, does not apply to cases
where the injury or average was occasioned by the
shipowner’s own fault. It must be stressed at this point
that Article 587 speak only of situations where the fault or
negligence is committed solely by the captain where the
shipowner is likewise to be blamed, Article 587 will not
apply, and such situation will be covered by the provisions
of the Civil Code on common carrier.
It was already established at the outset that the
sinking of “MV Asilda” was due to its unseaworthiness
even at the time of its departure from the port of
Zamboanga. It was top-heavy as an excessive amount of
cargo was loaded on deck. Closer supervision on the part
of the shipowner could have prevented this fatal
miscalculation. As such, FELMAN was equally negligent. It
cannot, therefore, escape liability through the expedient
of filing a notice of abandonment of the vessel by virtue of
Article 587 of the Code of Commerce.
Under Article 1733 of the Civil Code, “common
carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all
the circumstances of each case, x x x” In the event of loss
of goods, common carriers are presumed to have acted
negligently; FELMAN, the shipowner, was not able to
rebut this presumption.
ART. 1735. In all cases other than those mentioned in Nos. 1,2,
3,4, and 5 of the preceding article, if the goods are lost, destroyed or
 deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733.

As previously discussed, the list of causes of loss,

destruction and deterioration, which exempt the common
carrier from liability, is

46
CHAPTER 11 VIGILANCE OVER THE
GOODS

a closed list. Hence, in all other cases, there is a

presumption in law, which is disputable in character that
common carriers are at fault or have acted negligently if
the goods are lost, destroyed or deteriorated. It is
incumbent, therefore, upon the common carrier to prove
that they observed extraordinary diligence in cases of
loss, destruction or deterioration of goods in all other
cases other than those mentioned in Article 1734. In
other words, the burden of proof lies on the common
carriers.
The law provides that a common carrier is presumed
to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.
Ensuring the seaworthiness of the vessel is the first step in
exercising the required vigilance. (Edgar Cokaliong Shipping
Lines, Inc. v. UCPB
General Insurance Company, Inc., 404 SCRA 706)

Sarkies Tours Philippines, Inc. v. Hon. Court of

Appeals and Dr. Elino G. Fortales, Marisol A.
Fortales and Fatima A. Fortales
G.R. No. 108897, October 2,1997

FACTS: On August 31, 1984, Fatima boarded

petitioner’s De Luxe Bus No. 5 in Manila on her way to
Legaspi City. Her brother, Raul, helped her load three
pieces of luggage containing all of her optometry review
books, materials and equipment, trial lenses, trial contact
lenses, passport and visa, as well as her mother Marisol’s
U.S. immigration (green) card, among other important
documents and personal belongings. Her belongings were
kept in the baggage compartment of the bus, but during a
stopover at Daet, it was discovered that only one bag
remained in the open compartment. The others, including
Fatima’s things, were missing and might have dropped
along the way. Some of the passengers suggested
retracing the route of the bus to try to recover the lost
items, but the driver ignored them and proceeded to
Legaspi City.
Fatima immediately reported the loss to her mother
who, in turn, went to petitioner’s office in Legaspi City
and later at its head office in Manila. Petitioner,
however, merely offered her PI,000 for each piece of
luggage lost, which she turned down. After returning to
Bicol,
 47
TRANSPORTATION LAWS

disappointed but not defeated, mother and daughter asked

assistance from the radio stations and even from Philtranco bus
drivers who plied the same route on August

31st. The effort paid off when one of Fatima’s bags was
recovered. Marisol further reported the incident to the
National Bureau of Investigation’s field office in Legaspi City
and to the local police.
After more than nine months of fruitless waiting,
respondents decided to file the case below to recover the
value of the remaining lost items, as well as moral and
exemplary damages, attorney’s fees, and expenses of
litigation. They claimed that the loss was due to petitioner’s
failure to observe extraordinary diligence in the care of
Fatima’s luggage and that petitioner dealt with them in bad
faith from the start. Petitioner, on the other hand,
disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon
boarding its bus.
ISSUE: Whether or not petitioner is liable for the lost pieces
of baggage and damages.
HELD: Petitioner claims that Fatima did not bring any
piece of luggage with her, and even if she did, none was
declared at the start of the trip. The documentary and
testimonial evidence presented at the trial, however,
established that Fatima indeed boarded petitioner’s De
Luxe Bus No. 5 in the evening of August 31,1984, and she
brought three pieces of luggage with her, as testified by her
brother Raul, who helped her pack her things and load
them on said bus. One of the bags was even recovered by a
Philtranco bus driver. In its letter dated October 1,1984,
petitioner tacitly admitted its liability by apologizing to
respondents and assuring them that efforts were being
made to recover the lost items.
Petitioner’s receipt of Fatima’s personal luggage
having been thus established, it must now be determined
if, as a common carrier, it is responsible for their loss.
Under the Civil Code, “common carriers, from the nature of
their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the
goods xxx transported by them,” and this liability “last from
the time the goods are unconditionally placed in the
possession of, and received

48
 CHAPTER II VIGILANCE
OVER THE GOODS

by the carrier for transportation until the same are

delivered, actually or constructively, by the carrier to
x x x the person who has a right to receive them,”
unless the loss is due to any of the excepted causes
under Article 1734 thereof.
The cause of the loss in the case at bar was
petitioner’s negligence in not ensuring that the doors
of the baggage compartment of its bus were securely
fastened. As a result of this lack of care, almost all of
the luggage were lost, to the prejudice of the paying
passengers. As the Court of Appeals correctly
observed:
“x x x. Where the common carrier accepted
its passenger’s baggage for transportation and
even had it placed in the vehicle by its own
employee, its failure to collect the freight charge
is the common carrier’s own lookout. It is
responsible for the consequent loss of the
 baggage. In the instant case, defendant
appellant’s employee even helped Fatima
Minerva Fortales and her brother load the
luggages/baggages in the bus baggage
compartment, without making that they be
weighed, declared, receipted or paid for. Neither
was this required of the other passengers.”
Finally, petitioner questions the award of actual
damages to respondents. On this point, [W]e likewise
agree with the trial and appellate court’s conclusions.
There is no dispute that of the three pieces of
luggage of Fatima, only one was recovered. The other
two contained optometry books, materials,
equipment, as well as vital documents and personal
belongings. Respondents had to shuttle between
Bicol and Manila in their efforts to be compensated
for the loss. During the trial, Fatima and Marisol had
to travel from the United States just to be able to
testify. Expenses were also incurred in reconstituting
their lost documents. Under these circumstances, the
Court agrees with the Court of Appeals in awarding
P30,000 for the lost items and P30,000 for the
transportation expenses, but disagrees with the
deletion of the award of moral and exemplary
damages which, in view of the foregoing proven
facts, with negligence and bad faith on the part of
petitioner having been duly established, should be
granted to respondents in the amount ofP20,000 and
P5,000 respectively.

49
 TRANSPORTATION LAWS

Mere proof of delivery of goods in good order to a carrier

and the subsequent arrival of the same goods at the place of
destination in bad order makes of a prima facie case against
the carrier.

Coastwise Lighterage Corporation v.

Court of Appeals and Philippine
General Insurance Company G.R. No.
114167, July 12,1995
FACTS: Pag-asa Sales, Inc. entered into a contract to
transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corporation (Coastwise for
brevity), using the latter’s dump barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise
owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18,
one of the barges, “Coastwise 9,” struck an unknown sunken
object. The forward buoyancy compartment was damaged,
and water gushed in through a hole “two inches wide and
twenty-two inches long.” As a consequence, the molasses at
the cargo tanks were contaminated and rendered unfit for
the use it was intended. This prompted the consignee, Pag-
asa Sales, Inc., to reject the shipment of molasses as a total
loss. Thereafter, Pag-asa Sales, Inc., filed a formal claim with
the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen) and against
the carrier, herein petitioner, Coastwise Lighterage.
Coastwise Lighterage denied the claim and it was PhilGen
which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000 representing the value of the damaged cargo of
molasses.
In turn, PhilGen then filed an action against Coastwise
Lighterage before the Regional Trial Court of Manila, seeking
to recover the amount of P700,000 which it paid to Pag-asa
Sales, Inc., for the latter’s lost cargo. PhilGen now claims to
be subrogated to all the contractual rights and claims, which
the consignee may have against the carrier, which is
presumed to have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen.
On Coastwise Lighterage appeal to the Court of Appeals, the
award was affirmed.

50
 CHAPTER II
VIGILANCE OVER THE GOODS

ISSUE: Whether or not petitioner Coastwise

Lighterage was transformed into a private carrier, by
virtue of the contract of affreightment which it entered
into with the consignee, Pag-asa Sales, Inc. Corollarily, if
it were in fact transformed into a private carrier, did it
exercise the ordinary diligence to which a private carrier
is in turn bound?
HELD: On the issue, petitioner contends that the RTC
and the Court of Appeals erred in finding that it was a
common carrier. It stresses the fact that it contracted
with Pag-asa Sales, Inc. to transport the shipment of
molasses from

Negros Oriental to Manila and refers to this contract as a

“charter agreement.” It then proceeds to cite the case of
Home Insurance Company v. American Steamship Agencies, Inc.
wherein this Court held: “x x x a common carrier
undertaking to carry a special cargo or chartered to a
special person only becomes a private carrier.”
Petitioner’s reliance on the aforementioned case is
misplaced. In its entirety, the conclusions of the court are as
follows:
 “Accordingly, the charter party contract is one
of affreightment over the whole vessel, rather than
a demise. As such, the liability of the shipowner for
acts or negligence of its captain and crew, would
remain in the absence of stipulation.”
Although a charter party may transform a common
carrier into a private one, the same however is not true
in a contract of affreightment on account of the
distinctions between the two.
Petitioner admits that the contract it entered into
with the consignee was one of affreightment. The Court
SlooiK- c-f

agrees. Pag-asa Sales, Inc., only leased three of

petitioner’s vessels, in order to carry cargo from one
point to another, but the possession, command and
navigation of the vessels remained with petitioner
Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited
Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier,
but remained a common carrier and was still liable as
such.
51
i I-~N 11 i r~r> A C
 TRANSPORTATION LAWS

The law and jurisprudence on common carriers

both hold that the mere proof of delivery of goods in
good order to carrier and the subsequent arrival of the
same goods at the place of destination in bad order
makes for a prima facie case against the carrier.
It follows then that the presumption of negligence
that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies
to the petitioner. This presumption, which is overcome
only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.
Note: To understand this case better, see the
distinction between contract of affreightment and
bareboat or demise charter contract on the notes on
charter party, infra.

Asian Terminals, Inc. v. Simon Enterprises, Inc.

G.R. No. 177116, February 27, 2013

FACTS: On November 25, 1995, Contiquincybunge Export
Company made another shipment to respondent and
allegedly loaded on board the vessel

M/V “Tern” at the Port of Darrow, Louisiana, U.S.A.

3,300.000 metric tons of U.S. Soybean Meal in Bulk for
delivery to respondent at the Port of Manila. The
carrier issued its clean Berth Term Grain Bill of Lading.
 On January 25, 1996, the carrier docked at the
inner Anchorage, South Harbor, Manila. The subject
shipment was discharged to the receiving barges of
petitioner Asian Terminals, Inc. (ATI) and received by
respondent, which, however, reported receiving only
3,100.137 metric tons instead of the manifested
3,300.000 metric tons of shipment. Respondent filed
against petitioner ATI and the carrier claim for the
shortage of 199.863 metric tons, estimated to be worth
US$79,848.86 or P2,100,025, but its claim was denied.
Thus, on December 3, 1996, respondent filed with
the Regional Trial Court (RTC) of Manila an action for
damages against the unknown owner of the vessels
M/V “Sea Dream” and M/V “Tern”, its local agent Inter-
Asia Marine Transport, Inc. and petitioner ATI alleging
that it suffered losses through the fault or negligence of
the said defendants.

52
CHAPTER II
VIGILANCE OVER THE GOODS

Respondent sought to claim damages plus attorney’s fees and

costs of suit.

In their Answer, the unknown owner of the vessel

M/V “Tern” and its local agent Inter-Asia Marine
Transport, Inc., prayed for the dismissal of the
complaint, alleging among others that because the bill
of lading states that the goods are carried on a
“shipper’s weight, quantity, and quality unknown”
terms and on “all terms, conditions, and exceptions,
as per charter party, dated October 15,1995,” the
vessel had no way of knowing the actual weight,
quantity, and quality of the bulk cargo when loaded at
the port of origin and the vessel had to rely on the
shipper for such information.
On May 10, 2001, the Regional Trial Court (RTC) of
Manila rendered a Decision holding petitioner ATI and
its co-defendants solidarily liable to respondent for
damages arising from the shortage, ordering
defendants M/V “Tern” Inter-Asia Marine Transport,
Inc., and Asian Terminal Inc., jointly and severally
liable to pay plaintiff Simon Enterprises damages,
attorney’s fees, and costs of suit. The trial court found
that respondent has established that the
losses/shortages were incurred prior to its receipt of
the goods. As such, the burden shifted to the carrier
to prove that it exercised diligence as required by law
to prevent the loss, destruction, or deterioration.
However, the trial court held that the defendants
failed to prove that they did so.
Not satisfied, the unknown owner of the vessel
M/V “Tern” Inter- Asia Marine Transport, Inc., and
petitioner ATI, respectively, filed appeals to the Court
of Appeals (CA).
 The CA affirmed the RTC Decision and held that
there is no justification to disturb the factual findings
of the trial court, which are entitled to respect on
appeal as they were supported by substantial
evidence.
ISSUE: Whether or not petitioner is liable for the
shortage incurred in the shipment of the goods to
respondent.
HELD: Petitioner ATI is correct in arguing that the
respondent failed to prove that the subject shipment
suffered actual shortage, as there was no competent
evidence to prove that it actually weighed 3,300
metric tons at the port of origin.

53
TRANSPORTATION LAWS

Though it is true that common carriers are

presumed to have been at fault or to have acted
negligently if the goods transported by them are lost,
destroyed, or deteriorated, and that the common carrier
must prove that it exercised extraordinary diligence in
order to overcome the presumption, the plaintiff must
still, before the burden is shifted to the defendant, prove
that the subject shipment suffered actual shortage. This
can only be done if the weight of the shipment at the
port of origin and its subsequent weight at the port of
arrival have been proven by a preponderance of
evidence, and it can be seen that the former weight is
considerably greater than the latter weight, taking into
consideration the exceptions provided in Article 1734 of
the Civil Code.
In this case, respondent failed to prove that the
subject shipment suffered shortage, for it was not able to
establish that the subject shipment was weighted at the
port of origin at Darrow, Louisiana, U.S.A., and that the
actual weight of the said shipment was 3,300 metric tons.
The Berth Term Grain Bill of Lading states that the
subject shipment was carried with the qualification
“Shipper’s weight, quantity, and quality unknown,”
meaning that it was transported with the carrier having
been oblivious of the weight, quantity, and quality of the
cargo.
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.

The above provision determines the period of time

within which the common carrier should observe
extraordinary diligence in transporting the goods.
There is no absolute obligation on the part of a
carrier to accept a cargo. Where a common carrier
accepts a cargo for shipment for valuable consideration,
 it takes the risk of delivering it in good condition as when
it was loaded. And if the fact of improper packing is
known to the carrier or its personnel, or apparent upon
observation but it accepts the goods notwithstanding
such condition, it is not relieved of liability

54
CHAPTER II VIGILANCE OVER THE
GOODS

for loss or injury resulting therefrom. (PAL v. Court of Appeals, G.R. No.
119706, March 4, 1996)

Arrastre Operator and Stevedore Distinguished.

There is a distinction between an arrastre and a

stevedore. Arrastre, a Spanish word that 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. The responsibility of the arrastre operator
lasts until the delivery of the cargo to the consignee. The
service is usually performed by longshoremen. On the
other hand, stevedoring refers to the handling of the cargo
in the holds of the vessel or between the ship’s tackle and
the holds of the vessel. The responsibility of the stevedore
ends upon the loading and stowing of the cargo in the
vessel. A stevedore was only charged with the loading and
stowing of the cargoes from the pier to the ship’s cargo
hold; it was never the custodian of the shipment. A
stevedore is not a common carrier for it does not transport
goods or passengers; it is not akin to a warehouseman for it
does not store goods for profit. The loading and stowing of
cargoes would not have a far-reaching public ramification
as that of a common carrier and a warehouseman; the
public is adequately protected by our laws on contract and
on quasi-delict. The public policy considerations in legally
imposing upon a common carrier or a warehouseman a
higher degree of diligence is not present in a stevedoring
outfit which mainly provides labor in loading and stowing
of cargoes for its clients. There is no specific provision of
law that imposes a higher degree of diligence than ordinary
diligence for a stevedoring company or one who is charged
only with the loading and stowing of cargoes. (Mindanao
Terminal and Brokerage Service, Inc. v. Phoenix Assurance Co. of New
York, McGee & Co. Inc., G.R. No. 162467, May 8, 2009)

On the other hand, the functions of an arrastre

operator involve the handling of cargo deposited on the
wharf or between the establishment of the consignee or
shipper and the ship’s deposited tackle. Being the
custodian of the goods discharged from a vessel, an
arrastre operator’s duty is to take good care of the goods
and to turn them over to the party entitled to their
possession. (Summa Ins. Corp. v. Court of

Appeals, 323 Phil. 214 [1996]) Handling cargo is mainly the arrastre
operator’s

55
 TRANSPORTATION LAWS

principal work so its drivers/operators or employees should observe the

standards and measures necessary to prevent losses and damage to
shipments under its custody. In Firemans Fund Insurance Co. v. Metro Port
Services, Inc.9 182 SCRA 455, February 2, 1990, the Court explained the
relationship and responsibility of an arrastre operator to a consignee of a
cargo, to quote:
“The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre
operator. Since it is the duty of the ARRASTRE 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. Both the ARRASTRE and the CARRIER are therefore
charged with and obligated to deliver the goods in good condition
to the consignee.” (Philippine First Insurance Co., Inc. v. Wallem Phils.
Shipping, Inc., etal., G.R. No. 165647, March 26, 2009)

The extraordinary responsibility of the common carrier lasts until

actual or constructive delivery of the cargoes to the consignee or to
the person who has a right to receive them.

Benito Macam v. Court of Appeals, China Ocean

Shipping Co. and/or Wallem Philippines Shipping, Inc.
G.R. No. 125524, August 25,1999
FACTS: On April 4, 1989, petitioner Benito Macam, doing business
under the name and style Ben-Mac Enterprises, shipped on board the
vessel Nen Jiang, owned and operated by respondent China Ocean
Shipping Co., through local agent respondent Wallem Philippines
Shipping, Inc. (WALLEM), 3,500 boxes of watermelon valued at US$5,950
covered by Bill of Lading No. HKG 99012 and exported through Letter of
Credit No. HK 1031/30 issued by National Bank of Pakistan, Hongkong
(hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a
value of US$14,273.46 covered by Bill of Lading No. HKG 99013 and
exported through Letter of Credit No. HK 1032/30 also issued by
PAKISTAN BANK. The Bills

56
CHAPTER II VIGILANCE
OVER THE GOODS

of Lading contained the following pertinent provision:

“One of the Bills of Lading must be surrendered duly
endorsed in exchange for the goods or delivery
order.” The shipment was bound for Hongkong with
PAKISTAN BANK as consignee and Great Prospect
Company of Kowloon, Hongkong (hereinafter GPC) as
notify party.
On April 6, 1989, per letter of credit requirement,
copies of the bills of lading and commercial invoices
were submitted to petitioner’s depository bank,
Consolidated Banking Corporation (SOLIDBANK),
which paid petitioner in advance the total value of
the shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was
delivered by respondent WALLEM directly to GPC, not
to PAKISTAN BANK, and without the required bill of
lading having been surrendered. Subsequently, GPC
failed to pay PAKISTAN BANK such that the latter, still
in possession of the original bills of lading, refused to
pay petitioner through SOLIDBANK. Since SOLIDBANK
already prepaid petitioner the value of the shipment,
it demanded payment from respondent WALLEM
through five letters but was refused. Petitioner was
thus allegedly constrained to return the amount
involved to SOLIDBANK, and then demanded payment
from respondent WALLEM in writing but to no avail.
On September 25, 1991, petitioner sought
collection of the value of the shipment of
US$20,223.46 or its equivalent of P546,033.42 from
respondents before the Regional Trial Court of
Manila, based on delivery of the shipment to GPC
without presentation of the bills of lading and bank
guarantee.
Respondents contended that the shipment was
delivered to GPC without presentation of the bills of
lading and bank guarantee per request of petitioner
himself because the shipment consisted of perishable
goods.
ISSUE: Whether or not respondents are liable to
petitioner for releasing the goods to GPC without the bills of
lading or bank guarantee.
HELD: The extraordinary responsibility of the
common carriers lasts until actual or constructive
delivery of the cargoes to the consignee or to the
person who has a right to receive them. PAKISTAN
BANK
 57
TRANSPORTATION LAWS

was indicated in the bills of lading as consignee whereas

GPC was the notify party. However, in the export invoices,
GPC was clearly named as buyer/importer. Petitioner also
referred to GPC as such in his demand letter to
respondent WALLEM and in his complaint before the trial
court. This premise draws us to conclude that the delivery
of the cargoes to GPC as buyer/importer which,
conformably with Article 1736 had, other than the
consignee, the right to receive them was proper.
Respondents submitted in evidence a telex dated
April 5, 1989 as basis for delivering the cargoes to GPC
without the bills of lading and bank guarantee. The telex
instructed delivery of various shipments to the respective
consignees without need of presenting the bill of lading
and bank guarantee per the respective shipper’s request
since “for prepaid shipt offt charges already fully paid.”
Petitioner was named therein as shipper and GPC as
consignee with respect to Bill of Lading Nos. HKG 99012
and HKG 99013.
Bill of Lading both as a receipt and a contract.
Samar Mining Company, Inc. v. Nordeutscher Lloyd and
C.F. Sharp and Company, Inc.
G.R. No. L-28673, October 23,1984
FA CTS: The case arose from an importation made by
plaintiff, now appellee, SAMAR MINING COMPANY, INC.,
of one crate Optima welded wedge wire sieves through
the M/S SCHWABENSTEIN, a vessel owned by defendant-
appellant NORDEUTSCHER LLOYD (represented in the
Philippines by its agent, C.R SHARP & CO., INC.), which
shipment is covered by Bill of Lading No. 18 duly issued to
consignee SAMAR MINING COMPANY, INC. Upon arrival
of the aforesaid vessel at the port of Manila, the
aforementioned importation was unloaded and delivered
in good order and condition to the bonded warehouse of
AMCYL. The goods were, however, never delivered to, nor
received by, the consignee at the port of destination —
Davao.
When the letters of complaint sent to defendants
failed to elicit the desired response, consignee herein
appellee, filed a formal claim for PI,691.93, the
equivalent of $424 at the prevailing rate of exchange at
that time, against the former, but neither paid. Hence,
the filing of

58

J
CHAPTER II VIGILANCE OVER
THE GOODS

the instant suit to enforce payment. Defendants-

appellants brought in AMCYL as third-party defendant.
 The trial court rendered judgment in favor of
plaintiff, ordering defendants to pay the amount of
PI,691.93 plus attorney’s fees and costs. However, the
Court stated that defendants may recoup whatever
they may pay plaintiff by enforcing the judgment
against third-party defendant AMCYL which had
earlier been declared in default. Only the defendants
appealed from said decision.
Defendants-appellants now shirk liability for the
loss of the subject goods by claiming that they have
discharged the same in full and good condition unto
the custody of AMCYL at the port of discharge from
ship in Manila, and therefore, pursuant to the
aforequoted stipulation (Sec. 11) in the bill of lading,
their responsibility for the cargo had ceased.
ISSUE: Whether or not the stipulation in the bill
of lading exempting the carrier from liability for loss
of goods not in its actual custody, i.e., after their
discharge from the ship is a valid stipulation?
HELD: The Court finds merit in appellants’ stand.
The validity of stipulations in bills of lading exempting
the carrier from liability for loss or damage to the
goods when the same are not in its actual custody has
been upheld by US in Phoenix Assurance Co., Ltd. v. United
States Lines, 22 SCRA 674 (1968). Said case matches the
present controversy not only as to the material facts
but more importantly, as to the stipulations
contained in the bill of lading concerned. As if to
 underline their awesome likeness, the goods in
question in both cases were destined for Davao, but
were discharged from ship in Manila, in accordance
with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case
which are substantially the same as the subject stipulations
before us, provides:
“The carrier shall not be liable in any
capacity whatsoever for any loss or damage to the
goods while the goods are not in its actual custody.

XXXXXXXXX
The carrier or master, in making arrangements with any
person from

or in connection with all transshipping or forwarding

59
TRANSPORTATION LAWS

of the goods or the use of any means of transportation or

forwarding of goods not used or operated by the carrier, shall
be considered solely the agent of the shipper and consignee and
without any other responsibility whatsoever or for the cost
thereof x x x (Par. 16).”
Finding the above stipulations not contrary to law, morals, good
customs, public order or public policy, [W]e sustained their validity.
Applying said stipulations as the law between the parties in the
aforecited case, the Court concluded that:
“x x x The short form Bill of Lading states in no uncertain
terms that the port of discharge of the cargo is Manila, but that
 the same was to be transshipped beyond the port of discharge
to Davao City. Pursuant to the terms of the long form Bill of
Lading, appellee’s responsibility as a common carrier ceased the
moment the goods were unloaded in Manila; and in the matter of
transshipment. Appellee acted merely as an agent of the
shipper and consignee.”
Coming now to the case before us, [the Court] hold[s], that by
the authority of the above pronouncements, and in conformity with
the pertinent provisions of the New Civil Code, Section 11 of Bill of
Lading No. 18 and the third paragraph of Section 1 thereof are valid
stipulations between the parties insofar as goods while the same are
not in the latter’s actual custody.
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. A careful perusal of the provisions of the New Civil Code on
common carriers (Section 4, Title VIII, Book IV) directs our attention
to Article 1736 thereof, which reads:
“Article 1736. The extraordinary responsibility of the
common carrier lasts from the time the goods are
unconditionally placed in the possession, and received by the
carrier for transportation until the same are delivered, actually or
constructively, by

60
CHAPTER II VIGILANCE
OVER THE GOODS
 the carrier to the consignee, or to the person who has a
right to receive them, without prejudice to the provisions of
Article 1738.”
Article 1738 referred to in the foregoing provisions runs,
thus:
“Article 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.”
There is no doubt that Art. 1738 finds no
applicability to the instant case. The said article
contemplates a situation where the goods had already
reached their place of destination and are stored in the
warehouse of the carrier. The subject goods were still
awaiting transshipment to their port of destination, and
were stored in the warehouse of a third party when last
seen and/or heard of. However, Article 1736 is applicable
to the instant suit. Under said Article, the carrier may be
relieved of the responsibility for loss or damage to the
goods upon actual or constructive delivery of the same by
the carrier to the consignee, or to the person who has a
right to receive them. In sales, actual delivery has been
defined as the ceding of corporeal possession by the
seller, and the actual apprehension of corporeal
possession by the buyer or by some person authorized by
him to receive the goods as his representative for the
purpose of custody or disposal. By the same token, there
is actual delivery in contracts for the transport of goods
when possession has been turned over to the consignee
or to his duly authorized agent and a reasonable time is
given him to remove the goods. The court a quo found
that there was actual delivery to the consignee through
its duly authorized agent, the carrier.
It becomes necessary at this point to dissect the
complex relationship that had developed between
appellant and appellee in the course of the transactions
that gave birth to the present suit. Two undertakings
appeared embodied and/or provided for in the Bill of
Lading in question. The first is For the Transport of goods from
Bremen, Germany to Manila. The second, The Transshipment
of the same goods from Manila to Davao, with appellant
acting as agent of the consignee.

61
TRANSPORTATION LAWS

At the hiatus between these two undertakings of appellant

which is the moment when the subject goods are discharged
in Manila, its personality changes from
that carrier to that of agent of the consignee. Thus, the
character of appellant’s possession also changes, from
possession in its own name as carrier, into possession in
the name of consignee as the latter’s agent. Such being
the case, there was in effect, actual delivery of the goods
from appellant as earner to the same appellant as agent
of the consignee. Upon such delivery, the appellant, as
erstwhile carrier, ceases to be responsible for any loss or
damage that may befall the goods from that point
onwards. This is the full import of Article 1736, as applied
to the case before us.
But even as agent of the consignee, the appellant
cannot be made answerable for the value of the missing
goods. It is true that the transshipment of the goods,
which was the object of the agency, was not fully
performed. However, appellant had commenced said
performance, the completion of which was aborted by
circumstances beyond its control. An agent who carries
out the orders and instructions of the principal without
being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish
the object of the agency. The record fails to reveal proof
of negligence, deceit or fraud committed by appellant or
by its representative in the Philippines. Neither is there
any showing of notorious incompetence or insolvency on
the part of AMCYL, which acted as appellant’s substitute
in storing the goods awaiting transshipment. The actions
of appellant carrier and of its representative in the
Philippines being in full faith with the lawful stipulations
 of Bill of Lading No. 18 and in conformity with the
provisions of the New Civil Code on common carriers,
agency and contracts, they incur no liability for the loss of
the goods in question.
Nedlloyd Lijnen B.V. Rotterdam and the East
Asiatic Co., Ltd. v. Glow Laks Enterprises, Ltd.
G.R. No. 156330, November 19, 2014

FACTS: On or about September 14, 1987, respondent

loaded on board M/V Scandutch at the Port of Manila a
total of 343 cartons of garments, complete and in good
order for pre-carriage to the Port of

62
CHAPTER II
VIGILANCE OVER THE GOODS

Hongkong. The goods covered by Bill of Lading Nos.

MHONX-2 and MHONX-3 arrived in good condition in
Hongkong and was transferred to M/S Amethyst for final
carriage to Colon, Free Zone, Panama. Both vessels, M/S
Scandutch and M/S Amethyst, are owned by Nedlloyd
represented in the Philippines by its agent, East Asiatic.
The goods, which were valued at US$53,640.00, were
agreed to be released to the consignee, Pierre Kasem,
International, S.A., upon presentation of the original
copies of the covering of the bills of lading. Upon arrival
of the vessel at the Port of Colon on October 23,1987,
petitioners purportedly notified the consignee of the
arrival of the shipments, and its custody was turned over
to the National Ports Authority in accordance with the
laws, customs, regulations, and practice of trade in
Panama. By an unfortunate turn of events, however,
unauthorized persons managed to forge the covering bills
of lading, and on the basis of the falsified documents, the
ports authority released the goods.
On July 16, 1988, respondent filed a formal claim
with Nedlloyd for the recovery of the amount of
US$53,640 representing the invoice value of the shipment
but to no avail. Claiming that petitioners are liable for the
misdelivery of the goods, respondent initiated Civil Case
No. 88-45595 before the Regional Trial Court (RTC) of
Manila, Branch 52, seeking for the recovery of the
amount of US$53,640, including the legal interest from
the date of the first demand.
In disclaiming liability for the misdelivery of the
shipments, petitioners asserted in their Answer that they
were never remiss in their obligation as a common carrier
and the goods were discharged in good order and
condition into the custody of the National Port Authority
of Panama in accordance with the Panamanian Law. They
averred that they cannot be faulted for the release of the
goods to unauthorized persons, their extraordinary
responsibility as a common carrier having ceased at the
time the possession of the goods were turned over to the
possession of the port authorities. On April 29,2004, the
RTC rendered a Decision, ordering the dismissal of the
complaint but granted petitioners’ counterclaims. In
effect, respondent was directed to pay petitioners the
amount of PI20,000 as indemnification for the litigation
expenses incurred by the latter. In releasing the common
carrier from liability for the misdelivery of the goods, the
RTC ruled that Panama Law was duly

63
TRANSPORTATION LAWS

proven during the trial and pursuant to the said statute,

carriers of goods destined to any Panama port of entry
have to discharge their loads into the custody of
Panama Ports Authority to make effective government
collection of port dues, customs duties and taxes. The
subsequent withdrawal effected by unauthorized
persons on the strength of falsified bills of lading does
not constitute misdelivery arising from the fault of the
common carrier.
On appeal, the Court of Appeals reversed the
findings of the RTC and held that foreign laws were not
proven in the manner provided by Section 24, Rule 132
of the Revised Rules of Court, and therefore, it cannot
be given full faith and credit. For failure to prove the
foreign law and custom, it is presumed that foreign
laws are the same as our local or domestic or internal
law under the doctrine of processual presumption.
Under the New Civil Code, the discharge of the goods
into the custody of the ports authority therefore does
not relieve the common carrier from liability because
the extraordinary responsibility of the common carriers
lasts until actual or constructive delivery of the cargoes
to the consignee or to the person who has the right to
receive them. Absent any proof that the notify party or
the consignee was informed of the arrival of the goods,
the appellate court held that the extraordinary
responsibility of common carriers remains. Accordingly,
the Court of Appeals directed the petitioners to pay
respondent the value of the misdelivered goods in the
amount of US$53,640.
ISSUE: Whether or not petitioners are liable for the
misdelivery of goods under Philippine law.
HELD: Under the rules of private international law,
a foreign law must be properly pleaded and proved as a
fact. In the absence of pleading and proof, the laws of
the foreign country or state will be presumed to be the
same as our local or domestic law. This is known as
processual presumption. While the foreign law was
properly pleaded in the case at bar, it was, however,
proven not in the manner provided by Section 24, Rule
132 of the Revised Rules of Court. The decision of the
RTC, which proceeds from a disregard of specific rules,
cannot be recognized.
 It is explicitly required by Section 24, Rule 132 of the
Revised Rules of Court that a copy of the statute must be
accompanied by a

64
CHAPTER II VIGILANCE OVER THE
GOODS
certificate of the officer who has legal custody of the
records, and a certificate made by the secretary of the
embassy or legation, consul general, consul, vice
consular, or by any officer in the foreign service of the
Philippines stationed in the foreign country, and
authenticated by the seal of his office. The latter
requirement is not merely a technicality but is intended
to justify the giving of full faith and credit to the
genuineness of the document in a foreign country.
Certainly, the deposition of Mr. Enrique Cajigas, a
maritime law practitioner in the Republic of Panama,
before the Philippine Consulate in Panama, is not the
certificate contemplated by law. At best, the deposition
can be considered as an opinion of an expert witness who
possess the required special knowledge on the
Panamanian laws but could not be recognized as proof of
a foreign law, the deponent not being the custodian of
the statute who can guarantee the genuineness of the
document from a foreign country. To admit the
deposition as proof of a foreign law is, likewise, a
disavowal of the rationale of Section 24, Rule 132 of the
Revised Rules of Court, which is to ensure authenticity of
a foreign law and its existence so as to justify its import
and legal consequence on the event or transaction in
issue.
Article 1736. The extraordinary responsibility of the
common carrier lasts ffom 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 the right to receive
them, without prejudice to the provisions of Article 1738.
Article 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.
Explicit is the rule under Article 1736 of the Civil Code
that the extraordinary responsibility of the common
carrier begins ffom the time the goods are delivered to
the carrier. This responsibility remains in full force and
effect even when they are temporarily unloaded or
stored in transit, unless the shipper or owner exercises
the right or stoppage in transitu, and terminates only after
the lapse of a reasonable time for the
 65
TRANSPORTATION LAWS

acceptance of the goods by the consignee or such other

person entitled to receive them. In this case, there is no
dispute that the custody of the goods was never turned
over to the consignee or his agent but was lost into the
hands of unauthorized persons who secured possession
thereof on the strength of falsified documents. The loss
or the misdelivery of the goods in the instant case gave
rise to the presumption that the common carrier is at
fault or negligent.
A common carrier is presumed to have been
negligent if it fails to prove that it exercised extraordinary
vigilance over the goods it transported. When the goods
shipped are either lost or arrived in damaged condition, a
presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express
finding of negligence to hold it liable. To overcome the
presumption of negligence, the common carrier must
establish, by adequate proof, that it exercised
extraordinary diligence over the goods. It must do more
than merely show that some other party could be
responsible for the damage.

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.
 Remembering the law on sales, the right of stoppage in
is one of the rights of an unpaid seller when he has
transitu
part with the goods and the buyer is or becomes insolvent.
(See Arts. 1526[2] and 1530, NCC)

The effect of exercising the right of stopping the

goods in transit is that the unpaid seller is entitled to the
possession of the goods as if he had never parted with it.
Thus, the responsibility of the common carrier is reduced
to a mere bailee or depository. Hence, it is no longer
incumbent upon the common carrier to observe
extraordinary diligence but diligence of a good father of a
family in holding the goods.
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 on the arrival of the goods and has had
CHAPTER II VIGILANCE
OVER Tl IE GOODS

reasonable opportunity thereafter to remove them or otherwise dispose of

them.
TWO REQUISITES ARE NECESSARY TO AVOID LIABILITY OF
COMMON CARRIERS UNDER THIS ARTICLE, NAMELY:
1. Notice of arrival of the goods to consignee, his
agents, or authorized representative; and
2. Reasonable opportunity on the part of the consignee
to remove the goods or otherwise dispose of them.
This is a continuation of Article 1736 on the period
of time within which the common carrier should observe
extraordinary diligence in transporting the goods. Notice
 that even if the goods are stored in the warehouse of
the carrier, at the place of destination, the extraordinary
responsibility of the common carrier continues and only
ceases when the consignee is notified of the arrival of
the goods and has had reasonable opportunity to
remove the goods or dispose of them.
No extraordinary diligence by the carrier could have prevented the
loss of the goods after they had been deposited in the Warehouse of
the Bureau of Customs.
Amparo Servando, Clara Uy Bico v. Philippine Steam
Navigation Co.
G.R. Nos. 36481-2, October 23,1982
FACTS: On November 6, 1963, appellees Clara Uy Bico and
Amparo

Servando loaded on board the appellant’s vessel, FS-

176, for carriage from Manila to Pulupandan, Negros
Occidental, the following cargoes, to wit: Clara Uy Bico —
1,528 cavans of rice valued at P40,907;
Amparo Servando —

44 cartons of colored paper, toys and general merchandise

valued at

PI,070.50; as evidenced by the corresponding

bills of lading issued by the appellant.
 67
TRANSPORTATION LAWS

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 appellees’
cargoes. Before the fire, however, appellee Uy Bico was
able to take delivery of 907 cavans of rice. Appellees’
claims for the value of said goods were rejected by the
appellant.
On the bases of the foregoing facts, the lower court
rendered a decision, the decretal portion of which reads
as follows: “WHEREFORE, judgment is rendered as
follows:

“1. In case No. 7354, the defendant is hereby

ordered to pay the plaintiff Amparo C. Servando the
aggregate sum of PI,070.50 with legal interest
thereon from the date of the filing of the complaint
until fully paid, and to pay the costs.
“2. In case No. 7428, the defendant is hereby
ordered to pay to plaintiff Clara Uy Bico the
aggregate sum of PI6,625.00 with legal interest
thereon from the date of the filing of the complaint
until fully paid, and to pay the costs.”
 Article 1736 of the Civil Code imposes upon
common carriers the duty to observe extraordinary
diligence from the moment the goods are
unconditionally placed in their possession “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.”
The court a quo held that the delivery of the
shipment in question to the warehouse of the Bureau of
Customs is not the delivery contemplated by Article
1736; and since the burning of the warehouse occurred
before actual or constructive delivery of the goods to
the appellees, the loss is chargeable against the
appellant.
ISSUE: Whether or not the defendant carrier was liable in
the light of the provisions of Article 1736 in relation to Article
1738.

68
CHAPTER II VIGILANCE OVER
THE GOODS

HELD: There is nothing in the record to show that

appellant carrier incurred in delay in the
performance of its obligation. It appears that
appellant had not only notified appellees of the
arrival of their shipment, but had demanded that the
same be withdrawn. In fact, pursuant to such
demand, appellee Uy Bico had taken delivery of 907
cavans of rice before the burning of the warehouse.
Nor can the appellant or its employees be
charged with negligence. The storage of the goods in
the Customs warehouse pending withdrawal thereof
by the appellees 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 the same.
The lower court in its decision relied on the
ruling laid down in Yu Biao Sontua v. Ossorio, where this
Court held the defendant liable for damages arising
from a fire caused by the negligence of the
defendant’s employees while loading cases of
gasoline and petroleum products. But unlike in the
said case, there is not a shred of proof in the present
case that the cause of the fire that broke out in the
Custom’s warehouse was in any way attributable to
the negligence of the appellant or its employees.
Under the circumstances, the appellant is plainly not
responsible.
CONCURRING OPINION
 Under Article 1738 of the Civil Code, “the
extraordinary liability of the common carrier
continues to be operative even during the time the
goods are stored in the 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.”
From the time the goods in question were
deposited in the Bureau of Customs’ warehouse in
the morning of their arrival up to 2:00 in the
afternoon of the same day, when the warehouse
was burned, Amparo C. Servando and Clara Uy Bico,
the consignees, have reasonable opportunity to
remove the goods. Clara had removed more than
one- half of the rice consigned to her.

69
 TRANSPORTATION I.AWS

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. 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
occurrence 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.

These provisions enumerate the requirements in

order that the common carrier may be exempted from any
and all responsibilities as a result of the natural disaster
such as flood, storm, earthquake, lightning or other natural
calamity:
 1. The natural disaster must have been the proximate
and only cause of
the loss;
2. The common carrier must have exercised due
diligence to prevent or minimize loss before, during,
and after the occurrence of the natural disaster; and
3. The common carrier has not negligently incurred in
delay in transporting the goods.

ART. 1740. If the common carrier negligently incurs in delay in

transporting the goods, a natural disaster shall not free such carrier from
responsibility.

70

i
 CHAPTER II
VIGILANCE OVER THE GOODS

Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declare; or
(2) When from the nature and the circumstances of
the obligation it appears that the designation of
the time when the thing is to be delivered or the
service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When the demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the
other begins. (Art. 1169)
While it is true that common carriers are not
obligated by law to carry and to deliver merchandise, and
persons are not vested with the right to prompt delivery,
unless such common carriers previously assume the
obligation to deliver at a given date or time (Mendoza v.
Philippine Air Lines, Inc., 90 Phil 836 [1952]), delivery of shipment
 CHAPTER II
or cargo should at least be made within a reasonable
time.
Maersk Line v. Court of Appeals and Efren V. Castillo
G.R. No. 94761, May 17,1993

FACTS: On November 12,1976, private respondent

ordered from Eli Lily,

Inc., of Puerto Rico through its Eli Lily, Inc.’s agent in the
Philippines, Elanco Products, 600,000 empty gelatin
capsules for the manufacture of his pharmaceutical
products. The capsules were placed in six drums of
100,000 capsules each valued at US$1,668.71.
Through a Memorandum of Shipment (Exh. “B” AC GR CV
No. 10340,

Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc., of

71
TRANSPORTATION LAWS

Puerto Rico advised private respondent as consignee that

the 600,000 empty gelatin capsules in six drums of
100,000 capsules each, were already shipped on board
MV “Anders Maerskline” under Voyage No. 7703 for
shipment to the Philippines via Oakland, California. In said
Memorandum, shipper Eli Lilly, Inc., specified the date of
arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were
mishipped and diverted to Richmond, Virginia, USA and
 CHAPTER II
then transported back to Oakland, California. The goods
finally arrived in the Philippines on June 10, 1977 or after
two months from the date specified in the memorandum.
As a consequence, private respondent as consignee
refused to take delivery of the goods on account of its
failure to arrive on time.
Private respondent alleging gross negligence and
undue delay in the delivery of the goods filed an action
before the court a quo for rescission of contract with
damages against petitioner and Eli Lilly, Inc., as
defendants.
ISSUE: Whether or not petitioner negligently incurred in
delay in the delivery of the shipment.
HELD: An examination of the subject bill of lading
(Exh. “1; ” AC GR CVNo. 10340, Folder of Exhibits, p. 41) shows that
the subject shipment was estimated to arrive in Manila
on April 3, 1977. While there was no special contract
entered into by the parties indicating the date of arrival
of the subject shipment, petitioner nevertheless, was very
well aware of the specific date when the goods were
expected to arrive as indicated in the bill of lading itself.
In this regard, there arises no need to execute another
contract for the purpose, as it would be a mere
superfluity.
In the case before [the Court], [W]e find that a delay
in the delivery of the goods spanning a period of two (2)
months and seven (7) days fails way beyond the realm
of reasonableness. Described as gelatin capsules for use
in pharmaceutical products, subject shipment was
 CHAPTER II
delivered to, and left in, the possession and custody of
petitioner-carrier for transport to Manila via

Oakland, California. But through petitioner’s negligence

72
VIGILANCE OVER THE GOODS

was mishipped to Richmond, Virginia. Petitioner’s insistence

that it cannot be held liable for the delay finds no merit.
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.

Negligenceis conduct that creates undue risk of harm

to another. It is the failure to observe that degree of
care, precaution and vigilance that the circumstances
justly demand, whereby that other person suffers injury.
(Smith Bell Dodwell Shipping Agency Corporation v. Borja, 383 SCRA
341, June

10, 2002)
is the omission to do something which a
“Negligence
reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would
do, or the doing of something, which a prudent and
reasonable man would not do.” Proximate cause is “that
cause, which, in natural and continuous sequence,
 CHAPTER II
unbroken by any efficient intervening cause, produces
the injury, and without which the result would not have
occurred.” (Raynera v. Hiceta, 306 SCRA 102)
is determined on the facts of each case
Proximate cause
upon mixed considerations of logic, common sense,
policy, and precedent. (Philippine Bank of Commerce v. Court of
Appeals, 269 SCRA 695, [1995])

Contributory negligence is conduct on the part of

the injured party, contributing as a legal cause to the
harm he has suffered, which falls below the standard to
which he is required to conform for his own protection.
(Valenzuela v. Court of Appeals, 253 SCRA 303, citing Prosser and
Keaton on Torts)

Contributory negligence is the act or omission amounting

to want of ordinary care on the part of the complaining
party which concurring with defendant’s negligence is
proximate cause of injury. (Honaker v. Krutchfield, 247Ky. 495,
57 S.W 2d502 cited in Black s Law Dictionary, Centennial Ed.)

73
TRANSPORTATION LAWS

Contributory negligence of the shipper or owner of goods is a

mitigating circumstance on the part of the common carrier. That is to
say, the damages recoverable from the common carrier should be
equitably reduced by the Court.

Tabacalera Insurance Co., etal. v. North Front

Shipping Services, Inc. and Court of Appeals
 CHAPTER II
G.R. No. 119197, May 16,1997

FACTS: On August 2, 1990, 20,234 sacks of com

grains valued at P3,500,640 were shipped on board North
Front 777, a vessel owned by North Front Shipping
Services, Inc. The cargo was consigned to Republic Flour
Mills Corporation in Manila under Bill of Lading No. 001
and insured with the herein mentioned insurance
companies. The vessel was inspected prior to actual
loading by representatives of the shipper and was found
fit to carry the merchandise. The cargo was covered with
tarpaulins and wooden boards. The hatches were sealed
and could only be opened by representatives of Republic
Flour Mills Corporation.
The vessel left Cagayan de Oro City on August
2,1990 and arrived Manila on August 16, 1990. Republic
Flour Mills Corporation was advised of its arrival but it did
not immediately commence the unloading operations.
There were days when unloading had to be stopped due
to variable weather conditions and sometimes for no
apparent reason at all. When the cargo was eventually
unloaded there was a shortage of 26.333 metric tons. The
remaining merchandise was already moldy, rancid, and
deteriorating. The unloading operations were completed
on September 5, 1990 or 20 days after the arrival of the
barge at the wharf of Republic Flour Mills Corporation in
Pasig City.
Precision Analytical Services, Inc., was hired to
examine the com grains and determine the cause of
deterioration. A Certificate of Analysis was issued
indicating that the corn grains had 18.56% moisture
 CHAPTER II
content and the wetting was due to contact with salt
water. The mold growth was only incipient and not
sufficient to make the com grains toxic and unfit for
consumption. In fact, the mold growth could still be
arrested by drying.

74
VIGILANCE OVER 1111- GOODS

Republic Flour Mills Corporation rejected the entire

cargo and formally demanded from North Front Shipping
Services, Inc., payment for the damages suffered by it.
The demands, however, were unheeded. The insurance
companies were perforce obliged to pay Republic Flour
Mills Corporation P2,189,433.40.
By virtue of the payment made by the insurance
companies, they were subrogated to the rights of
Republic Flour Mills Corporation. Thus, they lodged a
complaint for damages against North Front Shipping
Services, Inc., claiming that the loss was exclusively
attributable to the fault and negligence of the carrier. The
Marine Cargo Adjusters hired by the insurance companies
conducted a survey and found cracks in the bodega of the
barge and heavy concentration of molds on the tarpaulins
and wooden boards. They did not notice any seal in the
hatches. The tarpaulins were not brand new as there
were patches on them, contrary to the claim of North
Front Shipping Services, Inc., thus making it possible for
 CHAPTER II
water to seep in. They also discovered that the bulkhead
of the barge was rusty.
North Front Shipping Services, Inc., averred in
refutation that it could not be made culpable for the loss
and deterioration of the cargo, as it was never negligent.
Captain Solomon Villanueva, master of vessel, reiterated
that the barge was inspected prior to the actual loading
and was found adequate and seaworthy. In addition, they
were issued a permit to sail by the Coast Guard. The
tarpaulins were doubled and brand new and hatches
were properly sealed. They did not encounter big waves
hence it was not possible for water to seep in. He further
averred that the com grains were farm wet and not
properly dried when loaded.
The court below dismissed the complaint and ruled
that the contract entered into between North Front
Shipping Services, Inc., and Republic Flour Mills
Corporation was a charter-party agreement. As such, only
ordinary diligence in the care of goods was required of
North Front Shipping Services, Inc.
ISSUE: Whether or not North Front Shipping Services,
Inc., is a common carrier and in the negative are required
only to exercise ordinary diligence.

75
 CHAPTER II
TRANSPORTATION LAWS

HELD: North Front Shipping Services, Inc., is a

corporation engaged in the business of transporting cargo
and offers it services indiscriminately to the public. It is,
without doubt, a common carrier. As such it is required to
observe extraordinary diligence in its vigilance over the
goods it transports. When goods placed in its care are lost
or damaged, the carrier is presumed to have been at fault
or to have acted negligently. North Front Shipping
Services, Inc., therefore has the burden of proving that it
observed extraordinary diligence in order to avoid
responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the
vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to take a
load of com grains. They were also issued Permit to Sail by
the Coast Guard. The master of the vessel testified that
the com grains were farm wet when loaded. However,
this testimony was disproved by the clean bill of lading
issued by North Front Shipping Services, Inc., which did
not contain a notation that the com grains were wet and
improperly dried. Having been in the service since 1968,
the master of the vessel would have known at the outset
that com grains that were farm wet and not properly
dried would eventually deteriorate when stored in sealed
and hot compartments as in hatches of a ship. Equipped
with this knowledge, the master of the vessel and his crew
should have undertaken precautionary measures to avoid
or lessen the cargo’s possible deterioration, as they were
 CHAPTER II
presumed knowledgeable about the nature of such cargo.
But none of such measures was taken.
In Compania Maritima v. Court of Appeals, the Court mled —
“x x x Mere proof of delivery of the goods in
good order to a common carrier, and of their arrival
at the place of destination in bad order, makes
outprima facie case against the common carrier, so
that if no explanation is given as to how the loss,
deterioration or destruction of the goods occurred,
the common carrier must be held responsible.
Otherwise stated, it is incumbent upon the common
carrier to prove that the loss, deterioration or
destruction was due to accident or some other
circumstances inconsistent with its liability.”
In fine, the Court finds that the carrier failed to
observe the required extraordinary diligence in the
vigilance over the goods placed in its

76
 CHAPTER II VIGILANCE
OVER THE GOODS

care. The proofs presented by North Front Shipping

Services, Inc., were insufficient to rebut the prima facie
presumption of private respondent’s negligence,
more so if we consider the evidence adduced by
petitioners.
However, the Court cannot attribute the
destruction, loss, or deterioration of the cargo solely
to the carrier. The Court finds the consignee Republic
Flour Mills Corporation guilty of contributory
negligence. It was seasonably notified of the arrival
of the barge but did not immediately start the
unloading operations. No explanation was proffered
by the consignee as to why there was a delay of six
days. Had the unloading been commenced
immediately, the loss could have been completely
avoided or at least minimized. As testified to by the
chemist who analyzed the com samples, the mold
growth was only at its incipient stage and could still
be arrested by drying. The com grains were not yet
toxic or unfit for consumption. For its contributory
negligence, Republic Mills Corporation should share
at least 40% of the loss.
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.
 “Defect” is the want or absence of something
necessary for completeness or perfection; a lack or
absence of something essential to completeness; a
deficiency in something essential to the proper use
for the purpose for which a thing is to be used. On
the other hand, “inferior” means of poor quality,
mediocre, or second rate. A thing may be of inferior
quality but not necessarily defective. In other words,
“defectiveness ” is not synonymous with “inferiority.”

The statement in the Bill of Lading, that the

shipment was in apparent good condition, is
sufficient to sustain a finding of absence of defects in
the merchandise. Case law has it that such
statement will create a prima facie presumption only as
to the external condition and not to that not open to
inspection. (Philippine Charter Insurance Corp. v. Unknown
Owner of Vessel MZV National Honor, 463 SCRA 202, July

8, 2005)

11
TRANSPORTATION LAWS

To exempt the common carrier from liability, it must

still exercise due diligence to forestall or lessen the loss
caused by the character of the goods or faulty 7 nature of
the packing or of the containers.
For this provision to apply, the rule is that if the
improper packing or, in this case, the defect/s in the
container, is/are known to the carrier or his employees or
apparent upon ordinary observation, but he nevertheless
accepts the same without protest or exception
notwithstanding such condition, he is not relieved of
liability for damage resulting therefrom. (Calvo v. UCPB
General Insurance Company, Inc., 379 SCRA 510, March 19, 2002)

Even if the fact of improper packing was known to

the carrier or its crew or was apparent upon ordinary
observation, it is not relieved of liability for loss or injury
resulting therefrom, once it accepts the goods
notwithstanding such condition. (Belgian Overseas Chartering
and Shipping N. V. v. Philippine

First Insurance Company, Inc., 383 SCRA 23)

In Iron Bulk Shipping Philippines Company, Ltd. v. Remington
Industrial Sales Corporation, 417 SCRA 229, December 8, 2003,
it was held that under Article 1742 of the Civil Code, even
if the loss, destruction, or deterioration of the goods
should be caused, among others, by the character of the
goods, the common carrier must exercise due diligence
to forestall or lessen the loss. This extraordinary
responsibility 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. In the instant case, if the carrier indeed found the
steel sheets to have been covered by rust at the time
that it accepted the same for transportation, such finding
should have prompted it to apply additional safety
measures to make sure that the cargo is protected from
corrosion. This, the carrier failed to do.

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.

78
CHAPTER II VIGILANCE OVER
THE GOODS

The power to issue the order of the public authority

is evidentiary in nature. Hence, to exempt the common
carrier from any liability it is incumbent upon the
common carrier to prove that the public authority had
the power to issue that order.
Intervention of municipal officials, not of a character that would
render impossible the fulfillment by the carrier of its obligations.
Mauro Ganzon v. Court of Appeals and
Gelacio Tumambing
G.R. No. L-48757, May 30, 1988

FACTS: On November 28, 1956, 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 in
three feet of water. On December 1, 1956, Gelacio
Tumambing delivered the scrap iron to defendant
Filomeno Niza, captain of the lighter, for loading which
was actually begun on the same date by the crew of the
lighter under the captain’s supervision. When about half
of the scrap iron was already loaded, Mayor Jose
Advincula of Mariveles, Bataan, arrived and demanded
P5,000 from Gelacio Tumambing. The latter resisted the
shakedown and after a heated argument between them,
Mayor Jose Advincula drew his gun and fired at Gelacio
Tumambing. The 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. Later on, Acting Mayor Rub issued
a receipt stating that the Municipality of Mariveles had
taken custody of the scrap iron.
On the basis of the above findings, the respondent
Court rendered a decision which reversed and set aside
the decision of the trial court and a new one entered
ordering defendant-appellee Mauro Ganzon to pay
79
plaintiff-appellant Gelacio E. Tumambing the sum of
P5,895 as actual damages, the sum of P5,000 as
exemplary damages, and the amount of P2,000 as
attorney’s fees. Costs against defendant-appellee Ganzon.
ISSUE: Whether or not the dumping of the scrap iron into
the sea that was ordered by the local government official a
fortuitous event.
HELD: The petitioner has failed to show that the loss
of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:
(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.
Hence, the petitioner is presumed to have been at
fault or to have acted negligently. By reason of this
presumption, the court is not even required to make an
express finding of fault or negligence before it could hold
the petitioner answerable for the breach of the contract
of carriage. Still, the petitioner could have been exempted
from any liability had he been able to prove that he
observed extraordinary diligence in the vigilance over the
goods in his custody, according to all the circumstances of
the case, or that the loss was due to an unforeseen event
or to force majeure. As it was, there was hardly any attempt
on the part of the petitioner to prove that he exercised
such extraordinary diligence.
It is in the second and third assignments of error where
the petitioner maintains that he is exempt from any liability
because the loss of the scraps was due mainly to the
intervention of the municipal officials of Mariveles, which
constitutes a caso fortuito as defined in Article 1174 of the Civil
Code.
We cannot sustain the theory of caso fortuito. In the courts
below, the petitioner’s defense was that the loss of the
scraps was due to an

80

CHAPTER II VIGILANCE OVER

THE GOODS

“order or act of competent public authority,” and this

contention was correctly passed upon by the Court of
Appeals.
 Now the petitioner is changing his theory to caso
fortuito. Such a change of theory on appeal [W]e cannot,
however, allow. In any case, the intervention of the
municipal officials was not of a character that would
render impossible the fulfillment by the carrier of its
obligation.

The petitioner was not duty bound to obey the illegal

order to dump into the sea the scrap iron. Moreover,
there is absence of sufficient proof that the issuance of
the same order was attended with such force or
intimidation as to completely overpower the will of the
petitioner’s employees. The mere difficulty in the
fulfillment of the obligation is not considered force
majeure. We agree with the private respondents that the
scraps could have been properly unloaded at the shore
or at the NASSCO compound, so that after the dispute
with the local officials concerned was settled, the
scraps could then be delivered in accordance with the
contract of carriage.
DISSENTING OPINION

It is my view that petitioner cannot be held liable in

damages for the loss and destruction of the scrap iron.
The loss of said cargo was due to an excepted cause —
an “order or act of competent public authority.” (Art.
1734[5], Civil Code)

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.
When loading was resumed, this time it was Acting
Mayor Basilio Rub, accompanied by three policemen, who
ordered the dumping of the scrap iron into the sea right
where the lighter was docked in three feet of water. Again,
could the captain of the lighter and his crew have defied
said order?
Through the “order” or “act” of “competentpublic authority,”
therefore, the performance of a contractual obligation was
rendered

81
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 Mariveles 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. 1743. If through 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.”
ART. 1744. A stipulation between the common carrier and the
shipper or owner limiting the liability of the former for the loss,
destruction, or deterioration of the goods to a degree less than
extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the
service rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.

The degree of diligence less than that of

extraordinary diligence referred to in this article is no less
than ordinary diligence or the diligence of a good father of
a family. Otherwise, it will fall under Article 1745(4), which
is considered as unreasonable, unjust and contrary to
public policy.
The writing material referred to in paragraph (1) is
not specified, hence, it can be on paper or other substitute
writing material as the law does not distinguished. Under
paragraph No. (2), the valuable consideration can be the
lesser fare or freightage chargeable to the shipper or
owner of the goods. Discounts are likewise valuable
consideration.
Reference should be made to the provisions of
Articles 1745,1746, and 1751 to determine whether the
agreement between the common carrier and the
shipper or owner of the goods is reasonable, just and
not contrary to public policy.
 82
CHAPTER II VIGILANCE OVER
Tl IE GOODS

ART. 1745. Any of the following or similar stipulations shall he

considered unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or
shipper;
(2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the
custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less
than that of a good father of a family, or of a man of ordinary prudence in
the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or
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.
The law itself provides that the above stipulations are
unreasonable, unjust and contrary to public policy.
A stipulation that the cargo was being shipped at “owner’s risk” is null and
void and contrary to public policy.
Loadstar Shipping Co., Inc. v. Court of Appeals
and the Manila Insurance Co., Inc.
G.R. No. 131621, September 28, 1999
FACTS: On November 19, 1984, LOADSTAR received on
board its M/V
“Cherokee” (hereafter, the vessel) the following goods for
shipment:
a) 705 bales of lawanit hardwood;

83

b) 27 boxes and crates of tilewood assemblies and

others; and
c) 49 bundles of mouldings R & W (3) Apitong
Bolidenized.
The goods, amounting to P6,067,178, were insured
for the same amount with MIC against various risks
including “Total loss by total loss of the vessel. ” The vessel, in
turn, was insured by Prudential Guarantee & Assurance,
Inc. (hereafter PGAI) for P4 million. On November 20,
1984, on its way to Manila from the port of Nasipit,
Agusan del Norte, the vessel, along with its cargo, sank off
Limasawa Islands. As a result of the total loss of its
shipment, the consignee made a claim with LOADSTAR,
which, however, ignored the same. As the insurer, MIC
paid P6,075,000 to the insured in full settlement of its
claim, and the latter executed a subrogation receipt
therefore.
On February 4, 1985, MIC filed a complaint against
LOADSTAR and PGAI, alleging that the sinking of the
vessel was due to the fault and negligence of LOADSTAR
and its employees. It also prayed that PGAI be ordered to
pay the insurance proceeds from the loss of the vessel
directly to MIC, said amount to be deducted from MIC’s
claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the
loss of the shipper’s goods and claimed that the sinking of
its vessel was due to force majeure. PGAI, on the other hand,
averred that MIC had no cause of action against it,
LOADSTAR being the party insured. In any event, PGAI
was later dropped as a party defendant after it paid the
insurance proceeds to LOADSTAR.
The Regional Trial Court of Manila rendered
judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the Court of Appeals, which,
however, agreed with the trial court and affirmed its
decision in toto.
In dismissing LOADSTAR’S appeal, the appellate
court observed that between MIC and LOADSTAR, the
provisions bind only the shipper/consignee and the
carrier. When MIC paid the shipper for the goods insured,
it was subrogated to the latter’s right as against the
carrier, LOADSTAR.

84
 I
CHAPTER II VIGILANCE OVER
THE GOODS

LOADSTAR goes on to argue that, being 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. Therefore, the Court of
Appeals erred in holding that the provisions of the bills of
lading apply only to the shipper and the carrier, and not to
the insurer of the goods, which conclusion runs counter to
the Supreme Court’s ruling in the case of St. Paul Fire &
Marine Insurance Co. v. Macondray & Co., Inc. and National Union Fire
Insurance Company of Pittsburg v. StoltNielsen Phils., Inc.

ISSUE: Whether the stipulation in the bill of lading that

the cargo was being shipped at owner’s risk is valid.
HELD: LOADSTAR also claims that the Court of
Appeals erred in holding it liable for the loss of the goods,
in utter disregard of this Court’s pronouncements in St.
Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc. and National
Union Fire Insurance v. Stolt- Nielsen Phils., Inc. It was ruled in
these two cases 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
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. We do not agree. In the first place, 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. (Arts. 1749-1750) On the
other hand, the stipulation in the case at bar effectively
reduces the common carrier’s liability for the loss or
destruction of the goods to a degree less than
extraordinary (Arts. 1744 and 1745), that is, 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.

85
 TRANSPORTATION LAWS

Under Article 1745(6), a common carrier is held responsible even for acts
of strangers like thieves or robbers except where such thieves or robbers
acted “with grave or irresistible threat, violence or force.”

Pedro de Guzman v. Court of Appeals

and Ernesto Cendana
G.R. No. L-47822, December 12,1988
FACTS: Respondent Ernesto Cendana, a junk dealer, was engaged in
buying up used bottles and scrap metal in Pangasinan. Upon gathering
sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two six-wheeler trucks, which he
owned for hauling the material to Manila. On the return trip to
Pangasinan, respondent would load his vehicles with cargo which various
merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates, which were commonly lower
than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman, a
merchant and authorized dealer of General Milk Company (Philippines),
Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling
of
750 cartons of Liberty filled milk from a warehouse of General Milk in
Makati, Rizal, to petitioner’s establishment in Urdaneta on or before
December 4, 1970. Accordingly, on December 1, 1970, respondent loaded in
Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself; while 600 cartons were placed on
board the other truck which was driven by Manuel Estrada, respondent’s
driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner.
The other 600 boxes never reached petitioner, since the truck which carried
these boxes was hijacked somewhere along the McArthur Highway in
Paniqui, Tarlac, by armed men who took with them the truck, its driver,
his helper, and the cargo.
On January 6, 1971, petitioner commenced action against private
respondent in the Court of First Instance of Pangasinan, demanding
 payment of P22,150, the claimed value of the lost merchandise, plus
CHAPTER II VIGILANCE OVER THE GOODS

damages and attorney’s fees. Petitioner argued that

private respondent, being a common carrier, and
having failed to exercise the extraordinary diligence
required of him by the law, should be held liable for
the value of the undelivered goods.
In his answer, private respondent denied that he
was a common carrier and argued that he could not be
held responsible for the value of the lost goods, such
loss having been due to force majeure.
ISSUE: Whether or not the hijacking of
respondent’s truck was force majeure so that respondent
was not liable for the value of the undelivered cargo.
HELD: Article 1734 establishes the general rule
that common carriers are responsible for the loss,
destruction, or deterioration of the goods, which they
carry, “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; and
(5) Order or act of competent public authority.”
 It is important to point out that the above list of
causes of loss, destruction or deterioration, which
exempt the common carrier for responsibility
therefore, is a closed list. Causes falling outside the
foregoing list even if they appear to constitute a
species of force majeure, fall within the scope of Article
1735, which provides as follows:
“In all cases other than those mentioned in
numbers 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.”

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TRANSPORTATION LAWS

Applying the above-quoted Articles 1734 and 1735,

[W]e note firstly that the specific cause alleged in the
instant cases — the hijacking of the carrier’s truck —
does not fall within any of the five categories of
exempting causes listed in Article 1734. It would follow,
therefore, that the hijacking of the carrier’s vehicle
must be dealt with under the provisions of Article 1735,
in other words, that the private respondent as common
carrier is presumed to have been at fault or to have
acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the
part of private respondent.
Petitioner insists that private respondent had not
observed extraordinary diligence in the care of
petitioner’s goods. Petitioner argues that in the
circumstances of this case, private respondent should
have hired a security guard presumably to ride with the
truck carrying the 600 cartons of Liberty filled milk. We
do not believe, however, that in the instant case, the
standard of extraordinary diligence required private
respondent to retain a security guard to ride with the
truck and to engage brigands in a firefight at the risk of
his own life and the lives of the driver and his helper.
The precise issue that the Court addresses here
relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods
carried in the specific context of hijacking or armed
robbery.
As noted earlier, the duty of extraordinary
diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles
1734 and 1735 but also by Article 1745, numbers 4, 5[,]
and 6, Article 1745 provides in relevant part:
“Any of the following or similar stipulations
shall be considered unreasonable, unjust and
contrary to public policy:
XXXXXXXXX
 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

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CHAPTER II VIGILANCE OVER THE
GOODS

irresistible threat, violence or force, is dispensed

with or diminished; and
7. That the common carrier shall not be
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.,,
Under Article 1745(6) above, 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.” [The Court] believe
and so held that 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 robbery
which is attended by “grave or irresistible threat, violence
or force.”
In the instant case, armed men held up the second
truck owned by private respondent, which carried
petitioner’s cargo. The record shows that an information
for robbery in band was filed in the Court of First Instance
of Tarlac, Branch 2, in Criminal Case No. 198 entitled,
“People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando
Mesina, Oscar Oria and one John Doe. ” There, the accused were
charged with willfully and unlawfully taking and carrying
away with them the second truck, driven by Manuel
Estrada and loaded with the 600 cartons of Liberty filled
milk destined for delivery at petitioner’s store in Urdaneta,
Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat,
violence or force. Three of the five holduppers were armed
with firearms. The robbers 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 (in Zambales). The hijacked truck was
subsequently found by the police in Quezon City. The
Court of First Instance convicted all the accused of
robbery, though not of robbery in band.
In these circumstances, [the Court] hold that the
occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and
properly regarded as a fortuitous event. It is

89
TRANSPORTATION LAWS

necessary to recall that even common carriers are not

made absolute insurers against all risk of travel and of
transport of goods, and are not held liable for acts or
events which cannot be foreseen or are inevitable,
provided that they shall have complied with the
rigorous standard of extraordinary diligence.

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

Estrellita M. Bascos v. Court of Appeals and
Rodolfo A. Cipriano
G.R. No. 101089, April 7,1993
FACTS: Rodolfo A. Cipriano representing Cipriano Trading
Enterprise (CIPTRADE for short) entered into a hauling
contract with Jibfair Shipping

Agency Corporation whereby the former bound itself to

haul the latter’s 2,000 m/tons of soya bean meal from
Magallanes Drive, Del Pan, Manila to the warehouse of
Purefoods Corporation in 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 PI56,404 from the Manila Port Area to Calamba,
Laguna at the rate of P50.00 per metric ton. Petitioner
failed to deliver the said cargo. As a consequence 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
petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and
damages with writ of preliminary attachment for
breach of a contract of carriage. The trial court granted
the writ of preliminary attachment on February 17,
1987.
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 CIPTRADE was liable
to petitioner in the amount of PI 1,000 for loading the

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CHAPTER II VIGILANCE
OVER THE GOODS
cargo; 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
camapping were filed against Jose Opriano, et al., and
that hijacking, being a force majeure, exculpated
petitioner from any liability to CIPTRADE.
After trial, the trial court rendered decision against the
petitioner.

ISSUE: Whether or not the hijacking in this case is 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 this case, petitioner alleged that hijacking
constituted force majeure, which exculpated her from
 liability for the loss of the cargo. In De Guzman v. 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 1735 and
thus, the common carrier is presumed to have been
at fault or negligent. To exculpate the carrier from
liability arising from hijacking, he must prove that
the robbers or the hijackers acted with grave or
irresistible threat, violence, or force. This is in
accordance with Article 1745 of the Civil Code, which
provides:
“Art. 1745. Any of the following or similar
stipulations shall be considered unreasonable,
unjust and contrary to public policy:
XXXXXXXXX
(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.”

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TRANSPORTATION LAWS

To establish grave and irresistible force, petitioner presented her

accusatory affidavit, Jesus Bascos’ affidavit, and Juanito Morden’s
“Salaysay. ” However, both the trial court and the Court of Appeals have
concluded that these affidavits 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, [W]e 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.
Thirdly, while the affidavit of Juanito Morden, the truck helper in the
hijacked truck, was presented as evidence in court, he himself was a
witness as could be gleaned from the contents of the petition. Affidavits are
not considered the best evidence if the affiants are available as witnesses.
The subsequent filing of the information for camapping and robbery
against the accused named in said affidavits did not necessarily mean that
the contents of the affidavits were true because they were yet to be
determined in the trial of the criminal cases.
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.

A carrier is liable to its passengers for damages caused by mechanical

defects of the conveyance.

Prescillano Necesito, etc. v. Natividad Paras

G.R. No. L-10605, June 30,1958
FACTS: In the morning of January 28, 1954, Severina Garces and
her one-year old son, Prescillano Necesito, carrying vegetables, boarded
passenger auto truck or Bus No. 199 of the Philippine Rabbit Bus Lines at
Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell,
then proceeded on its regular run from Agno to

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CHAPTER II VIGILANCE OVER
THE GOODS
Manila. After passing Mangatarem, Pangasinan, truck No.
199 entered a wooden bridge, but the front wheels
swerved to the right; the driver lost control, and after
wrecking the bridge’s wooden rails, the truck fell on its
right side into a creek where water was breast deep. The
mother, Severina Garces, was drowned; the son,
Prescillano Necesito, was injured, suffering abrasions and
fracture of the left femur. He was brought to the
Provincial Hospital at Dagupan, where the fracture was
set but with fragments one centimeter out of line. The
money, wristwatch and cargo of vegetables were lost.
After joint trial, the Court of First Instance found
that the bus was proceeding slowly due to the bad
condition of the road; that the accident was caused by
the fracture of the right steering knuckle, which was
defective in that its center or core was not compact but
known or ascertained by the carrier despite the fact that
regular 30-day inspections were made of the steering
knuckle, since the steel exterior was smooth and shiny to
the depth of 3/16 of an inch all around; that the knuckles
are designed and manufactured for heavy duty and may
last up to 10 years; that the knuckle of Bus No. 199 that
broke on January 28, 1954, was last inspected on January
5, 1954, and was due to be inspected again on February
5th. Hence, the trial court, holding that the accident was
exclusively due to fortuitous event, dismissed both
actions. Plaintiffs appealed directly to this Court in view of
the amount in controversy.
 ISSUE: Whether the carrier is liable for the
manufacturing defect of the steering knuckle, and
whether the evidence discloses that in regard thereto,
the carrier exercised the diligence required by law. (Art.
1755, New Civil Code)

HELD: “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.”
It is clear that the carrier is not an insurer of the
passenger’s safety. His liability rests upon negligence, his
failure to exercise the “utmost” degree of diligence that
the law requires, and by Art. 1756, in case of a
passenger’s death or injury the carrier bears the burden
of satisfying the court that he has duly discharged the
duty of prudence

93
TRANSPORTATION LAWS

required. In American law, where the carrier is held to the

same degree of diligence as under the new Civil Code, the rule
on the liability of carriers for
defects of equipment is thus expressed: “The
preponderance of authority is in favor of the doctrine
that a passenger is entitled to recover damages from a
carrier for an injury resulting from a defect in an
appliance purchased from a manufacturer, whenever it
appears that the defect would have been discovered by
the carrier if it had exercised the degree of care which
under the circumstances was incumbent upon it, with
regard to inspection and application of the necessary
tests. For the purposes of this doctrine, the manufacturer
is considered as being in law the agent or servant of the
carrier, as far as regards the work of constructing the
appliance. According to this theory, the good repute of
the manufacturer will not relieve the carrier from
liability.” (10 Am. Jur. 205, s. 1324; See also Pennsylvania R. Co. v.
Roy, 102 U.S. 451; 20 L. Ed. 141; Southern R. Co. v. Hussey, 74 ALR
1172; 42 Fed. 2d 70; and Ed. Note, 29 ALR 788; Ann. Cas. 1916 E
929;
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 usually has. It is but logical,
therefore, that the carrier, while not an insurer of the
safety of his passengers, should nevertheless be held to
answer for the flaws of his equipment if such flaws were
at all discoverable.
 In the case now before us, the record is to the effect
that the only test applied to the steering knuckle in
question was a purely visual inspection every 30 days, to
see if any cracks developed. It nowhere appears that
either the manufacturer or the carrier at any time tested
the steering knuckle to ascertain whether its strength was
up to standard, or that it had no hidden flaws that would
impair that strength. And yet the carrier must have been
aware of the critical importance of the knuckle’s
resistance; that its failure or breakage would result in loss
of balance and steering control of the bus, with disastrous
effects upon the passengers. No argument is required to
establish that a visual inspection could not directly
determine whether the resistance of this critically
important part was not impaired. Nor has it been shown
that

94
 CHAPTER II VIGILANCE
OVER THE GOODS

the weakening of the knuckle was impossible to detect

by any known test; on the contrary, there is testimony
that it could be detected. We are satisfied that the
periodical visual inspection of the steering knuckle as
practiced by the carrier’s agents did not measure up to
the required legal standard of “utmost diligence of very
cautious persons” — “as far as human care and
foresight can provide,” and therefore that the knuckle’s
failure can not be considered a fortuitous event that
exempts the carrier from responsibility. (Lasam v. Smith, 45
Phil. 657\ Son v. Cebu Autobus Co., 94 Phil. 892)

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,
especially because with the modern development of science and
invention, transportation has become rapid, more complicated, and
somehow more hazardous. For these reasons, a passenger or a
shipper of goods is under no obligation to conduct an inspection of
the ship and its crew, the carrier being obliged by law to impliedly
warrant its roadworthiness, seaworthiness or airworthiness as the
case maybe.
Vector Shipping Corporation and Francisco Soriano v. Adelfo
B. Macasa, et al.
G.R. No. 160219, July 21,2008

FACTS: On December 19, 1987, spouses Comelio

(Comelio) and Anacleta Macasa (Anacleta), together
with their eight-year old grandson, Ritchie Macasa
(Ritchie) boarded the M/V Dona Paz, owned and
operated by respondent Sulpicio Lines, Inc. (Sulpicio
Lines) at Tacloban, Leyte bound for Manila. On the
fateful evening of December 20, 1987, M/V Dona Paz
95
collided with the MT Vector, an oil tanker, owned and
operated by petitioners Vector Shipping Corporation
(Vector Shipping) and Francisco Soriano (Soriano),
which at the time was loaded with 860,000 gallons of
gasoline and other petroleum products, in the vicinity of
Dumali Point, Tablas Strait, between Marinduque and
Oriental Mindoro. Only 26 persons survived: 24
passengers of M/V Dona Paz and two crewmembers of
MT Vector. Both vessels were never retrieved. Worse,
only a few victims’ bodies, who either drowned

TRANSPORTATION LAWS

or were burned alive, were recovered. Comelio,

Anacleta, and Ritchie were among the victims whose
bodies have yet to be recovered up to this day.
Respondents Adelfo, Emilia, Timoteo, and
Comelio, Jr., all sumamed Macasa, are children of
Comelio and Anacleta. On the other hand, Timoteo
and his wife, respondent Rosario Macasa, are the
parents of Ritchie (the Macasas). On October 2, 1991,
the Macasas filed a Complaint for Damages arising out
of breach of contract of carriage against the Sulpicio
Lines before the Regional Trial Court (RTC). The
complaint imputed negligence to Sulpicio Lines

96
because it was remiss in its obligations as a common
carrier.
Sulpicio Lines traversed the complaint, alleging
among others, that (1) M/V Dona Paz was seaworthy
in all aspects; (2) it exercised extraordinary diligence
in transporting their passengers and goods; (3) it
acted in good faith as it gave immediate assistance to
the survivors and kin of the victims; (4) the sinking of
M/V Dona Paz was without contributory negligence
on its part; and (5) the collision was MT Vector’s fault
since it was allowed to sail with an expired coastwise
license, expired certificate of inspection, and it was
manned by unqualified and incompetent crew
members per findings of the Board of Marine Inquiry
(BMI) in BMI Case No. 653-87, which had exonerated
Sulpicio Lines from liability. Thus, Sulpicio Lines filed a
Third-Party Complaint against Vector Shipping.
Soriano and Caltex Philippines, Inc. (Caltex), the
charterer of MT Vector.
In its decision, dated May 5, 1995, the RTC
awarded P200,000 as civil indemnity for the death of
Comelio, Anacleta, and Ritchie; PI00,000 as actual
damages; P500,000 as moral damages; PI00,000 as
exemplary damages; and P50,000 as attorney’s fees.
The case was disposed of in this wise.
Accordingly, as a result of this decision, on
plaintiffs’ complaint against the third-party (sic)
defendant Sulpicio Lines, Inc., third-party defendant
Caltex Philippines, Inc. and third-party defendant MT
Vector Shipping Corporation and/or Francisco Soriano,
97
 are liable against defendant third-party plaintiff
Sulpicio Lines, for reimbursement, subrogation, and
indemnity on all amounts; defendant Sulpicio Lines
was ordered liable against plaintiffs, by way of actual,
moral,

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CHAPTER II VIGILANCE
OVER THE GOODS

exemplary damages, and attorney’s fee; MT Vector Shipping

Lines and/ or Francisco Soriano, third-party defendants, are
ordered jointly and severally, liable to pay third-party
plaintiff Sulpicio Lines, by way of reimbursement,
subrogation, and indemnity, of all the above amounts,
ordered against defendant Sulpicio Lines, Inc., to pay in
favor plaintiffs, with interest and cost of suit.
Aggrieved, Sulpicio Lines, Caltex, Vector Shipping and
Soriano appealed to the Court of Appeals (CA), which
modified the decision of the Regional Trial Court.
In the assailed decision, dated September 24, 2003, the
CA held that the third-party defendant-appellant Caltex
Philippines is exonerated from liability. The PI00,000 actual
damages is deleted, while the indemnity for (sic) is reduced
to PI50,000. All other aspects of the appealed judgment are
perforce affirmed.
ISSUE: Whether or not defendant Vector Shipping, a
common carrier, was seaworthy at the time of the mishap.
98
 HELD: In Caltex Philippines, Inc. v. Sulpicio Lines, Inc., the
Court held that MT Vector fits the definition of a common
carrier under Article 1732 of the New Civil Code. The Court
ruling in that case is instructive.
Thus, the carriers are deemed to warrant impliedly
the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the
voyaged and manned with a sufficient number of
competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition involved in its
contract of carriage is a clear breach of its duty prescribed
in Article 1755 of the Civil Code.
The provisions owed their conception to the nature of
the business of common carriers. This business is
impressed with a special public duty. 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,
especially because with the modem development of
science and invention, transportation has become more
rapid, more complicated, and somehow more hazardous.
For these reasons, a passenger or a shipper of goods is
under no obligation to conduct an inspection of the

TRANSPORTATION LAWS
99
ship and its crew, the carrier being obliged by law to
impliedly warrant its seaworthiness.
All evidence points to the fact that it was MT
Vector’s negligent officers and crew, which caused it to
ram into M/V Dona Paz. Moreso, MT Vector was found
to be carrying expired coastwise license and permits, and
was not properly manned. As the records would also
disclose, there is a defect in the ignition system of the
vessel, and it was not convincingly shown whether the
necessitated repairs were in fact undertaken before the
said ship had set to sea. In short, MT Vector was
unseaworthy at the time of the mishap, that the said
vessel was allowed to set sail when it was, to everyone in
the group’s knowledge, not fit to do so, translates into
rashness and imprudence.
Note: Ultimately, the position taken by this Court is
that a common carrier’s contract is not to be regarded as
a game of chance wherein the passenger stakes his limb
and life against the carrier’s property and profits.
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
agree to such stipulation.
The contract here limiting the liability of the
common carrier is merely voidable and not void in view
of the intimidation or undue influence exerted by the
common carrier or his agents. (See Art. 1390[2], NCC)
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
100
 carrier’s liability cannot be availed of in case of the loss,
destruction, or deterioration of the goods.
Considering that ordinary delay on the part of the
common carrier will not exempt the common carrier
from liability for loss, destruction or deterioration of the
goods even if due to fortuitous events, in the same
manner and with more reason that unjust delays and
changing

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OVER THE GOODS

the stipulated routes will not likewise exempt the common

carrier from availing the contract limiting his liability for loss,
destruction, or deterioration.
“The oft-repeated rule regarding a carrier’s liability for
delay is that in the absence of a special contract, a carrier is
not an insurer against delay in transportation of goods. When
a common carrier undertakes to convey goods, the law implies a contract that
they shall be delivered at destination within a reasonable time, in the absence,
of any agreement as to the time of delivery. But where a carrier
has
made an express contract to transport and deliver property
within a specified time, it is bound to fulfill its contract and is
liable for any delay, no matter from what cause it may have
arisen. This result logically follows from the well-settled rule
that where the law creates a duty or charge, and the party is
disabled from performing it without any default in himself,
101
and has no remedy over, then the law will excuse him, but
where the party by his own contract creates a duty or
charge upon himself, he is bound to make it good
notwithstanding any accident or delay by inevitable
necessity because he might have provided against it by
contract. Whether or not there has been such an
undertaking on the part of the carrier is to be determined
from the circumstances surrounding the case and by
application of the ordinary rules for the interpretation of
contracts.” (Saludo, Jr v. Court of Appeals, 207 SCRA 498 [1992])
ART. 1748. An agreement limiting the common carrier’s
liability for delay on account of strikes or riots is valid.
The above article does not distinguish whether the
strike is legal or illegal. However, it is assumed that it applies
to both kinds of strikes since there is no universal
acceptance that riots are legal.

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.
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.

TRANSPORTATION LAWS

102
 A stipulation in the bill of lading limiting to a certain
sum the common carrier’s liability for loss or destruction of
a cargo — unless the shipper or owner declares a greater
value — is sanctioned by law. There are, however, two
conditions to be satisfied: (1) the contract is reasonable and
just under the circumstances; and (2) it has been fairly and
ffeely agreed upon by the parties. The rationale for this rule
is to bind the shippers by their agreement to the value
(maximum valuation) of their goods.
It is to be noted, however, that the Civil Code does
not limit the liability of the common carrier to a fixed
amount per package. In all matters not regulated by the
Civil Code, the right and the obligations of common
carriers shall be governed by the Code of Commerce and
special laws. Thus, the Carriage of Goods By Sea Act, which
is suppletory to the provisions of the Civil Code,
supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading.
The provisions on limited liability are as much a part of the
bill of lading as though physically in it and as though placed
there by agreement of the parties. (Belgian Overseas Chartering
and Shipping N. V. v. Philippine First Insurance Company, Inc,, 383 SCRA
23,

June 5, 2002)
The right of the carrier to limit its liability has been
recognized not only in our jurisdiction but also in American
jurisprudence:

103
 “A stipulation in a contract of carriage that the
carrier will not be liable beyond a specified amount
unless the shipper declares the goods to have a
greater value is generally deemed to be valid and will
operate to limit the carrier’s liability, even if the loss
or damage results from the carrier’s negligence.
Pursuant to such provision, where the shipper is silent
as to the value of his goods, the carrier’s liability for
loss or damage thereto is limited to the amount
specified in the contract of carriage and where the
shipper states the value of his goods; the carrier’s
liability for loss or damage thereto is limited to that
amount. Under a stipulation such as this, it is the duty
of the shipper to disclose, rather than the carrier’s to
demand the true value of the goods and silence on the
part of the shipper will be sufficient to limit recovery
in case

100

104
 CHAPTER II VIGILANCE
OVER THE GOODS

of loss to the amount stated in the contract of

carriage.” (14 Am. Jur. 2d p. 88)
A stipulation in the Bill of Lading limiting the common carrier’s
liability for loss or destruction of a cargo to a certain sum, unless the
shipper or owner declares a greater value, is sanctioned by law.

Everett Steamship Corp. v. CA and Hernandez

Trading Co., Inc.
G.R. No. 122494, October 8,1998

FACTS: Private respondent imported three crates of

bus spare parts marked as MARCO C/No. 12, MARCO
C/No. 13 and MARCO C/ No. 14, from its supplier
Maruman Trading Company, Ltd. (Maruman Trading), a
foreign corporation based in Inazaw, Aichi, Japan. The
crates were shipped from Nagoya, Japan to Manila on
board “ADELFA EVERETT,” a vessel owned by petitioner’s
principal, Everett Orient Lines. The said crates were
covered by Bill of Lading No. NG053MN.
Upon arrival at the port of Manila, it was discovered
that the crate marked MARCO C/No. 14 was missing. This
was confirmed and admitted by petitioner in its letter of
January 13, 1992 addressed to private respondent, which
thereafter made a formal claim upon petitioner for the
value of the lost cargo amounting to ¥1,552,500, the
amount shown in Invoice No. MTM-941, dated November
14, 1991. However, petitioner offered to pay only
 ¥100,000, the maximum amount stipulated under Clause
18 of the covering bill of lading which limits the liability

of petitioner. ;
Private respondent rejected the offer and thereafter
instituted a suit for collection docketed as Civil Case No.
C-15532, against petitioner before the Regional Trial
Court of Caloocan City, Branch 126.
On July 16, 1993, the trial court rendered judgment
in favor of private respondent, ordering petitioner to pay:
(a) ¥1,552,500; (b) ¥20,000 or its peso equivalent
representing the actual value of the lost cargo and the
material and packaging cost; (c) 10% of the total amount
as an award for and as contingent attorney’s fees; and (d)
to pay the cost of the suit.

101
TRANSPORTATION LAWS

On appeal, the Court of Appeals deleted the award

of attorney’s fees but affirmed the trial court’s findings
with the additional observation that private respondent
can not be bound by the terms and conditions of the bill
of lading because it was not privy to the contract of
carriage.
 ISSUE: Whether or not the carrier’s limited package
liability as stipulated in the bill of lading does not apply in
this case.
HELD: A stipulation in the bill of lading limiting the
common carrier’s liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner
declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code
which provides:

“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.
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 freely and fairly agreed upon.”
Such limited liability clause has also been
consistently upheld by this Court in a number of cases.
Thus, in Sea-Land Services, Inc. v. Intermediate Appellate Court,
[W]e ruled:
“It seems clear that even if said Section 4(5), of
the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation
clause in the bill of lading here are nevertheless
fully sustainable on the basis alone of the cited Civil
 Code Provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes
Article 1750 itself in providing a limit to liability only
if a greater value is not declared for the shipment in
the bill of lading. To hold otherwise would amount
to questioning the justness and fairness of the law
itself, and this private respondent does not pretend
to do. But over and above that consideration, the
just and reasonable character of such stipulation is
implicit in it giving the shipper or owner the option

102
CM AH HR II VIGll.ANCH OVF.R TlUi
GOODS

of avoiding accrual of liability limitation by the

simple and surely far from onerous expedient of
declaring the nature and value of the shipment in
the bill of lading.”
Pursuant to the aforequoted provisions of law, it is
required that the stipulation limiting the common earner’s
liability for loss must be

“reasonable and just under the circumstances, and has

been freely and fairly agreed upon.”
The bill of lading subject of the present controversy
specifically provides, among others:
“18. All claims for which the carrier may be
liable shall be adjusted and settled on the basis of
 the shipper’s net invoice cost plus freight and
insurance premiums, if paid, and in no event shall
the carrier be liable for any loss of possible profits
or any consequential loss.
“The carrier shall not be liable for any loss of
or any damage to or in any connection with,
goods in an amount exceeding One Hundred
Thousand Yen in Japanese Currency
(¥100,000.00) or its equivalent in any other
currency per package or customary freight unit
(whichever is least) unless the value of the goods
higher than this amount is declared in writing by
the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra
freight is paid as required.”
The above stipulations are, to our mind,
reasonable and just. In the bill of lading, the carrier
made it clear that its liability would only be up to One
Hundred Thousand Yen (¥100,000.00). However, the
shipper, Maruman Trading, had the option to declare
a higher valuation if the value of its cargo was higher
than the limited liability of the carrier. Considering
that the shipper did not declare a higher valuation, it
had itself to blame for not complying with the
stipulations.
The trial court’s ratiocination that private
respondent could not have “fairly and freely” agreed
to the limited liability clause in the bill of lading
because the said conditions were printed in small
letters does not make the bill of lading invalid.

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TRANSPORTATION LAWS

We Riled in PAL, Inc. v. Court of Appeals that the

“jurisprudence on the matter reveals the consistent
holding of the court that contracts of adhesion are not
invalid per se and that it has on numerous occasions
upheld the binding effect thereof.” Also, in Philippine
American General Insurance Co., Inc. v. Sweet Lines, Inc., this Court,
speaking through the learned Justice Florenz D.
Regalado, held:
“x x x Ong Yiu v. Court of Appeals, et al., instructs us
that contracts of adhesion wherein one party
imposes a ready — made form of contract on the
other x x x are contracts not entirely prohibited.
The one who adheres to the contract is in reality
free to reject it entirely; if he adheres he gives his
consent. ‘In the present case, not even an
allegation of ignorance of a party excuses non-
compliance with the contractual stipulations since
the responsibility for ensuring full comprehension
of the provisions of a contract of carriage devolves
not on the carrier but on the owner, shipper, or
consignee as the case may be.’”
 (See also Edgar Cokaliong Shipping Lines v. UCPB General Insurance
Company, Inc., 404 SCRA 706, June 25, 2003)

Summa Insurance Corporation v. Court of Appeals and

Metro Port Service, Inc.
G.R. No. 84680, February 5,1996

FACTS: On November 22, 1981, the S/S “Galleon

Sapphire,” a vessel owned by the National Galleon
Shipping Corporation (NGSC), arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the
order of Caterpillar Far East Ltd. with Semirara Coal
Corporation (Semirara) as “notify party.” The shipment,
including a bundle of PC8U blades, was covered by
marine insurance under Certificate No. 82/012- FEZ
issued by petitioner and Bill of Lading No. SF/MLA 1014.
The shipment was discharged from the vessel to the
custody of private respondent, formerly known as E.
Razon, Inc., the exclusive arrastre operator at the South
Harbor. Accordingly, three good-order cargo receipts
were issued by NGSC, duly signed by the ship’s checker
and a representative of private respondent.

104

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CHAPTER II VIGILANCE OVER THE
GOODS
 On February 24, 1982, the forwarder, Sterling
International Brokerage Corporation withdrew the shipment
from the pier and loaded it on the barge

“Semirara 8104.” The barge arrived at its port of

destination, Semirara Island, on March 9, 1982. When
Semirara inspected the shipment at its warehouse, it
discovered that the bundle of PC8U blades was missing.
On March 15, 1982, private respondent issued a
short landed certificate stating that the bundle of PC8U
blades was already missing when it received the
shipment from the NGSC vessel. Semirara then filed
with petitioner, private respondent and NGSC its claim
for P280,969.68, the alleged value of the lost bundle.
On September 29, 1982, petitioner paid Semirara
the invoice value of the lost shipment. Semirara
thereafter executed a release of claim and subrogation
receipt. Consequently, petitioner filed its claims with
NGSC and private respondent but it was unsuccessful.
Petitioner then filed a complaint (Civil Case No. 82-
13988) with the Regional Trial Court, Branch XXIV,
Manila, against NGSC and private respondent for
collection of a sum of money, damages and attorney’s
fees.
On August 2, 1984, the trial court rendered a
decision absolving NGSC from any liability but finding
private respondent liable to petitioner. Ordering the
defendant Metro Port Service, Inc., to pay the plaintiff
Summa Insurance
Corp., the sum of P280,969.68 and attorney’s fees ofP20,000.
In resolving the issue as to who had custody of the
shipment when it was lost, the trial court relied more
on the good-order cargo receipts issued by NGSC than
on the short-landed certificate issued by private
respondent. The trial court held:
“As between the aforementioned two
documentary exhibits, the Court is more inclined to
give credence to the cargo receipts. Said cargo
receipts were signed by a checker of defendant
NGSC and a representative of Metro Port. It is safe
to presume that the cargo receipts accurately
describe the quantity and condition of the
shipment when it was discharged from the vessel.
Metro

105
TRANSPORTATION LAWS

Port's representative would not have signed the

cargo receipts if only four (4) packages were
discharged from the vessel and given to the
possession and custody of the arrastre operator.
Having been signed by its representative, the Metro
Port is bound by the contents of the cargo receipts.
 On the other hand, the Metro Port’s shortlanded
certificate could not be given much weight considering
that, as correctly argued by counsel for defendant NGSC,
it was issued by Metro Port alone and was not
countersigned by the representatives of the shipping
company and the consignee. Besides, the certificate was
prepared by Atty. Servillano V. Dolina, Second Deputy
General Manager of Metro Port, and there is no proof on
record that he was present at the time the subject
shipment was unloaded from the vessel and received by
the arrastre operator. Moreover, the shortlanded
certificate bears the date of March 15, 1982, more than
three months after the discharge of the cargo from the
carrying vessel.”
On appeal, the Court of Appeals modified the decision of
the trial court and reduced private respondent’s liability to
P3,500 and attorney’s fees of P6,000.
ISSUES: (1) Whether or not the private respondent is
legally liable for the loss of the shipment in question. (2) If
so, what is the extent of its liability?
HELD: Petitioner was subrogated to the rights of the
consignee. The relationship therefore between the
consignee and the arrastre operator must be examined.
This relationship is much akin to that existing between the
consignee or owner of shipped goods and the common
carrier, or that between a depositor and a
warehouseman. In the performance of its obligations, an
arrastre operator should observe the same degree of
diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the
Civil Code and Section 3(b) of the Warehouse Receipts
Law, respectively. Being the custodian of the goods
discharged from a vessel, an arrastre operator’s duty is to
take good care of the goods and to turn them over to the
party entitled to their possession.

106
CHAPTER II
VIGILANCE OVER THE GOODS

In this case, it has been established that the

shipment was lost while in the custody of private
respondent. We find private respondent liable for the
loss. This is an issue of fact determined by the trial court
and respondent Court, which is not reviewable in a
petition under Rule 45 of the Rules of Court.
In the performance of its job, an arrastre operator is
bound by the management contract it had executed with
the Bureau of Customs. However, a management
contract, which is a sort of a stipulation pour autrui within
the meaning of Article 1311 of the Code, is also binding
on a consignee because it is incorporated in the gate
pass and delivery receipt, which must be presented by
the consignee before delivery can be effected to it. The
insurer, as successor-in-interest of the consignee, is
likewise bound by the management contract. Indeed,
upon taking delivery of the cargo, a consignee (and
necessarily its successor-in- interest) tacitly accepts the
provisions of the management contract, including those,
which are intended to limit the liability of one of the
contracting parties, the arrastre operator.
However, a consignee who does not avail of the
services of the arrastre operator is not bound by the
management contract. Such an exception to the rule
does not obtain here as the consignee did in fact accept
delivery of the cargo from the arrastre operator.
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 a 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.

The above provision is logical inasmuch as lack of

competition may lead to undue influence.
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.

107
TRANSPORTATION LAWS
 The presumption of negligence against the common
carrier is not relaxed even if there is an agreement
between the shipper and the common carrier limiting the
common carrier’s liability in the vigilance over the goods.
In other words, the stipulation of the parties limiting the
common carrier’s liability in vigilance over the goods is
not an exception enunciated in Article 1735.
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.

There is no question that even if the goods never

reach its destination, 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 but not if the goods were never
transported.
Law of the place of destination governs liability in case of loss, destruction or
deterioration of the goods transported.
Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court and Development Insurance and Surety Corp.
G.R. No. L-69044, May 29,1987

FACTS: Sometime in or prior to June 1977, the M/S

ASIATICA, a vessel operated by petitioner Eastern
Shipping Lines, Inc., (referred to hereinafter as Petitioner
Carrier) loaded at Kobe, Japan for transportation to
Manila, 5,000 pieces of calorized lance pipes in 28
packages valued at P256,039 consigned to Philippine
Blooming Mills Co., Inc., and seven cases of spare parts
valued at P92,361.75, consigned to Central Textile Mills,
 Inc. Both sets of goods were insured against marine risk
for their stated value with respondent Development
Insurance and Surety Corporation.
En route from Kobe, Japan, to Manila, the vessel
caught fire and sank, resulting in the total loss of ship and
cargo. The respective respondent Insurers paid the
corresponding marine insurance values to the consignees
concerned and were thus subrogated unto the rights of
the latter as the insured.

108
CHAl’TliR II
VKIIUANCU OVI:R mi GOODS

On May 11, 1978, respondent Development

Insurance and Surety Corporation (Development
Insurance, for short), having been subrogated unto the
rights of the two insured companies, filed suit against
Petitioner Carrier for the recovery of the amounts it had
paid to the insured before the then Court of First Instance
of Manila, Branch XXX (Civil Case No. 116087)
Petitioner Carrier denied liability mainly on the ground
that the loss was due to an extraordinary fortuitous event;
hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered
judgment in favor of Development Insurance in the
amounts of P256,039 and P92,361.75, respectively, with
legal interest, plus P35,000 as attorney’s fees and costs.
Petitioner carrier took an appeal to the then Court of
Appeals that, on August 14, 1984, affirmed the decision
of the lower Court.
Which law should govern, the Civil Code provisions
ISSUE:
on common carrier or the Carriage of Goods by Sea Act?
HELD: The law of the country to which the goods are
to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration.
As the cargoes in question were transported from Japan
to the Philippines, the liability of Petitioner Carrier is
governed primarily by the Civil Code. However, in all
matters not regulated by said code, the rights and
obligations of common carrier shall be governed by the
Code of Commerce and by special laws. Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory
to the provisions of the Civil Code.
QUESTION: En route to Manila the vessel Dona Nati
figured in a collision at Ise, Japan, with a Japanese vessel
SS Yasushima Maru as a result of which goods were lost
or damaged. The collision was found to have been caused
by the negligence or fault of both captains of the colliding
vessels. Which laws now govern the loss or destruction of
goods due to collision of vessels outside Philippine
waters?
ANSWER: Article 1753 of the Civil Code will apply, and it
is immaterial that the collision actually occurred in foreign
waters, such as lse Bay, Japan.
 109
TRANSPORTATION LAWS

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

Articles 1998, 2000, to 2003 of the New Civil Code

provides as follows:
ART. 1998. The deposit effects made by travelers in hotels
and inns shall also be regarded as necessary. The keepers of hotels
or inns shall be responsible for them as depositories, provided that
notice was given to them, or to their employees, of the effects
brought by the guests and that, on the part of the latter, they take
the precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.
ART. 2000. The responsibility referred to in the two
preceding articles shall include the loss of, or injury to the personal
property of the guests caused by the servants or employees of the
keepers of hotels or inns as well as by strangers; but not that which
may proceed from any force majeure. The fact that travelers are
constrained to rely on the vigilance of the keeper of the hotel or inn
shall be considered in determining the degree of care required of
him.
ART. 2001. The act of a thief or robber, who has entered the
hotel, is not deemed force majeure, unless it is done with the use of
arms or through an irresistible force.
ART. 2002. The hotel-keeper is not liable for compensation if
the loss is due to the acts of the guest, his family, servants, or
visitors, or if the loss arises from the character of the things brought
into the hotel.
ART. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not liable
 for the articles brought by the guest. Any stipulation between the
hotelkeeper and the guest whereby the responsibility of the former

110

J
CHAPTER H VIGILANCE
OVER THE GOODS

as set forth in articles 1998 to 2001 is suppressed or diminished shall be

void.

QUESTION:Is notification required before the

common carrier becomes liable for lost belongings that
remained in the custody of the passenger?
The petitioner contends that its liability for the loss
of Sesante’s personal belongings should conform with
Article 1754, in relation to Articles 1998, 2000 to 2003
of the Civil Code.
ANSWER: No. The rule that the common carrier is
always responsible for the passenger’s baggage during
the voyage needs to be emphasized. Article 1754 of the
Civil Code does not exempt the common carrier from
liability in case of loss, but only highlights the degree of
care required of it depending on who has the custody of
the belongings. Hence, the law requires the common
carrier to observe the same diligence as the
hotelkeepers in case the baggage remains with the
passenger; otherwise, extraordinary diligence must be
exercised. Furthermore, the liability of the common
carrier attaches even if the loss or damage to the
belongings resulted from the acts of the carrier’s
employees, the only exception being where such loss or
damages is due to force majeure.
In YHT Realty Corporation v. Court of Appeals, the Court
declared that actual delivery of the goods to the
innkeepers or their employees as unnecessary before
liability could attach to the hotelkeepers in the event of
loss of personal belongings of their guests considering
that the personal effects were inside the hotel or inn
because the hotelkeeper shall remain accountable.
Accordingly, actual notification was not necessary to
render the petitioner as the common carrier liable for
the lost personal belongings of Sesante. By allowing him
to board the vessel with his belongings without any
protest, the petitioner became sufficiently notified of
such belongings. So long as the belongings were
brought inside the premises of the vessel, the petitioner
was thereby effectively notified and consequently duty-
bound to observe the required diligence in ensuring the
safety of the belongings during the voyage. Applying
Article 2000 of the Civil Code, the petitioner assumed
the liability for

111
TRANSPORTATION LAWS
loss of the belongings caused by the negligence of
its officers or crew. In view of the finding of the
Court that the negligence of the officer and crew of
the petitioner was the immediate and proximate
cause of the sinking of the M/V Princess of the
Orient, its liability for Sesante’s lost personal
belongings was beyond question. (Sulpicio Lines v.
Napoleon

Sesante, G.R. No. 172682, July 27, 2016)

 112

i
CHAPTER III

SAFETY OF PASSENGERS
ARTICLES 1755 to 1763

ARTICLE 1755. A common carrier is bound to carry the

passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all
the circumstances.

The hazards of modem transportation demand

extraordinary diligence. A common carrier is vested with
public interest. Under the New Civil Code, instead of being
required to exercise mere ordinary diligence, a common
carrier is exhorted to carry the passengers safely as far as
human care and foresight can provide “using the utmost
diligence of very cautious persons.” (Art. 1755) Once a
passenger in the course of travel is injured, or does not
reach his destination safely, the carrier and driver are
presumed to be at fault. (Bacarro v. Castano, 118 SCRA 187)
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.
It is the duty of common carriers of passengers,
including common carriers by railroad train, streetcar, or
motorbus, to stop their conveyances within 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.

113
TRANSPORTATION LAWS

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 a slowly moving vehicle is a matter of
common experience and both the driver and conductor in this case could
not have been unaware of such an ordinary practice.
The victim herein, 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 such a contractual relation. Hence, it has been
held that the duty which the carrier of passengers owes to its patrons
extends to persons boarding the cars as well as to those alighting
therefrom (Dangwa Transportation Co., Inc. v. Court of Appeals, 202 SCRA
574):

“It has been recognized as a rule that the relation of carrier

and passenger does not cease at the moment the passenger alights
 from the carrier’s vehicle at a place selected by the carrier at the
point of destination, but continues until the passenger has had a
reasonable time or a reasonable opportunity to leave the carrier’s
premises. And, what is reasonable time or a reasonable delay
within this rule is to be determined from all the circumstances.
Thus, a person who, after alighting from a train, walks along the
station platform is considered still a passenger. So also, where a
passenger has alighted at his destination and is proceeding by the
usual way to leave the company’s premises, but before actually
doing so is halted by the report that his brother, a fellow passenger,
has been shot, and he in good faith and without intent of engaging
in the difficulty, returns to relieve his brother, he is deemed
reasonably and necessarily delayed and thus continued to be a
passenger entitled as such to the protection of the railroad
company and its agents. (La Mallorca v. Court of Appeals, et al., 17
SCRA 739; See also Light Rail Transit Authority v. Natividad, 397
SCRA, February 6, 2003)

Railroad companies owe to the public a duty of exercising a reasonable

degree of care to avoid injury to persons and property at
CHAPTER III SAFETY OF
PASSENGERS

railroads crossings, which duties pertain both to the

operation of trains and to the maintenance of the
crossings. Moreover, every corporation constructing or
operating a railway shall make and construct at all
points where such railway crosses any public road,
good, sufficient and safe crossings, and erect at such
points, at sufficient elevation from such road as to
admit a free passage of vehicles of every kind, a sign
with large and distinct letters placed thereon, to give
notice of the proximity of the railway, and warn
persons of the necessity of looking out for trains. The
failure of the PNR to put a cross bar, or signal light,
flagman or switchman, or semaphore is evidence of
negligence and disregard of the safety of the public,
even if there is no law or ordinance requiring it
because public safety of the public demands that said
device or equipment be installed. (PNR v. Court of Appeals,
G.R. No. 157658, October 15, 2007)

Carrier-passenger relationship continues until the passenger has

been landed at the port of destination and has left the vessel-
owner’s premises.
Aboitiz Shipping Corporation v. Hon. Court of Appeals,
Lucila Viana, Sps. Antonio and Gorgonia Viana,
and Pioneer Stevedoring Corporation G.R.
No. 84458, November 6,1989

FACTS: The evidence disclosed that on May 11,

1975, Anacleto Viana boarded the vessel M/V Antonia,
owned by defendant, at the port of San Jose,
Occidental Mindoro, bound for Manila, having
purchased a ticket (No. 117392) in the sum of P23.10.
On May 12,1975, 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 on
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 pursuant to the
Memorandum of Agreement dated July 26, 1975
between the third party defendant Pioneer
Stevedoring Corporation and defendant Aboitiz
Shipping Corporation.

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TRANSPORTATION LAWS

The crane owned by the third-party defendant 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, it started operation by unloading the cargoes
from said vessel. While the crane was being operated,
Anacleto Viana, who had already disembarked from said
vessel obviously 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 thereafter brought to the hospital where he
later expired three days thereafter, on May 15, 1975.
ISSUE: Whether or not the victim’s presence in the
vessel after one hour from his disembarkation was no
longer reasonable and he consequently ceased to be a
passenger.
HELD: The rule is that the relation of carrier and
passenger continues until the passenger has been landed
at the port of destination and has left the vessel owner’s
dock or premises. Once created, the relationship will not
ordinarily terminate until the passenger has, after reaching
his destination, safely alighted from the carrier’s
conveyance or had a reasonable opportunity to leave the
carrier’s premises. All persons who remain on the premises
for a reasonable time after leaving the conveyance are to
be deemed passengers, and what is a reasonable time or a
reasonable delay within this rule is to be determined from
all the circumstances, and includes a reasonable time to
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.
It was in accordance with this rationale that the doctrine
in the aforesaid case of La Mallorca was enunciated, to wit:
“In the present case, the father returned to the
bus to get one of his baggage which was not
unloaded when they alighted from the bus.
Racquel, the child that she was, must have followed
the father. However, although the father was still
on the running

116
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OF PASSENGERS

board of the bus waiting for the conductor to hand

him the bag or bayong, the bus started to run, so that
even he (the father) had to jump down from the
moving vehicle. It was at this instance that the child,
who must be near the bus, was run over and killed. In
the circumstances, it cannot be claimed that the
carrier’s agent had exercised the ‘utmost diligence’ of
a ‘very cautious person’ required by Article 1755 of
the Civil Code to be observed by a common carrier in
the discharge of its obligation to transport safely its
passengers, x x x The presence of said passengers
near the bus was not unreasonable and they are,
therefore, to be considered still as passengers of the
carrier, entitled to the protection under their contract
of carriage.” The presence of passengers at the
carriers’ premises is reasonable.
It is apparent from the foregoing that what prompted
the Court to rule as it did in said case is the fact of the
passenger’s reasonable presence within the carrier’s
premises. That reasonableness of time should be made to
depend on the attending circumstances of the case, such
as the kind of common carrier, the nature of its business,
the customs of the place, and so forth, and therefore
precludes a consideration of the time element per se
without taking into account such other factors. It is thus of
no moment whether in the cited case of La Mallorca there
was no appreciable interregnum for the passenger therein to
leave the carrier’s premises whereas in the case at bar, an
interval of one hour had elapsed before the victim met the
accident. The primary factor to be considered is the
existence of a reasonable cause as will justify the presence
of the victim on or near the petitioner’s vessel. It is
submitted that there exists such a justifiable cause.
It is of common knowledge that, by the very nature of
petitioner’s business as a shipper, the passengers of
vessels are allotted a longer period of time to disembark
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 accommodating a bigger volume of both as compared
to the capacity of a regular commuter bus. Consequently,
a ship passenger will need at least an hour, as is the usual
practice, to disembark from the vessel and

117
TRANSPORTATION LAWS

claim his baggage whereas a bus passenger can easily get

off the bus and retrieve his luggage in a very short period of
time. Verily, petitioner 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 we are to apply the doctrine enunciated therein
to the instant petition, [W]e 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 safely to their
destination but also to afford them a reasonable time to
claim their baggage.

It is not definitely shown that one hour prior to the

incident, the victim had already disembarked from the
vessel. Petitioner failed to prove this. What is clear to us is
that at the time the victim was taking his cargoes, the
vessel had already docked an hour earlier. In consonance
with common shipping procedure as to the minimum time
of one hour allowed for the passengers to disembark, it
may be presumed that the victim had just gotten off the
vessel when he went to retrieve his baggage. Yet, even if he
had already disembarked an hour earlier, his presence in
petitioner’s premises was not without cause. The victim had
to claim his baggage, which was possibly only one hour
after the vessel, arrived since it was admittedly a standard
procedure in the case of petitioner’s vessels that the
unloading operations shall start only after that time.
Consequently, under the foregoing circumstances, the
 victim, Anacleto Viana, is still deemed a passenger of said
carrier at the time of his tragic death.
Common carriers required to exercise extraordinary diligence in contract
of carriage of passengers; Reasons.
Rosito Z. Bacarro, William Sevilla, and Felario Montefalcon
v. Geruridio B. Castano and The Court of Appeals G.R.
No. L-34597, November 5,1982

FACTS: From appellee’s version just set out, it appears that

after he boarded the

jeep in question at Oroquieta, it was driven by

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CHAPTER III SAFETY OF
PASSENGERS

defendant Montefalcon at around forty (40) kilometers

per hour bound for Jimenez; that while approaching
Sumasap Bridge at the said speed, a cargo truck coming
from behind blew its horn to signal its intention to
overtake the jeep; that the latter, without changing its
speed, gave way by swerving to the right, such that both
vehicles ran side by side for a distance of around twenty
(20) meters, and that thereafter as the jeep was left
behind, its driver was unable to return it to its former
lane and instead it obliquely or diagonally ran down an
inclined terrain towards the right until it fell into a ditch
pinning down and crushing appellee’s right leg in the
process.
Throwing the blame for this accident on the driver of the
cargo truck, appellants, in turn, state the facts to be as follows:
‘In the afternoon of April 1, 1960, plaintiff
Gerundio Castano boarded the said jeepney at
Oroquieta bound for Jimenez, Misamis Occidental.
While said jeepney was negotiating the upgrade
approach of the Sumasap Bridge at Jimenez,
Misamis Occidental and at a distance of about 44
meters therefrom, a cargo truck, owned and
operated by a certain Te Tiong alias Chinggim, then
driven by Nicostrato Digal, a person not duly
licensed to drive motor vehicles, overtook the
jeepney so closely that in the process of overtaking
sideswiped the jeepney, hitting the reserve tire
placed at the left side of the jeepney with the
hinge or bolt of the siding of the cargo truck,
causing the jeepney to swerve from its course and
after running 14 meters from the road, it finally fell
into the canal. The right side of the jeep fell on the
right leg of the plaintiff-appellee, crushing said leg
against the ditch resulting in the injury to plaintiff-
appellee consisting of a broken right thigh.’
And take the following stand: ‘The main defense of
defendants- appellants is anchored on the fact that the
jeepney was sideswiped by the overtaking cargo truck.’
 “It must be admitted, out of candor, that there is evidence
of the sideswiping relied upon by appellants, x x x”
This appeal by certiorari to review the decision of
respondent Court of Appeals asserts that the latter decided
questions of substance

119
TRANSPORTATION LAWS

which are contrary to law and the approved decisions of

this Court. Petitioners alleged that respondent Court of
Appeals erred: (1) in finding contributory negligence on
the part of jeepney driver appellant Montefalcon for
having raced with the overtaking cargo truck to the
bridge instead of slackening its speed, when the person
solely responsible for the sideswiping is the unlicensed
driver of the overtaking cargo truck; (2) in finding the
jeepney driver not to have exercised extraordinary
diligence, human care, foresight and utmost diligence of
very cautious persons, when the diligence required
pursuant to Article 1763 of the New Civil Code is only
that of a good father of a family since the injuries were
caused by the negligence of a stranger; and (3) in not
considering that appellants were freed from any liability
since the accident was due to fortuitous event — the
sideswiping of the jeepney by the overtaking cargo truck.
 HELD: The Court is not persuaded. The fact is,
petitioner-driver Montefalcon did not slacken his speed
but instead continued to run the jeep at about 40
kilometers per hour even at the time the overtaking
cargo truck was running side by side for about 20 meters
and at which time he even shouted to the driver of the
truck.
Thus, had Montefalcon slackened the speed of the
jeep at the time the truck was overtaking it, instead of
running side by side with the cargo truck, there would
have been no contact and accident. He should have
foreseen that at the speed he was running, the vehicles
were getting nearer the bridge and as the road was
getting narrower the truck would be too close to the jeep
and would eventually sideswiped it. Otherwise stated, he
should have slackened his jeep when he swerved it to the
right to give way to the truck because the two vehicles
could not cross the bridge at the same time.
The second assigned error is centered on the alleged
failure on the part of the jeepney driver to exercise
extraordinary diligence, human care, foresight and
utmost diligence of a very cautious person, when the
diligence required pursuant to Article 1763 of the Civil
Code is only that of a good father of a family. Petitioners
contend that the proximate cause of the accident was
the negligence of the driver of the truck. However, the
fact is, there was a contract of carriage between the
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 CHAPTER III SAFETY OF
PASSENGERS

private respondent and the herein petitioners in which

case the Court of Appeals correctly applied Articles 1733,
1755, and 1766 of the Civil Code which required the
exercise of extraordinary diligence on the part of
petitioner Montefalcon.
Article 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.
Article 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.
Article 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.
Indeed, the hazards of modem transportation
demand extraordinary diligence. A common carrier is
vested with public interest. Under the new Civil Code,

138
instead of being required to exercise mere ordinary
diligence, a common carrier is exhorted to carry the
passengers safely as far as human care and foresight can
provide “using the utmost diligence of very cautious
persons.” (Art. 1755) Once a passenger in the course of
travel is injured, or does not reach his destination safely,
the carrier and driver are presumed to be at fault.
The third assigned error of the petitioners would find
fault upon respondent court in not freeing petitioners
from any liability, since the accident was due to a
fortuitous event. But, we repeat that the alleged
fortuitous event in this case — the sideswiping of the
jeepney by the cargo truck, was something which could
have been avoided considering the narrowness of the
Sumasap Bridge which was not wide enough to admit two
vehicles. As found by the Court of Appeals, Montefalcon
contributed to the occurrence of the mishap.
TRANSPORTATION LAWS

The failure of the common carrier to maintain in seaworthy condition

its vessel involved in the contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.

Trans-Asia Shipping Lines, Inc. v. Court of Appeals and

Atty. Renato T. Arroyo
G.R. No. 118126, March 4,1996

139
 FACTS: Plaintiff, herein private respondent Atty.
Renato Arroyo, public attorney, bought a ticket from
defendant, herein petitioner, a corporation engaged in
inter-island shipping, for the voyage of M/V Asia Thailand
vessel to Cagayan de Oro City from Cebu City on
November 12, 1991.
At around 5:30 in the evening of November 12, 1991,
plaintiff boarded the M/V Asia Thailand vessel. At that
instance, plaintiff noticed that some repair works [sic]
were being undertaken on the engine of the vessel. The
vessel departed at around 11:00 in the evening with only
one (1) engine running.
After an hour of slow voyage, the vessel stopped
near Kawit Island and dropped its anchor thereat. After
half an hour of stillness, some passengers demanded that
they should be allowed to return to Cebu City for they
were no longer willing to continue their voyage to
Cagayan de Oro City. The captain acceded [sic] to their
request and thus the vessel headed back to Cebu City.
At Cebu City, plaintiff together with the other
passengers who requested to be brought back to Cebu
City, were allowed to disembark. Thereafter, the vessel
proceeded to Cagayan de Oro City. Plaintiff, the next day,
boarded the M/V Asia Japan for its voyage to Cagayan de
Oro City, likewise a vessel of defendant.

140
 On account of this failure of defendant to transport
him to the place of destination on November 12, 1991,
plaintiff filed before the trial court a complaint for
damages against defendant.
ISSUE: Whether or not there was negligence on the part of
the petitioner.
CHAPTER 111
SAFETY OF PASSENGERS

HELD: Undoubtedly, there was. between the

petitioner and the private respondent, a contract of
common carriage. The laws of primary application then
are the provisions on common carriers under Section 4,
Chapter 3, Title VIII, Book IV of the Civil Code, while for all
other matters not regulated thereby, the Code of
Commerce and special laws.
Under Article 1733 of the Civil Code, the petitioner
was bound to observe extraordinary diligence in ensuring
the safety of the private respondent. That means that the
petitioner was, pursuant to Article 1755 of the said Code,
bound to carry the private respondent safely as far as
human care and foresight could provide, using the utmost
diligence of very cautious persons, with due regard for all
the circumstances.

141
 Before commencing the contracted voyage, the
petitioner undertook some repairs on the cylinder head of
one of the vessel’s engines. But even before it could finish
these repairs, it allowed the vessel to leave the port of
origin with only one functioning engine, instead of two.
Moreover, even the lone functioning engine was not in
perfect condition as sometime after it had run its course,
it conked out. This caused the vessel to stop and remain
adrift at sea, thus in order to prevent the ship from
capsizing, it had to drop anchor. Plainly, the vessel was
unseaworthy; it must be adequately equipped for the
voyage and manned with a sufficient number of
competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code.
Nature of the Contract of Air Carriage

A contract of air carriage is a peculiar one. Imbued with

public interest, common carriers are required by law to
carry passengers safely as far as human care and foresight
can provide, using the utmost diligence of a very cautious
person, with due regard for all the circumstances. A
contract to transport passengers is quite different in kind
and degree from any other contractual relation. And this,
because its business is mainly with the traveling public. It

142
invites people to avail of the comforts and advantages it
offers. The contract of carriage, therefore, generates a
relation attended with a public duty. Failure of the

143
 TRANSPORTATION LAWS

carrier to observe this high degree of care and

extraordinary diligence renders it liable for any damage
that may be sustained by its passengers. (Singson v. Court of
Appeals, 282 SCRA 149)

Categories of International Transportation

There are then 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
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.
The High Contracting Parties referred to in the
Convention are the signatories thereto and those which
subsequently adhered to it. In the case of the Philippines,
the 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 and was deposited with the Polish
Government on November 9, 1950. The Convention
became applicable to the Philippines on February 9, 1951.
Then, on September 23, 1955, President Ramon
Magsaysay issued Proclamation No. 201, declaring the
Philippines’ formal adherence 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.” (Mapa v. Court of
Appeals, 275 SCRA 286, G.R. No. 122308, July 8, 1998)

QUESTION: Does the Philippine recognition of

Warsaw Convention preclude the operation of the Civil
Code and other pertinent laws in the determination of
extent of liability of common carriers in cases of breach of
contract of carriage, particularly for willful conduct of
their employees?
ANSWER: Although the Warsaw Convention has the
force and effect of law in this country, being a treaty
commitment assumed by the Philippine government, said
convention does not operate as an

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PASSENGERS

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. The Warsaw
Convention declares the carrier liable for damages in the
enumerated cases and under certain limitations.
However, it must not be construed to preclude the
operation of the Civil Code and other pertinent laws. It
does not regulate, much less exempt, the carrier from
liability for damages for violating the rights of its
passengers under the contract of carriage, especially if
willful misconduct on the part of the carrier’s employees
is found or established. (Cathay Pacific Airways, Ltd. v. Court of
Appeals and Tomas L. Alcantara, G.R. No. 60501, March 5, 1993)

Round trip plane ticket was itself a complete written contract between the
carrier and the passenger.

Carlos Singson v. Court of Appeals and Cathay Pacific

Airways, Inc.
G.R. No. 119995, November 18,1997
FACTS: The instant case is an illustration of the
exacting standard demanded by the law of common
carriers. On May 24, 1988, Carlos Singson and his cousin
Crescentino Tiongson bought from Cathay Pacific
Airways, Ltd. (CATHAY), at its Metro Manila ticket outlet
two open-dated, identically routed, round trip plane
tickets for the purpose of spending their vacation in the
United States. Each ticket consisted of six flight coupons
corresponding to this itinerary: flight coupon No. 1 —
Manila to Hongkong; flight coupon No. 2 — Hongkong to
San Francisco; flight coupon No. 3 — San Francisco to Los
Angeles; flight coupon No. 4 — Los Angeles back to San
Francisco; flight coupon No. 5 — San Francisco to
Hongkong; and finally, flight coupon No. 6 — Hongkong
to Manila. The procedure was that at the start of each
 leg of the trip a flight coupon corresponding to the
particular sector of the travel would be removed from
the ticket booklet so that at the end of the trip no more
coupons would be left in the ticket booklet.
On June 6,1988, CARLOS SINGSON and Crescentino Tiongson left

Manila on board CATHAY’s flight No. 902. They arrived

safely in Los Angeles and after staying there for about three
weeks they decided

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TRANSPORTATION LAWS

to return to the Philippines. On June 30, 1988, they

arranged for their return flight at CATHAY’s Los Angeles
Office and chose July 1, 1988, a Friday, for their
departure. While Tiongson easily got a booking for the
flight, SINGSON was not as lucky. It was discovered that
his ticket booklet did not have flight coupon No. 5
corresponding to the San Francisco-Hongkong leg of the
trip. Instead, what was in his ticket was flight coupon No.
3 — San Francisco to Los Angeles — which was supposed
to have been used and removed from the ticket booklet.
It was not until July 6, 1988 that CATHAY was finally able
to arrange for his return flight to Manila.
On August 26, 1988, SINGSON commenced an
action for damages against CATHAY before the Regional
Trial Court of Vigan, Ilocos Sur. He claimed that he
insisted on CATHAY’s confirmation of his return flight
reservation because of very important and urgent
business engagements in the Philippines. But CATHAY
allegedly shrugged off his protestations and arrogantly
directed him to go to San Francisco himself and do some
investigations on the matter or purchase a new ticket
subject to refund if it turned out that the missing coupon
was still unused or subsisting. He remonstrated that it
was the airline’s agent/representative who must have
committed the mistake of tearing off the wrong flight
coupon; that he did not have enough money to buy new
tickets; and, CATHAY could conclude the investigation in
a matter of minutes because of its facilities. CATHAY,
allegedly in scornful insolence, simply dismissed him like
an impertinent “brown pest.” Thus, he and his cousin
Tiongson, who deferred his own flight to accompany
him, were forced to leave for San Francisco on the night
of July 1, 1988 to verify the missing ticket.
CATHAY denied these allegations and averred that
since petitioner was holding an “open-dated” ticket,
which meant that he was not booked on a specific flight
on a particular date, there was no contract of carriage
yet existing such that CATHAY’S refusal to immediately
book him could not be construed as breach of contract
of carriage. Moreover, the coupon had been missing for
almost a month; hence, CATHAY must first verify its
status, i.e., whether the ticket was still valid and
outstanding, before it could issue a replacement ticket to
petitioner. For that purpose, it set a request by telex on
the same day, July 1, 1988, to its Hongkong

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SAFETY OF PASSENGERS

Headquarters where such information could be

retrieved. However, due to the time difference
between Los Angeles and Hongkong, no response from
the Hongkong office was immediately received.
Besides, since July 2 and 3, 1988 were a Saturday and a
Sunday, respectively, and July 4, 1988 was an official
holiday being U.S. Independence Day, the telex
response of CATHAY Hongkong was not read until 5 July
1988. Lastly, CATHAY denied having required SINGSON
to make a trip back to San Francisco; on the other hand,
it was the latter who informed CATHAY that he was
making a side trip to San Francisco. Hence, CATHAY
advised him that the response of Hongkong would be
copied in San Francisco so that he could conveniently
verify thereat should he wish to.

The trial court rendered a decision in favor of

petitioner herein holding that CATHAY was guilty of
gross negligence amounting to malice and bad faith for
which it was adjudged to pay petitioner P20,000 for
actual damages with interest at the legal rate of 12% per
annum from August 26, 1988 when the complaint was
filed until fully paid, P500,000 for moral damages,
P400,000 for exemplary damages, PI00,000 for
attorney’s fees, and, to pay the costs.
On appeal by CATHAY, the Court of Appeals
reversed the trial court’s finding that there was gross
negligence amounting to bad faith or fraud and,
accordingly, modified its judgment by deleting the
awards for moral and exemplary damages, and the
attorney’s fees as well.
ISSUE: Whether or not a breach of contract was
committed by CATHAY when it failed to confirm the
booking of petitioner for its July 1, 1988 flight.
HELD: The Court finds merit in the petition.
CATHAY undoubtedly committed a breach of contract
when it refused to confirm petitioner’s flight
reservation back to the Philippines on account of his
missing flight coupon. Its contention that there was no
contract of carriage that was breached because
petitioner’s ticket was open-dated is untenable. To
begin with, the round trip ticket issued by the carrier to
the passenger was in itself a complete written contract
by and between the carrier and the passenger. It had all
the elements of a complete written contract, to wit: (a)
the consent of the contracting parties manifested

127
TRANSPORTATION LA^'S
by the fact that the passenger agreed to be transported
by the carrier to and from Los Angeles via San Francisco
and Hongkong back to Philippines, and the carrier's
acceptance to bring him to his destination and then back
home; (b) cause or consideration, which was the fare
paid by the passenger as stated in his ticket: and (c)
object, which was the transportation of the passenger
from the place of departure to the place of destination
and back, which are also stated in his ticket. In fact, the
contract of carriage in the instant case was already
partially executed as the carrier complied with its
obligation to transport the passenger to his destination,
i.e., Los Angeles. Only the performance of the other half
of the contract — which was to transport the passenger
back to the Philippines — was left to be done.
Clearly, therefore, petitioner was not a mere
“chance passenger with no superior right to be boarded
on a specific flight,” as erroneously claimed by CATHAY
and sustained by the appellate court.
Interestingly, it appears that CATHAY was
responsible for the loss of the ticket. One of the two
things may be surmised from the circumstances of this
case: first, US Air (CATHAY’ agent) had mistakenly
detached the San Francisco-Hongkong flight coupon
thinking that it was the San Francisco-Lost Angeles
portion; or second, petitioner’s booklet of tickets did not
from issuance include a San Francisco-Hongkong flight
coupon. In either case, the loss of the coupon was
attributable to the negligence of CATHAY’s agents and
 was the proximate cause of the non-confirmation of
petitioner’s return flight on July 1, 1988. It virtually
prevented petitioner from demanding the fulfillment of
the carrier’s obligations under the contract. Had
CATHAY’s agents been diligent in double checking the
coupons they were supposed to detach from the
passengers’ tickets, there would have been no reason for
CATHAY not to confirm petitioner’s booking as
exemplified in the case of his cousin and flight
companion Tiongson whose ticket booklet was found to
be in order. Hence, to hold that no contractual breach
was committed by CATHAY and totally absolve it from
any liability would in effect put a premium on the
negligence of its agents, contrary to the policy of the law
requiring common carriers to exercise extraordinary
diligence.

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“Force majeure, ” common carriers are not the insurer of all risks.

Japan Airlines v. Court of Appeals, Enrique Agana, et al

G.R. No. 118664, August 7,1998

FACTS: On June 13, 1991, private respondent Jose
Miranda boarded JAL flight No. JL 001 in San Francisco,
California bound for Manila. Likewise, on the same day,
private respondents Enrique Agana, Maria Angela Nina
Agana and Adelia Francisco left Los Angeles, California
for Manila via JAL flight No. JL 061. As an incentive for
traveling on the said airline, both flights were to make an
overnight stopover at Narita, Japan, at the airlines’
expense, thereafter proceeding to Manila the following
day.
Upon arrival at Narita, Japan on June 14,1991,
private respondents were billed at Hotel Nikko Narita for
the night. The next day, private respondents, on the final
leg of their journey, went to the airport to take their
flight to Manila. However, due to the Mt. Pinatubo
eruption, unrelenting ash fall blanketed Ninoy Aquino
International Airport (NAIA), rendering it inaccessible to
airline traffic.
Hence, private respondents’ trip to Manila was cancelled
indefinitely.
To accommodate the needs of its stranded
passengers, JAL rebooked all the Manila-bound
passengers on flight No. 741 due to depart on June 16,
1991 and also paid for the hotel expenses for their
unexpected overnight stay. On June 16,1991, much to
the dismay of the private respondents, their long
anticipated flight to Manila was again cancelled due to
NALA’s indefinite closure. At this point, JAL informed the
private respondents that it would no longer defray their
hotel and accommodation expense during their stay in
Narita.
 Since NAIA was only reopened to airline traffic on
June 22,1991, private respondents were forced to pay
for their accommodations and meal expenses from their
personal funds from June 16 to 21, 1991. Their
unexpected stay in Narita ended on June 22, 1991 when
they arrived in Manila on board JL flight No. 741.
Obviously, still reeling from the experience, private respondents,
on July

25,1991, commenced an action for damages against JAL before

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the Regional Trial Court of Quezon City, Branch 104. To

support their claim, private respondents asserted that JAL
failed to live up to its duty to provide care and comfort to
its stranded passengers when it refused to pay for their
hotel and accommodation expenses from June 16 to 21,
1991 at Narita, Japan. In other words, they insisted that
JAL was obligated to shoulder their expenses as long as
they were still stranded in Narita. On the other hand, JAL
denied this allegation and averred that airline passengers
have no vested right to these amenities in case a flight is
cancelled due to “force majeure. ”
 On June 18,1992, the trial court rendered its judgment in
favor of private respondents holding JAL liable for damages.
ISSUE: Whether or not JAL, as a common carrier has
the obligation to shoulder the hotel and meal expenses of
its stranded passengers until they have reached their final
destination, even if the delay were caused by “force majeure.
”
HELD: To begin with, there is no dispute that the Mt.
Pinatubo eruption prevented JAL from proceeding to
Manila on schedule. Likewise, private respondents
concede that such event can be considered as “force majeure
" since their delayed arrival in Manila was not imputable
to JAL.
However, private respondents contend that while
JAL cannot be held responsible for the delayed arrival in
Manila, it was nevertheless liable for their living expenses
during their unexpected stay in Narita since airlines have
the obligation to ensure the comfort and convenience of
its passengers. While the Court sympathizes with the
private respondents’ plight, the Court is unable to accept
this contention.
The Court is not unmindful of the fact that in a
plethora of cases, the Court has consistently ruled that a
contract to transport passengers is quite different in kind
and degree from any other contractual relation. It is safe
to conclude that it is a relationship imbued with public
interest. Failure on the part of the common carrier to live
up to the exacting standards of care and diligence renders
it liable for any damages that may be sustained by its
passengers. However, this is not to say that common
carriers are absolutely responsible for all injuries or
damages even if the same were caused by a fortuitous
event. To rule otherwise

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CHAPTER III SAFETY OF
PASSENGERS

would render the defense of "force majeure, " as an exception

from any liability and ineffective.
Accordingly, there is no question that when a party is
unable to fulfill his obligation because of "force majeure, ” the
general rule is that he cannot be held liable for damages
for non-performance. Corollarily, when JAL was prevented
from resuming its flight to Manila due to the effects of Mt.
Pinatubo eruption, whatever losses or damages in the
form of hotel and meal expenses the stranded passengers
incurred, cannot be charged to JAL. Yet, it is undeniable
that JAL assumed the hotel expenses of respondents for
their unexpected overnight stay on June 15, 1991.
Admittedly, to be stranded for almost a week in a
foreign land was an exasperating experience for the
private respondents. To be sure, they underwent distress
and anxiety during their unanticipated stay in Narita, but
their predicament was not due to the fault or negligence
of JAL but the closure of NAIA to international flights.
Indeed, to hold JAL, in the absence of bad faith or
negligence, liable for the amenities of its stranded
passengers by reason of a fortuitous event is too much of
a burden to assume.
Furthermore, it has been held that airline passengers
must take such risks incident to the mode of travel. In this
regard, adverse weather conditions or extreme climatic
changes are some of the perils involved in air travel, the
consequences of which the passenger must assume or
expect. After all, common carriers are not the insurer of all
risks.
The Court is not prepared, however, to completely
absolve petitioner JAL from any liability. It must be noted
that private respondents bought tickets from the United
States with Manila as their final destination. While JAL was
no longer required to defray private respondents’ living
expenses during their stay in Narita on account of the
fortuitous event, JAL had the duty to make the necessary
arrangements to transport private respondents on the first
available connecting flight to Manila. Petitioner JAL
reneged on its obligation to look after the comfort and
convenience of its passengers when it declassified private
respondents from “transit passengers” to “new
passengers” as a result of which private respondents were
obliged to make the necessary arrangements themselves
for the next flight to
 131
TRANSPORTATION LAWS

Manila. Private respondents were placed on the

waiting list from June 20 to 24. To assure themselves of
a seat on an available flight, they were compelled to
stay in the airport the whole day of June 22, 1991 and
it was only at 8:00 p.m. of the aforesaid date that they
were advised that they could be accommodated in said
flight, which flew at about 9:00 a. m. the next day.
The Court is not oblivious to the fact that the
cancellation of JAL flights to Manila from June 15 to
21,1991 caused considerable disruption in passenger
booking and reservation. In fact, it would be
unreasonable to expect, considering NAIA’s closure,
that JAL flight operations would be normal on the days
affected. Nevertheless, this does not excuse JAL from
its obligation to make the necessary arrangements to
transport private respondents on its first available
flight to Manila. After all, it had a contract to transport
private respondents from the United States to Manila
as their final destination.
Consequently, the award of nominal damages is in
order. Nominal damages are adjudicated in order that
a right of a plaintiff, which has been violated or invaded
by the defendant, may be vindicated or recognized and
not for the purpose of any loss suffered by him. The
court may award nominal damages in every obligation
 arising from any source enumerated in Article 1157, or
in every case where any property right has been
invaded.

COMPARED TO: Philippine Airlines v. Court of

Appeals 226 SCRA423 (1993)

The reliance of the Court of Appeals \nPAL v. CA (226

SCRA423) is misplaced. The factual background of the
PAL case is different from the instant petition. In that
case, there was indeed a fortuitous event resulting in the
diversion of the PAL flight. However, the unforeseen
diversion was worsened when “private respondents
(passenger) was left at the airport and could not even
hitch a ride in a Ford Fiera loaded with PAL personnel,”
not to mention the apparent apathy of the PAL station
manager as to the predicament of the stranded
passengers. In light of these circumstances, the Court
held if the fortuitous event was accompanied by neglect
and malfeasance by the carrier’s employees, an

132

CHAPTER III SAFETY

OF PASSENGERS
action for damages against the carrier is permissible.
Unfortunately, for private respondents, none of these
conditions are present in the instant petition.
The power to admit or not an alien into the country is a sovereign act,
which cannot be interfered with by an airline.
Japan Airlines v. Jesus
Simangan G.R. No. 170141,
April 22,2008

FACTS: In 1991, respondent Jesus Simangan

decided to donate a kidney to his ailing cousin, Loreto
Simangan, in UCLA School of Medicine in Los Angeles,
California, U.S.A. Having obtained an emergency U.S.
visa, respondent purchased a round trip plane ticket
from petitioner Japan Airlines (JAL) for US$1,485, and
was issued the corresponding boarding pass. He was
scheduled to a particular flight bound for Los Angeles,
California, U.S.A. via Narita, Japan.
On July 29, 1992, the date of his flight, respondent went to
Ninoy

Aquino International Airport (NAIA). He was allowed

to check-in at JAL’s counter. His plane ticket, boarding
pass, travel authority, and personal articles were
subjected to rigid immigration and security routines.
After passing through said immigration and security
procedures, respondent was allowed by JAL to enter
its airplane. While inside the airplane, JAL’s airline
crew suspected respondent of carrying a falsified
travel document and imputed that he would only use
the trip to the United States as a pretext to stay and
work in Japan. The stewardess asked respondent to
show his travel documents. Shortly after, the
stewardess, along with a Japanese and a Filipino,
haughtily ordered him to stand up and leave the
plane. Respondent protested, explaining that he was
issued a U.S. visa. Just to allow him to board the
plane, he pleaded with JAL to closely monitor his
movements when the aircraft stops over in Narita. His
pleas were ignored. He was then constrained to go
out of the plane. In a nutshell, respondent was
bumped off the flight. Respondent went to JAL’s
ground office and waited there for three hours.
Meanwhile, the plane took off and he was left behind.
Afterwards, he was informed that his travel
documents were, indeed, in order. Respondent was
refunded the cost of his plane ticket less the sum

133

A
ftWTni

TRANSPORTATION LAWS

of US$500, which was deducted by JAL. Subsequently,

respondent’s U.S. visa was cancelled.
 Displeased by the turn of events, respondent filed an
action for damages against JAL with the Regional Trial Court
(RTC) in Valenzuela

City, docketed as Civil Case No. 4195-V-93 for damages

and attorney’s fee.
On September 21, 2000, the RTC rendered a
decision in favor of respondent (plaintiff), ordering
the defendant to pay the plaintiff the amount of
PI,000,000 as moral damages, the amount of
P500,000 as exemplary damages, and the amount of
P250,000 as attorney’s fees, plus the cost of suit.
In a decision dated May 31, 2005, the Court of
Appeals (CA) affirmed the decision of the RTC with
modification in that it lowered the amount of moral
and exemplary damages and deleted the award of
attorney’s fees.
ISSUE: Whether or not Japan Airlines is guilty of breach of
contract.
That respondent purchased a round trip
HELD:
plane ticket from JAL and was issued the
corresponding boarding pass is uncontroverted. His
plane ticket, boarding pass, travel authority and
personal articles were subjected to rigid immigration
and security procedure. After passing through said
immigration and security procedure, he was allowed
by JAL to enter its airplane to fly to Los Angeles,
California, U.S.A. via Narita, Japan. Concisely, there
 was a contract of carriage between JAL and
respondent.
Nevertheless, JAL made respondent get off the
plane on his scheduled departure on July 29, 1992.
He was not allowed by JAL to fly. JAL, thus, failed to
comply with its obligation under the contract of
carriage.
JAL justifies its action by arguing that there was
“a need to verify the authenticity of respondent’s
travel document.” It alleged that no one from its
airport staff had encountered a parole visa before. It
further contended that respondent agreed to fly the
next day so that it could first verify his travel
documents; hence, there was novation. It
maintained

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CHAPTER III SAFETY
OF PASSENGERS

that it was not guilty of breach of contract of carriage as

respondent was not able to travel to the United States due
to his own voluntary desistance.
The Court cannot agree. JAL did not allow
respondent to fly. It informed respondent that there was
a need to first check the authenticity of his travel
documents with the U.S. Embassy. As admitted by JAL,
“the flight could not wait for Mr. Simangan because it
was ready to depart.” Since JAL definitely declared that
the flight could not wait for respondent, it gave
respondent no choice but to be left behind. The latter
was unceremoniously bumped off despite his
protestations and valid travel documents, and
notwithstanding his contract of carriage with JAL.
Damaged had already been done when respondent was
offered to fly the next day on July 30, 1992. Said offer did
not cure JAL’s default.
Considering that respondent was forced to get out
of the plane and left behind against his will, he could not
have freely consented to be rebooked the next day. In
short, he did not agree to the alleged novation. Since
novation implies a waiver of the right the creditor had
before the novation, such waiver must be express. It
cannot be supposed, without clear proof, that
respondent had willingly done away with his right to fly
on July 29, 1992.
Moreover, the reason behind the bumping off
incident, as found by the RTC and CA, was that JAL
personnel imputed that respondent would only use the
trip to the United States as a pretext to stay and work in
Japan. Apart from the fact that respondent’s plane ticket,
boarding pass, travel authority, and person articles
already passed the rigid immigration and security
routines, JAL as a common carrier, ought to know the
kind of valid travel documents respondent carried. As
provided in Article 1755 of the New Civil Code, “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.” Thus, the Court finds
untenable JAL’s defense of “verification of respondent’s
documents” in its breach of contract of carriage.
It bears repeating that the power to admit or not an
alien into the country is a sovereign act, which cannot be
interfered with even by JAL.

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TRANSPORTATION LAWS

In addition for breach of contract of carriage, all that

is required of plaintiff is to prove the existence of
such contract and its nonperformance by the carrier
through the latter’s failure to carry the passenger safely
to his destination. Respondent has complied with these
twin requisites.
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 prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755.

Under the law, common carriers are, from the

nature of their business and for reasons of public policy,
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. More particularly, a common carrier is
bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of
very cautious persons, with due regard for all the
circumstances. Thus, where a passenger dies or is injured,
the common carrier is presumed to have been at fault or
to have acted negligently. This gives rise to an action for
breach of contract of carriage and its non-performance by
the carrier, that is, the failure of the carrier to carry the
passenger safely to his destination, which, in the instant
case, necessarily includes its failure to safeguard its
passenger with extraordinary diligence while such
relation subsists.
The presumption is, therefore, established by law
that in case of a passenger’s death or injury, the operator
of the vessel was at fault or negligent, having failed to
exercise extraordinary diligence, and it is incumbent upon
it to rebut the same. This is in consonance with the
avowed policy of the State to afford full protection to the
passengers of common carriers, which can be carried out
only by imposing a stringent statutory obligation upon the
latter. Concomitantly, the Supreme Court has likewise
adopted a rigid posture in the application of the law by
exacting the highest degree of care and diligence from
common carriers, bearing utmost in mind the welfare of
the passengers who often become hapless victims of
indifferent and profit-oriented carriers. (Aboitiz Shipping
Corporation v. Court of Appeals, 179 SCRA 95)

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CHAPTER III SAFETY OF PASSENGERS

It has been repeatedly held that 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 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. This is an exception to the
general rule that negligence must be proved, and it is
therefore incumbent upon the common carrier to prove
that it has exercised extraordinary diligence as
prescribed in Articles 1733 and 1755 of the Civil Code. (Sy
v. Malate Taxicab and Garage, Inc., 102 Phil. 482;

Singapore Airlines Limited v. Fernandez, 417 SCRA 474, December 10, 2003)
CIRCUMSTANCES INDICATIVE OF NEGLIGENCE ON THE PART
OF THE DRIVER/EMPLOYEE.
1. The fact that Pestano was able to use a bus
with a faulty speedometer shows that Metro
Cebu was remiss in the supervision of its
employees and in the proper care of its
vehicles. It had thus failed to conduct its
business with the diligence required by law.
(Pestano v. Sumayang, G.R. No. 139875, December 4, 2000,
346 SCRA 870)

2. Under Article 2185 of the Civil Code, unless

there is proof to the contrary, it is presumed
that a person driving a motor vehicle has been
negligent if at the time of the mishap he was
violating a traffic regulation. As found by the
appellate court, petitioners failed to present
satisfactory evidence to overcome this legal
presumption. (Mallari, Sr. v. Court of Appeals, 324
SCRA 147)

3. It has been said that drivers of vehicles “who

bump the rear of another vehicle” are
presumed to be “the cause of the accident,
unless contradicted by other evidence.” The
rationale behind the presumption is that the
driver of the rear vehicle has full control of the
situation as he is in a position to observe the
vehicle in front of him.

137
 I

TRANSPORTATION LAWS

Consequently, no other person was to blame but the victim himself

since he was the one who bumped his motorcycle into the rear of the Isuzu
truck. He had the last clear chance of avoiding the accident. (Raynera v.
Hiceta, 306 SCRA 102)

PRECAUTIONS REQUIRED OF A DRIVER TO AVOID ACCIDENTS.

The rule is settled that a driver abandoning his proper lane for the
purpose of overtaking another vehicle in an ordinary situation has the duty
to see to it that the road is clear and not to proceed if he cannot do so in
safety. When a motor vehicle is approaching or rounding a curve, there is
special necessity for keeping to the right side of the road and the driver
does not have the right to drive on the left hand side relying upon having
time to turn to the right if a car approaching from the opposite direction
comes into view.
This act of overtaking was in clear violation of Section 41, pars, (a)
and (b), of R.A. No. 4136 as amended, otherwise known as The Land
Transportation and Traffic Code which provides:
Sec. 41. Restrictions on overtaking and passing. — (a)
The driver of a vehicle shall not drive to the left side of the
center line of a highway in overtaking or passing another
vehicle proceeding in the same direction, unless such left side
is clearly visible and is free of oncoming traffic for a
sufficient distance ahead to permit such overtaking or
passing to be made in safety.
(b) The driver of a vehicle shall not overtake or pass
another vehicle proceeding in the same direction when
approaching the crest of a grade, nor upon a curve in the
highway, where the driver’s view along the highway is
obstructed within a distance of five hundred feet ahead
except on a highway having two or more lanes for movement
of traffic in one direction where the driver of a vehicle may
overtake or pass another vehicle: Provided, That on a
 highway, within a business or residential district, having two
or more lanes for movement of traffic in one direction, the
driver of a vehicle

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CHAPTER III SAFETY
OF PASSENGERS

may overtake or pass another vehicle on the right. (Mallari, Sr

v. Court of Appeals, 324 SCRA 147)

As a professional driver operating a public transport

bus, he should have anticipated that overtaking at a
junction was a perilous maneuver and should thus have
exercised extreme caution. (Pestano v. Sumayang, 346 SCRA
870)

A common carrier may not be absolved from liability in case of

force majeure or fortuitous event alone — the common carrier
must still prove that it was not negligent in causing the death or
injury resulting from an accident.
Alberta and Cresencio Yobido v. Court of Appeals
and Leny Tumboy, et al
G.R. No. 113003, October 17,1997
FACTS: On April 26, 1988, spouses Tito and Leny
Tumboy and their minor children named Ardee and
Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido
Liner bound for Davao City. Along Pico Road in Km. 17,
Sta. Maria, Agusan del Sur, the left front tire of the bus
exploded. The bus fell into a ravine around three feet
from the road and struck a tree. The incident resulted in
the death of 28-year old Tito Tumboy and physical
injuries to other passengers.
On November 21, 1988, a complaint for breach of
contract of carriage, damages and attorney’s fees was
filed by Leny and her children against Alberta Yobido, the
owner of the bus, and Cresencio Yobido, its driver, before
the Regional Trial Court of Davao City. When the
defendants therein filed their answer to the complaint,
they raised the affirmative defense of caso fortuito.
ISSUE: Whether or not the explosion of a newly
installed tire of a passenger vehicle is a fortuitous event
that exempts the carrier from liability for the death of a
passenger.
HELD: As a rule, when a passenger boards a common
carrier, he takes the risks incidental to the mode of
travel he has taken. After all, a carrier is not an insurer
of the safety of its passengers and is not bound

139
TRANSPORTATION LAWS

absolutely and at all events to carry them safely and

without injury. However, when a passenger is injured or
dies while traveling, the law presumes that the common
carrier is negligent. Thus, the Civil Code provides:
 “Art. 1756. 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 extraordinary
diligence as prescribed in Articles 1733 and 1755. ”

Article 1755 provides that “(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.” Accordingly, in culpa contractual, once a
passenger dies or is injured, the carrier is presumed to
have been at fault or to have acted negligently. This
disputable presumption may only be overcome by
evidence that the carrier had observed extraordinary
diligence as prescribed by Articles 1733, 1755, and 1756 of
the Civil Code or that the death or injury of the passenger
was due to a fortuitous event. Consequently, the court
need not make an express finding of fault or negligence on
the part of the carrier to hold it responsible for damages
sought by the passenger.
In view of the foregoing, petitioners’ contention that
they should be exempt from liability because the tire
blowout was no more than a fortuitous event that could
not have been foreseen, must fail. A fortuitous event is
possessed of the following characteristics: (a) the cause of
the unforeseen and unexpected occurrence, or the failure
of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to
foresee the event which constitutes the caso fortuito, or if it
can be foreseen, it must be impossible to avoid; (c) the
 occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d)
the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor. As
Article 1174 provides, no person shall be responsible for a
fortuitous event which could not be foreseen, or which,
though foreseen, was inevitable. In other words, there
must be an entire exclusion of human agency from the
cause of injury or loss.
CHAPTER III SAFETY OF PASSENGERS

Under the circumstances of this case, the explosion

of the new tire may not be considered a fortuitous event.
There are human factors involved in the situation. The fact
that the tire was new did not imply that it was entirely
free from manufacturing defects or that it was properly
mounted on the vehicle. Neither may the fact that the tire
bought and used in the vehicle is of a brand name noted
for quality, resulting in the conclusion that it could not
explode within five days’ use. Be that as it may, it is
settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a
caso fortuito that would exempt the carrier from liability for
damages.
Moreover, a common carrier may not be absolved
from liability in case offorce majeure or fortuitous event
alone. The common carrier must still prove that it was not
negligent in causing the death or injury resulting from an
accident. This Court has had occasion to state:
 “While it may be true that the tire that blew-up
was still good because the grooves of the tire were
still visible, this fact alone does not make the
explosion of the tire a fortuitous event. No evidence
was presented to show that the accident was due to
adverse road conditions or that precautions were
taken by the jeepney driver to compensate for any
conditions liable to cause accidents. The sudden
blowing-up, therefore, could have been caused by
too much air pressure injected into the tire coupled
by the fact that the jeepney was overloaded and
speeding at the time of the accident.”
Having failed to discharge its duty to overthrow the
presumption of negligence with clear and convincing
evidence, petitioners are hereby held liable for damages.
Article 1764 in relation to Article 2206 of the Civil Code
prescribes the amount of at least three thousand pesos as
damages for the death of a passenger. Under prevailing
jurisprudence, the award of damages under Article 2206
has been increased to P50,000.
Moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven.
However, the same damages may be recovered when
breach of contract of carriage results in the death of a
passenger, as in this case. Exemplary damages, awarded
by way of example or correction for the public good when
moral damages
141
 TRANSPORTATION LAWS

are awarded, may likewise be recovered in contractual

obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner. Because
petitioners failed to exercise the extraordinary diligence
required of a common carrier, which resulted in the
death of Tito Tumboy, it is deemed to have acted
recklessly. As such, private respondents shall be entitled
to exemplary damages.
In a contract of carriage, it is presumed that the common carrier was at
fault or was negligent when a passenger dies or is injured.

Baliwag Transit, Inc. v. Court of Appeals,

Spouses Antonio Garcia and Leticia Garcia and
Julio Recontique
G.R. No. 116110, May 15,1996

FACTS: The record show that on July 31, 1980, Leticia

Garcia, and her five-year old son, Allan Garcia, boarded
Baliwag Transit Bus No. 2036 bound for Cabanatuan City
driven by Jaime Santiago. They took the seat behind the
driver.
At about 7:30 in the evening, in Malimba, Gapan,
Nueva Ecija, the bus passengers saw a cargo truck parked
at the shoulder of the national highway. Its left rear
portion jutted to the outer lane, as the shoulder of the
road was too narrow to accommodate the whole truck. A
kerosene lamp appeared at the edge of the road
obviously to serve as a warning device. The truck driver,
Julio Recontique, and his helper, Arturo Escala, were then
replacing a flat tire. The truck is owned by respondent A &
J Trading.
Bus driver Santiago was driving at an inordinately
fast speed and failed to notice the truck and the kerosene
lamp at the edge of the road. Santiago’s passengers urged
him to slow down but he paid them no heed. Santiago
even carried animated conversations with his co-
employees while driving. When the danger of collision
became imminent, the bus passengers shouted, “Babangga
tayo!” Santiago stepped on the brake, but it was too late.
His bus rammed into the stalled cargo truck. It caused the
instant death of Santiago and Escala, and injury to several
others. Leticia and Allan Garcia were among the injured
passengers.
CHAPTER III SAFETY OF PASSENGERS

Leticia suffered a fracture in her pelvis and right leg. They rushed
her to the provincial hospital in Cabanatuan City where she was given
emergency treatment. After three days, she was transferred to the
National Orthopedic Hospital where she was confined for more than a
month. She underwent an operation for partial hip prosthesis.
Allan, on the other hand, broke a leg. He was also given
emergency treatment at the provincial hospital.
Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A &
J

Trading and Julio Recontique for damages in the Regional Trial Court
of Bulacan. Leticia sued as an injured passenger of Baliwag and as
mother of Allan. At the time of the complaint, Allan was a minor,
hence, the suit initiated by his parents in his favor.
Baliwag, A & J Trading and Recontique disclaimed
responsibility for the mishap. Baliwag alleged that the accident
was caused solely by the fault and negligence of A & J Trading
and its driver, Recontique. Baliwag charged that Recontique
failed to place an early warning device at the comer of the
disabled cargo truck to warn oncoming vehicles. On the other
hand, A & J Trading and Recontique alleged that the accident
was the result of the negligence and reckless driving of Santiago,
bus driver of Baliwag.
After hearing, the trial court found all the defendants liable.

On appeal, the Court of Appeals modified the trial court’s

Decision by absolving A & J Trading from liability and by reducing
the award of attorney’s fees to PI0,000 and loss of earnings to
P300,000, respectively.
ISSUE: Whether or not the Court of Appeals erred in
absolving A & J Trading from liability and holding Baliwag solely
liable for the injuries suffered by Leticia and Allan Garcia in the
accident.
HELD: As a common carrier, Baliwag breached its contract of
carriage when it failed to deliver its passengers, Leticia and Allan
Garcia to their destination safe and sound. A common carrier is
bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of a very
cautious person, with due regard for all the circumstances. In a
contract of carriage, it is presumed
 143

TRANSPORTATION LAWS

that the common carrier was at fault or was negligent

when a passenger dies or is injured. Unless the
presumption may only be overcome by evidence that the
carrier exercised extraordinary diligence as prescribed in
Articles 1733 and 1755 of the Civil Code.
The records are bereft of any proof to show that
Baliwag exercised extraordinary diligence. On the
contrary, the evidence demonstrates its driver’s
recklessness. Leticia Garcia testified that the bus was
running at a very high speed despite the drizzle and the
darkness of the highway. The passengers pleaded for its
driver to slow down, but their plea was ignored. Leticia
also revealed that the driver smelled of liquor. She could
smell him as she was seated right behind the driver.
Another passenger, Felix Cruz testified that immediately
before the collision, the bus driver was conversing with a
co-employee. All these prove the bus driver’s wanton
disregard for the physical safety of his passengers, which
makes Baliwag as a common carrier liable for damages
under Article 1759 of the Civil Code:
“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 do not cease upon proof
that they exercised all the diligence of a goodfather of a family in
the selection or supervision of their employees. ”
Baliwag cannot evade its liability by insisting that
the accident was caused solely by the negligence of A
& J Trading and Julio Recontique. It harps on their
alleged none use of an early warning device as testified
to by Col. Demetrio dela Cruz, the station commander
of Gapan, Nueva Ecija who investigated the incident,
and Francisco Romano, the bus conductor.
The records do not bear out Baliwag’s contention.
Col. Dela Cruz and Romano testified that they did not
see any early warning device at the scene of the
accident. They were referring to the triangular
reflectorized plates in red and yellow issued by the
Land Transportation

CHAPTER III SAFETY OF

PASSENGERS
Office. However, the evidence shows that Recontique
and Escala placed a kerosene lamp or torch at the edge of
the road, near the rear portion of the truck to serve as an
early warning device. This substantially complies with
Section 34(9g) of the Land Transportation and Traffic
Code.
To be absolved from liability in case of force majeure, it is not enough
that the accident was caused by force majeure; common carrier must
still prove that it was not negligent in causing the injuries resulting
from such accident.

Bachelor Express, Inc. and Cresencio Rivera v.

The Honorable Court of Appeals, et al G.R.
No. 85691, July 31,1990

FACTS: On August 1, 1980, Bus No. 800 owned by

Bachelor Express, Inc., and driven by Cresencio Rivera
was the situs of a stampede, which resulted in the death
of passengers Omominio Beter and Narcisa Rautraut.
The evidence shows that the bus came from Davao
City on its way to Cagayan de Oro City passing Butuan
City; that while at Tabon-Tabon, Butuan City, the bus
picked up a passenger; that about 15 minutes later, a
passenger at the rear portion suddenly stabbed a PC
soldier which caused commotion and panic among the
passengers; that when the bus stopped, passengers
Omominio Beter and Narcisa Rautraut were found lying
down the road, the former already dead as a result of
head injuries and the latter also suffering from severe
injuries which caused her death later. The passenger-
assailant alighted from the bus and ran toward the
 bushes but was killed by the police. Thereafter, the heirs
of Omomino Beter and Narcisa Rautraut, private
respondents herein (Ricardo Beter and Sergia Beter are
the parents of Omominio while Teofilo Rautraut and
Zoetera Rautraut are the parents of Narcisa) filed a
complaint for “sum of money” against Bachelor Express,
Inc., its alleged owner Samson Yasay, and the driver
Rivera.
In their answer, the petitioners denied liability for the death
of Omominio
Beter and Narcisa Rautraut. They alleged that “x x x the

145
TRANSPORTATION LAWS

driver was able to transport his passengers safely to their

respective places of destination except Omominio Beter
and Narcisa Rautraut who jumped off the bus without
the knowledge and consent, much less, the fault of the
driver and conductor and the defendants in this case; the
defendant corporation had exercised due diligence in the
choice of its employees to avoid as much as possible
accidents; the incident on August 1, 1980 was not a
traffic accident or vehicular accident; it was an incident
or event very much beyond the control of the
defendants; defendants were not parties to the incident
complained of as it was an act of a third-party who is not
in any way connected with the defendants and of which
the latter have no control and supervision.”
After due trial, the trial court issued an order dated August
8,1985 dismissing the complaint.
Upon appeal however, the trial court’s decision was
reversed and set aside. The Court of Appeals finds the
petitioners solidarity liable for damages in the total
amount of PI 20,000.
ISSUES: 1) Whether or not the accident was caused
by force majeure. 2) Whether or not the petitioner common
carrier observed extraordinary diligence to safeguard the
lives of its passengers.
HELD: The running amuck of the passenger was the
proximate cause of the incident as it triggered off a
commotion and panic among the passengers such that
the passengers started running to the sole exit shoving
each other resulting in the falling off the bus by
passengers Beter and Rautraut causing them fatal
injuries. The sudden act of the passenger who stabbed
another passenger in the bus is within the context of force
majeure.

However, in order that a common carrier may be

absolved from liability in case offorce majeure, it is not
enough that the accident was caused by force majeure. The
common carrier must still prove that it was not negligent
in causing the injuries resulting from such accident.
 Considering the factual findings of the Court of
Appeals — the bus driver did not immediately stop the
bus at the height of the commotion; the bus was
speeding from a full stop; the victims fell from the bus
door when it was opened or gave way while the bus was
still

CHAPTER III SAFETY

OF PASSENGERS

running; the conductor panicked and blew his whistle

after people had already fallen off the bus and the bus
was not properly equipped with doors in accordance
with law — it is clear that the petitioners have failed
to overcome the presumption of fault and negligence
found in the law governing common carriers.
The petitioners’ argument that the petitioners
“are not insurers of their passengers” deserves no
merit in view of the failure of the petitioners to prove
that the deaths of the two passengers were
exclusively due to force majeure and not to the failure of
the petitioners to observe extraordinary diligence in
transporting safely the passengers to their
destinations as warranted by law.
Duty of a common carrier to overcome the presumption of negligence.
 Franklin Gacal and Corazon M. Gacal
v. Philippine Airlines
G.R. No. 55300, March 15,1990
FACTS: Plaintiffs Franklin G. Gacal and his wife,
Corazon M. Gacal, Bonifacio S. Anislag and his wife,
Mansueta L. Anislag, and the late Elma de Guzman,
were then passengers boarding defendant’s BAC 111
at Davao

Airport for a flight to Manila, not knowing that on the

same flight, Macalinog, Taurac Pendatum known as
Commander Zapata, Nasser Omar, Liling Pusuan
Radia, Dimantong Dimarosing and Mike Randa, all of
Marawi City and members of the Moro National
Liberation Front (MNLF), were their co-passengers,
three armed with grenades, two with .45 caliber
pistols, and one with a .22 caliber pistol. Ten (10)
minutes after takeoff at about 2:30 in the afternoon,
the hijackers brandishing their respective firearms
announced the hijacking of the aircraft and directed
its pilot to fly to Libya. With the pilot explaining to
them especially to its leader, Commander Zapata, of
the inherent fuel limitations of the plane and that
they are not rated for international flights, the
hijackers directed the pilot to fly to Sabah. With the
same explanation, they relented and directed the
aircraft to land at Zamboanga Airport, Zamboanga City
for refueling. The aircraft landed at

3:00 in the afternoon of May 21, 1976 at Zamboanga Airport. When

147

A
 TRANSPORTATION LAWS

the plane began to taxi at the runway, it was met by two armored cars
of the military with machine guns pointed at the plane, and it stopped
there. The rebels through its commander demanded that a DC-aircraft
take them to Libya with the President of the defendant company as
hostage and that they be given $375,000 and six armalites, otherwise
they will blow up the plane if their demands will not be met by the
government and Philippine Air Lines. Meanwhile, the passengers were
not served any food nor water and it was only on May 23, a Sunday, at
about 1:00 in the afternoon that they were served slice of a sandwich
and 1/10 cup of PAL water. After that, relatives of the hijackers were
allowed to board the plane but immediately after they alighted
therefrom, an armored car bumped the stairs. That commenced the
battle between the military and the hijackers which led ultimately to
the liberation of the surviving crew and the passengers, with the final
score of 10 passengers and three hijackers dead on the spot and three
hijackers captured.
“City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M.
Gacal suffered injuries in the course of her jumping out of the plane
when it was peppered with bullets by the army and after two hand
grenades exploded inside the plane. She was hospitalized at General
Santos Doctors Hospital, General Santos City, for two days, spending
P245.60 for hospital and medical expenses. Assistant City Fiscal Bonifacio
S. Anislag also escaped unhurt but Mrs. Anislag suffered a fracture at the
radial bone of her left elbow for which she was hospitalized and operated
on at the San Pedro Hospital, Davao City, and thereafter, at Davao
Regional Hospital, Davao City, spending P4,500.00. Elma de Guzman
died because of that battle. Hence, the action of damages instituted by the
plaintiffs.
The trial court, on August 26, 1980, dismissed the complaints
finding that all the damages sustained in the premises were attributed to
force majeure.
ISSUE: Whether or not hijacking or air piracy during martial law
and under the circumstances obtaining herein, is a caso fortuito or force
majeure which would exempt an aircraft from payment of damages to its
 passengers whose lives were put in jeopardy and whose personal
belongings were lost during the incident.

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CHAPTER III SAFETY OF
PASSENGERS

HELD: The source of a common carrier’s legal liability is

the contract of carriage, and by entering into said contract,
it binds itself to carry the passengers safely as far as human
care and foresight can provide. There is breach of this
obligation if it fails to exert extraordinary diligence
according to all the circumstances of the case in exercise of
the utmost diligence of a very cautious person. (Isaac v.
Ammen Transportation Co., 101 Phil. 1046 [1957]\ Juntilla v.

Fontanar, 136 SCR A 624 [1985])

It is the duty of a common carrier to overcome the
presumption of negligence (Philippine National Railways v. Court of
Appeals, 139 SCRA 87 [1985]) and it must be shown that the
carrier had observed the required extraordinary diligence of
a veiy cautious person as far as human care and foresight
can provide or that the accident was caused by a fortuitous
event. (Estrada v. Consolacion, 71 SCRA 523 [1976]) Thus, as ruled
by this Court, no person shall be responsible for those
“events which could not be foreseen or which though
foreseen were inevitable.” (Art. 1174, Civil Code) The term is
synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]),
which is of the same sense as ' force majeure. ” (Words and
Phrases, Permanent Edition, Vol. 17, p. 362)
 In order to constitute a caso fortuito or force majeure that
would exempt a person from liability under Article 1174 of
the Civil Code, it is necessary that the following elements
must concur: (a) the cause of the breach of the obligation
must be independent of the human will (the will of the
debtor or the obligor); (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such
as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury
to the creditor. (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court
of Appeals, 39 SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v.
Court of Appeals, 138 SCRA 553 [1985]; Juan E Nakpil & Sons v. Court of
Appeals, 144 SCRA 596 [1986]) Caso fortuito or force majeure, by
definition, are extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or which,
though foreseen, are inevitable. It is, therefore, not enough
that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be

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TRANSPORTATION LAWS
one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility
to foresee the same. (Republic v. Luzon Stevedoring
Corporation, 21 SCRA 279 [1967])
Applying the above guidelines to the case at bar,
the failure to transport petitioner safely from Davao to
Manila was due to the skyjacking incident staged by six
passengers of the same plane, all members of the
Moro National Liberation Front (MNLF) without any
connection with private respondent, hence,
independent of the will of either the PAL or of its
passengers.
Otherwise stated, these events rendered it
impossible for PAL to perform its obligations in a
normal manner and obviously it cannot be faulted with
negligence in the performance of duty taken over by
the Armed Forces of the Philippines to the exclusion of
the former.
It is clear that 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.

Herminio Mariano, Jr. v. Idelfonso C. Callejas and

Edgar De Borja
G.R. No. 166640, July 31,2009
FACTS: At around 6:30 p.m. on November 12 1991,
along Aguinaldo Highway, San Agustin, Dasmarinas,
Cavite, the Celyrose Express bus carrying Dr. Mariano,
as its passenger, collided with an Isuzu truck with
trailer bearing plate numbers PJH 906 and TRH 531.
The passenger bus was bound to Tagaytay while the
trailer truck came from the opposite direction bound
for Manila. The trailer truck bumped the passenger bus
on its left middle portion. Due to the impact, the
passenger bus fell on its right side on the right shoulder
of the highway and caused the death of Dr. Mariano
and physical injuries to four other passengers.
Petitioner filed a complaint for breach of contract of
carriage and damages against the respondents for their
failure to transport his

150
 CHAPTER III SAFETY OF
PASSENGERS

wife and mother of his three minor children safely

to her destination. Respondents denied liability’ for
the death of Dr. Mariano. They claimed that the
proximate cause of the accident was the
recklessness of the driver of the trailer truck, which
bumped their bus while allegedly at a halt on the
shoulder of the road in its rightful lane. Thus,
respondent Callejas filed a third-party complaint
against Liong Chio Chang, doing business under the
name and style of La Perla Sugar Supply, the owner
of the trailer truck, for indemnity in the event that
he would be held liable for damages to petitioner.
In the case at bar, the trial court, in its Decision
dated September 13, 1999, found respondents
Idelfonso Callejas and Edgar De Boija, together with
Liong Chio Chang, jointly and severally liable to pay
petitioner damages.
 Respondents Callejas and De Boija appealed to
the Court of Appeals (CA), contending that the trial
court erred in holding them guilty of breach of
contract of carriage.
On May 21, 2004, the Court of Appeals
reversed the decision of the trial court.
ISSUE:Whether or not the common carrier has
observed extraordinary diligence in the discharge of
its duty.
HELD: In accord with the provisions of Articles
1733, 1755, and 1756, Celyrose Express, a common
carrier, through its driver respondent De Boija, and
its registered owner, respondent Callejas, has the
express obligation “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,” and to
observe extraordinary diligence in the discharge of
its duty. The death of the wife of the petitioner in
the course of transporting her to her destination
gave rise to the presumption of negligence of the
carrier. To overcome the presumption, respondents
have to show that they observed extraordinary
diligence in the discharge of their duty, or that the
accident was caused by a fortuitous event.
This Court interpreted the above quoted provisions
in Pilapil v.

Court of Appeals. The Court elucidated: “While the law

requires the

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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.”
Article 1755 of the Civil Code qualifies the duty of
extraordinary care, vigilance and precaution in the
carriage of passengers by common carriers to only such
as human care and foresight can provide. What
constitutes compliance with said duty is adjudged with
due regard to all the circumstances.
Article 1756 of the Civil Code, in creating a
presumption of fault or negligence on the part of the
common carrier when its passenger is injured, merely
relieves the latter, from the time being, from introducing
evidence to fasten the negligence on the former,
because the presumption stands in the place of
evidence. Being a mere presumption, however, the same
is rebuttable by proof that the common carrier had
exercised extraordinary diligence as required by law in
the performance of its contractual obligation, or that the
injury suffered by the passenger was solely due to a
fortuitous event.
Thus, it is clear that 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 its
negligence, its failure to exercise the degree of diligence
that the law requires.
First, the Court adverts to the sketch prepared by
P03 Magno S. De Villa, who investigated the accident.
The sketch shows the passenger bus facing the direction
of Tagaytay City and lying on its right side on the
shoulder of the road about five meters away from the
point of impact. On the other hand, the trailer truck was
on the opposite direction, about 500 meters away from
the point of impact. P03 De Villa stated that he
interviewed De Boija, respondent driver of the
passenger bus, who said that he was about to unload
some passengers when his bus was bumped by the
driver of the trailer truck that lost its brakes. P03 De Villa
checked out the trailer truck and found that its brakes
really failed.
In fine, the evidence shows that before the
collision, the passenger bus was cruising on its rightful
lane along Aguinaldo Highway when the

152
CHAPTER III SAFETY
OF PASSENGERS
trailer truck, coming from the opposite direction, on full
speed, suddenly swerved and encroached on its lane,
and bumped the passenger bus on its left middle
portion. Respondent driver De Borja had every right to
expect that the trailer truck coming from the opposite
direction would stay on its proper lane. He was not
expected to know that the trailer truck had lost its
brakes. The swerving of the trailer truck was abrupt and
it was running on a fast speed as it was found 500
meters away from the point of collision. Secondly, any
doubt as to the culpability of the driver of the trailer
truck ought to vanish when he pleaded guilty to the
charge of reckless imprudence resulting to multiple
slight physical injuries and damage to property in
Criminal Case No. 2223-92, involving the same incident.
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.

While it is true that a passenger’s ticket is a

complete contract between the common carrier and the
passenger, the fact that it contains provision at the back
thereof in fine letters that common carrier will only
exercise ordinary diligence is contrary to law.
ART. 1758. When a passenger is carried gratuitously, a
stipulation limiting the common carrier’s liability for negligence is valid,
but not for willful acts or gross negligence.
The reduction of fare does not justify any limitation of the common
carrier’s liability.
 Thus, in one case where a non-paying passenger
was injured during the trip, the carrier was still held
liable since the non-paying passenger is accompanied by
his father who is a paying passenger. In fact non-
payment of fare will not exempt the common carrier
from liability due to injuries to passengers as a result of
the common carrier’s negligence.

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Liability of common carriers for death or injuries to a non-passenger.

Sulpicio Lines, Inc. v. The Honorable Court of

Appeals (Twelfth Division) and
Jacinta L. Pamalaran
G.R. No. 106279, July 14,1995
FACTS: A contract of carriage was entered into between
petitioner and

ALC for the transport of the latter’s timber from Pugad,

Lianga, Surigao del Sur. On March 17, 1976, petitioner
sent its tugboat “MT Edmund” and barge “Solid VI” to
Lianga to pick-up ALC’s timber. However, no loading
could be made because of the heavy downpour. The
next morning, several stevedores of CBL, who were hired
by ALC, boarded the “Solid VI” and opened its
storeroom. The stevedores were warned of the gas and
heat generated by the copra stored in the holds of the
ship. Not heeding the warning, a stevedore entered the
storeroom and fell conscious. Two other stevedores
followed, one of whom was Leoncio L. Pamalaran. He
also lost consciousness and eventually died of gas
poisoning.
Thus, Civil Case No. 2864 for damages was filed with
the Regional Trial Court (RTC) of Bohol, Branch 2,
Tagbilaran by Pamalaran’s heirs against petitioner CBL,
ALC and its manager, Ernie Santiago. The trial court ruled
in favor of plaintiffs, ordering the defendants CBL Timber
Corporation, AGO Lumber Company, Sulpicio Lines, Inc.
and Ernie Santiago to pay plaintiffs jointly and severally,
actual and compensatory damages, moral damages,
attorney’s fees and cost of suit.
On appeal, the Court of Appeals, in its Decision dated
April 8, 1992, affirmed the lower court’s decision.
Not satisfied with the appellate court’s decision,
petitioner filed a petition.
ISSUE: Whether or not the victim is not a passenger
thereby relieving the common carrier from liability for his
death.
HELD: The Supreme Court agrees with the Court of
Appeals that

although Pamalaran was never a passenger of petitioner,

still the
 CHAPTER III SAFETY
OF PASSENGERS

latter is liable as a common carrier for his death. The

Court of Appeals relied on Canas v. Dabatos, 8 Court of Appeals
Report 918 (1965). In said case, 13 persons were on board
the vessel of defendant not as passengers but as
“cargadores” of the shipper’s goods. They were with the
consent and knowledge of the owner of the vessel.
Despite the absence of a passenger-carrier relationship
between them, the appellate court, just the same, held
the patron thereof liable as a common carrier. The
appellate court ruled.
There is no debate as to the fact that not one of the
13 passengers has paid an amount of money as fare for
their conveyance from Hingotanan to Cebu. The
undisputed fact, however, is that all of them were in the
boat with the knowledge and consent of the patron. The
eleven passengers, other than Encarnacion and Diosdado, were in the
boat because they helped in loading cargoes in the boat, and “serve as
cargadores of the cargoes ” presumably, in unloading them at the place of
destination. For those services, they were permitted to be in the boat and
to proceed to their destination in Cebu. The services rendered were the
“In
valuable consideration in exchange for the transportation fare.
onerous contracts, the cause is understood to be, for
each contracting party, the prestation or promise of a
thing or service by the other...” (p. 925; Emphasis
supplied)
ALC had a contract of carriage with petitioner. The
presence of the stevedores sent by ALC on board the
barge of petitioner was called for by the contract of
carriage. For how else would its lumber be transported
unless it is placed on board? And by whom? Of course,
the stevedores. Definitely, petitioner could not expect
the shipper itself to load the lumber without the aid of
the stevedores. Furthermore, petitioner knew of the
presence and role of the stevedores in its barge and,
thus, consented to their presence. Hence, petitioner was
responsible for their safety while on board the barge.
Petitioner next claims that its employees even
warned the stevedores and tried to prevent their entry
into the storeroom. Such argument, again, is demolished
by the findings of the Court of Appeals, thus, “...
However, appellant failed to prove that its employees
were actually trained or given specific instructions to see
to it that the barge is fit and safe not only in transporting
goods but also for people who

155
TRANSPORTATION LAWS

would be loading the cargo into the bodega of the barge. It

is not enough that appellant s employees have warned the laborers not to
enter the barge after the hatch was opened. Appellant’s employees should
have been sufficiently instructed to see to it that the hatch of the barge is
not opened by any unauthorized person and that the hatch is not easily
opened by anyone. At the very least, precautionary measures
should have been observed by appellant’s employees to
see to it that no one could enter the bodega of the barge
until after they have made sure that it is safe for anyone
to enter the same. Failing to exercise due diligence in the
supervision of its employees, the lower court was correct in holding
appellant liable for damages. ”

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.

The liability of the common carriers does not cease

upon proof that they exercised all the diligence of a good
father of a family in the selection and supervision of their
employees.
ART. 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.

This is a harsh provision against the common

carrier. But the law is the law no matter how harsh it
may be. Dura Lex Sed Lex. Thus, a security guard of the
common carrier who happens to come across an old
enemy and shot him while boarding the truck of the
common carrier, the latter is still liable although the act
of the security guard is in violation of the orders of the
common carrier.
1975 Bar Question
A taxicab passenger was deliberately killed by the
driver. Is the operator of the taxicab liable?
 CHAPTER III SAFETY OF
PASSENGERS

Answer: Yes, the taxicab operator is civilly liable on the basis of

breach of the contract of carriage. Article 1759 of the Civil Code states
that 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 does not
cease upon proof that the common carrier exercised all the diligence of a
good father of a family in the selection and supervision of their employees.
In other words, the liability of the employer is not based on delict or
quasi-delict. The liability of the common carrier is primary and cannot be
eliminated or limited by stipulation. (Art. 1760; Maranan v. Perez, 20
SCRA 412)

Sulpicio Lines Inc. v. Napoleon Sesante, now

Substituted by Maribel Atilano, Kristine Marie, Christian lone
Kenneth Kerrn and Karisna Kate, all surnamed Sesante
G.R. No. 172782, July 27, 2016
FACTS: On September 19, 1998, around 12:55 p.m., the M/V
Princess of the Orient, a passenger vessel owned and operated by the
petitioner, sank near Fortune Island in Batangas. Of the 388-recorded
passengers, 150 were lost. Napoleon Sesante, then a member of the
Philippine National Police (PNP) and a lawyer, was one of the passengers
who survived the sinking. He sued the petitioner for breach of contract
and damages. Sesante alleged in his complaint that the MTV Princess of
the Orient left the Port of Manila while Metro Manila was experiencing
stormy weather; that at around 11:00 p.m., he had noticed the vessel
listing starboard, so he had gone to the uppermost deck where he
witnessed the strong winds and big waves pounding the vessel; that at the
same time, he had seen how the passengers had been panicking, crying for
help and frantically scrambling for lifejackets in the absence of the
vessel’s officers and crew; that sensing danger, he had called a certain
Ceballos through his cellphone to request him to inform the proper
authorities of the situation; that thereafter, big waves had rocked the
vessel, tossing him to the floor where he was pinned by a long steel

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bar; that he had freed himself only after another wave had
hit the vessel; that he had managed to stay afloat after the
vessel had sunk, and had been carried by the waves to the
coastline of Cavite and Batangas until he had been rescued;
that he had suffered tremendous hunger, thirst, pain, fear,
shock, serious anxiety, and mental anguish; that he had
sustained injuries, and had lost money, jewelry, important
documents, police uniforms, and the .45 caliber pistol
issued to him by the PNP; and that because it had
committed bad faith in allowing the vessel to sail despite
the storm signal, the petitioner should pay him actual and
moral damages of P500,000 and PI,000,000, respectively.
In its defense, the petitioner insisted on the
seaworthiness of the M/V Princess of the Orient due to its
having been cleared to sail from the Port of Manila by the
proper authorities; that the sinking had been due to force
majeure; that it had not been negligent; that its officers and
crew had also not been negligent.
In October 2001, the Regional Trial Court (RTC)
rendered its judgment in favor of the respondent, ordering
defendant to pay plaintiff temperate damages in the
amount of P400,000, and moral damages in the amount of
One Million Pesos. The RTC observed that the plaintiff,
being negligent, was liable to Sesante pursuant to Articles
1739 and 1759 of the Civil Code; that the petitioner had
not established its due diligence in the selection and
supervision of the vessel crew; that the ship officers had
failed to inspect the stowage of cargoes despite being
aware of the storm signal; that the officers and crew of the
vessel had not immediately sent a distress signal to the
Philippine Coast Guard; that the ship captain had not called
for then “abandon ship” protocol; and that based on the
report of the Board of Marine Inquiry (BMI), the erroneous
maneuvering of the vessel by the captain during the
extreme weather condition had been the immediate and
proximate cause of the sinking.
The Court of Appeals (CA) lowered the temperate
damages to PI20,000, which approximate the cost of the
Sesante’s lost personal belongings, and held that despite
the seaworthiness of the vessel, the petitioner remained
civilly liable because its officers and crew had been
negligent in performing their duties.

CHAPTER III SAFETY OF

PASSENGERS

ISSUE: (1) Whether or not the petitioner is liable for

breach of contract of carriage. (2) Whether or not the
cause of the loss or injury is due to a fortuitous event thus
exempting the petitioner from liability.
HELD: Article 1759 of the Civil Code does not establish
a presumption of negligence because it explicitly makes
the common carrier liable in the event of death or injury to
passengers due to the negligence or fault of the common
carrier’s employees. It reads: “Art. 1759. Common carriers are
liable for the death or injuries to passengers through the negligence or
willful acts of the former’s employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the
common carriers. ” 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. The liability of common
carriers under Article 1759 is demanded by the duty of
extraordinary diligence required of common carriers in
safely carrying their passengers.
The petitioner has attributed the sinking of the vessel
to the storm notwithstanding its position on the
seaworthiness of MW Princess of the Orient.

Yet, the findings of the BMI directly contradicted the

petitioner’s attribution. The BMI found that the
“erroneous maneuvers” during the ill-fated voyage by the
captain of the petitioner’s vessel had caused the sinking.
After the vessel cleared Limbones Point, while navigating
towards the direction of the Fortune Island, the captain
already noticed the listing of the vessel by three degrees
to the portside of the vessel, but, according to the BMI, he
did not exercise prudence as required by the situation in
which his vessel was suffering the battering on the
starboard side by big waves of seven to eight meters high
and strong southwesterly winds of 25 knots. The BMI
pointed out that he should have considerably reduced the
speed of the vessel based on his experience about the
vessel, a close-type ship of seven decks, and of a wide and
high superstructure, being vulnerable if exposed to strong
winds and high waves. He ought to have also known that
maintaining a high speed under such circumstances would
have shifted the solid and liquid cargo of the vessel to
port, worsening the tilted position of the vessel. It was
only after a few minutes thereafter that he finally ordered
the speed to go down to 14 knots, and to put ballast water
to the

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starboard-heeling tank to arrest the continuous listing at

the port side. By then, his moves became an exercise in
futility because, according to the BMI, the vessel was
already listing to her port side between 15 to 20 degrees,
which was almost the maximum angle of the vessel’s loll. It
then became inevitable for the vessel to lose her stability.
The BMI concluded that the captain had executed several
starboard maneuvers despite the critical situation of the
vessel, and that the maneuvers had greatly added to the
tilting of the vessel.
The Chief Mate, when interviewed under oath, had
attested that he was not able to make stability calculation of
the ship vis-a-vis her cargo. He did not even know the
metacentric height (GM) of the ship whether it be positive
or negative. As cargo officer of the ship, he failed to prepare
a detailed report of the ship’s cargo stowage plan. He
likewise failed to conduct the soundings (measurement) of
the ballast tank before the ship departed from port. He
readily presumed that the ship was full of ballast since the
ship was fully ballasted when she left Cebu for Manila on
September 16, 1998, and had never discharged its contents
since that time. Being the officer-in-charge for emergency
situation like this, he failed to execute and supervise the
actual abandon ship procedure. There was no
announcement at the public address system of abandon
ship, no orderly distribution of life jackets, and no orderly
launching of life raffs. The witnesses have confirmed this
finding on their sworn statements. There was miscalculation
in judgment on the part of the Captain when he erroneously
navigated the ship at her last crucial moment. To aggravate
his case, the Captain, having full command and
responsibility of the M/V Princess of the Orient, had failed
to ensure the proper execution of the actual abandoning of
the ship. The deck and engine officers (Second Mate, Third
Mate, Chief Engineers, Second Engineer, Third Engineer, and
Fourth Engineer), being in charge of their respective
abandon ship post, failed to supervise the crew and
passengers in the proper execution of abandon ship
procedure. The Radio Officer (spark) failed to send the SOS
message in the internationally accepted communication
network (VHF Channel 16). Instead, he used the Single Side
Bank (SSB) radio in informing the company about the
emergency situation. The aforestated negligent acts of the
officers and crews of M/V Princess of the Orient could not
be ignored in view of the extraordinary duty of the common
carrier to ensure the safety of the passengers.

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PASSENGERS

ART. 1761. The passenger must observe the diligence of a good

father of a family to avoid injury to himself.
 This is not a redundant provision but a constant
reminder to every passenger to take all necessary
precautions to avoid injury to himself and to others. For
after all, common carrier is not an insurer against all risk of
travel.
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.

This is a counterpart provision of Article 1741 in

vigilance over the goods or the mitigated liability of the
common carrier. If there is contributory negligence on the
part of the passenger, he is not entitled to moral and
exemplary damages.
The underlying precept of the above provision on
contributory negligence is that a plaintiff who is partly
responsible for his own injury should not be entitled to
recover damages in full but must bear the consequences of
his own negligence. The defendant must thus be held liable
only for the damages actually caused by his negligence.
(Estacion v. Bernardo 483 SCRA 222; See Lambert v. Heirs of Ray
Castillon, February 2005, 452 SCRA 285 and Syki v. Begasa, October 23,
2003, 414 SCRA 237)

Is the doctrine of proximate cause applicable in actions

involving breach of contract?
The doctrine of proximate cause is applicable only in
actions for quasi-delict, not in actions involving breach of
contract. The doctrine is a device for imputing liability to a
person where there is no relation between him and another
party. In such a case, the obligation is created by law itself.
But, where there is a pre-existing contractual relation
between the parties, it is the parties themselves who create
the obligation, and the function of the law is merely to
regulate the relation thus created. (Calalas v. Court of Appeals,
332 SCRA 356)

161

TRANSPORTATION LAWS

In FGU Insurance Corporation v. G.P. Sarmiento Trucking

Corporation, 386 SCRA 312, August 6, 2002, it was held that the doctrine
of res ipsa loquitur is not applicable in cases of breach of contract of
carriage:
Res ipsa Loquitur, a doctrine being invoked by petitioner, holds
a defendant liable where the thing which caused the injury
complained of is shown to be under the latter’s management and the
accident is such that in the ordinary course of things, cannot be
expected to happen if those who have its management or control use
proper care. It affords reasonable evidence, in the absence of
explanation by the defendant that the accident arose from want of
care. It is not a rule of substantive law and, as such, it does not
create an independent ground of liability. Instead, it is regarded as a
mode of proof, or a mere procedural convenience since it furnishes a
substitute for, and relieves the plaintiff of the burden of producing
specific proof of negligence. The maxim simply places on the
defendant the burden of going forward with the proof. Resort to the
doctrine, however, may be allowed only when: (a) the event is of a
kind which does not ordinarily occur in the absence of negligence;
(b) other responsible causes, including the conduct of the plaintiff
 and third persons are sufficiently eliminated by the evidence; and (c)
the indicated negligence is within the scope of the defendant’s duty
to the plaintiff. Thus, it is not applicable when an unexplained
accident may be attributable to one of several causes, for some of
which the defendant could not be responsible.
Res ipsa Loquitur generally finds relevance whether or not a
contractual relationship exists between the plaintiff and the
defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature
of the relation of the parties. Nevertheless, the requirement that
responsible causes other than those due to defendant’s conduct must
first be eliminated, for the doctrine to apply, should be understood
as being confined only to cases of pure (noncontractual) tort since
obviously the presumption of negligence in culpa contractual, as
previously so pointed out, immediately attaches by a failure of the
covenant or its tenor. In the case of

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CHAPTER III SAFETY OF
PASSENGERS

the truck driver, whose liability in a civil action is

predicated on culpa acquiliana, while he admittedly can be
said to have been in control and management of the
vehicle which figured in the accident, it is not equally
shown, however, that the accident could have been
exclusively due to his negligence, a matter that can
allow, forthwith, res ipsa loquitur to work against him.
Similarly, the principle of last clear chance is
inapplicable in cases of breach of contract of carriage, as it
only applies in a suit between the owners and drivers of two
colliding vehicles. It does not arise where a passenger demands responsibility
from the carrier to enforce its contractual obligations, for it would be
inequitable to exempt the negligent driver and its owner on
the ground that the other driver was likewise guilty of
negligence. The common law notion of last clear chance
permitted courts to grant recovery to a plaintiff who has
also been negligent provided that the defendant had the
last clear chance to avoid the casualty and failed to do so.
Accordingly, it is difficult to see what role, if any, the
common law of last clear chance doctrine has to play in a
jurisdiction where the common law concept of contributory
negligence as an absolute bar to recovery by the plaintiff,
has itself been rejected, as it has been in Article 2179 of the
Civil Code. (Anuran v. Buho, 17 SCRA 224\ Phil. Rabbit Bus Lines, Inc. v. I AC,
189 SCRA 158; Tiu v. Arriesgado, 437 SCRA 426, September 1, 2004)

However, the defense of contributory negligence does

not apply in criminal cases committed through reckless
imprudence, since one cannot allege the negligence of
another to evade the effects of his own negligence.
(Genobiagon v. Court of Appeals, 178 SCRA 422; Manzanares v. People, 504 SCRA
354, October 16, 2006)

Mitigation of Defendant’s Liability in Case of Contributory Negligence of the

Plaintiff.
Travel & Tours Adviser, Incorporated v. Alberto Cruz, Sr.,
Edgar Hernandez and Virginia Mufioz G.R. No.
199282, March 14, 2016
FACTS: Respondent Edgar Hernandez was driving an
Isuzu Jitney (jeepney) that he owns with Plate No. DSG-944
along Angeles-

163
TRANSPORTATION LAWS
Magalang Road, Barangay San Francisco, Magalang,
Pampanga, on January 9, 1998, around 7:50 p.m.
Meanwhile, a Daewoo passenger bus (RCJ Bus Lines) with
Plate No. NXM 116, owned by petitioner Travel and Tours
Advisers, Inc., and driven by Edgar Calaycay traveled in the
same direction as that of respondent Edgar Hernandez
vehicle. Thereafter, the bus bumped the left rear portion of
the jeepney causing it to ram into an acacia tree, which
resulted in the death of Alberto Cruz, Jr. and the serious
physical injuries of Virginia Munoz. Thus, respondents Edgar
Hernandez, Virginia Munoz, and Alberto Cruz, Sr. father of
the deceased Alberto Cruz, Jr., filed a complaint for
damages before the Regional Trial Court claiming that the
collision was due to the reckless, negligent, and imprudent
manner by which Edgar Calaycay was driving the bus, in
complete disregard to existing traffic laws, rules and
regulations. They also alleged that the bus veered away
from its usual route.
For its defense, the petitioner claimed that at the time
of the incident, Edgar Hernandez violated his franchise by
traveling along an unauthorized line/route.
After trial on the merits, the Regional Trial Court, on
January 20, 2008, rendered judgment in favor of the
respondents, ordering the petitioner to jointly and solidarity
pay the following: (1) To plaintiff Alberto Cruz, Sr. and his
family - a) the sum of P50,000 as actual and compensatory
damages, b) the sum of P250,000 for loss of earning
capacity of the decedent Alberto Cruz, Jr., and
c) P50,000 as moral damages. (2) To plaintiff Virginia Munoz
- a) the sum of P16,744 as actual and compensatory
damages, and b) the sum of P50,000 as moral damages. (3)
To plaintiff Edgar Hernandez - a) the sum of P50,000 as
moral and compensatory damages, b) the sum of P50,000
as attorney’s fees, c) the sum of P4,470 as cost of litigation.
On appeal, the Court of Appeals modified the award of
damages in favor of the plaintiff as follows: (1) To plaintiff
Alberto Cruz, Sr., it reduces the amount of actual damages
to P25,000, but added the sum of P50,000 for the death of
Alberto Cruz, Jr.; (2) To plaintiff Virginia Mufioz, it reduces
the amount of moral damages to P30,000; and (3) To
plaintiff Edgar Hernandez, it reduces the amount of actual
and

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CHAPTER III SAFETY OF

PASSENGERS

compensatory damages to P40.200. The rest of the award

of damages remains.
ISSUE: 1) Whether or not the bus is liable because it
veered away from its usual route at the time of the mishap,
and 2) Whether or not this is a case of pari delicto considering
that the passenger jeepney was traveling beyond its route.
 HELD: The Regional Trial Court (RTC) and the Court of
Appeals (CA) are one in finding that both vehicles were not
in their authorized routes at the time of the incident. The
conductor of petitioner’s bus admitted on cross-
examination that the driver of the bus veered off from its
usual route to avoid heavy traffic. The Court of Appeals,
thus, observed: First, as pointed out in the assailed Decision,
both vehicles were not in their authorized routes at the time
of the mishaps. Francisco Tejada, the conductor of
defendant-appellant’s bus, admitted on cross- examination
that the driver of the bus passed through Magalang Road
instead of Sta. Ines, which was the usual route, to avoid
heavy traffic. Regardless of the reason, however, the
irrefutable fact remains that defendant-appellant’s bus
likewise veered from its usual route.
Petitioner now claims that the bus was not out of line
when the vehicular accident happened, because the PUB
(Public Utility Bus) franchise that the petitioner holds, is for
provincial operation from Manila-Ilocos Norte/Cagayan-
Manila, thus, the bus is allowed to traverse any point
between Manila-Ilocos
Norte/Cagayan-Manila. Such assertion is correct. “Veering
away from the usual route” is different from being “out of
line.” A public utility vehicle can and may veer away from its
usual route as long as it does not go beyond its allowed
route in its franchise, in this case, Manila-Ilocos
Norte/Cagayan-Manila. Therefore, the bus cannot be
considered to have violated the contents of its franchise. On
the other hand, it is indisputable that the jeepney was
traversing a road out of its allowed route.

Necessarily, this case is not that of “In pari delicto” because

only one party has violated a traffic regulation. As such, it
would seem that Article 2185 of the New Civil Code is
applicable where it provides that: “Art. 2185. Unless there is
proof to the contrary, it is presumed that a person driving a
motor vehicle has been negligent if at the time of the
mishap he was violating any traffic regulation.” The
provision, however, is merely a presumption.

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TRANSPORTATION LAWS

From the factual findings of both the Regional Trial Court

and the Court of Appeals based on the evidence presented,
the proximate cause of the collision is the negligence of the
driver of petitioner’s bus. The jeepney was bumped at the
left rear portion. Thus, the Court’s past ruling that drivers of
vehicles, who bumped the rear of another vehicle, are
presumed to be the cause of the accident, unless
contradicted by other evidence, can be applied. The
rationale behind the presumption is that the driver of the
rear vehicle has full control of the situation as he is in a
position to observe the vehicle in front of him.
Rate of speed, in connection with other circumstances,
is one of the principal considerations in determining
whether a motorist has been reckless in driving a vehicle,
and evidence of the extent of the damage caused may show
the force of the impact from which the rate of speed of the
vehicle may be modestly inferred. From the evidence
presented in this case, it cannot be denied that the bus was
running very fast. As held by the Supreme Court, the very
fact of speeding is indicative of imprudent behavior, as a
motorist must exercise ordinary care and drive at a
reasonable rate of speed commensurate with the conditions
encountered, which will enable him to keep the vehicle
under control and avoid injury to others using the highway.
From the above findings, it is apparent that the
proximate cause of accident is the petitioner’s bus and that
the petitioner was not able to present evidence that would
show otherwise. Be that as it may, this doesn’t erase the
fact that at the time of the vehicular accident, the jeepney
was in violation of its allowed route as found by the RTC and
the CA, hence, the owner and the driver of the jeepney
likewise are guilty of negligence as defined under Article
2179 of the Civil Code, which reads as follows: “When the
plaintiff’s negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury, being the defendant s lack of due
care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded. ” The petitioner and its driver, therefore,
are not solely liable for the damages caused to the victims.
The petitioner must, thus, be held liable only for the
damages actually caused by his negligence. It is, therefore,
proper to mitigate the liability of the petitioner and its
driver.

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SAFETY OF PASSENGERS

The determination of the mitigation of the

defendant’s liability varies depending on the
circumstances of each case. The Court had
sustained a mitigation of 50% in Rakes v. AG & P; in
Phoenix Construction, Inc.

v. Intermediate Appellate Court, and LBC Air Cargo, Inc. v.

Court of Appeals; and 40% in Bank of the Philippines Islands
v. Court of Appeals, and Philippine Bank of Commerce v. Court
of Appeals.
In the present case, it has been established
that the proximate cause of the death of Alberto
Cruz, Jr., is the negligence of petitioner’s bus
driver, with the contributory negligence of
respondent Edgar Hernandez, the driver and
owner of the jeepney, hence, the heirs of Alberto
Cruz, Jr., shall recover damages of only 50% of the
award from petitioner and its driver. Necessarily,
50% shall be borne by respondent Edgar
Hernandez. This is pursuant to Rakes v. AG &P, and
after considering the circumstances of this case.
The petition for review is denied and the
decision of the Court of Appeals is modified,
insofar as the award of damages, as follows:
The petitioner and Edgar Calaycay are ordered
to jointly and severally pay the following: (1) To
respondent Alberto Cruz, Sr. and family - a)
PI2,500 as actual damages, b) P25,000 as civil
indemnity for the death of Alberto Cruz, Jr., c)
P25,000 as moral damages. (2) To respondent
Virginia Munoz - a) P8,372 as actual damages, b)
PI5,000 as moral damages. (3) To respondent
Edgar Hernandez - a) P20,100 as actual damages,
and (4) The sum of P2,235 as cost of litigation.
Respondent Edgar Hernandez is also ordered
to pay the following: (1) To respondent Alberto
Cruz, Sr. and family - a) PI2,500 as actual damages,
b) P25,000 as civil indemnity for the death of
Alberto Cruz, Jr., and c) P25,000.00 as moral
damages. (2) To respondent Virginia Munoz - a)
P8,372 as actual damages, and b) PI5,000 as moral
damages. (3) The sum of P2,235 as cost of
litigation.
ART. 1763. A common carrier is responsible for injuries
suffered by a passenger on account of the willful acts or
negligence of other passengers or of strangers, if the common
carrier’s employees through the exercise of the diligence of a
good father of a family could have prevented or stopped the act
or omission.

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What are the instances when a common

QUESTION:
carrier becomes liable for the death of or injury to a
passenger or passengers?
ANSWER: The statutory provisions render a common
carrier liable for death of or injury to passengers (a)
through the negligence or willful acts of its employees (Art. 1759)
or (b) on account of willful acts or negligence of other passengers or of
strangers if the common carrier’s employees through the exercise of due
diligence could have prevented or stopped the act or omission (Art.
1763). (Light Rail Transit Authority v. Natividad, 391 SCRA 75,
February 6, 2003)
It appears that due to the extraordinary diligence
required by the common carrier for the safety of
passengers, their agents will also act as security guards
for the passengers.
A tort committed by a stranger, which causes injury to a passenger,
does not accord the passenger a cause of action against the carrier.
Jose Pilapil v. Court of Appeals and Alatco
Transportation Co., Inc.
G.R. No. 52159, December 22, 1989
FACTS: Petitioner-plaintiff Jose Pilapil, a paying
passenger, boarded respondent-defendant’s bus bearing
No. 409 at San Nicolas, Iriga City and 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 said 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.
Considering that the sight of his left eye was
impaired, petitioner was taken to Dr. Malabanan of Iriga
City where he was treated for another week. Since there
was no improvement in his left eye’s vision, petitioner
went to V. Luna Hospital, Quezon City where he was
treated by Dr. Capulong. Despite the treatment accorded
to him by Dr. Capulong, petitioner lost partially his left
eye’s vision and sustained a permanent scar above the left
eye.
Thereupon, petitioner instituted before the Court of
First Instance of Camarines Sur, Branch I an action for
recovery of damages sustained

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 CHAPTER III SAFETY OF PASSENGERS

as a result of the stone-throwing incident. After trial, the court a

quo rendered judgment ordering respondent transportation
company to pay to petitioner damages in the total sum of PI 6,300.
From the judgment, private respondent appealed to the Court
of Appeals. On October 19, 1979, the Court of Appeals, in a Special
Division of Five, rendered judgment reversing and setting aside the
judgment of the court a quo.
ISSUE: Whether or not the stoning of the bus by a stranger
resulting in injury to petitioner-passenger is one such risk from
which the common carrier may not exempt itself from liability.
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.

In consideration of the right granted to it by the

public to engage in the business of transporting
passengers and goods, a common carrier does not give
its consent to become an insurer of any and all risks to
passengers and goods. It merely undertakes to perform
certain duties to the public as the law imposes, and
hold itself liable for any breach thereof.
 Article 1755 of the Civil Code qualifies the duty of
extraordinary care, vigilance and precaution in the
carriage of passengers by common carriers to only such
as human care and foresight can provide. What
constitutes compliance with said duty is adjudged with
due regard to all the circumstances.
Article 1756 of the Civil Code, in creating a
presumption of fault or negligence on the part of the
common carrier when its passenger is injured, merely
relieves the latter, for the time being, from introducing
evidence to fasten the negligence on the former,
because the presumption stands in the place of
evidence. Being a mere presumption, however, the
same is rebuttable by proof that the common carrier
had exercised extraordinary diligence as required by
law in the performance of its contractual obligation, or
that the injury suffered by the passenger was solely
due to a fortuitous event.

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TRANSPORTATION LAWS
 Thus, it is clear that 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.
As stated earlier, 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 defect 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.
While, as a general rule, common carriers are bound to exercise
extraordinary diligence in the safe transport of their passengers, it
would seem that this is not the standard by which its liability is to be
determined when intervening acts of strangers directly cause the injury,
while the contract of carriage exists. Article 1763 governs:
“Article 1763. A common carrier is responsible for injuries
suffered by a passenger on account of the willftil acts or negligence
 of other passengers or of strangers, if the common carrier’s
employees through the exercise of the diligence of a good father of
a family could have prevented or stopped the act or omission.”
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

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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.
A common carrier can be held liable for failing to prevent a hijacking by frisking passengers
and inspecting their baggage.

Fortune Express, Inc. v. Court of Appeals, Paulie

v. Caorong and minor children
G.R. No. 119756, March 18,1999
FACTS: On November 18, 1989, a bus of petitioner figured in an
accident with a jeepney in Kauswagan, Lanao del Norte, resulting in the
death of several passengers of the jeepney, including two Maranaos.
Crisanto Generalao, a volunteer field agent of the Constabulary Regional
Security Unit No. X, conducted an investigation of the accident. He
found that the owner of the jeepney was a Maranao residing in
Delabayan, Lanao del Norte and that certain Maranaos were planning to
take revenge on the petitioner by burning some of its buses. Generalao
rendered a report on his findings to Sgt. Reynaldo Bastasa of the
Philippine Constabulary Regional Headquarters at Cagayan de Oro.
Upon the instruction of Sgt. Bastasa, he went to see Diosdado Bravo,
operations manager of petitioner, at its main office in Cagayan de Oro
City. Bravo assured him that the necessary precautions to insure the
safety of lives and property would be taken.
At about 6:45 P.M. on November 22,1989, three armed Maranaos,
who pretended to be passengers, seized a bus of petitioner at Linamon,
Lanao del Norte while on its way to Iligan City. Among the passengers of
the bus was Atty. Caorong. The leader of the Maranaos, identified as
one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan, to
stop the bus on the side of the highway. Mananggolo then shot
Cabatuan on the arm, which caused him to slump on the steering
wheel. Then one of the companions of Mananggolo started pouring
gasoline inside the bus, as the other held the passengers at bay with a
handgun. Mananggolo then ordered the passengers to get off the bus.
The passengers, including Atty. Caorong, stepped out of the bus and
went behind the bushes in a field some distance from the highway.

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However, Atty. Caorong returned to the bus to

retrieve something from the overhead rack. At that time,
one of the armed men was pouring gasoline on the head
of the driver. Cabatuan, who had meantime regained
consciousness, heard Atty. Caorong pleading with the
armed men to spare the driver as he was innocent of any
wrongdoing and was only trying to make a living. The
armed men were, however, adamant as they repeated
their warning that they were going to bum the bus along
with its driver. During this exchange between Atty.
Caorong and the assailants, Cabatuan climbed out of the
left window of the bus and crawled to the canal on the
opposite side of the highway. He heard shots from inside
the bus. Larry dela Cruz, one of the passengers, saw that
Atty. Caorong was hit. Then the bus was set on fire. Some
of the passengers were able to pull Atty. Caorong out of
the burning bus and rushed him to the Mercy Community
Hospital in Iligan City, but he died while undergoing
operation.
The private respondents brought this suit for breach
of contract of carriage in the Regional Trial Court, Branch
VI, Iligan City. In its decision, dated December 28, 1990,
the trial court dismissed the complaint, holding the
defendant common carrier not negligent.
On appeal, however, the Court of Appeals reversed
the decision of the trial court and awarded damages to
the plaintiff amounting to P3,449,649.20 plus attorney’s
fees.
ISSUES: 1) Whether or not petitioner breached the
contract of carriage by failure to exercise the required
degree of diligence. 2) Whether or not the act of the
Maranao outlaws was so grave, irresistible, violent and
forceful, as to be regarded as caso fortuito.
HELD: Art. 1763 of the Civil Code provides that a
common carrier is responsible for injuries suffered by a
passenger on account of the willful acts of other
passengers, if the employees of the common carrier
could have prevented the act through the exercise of the
diligence of a good father of a family. In the present case,
it is clear that because of the negligence of petitioner’s
employees, the seizure of the bus by Mananggolo and his
men was made possible.
Despite warning by the Philippine Constabulary at
Cagayan de Oro that the Maranaos were planning to take
revenge on the petitioner

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by burning some of its buses and the assurance of petitioner’s operation

manager, Diosdado Bravo, that the necessary precautions would be taken,
petitioner did nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have failed
to see that the malefactors had a large quantity of gasoline with them. Under
the circumstances, simple precautionary measures to protect the safety of
passengers, such as frisking passengers and inspecting their baggage,
preferably with non-intrusive gadgets such as metal detectors, before allowing
them on board could have been employed without violating the passenger’s
constitutional rights. As this Court intimated in Gacal v. Philippine Air Lines, Inc., a
common carrier can be held liable for failing to prevent a hijacking by frisking
passengers and inspecting their baggage.
From the foregoing, it is evident that petitioner’s employees failed to
prevent the attack on one of petitioner’s buses because they did not exercise
the diligence of a good father of a family. Hence, petitioner should be held
liable for the death of Atty. Caorong.
The petitioner contends that the seizure of its bus by the armed assailants
was a fortuitous event for which it could not be held liable.
Article 1174 of the Civil Code defines a fortuitous event as an occurrence
which could not be foreseen or which though foreseen, is inevitable. In Yobido
v. Court of Appeals, [the Court] held that to be considered as force majeure, it is
necessary that: (1) the cause of the breach of the obligation must be
independent of the human will;

(2) the event must be either unforeseeable or unavoidable; (3) the

occurrence must be such as to render it impossible for the debtor to fulfill
the obligation in a normal manner; and (4) the obligor must be free of
participation in, or aggravation of, the injury to the creditor. The absence of
any of the requisites mentioned above would prevent the obligor from being
excused from liability.
Thus, in Vasquez v. Court of Appeals, it was held that the common carrier was
liable for its failure to take the necessary precautions against an approaching
typhoon, of which it was warned, resulting in the loss of the lives of several
passengers. The event was foreseeable, and, thus, the second requisite
mentioned above was not fulfilled. This ruling

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applies by analogy to the present case. Despite the report of PC

agent Generalo that the Maranaos were going to attack its
buses, petitioner took no steps to safeguard the lives and
properties of its passengers. The seizure of the bus of the
petitioner was foreseeable and, therefore, was not a fortuitous
event, which would exempt petitioner from liability.
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CHAPTER IV

DAMAGES FOR BREACH OF CONTRACT OF COMMON

CARRIERS
ARTICLES 1764 and 1766

ARTICLE 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 caused by the breach of contract by a common carrier.
Sources of obligation under which the carrier-employer and his driver-employee are liable to
passenger or pedestrian in cases of injury.

Under the Civil Code, obligations arise from law, contracts, quasicontracts,
acts or omissions punished by law, and quasi-delicts. (Art. 1157,
NCC)
From these sources of obligations, three kinds of culpa or fault or
negligence are derived: 1. culpa contractual or contractual negligence due to
breach of contract of carriage; 2. culpa aquiliana, tort or quasidelict; and 3. culpa
criminal or criminal negligence which results in criminal liability.
Illustration:
Suppose a passenger of a public utility bus was injured due to the driver’s
recklessness, what case or cases can the passenger file against the common
carrier and the driver?

The injured passenger can file a civil case for breach of contract of carriage
against the common carrier and not against the driver because the contract of
carriage is between the common carrier and the passenger. The driver was
acting merely as an agent of the common
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carrier. In this case of breach of contract of carriage, the liability of the

common carrier is direct and primary.
What quantum of evidence is required? Preponderance of evidence. All
that the passenger has to prove is his contract of carriage between him and the
common carrier, the public utility bus; and that he did not reach his destination
unhurt.
Suppose the common carrier was able to prove due diligence in the
selection and supervision of his driver, will the common carrier still be liable?
Yes, because the defense of due diligence in the selection and supervision of
employee, though may mitigate liability, is not a complete defense in culpa
contractual or breach of contract of carriage. In fact, the burden of proof lies in
the common carrier that it exercises extraordinary diligence to avoid injury to
passengers.
The injured passenger can also file a criminal case against the driver for
reckless imprudence resulting in physical injuries. However, the quantum of
evidence in this case is proof beyond reasonable doubt and the prosecution
has the burden of proving the guilt of the driver beyond reasonable doubt.
Suppose the driver was pronounced guilty of the crime of reckless imprudence
resulting in physical injuries, who will be liable to pay the civil damages of the
injured passenger. In this criminal negligence case, the liability of the driver-
employee is direct and primary (Art. 100, RPC) while the liability of the common
carrier as employer is subsidiary. (Art 103, RPC) Suppose, the driver employee is
insolvent, can the injured passenger go after the common carrier as employer?
Yes. As stated earlier, the civil liability of the common carrier as employer is
subsidiary. Hence, if the driver cannot comply directly with his civil liability, the
common carrier as employer is subsidiarily liable. In this case of criminal
negligence, where can the injured passenger recover subsidiary liability against
the common carrier as employer in case the driver employee is insolvent? In
the present criminal suit or in another civil suit?
The old view is that and it is even the practice of some lawyers today to
file a separate civil case against the common carrier as employer to recover the
subsidiary liability. The injured passenger has only two documentary evidence
to present: (1) judgment of the court

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convicting the driver-employee of reckless imprudence resulting in physical

injuries; and (2) the sheriff’s return showing that the judgment is unsatisfied
due to the insolvency of the driver.
The better view is that, the subsidiary liability of the common carrier as
employer can be obtained in the same criminal case against the driver-
employee during execution proceedings after proper motion and due notice
and hearing against the common carrier as employer. And all the injured
passenger has to show is that the driver employee is insolvent per sheriff’s
return of judgment in execution. (Vda. de Paman v. Seneris, 115 SCRA 709)
Now, if that is the case, was the common carrier as employer denied of
due process as he was deprived of his day in court. The answer is no, the
rationale being that the common carrier as employer should have given his
driver a good defense counsel, because in defending the interest of the driver,
the employer would also be defending his own interest.
 May the injured passenger file also a case of culpa aquiliana or quasi-delict
against the common carrier even if there is a pre-existing contractual
relationship between them. It seems that the injured passenger may opt also
to file a quasi-delict case if the act that breaks the contract resulted in tort. (Air
France v. Carrascoso, September 28, 1966) However, in cases of culpa aquiliana or quasi-
delict, the injured passenger has the burden of proving the negligence of the
common carrier and his driver, and the defense of due diligence in the
selection and supervision of employee is a complete defense of the common
carrier as employer to avoid civil liability.
A contractual obligation can be breached by tort and when the same act or
omission causes the injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort
may arise even under a contract, where tort is that which breaches the
contract. Stated differently, when an act which constitutes a breach of contract
would have itself constituted the source of a quasi-delictual liability had no
contract existed between the parties, the contract can be said to have been
breached by tort, thereby allowing the rules on tort to apply. (LRTA v. Natividad,
397 SCRA 75,

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February 6, 2003; Mindanao Terminal and Brokerage Services, Inc. v.

Phoenix Assurance Co. of New York/McGee & Co., Inc., G.R. No. 162467, May 8, 2009)

In quasi-delict, the negligence or fault should be clearly established because

it is the basis of the action, whereas in breach of contract, the action can be
prosecuted merely by proving the existence of the contract and the fact that
the obligor, in this case the common carrier failed to transport his passenger
safely to his destination. (Calalas v. Court of Appeals, 332 SCRA 356)
In all these cases (culpa contractual, culpa criminal and culpa aquiliana), when the
common carrier was held to pay damages for the injured passenger, he may
ask reimbursement from his driver in a proper case.
The amount of damages for death caused by a crime or quasi-delict shall be
at least P3,000, even though there may have been mitigating circumstances. In
addition:
(1) The defendant shall be liable for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the heirs of the latter;
such indemnity shall in every case be assessed and awarded by the
court, unless the deceased on account of permanent physical disability
not caused by the defendant, had no earning capacity at the time of
his death;
(2) If the deceased was obliged to give support according to the
provisions of Article 291, the recipient who is not an heir called to the
decedent’s inheritance by the law of testate or intestate succession,
may demand support from the person causing the death, for a period
not exceeding five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of
the deceased may demand moral damages for mental anguish by
reason of the death of the deceased. (Art. 2206)
The indemnity for death caused by a quasi-delict used to be pegged at
P3,000, based on Article 2206 of the Civil Code. However,
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OF COMMON CARRIERS

the amount has been gradually increased through the years because of the
declining value of our currency. At present, prevailing jurisprudence fixes the
amount at P50,000. (Pestaho v. Sumayang, 346 SCRA 870)
In the absence of stipulation, attorney’s fees and expense of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmen’s compensation and
employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney’s fees and expenses of litigation should be recovered.
 In all cases, the attorney’s fees and expenses of litigation must be
reasonable. (Art. 2208)

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In contracts, quasi-contracts, and quasi-delicts, the court may equitably

mitigate the damages under circumstances other than the case referred to in
the preceding article, as in the following instances:
(1) That the plaintiff himself has contravened the terms of the contract;
(2) That the plaintiff has derived some benefit as a result of the contract;
(3) In cases where exemplary damages are to be awarded, that the
defendant acted upon the advice of counsel;
(4) That the loss would have resulted in any event;
(5) That since the filing of the action, the defendant has done his best to
lessen the plaintiff’s loss or injury. (Art. 2215)
Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the
defendant’s wrongful act or omission. (Art. 2217)
Moral damages may be recovered in the following and analogous cases:
 (1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21,26,27,28,29,30, 32, 34,
and 35.

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CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF

COMMON CARRIERS

The parents of the female seduced, abducted, raped, or abused,

referred to in No. 3 of this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters
may bring the action mentioned in No. 9 of this article, in the order
named. (Art. 2219)
As a general rule, moral damages are not recoverable in
actions for damages predicated on a breach of contract for it is not
one of the items enumerated under Art. 2219 of the Civil Code. As
an exception, such damages are recoverable: (1) in cases in which
the mishap results in the death of a passenger, as provided in Art.
1764, in relation to Art. 2206(3) of the Civil Code; and (2) in the
cases in which the carrier is guilty of fraud or bad faith, as provided
in Art. 2220. (Calalas v. Court of Appeals, 332 SCRA 356)
The person claiming moral damages must prove the existence
of bad faith by clear and convincing evidence for the law always
presumes good faith. It is not enough that one merely suffered
sleepless nights, mental anguish, and serious anxiety as the result
of the actuations of the other party. Invariably such action must be
shown to have been willfully done in bad faith or with ill motive.
(Ace Haulers Corporation v. Court of Appeals, 338 SCRA 572)
“Bad faith does not simply connote bad judgment or
negligence, it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of known duty through
some motive or interest or ill-will that partakes of the nature of
fraud.” Where in breaching the contract of carriage the common
carrier is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable
consequences of the breach of obligation, which the parties had
foreseen or could have reasonably foreseen. In that case, such
liability does not include moral and exemplary damages.” (Tan v.
Northwest Airlines, 327 SCRA 263)
Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages. (Art.
2229)
 In criminal offenses, exemplary damages as a part of the civil
liability may be imposed when the crime was committed with one

181
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TRANSPORTATION LAWS

or more aggravating circumstances. Such damages are separate and

distinct from fines and shall be paid to the offended party. (Art. 2230)
In quasi-delicts, exemplary damages may be granted if the defendant acted
with gross negligence. (Art. 2231)
In contracts and quasi-contracts, the court may award exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. (Art. 2232). (Singapore Airlines v. Fernandez, 417 SCRA 484)
Exemplary damages cannot be recovered as a matter of right; the court
will decide whether or not they should be adjudicated. (Art. 2233)
Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him. It is an established rule that nominal damages cannot co-exist
with compensatory damages. (LRTA v. Natividad, 397 SCRA 75, February 6, 2003)
Damages, Computation of Indemnity, Life Expectancy of Victim as basis in fixing amount
recoverable, and Earning Capacity.

Villa Rey Transit, Inc. v. The Court of Appeals,

 Trinidad A. Quintos, Prima A. Quintos and Julita A. Quintos
G.R. No. L-25499, February 18,1970
FACTS: At about 1:30 in the morning ofMarch 17,1960, anlsuzu First Class
passenger bus owned and operated by the defendant, bearing Plate No. TPU-
14871-Bulacan and driven by Laureano Casim, left Lingayen, Pangasinan, for
Manila. Among its paying passengers was the deceased, Policronio Quintos, Jr.,
who sat on the first seat, second row, right side of the bus. At about 4:55 a.m.
when the vehicle was nearing the northern approach of the Sadsaran Bridge on
the national highway in Barrio Sto. Domingo, Municipality of Minalin,
Pampanga, it frontally hit the rear side of a bull cart filled with hay. As a result
the end of a bamboo pole placed on top of the hay load and tied to the cart to
hold it in place, hit the right side of the windshield of the bus. The

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CHAPTER IV DAMAGES FOR BREACH OF CONTRACT
OF COMMON CARRIERS

protruding end of the bamboo pole, about eight feet long from the rear of the
bull cart, penetrated through the glass windshield and landed on the face of
Policronio Quintos, Jr., who, because of the impact, fell from his seat and was
sprawled on the floor. The pole landed on his left eye and the bone of the left
side of his face was fractured. He suffered other multiple wounds and was
rendered unconscious due, among other causes, to severe cerebral concussion.
Policronio Quintos, Jr., died at 3:15 p.m. on the same day, March 17, 1960, due
to traumatic shock due to cerebral injuries.
The private respondents, Trinidad, Prima and Julita, all sumamed Quintos,
are the sisters and only surviving heirs of Policronio Quintos, Jr., who died
single, leaving no descendants or ascendants. Said respondents herein brought
this action against herein petitioner. Villa Rey Transit, Inc., as owner and
operator of said passenger bus, bearing Plate No. TPU-14871-Bulacan, for
breach of the contract of carriage between said petitioner and the deceased
Policronio Quintos, Jr., to recover the aggregate sum of P63,750 as damages,
including attorney’s fees. Said petitioner — defendant in the Court of First
Instance — contended that the mishap was due to a fortuitous event, but this
pretense was rejected by the trial court and the Court of Appeals, both of
which found that the accident and the death of Policronio had been due to the
negligence of the bus driver, for whom petitioner was liable under its contract
of carriage with the deceased.
ISSUE: The only issue raised in this appeal is the amount of damages
recoverable by private respondents herein. The determination of such 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 respondents should be fixed.
HELD: The first factor was based by the trial court — the view of which was
concurred in by the Court of Appeals — upon the life expectancy of Policronio
Quintos, Jr., which was placed at 33-1/3 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 (2/3 x [80 - 30] = life expectancy) adopted in the
American Expectancy

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TRANSPORTATION LAWS
Table of Mortality or the actuarial of Combined Experience Table of Mortality.
Upon the other hand, petitioner maintains that the lower courts had
erred in adopting said formula and in not acting in accordance with Alcantara v.
Surro in which the damages were computed on a four year basis, despite the
fact that the victim therein was 39 years old, at the time of his death, and had a
life expectancy of 28.90 years.
The case cited is not, however, controlling in the one at bar. In the
Alcantara case, none of the parties had questioned the propriety of the four-year
basis adopted by the trial court in making its award of damages.
Thus, life expectancy is not only relevant but also, an important element
in fixing the amount recoverable by private respondents herein. Although it is
not the sole element determinative of said amount, no cogent reason has been
given to warrant its disregard and the adoption, in the case at bar, of a purely
arbitrary standard, such as a four-year rule. In short, the Court of Appeals has
not erred in basing the computation of petitioner’s liability upon the life
expectancy of Policronio Quintos, Jr.
At this juncture, it should be noted, also, that the Court is mainly
concerned with the determination of the losses or damages sustained by the
private respondents, as dependents and intestate heirs of the deceased, and
that said damages consist, not of the full amount of his earnings, but of the
support they received or would have received from him had he not died in
consequence of the negligence of petitioner’s agent. In fixing the amount of
that support, we must reckon with the “necessary expenses of his own living,”
which should be deducted from his earnings. Thus, it has been consistently
held that earning capacity, as an element of damages to one’s estate for his
death by wrongful act is necessarily his net earning capacity or his capacity to
acquire money, “less the necessary expense for his own living.” Stated
otherwise, the amount recoverable is not loss of the entire earning, but rather
the loss of that portion of the earnings, which the beneficiary would have
received. In other words, only net earnings, not gross earning, are to be
considered that is, the total of the earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental
expenses.

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All things considered, the Court is of the opinion that it is fair and
reasonable to fix the deductible living and other expenses of the deceased at
the sum of P 1,184 a year, or about PI00 a month, and that, consequently, the
loss sustained by his sisters may be roughly estimated at PI ,000 a year or
P33,333.33 for the 33-1/3 years of his life expectancy. To this sum of
P33,333.33, the following should be added: (a) P 12,000, pursuant to Articles

104 and 107 of the Revised Penal Code, in relation to Article 2206 of our Civil
Code, as construed and applied by this Court; (b) PI,727.95, actually spent by
private respondents for medical and burial expenses; and (c) attorney’s fee,
which was fixed by the trial court, at P500, but which, in view of the appeal
taken by petitioner herein, first to the Court of Appeals and later to this
Supreme Court, should be increased to P2,500.
In other words, the amount adjudged in the decision appealed from
should be reduced to the aggregate sum of P49,561.28, with interest thereon,
at the legal rate, from December 29, 1961, date of the promulgation of the
decision of the trial court.
Thus modified, said decision and that of the Court of Appeals are hereby
affirmed, in all other respects, with costs against petitioner, Villa Rey Transit,
Inc.
Fortune Express, Inc. v. Court of Appeals
G.R. No. 119756, March 18,1999
Compensation for Loss of Earning Capacity. Article 1764 of the Civil Code, in
relation to Article 2206 thereof, provided that in addition to the indemnity for
death arising from the breach of contract of carriage by a common carrier, the
“defendant shall be liable for the loss of the earning capacity of the deceased,
and the indemnity shall be paid to the heirs of the latter.” The formula
established in decided cases for computing net earning capacity is as follows:
[Gross Necessary]

Net Earning = Life x [Annual - Living]

Capacity Expectancy [Income Expenses]

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Life expectancy is equivalent to 2/3 multiplied by the difference of 80 and

the age of the deceased. Since Atty. Caorong was 37 years old at the time of his
death, he had a life expectancy of 28, 2/3 more years. His projected gross
annual income, computed based on his monthly salary of PI 1,385 as a lawyer
in the Department of Agrarian Reform at the time of his death, was P148,005.
Allowing for necessary living expenses of 50% of his projected gross annual
income, his total earning capacity amounts to P2,121,404.90. Hence, the
petitioner is liable to the private respondents in the said amount as
compensation for loss of earning capacity.

Damages, computation of indemnity.

Spouses Dante Cruz and Leonora Cruz

v. Sun Holidays, Inc.

G.R. No. 186312, June 29, 2010

FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint
on January 25, 2001 against Sun Holidays, Inc. (respondent) with the Regional
Trial Court (RTC) of Pasig City for damages arising from the death of their son
Ruelito C. Cruz (Ruelito), who perished with his wife on September 11, 2000 on
board the boat M/B Coco Beach III that capsized en route to Batangas from
Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach
Island Resort (Resort) owned and operated by respondent.
On September 11, 2000, as it was still windy, Miguel C. Matute (Matute), a
scuba diving instructor, and 25 other Resort guests including petitioner’s son
and wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to
ferry them to Batangas. Shortly after the boat sailed, it started to rain. As it
moved farther away from Puerto Galera and into the open seas, the rain and
wind got stronger, causing the boat to tilt from side to side, and the captain
step forward to the front, leaving the wheel to one of the crew members. The
waves got more unwieldy. After getting hit by two big waves, which came after
the other, M/B Coco Beach III capsized, putting all passengers
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underwater. The passengers, who had put on their life jackets, struggled to get
out of the boat. Upon seeing the captain, Matute and the other passengers,
who reached the surface, asked him what they could do to save the people
who were still trapped under the boat. The captain replied. “Iligtas ninyo na lang
ang sarili ninyo ” (Just save yourselves).

At the time of Ruelito's death, he was 28 years old and employed as a

contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd., in Saudi
Arabia, with a basic monthly salary for $900. Petitioners, by letter of October
26, 2000, demanded Indemnification from respondent for the death of their
son in the amount of at least P4,000.000.
Replying, respondent denied any responsibility for the incident, which it
considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of PI 0,000 to petitioners upon their signing of a
waiver.
By Decision of February 16, 2005, Branch 267 of the Pasig RTC dismissed
petitioners’ Complaint and respondent’s Counterclaim. Petitioner’s Motion for
Reconsideration, having been denied, they appealed to the Court of Appeals.
By Decision of August 19, 2008, the appellate court denied petitioners’
appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier, which is only required to observe ordinary
diligence; that respondent in fact observed extraordinary diligence in
transporting its guests on board M/B Coco Beach III; and that the proximate
cause of the incident was a squall, a fortuitous event.
ISSUE: Assuming that respondent is a common carrier, how much is he
liable for the death of the victim.
 HELD: Article 1764 vis-a-vis Article 2206 of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a
passenger liable to pay the following: (1) indemnity for death; (2) indemnity for
loss of earning capacity; and (3) moral damages. Petitioners are entitled to
indemnity for the death of Ruelito, which is fixed at P50,000.

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As for damages representing unearned income, the formula for its

compensation is:
Net Earning Capacity = life expectancy x (gross annual income-
reasonable and necessary living expenses)
Life expectancy is determined in accordance with the formula:
2/3 x [80 - age of deceased at the time of the death]
The first factor, i.e, life expectancy, is compared by applying the formula
2/3 x [80 - age at death] adopted in the American Expectancy Table of
Mortality or the Actuarial of Combine Experience Table of Mortality.
The second factor is computed by multiplying the life expectancy by the
net earnings of the deceased, i.e., the total earnings less expenses necessary in
the creation of such earnings or income and less living and other incidental
expenses. The loss is not equivalent to the entire earnings of the deceased, but
only such portion, as he would have used to support his dependents or heirs.
Hence, to be deducted from his gross earnings are the necessary expenses
supposed to be used by the deceased for his own needs.
In computing the third factor — necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja teaches that when, as in this case, there is no showing
that the living expenses constituted the smaller percentage of the gross income,
the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito’s life
expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80-28]

2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary

of $900 which, when converted to Philippine peso

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OF COMMON CARRIERS

applying the annual average exchange rate of 1 $ = P44 in 2000 amounts to

P39,600. Ruelito’s net earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income- reasonable
and necessary living expenses)
 = 35 x (P475,200.00 - P237,600.00)

= 35 x (P237,600.00)

Net Earning Capacity = P8,316,000.00

Respecting the award of moral damages, since respondent common

carrier’s breach of contract of carriage resulted in the death of petitioners’ son,
following Article 1765 vis-a-vis Article 2206 of the Civil Code, petitioners are
entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary
diligence required of common carriers, it is presumed to have acted recklessly,
thus, warranting the award too of exemplary damages, which are granted in
contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
Under the circumstances, it is reasonable to award petitioners the amount
of PI00,000 as moral damages, and PI00,000 as exemplary damages.
Pursuant to Article 2208 of the Civil Code, attorney’s fees may also be
awarded where exemplary damages are awarded. The Court finds that 10% of
the total amount adjudged against respondent is reasonable for the purpose.
Wherefore, the Court of Appeals Decision of August 19, 2008 is REVERSED
and SET ASIDE. Judgment is rendered in favor of petitioners, ordering
respondent to pay petitioners the following: (1) P50,000 as indemnity for the
death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito’s loss of earning
capacity; (3) PI00,000 as moral damages; (4) PI00,000 as exemplary damages;
(5) 10% of the total amount adjudged against respondent as attorney’s fees;
and (6) the costs of suit.
 The total amount adjudged against respondent shall earn interest at the
rate of 12% per annum computed from the finality of this decision until full
payment.

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TRANSPORTATION LAWS

The amount recoverable by the heirs of a victim of a tort is not the loss of the entire earnings, but
the loss of that portion of the earnings, which the beneficiary would have received.

Dangwa Transportation Co., Inc. and Theodore M.

Lardizabal v. Court of Appeals, Inocencia Cudiamat, et al
G.R. No. 95582, October 7,1991
FACTS: On May 13, 1985, private respondents filed a complaint for
damages against petitioners for the death of Pedrito Cudiamat as a result of a
vehicular accident, which occurred on March 25, 1985 at Marivic, Sapid,
Mankayan, Benguet. Among others, it was alleged that on said date, while
petitioner Theodore M. Lardizabal was driving a passenger bus belonging to
petitioner corporation in a reckless and imprudent manner and without due
regard to traffic rules and regulations and safety to persons and property, it ran
over its passenger, Pedrito Cudiamat. However, instead of bringing Pedrito
immediately to the nearest hospital, the said driver, in utter bad faith and
without regard to the welfare of the victim, first brought his other passengers
and cargo to their respective destinations before bringing said victim to the
Lepanto Hospital where he expired.
On the other hand, petitioners alleged that they had observed and
continued to observe the extraordinary diligence required in the operation of
the transportation company and the supervision of the employees, even as
they add that they are not absolute insurers of the safety of the public at large.
Further, it was alleged that it was the victim’s own carelessness and negligence,
which gave rise to the subject incident, hence, they prayed for the dismissal of
the complaint plus an award of damages in their favor by way of a
counterclaim.
On July 29,1988, the trial court rendered a decision, effectively in favor of
petitioners, with this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that
Pedrito Cudiamat was negligent, which negligence was the proximate cause of
his death. Nonetheless, defendants in equity, are hereby ordered to pay the
heirs of Pedrito Cudiamat the sum of PI 0,000

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CONTRACT OF COMMON CARRIERS

which approximates the amount defendants initially offered said heirs for the
amicable settlement of the case. No costs.
Not satisfied therewith, private respondents appealed to the Court of

Appeals, which, in a decision in CA-G.R. CVNo. 19504 promulgated on August

14, 1990, set aside the decision of the lower court, and ordered petitioners to
pay private respondents:
“1. The sum of Thirty Thousand Pesos (P30,000.00) by way of
indemnity for death of the victim Pedrito Cudiamat;
2. The sum of Twenty Thousand Pesos (P20,000.00) by way of
moral damages;
 3. The sum of Two Hundred Eighty-Eight Thousand Pesos
(P288,000.00) as actual and compensatory damages;
4. The costs of this suit.”
ISSUE: Whether or not respondent court erred in reversing the decision of
the trial court and in finding petitioners negligent and liable for the damages
claimed.
HELD: The victim herein, 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 such a contractual relation. Hence, it has been held
that the duty, which the carrier of passengers owes to its patrons, extends to
persons boarding the cars as well as to those alighting therefrom.
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 incontrovertible proof of their negligence. It
defies understanding and can even be stigmatized as callous indifference. The
evidence shows that after the accident, the bus could have forthwith turned at
Bunk 56 and thence to the hospital, but its driver instead opted to first proceed
to Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite
the serious condition of the victim. The vacuous reason given by petitioners
that it was the wife of the deceased who caused the delay was tersely and
correctly confuted by respondent court:

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TRANSPORTATION LAWS
 “x x x The pretension of the appellees that the delay was due to the
fact that they had to wait for about twenty minutes for Inocencia Cudiamat
to get dressed deserves scant consideration. It is rather scandalous and
deplorable for a wife whose husband is at the verge of dying to have the
luxury of dressing herself up for about twenty minutes before attending to
help her distressed and helpless husband.”
With respect to the award of damages, an oversight was, however,
committed by respondent Court of Appeals in computing the actual damages
based on the gross income of the victim. The rule is that the amount
recoverable by the heirs of a victim of a tort is not the loss of the entire
earnings, but rather the loss of that portion of the earnings, which the
beneficiary would have received. In other words, only net earnings, not gross
earnings, are to be considered, that is, the total of the earnings less expenses
necessary in the creation of such earnings or income and minus living and
other incidental expenses.
The Court is of the opinion that the deductible living and other expense of
the deceased may fairly and reasonably be fixed at P500 a month or P6,000 a
year. In adjudicating the actual or compensatory damages, respondent court
found that the deceased was 48 years old, in good health with a remaining
productive life expectancy of 12 years, and then earning P24,000 a year. Using
the gross annual income as the basis, and multiplying the same by 12 years, it
accordingly awarded P288,000. Applying the aforestated rule on computation
based on the net earnings, said award must be, as it hereby is, rectified and
reduced to P216,000. However, in accordance with prevailing jurisprudence,
the death indemnity is hereby increased to P50,000. (See also Smith Podwell
Shipping Agency Corporation v. Borja, 383 SCRA 341, June 30, 2002)

Factors to be considered in the award of damages to accident victim

 The determination of the indemnity to be awarded to the heirs of a
deceased person has therefore no fixed basis. Much is left to the discretion of
the court considering the moral and material damages involved, and so it has
been said that “there can be no exact or uniform

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OF COMMON

rule for measuring the value of a human life and the measure of damages
cannot be arrived at by precise mathematical calculation, but the amount
recoverable depends on the particular facts and circumstances of each case.
The life expectancy of the deceased or of the beneficiary, whichever is shorter,
is an important factor.” (25 CJ.S. 124) Other factors that are usually considered
are: (1) pecuniary loss to plaintiff or beneficiary (25 CJ.S. 1243-1250); (2) loss of
support (25 C.J.S. 1250- 1251); (3) loss of service (25 C.J.S 1251-1254); (4) loss of
society (25 CJ.S. 1254-1255); (5) mental suffering of beneficiaries (25 C.J.S. 1258-1259);
and (6) medical and funeral expenses (25 C.J.S., 1254- 1260). (Alcantara v. Surro, 93 Phil.
472)

The contract of air carriage generates a relation attended with a public duty and neglect or
malfeasance of carrier’s employees naturally could give ground for an action for damages.
Philippine Airlines, Inc. v. Court of Appeals and Leovigildo A. Pantejo
G.R. No. 120262, July 17,1997

FACTS: On October 23, 1988, private respondent Pantejo, then City Fiscal of
Surigao City, boarded a PAL plane in Manila and disembarked in Cebu City
where he was supposed to take his connecting flight to Surigao City. However,
due to typhoon Osang, the connecting flight to Surigao City was cancelled.
 To accommodate the needs of its stranded passengers, PAL initially gave
out cash assistance of PI00 and, the next day, P200, for their expected stay of
two days in Cebu. Respondent Pantejo requested instead that he be billeted in
a hotel at PAL’s expense because he did not have cash with him at that time,
but PAL refused. Thus, respondent Pantejo was forced to seek and accept the
generosity of a co-passenger, an engineer named Andoni Dumlao, and he
shared a room with the latter at Sky View Hotel with the promise to pay his
share of the expenses upon reaching Surigao.
On October 25, 1988, when the flight for Surigao was resumed, respondent
Pantejo came to know that the hotel expenses of his copassengers, one
Superintendent Ernesto Gonzales and a certain Mrs.

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TRANSPORTATION I.AWS

Gloria Rocha, an auditor of the Philippine National Bank, were reimbursed by

PAL. At this point, respondent Pantejo informed Oscar Jereza, PAL’s Manager
for Departure Services at Mactan Airport and who was in charge of cancelled
flights, that he was going to sue the airline for discriminating him. It was only
then that Jereza offered to pay respondent Pantejo P300 which, due to the
ordeal and anguish he had undergone, the latter declined.
On March 18, 1991, the Regional Trial Court of Surigao City, Branch 30,
rendered judgment in the action for damages filed by respondent Pantejo
against herein petitioner, Philippine Airlines, Inc., ordering the latter to pay
Pantejo P300 for actual damages, PI50,000 as moral damages, PI 00,000 as
exemplary damages, PI5,000 as attorney’s fees, and 6% interest from the time
of the filing of the complaint until said amounts shall have been fully paid, plus
costs of suit. On appeal, respondent court affirmed the decision of the court a
quo, but with the exclusion of the award of attorney’s fees and litigation
expenses.
ISSUE: Whether or not petitioner airlines acted in bad faith when it failed
and refused to provide hotel accommodations for respondent Pantejo or to
reimburse him for hotel expenses incurred by reason of the cancellation of its
connecting flight to Surigao City due to force majeure.
HELD: To begin with, it must be emphasized that a contract to transport
passengers is quite different in kind and degree from any other contractual
relation, and this is because of the relation, which an air carrier sustains with
the public. Its business is mainly with the traveling public. It invites people to
avail of the comforts and advantages it offers. The contract of air carriage,
therefore, generates a relation attended with a public duty. Neglect or
malfeasance of the carrier’s employees naturally could give ground for an
action for damages.
Petitioner theorizes that the hotel accommodations or cash assistance
given in case a flight is cancelled is in the nature of an amenity and is merely a
privilege that may be extended at its own discretion, but never a right that may
be demanded by its passengers. Thus, when respondent Pantejo was offered
cash assistance and he refused it, petitioner cannot be held liable for whatever
befell respondent Pantejo

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CONTRACT OF COMMON CARRIERS

on that day, because it was merely exercising its discretion when it opted to
just give cash assistance to its passengers.
Assuming arguendo that the airline passengers have no vested right to these
amenities in case a flight is cancelled due to force majeure, what makes petitioner
liable for damages in this particular case and under the facts obtaining herein is
its blatant refusal to accord the so- called amenities equally to all its stranded
passengers who were bound for Surigao City. No compelling or justifying
reason was advanced for such discriminatory and prejudicial conduct.
More importantly, it has been sufficiently established that it is petitioner’s
standard company policy, whenever a flight has been cancelled, to extend to its
hapless passengers cash assistance or to provide them accommodations in
hotels with which it has existing tie-ups. In fact, petitioner’s Mactan Airport
Manager for departure services, Oscar Jereza, admitted that PAL has an
existing arrangement with hotels to accommodate stranded passengers, and
that the hotel bills of Ernesto Gonzales were reimbursed obviously pursuant to
that policy.
Further, Ernesto Gonzales, the aforementioned co-passenger of
respondent on that fateful flight, testified that based on his previous
experience, hotel accommodations were extended by PAL to its stranded
passengers either in Magellan or Rajah Hotels, or even in Cebu Plaza. Thus, we
view as impressed with dubiety PAL’s present attempt to represent such
emergency assistance as being merely ex gratia and not ex debito.
Respondent Court of Appeals thus correctly concluded that the refund of
hotel expenses was surreptitiously and discriminatorily made by herein
petitioner since the same was not made known to everyone, except through
word of mouth to a handful of passengers. This is a sad commentary on the
quality of service and professionalism of an airline company, which is the
country’s flag carrier at that.
It is likewise claimed that the moral and exemplary damages awarded to
respondent Pantejo are excessive and unwarranted on the ground that
respondent is not totally blameless because of his refusal to accept the PI00
cash assistance which was inceptively offered to him.

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The discriminatory act of petitioner against respondent ineludibly makes

the former liable for moral damages under Article 21 in relation to Article
2219(10) of the Civil Code. As held in Alitalia Airways v. Court of Appeals, et al., such
inattention to and lack of care by petitioner airline 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 the award of
moral damages.
Moral damages are emphatically not intended to enrich a plaintiff at the
expense of the defendant. They are awarded only to allow the former to obtain
means, diversion, or amusements that will serve to alleviate the moral
suffering he has undergone due to the defendant’s culpable action and must,
perforce, be proportional to the suffering inflicted. However, substantial
damages do not translate into excessive damages. Except for attorney’s fees
and costs of suit, it will be noted that the Court of Appeals affirmed point by
point the factual findings of the lower court upon which the award of damages
had been based. We, therefore, see no reason to modify the award of damages
made by the trial court.
Under the peculiar circumstances of this case, the Court is convinced that
the awards for actual, moral and exemplary damages granted in the judgment
of respondent court, for the reasons meticulously analyzed and thoroughly
explained in its decision, are just and equitable. It is high time that the traveling
public is afforded protection and that the duties of common carriers, long
detailed in our previous laws and jurisprudence and thereafter collated and
specifically catalogued in our Civil Code in 1950, be enforced through
appropriate sanctions.
The Court agrees, however, with the contention that the interest of 6%
imposed by respondent court should be computed from the date of rendition
of judgment and not from the filing of the complaint. The rule has been laid
down in Eastern Shipping Lines, Inc. v. Court of Appeals, et al.

This is because at the time of the filing of the complaint, the amount of
damages to which plaintiff may be entitled remains unliquidated and not
known, until it is definitely ascertained, assessed and determined by the court,
and only after the presentation of proof thereon.
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When a passenger contracts for a specific flight, he has a purpose in making that choice which
must be respected. This choice, once exercised, must not be impaired by a breach on the part of
the airline without the latter incurring any liability.
Singapore Airlines Limited v. Andion Fernandez G.R. No. 142305, December
10,2003
 FACTS: Respondent Andion Fernandez is an acclaimed soprano here in the
Philippines and abroad. At the time of the incident, she was availing an
educational grant from the Federal Republic of Germany, pursuing a Masters
Degree in Music, majoring in Voice. She was invited to sing before the King and
Queen of Malaysia on February 3 and 4, 1991. For this singing engagement, an
airline passage ticket was purchased from petitioner Singapore Airlines, which
would transport her to Manila from Frankfurt, Germany on January 28, 1991.
From Manila, she would proceed to Malaysia on the next day. The petitioner
issued the respondent a Singapore Airlines ticket for Flight No. SAQ 27, leaving
Frankfurt, Germany on January 27, 1991 bound for Singapore with onward
connections from Singapore to Manila. Flight No. SQ 27 was scheduled to leave
Frankfurt at 1:45 in the afternoon of January 27, 1991, arriving at Singapore at
8:50 in the morning of January 28, 1991. The connecting flight from Singapore
to Manila, Flight No. SQ 72, was leaving Singapore at 11:00 in the morning of
January 28, 1991, arriving in Manila at 2:20 in the afternoon of the same day.
On January 27,1991, Flight No. SQ 27 left Frankfurt but arrived in Singapore
two hours late or at about 11:00 in the morning of January 29, 1991. By then,
the aircraft bound for Manila had left as scheduled, leaving the respondent and
about 25 other passengers stranded in the Changi Airport in Singapore. Upon
disembarkation at Singapore, the respondent approached the transit counter,
who referred her to the nightstop counter, and told the lady employee thereat
that it was important for her to reach Manila on that day, January 28, 1991.
The lady employee told her that there were no more flights to Manila for that
day, and that respondent had no choice but to stay in Singapore. Upon
respondent’s persistence, she was told that she can actually fly to Hongkong
going to Manila but since her ticket was non-transferable, she would have to
pay for the ticket. The
 197
TRANSPORTATION LAWS

respondent could not accept the offer because she had no money to pay for it.
Her pleas for the respondent to make arrangements to transport her to Manila
were unheeded. The respondent was able to contact a family friend, who
picked her up from the airport for her overnight stay in Singapore.
The next day, after being brought back to the airport, the respondent
proceeded to petitioner’s counter, which says: “Immediate Attention to
Passengers with Immediate Booking.” There were four or five passengers in
line. The respondent approached petitioner’s male employee at the counter to
make arrangements for immediate booking only to be told: “Can’t you see I am
doing something.” She explained her predicament but the male employee
uncaringly retorted: “It’s your problem, not ours.”
The respondent never made it to Manila and was forced to take a direct
flight from Singapore to Malaysia on January 29, 1991, through the efforts of
her mother and travel agency in Manila. Her mother also had to travel to
Malaysia bringing with her respondent’s wardrobe and personal things needed
for the performance that caused them to incur an expense of about P50,000.
As a result of this incident, the respondent’s performance before the Royal
Family of Malaysia was below par. Because of the rude and unkind treatment
she received from the petitioner’s personnel in Singapore, the respondent was
engulfed with fear, anxiety, humiliation, and embarrassment causing her to
suffer mental fatigue. A case was filed against the petitioner for damages.
On June 15, 1993, the Regional Trial Court (RTC) rendered a decision and
ordered the defendant to pay the plaintiff P50,000. as compensatory and
actual damages, P250,000 as moral damages considering plaintiff’s professional
standing in the field of culture home and abroad, P100,000 as exemplary
damages, and P75,000 as attorney's fees. The petitioner appealed the decision
to the Court of Appeals (CA).
On June 10, 1998, the CA promulgated the assailed decision finding no
reversible error in the appealed decision of the trial court. Forthwith, the
petitioner filed the instant petition for review. The petitioner assails the award
of damages contending that it exercised the extraordinary diligence required
by law under the given circumstances.

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ISSUE: Whether or not the delay in transporting the respondent to

Singapore was justified.
HELD: When an airline issues a ticket to a passenger, confirmed for a
particular flight on a certain date, a contract of carriages arises. The passenger
then has every right to expect that he be transported on that flight and on that
date. If he does not, then the earner opens itself to a suit for breach of contract
of carriage. The contract of air carriage is a peculiar one. Imbued with public
interest, the law requires a common carriers to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of very
cautious persons with due regard for all the circumstances. In an action for
breach of contract of carriage, the aggrieved party does not have to prove that
the common carrier was at fault or was negligent. All that is necessary to prove
is the existence of the contract and the fact of its non-performance by the
carrier.
 In the case at bar, it is undisputed that the respondent carried a
confirmed ticket for the two-legged trip from Frankfurt to Manila: 1)
Frankfurt-Singapore; 2) Singapore-Manila. In her contract of carriage with the
petitioner, the respondent certainly expected that she would fly to Manila on
Flight No. SQ 72 on January 28,1991. Since the petitioner did not transport
the respondent as covenanted by it on said terms, the petitioner clearly
breached its contract of carriage with the respondent. The respondent had
every right to sue the petitioner for this breach.
When a passenger contracts for a specific flight, he has a purpose in
making that choice which must be respected. This choice, once exercised,
must not be impaired by a breach on the part of the airline without the latter
incurring any liability. For petitioner’s failure to bring the respondent to her
destination, as scheduled, the Court finds the petitioner clearly liable for the
breach of its contract of carriage with the respondent.
Article 2232 of the Civil Code provides that in a contractual or quasi-
contractual relationship, exemplary damages may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. The award of exemplary damages is, therefore,
warranted in this case.

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TRANSPORTATION LAW'S
There is no hard-and-fast rule in determining what would be a fair and reasonable amount of
moral damages, since each case must be governed by its own peculiar facts. However, it must be
commensurate to the loss or injury suffered.

Philippine Airlines, Inc. v. Vicente Lopez, Jr.

G.R. No. 156654, November 20, 2008

FACTS: In a Complaint dated February 11, 1992 filed with the Regional Trial
Court (RTC) of Manila, Branch 24, Lopez claimed that PAL had unjustifiably
downgraded his seat from business to economy class in his return flight from
Bangkok to Manila last November 30, 1991, and that in view thereof, PAL
should be directed to pay him moral damages of at least PI 00,000, exemplary
damages of at least P20,000, attorney’s fees in the sum of P30,000, as well as
the costs of suit.
To support his claim, Lopez averred that he purchased a Manila-
Hongkong-Bangkok-Manila PAL business class ticket and that his return flight to
Manila was confirmed by PAL’s booking personnel in Bangkok on November 26,
1991. He also mentioned that he was surprised to learn during his check-in for
the said return flight that his status as business class passenger was changed to
economy class, and that PAL was not able to offer any valid explanation for the
sudden change when he protested the change. Lopez added that although
aggrieved, he nevertheless took the said flight as an economy class passenger
because he had important appointments in Manila.
In its Decision dated April 19, 1995, the trial court held PAL liable for
damages and orders defendant to pay plaintiff, as prayed for in the complaint,
the following amounts: PI00,000 for moral damages; P20,000 for exemplary
damages, P30,000 for attorney’s fees, and also to pay for the cost of suit. All
amounts awarded to bear legal interest from date of this decision.
On appeal, the Court of Appeals affirmed in toto the trial court’s decision.
PAL moved for consideration, which was denied. Hence, this petition.
 ISSUE: Whether or not the award of moral damages is excessive.

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HELD: Citing Articles 1733 and 2220 of the Civil Code and the case of
Ortigas, Jr v. Lufthansa German Airlines, the trial court held that the inattention and
lack of care on the part of the common carrier, in this case PAL, resulting in the
failure of the passenger to be accommodated in the class contracted for
amounts to bad faith or fraud, making it liable for damages. The trial court
likewise awarded attorney’s fees in favor of Lopez after noting that Lopez was
forced to litigate in order to assert his rights.
PAL’s procedural lapses notwithstanding, the Court had nevertheless
carefully reviewed the records of this case and found no compelling reason to
depart from the uniform factual findings of the trial court and the Court of
Appeals that: (1) it was the negligence of PAL which caused the downgrading of
the seat of Lopez; and (2) the aforesaid negligence of PAL amounted to fraud or
bad faith, considering our ruling in Ortigas.
Moreover, the Court cannot agree with PAL that the amount of moral
damages awarded by the trial court, as affirmed by the Court of Appeals, was
excessive. In Mercury Drug Corporation v. Baking, the Court stated that “there is no
hard-and-fast rule in determining what would be a fair and reasonable amount
of moral damages, since each case must be governed by its own peculiar facts.
However, it must be commensurate to the loss or injury suffered.” Taking into
account the attending circumstances here, the amount of PI00,000 awarded as
moral damage is appropriate.
An action based on breach of contract of carriage, the aggrieved party does not have to prove that
the common carrier was at fault or negligent; all he has to prove is the existence of the contract
and the fact of its non-performance by the carrier.

Cathay Pacific Airways, Ltd. v. Spouses Arnulfo and Evelyn Fuentebella

G.R. No. 188283, July 20, 2016
FACTS: In 1993, the Speaker of the House authorized Congressman

Arnulfo Fuentebella (respondent Fuentebella), Alberto Lopez (Cong. Lopez) and

Leonardo Fugoso (Cong. Fugoso) to travel on of-

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ficial business to Sydney, Australia, to confer with their counterparts in the

Australian Parliament from October 25 to November 6, 1993. On October 22,

1993, respondents bought Business Class tickets for Manila to Sydney via Hong
Kong and back. They changed their minds, however, and decided to upgrade to
First Class. From this point, the parties presented divergent versions of facts.
The overarching disagreement was on whether respondents should have been
given First Class seat accommodations for all the segments of their itinerary.
According to respondents, their travel arrangements, including the request for
the upgrade of their seats from Business Class to First Class, were made
through Cong. Lopez. The congressman corroborated this allegation and
testified that upon assurance that their group would be able to travel on First
Class upon cash payment of the fair difference, he sent a member of his staff
that same afternoon to pay. Petitioner, on their part, admits that First Class
tickets were issued to respondents, but clarifies that the tickets were open-
dated (waitlisted).
On October 25, 1993, respondents queued in front of the First Class
counter in the airport. They were issued boarding passes for Business Class
seats on board CX 902 bound for Hong Kong from Manila and Economy Class
seats on board CX 101 bound for Sydney from Hong Kong. They only discovered
that they had not been given First Class seats when they were denied entry
into the First Class lounge. Respondent Fuentebella went back to the check-in-
counter to demand that they be given First Class seats or at the very least,
access to the First Class Lounge. He recalled that he was treated by the ground
staff in a discourteous, arrogant, and rude manner. He was allegedly told that
the plane would leave with or without them. Respondents were able to travel
First Class for their trip from Sydney to Hong Kong on October 30, 1993.
However, on the last segment of the itinerary from Hong Kong to Manila on
November 2,1993, they were issued boarding passes for Business Class. Upon
arrival in the Philippines, respondents demanded a formal apology and
payment of damages from petitioner.
In resolving the case, the trial court first identified the ticket as a
contract of adhesion whose terms, as such, should be construed against
petitioner. It found that respondents had entered into the contract because
of the assurance that they would be given First Class seats.

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The trial court ordered petitioner to pay P5 million as moral damages, PI

million as exemplary damages, and P500,000 as attorney’s fees. In setting the
award for moral damages, the Regional Trial Court (RTC) considered the
prestigious position held by respondent Fuentebella, as well as the bad faith
exhibited by petitioner. According to the trial court, the contract was flagrantly
violated in four instances: First, when respondents were denied entry to the
First Class lounge; Second, at the check-in-counter when the airport services
officer failed to adequately address their concern; Third, at the Hong Kong
airport when they were ignored; and Fourth, when respondents became the
butt of jokes upon their arrival in Sydney. Court of Appeals (CA) affirmed the
lower court’s decision and held that there was a breach of contract when
petitioner assigned Business Class and Economy Class seats to First Class ticket
holders.
ISSUE: Whether of not there is a breach of contract of carriage.
HELD: In Air France v. Gillego, this Court ruled that in an action based on a
breach of contract of carriage, the aggrieved party does not have to prove that
the common carrier was at fault or was negligent; all that he has to prove is the
existence of the contract and the fact of its non-performance by the carrier. In
this case, both the trial and appellate courts found that respondents were
entitled to First Class accommodations under the contract of carriage, and that
petitioner failed to perform its obligation. According to the petitioner, a
reservation is deemed confirmed when there is a seat available on the plane.
When asked how a passenger was informed of the confirmation, they replied
that computer records were consulted upon inquiry. By its issuance of First
Class tickets on the same day of the flight in place of Business Class tickets that
indicated the preferred and confirmed flight, petitioner led respondents to
believe that their request for an upgrade had been approved.
However, the award of P5 million as moral damages is excessive,
considering that the highest amount ever awarded by this Court for moral
damages in cases involving airlines is P500,000. In Air France v. Gillego, “the mere
fact that respondent was a Congressman should not result in an automatic
increase in the moral and exemplary damages.”

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The Court finds that upon the facts established, the amount of P500,000 as
moral damages is reasonable to obviate the moral suffering that respondents
have undergone. With regard to exemplary damages, jurisprudence shows that
P50,000 is sufficient to deter similar acts of bad faith attributable to airline
representatives.
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.
Spouses Jesus Fernando and Elizabeth S. Fernando
v. Northwest Airlines, Inc.
G.R. No. 212038, February 8, 2017
Northwest Airlines, Inc. v. Spouses Jesus Fernando and Elizabeth S. Fernando
G.R. No. 212043

FACTS: Sometime on December 20, 2001, Jesus Fernando arrived at the LA

Airport via Northwest Airlines Flight No. NW02, to join his family for the
Christmas holidays. When Jesus Fernando presented his documents at the
immigration counter, he was asked by the Immigration Officer to have his
return ticket verified and validated since the date reflected thereon is August
2001. So he approached a Northwest personnel Linda Puntawongdaycha, but
the latter merely glanced at his ticket without checking its status with the
computer and peremptorily said that the ticket has been used and could not be
considered as valid. He then explained to the personnel that he was about to
use the said ticket on August 20 or 21, 2001 on his way back to Manila from LA
but he could not book any seat because of some ticket restrictions, so he,
instead purchased new business class ticket on the said date. Hence, the ticket
remains unused and perfectly valid. To avoid further arguments, Jesus
Fernando gave the personnel the number of his Elite Platinum World Perks
Card for the latter to access the ticket control record with the airline’s
computer and for her to see that the ticket is still valid. But Linda
Puntawongdaycha refused to check

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the validity of the ticket in the computer, but instead, looked at Jesus Fernando
with contempt, then informed the Immigration Officer that the ticket is not
valid because it had been used. The Immigration Officer brought Jesus
Fernando to the interrogation room of the Immigration and Naturalization
Services (INS) where he was asked humiliating questions for more than two
hours. When he was finally cleared by the Immigration Officer, he was granted
only a 12-day stay in the United States (US), instead of the usual six months.
When Jesus Fernando was finally able to get out of the airport, to the relief of
his family, Elizabeth Fernando proceeded to a Northwest Ticket counter to
verify the status of the ticket. The personnel manning the counter courteously
assisted her and confirmed that the ticket remained unused and perfectly valid.
To avoid any further problems that may be encountered on the validity of the
ticket, a new ticket was issued to Jesus Fernando. Since Jesus Fernando was
granted only a 12-day stay in the US, his scheduled plans with his family, as
well as his business commitments were disrupted. The Femandos were
scheduled to attend the Musical Instrument Trade Show in LA on January
17,2002, and the Sports Equipment Trade Show in Las Vegas on January 21 to
23, 2002, which were both previously scheduled. Hence, Jesus Fernando had to
spend additional expenses for plane fares and other related expenses, and
missed the chance to be with his family for the whole duration of the Christmas
holidays.
On January 29, 2002, the Femandos were on their way back to the
Philippines. They have confirmed bookings on Northwest Airlines NW Flight No.
001 for Narita, Japan, and NW 029 for Manila. They checked in with their
luggage at the LA Airport, and were given their respective boarding passes for
business class seats and claim stubs for six pieces of luggage. With boarding
passes, tickets, and other proper travel documents, they were allowed entry to
the departure area. When it was announced that the plane was ready for
boarding, the Femandos joined long queue of business class passengers along
with their business associates from Japan and the Philippines, who attended
the aforesaid trade shows. When the Femandos reached the gate area where
boarding passes need to be presented, Northwest supervisor, Linda Tang,
stopped them and demanded for the presentation of their paper tickets (coupon
type). They failed to present the same since,

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according to them; Northwest issued electronic tickets (attached to the boarding
passes), which they showed to the supervisor. In the presence of the other
passengers, Linda Tang pulled them out of the queue. Elizabeth Fernando
explained that the matter could be sorted out by simply verifying their
electronic tickets in her computer, and all she had to do was click and punch in
their Elite Platinum World Perks Card number. But Linda Tang told them that if
they wanted to board the plane, they should produce their credit cards and
pay for their new tickets, otherwise, they would be off-loaded from the plane.
Exasperated and pressed for time, the Femandos rushed to the Northwest
Airline Ticket counter to clarify the matter. They were assisted by Northwest
personnel Jeanne Meyer, who retrieved their control number from her
computer and was able to ascertain that the Femandos’ electric tickets were
valid and they were confirmed passengers on both NW Flight No. 001 for
Narita Japan and NW 029 for Manila on that day. To ensure that the Femandos
would no longer encounter any problem with Linda Tang, Jeanne Meyer
printed coupon tickets for them, who were then advised to msh back to the
boarding gates since the plane was about to depart. But when the Femandos
reached the boarding gate, the plane had already departed. They were able to
depart instead the day after, or on January 30, 2002, and arrived in the
Philippines on January 31, 2002.

On April 30, 2002, a complaint for damages was instituted by the

Femandos against Northwest Airlines before the Regional Trial Court (RTC),
Branch 97, Quezon City. In September 2008, the RTC rendered judgment in
favor of the plaintiffs and ordering the defendants to pay moral damages in the
amount of P200,000; actual or compensatory damages in the amount of US
$2,000, or its corresponding Peso equivalent at the time the airline ticket was
purchased; attorney’s fees in the amount of P50,000; and the cost of suit.
 ISSUE: (1) Whether or not there was breach of contract of carriage; (2)
Whether or not it was done in a wanton, malevolent, or reckless manner
amounting to bad faith, and; (3) Whether or not it is liable to pay more than
that awarded by the RTC.
HELD: The Court finds merit in the petition of the Spouses Jesus and
Elizabeth Fernando. Undoubtedly, a contract of carriage existed

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)AMA(il!S I OR ItUI'ACII ()!• CONTRACT OI< COMMON CARRIERS

between Northwest and (lie Fernandos. They voluntarily and freely gave (heir
consent to an agreement whose object was the transportation of the
Fernandos from LA to Manila, and whose cause or consideration was the fare
paid by the Fernandos to Northwest. In Alitalia Airways v. CA, et al> the Court held
that when an airline issues a ticket to a passenger confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger then has
every right to expect that he would fly on that flight and on that date. If he
does not, then the carrier opens itself to a suit for breach of contract of
carriage. When Northwest confirmed the reservations of the Fernandos, it
bound itself to transport the Fernandos on their flight on January 29, 2002.
Northwest admitted on cross-examination that based on the documents
submitted by the Fernandos, they were confirmed passengers on the January
29, 2002 flight.
In an action based on a breach of contract of carriage, the aggrieved party
does not have to prove that the common carrier was at fault or was negligent.
All that he has to prove is the existence of the contract and the fact of its non-
performance by the carrier. As the aggrieved party, the Fernandos only had to
prove the existence of the contract and the fact of its non-performance by
Northwest, as carrier, in order to be awarded compensatory and actual
damages. Therefore, having proven the existence of a contract of carriage
between Northwest and the Fernandos, and the fact of non-performance by
Northwest of its obligation as a common carrier, it is clear that Northwest
breached its contract of carriage with the Fernandos. Thus, Northwest opened
itself to claims for compensatory, actual, moral, and exemplary damages,
attorney’s fees, and costs of suit.
The Court, thus, sustained the findings of the CA and the RTC that
Northwest committed a breach of contract “in failing to provide the spouses
with the proper assistance to avoid inconveniences,” and that the actuations of
Northwest in both subject incidents “fall short of the utmost diligence of a very
cautious person expected of it.” Both ruled that considering that the Fernandos
are not just ordinary passengers but, in fact, frequent flyers of Northwest, the
latter should have been more courteous and accommodating to their needs so
that the delay and inconveniences they suffered could have been avoided.
Northwest was

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remiss in its duty to provide the proper and adequate assistance to them.
Nonetheless, the Court is not in accord with the common findings of the CA
and the RTC when both ruled out bad faith on the part of Northwest. While the
Court agrees that the discrepancy between the date of actual travel and the
date appearing on the tickets of the Femandos called for some verification,
however, the Northwest personnel failed to exercise the utmost diligence in
assisting the Femandos. The actuations of Northwest personnel in both subject
incidents are constitutive of bad faith.

On the first incident, Jesus Fernando even gave the Northwest personnel
the number of his Elite Platinum World Perks Card for the latter to access the
ticket control record with the airline’s computer for her to see that the ticket is
still valid. But Linda Puntawongdaycha refused to check the validity of the
ticket in the computer. As a result, the Immigration Officer brought Jesus
Fernando to the interrogation room of the INS, where he was interrogated for
more than two hours. When he was finally cleared by the Immigration Officer,
he was granted only a 12-day stay in the US, instead of the usual six months. As
in fact, the RTC awarded actual or compensatory damages because of the
testimony of Jesus Fernando that he had to go back to Manila and then return
again to LA, USA two days after requiring him to purchase another round trip
ticket from Northwest in the amount of $2,000, which was not disputed by
Northwest. In ignoring Jesus
Femando’s pleas to check the validity of the tickets in the computer, the
Northwest personnel exhibited an indifferent attitude without due regard for
the inconvenience and anxiety Jesus Fernando might have experienced.
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 rule or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier. In
requiring compliance with the standard of extraordinary diligence, a standard
which is, in fact, that of the highest possible degree of diligence from common
carriers and in creating a presumption of negligence against them, the law
seeks to compel them

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to control their employees, to tame their reckless instincts, and to force them
to take adequate care of human beings and their property.
Notably, after the incident, the Femandos proceeded to a Northwest
Ticket counter to verify the status of the ticket and they were assured that the
ticket remained unused and perfectly valid. And to avoid any future problems
that may be encountered on the validity of the ticket, a new ticket was issued
to Jesus Fernando. The failure to promptly verify the validity of the ticket
connotes bad faith on the part of Northwest. Bad faith does not simply connote
bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong. It means breach of a known duty
through some motive, interest or ill will that partakes of the nature of fraud. A
finding of bad faith entitles the offended party to moral damages.
As to the second incident, there was likewise fraud or bad faith on the
part of Northwest when it did not allow the Femandos to board their flight for
Manila on January 29,2002, in spite of confirmed tickets. The Court needs to
stress that they have confirmed bookings on Northwest Airlines NW Flight No.
001 for Narita, Japan, and NW 029 for Manila. They checked in with their
luggage at LA Airport and were given their respective boarding passes for
business class seats and claim stubs for six pieces of luggage. With boarding
passes and electronic tickets, apparently, they were allowed entry to the
departure area, and they eventually joined the long queue of business class
passengers along with their business associates. However, in the presence of
the other passengers, Northwest personnel Linda Tang pulled the Femandos
out of the queue and asked for paper tickets (coupon type). Elizabeth Fernando
explained to Linda Tang that the matter could be sorted out by simply verifying
their electronic tickets in her computer and all she had to do was click and
punch in their Elite Platinum World Perks Card number. Again, the Northwest
personnel refused to do so; she, instead, told them to pay for new tickets so
they could board the plane. Hence, the Femandos rushed to the Northwest
Airline Ticket counter to clarify the matter. They were assisted by Northwest
personnel Jeanne Meyer, who retrieved their control number from her
computer, and was able to ascertain that the Femandos electronic tickets were
valid, and they were confirmed passengers on both NW Flight No. 001 for
Narita, Japan and NW 029 for Manila on that day.

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In Ortigas, Jr. v Lufthansa German Airlines, this Court declared that “in contracts
of common carnage, in attention 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 passengers to
the award of moral damages in accordance with Article 2220 of the Civil Code.”
In Pan American World Airways, Inc. v. Intermediate Appellate Court, where a would-be
passenger had the necessary ticket, baggage claim and clearance from
immigration, all clearly and unmistakably showing that she was, in fact,
included in the passenger manifest of said flight, and yet was denied accommodation in
said flight, this Court did not hesitate to affirm the lower court’s finding awarding
her damages on the ground that the breach of contract of carriage amounted
to bad faith. For the indignity and inconvenience of being refused a confirmed
seat on the last minute, said passenger is entitled to an award of moral
damages.
Under Article 2220 of the Civil Code of the Philippines, an award of moral
damages, in breaches of contract, is in order upon a showing that the
defendant acted fraudulently or in bad faith. Clearly, in this case, the Femandos
are entitled to an award of moral damages. The purpose of awarding moral
damages is to enable the injured party to obtain means, diversion, or
amusement that will serve to alleviate the moral suffering he has undergone by
reason of defendant’s culpable action. The Court notes that even if both the CA
and the RTC ruled out bad faith on the part of Northwest, the award of “some
moral damages” was recognized. Both courts believed that considering that the
Femandos are good clients of Northwest for almost 10 years being Elite
Platinum World Perks Card holders, and are known in their business circle, they
should have been given by Northwest the corresponding special treatment.
They own hotels and a chain of apartelles in the country, and a parking garage
building in Indiana, USA. From this perspective, the Court adopts the said view.
The Court, thus, increase the award of moral damages to the Femandos the
amount of P3,000,000.
Exemplary damages, which are awarded by way of example or correction
for the public good, may be recovered in contractual obligations, if defendant
acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. They
are designed by our civil law to permit the courts to reshape behavior that is
socially deleterious in its
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consequence by creating negative incentives or deterrents against such

behavior. Hence, given the facts and circumstances of this case, the Court
holds Northwest liable for the payment of exemplary damages in the amount
of P2,000,000.
As to the payment of attorney’s fees, the Court sustains the award
thereof on the ground that the Femandos were ultimately compelled to litigate
and incurred expenses to protect their rights and interests, and because the
Femandos are entitled to an award for exemplary damages. Pursuant to Article
2208 of the Civil Code, attorney’s fees may be awarded when exemplary
damages are awarded, or a party is compelled to litigate or incur expenses to
protect his interest, or where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable
claim. Records show that the Femandos demanded payment for damages from
Northwest even before the filing of this case in court. Clearly, the Femandos
were forced to obtain the services of counsel to enforce a just claim, for which
they should be awarded attorney’s fees. The Court deems it just and equitable
to grant an award of attorney’s fees equivalent to 10% of the damages
awarded.
Philtranco Service Enterprises, Inc. and Rogaciano
Manilhig v. Court of Appeals and Heirs of the late Ramon
Acuesta
G.R. No. 120553, June 17,1997
FACTS: In the early morning of March 24, 1990, about 6:00, the victim

Ramon A. Acuesta was riding in his easy rider bicycle, along the Gomez Street
of
Calbayog City. The Gomez Street is along the side of Nijaga Park. On the

Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service

Enterprises, Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-
725 driven by defendant Rogasiones Manilhig y Dolira was being pushed by
some persons in order to start its engine. The Magsaysay Blvd. runs
perpendicular to Gomez St., and the said Philtranco Bus No. 4025 was
heading in the general direction of the said Gomez St. Some of the persons
who were pushing the bus were on its back, while the others were on the
sides. As the bus was pushed, its engine started thereby the bus continued
on its running motion and it occurred at the time when Ramon A. Acuesta
who was

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still riding on his bicycle was directly in front of the said bus. As the engine of
the Philtranco bus started abruptly and suddenly, its running motion was also
enhanced by the said functioning engine, thereby the subject bus bumped on
the victim Ramon A. Acuesta who, as a result thereof fell and, thereafter, was
run over by the said bus. The bus did not stop although it had already bumped
and run over the victim; instead, it proceeded running towards the direction of
the Rosales Bridge and which is located at one side of the Nijaga Park and
towards one end of the Gomez St., to which direction the victim was then
heading when he was riding on his bicycle. P/Sgt. Yabao who was then jogging
[through] the Gomez Street and was heading towards the victim Ramon A.
Acuesta as the latter was riding on his bicycle, saw when the Philtranco
abruptly started and when the said bus bumped and ran over the victim. He
approached the bus driver defendant Manilhig herein and signaled to him to
stop, but the latter did not listen. So the police officer jumped into the bus and
introducing himself to the driver defendant as policeman, ordered the latter to
stop. The said defendant driver stopped the Philtranco bus near the Nijaga
Park and Sgt. Yabao thereafter, told the driver to proceed to the Police
Headquarter, which was only 100 meters away from Nijaga Park because he
was apprehensive that the said driver might be harmed by the relatives of the
victim who might come to the scene of the accident. Then Sgt. Yabao cordoned
the scene where the vehicular accident occurred and had P/Cpl. Bartolome
Bagot, the Traffic Investigator, conduct an investigation and make a sketch of
the crime scene. Sgt. Yabao was only 20 meters away when he saw the bus of
defendant Philtranco bump and run over the victim. From the place where the
victim was actually bumped by the bus, the said vehicle still had run to a
distance of about 15 meters away.
For their part, the petitioners filed an Answer wherein they alleged that
petitioner Philtranco exercised the diligence of a good father of a family in the
selection and supervision of its employees, including petitioner Manilhig, who
had an excellent record as a driver and had undergone months of rigid training
before he was hired. Petitioner Manilhig had always been a prudent
professional driver, religiously observing traffic rules and regulations. In driving
Philtranco’s buses, he exercised the diligence of a very cautious person.

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 The petitioner further claimed that it was the negligence of the victim in
overtaking two tricycles, without taking precautions such as seeing first that
the road was clear, which caused the death of the victim. The latter did not
even give any signal of his intention to overtake.
However, the petitioners were not able to present their evidence, as they
were deemed to have waived that right by the failure of their counsel to
appear at the scheduled hearings on March 30 and 31, 1992. The trial court
then issued an Order declaring the case submitted for decision. Motions for the
reconsideration of the said Order were both denied.
On January 22, 1992, the trial court handed down a decision ordering the
petitioners to jointly and severally pay the private respondents the following
amounts:
1) P55,615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A.
Acuesta;
3) PI million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorney’s fees; and
6) The costs of suit.
Unsatisfied with the judgment, the petitioners appealed to the Court of
Appeals, which affirmed the decision of the trial court.
ISSUE: Whether or not the award of damages is excessive.

HELD: The trial court erroneously fixed the “death indemnity” at

P200,000. The private respondents defended the award in their opposition to
the Motion for Reconsideration by saying that “In the case of Philippine Airlines,
Inc. v. Court of Appeals, 185 SCRA 110, our Supreme Court held that the award of
damages for death is computed on the basis of the life expectancy of the
deceased.” In that case, the “death indemnity” was computed by multiplying
the victim’s gross annual income by his life expectancy, less his yearly living
expenses. Clearly then, the “death indemnity” referred to was the additional
indemnity for the loss of earning capacity mentioned in Article 2206(1) of the

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Civil Code, and not the basic indemnity for death mentioned in the first
paragraph thereof.
The Court concurs with petitioners’ view that the trial court intended the
award of P200,000 as “death indemnity” not as compensation for loss of
earning capacity. Even if the trial court intended the award as indemnity for
loss of earning capacity, the same must be struck out for lack of basis. There is
no evidence on the victim’s earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is
due, the amount of which has been fixed by current jurisprudence at P50,000.
The award of PI million for moral damages to the heirs of Ramon Acuesta
has no sufficient basis and is excessive and unreasonable.
Moral damages are emphatically not intended to enrich a plaintiff at the
expense of the defendant. They are awarded only to allow the former to obtain
means, diversion, or amusements that will serve to alleviate the moral
suffering he has undergone due to the defendant’s culpable action and must,
perforce, be proportional to the suffering inflicted. In light of the circumstances
in this case, an award of P50,000 for moral damages is in order.
The award of P500,000 for exemplary damages is also excessive. In quasi-
delicts, exemplary damages may be awarded if the party at fault acted with gross
negligence. The Court of Appeals found that there was gross negligence on the
part of petitioner Manilhig. Under Article 2229 of the Civil Code, exemplary
damages are imposed by way of example or correction for the public good in
addition to the moral, temperate, liquidated, or compensatory damages.
Considering its purpose, it must be fair and reasonable in every case and
should not be awarded to unjustly enrich a prevailing party. In the instant case,
an award of P50,000 for the purpose would be adequate, fair, and reasonable.
Finally, the award of P50,000 for attorney’s fees must be reduced. The
general rule is that attorney’s fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to
litigate. Stated otherwise, the grant of attorney’s fees as part of

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damages is the exception rather than the rule, as counsel’s fees are not
awarded every time a party prevails in a suit. Such attorney’s fees can be
awarded in the cases enumerated in Article 2208 of the Civil Code, and in all
cases it must be reasonable.
To prove actual damages, the best evidence available to the injured party must be presented.
 Baliwag Transit, Inc. v. Court of Appeals,
Spouses Antonio Garcia and Leticia Garcia, and Julio Recontique
G.R. No. 116110, May 15, 1996
FACTS: The records show that on July 31, 1980, Leticia Garcia, and her
five-year old son, Allan Garcia, boarded Baliwag Transit Bus No. 2036 bound
for Cabanatuan City driven by Jaime Santiago. They took the seat behind the
driver. At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus
passengers saw a cargo truck parked at the shoulder of the national highway.
Its left rear portion jutted to the outer lane, as the shoulder of the road was
too narrow to accommodate the whole truck. A kerosene lamp appeared at
the edge of the road obviously to serve as a warning device. The truck driver,
Julio Recontique, and his helper, Arturo Escala, were then replacing a flat tire.
The truck is owned by respondent A & J Trading.
Bus driver Santiago was driving at an inordinately fast speed and failed
to notice the truck and the kerosene lamp at the edge of the road. Santiago’s
passengers urged him to slow down but he paid them no heed. Santiago even
carried animated conversations with his co-employees while driving. When
the danger of collision became imminent, the bus passengers shouted,
“Babangga tayo!” Santiago stepped on the brake, but it was too late. His bus
rammed into the stalled cargo truck.

It caused the instant death of Santiago and Escala, and injury to several
others. Leticia and Allan Garcia were among the injured passengers. Leticia
suffered a fracture in her pelvis and right leg. They rushed her to the
provincial hospital in Cabanatuan City where she was given emergency
treatment. After three days, she was transferred to the National Orthopedic
Hospital where she was confined for more than a month. She underwent an
operation for partial hip prosthesis. Allan, on
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the other hand, broke a leg. He was also given emergency treatment at the
provincial hospital.
Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J
Trading and Julio Recontique for damages in the Regional Trial Court of
Bulacan. Leticia sued as an injured passenger of Baliwag and as mother of
Allan. At the time of the complaint, Allan was a minor, hence, the suit initiated
by his parents in his favor. Baliwag, A & J Trading and Recontique disclaimed
responsibility for the mishap. Baliwag alleged that the accident was caused
solely by the fault and negligence of A & J Trading and its driver, Recontique.
Baliwag charged that Recontique failed to place an early warning device at the
comer of the disabled cargo truck to warn oncoming vehicles. On the other
hand, A & J Trading and Recontique alleged that the accident was the result of
the negligence and reckless driving of Santiago, bus driver of Baliwag.
After hearing, the trial court found all the defendants liable.
On Appeal, the Court of Appeals modified the Trial Court’s Decision by
absolving A & J Trading from liability and by reducing the award of attorney’s
fees to PI0,000, and loss of earnings to P300,000, respectively.
ISSUE: Whether or not the amount of damages awarded by the Court of
Appeals to the Garcia Spouses is correct.
HELD: First, the propriety of the amount awarded as hospitalization and
medical fees. The award of P25,000 is not supported by the evidence on
record. The Garcias presented receipts marked as Exhibits “B-l” to “B-42” but
their total amounted only to P5,017.74. To be sure, Leticia testified as to the
extra amount spent for her medical needs but without more reliable evidence,
her lone testimony cannot justify the award of P25,000 to prove actual
damages, the best evidence available to the injured party must be presented.
The court cannot rely on uncorroborated testimony whose truth is suspect, but
must depend upon competent proof that damages have been actually suffered.
Thus, the Court reduced the actual damages for medical and hospitalization
expenses to P5,017.74.
Second, the Court finds as reasonable the award of P300,000 representing
Leticia’s lost earnings. Before the accident, Leticia was

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engaged in embroidery, earning P5,()00 per month. Her injuries forced her to
stop working. Considering the nature and extent of her injuries and the length
of time it would take her to recover, we find it proper that Baliwag should
compensate her lost income for five years.
Third, the award of moral damages is in accord with law. In a breach of
contract of carriage, moral damages are recoverable if the carrier, through its
agent, acted fraudulently or in bad faith. The evidence shows the gross
negligence of the driver of Baliwag bus, which amounted to bad faith. Without
doubt, Leticia and Allan experienced physical suffering, mental anguish and
serious anxiety by reason of the accident. Leticia underwent an operation to
replace her broken hipbone with metal plate. She was confined at the National
Orthopedic Hospital for 45 days. The young Allan was also confined in the
hospital for his foot injury. Contrary to the contention of Baliwag, the decision
of the trial court as affirmed by the Court of Appeals awarded moral damages
to Antonio and Leticia Garcia not in their capacity as parents of Allan. Leticia
was given moral damages as an injured party. Allan was also granted moral
damages as an injured party but because of his minority, the award in his favor
has to be given to his father who represented him in the suit.
Finally, the Court finds the award of attorney’s fees justified. The complaint
for damages was instituted by the Garcia spouses on December 15, 1982,
following the unjustified refusal of Baliwag to settle their claim. The Decision
was promulgated by the trial court only on January 29,1991 or about nine years
later. Numerous pleadings were filed before the trial court, the appellate court
and to this Court. Given the complexity of the case and the amount of damages
involved, the award of attorney’s fees for PI 0,000 is just and reasonable.
QUESTION: May the Court award indemnity for the victims of accident for
loss of earning capacity when the latter is not employed or no history of
earnings?
ANSWER: Yes (Pereha v. Zarate and PNR, G.R. No. 157917, August 29, 2012 and Carianga
v. Laguna Tayabas Bus Co. and Manila Railroad Co., 110 Phil. 346 [I960]), under the above
case, the fact that Aaron was then without a history of earnings should not be
taken

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against his parents and in favor of the defendants whose negligence not only
cost Aaron his life and his right to work and earn money, but also deprived his
parents of their right to his presence and his services as well. Our law itself
states that the loss of the earning capacity of the deceased shall be the liability
of the guilty party in favor of the heirs of the deceased, and shall in every case
be assessed and awarded by the court “unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning
capacity at the time of his death.”
The Court further explained that the operator of a school bus service is a
common carrier in the eyes of the law. He is bound to observe extraordinary
diligence in the conduct of his business. He is presumed to be negligent when
death occurs to a passenger. His liability may include indemnity for loss of
earning capacity even if the deceased passenger may only be unemployed high
school student at the time of the accident.
The prevailing minimum wage under the Labor Code will be the basis of
the computation in arriving for such award. (Perena v. Zarate andPNR, G.R.
No. 157917, August 29, 2012)
Trans-Asia Shipping Lines, Inc. v. Court of Appeals and Atty. Renato T. Arroyo
G.R. No. 118126, March 4,1996
FACTS: Plaintiff, herein private respondent Atty. Renato Arroyo, public
attorney, bought a ticket from defendant, herein petitioner, a corporation
engaged in inter-island shipping, for the voyage of M/V Asia Thailand vessel to
Cagayan de Oro City from Cebu City on November 12, 1991. At around 5:30 in
the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand
vessel. At that instance, plaintiff noticed that some repair works [sic] were
being undertaken on the engine of the vessel. The vessel departed at around
11:00 in the evening with only one engine running. After an hour of slow
voyage, the vessel stopped near Kawit Island and dropped its anchor thereat.
After half an hour of stillness, some passengers demanded that they should be
allowed to return to Cebu City for they were no longer willing to continue their
voyage to Cagayan de Oro City. The captain acceded [sic] to their request and
thus the vessel headed back to Cebu City.
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At Cebu City, plaintiff together with the other passengers who requested to
be brought back to Cebu City, were allowed to disembark. Thereafter, the
vessel proceeded to Cagayan de Oro City. Plaintiff, the next day, boarded the
M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of
defendant.
On account of this failure of defendant to transport him to the place of
destination on November 12, 1991, plaintiff filed before the trial court a
complaint for damages against defendant.
ISSUE: Whether or not the petitioner is liable for moral and exemplary
damages.
HELD: Moral damages include moral suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, or similar injury. They may be recovered in the cases enumerated
in Article 2219 of the Civil Code. Likewise, if they are the proximate result of, as
in this case, the petitioner’s breach of the contract of carriage. Anent a breach
of a contract of common carriage, moral damages may be awarded if the
common carrier, like the petitioner, acted fraudulently or in bad faith.
Exemplary damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated or compensatory
damages. In contracts and quasi-contracts, exemplary damages may be
awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. It cannot, however, be considered as a matter of right; the
court having to decide whether or not they should be adjudicated. Before the
court may consider an award for exemplary damages, the plaintiff must first
show that he is entitled to moral, temperate or compensatory; but it is not
necessary that he prove the monetary value thereof.
 The Court likewise fully agrees with the Court of Appeals that the
petitioner is liable for moral and exemplary damages. In allowing its
unseaworthy MW Asia Thailand to leave the port of origin and undertake the
contracted voyage, with full awareness that it was exposed to perils of the sea,
it deliberately disregarded its solemn duty to exercise extraordinary diligence
and obviously acted with bad faith and in a wanton and reckless manner. On
this score, however, the petitioner

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asserts that the safety of the vessel and passengers was never at stake because
the sea was “calm” in the vicinity where it stopped as faithfully recorded in the
vessel’s logbook. Hence, the petitioner concludes, the private respondent was
merely “over-acting” to the situation obtaining then.

The Court holds that the petitioner’s defense cannot exculpate it nor
mitigate its liability. On the contrary, such a claim demonstrates beyond cavil
the petitioner’s lack of genuine concern for the safety of its passengers. It was,
perhaps, only providential that the sea happened to be calm. Even so, the
petitioner should not expect its passengers to act in the manner it desired. The
passengers were not stoics; becoming alarmed, anxious, or frightened at the
stoppage of a vessel at sea in an unfamiliar zone at nighttime is not the sole
prerogative of the fainthearted. More so, in the light of the many tragedies at
sea resulting in the loss of lives of hopeless passengers and damage to property
simply because common carriers failed in their duty to exercise extraordinary
diligence in the performance of their obligations.
Nominal damages are recovered where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind or where there has been
a breach of contract and no substantial injury or actual damages whatsoever have been or can be
shown.

Cathay Pacific Airways v. Juanita Reyes, Wilfredo Reyes,

Michael Roy Reyes, Sixta Lapuz, and
Sampaguita Travel Corporation
G.R. No. 185891, June 26, 2013

FACTS: Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo)

made a travel reservation with Sampaguita Travel for his family’s trip to
Adelaide, Australia scheduled from April 12, 1997 to May 4, 1997. Upon
booking and confirmation of their flight schedule, Wilfredo paid for the airfare
and was issued four

Cathay Pacific round- trip airplane tickets for

Manila-Hongkong-Adelaide-Hongkong-Manila. On April 12, 1997, Wilfredo,

together with his wife Juanita Reyes (Juanita), son Michael Roy Reyes (Michael)
and mother-in-law Sixta Lapuz (Sixta) flew to Adelaide, Australia without a
hitch. One week

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

before they were scheduled to fly back home, Wilfredo reconfirmed his
family’s return flight with the Cathay Pacific office in Adelaide. They were
advised that the reservation was “still okay as scheduled.” On the day of their
scheduled departure from Adelaide, Wilfredo and his family arrived at the
airport on time. When the airport check-in counter opened, Wilfredo was
informed by a staff from Cathay Pacific that the Reyeses did not have
confirmed reservations, and only Sixta’s flight booking was confirmed.
Nevertheless, they were allowed to board the flight to Hongkong due to
adamant pleas from Wilfredo. When they arrived in Hongkong, they were
again informed of the same problem. Unfortunately this time, the Reyeses
were not allowed to board because the flight to Manila was fully booked. Only
Sixta was allowed to proceed to Manila from Hongkong. On the following day,
the Reyeses were finally allowed to board the next flight bound for Manila.
After a series of exchanges and with no resolution in sight, respondents filed a
Complaint for damages against Cathay Pacific and Sampaguita Travel, and
prayed for the following relief: a) PI,000,000 as moral damages; b) P300,000 as
actual damages; c) PI00,000 as exemplary damages; and d) PI00,000 as
attorney’s fees.

After trial on the merits, the Regional Trial Court (RTC) rendered a decision
in favor of the defendants and against the herein plaintiff. Accordingly,
plaintiffs’ complaint was ordered DISMISSED for lack of merit.

Respondents appealed to the Court of Appeals (CA). On October 22, 2008,

the CA ordered Cathay Pacific to pay P25,000 each to respondents as nominal
damages. Cathay Pacific assails the award of nominal damages in favor of
respondents on the ground that its action of canceling the flight bookings was
justifiable. Cathay Pacific reveals that upon investigation, the respondents had
no confirmed bookings for their return flights. Hence, it was not obligated to
transport the respondents. In fact, Cathay Pacific adds, it exhibited good faith
in accommodating the respondents despite holding unconfirmed bookings.
ISSUE: Whether or not the award of nominal damages is proper.
HELD: For one to be entitled to actual damages, it is necessary to prove the
actual amount of loss with a reasonable degree of certainty,
 221
TRANSPORTATION LAWS

premised upon competent proof and the best evidence obtainable by the
injured party. To justify an award of actual damages, there must be competent
proof of the actual amount of loss. Credence can be given only to claims, which
are duly supported by receipts.
The CA echoes the findings of the trial court that respondent failed to
show proof of actual damages. Wilfredo initially testified that he personally
incurred losses amounting to P300,000, which represents the amount of the
contract that he was supposedly scheduled to sign had his return trip not been
cancelled. During the cross-examination, however, it appears that the
supposed contract signing was a mere formality and that an agreement had
already been hatched beforehand. Hence, we cannot fathom how said contract
did not materialize because of Wilfredo’s absence, and how Wilfredo incurred
such losses when he himself admitted that he entered into said contract on
behalf of Parsons Engineering Consulting Firm, where he worked as
construction manager. Thus, if indeed there were losses, these were losses
suffered by the company and not by Wilfredo. Moreover, he did not present
any documentary evidence such as the actual contract or affidavits from any of
the parties to said contract to substantiate his claim of losses. With respect to
the remaining passengers, they likewise failed to present proof of the actual
losses they suffered.
Under Article 2220 of the Civil Code of the Philippines, an award of moral
damages, in breaches of contract, is in order upon a showing that the
defendant acted fraudulently or in bad faith. 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. In the same vein, to
warrant the award of exemplary damages, defendant must have acted in
wanton, fraudulent, reckless oppressive, or malevolent manner.
The Court of Appeals is correct in stating that “what may be attributed to
x x x Cathay Pacific is negligence concerning the lapses in their process of
confirming passenger bookings and reservations, done through travel agencies.
But this negligence is not so gross so as to amount to bad faith. Cathay Pacific
was not motivated by malice or bad faith in not allowing respondents to board
on their return flight to

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| Manila. It is evident and was in fact proven by Cathay Pacific that its

I refusal to honor the return flight bookings of respondents was due to the
cancellation of one booking and the two other bookings were not
reflected on its computerized booking system.
Likewise, Sampaguita Travel cannot be held liable for moral |

damages. True, Sampaguita Travel was negligent in the conduct of its i.

booking and ticketing which resulted in the cancellation of flights. But

I

its actions were not proven to have been tainted with malice or bad
faith, j Under these circumstances, respondents are not entitled to moral and
exemplary damages. With respect to attorney’s fees, the Court
upholds the
appellate court’s finding on lack of factual and legal justification
to award attorney’s fees.
The Court, however, sustains the award of nominal
damages in the amount of P25,000 to only three of the
four respondents who were aggrieved by the last-minute
cancellation of their flights. Nominal damages are
recoverable where a legal right is technically violated
and must be vindicated against an invasion that has
produced no actual present loss of any kind or where
there has been a breach of contract, and no substantial
injury or actual damages whatsoever have been or can
be shown. Under Article 2221 of the Civil Code, nominal
damages may be awarded to a plaintiff whose right has
been violated or invaded by the defendant, for the
purpose of vindicating or recognizing that right, not for
indemnifying the plaintiff for any loss suffered.
Considering that the three respondents were denied
boarding their return flight from Hongkong to Manila,
and that they had to wait in the airport overnight for
their return flight, they are deemed to have technically
suffered injury. Nonetheless, they failed to present proof
of actual damages. Consequently, they should be
compensated in the form of nominal damages.
When are attorney’s fees recoverable?
Under Article 2208 of the Civil Code, these are recoverable only in
the
concept of actual damages, not as moral damages or judicial costs.
Hence, to merit such an award, it is settled that the amount thereof
must j be proven. Moreover, such must be specifically prayed for —
as was
! not done in this case — and may not be deemed incorporated within

223
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a general prayer for such other relief and remedy as this court may deem just
and equitable. Finally, it must be noted that aside from the following, the
body of the respondent Court’s decision was devoid of any statement
regarding attorney’s fees.
In breach of contract of air carriage, moral damages may be recovered where (1) the mishap
results in the death of a passenger;

(2) where the carrier is guilty of fraud or bad faith; or (3) where the negligence of the carrier is
so gross and reckless as to virtually amount to bad faith.

Philippine Airlines Incorporated v. Court of Appeals and

Sps. Manuel S. Buncio and Aurora R. Buncio, assisted by their father, Manuel S.
Buncio, et al
G.R. No. 123238, September 22,2008
FACTS: Sometime before May 2, 1980, private respondents- spouses
Manuel S. Buncio and Aurora R. Buncio purchased from petitioner Philippine
Airlines, Incorporated, two plane tickets for their two minor children, Deanna
R. Buncio (Deanna), then nine years of age, and Nikolai R. Buncio (Nikolai),
then eight years old. Since Deanna and Nikolai will travel as unaccompanied
minors, petitioner required private respondents to accomplish, sign, and
submit to it an indemnity bond. Private respondents complied with this
requirement. For the purchase of the said two plane tickets, petitioner agreed
to transport Deanna and Nikolai on May 2, 1980 from Manila to San Francisco,
California, United States of America (USA), through one of its planes, Flight
106. Petitioner also agreed that upon the arrival of Deanna and Nikolai in San
Francisco Airplane on May 3, 1980, it would again transport the two on that
same day through a connecting flight from San Francisco, California, USA to
Los Angeles, California, USA via another airline, United Airways 996. Deanna
and Nikolai then will be met by their grandmother, Mrs. Josefa Regalado (Mrs.
Regalado), at the Los Angeles Airport on their scheduled arrival on May 3,
1980. On 2 May 1980, Deanna and Nikolai boarded Flight 106 in Manila.
On May 3,1980, Deanna and Nikolai arrived at the San Francisco Airport.
However, the staff of United Airways 996 refused to take

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

aboard Deanna and Nikolai for their connecting flight to Los Angeles because
petitioner’s personnel in San Francisco could not produce the indemnity bond
accomplished and submitted by private respondents. The said indemnity bond
was lost by petitioner’s personnel during the previous stop-over of Flight 106 in
Honolulu, Hawaii. Deanna and Nikolai were then left stranded at the San
Francisco Airport. Subsequently, Mr. Edwin Strigl (Strigl), then the Lead Traffic
Agent of petitioner in San Francisco, California, USA, took Deanna and Nikolai
to his residence in San Francisco where they stayed overnight.
Meanwhile, Mrs. Regalado and several relatives waited for the arrival of
Deanna and Nikolai at the Los Angeles Airport. When United Airways 996
landed at the Los Angeles Airport and its passengers disembarked, Mrs.
Regalado sought Deanna and Nikolai but she failed to find them. Mrs. Regalado
asked a stewardess of the United Airways 996 if Deanna and Nikolai were on
board but the stewardess told her that they had no minor passengers. Mrs.
Regalado called private respondents and inform them that Deanna and Nikolai
did not arrived at the Los Angeles Airport. Private respondents inquired about
the location of Deanna and Nikolai from petitioner’s personnel, but the latter
replied that they were still verifying their whereabouts.
On the morning of May 4,1980, Strigl took Deanna and Nikolai to San
Francisco Airport where the two boarded a Western Airlines plane bound for
Los Angeles. Later that day, Deanna and Nikolai arrived at Los Angeles where
they were met by Mrs. Regalado. Petitioner’s personnel had previously
informed Mrs. Regalado of the late arrival of Deanna and Nikolai on May 4,
1980.
On November 20, 1981, private respondents filed a complaint for
damages against petitioner before the Regional Trial Court (RTC).
After trial, RTC rendered a Decision on April 2, 1990 holding petitioner
liable for damages for breach of contract of carriage. It ruled that petitioner
should pay moral damages for its inattention and lack of care for the welfare of
Deanna and Nikolai, which, in effect, amounted to bad faith and for the agony
brought by the incident to private respondents and Mrs. Regalado. It also held
that petitioner should pay exemplary damages by way of example or correction
for the public

225
TRANSPORTATION LAWS
good under Articles 2229 and 2232 of the Civil Code, plus attorney’s fees and
costs of suit. In sum, the RTC ordered petitioner: (1) to pay Deanna and Nikolai
P50,000 each as moral damages, and P25,000 each for exemplary damages; (2)
to pay private respondent Aurora R. Buncio, as mother of Deanna and Nikolai,
P75,000 as moral damages; (3) to pay Mrs. Regalado, as grandmother of
Deanna and Nikolai, P30,000 as moral damages; and (4) to pay an amount of
P38,250 as attorney’s fees, and the costs of suit.
Petitioner appealed to the Court of Appeals. On December 20, 1995, the
appellate court affirmed in toto the RTC Decision.
ISSUE: Whether or not the grant of attorney’s fees cited only in the
dispositive portion of the trial court is justified.
HELD: When an airline issues a ticket to a passenger, confirmed for a
particular flight on a certain date, a contract of carriage arises. The passenger
has every right to expect that he be transported on that flight and on that date,
and it becomes the airline’s obligation to carry him and his luggage safely to the
agreed destination without delay. If the passenger is not so transported or if in
the process of transporting, he dies or is injured, the carrier may be held liable
for a breach of contract of carrier.
Private respondents and petitioner entered into a contract of air carriage
when the former purchased two plane tickets from the latter. Under this
contract, petitioner obliged itself (1) to transport Deanna and Nikolai, as
unaccompanied minors, on May 2, 1980 from Manila to San Francisco through
one of its planes, Flight 106; and (2) upon the arrival of Deanna and Nikolai in
San Francisco Airport on May 3, 1980, to transport them on that same day
from San Francisco to Los Angeles via a connecting flight on United Airways 996.
As it was, petitioner failed to transport Deanna and Nikolai from San Francisco
to Los Angeles on the day of their arrival at San Francisco. The staff of United
Airways 996 refused to take aboard Deanna
and Nikolai for their connecting flight to Los Angeles because petitioner’s
personnel in San Francisco could not produce the indemnity bond
accomplished and submitted by private respondents. Thus, Deanna and Nikolai
were

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

stranded in San Francisco and were forced to stay there overnight. It was only
on the following day that Deanna and Nikolai were able to leave San Francisco
and arrive at Los Angeles via another airline, Western Airlines. Clearly then,
petitioner breached its contract of carriage with private respondents.
In breach of contract of air carriage, moral damages may be recovered
where (1) mishap results in the death of a passenger; or (2) where the carrier is
guilty of fraud and bad faith; or (3) where the negligence of the carrier is so
gross and reckless as to virtually amount to bad faith.
Gross negligence implies a want or absence of or failure to exercise even
slight care or diligence, or the entire absence of case. It evinces a thoughtless
disregard of consequences without exerting any effort to avoid them.
As earlier found, petitioner breached its contract of carriage with private
respondents, and it acted recklessly and malevolently in transporting Deanna
and Nikolai as unaccompanied minors and in handling their indemnity bond.
The court has also ascertained that private respondents are entitled to moral
damages because they have sufficiently established petitioner’s gross
negligence, which amounted to bad faith. This being the case, the award of
exemplary damages is warranted.
Current jurisprudence instructs that in awarding attorney’s fees, the trial
court must state the factual, legal, or equitable justification for awarding the
same, bearing in mind that the award of attorney’s fees is the exception, not
the general rule, and it is not sound public policy to place a penalty on the right
to litigate, nor attorney’s fees be awarded every time a party wins a lawsuit.
The matter of attorney’s fees cannot be dealt with only in the dispositive
portion of the decision. The text of the decision must state the reason behind
the award of attorney’s fees. Otherwise, its award is totally unjustified.
In the instant case, the award of attorney’s fees was merely cited in the
dispositive portion of the RTC decision without the RTC stating any legal or
factual basis for said award. Hence, the Court of Appeals erred in sustaining the
RTC’s award of attorney’s fees.

227
i j ;1!| 1
 TRANSPORTATION LAWS

RIGHTEOUSNESS OF ATTORNEY’S FEES

Asian Terminals, Inc. v. Allied Guarantee

Insurance Co., Inc.,
G.R. No. 182208, October 14,2015
FACTS: Marina Port Services, Inc. (Marina), the predecessor of herein
petitioner Asian Terminals, Inc. (petitioner ATP), is an arrastre operator based
in the South Harbor, Port Area, Manila. On February 5, 1989, a shipment was
made of 72,322 lbs. of kraft linear board (a type of paperboard) loaded and
received from the ports of Lake Charles, LA and Mobile, AL, U.S.A., for
transport and delivery to San Miguel Corporation (San Miguel) in Manila,
Philippines. The vessel used was the M/V Nicole, operated by Transocean
Marine, Inc. (Transocean), a foreign corporation, whose Philippine
representative is Philippine Transmarine Carrier, Inc. (Philippine Transmarine).
The M/V Nicole arrived in Manila on April 8, 1989 and, shortly thereafter,
the subject shipment was offloaded from the vessel to the arrastre Marina until
April 13, 1989. Thereafter, it was assessed that a total of 158 rolls of the goods
were “damaged” during shipping. Further, upon the good’s withdrawal from
the arrastre and their delivery, first, to San Miguel’s customs broker, Dynamic
Brokerage Co., Inc. (Dynamic), and eventually, to the consignee San Miguel,
another 54 rolls were found to have been damaged, for a total of 212 rolls of
damaged shipment worth P755,666.84. Herein respondent Allied Guarantee
Insurance Co., Inc. (respondent Allied) was the insurer of the shipment. Thus, it
paid San

Miguel P755,666.84 and was subrogated in the latter’s rights.

On March 8,1990, Allied filed a Complaint (and later, an Amended
Complaint) for maritime damages against Transocean, Philippine Transmarine,
Dynamic, and Marina seeking to be indemnified for the P755,666.84 it lost in
paying the consignee San Miguel. The suit alleged that the shipment was
loaded from the ports of origin “in good and complete order condition”, and all
losses were due to the fault of the named defendants. In addition, the suit
sought legal interest, 25% of the indemnity as attorney’s fees and costs of the
suit.

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

The Marine denied liability alleging that the 158 rolls

shipments were already in “bad order condition” when it turned
over the same to the consignees representative/broker. The other
co-defendants likewise denied their liability.
The case underwent trial, and thereafter, the Regional Trial
Court (RTC) of Makati City, Branch 148, found all the defendants,
including the predecessor of herein petitioner, liable for the losses,
ordering the latter to pay the obligation in the amount of
P623,935.76, plus interest corresponding to the 158 rolls of kraft
linear board that was damaged while in the custody of defendant

Transocean, Inc., to be paid by the latter to the plaintiff with legal

rate of interest from the time when it was due and until fully paid;
the amount of PI31,731.08, plus interest corresponding to the
additional 54 rolls of kraft linear board that was damaged, to be
paid jointly and severally by defendants Marina Port Services, Inc.
and Dynamic Brokerage Co., Inc. to the plaintiff with legal rate of
interest from the time when it was due until fully paid, and 25% of
the aforesaid principal amounts as attorney’s fees to be paid jointly
and severally by all the defendants.
On appeal, the Court of Appeals (CA) affirmed the decision of
the RTC. From the said decision, ATI filed the instant petition for
review. ATI assails, among others, the award of attorney’s fees,
stating that no findings of fact, or law were made, to justify the
grant of such an award.
ISSUE: Whether or not the award of attorney’s fees is justified.

HELD: The court consistently held that an award of attorney’s

fees under Article 2208 demands factual, legal, and equitable justification to
avoid speculations and conjecture surrounding the grant thereof. Due to the
special nature of the award of attorney’s fees, a rigid standard is
imposed on the courts before these fees could be granted. Hence,
it is imperative that they clearly and distinctly set forth in their decisions the basis
for the award thereof. It is not enough that they merely state the
amount of the grant in the dispositive portion of their decisions. It
bears reiteration that the award of attorney’s fees is an exception
rather than the general rule, thus, there must be compelling legal
reason to bring the case within the exceptions provided under
Article 2208 of the Civil Code to justify the award.

229

A
TRANSPORTATION LAWS
 The court must always state the basis for the grant of attorney’s fees
before such is justified because the principle that is generally observed is that
no premium should be placed on the right to litigate.
In the case at bar, other than a mere mention that “plaintiff was
constrained to litigate to enforce its valid claim” by the trial court, there is no
other compelling reason cited that would make the respondent entitled to
attorney’s fees as held in the trial court, as well as the appellate court’s
decision. It has been previously held that the mere fact of “having been forced
to litigate to protect one’s interest” does not amount to the compelling legal
reason that would make a case covered by any of the exceptions provided
under Article 2208. Although attorney’s fees may be awarded when a claimant
is “compelled to litigate with third persons or incur expenses to protect his
interest” by reason of an unjustified act or omission on the part of the party
from whom it is sought, but when there is a lack of findings on the amount to
be awarded, and since there is no sufficient showing of bad faith in the
defendant’s refusal to pay other than an erroneous assertion of the
righteousness of its cause, attorney’s fees cannot be awarded against the
latter.
Hence, such an award in the case at bar is unjustified and must be
deleted.

Carlos Singson v. Court of Appeals and Cathay Pacific

Airways, Inc.
G.R. No. 119995, November 18,1997
FACTS: The instant case is an illustration
of the exacting standard
demanded by the law of common carriers. On 24 May 1988 CARLOS SINGSON
and his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd.
(CATHAY), at its Metro Manila ticket outlet two open-dated, identically routed,
round trip plane tickets for the purpose of spending their vacation in the
United States. Each ticket consisted of six flight coupons corresponding to this
itinerary: flight coupon No. 1 — Manila to Hongkong; flight coupon No. 2 —
Hongkong to San Francisco; flight coupon No. 3 — San Francisco to Los
Angeles; flight coupon No. 4 — Los Angeles back to San Francisco; flight coupon
No. 5 — San Francisco to Hongkong; and finally, flight coupon No. 6 —
Hongkong to Manila. The procedure was that at the start of each leg

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

of the trip a flight coupon corresponding to the particular sector of the travel
would be removed from the ticket booklet so that at the end of the trip no
more coupons would be left in the ticket booklet.
On June 6, 1988, CARLOS SINGSON and Crescentino Tiongson left Manila
on board CATHAY’s flight No. 902. They arrived safely in Los Angeles and after
staying there for about three weeks they decided to return to the Philippines.
On June 30, 1988, they arranged for their return flight at CATHAY’s Los Angeles
Office and chose July 1, 1988, a Friday, for their departure. While Tiongson
easily got a booking for the flight, SINGSON was not as lucky. It was discovered
that his ticket booklet did not have flight coupon No. 5 corresponding to the
San Francisco-Hongkong leg of the trip. Instead, what was in his ticket was
flight coupon No. 3 — San Francisco to Los Angeles — which was supposed to
have been used and removed from the ticket booklet. It was not until July 6,
1988 that CATHAY was finally able to arrange for his return flight to Manila.
On August 26, 1988, SINGSON commenced an action for damages against
CATHAY before the Regional Trial Court of Vigan, Ilocos Sur. He claimed that he
insisted on CATHAY’s confirmation of his return flight reservation because of
very important and urgent business engagements in the Philippines. But
CATHAY allegedly shrugged off his protestations and arrogantly directed him to
go to San Francisco himself and do some investigations on the matter or
purchase a new ticket subject to refund if it turned out that the missing coupon
was still unused or subsisting. He remonstrated that it was the airline’s
agent/representative who must have committed the mistake of tearing off the
wrong flight coupon; that he did not have enough money to buy new tickets;
and, CATHAY could conclude the investigation in a matter of minutes because
of its facilities. CATHAY, allegedly in scornful insolence, simply dismissed him
like an impertinent “brown pest.” Thus, he and his cousin Tiongson, who
deferred his own flight to accompany him, were forced to leave for San
Francisco on the night of July 1, 1988 to verify the missing ticket.
CATHAY denied these allegations and averred that since petitioner was holding
an
“open-dated” ticket, which meant that he was not booked

231
TRANSPORTATION LAWS

on a specific flight on a particular date, there was no contract of carriage yet

existing such that CATHAY’S refusal to immediately book him could not be
construed as breach of contract of carriage. Moreover, the coupon had been
missing for almost a month; hence, CATHAY must first verify its status, i.e.,
whether the ticket was still valid and outstanding, before it could issue a
replacement ticket to petitioner. For that purpose, it set a request by telex on
the same day, July 1, 1988, to its Hongkong Headquarters where such
information could be retrieved. However, due to the time difference between
Los Angeles and Hongkong, no response from the Hongkong office was
immediately received. Besides, since July 2 and 3, 1988 were a Saturday and a
Sunday, respectively, and July 4, 1988 was an official holiday being U.S.
Independence Day, the telex response of CATHAY Hongkong was not read until
July 5, 1988. Lastly, CATHAY denied having required SINGSON to make a trip
back to San Francisco; on the other hand, it was the latter that informed
CATHAY that he was making a side trip to San Francisco. Hence, CATHAY
advised him that the response of Hongkong would be copied in San Francisco
so that he could conveniently verify thereat should he wish to.
The trial court rendered a decision in favor of petitioner herein holding
that CATHAY was guilty of gross negligence amounting to malice and bad faith
for which it was adjudged to pay petitioner P20,000 for actual damages with
interest at the legal rate of 12% per annum from August 26, 1988 when the
complaint was filed until fully paid; P500,000 for moral damages; P400,000 for
exemplary damages; PI00,000 for attorney’s fees, and, to pay the costs.
On appeal by CATHAY, the Court of Appeals reversed the trial court’s
finding that there was gross negligence amounting to bad faith or fraud and,
accordingly, modified its judgment by deleting the awards for moral and
exemplary damages, and the attorney’s fees as well.
ISSUE: Whether or not the carrier was liable not only for actual damages
but also for moral and exemplary damages, and attorney’s fees for failing to
book petitioner on his return flight to the Philippines.
HELD: With regard to the second issue, the Court is of the firm view that
the appellate court seriously erred in disallowing moral and
 232
C HAPTER IV
DAMAGES I OR BREACH OF CONTRACT OF COMMON CARRIERS

exemplary damages. Although the rule is that moral damages predicated upon
a breach of contract of carriage may only be recoverable in instances where
the mishap results in the death of a passenger, or where the carrier is guilty of
fraud or bad faith, there are situations where the negligence of the carrier is so
gross and reckless as to virtually amount to bad faith, in which case, the
passenger likewise becomes entitled to recover moral damages.
However, the P500,000 moral damages and P400,000 exemplary damages
awarded by the trial court have to be reduced. The well- entrenched principle
is that the grant of moral damages depends upon the discretion of the court
based on the circumstances of each case. This discretion is limited by the
principle that the

“amount awarded should not be palpably and scandalously excessive” as to

indicate that it was the result of prejudice or corruption on the part of the trial
court. Damages are not intended to enrich the complainant at the expense of
the defendant. They are awarded only to alleviate the moral suffering that the
injured party had undergone by reason of the defendant’s culpable action.
There is no hard-and-fast rule in the determination of what would be fair
amount of moral damages since each case must be governed by its own
peculiar facts.
As regards attorney’s fees, they may be awarded when the defendant’s act
or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest. It was therefore erroneous for the Court of
Appeals to delete the award made by the trial court; consequently, petitioner
should be awarded attorney’s fees and the amount of P25,000, instead of
PI00,000 earlier awarded, may be considered rational, fair and reasonable.
 Philippine National Railways v. The Honorable
Court of Appeals and Rosario Tupang G.R. No. L-55347, October
4,1985
FACTS: The facts show that on September 10,1972, at about 9:00 in the
evening, Winifredo Tupang, husband of plaintiff Rosario Tupang, boarded Train
No. 516 of appellant at Libmanan, Camarines Sur, as a paying passenger bound
for Manila. Due to some mechanical defect, the

233
TRANSPORTATION LAWS

train stopped at Sipocot, Camarines Sur, for repairs, taking some two hours
before the train could resume its trip to Manila. Unfortunately, upon passing
Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the train resulting in
his death. The train did not stop despite the alarm raised by the other
passengers that somebody fell from the train. Instead, the train conductor,
Perfecto Abrazado, called the station agent at Candelaria, Quezon, and
requested for verification of the information. Police authorities of Lucena City
were dispatched to the Iyam-Bridge where they found the lifeless body of
Winifredo Tupang.
“As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to
massive cerebral hemorrhage due to traumatic injury . Tupang was later buried in the public cemetery
of Lucena
City by the local police authorities. ”
Upon complaint filed by the deceased’s widow, Rosario Tupang, the then
Court of First Instance of Rizal, after trial, held the petitioner PNR liable for
damages for breach of contract of carriage and ordered it “to pay the plaintiff
the sum of PI 2,000.00 for the death of Winifredo Tupang, plus P20,000.00 for
loss of his earning capacity, and the further sum of PI 0,000.00 as moral
damages, and
P2,000.00 as attorney’s fees, and costs.”
On appeal, the Appellate Court sustained the holding of the trial court that
the PNR did not exercise the utmost diligence required by law of a common
carrier. It further increased the amount adjudicated by the trial court by
ordering PNR to pay the plaintiff an additional sum of P5,000.00 as exemplary
damages.
Moving for reconsideration of the above decision, the PNR raised for the
first time, as a defense, the doctrine of state immunity from suit. It alleged that
it is a mere agency of the Philippine Government without distinct or separate
personality of its own, and that its funds are governmental in character and,
therefore, not subject to garnishment or execution. The motion was denied;
the respondent court ruled that the ground advanced could not be raised for
the first time on appeal.
HELD: The petition is devoid of merit. The PNR was created under R.A. No.
4156, as amended. The PNR has all the powers, the characteristics and
attributes of a corporation under the Corporation

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

Law. There can be no question then that the PNR may sue and be sued and
may be subjected to court processes just like any other corporation.
 As far back as 1941, this Court in the case of Manila Hotel Employees Association
v. Manila Hotel Co., laid down the rule that “when the government enters into
commercial business, it abandons its sovereign capacity and is to be treated
like any other corporation. (Bank of the U.S. v. Planters’ Bank, 9 Waitch 904, 6 L. ed. 244) By
engaging in a particular business through the instrumentality of a corporation,
the government divests itself/?ro hac vice of its sovereign character, so as to
render the corporation subject to the rules of law governing private
corporations.” Of similar import is the pronouncement in Frisco v. CIR, that
“when the government engages in business, it abdicates part of its sovereign
prerogatives and descends to the level of a citizen x x x.” In fine, the petitioner
PNR cannot legally set up the doctrine of nonsuability as a bar to the plaintiff’s
suit for damages.
The appellant court found, the petitioner does not deny, that the train
boarded by the deceased Winifredo Tupang was so overcrowded that he and
many other passengers had no choice but to sit on the open platforms between
the coaches of the train. It is likewise undisputed that the train did not even
slow down when it approached the Iyam Bridge which was under repair at that
time. Neither did the train stop, despite the alarm raised by other passengers
that a person had fallen off the train at Iyam Bridge.
The petitioner has the obligation to transport its passengers to their
destinations and to observe extraordinary diligence in doing so. Death or any
injury suffered by any of its passengers gives rise to the presumption that it
was negligent in the performance of its obligation under the contract of
carriage. Thus, as correctly ruled by the respondent court, the petitioner failed
to overthrow such presumption of negligence with clear and convincing
evidence.
But while petitioner failed to exercise extraordinary diligence as required
by law, it appears that the deceased was chargeable with contributory
negligence. Since he opted to sit on the open platform between the coaches
of the train, he should have held tightly and tenaciously on the upright metal
bar found at the side of said platform to

235
TRANSPORTATION LAWS

avoid falling off from the speeding train. Such contributory negligence, while
not exempting the PNR from liability, nevertheless justified the deletion of
the amount adjudicated as moral damages. 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. There being no evidence of fraud, malice
or bad faith on the part of petitioner, the grant of exemplary damages
should be discarded.
Moral damages, exemplary damages; where the award of moral and exemplary damages is
eliminated, so must the award for attorney’s fees be deleted.

Collin A. Morris and Thomas P. Whittier v.

Court of Appeals (Tenth Division) and Scandinavian
Airlines System
G.R. No. 127957, February 21,2001

FACTS: Petitioner Morris and co-petitioner Whittier had a series of

business meetings with Japanese businessmen in Japan from February 14 to
February 22, 1978. They requested their travel agent, Staats Travel Services,
Inc. to book them as first class passengers in SAS Manila-Tokyo flight on
February 14, 1978. Respondent booked them as first-class passengers on Flight
SK 893, Manila-Tokyo flight, on February 14,1978 at 3:50 in the afternoon. On
the day of their flight, petitioners went to the Manila International Airport and
arrived at 2:35 in the afternoon. Upon arrival at the airport, representatives of
the travel agency met petitioners. It took petitioners two or three minutes to
clear their bags at the customs section. After that, they proceeded to the SAS
check-in counter and presented their tickets, passports, immigration cards, and
travel documents to Ms. Erlinda Ponce at the reception desk. After about 15
minutes, petitioners noticed that their travel documents were not being
processed at the check-in counter. They were informed that there were no
seats on the plane for which reason they could not be accommodated on the
flight.
When petitioners went to the supervisor’s desk to check the flight manifest,
they saw

that their names on top of the list of the first class

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

section had been crossed out. They pressed the supervisor to allow them in
the flight as they had confirmed tickets. Mr. Basa informed them that it could
not be done because the flight was closed and it was too late to do anything.
They checked in at exactly 3:10 in the afternoon and the flight was scheduled
to leave Manila International Airport at 3:50 in the afternoon.
Ms. Brlinda Ponce, SAS employee on duty at the check-in counter on
February 14, 1978, testified that the economy class of SAS Flight SL 893 was
overbooked, however, the first class section was open. She met petitioners,
 who were booked in the first class section, when they approached the
counter to check-in. They were not accommodated on the flight because they
checked-in after the flight manifest had been closed, 40 minutes prior to the
plane’s departure. Petitioners’ seats were given to economy class passengers
who were upgraded to first class.
On August 24, 1988, the trial court rendered a judgment against
respondent and in favor of petitioners, ordering the defendants to pay
moral damages to Morris in the amount of PI00,000 and to Whittier the sum
of PI00,000, exemplary damages in the sum of P200,000, attorney’s fees in
the amount of P300,000, plus the cost of suit.
On appeal, the Court of Appeals (CA), on January 21, 1997, promulgated
a decision reversing the decision of the court a quo, and ordering the dismissal
of the complaint for damages.
ISSUE: Whether or not the act of the airlines
in bumping-off the
petitioners from their flights were done in bad faith.
HELD: The petition has no merit.
To begin with, it must be emphasized that a contract to transport passengers is quite different
,(

in kind and degree from any other contractual relations, and this is because of the relation, which an
air carrier sustains with the public. Its business is mainly with the traveling public. It invites people to
avail themselves of the comforts and advantages it offers. The contract of air carriage, therefore,
generates a relation attended with a public duty. Neglect or malfeasance of the carrier s employees
naturally could give ground for an action for damages. ”

237
TRANSPORTATION LAWS
 In the instant case, assuming arguendo that breach of contract of carriage
may be attributed to respondent, petitioners’ travails were directly traceable to
their failure to check-in on time, which led to respondent’s refusal to
accommodate them on the flight.
“The rule is that moral damages are recoverable in a damage suit
predicated upon a breach of contract of carriage only where (a) the mishap
results in the death of a passenger, and (b) it is proved that the carrier was
guilty of fraud and bad faith even if death does not result.”
For having arrived at the airport after the closure of the flight manifest,
respondent’s employee could not be faulted for not entertaining petitioners’
tickets and travel documents for processing, as the checking-in of passengers
for SAS Flight SK 893 was finished. There was no fraud or bad faith as would
justify the court’s award of moral damages.
In the instant case, respondent’s denial of petitioners’ boarding on SAS
Flight SK 893 was not attended by bad faith or malice. To the contrary, facts
revealed that they were not allowed to board the plane due to their failure to
check-in on time. Petitioner Morris admitted that they were at the check-in
counter at around 3:30, exactly the same time the flight manifest was closed,
but still too late to be accommodated on the plane. Respondent’s supervisor,
Raul C. Basa, testified that he met petitioners at about 3:20 in the afternoon
after receiving a radio call from the ground staff regarding petitioners’
complaint. Clearly, petitioners did not arrive on time for check-in.
“Where the award ofmoral and exemplary damages is eliminated, so must the award of attorney’s
fees be deleted. ”
Note: The case of Malong
v. PNR, L-49930, August 5, 1985 (en banc) held that
the PNR is not immune from suit and is liable as a common carrier for the
negligent acts of its employees. It is expressly liable for moral damages for the
death of a passenger under Articles 1764 and 2206 of the Civil Code.
 QUESTION: May the heirs of the victim in a vehicular accident be awarded
monetarily for loss of pension for which the deceased had failed to receive?

238
 CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

ANSWER: Yes. Under Article 2206 of the Civil Code —

“The amount of damages for death caused by a crime or quasi-
delict shall be at least three thousand pesos, even though there may
have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning
capacity of the deceased, and the indemnity shall be paid to the heirs of
the latter... ”

The pension of the decedent being a sure income that

was cut short by her death for which the errant driver was
responsible, the surviving heir of the former is entitled to
the award of PI 0,000 which is just equivalent to the
pension the decedent would have received for one year if
she did not die. (Gloria Darrocha de Caliston v.
The Honorable Court of Appeals and Geronimo Dalmacio, 122 SCRA 958,
June 24, 1983)

Brothers and sisters of a deceased passenger in a breach of

contract of carriage are not entitled to an award of moral
damages.
Sulpicio Lines, Inc. v. Domingo E. Curso, et al.

(First Division Decision)

G.R. No. 157009, March 17, 2010

FACTS: On October 23, 1988, Dr. Curso boarded at the
port of Manila the M/V Dona Marilyn, and inter-island
vessel owned and operated by petitioner Sulpicio Lines, Inc.,
bound for Tacloban City. Unfortunately, the M/V Dona
Marilyn sank in the afternoon of October 24, 1988 while at
sea due to the inclement sea and weather conditions
brought about by Typhoon Unsang. The body of Dr. Curso
was not recovered, along with hundreds of other
passengers of the ill-fated vessel. At the time of his death,
Dr. Curso was 48 years old, and employed as a resident
physician at the Naval District Hospital in Naval, Biliran. He
had a basic monthly salary of P3,940, and would have
retired from government service by December 20, 2004 at
the age of 65.
On January 21, 1993, the respondents, allegedly the
surviving brothers and sisters of Dr. Curso, sued the
petitioner in the Regional

239
Trial Court (RTC) in Naval, Biliran to claim damages based
on breach of contract of carriage by sea, averring that the
petitioner had acted negligently in transporting Dr. Curso
and the other passengers. They stated, among others,
that their parents had predeceased Dr. Curso, who died
single and without issue, and that, as such, they were Dr.
Curso’s surviving heirs and successors in interest entitled
to recover moral and other damages. They prayed for
judgment, as follows: (a) compensatory damages of
PI,924,809; (b) moral damages ofP

100,000;

(c) exemplary or corrective damages in the amount

deemed proper and just; (d) expenses of litigation of at
least P50,000; (e) attorney’s fees of P50,000; and (f) costs
of suit. The petitioner denied liability, insisting that the
sinking of the vessel was due to force majeure (i.e., Typhoon
Unsang), which exempted a common carrier from
liability. It averred that the M/V Doha Marilyn was
seaworthy in all respects, and was in fact cleared by the
Philippine Coast Guard for the voyage, and that after the
accident, it conducted intensive search and rescue
operations, and extended assistance and aid to the
victims and their families.
On July 28, 1995, the Regional Trial Court (RTC)
dismissed the complaint upon its finding that the sinking
vessel was due to force majeure. Respondents appealed to
the Court of Appeals (CA). In its decision dated
September 16, 2002, the CA reversed the decision of the
RTC in this wise: “Wherefore, premises considered, the
appealed decision of the RTC of Naval, Biliran, Branch 16,
rendered in Civil Case No. B-0851, is hereby SET ASIDE. In
lieu thereof, judgment is hereby rendered, finding the
defendant-appellate Sulpicio Lines, Inc. to have been
negligent in transporting the deceased Cenon E. Curso,
who was on board the ill-fated MW Dona Marilyn,
resulting in his untimely death. Defendant-appellee is
hereby ordered to pay the plaintiff’s heirs of Cenon E.
Curso the following: (1) Death indemnity in the amount
of P50,000;

(2) Loss of Earning Capacity in the amount of

P504,241,20;
(3) Moral Damages in the amount of PI 00,000; and (4)
Costs of suit.
ISSUE: Whether or not brothers and sisters of a
deceased passenger in a case of breach of contract of
carriage are entitled to an award of moral damages.
As a general rule, moral damages are not
HELD:
recoverable in actions for damages predicated on a
breach of contract, unless there is

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS
fraud or bad faith. As an exception, moral damages may
be awarded in case of breach of contract of carriage that
results in the death of a passenger in accordance with
Article 1764, in relation to Article 2206(3) of the Civil
Code, which provides: Article 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 caused
by the breach of contract by a common carrier. Article
2206. The amount of damages for death caused by a crime
or quasi-delict shall be at least three thousand pesos, even
though there may have been mitigating circumstances. In
addition: (1) The defendant shall be liable for the loss of
the earning capacity of the deceased, and the indemnity
shall be paid to the heirs of the latter; such indemnity
shall in every case be assessed and awarded by the court,
unless the deceased, on account of permanent physical
disability not caused by the defendant, had no earning
capacity at the time of his death; (2) If the deceased was
obliged to give support according to the provisions of
Article 291, the recipient who is not an heir called to the
decedent’s inheritance by the law of testate or intestate
succession, may demand support from the person
causing the death, for a period not exceeding five years,
the exact duration to be fixed by the court; (3) The
spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages
for mental anguish by reason of the death of the
deceased.
 The foregoing legal provisions set forth the
persons entitled to moral damages. The omission from
Article 2206(3) of the brothers and sisters of the
deceased passenger reveals the legislative intent to
exclude them from the recovery of moral damages for
mental anguish by reason of the death of the
deceased. Inclusio unius est exclusio alterius. The solemn
power and duty of the courts to interpret and apply
the law do not include the power to correct the law by
reading into it what is not written therein. Thus, the CA
erred in awarding moral damages to the respondents.
The petitioner has correctly relied on the holding in
Receiver for North Negros Sugar Company, Inc. v. Ybahez, to the
effect that in case of death caused by quasi-delict, the
brother of the deceased was not entitled to the award
of moral damages based on Article 2206 of the Civil
Code.

241
Article 2219 circumscribes the instances in which
moral damages may be awarded. The provision does not
include succession in the collateral line as a source of the
right to recover moral damages. The usage of the phrase
analogous cases in the provision means simply that the
situation must be held similar to those expressly
enumerated in the law in question following the ejusdem
 rule. Hence, Article 103 of the Civil Code is not
generis
concerned with recovery of moral damages.
Subsidiary liability of an employer under Article 103,
Revised Penal Code, enforceable in the same criminal
case where award was made.

Gregoria Vda. de Paman, et al. v.

Hon. Alberto V. Seneris, Western
Mindanao

Lumber Company, and Teodoro Delos

Santos

G.R. No. L-37632, July 30,1982

FACTS: On May 24, 1961, accused-respondent

Teodoro Delos Santos was charged by the City Attorney
of Zamboanga City of Homicide [Through] Reckless
Imprudence in Violation of Sec. 52 of Act 3992, as
amended.
Upon arraignment on June 26,1972, accused-
respondent Teodoro Delos Santos entered a plea of
guilty. In view of said plea, the respondent Judge, Alberto
Seneris, rendered a Decision sentencing said respondent
to suffer an imprisonment of two months and one day of
arresto mayor and to indemnify the heirs of the late
Victoriano Paman, namely, the petitioner Gregoria Vda. de
Paman and her three children, in the amount of PI2,000.
 On the same day, accused-respondent Teodoro
Delos Santos commenced his service of sentence. On
August 4, 1972, petitioner Gregoria Vda. de Paman, widow
of the victim, filed the first motion for execution of the
judgment to enforce the civil liability of the PI2,000 of the
accused-respondent. This was followed on August 28,
1972 by the filing of petitioner of an ex parte motion for
execution of judgment against the accused. In both
instances, Western Mindanao Lumber Company was duly
notified.

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DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

On August 31, 1972, respondent Judge issued an

order granting the said motion for execution. However,
on September 4, 1972, the Sheriff’s Return of Service
showed that the accused respondent Teodoro Delos
Santos had no property registered in his name.
Upon discovery that accused-respondent was
insolvent, petitioner filed on September 19, 1972, a
“Motion for Execution on Subsidiary Liability of
Employer Western Mindanao Lumber Company under
Article 103 of the Revised Penal Code.” Petitioner
contended therein that the subsidiary liability of the
employer, Western Mindanao Lumber company in the
event the accused is insolvent, is executory in nature
 and there is no need for a separate action or a further
civil case to be filed in the enforcement of the decision
aforementioned. On October 11, 1972, petitioner filed
a “Supplemental Motion for Execution for Subsidiary
Liability of Employer under Article 103 of the Penal
Code.” Petitioner, through counsel, cited therein the
case of Fernando v. Francoy 37 SCRA 311.
Petitioner concluded that the tenor of the
aforesaid decision implies that the subsidiary liability of
the employer may be enforced in the same proceeding.
On September 8, 1973, respondent Judge issued
an order denying the motion for issuance of writ of
execution against the employer of Teodoro Delos
Santos. He opined that the alleged employer not
having been notified that its driver was facing a
criminal charge, a separate civil action must be filed.
Hence, this petition for mandamus.
ISSUE:Whether or not there is a need to file a
separate civil action to enforce the subsidiaiy liability of
the employer in a criminal case.
HELD: No. This case finds parallelism in a case
involving the same respondent Judge, i.e., Lucia S. Pajarito
v. Hon. Alberto V. Seneris et al., 87 SCRA 275, where the only
issue involved is whether the subsidiaiy liability
established in Article 103 of the Revised Penal Code
may be enforced in the same criminal case where the
award was made, or in a separate civil action.
 As in the aforementioned case, the apparent
drawback in the

enforcement of the subsidiary liability in the same

criminal proceeding

243
is the lack of due process to the alleged employer. Not
being a party to the case, he was not heard as to whether
he was indeed the employer. Besides, even if the
employer-employee relationship is not disputed, still, in
order that an employer may be subsidiarily liable for the
employee’s civil liability in the criminal action, it should
be shown: (1) that the employer, etc. is engaged in any
kind of industry; (2) that the employee committed the
offense in the discharge of his duties; and (3) that he is
insolvent.
Against the foregoing considerations, Section 1, Rule 111
of the Rules of
Court provides, however, that “when a criminal action is
instituted, the civil action for recovery of civil liability
arising from the offense charged is impliedly instituted
with the criminal action, unless the offended party
expressly waives the civil action or reserves his right to
institute it separately.” That means as if two actions are
joined in one as twins, each one complete with the same
completeness as any of the two normal persons
composing the twins. It means that the civil action may
be tried and prosecuted, with all the ancillary processes
provided by law. Said provision will be rendered
meaningless if the subsidiary civil liability is not allowed
to be enforced in the same proceeding.
To remedy the situation and thereby afford due
process to the alleged employer, this Court directed the
court a quo in Pajarito v. Seneris (supra) to hear and decide in
the same proceeding the subsidiary liability of the alleged
owner and operator of the passenger bus. It was
explained therein that the proceeding for the
enforcement of the subsidiary liability may be considered
as part of the proceeding for the execution of the
judgment. A case in which an execution has been issued
is regarded as still pending so that all proceedings on the
execution are proceeding in the suit. There is no question
that the court, which rendered the judgment, has a
general supervisory control over its process of execution,
and this power carries with it the right to determine
every question of fact and law, which may be involved in
the execution.
Moreover, it has been invariably held that a
judgment of conviction sentencing a defendant employer
to pay an indemnity in the absence of any collusion
between the defendant and the offended party, is
conclusive upon the employer in an action for the
enforcement of the
 244
CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

latter’s subsidiary liability not only with regard to the civil

liability, but also with regard to its amount. This being
the case, this Court stated in Rotea v. Halili, 109 Phil. 495,
that the court has no other function than to render
decision based upon the indemnity awarded in the
criminal case and has no power to amend or modify it
even if in its opinion an error has been committed in the
decision. A separate and independent action is,
therefore, unnecessary and would only unduly prolong
the agony of the heirs of the victim.
Subsidiary liability of an employer under Article 103,
Revised Penal Code, enforceable in the same criminal
case where award was made.

Pepe Catacutan and Aureliana Catacutan v. Heirs of

Norman Kadusale, Heirs of Lito

Amancio and w
Gil B. Izon
G.R. No. 131280, October 18, 2000
|
FACTS: Petitioner Aureliana Catacutan is the
registered owner and operator of a jeepney driven by the
accused Porferio Vendiola, which bumped a tricycle on
April 11, 1991 in Banilad, Bacong, Negros Oriental,
thereby causing the death of its driver, Norman Kadusale,
and its passenger Lito Amancio, and serious physical
injuries to another passenger, respondent Gil B. Izon.
Respondents thus filed a criminal case against
Porferio Vendiola for

Reckless Imprudence Resulting In Double Homicide with

Physical Injuries and

Damage to Property on July 26, 1991 before the Regional

Trial Court of Negros Oriental. On December 1, 1995, the
trial court rendered judgment, declaring the accused
guilty of negligence and imprudence under Article 365 of
the Revised Penal Code. He is therefore sentenced to
suffer the penalty of prision correctional medium and
maximum periods. Accused is ordered to suffer the
penalty of 30 days of arresto mayor straight. He is likewise
ordered to indemnify the heirs of Norman Kadusale and
Lito Amancio in the amount of P50,000 each victim, and
to pay actual damages to Norman Kadusale or his heirs in
the amount of PI70,543.24; Lito Amancio or his heirs the
amount of P38,394.35; and Gild B. Izon the amount of
P23,454.

245
 TRANSPORTATION LAWS

Accused Vendiola did not appeal the judgment of conviction.

Instead, he applied for probation. Meanwhile, when the judgment
became final and executoiy, respondents moved for the issuance of a
writ of execution, and the corresponding writ was issued by the trial
court on April 24, 1996. However, per the Sheriff’s Return of Service,
dated July 3,1996, the writ was unsatisfied as the accused had “nothing
to pay off the damages in the decision.”
On August 28, 1996, respondents filed a Motion for Subsidiary Writ
of Execution before the trial court, praying that such writ be issued
against petitioner Aureliana Catacutan as registered owner and operator
of the jeepney driven by the accused when the collision occurred.
Petitioner Aureliana Catacutan filed her Opposition thereto; arguing
that she was never a party to the case and to proceed against her would
be in violation of the due process clause of the Constitution. Petitioner
also argued that the subsidiary liability of the employer is not
determined in the criminal case against the employee.
On October 3,1996, the trial court issued an Order denying the said
Motion for lack of merit. According to the trial court, it never acquired
jurisdiction over petitioner Aureliana Catacutan since she was never
impleaded as party to the case, and respondents’ remedy was to file a
separate case for damages. Respondents’ Motion for Reconsideration
was also denied on December 3,1996. Undaunted, respondents went on
certiorari to the Court of Appeals (CA). On August 12, 1997, the CA
rendered the assailed Decision.
ISSUE: Whether or not there is a need for a separate case for the
determination of employer’s subsidiary liability.
 HELD: The employer is, in substance and in effect, a party to the
criminal case against his employee, considering the subsidiary liability
imposed upon him by law. Thus, “It is true that an employer, strictly
speaking, is not a party to the criminal case instituted against his
employee but in substance and in effect, he is considering the subsidiary
liability imposed upon him by law. It is his concern, as well as his
employee, to see to it that his interest is protected in the criminal case
by taking virtual participation in the defense of his employee. He cannot
leave him to his own fate because his failure is also his. And if

246
CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

because of his indifference or inaction the employee is convicted and

damages are awarded against him, he cannot later be heard to
complaint, if brought to court for the enforcement of his subsidiary
liability, that he was not given his day in court. It was not without
purpose that the court sounded the following stem warning”:
“It is high time that the employer exercised the greatest care in
selecting his employees, taking real and deep interest in their welfare;
intervening in any criminal action brought against them by reason or as
a result of the performance of their duties, if only in the way of giving
them benefit of counsel; and consequently doing away with the practice
of leaving them to their fates. If these be done, the American rule
requiring notice on the part of the employer shall have been satisfied
(Miranda v. Mai ate Garage and Taxicab, Inc., 99 Phil. 670, 675, citing Martinez v.
Barredo, supra).”
 The statutory basis for an employer’s subsidiary liability is found in
Article 103 of the Revised Penal Code. This liability is enforceable in the
same criminal proceeding where the award is made. (Rules of Court, Rule
111, Section 1) However, before execution against an employer ensues,
there must be a determination in a hearing set for the purpose of (1)
the existence of an employer-employee relationship; (2) that the
employer is engaged in some kind of industry; (3) that the employee is
adjudged guilty of the wrongful act and found to have committed the
offense in the discharge of his duties (not necessarily any offense he
commits “while” in the discharge of such duties); and (4) that said
employee is insolvent. (Yonaha v. CA, 255 SCRA 397, 402
[1996])
Petitioner knew of the criminal case that was filed against accused
because it was his truck that was involved in the incident. Further, it
was the insurance company, with which his truck was insured, that
provided the counsel for the accused, pursuant to the stipulations in
their contract. Petitioner did not intervene in the criminal proceedings,
despite the knowledge, through counsel, that the prosecution adduced
evidence to show employer-employee relationship. With the convict’s
application for probation, the trial court’s judgment became final and
executory. All told, it is the CA’s view that the lower court did not err
when it found that petitioner was not denied due process. He had all
his

247
TRANSPORTATION LAWS
 chances to intervene in the criminal proceedings, and prove that he
was not the employer of the accused, but he chooses not to intervene
at the appropriate time.
Release of claims executed by the injured party discharging the insurance and
transportation companies from any and all liability is valid.

Baliwag Transit, Inc. v. Hon. Court of Appeals and Sps. Sotero

Cailipan and Zenaida Lopez and George L. Cailipan
G.R. No. 80447, January 31,1989
FACTS: On April 10,1985, a complaint for damages arising from
breach of contract of carriage was filed by private respondents, the
Spouses Sotero Cailipan, Jr. and Zenaida Lopez, and their son George,
of legal age, against petitioner Baliwag Transit (Baliwag, for brevity).
The Complaint alleged that George, who was a paying passenger on a
Baliwag bus on December 17, 1984, suffered multiple serious physical
injuries when he was thrown off said bus driven in a careless and
negligent manner by Leonardo Cruz, the authorized bus driver, along
Barangay Patubid, Marilao, Bulacan. As a result, he was confined in
the hospital for treatment, incurring medical expenses, which were
borne by his parents, the respondent Spouses, in the sum of about
P200,000, plus other incidental expenses of about PI 0,000.
Baliwag then filed a Third-Party Complaint against Fortune
Insurance & Surety Company, Inc., on its third-party liability insurance
in the amount of P50,000. In its Answer, Fortune Insurance claimed
limited liability, the coverage being subject to a Schedule of
Indemnities forming part of the insurance policy.
On November 14, 1985 and November 18, 1985, respectively,
Fortune Insurance and Baliwag each filed Motions to Dismiss on the
ground that George, in consideration of the sum of P8,020.50 had
 executed a “Release of Claims” dated May 16, 1985. These Motions
were denied by the Trial Court in an Order, dated January 13, 1986, as
they were filed beyond the time for pleading and after the Answer
were already filed.

CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

In an Order, dated August 29, 1986, the Regional Trial Court of

Bulacan, Branch 20, dismissed the complaint and third-party complaint,
ruling that since the contract of carriage is between Baliwag and George
L. Cailipan, the latter, who is of legal age, had the exclusive right to
execute the Release of Claims despite the fact that he is still a student
and dependent on his parents for support. Consequently, the execution
by George of the Release of Claims discharges Baliwag and Fortune
Insurance.
Aggrieved, the Spouses appealed to respondent Court of Appeals.

On October 22, 1987, the Appellate Court rendered a Decision

setting aside the appealed order and holding that the “Release of
Claims” cannot operate as a valid ground for the dismissal of the case
because it does not have the conformity of all the parties, particularly
George’s parents, who have substantial interest in the case as they
stand to be prejudiced by the judgment because they spent a sizeable
amount for the medical bills of their son; that the Release of Claims was
secured by Fortune Insurance for the consideration of P8,020.50 as the
full and final settlement of its liability under the insurance policy and not
for the purpose of releasing Baliwag from its liability as a carrier in this
suit for breach of contract. The Appellate Court also ordered the
remand of the case to the lower Court for trial on the merits and for
George to return the amount of P8,020.50 to Fortune Insurance.
ISSUE: Whether the Release of Claims executed by George, the
injured party during the pendency of this case is valid.
HELD: Since the suit is one for breach of contract 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.
Significantly, the contract of carriage was actually between
George, as the paying passenger, and Baliwag, which was bound to
carry its passengers safely as far as human care and foresight could
provide, and is liable for injuries to them through the negligence or
willful acts

249
4P^

TRANSPORTATION LAWS
of its employees. (Articles 1755 and 1759, Civil Code) Thus,
George had the right to be safely brought to his
destination, and Baliwag had the correlative obligation
to do so. Since a contract may be violated only by the
parties thereto, as against each other, in an action upon
that contract, the real parties in interest, either as
plaintiff or as defendant, must be parties to said
contract. (Marimperio Compania Naviera, S.A. v. Court of Appeals,
No. L-40234, December 14, 1987, 156 SCRA 368) A real party-in-
interest-plaintiff is one who has a legal right while a real
party-in-interest-defendant is one who has a correlative
legal obligation whose act or omission violates the legal
right of the former. (Lee v. Romillo, Jr., G.R. No. 60973, May 28,
1988) 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.
There is no question regarding the genuineness and
due execution of the Release of Claims. It is a duly
notarized public document. It clearly stipulates that the
consideration of P8,020.50 received by George was “to
release and forever discharge Fortune Insurance and/ or
Baliwag from any and all liabilities now accrued or to
accrue on account of any and all claims or causes of
action x x x for personal injuries, damage to property,
loss of services, medical expenses, losses or damages of
any and every kind or nature whatsoever, sustained by
him on December 17, 1984 through Reckless
Imprudence Resulting to Physical
 Injuries.” Consequently, the ruling of respondent
Appellate Court that the
“Release of Claims” was intended only as the full and
final settlement of a third-party-liability for bodily injury
claim and not for the purpose of releasing Baliwag from
its liability, if any, in a breach of contract of carriage,
has to be rejected for being contrary to the very terms
thereof. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. (Article
1370, Civil Code) The phraseology “any and all claims or
causes of action” is broad enough to include all
damages that may accrue to the injured party arising
from the unfortunate accident.
The Release of Claims had the effect of a
compromise agreement since it was entered into for
the purpose of making a full and final compromise
adjustment and settlement of the cause of action
involved.

CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

A compromise is a contract whereby the parties, by making reciprocal

concessions, avoid litigation, or put an end to one already commenced.
 The Release of Claims executed by the injured party
(Article 2028, Civil Code)
himself wrote finish to this litigation.
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 duty to observe
extraordinary diligence as prescribed in this Section.

This function of the defunct Public Service Commission insofar as

land transportation is now transferred to the Land Transportation
Franchising and Regulatory Board (LTFRB). See E.O. No. 220, Section 5(b),
infra.

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.

The new Civil Code particularly Articles 1732 to 1766 is the general
law on common carriers. Should the matters involved is not covered by
Articles 1732 to 1766 of the Civil Code, the Code of Commerce and
special laws will apply.
What is the effect of our adherence to the Warsaw
QUESTION:
Convention (Convention for the Unification of Certain Rules Relating to
International Transportation by Air) on our laws on transportation?
ANSWER: Within our jurisdiction the Warsaw Convention can be

applied, or ignored, depending on the peculiar facts presented by each

case. The Convention’s provisions 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. Neither may the Convention be invoked to justify the
disregard of some extraordinary sort of damage resulting to a
passenger and preclude recovery therefor beyond the limits set by said
Convention. Likewise,

251
TRANSPORTATION LAWS

the Convention does not preclude the operation of the Civil Code and
other pertinent laws. It does not regulate, much less exempt, the carrier
from liability for damages for violating the rights of its passengers under
the contract of carriage, especially if willful misconduct on the part of
the carrier’s employees is found or established. (UnitedAirlines v. Uy, 318
SCRA 576, November 19, 1999)

The Warsaw Convention has the force and effect of law in this country.

Edna Diago Lhuillier v. British Airways

G.R. No. 171092, March 15, 2010
Philippine Courts have no jurisdiction over a tortuous conduct
committed against a Filipino Citizen and resident airline personnel of a
foreign carrier traveling beyond the territorial limit of any foreign
country.
Under Article 28(1)‘ of the Warsaw Convention, the plaintiff may
bring the action for damages before —
1. The court where the carrier is domiciled;
2. The court where the carrier has its principal place of business;
 3. The court where the carrier has an establishment by which the
contract has been made; or
4. The court of the place of destination.
In this case, it is not disputed that respondent is a British
corporation domiciled in London, United Kingdom with London as its
principal place of business. Hence, under the first and second
jurisdictional rules, the petitioner may bring her case before the courts
of London in the United Kingdom. In the passenger ticket and baggage
check presented by both the petitioner and respondent, it appears that
the ticket

‘Article 28(1) provides “An action for damages must be brought at the option of the plaintiff, either before the court of
domicile of the carrier or his principal place of business, or where he has a place of business through which the contract has been
made, or before the court of the place of destination.”

CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

was issued in Rome, Italy. Consequently, under the third jurisdiction

rule, the petitioner has the option to bring her case before the courts of
Rome in Italy. Finally, both the petitioner and respondent aver that the
place of destination is Rome, Italy, which is properly designated given
the routing presented in the said passenger ticket and baggage check.
Accordingly, petitioner may bring her action before the courts of Rome,
Italy.
The Republic of the Philippines is a party to the Convention for the
Unification of Certain Rules Relating to International Transportation by
Air, otherwise known as the Warsaw Convention. It took effect on
February 13, 1933. The Convention was concurred in by the Senate,
through its Resolution No. 19, on May 16,1950, and was deposited with
the Polish government on November 9, 1950. The Convention became
applicable to the Philippines on February 9, 1951. On September 23,
1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto, “to the end that the same and
ever article and clause thereof may be observed and fulfilled in good
faith by the Republic of the Philippines and the citizens thereof.”
In Pricilla L. Tan v. Northwest Airlines, Inc., G.R. No. 135802,
March 3, 2000 (327 SCRA 263), it was held that: “For willful misconduct
to exist, there must be a showing that the acts complained of were
impelled by an intention to violate the law, or were in persistent
disregard of one’s rights. It must be evidenced by a flagrantly or
shamefully wrong or improper conduct.” Contrary to petitioner’s
contention, there was nothing in the conduct of respondent, which
showed that they were motivated by malice or bad faith in loading her
baggages on another plane. Due to weight and balance restrictions, as a
safety measure, respondent airline had to transport the baggages on a
different flight, but with the same expected date and time of arrival in
the Philippines.
“Bad faith does not simply connote bad judgment or negligence, it
imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty through some motive or
interest or ill-will that partakes of the nature of fraud.”

253
 TRANSPORTATION LAWS

“Where in breaching the contract of carriage the

defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is
limited to the natural and probable consequences of the
breach of obligation which the parties had foreseen or
could have reasonably foreseen. In that case, such
liability does not include moral and exemplary
damages.”

Warsaw convention does not “exclusively regulate” the

relationship between passenger and carrier on an
international flight.

Philippine Airlines, Inc. v. Hon. Adriano Savillo,

Presiding Judge of RTC Branch 30, Iloilo City
and Simplicio Grino
G.R. No. 149547, July 4, 2008
FACTS: Private respondent was invited to participate
in the 1993 ASEAN Seniors Annual Golf Tournament
held in Jakarta, Indonesia. He and several companies
decided to purchase their respective passenger tickets
from

Philippine Airlines, Inc. (PAL) with the following points

of passage:
MANILA-SINGAPORE-JAKARTA-SINGAPORE- MANILA.
Private respondent and his companies were made to
understand by PAL that its plane would take them from
Manila to Singapore, while Singapore Airlines would
take them from Singapore to Jakarta.
On October 3, 1993, private respondent and his
companion took the PAL flight to Singapore and arrived
at about 6:00 in the evening. Upon their arrival, they
proceeded to the Singapore Airlines office to check-in
for their flight to Jakarta scheduled at 8:00 in the same
evening. Singapore Airlines rejected the tickets of
private respondent and his group because they were
not endorsed by PAL. Stranded at the airport in
Singapore and left with no recourse, private respondent
was in panic and at a loss where to go, and was
subjected to humiliation, embarrassment, mental
anguish, serious anxiety, fear and distress. Eventually,
private respondent and his companions were forced to
purchase tickets from Garuda Airlines and board its last
flight bound for Jakarta. When they arrived in Jakarta at
about 12:00 midnight, the party who was supposed to
fetch them from the airport had already left and they
had to arrange
254
 CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

for their transportation to the hotel at a very late hour. After a

series of nerve-wracking experiences, private respondent
became ill and was unable to participate in the tournament.
Both airlines disowned liability and blamed each other for the
fiasco. On August 15, 1997, private respondent filed a Complaint
for Damages before the Regional Trial Court (RTC) docketed as
Civil Case No. 23773, seeking compensation for moral damages
in the amount of PI million and attorney’s fees.
Instead of filing an answer to private respondent’s
Complaint, PAL filed a Motion to Dismiss, dated September 18,
1998, on the ground that the said complaint was barred on the
ground of prescription under Section 1 (f) of Rule 16 of the Rules
of Court. PAL argued that the Warsaw Convention, particularly
Article 29 thereof, governed this case, as it provides that any
claim for damages in connection with the international
transportation of persons is subject to the prescription period of
two years. Since the Complaint was filed on August 15, 1997,
more than three years after PAL received the demand letter on
January 25, 1994, it was already barred by prescription.
The RTC and the C A ruled in favor of the respondent,
applying the provision of the Civil Code and other pertinent laws
of the Philippines.
ISSUE:Whether or not the filing of the complaint was
already barred by prescription.
HELD: The Warsaw Convention applies to “all international
transportation of persons, baggage, or goods performed by any
aircraft for hire.” It seeks to accommodate or balance the
interests of passengers seeking recovery for personal injuries
and the interest of air carriers seeking to limit potential liability.
It employs a scheme of strict liability favoring passengers and
imposing damage caps to benefit air carrier. The cardinal
purpose of the Warsaw Convention is to provide uniformity of
rules governing claims arising from international air travel, thus,
it precludes a passenger from maintaining an action for personal
injury damages under local law when his or her claim does not
satisfy the conditions of liability under the Convention.
Nevertheless, this Court notes that jurisprudence in the
Philippines and the United States also recognizes that the
Warsaw Convention does not “exclusively regulate” the
relationship between passenger and carrier on an international
flight.

255
TRANSPORTATION l AWS

This Court finds that the present ease is substantially similar to

cases in w hich the damages sought were considered to be
outside the coverage of the Warsaw Convention.
In f Airlines v. Cv. this Court distinguished between the(l)
damage to the passenger's baggage, and (2) humiliation he
suffered at the hands of the airline's employees. The first
cause of action was covered by the Warsaw Convention, which
prescribes two years, while tiie second was covered by the
 provisions of the Civil Code on torts, which prescribes in four
years. In the petition at bar, private respondent’s Complaint
alleged that both PAL and Singapore Airlines were guilty of
gross negligence, which resulted in his being subjected to
“humiliation, embarrassment, mental anguish, serious anxiety,
fear, and distress.” The emotional harm suffered by the private
respondent, as a result of ha\ing been unreasonably and
unjustly prevented from boarding the plane, should be
distinguished from the actual damages, which resulted from
the same incident. Under the Civil Code provisions on tort,
such emotional harm gives rise to compensation where gross
negligence or malice is proven.
Had the present case merely consisted of claims incidental
to the airlines’ delay in transporting their passengers, the private
respondent’s Complaint would have been time-barred under
Article 29 of the Warsaw Convention. However, the present case
involves a special species of injury resulting from the failure of
PAL and/or Singapore Airlines to transport private respondent
from Singapore to Jakarta- the profound distress, fear, anxiety,
and humiliation that private respondent experienced when,
despite PAL’s earlier assurance that Singapore Airlines
confirmed his passage, he was prevented from boarding the
plane and he faced the daunting possibility that he would be
stranded in Singapore Airport because the PAL office was
already closed.
These claims are covered by the Civil Code provisions on
tort, and not within the purview of the Warsaw Convention.
Hence, the applicable prescription period is that provided under
Article 1146 of the Civil Code.

256
 CHAPTER IV
DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS

Article 1146. The following actions must be instituted within four

years:
(1) Upon an injury to the rights of the plaintiff
(2) Upon a quasi-delict
Private respondent’s Complaint was filed with the RTC on
August 15, 1997, which was less than four years since PAL received
his extrajudicial demand on January 25, 1994. Thus, private
respondent’s claims have not yet prescribed and PAL’s Motion to
Dismiss must be denied.
 257
CHAPTER V CARRIAGE OF

GOODS BY SEA ACT

(COMMONWEALTH ACT NO. 65)

AN ACT TO DECLARE THAT PUBLIC ACT NUMBERED FIVE

HUNDRED AND TWENTY-ONE, KNOWN AS
“CARRIAGE OF GOODS BY SEA ACT,” ENACTED BY

THE SEVENTY-FOURTH CONGRESS OF THE UNITED

STATES, BE ACCEPTED, AS IT IS HEREBY ACCEPTED BY THE
NATIONAL ASSEMBLY.
WHEREAS, the Seventy-fourth Congress of the United States
enacted Public Act Numbered Five hundred and twenty-one,
entitled:
“Carriage of Goods by Sea Act”;
WHEREAS, the primordial purpose of the said Acts is to bring
about uniformity in ocean bills of lading and to give effect to the
Brussels Treaty, signed by the United States with other powers;
WHEREAS, the Government of the United States has left it to
the Philippine Government to decide whether or not the said Act
shall apply to carriage of goods by sea in foreign trade to and from
Philippine ports;
WHEREAS, the said Act of Congress contains advanced
legislation, which is in consonance with modem maritime mles and
the practices of the great shipping countries of the world;
 WHEREAS, shipping companies, shippers and marine insurance
companies, and various chambers of commerce, which are directly
affected by such legislation, have expressed their desire that said
Congressional Act be made applicable and extended to the
Philippines, therefore.

258
CHAPTER V
CARRIAGE OF GOODS BY SEA ACT

Be it enacted by the National Assembly of the

Philippines:

Section 1. That the provisions of Public Act Numbered Five

hundred and twenty-one of the Seventy-fourth Congress of the
United States, approved on April sixteenth, nineteen hundred and
thirty-six, be accepted, as it is hereby accepted to be made
applicable to all contracts for the carriage of goods by sea to and
from Philippine ports in foreign trade: Provided, That nothing in the
Act shall be construed as repealing any existing provision of the
Code of Commerce which is now in force, or as limiting its
application.
Sec. 2. This Act shall take effect upon its
approval. Approved, October 22, 1936.
An Act Relating to the Carriage of Goods by Sea.
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That every bill of lading or similar
document of title which is evidence of a contract for the carriage of
goods by sea to or from ports of the United States, in foreign trade,
shall be effect subject to the provisions of the Act.
TITLE I

Section 1. When used in this Act —

(a) The term “carrier” includes the owner or the charterer who enters into a
contract of carriage with a shipper.

(b) The term “contract of carriage” applies only to contracts of carriage

covered by a bill of lading or any similar document of title, insofar as such
document relates to the carriage of goods by sea, including any bill of lading or any
similar document as aforesaid issued under or pursuant to a charter party from
the moment at which such bill of lading or similar document of title regulates the
relations between a carrier and a holder of the same.

(c) The term “goods” includes goods, wares, merchandise, and articles of
every kind whatsoever, except live animals and cargo

259
TRANSPORTATION LAWS

which by the contract of carriage is stated as being carried on deck and is so

carried.
(d) The term “ship” means any vessel used for the carriage of goods by sea.
(e) The term “carriage of goods” covers the period from the time when the
goods are loaded to the time when they are discharged from the ship.

RISKS
Section 2. Subject to the provisions of Section 6, under every contract of
carriage of goods by sea, the carrier in relation to the loading, handling, stowage,
carriage, custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities hereinafter
set forth.

RESPONSIBILITIES AND LIABILITIES

Section 3. (1) The carrier shall be bound, before and at the beginning of the
voyage, to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling chambers, and all
other parts of the ship in which goods are carried, fit and safe for their
reception, carriage, and preservation.

Note: Under Section 3(1), Paragraphs (a) to (c), the carriers are
deemed to warrant impliedly the seaworthiness of the ship. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with
The failure of a common
a sufficient number of competent officers and crew.
carrier to maintain in seaworthy condition the vessel involved in its
contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code.
The provisions owed their conception to the nature of the business
of common

carriers. This business is impressed with a special public

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SEA ACT

duty. 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, especially because with the modem development of
science and invention, transportation has become more rapid,
more complicated and somehow more hazardous. For these
reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being
obliged by law to impliedly warrant its seaworthiness. (Caltex
[Philippines], Inc. v. Sulpicio Lines, 315 SCRA 709, September 30, 1999)

(2) The carrier shall properly and carefully load, handle, stow, carry, keep,
care for, and discharge the goods carried.
(3) After receiving the goods into his charge, the carrier, or the master or
agent of the carrier, shall, on demand of the shipper, issue to the shipper a bill of
lading showing among other things —
(a) The loading marks necessary for identification of the goods as
the same are furnished in writing by the shipper before the loading of such
goods starts, provided such marks are stamped or otherwise shown clearly
upon the goods if uncovered, in such a manner as should ordinarily remain
legible until the end of the voyage.
(b) Either the number of packages or pieces, or the quantity
or weight, as the case may be, as furnished in writing by the shipper.
(c) The apparent order and condition of the goods:
Provided, That no carrier, master, or agent of the carrier, shall be
bound to state or show in the bill of lading any marks, number,
quantity, or weight which he has reasonable ground for suspecting
not accurately to represent the goods actually received or which he
has had no reasonable means of checking.
(4) Such a bill of lading shall be prima facie evidence of the receipt by
the carrier of the goods as therein described in accordance with
paragraphs (3)(a), (b), and (c) of this section: (The rest of the provision is
not applicable to the Philippines.)

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 (5) The shipper shall be deemed to have guaranteed to the carrier the
accuracy at the time of shipment of the marks, number, quantity, and weight, as
furnished by him; and the shipper shall indemnify the carrier against all loss,
damages, and expenses arising or resulting from inaccuracies in such particulars.
The right of the carrier to such indemnity shall in no way limit his responsibility
and liability, under the contract of carriage to any person other than the shipper.
(6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge or at
the time of the removal of the goods into the custody of the person entitled to
delivery thereof under the contract of carriage, such removal shall be prima facie
evidence of the delivery by the carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent, the notice must be given within three
days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods
given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time
of their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery of the
goods or the date when the goods should have been delivered: Provided, That, if a
notice of loss or damage, either apparent or concealed, is not given as provided for
in this section, 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.
(7) 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,

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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.
(8) Any claims, covenant, or agreement in a contract of carriage relieving the
carrier of the ship from liability for loss or damage to or in connection with the
goods, arising from negligence, fault, or failure in the duties and obligations
provided in this section, or lessening such liability otherwise than as provided in
this Act, shall be null and void and of no effect. A benefit of insurance in favor of
the carrier, or similar clause, shall be deemed to be a clause relieving the carrier
from liability.

RIGHTS AND IMMUNITIES

Section 4. (1) Neither the carrier nor the ship shall be liable for loss or
damages arising or resulting from unseaworthiness unless caused by want of due
diligence on the part of the carrier to make the ship seaworthy, and to secure that
the ship is properly manned, equipped, and supplied, and to make the holds,
refrigerating and cooling chambers, and all other parts of the ship in which goods
are carried fit and safe for their reception, carriage, and preservation, in
accordance with the provisions of paragraph (1) of Section (3). Whenever loss or
damage has resulted from unseaworthiness, the burden of proving the exercise of
due diligence shall be on the carrier or other persons claiming exemption under
this section.
(2) Neither the carrier nor the ship shall be responsible for loss or
damage arising or resulting from —
(a) Act, neglect, or default of the master, mariner, pilot, or the
servants of the carrier in the navigation or in the management of the ship;

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(b) Fire, unless caused by the actual fault or privity

of the carrier;
(c) Perils, dangers, and accidents of the sea or other
navigable waters;
(d) Act of God;

(e) Act of war;

(f) Act of public enemies;

(g) Arrest or restraint of princes, rulers, or people,
or seizure under legal process;
(h) Quarantine restrictions;
(i) Act or omission of the shipper or owner of the
goods, his agent or representative;
(j) Strikes or lockouts or stoppage or restraint of
labor from whatever cause, whether partial or general:
Provided, That nothing herein contained shall be construed to
relieve a carrier from
responsibility for the carrier’s own acts;
(k) Riots and civil commotions;
(l) Saving or attempting to save life or property at
sea;
(m) Wastage in bulk or weight or any other loss or
damage arising from inherent defect, quality, or vice of the
goods;
(n) Insufficiency of packing;
(o) Insufficiency or inadequacy of marks;
(p) Latent defects not discoverable by due
diligence; and
(q) Any 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 that neither the actual fault or privity of the carrier

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nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

(3) The shipper shall not be responsible for loss or damage sustained by the
carrier or the ship arising or resulting from any cause without the act, or neglect of the
shipper, his agents, or his servants.
(4) 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 this Act or of the
contract of carriage, and carrier shall not be liable for any loss or damage resulting therefrom:
Provided\ however, That if the deviation is for the purpose of loading or unloading cargo or
passengers, it shall, prima facie, be regarded as unreasonable.
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount exceeding $500 per
package lawful money of the United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency, unless the nature and value
of such goods have been declared by the shipper before shipment and inserted in the bill of lading.
This declaration, if embodied in the bill of lading shall be prima facie evidence, but shall be
conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and
the shipper, another maximum amount than that mentioned in this
paragraph may be fixed: Provided, That such maximum shall not be less than
the figure above named. In no event shall the carrier be liable for more than
the amount of damage actually sustained.
Neither the carrier nor the ship shall be responsible in any event for loss
or damage to or in connection with the transportation of the goods if the
nature or value thereof has been knowingly and fraudulently misstated by the
shipper in the bill of lading.
(6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof,
the carrier, master or agent of the carrier, has not consented with knowledge of their nature and
character, may

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at any time before discharge be landed at any place or destroyed or rendered 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.

SURRENDER OF RIGHTS AND IMMUNITIES

AND INCREASE OF RESPONSIBILITIES
AND LIABILITIES
Section 5. 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 responsibilities and liabilities under this Act, provided such
surrender or increase shall be embodied in the bill of lading issued to the shipper.
The provisions of this Act shall not be applicable to charter parties; but if bills of lading are
issued in the case of a ship under a charter party, they shall comply with the terms of this Act.
Nothing in this Act shall be held to prevent the insertion in a bill of lading of any lawful provisions
regarding general average.

SPECIAL CONDITIONS
Section 6. Notwithstanding the provisions of the preceding sections, a carrier, master or agent
of the carrier, and a shipper shall, in regard to any particular goods, be at liberty to enter into any
agreement in any terms as to the responsibility and liability of the carrier for such goods, and as to
the rights and immunities of the carrier in respect of such goods, or his obligation as to
seaworthiness (so far as the stipulation regarding seaworthiness is not contrary to public policy), or
the care or diligence of his servants or agents in regard to the loading, handling, stowage, carriage,
custody, care and discharge of the goods carried by sea: Provided, That in this case, no bill of lading
has been or shall be issued and that the

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terms agreed shall be embodied in a receipt which shall be a non- negotiable document and shall be
marked as such.
Any agreement so entered into shall have full legal effect: Provided, That this Section shall not
apply to ordinary commercial shipments made in the ordinary course of trade but only to other
shipments where the character or condition of the property to be carried or the circumstances, terms
and conditions under which the carriage is to be performed are such as reasonably to justify a special
agreement.
Section 7. Nothing contained in this Act shall prevent a carrier or a shipper from entering into
any agreement, stipulation, condition, reservation, or exemption as to the responsibility and liability of
the carrier or the ship for the loss or damage to or in connection with the custody and care and
handling of goods prior to the loading on and subsequent to the discharge from the ship on which the
goods are carried by sea.
Section 8. The provisions of this Act shall not affect the rights and obligations of the carrier
under the provisions of the Shipping Act 1916, or under the provisions of Sections 4281 to 4292,
inclusive, of the Revised Statutes of the United States, or of any amendments thereto, or under the
provisions of any other enactment for the time being in force relating to the limitation of the liability
of the owners of seagoing vessels.

TITLE II
Section 9. Nothing contained in this Act shall be construed as permitting a common carrier by
water or discriminate between competing shippers similarly placed in time and circumstances,
either: (a) with respect to their right to demand and receive bills of lading subject to the provisions
of this Act; or (b) when issuing such bills of lading either in the surrender of any of the carrier’s
rights and immunities or in the increase of any of the carrier’s responsibilities and liabilities
pursuant to Section 5, Title I, of this Act; (c) in any other way prohibited by the Shipping Act, 1916,
as amended.

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Section 10. (Not applicable to the Philippines.)

Section 11. Where under the custom of any trade the weight of any bulk cargo inserted in the
bill of lading is a weight ascertained or accepted by a third party other than the carrier or the shipper
and the fact that the weight as ascertained or accepted is stated in the bill of lading, then
notwithstanding anything in this Act, the bill of lading shall not be deemed to be prima facie evidence
against the carrier of the receipt of goods of the weight so inserted in the bill of lading, and the
accuracy thereof at the time of shipment shall not be deemed to have been guaranteed by the shipper.
 Section 12. (Not applicable to the Philippines.)
Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from ports of
the United States in foreign trade. As used in this Act the term “United States” includes, its districts,
territories, and possessions: Provided, however, That the Philippine Legislature may by law exclude its
application to transportation to or from ports of the
Philippine Islands. The term “foreign trade” means the transportation of goods between the ports of
the United States or its possessions, and any other port of the United States or its possessions:
Provided, however, That, That any bill of lading or similar document of the title which is evidence of a
contract for the carriage of goods by sea between such ports, containing an express statement that it
shall be subject to the provisions of this Act, shall be subjected hereto as fully as if subject hereto by
the express provisions of this Act: Provided, further, That every bill of lading or similar document of
title which is evidence of a contract for the carriage of goods by sea from ports of the United States, in
foreign trade, shall contain a statement that it shall have effect subject to the provisions of this Act.
Section 14. Upon the certification of the Secretary of Commerce that the foreign commerce of
the United States in its competition with that of foreign nations is prejudiced by the provisions, or
any of them, of the Title I of this Act, or by the laws of any foreign country or countries relating to
the carriage of goods by sea, the President of the United States may, from time to time by
proclamation, suspend any or all provisions of Title I of this Act for such periods

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of time or indefinitely as may be designated in the proclamation. The President may at any time
rescind such suspension of Title I hereof, and any provisions thereof which may have been suspended
shall thereby be reinstated and again apply to contracts thereafter made for carriage of goods by sea.
Any proclamation of suspension or rescission of any such suspension shall take effect on the date
named therein, which date shall be not less than ten days from the issue of the proclamation.
Any contract for the carriage of goods by sea, subject to the provisions of this Act, effective
during any period when title I hereof, or any part thereof, is suspended, shall be subject to all
provisions of law now or hereafter applicable to that part of Title I which may have thus been
suspended.
Section 15. This Act shall take effect ninety days after the date of its approval; but nothing in
this Act shall apply during a period not to exceed one year following its approval to any contract for
the carriage of goods by sea, made before the date on which this Act is approved nor to any bill of
lading or similar document of title issued, whether before or after such date of approval in pursuance
of any such contract as aforesaid.
 Section 16. This Act may be cited as the “Carriage of Goods by Sea Act ”
Approved, April 16,1936.
CASES ON CARRIAGE OF GOODS BY SEA ACT
Written extrajudicial demand by the creditor does not toll the running of the prescriptive period
under the Act.

DOLE Philippines, Inc. v. Maritime Company of the Philippines

No. L-61352, February 27,1987
FACTS: The cargo subject of the instant case was discharged in Dadiangas unto the custody of
the consignee on December 18, 1971. The corresponding claim or the damages sustained by the cargo
was

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filed by the plaintiff with the defendant vessel on May 4,1972. On June 11, 1973,
the plaintiff filed a complaint in the Court of First Instance of Manila, docketed
therein as Civil Case No. 91043, embodying three causes of action involving three
separate and different shipments. The third cause of action therein involved the
cargo now subject of this present litigation. On December 11,1974, Judge Serafin
Cuevas issued an Order in Civil Case No. 91043 dismissing the first two causes of
action in the aforesaid case with prejudice and without pronouncement as to costs
because the parties had settled or compromised the claims involved therein. The
third cause of action, which covered the cargo subject of this case, now was
likewise dismissed but without prejudice as it was not covered by the settlement.
The dismissal of that complaint containing the three causes of action was upon a
joint motion to dismiss filed by the parties. Because of the dismissal of the
complaint in Civil Case No. 91043 with respect to the third cause of action without
prejudice, plaintiff instituted this present complaint on January 6,1975.
 To the complaint in the subsequent action, Maritime filed an answer pleading
the affirmative defense of prescription under the provisions of the Carriage
inter alia
of Goods by Sea Act, and following pretrial moved for a preliminary hearing on said
defense. The Trial Court granted the motion, scheduling the preliminary hearing on
April 27, 1977. The record before the Court does not show whether or not that
hearing was held, but under date of May 6,1977, Maritime filed a formal motion to
dismiss invoking once more the ground of prescription. The motion was opposed
by DOLE and the Trial Court, after due consideration, resolved the matter in favor
of Maritime and dismissed the complaint. DOLE sought a reconsideration, which
was denied, and thereafter took the present appeal from the order of dismissal.
ISSUE: Whether or not Article 1155 of the Civil Code providing that the
prescription of actions is interrupted by the making of an extrajudicial written
demand by the creditor is applicable to actions brought under the Carriage of
Goods by Sea Act which, in its Section 3, paragraph 6, provides that:
the carriage and the ship shall be discharged from
all liability in respect of loss or damage unless suit is brought within one year after delivery of the
goods or the date when

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the goods should have been delivered; Provided, that, if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this
section, 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.”

HELD: DOLE concedes that its action is subject to the one- year
period of limitation prescribed in the abovecited provision. The
substance of its argument is that since the provisions of the Civil
Code are, by express mandate of said Code, suppletory of
deficiencies in the Code of Commerce and special laws in matters
governed by the latter, and there being a patent deficiency with
respect to the tolling of the prescriptive period provided for in the
Carriage of Goods by Sea Act, prescription under said Act is subject
to the provisions of Article 1155 of the Civil Code on tolling and
because DOLE’S claim for loss or damage made on May 4, 1972
amounted to a written extrajudicial demand which would toll or
interrupt prescription under Article 1155, it operated to toll
prescription also in actions under the Carriage of Goods by Sea Act.
Too much the same effect is the further argument based on Article
1766 of the Civil Code which provides that the rights and obligations
of common carriers shall be governed by the Code of Commerce
and by special laws in all matters not regulated by the Civil Code.
These arguments might merit weightier consideration were it
not for the fact that the question has already received a definite
answer, adverse to the position taken by DOLE, in The Yek Tong Lin Fire
& Marine Insurance Co., Ltd. v. American President Lines, Inc. There, in a parallel
factual situation, where suit to recover for damage to cargo shipped
by vessel from Tokyo to Manila was filed more than two years after
the consignee’s receipt of the cargo, this Court rejected the
contention that an extrajudicial demand tolled the prescriptive
period provided for in the Carriage of Goods by Sea Act.
Moreover, no different result would obtain even if the Court
were to accept the proposition that a written extrajudicial demand
does toll prescription under the Carriage of Goods by Sea Act. The
demand
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in this instance would be the claim for damage filed by DOLE with Maritime on
May 4, 1972. The effect of that demand would have been to renew the one-year
prescriptive period from the date of its making. Stated otherwise, under DOLE’S
theory, when its claim was received by Maritime, the one-year prescriptive period
was interrupted — “tolled” would be the more precise term — and began to run
anew from May 4, 1972, affording DOLE another period of one year counted from
that date within which to institute action on its claim for damage. Unfortunately,
DOLE let the new period lapse without filing action. In instituting Civil Case No.
91043 only on June 11, 1973, more than one month after that period has expired
and its right of action has prescribed.
DOLE’S contention that the prescriptive period “remained tolled as of May 4,
1972 (and that) in legal contemplation (the) case (Civil Case No. 96353) was filed
on January 7, 1975 well within the one-year prescriptive period in Section 3(6) of
the Carriage of Goods by Sea Act,” equates tolling with indefinite suspension. It is
clearly fallacious and merits no consideration.
A request for, and the result of a bad order examination, done within the reglementary period for
furnishing notice of loss or damage to the carrier or it’s agent, serves the purpose of a claim under
Paragraph 6, Section 3 of the COGS A; nevertheless, the same provision states that failure to comply
with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within
one year after delivery of the goods.
Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines
Insurance, Inc.)
G.R. No. 181163, July 24, 2013

FACTS: On April 15, 1995, Nichimen Corporation shipped to Universal Motors

Corporation (Universal Motors) 219 packages containing 120 units of brand new
Nissan Pickup Truck Double Cab 4x2 model, without engine, tires and batteries, on
board the vessel S/S “Calayan Iris” from Japan to Manila. The shipment, which had
a declared value of US$81,368 or P29,400,000, was insured with Philam against all
risks. The carrying vessel arrived at the port of Manila on

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April 20, 1995, and when the shipment was unloaded by the staff of ATI, it was
found that the package marked as 03-245-42K/1 was in bad order. The Turn Over
Survey of Bad Order Cargoes identified two packages, labeled 03-245-42K/1 and
03-237-7CK/2, as being dented and broken. On May 11, 1995, the shipment was
withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized broker of
Universal Motors, and delivered to the latter’s warehouse in Mandaluyong City.
Upon the request of Universal Motors, a bad order survey was conducted on the
cargoes and it was found that one Frame Axle Sub without LWR was deeply dented
on the baffle plate, while six Frame Assembly with Bust were deformed and
misaligned. Owing to the extent of the damage to said cargoes, Universal Motors
declared them a total loss. On August 4, 1995, Universal Motors filed a formal
claim for damages in the amount of P643,963.84 against Westwind, ATI and R.F.
Revilla Customs Brokerage, Inc. When Universal Motor’s demands remained
unheeded, it sought reparation from and was compensated in the sum of
P633,957.15 by Philam. Accordingly, Universal Motors issued a Subrogation
Receipt in favor of Philam. On January 18, 1996, Philam, as subrogee of Universal
Motors, filed a Complaint for damages against Westwind, ATI, and R.F. Revilla
Customs Brokerage, Inc. before the Regional Trial Court (RTC) of Makati City,
Branch 148.
 On September 24, 1999, the RTC rendered judgment in favor of Philam and
ordered Westwind and ATI to pay Philam, jointly and severally, the sum of
P633,957.15, with interest at the rate of 12% per annum, PI58,989.28 by way of
attorney’s fees, and expenses of litigation. On appeal, the Court of Appeals (CA)
affirmed the decision of RTC, with modification.
ISSUE: Whether or not Philam’s cause of action has prescribed.
HELD: Upon a careful review of the records, the Court finds no reason to
deviate from the finding that petitioners Westwind and ATI are concurrently
accountable for the damage to the content of Steel Case No. 03-245-42K/1.
Section 2 of the COGSA provides that under every contract of carriage of
goods by the sea, the carrier in relation to the loading, handling, stowage, carriage,
custody, care, and discharge of such goods,

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shall be subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3(2) thereof then states that among the
carrier’s responsibilities are to properly load, handle, stow, carry, keep, care for
and discharge the goods carried.
The Carriage of Goods bv Sea Act (COGSA) or Public Act No. 521 of the 74th US
Congress was accepted to be made applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade by virtue of
Commonwealth Act (C.A.) No. 65, Section 1 of C.A. No. 65 states:
 Section 1. That the provisions of Public Act Number Five Hundred and Twenty-
one of the Seventy-fourth Congress of the United States approved on April
sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to
be made applicable to all contracts for the carriage of goods by sea to and from
Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed
as repealing any existing provision of the Code of Commerce, which is now in
force, or as limiting its application.
The prescriptive period for filing an action for the loss or damage of the goods
under the COGSA is found in paragraph 6, Section 3, thus:
Paragraph 6. Unless notice of loss or damage and the general nature of such loss
or damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall be
prima facie evidence of the delivery by the carrier of the goods as described in the
bill of lading. If the loss or damage is not apparent, the notice must be given within
three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods
given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has, at the
time of their receipt, been the subject of joint survey or inspection.
In any event, the carrier and the ship shall be discharged from all liability in

respect of loss or damage unless suit is brought within

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one year after delivery of the goods or the date when the goods should have been
delivered. Provided, that if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, 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.
S/S “Calayan Iris” arrived at the port of Manila on April 20,1995, and the
subject cargoes were discharged to the custody of ATI the next day. The goods
were then withdrawn from the CFS Warehouse on May 11,1995, and the last of
the packages delivered to Universal Motors on May 17, 1995. Prior to this, the
latter filed a Request for Bad Order Survey on May 12, 1995 following a joint
inspection where it was discovered that six pieces of Chassis Frame Assembly from
two bundles were deformed and one Front Axle Sub without Lower from a steel
case was dented. Yet, it was not until August 4, 1995 that Universal Motors filed a
formal claim for damages against petitioner Westwind.
Even so, [W]e have held in Insurance Company of North America v. Asian Terminals, Inc.
that a request for, and the result of a bad order examination, done within the
reglementary period for furnishing notice of loss or damage to the carrier or it’s
agent, served the purpose of a claim. A claim is required to be filed within the
reglementary period to afford the carrier or depository reasonable opportunity
and facilities to check the validity of the claims while facts are still fresh in the
minds of the persons who took part in the transaction and documents are still
available. Here, Universal Motors filed a request for bad order survey on May 12,
1995 even before all the packages could be unloaded to its warehouse.
Moreover, Paragraph 6, Section 3 of the COGSA clearly states that failure to
comply with the notice requirement shall not affect or prejudice the right of the
shipper to bring suit within one year after delivery of the goods. Petitioner
Philam, as subrogee of Universal Motors, filed the Complaint for damages on
January 18, 1996, just eight months after all the packages were delivered to its
possession on May 17,1995. Eventually, petitioner Philam’s action against
petitioners Westwind and ATI was seasonably filed.

275
TRANSPORTATION LAWS

Section 3(6), Title I of the Carriage of goods by Sea Act admits of an exception: if the one-year period is
suspended by express agreement of the parties.
Universal Shipping Lines, Inc. v. Intermediate Appellate Court and Alliance Assurance Co., Ltd.
G.R. No. 74125, July 31,1990

FACTS: On or about March 22,1974, SEVALCO, Limited, owned and operated by

the petitioner, shipped from Rotterdam, Netherlands, to Bangkok, Thailand,
aboard its M/V “TAIWAN,” two cargoes of 50 palletized cartons consisting of 2,000
units of 25 kilogram bags of Statex R Brand carton black, with a declared gross
weight of 53,000 kilos each. They were respectively consigned to S. Lersen
Company, Ltd. and Muang Ngarm Retreads, Ltd., per Bills of Lading Nos. RB- 15
both shipments were insured with the private respondent, Alliance Assurance
Company, Ltd., a foreign insurance company domiciled in London, England, which
had withdrawn from the Philippine market on June 30, 1951.
Despite the arrival of the vessel on June 28, 1974 at Bangkok, the cargo
covered by Bill of Lading No. RB-15 was not unloaded nor delivered to the
consignee, S. Lersen Company, Ltd. The shipment under Bill of Lading No. RB-16
was delivered to Muang Ngarm Retreads, Ltd. with a total weight shortage of
11,070 kilos because the cargoes had been either totally or partially dissolved in
saltwater which flooded Hatch No. 2 of the vessel where they had been stored.
 The consignees, S. Lersen Co., Ltd. and Muang Ngarm Retreads, Inc., filed their
respective formal claims for loss and damage to their cargoes on August 7, 1974
and on November 12, 1974 the insurer paid both claims in the amounts of $12,180
and $2,547.18 for the loss and damage to their cargoes.
On June 25, 1976, private respondent, as insurer-subrogee, filed an action in
the Court of First Instance of Manila to recover from the petitioner and its Manila
agent, Carlos Go Thong & Company, what it paid the consignees of the cargo.
After the trial, the court a quo rendered judgment for the private respondent.

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CARRIAGE OF GOODS BY SEA ACT

In this appeal by certiorari, petitioner alleges that respondent court erred in

finding that private respondent’s cause of action has not yet prescribed.
Whether or not the action under Section 3(6) of the Carriage of Goods by
ISSUE:
Sea Act has prescribed.
HELD:Anent the issue of prescription of the action under Section 3(6), Title 1,
of the Carriage of Goods by Sea Act (Commonwealth Act No. 65) which provides
that:
“x x x the carrier and the ship shall be dischargedfrom all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been delivered, x x x ”

This provision of the law admits of an exception: if the one-year period is

suspended by express agreement of the parties. (Chun Kay v. Everett Steamship Corporation, L-
5554, May 27, 1953; Tan Liao v. American President Lines, Ltd., L-7280, January 20, 1956) For in such a case,
their agreement becomes the law for them. (Phoenix Assurance Co., Ltd. v. United Stated Lines, 22
SCRA 674; Baluyot v. Venegas, 22 SCRA 412; Lazo v. Republic Surety &
Insurance, Co., Inc., 31 SCRA 329; Philippine American General Insurance Co.,
Inc. v. Mutuc, 61 SCRA 22-23)
The exchange of correspondence between the parties and/or their
associates/representatives shows that the parties had mutually agreed to extend
the time within the plaintiff or its predecessors-in-interest may file suit until
December 27, 1976. When the complaint was filed on June 25, 1976, that
deadline had not yet expired.
One-year period of prescription under COGSA suspended by express agreement of the parties.
Benjamin Cua (Cua Uian Tek) v. Wallem Philippines
Shipping, Inc. and Advance Shipping Corporation
G.R. No. 171337, July 11, 2012
FACTS: On November 12, 1990, Cua filed a civil action for damages against
Wallem and Advance Shipping before the Regional

277
TRANSPORTATION LAWS

Trial Court (RTC) of Manila. Cua sought the payment of P2,030,303.52 for damage
to 218 tons and for a shortage of 50 tons of shipment of Brazilian Soybean
consigned to him as evidenced by Bill of Lading No. 10. He claimed that the loss
was due to the respondents’ failure to observe extraordinary diligence in carrying
the cargo. Advance Shipping (a foreign corporation) was the owner and manager
of M/V Argo Trader that carried the cargo, while Wallem was its local agent.
Advanced Shipping filed a motion to dismiss the complaint, assailing the
RTC’s jurisdiction over Cua’s claim. It argued that Cua’s claim should have first
been brought to arbitration. Cua contended that he, as a consignee, was not
bound by the Charter Party Agreement, which was a contract between the ship
owner (Advance Shipping) and the charterers. Upon motion by Advance Shipping,
the RTC ruled that Cua was not bound by the arbitration clause in the Charter Party
Agreement.
In the meantime, Wallem filed its own motion to dismiss, raising the sole
ground of prescription. Section 3(6) of the Carriage of Goods by Sea Act (COGSA)
provides that “the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery of
the goods.” Wallem alleged that the goods were delivered to Cua on August 16,
1989, but the damage suit was instituted only on November 12, 1990, more than
one year than the period allotted under the COGSA. Since the action was filed
beyond the one-year prescriptive period, Wallem argued that Cua’s action has
been barred.
Cua filed an opposition to Wallem’s motion to dismiss, denying the latter’s
claim of prescription. Cua referred to the August 10, 1990 telex message sent by
Mr. A.R. Filder of Thomas Miller, manager of the UK P&I Club, which stated that
Advance Shipping agreed to extend the commencement of suit for 90 days, from
August 14,1990 to November 12, 1990. The extension was made with the
concurrence of the insurer of the vessel, the UK P&I Club. A copy of the
August 10, 1990 telex was supposedly attached to Cua’s opposition.
After trial on the merits, the RTC issued its decision on December 28, 1995,

ordering the respondents jointly and severally liable to pay as

278
 damages to Cua in the amount of P2,030,000.00, plus
interest until the same is fully paid; the sum of PI
00,000 as attorney’s fees; and the cost of the suit, and
dismissing the counterclaims of the respondents.
The respondents filed an appeal with the Court of
Appeals (CA), insisting that Cua’s claim is arbitrable
and has been barred by prescription and/or laches.
The CA found the respondents’ claim of prescription
meritorious after finding that the August 10, 1990 telex
message, extending the period to file an action, was
neither attached to Cua’s opposition to Wallem’s
motion to dismiss, nor presented during trial. The CA
ruled that there was no basis for the RTC to conclude
that the prescriptive period was extended by the
parties’ agreement. Hence, it set aside the RTC
decision and dismissed Cua’s complaint. Cua filed a
motion for reconsideration of the CA’s decision, which
was denied by the CA in a resolution dated January
31,2006. Cua thus filed the present petition to assail
the CA rulings.
ISSUE: Whether or not Cua’s claim for payment of damages /)
against the respondents has prescribed. II
.J

HELD: The COGSA is the applicable law for all contracts

for carriage of goods by sea to and from Philippine ports in ■i

foreign trade.
It is thus the law that the Court shall consider in the
present case since the cargo was transported from
Brazil to the Philippines. Under Section 3(6) of the
COGSA, the carrier is discharged from liability for loss
or damage to the cargo “unless the suit is brought
within one year after delivery of the goods or the date
when the goods should have been delivered.”
Jurisprudence, however, recognized the validity of an
agreement between the carrier and the
shipper/consignee extending the one-year period to
file a claim.
 CHAPTER V
CARRIAGE OF GOODS BY SEA ACT

The vessel M/V Argo Trader arrived in Manila on July 8, 1989. Cua’s
complaint for damages was filed before the RTC of Manila on
November 12, 1990. Although the complaint was clearly filed
beyond the one-year period, Cua additionally alleged in his
complaint (under paragraph 11) that “the defendants xxx agreed to extend
the time for filing of the action up to November 12,1990”
The allegation of an agreement extending the period to file an action
in Cua’s complaint is a material averment that, under Section 11,

279

TRANSPORTATION LAWS

Rule 8 of the Rules of Court, must be specifically denied by the respondents,

otherwise, the allegation is deemed admitted.
A specific denial is made by specifying each material allegation of fact, the
truth of which the defendant does not admit, and whenever practicable, setting
forth the substance of the matters upon which he relies to support his denial. The
purpose of requiring the defendant to make a specific denial is to make him
disclose the matters alleged in the complaint, which he succinctly intends to
disprove at the trial, together with the mattery which he relied upon to support the denial
A review of the pleadings submitted by the respondents disclosed that they
failed to specifically deny Cua’s allegation of an agreement extending the period to
file an action to November 12, 1990. Wallem’s motion to dismiss simply referred to
the fact that Cua’s complaint was filed more than one year from the arrival of the
vessel, but it did not contain a denial of the extension. Advance Shipping’s motion
to dismiss, on the other hand, focused solely on its contention that the action was
premature for failure to first undergo arbitration. While the joint answer
submitted by the respondents denied Cua’s allegation of an extension, they made
no further statement other than a bare and unsupported contention that Cua’s
“complaint is barred by prescription and/or laches.” The respondent did not
provide in their joint answer any factual basis for their belief that the complaint
had prescribed.
Given the respondents failure to specifically deny the agreement on the
extension of the period to file an action, the Court considers the extension of the
period as an admitted fact. This presumed admission is further bolstered by the
express admission made by the respondent themselves in their Memorandum.
Notes: Written extrajudicial demand by the creditor does not toll the running
of the one-year prescriptive period imder the Carriage of Goods by Sea Act. (Dole
Philippines, Inc. v. Maritime Company of the Philippines, 148 SCRA 118)

The one-year prescriptive period under Section 3(6) of paragraph 4 of the

Carriage of Goods by Sea Act is not applicable in cases of misdelivery or
conversion. (Ang v. American Steamship Agencies, Inc.. 19 SCRA 123)

280
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CARRIAGE OF GOODS BY SEA ACT

The prescriptive period for suits predicated not upon lost or damage but on
alleged misdelivery or conversion of goods is that found in the New Civil Code,
i.e., either ten years for breach of a written contract or four years for quasi-delict.
 Coverage of the one-year prescriptive period under the Carriage of Goods by Sea Act includes the
insurer of the goods.
Filipino Merchants Insurance Co.,
Inc. v. Hon. Jose Alejandro and Frota
Oceanica Brasiliera
G.R. No. L-54140, October 14,1986
Filipino Merchants Insurance Co., Inc.
v. Hon. Alfredo Benipayo and Australia-
West Pacific Line
G.R. No. L-62001, October 14,1986
FACTS: On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint,
docketed as Civil Case No. 10991, against the petitioner before the then Court of
First Instance of Manila for recovery of a sum of money under the marine
insurance policy on cargo. Mr. Choa alleged that the goods he insured with the
petitioner sustained loss and damage in the amount of P35,987.26. The vessel SS
Frotario that was owned and operated by private respondent Frota Oceanica
Brasiliera (Frota), discharged the goods at the port of Manila on December 13,
1976. The said goods were delivered to the arrastre operator E. Razon, Inc., on
December 17, 1976 and on the same date were received by the consignee-
plaintiff. On December 19, 1977, the petitioner filed its amended answer
disclaiming the liability, imputing against the plaintiff the commission of fraud
and counterclaiming for damages. On January 9, 1978, the petitioner filed a
third-party complaint against the carrier, private respondent Frota and the
arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement
in the event that it is held liable to the plaintiff.

Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint
against the petitioner which was docketed as Civil

281
 TRANSPORTATION LAWS

Case No. 110061, for recovery under the marine insurance policy for cargo alleging
that the goods insured with the petitioner sustained loss and damage in the sum
of P55,996.49. The goods were delivered to the plaintiff-consignee on or about
January 25-28,1977.
On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it
filed an amended third-party complaint against respondent carrier, the Australia-
West Pacific Line (Australia-West).
In both cases, the private respondents filed their respective answers and
subsequently filed a motion for preliminary hearing on their affirmative defense of
prescription. The private respondents alleged in their separate answers that the
petitioner is already barred from filing a claim because under the Carriage of
Goods by Sea Act, the suit against the carrier must be filed “within one year after
delivery of the goods or the date when the goods should have been delivered, x x
x” The petitioner contended that the provision relied upon by the respondents
applies only to the shipper and not to the insurer of the goods.
On April 30,1980, the respondent judge in Civil Case No. 109911, upheld
respondent Frota and dismissed the petitioner’s third party complaint. Likewise,
on August 31,1982, the respondent judge in CM Case No. 110061 dismissed the
petitioner’s third-party complainant against respondent Australia-West on the
ground that the same was filed beyond the prescriptive period provided in Section
3(6) of the Carriage of Goods by Sea Act of 1936.
ISSUE: Whether or not the prescriptive period of one year under the said Act
also applies to an insurer such as herein petitioner.
HELD: The lower courts did not err.
Section 3(6) of the Carriage of Goods by Sea Act provides:
 “(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the
carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the
delivery by the carrier of the

282
CHAPTER V CARRIAGE OF GOODS BY SEA ACT

goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be
given within three days of the delivery’.
"Said notice of loss or damage may be endorsed upon the receipt for the goods given by the
person taking delivery thereof
* ‘The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
“In any event the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right
of the shipper to bring the 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. ” (Italics
supplied) (Philippine Permanent and General Statutes, Revised Edition, Vol. 1, pp. 663-666)
Clearly, the coverage of the Act includes the insurer of the goods.
Otherwise, what the Act intends to prohibit after the lapse of the one- year
prescriptive period can be done indirectly by the shipper or owner of the goods
by simply filing a claim against the insurer even after the lapse of one year. This
would be the result if we follow petitioner’s argument that the insurer can, at
any time, proceed against the carrier and the ship since it is not bound by the
time-bar provision. In this situation, the one-year limitation will be practically
useless. This could not have been the intention of the law which has also for its
purpose the protection of the carrier and the ship from fraudulent claims by
having “matters affecting transportation of goods by sea be decided in as short a
time as possible” and by avoiding incidents which would “unnecessarily extend
the period and permit delays in the settlement

283
TRANSPORTATION LAWS

of questions affecting the transportation.” (See The Yek Tong Fire and Marine Insurance Co., Ltd.
u American President Lines, Inc., 103 Phil. 1125-1126)
In the case at bar, the petitioner’s action has prescribed under the provisions of
the Carriage of Goods by Sea Act. Hence, whether it files a third-party complaint or
chooses to maintain an independent action against herein respondents is of no
moment. Had the plaintiffs in the civil cases below filed an action against the
petitioner after the one-year prescriptive period, then the latter could have
successfully denied liability on the ground that by their own doing, the plaintiffs
had prevented the petitioner from being subrogated to their respective rights
against the herein respondents by filing a suit after the one-year prescriptive
period. The situation, however, does not obtain in the present case. The plaintiffs
in the civil cases below gave extrajudicial notice to their respective carriers and
filed suit against the petitioner well within one year from their receipt of the
goods. The petitioner had plenty of time within which to act. In Civil Case No.
109911, the petitioner had more than four months to file a third-party complaint
while in Civil Case No. 110061, it had more than five months to do so. In both
instances, however, the petitioner failed to file the appropriate action.
Under Section 3(6) of the Carriage of Goods by Sea Act, only the carrier’s liability is extinguished if no suit is
brought within one year.
Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v.
Court of Appeals, South Sea Surety and Insurance Co., Inc. and Charter Insurance
Corporation
274 SCRA 432 (1997)
FACTS: In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to October
1983, Mayer shipped the pipes
284

CIIAI’I I K V
( AKUIA<il Ol (i< )ODS IlY SI {A ACT

and Idlings to Hongkong as evidenced by Invoice Nos. MSFC-JOM,

MSIV-1015, MSKM020, MSPC1017 and MSI,C-I022. Prior to the
shipping, petitioner Mayer insured the pipes and fittings against all
risks with private respondents South Sea Surety and Insurance Co.,
Inc. (South Sea) and Charter Insurance Corp. (Charter). Petitioners
Mayer and Hongkong jointly appointed Industrial Inspection
(International), Inc., as third-party inspector to examine whether the
pipes and fittings arc manufactured in accordance with the
specifications in the contract. Industrial inspection certified all the
pipes and fittings to be in good order condition before they were
loaded in the vessel. Nonetheless, when the goods readied
Hongkong, it was discovered that a substantial portion thereof was
damaged. Petitioners filed a claim against private respondents for
indemnity under the insurance contract. Respondent Charter paid
petitioner Hongkong the amount of HK$299,345.30 representing the
cost of repair of the damaged pipes. Private respondents refused to
pay because the insurance surveyor’s report allegedly showed that
 the damage is a factory defect. On April 17,1986, petitioners filed an action
against private respondents to recover the sum of HK$299,345.30. For their
defense, private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due to
factory defects, which are not covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the
goods is not due to manufacturing defects. It also noted that the insurance
contracts executed by petitioner Mayer and private respondents are “all risks”
policies, which insure against all causes of conceivable loss or damage. The only
exceptions are those excluded in the policy, or those sustained due to fraud or
intentional misconduct on the part of the insured.

Respondent court affirmed the finding of the trial court that the damage is
not due to factory defect and that it was covered by the “all risk” insurance
policies issued by private respondents to petitioner Mayer. However, it set aside
the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of
Goods by Sea Act since it was filed only on April 17, 1986, more than two years
from the time

285
TRANSPORTATION LAWS

(he goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by
Sea Act provides that “the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered.” Respondent
court ruled that this provision applies not only to the carrier but also to the
insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro.
ISSUE: Whether or not petitioner’s cause of action had already prescribed
under Section 3(6) of the Carriage of Goods by Sea Act in the light of the doctrine
of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42).
HELD: No. The petition is impressed with merit. Respondent court erred in
applying Section 3(6) of the Carriage of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and
the ship shall be discharged from all liability for loss or damage to the goods if no
suit is filed within one year after delivery of the goods or the date when they
should have been delivered. Under this provision, only the carrier’s liability is
extinguished if no suit is brought within one year. But 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. A close reading of the law reveals that
the Carriage of Goods by Sea Act governs the relationship between the carrier on
the one hand and the shipper, the consignee and/or the insurer on the other hand.
It defines the obligation of the carrier under the contract of carriage. It does not,
however, affect the relationship between the shipper and the insurer. The latter
case is governed by the Insurance Code.

Mayer Steel Pipe Corporation Case compared to Filipino Merchants’ case

The ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and
the other cases cited therein does not support respondent court’s view that the
insurer’s liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the
 286
/A

CHAPTER V I
CARRIAGE OF GOODS BY SEA ACT

complaint against the insurer for recovery of

ey as indemnity for the loss and damage
he insured goods. The insurer, in turn, filed a
mplaint against the carrier for reimbursement
t it paid to the shipper. The insurer filed the
mplaint on January 9, 1978, more than one
very of the goods on December 17, 1977. The
t the insurer was already barred from filing a
the carrier because under the Carriage of
Act, the suit against the carrier must be filed
ar after delivery of the goods or the date when
uld have been delivered. The court said, “The
he Act includes the insurer of the goods.”
o Merchants case is different from the case at
Merchants, it was the insurer, which filed a claim
rrier for reimbursement of the amount it paid
. In the case at bar, it was the shipper, which
gainst the insurer. The basis of the shipper’s
ll risks” insurance policies issued by private
o petitioner Mayer.
g in Filipino Merchants should apply only to suits
rrier filed either by the shipper, the consignee
When the court said in Filipino Merchants that
f the Carriage of Goods by Sea Act applies to
 meant that the insurer, like the shipper, may
a claim against the carrier beyond the one-
ovided in the law. But it does not mean that
ay no longer file a claim against the insurer
asis of the insurer’s liability is the insurance
nsurance contract is a contract whereby one
nsideration known as the premium, agrees to
other for loss or damage, which he may suffer
ed peril. An “all risks” insurance policy covers
s other than those due to willful and
of the insured. Thus, when private
ssued the “all risks” policies to petitioner
ound themselves to indemnify the latter in
damage to the goods insured. Such obligation
en years, in accordance with Article 1144 of
Code.

mplaint filed beyond the one-year prescriptive period under

OGSA against the party impleaded

287
Jk
TRANSPORTATION LAWS

for the first time is barred by prescription the filing of the amended complaint does not retroact to
the date of the filing of the original complaint.
 Wallem Philippines Shipping, Inc. v. S.R. Farms, Inc.
G.R. No. 161849, July 9, 2010

FACTS: On March 25,1992, Continental Enterprises, Ltd. loaded on board the

vessel M/V “Hui Yang” at Bedi Bunder, India, a shipment of Indian Soya Bean Meal,
for transportation and delivery to Manila, with plaintiff (herein respondent) as
consignee/notify party. The said shipment is said to weigh 1,100 metric tons and
covered by Bill of Lading No. BEDI dated March 25, 1992 (Exhibit “A”, also Exhibit
“1”). The vessel is owned and operated by defendant Conti-Feed with defendant
(herein petitioner) Wallem as its ship agent. On April 11, 1992, the said vessel, M/V
“Hui Yang” arrived at the port of Manila, Pier 7, South Harbor. Thereafter, the
shipment was discharged and transferred into the custody of the receiving barges,
the NorthFront-333 and NorthFront-444. The offloading of the shipment went on
until April 15, 1992 and was handled by Ocean Terminal Services, Inc. (OTSI) using
its own manpower and equipment, and without the participation of the
crewmembers of the vessel. All throughout the entire period of unloading
operation, good and fair weather condition prevailed. At the instance of the
plaintiff, a cargo check of the subject was made by one Lorenzo Bituin of Eme
Maritime and Allied Services, Co. Inc., who noted a shortage in the shipment,
which was placed at

80.467 metric tons based on draft survey made on the NorthFront-333 and
NorthFront-444 showing that the quantity of cargo unloaded from the vessel was
only 1019.53 metric tons. Thus, per the bill of lading, there was an estimated
shortage of 80.467. Upon discovery thereof, the vessel chief officer was
immediately notified of the said short shipment by the cargo surveyor, who
accordingly issued the corresponding Certificate of Discharge dated April 15, 1992.
On May 8, 1993, plaintiff then filed a Complaint for damages against Conti-
Feed & Maritime Pvt. Ltd., a foreign corporation doing business in the Philippines
and the owner of MW “Hui Yang,” RCS
 288
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CARRIAGE OF GOODS BY SEA ACT

Shipping Agencies, Inc., the ship agent of Conti-Feed, Ocean Terminal Services, Inc. (OTSI), the arrastre operator
at Anchorage No. 7, South Harbor, Manila, and Cargo Trade, the customs broker. On June 7, 1993, respondent
filed an Amended Complaint impleading herein petitioner as defendant, alleging that the latter, and not RCS, was
the one which, in fact, acted as Conti-Feed’s ship agent. On October 8, 1999, the RTC rendered its decision
dismissing respondent’s complaint, as well as the opposing parties’ counterclaims and cross-claims. Aggrieved by
the RTC’s decision, respondent filed an appeal with the CA.
On June 2, 2003, the CA rendered its presently assailed decision, REVERSED and SET ASIDE the RTC
decision, and another one entered ordering defendants-appellees Conti-Feed and Maritime PVT, Ltd. and Wallem
Philippines Shipping, Inc. to pay the sum representing the value of 80.467 metric tons of Indian Soya Beans short
delivered, with legal interest from the time the judgment becomes final until full payment, plus attorney’s fees and
expenses of litigation of PI 0,000.00, as well as the cost of suit.

ISSUE: Whether or not the case was already time-barred when the case was filed as provided in Section
3(6) of the COGSA.

HELD: With respect to the prescriptive period involving claims arising from shortage, loss of or damage
to cargoes sustained during transit, the law the governs the instant case is the Carriage of Goods by Sea Act
(COGSA), Section 3(6) of which provides: “Unless
notice of loss or damage and the general
nature of such loss or damage be given in writing to the carrier or his agent at
the port of discharge or at the time of the removal ofthe goods into the custody of
the person entitled to delivery thereof under the contract of carriage , such
removal shall be prima facie evidence of the delivery by the carrier of the goods
as described in the bill of lading. If the loss or damage is not apparent, the notice
must be given within three days of delivery.99 Said notice of loss or damage may be endorsed
upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given
if the state of goods has at the time of their receipt been the subject of joint survey or inspection. In any event, the
carrier and the ship shall be discharged from all liability in respect of loss or damage

289
TRANSPORTATION LAWS

unless suit is brought within one year after delivery of the goods or the date when
the goods should have been delivered: Provided: That, if a notice of loss or damage, either
apparent or concealed, is not given as provided for in this section, 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. Petitioner claims that pursuant to the
abovecited provision, respondent should have filed its Notice of Loss within three
days from delivery. It asserts that the cargo was fully discharged from the vessel
on April 15, 1992, but the respondent failed to file any written notice of claim.
Petitioner also avers that, pursuant to the same provision of the COGS A,
respondent’s claim had already prescribed because the complaint for damages
was filed more than one year after shipment was discharged. The Court agrees.
Under Section 3(6) of the COGS A, notice of loss or damages must be filed
within three days of delivery. Admittedly, respondent did not comply with the
provision. Under the same provisions, however, failure to file a notice of claim
within three days will not bar recovery if a suit is nonetheless filed within one year
from delivery of the goods or from the date when the goods should have been
delivered. Inasmuch as neither the Civil Code nor the Code of Commerce states a
specific prescriptive period on the matter, the COGSA, which provides for a one-
year period of limitation on claims for loss of, or damage to, cargoes sustained
during transit may be applied suppletorily to the case at bar.
In the instant case, the Court is not persuaded by respondent’s claim that the
complaint against petitioner was timely filed. Respondent argues that the suit for
damages was filed on March 11, 1993, which is within one year from the time the
vessel carrying the subject cargo arrived at the Port of Manila on April 11, 1992, or
from the time the shipment was completely discharged from the vessel on April
15,1992. There is no dispute that the vessel carrying the shipment arrived at the
Port of Manila on April 11, 1992, and that the cargo was completely discharged
therefrom on April 15, 1992. However, respondent erred in arguing that the
complaint for damages, insofar as the petitioner is
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concerned, was filed on March 11, 1993. As the records would show, petitioner
was not impleaded as a defendant in the original complaint filed on March 11,
1993. Respondent cannot argue that the filing of the Amended Complaint against
petitioner should retroact to the date of the filing of the original complaint. The
settled rule is that the filing of an amended pleading does not retroact to the date
of the filing of the original, hence, the statute of limitation runs until the
submission of the amendment. It is true that, as an exception, this Court has held
that an amendment, which merely supplements and amplifies facts originally
alleged in the complaint, relates back to the date of the commencement of the
action and is not barred by the statute of limitation, which expired after the
service of the original complaint. The exception, however, would not apply to the
party impleaded for the first time in the amended complaint.
In the instant case, petitioner was only impleaded in the amended complaint
of June 7, 1993, or one year, one month and 23 days from April 15, 1992, the date
when the subject cargo was fully unloaded from the vessel. Hence, reckoned from
April 15, 1992, the one-year prescriptive period had already lapsed.
New World International Development (Phils.), Inc. v. NYK Fil-Japan Shipping Corporation, et al
G.R. No. 171468, August 24, 2011
New World International Development (Phils.), Inc. v. Seaboard-Eastern Insurance Co., Inc.
G.R. No. 174241

FACTS: Petitioner New World International Development Philippines, Inc. (New

World) bought from DMT Corporation (DMT) through its agent, Advatech
Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP
Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment
went by train to Oakland, California, where it was loaded on S/S California Luna
V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery
to petitioner New World in

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Manila. NYK issued a bill of lading, declaring that it received the goods in good
condition. NYK unloaded the shipment in Hong Kong and transshipped it to S/S
ACX Ruby v/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon “Kading,” whose captain filed a sea
protest on arrival at the Manila South Harbor on October 5,1993, respecting the
loss and damage that the goods on board his vessel suffered. An examination of
the three generator sets in the presence of petitioner New World’s representatives
revealed that all sets suffered extensive damage and could no longer be repaired.
For these reasons, New World demanded recompense for its loss from
respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc.
(LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the
demand, both denied liability for the loss. Since Seaboard covered the goods with
a marine insurance policy, petitioner New World sent it a formal claim dated
November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner
New World to submit to it and itemized list of the damaged units, parts, and
accessories, with corresponding values, for the processing of the claim. But
petitioner New World did not submit what was required of it, insisting that the
insurance policy did not include the submission of such a list in connection with an
insurance claim. Reacting to this, Seaboard refused to process the claim.
On October 11,1994, petitioner New World filed an action for specific
performance and damages against all the respondents before the Regional Trial
Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770. On August 16, 2001,
the RTC rendered a decision absolving the various respondents from liability with
the exception of NYK. The RTC found that the generator sets were damaged during
transit while in the care of NYK’s vessel, ACX Ruby. The RTC ruled, however, that
petitioner New World filed its claim against the vessel owner NYK beyond the one-
year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its
complaint on October 11, 1994, when the deadline for filing the action (on or
before October 7, 1994) had already lapsed. The RTC held that the one-year period
should be counted from the date the goods were delivered to the arrastre operator
and not from the date they were delivered to petitioner’s job site. As

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regards petitioner New World’s claim against Seaboard, its insurer,

the RTC held that the latter couldn’t be faulted for denying the claim
against ii since New World refused to submit the itemized list that
Seaboard needed for assessing the damage to the shipment.
Likewise, the belated filing of the complaint prejudiced Seaboard’s
right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) held that petitioner New
World can still recoup its loss from Seaboard’s marine insurance
policy considering that a) the submission of the Itemized listing is an
unreasonable imposition, and b) the one-year prescriptive period
under COGS A did not affect New World’s right under the insurance
policy since it was the Insurance Code that governed the relation
between the insurer and the insured. Although petitioner New World
promptly filed a petition for review of the CA decision before the
Court in G.R. 171468, Seaboard chose to file a motion for
reconsideration of that decision. On August 17,2006, the CA
rendered an amended decision, reversing itself as regard the claim
against Seaboard. The CA held that the submission of the itemized
listing was a reasonable requirement that Seaboard asked of New
World. Further, CA held that the one-year prescriptive period for
maritime claims applied to Seaboard, as insurer and subrogee of
New World’s right against the vessel owner. New World’s failure to
comply promptly with what was required of it prejudiced such right.
ISSUE: Whether or not the CA erred in failing to rule that the
one-year COGSA prescriptive period for marine claims does not
apply to petitioner New World’s prosecution of its claim against
Seaboard, its insurer.
HELD: Regarding prescription of claims, Section 3(6) of the
COGSA provides that the carrier and the ship shall be discharged
from all liability in case of loss or damage, unless the suit is
brought within one year after delivery of the goods or the date
when the goods should have been delivered. But whose fault was
it that the suit against NYK, the common carrier, was not brought
to court on time? The last day for filing such a suit fell on October
7, 1994. The record shows that petitioner New World filed its
formal claim for its loss with Seaboard, its insurer, a remedy it had
the right to take, as early as November 16, 1993, or about 11
months before the suit against NYK would have
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TRANSPORTATION LAWS

fallen due. In the ordinary course, if Seaboard had processed that claim and paid
the same, Seaboard would have been subrogated to petitioner New World’s right
to recover from NYK. And it could have then filed the suit as a subrogee. But, as
discussed above, Seaboard made an unreasonable demand on February 14, 1994
for an itemized list of the damaged units, part, and accessories, with
corresponding values when it appeared settled that New

World’s loss was total and when the insurance policy did not require the
production of such list in the event of a claim. Besides, when petitioner New World
declined to comply with the demand for the list, Seaboard against whom a formal
claim was pending should not have remained obstinate in refusing to process that
claim. It should have examined the same, found it unsubstantiated by documents
if that were the case, and formally rejected it. That would have at least given
petitioner New World a clear signal that it needed to promptly file its suit directly
against NYK and the others. Ultimately, the fault for the delayed court suit could
be brought to Seaboard’s doorstep.
It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the
prescriptive period. However, the COGSA does not mention that an arrastre operator may invoke the
prescriptive period of one year; hence, it does not cover the arrastre operator.
Insurance Company of North America v. Asian Terminals, Inc.
G.R. No. 180784, February 15, 2012

FACTS: On November 9, 2002, Macro-Lite Korea Corporation shipped to San

Miguel Corporation, through M/V “DIMI P” vessel, 185 packages (231,000 sheets)
of electrolytic tin free steel, complete and in good order condition, and covered by
a Bill of Lading. The shipment had a declared value of US$169,850.35 and was
insured with petitioner Insurance Company of North America against all risks. The
carrying vessel arrived at the port of Manila on November 19, 2002, and when the
shipment was discharged therefrom, it was noted that seven packages thereof
were damaged and in bad order. The shipment was then turned over to the
custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for
storage and safekeeping pending its

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withdrawal by the consignee’s authorized customs broker, R.V. Marzan

Brokerage Corporation (Marzan). On November 22, 23, and 29, 2002, the
subject shipment was withdrawn by Marzan from the custody of respondent.
On November 29, 2002, prior to the last withdrawal of the shipment, a joint
inspection of the said cargo was conducted per the Request for Bad Order
Survey, dated November 29, 2002, and the examination report, which was
written on the same request, showed that an additional five packages were
found to be damaged and in bad order. On January 6, 2003, the consignee, San
Miguel Corporation, filed separate claims against respondent and petitioner for
the damage to 11,200 sheets of electrolytic tin free steel.
Petitioner engaged the services of an independent adjuster/ surveyor, BA
McLarens Philippines, Inc., to conduct an investigation and evaluation on the claim
and to prepare the necessary report. BA McLarens Philippines, Inc., submitted to
petitioner a Survey Report, dated January 22, 2003, and another report, dated May
5, 2003, regarding the damaged shipment. It noted that out of the reported 12
damaged skids, nine of them were rejected and three skids were accepted by the
consignee’s representative as good order. BA McLarens Philippines, Inc., evaluated
the total cost of damage to the nine rejected skids (11,200 sheets of electrolytic tin
free steel) to be P431,592.14. The petitioner, as insurer of the said cargo, paid the
consignee the amount of P431,592.14 for the damage caused to the shipment, as
evidenced by the Subrogation Receipt, dated January 8, 2004. Therefore,
petitioner, formally demanded reparation against respondent. As respondent
failed to satisfy its demand, petitioner filed an action for damages with the
Regional Trial Court (RTC) of Makati City. The trial court dismissed the complaint
on the ground that the petitioner’s claim was already barred by the statute of
limitations. It held that Carriage of Goods by Sea Act (COGSA) embodied in
Commonwealth Act (CA) No. 65 applies to this case, since the goods were shipped
from a foreign port to the Philippines. The trial court stated that under the said
law, particularly paragraph 4, Section 3(6) thereof, the shipper has the right to
bring a suit within one year after the delivery of the goods, or the date when the
goods should have been delivered, in respect of loss or damage thereto.

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The trial court held: “In case at bar, the records show that the shipment was delivered to the
consignee on 22, 23 and 29, of November 2002. The plaintiff took almost a year to approve and pay the
claim of its assured, San Miguel, despite the fact that it had initially received the latter’s claim, as well as the
inspection report and survey report of
McLarens, as early as January 2003. The assured/consignee had only until November of2003 within which
to file a suit against the defendant. However, the instant case was filed only on September 7, 2005 or almost
three (3) years from the date the subject shipment was delivered to the consignee. The plaintiff, as insurer of
the shipment, which has paid the claim of the insured, is subrogated to all the rights of the said insured in
relation to the reimbursement of such claim. As such, the plaintiff cannot acquire better rights than that of
the insured. Thus, the plaintiff has no one but itself to blame for having acted lackadaisically on San Miguel
s claim. ”
Whether or not the one-year prescriptive period for filing a suit under
ISSUE:
the COGS A applies to an arrastre operator.
 HELD: It is noted that the term “carriage of goods” covers the period from the
time when the goods are loaded to the time when they are discharged from the
ship; thus, it can be inferred that the period of time when the goods have been
discharged from the ship, and given to the custody of the arrastre operator, is not
covered by the COGSA. The prescriptive period for filing an action for the loss or
damage of the goods under the COGSA is found in paragraph 6, Section 3, thus:
Paragraph 6. Unless notice of loss or damage and the general nature of such loss or damage be given
in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods
into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss
or damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods
given by the person taking delivery thereof. The notice in writing need not be given
if the state of the goods has at the time of their receipt been the subject of joint
survey or inspection. In any

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event, the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the eoods or the
date when the goods should have been delivered. Provided, that if a notice of loss or
damage, either apparent or concealed, is not given as providedfor in this section, 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.
From the provision above, the carrier and the ship may put up the defense of
prescription if the action for damages is not brought within one year after the
delivery of the goods or the date when the goods should have been delivered. It
has been held that not only the shipper but also the consignee or legal holder of
the bill may invoke the prescriptive period. However, the COGSA does not mention
that an arrastre operator may invoke the prescriptive period of one year; hence, it
does not cover the arrastre operator.
Domingo Ang v. Compania Maritima, Maritime Company of the Philippines and C.L. Diokno
G.R. No. L-30805, December 26,1984
FACTS: In the instant case, Ang on September 26, 1963, as the assignee of a bill
of lading held by Yau Yue Commercial Bank, Ltd. of Hongkong, sued Compania
Maritima, Maritime Company of the Philippines and C.L. Diokno. He prayed that
the defendant be ordered to pay him solidarily the sum of US$130,539.68 with
interest from February 9, 1963 plus attorney’s fees and damages. Ang alleged that
Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain
conditions 559 packages of galvanized steel, Durzine sheets. The merchandise was
loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon, a vessel owned and
operated by the defendants, to be transported to Manila and consigned “to order”
of the shipper, Tokyo Boeki, Ltd., which indorsed the bill of lading issued by
Compania Maritima to the order of Yau Yue Commercial Bank. Ang further alleged
that the defendants, by means of permit to deliver imported articles, authorized
the delivery of the cargo to Teves who obtained delivery from the

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Bureau of Customs without the surrender of the bill of lading and in violation of
the terms thereof. Teves dishonored the draft drawn by Yau Yue against him. The
Hongkong and Shanghai Banking Corporation made the corresponding protest
for the draft’s dishonor and returned the bill of lading to Yau Yue. The bill of lading
was indorsed to Ang.
The defendants filed a motion to dismiss Ang’s complaint on the ground of
lack of cause of action. Ang opposed the motion. The trial court on May 22, 1964
dismissed the complaint on the grounds of lack of cause of action and prescription
since the action was filed beyond the one-year period provided in the Carriage of
Goods by Sea Act.
ISSUE: Whether or not the action has prescribed under Section 3(6) of the
Carriage of Goods by Sea Act.
HELD: In the American Steamship Agencies cases, it was held that the action of Ang is
based on misdelivery of the cargo which should be distinguished from loss thereof.
The one-year period provided for in Section 3(6) of the Carriage of Goods by Sea
Act refers to loss of the cargo. What is applicable is the four-year period of
prescription for quasi-delicts prescribed in Article 1146(2) of the Civil Code or 10
years for violation of a written contract as provided for in Article 1144(1) of the
same Code.
As Ang filed the action less than three years from the date of the alleged
misdelivery of the cargo, it has not yet prescribed. Ang, as indorsee of the bill of
lading, is a real party-in-interest with a cause of action for damages.
The prescriptive period of one year under Section 3(6) of COGSA will not apply to damages caused to the
shipper’s goods in the general sense.

Mitsui O.S.K. Lines Ltd. v. Court of Appeals and Lavine Loungewear Mfg.
Corp.
G.R. No. 119571, March 11,1998
FACTS: Petitioner Mitsui O.S.K. Lines Ltd., is a foreign corporation represented
in the Philippines by its agent, Magsaysay Agencies. It entered into a contract of
carriage through Meister Transport, Inc.,
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an international freight forwarder, with private respondent Lavine Loungewear

Manufacturing Corporation to transport goods of the latter from Manila to Le
Havre, France. Petitioner undertook to deliver the goods to France 28 days from
initial loading. On July 24, 1991, petitioner’s vessel loaded private respondent’s
container van for carriage at the said port of origin. However, in Kaoshiung, Taiwan
the goods were not transhipped immediately, with the result that the shipment
arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only
half of the value of the said goods on the ground that they did not arrive in France
until the “off season” in that country. The remaining half was allegedly charged to
the account of private respondent, which in turn demanded payment from
petitioner through its agent. As petitioner denied private respondent’s claim, the
latter filed a case in the Regional Trial Court on April 14, 1992. In the original
complaint, private respondent impleaded as defendants Meister Transport, Inc.
and Magsaysay Agencies, Inc., the latter as agent of petitioner Mitsui O.S.K. Lines
Ltd. On May 20, 1993, it amended its complaint by impleading petitioner as
defendant in lieu of its agent. The parties to the case thus became private
respondent as plaintiff, on one side, and Meister Transport, Inc. and petitioner
Mitsui O.S.K. Lines Ltd., as represented by Magsaysay Agencies, Inc., as defendants
on the other.
Petitioner filed a motion to dismiss alleging that the claim against it had
prescribed under the Carriage of Goods by Sea Act. The Regional Trial Court,
denied petitioner’s motion as well as its subsequent motion for reconsideration.
On petition for certiorari, the Court of Appeals sustained the trial court’s orders.
ISSUE: Whether or not private respondent’s action is for “loss or damage” to
goods shipped, within the meaning of Section 3(6) of the Carriage of Goods by Sea
Act (COGSA).
 HELD: In Angv. American Steamship Agencies, Inc., the question was whether an action
for the value of goods which had been delivered to a party other than the
consignee is for “loss or damage” within the meaning of Section 3(6) of the COGSA.
It was held that there was no loss because the goods had simply been
misdelivered. “Loss” refers

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to the deterioration or disappearance of goods. As defined in the Civil Code and as

applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, “loss ”
contemplates merely a situation where no delivery at all was made by the shipper
of the goods because the same had perished, gone out of commerce, or
disappeared in such a way that their existence is unknown or they cannot be
recovered. Conformably with this concept of what constitutes “loss” or

“damage,” this Court held in another case that the deterioration of goods due to
delay in their transportation constitutes “loss” or “damage” within the meaning of
Section 3(6), so that as suit was not brought within one year, the action was
barred. Whatever damage or injury is suffered by the goods while in transit would
result in loss or damage to either the shipper or the consignee. As long as it is
claimed, therefore, as it is done here, that the losses or damages suffered by the
shipper or consignee were due to the arrival of the goods in damaged or
deteriorated condition, the action is still basically one for damage to the goods,
and must be filed within the period of one year from delivery or receipt, under the
abovequoted provision of the Carriage of Goods by Sea Act.
 In the case at bar, there is neither deterioration nor disappearance nor
destruction of goods caused by the carrier’s breach of contract. Whatever
reduction there may have been in the value of the goods is not due to their
deterioration or disappearance because they had been damaged in transit. Indeed,
what is in issue in this petition is not the liability of petitioner for its handling of
goods as provided by Section 3(6) of the COGSA, but its liability under its contract
of carriage with private respondent as covered by laws of more general
application. Precisely, the question before the trial court is not the particular sense
of “damages” as it refers to the physical loss or damage of a shipper’s goods as
specifically covered by Section 3(6) of COGSA but petitioner’s potential liability for
the damages it has caused in the general sense and, as such, the matter is
governed by the Civil Code, the Code of Commerce and COGSA, for the breach of
its contract of carriage with private respondent.
The Court concludes by holding that as the suit below is not for “loss or
damage” to goods contemplated in Section 3(6), the question of prescription of
action is governed not by the COGSA but by

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Article 1144 of the Civil Code which provides for a prescriptive period of ten years.

International Container Terminal Services, Inc. v. Prudential Guarantee and Assurance

Co., Inc.
G.R. No. 134514, December 8,1999
HELD: The legal relationship between an arrastre operator and a consignee is
akin to that between a warehouseman and a depositor. As to both the nature of
the functions and the place of their performance, an arrastre operator’s services
are clearly not maritime in character.
In a claim for loss filed by a consignee, the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party
devolves upon the arrastre operator. Since the safekeeping of the goods rests
within its knowledge, it must prove that the losses were not due to its negligence
or that of its employees.
“Shipper’s Load and Count. ” This means that the shipper was solely responsible
for the loading of the container, while the carrier was oblivious to the contents of
the shipment. Protection against pilferage of the shipment was the consignee’s
lookout. The arrastre operator was, like any ordinary depositary, duty-bound to
take good care of the goods received from the vessel and to turn the same over to
the party entitled to their possession, subject to such qualifications as may have
validly been imposed in the contract between the parties. The arrastre operator
was not required to verify the contents of the container received and to compare
them with those declared by the shipper because, as earlier stated, the cargo was
at the shipper’s load and count. The arrastre operator was expected to deliver to
the consignee only the container received from the carrier.
Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co.,
Inc.
G.R. No. 143133, June 5, 2002
FACTS: On June 13, 1990, CMC Trading A.G. shipped on board the MV Anangel
Sky at Humburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the

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Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky arrived at
the port of Manila and within the subsequent days discharged the subject cargo.
Four coils were found to be in bad order B.O. Tally Sheet No. 154974. Finding the
four coils in their damaged state to be unfit for the intended purpose, the
consignee Philippine Steel Trading Corporation declared the same as total loss.
“Despite receipt of a formal demand, defendants-appellees refused to submit
to the consignee’s claim. Consequently, plaintiff-appellant paid the consignee five
hundred six thousand eighty six & 50/100 pesos

(Php506,086.50) and was subrogated to the latter’s rights and causes of action
against defendant-appellees. Subsequently, plaintiff-appellant instituted this
complaint for recovery of the amount paid by them to the consignee as insured.
Defendants-appellees argued that their liability, if there be any, should not exceed
the limitations of liability provided for in the bill of lading and other pertinent
laws.”
ISSUE:Whether or not the “PACKAGE LIMITATION” of liability under Section
4(5) of COGSA is applicable to the case at bar.
HELD: There was no stipulation in the Bill of Lading limiting the carrier’s
liability. Neither did the shipper declare a higher valuation of the goods to be
shipped. This fact notwithstanding, the insertion of the words “L/C No.
90/02/2447” cannot be the basis for petitioners’ liability.
First, a notation in the Bill of Lading, which indicated the amount of the Letter
of Credit obtained by the shipper for the importation of steel sheets, did not
effect a declaration of the value of the goods as required by the bill. That notation
was made only for the convenience of the shipper and the bank processing the
Letter of Credit.
in Keng Hua Paper Products v. Court of Appeals, [the Court] held that a bill of
Second,
lading was separate from the other Letter of Credit arrangements.
 “The contract of carriage, as stipulated in the bill of lading in the present
case, must be treated independently of the contract of sale between the seller
and the buyer, and the contract of issuance of a letter of credit between the
amount of goods described in the commercial

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invoice in the contract of sale and the amount allowed in the letter of credit will
not affect the validity and enforceability of the contract of carriage as embodied in
the bill of lading. As the bank cannot be expected to look beyond the documents
presented to it by the seller pursuant to the letter of credit, neither can the carrier
be expected to go beyond the representations of the shipper in the bill of lading
and to verify their accuracy vis-a-vis the commercial invoice, and the letter of credit.
Thus, the discrepancy between the amount of goods indicated in the invoice and
the amount in the bill of lading cannot negate petitioner’s obligation to private
respondent arising from the contract of transportation.
In the light of the foregoing, petitioners’ liability should be computed based on
US$500 per package and not on the per metric ton price declared in the Letter of
Credit. Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, explained the meaning of
package:
“When what would ordinarily be considered packages are shipped in a
container supplied by the carrier and the number of such units is disclosed in
the shipping documents, each of those units and not the container constitutes
the ‘package’ referred to in the liability limitation provision of Carriage of
Goods by Sea Act.”
 Considering, therefore, the ruling in Eastern Shipping Lines and the fact that
the Bill of Lading clearly disclosed the contents of the containers, the number of
units, as well as the nature of the steel sheets, the four damaged coils should be
considered as the shipping unit subject to the US$500 limitation. In the case of
UCPB General Insurance Co., Inc. v. Aboitiz Shipping Corp., Eagle Express Lines, DAMCO Intermodal
Services, Inc., and Pimentel Customs Brokerage Co., G.R. No. 168433, February 10,2009, the
Supreme Court in denying the petition for certiorari of UCPB Gen. Ins. Co.,
interestingly applied Article 366 of the Code of Commerce which apply to
overland, river and maritime transportation.
Article 366 of the Code of Commerce states that within 24 hours following
the receipt of the merchandise, the claim against the carrier for damage or
average which may be found therein upon opening the

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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. The shipment in this
case was received by SMC on August 2, 1991. However, as found by the Court of
Appeals, the claims were dated October 30, 1991, more than three months from
receipt of the shipment and, at that, even after the extent of the loss had already
been determined by SMC’s surveyor. The claim was, therefore, clearly filed beyond
the 24-hour time frame prescribed by Article 366 of the Code of Commerce.
Pursuant to an insurance agreement, petitioner paid SMC the amount of
PI,703,381.40 representing the value of the damaged unit. In turn, SMC executed a
Subrogation Form dated March 31,1992 in favor of plaintiff-appellee.
Consequently, petitioners filed a Complaint on July 21, 1992 as subrogee of
SMC seeking to recover from defendants the amount it had paid SMC. On
September 20, 1994, petitioner moved to admit its Amended Complaint whereby it
impleaded East Asiatic Co. Ltd. (EAST for brevity) as among the defendants for
being the “general agent” of DAMCO. In its Order dated September 23, 1994, the
lower court admitted the said amended complaint.
The Supreme Court held:
The law clearly requires that the claim for damages or average must be
made within 24 hours from receipt of the merchandise if, as in this case,
damage cannot be ascertained merely from the outside packaging of the
cargo.
In Philippine Charter Insurance Corporation v. Chemoil Lighterage Corporation (462 SCRA 75, June
29, 2005), petitioner, as subrogee of Plastic Group Phil., Inc. (PGP), filed suit
against respondent’s barge. Respondent claimed that no timely notice in
accordance with Article 366 of the Code of Commerce was made by

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petitioner because an employee of PGP merely made a phone call to

respondent’s Vice President, informing the latter of the contamination of the
cargo. The Court ruled that the notice of claim was not timely made or relayed to
respondent in accordance with Article 366 of the Code of Commerce.
 The requirement to give notice of loss or damage to the goods is not an empty formalism. The fundamental reason
or purpose ofsuch a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment
has been damaged and that it is charged with liability therefore, and to give it an opportunity to examine the nature and
extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the
matter is still fresh and easily investigated so as to safeguard itselffrom false and fraudulent claims. (Philamgen Ins. Co.,
Inc. v. Sweetlines, Inc., 212 SCRA 194, August 5, 1992)
It was construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action against a
carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the
In the light of the
condition. Otherwise, no right of action against the carrier can accrue in favor of the former.
above pronouncement of the Supreme Court, a question may be asked whether or
not Article 366 of the Code of Commerce is superior to the provision of Section
3(6) of the Carriage of Goods by Sea Act or in case of conflict between Article 366
of the Code of Commerce and Section 3(6) of COGSA, which one will prevail.
Section 3(6) of the Carriage of Goods by Sea Act discussed in passing in the
above case provides:
Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the
carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of
the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the
notice must be given within three days of the delivery.

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Said notice of loss or damage may be endorsed upon the receipt of the goods
given by the person taking delivery thereof The notice in writing need not be given
if the state of the goods has at the time of their receipt been the subject of joint
survey or inspection. In any event the carrier and the ship shall be discharged from
all liability in respect of loss or damage unless suit its brought within one year after
delivery of the goods or the date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not given as providedfor in
this section, 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. It is clear from the above given provision of COGSA that it provides a
similar claim mechanism as provided in Article 366 of the Code of Commerce but
prescribes a period of three days within which notice of claim must be given if the
loss or damage is not apparent. In fact, if this notice or claim was neglected by the
shipper or owner of the goods, he may still hold the carrier and the ship liable
provided that he filed a suit within one year after delivery of the goods or the date
when the goods should have been delivered. Apparently, this provision of COGSA
was not raised as an issue in the UCPB case.
It must be emphasized that the Carriage of Goods by Sea Act (CA No. 65) is a
special law but it cannot be construed as repealing or limiting any provision of the
Code of Commerce. (Section l, CA 65) Hence, it can operate as suppletory law to the
Code of Commerce, supplying the deficiencies thereof relating to contracts of
carriage of goods by sea in foreign trade.
But supposing Mr. A consignee received the shipment on March 1, 2010 but
discovered that there were damaged articles on the shipment on March 2,2010.
Mr. A did not file a claim against X Shipping Co., but went directly to the insurer Y
Ins. Co., who paid the insured item one month later. Upon receipt of the
subrogation letter, Y Ins. Co., instituted

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CARRIAGE OF GOODS BY SEA ACT

an action for damages against X Shipping Co. invoking

Section 3(6) of COGSA. X Shipping Co., filed a motion to
dismiss on the ground of failure to comply with Article 366
of the Code of Commerce. Will the action of Y Ins. Co.
prosper? In other words, there are two statutes now in
conflict with each other.
Courts of justice, when confronted with apparently conflicting statutes,
should endeavor to reconcile the same instead of declaring outright the
invalidity of one against the other. Such alacrity should be avoided. The wise
policy is for the judge to harmonize them if this is possible, bearing in mind
that they are equally the handiwork of the same legislature, and so to give
effect to both while at the same time also accorded due respect to a
coordinate department of the government. (Gordon v. Veridiano, 167 SCRA 51)
But then, the two statutes cannot be applied in the
given problem. Following the rule on statutory construction
that a special law prevails over the general law regardless of
their dates of passage, and the special law is to be
considered as a remaining exception to the general law, it is
submitted that Section 3(6) of the COGSA should prevail
over Article 366 of the Code of Commerce, which is a
general law.
Philippine Charter Insurance Corporation v. Neptune Orient Lines/Overseas Agency
Services, Inc.
G.R. No. 145044, June 12, 2008
FACTS: On September 30, 1993, L.T. Garments Manufacturing
 Corporation, Ltd., shipped from Hong Kong three sets of
warp yam on returnable beams aboard respondent Neptune
Orient Lines’ vessel, M/V Baltimar Orion, for transport and
delivery to Fukuyama Manufacturing Corporation
(Fukuyama) of No. 7 Jasmin Street, AUV Subdivision, Metro
Manila. The said cargoes were loaded in Container No. IEAU-
4592750 in good condition under Bill of Lading No. HKG-
0396180. Fukuyama insured the shipment against all risks
with petitioner Philippine Charter Insurance Corporation
(PCIC) under Marine Cargo Policy No. RN55581 in the
amount of P228,085. During the course of the voyage, the
container with the cargoes fell overboard and was lost.
Thus, Fukuyama wrote a letter to respondent Overseas
Agency

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TRANSPORTATION LAWS

Services, Inc. (Overseas Agency), the agent of Neptune Orient Lines in Manila, and
claimed for the value of the lost cargoes. However, Overseas Agency ignored the
claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the insured
value of the cargoes in the amount of P228,085, which claim was fully satisfied by
PCIC. On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner
PCIC for the latter to be subrogated in its right to recover losses from respondents.
PCIC demanded from respondents’ reimbursement of the entire amount it paid to
Fukuyama, but respondents refused payment. On March 21, 1994, PCIC filed a
complaint for damages against respondents with the Regional Trial Court (RTC)
Manila, Branch 35. Respondents filed an Answer with Compulsory Counterclaim
denying liability. They alleged that during the voyage, the vessel encountered
strong winds and heavy seas making the vessel pitch and roll, which caused the
subject container with the cargoes to fall overboard. Respondents contended that
the occurrence was a fortuitous event which exempted them from any liability,
and that their liability, if any, should not exceed US$500 or the limit of liability in
the bill of lading, whichever is lower.
In a Decision, dated January 12, 1996, the RTC held that respondents, as
common carrier, failed to prove that they observed the required extraordinary
diligence to prevent loss of the subject cargoes in accordance with the pertinent
provisions of the Civil Code. The RTC ordered the defendants, jointly and severally,
to pay the plaintiff the peso equivalent as of February 17, 1994 of HK$55,000 or
the sum of P228,085, whichever is lower, with costs against the defendants.
Respondents’ motion for reconsideration was denied. Respondents appealed the
RTC decision to the Court of Appeals (CA).
In its Resolution, dated April 13, 2000, the CA found the said argument of
respondents to be meritorious. Holding the appellants shall be liable to pay
appellee PCIC the value of the three packages lost computed at the rate of US$500
per package or a total of US$1,500.
Hence, this petition. Petitioner contends that the CA erred in awarding
damages to respondents subject to the US$500 per package limitation since the
vessel committed a “quasi deviation”, which is a breach of the contract of
carriage when it intentionally threw overboard the container with the subject
shipment during the voyage to Manila

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CARRIAGE OF GOODS BY SEA ACT

for its own benefit or preservation. The breach of contract resulted in the
abrogation of respondents’ rights under the contract and COGS A including the
US$500 per package limitation. Hence, respondents cannot invoke the benefit of
the US$500 per package limitation, and the CA erred in considering the limitation
and modifying its decision.
ISSUE: Whether or not US$500 package limitation under the COGSA will apply.
HELD: The facts, as found by the RTC, do not support the new allegation of
facts by petitioner regarding the intentional throwing overboard of the subject
cargoes and quasi deviation. The Court is of the opinion that the shipment of three
cases of Various Warp Yam on Returnable Beams, which were containerized onto
40 feet LCL (no. IEAU-459750) and fell overboard the subject vessel during heavy
weather, is an “Actual Total Loss.” The records show that the subject cargoes fell
overboard the ship, and petitioner should not vary the facts of the case on appeal.
This Court is not a trier of facts, and, in this case, the factual finding of the RTC and
the CA, which is supported by the evidence on record, is conclusive upon this
Court. As regards the issue on the limited liability of respondents, the Court
upholds the decision of the CA.
Since the subject cargoes were lost while being transported by respondent
common carrier from Hong Kong to the Philippines, Philippine law applies
pursuant to the Civil Code, which provides:
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. 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.
The rights and obligations of respondent common carrier are thus governed
by the provisions of the Civil Code and the COGSA, which is a special law, applies
suppletorily. The pertinent provisions of the Civil Code applicable to this case are
as follows:

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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.
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.
In addition, Section 4, paragraph 5 of the COGSA, which is applicable to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign
trade, provides: “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to
or in connection with the transportation of goods in an amount exceeding $500per package lawful money of the United
States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other
currency, unless the nature and value ofsuch goods have been declared by the shipper before shipment and inserted in the
bill of lading. This declaration, if embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on the
carrier. ”

The bill of lading submitted in evidence by petitioner did not show that the
shipper in Hong Kong declared the actual value of the goods as insured by the
Fukuyama before shipment, and that the said value was inserted in the Bill of
Lading, and so no additional charges were paid. Hence, the stipulation in the bill of
lading that the carrier’s liability shall not exceed USS500 per package applies. To
hold otherwise would amount to questioning the justness and fairness of the law
itself. But over and above that consideration, the just and reasonable character of
such stipulation is implicit in it giving the shipper or owner the option of avoiding
accrual of liability limitation by the simple and surely far from onerous expedient
of declaring the nature and value of the shipment in the bill of lading.
QUESTION: What is the effect on the liability of the shipowner and ship agent in
case of loss or damage to the goods on the basis of the shipper’s load, count
shipment?
ANSWER: While the CivilCode contains provision making the common carrier
liable for loss/damage to the goods transported, it

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failed to outline the manner of determining the amount of such liability. Article 372
of the Code of Commerce fills this gap, thus: Article 372. The value of the goods
which the carrier must pay in cases if 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. (Philam Insurance Co., Inc. v Heung-A Shipping Corporation and Wallem
Philippines Shipping, Inc., G.R. No. 187701, July 2014)

NOTE: Article 366 of the Code of Commerce requiringthat a claim must be

made against the carrier within 24 hours from receipt of the merchandise applies
only interisland shipments within the Philippines.
 311
CHAPTER VI

PUBLIC SERVICE

A “public utility ” is a business or service engaged in regularly supplying the

public with some commodity or service of public consequences such as electricity,
gas, water, transportation, telephone or telegraph service. The term implies public
use and service. (National Power Corporation v. Court of
Appeals and Cepalco, G.R. No. 112702, September 26, 1997)

Public utilities are privately owned and operated businesses whose services
are essential to the general public. They are enterprises, which specially cater to
the needs of the public and conduce to their comfort and convenience. As such,
public utility services are impressed with public interest and concern. The same is
true with respect to the business of common carrier which holds such a peculiar
relation to the public interest that there is super induced upon it the right of public
regulation when private properties are affected with public interest, hence, they
cease to be juris privati only. When, therefore, one devotes his property to a use in
which the public has an interest, he, in effect grants to the public an interest in
that use, and must submit to the control by the public for the common good, to
the extent of the interest he has thus created. (Kilusang Mayo Uno Labor Center v. Hon.
Jesus B. Garcia, Jr., the LTFRB and Provincial Bus Operators Association of the Philippines, Inc., G.R. No.
115381, December 23, 1994)

In JG Summit Holdings, Inc. v. Court of Appeals, 412 SCRA 10, September 24, 2003, it
was held that the terms “public service” and “public utility,” however, do not have
the same legal meaning, at least since the enactment of C.A. No. 454. The terms
are related though.
 The definition of “public service ” in the Public Service Act, as last amended by
R.A. No. 2611, includes every person who owns, operates, manages or controls, for hire or compensation,
and done

312
CHAPTFR M
PI Bl 1C Sl-RVICF

for general business purposes, any common carrier railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express sen'ice, steamboat, or steamship line, pontines,
ferries, and water craft engaged in the transportation of passengers or freight or both, shipyard, marine
railway', marine repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system gas,
electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless
A ‘‘public utility,” on
comtnunications systems, broadcasting stations and other similar public services.
the other hand, 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
Simply stated, a public utility provides a service or facility needed for
telegraph service.
present day living which cannot be denied to anyone who is willing to pay for it.
Formerly, there was a statutory definition of “public utility, ” but it was
abandoned in C.A. No. 454. The definition was instead solely applied to “public
service” apparently because it did not exactly fit the concept of public utility. It is
significant in this regard that while the 1935 Constitution which took effect on

February 2, 1935 specifically mentioned “public utility,” C.A. No. 454 shifted from
“public utility” to “public service” as the sole reference term in the Public Service
Act.
Another dissimilarity is that a public utility requires a franchise, aside from a
certificate of public necessity and convenience, for its operation, while a public
service, which is not a public utility, requires only a certificate of public
convenience. The dichotomy in requirements flows from the enforced
indeterminacy of the market for the service provided by a public utility. Thus, it
may be pointed out that all public utilities are public services but the converse is not true. This is
so because the term “public utility” connotes public use and service to the public.
A legislative declaration such as the definition by enumeration in the Public
Service Act does not ipso facto render a business or service a public utility. Whether
or not one is a public utility is a matter of judicial, not legislative determination.

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COMMONWEALTH ACT NO. 146

(SECTIONS 13 TO 16)

Section 13. (a) The Commission shall have jurisdiction, supervision, and control over all public
services and their franchises, equipment, and other properties, and in the exercise of its authority, it
shall have the necessary powers and the aid of the public force: Provided, That public service owned or
operated by government entities or government-owned or -controlled corporations shall be regulated
by the Commission in the same way as privately-owned public services, but certificates of public
convenience or certificates of public convenience and necessity shall not be required of such entities or
corporations: And provided, further, That it shall have no authority to require steamboats, motor ships
and steamship lines, whether privately-owned, owned or operated by any Government controlled
corporation or instrumentality to obtain certificate of public convenience or to prescribe their definite
routes or lines of service.
(b) The term “public service” includes every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger or both, with or without fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine railway, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal irrigation system, gas, electric
light, heat and power, water supply power, petroleum, sewerage system, wire or wireless
communication systems, wire or wireless broadcasting stations and other similar public services:
Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a
motor vehicle and uses it personally and/or enters into a special contract whereby said motor vehicle is
offered for hire or compensation to a third-party or third-parties

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engaged in agriculture, not itself or themselves a public service, for operation by

the latter for a limited time and for a specific purpose directly connected with the
cultivation of his or their farm, the transportation, processing, and marketing of
agricultural products of such third-party or third-parties shall not be considered as
operating a public service for the purposes of this Act.
(c) The word “person” includes every individual, co-partnership, joint stock
company or corporation, whether domestic or foreign, their lessees, trustees or
receivers, as well as any municipality, province, city, government-owned or -
controlled corporation, or agency of the Government of the Philippines, and
whatever other persons or entities that may own or possess or operate public
service. (As amended by R.A. Nos. 1270 and 2677)

Powers and duties of the Public Service Commission, and the purpose and intent
for which it was created, and the legal rights and privileges of a public utility
operating under a prior license.

Batangas Transportation Co. v.

Cayetano Orlanes G.R. No.

28865, December 19,1928

 The primary purpose of the Public Service Commission Law is to secure
adequate, sustained service for the public at the least cost, and to protect and
conserve investments, which have already been made for that purpose.
It must be conceded that an autobus line is a public utility, and that in all
things and respects, it is what is legally known as a common carrier, and that it is
an important factor in the business conditions of the Islands, which is daily
branching out and growing very fast.
Before such a business can be operated, it must apply for, and obtain, a
license or permit from the Public Service Commission, and comply with certain
defined terms and conditions, and when the license is once granted, the
operator must conform to, and comply with, all reasonable rules and regulations
of the Public Service Commission. The object and purpose of such a commission,
among other things, is to look

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TRANSPORTATION LAWS

out for, and protect, the interests of the public, and, in the instant case, to
provide it with safe and suitable means of travel over the highways in question,
in like manner that a railroad would be operated under like terms and conditions.
To all intents and purposes, the operation of an autobus line is very similar to
that of a railroad, and a license for its operation should be granted or refused on
like terms and conditions. For many and different reasons, it has never been the
policy of a public service commission to grant a license for the operation of a new
line of railroad which parallels and covers the same field and territory of another
old established line, for the simple reason that it would result in ruinous
competition between the two lines, and would not be of any benefit or
convenience to the public.
The Public Service Commission has ample power and authority to make any
and all reasonable rules and regulations for the operation of any public utility and
to enforce compliance with them, and for failure of such utility to comply with, or
conform to, such reasonable rules and regulations; the Commission has power to
revoke the license for its operation. It also has ample power to specify and define
what is a reasonable compensation for the services rendered to the traveling
public.
That is to say, the Public Service Commission, as such, has the power to
specify and define the terms and conditions upon which the public utility shall be
operated, and to make reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its services to the public, and for
any failure to comply with such rules and regulations or the violation of any of the
terms and conditions for which the license was granted, the Commission has
ample power to enforce the provisions of the license or even to revoke it, for any
failure or neglect to comply with any of its terms and provisions.
Hence, and for such reasons, the fact that the Commission has previously
granted a license to any person to operate a bus line over a given highway and
refuses to grant a similar license to another person over the same highway, does
not in the least create a monopoly in the person of the licensee, for the simple
reason that at all times the Public Service Commission has the power to say what is
a reasonable

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compensation to the utility, and to make reasonable rules and regulations for the
convenience of the traveling public and to enforce them.
The proceeding we are considering is governed by Section 13. That is the
general section of the Act comprehensively describing the duty of the Commission,
vesting it with power to fix and order substituted new rates for existing rates. The
power is expressly made to depend on the condition that, after full hearing and
investigation, the commission shall find existing rates to be unjust, unreasonable,
unjustly discriminatory, or unduly preferential. We conclude that a valid order of
the Commission under the act must contain a finding of fact after hearing and
investigation, upon which the order is founded, and that, for lack of such a finding,
the order in this case was void.
“Is a certificate of public convenience going to be issued to a second operator
to operate a public utility in a field where, and in competition with, a first operator
who is already operating a sufficient, adequate and satisfactory service?”
So long as the first licensee keeps and performs the terms and conditions of
its license and complies with the reasonable rules and regulations of the
Commission and meets the reasonable demands of the public, it should have more
or less of a vested and preferential right over a person who seeks to acquire
another and a later license over the same route. Otherwise, the first licensee
would not have any protection on his investment, and would be subject to ruinous
competition and thus defeat the very purpose and intent for which the Public
Service Commission was created.
The Court is clearly of the opinion that the order of the Commission granting
the petition of Orlanes in question, for the reasons therein stated, is null and void,
and that it is in direct conflict with the underlying and fundamental principles for
which the Commission was created.
The question presented is very important and far-reaching and one of first
impression in this court, and for such reasons [the Court] ha[s] given this case the
careful consideration which its importance deserves. The government having taken
over the control and supervision of all public utilities, so long as an operator under
a prior license complies with the terms and conditions of license and reasonable
rules and

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regulations for its operation and meets the reasonable demands of the public, it is
the duty of the Commission to protect rather than to destroy his investment by
the granting of a subsequent license to another for the same thing over the same
route of travel. The granting of such a license does not serve its convenience or
promote the interests of the public.
Section 14. The following are exempted from the provisions of the preceding section:
(a) Warehouses;
(b) Vehicles drawn by animals and baticas moved by oar or sail, and tugboats and lighters;
(c) Airship within the Philippines except as regards the fixing of their maximum rates on freight
and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of the National Government or by
any government-owned or -controlled corporation, except with respect to the fixing of rates. (As
amended by R.A. No. 2031)
Section 15. With the exception of those enumerated in the preceding section, no public service
shall operate in the Philippines without possessing a valid and subsisting certificate from the Public
Service Commission, known as “certificate of public convenience,” or “certificate of convenience and
public necessity,” as the case may be, to the effect that the operation of said service and the
authorization to do business will promote the public interests in a proper and suitable manner.
 The Commission may prescribe as a condition for the issuance of the certificate provided
in the preceding paragraph that the service can be acquired by the Republic of the Philippines or
by any instrumentality thereof upon payment of the cost price of its useful equipment, less
reasonable depreciation; and likewise, that the certificate shall be valid only for a definite period
of time, and that the violation of any of these conditions shall produce the immediate

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PUBLIC SERVICE

cancellation of the certificate without the necessity of any express action on the part of the
Commission.
In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age
of the model, or other circumstances affecting its value in the market shall be taken into consideration.
The foregoing is likewise applicable to any extension or amendment of certificates actually in
force and to those which may hereafter be issued, to permit to modify itineraries and time schedules of
public services, and to authorizations to renew and increase equipment and properties. (As amended by
Com. Act No, 454)

Section 16. Proceedings of the Commission, upon notice and hearing, — The
Commission shall have power, upon proper notice and hearing in accordance
with the rules and provisions of this Act, subject to the limitations and
exceptions mentioned and saving provisions to the contrary:
(a) To issue certificates which shall be known as Certificates of Public Convenience, authorizing
the operation of public services within the Philippines whenever the Commission finds that the
operation of the public service proposed and the authorization to do business will promote the public
interest in a proper and suitable manner: Provided, That thereafter, certificates of public convenience
and necessity will be granted only to citizens of the Philippines or of the United States or to
corporations, copartnerships, associations or joint-stock companies constituted and organized under
the laws of the Philippines: Provided, That sixty per centum of the stock or paid-up capital of any such
corporation, co-partnership, association or joint-stock company must belong entirely to citizens of the
Philippines or of the United States: Provided, further, That no such certificates shall be issued for a
period of more than fifty years.
(b) To approve, subject to constitutional limitations, any franchise or privilege granted under
the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of

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the Philippines when, in the judgment of the Commission, such franchise or privilege will properly
conserve the public interests, and the Commission shall in so approving impose such conditions as to
construction, equipment, maintenance, service, or operation as the public interests and convenience
may reasonably require, and to issue certificates of public convenience and necessity when such is
required or provided by any law or franchise.
(c) To fix and determine individual or joint rates, tools, charges, classifications, or schedules
thereof, as well as commutations, mileage, kilometrage, and other special rates which shall be
imposed, observed, and followed thereafter by a public service: Provided, That the Commission may,
in its discretion, approve rates proposed by public services provisionally and without necessity of any
hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice
to the concerns operating in the territory affected: Provided, further, That in case the public service
equipment of an operator is used principally or secondarily for the promotion of a private business,
the net profits of said private business shall be considered in relation with the public service of such
operator for the purpose of fixing the rates.
(d) To fix just and reasonable standards, classifications, regulations, practices, measurements,
or service to be furnished, imposed, observed, and followed thereafter by any public services.
(e) To ascertain and fix adequate and serviceable standards for the measurement of quantity,
quality, pressure, initial voltage, or other condition pertaining to the supply of the product or service
rendered by any public service, and to prescribe reasonable regulations for the examination and test
of such product or service and for the measurement thereof.
(f) To establish reasonable rules, regulations, instructions, specifications, and standards, to
secure the accuracy of all meters and appliances for measurements.
(g) To compel any public service to furnish safe, adequate, and proper service as regards the
manner of furnishing the same as well as the maintenance of the necessary material and equipment.
 320
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PUBLIC SERVICE

(h) To require any public service to establish, construct, maintain, and operate any reasonable
extension of its existing facilities, where, in the judgment of said Commission, such extension is
reasonable and practicable and will furnish sufficient business to justify the construction and
maintenance of the same, and when the financial condition of the said public service reasonably
warrant the original expenditure required in making and operating such extension.
(i) To direct any railroad, street railway or traction company to establish and maintain at any
junction or point of connection or intersection with any other line of said road or tract, or with any
other line of any other railroad, street railway or traction company, such just and reasonable
connection as shall be necessary to promote the convenience of shippers of property, or of
passengers, and in like manner to direct any railroad, street railways, or traction company engaged in
carrying merchandise, to construct, maintain and operate, upon reasonable terms, a switch
connection with any private sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of the Commission, such
connection is reasonable and practicable, and can be put in with safety, and will furnish sufficient
business to justify the construction and maintenance of the same.
(j) To authorize, in its discretion, any railroad, street railway or traction company to lay its
tracts across the tracks of any other railroad, street railway or traction company, or across any public
highway.
(k) To direct any railroad or street railway company to install such safety devices or adopt such
other reasonable measures as may in the judgment of the Commission be necessary for the
protection of the public at passing grade crossings of: (1) public highways and railroads, (2) public
highways and street railways, or (3) railroads and streets railways.
(l) To fix and determine proper and adequate rates of depreciation of the property of any
public service which will he observed in a proper and adequate depreciation account to

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be carried for the protection of stockholders, bondholders or creditors, in accordance with such rules,
regulations, and form of account as the Commission may prescribe. Said rates shall be sufficient to
provide the amounts required over and above the expense of maintenance to keep such property in a
state of efficiency corresponding to the progress of the industry. Each public service shall conform its
depreciation accounts to the rates so determined and fixed, and shall set aside the money so
provided for out of its earnings and carry the same in a depreciation fund. The income from
investments of money in such fund shall likewise be carried in such fund. This fund shall not be
expended otherwise than for depreciation, improvements, new constructions, extensions or
conditions to the property of such public service.
(m) To amend, modify or revoke at any time any certificate issued under the provisions of this
Act, whenever the facts and circumstances on the strength of which said certificate was issued have
been misrepresented or materially changed.
(n) To suspend or revoke any certificate issued under the provisions of this Act whenever the
holder thereof has violated or willfully and contumaciously refused to comply with any order, rule or
regulation of the Commission or any provision of this Act: Provided, That the Commission, for good
cause, may prior to the hearing suspend for a period not to exceed thirty days any certificate or the
exercise of any right or authority issued or granted under this Act by order of the Commission,
whenever such step shall in the judgment of the Commission be necessary to avoid serious and
irreparable damage or inconvenience to the public or to private interests.
(o) To fix, determine, and regulate, as the convenience of the State may require, a special type
for auto-buses, trucks, and motor trucks, to be hereafter constructed, purchased, and operated by
operators after the approval of this Act; to fix and determine a special registration fee for auto-buses,
trucks, and motor trucks so constructed, purchased and operated: Provided, That said fees shall be
smaller than those charged for auto-buses, trucks, and motor trucks of types not made regulation
under the subsection.

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Certificate of Public Convenience, Defined

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for

the operation of land transportation services for public use as required by the law.
Pursuant to Section 16(a) of the Public Service Act, as amended, the following
requirements must be met before a CPC may be granted, to wit: (i) the applicant
must be a citizen of the Philippines, or a corporation or co-partnership, association
or joint-stock company constituted and organized under the laws of the
Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely
to citizens of the Philippines; (ii) the applicant must be financially capable of
undertaking the proposed service and meeting the responsibilities incident to its
operation; and (iii) the applicant must prove that the operation of the public service proposed and the
authorization to do business will promote the public interest in a proper and suitable manner. It is
understood that there must be proper notice and hearing before the PSC can
exercise its power to issue a CPC.
By its terms, public convenience or necessity generally means something
fitting or suited to the public need. As one of the basic requirements for the grant
of a CPC, public convenience and necessity exists when the proposed facility or
service meets reasonable want of the public and supply a need, which the existing
facilities do not adequately supply. The existence or non-existence of public
convenience and necessity is therefore a question of fact that must be established
by evidence, real and/or testimonial; empirical data; statistics and such other
means necessary, in a public hearing conducted for that purpose. The object and
purpose of such procedure, among other things, is to look out for, and protect, the
interests of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the
condition that after full-dress hearing and investigation, it shall find, as a fact, that
the proposed operation is for the convenience of the public. Basic convenience is
the primary consideration for which a CPC is issued, and that fact alone must be
consistently borne in mind. Also, existing operators in subject routes must be given
an opportunity to offer proof and oppose the application. Therefore, an applicant
must, at
 323
TRANSPORTATION LAWS

all times, be required to prove his capacity and capability to furnish the service
which he has undertaken to render. And all this will be possible only if a public
hearing were conducted for that purpose. (KMU Labor Center v. Hon.
Garcia, supra)

Certificate of Public Convenience and Certificate of Convenience and Public

Necessity, distinguished.
is issued by the Commission authorizing the
“Certificate of Public Convenience ”
operation of public service within the Philippines whenever the Commission finds
that the operation of the public service proposed will promote the public interests
in a proper and suitable manner; while “certificate of public convenience and necessity ” is
issued by the Commission upon approval of any franchise or privilege granted by
any political subdivision of the Philippines when in the judgment of the
Commission, such franchise or privilege will properly conserve the public interest.
fSee Subsections [a] and [b])
In Philippine Airlines, Inc. v. Civil Aeronautics Board and Grand International Airways, G.R. No.
119528, March 26, 1997, it was held that there is no more distinction between
certificate of public convenience and certificate of convenience and public
necessity. Said the Supreme Court: “Many and varied are the definition of
certificates of public convenience which court’s and legal writers have drafted.
Some statutes use the terms “convenience and necessity ” while others use only the
words “public convenience. ” The terms “convenience and necessity, ” if used together in a
statute, are usually held not to be separable, but are construed together. Both
words modify each other and must be construed together. The word “necessity ” is
so connected, not as an additional requirement but to modify and qualify what
might otherwise be taken as the strict significance of the word necessity. Public
convenience and necessity exists when the proposed facility will meet a
reasonable want of the public and supply a need, which the existing facilities do
not adequately afford. It does not mean or require an actual physical necessity or
an indispensable thing.”
“The terms ‘convenience’ and ‘necessity’ are to be construed together,
although they are not synonymous, and effect must be given both. The
convenience of the public must not be circumscribed by

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according to the word ‘necessity’ its strict meaning or an essential requisite.”

The use of the word “necessity,” in conjunction with “public convenience” in
a certificate of authorization to a public service entity to operate, does not in any
way modify the nature of such certification, or the requirements for the issuance
of the same. It is the law, which determines the requisites for the issuance of such
certification, and not the title indicating the certificate.
Philippine Airlines v. Civil Aeronautics
Board and Grand International Airways
G.R. No. 119528, March 26,1997
FACTS: Petitioner Philippine Airlines, Inc. in a Special
Civil Action for Certiorari
and Prohibition under Rule 65 of the Rules of Court seeks to prohibit respondent
Civil Aeronautics Board from exercising jurisdiction over private respondent’s
Application for the issuance of a Certificate of Public Convenience and Necessity,
and to annul and set aside a temporary operating permit issued by the Civil
Aeronautics Board in favor of Grand International Airways (Grandair, for brevity)
allowing the same to engage in scheduled domestic air transportation services,
particularly the Manila-Cebu, Manila-Davao, and converse routes.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of Grand Airs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since Grand Air has not been granted and does
not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage in
air transport service.
Respondent Grandair, on the other hand, posits that a legislative franchise is
no longer a requirement for the issuance of a Certificate of Public Convenience
and Necessity or a Temporary Operating Permit, following the Court’s
pronouncements in the case of Albano v. Reyes, as restated by the Court of Appeals
in Avia Filipinas International v. Civil Aeronautics Board and Silangan Airways, Inc. v. Grand
International Airways, Inc., and the Hon.

Civil Aeronautics Board.

325
TRANSPORTATION LAWS

ISSUES: 1) Whether the Civil Aeronautics Board can issue the Certificate of
Public Convenience and Necessity or Temporary Operating Permit to a prospective
domestic air transport operator who does not possess a legislative franchise to
operate as such.
2) Whether Congress, in enacting R.A. No. 776, has delegated the authority to
authorize the operation of domestic air transport services to the respondent
Board, such that Congressional mandate for the approval of such authority is no
longer necessary.
HELD: The Civil Aeronautics Board has jurisdiction over Grand Air’s Application
for a Temporary Operating Permit. This rule has been established in the case of
Philippine Air Lines, Inc. v. Civil Aeronautics Board, promulgated on June 13,1968. The
Board is expressly authorized by

R.A. No. 776 to issue a temporary operating permit or Certificate of Public

Convenience and Necessity, and nothing contained in the said law negates the
power to issue said permit before the completion of the applicant’s evidence and
that of the oppositor thereto on the main petition. Indeed, the CAB’s authority to
grant a temporary permit “upon its own initiative” strongly suggests the power to
exercise said authority, even before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite to the issuance of a
permit, the absence of the same does not affect the jurisdiction of the Board to
hear the application, but tolls only upon the ultimate issuance of the requested
permit.
The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.
“The franchise is a legislative grant, whether made directly by the legislature
itself, or by any one of its properly constituted instrumentalities. The grant, when
made, binds the public, and is, directly or indirectly, the act of the state.”
On the second issue, the Supreme Court held that:
 Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With the
growing complexity of modem life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of
CHAPTER VI PUBLIC SERVICE

administering the laws, there is a constantly growing tendency towards the

delegation of greater powers by the legislature, and towards the approval of the
practice by the courts. It is generally recognized that a franchise may be delivered
indirectly from the state through a duly designated agency, and to this extent, the
power to grant franchises has frequently been delegated, even to agencies other
than those of a legislative nature. In pursuance of this, it has been held that
privileges conferred by grant by local authorities as agents for the state constitute
as much a legislative franchise as though the grant had been made by an act of the
Legislature.
The trend of modem legislation is to vest the Public Service Commissioner with
the power to regulate and control the operation of public services under
reasonable rules and regulations, and as a general rule, courts will not interfere
with the exercise of that discretion when it is just and reasonable and founded
upon a legal right.
Given the foregoing postulates, [W]e find that the Civil Aeronautics Board has
the authority to issue a Certificate of Public Convenience and Necessity, or
Temporary Operating Permit to a domestic air transport operator, who, though
not possessing a legislative franchise, meets all the other requirements prescribed
by the law. Such requirements were enumerated in Section 21 of R.A. No. 776.
There is nothing in the law or in the Constitution, which indicates that a
legislative franchise is an indispensable requirement for an entity to operate as a
domestic air transport operator. Although Section 11 of Article XII recognizes
Congress’ control over any franchise, certificate or authority to operate public
utility, it does not mean that Congress has exclusive authority to issue the same.
Franchises issued by Congress are not required before each and every public utility
may operate. In many instances, Congress has seen it fit to delegate this function
to government agencies, specialized particularly in their respective areas of public
service.
Prior applicant rule. — Where there are various applicants for a public utility over
the same territory, all conditions being equal, priority in the filing of the application
for a certificate of public convenience becomes an important factor in the granting
or refusal of a certificate. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455)

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TRANSPORTATION LAWS

Old operator rule. — Before permitting a new operator to invade the

territory of another already established with a certificate of public convenience,
thereby entering into competition with it, the prior operator must be given an
opportunity to extend its service in order to meet the public. (Javier v. Orlanes, 53
Phil. 468)

Third operator rule. — Where two operators are more than serving the
public, there is no reason to permit a third operator to engage in competition
with them. Thus, the fact that it is only one trip and of little consequence, is not
sufficient reason to grant the application. (Yangco v. Esteban, 58 Phil. 346) However, if
later on circumstances would change requiring the operation of new units or
extending existing facilities, the third operator rule would be subject to the prior
applicant rule and also as to who may best subserve the public interests.
Protection of investment rule. — It is one of the primary purposes of the
Public Service Law to protect and conserve investments, which have already
been made for that purpose by public service operators. (Batangas Trans. Co. v.
Orlanes, 52 Phil 455)
First applicant to operate service be given preference if financially competent.

Tomas Litimco v. La Mallorca

G.R. Nos. L-17041-42, May 18,1962

FACTS: Tomas Litimco filed a petition before the Public Service Commission
praying for authority to operate a TPU service on the line Manila-Malolos via Sta.
Isabel with the use of 10 units. To the petition, several operators filed written
oppositions. On the date set for hearing, petitioner adduced evidence in support of
his petition, but none of the oppositors submitted evidence in support of their
oppositions. Thereafter, the petition was submitted for decision.
On November 7, 1958, before the Public Service Commission could render its
decision, La Mallorca, another operator, moved to reopen the case stating that if
the petition to operate the line proposed be granted it would work to its prejudice
and so it requested a reopening in order that it may file its opposition and present
evidence in support

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thereof. The motion was granted and, accordingly, the case was set for hearing
on January 12, 1959. However, instead of presenting evidence in support of its
opposition, La Mallorca moved for postponement, only to announce days later
that instead of merely objecting to the petition, it decided to file an application
under a separate number (Case No. 63120) requesting for authority to operate
the same line applied for by petitioner by rerouting 4 of its 10 round trip units of
the line Malolos-Manila via Guiguinto. To this application, several oppositions
were presented, including petitioner himself, although only the latter presented
evidence in support of his opposition. Because of the identity of the issues
involved, the two applications were heard jointly.
After a protracted hearing, the Public Service Commission rendered decision
denying petitioner’s application but granting that of respondents on the ground
that the latter has a better right to render the service applied for. Petitioner
interposed the present petition for review.
ISSUE: Whether or not the priority in filing
of the application, other conditions
being equal, is an important factor in determining the rights of public service
companies.
HELD: Yes. There is no doubt that petitioner was the first to apply for the
service in the territory in question. Through his amended application,
petitioner has applied for the new service as early as October 24,1958, while
respondent only was awakened and followed suit when it filed its application
on January 21,1959, after petitioner’s application was already submitted for
decision. Since it is admitted that petitioner is financially competent and able
to operate the line proposed, for it is a matter of record that he is also an
operator of a bus line from Manila to Malolos via Bulacan, [W]e see no
plausible reason why he should not be given preference to operate the service
applied for considering that he is the first one to apply for such line. This is in
accord with the policy constantly adopted by this Court in analogous cases,
which we find to be sound, to stave off any act of discrimination or partiality
against any applicant for operation of a new line. While there may be cases
where an applicant, even if ahead in time, was not given the service, it is
because it was proven that he was financially incompetent, or otherwise
disqualified, to render the service. If an applicant is qualified financially,

329
TRANSPORTATION LAWS
and is able to undertake the service, he should be given the preference as a matter
of fairness and justice. Indeed, this Court has postulated that “priority in the filing
of the application for a certificate of public convenience is, other conditions being
equal, an important factor in determining the rights of the public service
companies.” Considering that petitioner has filed his application much ahead in
point of time than respondent, and is financially competent, the action of the
Public Service Commission in giving preference to respondent is not justified.
The argument that the application of petitioner for the operation of the new
line calls for the purchase of 10 new trucks which would result in further depletion
of the dollar reserve of our government, while the application for re-routing of
respondent will not entail any further expenditure, is of no consequence, if the
operation will redound to the benefit of the riding public. The operation of a new
line as a general proposition always involves a new investment, which may happen
even with old operators. In the course of operation, and with the passing of time,
new equipment and facilities may be found necessary to maintain an efficient
service, which additional expenditure cannot certainly be considered as a cause for
disruption of the service. This is a matter of finance, which concerns exclusively the
one who desires to operate the new line. At any rate, the new line merely covers
seven kilometers of new territory, which traverses three sparsely populated barrios,
and considering that respondent did not deem it necessary to cover said territory
except after the passing of many years, and only thought of giving the service
when petitioner filed his application. Fairness requires that preference be given to
petitioner.
A certificate of public convenience may be granted to a new operator without giving the old operator
an opportunity to improve its equipment and service.

Fortunato F. Halili v. Ruperto Cruz G.R. No. L-21061, June 27,1968

 FACTS: Herein respondent filed, on September 19, 1961, with the Public
Service Commission an application, praying for the grant of a certificate of public
convenience to operate, under PUB denomination,

330
CIIAITKR V!
I’Um.lC SRRV1CT.

between Norzagaray (Bulacan) and Piers (Manila), via Novaliehes Road, A.

|() buses

Bonifacio Road, Blumentritt Street, Rizal Avenue, MacArtluir Bridge, Aduana and 13th
Streets; and on the return trip, via Boston Street, MacArtluir Bridge, Rizal Avenue,
Blumentritt, A. Bonifacio Road, and Novaliehes Road. The application was opposed by
l)e Dios Transportation Co., Inc., Raymundo Transportation Co., Inc., POP Transit
Inc., Villa Rey Transit, Inc., and by herein petitioner- appellant Fortunato F. Halili who
was the operator of the transportation service known as “Halili Transit.” Petitioner, in
his opposition alleged, substantially, that he was an operator of a bus service on the
line applied for, enumerating at the same time the other lines he operated which
were traversed by the route mentioned in respondent’s application; that his service, as

well as that of other bus operators on the route, was more than adequate to meet
the demands of the traveling public; that the grant of the application would merely
result in wasteful and ruinous competition, and that the respondent was not
financially capable of operating and maintaining the service proposed by him.
After several hearings in which the parties presented their evidence, oral and
documentary, the Public Service Commission rendered a decision, on February 13,
1963, granting a certificate of public convenience to respondent Ruperto Cruz to
operate 10 buses under PUB denomination on the line Norzagaray (Bulacan)-Piers
(Manila) passing through the routes applied for.
 Petitioner contends that “The Public Service Commission erred in failing to
give petitioner-appellant the right of protection to investment to which
petitioner-appellant is entitled.”
ISSUE: Whether or not the protection to investment rule is a paramount
consideration in the grant of certificate of public convenience.
HELD: Petitioner claims, that the Public Service Commission failed to give
him the protection that he is entitled to, being an old and established public
service operator. As a general principle, public utility operators must be
protected from ruinous competition, such that before permitting a new operator
to serve in a territoiy already served by another operator, the latter should first
be given opportunity to improve his equipment and service. This principle,
however, is subject

331
TRANSPORTATION LAWS

to justifiable exceptions. The primary consideration in the grant of a certificate of

public convenience must always be public convenience. Thus, this Court said:
“While it is the duty of the government as far as possible to protect public
utility operators against unfair and unjustified competition, it is nevertheless
obvious that public convenience must have the first consideration, x x x.”
(Raymundo Transportation Co. v. Perez, 56 Phil. 274)

The public convenience is properly served if passengers who take buses at

points in one part of a line are able to proceed beyond those points without having
to change buses. On this point, this Court said:
 “It is the convenience of the public that must be taken into account,
other things being equal, and that convenience would be effectuated by
passengers who take buses at points in one part of a line being able to
proceed beyond those points without having to change buses and to wait for
the arrival of buses of a competitive operator. We can perceive how under
such conditions one public utility could gain business at the expense of a
rival.”
In the instant case, public convenience would be properly served if
commuters from Norzagaray going to the Piers in Manila could go to their
destination without the need of changing buses. Certainly, the Public Service
Commission has power to grant a certificate of public convenience to a new
operator, and the old operator cannot with reason complain that it had not been
given opportunity to improve its equipment and service, if it is shown that the old
operator has not placed in the service all the units of equipment that it had been
authorized to operate, and also when the old operator has violated, or has not
complied with, important conditions in its certificate. In the instant case, it has
been shown that petitioner had not operated all the units that it was authorized to
operate.
Note: The rule where there are various applicants for a public utility over the
same territory, is that priority of application, while an element to be considered,
does not necessarily control the granting of a certificate of public convenience. The
question to be considered in such

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cases is, which applicant can render the best service, considering the conditions
and qualifications of the applicant to furnish the same. But where other conditions
are equal, priority in the filing of the application for a certificate of public
convenience becomes an important factor in the granting or refusal of a
certificate. (Cruz v. Marcelo, L-l5301- 01, March 30, 1962, reiterating the rulings in Pineda v.
Carandang, L-l3270-71, March 24, 1960; Benitez v. Santos, L-12911-12, and Lopez v. Santos, L-l3073-74,
February 29, 1960; andBatangas Trans. Co., etal. v. Or lanes, et ai, 55 Phil. 745)

Additional Service by Old Operators

Raymundo Transportation Co.
G.R. No. L-7880, May 18,1956

FACTS: Teofilo Cerda is a holder of a certificate of public convenience granted

him by the Public Service Commission to operate a bus service for the
transportation of passengers and freight on the line Binangonan (Rizal) to Manila
and vice versa. This certificate is but a conversion into a permanent one of the
emergency certificate previously given him by the Commission way back in 1947.
On September 12, 1953, he asked for authority to increase his present number of
trips by eight additional round trips with the use of three additional buses on the
ground that public convenience required the operation of the additional trips. His
application was opposed by Raymundo Transportation Co., A. Gergaray Tanchingco
and the Halili Transit alleging that the services they are rendering on the same line
are more than sufficient to satisfy the needs of the traveling public, and hence,
there is no need for the additional trips on the same line.

At the hearing, the applicant presented the testimony of Sisenando Sison,

Pedro Fineza, and Fernando Flores, all residents of Binangonan, Rizal, while on the
part of the oppositors, only the first two submitted evidence in support of their
opposition, and on the strength of the evidence submitted, the Commission found
that the preponderance of evidence
“justifies the authorization of additional trips on the line although not in the
number asked by the applicant” and granted him authority to operate only four
additional round trips with one auto-truck

333
TRANSPORTATION LAWS

subject to certain specified conditions. From this decision, oppositor Raymundo

Transportation Co., interposed the present petition for review.
It is contended for petitioner that the decision of the Public Service
Commission is erroneous because if there is any need for additional service,
petitioner should be given the preference of rendering it being an old operator.
HELD: As to the claim that petitioner should be given the privilege of rendering
the additional service because it is an old operator, suffice it to say that this rule
only applies when the old operator offers to meet the increase in the demand the
moment it arises and not after another operator had offered to render the
additional service as was done in the present case. (Angat-Manila Trans. Co., Inc. v.
Victoria Vda. de Tengco, 95 Phil. 58) The rule protects those who are vigilant in meeting
the needs of the traveling public.
The decision appealed from is affirmed, with costs against petitioner.

The “prior operator” and “protection of investment” rules cannot take precedence over the
convenience of the public.

Intestate Estate of Teofilo M. Tiongson v.

The Public Service Commission and Mario Z. Lanuza G.R. No. L-2470I,
December 16,1970
 FACTS: On May 11, 1965, the Public Service Commission decided its Case No.
124626, approving the application of Mario Z. Lanuza for a certificate of public
convenience to install and operate a 20-ton daily capacity ice-plant in Pagsanjan,
Laguna, and to sell the ice to be produced in said municipality as well as in the
municipalities of Longos, Paete, Pakil, Pangil, Siniloan, Famy, Sta. Maria, Cavinti,
Magdalena, Majayjay, Nagcarlan, Rizal, Lilio, Sta. Cruz, Lumban, Pila and Victoria,
all in the province of Laguna.
Three existing operators had opposed the application. One of them, Victorino
de Pena, who has an ice plant in Mauban, Quezon,

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withdrew his opposition after the applicant excluded the municipality of Luisiana
from the territory originally applied for. Another oppositor, Emilio

Gomez, did not appeal from the decision of the Public Service Commission. The
petitioner here, the Estate of Teofilo M. Tiongson, remains the only oppositor in
the present appeal.
The petitioner is the grantee of a certificate of public convenience to maintain
and operate a 30-ton (increased to 40 tons in 1960 and then to 70 tons in 1964) ice
plant in San Pablo City, with authority to sell ice therein as well as in the
municipalities of Sta. Cruz, Rizal, Nagcarlan, Calauan, Victoria, Pila, Lumban, Paete,
Pakil, Pangil, Cavinti, Siniloan, and Alaminos.
ISSUE: There is no question as to the applicant’s financial capacity. The principal
issue is whether there is sufficient need for ice in the places stated in the decision
to justify the establishment of a plant in Pagsanjan with the daily capacity
authorized by the Commission. This issue is essentially one of fact on which, as a
rule, the findings of the Commission are binding on this Court unless it clearly
appears that there is no evidence to reasonably support them.
HELD: The Court has gone over the record in this regard and found enough
support therein for the decision appealed from. Manuel Zaide is a fish dealer in
Paete; Willing Limlengco is a sari-sari and refreshment store-owner in Pagsanjan;
Conrado Almario has a similar business in Lumban; Alfonso Rebong was the
municipal mayor of Victoria since 1960; Ernesto Marina is a businessman in Pila;
Jose Acuiza is a businessman and fisherman in Pakil; Jose Maceda was the
municipal secretary of Pagsanjan; and Eligio Lorenzo is a grocery merchant in Sta.
Cruz. They all affirmed the inadequacy and frequent lack of ice supply in their
respective localities not only for home consumption but also for restaurants and
refreshment parlors as well as for the fishing industry or occupation of the
inhabitants, particularly in the regions bordering Laguna Bay. It is true their
combined testimony did not cover all the municipalities applied for, but the
applicant himself, respondent here, demonstrated sufficient familiarity with the
entire area to be able to give evidence, as he did, on the ice-supply situation in
everyone of them. He did a lot of traveling as owner of three movie-houses in

Pagsanjan,

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TRANSPORTATION LAWS

Sta. Cruz and Pila, and in connection with his application in this case, personally
conducted a thorough investigation of the local demands for ice in the
municipalities covered by said application. That he is the applicant does not
necessarily affect his credibility; on the contrary, such an investigation was
necessary and called for by sound business policy, for no one would invest capital
in the production and sale of any commodity without first ascertaining the needs
of the prospective market.
One significant fact may be noted insofar as the petitioner’s existing ice plant
in San Pablo is concerned. The petitioner formerly operated another plant in
Pagsanjan, and each of them had one delivery truck to service the customers in
different municipalities. The Pagsanjan plant, however, was closed in 1952 and
transferred to San Pablo, and since then, the petitioner has been maintaining only
one delivery-truck service, with a single dealer-employee in charge. Under the
circumstances, the Public Service Commission correctly remarked that “the
oppositors have not established the adequacy of the service rendered by them in
the eighteen (18) municipalities proposed to be served by the applicant,
considering that most of these municipalities are far from the locations of their ice-
plants.
The “prior operator ” and “protection of investment ” rules cited by petitioner cannot
take precedence over the convenience of the public. There is no ice plant at
present in Pagsanjan; and from the testimony of the witnesses for the applicant,
there exists a great demand for ice not only there but also in certain neighboring
municipalities. There is nothing in the record to show that the petitioner had
exerted efforts to meet this demand before the respondent made his offer to
service the areas where ice was needed. Moreover, the respondent is authorized
to produce only 20 tons of ice daily, whereas, the petitioner has been allowed to
increase its daily capacity from 30 to 40 tons in 1960, and recently, in 1964, to 70
tons. This only proves that there is indeed a great demand for ice in the area
applied for by the respondent, and negates the probability of ruinous competition.
On the contrary, the resulting competition will undoubtedly benefit the public
through improvement in the service and reduction in retail prices.
 336
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PUBLIC SERVICE

Municipality of Echague v. Hon. Leopoldo M. Abellera and Avelina Ballad

G.R. No. L-48671, December 12,1986
FACTS: Since 1936, the petitioner municipality, through its then municipal
council, and later, its Sangguniang Bayan, had been operating a municipal ferry
service traversing the Cagayan River to and from the Barangays Soyung-Malitao
and Barangays Embarcadero-Dammang East and West, all within the municipality
of Echague, Isabela. In this regard, petitioner either operated the ferry service
itself, or annually leased the operation of the same to the highest bidder.
On November 16, 1977, herein private respondent Avelino Ballad furnished
petitioner, through its then incumbent mayor, a xerox copy of a Decision issued on
October 13, 1977 by the Board of Transportation granting respondent Ballad a
Certificate of Public Convenience to operate a two-motor boat service for the
regular and public transportation of passengers and freight between Barrio
Soyung-Dammang West and vice versa across the Cagayan River all in the
municipality of Echague, Isabela. In furnishing petitioner with a copy of the
Decision in his favor, private respondent gave notice that he would start his ferry
boat service operation in January 1978 and petitioner Municipality has to stop its
own feiry boat service within the aforementioned routes.
Petitioner expressed its surprise over said Decision because it is averred that it
was never notified of the application of respondent Ballad with the Board of
Transportation to operate the ferry service. On January 17,1977, the respondent
Board of Transportation, upon motion of petitioner Municipality, issued an Order
suspending the operation of the motorboat service of private respondent after a
rehearing of the case by the Board en banc.
On February 14, 1978, the petitioner filed a Motion for Reconsideration of the
Decision, dated October 13, 1977, on the grounds of lack of notice and deprivation
of the opportunity to be heard by respondent Board; and the award of said
Certificate of Public Convenience to respondent Ballad was approved without
favorable indorsement by resolution of the Sangguniang Bayan of Echague, Isabela
of Ballad’s application.

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TRANSPORTATION LAWS

The respondent Board, on June 26, 1978, denied the Motion for
Reconsideration and lifted and set aside the Order of suspension dated January
17, 1977.
ISSUE: Whether or not under RD. No. 1 or the Integrated Reorganization
Plan, which vests on the Board of Transportation the jurisdiction and authority to
issue Certificate of Public Convenience for the operation of public land, water
and air transportation utilities, there would still be need for an applicant for a
ferry boat service operating between two points within a municipality to obtain a
favorable resolution of the Sangguniang Bayan of said municipality before the
Board of Transportation, can validly award the corresponding franchise to the
applicant, considering the provisions of Sections 2318-2320 of the Revised
Administrative Code.
HELD: Indeed, the records reflect that in the case at bar there was no
compliance made with the essential requirements of administrative due process.
It appears that the notice of hearing was duly published once in two Manila daily
newspapers of general circulation in the Philippines. Nonetheless, Respondent
Board ruled that petitioner is not entitled to be notified of the hearing inasmuch
as petitioner Municipality never informed the respondent Board that it is an
operator of a ferry boat service, and that petitioner Municipality being then a de
 ferry boat operator, has no personality to oppose the application of private
facto
respondent Ballad.
The Court cannot consider the alleged publication of the said notice in two
unnamed Manila dailies as sufficient compliance of notice to petitioner when the
singular date of such supposed publication is not even mentioned by respondents
nor disclosed by the records. As a party to be directly affected by the setting up of
a ferry service by private respondent, petitioner Municipality is entitled to be
directly informed and afforded an opportunity to be heard by the Board.
The Court holds that the specific jurisdiction and authority given by Sections
2318-2320 of the Revised Administrative Code to a municipality to operate or
lease the ferry service within its own territorial limits should prevail. The grant of
supervision and authority by Administrative Code to municipalities or municipal
councils over public utilities such as municipal ferries, markets, etc., is specific,
and

338
 CHAPTER VI PUBLIC SERVICE

undoubtedly was “intended to provide an additional source of revenue

to municipal corporations for their maintenance and operation.”
(Municipality of Gattaran v. Elizaga, 91 Phil. 440) On the other hand, the authority
conferred on the respondent Board of Transportation was intended

being then exercised by petitioner municipality, pursuant

to clear provisions of the law, was removed by a general
reorganization plan, which was intended only to indicate
the agency which would supervise or regulate the
operation of public
services. The provisions of the Revised Administrative
Code which grant to the municipal council or Sangguniang
i
Bayan the power to acquire or establish municipal ferries,
are different and should be distinguished from the
authority of the Board of Transportation to issue a
Certificate of Public Convenience. While the establishment
of a municipal ferry is first given to a municipality, ferry
service will nevertheless be subject to the supervision and
control of the Board of Transportation. The winner in a
public bidding conducted by the municipal council obtains
the privilege to operate the ferry service, but he has to
apply for a Certificate of Public Convenience from the
Board of Transportation which then has the duty to
regulate the operation, route, rates to be charged, as well
as specify the kind of equipment to be used for the
comfort, convenience and safety of the public using the
ferry.
Note: The aforestated sections of the Administrative Code read as
follows:
principally to insure and safeguard the convenience, comfort and safety of the
public.
The Court declines to accept the proposition that the operation of the ferry

“Section 2318. Municipal ferries, wharves, markets, etc. — A

municipal council shall have authority to acquire or
establish municipal ferries, wharves, markets,
slaughterhouses, pounds, and cemeteries. Public utilities
thus owned by the municipality may be conducted by the
municipal authorities upon account of the municipality or
may be let for a stipulated return to private parties.”
 “Section 2320. Establishment of certain public utilities by private
parties under license. — Where provisions of the next

339
TRANSPORTATION LAWS

two preceding sections hereof, for maintaining or conducting the ferries,

wharves, markets, or slaughterhouses requisite for the needs of the
municipality, the municipal council shall have authority in its discretion, to let
the privilege of establishing and maintaining such utilities to private parties by
license granted upon such terms as shall be fixed by the council.”
“The right to reject any or all bids shall be preserved in all proposals for
such bids; and the maximum charges, rents, or fees which may be exacted by
the lessees shall be fixed in advance and shall be stated in the proposals for
bids. The decision of a municipal council rejecting any bid or awarding any
such privilege shall be subject to final revisal by the provincial board.”
LGU’s indubitably now have the power to regulate the operation of tricycles-for-hire and to grant
franchises for the operation thereof
The Department of Transportation and Communications (“DOTC”), through
the LTO and the LTFRB, has since been tasked with implementing laws pertaining
to land transportation. The LTO is a line agency under the DOTC whose powers and
functions, pursuant to Article III, Section 4(d)[l], of R.A. No. 4136, otherwise known
as Land Transportation and Traffic Code, as amended, deal primarily with the registration
of all motor vehicles and the licensing of drivers thereof. The LTFRB, upon the
other hand, is the governing body tasked by E.O. No. 202, dated June 19,1987, to
regulate the operation of public utility or “for hire” vehicles and to grant franchises
or certificates of public convenience (“CPC”). Finely put, registration and licensing
functions are vested in the LTO while franchising and regulatory responsibilities had
been vested in the LTFRB.
Under the Local Government Code, certain functions of the DOTC were
transferred to the LGUs, thusly:
“SEC. 458. Powers, Duties, Functions and Compensation.
—

“xxx XXX XXX

“(3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises
and authorizing the

340
CHAPTER VI PUBLIC SERVICE

issuance of permits or licenses, upon such conditions and for such purposes intended to promote
the general welfare of the inhabitants of the city and pursuant to this legislative authority shall:
“xxxxxxxxx
“(VI) Subject to the guidelines prescribed by the Department of Transportation and
communications, regulate the operation of tricycles and grant franchises for the operation thereof
within the territorial jurisdiction of the city.” (Emphasis supplied)

LGUs indubitably now have the power to regulate the operation of tricycles-
for-hire and to grant franchise for the operation thereof. “To regulate” means to
fix, establish, or control; to adjust by rule, method, or established mode; to direct
by rule or restriction; or to subject governing principles or laws. A franchise is
defined to be a special privilege to do certain things conferred by government on
an individual or corporation, and which does not belong to citizens generally of
common right. On the other hand, “to register,” means to record formally and
exactly, to enroll, or to enter precisely in a list or the like, and a “driver’s license” is
the certificate or license issued by the government which authorizes a person to
operate a motor vehicle. The devolution of the functions of the DOTC, performed
by the LTFRB, to the LGUs, as so aptly observed by the Solicitor General, is aimed
at curbing the alarming increase of accidents in national highways involving
tricycles. It has been the perception that local governments are in good position to
achieve the end desired by the law making body because of their proximity to the
situation that can enable them to address that serious concern better than the
national government.
It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of
the Local Government Code, the power of LGUs to regulate the operation of
tricycles and to grant franchises for the operation thereof is still subject to the
guidelines prescribed by DOTC. In compliance therewith, the

Department of Transportation and Communications (“DOTC”) issued

“Guidelines to Implement the Devolution of LTFRBs

341

TRANSPORTATION LAWS

Franchising Authority over Tricycles-For-Hire to Local Government units pursuant to the Local
Government Code. ” Pertinent provisions of the guidelines state:

“In lieu of the Land Transportation Franchising and Regulatory Board

(LTFRB) in the DOTC, the Sangguniang Bayan I Sangguniang Panglungsod
(SB/SP) shall perform the following:
“(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe
the appropriate terms and conditions therefore;
“xxxXXXXXX
“Operating Conditions:

“1. For safety reasons, no tricycles should operate on national highways

utilized by 4 wheel vehicles greater than 4 tons and where normal speed
exceed 40 KPH. However, the SB/SP may provide exceptions if there is no
alternative route.
“2. Zones must be within the boundaries of the municipality/city.
However, existing zones within more than one municipality/city shall be
maintained, provided that operators serving said zone shall secure MTOPs
from each of the municipalities/cities having jurisdiction over the areas
covered by the zone.
“3. A common color for tricycles-for-hire operating in the same zone may
be imposed. Each unit shall be assigned and bear an identification number,
aside from its LTO license plate number.
“4. An operator wishing to stop service completely, or to suspend service
for more than one month, should report in writing such termination or
suspension to the SB/SP which originally granted the MTOP prior thereto.
Transfer to another zone may be permitted upon application.
“5. The MTOP shall be valid for three (3) years, renewable for the same
period. Transfer to another zone, change of ownership of unit or transfer of
MTOP shall be construed as an amendment to an MTOP and shall require
appropriate approval of the SB/SP.
“6. Operators shall employ only drivers duly licensed by LTO for tricycle-
for-hire.

342
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PUBLIC SERVICE

“7. No tricycle-for-hire shall be allowed to carry more passengers and/or

goods than it is designed for.
 “8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e.,
service is rendered upon demand and without a fixed route within a zone.”
Such as can be gleaned from the explicit language of the statute, as well as
the corresponding guidelines issued by DOTC, the newly delegated powers pertain to the
franchising and regulatory powers therefore exercised by the LTFRB and not to the functions of the LTO
Clearly
relative to the registration of motor vehicles and issuance of license for the driving thereof
unaffected by the Local Government Code are the powers of LTO under R.A. No.
4136 requiring the registration of all kinds of motor vehicles used or operated on
or upon any public highway in the country. Thus —
“SEC. 5. All motor vehicles and other vehicles must be registered— (a) No motor
vehicle shall be used or operated on or upon any public highway of the
Philippines unless the same is properly registered for the current year in
accordance with the provisions of this Act.” (Article 1, Chapter II, R.A. No. 4136). (Land
Transportation Office v. City of Butuan, G.R. No. 131512, January 20, 2000, 322

SCRA 805)

EXECUTIVE ORDER NO. 202

CREATING THE LAND TRANSPORTATION FRANCHISING AND
REGULATORY BOARD
WHEREAS, the Department of Transportation and Communications is vested
with, among others, quasi-judicial powers and functions pursuant to Executive
Order No. 125, as amended:
NOW, THEREFORE, I, CORAZON C. AQUINO, president of the

Philippines, do hereby order:

SECTION 1. Creation of the Land Transportation Franchising and
Regulatory Board. — There is hereby created in
 343
TRANSPORTATION LAWS

the Department of Transportation and Communications, the Land Transportation

Franchising and Regulatory Board, hereinafter referred to as the “Board.”
SEC. 2. Composition of the Board. — The Board shall be composed of a Chairman
and two (2) members with the same rank, salary and privileges of an Assistant
Secretary, all of whom shall be appointed by the President of the Philippines upon
recommendation of the Secretary of Transportation and Communications. One (1)
member of the Board shall be a member of the Bar and shall have engaged in the
practice of law in the Philippines for at least five (5) years, another a holder of a
degree in civil engineering, and the other a holder of a degree in economics,
finance or management both with the same number of years of experience and
practice.
SEC. 3. Executive Director and Support Staff of the Board.
— The Board shall have an Executive Director who shall also be appointed by the
President of the Philippines upon the recommendation of the Secretary of
Transportation and Communications. He shall have the rank, salary and privileges
of a Department Service Chief. He shall assist the Board in the performance of its
powers and functions.
The Board shall be supported by the Technical Evaluation Division, Legal
Division, Management Information Division, Administrative Division and Finance
Division.
SEC. 4. Supervision and Control Over the Board. — The Secretary of Transportation and
Communications, through his duly designated Undersecretary, shall exercise
administrative supervision and control over the Land Transportation Franchising
and Regulatory Board.
 SEC. 5. Powers and Functions of the Land Transportation Franchising. — The Board
shall have the following powers and functions:
a. To prescribe and regulate routes of service, economically viable
capacities and zones or areas of operation of public

344

CHAPTER VI PUBLIC SERVICE

land transportation services provided by motorized vehicles in

accordance with the public land transportation development
plans and programs approved by the Department of
Transportation and Communications;
b. To issue, amend, revise, suspend or cancel Certificate of
Public Convenience or permits authorizing the operation of
public land transportation services provided by motorized
vehicles, and to prescribe the appropriate terms and conditions
therefor;
c. To determine, prescribe and approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the
operation of public land transportation services provided by motorized
vehicles;
d. To issue preliminary or permanent injunction, whether prohibitory
or mandatory, in all cases in which it has jurisdiction, and in which cases the
pertinent provisions of the Rules of Court shall apply;
 e. To punish for contempt of the Board, both direct and indirect, in
accordance with the pertinent provisions of, and the penalties prescribed
by, the Rules of Court;
f. To issue subpoena and subpoena duces tecum and to summon
witnesses to appear in any proceedings of the Board, to
administer oaths and affirmations;
g. To conduct investigations and hearings of complaints for violation
of the public service laws on land transportation and of the Board’s rules
and regulations, orders, decisions, and/or rulings and to impose fines and/or
penalties for such violations;
h. To review motu proprio the decisions/actions of the Regional
Franchising and Regulatory Office herein created;
i. To promulgate rules and regulations governing proceedings before
the Board and the Regional Franchising and Regulatory Office: Provided, That
except with respect to paragraphs d, e, f and g hereof, the rules of
procedure and evidence prevailing in the courts of law should not be
controlling
f
I'

|
.

345

TRANSPORTATION LAWS

and it is the spirit and intention of said rules that the Board and the Regional
Franchising and Regulatory Offices shall use every and all reasonable means to
ascertain facts in its case speedily and objectively and without regard to
technicalities of law and procedures, all in the interest of due process;
j. To fix, impose and collect, and periodically review and
adjust, reasonable fees and other related charges for services rendered;
k. To formulate, promulgate, administer, implement and enforce
rules and regulations on land transportation public utilities, standards of
measurements and/or design, and rules and regulations requiring operators
of any public land transportation service to equip, install and provide in their
stations such devices, equipment facilities and operating procedures and
techniques as may promote safety, protection, comfort and convenience to
persons and property in their charges as well as the safety of persons and
property within their areas of operations;
l. To coordinate and cooperate with other government agencies and
entities concerned with any aspect involving public land transportation
services with the end in view of effecting continuing improvement of such
services; and
m. To perform such other functions and duties as may be provided by
law, or as may be necessary, or proper or incidental to the purposes and
objectives of this Executive Order.
SEC. 6. Decision of the Board; Appeals therefrom and/ or Review thereof — The Board, in the
exercise of its powers and functions, shall sit and render its decision en banc. Every
such decision, order, or resolution of the Board must bear the concurrence and
signature of at least two (2) members thereof.
The decision, order or resolution of the Board shall be appealable to the
Secretary within thirty (30) days from receipt of the decision: Provided, That the
Secretary may motu proprio review any decision or action of the Board before the
same becomes final.
346
 CHAPTER VI
PUBLIC SERVICE

SEC. 7. Creation of Regional Franchising and

Regulatory Offices. — There shall be a Regional Franchising and
Regulatory Office in each of the administrative regions of the
country, which shall be headed by a Board Regional Manager having
the rank, salary and privileges of a Department Assistant Regional
Director. The Regional Franchising and Regulatory Offices shall
hear and decide uncontested applications/petitions for routes, within
their respective administrative regions: Provided, That applications/
petitions for routes extending their respective territorial jurisdiction
shall be heard and decided by the Board.

SEC. 8. Appeals. — The decisions, orders or resolutions of the

Regional Franchising and Regulatory Offices shall be appealable to
the Board within thirty (30) days from receipt of the decision.
SEC. 9. Appropriations. — Funds needed to carry out the
provisions of this Executive Order shall be taken from the funds
available in the Department of Transportation and Communications.
Thereafter, the approved budget of the Board shall be included in the
General Appropriations Act.
SEC. 10. Effectivity. — This Executive Order shall take effect
immediately.
Done in the City of Manila this 19th day of June, in the year of Our
Lord, nineteen hundred and eighty-seven.

RULES OF PRACTICE AND PROCEDURE BEFORE THE LAND

TRANSPORTATION FRANCHISING AND REGULATORY BOARD
OF THE DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS
The Land Transportation Franchising and Regulatory Board of
the Department of Transportation and Communications hereby adopts
and promulgates the following rules of pleadings, practice and
procedure governing hearings before the Board, pursuant to the Public
Service Act, as amended.

347
 TRANSPORTATION LAWS

PART I — GENERAL PROVISIONS

Rule 1

TITLE AND CONSTRUCTION

SECTION 1. Title. — The rules shall be known and
cited as the Rules of Practice and Procedure before
the Land Transportation Franchising and Regulatory
Board of the Department of Transportation and
Communications.
SEC. 2. Scope.—These rules shall govern
pleadings, practice and procedure before the Land
Transportation Franchising and Regulatory Board in
all matters of hearing, investigation and proceedings
within the jurisdiction of the Board. However, to
best serve public interest and subject to the due
process clause, the Board may, in any particular
matter, except itself from these rules and apply such
fair and reasonable procedures to assist the parties
to obtain a speedy disposition of cases.
 SEC. 3. Construction. — These rules shall be
liberally construed to protect and promote public
interest and to assist the parties in obtaining just,
speedy, and inexpensive determination of every
action or proceeding. SEC. 4. Definitions. — For the
purposes of these rules, the terms:
a) “Board”shall refer to the Land Transportation
Franchising and Regulatory Board of the Department
of Transportation and Communications.
b) “EO ” shall refer to Executive Order No. 202.
c) “Act ” shall refer to C.A. No. 146, as
amended.
shall refer to the Chairman of the
d) “Chairman”
Land Transportation Franchising and Regulatory
Board.
e) “Member ” shall refer to any member of said
Board.
f) “En Banc ” shall refer to hearing or deciding of
cases by at
least any two (2) of the three (3) composite
members of the Board.
 g) “Secretary ”shall refer to the Secretary of
Transportation and Communications.

348
 CHAPTER VI PUBLIC SERVICE

Rule 2
PARTIES

SECTION 1. Applicant and Oppositor. —Any

person or group
of persons, natural or juridical, applying with the Board
for a Certificate of Public Convenience for the operation
of public transportation utilities and services or for any
form of authorization within the regulatory powers of the
Board shall be called the Applicant.
Any person having substantial interest capable of
pecuniary estimation in the application who opposes the
application shall be called the Oppositor. For new and
additional services, substantial interest shall mean that
the line applied for affects the oppositor because on the
line applied for or substantial portions thereof, the
oppositor is authorized to operate and is actually
operating the said service authorized.
SEC. 2. Complainant, Petitioner and Respondent. —
Any
aggrieved person or group of persons who filed a
complaint on matters within the jurisdiction of the Board
shall be called the complainant, and the person
complained of who may or may not be holder of a
Certificate of Public Convenience shall be called the
Respondent.
In seeking remedies for violation of Certificates of
Public Convenience or any form of authorization or relief
from orders, rulings, regulations, standards, specifications
or any act of the Board, the one filing the petition shall be
called the Petitioner.
SEC. 3. Appearance by Solicitor General — Whenever the
Solicitor General appears in behalf of the public in
applications for approval of rates with this Board, his
appearance shall be considered as representative of all
individuals, consumers or users who have filed their
written oppositions to such applications and who are not
represented by counsel.
SEC. 4. Appearance by Consumers or Users. — If individual
users or entities opposing the petition for approval of
rates are represented by several lawyers, they shall
choose not more than two among themselves who shall
be allowed by the Board to represent them for that
particular hearing.

349
TRANSPORTATION LAWS

Rule 3
PLEADINGS
SECTION 1. Pleading allowed. — The pleadings allowed
by these rules are application, complaint, petition,
opposition, answer, and such other pleadings as the Board
may allow.
 All pleadings shall be in any of the official languages,
English or Filipino, typewritten or printed as to be
sufficiently legible, double space on legal size white bond
paper, and shall be filed in six (6) copies with the
Receiving and Assessment Section of the Technical
Evaluation Division.
Every pleading shall contain in methodical and logical
form, a plain, concise and direct statement of the ultimate
facts on which the party bases his claim or defense, as the
case may be.
SEC. 2. Verification and Supporting Documents. —Applications
for new services, complaints petitions, oppositions, and
answers shall be verified or accompanied by affidavits of
merit and by such documents as would reasonably tend
to establish prima facie the truth of the factual allegations
thereof.
A pleading is verified by an affidavit stating that the
person verifying has read the pleading and that the
allegations of facts thereof are true of his own personal
knowledge.
A verification based on “knowledge, information and
belief’ shall be deemed sufficient.
SEC. 3. Application. — By means of an application, the
applicant seeks for authorization or permission to
undertake any matter within the power of the Board
under the Act and/or E.O. and the issuance of certificate
of public convenience in appropriate cases.
 SEC. 4. Complaint. — The complaint is a concise
statement of the ultimate facts constituting the acts or
matters complained of within the power of the Board, and
shall specify the relief sought. The names and addresses
of the complainants and the respondents must be stated
in the complaint, and whenever practicable, the date,
place and hour of the commission of the alleged act or
omission.

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PUBLIC SERVICE

SEC. 5. Petition. — A petition is a pleading covering any

matter within the jurisdiction of the Board as provided in
the Act and the E.O. concerning a controversy against any
person whether a holder or not of Certificate of Public
Convenience or grantee of any Board Order, ruling,
resolution or act.
SEC. 6. Answer. — An answer is a pleading in which the
respondent sets forth the defense upon which he relies.
The respondent to whom an order is issued by the Board
to show cause or otherwise summoned to answer, shall
file and answer within ten (10) days from receipt of the
order. The answer shall admit or deny the material
allegations of facts stated in the show cause order or in
the complaint or petition. Whenever practicable, the
respondent shall attach to his answer such documents
and affidavits in support of his allegations.
The respondent may seek an affirmative relief.

SEC. 7. Amendment. —Amendment to the pleading

which consists in the modification or supplement to an
application, complaint, petition, answer or other pleading
must comply with the requirements of these rules.
Amendments may be made as a matter of right at any
time before a responsive pleading has been filed, and
thereafter only with leave of the Board.
If a responsive pleading has been filed by any
oppositor or respondent, a copy of the amended pleading
should be served on the oppositor or respondent. The
latter may amend his opposition or answer within five (5)
days from receipt of amended application, complaint or
petition and thereafter only with leave of the Board.
SEC. 8. Amendment to conform to the evidence. — When issues
not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects
as if they have been raised in the pleadings. If evidence
upon new issues is objected to on the ground that it is not
within the issues raised in the pleadings, the Board may
allow the pleading to be amended and receive such
evidence when it appears that the presentation of the
merits of the proceeding will be served thereby without
prejudicing the public interest or the right of the parties.
The Board may grant a continuance to enable the
objecting party to meet such evidence.
 351
TRANSPORTATION LAWS

SEC. 9. Directed amendments. — The Board, may, at any

time, on its own motion or upon motion of any party,
direct a party to amend his pleading in order to state his
case more fully or in a more specific manner. Such
amendment shall be reduced in writing and filed within
such time as may be fixed by the Board, and shall comply
with the requirements of the rule pertaining to the
pleading amended insofar as appropriate.

Rule 4

MOTIONS

SECTION 1. Scope and Contents. — Every application for

any procedural or interlocutory ruling or relief may be
made by a motion. A motion shall be in writing and shall
state the ruling or relief sought to be obtained and the
grounds upon which it is based, and if necessary shall be
accompanied by supporting affidavits and other
documents. The requirements of Rule 3 insofar as
applicable shall apply to all written motions. However,
every ancillary motion for temporary/ special
authorization or proposed services or rates shall be
governed by Section 3, Rule 15.
SEC. 2. Form. — All motions shall be in writing except
motions for continuance made in the presence of the
adverse party, or those made in the course of a hearing.
All written motions shall be served to all parties
concerned at least three (3) working days before the
hearing thereof.
SEC. 3. Notice. — Written motions shall contain a
notice setting the hearing thereof at a specified date and
time. All parties must be furnished copies of the Motions.
However, for good cause shown, the Board may hear a
motion on shorter notice.
SEC. 4. Proof of Service. — The Board shall not act upon
any motion without proof of service of notice thereof on
all parties. When the service of notice is made by
registered mail, the submission of registry return cards and
registry receipt is sufficient compliance with the proof of
service required herein.

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SEC. 5. Ex-Parte Motions. — Ex-Parte motions shall be

acted upon by the Board only upon showing of urgent
necessity therefor and the rights of the opposing party are
not substantially impaired. However, opposing party/ies
must always be furnished copies of said motions.
Rule 5

FILING, SERVICE OF PLEADING

 AND PUBLICATION
SECTION L Filing. —All pleadings, motions, documents
and other papers required or allowed to be filed shall be
filed with the Receiving and Assessment Section.
SEC. 2. Acceptance for filing. — Only pleadings, motions,
documents, and other papers, which conform to the
formal requirements of these Rules, shall be accepted for
filing. Acceptance for filing is not a waiver of failure to
comply with the Rules and such failure may be a cause for
striking off all or part of such pleading filed.
SEC. 3. Service upon parties. — All pleadings, documents,
and other papers tendered to the Receiving and
Assessment Section of the Board for filing shall show
proof of service thereof upon all parties to the
proceeding. Such service shall be made by personal
delivery or by registered mail, properly addressed, with
postage prepaid, of one (1) confirmed copy to each party,
together with all annexes attached thereto.
SEC. 4. Service upon Parties represented by Attorneys. — When
any party has appeared by attorney, service upon him
shall be made upon his attorney or any of his attorneys of
record.
SEC. 5. Service of orders. —All decisions, orders, and
resolutions of the Board shall be served upon all parties or
their attorneys who have entered their appearance either
by personal delivery or registered mail.
SEC. 6. Extension of time. — Whenever by any order of
the Board, a pleading, motion or document is required to
be filed within a fixed time or period, the Board may, for
good cause shown, extend the period upon motion made
before the terms as may be just, allow or permit any
pleading to be filed after the time fixed by these Rules.

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Rule 6
PRE-HEARING CONFERENCE
SECTION 1. Purpose. — Whenever the Board finds that
a formal hearing should be held on any matter in dispute
within the jurisdiction of the Board, it shall, after the last
pleading is filed, set a pre-hearing conference
between/among the parties together with their attomey/s
and the Board at such time as the nature of the
proceeding and the public interest may permit or require
for the purpose of adopting means or procedures as may
aid in the prompt disposition of the matter or action.
SEC. 2. Scope. — All parties and their respective
attorneys are required to appear before the Board to
consider the following:
a) The possibility and advisability of a
consented decree for
voluntary compliance or desistance on certain terms and
conditions;
 b) The simplification of the issues;
c) The obtaining of admission, or stipulation
of fact, not remaining in dispute, or the authenticity
of documents, which may properly shorten the
hearing;
d) The limitation of the number of witnesses;
e) Admissibility and competence of evidence
proposed to be
submitted by a party; and
f) Such other matters as may be of aid in the
speedy disposition
of the case.
All the parties and their attorneys shall attend the
pre-hearing conference. The presence of a party is
indispensable unless his counsel is authorized to enter
into an agreement on any or all of the above matters.
SEC. 3. Judgment on the pleadings and summary judgment at
pre-hearing. — If at the pre-hearing, the Board finds that
facts exist upon which a decision on the pleadings or a
summary decision may be made, a decision on the
pleadings or a summary decision may be rendered as
justice may require.

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 SEC. 4. Records of pre-hearing proceedings. — After a pre-
hearing, the Board shall make an order, which recites the
action at the conference, the amendments allowed in the
pleadings, and/or the agreements made by the parties as
to any of the matters considered. Such order shall limit
the issues for hearing, to those not disposed of by
admission and agreements of the parties/counsel, and
when entered controls the subsequent course of the
proceeding, unless modified before the formal hearing to
prevent manifest injustice.
Rule 7
APPLICATION
SECTION 1. How commenced. — Any proceeding the
object of which is to obtain a certificate of public
convenience or any form of authorization under the E.O.
and/or Act shall be commenced by the filing of the
corresponding application and the payment of the
required fee.

SEC. 2. Contents. — The application shall contain a

concise statement of the service proposed or
authorization applied for, and the ultimate facts that
would qualify or entitle the applicant to the grant of the
certificate, privilege, or authorization.
When the application is predicated on a franchise,
sale, lease, mortgage, or any other contract, such
franchise or contract shall be impleaded in the application
by alleging in substance its salient provisions and
appending to the application a copy of the franchise,
contract or pertinent document.

Rule 8
NOTICE OF HEARING
SECTION 1. Issuance of the Notice of Hearing. — After the
filing of the application and the payment of the required
fees, the application shall be docketed, and after a
technical evaluation of the case, the Legal Division shall
issue the notice of hearing and furnish the list of affected
parties to the applicant for compliance with the Board’s
jurisdictional requirements.

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SEC. 2. Publication and serving. —The applicant shall

cause the notice of hearing to be published once in one
(1) newspaper of general circulation at least ten (10)
days before the date of hearing provided that if an
application covers only one (1) region, publication in
the local newspaper circulated within that region is
sufficient, and serve copies of the same together with
copies of the application to all affected parties, as
furnished by the Board.
 Rule 9

OPPOSITION
SECTION 1. Contents. — Within the time stated in
the notice of hearing, a written opposition, not a
motion to dismiss, may be filed against an application
with copy served upon the applicant, in which the
oppositor shall state concisely his right or interest
affected by the application and the ultimate facts
constituting all his grounds for opposition, including all
grounds for a motion to dismiss.
When any ground for a motion to dismiss is alleged
in the opposition, the proceeding shall be taken as
though a motion to dismiss has been filed.
PART II — PROCEDURE IN COMPLAINTS

Rule 10
COMPLAINTS
SECTION 1. How commenced. — Any action, the object
of which is to subject a holder of a certificate of public
convenience or authorization or any person operating
without authority from the Board to any penalty that
may be taken in the public interest by the Board, or
violation by such holder or any person of the provisions
of the E.O. and/ or the Act, or the terms and conditions
of his certificate or any order, decision, or regulations of
the Board, shall be commenced by the filing of a
complaint.
 SEC. 2. Filing. — All complaints based on the official
report of an agent or inspector of the Board or any other
person deputized in

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CM API HR VI rimi.icsHRVii’H

writing hy Che Board, shall be filed in the name of the

appropriate unit of the Board, including all complaints
based on the sworn statement of any public utility user,
other private individual, and those made by any
competing operator.

Upon filing of the complaint and payment of the

required fees, the Office of the Executive Director shall
cause the case to be docketed.

SEC. 3. Prosecution. — All complaints, other than

commenced by a private party represented by counsel,
or by a competing operator, shall be prosecuted under
the direction and control of the Legal Division of the
Board.

SEC. 4. Sufficiency of complaints. —A complaint is

sufficient if it conforms to Section 3 of Rule 4.

SEC. 5. Separate allegations. — Whenever two or more

offenses are charged in one (1) complaint, each offense
must be separately alleged.
 Rule 11
SUMMONS

SECTION 1. Duty of the Legal Division. — When the

complaint is sufficient in form and substance in
accordance with these Rules, it shall be the duty of the
Chief of Legal Division to promptly issue the summons
together with a copy of the complaint to the
respondent.

SEC. 2. Contents. — The summons shall be under the

signature of the Chief of the Legal Division directing the
respondent to answer the complaint within ten (10)
days from receipt of the summons and to appear and
produce evidence on the date and hour stated herein.
Rule 12
ANSWER
SECTION 1. Contents.—Within the time stated in the
summons, a written answer, not a motion to dismiss,
shall be filed with the Board, a copy of which shall be
served by the respondent to the complainant. The
respondent, in his answer, shall admit or deny
specifically the

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material allegations in the complaint, and state all his

lawful defenses, including all grounds for a motion to
dismiss.
When any ground for a motion to dismiss is alleged
in the answer, the proceeding shall be taken as though a
motion to dismiss had been filed.

PART III — SUMMARY PROCEEDINGS

Rule 13

ORDER TO SHOW CAUSE

SECTION 1. When applicable. — Based on the official
report of an agent or any person deputized in writing by
the Board, or the credible sworn statement of any
offended party, the Board instead of acting according to
the procedure indicated for complaints, may, when public
interest requires, issue an order directing a respondent to
appear before the board within seventy-two (72) hours
from receipt of the order and show cause why his
certificate should not be cancelled or suspended for the
cause stated in the report or complaint.
This summary proceeding shall apply only in cases
where the respondent is reported to have or will continue to
cause death, physical injuries, defraudation of public utility
users, or willfully or contumaciously refuse to comply with
the orders, rules or regulations of the Board, or any
provisions of the E.O. and the Act.
The Board may prior to the hearing, suspend for a
period not exceeding thirty (30) days any certificate or the
exercise of any right or authority issued or granted under
the Act or E.O., whenever it is necessary to avoid the causes
mentioned in the preceding paragraph.
SEC. 2. Contents. — The order to show cause shall
include a statement in substance of the violation reported
or complained of; and whenever practicable, there shall be
appended to it a copy of the report or complaint upon
which the order is based.
SEC. 3. Non-Appearance. — Whenever the respondent failed to
appear on the date

and hour specified in the show cause order, the Board

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shall issue an order requiring such respondent to explain

why he should not be declared in contempt of the Board.
SEC. 4. Explanation without appearance. — Whenever the
respondent mentioned in the immediately preceding
sections failed to appear but filed a written explanation
whether or not supported by any documentary evidence,
the show cause order against respondent shall be deemed
submitted for resolution based on the available evidence
without further arguments.
PART IV — EVIDENCE

Rule 14

RECEPTION OF EVIDENCE
SECTION 1. Composition of the Board. — The Board shall be
composed of a Chairman and two members who shall sit
and render decision en banc.
SEC. 2. Hearing before the Board. — All powers necessary
to be exercised in the hearing of cases when vested in the
Board shall be considered vested upon the Chairman and
the two (2) members. The Board shall proceed to hear
and determine according to the merit of the case and
provided that all cases may be delegated for reception of
evidence to the Hearing Officer who shall submit a report
on the evidence so received together with
recommendations to enable the Board to render its
decision.
 SEC. 3. Uncontested proceedings.—When in the initial
pleading it appears that public interest requires the
granting of the relief or authorization requested and there
is no opposition not contest thereto and it is properly
certified that there is no operator adversely affected, the
Board shall terminate the proceeding upon consideration
of the pleadings and the supporting affidavits and attached
documents.
SEC. 4. Consolidation. — The Board, on its own initiative,
or upon motion of a party, may hold a joint hearing in
proceedings involving common questions of law or facts.
However, upon motion of any interested party, a
separate hearing may be held on issues peculiar only to
the movants.

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SEC. 5. Appearance. — Any party to a hearing may

appear in person or by any attorney admitted to practice
law in the Philippines who is a member of the Integrated
Bar of the Philippines (IBP) and has paid professional tax
and IBP dues for the current year.
SEC. 6. Notice of appearance. — No attorney shall appear
before the Board in behalf of a party without first serving
and filing a written notice of appearance, unless such
attorney signed the initial pleading of the party he
represents, or manifests in open court his appearance or
makes a special appearance for the attorney of record to
postpone the case, stating therein his Membership in the
Integrated Bar of the Philippines and the payment of his
professional tax and IBP dues for the current year.
SEC. 7. Order on procedure. — As far as practicable, the
following order shall be followed in the presentation of
evidence:
The presentation of evidence shall commence with
(a)
the party initiating the proceedings by presenting his
evidence with the offering of affidavits and supporting
documents attached to his pleading, and such additional
evidence as he may wish to present in consolidated
proceedings, all parties initiating the consolidated
proceedings shall first present their evidences; and
(b) The party or parties opposing the grant of the
relief sought shall then present their evidences; and
(c) Presentation of rebuttal or surrebuttal evidence
may be allowed at the discretion of the Board.
SEC. 10. Deposition. — Where the witnesses reside in
places distant from the offices of the Board and it would
be inconvenient and expensive for them to appear
personally before the Board, the Board upon the written
request of any party, may authorize a municipal or city
judge, or the Clerk of Court of the Regional Trial Court to
take the depositions of witnesses in any case pending
before the Board, substantially in accordance with the
provisions of Rule 24 of the New Rules of Court.
Unless the Board orders otherwise, cases in which
depositions are taken according to the procedure stated
above, shall be considered

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Cl IAPTI K VI
IMJHUCSIiRVIC’H

submitted for decision on the basis of such deposition

after tiling with the Board.
SEC. 11. Regular Hearing. —- All hearings for reception of
evidence of delegated cases from the Board to a Hearing
Officer shall be subject to the provisions of these Rules.
SEC. 12. Transcript and records. — Hearings shall be
stenographically recorded by the official stenographer of
the Board, and his transcript of stenographic notes shall be
part of the records and the sole official transcript of the
proceedings. Parties desiring copies of such transcript may
obtain the same from official stenographers upon payment
of the fees prescribed therefor.
PART V — DECISIONS AND ORDERS

Rule 15
 DECISIONS AND ORDERS
SECTION 1. How rendered. — In every case heard by
the Board, all orders, rulings, decisions and resolutions
disposing of the merits of the matter within its
jurisdiction shall be reached with the concurrence of
any two (2) of the composite members after
deliberation and consultation, and thereafter assigned
to a member for the deliberation and consultation, and
thereafter assigned to a member for the writing of the
opinion. Any member dissenting from the order, ruling,
decision or resolution shall state in writing the reason
for his dissent.
SEC. 2. Form and contents. —All orders, rulings,
decisions and resolution determining the merits of
matters within the jurisdiction of the Board shall be in
writing, stating clearly and distinctly the facts and the
law on which it is based. They shall be filed with the
Executive Director who shall, within three (3) days from
receipt thereof, cause true copies thereof to be served
upon their counsel, if any, otherwise upon the parties.
SEC. 3. Provisional relief. — Upon the filing of an
application, complaint or petition or at any stage
thereafter, the Board may, if the case is uncontested,
grant on motion of the pleaders or on its own
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initiative, the relief prayed for, based on the pleading,

together with the affidavits and supporting documents
attached thereto, without prejudice to a final decision
after the termination of the hearing which shall be called
within thirty (30) days from issuance of an order granting
the relief prayed for. If contested, the Board may, after
notice and hearing, grant the provisional relief, it there
exists a compelling and urgent reason for the grant of such
relief. However, in the broader interest of the public, the
Board may exempt petitions for increase of rates from this
rule and adopt the procedure mentioned in Rule 1, Section
2 for a fair and speedy adjudication of said petition.
SEC. 4. Decision. — The Board shall render a decision,
order, ruling or resolution.
a) In non-contestedproceedings. — When the Board is
satisfied that
the pleading, together with the supporting affidavits and
documents, establishes the right of the party to the relief
prayed for, and there is no opposition thereto, said Board
shall, within fifteen (15) days after the case has been
submitted for resolution, render an order or decision on
the matter.
— The Board shall render a
b) In contested proceedings.
decision, ruling or resolution within sixty (60) days after
the case has been submitted for decision, unless the
evidence submitted is so voluminous and the issues so
complicated requiring a longer period to prepare and
render a decision or resolution.
— In all decisions, orders, ruling
c) Grant of other relief.
or resolution, the Board may grant such other relief or
impose such terms it may deem necessary in order to
promote public interest.
SEC. 5. Execution order, ruling, decision, or resolution. — The
order, ruling, decision or resolution of the Board shall
take effect immediately and shall become final unless
motu proprio reviewed by the Secretary or an appeal is filed
within thirty (30) days from receipt of the order, ruling
or decision.
SEC. 6. Compilation and publication of decisions. — The
Executive Director shall compile all final decisions and
resolutions of the Board including final decisions of the
Supreme Court or Court of

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Appeals relevant to cases and proceedings before the

Board if any. and shall cause them to be printed by the
Bureau of Printing in bound and numbered volumes.
PART VI — REOPENING, RECONSIDERATION, AND
APPEAL
 Rule 16
MOTIONS FOR REOPENING OR
RECONSIDERATIONS
SECTION 1. Motion for re-opening. — Any party may file a
motion for reopening of the proceeding at any time after
the presentation of evidence has been completed but
before promulgation of a decision, order, ruling or
resolution, if during that period there should occur or arise
transactions, events or matters, whether factual or legal
which would change the situation of the parties.

SEC. 2. Motion for reconsideration of decisions. — A party

adversely affected by a decision, order, ruling or resolution
may within fifteen (15) days from receipt of a copy
thereof, file a motion for reconsideration. No more than
one motion for reconsideration by each party shall be
entertained unless otherwise permitted by the Board.

SEC. 3. Service and hearing. — The motions allowed by this

Rule shall be served upon all parties on record and shall be
set for hearing within ten (10) days from service thereof.

SEC. 4. Opposition. — Any party to the proceeding may

file an opposition to the motions allowed by this Rule
accompanied by supporting affidavits and documents, and
serving a copy thereof upon the movants.
 Rule 17
APPEAL

SECTION 1. Appeal. —Any party may appeal the order,

ruling, or decision of the Board to the Secretary. However,
interlocutory orders cannot be the subject of an appeal.
The Secretary may motu proprio review any order, ruling or
decision of the Board.

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SEC. 2. Procedure on appealed cases. — In case of an appeal

under the preceding section, the following rules shall
apply:
a) An appeal from an order, decision or ruling of the
Board shall be perfected by filing with the Board a Notice
of Appeal and with the Secretary, within a period of thirty
(30) days from notice of such order, ruling or decision;
copy of the Notice of Appeal must be furnished all parties
to the case;
b) No appeal shall be entertained by the Secretary
unless it is shown that a Motion for Reconsideration from
the order, ruling or decisions has been filed with the Board
and the same has been denied;
c) Upon the filing of the Notice of Appeal, the
appellant shall pay with the Board an appeal fee of Two
Hundred (P200.00) pesos, whereupon, the Board shall act
on the Notice of Appeal and shall transmit the certificate
of payment of the appeal fee to the Secretary;
d) Within five (5) days from receipt of the certificate
from the Board, the Secretary shall notify and require the
Board to forward the record of the case. Within five (5)
days from such notice, the whole record shall be
forwarded to the Office of the Secretary. When the appeal
does not require a review of the entire record of the case,
only pertinent documents or part of the record shall be
forwarded to the Secretary;
e) Immediately upon receipt of the records of the
case and/or documents mentioned in the preceding
paragraph, the Secretary shall inform the appellant
thereof, and shall issue an order requiring the appellant to
file within ten (10) days from receipt of the order a
position paper together with the documents or evidence
supporting the appeal. The appellant may file his/her
position paper simultaneously within the filing of the
Notice of Appeal;
f) Appellant’s position paper shall contain the
following data/
matters:
(1) Exact date of the appealed order, ruling
decision;
(2) Exact date when the appealed order,
ruling or decision was received by him;
 (3) Information regarding compliance with the
requirements for appeal under these rules;

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(4) Brief statement of the case and the facts;

(5) Reasons or grounds for appeal; (6)
Arguments in support of the appeal; and
(7) Relief sought.

The Secretary may require the tiling of additional

pleadings to provide additional information;
g) Any party filing the required pleading or
documents and other
pleadings pertinent to the appealed case shall furnish the
adverse party/ies, including the Board, copies thereof;

h) Upon receipt of the appellant’s position paper, the

Secretary shall issue an order requiring the adverse
party/ies to file within fifteen (15) days from receipt of the
order an answer, reply, comment or counterposition
paper. Additional facts being adverted to in the comment
or counter-position paper must be verified;
i) Unless other pleadings are required by the
Secretary, the appealed case shall be considered
submitted for resolution when the papers above
mentioned have been filed. Parties may, upon request, file
their respective memorandum.
SEC. 3. Effect of Appeal — The appeal shall not stay the
award, order or decision of the Board unless the Secretary
shall direct otherwise upon such terms as he may deem
just.

SEC. 4. Appeal from the order of the Secretary. — The order of

the Secretary in appealed case shall be appealable within
thirty (30) days from receipt thereof in accordance with
the provisions of the Rules of Court.
PART VII — RECONSTITUTION OF RECORDS

Rule 18

RECONSTITUTION
SECTION 1. Petition. — Any interested party may, by
petition, apply for the reconstitution of lost or destroyed
records of any case or proceeding before the Board, the
Land Transportation Commission or of the defunct Public
Service Commission.

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SEC. 2. Contents. — The petition shall be in writing with a

copy served upon all affected parties, and shall state the
title, case number and the parties in the case or
proceeding desired to be reconstituted; the reason or
reasons for its destruction or loss, if known, and that the
party seeking its reconstruction has exhausted all means to
locate said records to no avail.
SEC. 3. Notice of publications. — The provisions of Rule 8 of
these Rules shall be observed in the issuance and
publication of the notice of hearing of the petition for
reconstitution unless otherwise modified by the Board
having jurisdiction on the subject matter.
SEC. 4. Applicability of certain rules. — The rules governing
procedure in application for the issuance of certificate of
public convenience as provided in Part II of these Rules
shall be applicable for the reconstitution of lost or
destroyed records.
SEC. 5. Order. — After hearing the parties the Board on
the basis of available records and testimonies of witnesses,
may grant or deny the petition or issue such orders justice
may require.
PART VIII — MISCELLANEOUS PROVISIONS

Rule 19
APPLICABILITY OF THE RULES OF COURT
SECTION 1. Rules of Court — The provisions of the Rules
of Court applicable to proceedings before the Regional
Trial Court, which are not inconsistent with these Rules,
shall apply in an analogous and suppletory character
whenever practicable and convenient.
Rule 20
APPLICABILITY OF THIS RULE TO THE REGIONAL

FRANCHISING AND REGULATORY OFFICES

SECTION 1. Applicability. — This Rule shall apply
whenever practicable to all cases filed before the
Regional Franchising and Regulatory Offices within their
jurisdiction.

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Rule 21
REPEALING CLAUSE

SECTION I. Repeal. — All prior

rules, regulations or
practices heretofore followed in the Board, which are
inconsistent with these Rules, are hereby repealed.

Rule 22
EFFECTIVITY

SECTION L Effectivity. — These Rules shall take effect

after fifteen (15) days following their publication in any
newspaper of national circulation or in the Official Gazette.
Approved in Quezon City, Philippines, this 8th of
March 1988.
KABIT SYSTEM

Section 20
 Commonwealth Act No. 146
Section 20. Acts requiring the approval of the Commission. — Subject
to established limitations and exceptions and saving provisions to the
contrary, it shall be unlawful for any public service or for the owner,
lessee or operator thereof, without the approval and authorization of the
Commission previously had —
(a) To adopt, establish, fix, impose, maintain, collect or carry into
effect any individual or joint rates, commutation, mileage or other
special rate, toll, fare, charge, classification or itinerary. The
Commission shall approve only those that are just and reasonable and
not any that are unjustly discriminatory or unduly preferential, only
upon reasonable notice to the public services and other parties
concerned, giving them a reasonable opportunity to be heard, and the
burden of the proof to show that the proposed rates or regulations are
just and reasonable shall be upon the public service proposing the same.

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 TRANSPORTATION LAWS

(b) To establish, construct, maintain, or operate new units or

extend existing facilities or make any other addition to or general
extension of the service.
(c) To abandon any railroad station or stop the sale of passenger
tickets, or cease to maintain an agent to receive and discharge freight at
any station now or hereafter established at which passenger tickets are
now or may hereafter be regularly sold, or at which such agent is now
or may hereafter be maintained, or make any permanent change in its
time tables or itineraries on any railroad or in its service.
(d) To lay any railroad or street railway track across any
highway so as to make a new crossing at grade, or cross the tracks of
any other railroad or street railway, provided that this subsection shall
not apply to replacements of lawful existing tracks.
(e) Hereafter to issue any stock or stock certificates representing
an increase of capital; or issue any share of stock without par value; or
issue any bonds or other evidence of indebtedness payable in more than
one year from the issuance thereof, provided that it shall be the duty of
the commission, after hearing, to approve any such issue maturing in
more than one year from the date thereof, when satisfied that the same
is to be made in accordance with law, and the purpose of such issue be
approved by the Commission.
(f) To capitalize any franchise in excess of the amount, inclusive
of any tax or annual charge, actually paid to the Government of the
Philippines or any political subdivision thereof as the consideration of
said franchise; capitalize any contract for consolidation, merger, or
lease, or issue any bond or other evidence or indebtedness against or as
a lien upon any contract for consolidation, merger, or lease: Provided,
however, That the provisions of this section shall not prevent the
issuance of stock, bonds, or other evidence of indebtedness subject to
the approval of the commission by any lawfully merged or consolidated
public services not in contravention of the provisions of this section.
CHAPTER VI
PUBLIC SERVICE
 (g) To sell, alienate, mortgage, encumber or lease its property,
franchises, certificates, privileges, or rights, or any part thereof; or
merge or consolidate its property, franchises, privileges or rights, or
any part hereof, with those of any other public service. The approval
herein required shall be given, after notice to the public and after
hearing the persons interested at a public hearing, if it be shown that
there are just and reasonable grounds for making the mortgage or
encumbrance, for liabilities of more than one year maturity, or the sale,
alienation, lease, merger, or consolidation to be approved, and that the
same are not detrimental to the public interest, and in case of a sale, the
date on which the same is to be consummated shall be fixed in the order
of approval: Provided\ however, That nothing herein contained shall be
construed to prevent the transaction from being negotiated or
completed before its approval or to prevent the sale, alienation, or lease
by any public service of any of its property in the ordinary course of its
business.
(h) To sell or register in its books the transfer or sale of shares of
its capital stock, if the result of that sale in itself or in connection with
another previous sale, shall be to vest in the transferee more than forty
per centum of the subscribed capital of said public service. Any transfer
made in violation of this provision shall be void and of no effect and
shall not be registered in the books of the public service corporation.
Nothing herein contained shall be construed to prevent the holding of
shares lawfully acquired. (As amended by Com. Act No. 454)
(i) To sell, alienate or in any manner transfer shares of its capital
stock to any alien if the result of that sale, alienation, or transfer in itself
or in connection with another previous sale shall be the reduction to less
than sixty per centum of the capital stock belonging to Philippine
citizens. Such sale, alienation or transfer shall be void and of no effect
and shall be sufficient cause for ordering the cancellation of the
certificate.
(j) To issue, give or tender, directly or indirectly, any free ticket,
free pass or free or reduced rate of transportation for passengers,
except to the following persons: (1) officers, agents, employees,
attorneys, physicians and surgeons of said public

369
TRANSPORTATION LAWS
 service, and members of their families; (2) inmates of hospitals or
charity institutions, and persons engaged in charitable work; (3)
indigent, destitute, and homeless persons when transported by
charitable societies or hospitals, and the necessary agents employed in
such transportation; (4) the necessary caretakers, going and returning,
of livestock, poultry, fruit, and other freight under uniform and non-
discriminatory regulation; (5) employees of sleeping car corporations,
express corporations and telegraph and telephone corporations,
railway and marine mail service employees, when traveling in the
course of their official duty; (6) post-office inspectors, customs officers
and inspectors, and immigration inspectors when engaged in
inspection; (7) witnesses attending any legal investigation in which the
public service is an interested party; (8) persons injured in accidents or
wrecks, and physicians and nurses attending such persons; (9) peace
officers and men of regularly constituted fire departments. (As
amended by Com. Act No. 454)
(k) Adopt, maintain, or apply practices or measures, rules or
regulations to which the public shall be subject in its relations with the
public service.
Kabit System is an arrangement 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.
Lita Enterprises v. Second Civil Cases Division, Intermediate
Appellate Court, Nicasio M.
Ocampo and Francisca P. Garcia
G.R. No. L-64693, April 27,1984

FACTS: Sometime in 1966, the spouses Nicasio M.

Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta
Motor Sales Corporation five Toyota Corona Standard
cars to be used as taxicabs. Since they had no franchise
to operate taxicabs, they contracted with petitioner Lita
Enterprises, Inc., through its representative, Manuel
Concordia, for the use of the latter’s certificate of public
convenience in consideration of an initial payment of
PI,000
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and a monthly rental of P200 per taxicab unit. To

effectuate said agreement, the aforesaid cars were
registered in the name of petitioner Lita Enterprises, Inc.
Possession, however, remained with the spouses Ocampo
who operated and maintained the same under the name
Acme Taxi, petitioner’s trade name. About a year later, on
March 18,1967, one of said taxicabs driven by their
employee, Emeterio Martin, collided with a motorcycle
whose driver, one Florante Galvez, died from the head
injuries sustained therefrom. A criminal case was
eventually filed against the driver Emeterio Martin, while
a civil case for damages was instituted by Rosita Sebastian
Vda. de Galvez, heir of the victim, against Lita Enterprises,
Inc., as registered owner of the taxicab. In the latter case,
Civil Case No. 72067 of the Court of First Instance of
Manila, petitioner Lita Enterprises, Inc. was adjudged
liable for damages in the amount of P25,000 and P7,000
for attorney’s fees.
This decision having become final, a writ of execution
was issued. One of the vehicles of respondent spouses
with Engine No. 2R-914472 was levied upon and sold at
public auction for P2,150 to one Sonnie Cortez, the
highest bidder. Another car with Engine No. 2R-915036
was likewise levied upon and sold at public auction for
P8,000 to a certain Mr. Lopez.
 Thereafter, in March 1973, respondent Nicasio
Ocampo decided to register his taxicabs in his name. He
requested the manager of petitioner Lita Enterprises, Inc.,
to turn over the registration papers to him, but the latter
allegedly refused. Hence, he and his wife filed a complaint
against Lita Enterprises, Inc., Rosita Sebastian Vda. de
Galvez, Visayan Surety & Insurance Co., and the Sheriff of
Manila for reconveyance of motor vehicles with damages,
docketed as Civil Case No. 90988 of the Court of First
Instance of Manila. Trial on the merits ensued and on July
22, 1975, the said court rendered a decision, dismissing
the complaint as far as defendants Rosita Sebastian Vda. de
Galvez, Visayan Surety & Insurance Company and the
Sheriff of Manila are concerned.
“Defendant Lita Enterprises, Inc., is ordered to
transfer the registration certificate of the three Toyota
cars not levied upon with Engine Nos. 2R-230026, 2R-
688740 and 2R-585884 by executing a deed of
conveyance in favor of the plaintiff.”

371
TRANSPORTATION LAWS

“Plaintiff is, however, ordered to pay Lita Enterprises,

Inc., the rentals in arrears for the certificate of
convenience from March 1973 up to May 1973 at the rate
of P200 a month per unit for the three cars.”
 On appeal by petitioner, docketed as CA-G.R. No.
59157-R, the Intermediate Appellate Court modified the
decision by including as part of its dispositive portion
another paragraph, to wit:
“In the event the condition of the three Toyota cars
will no longer serve the purpose of the deed of
conveyance because of their deterioration, or because
they are no longer serviceable, or because they are no
longer available, then Lita Enterprises, Inc. is ordered to
pay the plaintiffs their fair market values as of July 22,
1975.”
ISSUE: Whether the decision of the Trial Court and the
Court of Appeals are correct.
HELD: Unquestionably, the parties herein operated
under an arrangement, commonly known as the “ habit
system, ” whereby a person who has been granted a
certificate of public convenience allows another person
who owns motor vehicles to operate under such franchise
for a fee. A certificate of public convenience is a special
privilege by the grantees thereof cannot be
countenanced. The “kabit system ” has been identified as one
of the root causes of the prevalence of graft and
corruption in the government transportation offices. In
the words of Chief Justice Makalintal, “this is a pernicious
system that cannot be too severely condemned. It
constitutes an imposition upon the good faith of the
government.”
 Although not outrightly 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 a
fundamental principle that the court will 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.
“Ex pacto illicito non oritur action ” (No action arises out of
an illicit bargain) is the time-honored maxim that must be
applied to the
CHAPTER VI PUBLIC
SERVICE

parties in the case at bar. Having entered into an illegal

contract, neither can seek relief from the courts, and each
must bear the consequences of his acts.
The defect of inexistence of a contract is permanent
and incurable, and cannot be cured by ratification or by
prescription. As this court said in Eugenio v. Perdido,
“the mere lapse of time cannot give efficacy to contracts
that are null and void.”
The principle of in pari delicto is well known not only in
this jurisdiction but also in the United States where
common law prevails. Under American jurisdiction, the
doctrine is stated thus: “The proposition is universal that
no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold
or delivered, or damages for its violation. The rule has
sometimes been laid down as though it was equally
universal, that where the parties are in pari delicto, no
affirmative relief of any kind will be given to one against
the other.” Although certain exceptions to the rule are
provided by law, the Court see no cogent reason why the
full force of the rule should not be applied in the instant
case.
Abelardo Lim and Esmadito Gunnaban
v. Court of Appeals and Donato H. Gonzales
G.R. No. 125817, January 16, 2002
FACTS: Sometime in 1982 private respondent
Donato Gonzales purchased an Isuzu passenger jeepney
from Gomercjno Vallarta, holder of a certificate of
public convenience for the operation of public utility
vehicles plying the Monumento-Bulacan route. While
private respondent Gonzales continued offering the
jeepney for public transport services, he did not have
the registration of the vehicle transferred in his name
nor did he secure himself a certificate of public
convenience for its operation. Thus, Vallarta remained
on record as its registered owner and operator.
On July 22, 1990, while the jeepney was running
northbound along the North Diversion Road somewhere
in Meycauayan, Bulacan, it collided with a ten-wheeler-
truck owned by petitioner Abelardo Lim

373
 TRANSPORTATION LAWS

and driven by his co-petitioner Esmadito Gunnaban. Gunnaban

owned responsibility for the accident, explaining that while he was
traveling towards Manila the truck suddenly lost its brakes. To
avoid colliding with another vehicle, he swerved to the left until he
reached the center island. However, as the center island eventually
came to an end, he veered further to the left until he smashed into
a Ferroza automobile, and later, into private respondent’s
passenger jeepney driven by one Virgilio Gonzales. The impact
caused severe damage to both the Ferroza and the passenger
jeepney, and left one passenger dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of the
wounded, compensated the heirs of the deceased passenger, and
had the Ferroza restored to good condition. He also negotiated
with private respondent and offered to have the passenger
jeepney repaired at his shop. Private respondent, however, did not
accept the offer of Lim. Instead, private respondent demanded a
brand-new jeep or the amount of P236,000. Under the
circumstances, negotiations had to be abandoned; hence, the filing
of the complaint for damages by private respondent against
petitioners.
On October 1, 1993, the trial court upheld private
respondent’s claim and awarded him P236,000 with legal interest
from July 22, 1990 as compensatory damages, and P30,000 as
attorney’s fees. In support of its decision, the trial court
ratiocinated that as vendee and current owner of the passenger
jeepney, private respondent stood for all intents and purposes as
the real party in interest. Even Vallarta himself supported private
respondent’s assertion of interest over the jeepney for, when he
was called to testify, he dispossessed himself of any claim or
pretension on the property. On the other hand, petitioner Lim’s
liability for Gunnaban’s negligence was premised on his want of
diligence in supervising his employees. It was admitted during the
trial that Gunnaban doubled as mechanic of the ill-fated truck
despite the fact that he was neither tutored nor trained to handle
such task.
On appeal, the Court of Appeals (CA), on July 17, 1996,
affirmed the decision of the trial court. In upholding the decision
of the court a quo, the appeals court concluded that, while an
operator under the habit system could not sue without joining the
registered owner of the vehicle as his principal, equity demanded
that the present case be made an exception.
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PUBLIC SERVICE

ISSUE: Whether or not the new owner has any legal personality
to bring the action despite the fact that he is not the registered
owner under the certificate of public convenience.
HELD: The habit system is an arrangement whereby a person
who has been granted a certificate of public convenience allows
other persons, who own motor vehicles, to operate them under his
license, sometimes for a fee or percentage of the earnings.
Although the parties to such an agreement are not outrightly
penalized by law, the habit system is invariably recognized as being
contrary to public policy and therefore, void and inexistent under
Article 1409 of the Civil Code.
 In the early case of Dizon v. Octavio, the Court explained that one
of the primary factors considered in the granting of a certificate of
public convenience for the business of public transportation is the
financial capacity of the holder of the license so that liabilities
arising from accidents may be duly compensated. The habit system
renders illusory such purpose and worse, may still be availed of by
the grantee to escape civil liability caused by a negligent use of a
vehicle owned by another and operated under his license. If a
registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to
transfer the subject vehicle to another who possesses no property
with which to respond financially for the damage done. Thus, for
the safety of passengers and the public, who may have been
wronged and deceived through the baneful habit system, the
registered owner of the vehicle is not allowed to prove that
another person has become the owner so that he may be thereby
relieved of responsibility. Subsequent cases affirm such basic
doctrine.
It would seem then that the thrust of the law in enjoining the
kabit system is not so much as to penalize the parties but to identify
the person upon whom responsibility may be fixed in case of an
accident with the end view of protecting the riding public. The
policy therefore loses its force if the public at large is not deceived,
much less involved.
In the present case, it is at once apparent that the evil sought
to be prevented in enjoining the habit system does not exist. First,
neither of the parties to the pernicious habit system is being held
liable for damages. Second, the case arose from the negligence of
another vehicle
 375
TRANSPORTATION LAWS

in using the public road to whom no representation, or

misrepresentation, as regards the ownership and operation of the
passenger jeepney was made and to whom no such
representation, or misrepresentation, was necessary. Thus, it
cannot be said that private respondent Gonzales and the
registered owner of the jeepney were in estoppel for leading the
public to believe that the jeepney belonged to the registered
owner. Third, the riding public was not bothered nor
inconvenienced at the very least by the illegal arrangement. On the
contrary, it was private respondent himself who had been wronged
and was seeking compensation for the damage done to him.
Certainly, it would be the height of inequity to deny him his right.
In light of the foregoing, it is evident that private respondent
has the right to proceed against petitioners for the damage caused
on his passenger jeepney, as well as on his business. Any effort then
to frustrate his claim of damages by the ingenuity with which
petitioners framed the issue should be discouraged, if not repelled.
The registered owner or operator of record is the one liable for damages caused by
a vehicle regardless of any alleged sale or lease made thereon.

MYC Agro-Industrial Corporation v. Purificacion Camerino, et

al.
and the Court of Appeals
G.R. No. L-52798, September 7,1984
 FACTS: About 4:30 in the afternoon of March 21, 1971, a
Toyota truck with Plate No. 12-90-4 CT ’70 owned by petitioner and
operated by

Ceferino Arevalo hit the right center side of a jeepney with Plate
No. 24-97-40-3 1970 owned by Nicanor Silla and operated by
Alfredo Rodolfo. There were 15 passengers of the jeepney,
namely: (1) Laureano Lacson; (2) Salome Bautista; (3) Chona
Alcaraz; (4) Ruby Gonzaga; (5) Felicitacion Gonzaga; (6) Epifania
Bautista; (7) Avelino Ignacio; (8) Erlinda Candado; (9) Leniza
Alcaraz; (10) Sotera Ramirez;

(11) Rosario Ordonez; (12) Maximina Bautista; (13) Comelio

Bautista; (14) Hermogena Bautista; and (15) Felicidad Alcaraz.
The jeepney, at the time of the impact, was parked at Regiment
Street, Anabu, Imus,
376
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PUBLIC SERVICE

Cavite. As a consequence, said jeepney turned turtle and was

pushed to a cemented fence owned by Lucila Reyes, pinning down
to death Carlito Pakingan, Hipolito Caldo, Azucena Camaclang-
Navarette and Fortunato Bonifacio. Likewise, the passengers:
Laureano Lacson, Salome Bautista and Chona Alcaraz died because
of the injuries sustained in this incident; the other passengers
suffered various injuries on the different parts of their bodies.
The aforementioned jeepney and the wall fence were also
damaged.
 Complaint for damages was filed by the owner of the wall
fence, the aforementioned victims and the heirs of the deceased
victims against petitioner MYC-AGRO INDUSTRIAL CORPORATION,
the registered owner of the Toyota truck; Ceferino Arevalo, the
driver of said truck; and Benedicto Kalaw-Katigbak, the general
manager of petitioner corporation.
In its responsive pleading, petitioner admitted ownership of
the Toyota truck but alleged that the same, together with nine
other units were leased to the Jaguar Transportation, Inc., and that
Ceferino Arevalo, as well as Benedicto Kalaw-Katigbak are not its
(petitioner) employees. Thereafter, petitioner, defendant in the
damage suit, filed a third-party complaint against Jaguar
Transportation Company.
Third-party Jaguar pleads that its liability is only secondary and
that it had already complied with its obligation under its contract of
lease with petitioner when it secured third-party liability insurance
from Federal Insurance Company, Inc. It then filed a fourth-party
complaint against Federal Insurance Company, Inc., F.E. Zuellig, Inc.
and Castro Madamba, claiming that Jaguar had obtained an
insurance policy from Federal Insurance Company, Inc., of which
F.E. Zuellig is its general manager, and fourth-party defendant
Castro Madamba is the general agent of defendant Federal
Insurance Company, Inc.
In its answer to the fourth-party complaint, the fourth-party
defendants alleged that Jaguar has no cause of action against
them because F.E. Zuellig is only the general manager of Federal
Insurance Company, Inc.; that Casto Madamba is only the general
agent of Federal
377
 TRANSPORTATION LAWS

Insurance Company, Inc., and that the proper party in

interest is herein petitioner, the registered owner of the
Toyota truck.
Ceferino Arevalo, driver of the truck in question was named defendant in

Criminal Case No. 53-71 of the then Court of First Instance

of Cavite, Branch V. Upon arraignment, he pleaded guilty
to the crimes of multiple homicide, multiple serious
physical injuries, multiple less serious physical injuries,
slight physical injuries and damage to property through
reckless imprudence.
Evidence is clear that the death of seven persons and the injuries suffered
by
private respondents were due to the negligence and reckless
operation of the Toyota truck, owned by herein petitioner
and driven by Ceferino Arevalo. On March 21, 1971, when
the accident happened, subject vehicle was registered in the
name of petitioner, which, however, would want to
exculpate itself from liability because of the contract of lease
with sale (Exhibit “1”) allegedly executed on December 1,
1970 between it and Jaguar Transportation Company.
Petitioner claims that because of the lease of contract
r with sale to Jaguar it had no more control over the vehicle; that
Ceferino Arevalo is not its employee but that of Jaguar. After trial, the
lower court rendered Judgment ordering defendants MYC-Agro-Industrial
Corporation and Ceferino Arevalo jointly and severally to pay plaintiff
actual damages, exemplary damages and attorney’s fees and
dismissed the complaint against Benedicto Katigbak, the counterclaim and
the third and fourth party complaint.
ISSUE: Who should be liable: MYC-Agro Industrial Corporation
or Jaguar Transportation Company?
HELD: The Court cannot uphold the contention of petitioner. In
the first place, Jaguar’s answer to the third-party complaint tendered
no genuine or real issue. Secondly, Jaguar’s representative did not
even
z appear in court after impleading fourth party defendants and its president,
Benedicto Katigbak, did not adduce evidence in his behalf. Thirdly, the
sign MYC that stands for petitioner still appears on subject vehicle and,
as aptly observed by the appellate court “the agreement which
allegedly transferred the truck from MYC to Jaguar failed to

378
CHAPTER VI PUBLIC SERVICE

provide for a chattel mortgage to secure said transfer. The well-known

practice is that motor vehicles acquired through installment pa\ments
are secured by a chattel mortgage oveT the vehicle sold None exists in
the instant case.” Finally, it is undisputed that the registered owner of
the Toyota truck is petitioner. As held in Vargas v. 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 consequence of injuries (or death) sustained in the
operation of said vehicles. Regardless of who the actual owner of a
vehicle is, the operator of record continues to be the operator of the
vehicles as regards the public and third persons, and as such is directly
and primarily 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.”

There being no prior BOT approval in the transfer of property, transferee only held the
property as agents.

Y Transit Co., Inc. v. The National Labor

Relations Commission and Yujuico Transit
Employees Union G.R. Nos. 88195-96,
January 27,1994
FACTS: Sometime in June and July 1979, the Yujuico Transit
Employees Union (Associated Labor Union) filed two consolidated
complaints against Yujuico Transit Co., Inc., for Unfair Labor Practice and
violations of P.D. Nos. 525, 1123, 1614, and 851 (non-payment of living
allowances).
On May 21,1980, the Labor Arbiter rendered a decision dismissing
the complaint for unfair labor practice but holding Yujuico Transit Co., Inc.,
liable under the aforementioned Presidential Decrees in the amount of
P142,780.49. On February 9, 1982, a writ of execution for the said amount
was issued by the Labor Arbiter. On June 14, 1982, an alias writ of
execution was issued and levy was made upon the 10 buses. Thereafter,
“Y” Transit Co., Inc. filed Affidavits of Third-Party Claim.
 379
TRANSPORTATION LAWS

Private respondents herein opposed the Third-Party Claim on the

ground that the transactions leading to the transfer of the buses to “Y”
Transit Co., Inc. were void because they lacked the approval of the BOT as
required by the Public Service Act. They also argued that the buses were
still registered in the name of Yujuico Transit Co., which was, therefore,
still the lawful owner thereof.
The Labor Arbiter found that “Y” Transit Co., Inc. had valid title to the
buses and that the BOT, by its subsequent acts had approved the transfer.
Accordingly, the Third-Party Claim was granted and the release of all the
buses levied for execution was ordered.
On appeal, the NLRC reversed the labor arbiter’s decision on the
ground that the transfer of the buses lacked the BOT approval. It ordered
the reinstatement of the levy and the auction of the properties.
ISSUE: Whether the levy on the buses, which have been allegedly,
transferred to a third-party, herein petitioner “Y” Transit Co., Inc., can be
reinstated.
HELD: The following facts have been established before the NLRC:
that the transfer of ownership from Yujuico Transit Co., Inc., to Jesus
Yujuico, and from
Jesus Yujuico to “Y” Transit Co., Inc. lacked the prior approval of the BOT
as required by Section 20 of the Public Service Act; that the buses were
transferred to
“Y” Transit Co., Inc. during the pendency of the action; and that until the
time of execution, the buses were still registered in the name of Yujuico
Transit Co., Inc.
In Montoya v. Ignacio, the Court held:
“x x x The law really requires the approval of the Public Service
Commission in order that a franchise, or any privilege pertaining
thereto, may be sold or leased without infringing the certificate
issued to the grantee. The reason is obvious. Since a franchise is
personal in nature, any transfer or lease thereof should be notified to
the Public Service Commission so that the latter may take proper
safeguards to protect the interest of the public. In fact, the law
requires that before the approval is granted, there should be a public
hearing with notice to all interested parties in
 CHAP7 kV VI PUBLIC
SLPVICfc

order that the commission may determine if there

are good and reasonable grounds justifying the
transfer or lease of the property covered by the
franchise, or if the sale or lease is detrimental to
public interest. Such being the reason and
philosophy behind this requirement, it follows that
if the property covered by the franchise is
transferred, or leased to another without
obtaining the requisite approval, the transfer is not
binding against the Public Service Commission and
in contemplation of law, the grantee continues to
be responsible under the franchise in relation to
the Commission and to the public, x x x public and the
Public Service Commission. The approval is only necessary to
protect public interest. ”
There being no prior BOT approval in the
transfer of the property from Yujuico Transit Co., Inc.,
to Jesus Yujuico, it only follows that as far as the BOT
and third-parties are concerned, Yujuico Transit Co.,
Inc., still owned the properties, and Yujuico and later,
“Y” Transit Co., Inc., only held the same as agents of
the former. In Tamayo v. Aquino, the Supreme Court
stated, thus:
“x x x 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.”
Conversely, where the registered owner is liable
for obligations to third-parties and vehicles registered
under his name are levied upon to satisfy his
obligations, the transferee of such vehicles cannot
prevent the levy by asserting his ownership because as
far as the law is concerned, the one in whose name
the vehicle is registered remains to be the owner and
the transferee merely holds the vehicles for the
registered owner. Thus, “Y” Transit Co., Inc., cannot
now argue that the buses could not be levied upon to
satisfy the money judgment in favor of herein private
respondents. However, this does not deprive the
transferee of the right to recover from the registered
owner any damages, which may have been incurred by
the former since the transfer, or lease is valid and
binding between the parties.

381
 TRANSPORTATION LAWS

Actual owner of passenger jeep liable solidarily with

registered owner in a civil action based on quasi-delict.

Angel Jereos v. Hon. Court of

Appeals and Soledad
Rodriguez, et al

G.R. No. L-48747, September 30,1982

FACTS: Private respondent, Domingo Pardorla, Jr. is the
holder of a certificate of public convenience for the
operation of a jeepney line in Iloilo City. On February 23,
1971, one of his jeepneys, driven by Narciso Jaravilla, hit
Judge Jesus S. Rodriguez and his wife, Soledad, while they
were crossing Bonifacio Drive, Iloilo City, causing injuries to
them, which resulted in the death of Judge Rodriguez.
Narciso Jaravilla was prosecuted and, on his plea of guilty,
was convicted of the crime of Homicide and Physical
Injuries through Reckless Imprudence and sentenced
accordingly. Thereafter, Soledad Rodriguez and her children
filed with the Court of First Instance of Iloilo an action for
damages against Narciso Jaravilla, Domingo Pardorla, Jr.,
and Angel Jereos, the actual owner of the jeepney.
Domingo Pardorla, Jr., upon the other hand, claimed
that he was only the franchise owner and has nothing to do
with the actual operation and supervision of the passenger
jeepney in question which is under the actual control,
operation and supervision of Angel Jereos who operates the
same under the "habit system. ”
ISSUE: Who should be liable? The actual owner of
passenger jeep or the franchise holder?
HELD: Finally, the petitioner, citing the case of Vargas v.
Langcay, contends that it is the registered owner of the
vehicle, rather than the actual owner, who must be jointly
and severally liable with the driver of the passenger vehicle
for damages incurred by third persons as a consequence of
injuries or death sustained in the operation of said vehicle.
The contention is devoid of merit. While the Court
therein ruled that the registered owner or operator of a
passenger vehicle is jointly and severally liable with the
driver of the said vehicle for damages

382
 CHAPTER VI PUBLIC
SERVICE

incurred by passengers or third persons as a consequence

of injuries or death sustained in the operation of the said
vehicle, the Court did so to correct the erroneous findings of
the Court of Appeals that the liability of the registered
owner or operator of a passenger vehicle is merely
subsidiary, as contemplated in Article 103 of the Revised Penal
Code. In no case did the Court exempt the actual owner of
the passenger vehicle from liability. On the contrary, it adhered
to the rule followed in the cases of Erezo v. Jepte, Tamayo v. Aquino,
and De Peralta v. Mangusang, among others, that the registered
owner or operator has the 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.
The right to be indemnified being recognized,
recovery by the registered owner or operator may be
made in any form - either by a cross-claim, third-party
complaint, or an independent action. The result is the
same.

The registered owner of a certificate of public convenience is liable to the

public for the injuries or damages suffered by passengers or third persons
caused by the operation of said vehicle even though the same bad been
transferred to a third person.

B. A. Finance Corporation v.
 Hon. Court of Appeals
G.R. No. 9S215, November 13,1992

FACTS: On March 6, 1983, an accident occurred

involving petitioner’s Isuzu 10-wheeler truck then driven
by an employee of Lino Castro.
The lower court ascertained after due trial that
Rogelio Villar Y. Amare, the driver of the Isuzu truck, was
at fault when the mishap occurred in as much as he was
found guilty beyond reasonable doubt of reckless
imprudence resulting in triple homicide with multiple
physical injuries with damage to property in a decision
rendered on February 16, 1984 by the Presiding Judge of
Branch 6 of the Regional Trial Court stationed at Malolos,
Bulacan. Petitioner was adjudged liable for damages in
as much as the truck was registered in its name

383

TRANSPORTATION LAWS

during the incident in question, following the doctrine laid

down by this Court in Perez v. Gutierrez (53 SCRA 149 [1973]) and
Erezo, et al. v. Jepte (102 Phil. 103 [1957]). In the same breadth,
Rock Component Philippines, Inc., was ordered to reimburse
petitioner for any amount that the latter may be adjudged
liable to pay herein private respondents as expressly stipulated

532
in the contract of lease between petitioner and Rock
Component Philippines, Inc.
Petitioner asseverates that it should not have been haled
to court and ordered to respond for the damage in the manner
arrived at by both the trial and appellate courts since
paragraph 5 of the complaint lodged by the plaintiffs below
would indicate that petitioner was not the employer of the
negligent driver who was under the control and supervision of
Lino Castro at the time of the accident, apart from the fact that
the Isuzu truck was in the physical possession of Rock
Component Philippines by virtue of the lease agreement.
ISSUE: Whether or not petitioner can be held responsible
to the victims albeit the truck was leased to Rock Component
Philippines when the incident occurred.
HELD: In previous decisions, the Court already has held
that the registered owner of a certificate of public convenience
is liable to the public for the injuries or damages suffered by
passengers or third persons caused by the operation of said
vehicle, even though the same had been transferred to a third
person. (Montoya v. Ignacio, 94 Phil 182, 50 Off. Gaz., 108; Roque v.
Malibay Transit, Inc., November 18, 1955; Vda. de Medina v. Cresencia, 99 Phil.
The principle upon which this doctrine
506, 52 Off. Gaz. [10], 4606)
is based is that in dealing with vehicles registered under the
Public Service Law, the public has the right to assume or
presume that the registered owner is the actual owner
thereof, for it would be difficult for the public to enforce the
actions that they may have for injuries caused to them by the
533
vehicles being negligently operated if the public should be
required to prove who the actual owner is. How would the
public or third persons know against whom to enforce their
rights in case of subsequent transfers of the vehicles? The
Court does not imply by this doctrine however, that the
registered owner may not recover whatever amount he had
paid by

CHAPTER VI PUBLIC
SERVICE

virtue of his liability to third persons from the person to whom

he had actually sold, assigned or conveyed the vehicle.
“Under the same principle the registered owner of any vehicle, even if not
used for a public service, should primarily be responsible to the public or to third
persons for injuries caused the latter while the vehicle is being driven on the
highways or streets. The members of the Court are in agreement that the
defendant-appellant should be held liable to plaintiff-appellee for the injuries
occasioned to the latter because of the negligence of the driver, even if the
defendant-appellant was no longer the owner of the vehicle at the time ofthe
damage because he had previously sold it to another. ”
The main aim of motor vehicle registration is to identify
the owner so that if any accident happens, or that any damage
or injury is caused by the vehicle on the public highways,
responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles
534
running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of
the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so
inconvenient or prejudicial to the public that the motor vehicle
registration is primarily ordained, in the interest of the
determination of persons responsible for damages or injuries
caused on public highways.
“One of the principal purposes of motor vehicles
legislation is identification of the vehicle and of the
operator, in case of accident; and another is that the
knowledge that means of detection are always available
may act as a deterrent from lax observance of the law and
of the rules of conservative and safe operation. Whatever
purpose there may be in these statutes, it is subordinate
at the last to the primary purpose of rendering it certain
that the violator of the law or of the rules of safety shall
not escape because of lack of means to discover him. The
purpose of the statute is thwarted, and the displayed
number becomes a “share and delusion,” if courts would
entertain such defenses as that put forward by appelle[e]
in this case. No responsible person or corporation could
be held liable for the most outrageous acts of negligence,
if they should be allowed to place a “middleman”
TRANSPORTATION LAWS

535
 between them and the public, and escape liability by the
manner in which they recompense servants.” (King v.
Brenham Automobile Co., Inc., 145 S.W. 278, 279)

“With the above policy in mind, the question that

defendant- appellant poses is: should not the registered owner
be allowed at the trial to prove who the actual and real owner
is, and in accordance with such proof, escape or evade
responsibility by and lay the same on the person actually
owning the vehicle? The Court holds with the trial court that
the law does not allow him to do so; the law, with its aim and
policy in mind, does not relieve him directly of the
responsibility that the law fixes and places upon him as an
incident or consequence of registration. 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 usually without means
to discover or identify the person actually causing the injury or
damage. He has no means other than by recourse to the
registration in the Motor Vehicles 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. If
the policy of the law is to be enforced and carried out, the
536
registered owner should not be allowed to prove the contrary
to the prejudice of the person injured, that is, to prove that a
third person or another has become the owner, so that he may
thereby be relieved of the responsibility to the injured person.
“The above policy and application of the law may
appear quite harsh and would seem to conflict with truth
and justice. The Court do not think it is so. A registered
owner who has already sold or transferred a vehicle has
the recourse to a third-party complaint, in the same
action brought against him to recover for the damage or
injury done, against the vendee or transferee of the
vehicle. The inconvenience of the suit is no justification
for relieving him of liability; said inconvenience is the price
he pays for failure to comply with the registration that the
law demands and requires.

537
 CHAPTER VI
PUBLIC SERVICE

If the foregoing words of wisdom were applied in

solving the circumstance whereof the vehicle had been
alienated or sold to another, there certainly can be no
serious exception against utilizing the same rationale to
the antecedents of this case where the subject vehicle was
merely leased by petitioner to Rock Component
Philippines, Inc., with petitioner retaining ownership over
the vehicle.
In a much later case of Equitable Leasing Corporation v. Lucita
Suyom,
388 SCRA445, September 5,2002, the Court held that
petitioner Equitable Leasing Corporation [is] liable for the
deaths and the injuries complained of, because it was the
registered owner of the tractor at the time of the accident
on July 17, 1994. The Court has consistently ruled that,
regardless of sales made of a motor vehicle, the registered
owner is the lawful operator insofar as the public and third
persons are concerned; consequently, it is directly and
primarily responsible for the consequences of its
operation. In contemplation of law, the owner/ operator
of record is the employer of the driver, the actual operator
and employer being considered as merely its agent. The
same principle applies even if the registered owner of any
vehicles does not use it for public service. fSee also St.
Mary’s Academy v. Carpitano, 376 SCRA 473)

RECENT CASES ON REGISTERED OWNER RULE

Under the Public Service Act, if the property covered by a franchise is

transferred or leased to another without obtaining the requisite approval, the
transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continued to be responsible under the
franchise in relation to the operation of the vehicle, such as damaged or
injury to third parties due to collisions.

PCI Leasing and Finance, Inc. v. UCPB

General Insurance Co., Inc.
G.R. No. 162267, July 4, 2008

FACTS: On October 19, 1990 at about 10:30 p.m., a

Mitsubishi Lancer car with Plate No. PHD-206 owned
by United Coconut Planters
387
 TRANSPORTATION LAWS

Bank was traversing the Laurel Highway. Barangay

Balintawak, Lipa City. The car was insured with plaintiff-
appellee (UCPB General Insurance, Inc.), then driven by
Flaviano Isaac with Conrado Geronimo, the Asst.
Manager of said bank, was hit and bumped by an 18-
wheeler Fuso Tanker Truck with Plate No. PJE-737, and
Trailer Plate No. NVM- 133, owned by defendants-
appellants PCI Leasing & Finance, Inc., allegedly leased to
and operated by defendant-appellant Superior Gas &
Equitable Co., Inc. (SUGECO) and driven by its employee,
defendant- appellant Renato Gonzaga.
The impact caused heavy damage to the Mitsubishi
Lancer car resulting in an explosion of the rear part of
the car. The driver and passenger suffered physical
injuries. However, the driver, defendant- appellant
Gonzaga, continued on its way to its destination and did
not bother to bring his victims to the hospital. Plaintiff-
appellee paid the assured UCPB the amount of P244,500,
representing the insurance coverage of the damaged car.
As the 18-wheeler truck is registered under the
name of PCI Leasing, repeated demands were made by
plaintiff-appellee for the payment of the aforesaid
amounts. However, no payment was made. Thus,
plaintiff-appellee filed the instant case on March 13,
1991. PCI Leasing and Finance, Inc., (petitioner)
interposed the defense that it could not be held liable for
the collision since the driver of the truck, Gonzaga, was
not its employee, but that of its co-defendant Superior
Gas & Equitable Co. Inc. (SUGECO), and not petitioner
that was the actual operator of the truck, pursuant to a
Contract of Lease signed by petitioner and SUGECO.
Petitioner, however, admitted that it was the owner of
the truck in question.
After the trial, the Regional Trial Court (RTC)
rendered its Decision, dated April 15, 1999, in favor of
plaintiff UCPB General Insurance, ordering the
defendants PCI Leasing and Finance, Inc. and Renato
Gonzaga to pay jointly and severally the former.
In its Decision, dated December 12, 2003, the Court
of Appeals (CA) affirmed the RTC’s Decision, with certain
modifications.
ISSUE: Whether or not petitioner, as registered
owner of a motor vehicle that figured in a quasi delict, may
be held liable, jointly and
 CHAPTER VI PUBLIC SERVICE

severally, with the driver thereof, for the damages caused to the
third parties.
HELD: Under the Public Service Act, if the property covered by a
franchise is transferred or leased to another without obtaining the
requisite approval, the transfer is not binding on the Public Service
Commission and, in contemplation of law, the grantee continues to
be responsible under the franchise in relation to the operation of the
vehicle such as damage or injury to third parties due to collisions.
“One of the principal purposes of motor vehicles legislation is identification of the
vehicle and of the operator, in case of accident; and another is that the knowledge that
means of detection are always available may act as a deterrent from lax observance of the
law and of the rules of conservative and safe operation. Whatever purpose there may be in
these statutes, it is subordinate at the last to the primary purpose of rendering it certain
that the violator of the law or of the rules of safety shall not escape because of lack of
means to discover him. The purpose of statute is thwarted, and the displayed number
becomes a “snare and delusion, ” if courts would entertain such defenses as that put
forward by appellee in this case. No responsible person or corporation could be held
liable for the most outrageous acts of negligence, if they should be allowed to place a
“middleman ” between them and the public, and escape liability by the manner in which
they recompense their servants. " (King v. Brenham Automobile Co., 145, S. W. 278, 279)
The registered owner of a motor vehicle whose operation causes injury to another is
legally liable to the latter. But it is error not to allow the registered owner to recover
reimbursement from the actual and present owner by way of its cross-claim.
Metro Manila Transit Corporation v. Reynaldo Cuevas and Junnel
Cuevas, represented by Reynaldo Cuevas
G.R. No. 167797, June 15, 2015

FACTS: Metro Manila Transit Corporation (MMTC) and Mina’s

Transit Corporation (Mina’s Transit) entered into an agreement to
sell,
 389
TRANSPORTATION LAWS

dated August 31,1990, whereby the latter bought several bus units
from the former at a stipulated price. They agreed that MMTC would
retain the ownership of the buses until certain conditions were met,
but in the meantime, Mina’s Transit could operate the buses within
Metro Manila.
On October 14,1994, one of the buses, subject of the
agreement to sell, bearing Plate No. NXM-449-TB-pil 94 hit and
damaged a Honda Motorcycle owned by Reynaldo and driven by
Junnel. Reynaldo and Junnel sued MMTC and Mina’s Transit for
damages in the Regional Trial Court (RTC) in Cavite, docketed as Civil
Case No. N-6127, pertinently alleging and praying that defendants
Metro
Manila Transit Corporation and Mina’s Transit are registered joint-
owners or operator of an MMTC/Mina’s Transit passenger bus with
Plate No. NXM-449TB-pil 94, and is the employers (sic) of the driver
Jessie Rillera y Gaceta.
In its answer with compulsory counterclaim and cross-claim,
MMTC denied liability and averred that although it retained the
ownership of the bus, the actual operator and employer of the bus
driver was Mina’s Transit, and that, in support of its cross-claim
against Mina’s Transit, a provision in the agreement to sell mandated
Mina’s Transit to hold it free from liability arising from the use and
operation of the bus units.
On its part, Mina’s Transit contended that it was not liable
because (a) it exercised due diligence in the selection and supervision
of its employees; (b) Its bus driver exercised due diligence; and (c)
Junnel’s negligence was the cause of the accident.
Meanwhile, Mina’s Transit filed a third-party complaint
against its insurer, Perla Compania de Seguros, Inc. (Perla), seeking
reimbursement should it be adjudged liable, pursuant to its
insurance policy issued by Perla with the following coverage: (a)
third-party liability of P50,000 as the maximum amount; and (b)
third-party damage to property of P20,000 as maximum amount.
In [its] answer to the third-party complaint, Perla denied
liability because Mina’s Transit had waived its recourse by failing
to notify Perla of the incident within one year from its occurrence,
as required by Section 384 of the Insurance Code. It submitted that
even assuming

390
CHAPTER VI PUBLIC SERVICE

that the claim had not yet prescribed, its liability should be limited to
the maximum of P50,000 for third-party liability and 1*20,000 for
third- party damage.
After trial, the RTC rendered judgment in favor of the
respondents on September 17, 1999, ordering petitioner Metro
Manila Transit Corporation
(MMTC) and its co-defendant Mina’s Transit Corporation (Mina’s
Transit) to pay damages in favor of respondents Reynaldo Cuevas
and Junnel Cuevas. The RTC concluded that the proximate cause of
the mishap was the negligence of the bus driver; that following
Article 2180 of the Civil Code, his employers should be solidarity
liable; that MMTC and Mina’s Transit, being the joint owners of the
bus, were liable; and that the third-party complaint was dismissed
because no evidence was presented to prove it. The RTC, however,
did not rule on the propriety of the cross-claim.
On appeal, the Court of Appeals (CA) affirmed the RTC’s
decision.

ISSUE: Whether or not MMTC was liable for the injuries

sustained by the respondents despite the provision in the agreement
to sell that shielded it from liability.
HELD: MMTC urges the revisit of the registered-owner rule in
order to gain absolution from liability. It contends that although it
retained ownership of the bus at the time of the vehicular accident,
the actual operation was transferred to Mina’s Transit; that for it to
be held liable for the acts of the bus driver, the existence of an
employer- employee relationship between them must be
established; and that because the bus driver was not its employee, it
was not liable for his negligent act.
The contentions of MMTC cannot persuade.

In view of MMTC’s admission in its pleadings that it had

remained the registered owner of the bus at the time of the incident,
it could not escape liability for the personal injuries and property
damage suffered by the Cuevases. This is because of the registered-
owner rule, whereby the registered owner of the motor vehicle
involved in a vehicular accident could be held liable for the
consequences. The registered-owner rule remained good law in this
jurisdiction considering its impeccable and timeless rationale, as
enunciated in the 1957 ruling in Erezo, et

391

TRANSPORTATION LAWS

al. v. Jepte, where the Court pronounced: Registration is required not

to make said registration the operative act by which ownership in
vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential
relation to the contract of sale between the parties (Chinchilla v. Rafael
and Verdaguer, 39 Phil. 888), but to permit the use and operation of the
vehicle upon any public highway (Section 5[a], Act No. 3992, as amended), to
wit: “JC jt x it is well settled that in case of motor vehicle mishaps, the registered owner of
the motor vehicle is considered as the employer of the tortfeasor-driver, and is made
primarily liable for the tort committed by the latter under Article 2176, in relation with
Article 2180 of the Civil Code. ”

In Equitable Leasing Corporation v. Suyom, [W]e ruled that in so far as

third persons are concerned, the registered owner of the motor vehicle is the
employer of the negligent driver, and the actual employer is considered merely as an
agent of such owner.
Thus, it is clear that for the purpose of holding the registered
owner of the motor vehicle primarily and directly liable for damages
under Article 2176, in relation with Article 2180 of the Civil Code, the
existence of an employer-employee relationship, as it is understood
in labor relation law, is not required. It is sufficient to establish that
Filcar is the registered owner of the motor vehicle causing damage in
order that it may be held vicariously liable under Article 2180 of the
Civil Code. (Citations omitted.)
Indeed, MMTC could not evade liability to passing the buck to
Mina’s Transit. The stipulation in the agreement to sell did not bind
third parties like the Cuevases, who were expected to simply rely on
the data contained in the registration certificate of the erring bus.
Although the registered-owner rule might seem to be unjust
towards MMTC, the law did not leave it without any remedy or
recourse. According to Filcar Transport Services v Espinas, MMTC could
recover from Mina’s Transit, the actual employer of the negligent
driver, under the principle of unjust enrichment, by means of a
crossclaim seeking reimbursement of all the amounts that it could be
required to pay as damages arising from the driver’s negligence. A
cross-claim

392
CHAPTER VI PUBLIC SERVICE

is a claim by one party against a co-party arising out of the

transaction or occurrence that is the subject matter either of the
original action or of a counterclaim therein, and may include a claim
that the party against whom it is asserted is or may be liable to the
cross-claimant for all or part of a claim asserted in the action against the cross-
claimant.

The Court AFFIRMS the decision promulgated on June 28,2004

subject to the MODIFICATION that the cross-claim of Metro Manila
Transit Corporation against Mina’s Transit Corporation is GRANTED,
and, ACCORDINGLY, Mina’s Transit Corporation is ORDERED to reimburse
to Metro Manila Transit Corporation whatever amounts the latter
shall pay to the respondents pursuant to the judgment of the
Regional Trial Court in Civil Case No. N-6127.
The principle of holding the registered owner liable for damages notwithstanding
that ownership of the offending vehicle has already been transferred to another is
designed to protect the public and not as a shield on the part of the unscrupulous
transferees of the vehicle to take refuge in, in order to free itself from liability
arising from its own negligent act.
R Transport Corporation v. Luisito G. Yu G.R. No. 174161,
February 18, 2015

FACTS: At around 8:45 in the morning of December 12, 1993,

Loreta J. Yu, after having alighted from a passenger bus in front of
Robinson’s Galleria along the northbound lane of Epifanio Delos
Santos Avenue (EDSA), was hit and run over by a bus driven by
Antonio R Gimena, who was then employed by petitioner R
Transport Corporation. Loreta was immediately rushed to Medical
City Hospital where she was pronounced dead on arrival. On
February 3, 1994, the husband of the deceased, respondent
Luisito G. Yu, filed a Complaint for damages before the Regional
Trial Court (RTC) of Makati City against petitioner R Transport,
Antonio Gimena and Metro Manila Transport Corporation (MMTC)
for the death of his wife. MMTC denied its liability reasoning that
it is merely the registered owner of the bus involved in the
incident, the actual owner, being petitioner R Transport. It
explained that under the Bus Installment Purchase

Program of the government, MMTC

393
 TRANSPORTATION LAWS

merely purchased the subject bus, among several others,

for resale to petitioner R Transport, which will in turn
operate the same within Metro Manila. Since it was not
actually operating the bus which killed respondent’s wife,
nor was it the employer of the driver thereof. For its part,
petitioner R Transport alleged that respondent had no
cause of action against it for it had exercised due diligence
in the selection and supervision of its employees and
drivers and that its buses are in good condition.
Meanwhile, the driver Antonio Gimena was declared in
default for his failure to file an answer to the complaint.
After trial on the merits, wherein the parties presented
their respective witnesses and documentary evidence, the
trial court rendered judgment in favor of respondent Yu
ruling that petitioner R Transport failed to prove that it
exercised the diligence of a good father of a family in the
selection and supervision of its driver, who, by its
negligence, ran over the deceased resulting in her death. It
also held that MMTC should be held solidarity liable with
petitioner R Transport because it would unduly prejudice a
third person who is a victim of a tort to look beyond the
certificate of registration and prove who the actual owner
is in order to enforce a right of action. Thus, on June
3,2004, the trial court ordered defendants Rizal Transport
and Metro Manila Transport Corporation to be primarily
and solidarity liable and defendant Antonio Parraba
Gimena subsidiarity liable to plaintiff Luisito Yu.
On September 9, 2005, the Court of Appeals (CA)
affirmed the Decision of the RTC. The CA noted that the
fact that petitioner is not the registered owner of the bus,
which caused the death of the victim, does not exculpate it
from liability. Motion for Reconsideration was likewise
denied.
ISSUE: Whether or not the actual owner of a common
carrier can be held solidarity liable with the registered
owner.
HELD: Under Article 2180 of the New Civil Code,
employers are liable for the damages caused by their
employees acting within the scope of their assigned tasks.
Once negligence on the part of the employee is
established, a presumption instantly arises that the
employer was remiss in the selection and/or supervision of
the negligent employee. To avoid liability for the quasi-delict
committed by its employee, it is incumbent upon the
employer to rebut this presumption by presenting
adequate

394
 CHAPTER VI PUBLIC SERVICE

and convincing proof that it exercised the care and diligence of a good
father of a family in the selection and supervision of its employees.
Unfortunately, however, the records of this case are bereft of any
proof showing the exercise by petitioner of the required diligence. As
aptly observed by the CA, no evidence of whatever nature was ever
presented depicting petitioner’s due diligence in the selection and
supervision of its driver, Gimena, despite several opportunities to do
so. In fact, in its petition, apart from denying the negligence of its
employee and imputing the same to the bus from which the victim
alighted, petitioner merely reiterates its argument that since it is not
the registered owner of the bus, which bumped the victim, it cannot
be held liable for the damage caused by the same. Nowhere was it
even remotely alleged that petitioner had exercised the required
diligence in the selection and supervision of its employee. Because of
this failure, petitioner cannot now avoid liability for the quasi-delict
committed by its negligent employee.
With the enactment of the motor vehicle registration law, the defense available under
Article 2180 of the Civil Code - that the employee acts beyond the scope of his assigned
task or that it exercised the due diligence of a good father of a family to prevent
damage - are no longer available to the registered owner of the motor vehicle, because
the motor vehicle registration law, to a certain extent, modified Article 2180.
Mariano C. Mendoza and Elvira Lim
v. Sps. Leonora J. Gomez and Gabriel V. Gomez G.R. No. 160110, June
18,2014
FACTS: On 7 March 1997, Isuzu Elf truck (Isuzu truck) with Plate
No. UAW-582, owned by respondent Leonora J. Gomez and driven by
Antenojenes Perez (Perez), was hit by a Mayamy Transportation bus
(Mayamy bus) with temporary Plate No. 1376-1280, registered under
the name of petitioner Elvira Lim (Lim) and driven by petitioner
Mariano C. Mendoza (Mendoza).
Owning to the incident, an Information for reckless imprudence
resulting in damage to property and multiple physical injuries was filed

395
TRANSPORTATION LAWS

against Mendoza. Mendoza, however, eluded arrest, thus,

respondents filed a separate complaint for damages against Mendoza
and Lim, seeking actual damages, compensation for lost of income,
moral damages, exemplary damages, attorney’s fees and costs of the
suit.
According to POl Melchor F. Rosales (POl Rosales), investigating
officer of the case, at around 5:30 a.m., the Isuzu truck, coming from
Katipunan Road and heading toward E. Rodriguez, Sr. Avenue, was
traveling along the downward portion of Boni Serrano Avenue when,
upon reaching the comer of Riviera Street, fronting St. Ignatius
Village, its left front portion was hit by the Mayamy bus. According to
POl Rosales, the Mayamy bus, while traversing the opposite lane,
intruded on the lane occupied by the Isuzu truck.
POl Rosales also reported that Mendoza tried to escape by
speeding away, but he was apprehended in Katipunan Road comer

C. P. Garcia Avenue by one Traffic Enforcer and a security guard of St.

Ignatius Village. As a result of the incident, Perez, as well as the
helpers on board the Isuzu truck, namely, Melchor V. Anla (Anla),
Romeo J. Banca (Banca), and Jimmy Repisada (Repisada), sustained
injuries necessitating medical treatment amounting to PI 1,267.35,
which amount was shouldered by respondents. Moreover, the Isuzu
truck sustained extensive damages on its cowl, chassis, lights, and
steering wheel amounting to PI42,757.40. Additionally, respondents
averred that the mishap deprived them of a daily income of PI,000.
Engaged in the business of buying plastic scraps and delivering them to
recycling plants, respondents claimed that the Isuzu truck was vital in
the furtherance of their business. For their part, petitioners capitalized
on the issue of ownership of the bus in question. Respondents argued
that although the registered owner was Lim, the actual owner of the
bus was SPOl Cirilo Enriquez (Enriquez), who had the bus attached
with Mayamy Transportation Company (Mayamy Transport) under the
so-called “habit system.” Respondents then impleaded both Lim and
Enriquez.
After weighing the evidence, the Regional Trial Court (RTC)
found Mendoza liable for direct personal negligence under Article
2176 of the Civil Code, and it also found Lim vicariously liable under

396
('I I A m :K V! pimut' si'RVici-

Article 2180 of the same Code. As regards Lim, the RTC relied on the
Certificate of Registration issued by the Land Transportation Office
(LTO) on December 9, 1996 in concluding that she is the registered
owner of the bus in question. Although actually owned by Enriquez,
following the established principle in transportation law, Lim, as the
registered owner, is the one who can be held liable. Displeased,
petitioners appealed to the CA. After evaluating the damages awarded
by the RTC, such were affirmed by the CA, with the exception of the
award of unrealized income. Unsatisfied with the CA ruling, petitioners
filed an appeal by certiorari before the Court.
ISSUE: Whether or not the defense of diligence in the selection and
supervision of employees is still a valid defense under the motor
vehicle registration law.
HELD: The Court is in agreement with the findings of the RTC,
and as affirmed by the CA that Mendoza was negligent in driving
the subject Mayamy bus, as demonstrated by the fact that at the
time of the collision the bus intruded on the lane intended for the
Isuzu truck. Having encroached on the opposite lane, Mendoza was
clearly in violation of traffic laws. Article 2185 of the Civil Code
provides that unless there is a proof to the contrary, it is presumed
that a person driving a motor vehicle has been negligent if at the
time of the mishap he was violating any traffic regulation. In the
case at bar,

Mendoza’s violation of traffic laws was the proximate cause of the

harm. Mendoza’s employer may also be held liable under the
doctrine of vicarious liability or imputed negligence. Under such
doctrine, a person who has not committed the act or omission,
which caused damage or injury to another, may nevertheless be
held civilly liable to the latter either directly or subsidiarily under
certain circumstances. In our jurisdiction, vicarious liability or
imputed negligence is embodied in Article 2180 of the Civil Code
and the basis for damages in the action under said article is the
direct and primary negligence of the employer in the selection or
supervision, or both, of his employee.
 In the case at bar, who is deemed as Mendoza’s employer? Is it
Enriquez, the actual owner of the bus, or Lim, the registered owner of
the bus?

397
TRANSPORTATION LAWS

In Filcar Transport Services v. Espinas, the Court held that the registered
owner is deemed the employer of the negligent driver, and is thus
vicariously liable under Article 2176, in relation to Article 2180 of the
Civil Code. Citing Equitable Leasing Corporation v. Suyom, the Court ruled that
in so far as third persons are concerned, the registered owner of the
motor vehicle is the employer of the negligent driver, and the actual
employer is considered merely as an agent of such owner. Thus,
whether there is an employer-employee relationship between the
registered owner and the driver is relevant in determining the liability
of the registered owner who the law holds primarily and directly
responsible for any accident, injury, or death caused by the operation
of the vehicle in the streets and highways.
Generally, when an injury is caused by the negligence of a servant
or employee, there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in the
selection of the servant or employee {culpa in eligiendo) or in the
supervision over him after the selection {culpa vigilando), or both. The
presumption is juris tantum and not juris et de jure\ consequently, it may be
rebutted. Accordingly, the general rule is that if the employer shows to
the satisfaction of the court that in the selection and supervision of his
employee he has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved of liability.
However, with the enactment of the motor vehicle registration law,
the defenses available under Article 2180 of the Civil Code - that the
employee acts beyond the scope of his assigned task or that it
exercised the due diligence of a good father of a family to prevent
damage - are no longer available to the registered owner of the motor
vehicle because the motor vehicle registration law, to a certain extent,
modified Article 2180.
As such, there can be no other conclusion but to hold Lim
vicariously liable with Mendoza.
One of the principal purposes of motor vehicles legislation is identification of the
vehicle and of the operator, in case of accident; and another is that the knowledge
that means of detection are always available may act as a deterrent from lax
observance of the

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law and of the rules of conserv ative and safe operation. Whatever
purpose there may be in these statutes, it is subordinate at the last
to the primary purpose of rendering it certain that the violator of
the law or of the rules of safety shall not escape because of lack of
means of discover him.

Nostradamus Villanueva v. Priscilla R. Domingo

and Leandro Luis R. Domingo
 G.R. No. 144274, September 20,2004
FACTS: Respondent Priscilla R. Domingo is the registered owner of a
silver

Mitsubishi Lancer car model 1980 bearing Plate No. NDW- 781 ‘91
with co-respondent Leandro Luis R. Domingo as authorized driver.
Petitioner Nostradamus Villanueva was then the registered “owner’'
of a green Mitsubishi Lancer bearing Plate No. PHK-201 ‘91.
On October 22, 1991 at about 9:45 in the evening, following a
green traffic light, respondent Priscilla Domingo’s silver Lancer car with
Plate No. NDW-781 ‘91, then driven by co-defendant Leandro Luis R.
Domingo, was cruising along the middle lane of South Superhighway
at a moderate speed from north to south.

Suddenly, a green Mitsubishi Lancer with Plate No. PHK-201 ‘91,

driven by Renato Del a Cruz Ocfemia, darted from Vito Cruz Street
towards the South Superhighway directly into the path of NDW-781
‘91 thereby hitting and bumping its left front portion. As a result of the
impact, NDW 781 ‘91 hit two parked vehicles at the roadside, the
second hitting another parked car in front of it.
Per Traffic Accident Report prepared by Traffic Investigator Pfc.
Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving with
expired license and positive for alcoholic breath. Hence, Manila
Assistant City Prosecutor Oscar A. Pascua recommended the filing of
information for reckless imprudence resulting to (sic) damage to
property and physical injuries.
The original complaint was amended twice: first, impleading Auto
Palace Car Exchange as commercial agent and/or buyer-seller, and
second, impleading
Albert Jaucian as principal defendant doing business under the name
and style of Auto Palace Car Exchange. Except

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for Ocfemia, all the defendants filed separate answers to

the complaint. Petitioner Nostradamus Villanueva
claimed that he was no longer the owner of the car at
the time of the mishap because it was swapped with a
Pajero owned by Albert Jaucian/Auto Palace Car
Exchange. On the other hand, Auto Palace Car Exchange
represented by Albert Jaucian claimed that he was not
the registered owner of the car. Moreover, it could not
be held subsidiary liable as employer of Ocfemia because
the latter was off-duty as utility employee at the time of
the incident. Neither was Ocfemia performing a duty
related to his employment.
ISSUE: Whether or not the registered owner of a
motor vehicle be held liable for damages arising from a
vehicular accident involving his motor vehicle while being
operated by the employee of its buyer without the
latter’s consent and knowledge.
HELD: The Court consistently ruled that the registered owner of any
vehicle is directly and primarily responsible to the public and third
persons while it is being operated. The rationale behind such doctrine
was explained way back in 1957 in Erezo v. Jepte. The principle upon r
which this doctrine is based is that in dealing with vehicles registered
under the Public Service Law, the public has the right to assume or
presume
that the registered owner is the actual owner thereof, for it would be
difficult for the public to enforce the actions that they may have for
injuries caused to them by the vehicles being negligently operated if
the public should require to prove who the actual owner is. How
would the public or third persons know against whom to enforce their
rights in case of subsequent transfers of the vehicles? We do not imply
by his Z doctrine, however, that the registered owner may not recover
whatever amount he had paid by virtue of his liability to third persons
from the person to whom he had actually sold, assigned, or conveyed
the vehicle.
Registration is required not to make said registration
the operative act by which ownership in vehicles is
transferred, as in land registration cases, because the
administrative proceeding of registration does not bear
any essential relation to the contract of sale between the
parties (Chinchilla v. Rafael and Verdaguer, 39 Phil. 888), but to
permit the use and operation of the vehicle upon any
public highway. (Section 5 [a], Act No. 3992, as amended) The
main aim of motor vehicle registration is to identify the
owner so that if any accident happens, or that any
damage
 400
VHAI'U U VI
mu u st uvu i

or injury is caused by the \vhiolo on the public highways,

responsibility ihervfore can bo fixed on a definite individual, the
registered owner. Instances are numerous wheiv vehicles running
on public highways caused accidents or injuries to pedestrians or
other vehicles without positive identification or the owner or
drivers, or with very scant means of identification. It is to forestall
these circumstances, so inconvenient or prejudicial to the public,
that the motor vehicle registration is primarily ordained, in the
interest of the determination of persons responsible for damages
or injuries caused on public highways.
One of the principal purposes of motor vehicle legislation is
identification of the vehicle and of the operator, in case of accident,
and another is that the knowledge that means of detection are
always available may act as a deterrent from lax observance of the
law and of the rules of conservative and safe operation. Whatever
purpose there may be in these statutes, it is subordinate at the last
to the primary purpose of rendering it certain that the violator of
the law or of the rules of safety shall not escape because of lack of
means to discover him. The purpose of the statute is thwarted, and
the displayed number becomes a “share and delusion,” if courts
would entertain such defenses as that put forward by appellee in
this case. No responsible person or corporation could be held liable
for the most outrageous acts of negligence, if they should be
allowed to pace a “middleman” between them and the public, and
escape liability by the manner in which they recompense servants.
(King v. Brenham Automobile Co., Inc., 145
 S.W. 278, 279)
The main purpose of vehicle registration is the easy
identification of the owner who can be held responsible for any
accident, damage, or injury caused by the vehicle. Easy
identification prevents inconvenience and prejudice to a third party
injured by one who is unknown or unidentified. To allow a
registered owner to escape liability by claiming that the driver was
not authorized by the new (actual) owner results in the public
detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle
during the accident was authorized is not at all relevant to
determining the liability of the registered owner. This must be so if
we are to comply with the rationale and principle behind the
registration requirement under the motor vehicle law.

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There is no categorical statutory pronouncement in the Land Transportation and

Traffic Code stipulating the liability of the registered owner. The source of
registered owner’s liability is not a distinct statutory provision, but remains to be
Articles 2176 and 2180 of the Civil Code.

Greenstar Express, Inc. and Fruto L. Sayson Jr.

v. Universal Robina Corporation and Nissin Universal Robina Corporation
G.R. No. 205090, October 17,2016
 FACTS: Petitioner Greenstar Express, Inc. is a domestic
corporation engaged in the business of public transportation, while
petitioner Fruto L.

Sayson, Jr. is one of its bus drivers. Respondents Universal Robina

Corporation (URC) and Nissin Universal Robina Corporation (NURC)
are domestic corporations engaged in the food business. NURC is a
subsidiary of URC. URC is the registered owner of a Mitsubishi L-300
van with Plate No. WRN-403 (URC van). At about 6:50 a.m. on
February 25, 2003, which was then a declared national holiday,
petitioner’s bus, which was then being driven toward the direction
of Manila by Sayson, collided head-on with the URC van, a company
vehicle, which was then driven to Quezon province bound by NURC’s
Operations Manager, Renante Bicomong, whose purpose in going to
Quezon was to visit his family and give money to his daughter.
According to the bus driver’s account, at a distance of more or less
five meters away from his bus, he noticed that the L-300 UV was
running at full speed as he saw dust clouds, and was already near his
bus when it managed to return to its proper lane coming from the
shoulder. It was heading directly towards his direction. The point of
impact happened on his lane. The incident occurred along Km. 76,
Maharlika Highway, Brgy. San Agustin, Alaminos, Laguna. Bicomong
died on the spot, while the colliding vehicles sustained considerable
damage. For fear of reprisals from bystanders, Sayson fled the scene.
In September 2003, petitioners filed a Complaint against NURC
to recover damages sustained during the collision, premised on
negligence. The Regional Trial Court (RTC) ruled that the plaintiff has
no cause of action and cannot recover from the defendants even
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assuming that the direct and proximate cause of the accident was
the negligence of the defendant’s employee Renato Bicomong.
Under Article 2180, “employers shall be held liable for the damages caused by
their employees and household helpers acting within the scope of their assigned tasks,
In other
even though the former are not engaged in any business or industry. ”
words, for the employer to be liable for the damages caused by his
employee, the latter must have caused the damage in the course of
doing his assigned tasks or in the performance of his duties. The
Court of Appeals (CA) affirmed the decision of the lower court.
ISSUE: (1) Whether ornot URC is liable as the registered owner of
the vehicle; and (2) Whether or not the bus, which is a common carrier,
observed extraordinary diligence at the time of the collision.
HELD: In Caravan Travel and Tours International, Inc. v. Abejar, the Court
made the following relevant pronouncements: “The resolution of
this case must consider two rules: First, Article 2180’s specification
that employers shall be liable for the damages caused by their
employees x x x acting within the scope of their assigned task; Second,
the operation of the registered-owner rule that the registered
owners are liable for the death or injuries caused by the operation of
their vehicles.
These rules appear to be in conflict when it comes to cases in
which the employer is also the registered owner of a vehicle. Article
2180 requires proof of two things: first, an employment relationship
between the driver and the owner; and second, that the driver acted
within the scope of his or her assigned tasks. On the other hand,
 applying the registered-owner rule only requires the plaintiff to
prove that the defendant-employer is the registered owner of the
vehicle. Aguilar, Sr. v. Commercial Savings Bank recognized the seeming
conflict between Article 2180 and the registered-owner rule and
applied the latter. Preference for the registered-owner rule became
more pronounced in Del Carmen, Jr. v. Bacoy; Filcar Transport Services v.
Espinas stated that the registered owner of the vehicle can no longer
use the defenses found in Article 2180. Mendoza v. Souses Gomez
reiterated this doctrine.
However, Aguilar, Sr, Del Carmen, Filcar, and Mendoza should not be
taken to mean that Article 2180 of the Civil Code should be

403
TRANSPORTATION LAWS

completely discarded in cases where the registered-owner rule finds

application. As acknowledged in Filcar, there is no categorical statutory
pronouncement in the Land Transportation and Traffic Code
stipulating the liability of a registered owner. The source of a
registered owner’s liability is not a distinct statutory provision, but
remains to be Articles 2176 and 2180 of the Civil Code. While Republic
Act No. 4136 of the Land Transportation and Traffic Code does not
contain any provision on the liability of registered owners in case of
motor vehicle mishaps, Article 2176, in relation with Article 2180 of
the Civil Code, imposes an obligation upon Filcar, as registered owner,
to answer for the damages caused to Espinas’ car. Thus, it is
imperative to apply the registered- owner rule in a manner that
harmonizes it with Articles 2176 and 2180 of the Civil Code. Rules
must be construed in a manner that will harmonize them with other
rules so as to form a uniform and consistent system of jurisprudence.
In light of this, the words used in Del Carmen are particularly notable.
There, this Court stated that Article 2180

“should defer to” the registered-owner rule. It never stated that

Article 2180 should be totally abandoned. Therefore, the appropriate
approach is that in cases where both the registered-owner rule and
Article 2180 apply, the plaintiff must first establish that the employer
is the registered owner of the vehicle in question. Once the plaintiff
successfully proves ownership, there arises a disputable presumption
that the requirements of Article 2180 have been proven. As a
consequence, the burden of proof shifts to the defendant to show that
no liability under Article 2180 has arisen.
In the present case, it has been established that on the day of
the collision, or on February 25,2003, URC was the registered owner
of the URC van, although it appears that it was designated for use by
NURC, as it was officially assigned to the latter’s Logistics Manager,
Florante Soro-Soro (Soro-Soro); that Bicomong was the Operation
Manager of NURC and assigned to the First Cavite Industrial Estate;
that there was no work as the day was declared a national holiday;
that Bicomong was on his way home to his family in Quezon
province; that the URC van was not assigned to Bicomong as well,
but solely for Soro-Soro’s official use; that the company service
vehicle officially assigned to Bicomong was a Toyota Corolla, which
he left at the Cavite plant, and

404
 CHAPTER VI PUBLIC SERVICE

instead, he used the URC van; and that other than the Cavite plant,
there is no other NURC plant in the provinces of Quezon, Laguna or
Bicol.
Applying the above pronouncement in the Caravan Travel and Tours
case, it must be said that when by evidence of ownership of the van
and Bicomong’s employment were proved, the presumption of
negligence on respondents’ part attached, as the registered owner
of the van, and as Bicomong’s employer. His burden of proof then
shifted to respondents to show that no liability under Article 2180
arose. This may be done by proof of any of the following: (1) that
they had no employment relationship with Bicomong; or (2) that
Bicomong acted outside the scope of his assigned tasks; or (3) that
they exercised the diligence of a good father of a family in the
selection and supervision of Bicomong.
Respondents succeeded in overcoming the presumption of
negligence, having shown that when the collision took place,
Bicomong was not in the performance of his work; that he was in
possession of a service vehicle that did not belong to his employer
NURC, but to URC, and which vehicle was not officially assigned to
him, but to another employee; that his use of the URC van was
unauthorized, even if he had used the same vehicle in furtherance of a
personal undertaking in the past, this does not amount to implied
permission; that the accident occurred on a holiday and while
Bicomong was on his way home to his family in Quezon province; and
that Bicomong had no official business whatsoever in his hometown in
Quezon, or in Laguna, where the collision occurred; his area of
operation being limited to the Cavite area. On the other hand, the
evidence suggests that the collision could have been avoided if Sayson
exercised care and prudence, given the circumstances and information
that he has immediately prior to the accident.
The law exacts from common carriers (i.e., those persons, corporations,
firms, or associations engaged in the business of carrying or transporting passengers or
goods, or both, by land, water, or air, for compensation, offering their services to the public)
the highest degree of diligence (i.e., extraordinary diligence) in ensuring the
safety of its passengers. In this relation, Article 1756 of the Civil Code
provides that in case of death of or injuries to passengers, common
carriers are

405
TRANSPORTATION LAWS

presumed to have been at fault or to have acted

negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733
and 1755.
However, Sayson took no defense maneuver
whatsoever in spite of the fact that he saw Bicomong
drive his van in a precarious manner, as far as 250
meters away, or at a point in time and space where
Sayson had all the opportunity to prepare and avert a
possible collision. The collision was certainly foreseen
and avoidable but Sayson took no measures to avoid it.
Rather than exhibit concern for the welfare of his
passengers and the driver of the oncoming vehicle, who
might have fallen asleep or suddenly fallen ill at the
wheel, Sayson coldly and uncaringly stood his ground,
closed his eyes, and left everything to fate without due
regard for the consequences. Such a suicidal mindset
cannot be tolerated, for the grave danger it poses to
the public and passengers availing of petitioners’
services. To add insult to injury, Sayson hastily fled the
scene of the collision instead of rendering assistance to
the victims, thus exhibiting a selfish, cold-blooded
attitude, and utter lack of concern motivated by the
self-centered desire to escape liability, inconvenience,
and possible detention by the authorities, rather than
secure the wellbeing of the victims of his own negligent
act. An experienced driver, who is presented with the
same facts, would have adopted an attitude consistent
with a desire to preserve life and property; for common
carriers, the diligence demanded is of the highest
degree.
The doctrine of last clear chance provides that
where both parties are negligent but the negligent act
of one is appreciably later in point of time than that of
the other, or where it is impossible to determine whose
fault or negligence brought about the occurrence of the
incident, the one who had the last clear opportunity to
avoid the impending harm but failed to do so, is
chargeable with the consequences arising therefrom.
Stated differently, the rule is that the antecedent
negligence of a person does not preclude recovery of
 damages caused by the supervening negligence of the
latter, who had the last fair chance to prevent the
impending harm by the exercise of due diligence.
Boundary System, defined. — “Boundary System," is an
arrangement in which the drivers (and their
conductors) of jeepneys or busses, for the use
thereof, within a specified number of hours, with the

■St. 406
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gasoline burned for their account, give to the owner-operator a fixed

amount of the daily earnings derived from their operation, their day’s
earnings being the excess over the amount paid for the gasoline and
use of the vehicles. (See National Labor

Union v. Dinglasan, L-7945, March 23, 1956; Doce v. Workmens Compensation

Commission, L-91417, December 22, 1958)

It is a system whereby: a franchise operator of jeepneys rents out his

jeepney to a driver, at say P30.00 a day. The owner (operator) expects
to collect from the driver his P30.00 at the end of the day. Any earning
over and above the P30.00 (the boundary) goes to the driver. So the
bigger the earnings over and above the boundary, as in this example,
the better for the driver.
This is the reason why drivers, under this boundary
agreement, are apt to drive faster and always on the go, for the
more trips they make in a day, the bigger their earnings. This rush
maneuver or operation, however, almost always results in accidents
unfortunately. (Moreno, Philippine Law Dictionary, p. 112, 3rd Ed., citing Gubot
v. Bulaon, 59473-R, October 1, 1982)
The jeepney owner/operator-driver relationship under the
boundary system is that of employer-employee and not lessor-
lessee. (National Labor Union v. Dinglasan, 98 Phil. 649) This doctrine was
affirmed under similar factual settings, in Magboo v. Bernardo (7 SCRA
952) and Lantaco, Sr. v. Llamas (108 SCRA 502), and was analogously applied
to govern the relationships between auto-calesa owner/operator and
driver, bus owner/operator and conductor, and taxi
owner/operator and driver.
The boundaiy system is a scheme by an owner/operator
engaged in transporting passengers as a common carrier to
primarily govern the compensation of the driver, that is, the
latter’s daily earnings are remitted to the owner/operator less the
excess of the boundaiy which represents the driver’s
compensation. Under this system, the owner/ operator exercises
control and supervision over the driver. It is unlike in lease of
chattels where the lessor loses complete control over the chattel
leased but the lessee is still ultimately responsible for the
consequences of its use. The management of the business is still in
the hands of

407
TRANSPORTATION LAWS
the owner/operator, who, being the holder of the certificate of public
convenience, must see to it that the driver follows the route
prescribed by the franchising and regulatory authority, and the rules
promulgated with regard to the business operations. The fact that the
driver does not receive fixed wages but only the excess of the
“boundary” given to the owner/operator is not sufficient to change
the relationship between them. Indubitably, the driver performs
activities, which are usually necessary or desirable in the usual
business or trade of the owner/operator. (Oscar Villamaria, Jr. v. Court of
Appeals and Jerry

Bustamante, G.R. No. 165881, April 19, 2006)

To exempt from liability the owner of a public vehicle who
operates it under the “boundary system” on the ground that he is a
mere lessor would be not only to abet flagrant violations of the Public
Service Law, but also to place the riding public at the mercy of reckless
and irresponsible drivers—reckless because the measure of their
earnings depends largely upon the number of trips they make and,
hence, the speed at which they drive; and irresponsible because most
if not all of them are in no position to pay the damages they might
cause. (Erezo v. Jepte, 102 Phil. 103 [1957]; Hernandez v. Dolor, 435 SCRA 668, July
30, 2004)
 408
CHAPTER VII

VESSELS

ADMIRALTY AND MARITIME JURISDICTION OF A COURT

Maritime transaction may be invoked before our courts in an
action in rem or quasi in rem or an action in personam as provided in Articles
579, 580, and 584 of the Code of Commerce.
Under B.P. Big. 129, as amended by R.A. No. 7691, the Regional Trial

Court exercise exclusive original jurisdiction “in all actions in

admiralty and maritime where the demand or claim exceeds two
hundred thousand pesos (P200,000.00) or in Metro Manila, where
such demand or claim exceeds four hundred thousand pesos
(P400,000.00).” Two tests have been used to determine whether a
case involving a contract comes within the admiralty and maritime
jurisdiction of a court - the locational test and the subject matter test. The
English rule follows the locational test wherein maritime and
admiralty jurisdiction, with a few exceptions, is exercised only on
contracts made upon the sea and to be executed thereon. This is
totally rejected under the American rule where the criterion in
determining whether a contract is maritime depends on the nature
and subject matter of the contract, having reference to maritime
service and transaction. In International Harvester Company of the Philippines v.
Aragon (G.R. No. L-2372, August 26, 1949), the Court adopted the
American rule and held that “whether or not a contract is maritime
depends not on the place where the contract is made and is to be
executed, making the locality the test, but on the subject matter of
 the contract, making the true criterion a maritime service or a
maritime transaction.
In the Philippines, the Court have a complete legislation, both
substantive and adjective, under which to bring an action in rem
against a vessel for the purpose of enforcing liens. The substantive
law is found in Article 580 of the Code of Commerce. The
procedural law is to be

409
TRANSPORTATION LAWS

found in Article 584 of the same Code. The result is, therefore, that in
the Philippines any vessels — even though it be a foreign vessel —
found in any port of this Archipelago may be attached and sold under
the substantive law which defines the right, and the procedural law
contained in the Code of Commerce by which this right is to be
enforced. But where neither the law nor the contract between the
parties creates any lien or charge upon the vessel, the only way in
which it can be seized before judgment is by pursuing the remedy
relating to attachment under Rule 57 of the Rules of Court. (Crescent
Petroleum, Ltd. v. M/V Lok Maheshwari, G.R. No. 155014, November 11, 2005)

ART. 573. Merchant vessels constitute property, which may be 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 regard to third
persons if not recorded in the registry of vessels.
The ownership of a vessel shall also be acquired by possession thereof in good
faith for three years, with a good title duly recorded.
 In the absence of any of these requisites, continuous possession for ten years shall
be necessary in order to acquire ownership.
Note: The “prescription adquisitiva ”has been amended by Art. 1132 of the Civil
Code — good faith is 4 yrs. and bad faith is 8 yrs.
A captain cannot acquire by prescription of the ship of which he is in command.
ART. 574. The builders of vessels may employ the materials and, with regard to
the construction and rigging, may follow the systems most appropriate to their interest.
Ship agents and seamen shall be subject to the provisions of the laws and regulations of
the government on navigation, customs, health, safety of the vessels, and other similar
provisions.
ART. 575. Part owners of the vessels shall enjoy the right of pre-emption and
redemption in sales made to strangers; but they can only exercise it within the nine
days following the registration of the sale in the registry and by delivering the price
at once.

410

CHAPTER Vll
VESSELS

ART. 576. The rigging, tackle, stores, and engine of a vessel, if it is a steamer, shall
always be understood as included in the sale thereof if, at the time of sale, they are
owned by 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 certificate
of the record of the vessel in the registry up to the date of the sale.
ART. 577. If the sale of the vessel should take place while she is on a voyage, all
the freightage she earns from the time she received her last cargo shall belong to the
buyer, and the latter shall pay the crew and other persons who go to make up her
complement for the said voyage.
If the sale should take place after the arrival of the vessel at the port of her
destination, the freightage shall belong to the seller and the latter shall pay the crew
and other persons who go to make up her complement, unless there is an agreement to
the contrary in either case.
 ART. 578. If, the vessel while on a voyage or in a foreign port, her owner or
owners should voluntarily sell her 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 Philippines of the port where she terminates her voyage; and said
instrument shall have no effect with regard to third persons if it is not registered in the
registry of the consulate. The consul shall immediately forward a true copy of the bill
of purchase of the vessel to the registry of vessels of the port where said vessel is
entered and registered.
In every case the sale of the vessel must be made to appear with a statement
whether the seller receives the full price or part thereof, or whether he retains any
interest in said vessel in full or in part. In case the sale is made to a Filipino, this fact
shall be stated in the certificate of navigation.
TRANSPORTATION LAWS

When a vessel, while on a voyage, should become useless for navigation, the
captain shall report the matter to the judge or court of competent jurisdiction of the
port of arrival, should she be in the Philippines; and should she be in foreign port, to
the Filipino consul should there be one; or to the judge, or court, or local authority in
the absence of the former; and the consul, or judge, or court, or, in their absence, the
local authority, 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 to take part in the proceedings for
the account of whom it may concern.
ART. 579. After the damage of the vessel and the impossibility of her being
repaired, in order to continue the voyage, having been proven, her sale at public
auction shall be ordered, subject to the following rules:
1. The hull of the vessel, her rigging, engines, stores, and other articles shall be
appraised by means of an inventory, said proceedings being brought to the notice of
the persons who may wish to take part in the auction.
2. The order or decree ordering the public auction shall be posted in the usual
places, and shall be advertised in the newspapers of the port where the auction is to
be held, should there be any, and in other newspapers which the court may
determine.
The period, which may be fixed, for the auction shall not be less than twenty
days.
 3. These advertisements shall be repeated every ten days, and their publication
shall be recorded in the proceedings.
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 when the vessel is in a foreign country, the
special provisions governing such cases shaU be observed.

412

C H A n W VI I
VhSSbl.S

ART. 580. In all judicial sales of vessels for the payment of creditors, the
following shall he preferred in the order named:
1. The credits in favor of the public treasury’ proven by means of an official
certificate of the competent authority.
2. The judicial costs of the proceedings, according to an appraisement approved
by the judge or court.
3. The pilotage charge, tonnage dues, and the other sea or port charges, proven
by means of proper certificates of the officers intrusted with the collection.
4. The salaries of the caretakers and watchmen of the vessel and any other
expenses connected with the preservation of said vessel, from the time of arrival in the
port until her sale, which appear to have been paid or to be due by virtue of a true
account approved by the judge or court.
5. The rent of the warehouse where the rigging and stores of the vessel have
been taken cared of, according to contract.
6. The salaries due the captain and crew during their last voyage, which shall be
verified by means of the liquidation based on the rolls of the crew and the account
books of the vessel, approved by the chief of the 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 transported which the captain may have
sold in order to repair the vessel, provided the sale has been ordered by a judicial
instrument executed with the formalities required in such cases, and recorded in the
certificate of the registry of the vessel.
8. The part of the price which has not been paid to the last seller, the credits
pending for the payment of materials and work in the construction of the vessel when
she has not navigated, and those arising from the repair and equipment of the vessel
and her provisioning with victuals and fuel during her last voyage.
In order that said credits may enjoy the preference provided for in this
subdivision, they must appear by means of contracts

413
 TRANSPORTATION LAWS

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 of her registry, they must
be made under the authority required for such cases and entered in the certificate
of the record of the vessel.
9. The amounts borrowed on bottomry loans before the departure of the
vessel, proven by means of the contracts executed according to law and recorded
in the registry of vessels, the amounts borrowed during the voyage with the
authority mentioned in the foregoing subdivision, complying with the same
requisites, and the insurance premium, proven by the policy of the contract or
certificate taken from the books of the broker.
10. The indemnity due to the shippers for the value of the goods transported
which were not delivered to the consignee, or for averages suffered for which the
vessel is liable, provided either shall appear in a judicial or arbitration decision.
Note: Expressly repealed by R.A. 6106 effective August 4, 1969.
ART. 581. If the proceeds of the sale are not sufficient to pay all the
creditors included in one number or grade, the amount shall be divided among
them pro rata.
ART. 582. After the bill of the judicial sale at public auction has been
executed and recorded in the registry of vessels, all the other liabilities of the
vessel in favor of the creditors shall be considered cancelled.
But if the sale should have been voluntary, and made while the vessel was
on a voyage, the creditors shall retain their rights against the vessel until her
return to the port of her registry, and three months after the record of sale in the
registry of vessels, or after her arrival.
ART. 583. If the ship being on a voyage the captain should find it necessary
to contract one or more of the obligations mentioned in sub-divisions 8 and 9 of
Article 580, he shall apply to the judge or court if he is in Philippines territory, and
otherwise to the Filipino
 414
CHAPTER YU VESSEL S

consul, should there be one and in his absence, to the judge or court or to the
proper local authority, presenting the certificate of the registry of the vessel
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 in the certificate of their result, in order that it may be recorded in
the registry when the vessel returns to the port of her registry, or so that it can be
admitted as a legal and preferred obligation in case of sale before the return, by
reason of the sale of the vessel by virtue of a declaration of unseaworthiness.
The omission of this formality shall make the captain personally liable for
the credits, which may be prejudiced through his fault.
ART. 584. The vessels subject to the 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 cannot
take place except for debts contracted by reason of the preparation and
provisioning of the vessel for the voyage, and even then the attachment shall be
dissolved if any person interested in her sailing should give bond for the return of
the vessel within the period fixed in the certificate of navigation, binding himself
to pay the debt, in so far as it may be legal, should the vessel fail to do so, even if
this failure may have been caused by fortuitous events.
For debts of any other kind whatsoever not included in the said Article 580,
the vessel may only be attached in the port of her registry.
Note: Expressly repealed by R.A. 6106, effective August 4, 1969.
ART. 585. For all purposes of law not modified or restricted by the
provisions of the Code, vessels shall continue to be considered personal property.

415
 TRANSPORTATION LAWS

The Code of Commerce classified vessels as personal

property. (Art. 585) Merchant vessels are considered as
property and as such can be acquired by any of the modes
of acquiring ownership. The acquisition of vessel, however,
to be binding against third persons, must be in writing and
recorded in the registry of vessels. (Art. 573) Thus, sale of
vessel must be in writing and recorded in the registry of
vessels to bind third persons. The Code of Commerce
likewise provides what is deemed included and excluded in
case of sale of vessels. (Art. 576) Sale of vessel may likewise
be consummated while on voyage or after arrival at the port
of destination. The only difference is to whom shall the
earned freightage accrue and who shall pay the crew and
other persons who goes to make up the complement of the
voyage. (Art. 557) Sale of vessel may likewise be executed in
foreign port. (Art. 578) In judicial sales, preferred creditors are
likewise named. (Art. 580)
When the mercantile code speak of vessels, they refer
solely and exclusively to merchant ships, as they do not
include war ships, and furthermore, they almost always
refer to craft which are not accessory to another as in the
case of launches, lifeboats, etc. Moreover, the mercantile
laws, in making use of the words ship, vessel, boat
embarkation, etc., refer exclusively to those which are
engaged in the transportation of passengers, and freight
from one port to another or from one place to another; in a
word, they refer to merchant vessels and in no way can they
or should they be understood as referring to pleasure craft,
yachts, pontoons, health service and harbor police vessels,
floating storehouses, warships or patrol vessels, coast guard
vessels, fishing vessels, towboats, and other craft destined
to other uses, such as for instance coast and geodetic
survey, those engaged in scientific research and exploration,
craft engaged in the loading and discharge of vessels from
same to shore or docks, or in transshipment, and those
small craft which in harbors, along shore, bays, inlets, coves
and anchorages are engaged in transporting passengers and
baggage. (Eastern, Der. Men, Vol. IV, p. 195 cited in Lopez v.
Duruelo, 52 Phil. 299)
The importance of the distinction lies on the
Note:
applicable law that will apply on the rights and obligations
of the parties involved. If it is a merchant vessel, then the
Code of Commerce will apply. If ordinary vessel, the Civil
Code will apply.

416
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VESSELS

The basic operative fact for the institution and perfection of proceedings
in rem is the actual or constructive possession of the res by the tribunal
empowered by law to conduct the proceedings. This means that to acquire
jurisdiction over the vessel, as a defendant, the trial court must have
obtained either actual or constructive possession over it.

Commissioner of Customs v. The Court of Appeals,

Hon. Arsenio M. Gonong, Presiding Judge, Regional Trial Court,
Branch 8; Hon. Mauro T. Allarde, Presiding Judge,
 Regional Trial Court,
Kalookan City, Branch 123; Amado Sevilla and Antonio Velasco,
Special Sheriffs of Manila of Manila; Jovenal Salayon,
Special Sheriff of
Kalookan City, Dionisio J. Camangon,
Ex-Deputy Sheriff of Manila;
and Cesar S. Urbino, Sr., doing business under the name and style
“Duraproof Services”
G.R. Nos. 111202-05, January 31, 2006

FACTS: On January 7, 1989, the vessel M/V “Star Ace,”

coming from Singapore laden with cargo, entered the Port
of San Fernando, La Union (SFLU) for needed repairs. The
vessel and the cargo had an appraised value, at that time, of
more or less P200,000,000. When the Bureau of Customs
later became suspicious that the vessel’s real purpose in
docking was to smuggle its cargo into the country, seizure
proceedings were instituted under S.I. Nos. 02-89 and 03-89
and, subsequently, two Warrants of Seizure and Detention
were issued for the vessel and its cargo.
Respondent Cesar S. Urbino, Sr. does not own the
vessel or any of its cargo but claimed a preferred maritime
lien under a Salvage Agreement dated June 8, 1989. To
protect its claim, Urbino initially filed two motions in the
seizure and detention cases: a Motion to Dismiss and a
Motion to Lift Warrant of Seizure and Detention. Urbino,
likewise, sought relief with the regular courts by filing a case
for Prohibition, Mandamus, and Damages before the Regional
Trial Court (RTC) of SFLU on July 26, 1989, seeking to
restrain the District
 417

TRANSPORTATION LAWS

Collector of Customs from interfering with his salvage

operation. The case was docketed as Civil Case No. 89-4267.
On January 31, 1991, the RTC of SFLU dismissed the case for
lack of jurisdiction because of the pending seizure and
detention cases. Urbino then elevated the matter to the
Court of Appeals (CA) where it was docketed as CA- G.R. CV
No. 32746. The Commissioner of Customs, in response, filed
a Motion to Suspend

Proceedings, advising the CA that it intends to question the

jurisdiction of the

CA before this Court. On January 9, 1990, Urbino filed

another case for Certiorari and Mandamus with the RTC of
Manila, presided by Judge Arsenio M. Gonong, this time to
enforce his maritime lien. Impleaded as one among several
defendants is the Commissioner of Customs. This case was
docketed as Civil Case No. 89-51451. The Office of the
Solicitor General filed a Motion to Dismiss on the ground
that a similar case was pending with the RTC of SFLU. The
Motion to Dismiss was granted on July 2, 1990, but only
insofar as the Commissioner of Customs and the District
Collector was concerned. The RTC of Manila proceeded to
hear the case against the other parties and received
evidence ex -parte. The RTC of Manila later rendered a
decision on February 18, 1991, finding in favor of Urbino.
 Thereafter, on March 13, 1991, a writ of execution was
issued by the RTC of Manila. Respondent Camangon was
appointed as Special Sheriff to execute the decision and he
issued a notice of levy and sale against the vessel and its
cargo. The Commissioner of Customs, upon learning of the
notice of levy and sale, filed with the RTC of Manila a
motion to recall the writ, but before it could be acted upon,
Camangon had auctioned off the vessel and the cargo to
Urbino for PI20,000,000. The following day, Judge Gonong
issued an order commanding Sheriff Camangon to cease
and desist from implementing the writ. Despite the order,
Camangon issued a Certificate of Sale of Urbino. A week
later, Judge Gonong issued another order recalling the writ
of execution. Both cease and desist and recall orders of
Judge Gonong were elevated by Urbino to the CA on April
12, 1991 where it was docketed as CA- G.R. SP No. 24669.
On April 26, 1991, the CA issued a Temporary Restraining
Order (TRO) enjoining the RTC of Manila from enforcing its
cease and desist and recall orders. The TRO was eventually
substituted by a writ of preliminary injunction. A motion to
lift the injunction was filed by the Commissioner of Customs
but it was denied.

418
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VESSELS

On June 26, 1992, the Executive Judge for the RTC of

Manila, Judge Bernardo P. Pardo, having been informed of
the circumstances of the sale, issued an order nullifying the
report and all proceedings taken in connection therewith.
With this order, Urbino filed his fourth case with the CA on
July 15, 1992, a Petition for Certiorari, Prohibition, and
Mandamus against Judge Pardo. This became CA-G.R. SP No.
28387. The CA issued a Resolution on August 6, 1992,
granting the TRO against the Executive Judge to enjoin the
implementation of his June 26, 1992 Order. Going back to
the seizure and detention proceedings, the decision of the
District Collector of Customs was to forfeit the vessel and
cargo in favor of the Government. The decision was
affirmed by the Commissioner of Customs. Three appeals
were then filed with the Court of Tax Appeals (CTA) by
different parties, excluding Urbino, who claimed an interest
in the vessel and cargo. These three cases were docketed as
CTA Case No. 4492, CTA Case No. 4494 and CTA Case No.
4500. Urbino filed his own case, CTA Case No. 4497, but it
was dismissed for want of capacity to sue. He, however, was
allowed to intervene in CTA Case No. 4500. On October 5,
1992, the CTA issued an order authorizing the
Commissioner of Customs to assign customs police and
guards around the vessel and to conduct an inventory of the
cargo. In response, on November 3, 1992, Urbino filed a
fifth Petition for Certiorari and Prohibition with the CA to
assail the order, as well as the jurisdiction of the Presiding
Judge and Associate Judges of the CTA in the three cases.
That case was docketed as CA G.R. SP No. 29317. On
November 10, 1992, the CA issued a Resolution reminding
the parties that the vessel is under the control of the
appellate court.
ISSUE: Whether or not the RTC acquired jurisdiction over
the vessel.
HELD: The Court rules in favor of the Commissioner of
Customs. First of all, the Court finds the decision of the RTC
of Manila, insofar as it relates to the vessel M/V “Star Ace,”
to be void as jurisdiction was never acquired over the
vessel.
In filing the case, Urbino had impleaded the vessel as a
defendant to enforce his alleged maritime lien. This meant
that he brought an action in rem under the Code of
Commerce under which the perfection of proceedings in rem
is the actual or constructive possession of the

419
TRANSPORTATION LAWS

res by the tribunal empowered by law to conduct the

proceedings. This means that to acquire jurisdiction over
the vessel, as a defendant, the trial court must have
obtained either actual or constructive possession over it.
Neither was accomplished by the RTC of Manila. In his
comment to the petition, Urbino plainly stated that
“petitioner has actual physical custody not only of the
goods and/or cargo but the subject vessel, M/V Star Ace, as
well.” This is clearly an admission that the RTC of Manila did
not have jurisdiction over the res. While Urbino contends
that the Commissioner of Custom’s custody was illegal, such
fact, even if true, does not deprive the Commissioner of
Customs of jurisdiction thereon. This is a question that
ought to be resolved in the seizure and forfeiture cases,
which are now pending with the CTA, and not by the regular
courts as a collateral matter to enforce his lien. By simply
filing a case in rem against the vessel, despite its being in the
custody of customs officials, Urbino has circumvented the
rule that regular trial courts are devoid of any competence
to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted in the Bureau of Customs,
on his mere assertion that the administrative proceedings
were a nullity.
On the other hand, the Bureau of Customs had
acquired jurisdiction over the res ahead and to the exclusion
of the RTC of Manila. The forfeiture proceedings conducted
by the Bureau of Customs are in the nature of proceedings
in rem and jurisdiction was obtained from the moment the
vessel entered the SFLU port. Moreover, there is no
question that forfeiture proceedings were instituted and
the vessel was seized even before the filing of the RTC of
Manila case. The Court is aware that Urbino seeks to
enforce a maritime lien and because of its nature, it is
equivalent to an attachment from the time of its existence.
Nevertheless, despite his lien’s constructive attachment,
Urbino still cannot claim an advantage as his lien only
came about after the warrant of seizure and
detention was issued and implemented. The Salvage
Agreement, upon which Urbino based his lien, was
entered into on June 8,1989. The warrants of seizure
and detention, on the other hand, were issued on
January 19 and 20,1989. And to remove further
doubts that the forfeiture case takes precedence
over the RTC of Manila case, it should be noted that
forfeiture retroacts to the date of the commission of the
offense, in this case, the day the vessel entered the country.
A maritime lien, in contrast, relates back to the period when
it first attached in this

420
CHAPTER VII VESSELS

case the earliest retroactive date can only be the date of

the Salvage Agreement. Thus, when the vessel and its cargo
are ordered forfeited, the effect will retroact to the
moment the vessel entered the Philippine waters.
Accordingly, the RTC of Manila’s decision never
attained finality

as to the defendant vessel, inasmuch as no jurisdiction was

acquired over
it, and the decision cannot be binding, and the writ of
execution issued in
connection therewith is null and void. Moreover,
even assuming that execution can be made against
the vessel and its cargo, as goods and chattels to
satisfy the liabilities of the other defendants who
have an interest therein, the RTC of Manila may not
execute its decision against them while, as found by
this Court, these are under the proper and lawful
custody of the Bureau of Customs. This is especially
true when, in case of finality of the order of
forfeiture, the execution cannot anymore cover the
vessel and cargo, as ownership of the Government
will retroact to the date of entry of the vessel into
Philippine waters.
PRESIDENTIAL DECREE NO. 474
PROVIDING FOR THE REORGANIZATION OF MARITIME
FUNCTIONS IN THE PHILIPPINES, CREATING THE
MARITIME INDUSTRY AUTHORITY, AND FOR OTHER
PURPOSES.

WHEREAS, the efficient sea transport of raw materials,

products, commodities and people is vital to the growth of
the Philippine economy;
WHEREAS, the functions pertaining to the
development and regulation of shipping enterprises
are fragmented among various government
agencies, resulting in inadequate and inefficient
shipping facilities, dependence on external shipping
interests, maldistribution of commodities, and
piece-meal solutions;
WHEREAS, there is imperative need to
modernize and expand the Philippine merchant
fleet, and to rationalize and improve their
operations in order to make them effective
instalments in promoting domestic production,
inter-island and overseas trade, price
stabilization, and employment generation;

42 J

TRANSPORTATION LAWS
*
WHEREAS, it is urgently necessary to provide a strong
organizational framework to effect the accelerated and
integrated development and effective regulation of shipping
enterprises;
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the

Philippines, by virtue of the powers vested in me by the

Constitution, in order to effect the desired changes and
reforms in the social, economic and political structure of
our society, do hereby decree and order that the
following be adopted and made part of the laws of the
land:
Section 1. Title. — This Decree shall be known as the
“Maritime Industry Decree of 1974. ”

Section 2. Declaration of Policies and Objectives. — It is hereby

declared the policy of the State to accelerate the integrated
development of the maritime industry of the Philippines to
attain the following objectives: (a) To increase production
and productivity in the various islands and regions of the
archipelago through the provision of effective sea linkage;
(b) To provide for the economical, safe, adequate and
efficient shipment of raw materials, products, commodities
and people; (c) To enhance the competitive position of
Philippine flag vessels in the carriage of foreign trade; (d) To
strengthen the balance of payments position minimizing the
outflow of foreign exchange and increasing dollar earnings;
and (e) To generate new and more job opportunities.
For the attainment of these objectives, the
Government through the Maritime Industry Authority
hereinafter created, shall:
(a) Adopt and implement a practicable and
coordinated Maritime Industry Development Program
which shall include, among others, the early
replacement of obsolescent and uneconomic vessels;
modernization and expansion of the Philippine
merchant fleet; enhancement of domestic capability
for shipbuilding, repair and maintenance; and
development of reservoir of trained manpower;
(b) Provide and help provide the necessary: (i)
financial assistance to the industry through public and
private financing institutions and instrumentalities; (ii)
technological assistance;
 422
CHAPTER Ml VESSELS

and (iii) in general, a favorable climate for expansion of

domestic and foreign investments in shipping
enterprises: and
Provide for the effective supervision,
(c)
regulation and rationalization of the organizational
management, ownership and operations of all water
transport utilities, and other maritime enterprises.
Section 3. Definition of Terms. — The terms, as used, in this
Decree shall have the following meaning, unless the context
of the particular usage of the term indicates otherwise:
a. “Maritime Industry, ” briefly referred to as
“industry” in the broadest concept of the term. —All
enterprises engaged in the business of designing,
constructing, manufacturing, acquiring, operating,
supplying, repairing, and/or maintaining vessels, or
component parts thereof; of managing and/or
operating shipping lines, stevedoring arrastre and
customs brokerage services, shipyards, drydocks,
marine railways, marine repair shops, shipping and
freight forwarding agencies and similar enterprises.
b. “Vessels ” or “Watercraft. ” — Any barge,
lighter, bulk
carrier, passenger ship freighter, tanker, container ship,
fishing boats or other artificial contrivance utilizing any
source of motive power, designed, used or capable of
being used as a means of water transportation operating
either as common contract carrier, including fishing
vessels covered under Presidential Decree No.
43, except (i) 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.
c. “Philippine National. ” — A citizen of the
Philippines;
or a partnership or association wholly owned by and
composed of citizens of the Philippines; or a
corporation organized under the laws of the
Philippines of which at least sixty percent of the
capital stock outstanding and entitled to vote is
owned and held by Philippine citizens; or a trustee of
funds for pensions or other employee retirement or
separation benefits, where the trustee is a Philippine
national and at least sixty percent of the funds

423
TRANSPORTATION LAWS

will accrue to the benefit of the Philippine nationals;

Provided, That where a corporation and its non-Filipino
stockholders own stock in an enterprise, at least sixty
percent of the members of the governing board of both
corporations must be Philippine nationals.
 d. ” — A vessel or watercraft
“Philippine flag vessel.
registered under Philippine laws.
e. ” — A vessel or watercraft registered
“Foreign flag vessel.
under the laws of a country other than the Philippines.
f. — Philippine nationals
“Philippine shipping companies. ”
registered and licensed under the laws of the
Philippines to engage in the business of overseas and/or
domestic water transportation.

A. MARITIME INDUSTRY AUTHORITY

Section 4. Maritime Industry Authority, Creation and Organization.
— There is hereby created a Maritime Industry Authority,
hereinafter referred to as the Authority, under the Office of
the President. It shall be composed of a governing board of
directors to be known as Maritime Industry Board and the
Management.
The Authority shall have general jurisdiction and
control over all persons, corporations, firms or entities in
the maritime industry of the Philippines and shall supervise,
regulate in accordance with this Decree.
The principal office of the Authority shall be in the
Greater Manila Area. Regional or branch offices may be
established at such other place or places within the
Philippines as may be deemed necessary by the Board.
Section 5. Maritime Industry Development Program. -— The
Authority shall prepare and annually update a Ten-Year
Maritime Industry Development Program, hereinafter
referred to as “Program” which shall contain a rational and
integrated development of the maritime industry. The
Authority shall submit the same for approval by the
President of the Philippines.

424
CHAPTER VII
VESSELS

Upon approval of the Program by the President, all

government departments, bureaus, agencies and
instrumentalities shall implement the same within their
respective jurisdictions. The Authority shall ensure that the
approved program is being effectively implemented by the
participating agencies. No government body or
instrumentality shall adopt any policy or take course of
action contrary to or inconsistent with the Program.

B. MARITIME INDUSTRY BOARD

Section 6. Powers and Functions of the Board. — The Maritime
Industry Board shall have the following powers, functions,
and duties, among others:
a. To provide comprehensive policy guidance
for the promotion and development of the maritime
industry as provided for in this Decree;
 b. To promulgate and prescribe such
promotional and development rules and regulations,
standards, guidelines and procedures and recommend
laws or measures as may be necessary for the growth
and effective regulation of shipping enterprises;
c. To formulate a comprehensive and
practicable Maritime Industry Development Program
for a ten-year period and review and update the same
annually;
d. To prescribe specific policies in the
determination of just and reasonable passenger fares,
freight rates and other charges relative to the operation
of inter-island vessels. Accordingly, the Board of
Transportation shall exercise its rate-fixing functions in
accordance with such policies;
e. To recommend to the President that the
State, through such agency or agencies as the President
may designate, purchase, lease, manage, operate or
requisition any vessel, ship or shipping enterprise, for
national security purposes, to meet emergency
situations or when the national interest so requires;
f. To approve contracts;

425
TRANSPORTATION LAWS
 g. To approve the organizational structure,
staffing pattern, and budget of the Authority upon the
recommendation of the
Administrator;
h. To appoint, discipline and remove, and
determine the composition of the Authority technical
staff and other personnel: Provided, That all regular
professional and technical personnel in the
Authority shall be permanent and career in status,
but exempt from WAPCO and Civil Service rules and
regulations: Provided, further, That the personnel shall be
entitled to the benefits normally accorded to
government employees, such as retirement, GSIS
insurance, leave and similar matters: Provided, finally,
That the Board or the Administrator may engage on
contractual basis or other arrangements for the
temporary services, and fix the compensation of
highly qualified professionals, expert technical
advisers or consulting firms;
i. To adopt a common seal for the Authority,
which shall be juridically noticed, determine the exact
location of its office and prescribe the rules and
regulations to govern its proceedings;
j. To recommend to the President, through
the National Economic and Development Authority, the
grant of necessary incentives for the development of
shipping and other related maritime enterprises; and
 k. To perform such acts as are proper and
necessary to
implement this Decree.
Section 7. Composition and Organization. — The Board shall
be composed of eight members as follows: The Secretary of
Trade; the Secretary of Public Works; Transportation and
Communications; the Secretary of National

Defense; the Executive Secretary; the Chairman of the

Board of Investments; the

Chairman of the Development Bank of the Philippines; the

Chairman of the Board of Transportation and the Maritime
Administrator. The Chairman of the Board shall be
appointed by the President of the Philippines from among
its members.
The officials next in rank to the regular members shall
serve as permanent alternate members, except that, in the
absence of the

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CHAPTER VII VESSELS

chairman, the Board shall elect a temporary presiding

officer. The alternate members shall attend meetings of
the Board and committees assigned to their principals and
receive the corresponding per diems whenever their
principal is absent or the said position is vacant.
 The Board shall meet regularly once a month and may
hold special meetings to consider urgent matters upon call
of the Chairman or any three members thereof. A
majority shall constitute a quorum for the transaction of
business.
Each member shall receive a monthly commutable
allowance of Five hundred pesos and per diem of One
hundred for every meeting of the Board or committee
thereof actually attended: Provided' That the total amount
ofper diems which each may receive shall not exceed Five
hundred pesos a month.

C. MANAGEMENT
Section 8. Management Head. — The management of the

Authority shall be vested in the Maritime Administrator

who shall be directly assisted by the Deputy
Administrator for Planning and a Deputy Administrator
for Operations, hereinafter referred to as “Deputy
Administrators. ”
Section 9. The Maritime Administrator and Deputy
Administrators. — The Maritime Administrator and Deputy
Administrators shall be appointed by the President for a
term of six years: Provided, That upon the expiration of
their respective terms, they shall continue to serve until
their successor shall have been appointed and qualified:
Provided, further, That no vacancy shall be filled except for
the unexpired portion of the term: Provided, finally, That the
President may remove the Administrator and Deputy
Administrators from office for cause upon
recommendation of the Board.
The Maritime Administrator and Deputy
Administrators shall be citizens of the Philippines, at least
thirty-five years old on the date of their appointment, of
good moral character, of recognized executive ability and
competence in previous public or private employment,
with adequate training and experience in economics,
technology, finance, law, management, public utility, or in
other phases or aspects of the

427
 TRANSPORTATION LAWS

maritime industry, receive an annual salary of Fifty

thousand pesos and a monthly commutable allowance of
Two thousand pesos. Each Deputy Administrator shall
receive an annual salary of Forty thousand pesos and a
monthly allowance of One thousand five hundred pesos.
The Administrator shall be directly responsible to the
Board, and shall have powers, functions and duties as
provided in this Decree. The Deputy Administrator shall be
directly responsible to the Administrator, and their
respective powers, functions and duties shall be
determined by the Board, upon recommendation of the
Administrator.
Section 10. Authority to Administer Oath. — The Chairman of
the Board, the Administrator, the Deputy Administrators,
the Chief Legal Officer and heads of divisions of the
Authority shall have the power to administer oaths for the
transaction of official business.
Section 11. General Powers and Functions of the Administrator.
— Subject to the general supervision and control of the
Board, the Administrator shall have the following general
powers, functions and duties:

a. To implement, enforce and apply the policies,

programs, standards, guidelines, procedures, decisions and
 rules and regulations issued, prescribed or adopted by the
Board pursuant to this Decree;
b. To undertake researches, studies, investigations
and other activities and projects, on his own initiative or upon
instructions of the Board and to submit comprehensive reports
and appropriate recommendations to the Board for its
information and action;
c. To undertake studies to determine present and
future requirements for port development including
navigational aids, and improvement of waterways and
navigable waters in
consultation with appropriate agencies;
d. To pursue continuing research and
developmental programs on expansion and modernization of
the merchant fleet and supporting facilities taking into
consideration the needs of the domestic trade and the need of
regional economic cooperation schemes; and

428
 CHAPTER VII VESSELS

e. To manage the affairs of the Authority subject to

the provisions of this Decree and applicable laws, orders,
rules and regulations of other appropriate government
entities.
Section 12. Specific Powers and Functions of the Administrator. — In
addition to his general powers and functions, the Administrator
shall:

a. Issue Certificates 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, of less than three gross tons;
b. Provide a system of assisting various officers, profes-
sionals, technicians, skilled workers and seamen to be
gainfully employed in shipping enterprises, priority being
given to domestic needs;
c. In collaboration and coordination with the Department of
Labor, to look into, and promote improvements in, the working
conditions and terms and employment of the officers and crew of
vessels of Philippine registry, and of such officers and crew
members who are Philippine citizens and employed by foreign
flag vessels, as well as of personnel of other shipping enterprises,
and to assist in the settlement of disputes between the
shipowners and ship operators and such officers and crew
members, and between the owner or manager of other shipping
enterprises and their personnel;
d. To require any public water transport utility or Philippine
flag vessels to provide shipping services to any coastal areas in
the country where such services are necessary for the
development of the area, to meet emergency sealift
requirements, or when public interest so requires;
e. Investigate by itself or with the assistance of other
appropriate government agencies or officials, or experts from

429
TRANSPORTATION LAWS

the private sector, any matter within its jurisdiction, except

marine casualties or accidents, which shall be undertaken by the
Philippine Coast

Guard;
f. Impose, fix, collect and receive in accordance with the
schedules approved by the Board, from any shipping enterprise or
other persons concerned, such fees and other charges for the
payment of its services;
g. Inspect, at least annually, the facilities of port and cargo
operators and recommend measures for adherence to prescribed
standards of safety, quality and operations;
 h. Approve the sale, lease or transfer of management of
vessels owned by Philippine nationals to foreign-owned or
controlled enterprises;
i. Prescribe and enforce rules and regulations for the
prevention of marine pollution in bays, harbours and other
innavigable waters of the
Philippines, in coordination with the government authorities
concerned;
j. Establish and maintain, in coordination with the
appropriate government offices and agencies, a system of
regularly and promptly producing, collating, analysing and
disseminating traffic flows, port operations, marine insurance
services and other information on maritime matters;
k. Recommend such measures as may be necessary for the
regulation of the importation into and exportation from the
Philippines of vessels, their equipment and spare parts;
l. Implement the rules and regulations issued by the Board
of
Transportation;
m. Compile and codify all maritime laws, orders, rules and
regulations, decisions in leading cases of courts and the
Authority’s procedures and other requirements relative to
shipping and other shipping enterprises, make them available to
the public and whenever practicable, to publish such materials;
n. Delegate his powers in writing to either of the Deputy
Administrators or any other ranking officials of the Authority;
 430
CHAPTER VII VESSELS

Provided,
That he informs the Board of such delegation
promptly ; and

o. Perform such other duties as the Board may assign, and

such acts as may be necessary and proper to implement this
Decree.
Section 13. Maritime Industry Manpower Needs. —The Authority shall
establish and support a system of maintaining and developing a
reservoir of trained manpower to meet the current and future
needs of the industry. For the attainment of this objective, it
shall undertake the following:

a. Evaluate, in collaboration with the Department of

Education and Culture, the capability of maritime educational
and training institutions and programs in the Philippines,
including the Philippine Merchant Marine Academy, herein
placed under the administrative supervision of the Authority,
to supply shipping and shipyard manpower needs.
b. Inspect and evaluate periodically the standards,
facilities and performance of the maritime educational and
training programs of government and private schools and
enterprises and recommend to the Department of Education
and Culture and other appropriate government agencies such
changes in the curriculum as may be necessary.
 c. Conduct or arrange for the holding of pre-
employment, on-the-job and other training programs to
provide and upgrade shipping skills and techniques, with the
cooperation and support of private enterprises and
government agencies.
d. Provide incentives for education and training in
shipping and shipbuilding fields, especially those which are
not attractive to students such as naval architecture,
including scholarships and fellowships, in the Philippines or
abroad, with liberal grants for the entire duration of the
course, to be sponsored directly or arranged by the
Administration.
Section 14. Penalties. —Any person who gives false or misleading
data or

information or wilfully or through gross negligence, conceals

431
TRANSPORTATION LAWS

or falsifies a material fact, in any investigation, inquiry or hearing,

or other proceedings held pursuant to this Decree, shall be
punished with imprisonment of not less than two nor more than
six months and with a fine or not less than Five hundred nor more
than One thousand pesos: Provided, however, That if the false or
misleading data or information shall have been given under oath,
the maximum penalty for giving false testimony or perjury shall
be imposed.
D. MISCELLANEOUS PROVISIONS
Section 15. Auditor. — The Commission on Audit shall be the ex-
officio Auditor of the Authority and it shall appoint its
representative therein, who shall audit all accounts thereof.
Section 16. Reorganizational Changes. —
a. — The Shipping and Freight Study Unit of
Department of Trade.

the Department of Trade is hereby transferred to the Authority

together with its applicable appropriations, records, equipment,
property and such personnel as may be necessary.
b. — The powers and functions
Bureau of Transportation.
pertaining to the development and supervision of maritime
shipping of the Bureau of Transportation for Water are
hereby transferred to the Authority. Accordingly, the Water
Transportation Division of the Bureau is hereby abolished.
c. — The powers and
National Development Company.
functions of the National Development Company relative to
ship acquisition under Republic Act No. 1407, as amended
(Philippine Overseas Act of 1955), are hereby transferred to
the Authority together with its applicable records, equipment
and property.
In addition to the powers and functions herein transferred,
balances of all appropriations, funds, accounts and notes
receivable derived from shipping companies, equipment,
records and supplies are likewise transferred to the Authority.
 Section 17. Retention of the Functions and Powers of the Philippine Coast Guard.
— Nothing in this Decree shall be constructed to affect or
delimit the present functions and powers of the Philippine

432
CHAPTER VI!
VESSELS

Coast Guard relative to maritime affairs. All such functions

and powers of the Philippine Coast Guard are retained by it.
Furthermore, in the performance of its functions, especially
in the classification and inspection of vessels, the Philippine
Coast Guard will be assisted by the Authority: Provided, That
within two years from the issuance of this Decree, the
President may transfer to the Authority such regulatory
functions of the Philippine Coast Guard pertaining to
maritime affairs as may be necessary for the achievement of
the aims and purposes of the Authority. The Authority shall
coordinate with the Philippine Coast Guard in the exercise
of supervision and regulation of the operation of water
transport utilities.
Section 18. Coordination With Other Agencies. —The
Authority shall coordinate with the Department of Labor,
the Department of Education and Culture and the National
Manpower and Youth Council in the exercise of its pertinent
functions that have relation to the functions of the above-
mentioned agencies, particularly as these pertain to the
development of trained and qualified seamen for Philippine
vessels.
 In order to strengthen its coordinative functions, the
Authority shall hire and train appropriate technical
personnel which may be assigned to other government
agencies involved in the implementation of laws, rules and
regulations relative to maritime affairs.
Section 19. Transitory Provision. — Officials and
employees of all existing offices or agencies which are
abolished or reorganized under this Decree may be
absorbed into the Authority on the basis of merit and
fitness: Provided, That employees who shall be laid off by
reason of this Decree shall be given gratuity equivalent to
one month’s salary for every year of service but in no case
more than twenty-four months salary, in addition to all
benefits to which they are entitled under existing laws and
regulations.
To carry out the provisions of this Section there is
hereby appropriated the sum of Five hundred thousand
pesos out of the unappropriated funds in the National
Treasury.
Section 20. Appropriations. — To carry out the provisions
of this Decree, there is hereby appropriated the sum of Two
million pesos out of the funds in the National Treasury not
otherwise appropriated.

433
 /
TRANSPORTATION LAWS

Thereafter, the succeeding appropriations of the Authority shall

be included in the annual Appropriations Act.
In addition to the above, the Authority is hereby authorized
to retain fifty percent of its collections from fees, charges and
fines to defray any deficiency in annual appropriations and to
finance its other projects.
Section 21. Repealing and Separability Clauses. — All laws, decrees,
orders, rules and regulations, policies, programs or parts thereof,
which are inconsistent with any of the provisions of this Decree,
are hereby repealed or modified accordingly.
If for any reason any section or provision of this Decree is
declared to be unconstitutional or invalid, the other sections or
provisions hereof, which are not affected thereby, shall continue
in full force and effect.
Section 22. Effectivity. — This Decree shall take effect upon its
promulgation: Provided, That these portions hereof which may
require a transition period to assure the orderly transfer of
powers and functions shall take effect as stated in the
implementing details: Provided' further, That such implementing
details shall be prepared by the Board, in consultation with the
government agency heads concerned, and submitted to the
President for approval within four months after issuance of this
Decree.
DONE in the City of Manila, this 1st day of June, in the year
of Our Lord, Nineteen Hundred and Seventy-Four.
 RULES OF PRACTICE AND PROCEDURE
OF THE MARITIME INDUSTRY AUTHORITY

MEMORANDUM CIRCULAR NO. 74-A

By virtue of the powers vested in the MARINA pursuant to
Section 11(a) of

P.D. No. 474 and Section 12, E.O. No. 125/125-A, in relation to
Chapter V, Section 29 of the Public Service Act and paragraph 2
of E.O. No. 26, dated October 7, 1992 and in furtherance of the
policy of the MARINA to obtain an inexpensive, speedy and
equitable disposition of cases before it, the MARINA Board in its
meeting of July 13, 1995,

434
CHAPTER VII VESSELS

orders the implementation of the following rules of procedure in

cases enumerated in Rule I of PART I and PART II hereof.
Parti

Rule 1: Coverage
The procedure set forth hereunder shall govern and
apply to the following cases, heard before the Maritime
Regional Offices and the Central Office, to wit:

a) Application or petitions for the issuance of

Certificate of Public Convenience (CPC), Provisional
Authority (PA) or Special Permit (SP), granting
 authority or permitting the operation of inter-
island vessels as public service in the domestic
trade, for the carriage of cargo, or cargo/passenger
or both, either as liner or tramp services;
b) Renewals or amendments to the CPC, PA
or SP; and
c) Petitions for rate increase/adjustments.

Rule 2: Definition of Terms

a) Uncontested Application — one in which the application
is
uncontroverted, unopposed and unadversarial.

b) — one in which the application is

Contested Application

controverted, litigated, opposed, and disputed.

c) Affected Operators — any unauthorized or authorized/

franchised operation who stands to be prejudiced by a

probable grant of the reliefrprayer, sought in the application.
d) Affected Parties — parties who stand to be prejudiced

by any
grant of rate increase!

e) MARINA — Maritime Industry Authority.

Rule 3: Construction
These rules shall be liberally construed in order to
promote their object in obtaining a just, speedy and
inexpensive disposition and resolution of
applications/petitions filed before the MARINA.
 435
TRANSPORTATION LAWS

Rule 4: Venue
Section 1. Applications for the issuance of CPC, PA, or SP shall
be filed in the Maritime Regional Office (MRO) or the Central
Office whose territorial jurisdiction the vessel(s) is (are) being
operated in, Provided, That in case of tramping vessels, the MRO
where the vessels are home ported: Provided, further, That in case
the operation involves two (2) or more regions the MRO where
the vessel is home ported to the exclusion of all the MROs:
Provided, finally, That in case the application is contested the MRO
concerned shall after hearing, forward the records of the case to
the Central Office for final resolution or decision in accordance
with Section 2, sub-section 2.2 of Administrative Order No. 06-94.
Section 2. Venue may be transferred at the discretion of the
MARINA, upon a written motion by any of the parties based on
convenience and other meritorious reasons.

Rule 5: Filing of the Application

Section 1. Jurisdiction is acquired over the applicant upon
the filing of the application and the payment of the required
fees.
Section 2. No CPC shall be granted without substantially
complying with the three requisites stated in Section 16(a),
Chapter 2 of the Public Service Act or C.A. No. 146, as
amended, namely: (1) Filipino ownership; (2) public necessity;
and (3) financial capacity.
 Section 3. Hearing shall be set on a date that will allow a ten
(10)- day period for publication prior to the initial hearing.
Section 4. The Notice of Hearing (NOH) should specify the
route and schedule applied for by the applicant and shall
contain the attached list of existing/affected operators and
concerned parties who shall be individually furnished a copy
of the NOH and a copy of the application, at least five (5) days
before the initial hearing.
Section 5. The notice of hearing shall be published once in a
newspaper of general circulation or in the case of regions, of
regional circulation at least 10 days before the date of hearing.

436

( IIAIMI.K VII VIISSI.LS

Section 6. The
applicant shall serve to the affected operators
and affected parties copies of the application and NO! I either
by personal delivery or by registered mail.
Section 7. Postponements shall he allowed only in meritorious
cases, at the discretion of this Authority upon the filing of an
appropriate pleading or motion at least three (3) days before the
scheduled hearing and with proof of service to the affected
parties.
Rule 6: Pre-Trial

Section 1. After the applicant has submitted proofs of

compliance with jurisdictional requirements of publication of
the notice of hearing and service of notice to the affected
parties, the hearing officer shall direct the parties to appear
before it for a pre-trial conference to consider the following:
a) the possibility of arriving at an amicable settlement or for
submission to arbitration; b) possible stipulation of facts in
order to simplify the issues; c) the number of witnesses and
the nature of their written testimonies; d) on settings of the
subsequent hearings; and e) such other matters as may aid for
the prompt disposition of the case.
Section 2. Applicants or oppositors may be declared non-
suited or in default respectively motu proprio by the Authority or
upon the motion of the parties.
Section 3. The pre-trial conference shall be called by the
Hearing Officer in uncontested applications for the purpose of
shortening the period of the proceedings.
Section 4. After the pre-trial conference, the Hearing Officer
shall issue an Order stating the ultimate facts that the parties
have stipulated on the issues to be heard, the number of
witnesses and the provisions of law involved.

Rule 7: Compromise
To expedite administrative proceedings involving conflicting
rights to obviate expensive litigation, the parties are
encouraged and enjoined to enter into an amicable settlement,
compromise and arbitration.

437
TRANSPORTATION LAWS
 Rule 8: Summary Procedure

Section 1. At the initial hearing of uncontested applications, the

applicants shall submit to the MARINA through the Hearing
Officer their formal written offer of exhibits with the following
documents attached thereto, stating the nature and purpose of
the offer:
A. Application for CPC/PA/SP shall indicate the proposed
schedule of trips and the proposed route for the vessel
(schedule of trips not applicable to tramping).
B. Documents to be submitted upon filing of the application.
B. l Vessel Documents.

B.1.1 Updated/Valid Bay and River License (BRL)

Coastwise License (CWL) for the motor boa M

vessel.
B.l.2 Updated/Valid Certificate of Inspection (Cl)
reflecting the vessel’s authorized area of
operation/vessel’s authority to carry either
passengers or cargoes or both.
B. 1.3 Certificate of ownership, Certificate of
Philippine Registry or Certificate of Vessel Registry and
Certificate of Admeasurement. B.2 Financial Statements.
B.2.1 For existing operators.
1.1 Latest Annual Report, or
1.2 Latest Balance Sheet, and latest Income Sheet.
B.2.2 For new operators.
1.1 Estimated/Projected Income and Expense
Summary for at least a period of two (2)
months; and
2.2 Beginning Balance Sheet, or Certified

Statement of Assets and Liabilities as of

438
 CHAPTER VII
VESSELS

the latest date together with

a schedule showing an
itemized list of income
producing properties and/or
Source of Income and the
average annual income from
each.
C. 3 Other Mandatory Requirements.
C. 3.1 Certified Distance from the
National Mapping Resource and
Information Authority (NAM-
RIA), formerly Bureau of Coast
and Geodetic Survey (BCGS)
showing distance of port-to- port
link (not applicable to tramping)
C.3.2 Sketch showing the proposed route or line or
operation, the homeport, and the port(s) of
call(s) or origin and destination, (not
applicable to tramping)
C.3.3 Updated/Valid Radio Station License issued by
the National Telecommunications
Commission (NTC) for vessels 35 GRT and
above.
C.3.4 Article of Incorporation/Partnership approved
by the Securities and Exchange Commission
(SEC) for Corporations and Partnership
reflecting as its primary/secondary
purpose(s) the operation of a common
carrier as defined in the Public Service Act
as amended: Registration of Business
Name/Business License for Single
Proprietorship, Charter Agreement if vessel
is locally chartered.
DOT accreditation, (if vessel is for
tourism purposes)
C.3.5 Condition Survey Report/Provisional Class
Certificate/Class Maintenance
Survey/Provi- sional Class Certificate/Final
Class
Certificate/
Class Maintenance Survey Report, (if vessel
is required to be classed)
439
 TRANSPORTATION LAWS

C.3.6 Insurance Policy.

1. Tankers and barges carrying oil and petroleum products.

1.1 Oil/Marine Pollution/Protection and Indemnity (P & I)
Cover or their equivalent, of not less than USS300 million
per vessel for vessels carrying a capacity of 700,000 liters
or more.
1.2 Oil/Marine Pollution/Protection and Indemnity. (P & I)
cover, or their equivalent, of not less than US$10 million
per vessel for vessels carrying a capacity of less than
700,000 liters.
1.3 Tanker Owners Voluntary Agreement on Liability for Oil
Pollution (TOVALOP), if applicable.
2. LPG Carriers-Insurance cover against third party liability in the
amount equivalent to US$2 Million.
3. Passenger vessels-insurance coverage of P50,000 per
authorized vessel.
For tankers and barges carrying oil and petroleum products:
1. P2M paid-up capitalization for corporations.
2. Petroleum industry suitability checklist
requirements/hauling contract/spot hire contract with oil
companies, (for tankers and barges 500 GRT and below)
 440

CHAPTER VII
VESSELS

C.3.7 Registration accreditation under Memorandum

Circular No. 79.
C.3.8 Payment of filing'processing fees.

C.3.9 Three colored photographs of the vessels (5” x T)

showing port side, starboard side and eastern view.
C. Proof of compliance of jurisdictional requirements to be
submitted during the hearing:
1. Affidavit of the editor or business manager of the
newspaper of regional or provincial publication in which
the notice of hearing was published together with a
complete copy of the issue of the newspaper clippings;
2. Proof of mailing/delivery of the notice of hearing to the
affected operator/s within the specified period of
affidavit, showing that a copy of the application and the
notice of hearing, enclosed in an envelope properly
addressed to the affected parties postage prepaid was
mailed ten (10) days prior to the date of hearing to which
affidavit the registry receipt and return cards, or any
enclosed letters, shall be attached.
Section 2. The foregoing summary procedure shall be applicable to
contested and uncontested applications.
Rule 9: Petition for Rate Increase
 Section 1. The provisions in Rule 5 of this Book shall be applicable to
petitions for freight and/or passenger rate increase adjustments.
Section 2. In addition, the petition should state the existing rates
being charged, as well as the proposed rates. A list of affected parties
should be attached to the petition.
Section 3. The list of affected parties shall contain all affected
sector(s), i.e., shippers, passenger group, local government units,
nongovernmental units and the like.

441
TRANSPORTATION LAWS

Section 4. The NOH and the petition shall be published in accordance

with the provisions of Section 5, Rule 5 of this Book.
Section 5. Provisions of Rules 6 and 7 shall also be applicable.
Section 6. The following documents/data shall be required:
A.Latest audited financial statement/annual Report, i.e.f
balance sheet; income statement of subject vessel; income sheet
of the company; and cost of the subject vessel; (projected
income statements for new operators);
B. Passenger capacity/Cargo capacity/Roro capacity;
C. Frequency of trips;
D. Commissionable days;
 General arrangement plan, if applicable;
E.

F. Other documents as may be required by the MARINA’S

Domestic Shipping Office (DSO).
Rule 10: Opposition
Section 1. Parties opposed to the grant of the CPC/PA/SP or petitions
for rate increase/adjustment shall, at the hearing, submit counter-
affidavit of their witnesses, controverting applicant’s evidence.
Section 2. Every party shall have the right to cross-examine witnesses
presented against him and to submit rebuttal evidence.
Section 3. With the submission by the parties of the aforesaid
documentary evidence and written testimonies under oath, the
application shall be deemed submitted for final decision upon the filing of
the written formal offer of evidence. Witnesses may be called for
clarificatory questions.
Rule 11: Renewals or Extension or Amendments
In case of extension of the PA/SP or amendments to the PA/CPC, a
timely motion shall be filed before the MARINA with proof of service to
affected operators (in the case of contested applications).
CHAPTER VII
VESSELS

In case of renewals, the operator, shipping company or shipowner

shall signify its intention to renew its PA or CPC in writing.

Rule 12: Prohibition

Section 1. No application/petition shall be processed or be given
due course if the applicant/petitioner has unsettled accounts before
the MARINA consisting of unpaid administrative penalties and fines or
otherwise.
Section 2. No PA shall be issued except upon compliance with the
three requisites in Sec. 16(a), Chapter 2 of the Public Service Act or C.A.
No. 146, as amended and after the initial hearing except in tramping
service wherein PA may issue prior to the initial hearing.

Rule 13: Provisional Relief

Upon the filing of an application or petition and after initial hearing
or at any stage thereafter, this Authority motu proprio or at the initiative of
the parties, may grant the relief prayed for based on the pleadings and
other documentary evidence without prejudice to the final resolution
of the case.

Rule 14: Contempt

In accordance with Section 29, Chapter V of the Public Service Act
as amended, the hearing officer may summarily punish for contempt by
a fine not exceeding Two hundred pesos or by imprisonment not
exceeding ten (10) days or both any person guilty of misconduct in the
presence of the hearing officer or so near the same as to interrupt the
hearing or session or any proceedings before him, including cases in
which a person present at a hearing session or investigation held by the
hearing officer refuse to be sworn as witness or to answer as such when
lawfully required to do so. To enforce the provisions of this Rule, the
hearing officer may request the assistance of the municipal police and/
or MARINA’S Enforcement Office for the execution of any order made
for said purpose.
 443
TRANSPORTATION LAWS

Rule 15: Decisions

Section 1. Uncontested Cases. — Subject to compliance with the
relevant Memorandum Circulars and upon satisfactory showing that the
pleadings together with the supporting affidavits and documents
establishes the right of the party to the relief prayed for and when there
is no opposition thereto, the Authority shall within fifteen (15) days after
case has been submitted for resolution, render an order or decision
thereon.
Section 2. Contested Cases. — Subject to compliance with other
relevant Memorandum Circulars, the Authority shall render a decision,
ruling or resolution within thirty (30) days after the case has been
submitted unless the record is so voluminous and the issues are
complicated that a longer period to prepare and render a decision or
resolution is required.

Rule 16: Appeals

The order, ruling, decision or resolution of the MARINA shall take
effect immediately and shall become final after fifteen (15) days from
receipt of the copy of the party unless:
a) reviewed en banc by the MARINA Board motu proprio; or
b) a motion for reconsideration is filed within fifteen (15)
days from receipt of the order, ruling, decision or resolution sought to
 be reconsidered by the aggrieved party, provided, however, that only
one motion for reconsideration shall be allowed.
PART II Rule 1: Coverage

The procedure set forth hereunder shall govern and apply to the
following cases heard before the MARINA Central Office and the
Maritime Regional Offices, to wit:
a) Violation of the provisions of the Public Service Act or
C. A. No. 146, as amended;

444
CHAPTER Vll VESSELS

b) Violation of memorandum circulars issued and

promulgated by the MARINA in pursuance of its regulatory
functions; and
c) Violation of the provisions of laws, rules and
regulations, the implementation of which is vested and/or
delegated to the MARINA.

Rule 2: Definition of Terms

a) Memorandum Report — any official written report originating from
any of the offices of the MARINA, containing distinctly the facts
constituting violation(s) by the respondent of the provisions of the Public
Service Act, as amended; Memorandum Circulars; and/or other pertinent
laws, rules, regulations, decisions, ruling or orders of the MARINA and
recommending the issuance of a Show Cause Order.
 b) Complaint — sworn written statement containing concise and
ultimate facts constituting the violation(s) by the respondent of the
provisions of the Public Service Act, as amended; Memorandum
Circulars; and/or other pertinent laws, rules, regulations, decisions, ruling
or orders of the MARINA and duly signed by private aggrieved party
attaching thereto supporting documentary evidence.
c) Show Cause Order—order issued by the MARINA requiring the
respondent to submit an answer or comment to the complaint or to the
Memorandum Report and to show cause why it should not be held
administratively liable for the alleged offense/violation.
d) Answer/Comment—verified
pleading filed by the respondent
containing the defenses upon which he relies or an admission of the
offense being charged.
e) MARINA — Maritime Industry Authority.
Rule 3: Construction
These rules shall be liberally construed in order to promote their
object in obtaining a just, speedy, and inexpensive disposition and
resolution of the complaint cases.

445
TRANSPORTATION LAWS

Rule 4: Venue
Section 1. The MROs and the Central Office shall have the authority
to hear complaints against a public service and/or operator, whose vessel
complained about is being operated within the territorial jurisdiction of
the respective MROs or the Central Office: Provided, however, That after
hearing, the MRO concerned shall forward the entire records of the case
to the Central Office for final resolution or decision in accordance with
Administrative Order 06-94.
Section 2. The provisions of Section 2, Rule 4 of Part I shall also be
applicable.

Rule 5: Commencement of a Complaint Case

Section 1. A complaint case is commenced either by a complaint or a
Memorandum Report.
Section 2. A complaint or a Memorandum Report is sufficient if it
states the name(s) of the respondent, the material facts constituting the
violation of offense and other particulars of the alleged violation as well
as other supporting documentary evidence.
Section 3. The MARINA, motu proprio or upon a written motion of the
Respondent, may deny due course to any complaint if upon evaluation
thereof, it appears to be insufficient to initiate prosecution.

Rule 6: Prosecution
Section 1. The MARINA upon finding a cause to hold respondent for
prosecution shall issue an Order stating therein the alleged violation of
the provisions of law and/or other pertinent rules and regulations
requiring respondent to file his comment or answer and setting the case
for hearing.
Section 2. The Order referred to in the preceding section shall be
attached to a xerox copy of the complaint or the Memorandum Report
and shall be served upon the respondent by registered mail or
personally.
 Section 3. The respondent shall file his verified answer to comment
to the charges within ten (10) days from receipt of the Order mentioned

446
CHAPTER VII VESSELS

in Section 1 hereof duly supported by affidavits of his witnesses and other relevant documentary
evidence.
Section 4. It shall be the duty of the MARINA prosecutor to actively direct and supervise the
prosecution of the case.
Section 5. The complainant or his counsel if he is represented by one, shall collaborate and
work under the direct supervision of the MARINA prosecutor.
Section 6. The MARINA shall have the power to require the attendance of witnesses or the
production of books, papers, documents and other pertinent data motu proprio or upon request
of any party before or during the hearing, upon showing of general relevance.

Rule 7: Effect of the Failure of Parties to Appear

During Hearing
The MARINA shall, in its discretion or upon motion of any of the parties to the case, declare
that the same is submitted for decision upon failure of the complainant or the respondent to appear
in the hearing, provided that there is proof of service of the notice of the hearing.
Rule 8: Postponements

Postponements of hearing or trials shall not be allowed except in

meritorious cases and provided that the movants files a written
motion at least three (3) days before the scheduled hearing with proof
of service to the parties concerned.
Rule 9: Compromises
Section 1. The following conditions should exist prior to a possible compromise of an
administrative liability/fine/penalty:

a. a complaint must have been filed;

b. a show cause order has been issued;

c. there must be a determination of possible liability

 (amount of penalty) in accordance with the pertinent Memorandum
Circular alleged to have been violated; and
447
TRANSPORTATION LAWS

d. an answer or comment shall have been filed admitting

guilt and offering compromise or a mere offer of compromise is
filed.
Section 2. An offer for compromise must be in writing.
Section 3. If the offer for
compromise is made by a person other than
the respondent, he must have a special power of attorney authorizing
him to compromise the case. The special power of attorney shall be filed
together with the offer of compromise.
Section 4. The amount offered must be clearly stated.
Section 5. No offer for compromise shall be filed prior to the issuance
of a show cause order and a determination of a possible liability (amount
of penalty) in accordance with the pertinent law or circular alleged to
have been violated.
Section 6. After
an offer of compromise shall have been filed in
accordance with the above, the office of the origin (OF or MLAD) for case
falling under their respective jurisdictions, shall make its
recommendation in writing to be attached to the records /expediente for
acceptance or rejection/denial by the signatories to the decision.
Section 7. The recommendation referred to in the preceding section
shall contain a brief summary of the antecedent facts, the amount
offered as compromise, and the recommendation either for acceptance
of the offer or its rejection taking into account the factors enumerated in
Section 13 hereof.
 Section 8. Should the offer of compromise be accepted by the
signatories, a decision shall be drafted by the office of origin, stating:
a) distinctly the facts of the case;
b) the law/MC alleged to have been violated;
c) issues;
d) determination of liability/penalty;
e) offer of compromise and the amount offered;
f) acceptance of the amount; and

448
CHAPTER VII VESSELS

g)the dispositive portion of the decision shall reflect the exact

amount offered as compromise.
Section 9. Should the offer of compromise be rejected by the
signatories, the appropriate decision shall be drafted for full liability in
accordance with the pertinent Memorandum Circular violated; Provided,
That there has been an admission of guilt in the answer or comment or
appropriate pleading previously filed: Provided' furl her. That if there is no
such admission the case shall be remanded to the office of origin for
further hearings or if evidence is sufficient, the case shall be submitted
for decision.
Section 10. No offer for compromise shall be entertained after the
case is submitted for decision or after the promulgation of the decision.
 Section 11. In the cases heard before the Maritime Regional Office,
the entire records of the case (complaint and Show Cause Order,
Answer/Comment and/or written offer for compromise) shall be
forwarded to the Franchising Office with MRO’s recommendation, as
stated in Sections 6 and 7. The Franchising Office shall also prepare its
own recommendation to be attached to the records for the rejection or
acceptance by the signatories.
Section 12. The Maritime Regional Offices are not authorized to
accept compromise penalties (full or partial) neither are they authorized
to render decisions in complaint cases pursuant to Administrative Order
06-94, Section 2.2.
Section 13. The following factors should be considered in
determination of the amount of compromise penalty:
a) financial ability of the respondent to pay;
b) nature and circumstances of the violation;
c) record of previous violations by respondent pursuant to the
decisions previously rendered by the Authority;
d) reparation or compliance by the respondent;
e) the magnitude of damage to the public caused by the
violation; and
f) probative value of evidence on record.

449
TRANSPORTATION LAWS
 Rule 11: Pre-Trial

A pre-trial conference shall be conducted in the

same manner and for the
same purpose as provided in Book One, Rule 6 of this Circular.
Rule 12: Order of Trial

a) The private complainant and the

MARINA prosecutor, or the MARINA prosecutor
alone in case of Memorandum Reports must
present the evidence on their/his part;
b) The respondent shall then offer evidence
in support of his defense;
c) The parties may then respectively offer
rebutting evidence only, unless
this Authority for good reasons, in furtherance of justice
permits them to offer evidence upon their original case.
Rule 13: Consolidation

When complaints involving a common question of law or

bKA.-.

fact are pending before this Authority, it may order a joint hearing
1

or trial of any or all the matters in issue in the actions, it may order all
the actions consolidated and it may make such orders concerning the
proceedings therein as may tend to avoid unnecessary delay.
Rule 14: Summary Procedure

Section 1. Parties to the complaint case may at their

election, have the provisions of this rule govern the
proceedings in the case, unless specifically required by
applicable memorandum circular.
 Section 2. The only pleadings allowed to be filed are
the complaint and the

answer.
Z

.L. Section 3. The MARINA may, motu proprio, deny due course to any

complaint if upon evaluation thereof, it appears to be

insufficient to initiate prosecution.
Section 4. All pleadings must be verified.

Section 5. The MARINA, upon finding a cause to hold

respondent for

protection shall issue an Order, stating therein the

alleged violation

450
CHAPTER VII VESSELS

of the provisions of this circular and/or other pertinent rules and

regulations requiring respondent to file his comment or answer.
Section 6. The Order referred to in the preceding section shall be
attached to a xerox copy of the complaint and shall be served upon the
respondent by registered mail or personally.
Section 7. For failure of the respondent to file an answer to the
complaint, the case shall be deemed submitted for decision based on the
evidence on record, unless the hearing officer deems it necessary to hold
a hearing to clarify specific factual matters in which case, he shall set the
case for hearing.
Section 8. If the complainant is incapable of being present at the
hearing, dispositions on oral examination may be taken whenever
practicable and convenient.

Rule 15: Contempt

In accordance with Section 29, Chapter V of the Public Service Law,
as amended, the hearing officer may summarily punish for contempt
by a fine not exceeding Two hundred pesos or by imprisonment not
exceeding ten (10) days or both, any person guilty of misconduct in the
presence of the hearing officer or so near the same as to interrupt the
hearing or session or any proceedings before him including cases in
which a person present at a hearing session or investigation held by
the hearing officer refuses to be sworn as a witness or to answer as
such when lawfully required to do so. To enforce the provisions of this
Rule the hearing officer may request the assistance of the municipal
police and/or the MARINA’S Enforcement Office for the execution of
any order made for said purpose.
Rule 16: Provisional Relief

Upon the filing of the complaint or at any stage thereafter, this

Authority may grant on motion of the parties, the relief prayed for
based on the pleading and other supporting documents without
prejudice to a final decision which shall be rendered after the
termination of the hearing to be called within 30 days from
submission of the case for resolution.
 451

TRANSPORTATION LAWS

Rule 17: Decision

Every decision rendered by this Authority shall state clearly and
distinctly the facts and the law on which it is based. The agency shall
decide each case within thirty (30) days following its submission. The
parties shall be notified of the decision personally or by registered mail
addressed to their counsel of record, if any, or to them.
Rule 18: Finality
The decision of the MARINA shall become final and executory fifteen
(15) days after the receipt of a copy thereof by the party adversely
affected unless within that period, an administrative appeal or judicial
review, if proper, has been perfected. One motion for consideration may
be filed which shall suspend the running of the said period.
Signing Authority.
The Administrator and his Deputy Administrators shall have the
Authority to sign decisions, resolutions, CPC, PA, and SP: Provided, however,
That in the absence of the Administrator, any of his Deputy
Administrators may sign for and in his behalf provided that said
delegated authority shall be in writing, provided finally that, the MARINA
Board shall have the authority to recall or revoke the decision, resolution,
CPC, PA or SP signed.
Accountability of Hearing/Legal Officers.
Every legal officer charged with the resolution of cases or incidents
shall submit to the director, within ten (10) days following the end of
every month, a sworn statement of Disposition of Cases in accordance
with E.O. No. 26, declaring that all cases or incidents submitted to him for
resolution have been decided within the prescribed period, Provided, further,
That the salary of any officer who fails to submit the aforesaid Statement
within the prescribed period shall be or cause to be withheld by the head
of office until compliance hereto: Provided, further, That this shall be without
prejudice to the imposition of other penalties, Provided, finally, That this
provision shall be applicable only to cases submitted for decision after
the effectivity of this Circular.

452
 CHAPTER VII
VESSELS

Repealing Clause.
The provisions of Memorandum Circular No. 74 is
hereby expressly repealed.
Effect ivity.
This circular shall take effect after the lapse of fifteen
(15) days from the time of its publication in a newspaper
of general circulation.
By Authority of the Board:
(Sgd.) PACIENCIO M.
BALBON, JR.

SECRETARY’S CERTIFICATE
This is to certify that the foregoing Memorandum
Circular No. 74-A was approved by the MARINA’S Board
on 13 July 1995.

(Sgd.) PURITA C. CENTENO

 Corporate Board Secretary
MARINA MEMORANDUM CIRCULAR NO. 90
IMPLEMENTING GUIDELINES FOR VESSEL REGISTRATION AND
DOCUMENTATION

The Maritime Industry Authority Board in its

meeting on October 7, 1994 has approved and
promulgated the following guidelines in the
implementation of vessel registration pursuant to
the provisions of Executive Order No. 125, as
amended, DOTC Memorandum dated September
7, 1994 and MARINA Memorandum Circular No.
88, S.

1994 approved by the MARINA Board on 15 September

1994.
I. Objective
This Circular serves to provide a consolidated
implementing guidelines that shall govern the
registration and documentation of vessels to
entitle it to the protection of Philippine laws and
the right of
453
V
 TRANSPORTATION LAWS

fly the Philippine flag subject to the obligations and

disabilities under the laws of the Philippines.

II. Coverage This

Guidelines shall apply to:
1. All types of vessels of domestic ownership and of
more than 15GRT;
2. All vessels engaged in towing/pushing or carrying
goods and/or passengers for hire regardless of
tonnage; and
3. All vessels acquired under PDs 760/866/1711.
Registration of vessels 15 GRT and below under this
Circular shall be optional. Provided that such vessels
as are not entered in the Philippine register of ships
shall be required to secure a vessel identity
certificate (Certificate of Number).
The following vessels shall not be covered:
1. Warships and naval vessels;

2. All vessels of foreign registry temporarily used in the

Philippine waters for less than one year;
3. Non-motorized bancas, sailboats, and other
waterborne contrivance of less than three gross tons
capacity.
III. Definition of Terms
1. Any watercraft used for water transportation,
Vessels.
delivery of services and those used for scientific,
educational and research purposes, including fishing
vessels.
2. Domestic Ownership. Ownership vested in citizens of the
Philippines or corporations or associations
organized under the laws of the Philippines at least
sixty per centum of the capital stock or capital of which
is wholly owned by citizens of the Philippines.
3. Homeport.The port where the vessels is registered or
enrolled provided, registration shall be effected at
the port where the

454
CHAPTER VII VESSELS

principal office of the shipowner/operator is located

and/or at the terminal port of the vessel.
4. The carriage of passengers and/or
Domestic Trade.
cargoes between two or more ports and places in
 the Philippines by the use of vessel either as
common or contract carrier or for exclusive
company/own use including operations within bays
and rivers and other inland waterways.
5. Overseas Trade. The transport of goods and/or
passengers and/or vessel operations outside of
Philippine territorial waters, including those calls at
Philippine ports from foreign ports and vice versa.
IV. General Provisions
The Maritime Industry Authority (MARINA) is the
exclusive authority in matters of registration and
documentation of Philippines vessels including, but not
limited to, the issuance of certificates, licenses, or other
documents incident therein.
V. Specific Guidelines
A. Register of Vessels
1. The MARINA shall maintain a registry of vessels to
be known as “REGISTER OF PHILIPPINE VESSELS”
which shall be kept open to free inspection by the
public during regular office hours or when the
exigency of the service so requires. Separate
registers shall be maintained for overseas and
domestic vessels.
2. The Register of the Philippine Vessels shall contain
the following particulars in such form and detail as
the MARINA may prescribe: a. Name of vessel
b. Former names and registry (if applicable)
c. Type of vessel
d. Call sign

455
 TRANSPORTATION LAWS

e. Official number
f. Material of hull
g. Principal dimensions
h. Tonnage (Gross/Net/Deadweight)
i. Classification
j. Speed
k. Main engine
l. Builders/Place of birth
m. Year built
n. Name, nationality and business address/residence of
owner/operator
o. Date of issuance of Certificate of Vessel Registry
p. Any material change of condition in respect to any of
the preceding items including records of encumbrances.
3. The registration of a vessel for domestic trade shall be
effected at its homeport as herein defined while registration
of a vessel for overseas trade shall be effected only at the
MARINA Central
Office.

B. Requirements for Registration of Vessels

 The following requirements shall have been complied with
prior to registration of a vessel, if applicable:
1. Existing Vessels
i. Plans approval ii. Admeasurement

iii. Presentation of photocopies of valid trading

certificates
2. New buildings
i. MARINA’S approval to acquire vessel
ii. Approval of complete plans of hull
and machineries

456
CHAPTER VII VESSELS

in. Authority issued to a classification society to inspect/

supervise the construction of the vessel
C. Transfer of Rights and Encumbrances
Any rights affecting the vessel or the ownership thereof
shall be registered in the Book of Transfer and Encumbrances
provided the same is annotated in the Certificate of Vessel
Registry and Register of Philippine Vessels.
D. Deletion of Vessels
 Vessels registered under the Philippine flag shall be
deleted from the Register of Philippine Vessel under any of
the following circumstances:
1. Bareboat chartering out to foreign nationals, unless the
charterer opts to fly the Philippine flag
2. Pre-termination/termination of charter agreement under
PDs
760/866/1711
3. Sale to foreign buyers
4. Scrapping/Decommissioning of vessel
5. Constructive or total loss of vessels
VI. Validity
1. A Certificate of Vessel Registry (CVR) shall be valid until
there is a change in ownership or the vessel is
decommissioned or constructively or totally lost.
2. Certificate of Vessel Registry (CVR) for vessels acquired
under PDs 760/866/1711 shall be coterminous with the
charter party.

VII. Penalty/Sanctions
Violation of any of the provisions of the Circular shall be
governed by existing laws and regulations.
 457
TRANSPORTATION LAWS

VIII. Saving Clause

The provisions of the Revised Philippine Merchant Marine Rules
and Regulations as amended, which are not inconsistent with this
Circular, are hereby adopted by reference.
IX. Repealing Clause
Any provision of existing MARINA rules and regulations, circulars and
orders, which are inconsistent with the Circular, are
hereby repealed or modified accordingly.
X. Effectivity
This Memorandum Circular shall be published once
in a newspaper of general circulation in the Philippines
and shall take effect on 15 October 1994. (5 NAR 4, p.
562)
Adopted: 7 October 1994.

(Sgd.) PACIENCIO M. BALBON, JR.

Administrator
0o i

(...{>

!,
 458

CHAPTER VIII

PERSONS WHO TAKE PART IN MARITIME

COMMERCE SHIPOWNERS AND SHIP AGENTS
ARTICLE 586. The shipowner and the ship agent shall be civilly liable for the
acts of the captain and for the obligations contracted by the latter to repair, equip,
and provision the vessel, provided the creditor proves that the amount claimed was
invested therein.
By ship agent is understood the person entrusted with the provisioning of a
vessel, or who represents her in the port in which she may be found.
ART. 587. The ship agent shall also be civilly liable for the indemnities in favor
of third persons, which arise from the conduct of the captain in the vigilance over the
goods, which the vessel carried; but he may exempt himself therefrom by abandoning
the vessel with all her equipment and the freight he may have earned during the
voyage.
The Limited Liability Rule.
Chua Yek Hong v. Intermediate Appellate Court, Mariano Guno and Dominador Olit
G. R. No. L-74811, September 30,1988
FACTS: Petitioner is a duly licensed copra dealer based at Puerto Galera,
Oriental Mindoro, while private respondents are the owners of the vessel, “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

459
TRANSPORTATION LAWS
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.
On March 30, 1979, petitioner instituted before the then Court of
First Instance of Oriental Mindoro, a complaint for damages based on
breach of contract of carriage against private respondents. (Civil Case
No. R-3205)

The trial court rendered its decision in favor of Chua Yek Hong
ordering defendant Guno and Olit to pay the value of the cargo, other
expenses, attorney’s fees and costs of suit.
On appeal, respondent Court of Appeals ruled to the contrary
when it applied Article 587 of the Code of Commerce and the
doctrine in Yangco v.

Laserna (73 Phil. 330 [1941]) and held that private respondents’
liability, as shipowners, for the loss of the cargo is merely co-
extensive with their interest in the vessel such that a total loss
thereof results in its extinction.
ISSUE:Whether or not the doctrine of limited liability under
Article 587 of the Code of Commerce as expounded in Yangco v. Laserna
was correctly applied by the Appellate Court.
HELD: The term “ship agent ” as used in the foregoing provision 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 of passengers transported. (Yangco v. Laserna, supra; Manila
Steamship Co. v. Abdulhaman, 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 abandonment is the cessation of the
responsibility of the ship agent/ owner. (Switzerland

General Insurance Co., Ltd. v. Ramirez, L-48264, February 21,1980, 96SCRA 297) It has
thus been held that by necessary

460
CHAPTER VIJI
PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS

implication, the ship agent's or shipowner’s liability is confined to that

which he is entitled as of right to abandon — “the vessel with all her
equipment and the freight it may have earned during the voyage,”
and “to the insurance thereof if any.” (Yangco
v. Lasema, supra) In other words, 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 liens as there is no longer any res to
which it can attach. (Gov’t. Insular Maritime Co. v. The Insular Maritime, 45 Phil.
805, 807 [1942]) As the Court HELD:
“If the shipowner or agent may in any way be held civilly
liable at all for injury to or death of passengers arising from 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.” (Yangco v. Laserna,
et al., supra)
RATIONALE ON THE REAL AND HYPOTHECARY LIABILITY OF
SHIPOWNER; EXCEPTIONS
“The real and hypothecary nature of the liability of the
shipowner or agent embodied in the provisions of the Maritime Law,
Book III, Code of Commerce, had its origin in the prevailing conditions
of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these
adverse conditions and to encourage shipbuilding and maritime
commerce, it was deemed necessary to confine the liability of the
owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any, so that if the shipowner
or agent abandoned the ship, equipment, and freight, his liability was
extinguished.” (Abueg v. San Diego, 77 Phil. 730 [1946])
“Without the principle of limited liability, a shipowner and
investor in maritime commerce would run the risk of being ruined by
the bad faith or negligence of his captain, and the apprehension of
this would be fatal to the interest of navigation.” (Yangco v. Laserna,
supra)

461
TRANSPORTATION LAWS

“As evidence of this ‘real’ nature of the maritime law, we have

(1) the limitation of the liability of the agents to the actual value of
the vessel and the freight money, and (2) the right to retain the cargo
and the embargo and detention of the vessel even in cases where the
ordinary civil law would not allow more than a personal action
against the debtor or person liable. It will be observed that these
rights are correlative, and naturally so, because if the agent can
exempt himself from liability by abandoning the vessel and freight
money, thus avoiding the possibility of risking his whole fortune in
the business, it is also just that his maritime creditor may for any
reason attach the vessel itself to secure his claim without waiting for
a settlement of his rights, by a final judgment, even to the prejudice
of a third person.” (Phil. Shipping Co. v.
Vergara, 6 Phil. 284 [1906])
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 v. San Diego, supra; See also Monarch Insurance Company, Inc. v.
CA, 333 SCRA 71, June 8, 2000)

EFFECT OF THE NEW CIVIL CODE PROVISIONS ON COMMON CARRIER ON

THE REAL AND HYPOTHECARY NATURE OF
LIABILITY UNDER MARITIME LAW
Considering the "real and hypothecary nature” of liability under
maritime law, the Civil Code provisions would not have any effect on
the principle of limited liability for shipowners or ship agents. As was
expounded by this Court:
“In arriving at this conclusion, the fact is not ignored that
the ill-fated, S.S. Negros, as a vessel engaged in inter-island
trade, is a common carrier, and that the relationship between
the petitioner and the passengers who died in the mishap rests
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
462
 CHAPTER VIII
PERSONS WHO PARE PARI IN MARITIME )MMERCK. SHIPOWNERS ANO
SHIP AGENTS

vessel, or to the insurance thereon, if any. in the

instant case it does not appear that the vessel was

insured.” (Yangco v. Laserna et al., supra) Moreover, 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 the liability of shipowners 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.

Liability of shipowner extends to value of vessel and insurance proceeds

thereon.

Pedro Vasquez, Soledad Ortega, Cleto Bagaipo,

Agustina Virtudez, Romeo Vasquez
and Maximina Cainay v. The Court of
Appeals and Filipinas Pioneer Lines
Inc.
G.R. No. L-42926, September 13,1985

FACTS: “When the inter-island vessel MV ‘Pioneer Cebu’ left

the Port of Manila in the early morning of May 15,1966 bound for
Cebu, it had on board the spouses Alfonso Vasquez and Filipinas
Bagaipo and a four-year old boy, Mario Marlon Vasquez, among her
passengers. The MV ‘Pioneer Cebu’ encountered typhoon ‘Klaring’
and struck a reef on the southern part of Malapascua Island, located
somewhere north of the island of Cebu and subsequently sunk. The
aforementioned passengers were unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of
Alfonso Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are
the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and
Maximina Cainay are the parents of the child, Mario Marlon Vasquez.

463
 TRANSPORTATION LAWS

They seek the recovery of damages due to the loss of Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

When the vessel left Manila, its officers were already aware of the
typhoon ‘Klaring’ building up somewhere in Mindanao. There being no
typhoon signals on the route from Manila to Cebu, and the vessel having
been cleared by the Customs authorities, the MV ‘Pioneer Cebu’ left on its
voyage to Cebu despite the typhoon. When it reached Romblon Island, it
was decided not to seek shelter thereat, inasmuch as the weather
condition was still good. After passing Romblon and while near Jintotolo
Island, the barometer still indicated the existence of good weather
condition which continued until the vessel approached Tanguingui Island.
Upon passing the latter island, however, the weather suddenly changed
and heavy rains fell. Fearing that due to zero visibility, the vessel might hit
Chocolate Island group, the captain ordered a reversal of the course so that
the vessel could ‘weather out’ the typhoon by facing the winds and the
waves in the open. Unfortunately, at about noontime on May 16, 1966, the
vessel struck a reef near Malapascua Island, sustained leaks and eventually
sunk, bringing with her Captain Floro Yap who was in command of the
vessel.”

Due to the loss of their children, petitioners sued for damages before
the Court of First Instance of Manila (Civil Case No. 67139). Respondent
defended on the plea offorce majeure, and the extinction of its liability by the
actual total loss of the vessel.
After proper proceedings, the trial court awarded damages, to the
plaintiffs.
 On appeal, respondent Court reversed the aforementioned judgment and
absolved private respondent from any and all liability.

ISSUES: 1) Whether or not the sinking of the vessel was caused by force
majeure\ and 2) Whether or not the liability of the respondent was
extinguished by the total loss of the vessel.
HELD: Upon the evidence and the applicable law, this Court sustains
the trial Court. “To constitute a caso fortuito that would exempt a person
from responsibility, it is necessary that: (1) the event must be
independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfil the obligation in a normal manner; and
that (3) the obligor must be free of participation in, or aggravation

464

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PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS

of, the injury to the creditor.” In the language of the law, the event must have
been 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.
Under the circumstances, while indeed, the typhoon was an inevitable
occurrence, yet, having been kept posted on the course of the typhoon by
weather bulletins at intervals of six hours, the captain and crew were well
aware of the risk they were taking as they hopped from island to island from
Romblon up to Tanguingui. They held frequent conferences, and oblivious of
the utmost diligence required of very cautious persons, they decided to take a
calculated risk. In so doing, they failed to observe that extraordinary diligence
required of them explicitly by law for the safety of the passengers transported
by them with due regard for all circumstances and unnecessarily 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.
With respect to private respondent’s submission that the total loss of the
vessel extinguished its liability pursuant to Article 587 of the Code of Commerce
as construed in Yangco v. Laserna, 73 Phil. 330 (1941), suffice it to state that even
in the cited case, it was held that the liability of a shipowner is limited to the
value of the vessel or to the insurance thereon. 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 the death of its passengers.
A shipowner may be held liable for injuries to passengers notwithstanding the exclusively real and
hypothecary nature of maritime law if fault can be attributed to the shipowner.
Negros Navigation Co., Inc. v. The Court of Appeals, Ramon Miranda, Sps. Ricardo and Virginia
De La Victoria
G.R. No. 110398, November 7,1997
FACTS: In April of 1980, private respondent Ramon Miranda purchased
from the Negros Navigation Co., Inc. four special cabin

465
TRANSPORTATION LAWS

tickets (=74411, "4412, ”"4413 and 74414) for his wife, daughter, son and niece
who were going to Bacolod City to attend a family reunion. The tickets were for
Voyage No. 457-A of the M/V Don Juan, leaving Manila at 1:00 p.m. on April 22,
1980.
 The ship sailed from the port of Manila on schedule.

At about 10:30 in the evening of April 22, 1980, the Don Juan collided off
the Tablas Strait in Mindoro, with the M/T Tacloban City, an oil tanker owned
by the Philippine National Oil Company (PNOC) and the PNOC Shipping and
Transport Corporation (PNOC/STC). As a result, the M^V Don Juan sank. Several
of her passengers perished in the sea tragedy. The bodies of some of the victims
were found and brought to shore, but the four members of private
respondents’ families were never found.
Private respondents filed a complaint on July 16, 1980 in the Regional Trial
Court of Manila, Branch 34, against the Negros Navigation, the Philippine
National Oil Company (PNOC), and the PNOC Shipping and Transport
Corporation (PNOC/STC), seeking damages for the death of Ardita de la Victoria
Miranda, 48, Rosario V. Miranda, 19, Ramon V. Miranda, Jr., 16, and Elfreda de
la Victoria, 26.
The Regional Trial Court rendered judgment in favor of the plaintiffs. The
Court of Appeals affirmed the decision of the Regional Trial Court with
modification on actual and compensatory damages.
ISSUES: (1) Whether or not the ruling in Mecenas v. Court of Appeals, finding the
crewmembers of petitioner to be grossly negligent in the performance of their
duties, is binding in this case; and (2) Whether or not the total loss of the M/V
Don Juan extinguished petitioner’s liability.
HELD: In finding petitioner guilty of negligence and in failing to exercise the
extraordinary diligence required of it in the carriage of passengers, both the
trial court and the appellate court relied on the findings of this Court in Mecenas
v. Intermediate Appellate Court, which case was brought for the death of other
passengers. In that case it was found that although the proximate cause of the
mishap was the negligence of the crew of the M/T Tacloban City, the crew of
the Don
 466
CHAPTFR VIII
PERSONS W HO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

Juan was equally negligent as it found that the latter’s master, Capt. Rogelio
Santisteban. was playing mahjong at the time of collision, and the officer on
watch.

Senior Third Mate Rogelio De Vera, admitted that he failed to call the
attention of Santisteban to the imminent danger facing them. This Court found
that Capt. Santisteban and the crew of the M V Don Juan failed to take steps
to prevent the collision or at least delay the sinking of the ship and supervise the
abandoning of the ship.
Petitioner Negros Navigation was found equally negligent in tolerating the
playing of mahjong by the ship captain and other crew members while on
board the ship and failing to keep the M/V Don Juan seaworthy so much so
that the ship sank within 10 to 15 minutes of its impact with the M/T
Tacloban City.
In addition, the Court found that the Don Juan was overloaded. The
Certificate of Inspection, dated August 27, 1979 issued by the Philippine
Coast Guard Commander at Iloilo City stated that the total number of
persons allowed on the ship was 864, of whom 810 are passengers, but
there were actually 1,004 on board the vessel when it sank, 140 persons
more than the maximum number that could be safely carried by it.
Taking these circumstances together, and the fact that the MTV Don Juan,
as the faster and better-equipped vessel, could have avoided a collision with the
PNOC tanker, this Court held that even if the M/T Tacloban City had been at
fault for failing to observe an internationally- recognized rule of navigation, the
Don Juan was guilty of contributory negligence.
 Adherence to the Mecenas case is dictated by this Court’s policy of
maintaining stability in jurisprudence in accordance with the legal maxim
“stare decisis et non quieta movere ” (Follow past precedents and do not disturb
what has been settled). Where, as in this case, the same questions relating
to the same event have been put forward by parties similarly situated as in
a previous case litigated and decided by a competent court, the rule of stare
decisis is a bar to any attempt to litigate the same issue.
The next issue is whether petitioner is liable to pay damages
notwithstanding the total loss of its ship. The issue is not one of first

467
TRANSPORTATION LAWS

impression. The rule is well entrenched in our jurisprudence that a shipowner

may be held liable for injuries to passengers notwithstanding the exclusively
real and hypothecary nature of maritime law if fault can be attributed to the
shipowner.
In Mecenas, this Court found petitioner guilty of negligence in: (1) allowing or
tolerating the ship captain and crew members in playing mahjong during the
voyage, (2) in failing to maintain the vessel seaworthy, and (3) in allowing the
ship to carry more passengers than it was allowed to carry. Petitioner is,
therefore, clearly liable for damages to the full extent.

Aboitiz Shipping Corporation v. New India Assurance Company, Ltd.

G.R. No. 156978, May 2, 2006
 ISSUE: Whether or not the limited liability doctrine, which limits
respondent’s award for damages to its pro-rata share in the insurance proceeds,
applies when the sinking of the ship was due to unseaworthiness.
HELD: To limit its liability to the amount of the insurance proceeds,
petitioner has the burden of proving that the unseaworthiness of its vessel was
not due to its fault or negligence.
Where the ship owner fails to overcome the presumption of negligence, the
doctrine of limited liability cannot be applied.
Aboitiz Shipping Corporation v. Court of Appeals,
Malayan Insurance Company, Inc. Compagnie Maritime Des Chargeurs REunis, and F.E.
Zuellig (M), Inc. G.R. No. 121833, October 17,2008
Aboitiz Shipping Corporation v. Court of Appeals; The Hon.
Judge Remegio E. Zari, in his capacity as Presiding Judge of the RTC, Branch 20; Asia
Traders Insurance Corporation; and Allied Guarantee Insurance Corporation
G.R. No. 130752, October 17,2008

468
CH APTER VIII
PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS

Aboitiz Shipping Corporation v. Equitable

Insurance Corporation

G.R. No. 137801, October 17,2008

FACTS:

in G,R, No. 121833

Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions against several
defendants for the collection of the amounts of the cargoes allegedly paid by Malayan under various marine
cargo policies issued to the insurance claimants. The five civil cases were consolidated and heard before the
Regional Trial Court (RTC) of Manila, Branch 54. The shipments were supported by their respective bills of
lading and insured separately by Malayan against the risk of loss or damage. In the five consolidated cases,
Malayan sought the recovery of amounts totalling P639,862.02. Aboitiz raised the defenses of lack of
jurisdiction, lack of cause of action and prescription. It also claimed that M/V R Aboitiz was seaworthy, that it
exercised extraordinary diligence and that the loss was caused for a fortuitous event. After trial on merits, the
RTC of Manila rendered a Decision dated 27 November 1989, adjudging Aboitiz liable on the money claims.
Aboitiz, CMCR, and Zuellig appealed the RTC decision to the Court of Appeals. The appeal was docketed as
CA-G. R. SP No. 35975-CV. During the pendency of the appeal, the Court promulgated the decision in the 1993
GAFLAC case.
On March 31, 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It disregarded
Aboitiz’s argument that the sinking of the vessel was caused by a force majeure, in view of this Court’s finding
in a related case, Aboitiz Shipping Corporation v. Court of Appeals 9 et al. (the 1990 GAFLAC case). In said case,
this Court affirmed the Court of Appeals’ finding that the sinking of M/VR Aboitiz was caused by the
negligence of its officers and crew. It is one of the numerous collection suits against Aboitiz, which eventually
reached this
Court in connection with the sinking of M/VP. Aboitiz. In G.R, No, 130752
Respondents Asia Traders Insurance Corporation (Asia Traders) and
Allied Guarantee Insurance Corporation (Allied) filed separate

469
TRANSPORTATION LAWS

actions for damages against Aboitiz to recover by way of subrogation the value
of the cargoes insured by them and lost in the sinking of the vessel M/V P. Aboitiz.
The two actions were consolidated and heard before the RTC of Manila, Branch
20. Aboitiz reiterated the defense of force majeure. The trial court rendered a
decision on 25 April 1990, ordering Aboitiz to pay damages in the amount of
P646,926.30. Aboitiz sought reconsideration, arguing that the trial court should
have considered the findings of the Board of Marine Inquiry that the sinking of
the M/V P. Aboitiz was caused by a typhoon and should have applied the real and
hypothecary doctrine in limiting the monetary award in favor of the claimants.
The trial court denied Aboitiz’s motion for reconsideration. Aboitiz elevated the
case to the Court of Appeals. While the appeal was pending, the Court
promulgated the decision in the 1993 GAFLAC case. The Court of Appeals
subsequently rendered a decision in 1994, affirming the RTC decision.
 In G.R. No. 137801
On February 27, 1981, Equitable Insurance Corporation (Equitable) filed an
action for damages against Aboitiz to recover by way of subrogation the value
of the cargoes Insured by Equitable that were lost in the sinking of M/V P. Aboitiz.
On September 7, 1989, the RTC of Manila, Branch 7, rendered judgment
ordering Aboitiz to pay Equitable the amount of P87,633.81, plus legal interest
and attorney’s fees. It found that Aboitiz was guilty of contributory negligence,
and therefore, liable for the loss. In its appeal, docketed as CA-G.R. No. 43458,
Aboitiz invoked the doctrine of limited liability and claimed that the typhoon
was the proximate cause of the loss. On November 27, 1998, the Court of
Appeals rendered a decision, affirming the RTC decision.
The principal issue common to all three petitions is whether or not
ISSUE:
Aboitiz can avail limited liability on the basis of the real and hypothecaiy
doctrine of maritime law.
HELD:These consolidated petitions similarly posit that Aboitiz’s liability to
respondents should be limited to the value of the insurance proceeds of the
lost vessel plus pending freightage and not correspond to the full insurable
value of the cargoes paid by the respondents, based

470
< 11A I* I IK VIII
IM KSONS WHO I AKI NANI IN MAN I IIMI, < OMMI.W l,
SI 11 K< IWNI.KS AND SHIN ADI.N IS

on the Court’s ruling in the 1993 GAL!.AC c;isc. 'I hose consolidated petitions are just among the many others
elevated to this ('ourt involving Ahoiti/.’s liability to shippers and insurers as a result, of the sinking of its vessel,
M/V P. Ahoiliz, on October 31, 1980 in the South China Sea. One of those petitions is the 1993 GAFLAC c ase,
docketed as G.R. No. 100446. The 1993 GAFLAC case was an offshoot of an earlier final and executory
judgement in the 1990 GAFLAC case, where the General Accident Fire and Life Assurance Corporation, Ltd.
(GAFLAC) as judgment obligee therein, sought the execution of the monetary award against Aboitiz. The trial
court granted GAFLACs prayer for execution of the full judgment award. The appellate court dismissed
Aboitiz’s petition to nullify the order of execution, prompting Aboitiz to file a petition with this Court. In the
1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted the immediate stay of
execution of judgment to prevent the impairment of the other creditors’ shares. Invoking the rule on the law of
the case, private respondent therein countered that the 1990 GAFLAC case had already settled the extent of
Aboitiz’s liability.

Following the doctrine of limited liability, however, the Court declared in

the 1993 GAFLAC case that claims against Aboitiz arising from the sinking of
M/VP. Aboitiz should be limited only to the extent of the value of the vessel. Thus,
the Court held that the execution of judgments in cases already resolved with
finality must be stayed pending the resolution of all the other similar claims
arising from the sinking of M/V P. Aboitiz. Considering that the claims against
Aboitiz had reached more than 100, the Court found it necessary to collate all
these claims before their payment form the insurance proceeds of the vessel
and its pending freightage. As a result, the Court exhorted the trial courts
before whom similar cases remained pending to proceed with trial and
adjudicate these claims so that the pro-rated share of each claim could be
determined after all the cases shall have been decided. In the 1993 GAFLAC case,
the Court applied the limited liability rule in favor of Aboitiz based on the trial
court’s finding therein that Aboitiz was not negligent.
The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine
in maritime law that the shipowner or agent’s liability is merely

471

TRANSPORTATION LAWS
co-extensive with his interest in the vessel such that the total loss thereof
results in its extinction. “No vessel, no liability" expresses in a nutshell the
limited liability rule. In this jurisdiction, the limited liability rule is embodied
in Articles 587, 590 and 837 under Book 11 of the Code of Commerce, thus:
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.
Art. 590. The co-owners of the 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 Art. 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.
Art. 837. The civil liability incurred by shipowners in the cases
prescribed in this section, shall be understood as limited to the value of the
vessel with all its appurtenances and freightage served during the voyage.
These articles precisely intend 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 the owner or agent abandons the vessel. When
the vessel is totally lost, in which case there is no vessel to abandon,
abandonment is not required. Because of such total loss, the liability of the
shipowner or agent for damages is extinguished. However, despite the total
loss of the vessel, its insurance answers for the damages for which a
shipowner or agent may be held liable. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable despite
the abandonment of the vessel, as where the loss or injury was due to the
fault of the shipowner and the captain. The international rule is to the effect
that the right of abandonment of vessels, as a legal limitation of a
shipowner’s liability, does not apply to cases where the injury or average was
occasioned by the shipowner’s own fault. Likewise, the shipowner may be
held liable for injuries to passengers notwithstanding the exclusively real
 472

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PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS

and hypothecary nature of maritime law if fault can be attributed to the

shipowner.
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case,
the Court applied the doctrine of limited liability in view of the absence of an
express finding that Aboitiz’s negligence was the direct cause of the sinking of
the vessel. The circumstances in the 1993 GAFLAC case, however, are not
obtaining in the instant petitions. A perusal of the decisions of the courts below
in all three petitions reveals that there is a categorical finding of negligence on
the part of the Aboitiz. For instance, in G.R. No. 121833, the RTC therein
expressly stated that the captain of M/VP. Aboitiz was negligent in failing to take a
course of action that would prevent the vessel from sailing into the typhoon. In
G.R. No. 130752, the RTC concluded that Aboitiz failed to show that it had
exercised extraordinary diligence in steering the vessel before, during, and after
the storm. In G.R. No. 137801, the RTC categorically stated that the sinking of
M/V R Aboitiz was attributable to the negligence or fault of Aboitiz. In all instances,
the Court of Appeals affirmed the factual finding of the trial courts. The finding
of actual fault on the part of Aboitiz is central to the issue of its liability to the
respondents. Aboitiz’s contention, that with the sinking of M/VP Aboitiz, its liability
to the cargo shippers and shippers should be limited only to the insurance
proceeds of the vessel absent any finding of fault on the part of the Aboitiz, is
not supported by the record. Thus, Aboitiz is not entitled to the limited liability
rule and is, therefore, liable for the value of the lost cargoes as so duly alleged
and proven during trial.
 The instant petitions provide another occasion for the Court to reiterate
the well-settled doctrine of the real and hypothecary nature of maritime law.
As a general rule, a shipowner’s liability is merely co-extensive with his
interest in the vessel, except where actual fault is attributable to the
shipowner. Thus, as an exception to the limited liability doctrine, a shipowner
or ship agent may be held liable for damages when the sinking of the vessel is
attributable to the actual fault or negligence of the shipowner or its failure to
ensure the seaworthiness of the vessel. The instant petitions cannot be spared
from the application of the exception to the doctrine of limited liability in view
of the unanimous findings of the courts below that both Aboitiz and the crew
failed to ensure the seaworthiness of the M/VP. Aboitiz.

473
TRANSPORTATION LAWS

The claim for the death benefits under the POEA-SEC is the same species as the workmen’s compensation
claims under the Labor Code—both of which belong to a different realm from that of Maritime Law. Therefore,
the limited liability rule does not apply to petitioner’s liability under the POEA-SEC.

Phil-Nippon Kyoei, Corporation v.

Rosalia T. Gudelosao, on her behalf of minor children
Christy Mae T. Gudelosao and Rose Elden T. Gudelsosao,
Carmen B. Tancontian, on her behalf and in behalf of the
Children Camela B. Tancontian, Beverly B. Tancontian, and
Ace B. Tancontian
G.R. No. 181375, July 13, 2016
FACTS: Petitioner, a domestic shipping corporation, purchased a “Ro-Ro”
passenger/cargo vessel M/V Mahlia in Japan in February 2003. For the vessel’s one month
conduction voyage from Japan to the Philippines, petitioner, as local principal, and Top Ever
Marine Management Maritime Co., Ltd. (TMCL), as foreign principal, hired Edwin C.
Gudelosao, Virgilio A. Tancontian, and six other crewmembers. They were hired through the
local manning agency of TMCL, Top Ever Marine Philippine Corporation (TEMMPC).
TEMMPC, through their president and general manager, Capt. Oscar Orbeta (Capt. Orbeta),
and the eight crewmembers signed separate contracts of employment. Petitioner secured a
Marine Insurance Police (Maritime Policy No. 00001) form SSSICI over the vessel for
PI0,800,000 against loss, damage, and third party liability or expense, arising from the
occurrence of the perils of the sea for the voyage of the vessel from Onomichi, Japan to
Batangas, Philippines. This Marine Insurance Policy included Personal Accident Policies for
the eight crewmembers for P3,240,000 each in case of accidental death or injuiy. On
February 24, 2003, while still within Japanese waters, the vessel sank due to extreme bad
weather condition. Only Chief Engineer Nilo Macasling survived the incident, while the rest
of the crewmembers, including Gudelosao and Tancontian, perished.
Respondents, as heirs and beneficiaries of Gudelosao and
Tancontian, filed separate complaints for death benefits and other

474
t ,MhV\ \M ViH
W.KSONS WHO IAKK Vb.V\ IS MAM'I 'MK t/M'lVs','r. SHIPOWNI H'. ASO 'MW AM,*<V.

damages against petitioner, '1LMMPL, Capt. OTbeta, TMCL. ar.T SSSICI, with the
Arbitration Branch of the National Labor ?sla Commission (NLRC). On August 5,2(X)4,
LaboT Arbiter (LA; Pab.o S Magat rendered a Decision finding solidary liability
among petiv,ar,tr. TEMMPC, TMCL, and Capt. Orbeta. 'Fhe LA also found SSSICI
liable to the respondents for the proceeds of the Personal Accident Policies and
attorney's fees. The LA, however, ruled that the liability of petitioner shall be
deemed extinguished only upon SSSICI’s payment of the insurance proceeds. On
appeal, the NLRC absolved petitioner. TEMMPC and TMCL and Capt. Orbeta
from any liability based on the limited liability rule. It, however, affirmed
SSSICI’s liability after finding that the Personal Accident Policies answer for
the death benefit claims under the Philippine Overseas Employment
Administration Standard Employment Contract (POEA-SEC).
Respondents filed a petition for certiorari before the Court of Appeals (CA)
where they argued that the NLRC gravely abused its discretion in ruling that
TEMMPC, TMCL, and Capt. Orbeta are absolved from the terms and conditions
of the POEA-SEC by virtue of the limited liability rule. The CA found that the
NLRC erred when it ruled that the obligation of petitioner, TEMMPC and TMCL,
for the payment of death benefits under the POEA-SEC was ipso facto
transferred to SSSICI upon the death of the seafarers. TEMMPC and TMCL
cannot raise the defense of the total loss of the ship because its liability under
the POEA-SEC is separate and distinct from the liability of the shipowner. To
disregard the contract, which has the force of law between the parties, would
defeat the purpose of the Labor Code and the rules and regulations issued by
the Department of Labor and Employment (DOLE) in setting the minimum
terms and conditions of employment for the protection of Filipino seamen.
The CA noted that the benefits being claimed are not dependent upon
whether there is total loss of the vessel, because the liability attaches even if
the vessel did not sink. Thus, it was error for the NLRC to absolve the TEMMPC
and TMCL on the basis of the limited liability rule. The CA then ordered that
petitioner’s liability will only be extinguished upon payment by SSSICI of the
insurance proceeds. On December 8, 2008, TEMMPC filed its Memorandum
informing that TEMMPC and TMCL’s Joint Motion to Dismiss the Petition and
the CA’s

Resolution granting it. The

475
TRANSPORTATION LAWS

dismissal is based on the execution of the Release of All Rights

and Full Satisfaction Claim (Release and Quitclaim) on December
14,2007 between respondents and TEMMPC, TMCL, and Capt.
Orbeta.
 ISSUE: (1) Whether or not the doctrine of real and
hypothecary nature of maritime law (also known as the limited
liability rule) applies in favor of petitioner; and (2) Whether or not
the CA erred in ruling that the liability of petitioner is extinguished
only upon SSSICI’s payment of Insurance proceeds.
HELD: In this jurisdiction, the limited liability rule is embodied
In Articles 587,590, and 837 under the Book III of the Code of
Commerce, viz.:

Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons, which arise from the conduct of the
captain in the care of the goods, which the vessel carried; but he may exempt

.bviA -
himself therefrom by abandoning the vessel with all her equipment and the
freightage he may have earned during the voyage.
r\ Art. 590. The co-owners of a vessel shall be civilly liable, in the

proportion of their contribution to the common fund, for the

results of the acts of the captain referred to in Art. 587.
i Each part owner may exempt himself from this liability by the

abandonment before a notary of the part of the vessel

belonging to him.
Art. 837. The civil liability incurred by the shipowner in
the cases 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.
Article 837 applies the limited liability rule in cases of
collision. Meanwhile, Articles 587 and 590 embody the
universal principle of limited liability in all cases wherein the
 shipowner or agent may be properly held liable for the
negligent or illicit acts of the captain. These articles precisely
intend to limit the liability of the shipowner or agent to the
value of the vessel; it’s appurtenances and freightage earned
in the voyage, provided that

476
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PERSONS WHO TAKE PART IN MARI TIME COMMERCE SHIPOWNERS AND SHIP AGENTS

the owner or agent abandons the vessel. When the vessel is totally lost, in
which case abandonment, is not required because there is no vessel to
abandon. The liability of the shipowner or agent for damages is
extinguished. Nonetheless, the limited liability rule is not absolute and is
without exceptions. It does not apply in cases: (1) where the injury or
death to a passenger is due either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the captain; (2) where the
vessel is insured; and (3) in workmen’s compensation claims. In Abueg v. San
Diego, the Court ruled that the limited liability rule found in the Code of
Commerce is inapplicable in a liability created by statute to compensate
employees and laborers, or the heirs and dependents, in cases of injury
received by or inflicted upon them while engaged in the performance of
their work or employment.
But the provisions of the Code of Commerce invoked bv appellant have no
room in the application of the Workmen’s Compensation Act, which seeks to
improve, and aims at the amelioration of. the condition of laborers and
employees. It is not the liability for the damage or loss of the cargo or injury to,
or death of. a passenger bv or through the misconduct of the captain or master
of the ship, nor the liability for the loss of the ship as a result of collision, nor the
responsibility for wages of the crew, but a liability created bv a statute to
compensate employees and laborers in cases of injury received bv or inflicted
upon them, while engaged in the performance of their work or employment, or
the heirs and dependents of such laborers and employees in the event of death
caused bv their employment. Such compensation has nothing to do with the
provisions of the Code of Commerce regarding maritime commerce. It is an item
in the cost of production, which must be included in the budget of any well-
managed industry. (Underscoring supplied)
The Court sees no reason why the above doctrine should not apply here.
The death benefits granted under Title II, Book IV of the Labor Code are similar
to the death benefits granted under the POEA-SEC, specifically its Section 20(A)
(1) and (4)(c), which provides that:
(1) In case of work-related death of the seafarers, during the term of
his contract, the employer shall pay his beneficiaries the Philippine

Currency equivalent to the amount of Fifty

477
TRANSPORTATION LAWS

Thousand US dollars (US$50,000.00), and an additional amount of Seven

Thousand US dollars (US$7,000.00) to each child under the age of twenty-
one (21) but not exceeding four (4) children, at the exchange rate
prevailing during the time of payment. x x x
(4) The other liabilities of the employer when the seafarers dies as a
result of work-related Injury or Illness during the term of employment are
as follows:
xxx
 (c) The employer shall pay the beneficiaries of the seafarers the
Philippine currency equivalent to the amount of One Thousand US dollars
(US$1,000.00) for burial expenses at the exchange rate prevailing during
the time of payment.
Akin to the death benefits under the Labor Code, these benefits under the
POEA-SEC are given when the employee dies due to a work-related cause
during the term of his contract. The liability of the shipowner or agent under
the POEA-SEC has likewise nothing to do with the provisions of the Code of
Commerce regarding maritime commerce. The death benefits granted under
the POEA-SEC is not due to the death of a passenger by or through the
misconduct of the captain or master of the ship, nor is it the liability for the loss
of the ship as result of collision, nor the liability for wages of the crew. It is a
liability created by contract between the seafarers and their employers, but
secured through the State’s intervention as a matter of constitutional and
statutory duty to protect Filipino overseas workers and to secure for them the
best terms and conditions possible, in order to compensate the seafarer’s heirs
and dependents in the event of death while engaged in the performance of
their work or employment.
But while the nature of death benefits under the Labor Code and the
POEA-SEC are similar, the death benefits under the POEA-SEC are intended to
be separate and distinct from, and in addition to, whatever benefits the
seafarer is entitled under Philippine laws, including those benefits, which may
be claimed from the State Insurance Fund. Thus, the claim for death benefits
under the POEA-SEC is the same species

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as the workmen’s compensation claims under the Labor Code—both of which

belong to a different realm from that of Maritime Law. Therefore, the limited
liability rule does not apply to petitioner’s liability under the POEA-SEC.
The Court, however, finds that the CA erred in ruling that " upon payment of the
insurance proceeds to said widows by respondent South Sea Surety &
Insurance Co., Inc., respondentPhil-Nippon Corporation’s liability to all the complainants is deemed
extinguished. ” This ruling makes petitioner’sliability conditional upon SSSICI’s
payment of the insurance proceeds. In doing so, the CA determined that the
Personal Accident Policies are casualty insurance, specifically one of liability
insurance. The CA determined that petitioner, as insured, procured from SSS1CI
the Personal Accident Policies in order to protect itself from the consequences
of the total loss of the vessel caused by the perils of the sea. The CA found that
the liabilities insured against are all monetary claims, excluding the benefits
under the POEA-SEC, of respondents in connection with the sinking of the
vessel. The Court rules that while the Personal Accident Policies are casualty
insurance, they do not answer for petitioner’s liabilities arising from the sinking
of the vessel. It is an indemnity insurance procured by petitioner for the benefit
of the seafarers. As a result, petitioner is not directly liable to pay under the
policies because it is merely the policyholder of the Personal Accident Policies.
The liabilities of SSSICI to the beneficiaries are direct under the insurance
contract. Under the contract, petitioner is the policyholder, with SSSICI as the
insurer, the crewmembers as the cestuique vie or the person whose life is being
insured with another as beneficiary of the proceeds, and the latter’s heirs as
beneficiaries of the policies. Upon petitioner’s payment of the premiums
intended as additional compensation to the crewmembers, SSSICI, as insurer,
undertook to indemnify the crewmember’s beneficiaries from an unknown or
contingent event. Thus, when the CA conditioned the extinguishment of
petitioner’s liability on SSSICI’s payment of the Personal Accident Policies’
proceeds, it made a finding that petitioner is subsidiary liable for the face value
of the policies. To reiterate, however, there is no basis for such finding; there is
no obligation on the part of petitioner to pay

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the insurance proceeds because petitioner is, in fact, the obligee or

policyholder in the Personal Accident Policies. Since petitioner is not the party
liable for the value of the insurance proceeds, it follows that the limited liability
rule does not apply as well.
Even if the contract is for a bareboat or demise charter where possession, free administration, and
even navigation are temporarily surrendered to the charterer, dominion over the vessel remains
with the shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that
of the former, can never set up the Limited Liability Rule against the very owner of the vessel.
Augustin P. Dela Torre v. The Honorable Court of
Appeals, Crisostomo G. Concepcion, Ramon “Boy” Larrazabal,
Philippine Trigon Shipyard Corporation and
Roland G. Dela Torre
G.R. No. 160088, July 13, 2011
Philippine Trigon Shipyard Corporation and Roland G.
Dela Torre v. Crisostomo G. Concepcion, Agustin Dela Torre, and Ramon “Boy”
Larrazabal
G.R. No. 160565

FACTS: Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-

Josephine, a vessel registered with the Philippine Coast Guard. On February 1,
1984, Concepcion entered into a “Preliminary Agreement” with Roland dela
Torre (Roland) for the dry-docking and repairs of the said vessel, as well as for
its charter afterwards. Under this agreement, Concepcion agreed that after the
dry-docking and repair of LCT-Josephine, it “should” be chartered for PI0,000 per
month and the charter will be the one to pay the insurance premium of the
vessel. On June 20, 1984, Concepcion and the Philippine Trigon Shipyard
Corporation (PTSC), represented by

Roland, entered into a “Contract of Agreement,” wherein the latter would

charter LCT- Josephine retroactive to May 1, 1984. On August 1, 1984, PTSC/
Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single
proprietorship owned by Roland’s father, Agustin dela Torre. On November 22,
1984, TSL, this time represented by Roland per
CHAPTER VIII
PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

Agustin’s Special Power of Attorney, sub-chartered LCT-Josephine to

Ramon Larrazabal (Larrazabal) for the transport of cargo consisting of sand and
gravel to Leyte. It was agreed in the contract that Larrazabal is the one
responsible to supervise in loading and unloading of cargo load on the vessel.
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel
arrived at Philpos, Isabel, Leyte. The vessel was beached near the NDC

Wharf. With the vessel’s ramp already lowered, the unloading of the vessel’s
cargo began with the use of Larrazabal’s pay loader. While the payloader was
on the deck of the LCT-Josephine scooping a load of the cargo, the vessel’s
ramp started to move downward, the vessel tilted, and sea water rushed in.
Shortly thereafter, LCT-Josephine sank.
 Concepcion demanded that PTSC/Roland refloat LCT-Josephine. The latter
assured Concepcion that negotiations were underway for the refloating of his
vessel. Unfortunately, this did not materialize. For this reason, Concepcion was
constrained to institute a complaint for Sum of Money and Damages against
PTSC and Roland before the Regional Trial Court (RTC). PTSC and Roland filed
their answer together with a third-party complaint against Agustin. Agustin, in
turn, filed his answer plus a fourth-party complaint against Larrazabal. The
latter filed his answer and counterclaim but was subsequently declared in
default by the RTC. Eventually, the fourth-party complaint against Larrazabal
was dismissed when the RTC rendered its decision in favor of Concepcion,
ordering the defendants to pay the plaintiff the value of the vessel. Hubart
Sungayan, who was the chief mate of LCT-Josephine and under the employ of
TSL/Agustin, also admitted at the trial that it was TSL/Agustin, through its crew,
who was in charge of LCT-Josephine s operations although the responsibility of
loading and unloading the cargo was under Larrazabal. Thus, the RTC declared
that the “efficient cause of the sinking of the LCT-Josephine was the improper
lowering or positioning of the ramp,” which was well within the charge or
responsibility of the captain and crew of the vessel. Augustin, PTSC and Roland
went to the Court of Appeals (CA) on appeal. The appellate court, in agreement
with the findings of the RTC, affirmed its decision in toto.
ISSUE: Whether or not the limited liability rule should apply to Agustin,
PTSC and Roland.

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 HELD: With respect to petitioner's position that the Limited Liability Rule
under the Code of Commerce should be applied to them, the argument is
misplaced. The said rule has been explained to be that of the real and
hypothecary doctrine in maritime law where the shipowner of ship agent’s
liability is held as merely co-extensive with his interest in the vessel such that a
total loss thereof results in its extinction. In this jurisdiction, this rule is provided
in three articles of the Code of Commerce. These are Articles 887, 590, and 837
of the Code of Commerce.
Article 837 specifically applied to cases involving collision, which is a
necessary consequence of the right to abandon the vessel given to the
shipowner or ship agent under the first provision-Article 587. Similarly, Article
590 is a reiteration of Article 587, only this time, the situation is that the vessel
is co-owned by several persons. Obviously, the forerunner of the Limited
Liability Rule under the Code of Commerce is Article 587. Now, the latter is
quite clear on which indemnities may be confined or restricted to the value
pursuant to the said Rule, and these are 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.” Thus, what is contemplated is the
liability to third persons who may have dealt with the shipowner, the agent, or
even the charterer in case of demise or bareboat charter. The only person who
could avail of this is the shipowner, Concepcion. He is the very person whom
the Limited Liability Rule has been conceived to protect. The petitioners cannot
invoke this as a defense. In Yangco v. Laserna, this Court, through Justice Moran,
wrote: “The policy, which the rule is designed to promote, is the
encouragement of ship building and investment in maritime commerce, x x x
Grotius, in his law of War and Peace, says that men would be deterred from
investing in ships if they thereby incurred the apprehension of being rendered
liable to an indefinite amount by the acts of the master, x x x”
 Later, in the case of Monarch Insurance Co. Inc, v. CA, this Court, this time
through Justice Sabino R. de Leon, Jr. again explained: “No vessel, no liability, ”
expresses in a nutshell the limited liability rule. 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. The

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total destruction of the vessel extinguishes liens because there is no longer any res to which it can attach.
This doctrine is based on the real and hypothecary nature of maritime law, which has its origin in the
prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by
innumerable hazards and perils. To o ffset against these adverse conditions and to encourage
shipbuilding and maritime commerce. it was deemed necessary to confine the liability of the owner or
agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance . if any. ”

In view of the foregoing, Concepcion, as the real shipowner, is the one

who is supposed to be supported and encouraged to pursue maritime
commerce. Thus, it would be absurd to apply the Limited Liability Rule against
him, who, in the first place, should be the one benefiting from the said rule. In
Yueng Sheng, it was further stressed that the charterer does not completely and
absolutely step into the shoes of the shipowner or even the ship agent because
there remains conflicting rights between the former and the real shipowner as
derived from their charter agreement. The Court again quotes Chief Justice
Arellano: “Their (charterer's) possession was, therefore, the uncertain title of lease, not a possession
of the owner, such as is that of the agent, who is fully subrogated to the place of the owner in regard to
Therefore, even if
the dominion, possession, free administration, and navigation of the vessel. ”
the contract is for a bareboat or demise charter where possession, free
administration, and even navigation are temporarily surrendered to the
charterer, dominion over the vessel remains with the shipowner. Ergo, the
charterer or the sub-charterer, whose rights cannot rise above that of the
former, can never set up the Limited Liability Rule against the very owner of the
vessel.
ART. 588. Neither the shipowner nor the ship agent shall be liable for the obligation
contracted by the captain if the latter exceed 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.

483
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ART. 589. If two or more persons should be co-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 co-owners.
A majority shall be the relative majority of the voting coowners.
If there should be only two co-owners, in case of disagreement the vote
of the co-owner having the largest interest shall be decisive. If the interests are
equal, it shall be decided by lot.
The co-owner having the smallest share in the vessel shall have one vote;
and the other co-owners proportionately shall have as many votes as they have
parts equal to the smallest one.
The vessel cannot be detained, attached, or levied upon execution in her
entirety for the private debts of a co-owner, but the proceedings limited
iifl
to the interest, which the debtor may have in the vessel, may be made, without interfering with her
navigation.
..JiLLLK.

ART. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
contribution to the common fund for the results of the acts of the captain, referred to in
Article 587.
 Each co-owner may exempt himself from this liability by the
abandonment, before a notary, of that part of the vessel belonging to him.
ART. 591. All the co-owners shall be liable, in proportion to their
respective ownership, for the expenses of the repairs of the vessel and for other
expenses, which are incurred by virtue of the resolution of the
i? majority.

They shall likewise be liable in the same proportion for the expenses
of maintenance, equipment, and provisioning of the vessel, necessary for
navigation.
ART. 592. The resolutions 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 co-owners in the

484
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PERSONS WHO TAKi: PAR I IN MARHIMI COMMKR( lv siu POWNI :RS AN I ) si 11 p AC i i ;N rs

minority renounce their participation therein, which must be acquired by the other co-owners after
a judicial appraisement of the value of the portion or portions assigned.
ART. 593. The owners of a vessel shall have preference in her charter over other persons,
offering equal conditions and price. If two or more of the former should claim said right, the one
having greater interest shall be preferred, and should they have an equal interest it 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 co-owners.
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 engage in
commerce 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 occupy the duties of captain of the vessel, subject in every
case, to the provisions contained in Article 609.
If two or more co-owners apply for the position of captain, the disagreement shall be
decided by a vote of the co-owners, and if the vote should result in a tie, the position shall be given
to the coowner having the larger interest in the vessel.
If the interest of the applicants should be the same, and there should be a tie, the matter
shall be decided by lot.
ART. 597. The ship agent shall select and come to an agreement with the captain, and shall
contract in the name of the owners who shall be bound in all that refers to repairs, details of
equipment, armament, provisions, fuel, and freight of the vessel, and, in general, in all that pertains
to the requirements of navigation.

485
TRANSPORTATION LAWS
 ART. 598. The ship agent may not order a new voyage, or make contracts for a new charter,
or insure the vessel, without the authority of her owner or by virtue of a resolution of the majority
of the co-owners, unless these privileges were granted to him in the certificate of his appointment.
If he should insure the vessel without authority therefore, he shall subsidiary be liable for the
solvency of the insurer.
ART. 599. The managing agent of an association shall render to his co-owners an account of
the results of each voyage of the vessel, without prejudice to always having the books and
correspondence relating to the vessel and to her voyage 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.
In order to enforce the payment, the managing agents shall be entitled to an executory action,
which shall be instituted by virtue of a resolution of the majority, and without further proceedings
than the acknowledgment of the signatures of the persons who voted the resolution.
ART. 601. Should there be any profits, the co-owners may demand of the managing agent the
amount due them, by means of an executory action without further requisite than the
acknowledgment of the signatures in the instrument approving the account.
ART. 602. The ship agent shall indemnify the captain for all the expenses he may have
incurred from his own funds or from those of other persons for the benefit of the vessel.
ART. 603. Before the vessel goes out to sea, the ship agent may, at his discretion, discharge
the captain and members of the crew whose contract did not state a fixed period or voyage,
paying them the salaries earned according to their contracts, and without

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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

any indemnity whatsoever, unless there is an expressed 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 continue to receive their salary until their return to the port where the contract
was made, unless there should be just motive for the discharge, all in accordance with Article 636
et. seq. of this Code.
 ART. 605. If the contracts of the captain and members of the crew with the agent should
be for a fixed period or voyage, they may not be discharged until after the fulfilment of their
contracts, except for reason of insubordination in serious matters, robbery, theft, habitual
drunkenness or damage caused to the vessel or to her cargo by malice, or manifest or proven
negligence.
ART. 606. If the captain should be a co-owner of the vessel, he may not be discharged
without the ship agent returning to him the amount of his interest therein, which, in the
absence of an agreement between the parties, shall be appraised by experts appointed in the
manner established in 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 special agreement contained in the articles of co-partnership, he cannot be
deprived of his office except for the causes mentioned in Article 605.
ART. 608. In case of the voluntary sale of the vessel, all contracts between the ship agent and
captain shall terminate, the right to proper indemnity being reserved in favor of the captain,
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 seller has been instituted, the latter should be insolvent
CAPTAINS AND MASTERS OF THE VESSEL
ART. 609. Captains and masters of vessels must be Filipinos having legal capacity to
obligate themselves in accordance with this
Code, and must prove that they have the skill, capacity,

487
TRANSPORTATION LAWS

and qualifications required to command and direct the vessel, as established by marine or
navigation laws, ordinances, or regulations, and must not be disqualified according to the same for
the discharge of the duties of that position.
If the owner of a vessel desires to be the captain thereof and does not have the legal
qualifications therefore, he shall limit himself to the financial administration of the vessel, and shall
entrust her navigation to the person possessing the qualifications required by said ordinances and
regulations.

In maritime law, master of a ship is the commander of a merchant vessel,

who has the chief charge of her government and navigation and the command of
the crew, as well as the general care and control of the vessel and cargo, as the
representative and confidential agent of the owner. He is commonly called the
“captain.” (Blacks Law Dictionary, Sixth Ed.)
Under the Code of Commerce, captain and master of the vessel have the
same meaning; both being the commander and technical director of the vessel.
(See Arts. 609-612, Code of Commerce)
In Inter-Orient Maritime Enterprises, Inc. v. NLRC, 235 SCRA 268, August 11, 1994, it was
held that the captain of a vessel is a confidential and managerial employee. A
master or captain, for purposes of maritime commerce, is one who has command
of a vessel. A captain commonly performs three distinct roles: (1) he is a general
agent of the shipowner; (2) he is also commander and technical director of the
vessel; and (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; for such role (which, to our mind, is
analogous to that of “Chief Executive Officer” [CEO] of a present-day corporate
enterprise) has to do with the operation and preservation of the vessel during its
voyage and the protection of the passengers (if any) and crew and cargo. In his
role as general agent of the shipowner, the captain has authority to sign bills of
lading, carry goods aboard and deal with the freight earned, agree upon rates
and decide whether to take cargo. The ship captain, as agent of the shipowner,
has legal authority to enter into contracts with respect to the vessel and

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the trading of the vessel, subject to applicable limitations established by statute,

contract or instructions and regulations of the shipowner.
To the captain is committed the governance, care and management of the
vessel.

Clearly, the captain is vested with both management and fiduciary functions.
ART. 610. The following powers are inherent in the position of captain or master 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 the said agent be present; but the ship agent shall not be permitted
to 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
accordance with the instructions he may have received from the ship agent.
3. To impose, in accordance with the contracts and the laws and regulations of the
merchant marine, on board the vessel, correctional punishment upon those who do not comply
with his orders or who conduct themselves against discipline, holding a preliminary
investigation on the crimes committed on board the vessel on the high seas, which he shall turn
over to the authorities who are to take cognizance thereof, at the first port touched.
4. To make contracts for the charter of the vessel in the absence of her ship agent
or consignee, acting in accordance with the instructions received and protecting with utmost
care the interest of the owner.
5. To adopt all proper measures in order to keep the vessel well provisioned and
equipped, purchasing all that may be necessary for the purpose, provided there is no time
request instructions from the ship agent.
6. To make disposition, in similar urgent cases while on a voyage, for the repairs of
the hull and engines of the vessel and of her rigging and equipment which are absolutely
necessary so that she may be able to continue and conclude her voyage; but if she

489

r
TRANSPORTATION LAWS
 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 not
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 consignees of the vessel or
correspondents of the ship agent.
2. By applying to the consignees of the cargo or to the persons
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 quantity of the cargo to cover the amount
absolutely necessary to repair the vessel and equip her to pursue the
voyage.
, In the two latter cases he must apply to the judicial authority of the port if in the
Philippines, and to the Filipino consul if in a foreign country; and where
■OiLi_tEkA.S

there should be none, to the local authority, proceeding in accordance

r
with the provisions of Article 583, and with provisions of the law of civil
procedure.

A ship’s captain must be accorded a reasonable measure of |

discretionary authority to decide what the safety of the ship and of ~ its crew and cargo
specifically requires on a stipulated ocean voyage. The captain is held responsible, and properly
so, for such safety. He is right there on the vessel, in command of it and (it must be presumed)
knowledgeable as to the specific requirements of seaworthiness and the particular risks and
perils of the voyage he is to embark upon. The applicable principle is that the captain has control
of all departments of service in the vessel, and reasonable discretion as to its navigation. It is the
right and duty of the captain, in the exercise of sound discretion and in good faith, to do all
things with respect to the vessel and its equipment and conduct of the voyage which are
reasonably necessary for the

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protection and preservation of the interests under his charge, whether those be
of the shipowners, charterers, cargo owners or of underwriters. It is a basic
principle of admiralty law that in navigating a merchantman, the master must be
left free to exercise his own best judgment. The requirements of safe navigation
compel us to reject any suggestion that the judgment and discretion of the
captain of a vessel may be confined within a straitjacket, even in this age of
electronic communications. Indeed, if the ship captain is convinced, as a
reasonably prudent and competent mariner acting in good faith that the
shipowner’s or ship agent’s instructions (insisted upon by radio or telefax from
their offices thousands of miles away) will result, in the very specific
circumstances facing him, in imposing unacceptable risks of loss or serious
danger to ship or crew, he cannot casually seek absolution from his
responsibility, if a marine casualty occurs, in such instructions. (Inter-Orient Maritime
Enterprises, Inc. v. NLRC, 235 SCRA 268)

ART. 612. The following duties are inherent in the office of captain:
1. To have on board, before starting on a voyage, a detailed inventory of the hull, engines,
rigging, tackle, stores and other equipment of the vessel; the navigation certificate; the roll of the
persons who make up the crew of the vessel, and the contracts entered into with the crew; the list
of passengers; the health certificate; 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 thereof; the invoices or manifests of the cargo, and the instrument of the
visit or inspection of the expert, should it have been made at the port of departure.
2. To have a copy of this Code on board.
3. To have three folioed and stamped books, placing at the beginning of each one a note of
the number of folios it contains, signed by the marine official, and, in his absence, by the
competent authority.
In the first book which shall be called “logbook,” he shall enter every day the condition of the
atmosphere, the prevailing
 491
TRANSPORTATION LAWS

winds, the course taken, the rigging carried, the horsepower of the engines, the distance covered,
the maneuvers 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 is its cause, as well as the
imperfections and averages of the cargo, and the effects and consequences of the jettison, should
there be any; and in cases of grave resolutions which required the advice or a meeting of the
officers of the vessel or even of the passengers and crew, he shall record the decisions adopted. For
the informations indicated he shall make use of the binnacle book, and the steam or engine book
kept by the engineer.
4. To make, before receiving the cargo, 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 she is watertight, with the rigging and engines in good condition, and with equipment
required for good navigation, preserving a certificate of the memorandum of this inspection, signed
by all the persons who may have taken part therein, under their responsibility.
The experts shall be appointed, one by the captain of the vessel and the other one by those
who request the examination, and in case of disagreement a third shall be appointed by the
marine authority of the port.
5. To remain constantly on board the vessel with the crew while receiving the cargo on
board, and watch carefully the stowage thereof; not to consent to the loading of any merchandise
or goods of a dangerous character, such as inflammable or explosive substances, without the
precautions which are recommended for their packing, handling, and isolation; not to permit any
cargo to be carried on deck which, by reason of its arrangement, volume, or weight, makes the
work of the sailors difficult, and which might endanger the safety of the vessel; and in case the
nature of the merchandise, the special character of the shipment and principally the favorable
season when it takes place, would allow the merchandise to 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.

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 6. To demand a pilot at the expense of the vessel whenever required by navigation, and
principally when a port, canal, or river, or a roadstead or anchoring place is to be entered with
which neither he, nor the officers and the crew are acquainted.
7. To be on deck at the time of sighting land and to take command on entering and leaving
the ports, canals, roadsteads, and rivers, unless there is a pilot on board discharging his duties. He
shall not spend his night away from the vessel except for serious cause 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 Filipino consul if in a foreign country, before twenty-four hours have elapsed,
and make a statement of the name, registry, and port of departure of the vessel, of her cargo, and
cause of arrival, which declaration shall be vised by the authority or by the consul if after examining
the same it is found to be acceptable, giving the captain the proper certificate in order to show his
arrival under stress and the causes therefore. In the absence of marine officials 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 enter in the
certificate of the vessel in the registry of vessels, the obligations which he may contract in
accordance with Art. 583.
10. To place under good care and custody all the papers and belongings of any member of the
crew who might die on the vessel, making a detailed inventory in the presence of passengers as
witnesses, and, in their absence, of members of the crew.
11. To conduct himself according to the rules and precepts contained in the instructions of the
ship agent, being liable for all that he may do in violation thereof.
12. To give account to the ship agent, from the port where the vessel arrives, of the cause of
his arrival, taking advantage of the semaphore, telegraph, mail etc., as the case may be; notify the
said ship agent of the cargo he may have received, stating the names and

493

TRANSPORTATION LAWS
domiciles of the shippers, freight earned, and amounts borrowed on bottomry loan; advise
him of his departure, and give him any information and data which may be of interest to
him.
13. To observe the rules on the situation of lights and maneuvers to prevent collisions.
14. To remain on board, in case the vessel is in danger, until the last hope to save her is lost,
and before abandoning her, to hear the officers of the crew, abiding by the decision of the
majority; and if he should have to take a boat 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.
15. In case of shipwreck, to make the proper protest in due form at the first port reached
before the competent authority or Filipino 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 of navigation,
customs, health, and others.

Failure of Ship Captain to ascertain beforehand direction of reported storm and weather
conditions along his route constitutes negligent lack of foresight.

Alejandro Arada v.
■f^DJLLEK/VS

Court of Appeals and San Miguel Corporation G.R. No. 98243, July
1,1992
FACTS: On March 24, 1982, petitioner through its crew master, Mr. Vivencio Babao, applied
for a clearance with the Philippine Coast Guard for M/L Maya to leave the port of San Carlos City
but due to a typhoon, it was denied clearance by SNI Antonio Prestado, PN who was then assigned
at San Carlos City Coast Guard Detachment.
On March 25, 1982 M/L Maya was given clearance as there was no storm and the sea was
calm. Hence, said vessel left for Mandaue

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 SHIPOWNERS AND SHIP AGENTS

City. While it was navigating towards Cebu, a typhoon developed and

said vessel was buffeted on all its sides by big waves. Its rudder was
destroyed and it drifted for 16 hours although its engine was running.
On March 27, 1982 at about 4:00 a.m., the vessel sank with
whatever was left of its cargoes. The crew was rescued by a passing
pump boat and was brought to Palompon, Leyte, where Vivencio
Babao filed a marine protest.
On the basis of such marine protest, the Board of Marine Inquiry
conducted a hearing of the sinking of M/L Maya wherein private
respondent was duly represented. Said Board made its findings and
recommendation dated November 7, 1983, that the owner/operator,
officers and crew of M/L Maya be exonerated or absolved from any
administrative liability on account of this incident.
The Board’s report containing its findings and recommendation
was then forwarded to the headquarters of the Philippine Coast
Guard for appropriate action. On the basis of such report, the
Commandant of the Philippine Coast Guard rendered a decision
dated December 21, 1984 in SBMI Adm. Case No. 88-82 exonerating
the owner/operator officers and crew of the ill-fated M/L Maya from
any administrative liability on account of said incident.
ISSUE: Whether petitioner is liable for the value of the lost cargoes.
Petitioner contends that it was not in the exercise of its function
as a common carrier when it entered into a contract with private
respondent, but was then acting as private carrier not bound by the
requirement of extraordinary diligence and that the factual findings
of the Board of Marine Inquiry and the Special Board of Marine
Inquiry are binding and conclusive on the Court.
 Private respondent counters that M/L Maya was in the exercise
of its function as a common carrier and its failure to observe the
extraordinary diligence required of it in the vigilance over their
cargoes makes petitioner liable for the value of said cargoes.
HELD: Respondent court’s conclusion as to the negligence of petitioner is
supported by evidence. It will be noted that Vivencio Babao

495

TRANSPORTATION LAWS

knew of ihe impending t\phoon on March 24,1982 when the Philippine Coast
Guard denied ML Maya the issuance of a clearance to sail. Less than 24 hours
elapsed since the time of the denial of said clearance and the time a clearance to
sail was finally issued on March 25, 1982. Records will show that Babao did not
ascertain where the typhoon was headed by the use of his vessel’s barometer
and radio. Neither did the captain of the vessel monitor and record the weather
conditions everyday as required by Article 612 of the Code of Commerce. Had he
done so while navigating for 31 hours, he could have anticipated the strong
winds and big waves and taken shelter.
Furthermore, the records show that the crew of M/L Maya did not have the
required qualifications provided for in P.D. No. 97 or the Philippine Merchant
Marine Officers Law, all of whom were unlicensed. While it is true that they were
given special permit to man the vessel, such permit was issued at the risk and
responsibility of the owner.
 Finally, petitioner claims that the factual findings of the Special Board of
Marine Inquiry exonerating the owner/operator, crew officers of the ill-fated
vessel M/L Maya from any administrative liability is binding on the court.
In rejecting petitioner’s claim, respondent court was correct in ruling that
“such exoneration was but with respect to the administrative liability of the
‘owner/operator,’ officers and crew of the ill-fated vessel. It could not have
meant exoneration of appellee from liability as a common carrier for his failure
to observe extraordinary diligence in the vigilance over the goods it was
transporting and for the negligent acts or omissions of his employees. Such is the
function of the Court, not the Special Board of Marine Inquiry.”
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 profits shall belong to the other
persons interested, and the losses shall be borne by him alone.
ART. 614. A captain who, having agreed to make a voyage, fails to fulfill his undertaking,
without being prevented by fortuitous event or force mejeure, shall indemnify all the losses, which his

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failure may cause, without prejudice to criminal penalties, which may be proper.
ART. 615. Without the consent of the ship agent, the captain may not have himself
substituted by another person; and should he do so, besides being liable for all the acts of the
substitute and bound to pay the indemnities mentioned in the foregoing article, the captain as
well as the substitute may be discharged by the ship agent.
ART. 616. If the provisions and fuel of the vessel are consumed before arriving at the port
of destination, the captain shall order with the consent of the officers of the same, to make the
nearest port to get a supply of either; but if there are persons on board who have provisions of
their own, he may compel them to turn over said provisions for the common consumption of
 all persons on board, paying the price thereof at the same time, or, at the latest, at the first
port where the vessel may arrive.
ART. 617. The captain cannot contract loans on respondentia secured by the cargo, and
should he do so, the contract shall be void.

Neither can 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,
nor exits any other kind of lien or obligation chargeable against her. When he is permitted to
do so, he must necessarily state what interest he has in the vessel.
In case of violation of this article, the principal, interest, and costs shall be charged to the
private account of the captain, and the agent shall further have the right to discharge him.
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 damage suffered by the vessel and her cargo by reason of want of skill and
negligence on his part. If a misdemeanor or crime has been committed, they shall be liable in
accordance with the Penal Code.

497
TRANSPORTATION LAWS

2. For all thefts and robberies committed by the crew, reserving his right of action against
the guilty parties.
3. For the losses, fines and confiscations imposed on account of violation of laws and
regulations of customs, police, health, and navigation.
4. For the damage 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 opportunely made
full use of his authority to prevent or avoid them.
5. For those arising by reason of a misuse of powers and nonfulfillment of duties
corresponding 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, in the
opinion of the officers of the vessel at a meeting attended by the shippers and supercargoes who may
be on board, he should not have taken without sufficient cause.
No exception whatsoever shall exempt him from this liability.
 7. For those arising by reason of his voluntarily entering a port other than his destination,
outside of the cases of without formalities referred to in Article 612.
8. For those arising by reason for the non-observance of the provisions contained in the
regulations for the situation of lights and maneuvers for the purpose of preventing collisions.
ART. 619. The captain shall be liable for the cargo from the time it is turned over to him at
the dock or afloat alongside the vessel at the port of loading, until he delivers it on the shore or on
the discharging wharf at the port of unloading, unless otherwise expressly agreed upon.
ART. 620. The captain shall not be liable for the damage caused to the vessel or to the cargo
by reason of force majeure; but he shall always be so for those arising through his own fault, no
agreement to the contrary being valid.

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PERSONS WHO TAKE PART IN MARITIME COMMERCE ' SHIPOWNERS AND SHIP AGENTS

Neither shall he be personally liable for the obligation he may have contracted for the repair,
equipment, and provisioning of the vessel, which shall be incurred by the ship agent, unless the
former has expressly bound himself personally or 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
who pledges or sells merchandise or provisions outside of the cases and without formalities
prescribed in this Code, shall be liable for the principal, interest, and costs, and shall indemnify for
the damages he may cause.
He, who commits fraud in his accounts, shall reimburse the amount defrauded, and shall be
subject to the provisions of the Revised Penal Code.
ART. 622. If, when on a voyage, the captain should receive news of the appearance of corsairs
or men of war against his flag, he shall be obliged to make the nearest neutral port, inform his ship
agent or shippers, and await an occasion to sail under convoy or until the danger is over, or to final
orders from the ship agent or shippers.
ART. 623. If he should be attacked by a corsair and after having tried to avoid the encounter
and having resisted the delivery of the effects of the vessel or of her cargo, they should be forcibly
taken away from him, or he should be obliged to deliver them, he shall make an entry of that fact in
his freight book and shall prove it before the competent authority at the first port he touches.
After the force majeure has been proven, 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 damage or averages, shall make a protest thereon before the competent
authority at the first port he touches within the twenty-four hours following his arrival, and shall
ratify it within the same period when he arrives at the place of his destination, proceeding
immediately with the proof of the facts, without opening the hatches not until after this has been
done.

499
IK ANSI*( STATION I.AWS

The captain shall proceed in the same manner if, the vend having been wrecked, he is saved
alone or with part of his cre*, in which case he shall appear before the nearest authority, and make
a sworn statement of the facts.
The authority or the consul abroad shall verify the said facts, receiving sworn statements of
the members of the crew and passengers who may have been saved; and taking such other steps as
may help in arriving at the facts, he shall make a statement of what may be the result of the
proceedings in the logbook and in that of the sailing mate, and shall deliver the original records of
the proceedings to the captain, stamped and folioed, with a memorandum of the folios, which he
must rubricate, for their presentation to the judge or court of the port of destination.
The statement of the captain shall be believed if it is in accordance with those of the crew and
passengers; if they disagree, the latter shall be accepted, always saving proof to the contrary.
ART. 625. The captain, under his personal responsibility, as soon as he should have arrived at
the port of his destination, obtained the necessary permission from the offices of health and customs,
and complied with the other formalities required by the regulations of the administration, shall
make the delivery of the cargo without any defalcation to the consignees, and, in proper case, the
vessel, rigging, and freights to the ship agent.

OFFICERS AND CREW OF THE VESSELS

If, by reason of the absence of the consignee or non-appearance of the legal holder of the
invoices, the captain should not know to whom the cargo could be legally delivered, 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.
ART. 626. In order to be a sailing mate it shall be necessary:
1. To possess the qualifications required by the marine or navigation laws or regulations.
 500
v)x /r . i,v/j 'txh n.v:: / >
A.'</ '.r."r * f.\. v".

2. Not to be divpjalified in iCLorrbr.'.e rder*-* u- discharge of the position.

AR'I. 627. 'I he sailing mate, a* the vetond chief of tf.t -esvei and unless the ship agent does not order
otherwise. fhafJ uke ri^e place of the captain in case of absence, ritkneu or death- aid t-haQ then assume
all his powers, obligations, and Ilabflxtiei.

Article 627 of the Code of Commerce defies ±e Chief Ms-s. also called Chief Officer or Sailing Mate, as
~me second chief of die vessel, and unless the agent orders otherwise, shall take die place of ±e captain in
eases of absence, sickness, or death, and shah then assume all his powers, duties, and responsibilities.” A
Chief Officer. merefore. is second in command, next only to the captain of the vesseL Moreover, the
Standard of Training, Certification, and
Watchkeeping for Seafarers 1978 (STCW ‘78), to which the Philippines is a signatory, defines a Chief Mate
as “the deck officer next in rank to the master and upon whom the command of the ship will fall in the
event of incapacity of the master.”
In Association of Marine Officers and Seaman of Reyes and Lim Co. v. Laguesma y the Court held that
the Chief Mate is a managerial employee because the said officer performed the functions of an executive
officer next in command to the captain; that in the performance of such functions, he is vested with powers
or prerogatives to lay down and execute management policies. The exercise of discretion and judgment in
directing a ship’s course is as much managerial in nature as decisions arrived at in the confines of the more
conventional boardroom or executive office. Important functions pertaining to the navigation of the vessel
like assessing risks and evaluating the vessel’s situation are managerial in nature. Thus, respondent, as
Chief Officer, is a managerial employee; hence, petitioners need to show by substantial evidence the basis
for their claim that respondent has breached their trust and confidence. (Centennial Transmarine, Inc.,
Centennial Maritime Services Corporation and/or B+H Equimar Singapore, PTE. LTD. v. Ruben G.
Dela Cruz, G.R. No. 180719, August 22, 2008)

501

TRANSPORTATION LAWS

The Master shall retain overall command of the vessel even on pilotage grounds whereby he can
countermand or overrule the order or command of the Harbor Pilot on board.

Lorenzo Shipping Corporation v. National Power Corporation

G.R. No. 181683, October 7. 2015
 National Pow er Corporation v.
Lorenzo Shipping Corporation G.R. No. 184568
FACTS: Lorenzo Shipping is the owner and operator of the commercial vessel
M/V Lorcon Luzon. National Powder Corporation is the owner of Power Barge 104, a
non-propelled powrer plant barge. On March 20, 1993, Power Barge 104 w'as
berthed and stationed at the Makar Wharf in General Santos City when the M/V
Lorcon Luzon hit and rammed Power Barge 104. At the time of the incident. Captain
Mariano Villarias (Captain Villarias) served as the Master of the M/V Lorcon Luzon.
However, the M/V Lorcon Luzon wras then being piloted by Captain Homer Yape
(Captain Yape), a Harbor Pilot from the General Santos City pilotage district. As
underscored by Lorenzo Shipping, the
M/V Lorcon Luzon was under Captain Yape’s pilotage as it was mandatory to yield
navigational control to the Harbor Pilot while docking.
Testifying before the Board of Marine Inquiry, Captain Villarias recalled that
while the M/V Lorcon Luzon was under Captain Yape’s pilotage, he nevertheless
“always” remained at the side of Captain Yape. He, likewise, affirmed that he
heard and knew Captain Yape’s orders “because I have to repeat his order.” As
the M/V Lorcon Luzon was docking, Captain Yape ordered the vessel to proceed
“slow ahead,” making it move at the speed of about one knot. As it moved closer
to dock, Captain Yape gave the order “dead slow ahead,” making the vessel
move even slower. He then ordered the engine stopped. As the M/V Lorcon Luzon
moved “precariously close to the wharf,” Captain Yape ordered the vessel to
move backward, i.e., go “slow astern,” and subsequently “full astern.” Despite his
orders, the engine failed to

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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

timely respond. Thus, Captain Yape ordered the

dropping of the anchor. Despite this, the M/VLorcon
Luzon rammed into Power Barge 104. hollowing this
incident, Nelson Homena, Plant Manager of Power
Barge 104, filed a Marine Protest before the Board
of Marine Inquiry.

Captain Villarias also filed his own Marine Protest.

For his part, Captain Yape filed a Marine Accident
Report. To forestall the prescription of its cause of
action for damages, National Power Corporation
filed before the Quezon City Regional Trial Court a
Complaint for Damages against Lorenzo Shipping.
On November 7, 1997, Lorenzo Shipping filed its
Answer. It emphasized that at the time of the
incident, the M/V Lorcon Luzon was commandeered by
an official Harbor Pilot, to whom it was
“mandatory x x x to yield operational control.”
 The Regional Trial Court issued the Decision,
dated February 18, 2002, absolving Lorenzo
Shipping of liability. It concluded that National
Power Corporation failed to establish Lorenzo
Shipping’s negligence. It underscored that while
the ramming was found to have been the result of
the engine’s stoppage, no malfunctioning was
recorded before and after the incident. The RTC
further stated that Lorenzo Shipping was sued in
its capacity as the employer of Captain Villarias
and that any liability it incurred would have been
only subsidiary. Nevertheless, as Lorenzo Shipping
supposedly exercised due diligence in its selection
and supervision of Captain Villarias, no liability
could be attributed to it. National Power
Corporation appealed before the Court of Appeals.

The Court of Appeals rendered its decision

reversing and setting aside the decision of the
Regional Trial Court, and entering another
judgement ordering Lorenzo Shipping to pay
National Power Corporation the amount of
P876,286 as actual damages, and P50,000 as
attorney’s fees, and expenses of litigation. The
Court of Appeals reasoned that while M/V Lorcon Luzon
was under compulsory pilotage, Captain Villarias,
the vessel’s Master, remained to be its overall
commander. It added that he was remiss in his
duties as he did nothing in the crucial moments
when Captain Yape’s orders to go astern appeared
to not have been heeded. It cited Article 2180 of
the Civil Code in that an employer’s liability is
primary and not subsidiary. It further noted that

Lorenzo Shipping failed to show that it exercised due

diligence in

503
 TRANSPORTATION LAWS

the selection and supervision of Captain Villarias. On

March 31,2008, Lorenzo Shipping filed the Petition
for Review on Certiorari docketed as G.R. No. 181683.
It reiterated its position that no liability could be
attributed to it as the M/VLorcon Luzon was under
compulsory pilotage and that National Power
Corporation assumed risk when it berthed a non-
propelled vessel in the Makar Wharf.
ISSUE: Whether or not Lorenzo Shipping
Corporation is liable for the damage sustained by
Power Barge 104 when the M/V Lorcon Luzon rammed
into it, considering that at the time of the ramming,
the M/V Lorcon Luzon was under mandatory pilotage by
Captain Yape.
HELD: It is not disputed that the M/V Lorcon Luzon, a
vessel owned and operated by Lorenzo Shipping,
rammed into Power Barge 104 while attempting to
dock at the Makar Wharf. Likewise, it is not disputed
that when it rammed into Power Barge No. 104, the
M/V Lorcon Luzon was being piloted by Captain Yape.
What is in dispute is whether Captain Yape’s pilotage
suffices to absolve Lorenzo Shipping liability. A
master’s designation as the commander of a vessel is
long- settled:. This court’s citation in Yu Con v. Ipil of
General Review of Legislation and Jurisprudent
explains that “Master” and “Captain” are
synonymous terms. The name of captain or master is
given, according to the kind of vessel, to the person in
charge of it. The first denomination is applied to
those who govern vessels that navigate the high seas
or ships- of large dimensions and importance,
although they are engaged in the coastwise trade.
Masters are those who command smaller ships
engaged- exclusively in the coastwise trade. The
Master shall retain overall command of the vessel
even on pilotage grounds whereby he can
countermand or overrule the order or command of
the Harbor Pilot on board- In such event, any damage
caused to a vessel or to life and property at ports by
reason of the fault or negligence of the Master,
shalLbeThe responsibility and liability of the
registered owner of the vessel concerned, without
prejudice to recourse against said Master. Such
liability of the owner or Master of the vessel or its
pilot shall be detjennined by competent authority in
appropriate proceedings in the light of the facts and
circumstances of each particular case. Accordingly, it
is.settled that Harbor Pilots are liable only to the
extent that they

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PERSONS WHO TAKE PART rN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

can perform their function through the officers and

crew of the piloted vessel. Where there is failure by the
officers and crew to adhere to their orders, Harbor Pilots
cannot be held liable.
Thus, contrary to Lorenzo Shipping’s assertion,
the M/V Lorcon Luzon's, having been piloted by Captain
Yape at the time of the ramming, does not automatically
absolve Lorenzo Shipping of liability. Clearing it of liability
requires a demonstration of how the Master, Captain
Villarias, conducted himself in those moments when
it became apparent that the M/V Lorcon Luzon s engine
stopped and Captain Yape’s orders to go “slow astern”
and “full astern” were not being heeded. As noted by
the Court of Appeals, Captain Villarias was remiss in
his duties. In his testimony before the Board of Marine
Inquiry, Captain Villarias admitted that about six minutes
had passed before he even realized that there was an
engine failure, let alone acted on this fact. In the first
place, six minutes cannot be characterized as so
quick and fleeting that it deprived Captain Villarias and
his crew of “the time they needed to arrest the
momentum of the vessel.” By way of reference, an
entire song of average length (no longer) could have
played in Captain Villarias’ head within those six
minutes. The vessel had been performing the tedious
task of berthing and had been moving so fast that it
was about to collide with the docks in the wharf. Given
these circumstances, it was only reasonable for Captain
Villarias, precisely because he was the vessel’s Master, to
remain vigilant, to support and supplement Captain
Yape’s orders, and to take evasive and counter
measures should Captain Yape’s attempts to safely berth
prove to be ineffectual. The Court of Appeals’
observation is well-taken: “Even just a minute without
any response from the concerned department could
have alarmed him.”

ART. 628. The sailing mate must provide himself with charts of
the seas on which he will navigate, with the maps and quadrants or
sextants which are in use and necessary for the discharge of his
duties, being liable for the accidents which may arise by reason of
his omission in this matter.
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

505
 '! V A:»SK>V \AT!(>’. LA >/S

the number of folios it contains signed by the competent authority, and shall enter
therein daily the distance and course travelled, the variations of the needle, the
leeway, the direction and force of the wind, the condition of the atmosphere and
the sea, the rigging set, the latitude and longitude observed, the number of
furnaces with fire, the steam pressure, the number of revolutions, and under the
name “Incidents,’’ the manoeuvres made, the meetings with other vessels, and all
the particular events and accidents which may occur during the navigation.
ART. 630. In order to change the course and to take the one most convenient
for the good voyage of the vessel, the sailing mate shall come to an agreement with
the captain. Should the latter oppose, the sailing mate shall explain to him his
proper observations in the presence of other sea officers. Should the captain still
insist in his negative decision, the sailing mate shall make the proper protest,
signed by him and by other one of the officers in the Log Book, and shall obey the
captain who alone shall be liable for the consequences of his decision.
ART. 631. The sailing mate shall be liable for all the damage caused to the
vessel and 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.
ART. 632. The following shall be the duties of the second mate:
1. To watch over the preservation of the hull and rigging of the vessel,
and to take charge of the tackle and equipment which make up her outfit,
suggesting to the captain the necessary repairs, and the replacement of the
effects and implements which are rendered useless and lost.
2. To take care that the cargo is well-arranged, keeping the vessel always
ready for maneuvers.
3. To preserve order, discipline, and good service among the crew,
requesting the proper orders and instructions of the captain and giving him
prompt information of any occurrence in which the intervention of his
authority may be necessary.
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/.«
4. To assign to each sailor the work he must do on board, in accordance
with the instructions received, and to see that it is carried out with accuracy
and promptness.
5. To take charge by inventory of the rigging and all the equipment of
the vessel if she should be laid up, unless the agent may order otherwise.
With regard to engineers, the following rules shall govern:
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 possess the qualifications required by the
laws and regulations, and to be not disqualified in accordance
therewith to hold said position. 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 one
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 furthermore have the motor apparatus under his
charge, as well as the spare parts, the instruments, and,
finally, whatever is entrusted to an engineer on board a
vessel.
3. He shall keep the engines and boilers in good and
clean condition, and shall order what may be proper so they
may always be ready for regular use, being liable for the
accidents or damages which may arise by reason of his
negligence or want of skill to the motor apparatus, vessel and
cargo, without prejudice to the criminal liability which may
be proper if a felony or misdemeanor has been committed.
4. He shall make no change in the motor apparatus,
nor repair the averages he may have noticed in it, nor change
the normal speed of its movement, without prior
authorization form the captain, to whom, if he should oppose
to their being made, he shall explain the reasons he may
deem proper in the presence of the other engineers or
officers; and if, notwithstanding this, the captain should insist
in his objection, the chief engineer shall make the

507

TRANSPORTATION LAWS

proper protest, entering the same in the “Engine Book,” and shall obey the
captain who alone shall be liable for the consequences of his decision.
5. He shall inform the captain of any average which
may occur in the motor apparatus, and notify him whenever
it may be necessary to stop the engines for some time, or
when any other accident occurs in his department of which
the captain should be immediately notified besides frequently
advising him of the consumption of fuel and lubricants.
6. He shall keep a book or registry 7 called “Engine
Book,” in which there shall be entered all the data referring
to the work of the engines, such as for example, the number
of furnaces with fire, the steam pressure in the boilers and
cylinders, the vacuum in the condenser, the temperatures, the
degree of saturation of the water in the boilers, the
consumption of fuel and lubricants, and, under the heading
of “Noteworthy Occurrences,” the average and imperfections
which occur in the engines and boilers, the causes therefore,
and the means employed to repair them; also the force and
direction of the wind, the rigging set and the speed of the
vessel, shall be indicated, taking the data from the Binnacle
Book.
 ART. 633. The second mate shall take the command of the vessel in case of
the inability or disqualification of the captain and sailing mate, assuming
therefore their powers and responsibilities.
ART. 634. The captain may make up his crew of his vessel with such
number as he may deem proper; and in the absence of Filipino sailors, he may
enlist foreigners residing in the Philippines, the number thereof not to exceed one
fifth of the total crew. If in foreign ports the captain could not find a sufficient
number of Filipino sailors, he may make up the crew with foreigners, with the
consent of the consul or marine authorities.
The agreements 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, signed by the parties thereto, and
vised by

508
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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SHIP AGENTS

the marine authority if executed in Philippine territory, or by the consuls or

consular agents 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 concise manner which will give no room for doubts or claims.
The captain shall take care to read to them articles of this Code which
concern them, stating in said document that such articles were read.
If the book contains the requisites prescribed in Article 612, and there
should not appear any sign of alterations in its entries, it shall be admitted as
evidence in all questions, which may arise, between the captain and the crew
with regard to the agreements contained therein and the amounts paid on
account of the same.
Every member of the crew may demand from the captain a copy, signed by
the latter, of the agreement and of the liquidation of his wages, as they appear in the
book.
 ART. 635. A sailor who has been contracted to serve on a vessel cannot
rescind his contract nor fail to comply therewith, except by reason of a
legitimate impediment, which may have occurred to him.
Neither can he pass 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 sailor 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 fulfil the service to which he first
bound himself or to look for a person to substitute him at his expense.
Said sailor shall furthermore lose the wages on his first contract to the benefit
of the vessel for which he has formerly signed.
A captain who, knowing, that the sailor is in the service of another vessel,
should have made a new agreement with him, without requiring of him the
permission referred to in the preceding

509
TRANSPORTATION LAWS

paragraphs, shall be subsidiarily liable to the captain of the vessel to which the
sailor first belonged for that part of the indemnity, referred to in the third
paragraph of this article, which the sailor could not pay.
ART. 636. If there is no fixed period for which a sailor has been contracted,
he may not be discharged until the termination of the return voyage to the port
where he enlisted.
ART. 637. Neither can the captain discharge a sailor 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.
2. Repeated offenses of insubordination, of want of discipline, or of non-
fulfilment of the service.
3. Incapacity and repeated negligence in the fulfilment of the service he
should render.
 4. Habitual drunkenness.
5. Any occurrence, which incapacitates the sailor to perform the work
under his charge, with the exception of the provisions contained in Article 644.
6. Desertion.
The captain may, however, before setting out on a voyage and without
giving reason whatsoever, refuse to permit a sailor he may have engaged to go on
board, and he may leave him on land, in w hich case his w ages have to be paid as
if he had rendered services.
The indemnity shall be paid out of the funds of the vessel if the captain
should have acted for reasons of prudence and in the interest of the safety' and
good service of the vessel. Should this not be the case, it shall be paid by the
captain personally.
After the voyage has been begun, and during the same and until the
conclusion thereof, the captain may not abandon any member of his crew on land
or on the sea, unless, by reason of some

510
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PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS

crime, his imprisonment and delivery to the competent authority in the first port
of arrival should be proper, which shall be obligatory to the captain.
ART. 638. If, after the crew has been engaged, the voyage is revoked by the
will of the ship agent of the charterers, before or after the vessel has put to sea, or
if the vessel by the same cause, is given a different destination than that fixed in the
agreement with the crew, the latter shall be indemnified by reason of the rescission
of the contract in accordance with the following cases:
1. If the revocation of the voyage should be decided before the departure of
the vessel from the port, each sailor engaged shall be given one month 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, what may be due for said month and days shall be determined in
proportion to the approximate duration of the voyage, in the judgment of the
experts, in the manner established by 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 at fifteen days, discounting
in all cases the sums advanced.
3. If the revocation should take place after the vessel has put to sea, the
sailors engaged for a fixed amount for the voyage shall receive in full the salary
which may have been offered to 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 said sailors, in both
cases, the passage either to the port of destination or to the port of embarkation,
which ever may be convenient for them.
4. If the ship agent or charterers of the vessel should give her a destination
different from that specified in the agreement and the members of the crew would
not agree thereto, they shall be given by way of indemnity half of the amount fixed
in Subdivision No. 1,
TRANSPORTATION LAWS

in addition to what may be due them for the part of the monthly wages
corresponding to the days which may have elapsed from the date of their
agreements.
If they accept the alteration, and the voyage, by reason of greater
distance or for other circumstances, should give rise to an increase wages, the
latter shall be adjusted privately or through amicable arbitrators in case of
disagreement. Even if 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 alteration of the voyage should originate from the
shippers or charterers, the ship 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
beyond the control of the ship agent and the 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 the revocation was made.
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 her 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.
4. The detention or embargo of the same by order of the
Government, or for any other cause beyond the control of the ship
agent.
5. The inability of the vessel to navigate.
ART. 641. If, after the voyage has been begun, any of the first
three causes expressed in the foregoing article should occur, the
sailors shall be paid, at the port which the captain may deem proper

512

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PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS

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 her voyage, the captain and the
crew may mutually demand the enforcement of the contract.
In case of the occurrence of the fourth cause, the crew shall continue to be
paid half wages if the agreement is by month; but if the detention should exceed
three months, the contract shall be rescinded and the crew shall be paid what they
should have earned according to the contract as if the voyage had been made. And
if the agreement should have been made for a fixed sum for the voyage, the
contract must be complied with in the terms agreed upon.
If 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 want of skill of the captain, engineer, or sailing mate, they shall indemnify the
crew for damages suffered, without prejudice always to the criminal liability which
may arise.
ART. 642. If the crew have been engaged to work on shares, they shall not be
entitled, by reason of revocation, delay or greater extension of the voyage, to
anything but proportionate part of the indemnity which may be paid to the
common funds of the vessel by the persons responsible for said occurrences.
ART. 643. If the vessel and her cargo should be totally lost, by reason of
capture or shipwreck, all rights shall be extinguished, both as regard the right of
the crew to demand wages and the right of the ship agent to recover the advances
made.
If a portion of the vessel or of the cargo, or of both, should be saved, the crew
engaged on wages, including the captain, shall retain their rights on the salvage, as
far as possible, on the remainder of the vessel as well as on the value of the freight
or cargo saved; but sailors who are engaged on shares shall have no right on the
salvage of the hull, but only on the portion of the freight saved. [If they should have
worked to recover the remainder of the shipwrecked vessel, they shall be given
from the value of the salvage an award

513
 i V A*.'SPOK7A7/ON !>.*">

in proportion to the efforts made and to the risks encountered in order to

accomplish the salvage.]
ART. 644. A sailor who falls sick shall not Jose his right to wages during the
voyage, unless his sickness is the result of his own fault. At any rate, the cost of
medical attendance and treatment shall be defrayed from the common funds, in
the form of a loan.
If the sickness should be caused by an injury received in the service or
defense of the vessel, the sailor shall be attended and treated at the expense of the
common funds, deducting, before anything else, from the proceeds of the freight,
the costs of the attendance and treatment.
ART. 645. If a sailor should die during the voyage, his heirs shall be given
the wages earned and not yet received, according to his contract and cause of his
death, namely:
If he died a natural death and was contracted on wages, what 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 sailor died on the voyage out, and the whole amount if
he died on the return voyage.
And if the contract was on shares and his death occurred after the voyage
was begun, the heirs shall be paid the entire participation due the sailor; but if the
sailor died before the departure of the vessel from the port, the heirs shall not be
entitled to claim anything.
If death occurred in defense of the vessel, the sailor shall be considered as
living, and his heirs shall be paid, at the end of the voyage, the full amount of
wages or the full participation on the profits which may be due him, as others of
his class.
Likewise, the sailor who was captured while defending the vessel shall be
considered as present, in order to enjoy the benefits as the rest; but should he
have been captured by reason of negligence or other accident having no relation
with the service, he shall only receive the wages due up to the day of his capture.
 514
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PERSONS WHO TAKE PART IN MARITIME COMMERCE
SHIPOWNERS AND SI III* AGEN TS

ART. 646. The vessel with her engines, rigging, equipment and freight
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 begun, credits of such kind pertaining to the
preceding voyage shall lose their preference.
ART. 647. The officers and the crew of the vessel shall be free from all
obligations contracted, if they deem it proper, in the following cases:
1. If, before commencing the voyage, the captain attempts to change it, or
if there occurs a naval war with the nation to which the vessel was destined.
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 embarked, from the captain to the cabin boy, necessary for the
management, maneuvers, and service, and, therefore, in the complement shall
be included the crew, sailing mates, engineers, stockers, and others working on
board not having specific names; but it shall not include the passengers or the
persons whom the vessel is only transporting.

SUPER CARGOES
Super cargo in maritime law is a person especially employed by the
owner of a cargo to take charge of and sell to the best advantage
merchandise which has been shipped, and to purchase returning cargoes and
to receive freight, as he may be authorized.
(Black’s Law Dictionary,
Sixth Ed.)

ART. 649. The supercargoes shall discharge on board the vessel the
administrative duties which the ship agent or shippers may have assigned to
them; they shall keep an account and record

515
TRANSPORTATION LAWS
of their transactions in a book which shall have the same conditions and
requisites as those required for the accounting book of the captain, and shall
respect the latter in his duties as chief of the vessel.
The power 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 they shall continue in force for all acts, which are
inseparable from his authority and office.
ART. 650. All the provisions contained in the Second Section of Title III,
Book II, with regard to qualifications, manner of making contracts, and
liabilities of factors, shall be applicable to supercargoes.
ART. 651. Supercargoes cannot, without authorization or express
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 can they invest in the return voyage more than the profit from the
ventures, unless there is an express authorization from the principals.

516
CHAPTER IX
 SPECIAL CONTRACTS OF MARITIME
COMMERCE
CHARTER PARTIES
Forms and Effects of Charter Parties *
ARTICLE 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.
• v
The charter party shall contain, besides the conditions freely stipulated, the
following circumstances:
1. The kind, name, and tonnage of the vessel.
2. Her flag and port or registry.
3. The name, surname, and domicile of the captain.
4. The name, surname, and domicile of the ship agents 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 weight, or measurement
which they respectively bind themselves to load and transport, or whether
the charter party is total.
8. The freight 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 measurement of the goods making up the
cargo, or in any other manner whatsoever agreed upon.

517
TRANSPORTATION LAWS

9. The amount of primage to be paid 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 for each of them to be paid.

Important Terms and Phrases in Charter-Party

1. Definition of Charter-Party

A “charter-party ” is defined as 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 a 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, x x x Contract of
affreightment may either be time charter, wherein the vessel
is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single or consecutive
voyage. 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 voyage, the ship owner to supply
the ship’s store, pay for the wages of the master of the crew,
or defray the expenses for the maintenance of the ship.

Upon the other hand, the term “common or public carrier ” is

defined in Art. 1732 of the Civil Code. The definition extends to
carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or
both for compensation as a public employment and not as a casual
occupation x x x.
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. (Planters Products, Inc.
v. CA, et ah, G.R. No. 101503, September 15, 1993,
226SCRA 476)
2. Kinds of Charter-Party
The distinction between the two kinds of charter parties (i.e.,
bareboat or demise, and contract of affreightment) is more clearly set

518
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE:

out in the case of Puromines, Inc. u Court of Appeals, wherein f the

Court] ruled:
"Under the demise or bareboat charter of the vessel, the
charterer w ill generally be regarded as the owner for the
voyage or service stipulated. The charterer mans the vessel
with his own people and becomes the owner pro hac vice,
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.

On the other hand a contract of affreightment is one in which

the owner of the vessel leases part or all of its space to haul goods
for others.

It is a contract for special service to be rendered by the owner of

the vessel and under such contract the general owner retains
the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the
vessel in return for his payment of the charter hire, x x x.
“x x x. An owner who retains possession of the ship
though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as
to the care, loading and unloading of the cargo, x x x”
In modem maritime law and usage, there are three
distinguishable types of charter parties: (a) the “bareboat ” or “demise
” charter; (b) the “time ” charter; and (c) the “voyage ” or “trip ”
charter.
A bareboat or demise charter is a demise of a vessel, much as a
lease of an unfurnished house is a demise of real property. The
shipowner turns over possession of his vessel to the charterer,
who then undertakes to provide crew and victuals and supplies
and fuel for her during the term of the charter. The shipowner
is not normally required by the terms of a demise charter to
provide a crew. Sometimes, of course, the demise charter
might provide that the shipowner is to furnish a master and
crew to man the vessel under the charterer’s direction, such
that the master

519
TRANSPORTATION LAWS
and crew provided by the shipowner become the agents and
servants or employees of the charterer, and the charterer (and
not the owner) through the agency of the master, has possession
and control of the vessel during the charter period.
A time charter, upon the other hand, like a demise charter, is a
contract for the use of a vessel for a specified period of time or for
the duration of one or more specified voyages. In this case,
however, the owner of a time-chartered vessel (unlike the owner
of a vessel under a demise or bareboat charter) retains possession
and control through the master and crew who remain his
employees. What the time charterer acquires is the right to utilize
the carrying capacity and facilities of the vessel and to designate
her destinations during the term of the charter.
A voyage charter, or trip charter, is simply a contract of
affreightment, that is, a contract for the carriage of goods, from
one or more ports of loading to one or more ports of unloading,
on one or on a series of voyages. In a voyage charter, master and
crew remain in the employ of the owner of the vessel. (Litonjua
Shipping Company Inc. v. National Seamen Board and Gregorio Candongo, G.R. No.
51910, August 10, 1989)

“Considering liability to third parties, a basic distinction is

whether the charter is a demise or bareboat charter, on the one
hand, or a time or voyage charter, on the other. The vital
distinction between demise and other charter parties is whether
the charterer is given the exclusive control of the vessel. In a
demise, in contrast to other charters, the charterer is considered
the owner pro hac vice. The charterer is accordingly liable in personam
for all liabilities arising out of the operation of the vessel; he is
responsible for the actions of the master and crew. The shipowner
is generally not liable in personam, although the ship may be liable in
rem. Even in this case, the charterer is obliged to indemnify the
owner against liability suffered by the vessel as a consequence of
the charterer’s negligence. The shipowner may be liable, however,
where liability or injury results from unseaworthiness or
negligence which existed prior to delivery of the vessel to the
demise charterer.” (Schoenbau, Admiralty and Maritime Law, pp. 402-403
[1987], cited in Litonjua case, supra)

520
CHAPTER IX

SPECIAL CONTRACTS OF MARITIME COMMERCE 3.

Transshipment
Transshipment in maritime law is defined as the act of taking
cargo out of one ship and loading it in another, or “the transfer
of goods from the vessel stipulated in the contract of
affreightment to another vessel before the place of destination
named in the contract has been reached,” or “the transfer for
further transportation from one ship or conveyance to another.”
Clearly, either in its ordinary or its strictly legal acceptation, there is
transshipment whether or not the same person, firm or entity
owns the vessels. In other words, the fact of transshipment is not
dependent upon the ownership of the transporting ships or
conveyances or in the change of carriers, as the petitioner seems
 to suggest, but rather on the fact of actual physical transfer of
cargo from one vessel to another.
Moreover, it is a well-known commercial usage that
transshipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is made, is
a violation of the contract and an infringement of the right of the
shipper, and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted. (70 Am. Jur. 2a, Shipping 608)
4. Demurrage
Demurrage, in its strict sense, is the compensation provided
for in the contract of affreightment for the detention of the
vessel beyond the time agreed on for loading and unloading.
Essentially, demurrage is the claim for damages for failure to
accept delivery. In a broad sense, every improper detention of
a vessel may be considered a demurrage. Liability for
demurrage, using the word in its strictly technical sense, exists
only when expressly stipulated in the contract. Using the term
in its broader sense, damages in the nature of demurrage are
recoverable for a breach of the implied obligation to load or
unload the cargo with reasonable dispatch, but only by the
party to whom the duty is owed and only against one who is a
party to the shipping contract. Notice of arrival of vessels or
conveyances, or of their placement for puiposes of unloading is
often a condition precedent to the right to collect demurrage
charges. (80 C.J.S. Shipping 1146-1147)
Note: Notification is needed to take delivery of the goods.

521
 TRANSPORTATION LAWS

5. Laytime
“Laytime ” runs according to the particular
clause of the charter party, x x x If laytime is
expressed in “running days,” this means days
when the ship would be run continuously, and
holidays are not expected. A qualification of
“weather permitting” excepts only those days
when bad weather reasonably prevents the
work contemplated.” In law of shipping, lay days
are the days allowed without penalty to charter
parties for loading and unloading the cargo.
(Black’s Law Dictionary, p. 888, Centennial Ed.) Extra lay days,
therefore, are the days that follow the lay days.
(See No. 11, Art. 652)
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 |d Dispatch. ”
‘c i

r 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 v. CA and Hongfil
Shipping Corp., 311 SCRA 700, August 4,

1999)
6. W W D S HI N C or Weather, Working Days, Sundays,
and Holidays Included.
£ The running of laytime may be subject t o WWD S H IN C a
nd
L. would cease to run in the event unfavorable weather
interfered with the unloading of cargo.
7. F. I. O. S. T.
 The terms “F.I.O.S.T.” which is used in the
shipping business is a standard provision in the
Charter Party, which stands for “Freight

which means
In and Out including Stevedoring and Trading, ”
that the handling, loading and unloading of the
cargoes are the responsibility of the Charterer.

522
 CHAPTERIX
SPECIAL CONTRACTS OF MARITIME COMMERCE

8. Primage
“Primage ” is an amount stipulated in the charter
party to be paid by the charterer or shipper as
compensation to the captain or master for his particular
care of the goods. (See par no. 9, Art. 652)
Respective rights and duties of a shipper and carrier depends on
whether the contract of carriage is a bill of lading or equivalent
shipping documents on one hand, or a charter party as similar contract
on the other.
Caltex (Philippines), Inc. v.
Sulpicio Lines
G.R. No. 131166, September 30, 1999
FACTS: On December 19, 1987, motor tanker MT
Vector left Limay, Bataan, at about 8:00 p.m., en route to
Masbate, loaded with 8,800 barrels of petroleum
products shipped by petitioner Caltex. MT Vector is a
tramping motor tanker owned and operated by Vector
Shipping Corporation, engaged in the business of
transporting fuel products such as gasoline, kerosene,
diesel and crude oil. During that particular voyage, the
MT Vector carried on board gasoline and other oil
products owned by Caltex by virtue of a charter contract
between them. On December 20, 1987, at about 6:30
a.m., the passenger ship MV Dona Paz left the port of
Tacloban headed for Manila with a complement of 59
crew members including the master and his officers, and
passengers totalling 1,493 as indicated in the Coast
Guard Clearance. The MV Dona Paz is a passenger and
cargo vessel owned and operated by Sulpicio Lines, Inc.,
plying the route of Manila/Tacloban/
Catbalogan/Manila/Catbalogan/Tacloban/Manila, making
trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two

vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental
Mindoro. All the crewmembers of MV Doha Paz died,
while the two survivors from MT Vector claimed that
they were sleeping at the time of the incident.

The MV Doha Paz carried an estimated 4,000 passengers;

many indeed, were

not in the passenger manifest. Only 24

survived the

523
 TRANSPORTATION LAWS

tragedy after having been rescued from the burning

waters by vessels that responded to distress call.
Among those who perished were public school
teacher Sebastian Canezal (47 years old) and his
daughter Corazon Canezal (11 years old), both
unmanifested passengers but proved to be on board
the vessel.
On March 22, 1988, the board of marine inquiry
in BMI Case No. 653-87 after investigation found
that the MT Vector, its registered operator Francisco
Soriano, and its owner and actual operator Vector
Shipping Corporation, were at fault and responsible
for its collision with MV Dona Paz.
On February 13, 1989, Teresita Canezal and Sotera
E. Canezal,

Sebastian Canezal’s wife and mother respectively,

filed with the Regional Trial Court, Branch 8, Manila,
a complaint for “Damages Arising from Breach of
Contract of Carriage” against Sulpicio Lines, Inc.
(hereafter Sulpicio). Sulpicio, in turn, filed a third-
party complaint against Francisco

Soriano, Vector Shipping Corporation and Caltex

(Philippines), Inc. Sulpicio alleged that Caltex
(Philippines), Inc. chartered MT Vector with gross
and evident bad faith knowing fully well that MT
Vector was improperly manned, ill-equipped,
unseaworthy and a hazard to safe navigation; as a
result, it rammed against MV Dona Paz in the open
sea setting MT Vector’s highly flammable cargo
ablaze.
On September 15, 1992, the trial court
rendered decision dismissing the third-party
complaint against petitioner and holding liable only
Sulpicio Lines for damages.
On appeal to the Court of Appeals interposed
by Sulpicio Lines, Inc., on April 15, 1997, the Court of
Appeals modified the trial court’s ruling and
included petitioner Caltex as one of those liable for
damages.
 Third-party defendants Vector Shipping Co. and
Caltex Phils., Inc. are held equally liable under the
third-party complaint to reimburse/ indemnify
defendant Sulpicio Lines, Inc. of the above-
mentioned damages, attorney’s fees and costs which
the latter is adjudged to pay plaintiffs, the same to
be shared half by Vector Shipping Co. (being the
vessel at fault for the collision) and the other half by
Caltex Phils., Inc. (being the charterer that
negligently caused the shipping of combustible
cargo aboard an unseaworthy vessel).

524
 CHARTER IX
SPECIAL CONTRACTS Of MARITIME COMMERCE

ISSUE: Whether or not the charterer of a sea vessel is liable

for damages resulting from a collision between the chartered
vessel and a passenger ship.
HELD: The respective rights and duties of a shipper and the
carrier depends not on whether the carrier is public or private,
but on whether the contract of carriage is a bill of lading or
equivalent shipping documents on the one hand, or a charter-
party or similar contract on the other.

Petitioner and Vector entered into a contract of

affreightment, also known as a voyage charter.
A charter-party is a contract by which an entire ship, or
some principal part thereof, is let by the owner to another
person for a specified time or use; a contract of affreightment is
one 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.
A contract of affreightment may be either time charter,
wherein the leased vessel is leased to the charterer for a fixed
period of time, or voyage charter, wherein the ship is leased for
a single voyage. 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 voyage, the shipowner to supply
the ship’s store, pay for the wages of the master of the crew,
and defray the expenses for the maintenance of the ship.
 Under a demise or bareboat charter on the other hand, the
charterer mans the vessel with his own people and becomes, in
effect, the owner for the voyage or service stipulated, subject to
liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the
general owner in possession of the ship as owner for the
voyage, the rights and the responsibilities of ownership rest on
the owner. The charterer is free from liability to third persons in
respect of the ship.
MT Vector is a common carrier.

Charter parties fall into three main categories: (1) Demise or

bareboat, (2) time charter, (3) voyage charter. Does a charter party

TRANSPORTATION LAWS

agreement turn the common carrier into a private one? We need to answer
this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common
carrier into a private carrier. The parties entered into a voyage charter, which
retains the character of the vessel as a common carrier.
Under the Carriage of Goods by Sea Act:
Sec. 3. (1) The carrier shall be bound before and at the beginning of

the voyage to exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship.

Thus, the carriers are deemed to warrant impliedly the seaworthiness of
the ship. For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and crew.
The failure of a common carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code.
The provisions owed their conception to the nature of the business of
common carriers. This business is impressed with a special public duty. 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, especially because with
the modem development of science and invention, transportation has become
more rapid, more complicated and somehow more hazardous. For these
reasons, a passenger or a shipper of goods is under no obligation to conduct an
inspection of the ship and its crew, the carrier being obliged by law to impliedly
warrant its seaworthiness.
The charterer of a vessel has no obligation before transporting its cargo
to ensure that the vessel it chartered complied with all legal requirements. The
duty rests upon the common carrier simply for being engaged in “public
service. ” The Civil Code demands diligence, which is required by the nature of
the obligation and that, which corresponds

526
CHAPTER FX
SPECIAL CONTRACTS OF MARITIME COMMERCE

with the circumstances of the persons, the time and the

place. Hence, considering the nature of the obligation
between Caltex and MT Vector, the liability as found by the
Court of Appeals is without basis.
The relationship between the parties in this case is
governed by special laws. Because of the implied warranty of
seaworthiness, shippers of goods, when transacting with
common carriers, are not expected to inquire into the vessel’s
seaworthiness, genuineness of its licenses and compliance
with all maritime laws. To demand more from shippers and
 hold them liable in case of failure exhibits nothing but the
futility of our maritime laws insofar as the protection of the
public in general is concerned. By the same token, we cannot
expect passengers to inquire every time they board a
common carrier, whether the carrier possesses the necessary
papers or that all the carrier’s employees are qualified. Such a
practice would be an absurdity in a business where time is
always of the essence. Considering the nature of
transportation business, passengers and shippers alike
customarily presume that common carriers possess all the
legal requisites in its operation.
Litonjua Shipping Company, Inc. v.
National Seamen Board and Gregorio P. Candongo G.R. No.
51910, August 10,1989

FACTS: Petitioner Litonjua is the duly appointed local

crewing managing office of the Fairwind Shipping
Corporation (Fairwind). The M/V Dufton Bay is an ocean-
going vessel of foreign registry owned by the R.D. Mullion
Ship Broking Agency Ltd. (Mullion). On September 11,1976,
while the Dufton Bay was in the port of Cebu and while
under charter by Fairwind, the vessel’s master contracted
the services of, among others, private respondent Gregorio
Candongo to serve as Third Engineer for a period of 12
months with a monthly wage of US$500.

This agreement was executed before the Cebu Area Manning

Unit of the NSB. Thereafter, private respondent boarded the
vessel. On December 28, 1976, before expiration of his
contract, private respondent was required to disembark at
Port Kelang, Malaysia, and was returned to the Philippines
on

January 5, 1977. The cause of the discharge was described in his

Seaman’s

Book as “by owner’s arrange.”

527
 TRANSPORTATION LAWS

Shortly after returning to the Philippines, private respondent filed a

complaint before public respondent NSB, which complaint was
docketed as NSB-1331-77, for violation of contract, against Mullion as
the shipping company and petitioner Litonjua as agent of the shipowner
and of the charterer of the vessel. On February 17, 1977, the hearing
officer of the NSB rendered a judgment by default ordering respondents
R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc.,
jointly and solidarily pay complainant unpaid salaries due the latter as
damages corresponding the unexpired portion of the contract, etc.
HELD: In the instant Petition for Certiorari, petitioner Litonjua assails
the decision of public respondent NSB declaring the charterer Fairwind
as employer of private respondent, and for whose liability petitioner
was made responsible, as constituting a grave abuse of discretion
amounting to lack of jurisdiction. The principal if not the sole issue to be
resolved here is whether or not the charterer Fairwind was properly
regarded as the employer of private respondent Candongo.
Petitioner Litonjua contends that the shipowner, not the charterer,
was the employer of private respondent; and that liability for damages
cannot be imposed upon petitioner which was a mere agent of the
charterer. It is insisted that private respondent’s contract of
employment and affidavit of undertaking clearly showed that the party
with whom he had contracted was none other than Mullion, the
shipowner, represented by the ship’s master. Petitioner also argues
that its supercargoes merely assisted Captain Ho King Yiu of the Dufton
Bay in hiring private respondent as Third Engineer. Petitioner also
points to the circumstance that the discharge and the repatriation of
private respondent were specified in his Seaman’s Book as having been
“by owner’s arrange.” Petitioner Litonjua thus argues that being the
agent of the charterer and not of the shipowner, it accordingly should
not have been held liable on the contract of employment of private
respondent.
It is well-settled that in a demise or bareboat charter, the charterer
is treated as owner pro hac vice of the vessel, the charterer assuming in
large measure the customary rights and liabilities of the shipowner in
relation to third persons who have dealt with him or with the vessel. In
such case, the master of the vessel is the agent of the charterer and

528
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

not of the shipowner. The charterer or owner pro hac vice, and not the
general o^Tier of the vessel, is held liable for the expenses of the
voyage including the wages of the seamen.
It is important to note that petitioner Litonjua did not place into
the record of this case a copy of the charter party covering the M/V
Dufton Bay. [The Court] must assume that petitioner Litonjua was
aware of the nature of a bareboat or demise charter and that if
petitioner did not see fit to include in the record a copy of the charter
party, which had been entered into by its principal, it was because the
charter party and the provisions thereof were not supportive of the
position adopted by petitioner Litonjua in the present case, a position
diametrically opposed to the legal consequence of a bareboat charter.
Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed
to show that it was not such, the Court believes and so hold that
petitioner Litonjua, as Philippine agent of the charterer, may be held
 liable on the contract of employment between the ship captain and
the private respondent.
The Court concludes that private respondent was properly
regarded as an employee of the charterer Fairwind and that petitioner
Litonjua may be held to answer to private respondent for the latter’s
claims as the agent in the Philippines of Fairwind. The Court think this
result, which public respondent reached, far from constituting a grave
abuse of discretion, is compelled by equitable principles and by the
demands of substantial justice. To hold otherwise would be to leave
private respondent (and others who may find themselves in his
position) without any effective recourse for the unjust dismissal and for
the breach of his contract of employment.
Federal Phoenix Assurance Co., LTD v. Fortune Sea Carrier,
Inc.
G.R. No. 188118, November 23,2015
FACTS: On March 9, 1994, Fortune Sea agreed to lease its vessel
M/V Ricky Rey to Northern Mindanao Transport Co., Inc. (Northern
Transport). The Time Charter Party agreement executed by the parties
provides that the vessel shall be leased to Northern Transport for 90
days to carry bags of cement to different ports of destination. Later on,
the parties extended the period of lease for another 90 days.

Sometime
TRANSPORTATION TAWS

in June 1994. Northern Transport ordered 2,069 bales of abaca fibers to

be shipped on board MV Ricky Rey by shipper Manila Hemp Trading
Corporation for deliver)' to consignee Newtech Pulp, Inc. (Newtech) in
Iligan City. The shipment was covered by Bill of Lading No. 1, and was
insured by petitioner Federal Phoenix Assurance Co., Ltd. (Federal
Phoenix). Upon arrival of MV Ricky Rey at the Iligan City port on June
16. 1994. the stevedores started to discharge the abaca shipment the
following day. At about 3:00 p.m., however, on June 18, 1994, the
stevedores noticed smoke coming out of the cargo haul where the
bales of abaca where located. Immediately, the fire was put off by the
Iligan City Fire Department. Upon investigation, it was discovered that
60 bales of abaca were damaged. As a result of the losses, Newtech
filed an insurance claim for P260,000 with Federal Phoenix. After
evaluation, Federal Phoenix paid Newtech PI62,419.25 for the losses it
incurred due to the damage and undelivered bales of abaca. Upon
payment, Federal Phoenix was subrogated to the rights of Newtech,
and pursued its claim against Fortune Sea. Despite several demands to
Fortune Sea, however, Federal Phoenix’s claim was not settled. As a
result, Federal Phoenix filed a Complaint for Sum of Money against
Fortune Sea before the Regional Trial Court of Makati.
For its defense, Fortune Sea insisted that it was acting as a private
carrier at the time the incident occurred. It alleged that the Time
Charter Party agreement executed by the parties expressly provided
that MV Ricky Rey shall be under the orders and complete control of
Northern Transport.
On May 4, 2006, the Regional Trial Court rendered a Decision in
favor of Federal Phoenix. Fortune Sea filed a Motion for
Reconsideration, but was denied. Aggrieved, Fortune Sea appealed to
the Court of Appeals. The Court of

Appeals issued a Decision reversing and setting aside the Decision,

dated May 4, 2006, of the Regional Trial Court, and ordered the
dismissal of the complaint for sum of money filed by Federal Phoenix
against Fortune Sea for lack of merit. According to the Court of Appeals,
although the agreement between Fortune Sea and Northern Transport
was denominated as Time Charter Party, it found compelling reasons to
hold that the contract was one of bareboat or demise. Hence, Federal
Phoenix filed this instant petition.

530
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

ISSUE:Whether or not Fortune Sea was converted into a private

carrier by virtue of the charter party agreement it entered into with
Northern Transport.
HELD:Admittedly, Fortune Sea is a corporation engaged in the business
of transporting cargo by water, and for compensation, offering its
services to the public. As such, it is without doubt a common carrier.
Fortune Sea, however, entered into a time-charter with Northern
Transport. Now, had the time-charter converted Fortune Sea into a
private carrier? This Court rules in the affirmative. Time and again, this Court
have ruled that “in determining the nature of a contract, courts are not bound by the title
or name given by the parties. The decisive factor in evaluating an agreement is the intention
of the parties, as shown, not necessarily by the terminology used in the contract but their
conduct, words, actions, and deeds prior to, during, and immediately after executing the
agreement. ” As correctly observed by the Court of Appeals, the Time
Charter Party agreement executed by Fortune Sea and Northern
Transport clearly shows that the charter includes both the vessel and its
crew thereby making Northern Transport the owner pro hac vice of M/V
Ricky Rey during the whole period of the voyage. Conformably, M/V
Ricky Rey was converted into a private carrier notwithstanding the
existence of the Time Charter Party agreement with Northern Transport
since the said agreement was not limited to the ship only but extends
even to the control of its crew. Despite the denomination as Time
Charter by the parties, their agreement undoubtedly reflected that
their intention was to enter into a Bareboat Charter Agreement.
Moreover, the Court of Appeals likewise correctly ruled that
the testimony of Captain Alfredo Canon (Capt. Canon) of M/V
Ricky Rey confirmed that when the whole vessel was leased to
Northern Transport, the entire command and control over its
navigation was likewise transferred to it. Moreover, although the
master and crew of the vessel were those of the shipowner,
records show that at the time of the execution of the charter
party, Fortune Sea had completely relinquished possession,
command, and navigation of M/V Ricky Rey to Northern Transport.
As such, the master and all the crew of the ship were all made
subject to the direct control and supervision of the charterer. In
fact, the instructions on the voyage and other relative directions or
orders were

531

TRANSPORTATION LAWS
handed out by Northern Transport. Thus, the Court of Appeals correctly
ruled that the nature of the vessel's charter is one of bareboat or
demise charter.
ART. 653. Should the cargo 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 w hich shall be 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.

Charter-Party may be oral.

Market Developers, Inc. (MADE) v.
Hon. Intermediate Appellate Court and Gaudioso Uy G.R. No. 74978,
September 8,1989

FACTS: It appears that 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 City to Kalibo, Aklan, at the rate of PI.45 per
bag. The petitioner was allowed four lay days and agreed to pay
demurrage at the rate of P5,000 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
Modem 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 attorney’s fees and the cost of
the

532
CHAtM t R l\
St'VVl \l CON VRAC VS Ot M ARVVIMV COMMVRCV

suu. As earlier slated, this decision was fully affirmed on appeal to the
respondent court, which is the reason for this petition.
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.
It is this conclusion that is now disputed by the petitioner, which
contends that the first written contract was replaced by a new verbal
agreement that did not contain any stipulation for demurrage. There
is the further insistence that the alleged delay in the unloading of the
cargo in Roxas City should not have been readily assumed as a fact by
the trial and respondent courts because it had not been established
by competent evidence and was based on mere hearsay. The
petitioner also argues that the claim for demurrage was barred by
laches, the private respondent having asserted it tardily and obviously
only as an afterthought.
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. As defined, a contract of affreightment is 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.”
But while the rule clearly shows that this kind of contract must be
in writing, the succeeding Article 653 just as clearly provides:
If the cargo should be received without a 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.

533
TRANSPORTATION LAWS

The Court read this last provision as meaning that the charter-
party may be oral, in which case the terms thereof, not having been
reduced to writing, shall be those embodied in the bill of lading.
Conformably, the Court recognized in Compania Maritima v. Insurance
Company of North America, the existence of a contract of affreightment
entered into by telephone, where it was shown that this oral agreement
was later confirmed by a formal and written booking issued by the
shipper’s branch office and later carried out by the carrier.
 The Court 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.
If the rate provided for in the old written contract was maintained
in the new oral contract, it was simply because, as the private
respondent himself declared, the rates for Kalibo, Aklan and Culasi,
Roxas City, were 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.
The parole evidence rule is clearly inapplicable because that
involves the verbal modification — usually not allowed — of a written
agreement admittedly still valid and subsisting. In the case at bar, the
first written agreement had not merely been modified but actually
replaced by the second verbal agreement, which is perfectly valid even
if not in writing like the first.
Regarding the bill of lading, an examination thereof will reveal
that there is no condition or requirement therein for the payment of
demurrage charges. Under the aforequoted Article 653 of the Code of
Commerce, therefore, there was no reason to ready any stipulation
for demurrage into the second contract.
 534
CHAITI-R IX
SPFCIAL CONTRACTS 01 MARITIME COMMhRCfc

ART. 654. The charter parties executed with the intervention of a

broker who certifies to the authenticity of the signatures of the
contracting parties as having been signed in his presence, shall be full
evidence in court; and if they should be in discrepancy that which
agrees with the copy which the broker must keep in his registry, if kept
in accordance with law, shall govern.
The charter parties shall also be admitted as evidence, even though
a broker has not intervened, if the contracting parties acknowledge the
signatures in the contracts to be their ow n.
Should no broker have intervened in the charter party and the
signatures be not acknowledged, doubts shall be decided by w hat 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 contravention of the orders and
instructions of the ship agent or shipowner; but the latter shall have a
right of action against the captain for damages.
ART. 656. Should in the charter party the time in which the loading
and unloading are to take place be not stated, the usages of the port
where these acts take place shall be observed. After the stipulated or
customary period has passed, and there is no express provision in the
charter party fixing the indemnity for the delay, the captain shall have
the right to demand demurrage for the lay days and extra lay days
which have elapsed in loading and unloading.
 ART. 657. 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, for
which purpose he shall be obliged to look for a vessel not only at the
port of arrival but also in the nearby ports within the distance of 150
kilometers.
If the captain should not furnish, through indolence or malice, a
vessel to take the cargo to its destination, the shippers, after
requesting the captain to charter a vessel within an inextensible

535
TRANSPORTATION LAWS

period, may charter one and apply to the judicial authority for the
summary approval of the charter party which they may have made.
The same authority shall judicially compel the captain to carry out, for his
account and under his responsibility, the charter made by the shippers.
If the captain, inspite of his diligence, should not find a vessel to charter, he
shall deposit the cargo at the disposal of the shippers, to whom he shall communicate
the facts on the first opportunity, the freight being adjusted in such cases by the
distance covered by the vessel, with no right to any indemnity whatsoever.
ART. 658. The freight 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. Should the vessel have been chartered by months or by days, the
freight shall begin to run from the day the loading of the vessel is begun.
2. In charters made for a fixed period, the freight shall begin from that
very day.
3. If the freight 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 is contained.
 ART. 659. The goods sold by the captain to pay for the necessary repairs to the
hull, machinery or equipment, or for unavoidable and urgent needs, shall pay
freight.
The price of these goods shall be fixed according to the result of the voyage,
namely:
1. Should the vessel arrive safely at the port of destination, the captain
shall pay the price which the sale of goods of the same kind brings at that port.
2. Should the vessel be lost, the captain shall pay the price said goods
would have brought in the sale.
The same rule shall be observed in the payment of the freight which shall be
in full if the vessel should reach her port of

536
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

destination, and in proportion to the distance covered if she should be lost before arrival.
ART. 660. Goods jettisoned for the common safety, shall not pay freight; but its
latter amount (freight lost) shall be considered as general average, computing the same
in proportion to the distance covered when they (goods) were jettisoned.
ART. 661. Neither the goods lost by reason of shipwreck of stranding, nor those
seized by pirates or enemies, shall pay freight.
If the freight should have been paid in advance, it shall be returned, unless there is
an agreement to the contrary.
ART. 662. Should the vessel or the goods be recovered or the effects of the
shipwreck be salvaged, the freight corresponding to the distance covered by the vessel
transporting the cargo shall be paid; and if the vessel, after being repaired, should
transport the said cargo to the port of destination, the full freight shall be paid,
without prejudice to what may be due by reason of the average.
ART. 663. the goods which suffer deterioration or damage caused by inherent
defects or bad quality and condition of the packing, or fortuitous event, shall pay
freight in full and as stipulated in the charter party.
ART. 664. The natural increase in weight or in size of the goods loaded on the
vessel, shall accrue to the benefit of the owner and shall pay the corresponding
freight fixed in the contract for the same.
 ART. 665. 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; but it shall
not be legal for the captain to delay the unloading by reason of fear that the said
obligation may not be complied with.
If there be reasons for distrust, the judge or court, at the instance of the
captain, may order the deposit of the goods until he has been paid in full.

537
TRANSPORTATION LA'-VS

ART. 666. The captain may request the sale of the cargo to the amount necessary
to pay the freight, expenses, and average! dae him, reserving the right to demand the
balance due him therefore, if the proceeds of the sale should not be enough 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
should be other creditors and the case of insolvency of the shipper or consignee should
occur.
This right, however, cannot be made use of on the goods which, after being
delivered, were turned over to a third person without malice on the part of the latter and
by onerous title.
ART. 668. Should the consignee be not found or should refuse to receive the cargo,
the judge or court, at the instance of the captain, must order its deposit and the sale of
what may be necessary to pay the freight and other expenses on the same.
The sale should likewise take place when the goods deposited run the risk of
deteriorating, or, on account of their condition or for other reasons, the expenses of
preservation and custody should be disproportionate to the value thereof.

Rights and Obligations of Owners

ART. 669. The shipowner or the captain shall observe in charter parties the
capacity of the vessel or that expressly designated in her registry, a difference greater
than 2 percent between that registered and her true capacity not being permissible.
Should the shipowner or the captain contract to carry a greater amount of cargo
than the vessel can hold, in view of her tonnage they shall indemnify the shippers whose
contract they do not fulfil for the losses they may have caused them by reason of their
default, according to the cases, viz.:
Should the vessel have been chartered by one shipper only, and there should
appear to be an error or fraud in her capacity,

538
( H A P M U IX
SH'.HAl C ON TRACTS ()1 MAPI ! IMP ( OMVH.P^L

and the charterer should not wish to rescind he contract, when he has a right to do
so, the freight shall be reduced in proportion to the cargo the vessel cannot receive,
the person from whom the vessel is chartered being obliged furthermore to
indemnify the charterer for the losses he may have caused him.
Should there be, on the contrary, 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, preferences shall be given to the person who as already loaded and
arranged the cargo in the vessel, and the rest shall take the place corresponding to them
in the order of the dates of their contracts.
Should there be no priority, the charterers, may load, if they deem proper, in
proportion to the amounts of weight or space they may have contracted, and the
person, from whom the vessel was chartered, shall be obliged to indemnify them for
damages.
ART. 670. If the person from whom the vessel is chartered, after receiving a
part of the cargo, should not find sufficient to make up at least three-fifths of the
amount the vessel can 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, should there be any, in the price of the
charter, being for his account. Should he not be able to make this substitution, the
voyage shall be undertaken at the time agreed upon; and if no time has been fixed,
within fifteen days from the time the loading began, should nothing otherwise have
been stipulated.
If the owner of the part of the cargo already loaded should procure some more
at the same transportation charges and under similar or proportionate conditions to
those accepted for the cargo received, the person from whom the vessel is chartered
or the captain cannot refuse to accept the rest of the cargo; and should he do so, the
charterer shall have a right to demand that the vessel be put to sea with the cargo
she may have on board.
 ART. 671. After three-fifth of the vessel is loaded, the person from whom she
is chartered may not, without consent of the

539
TRANSPORTATION LAWS

charterers or shippers, substitute the vessel designated in the charter party with another
one, under the penalty of making himself thereby liable for all the damages occurring
during the voyage to the cargo of those who did not consent to the substitution.
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 compel him to unload it and pay the damages suffered thereby.
ART. 673. The person from whom the vessel is chartered shall be liable for all the
damages caused to the charterer by 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. Should the charterer carry to the vessel more cargo than that contracted
for, the excess may be admitted in accordance with the charge stipulated in the contract
if it can be well stowed without injuring the other shippers; but, if to load it will throw
the vessel out of trim, the captain must refuse it or unload it at the expense of its owner.
The captain may likewise, before leaving the port, unload the goods placed on
board clandestinely, or transport them, if he can do so and keep the vessel in trim,
demanding by way of freight the highest price which may have been stipulated for said
voyage.
ART. 675. Should the vessel have 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 for his instructions, the lay days agreed upon or those allowed by custom in the
port, shall, in the meantime, begin to run, unless otherwise expressly stipulated.
Should the captain not receive an answer within the time necessary therefore, he
shall make efforts to find cargo; 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.
 540
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCl

The charterer shall pay the freight in full, discounting (lint which may have been
earned on the goods, which may have been carried on the voyage out, and on the return
trip, if carried for the account of third persons.
The same shall be done if a vessel, having been chartered blithe round trip, should
not be given any cargo for her return.
ART. 676. The captain shall lose the freight 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 remain in force even though a declaration of
war or a blockade should take place during the voyage, if the captain should not have
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 shippers; and the expenses and salaries
accruing during the detention shall be paid as general average.
If, by order of the shipper, the cargo should be discharged at the port of arrival,
the freight for the voyage out shall he paid in full.
ART. 678. If the time necessary, in the opinion of the judge or court, to receive
orders from the shipper should have elapsed, without the captain having received any
instructions, the cargo shall be deposited, and it shall be liable for the payment of the
freight and expenses incurred by reason of the delay which shall be paid from the
proceeds of the part first sold.
Obligations of Charterers
ART. 679. The charterer of an entire vessel may sub-charter the whole or part
thereof on such terms more convenient to him, the captain not being allowed to
refuse to receive on board the eargo delivered by the second charterers, provided that
the conditions of
 541
11< ANSI'OKf A7 U)!i

the first charter are not altered, and that the consideration agreed upon is paid in full to
the person from whom the vessel is chartered, even though the full cargo is not loaded,
subject to 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 freight of the amount he fails to load, if the captain does not take other
cargo to complete the load of the vessel, in which case the first charterer shall pay the
differences, 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 v. CA and Hongfil Shipping Corporation, 311 SCRA 700, August 4,
1999)
ART. 681. Should the charterer load goods different from those mentioned 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 damage, by reason
of confiscation, embargo, detention, or other causes, to the 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 goods should have been shipped for the purpose of illicit
commerce, and were carried 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 goods,
shall be liable for all the damage which may be caused to other shippers; and even
though it may have been agreed upon, they cannot 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 wait until
 542
CIIAITI-K IX SPI-CIAL CONTRACTS Ol
MARIT1MK COMMI-RCI-

the vessel is repaired, being permitted to unload her 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 land, should order the unloading
and of the reloading shall be for the account of the shippers.
ART. 684. If the charterer, without the occurrence of any of the cases of force
majeure expressed in the foregoing articles, should decide to unload his goods before
arriving at the port of destination, he shall pay the full freight, the expenses of making a
port at his request, and the damages caused the other shippers, should there be any.
ART. 685. In charters for transportation of general cargo, any of the shippers
may unload the goods before starting the voyage, by paying one half the freight, the
expense of stowing and restowing the cargo, and any other damage which may be
caused 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 freight due and the
other expenses for which said cargo may be liable.
The primage must be paid in the same proportion and at the same time as the
freight, all the changes and modifications to which the latter should be subject also
governing the former.
ART. 687. The charterers and shippers may not, for the payment of freight and
other expenses, abandon the goods damaged on account of their own inherent defect or of
fortuitous event.
The abandonment, however, may be done, should the cargo consist of liquids,
which may have leaked out, nothing remaining in the containers but one-fourth part of
their contents.
ART. 688. A charter may be rescinded at the request of the charterer:
1. If, before loading the vessel, he should abandon the charter, paying half of the
freight agreed upon.
 543
TRANSPORTATION LAWS

2. If the capacity of the vessel should be found not to be in conformity with that
stated in the certificate of the tonnage, or should there be an error in the statement of the
flag under which she navigates.
3. If the vessel should not be placed at the disposal of the charterer within the
period and in the manner agreed upon.
4. If, after the vessel has put to sea, she should return to the port of departure on
account of the risk from pirates, enemies or inclement weather, and the shippers should
agree to unload her.
In the second and third cases, the person from whom the vessel w as chartered,
shall indemnify the charterer for the damage he may suffer.
In the fourth case, the person from whom the vessel was chartered shall have a
right to the freight in full for the voyage out.
If the charter should have been made by the month, the charterer shall pay the
full freight for one month if the voyage is to a port in the same waters, and for two
months, if the voyage is to a port in different waters.
From one port to another in the Philippines, the freight for one month only shall
be paid.
5. If, in order to make urgent repairs, the vessel, during the voyage, should make
a port, and the charterer should prefer to dispose of the goods.
When the delay does not exceed thirty days, the shippers shall pay the full freight
for the voyage out.
If the delay should exceed thirty days, they shall pay only the freight in proportion
to the distance covered by the vessel.
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.
 544
( HAP I IK IX
SPECIAL CONTKAC IS OJ MAPI']/Ml. L

In such cases, the charterer must pay half of the freigM stipulated, besides the
demurrage due for the Jay day* 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 purchases if the
former did not notify him of the charter pending at the time of making the sale.
ART. 690. The charter party shall he rescinded and all action arising
therefrom shall be extinguished if, before the vessel puts to sea from the port of
departure, any of the following cases should occur:
1. The declaration of war or interdiction of commerce with the Power to whose
ports the vessel was going to make her voyage.
2. The condition of blockage of the port of destination of said vessel, or the
breaking out of an epidemic after the execution of the contract.
3. The prohibition to receive at that port the goods constituting the cargo of the
vessel.
4. The indefinite detention, by reason of an embargo of the vessel by order of the
government, or for other cause beyond the control of the ship agent.
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 may not put to sea by reason of the closing of the port of
departure or other temporary cause, the
 545
TRANSPORTATION LAWS

charter shall remain in force, with none of the contracting partiei having right to claim
damages.
The subsistence and wages of the crew shall be considered as general average.
During the interruption, the charterer may, for his own account, unload or reload
at the proper time the goods, paying demurrage if he delays the reloading after the cause
of 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 freight for the
voyage out, if, during the trip, by reason of a declaration of war, closing of ports, or
interdiction of commercial relations, the vessels should make the port designated for
such case in the instructions of the charterer.

Republic Act No. 9515 also known as an “Act Defining the Liability
of Ship Agents in the Tramp Service and for Other Purposes” defines the
liability of ship agent, general agent and tramp agent, thus: “The
responsibility or liability, if any, of the ship agent, general agent and
tramp agent shall continue to be governed by the pertinent provisions
of the Code of Commerce: Provided, That in the case of the tramp agent,
his liability shall not extend to the obligations assumed by the ship
owner, charterer or carrier with the shipper or receiver for the goods
carried by the ship: Provided, further, That it is the duty of the tramp agent,
however, to assist the shipper or receiver in making cargo liability
claims against the ship owner, charterer or carrier: Provided, finally, That
failure or inaction to perform the aforesaid duty shall subject the tramp
agent to applicable administrative sanctions based on the Implementing
Rules and Regulations (IRR) to be formulated thereon by the Maritime
Industry Authority (MARINA), under the Department of Transportation
and Communication (DTOC) and by the Philippine Shippers Bureau
(PSB), under the Department of Trade and Industry (DTI).
 546

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SPECIAL CONTRACTS OF MARITIME COMMERCE

The same statute which took effect on December 19, 2008

defines die following terms:
(a) “Ship Agent”shall mean the person entrusted with
the provisioning or representing the vessel in the
port in which it may be found.
(b) shall mean a ship agent appointed by
“General Agent ”
the ship owner or carrier in the liner service for all
voyages and covered by a General Agency
Agreement whereby the agent assumes the role
and responsibility of its principal within the
Philippine territory including but not limited to
solicitation of cargo and freight, payment of
discharging or loading expenses, collection of
shipping charges and issuing/ releasing bills of
lading and cargo manifest.
(c) “Tramp Agent” shall mean a ship agent appointed by
the ship owner, charterer or carrier the tramp
service for one particular voyage whose authority
is limited to the customary and usual procedures
and formalities required for the facilitation of the
vessel’s entry, stay and departure in the port and
does not include the assumption of the ship
owner’s, charterer’s or carrier’s obligations with
 the shipper or receiver for the goods carried by the
ship.
(d) “Tramp Service” shall mean the operation of a
contract carrier which has no regular and fixed
routes and schedules but accepts cargo wherever
and whenever the shipper desires, is hired on a
contractual basis, or chartered by any one or few
shippers under mutually agreed terms and usually
carries bulk or break bulk cargoes.
(e) “Liner Service ”shall mean the operation of a
common carrier which publicly offers its services
without discrimination to any user, has regular
ports of call/destination, fixed sailing schedules
and frequencies and published freight rates and
attendant charges and usually carries multiple
consignments. xxx xxx xxx

547
TRANSPORTAVION LAW'S

BILLS OF LADING
ART. "06. The captain and the shipper shall have the obligation of drawing up the
bill of lading wherein the following 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 goods.
7. The freight 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 thereof at the expense of
the captain if the latter should not sign it, and, in every case, an indemnity for the
damage suffered thereby.

The prescriptive period in the bill does not apply to a violation of a compromise
agreement mutually binding upon the contracting parties.

Negros Navigation v. Bacquing

G.R. No. 134753, March 9, 2005
FACTS: On November 7, 1988, respondents entered into a contract
of affreightment with petitioner for the shipment of five 10-footer
container vans of crated tomatoes on board petitioner’s M/V Florentina
on its advertised November 10, 1988 voyage from Cagayan de Oro City
to Manila. In connection therewith, and upon respondent’s payment of
the corresponding freight charges, petitioner issued in favor

548
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SPECIAL CONTRACTS OF MARITIME COMMERCE

of the respondents Bill of Lading No. 354068 for the four container
vans, and Bill of Lading No. 0-354067 for the remaining container van.
The shipment, however, was not loaded on board iM/S Sta. Florentma
on the scheduled date of its voyage because the vessel immediately
 depaned for Iloilo after unloading passengers and cargoes at the
Cagayan de Oro City pier. As shippers, respondents lodged a protest
with Noel Tabor, petitioner’s branch manager in Cagayan de Oro City,
who promised respondents that their cargoes of tomatoes will be
shipped on the next trip. Four days later, or on November 14, 1988,
the five vans of crated tomatoes were shipped to Manila.
Unfortunately, the consignee refused acceptance thereof because the
tomatoes were already rotten. In the same month of November 1988,
respondents filed their claim with Tabor. The negotiation resulted in
an amicable settlement whereby petitioner agreed to pay 60% of the
value of the shipment or P241.500. Despite demands, petitioner failed
to pay the agreed amount, prompting respondents to file with the
Regional Trial Court at Cagayan de Oro City their complaint against
petitioner for breach of contract, sum of money, and damages.
Petitioner demurred on the ground of prescription.
In an Order dated May 24, 1994, the trial court granted
petitioner s demurrer and accordingly dismissed respondents’
complaint. The court explained that the cause of action of the plaintiff
has really prescribed. The incident, which led to the filing of this case,
allegedly happened sometime on November 10, 1988, and this case
was filed on November 12, 1990, or more than two years after the
alleged incident. The defendant (now petitioner) claims that under
the provisions of the bill of lading, which constitutes as the contract
between the parties, actions for recoveiy of damages under the
contract should be brought by the aggrieved or offended party within
one year. On the other hand, the plaintiffs failed to show to the court
that the negotiation on their claim suspended or tolled the period of
prescription. Therefrom, respondents went to the Court of Appeals,
which reversed and set aside the order of the trial court. In thus
deciding, the Court of Appeals reasoned out that the prescriptive
period in the bill of lading was superseded by petitioner’s offer to pay
60% of the value of the damaged shipment. The offer was accepted
by the respondents, thereby resulting into a compromise agreement
between the parties, which compromise agreement binds the

549
TRANSPORTATION LAWS

petitioner. In effect, the appellate court viewed respondent’s cause of

action as hinged on the same compromise agreement.
ISSUE:WTiether or not a prescriptive period in the bill of lading
applies to a violation of a compromise agreement.
HELD: The petition is unavailing. It is undisputed that respondents
initially filed their claim with petitioner’s branch manager Noel Tabor,
who concluded an amicable settlement with them, whereunder
petitioner agreed to pay 60% of the value of the shipment or P241,500.
However, despite demands, petitioner failed to pay the agreed amount.
Consequently, respondents filed an action for breach of the
compromise agreement. The trial court’s finding of prescription based
on the one- year prescriptive period appearing in the bill of lading is
erroneous. The prescriptive period in the bill does not apply to a
violation of a compromise agreement mutually binding upon the
contracting parties. In this connection, Article 1145 of the Civil Code is
pertinent. It provides, “The following actions must be commenced within six years: (1)
Upon an oral contract; (2) Upon a quasi-contract Here, the parties’ compromise
agreement was not reduced to writing. Hence, and conformably with
aforequoted provision of the Civil Code, the action must be commenced
within six years from violation of respondents’ right. Records show that
the parties arrived at an amicable settlement in 1988, and petitioner
failed to comply therewith despite demands. The complaint, having
been filed on November 20, 1990, the trial court erred in dismissing the
complaint on ground of prescription.
ART. 707. Four true copies of the original bill of lading shall be made, all of them
shall be signed by the captain and by the shipper. Of these copies, 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 issued as many copies of the bill of lading as may be considered
necessary by the parties; but, when they are issued to order to bearer, there shall be
stated in all the copies, be they of the first four or of the subsequent ones, the destination
of each one stating whether it is for the agent, for the captain, for

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SPECIAL CONTRACTS OF MARITIME COMMERCE

the shipper, or for the consignee. If the copy sent to the consignee should have a
duplicate, this circumstance and the fact that it is not valid except in default of the first
one, must be so 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 goods 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.
ART. 710. If there should be discrepancy in the bills of lading and no
alteration or erasure in any of term can be observed, 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 by such omission to unload
the cargo and place it in deposit shall be responsible for the expense of the warehousing
and other expenses arising therefrom.
ART. 712. The captain may not himself change the destination of the goods.
In admitting this change at the instance of the shipper he must first take up the bills
of lading he may have issued, under penalty 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

551
 TRANSPORTATION LAWS

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, when dealing with the bills of lading referred to
therein, under penalty, should he fail to do so, of being liable for the said
cargo if improperly delivered through his fault.
ART. 714. If before the vessel puts to sea the captain should die or
should cease to hold his position due to 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 an 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 his right of action against the
first captain, if the latter ceases to be such through his own fault. If the said
examination should not be made, it shall be understood that the new captain
accepts the cargo as it appears from the issued bills of lading.
ART. 715. Bills of lading will give rise to a most summary action or
judicial compulsion, according to the case, for the delivery of the cargo and
the payment of the freight 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 goods, the
captain shall prefer, in making delivery, the person presenting the copy first
issued, except when the subsequent one was issued on proof of the loss of the
first one, and both are presented by different persons.
In such case, as well as when only second or subsequent copies, issued
without that proof, are presented, the captain shall apply to the judge or
court, so that he may order the deposit of the goods, and their delivery,
through his mediation, to the proper person.
ART. 717. The delivery of the bill of lading shall produce the
cancellation of all the provisional receipts of prior date issued by
 CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

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 bills of lading signed
by the captain, or at least the copy under which the delivery is made, shall be
returned to him with the receipt for the goods mentioned therein.
The delay on the part of the consignee shall make him liable for the
damages which such delay may cause the captain.

Bill of Lading Explained

It is a long-standing jurisprudential rule that a bill of lading

operates both as a receipt and as a contract. It is a receipt for the goods
shipped and a contract to transport and deliver the same as
therein stipulated. As a contract, it names the parties, which
includes the consignee, fixes the route, destination, and freight
rates or charges, and stipulates the rights and obligations
assumed by the parties. Being a contract, it is the law between
the parties. Being a contract, it is the law between the parties
who are bound by its terms and conditions provided that these
are not contrary to law, morals, good customs, public order,
and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is
presumed that the stipulations of the bill were, in the absence
of fraud, concealment or improper conduct, known to the
shipper, and he is generally bound by his acceptance whether
he reads the bill or not. (70 Am. Jur. 29, Shipping 598)
The holding in most jurisdiction has been that a shipper
who receives a bill of lading without objection after an
opportunity to inspect it, and permits the carrier to act on it by
proceeding with the shipment is presumed to have accepted it
as correctly stating the contract and to have assented to its
terms. In other words, the acceptance of the bill without
dissent raises the presumption that all the terms therein were
brought to the knowledge of the shipper and agreed to by him
and, in the absence of fraud or mistake, he is estopped from
thereafter denying that he assented to such terms. This rule
applies with particular force where a shipper accepts a bill of
lading with full knowledge of its contents and

553

f 1'ANSI‘OI'fAfION LAWS

acceptance under such circumstances makes it a binding contract.

(30 Am. Jur.

2d, Carriers 278)

While it is true that a bill of lading may serve as the

contract of carriage between the parties, it cannot prevail over
the express provision of the voyage charter that the carrier and
the charterer executed. (Cebu Salvage Carp. v. Phil.
Home Assurance Corp., 512 SCRA 667, January 25, 2007)

In cases where a Bill of Lading has been issued by a carrier

covering goods shipped aboard a vessel under a charter party,
and the charterer is also the holder of the bill of lading, “the bill
of lading operates as the receipt for goods, and as document of
title passing the property of the goods, but not as varying the
contract between the charterer and the ship owner.” The Bill of
Lading becomes, therefore, only a receipt and not the contract
of carriage in a charter of the entire vessel, for the contract is
the Charter Party, and is the law between the parties who are
bound by its terms and condition provided that these are not
contrary to law, morals, good customs, public order and public
policy. (National Union Fire Insurance Company of Pittsburg v. Stolt Nielsen
Phil., Inc., 184 SCRA

682, April 26, 1990)

On Board Bill of Lading and Received for Shipment Bill of Lading

An on board bill of lading is one in which it is stated that
the goods have been received on board the vessel which is to
carry the goods, whereas, a received for shipment bill of lading
is one in which it is stated that the goods have been received
for shipment with or without specifying the vessel by which the
goods are to be shipped. Received for shipment bills of lading
are issued whenever conditions are not normal and there is
insufficiency of shipping space. An on board bill of lading is
issued when the goods have been actually placed aboard the
ship with every reasonable expectation that the shipment is as
good as on its way.

Clean Bill of Lading

A bill of lading, aside from being a contract and a receipt, is also
a symbol of the

goods covered by it. A bill of lading, which has no

 CHARTFr-R IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

notation of any defect or damage in the goods, is called a

"clean bill of lading. ” A clean bill of lading constitutes prima facie
evidence of the receipt by the carrier of the goods as
therein described. (Lorenzo Shipping Corp. v. Chubb and Sons, Inc.,
431 SCRA 266, June 8,

2004)

Bill of Lading, a Contract of Adhesion

It is conceded that bills of lading constitute a class of
contracts of adhesion. However, as ruled in the earlier case of
Ong Yiu v. Court of Appeals, et al, and reiterated in Servando, et al v.
Philippine Steam Navigation Co., plane tickets as well as bills of
lading are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if
he adheres, he gives his consent. The respondent court
correctly observed in the present case that “when the
appellant received the bill of lading, it was tantamount to
appellant’s adherence to the terms and conditions as
embodied therein.” Party to a maritime contract would
require an on board bill of lading because of its apparent
guaranty of certainty of shipping as well as the seaworthiness
of the vessel which is to carry the goods.
The nature of the bill of lading operates both as a receipt
for the good; and more importantly, as a contract to transport
and deliver the same as stipulated therein. Being a contract, it
is the law between the parties thereto, who are bound by its
terms and conditions provided that these are not contrary to
law, morals, good custom, public order and public policy. (Samar
Mining Co., Inc. v. Nordeutsher Lloyd, 132 SCRA 529)
Three kinds of stipulations have often been made in a bill
of lading. The first is one exempting the carrier from any and all
liability for loss or damage occasioned by its own negligence.
The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the
liability of the carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority, the first
and second kinds of stipulations are invalid as being contrary to
public policy, but the third is valid and enforceable. (Loadstar
Shipping Co., Inc. v. Court of Appeals, G.R. No. 131621, September 28, 1999)

555
TRANSPORTATION LAWS

QUESTION: For failure of the consignee to comply with the

required claim for damages set forth in the first sentence of
Stipulation No. 7 of the bill of lading, petitioner’s complaint was
dismissed. The Bill of Lading provides:

XXX
7. All claims for damages to the goods must be made to
the carrier at the time of delivery to the consignee or his agent
if the package or containers show exterior sign of damage,
otherwise to be made in writing to the carrier within twenty-
four hours from the time of delivery.
In support of its complaint, petitioner contends that it is
unreasonable for the consignee to be required to abide by the
provisions of Stipulation 7 of the bill of lading. According to
petitioner, since the place of delivery was remote and
inaccessible, the consignee cannot be expected to have been
able to immediately inform its main office and make the
necessary claim of damages for the losses and unrecovered
spillages in the subject cargo.
Petitioner further argues that the contents of the bill of
lading are printed in small letters that no one would bother to
read them, as they are difficult to read.
Is the petitioner correct?
ANSWER: The petition is bereft of merit.

The bill of lading defines the rights and liabilities of the

parties in reference to the contract of carriage. Stipulations
therein are valid and binding in the absence of any showing
that the same are contrary to law, morals, customs, public
order, and public policy. Where the terms of the contract are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of the stipulations shall control.
A bill of lading is in the nature of a contract of adhesion,
defined as one where one of the parties imposes a ready-made
form of contract which the other party may accept or reject,
but which the latter cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes
his signature or his “adhesion” thereto, giving

W:

l HAN I K l\
SN-V1 At CON 1 R U TS Ol MAK11IMI ( < >MMI K( I.

no room for negotiation and depriving the latter ol the

opportunity to bargain on equal footing. Nevertheless,
these types of contracts have been declared as binding as
ordinary contracts, the reason being that the party who
adheres to the contract is free to reject it entirely.
In other words, the acceptance of the bill without
dissent raises the presumption that all the terms therein
were brought to the knowledge of the shipper and agreed
to by him and, in the absence of fraud or mistake, he is
estopped from thereafter denying that he assented to such
terms. (Magellan
Manufacturing Marketing Corp. v. CA, 201 SCRA JO; Provident Insurance
Corp. v. Court of Appeals, 419 SCRA 480, January 15, 2004)

Nature of a Bill of Lading

Keng Hua Paper Products Co., Inc. v.

 Court of Appeals; Regional Trial Court of Manila,
Branch 21, and Sea Land Service, Inc.

G.R. No. 116863, February 12,1998

FACTS: Plaintiff (herein respondent), a shipping
company, is a foreign corporation licensed to do business
in the Philippines. On June 29,1982, plaintiff received at its
Hong Kong terminal a sealed container, Container No.
SEAU 67523, containing 76 bales of “unsorted waste
paper” for shipment to defendant (herein petitioner),
Keng Hua Paper Products Co., in Manila. A bill of lading to
cover the shipment was issued by the plaintiff.
On July 9, 1982, the shipment was discharged at the
Manila International Container Port. Notices of arrival
were transmitted to the defendant but the latter failed to
discharge the shipment from the container during the
“free time” period or grace period. The said shipment
remained inside the plaintiff’s container from the moment
the free time period expired on July 29, 1982 until the time
when the shipment was unloaded from the container on
November 22, 1983, or a total of 481 days. During the 481-
day period, demurrage charges accrued. Within the same
period, letters demanding payment were sent by the
plaintiff to the defendant who, however, refused to settle
its obligation which

557
 TRANSPORTATION I.AWS

eventually amounted to P67,340. Numerous demands were

made on the defendant hut the obligation remained unpaid.
PlaintifT thereafter commenced this civil action for collection
and damages.
In its answer, defendant, by way of special and
affirmative defense, alleged that it purchased 50 tons of
waste paper from the shipper in Hong Kong, Ho Kec Waste
Paper, as manifested in Letter of Credit No. 824858 issued by
Equitable Banking Corporation, with partial shipment
permitted; that under the letter of credit, the remaining
balance of the shipment was only 10 metric tons as shown in
Invoice No. H-15/82; that the shipment plaintiff was asking
defendant to accept was 20 metric tons which is ten metric
tons more than the remaining balance; that if defendant
were to accept the shipment, it would be violating Central
Bank rules and regulations and custom and tariff laws; that
plaintiff had no cause of action against the defendant
because the latter did not hire the former to carry the
merchandise; that the cause of action should be against the
shipper which contracted the plaintiff’s services and not
against defendant; and that the defendant duly notified the
plaintiff about the wrong shipment through a letter dated
January 24, 1983.
In its decision, the RTC found petitioner liable for
demurrage, attorney’s fees and expenses of litigation. The
petitioner appealed to the Court of Appeals, arguing that the
lower court erred in: (1) awarding the sum of P67,340 in
favor of the private respondent; (2) rejecting petitioner’s
contention that there was overshipment; (3) ruling that
petitioner’s recourse was against the shipper; and (4)
computing legal interest from date of extrajudicial demand.
Respondent Court of Appeals denied the appeal and
affirmed the lower court’s decision in toto. In a subsequent
resolution, it also denied the petitioner’s motion for
reconsideration.
ISSUES: 1) When does a bill of lading become binding on a
consignee?

2) Whether or not the alleged overshipment justifies the

consignee’s refusal to receive the goods described in the bill
of lading.
HELD: A bill of lading serves two functions. First, it is a
receipt for the goods shipped. Second, it is a contract by which
three parties, namely, the shipper, the carrier, and the
consignee undertake specific responsibilities and assume
stipulated obligations. A “bill of lading

558
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

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 the contract and of all of its
terms and conditions of 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.
In the case at bar, both lower courts held that the bill of
lading was a valid and perfected contract between the
shipper (Ho Kee), the consignee (Petitioner Keng Hua), and
the carrier (Private Respondent Sea-Land). Section 17 of the
bill of lading provided that the shipper and the consignee
were liable for the payment of demurrage charges for the
failure to discharge the containerized shipment beyond the
grace period allowed by the tariff rules.
Petitioner admits that it “received the bill of lading
immediately after the arrival of the shipment” on July 8,
1982. Having been afforded an opportunity to examine the
said document, petitioner did not immediately object to or
dissent from any term or stipulation therein. It was only six
months later, on January 24, 1983, that petitioner sent a
letter to private respondent saying that it could not accept
the shipment. Petitioner’s inaction for such a long period
conveys the clear inference that it accepted the terms and
conditions of the bill of lading.
Petitioner’s reliance on the Notice of Refused or On
Hand Freight, as proof of its non-acceptance of the bill of
lading, is of no consequence. Said notice was not written by
petitioner; it was sent by private respondent to petitioner in
November 1982, or four months after petitioner received the
bill of lading. If the notice has any legal significance at all, it is
to highlight petitioner’s prolonged failure to object to the bill
of lading. Contrary to petitioner’s contention, the notice and
the letter support — not belie — the findings of the two
lower courts that the bill of lading was impliedly accepted by
petitioner.
Petitioner’s attempt to evade its obligation to receive the
shipment on the pretext that this may cause it to violate
customs, tariff and central bank laws must likewise fail. Mere
apprehension of violating said laws,

559
TRANSPORTATION LAWS

without a clear demonstration that taking delivery of the

shipment has become legally impossible, cannot defeat the
petitioner’s contractual obligation and liability under the bill
of lading. (See also Iron Bulk Shipping Philippines Company, Ltd. v.
Remington Industrial Sales Corp., 417 SCRA 229, January 8, 2003)
MOF Company, Inc. v.

Shin Yang Brokerage Corporation

G.R. No. 172822, December 18,2009

FACTS: On October 25, 2001, Halla Trading Co., a
company based in Korea, shipped to Manila secondhand cars
and other articles on board the vessel Hanjin Busan 023 8W.
The bill of lading covering the shipment, i.e., Bill of Lading No.
HJSCPUS114168303, which was prepared by the carrier
Hanjin Shipping Co. Ltd., (Hanjin), named respondent Shin
Yang Brokerage Corporation (Shin Yang) as the consignee and
indicated that payment was on “Freight Collect” basis, i.e.,
that the consignee/receiver of the goods would be the one to
pay for the freight and other charges in the total amount of
P57,646.
The shipment arrived in Manila on October 29, 2001.
Thereafter, petitioner MOF Company, Inc. (MOF), Hanjin’s
exclusive general agent in the Philippines, repeatedly
demanded the payment of ocean freight, documentation fee
and terminal handling charges from Shin Yang. The latter,
however, failed and refused to pay contending that it did not
cause the importation of the goods, that it is only the
consolidator of the said shipment, that the ultimate
consignee did not endorse in its favor the original bill of
lading and that the bill of lading was prepared without its
consent.
ISSUE: Whether a consignee, who is not a signatory to
the bill of lading, is bound by the stipulations thereof.
Corollarily, whether respondent, who was not an agent of
the shipper and who did not make any demand for the
fulfillment of the stipulations of the bill of lading drawn it its
favor, is liable to pay the corresponding freight and handling
charges.
HELD: While it is true that a bill of lading serves two
functions: first, it is a
receipt for the goods shipped; second, it is a contract by which

560
( HAn I«:K IX
Sl’l < IAI C ONTRACTSOI MARITIMIs COMMKRO;

ihivc parties, namely, the shipper, the carrier and the

consignee who undertake specific responsibilities and assume
stipulated obligations (My inn ( herseas Chartering and Shipping N. V. v.
Phil. First Insurance Co.. Inc.. 3S3 SCRA 23), x x x if the same is not
accepted, it is as if one party does not accept the contract.
Said the Supreme Court: “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 the contract and of all its terms and
conditions of which the acceptor has actual or constructive
notice.” (Keng Hua Paper Products Co., Inc. v. CA. 2S6 SCRA 257)
The bill of lading is oftentimes drawn up by the
shipper/consignor and the carrier without the intervention of
the consignee. However, the latter can be bound by the
stipulations of the bill of lading when a) there is a relation of
agency between the shipper or consignor and the consignee;
or b) when the consignee demands fulfillment of the
stipulation of the bill of lading which was drawn up in its
favor. In Keng Hua Paper Products Co., Inc. v. Court of Appeals, it was
held that once the bill of lading is received by the consignee
who does not object to any terms or stipulations contained
therein, it constitutes as an acceptance of the contract and of
all of its terms and conditions, of which the acceptor has
actual or constructive notice.
In sum, a consignee, although not a signatory to the
contract of carriage between the shipper and the carrier,
becomes a party to the contract by reason of either a) the
relationship of agency between the consignee and the
shipper/consignor; b) the unequivocal acceptance of the bill
of lading delivered to the consignee, with full knowledge of
its contents; or c) availment of the stipulation pour autrui, i.e.,
when the consignee, a third person, demands before the
carrier the fulfillment of the stipulation made by the
consignor/shipper in the consignee’s favor, specifically the
delivery of the goods/cargoes shipped.
In the instant case, Shin Yang consistently denied in all
of its pleadings that it authorized Halla Trading Co., to ship
the goods on its behalf, or that it got hold of the bill of lading
covering the shipment, or that it demanded the release of
the cargo. Basic is the rule of evidence

561
TRANSPORTATION LAWS

that the burden of proof lies upon him who asserts it, not
upon him who denies, since, by the nature of things, he who
denied a fact cannot produce any proof of it. Thus, MOF has
the burden to controvert all these denials, it being insistent
that Shin Yang asserted itself as the consignee and the one
that caused the shipment of the goods to the Philippines.
May a common carrier release the goods to
QUESTION:
the consignee even without the surrender of the bill of
lading?
ANSWER: A carrier is allowed by law to release the goods
to the consignee even without the latter’s surrender of the
bill of lading. The third paragraph of Article 353 of the Code
of Commerce is enlightening: “Article 353. The legal evidence of the
contract between the shipper and the carrier shall be the bills of lading, by the
contents of which the disputes, which may arise regarding their execution and
performance, shall be decided, no exceptions being admissible other than those
" After the contract has
of falsity and material error in the drafting.
been complied with, the bill of lading, which the carrier has
issued, shall be returned to him, and by virtue of the
exchange of this title with the thing transported, the
respective obligations and actions shall be considered, unless
in the same act the claim, which the parties may wish to be
reduced to writing, with the exception of that provided for in
Article 366.

In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or any other cause, he must give the latter
a receipt for the goods delivered, this receipt producing the same effects as the return
of the bill of lading. (Emphasis supplied)
 The general rule is that upon receipt of the goods, the
consignee surrenders the bill of lading to the carrier, and
their respective obligations are considered cancelled. The
law, however, provides two exceptions where the goods may
be released without the surrender of the bill of lading
because the consignee can no longer return it. These
exceptions are when the bill of lading gets lost or other
cause. In either case, the consignee must issue a receipt to
the carrier upon the release of the
CHAPTER IX
SPECIAL CONTRACTS OF MARITIME COMMERCE

goods. Such receipt shall produce the same effect as the

surrender of the bill of lading.
The Court have already ruled that non-surrender of the
original bill of lading does not violate the carrier’s duty of
extraordinary diligence over the goods. In Republic v. Lorenzo
Shipping Corporation, the Court found that the carrier exercised
extraordinary diligence when it released the shipment to the
consignee, not upon the surrender of the original bill of lading,
but upon signing the delivery receipts and surrender of the
certified true copies of the bills of lading. Thus, the Court
held that the surrender of the original bill of lading is not a
condition precedent for a common carrier to be discharged
of its contractual obligation. (Designer Baskets, Inc. v. Air Sea
Transport, Inc., and Asia Cargo Container Lines, Inc., G.R. No. 184513, March
9, 2016)

LOANS ON BOTTOMRY AND RESPONDENTIA

 ART. 719. A loan in which, under any condition whatsoever, the
repayment of the sum loaned and of the premium stipulated depends upon
the safe arrival in port of the effects (“efectos”) on which it is made, or of
the value in case of accident, shall be considered a loan on bottomry or
respondentia.
LOAN ON BOTTOMRY EXPLAINED
A contract in the nature of mortgage, by which the
owner of a ship borrows money for the use, equipment, or
repair of the vessel, and for a definite term, and pledges
the ship (or the keel and bottom of the ship, pars pro toto) as
a security for its repayment, with maritime or
extraordinaiy interest on account of the marine risks to be
borne by the lender; it being stipulated that if the ship be
lost in the course of the specified voyage, or during the
limited time, by any of the perils enumerated in the
contract, the lender shall also lose his money. (Black’s Law
Dictionary)
— When the loan is not
Loan on respondentia, explained.
made upon the ship, but on the goods laden on board,
and which are to be sold, or exchanged in the course of
the voyage, the borrower’s personal

responsibility is deemed the principal security for the

performance of the

563
TRANS PORTATI ON LAWS
contract, which is therefore called “respondentia. "And in a loan
upon respondentia. the lender must be paid his principal and
interest though the ship perishes, provided the goods are
saved. In most other respects, the contracts of bottomry and
of respondentia stand substantially upon the same footing.
(Bouvier's Law Dictionary)

Distinction between Loan on Bottomry and Respondentia from Simple Loan

1. In loan on bottomry or respondentia, the rate of interest
although beyond the lawful rate of interest is not
subject to Usury Law, whereas in simple loan, the
rate of interest is subject to the said Law.
2. 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.
3. In the former, when the loan is made during the
voyage, the last lender has preference over the
previous one (the 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, 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.
5. In the former, the action pertaining to the lender is
extinguished by the absolute loss of the effects on
 which the loan is made, whereas in the latter, not
extinguished, the lender being reduced merely to
unsecured creditor.
6. In the former, the loan should be recorded in the
registry of vessels, to be effective against third
persons, whereas, in the latter, registration is not
necessary.

ART, 720. Loans on bottomry or respondentia may be executed:

1. By means of public instrument.

564
 ;sv-Tv A c;v .OC^V-AvAif CV>V\ ;
xO:

1. By rue*n> of a polk) signed by the contracting parties AE4 rhe broker liking pan therein.

5. By means of a prr. ate instrument.

Under whichever of these forms the contract is executed, it shall be entered in the certificate of
the registry of the vessel atui 'hall be recorded in the registry of vessels, without w hich retjuisifes. 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 vessels of the port of registry of the vessel before the lapse of eight days from
the date of her arrival. Should the said eight days elapse without the record having been made in the
registry of vessels, the contracts made during the voyage of the 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 w ho took part therein. With respect to those
executed in accordance w ith No. 3 the acknowledgment of the signature shall be required.
Contracts which are not reduced to writing shall not give rise to judicial action.

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 domiciles of the person giving and the person
receiving the loan.
4. The amount of the loan and the premium stipulated.
 565
TRANSPORTATION LAWS

5. The time for repayment.

6. The objects pledged to secure repayment.

7. The voyage during which the risk is run.

ART. 722. The contracts 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 effects and in goods, by 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 goods loaded.
If the loan is constituted on the hull of the vessel, it shall also be considered that the rigging,
equipment and other effects, provisions, fuel steam engines, and the freight earned during the voyage
on which the loan is made, are 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,
which may be 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 means employed by the borrower, the loan
shall be valid only for the amount at which said object is appraised by experts.
 566
< »i\rit it is
SIM i 1 SI i i >N l K At ISOI MA in ilMI n iMMH* i I

The surplus principal shall bo returned with legal Intercut fur the entire time required tor the
repayment.
ART. 727. It the t\ill imimtiil of the tonii contracted in order to load the vessel should he used
for the cargo, the balance shall he returned before starting the voyage.

I'be same proeetlure shall be observed with regard to the goods taken as a loan If all of them
could not have been loaded.
ART. 728. The loan which the captain takes at the point of residence ol the owners of the
vessel shall only affect that part of the vessel which belongs to the captain, if the other owners or
their agents should not have given their express authorization therefore 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 iu 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 effect 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.

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.
567
 TRANSPORTATION LAWS

ART. 731. The actions pertaining to the lender shall be extinguished by the absolute loss
of the effects on which the loan was made, if it arose from an accident of the sea at the time and
during the voyage designated in 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 through 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 goods 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 the existence in the vessel of the effects declared to the lender
as the object of the loan, is incumbent upon him who received the loan.
ART. 732. Lenders on bottomry or respondentia shall suffer in proportion to their
respective interest, the general average which may take place in the things on which the loan
was 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 preceding article.
ART. 733. Should the period during which the lender shall run the risk 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 goods, from the time they are loaded on 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 for the payment of the loan shall be
reduced to the proceeds of the effects saved, after deducting the costs of the salvage.

568
If the loan should he on the vessel or any of her parts, the freight earned during the
voyage for which said loan was con icfecJ 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 the repayment of the principal and premium of the
loan, only the former shall bear legal interest.
 CHAPTER X

RISKS, DAMAGES, AND ACCIDENTS OF MARITIME

COMMERCE AVERAGES
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
for the preservation of the vessel or cargo, or both.
2. All damages or deterioration which the vessel may suffer from the time she puts to
sea at the port of departure until she casts anchor at the port of destination, and those suffered
by the goods from the time they are loaded in the port of shipment until they are unloaded in
the port of their consignment.
ART. 807. The petty and ordinary expenses incident to navigation, such as those pilotage
of coast and ports, lighterage and towage, anchorage, inspection, health, quarantine, lazaretto,
and other so-called port expenses, costs of barges, and unloading, until the goods are placed on
the wharf, and 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.
ART. 808. Averages shall be:

1. Simple or particular.

2. General or gross.

ART. 809. As a general rule, simple or particular averages include all the expenses
and damage caused to the vessel or to her cargo which have not inured to the common benefit
and profit of

570
I'll API IK \
RIS KS. D AM M il S. AND Al VID l'N I S (>l MAKIII MI < <>MMI l«

all (he persons interested in the vessel and her cargo, especially the following:
 1. The damage suffered by the cargo from the time of its embarkation until it is
unloaded, either oil account of the inherent defect of the goods or by reason of a marine
accident or force majeun\ and the expenses incurred to avoid and repair the same.
2. The damage and expenses suffered by the vessel in her hull, rigging, arms, and
equipments, for the same causes and reasons, from the time she puts to sea from the port of
departure until she anchors in the port of destination.
3. The damage suffered by the goods 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 a
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 to save the crew, or to meet any other need of the vessel against
which the proper amount shall be charged.
7. The victuals and wages of the crew while the vessel is in quarantine.
8. The damage inflicted upon the vessel or cargo by reason of an impact or collision
with another, if it is accidental and inevitable. If the accident should occur through the fault or
negligence of the captain, the latter shall be liable for all the damage caused.
9. Any damage 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 freight.
ART. 810. The owner of the things, which gave rise to the expenses or suffered the
damage shall bear the simple or particular averages.

571
TRANSPORTATION LAWS
 ART. 811. General or gross averages shall, as a general rule, include all the damages and
expenses which are deliberately caused in order to save the vessel, her cargo, or both at the same
time, from a real known risk, and particularly the following:

1. The effects of cash invested in redemption of the vessel or the cargo captured by
enemies, privateers, or pirates, and the provisions, wages, and expenses of the vessels detained
during the time the settlement or redemption is being made.

2. The effects jettisoned to lighten the vessel, whether they belong to the cargo, to the
vessel, or to the crew, and the damage suffered through said act by the effects, which are kept
on board.

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 transferring a portion of the cargo in order to lighten

the vessel and place it in condition to enter a port or roadstead, and the damage resulting
therefrom to the effects removed or transferred.

5. The damage suffered by the effects loaded as cargo by the opening made in the vessel
in order to drain her and prevent her from sinking.

6. The expenses caused in order to float a vessel intentionally stranded for the purpose
of saving her.

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.

572
CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE
 10. The wages and victuals of the crew of a vessel chartered by the
month, during the time that she 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.
11. The depreciation resulting in the value of the goods sold at arrivals
under stress in order to repair the vessel by reason of gross average.
12. The expenses of the liquidation of the average.
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.
Average in maritime law is loss or damage accidentally
happening to a vessel or to its cargo during a voyage. Also a
small duty paid to masters of ships, when goods are sent in
another man’s ship, for their care of the goods, over and
above the freight. (Blacks Law Dictionary, Sixth Ed.)
Classification of Averages
A. Magsaysay, Inc. v.
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 to 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.

573

Ar
TRANSPORTATION LAWS

On the theory that the expenses incurred in floating the vessel

constitute general average to which both ship and cargo should
contribute, plaintiff brought the present action in the Court of First
Instance of Manila to make defendant pay his contribution, which,
as determined by the average adjuster, amounts to P841.40.
After trial, the lower court found for plaintiff and rendered
judgment against the defendant for the amount of the claim, with
legal interests. From this judgment defendant has appealed directly
to this Court.
ISSUE: Whether or not the floating of a 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: The law on averages is contained in the Code of
Commerce. Under the law, averages are classified into simple or
particular and general or gross. Generally speaking, simple or
particular averages include all expenses and damages caused to the
vessel or cargo which have not inured to the common benefit (Art.
809), and are, therefore, to be borne only by the owner of the
property which gave rise to the same (Art. 810); while general or gross
averages 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.” (Art. 811) Being for the
common benefit, gross averages are to be borne by the owners of
the articles saved. (Art. 812)
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
574
 CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

saving it” and would have no application where, as in the

present case, the stranding was not intentional.
It is deliverance from an immediate, impending peril,
by a common sacrifice, that constitutes the essence of
general average. (The Columbian Insurance

v. Ashby & Stribling, et al, 13 Peters 331; 10 L-Ed.,

Company of Alexandria
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.

REQUISITES OF GENERAL AVERAGE

The following are the requisites for general average:
(1) There must be a common danger; (2) for the common
safety part of the vessel or of the cargo or both is sacrificed
deliberately; (3) from the expenses or damages caused
follows the successful saving of the vessel and cargo; and
(4) the expenses or damages should have been incurred or
inflicted after taking proper legal steps and authority.
(Magsaysay, Inc. v. Agan, supra)
 In a much earlier case (Compagnie de Commerce, etc. v.
Hamburg America, etc., March 31, 1917), the Supreme Court
expounded on these requisites of general average by citing
two leading American cases decided by the Supreme Court
of the United States:
In the case of The Star of Hope v. Annan (76 U.S. 203), Justice
Clifford, speaking for the court said:
“Such claims have their foundation in equity, and
rest upon the doctrine that whatever is sacrificed for
the common benefit of the associated interests shall
be made good by all the interests which are exposed
to the common peril and which were saved from the
common danger by the sacrifice. Much is deferred in
such an emergency to the judgment and decision of
the master; but the authorities, everywhere, agree
that three things must concur in order to constitute a
valid claim for general average contribution:

575
 I RANSI’OH IAI ION I.AWS

First, there must be a common danger to which the ship.

and crew were all exposed, and that danger must be
imminent and apparently inevitable, except by incurring
a loss of a portion of the associated interests to save the
remainder. Second, there must be the voluntary sacrifice
of a part for the benefit of the whole, as for example, a
voluntary jettison or casting away of some portion of the
associated interests for the purpose of avoiding the
common peril, or a voluntary transfer of the common
peril from the whole to a particular portion of those
interests. Third, the attempt so made to avoid the
common peril to which all those interests were exposed
must be to some practical extent successful, for if
nothing is saved there cannot be any such contribution in
any case.” (Barnard v. Adams, 10 How., 303; Patten v. Darling, 1
Cliff., 262; 2 Pars., Ins., 278)

“In the next case which came before this court, Mr.
Justice Grier, in delivering judgment, defined these
requisites, somewhat more fully, as follows: ‘In order to
constitute a case of general average, three things must
concur: (1) a common danger, a danger in which ship,
cargo and crew all participate; a danger imminent and
apparently inevitable, except by voluntarily incurring the
loss of a portion of the whole to save the remainder; (2)
there must be a voluntary jettison, jactus, or casting away
of some portion of the joint concern for the purpose of
avoiding this imminent peril, periculi imminentis evitandi causa,
 or, in other words, a transfer of the peril from the whole
to a particular portion of the whole; (3) this attempt to
avoid the imminent peril must be successful.’”

ART. 813. In order to incur the expenses and cause the

damage 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 should 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

576
(1 IAN I K X
RISKS. DAMACiFS, AND ACCIM NTS <)| MARH IMI COMMFKCF

proceed against the captain before tfie 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 the captain, unless the
urgency of the case should be such that the time necessary for
previous deliberation was wanting.

ART. 814. The resolution adopted to cause the damage

which constitutes general average must necessarily be entered in
the log books, stating the motives and reasons on which it is based,
the votes against it and the reason for the dissent, should there be
any, and the irresistible and urgent causes which impelled the
captain, if he acted of his own accord.
 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 the officers of the vessel.
In the minutes, and after the resolution, shall be stated in
detail all the objects 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.
“Where the formalities prescribed under Articles 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, the carrier cannot claim
for contribution from the consignees for additional freight
and salvage charges.”
Philippine Home Assurance Corporation v.
Court of Appeals and Eastern Shipping Lines, Inc.
G.R. No. 106999, June 20,1996
FACTS: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS
Eastern

Explorer in Kobe, Japan, the following shipment

for carriage to

577
TRANSPORTATION LAWS
Manila and Cebu, freight prepaid and in good order and
condition. .* (a) two boxes internal combustion engine pans,
consigned to William Lines. Inc. under Bill of Lading No.
0422S3: (b) 10 metric tons (334 bags) ammonium chloride,
consigned to Orca's Company under Bill of Lading No. KCE-12:
(c) 200 bags Glue 300. consigned to Pan Oriental Match
Company under Bill of Lading No. KCE-8: and (d) garments,
consigned to Ding Velavo under Bills of Lading Nos. K.MA-73
and KMA-74.
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. Several hours later, 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, w^ere 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;
CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

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 Act No. 2616, known as the
Salvage Law.
The trial court dismissed PH AC’s complaint and ruled in
favor of ESLI, which was affirmed on appeal by the Court of
Appeals.
ISSUE: Whether or not the expenses incurred in saving the
cargo are considered general average.
 HELD: it is worthy to note at the outset that the goods
subject of the present controversy were neither lost nor
damaged in transit by the fire that razed the carrier. In fact,
the said goods were all delivered to the consignees, even if
the transhipment took longer than necessary. What is at
issue therefore is not whether or not the carrier is liable for
the loss, damage, or deterioration of the goods transported
by them but 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 a
different carrier.
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 a natural
disaster or calamity. Petitioner takes exception to this
conclusion and the Court agrees.
In our jurisprudence, fire may not be considered a
natural disaster or calamity since it almost always 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.
As a rule, general or gross averages include 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. While the
instant case may technically fall within the purview of
the said provision, the formalities prescribed under
Articles 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.

579
/-
TRANSPORTATION LAWS

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 behalf of the consignees.

ART. 815. The captain shall direct jettison, and shall order the
effects cast overboard in the following order:
1. Those which are on deck, beginning with those which
embarrass the maneuver or damage 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.
ART. 816. In order that the effects jettisoned may be included
in the gross average and the owners thereof be entitled to indemnity,
it shall be necessary in so far as the cargo is concerned that their
existence on board be proven by means of the inventory prepared
before the departure, in accordance with the first paragraph of
Article 612.
ART. 817. If in lightening a vessel on account of storm, in order
to facilitate her entry into a port or roadstead, part of her 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 a gross average, the amount thereof being distributed between
the vessel and cargo from which it came.
If, on the contrary, the goods transferred should be saved and
the vessel should be lost, no liability may be demanded of the
salvage.
ART. 818. If, as a 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.
(IIAPTHK X
RISKS. DAMACiFS. AND ACCIDENTS OF MAKITIMf, COMMU'f f,

ARRIVALS UNDER STRESS

ARRIVAL UNDER STRESS is the arrival of a vessel at the nearest
and most convenient port upon the instance of the captain, if during the
voyage 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.

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 her 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 in the
log book the proper minutes, which shall be signed by all.
 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.
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 custom, 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 she
was not repaired, rigged, equipped, and prepared in a

58!
TRANSPORTATION LAWS

manner suitable for the voyage, or from some erroneous orders of the
captain.
4. Whenever malice, negligence, lack of foresight, or want of skill on
the part of the captain exists in the act causing the damage.
ART. 821. The expenses of an arrival under stress shall always be for
the account of the shipowner or ship agent, but they shall not be liable for
the damage which may be caused the shippers by reason of the arrival,
provided the latter is lawful.
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, if there be any.

In a foreign port, it shall be the duty of the Filipino 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 goods for whose benefit the act was performed.
If the unloading should take place for both reasons, the expenses
shall be divided 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 offorce majeure.
ART. 824. If the entire cargo or part thereof should appear to be
damaged, or there should be imminent danger of its being 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 part 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.
CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

The captain shall, in proper case, justify, the legality of his

conduct, under the penalty of answering to the shipper for
the price the goods would have brought if they had arrived in
good condition at the port of destination.
ART. 825. The captain shall be liable for the damage 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 the 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.

In Compagnie de Commerce (36 Phil. 590), a charter-party

was executed between Compagnie de Commerce and the owners
of the vessel Sambia, under which the former as charterer
loaded on board the Sambia, at the port of Saigon, certain
cargoes destined for the Ports of Dunkirk and Hamburg in
Europe. The Sambia, flying the German flag, could not, in
the judgment of its master, reach its ports of destination
because World War I had been declared between Germany
and France. The master of the Sambia decided to deviate
from the stipulated voyage and sailed instead for the Port
of Manila. Compagnie de Commerce sued in the Philippines for
damages arising from breach of the charter party and
unauthorized sale of the cargo. In affirming the decision of
the trial court dismissing the complaint, our Supreme Court
held that the master of the Sambia had reasonable grounds
to apprehend that the vessel was in danger of seizure or
capture by the French authorities in Saigon and was
justified by necessity to elect the course which he took —
i.e., to flee Saigon for the Port of Manila — with the result
that the shipowner was relieved from liability for the
deviation from the stipulated route and from liability for
damage to the cargo. The Court said:
 “The danger from which the master of the Sambia
fled was a real and not merely an imaginary one as
counsel for shipper contends. Seizure at the hands of
an ‘enemy of the King,’ though not inevitable, was a
possible outcome of a failure to leave the port

583
 l UANSrOKTAIION I,AW*,

of Saigon; and wo cannot say that under the conditions e/.ni:.'? at the time
when the master elected to Jlee from that port, tner* were no grounds for
a 'reasonable apprehension of danger ’for seizure by the French
authorities, and therefore no necezut. for flight
The word ‘necessity’ when applied to mercantile affern where the
judgment must in the nature of things be exercized cannot, of course, mean
Whs is meant by it in such
an irresistible compelling power.
cases is the force of circumstances, whicn determine the
course a man, ought to take. Thus, where by- the force of
circumstances, a man has the duty cast upon him oftaking some action for
another, and under that obligation adopts a course which, to the judgment
of a wise and prudent man, is apparently the best for the interest of the
it may properly be
persons for whom he acts in a given emergency,
said of the course so taken that it was in a mercantile
sense necessary to take it.” (Italics supplied !
Compagnie de Commerce contended that the shipowner
should at all events, be held responsible for the deterioration
in the value of the cargo incident to its long stay on board
the vessel from the date of its arrival in Manila until the
cargo was sold. The Supreme Court, in rejecting this
contention also, declared that:
“But it is clear that the master could not be required
to act on the very day of his arrival; or before he had a
reasonable opportunity to ascertain whether he could
hope to carry out his contract and earn his freight; and
that he should not be held responsible for a reasonable
delay incident to an effort to ascertain the wishes of the
freighter, and upon failure to secure prompt advice, to
decide for himself as to the course which he should
adopt to secure the interests of the absent owner of the
property aboard the vessel.
The master is entitled to delay for such a period as
may be reasonable under the circumstances, before
deciding on the course he will adopt. He may claim a fair
opportunity of carrying out a contract, and earning the
freight, whether by repairing or transhipping. Should the
repair of the ship be undertaken, it must be proceeded
with diligently; and if so done, the freighter will have

584
CHAPTER X
RISKS. DAMAGES. AND ACCIDENTS OF MARITIME COMMERCE

no ground of complaint- although the consequent delay

he a long one. unless, indeed, the cargo is perishable,
and likely to he injured by the delay. Where that is the
case, it ought to he forwarded, or sold, or given up, as
the case may be, without waiting for repairs.
A shipowner or shipmaster (if communication with
the shipowner is impossible), will be allowed a
reasonable time in which to decide w'hat course he will
adopt in such cases as those under discussion; time must
be allowed to him to ascertain the facts, and to balance
the conflicting interests involved, of shipowner, cargo
owner, underwriter on ship and freight. But once the
time has elapsed, he is bound to act promptly according
as he has elected either to repair, or abandon the
 voyage, or tranship. If he delays, and owing to that delay
a perishable cargo suffers damage, the shipowner will be
liable for that damage; he cannot escape that obligation
by pleading the absence of definite instructions from the
owners of the cargo or their underwriters, since he has
control of the cargo and is entitled to elect.” ('See Inter-
Orient Maritime Enterprises, Inc. v. NLRC, 235 SCRA 268, August 11,
1994)

COLLISIONS
ART. 826. If a vessel should collide with another, through the
fault, negligence, or want of skill of the captain, sailing mate, or any
other member of the complement, the owner of the vessel at fault shall
indemnify the damages suffered, after an expert appraisal.

COLLISIONS — In maritime law, strictly speaking, the

impact of two vessels both of which are moving.
In its broad sense, it includes also allision, which
refers to the striking of a moving vessel against one that
is stationaiy and perhaps other species of encounters
between vessels, or a vessel and other floating, though
non-navigable objects. Thus, the provision of the Code of
Commerce on collision may be applicable to cases of
allision. (Moreno, Philippine Law Dictionary, p. 167, 1988 Ed.,
citing Cebu Stevedoring Co. v. Universal
Lumber Co., 60874-R, January 11, 1982)
There is a presumption of fault against a moving vessel
that strikes a stationaiy object such as a dock or
navigation aid. In admiralty,
 585
TRANSPORTATION LAWS

this presumption does more than merely require the ship to go

forward and produce some evidence on the presumptive matter. The
moving vessel must show that it was without fault or that the collision
was occasioned by the fault of the stationary object or was the result
of inevitable accident. It has been held that such vessel must exhaust
every reasonable possibility, which the circumstances admit and show
that in each, they did all that reasonable care required. In the absence
of sufficient proof in rebuttal, the presumption of fault attaches to a
moving vessel, which collides with a fixed object and makes a prima
facie case of fault against the vessel. Logic and experience support this
presumption. (Far Eastern Shipping Company v. Court of Appeals and
Philippine Ports Authority, G.R. No. 130068, October 1, 1998)
ART. 827. If the collision is imputable to both vessels, each one shall
suffer her own damage, and both shall be solidarity liable for the damages
occasioned to their cargoes.
ART. 828. The provisions of the preceding article are applicable to
the case in which it cannot be determined which of the two vessels has
caused the collision.

The above article is also known as inscrutable fault and

specify the liability of the parties is the same as prescribed in
Article 827.
Sulpicio Lines, Inc. v.
Court of Appeals
G.R. No. 93291, March 29,1999

FACTS: The question to be determined is whether the

collision between M/V Don Sulpicio and F/B Aquarius ‘G’
was due to the negligence of the defendants or of the
plaintiff. It is admitted in the evidence that at a distance of
about four miles M/V Don Sulpicio has sighted two fishing
boats, namely: F/B Aquarius *C* and F/B Aquarius ‘G’
although defendants maintained it was F/B Aquarius ‘B.’
From the evidence it appears that the two fishing boats
had a speed of about 7.5 to 8 knots per hour while M/V
Don Sulpicio was running about 15.5 knots per hour. It
would appear that the speed of M/V Don Sulpicio was
more than twice as fast as the speed of the two fishing
boats. The weather at
586
f HAYU.V x

RISKS, DAMAOhS, A NO A'S.U/L' • / 0 Of MAW7 IMK OOMMf>Of.

that lime the accident happened was clear and visibility was
good, Jr, other words, from the distance of about four miles
at via, the men of Don SuJpicio could clearly see the two
fishing boats which were ahead about four miles and likewise,
the men of the two fishing boats could clearly see M/V Don
Sulpicio following. 7he plaintiff claims that they continued on
their speed in their course and while maintaining their speed
they were rammed by M/V Don Sulpicio.
Defendants claim that plaintiff was negligent and
that the collision was due to the negligence of the men
manning F/B Aquarius hB? and submit that considering that
F/B Aquarius ‘B’ had no lookout and that the fishing boat
was ahead, F/B

Aquarius ‘B’ should have given way to M/V Don Sulpicio

which was following in order to avoid collision. And
considering that F/B Aquarius ‘B’ was at fault, it should
suffer its own damage.
HELD: Whether the collision sued upon occurred in a
crossing situation is immaterial as the Court of Appeals,
relying on Rule 24- C, Regulations for Preventing Collision
at the Sea, ruled that the duty to keep out of the way
remained even if the overtaking vessel cannot determine
with certainty whether she is forward of or aft more than
two points from the vessel. It is beyond cavil that M/V “Don
Sulpicio” must assume 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 port side,
which can maintain its course and speed 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. The stance of
petitioners that F/B Aquarius ‘G ’is a burdened vessel, which
should have kept out of the way of M/V “Don Sulpicio,” is
not supported by facts.
ART. 829. In the cases above mentioned, the civil action of the
shipowner against the person causing the injury as well as the criminal
liabilities, which may be proper, are reserved.
 587
TRANSPORTATION LAWS

ART. 830. If a vessel should collide with another, through fortuitous

event or force majeure, each vessel and her cargo shall suffer their own
respective damage.
ART. 831. If a vessel should be forced by a third vessel to collide w ith
another, the shipowner of the third vessel shall indemnify the 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.
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
damage 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.

A pilot, in maritime law, is a person duly qualified, and

licensed, to conduct a vessel into or out of ports, or in
certain waters. In a broad sense, the term “pilot” includes
both: (1) those whose duty it is to guide vessels into or out
of ports, or in particular waters; and (2) those entrusted
with the navigation of vessels on the high seas. However,
the term “pilot ” is more generally understood as a person
taken on board at a particular place for the purpose of
conducting a ship through a river, road or channel, or from
a port.
 Under English and American authorities, generally
speaking, the pilot supersedes the master for the time
being in the command and navigation of the ship, and his
orders must be obeyed in all matters connected with her
navigation. He becomes the master pro hac vice and

588
CHARTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME 'JX/Mr.'Ok

should give all directions as to speed, course, stopping and

reversing, anchoring, towing and the like. And when a licensed
pilot is employed in a place where pilotage is compulsory, it is
his duty to insist on having effective control of the vessel, or
to decline to act as pilot. Under certain systems of foreign
law, the pilot does not take entire charge of the vessel, but is
deemed merely the adviser of the master, who retains
command and control of the navigation even in localities
where pilotage is compulsory.
It is quite common for states and localities to provide for
compulsory pilotage, and safety laws have been enacted
requiring vessels approaching their ports, with certain
exceptions to take on board pilots duly licensed under local
law. The purpose of these law s is to create a body of
seamen thoroughly acquainted with the harbor, to pilot
vessels seeking to enter or depart, and thus protect life and
property from the dangers of navigation.
Is the master bound by the acts of the Pilot? Is the master responsible for
the negligence of the pilot?
 While it is indubitable that in exercising his functions,
a pilot is in sole command of the ship and supersedes the
master for the time being in the command and navigation
of a ship and that he becomes master pro hac vice of a
vessel piloted by him, there is overwhelming authority to
the effect that the master does not surrender his vessel
to the pilot and the pilot is not the master. The master is
still in command of the vessel notwithstanding the
presence of a pilot. There are occasions when the master
may and should interfere and even displace the pilot, as
when the pilot is obviously incompetent or intoxicated
and the circumstances may require the master to displace
a compulsory pilot because of incompetency or physical
incapacity. If, however, the master does not observe that
a compulsory pilot is incompetent or physically
incapacitated, the master is justified in relying on the
pilot, but not blindly.
The master is not wholly absolved from his duties while
a pilot is on board his vessel, and may advise with or
offer suggestions to him. He is still in command of the
vessel, except so far as her navigation is concerned, and
must cause the ordinary work of the vessel to be
properly carried on and the usual precaution taken.
Thus, in particular.

589
 TRANSPORTATION LAWS

he is bound to see that there is sufficient watch on deck, and

that the men are attentive to their duties, also that engines
are stopped, tow-lines cast off, and the anchors clear and
ready to go at the pilot’s order.
As early as 1869, the U.S. Supreme Court declared,
through Mr. Justice Swayne, in The Steamship China v. Walsh, that
it is the duty of the master to interfere in cases of the pilot’s
intoxication or manifest incapacity, in cases of danger, which
he does not foresee, and in all cases of great necessity. The
master has the same power to displace the pilot that he has
to remove any subordinate officer of the vessel, at his
discretion.
In sum, where a compulsory pilot is in charge of a ship,
the master being required to permit him to navigate it, if the
master observes that the pilot is incompetent or physically
incapable, then it is the duty of the master to refuse to
permit the pilot to act. But if no such reasons are present,
then the master is justified in relying upon the pilot, but not blindly.
Under the circumstances of this case, if a situation arose
where the master, exercising that reasonable vigilance which
the master of a ship should exercise, observed, or should
have observed, that the pilot was so navigating the vessel
that she was going, or was likely to go, into danger, and
there was in the exercise of reasonable care and vigilance an
opportunity for the master to intervene so as to save the
ship from danger, the master should have acted accordingly.
The master of a vessel must exercise a degree of vigilance commensurate with
the circumstances.

Who has the burden of proof that the pilot was negligent?

Since the colliding vessel is prima facie responsible, the

burden of proof is upon the party claiming benefit of the
exemption from liability. It must be shown affirmatively
that the pilot was at fault, and that there was no fault on
the part of the officers or crew, which might have been
conductive to the damage. The fact that the law compelled
the master to take the pilot does not exonerate the vessel
from liability. The parties who suffer are entitled to have
their remedy against the vessel that occasioned the
damage, and are not under necessity to look to the pilot
from whom redress is not always had for compensation.
The owners of the vessel are responsible to the injured
party for the acts of

590
CHAPTER X
RISKS. DAMAGES. AND ACCIDENTS OF MARITIME COMMERCE

the pilot, and they must be left to recover the amount as well as they
can against him. It cannot be maintained that the circumstance of
having a pilot on board, and acting in conformity to his directions
operates as a discharge of responsibility of the owners. Except insofar
as their liability is limited or exempted by statute, the vessel or her
owners are liable for all damages caused by the negligence or other
wrongs of the owners of those in charge of the vessel. Where the
 pilot of a vessel is not a compulsory one in the sense that the owners
or master of the vessel are bound to accept him, but is employed
voluntarily, the owners of the vessel are, all the more, liable for his
negligent act.
In the United States, the owners of a vessel are not
personally liable for the negligent acts of a compulsory
pilot, but by admiralty law; the fault or negligence of a
compulsory pilot is imputable to the vessel and it may be
held liable therefor in rem. Where, however, by the
provisions of the statute the pilot is compulsory only in
the sense that his fee must be paid, and is not in
compulsory charge of the vessel, there is no exemption
from liability. Even though the pilot is compulsory, if his negligence
was not the sole cause of the injury, but the negligence of the master or
But the liability of
crew contributed thereto, the owners are liable.
the ship does not release the pilot from the
consequences of his own negligence. The rationale for
this rule is that the master is not entirely absolved of
responsibility with respect to navigation when a
compulsory pilot is in charge.
ART. 835. The action for the recovery of 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 Filipino consul
if it occurred in a foreign country.
Augusto Lopez v.
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.

591
TRANSPORTATION LAWS

HELD: No. The article in question (£35, Code of Commen t') j$

found in the section dealing with collisions, and the context
shows the collisions intended are collisions of sea-going
vessels. Said article cununi be applied to small boats engaged
in river and bay traffic. The t hird 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 relative to merchant vessels and marine
shipping; and, as appears from said Code, the vessels
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”), used 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 which are licensed to
engage in maritime commerce, or commerce by sea,
whether in foreign or coastwise trade, are no doubt
regulated by Book III of the Code of Commerce. Other
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.
ART. 836. With respect to the damage caused to persons or to the
cargo, the absence of a protest may not prejudice the persons interested who
were not on board or were not in a condition to make known their wishes.
ART. 837. The civil liability incurred by the shipowners in the cases
prescribed in this section, shall be understood as limited to the value of
the vessel with all her appurtenances and freight earned during the
voyage.

Luzon Stevedoring Corporation v.

Court of Appeals
G.R. No. L-58897, December 3, 1987
FACTS: On May 30, 1968 at past 6:00 in the morning, a
maritime collision occurred within the vicinity of the
entrance to the North

592
« I I A l 'I I l < ?

U IM\ Y I >AMAt ll *♦, At II» A< < II M II | I H MAIM I fMf ' //MMJ V< Y,

MlUUllI luMWVt‘11 I III* lllllkri I O < f/ / i w J \ , y ] / ) / / # ,

Stcvodomig ( oipoinliou and MV 'Tciimndo Kv yano" n

owned by lli|os dr I*' Ibirnno, lia\, an a n;?>ull ol v/bich -
vM slup sunk. An ai lion in lulmiinily wan filial by Jfjjon de \.
hKW), Jr/*., ami Domestic Insurance (ompimy ol’llic
Philippine;; against the \jy/j/u Stevedoring Company (I ,SC)
in the Court of Mrnt Instance of Cebu. In the course of the
trial, the trial court appointed two cormmv>iorjeri
representing the plaint i Us and defendant to determine
the value of the l SCO “CAVITF,.” Said Commissioners
found the value thereof to be P I 80, 000.
After trial on the merits, a decision was rendered on
January 24. 1974 finding that LSCO “Cavite” was solely to
blame for the collision and the principle of Article 837 of
the Code of Commerce does not apply here. The Court of
Appeals affirmed in toto this decision of the trial court.

In a resolution of February 26, 1982, the Supreme Court

denied the petition for lack of merit.

A motion for reconsideration of said resolution was

filed by petitioner limiting the issue to the legal question
of whether under Article 837 of the Code of Commerce,
abandonment of vessel at fault is necessary in order that
the liability of owner of said vessel shall be limited only to
the extent of the value thereof, its appurtenances and
freightage earned in the voyage. After respondents
submitted their comment to the motion as required, on
September 29, 1982 this Court denied the motion for
reconsideration for lack of merit.

With leave of court petitioner filed a second motion

for reconsideration of said resolution raising the following:
ISSUES:

1. Whether or not abandonment is required

under Article 837 of the Code of Commerce. The
decision of this Honorable Court cited by the parties in
support of their respective positions only imply the
answer to the question, and the implied answers are
contradictory.
2. If abandonment is required under Article
837 of the Code of Commerce, when should it be
made? The Code of

593
f TRANSPORTATION LAWS

Commerce is silent on the matter. The decision of

this Honorable Court in Yangco v. Laserna, 73 Phil.
330, left the question open and no other
decision, as far as petitioner can ascertain, has
resolved the question.
3. Is the decision of this Honorable Court in
Manila Steamship Co., Inc. v. Abdulhaman, 100 Phil. 32,
wherein it was held that the international rule to
the effect that the right of abandonment of
vessels, as a legal limitation of a shipowner’s own
fault, invoked by private respondents and
apparently a major consideration in the denial of
the motion for reconsideration, applicable to
petitioner under the circumstances of the case at
bar.
HELD: From the foregoing, it is clear that in case
of collision of vessels, in order to avail of the benefits
of Article 837 of the Code of Commerce, the
shipowner or agent must abandon the vessel. In such
 case, the civil liability shall be limited to the value of
the vessel with all the appurtenances and freight
earned during the voyage. However, where the injury
or average is due to the shipowner’s fault as in said
case, the shipowner may not avail of his right to
limited liability by abandoning the vessel.
The Court reiterates what [W]e said in previous decisions that the
real

and hypothecary nature of the liability of the shipowner or agent is

embodied in the provisions of the Maritime Law, Book III, Code of
Commerce. Articles 587, 590, and 837 of the same code

are precisely i ! intended to limit the liability of the shipowner or

agent to the value of the y 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
precondition. 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.

594
 niAPTKR X
RISKS. 1VVM A^i S. ANO AlVIDl NTS Ol- MARITIMli COMMIsRCIi

Hence. the rule is that in ease 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.
The exception to this rule is when the vessel is
totally lost in which case there is no vessel to
abandon so abandonment is not required. Because of
such total loss, the liability of the shipowner or agent
for damages is extinguished. Nevertheless, the
shipowner or agent is personally liable for claims
under the Workmen’s Compensation Act and for
repairs of the vessel before its loss.
In case of illegal or tortuous acts of the captain,
the liability of the shipowner and agent is subsidiary.
In such instance, the shipowner or agent may avail of
the provisions of Article 837 of the Code by
abandoning the vessel.
However, if the injury or damage is caused by the
shipowner’s fault as where he engages the services of
an inexperienced and unlicensed captain or engineer,
he cannot avail of the provisions of Article 837 of the
code by abandoning the vessel. He is personally liable
for the damages arising thereby.
In the case now before the Court, there is no
question that the action arose from a collision and
the fault is laid at the doorstep of LSCO “Cavite” of
petitioner. Undeniably, petitioner has not abandoned
the vessel. Hence, petitioner cannot invoke the
benefit of the provisions of Article 837 of the Code of
Commerce to limit its liability to the value of the
vessel, all the appurtenances and freightage earned
during the voyage.
In the light of the foregoing conclusion, the issue
as to when abandonment should be made need not
be resolved.
Notes: In the case of Yangco v. Laserna which involved
the steamers SS “Negros” belonging to Yangco which
after two hours of sailing from Romblon to Manila
encountered rough seas as a result of which it
capsized such that many of its passengers died in the
mishap; several actions for damages were filed
against Yangco for the death of the passengers in the
Court of First Instance of Capiz. After rendition of the
judgment for damages against Yangco, by a verified
pleading, he

595
 I KANSI’OR'I A'l ION LAWS

sought to abandon the vessel to the plaintiffs in the

three cases together with all the equipment without
prejudice to the right to appeal. The Court, in resolving
the issue, held as follows:
“Brushing aside the incidental issues, the
fundamental question here raised is: May the shipowner
or agent, notwithstanding the total loss of the vessel as a result of the
negligence of its captain, be properly held liable in damages for the
We are of the opinion
consequent death of its passengers?
and so hold that this question is controlled by the
provision of Article 587 of the Code of Commerce.
Said article reads:
“The agent shall also be civilly liable for the
indemnities in favor of third persons which arise
from the conduct of the captain in the care of
goods which the vessel carried; but he may
exempt himself therefrom by abandoning the
vessel with all her equipments and the freight he
may have earned during the voyage.
 The case of Manila Steamship Company, Inc. v. Insa Abdulhaman and
Lim Hong To is a case of collision of the ML “Consuelo V”
and MS “Bowline Knot” as a result of which the ML
“Consuelo V” capsized and was lost where nine
passengers died or were missing and all its cargoes
were lost. In the action for damages arising from the
collision, applying Article 837 of the Code of
Commerce, this Court held that in such case where the
collision was imputable to both of them, each vessel
shall suffer her own damages and both shall be
solidarity liable for the damages occasioned to their
cargoes. Thus, the Court Held:
“In fact, it is a general principle, well-established maritime law and
custom, that shipowners and ship agents are civilly liable for the acts of
the captain (Code of Commerce, Article 586); and for the indemnities due
the third persons (Article 587); so that injured parties may immediately
look for reimbursement to the owner of the ship, it being universally
recognized that the ship master or captain is primarily the representative
of the owner (Standard Oil Co. v. Lopez Castelo, 42 Phil. 256, 280). This
direct liability moderated and limited by the owner's right of abandonment
of the vessel and earned freight (Article 587) has

596
 CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

been declared to exist, not only in case of breached contracts, but also in cases of
tortuous negligence (Yu Biao Sontua v. Osorio, 43 Phil. 511, 515). ”
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 collisions 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 Filipino consul 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.

SHIPWRECKS

SHIPWRECKS — A ship, which has received injuries rendering

her incapable of navigation.
The loss of a vessel at sea, either by being swallowed up by the
waves, by running against a thing at sea, or on the coast. (Moreno,
Philippine Law Dictionary, p. 881, 1988 Ed., citing Philippine American General
Insurance

Co. v. Delgado Stevedoring Co., 36109- R, July 9, 1974)

Shipwreck — the demolition or shattering of a vessel, caused by her driving

ashore or on rocks and shoals in the midseas, or by the violence of winds and waves
in tempests. (Black fs Law Dictionary, Sixth
Ed.)

ART. 840. The damage 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
 597
TRANSPORTATION LAWS

agent or the shippers may demand indemnity of the captain for the damage caused
to the vessel or to the cargo by the accident, in accordance with the provisions
contained in Articles 610, 612, 614, and 621.
ART. 842. The goods saved from the wreck shall be especially 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 goods 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 what 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 to 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
do so, even with said consent, in time of war or when the port is difficult and
dangerous to make.
598
 CHAPTER X
RISKS, DAMAGES. AND ACCIDENTS OF MARITIME COMMERCE

The owners of the cargo shall defray all the expenses of this arrival as well
as the payment of the freight, 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 freight 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 owners thereof.

SECTION I
PROOF AND LIQUIDATION OF AVERAGES
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.

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 port in the Philippines.
If the average occurred outside of the jurisdiction
3.
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.

599
TRANSPORTATION LAWS

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
intervenes 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.
ART. 848. Claims for averages shall not be admitted if they do not
exceed 5 per cent of the interest which the claimant may have in the vessel or
in the cargo if it be gross average, and 1 per cent of the goods damaged if
particular average, deducting in both cases the expenses of appraisal, unless
there is an agreement to the contrary.
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 concluded and communicated to
the persons interested in the vessel, in the cargo, or in both at the same time.
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
850
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 goods are discharged, sold, or utilized.
For this purpose the captain 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 in the unloading,

600
I IIA I' 11 I' X
RISKS. DAMAdlS, AND A< < IIMMISOI M Af'111MI, TOM Ml ,f'f I,

repairs. Mile, or iilili/atlon of tIn* goods, 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 vessels 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 her cargo, the amount corresponding to each must be estimated and
stated distinctly.

SECTION II
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 Filipino consul
851
 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
TRANSPORTATION LAWS

required and to the appraisal of their cost, separating these 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 her.
With regard to the goods, 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.
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:
1. The goods 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 freight, 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 goods loaded shall be determined by the purchase price, including the
expenses until they are placed on board, the insurance premium excluded.
3. If the goods should be damaged, they shall be appraised at their time
value.
4. If the voyage having been interrupted, the goods should have been
sold in a foreign port, and the average cannot be estimated, the value of the

852
goods in the port of arrival, or the net proceeds obtained at the sale thereof,
shall be taken as the contributing capital.
5. Goods lost, which constitute the gross average, shall be appraised at
the value which goods of their kind may have in the port of unloading,
provided that their kind and quality appear in the bill of lading; and should
they not appear, the value shall be that

602
CHAPTER X
RISKS. D AV XGES. AND ACCIDENTS OF MARITIME. COMMERCE

stated in the invoices of the purchase issued in the port of shipment, adding
thereto the expenses and freight subsequently arising.
6. The masts cut down, the sails, cables, and other equipments of the
vessel rendered useless for the purpose of saving her, shall be appraised at the
current value, deducting one-third by reason of the difference betw een new and
old.
This deduction shall not be made with respect to anchors and chains.
7. The vessel shall be appraised at her true value in the condition in which
she is found.
8. The freight shall represent 50 percent by way of contributing capital.
ART. 855. The goods loaded on the upper deck of the vessel shall contribute
the gross average should they be saved; but there shall be no right to indemnity if
they should be lost by reason of having been jettisoned for common safety except
when the marine ordinances allow their shipment in this manner in coastwise
navigation.
The same shall take place with that which are on board and are 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 ammunitions 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.
The clothing used by the shippers, supercargoes, and passengers, who may
be on board at the time of the jettison, shall also be accepted. Neither shall the
853
goods jettisoned contribute to the payment of the gross averages, which may
occur to the goods saved in a different and subsequent risk. *

VK \NSIH>R I'AMON 1 AWS

ART. S57. 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, w ith the logbook, and all
the contracts, which may have been made among the persons interested in the
average, the appraisement, 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 persons 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 freight, 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.

854
 ART. 859. The insurers of the vessel, of the freight, and of the cargo
shall be obliged to pay for the indemnification of the gross average, in so far as
is required of each one of these objects respectively.

604
CHAPTER X
RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE

ART. 860. If, notwithstanding the jettison of goods, breakage of masts,

ropes, and equipment, the vessels 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 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, she 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.
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 goods should
subsequently be lost or stolen, the captain cannot demand of the shippers
of consignees that they contribute to the indemnity for the 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 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.

855
 In this case, the amount returned shall be distributed among the
vessel and the persons 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
TRANSPORTATION LAWS

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 has been approved, it shall be the
duty of the captain to collect the amount of the contribution, and he
shall be liable to the owners of the goods averaged for the damage they
may suffer through his delay or negligence.
ART. 867. If the persons 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 III
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.

856
 606

857
 CHAPTER XI

THE SALVAGE LAW

(Act No. 2616)

Section 1. 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 in the above paragraph, assist in saving a
vessel or its cargo from shipwreck shall be entitled to reward.
Section 2. If the captain of the vessel, or the person acting in his stead, is
present, no one shall take from the sea, or from the shores or coasts,
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.
Section 3. He who shall save or pick up a vessel or merchandise at sea, in
the absence of the captain of the vessel, owner, or a representative of either of
them, they being unknown, shall convey and deliver such vessel or
merchandise, as soon as possible, to the collector of customs, if the port has a
collector, and otherwise to the provincial treasurer or municipal mayor.
Section 4. After the salvage is accomplished, the owner or his
representative shall have a right to the delivery of the vessel or things saved,
provided that he pays, or gives a bond to secure, the expenses and the proper
reward.
The amount and sufficiency of the bond, in the absence of agreement, shall
be determined by the Collector of Customs or by the Judge of Court of First
Instance of the province in which the things saved may be found.
607
TRANSPORTATION LAWS

Section 5. The Collector of Customs, provincial treasurer, or municipal

mayor, to whom salvage is reported, shall order:
a. That the things saved be safeguarded and inventoried.
 b. The sale at public auction of the things saved which may be in danger
of immediate loss or of those whose conservation is evidently prejudicial to the
interests of the owner, when no objection is made to such sale.
c. The advertisement within the thirty days subsequent to the salvage, in
one of the local newspapers or in the nearest newspaper published, of all the
details of the disaster, with a statement of the mark and number of the effects,
requesting all interested persons to make their claims.
Section 6. If, while the vessel or things saved are at the disposition of the
authorities, the owner or his representative shall claim them, such authorities
shall order their delivery to such owner or his representative, provided that
there is no controversy over their value, and a bond is given by the owner or
his representative to secure the payment of the expenses and the reward.
Otherwise, the delivery shall not be made until the matter is decided by the
Court of First Instance of the province.
Section 7. No claim being presented in the three months subsequent to the
publication of the advertisements prescribed in subsection (c) of Section five,
the things saved shall be sold at public auction, and their proceeds, after
deducting the expenses and the proper reward, shall be deposited in the
Insular Treasury. If three years shall pass without anyone claiming it, one half
of the deposit shall be adjudged to him who saved the things, and the other
half to the Insular Government.
Section 8. The following shall have no right to a reward for salvage or
assistance:
a. The crew of the vessel shipwrecked or which was in
danger of shipwreck;
b. He who shall have commenced the salvage in spite of
opposition of the captain or of his representative;

608
c. He >vho shall have failed to comply with the provisions
of Section three:
d. Those who did not succeed in saving the ship; and
e. When the expenses exceed the salvage reward.
Section 9. 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 10. In a case coming under the last preceding section, as well as
in the absence of an agreement, the reward for salvage or assistance shall be
fixed by the Court of First Instance of the province where the things salvaged
are found, taking into account principally the expenditures made to recover or
save the vessel or the cargo or both, the zeal demonstrated, the time employed,
the services rendered, the excessive expenses occasioned, the number of
persons who aided, the danger to which they and their vessels were exposed, as
well as that which menaced the things recovered or salvaged, and the value of
such things after deducting the expenses.
Section 11. From the proceeds of the sale of the things saved shall be
deducted, first, the expenses of their custody, conservation, advertisement, and
auction, as well as whatever taxes or duties they should pay for their entrance;
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 percent of such amount remaining.
Section 12. If in the salvage or in the rendering of assistance different
persons shall have intervened, the reward shall be divided between them in
proportion to the services, which each one may have rendered, and, in case of
doubt, in equal parts.
Those who, in order to save persons, shall have been exposed to the
same dangers shall also have a right to participation in the reward.
Section 13. If a vessel or its cargo shall have been assisted or saved,
entirely or partially, by another vessel, the reward for
TRANSPORTATION LAWS

salvage or for assistance shall be divided between the owner, the captain, and
the remainder of the crew of the latter vessel, so as to give the owner a half,
the captain a fourth, and all the remainder of the crew the other fourth of the
reward, in proportion to their respective salaries, in the absence of an
agreement to the contrary. The expenses of salvage, as well as the reward for
salvage or assistance, shall be a charge on the things salvaged or their value.
Section 14. This Act shall take effect on its passage. Enacted, February
4,1916.
 General Principles Governing Salvage
The general rule and principles governing salvage services and
salvage awards are well settled. This branch of the law of the sea dates
back to the early history of navigation. We find recorded in the Laws of
Oleron, which were promulgated sometime before the year 1266.
The courts of the United States and England have, in a long line of
adjudicated cases, discussed the various phases of this important
subject. In general, salvage may be defined as a service which one
person renders to the owner of a ship or goods, by his own labor,
preserving the goods or the ship which the owner or those entrusted
with the care of them have either abandoned in distress at sea, or are
unable to protect and secure. The Supreme Court of the United States
and the other Federal Courts of the United States have had occasion
numerous times to quote with approval the following definition from
Flanders on Maritime Law:
“Salvage is founded on the equity of remunerating private
and individual services performed in saving, in whole or in part, a
ship or its cargo from impending peril, or recovering them after
actual loss. It is a compensation for actual services rendered to the
property charged with it, and is allowed for meritorious conduct
of the salvor, and in consideration of a benefit conferred upon the
person whose property he has saved. A claim for salvage rests of
the principle that, unless the property be in fact saved by those
who claim the compensation, it can not be allowed, however
benevolent their intention and however heroic their conduct”

610
C HAIM I K XI
 HU SAtVACil l,AW

(The Job H. Jackson. 16! Fed Rep.. 1015, 1017; The Amelia, 1 Cranch 1; The Alberta,
9 Cranch, 369; Clarke v. Docile Nealy, 4 Wash. C.C.. 651; Fed Cas. No. 2849)
In the case of Williamson v. The Alphonso (Fed. Cas., No. 17749; 30 Fed.
Cas. 4, 5), the court laid down practically the same rule:
“The relief of property from an impending peril of the sea, by
the voluntary exertions of those who are under no legal obligation
to render assistance, and the consequent ultimate safety of the
property, constitute a case of salvage. It may be a case of more or
less merit, according to the degree of peril in which the property
was, and the danger and difficulty of relieving it; but these
circumstances effect the degree of the service and not its nature.”
In Blackwall v. Saucelito Tug Company (10 Wall., 1, 12), the [C]ourt said:
“Salvage is the compensation allowed to persons by whose
assistance a ship or her cargo has been saved, in whole or in part,
from impending peril on the sea, or in recovering such property
from actual loss, as in case of shipwreck, derelict, or recapture.”
It will be noticed from the above definitions that there are certain
definite conditions, which must always exist, in a case of pure salvage.
The Supreme Court of the United States, speaking through Mr. Justice
Clifford, in the case of The Mayflower v. The Sabine (101 U.S., 384) makes
those conditions three:
“Three elements are necessary to a valid salvage claim: (1) A
marine peril; (2) Service voluntarily rendered when not required
as an existing duty or from a special contract; and (3) Success, in
whole

or in part, or that the service rendered contributed to such success.”

Subjects of Salvage
1. The ship itself.
2. Jetsam — Goods, which are cast into the sea, and there sink
and remain under water.

611

TRANSPORTATION LAWS

3. Floatsam or Flotsan — Goods that float upon the sea when

cast overboard. “Jetsam” differs from “flotsam,” in this: that
in the latter, the goods float, while in the former, they sink,
and remain under water.
4. Ligan or Lagan — Goods cast into the sea tied to a buoy, so
that they may be found again by the owners. (Blacks Law
Dictionary, citing jurisprudence)

When is the Ship and her cargo a fit object of Salvage?

The question whether or not a particular ship and her cargo is a fit
object of salvage depends upon her condition at the time the salvage
services are performed. In the present case, the plaintiff-appellant
claims that the Nippon was a derelict or quasi-derelict and that their
claim should be adjudged upon this basis. A derelict is defined as “A
ship or her cargo which is abandoned and deserted at sea by those
who were in charge of it, without any hope of recovering it (sine spe
recuperandi'), or without an intention of returning to it. (sine animo
revertendi). Whether property is to be adjudged derelict is determined by
ascertaining what was the intention and expectation of those in charge
of it when they quitted it. If those in charge left with the intention of
returning, or of procuring assistance, the property is not derelict, but if
they quitted the property with the intention of finally leaving it, it is
derelict, and a change of their intention and an attempt to return will
not change its nature.”

(Abbott’s Law of Merchant Ships and Seamen, Fourteenth Ed., p. 994) “When a vessel
is found at sea, deserted, and has been abandoned by the master and
crew without the intention of returning and resuming the possession,
she is, in the sense of the law, derelict, and the finder who takes the
possession with the intention of saving her, gains a right of possession,
which he can maintain against the true owner. The owner does not,
indeed, renounce his right of property. This is not presumed to be his
intention, nor does the finder acquire any such right. But the owner
does abandon temporarily his right of possession, which is transferred
to the finder, who becomes bound to preserve the property with good
faith, and bring it to a place of safety for the owner’s use; and he
acquires a right to be paid for his services a reasonable and proper

612
CHAPTER XI THE SALVAGE LAW

compensation, out of the property itself. He is not bound to part with

the possession until this is paid, or it is taken into the custody of the
law, preparatory to the amount of salvage being legally ascertained.
Should the salvors meet with the owner after an abandonment, and he
should tender his assistance in saving and securing the property, surely
this ought not, without good reasons, to be refused, as this would be
no bar to the right of salvage, and should it be unreasonably rejected it
might affect the judgment of a court materially, as to the amount
proper to be allowed. Still, as 1 understand the law, the right of
possession is in the salvor. But when the owner, or the master and
crew who represent him, leave a vessel temporarily, without any
intention of a final abandonment, but with the intent to return and
resume the possession, she is not considered as a legal derelict, nor is
the right of possession lost by such temporary absence for the purpose
of obtaining assistance, although no individual may be remaining on
board for the purpose of retaining possession. Property is not, in the
sense of the law, derelict and the possession left vacant for the finder,
until the spes recuperandi is gone, and the animus revertendi is finally given up.
(The Aquila, 1 C. Rob. Adm., 41) But when a man finds property thus
temporarily left to the mercy of the elements, whether from necessity
or any other cause, though not finally abandoned and legally derelict,
and he takes possession of it with the bona fide intention of saving it for
the owner, he will not be treated as a trespasser. On the contrary, if by
his exertions he contributes materially to the preservation of the
property, he will entitle himself to a remuneration according to the
merits of his service as a salvor.”

The [Cjourt allowed salvage in this case. They held that the
master had taken insufficient precautions to protect his vessel and
although the ship was not a legal derelict, the libellants were salvors
and entitled to salvage.

Prima facie, a vessel found at sea in a situation of peril with no

one aboard of her, is a derelict; but where the master and crew
leave such vessel temporarily, without any intention of final
 abandonment, for the purpose of obtaining assistance, and with
the intent to return and resume possession, she is not technically a
derelict. It is not of substantial importance to decide that question.
She was what may be

613

TRANSPORTATION LAWS

called a quasi-derelict; abandoned, helpless, her sails gone, entirely

without power in herself to save herself from a situation not of
imminent, but of considerable peril; lying about midway between the
Gulf Stream and the shore, and about 30 miles from either. An east
wind would have driven her upon one, and a west wind into the other,
where she would have become a total loss. Lying in the pathway of
commerce, resume possession, it was a highly meritorious act upon
the part of the Shawmut to take possession of her, and the award
must be governed by the rules which govern in case of derelicts; the
amount of it to be modified in some degree in the interest of the
owners in consideration of their prompt, intelligent, and praiseworthy
efforts to resume possession of her, wherein they incurred
considerable expense.

Concept of Salvage Reward

“Compensation as salvage is not viewed by the
admiralty courts merely as pay on the principle of quantum meruit or as a
remuneration pro opere et labore, but as a reward given for perilous
services, voluntarily rendered, and as an inducement to mariners to
embark in such dangerous enterprises to save life and property.” (The
Mayflower v. The Sabine, 101 U.S., 384)
“A salvor, in the view of the maritime law, has an interest in the
property; it is called a lien, but it never goes, in the absence of a
contract expressly made, upon the idea of a debt due by the owner to
the salvor for services rendered, as at common law, but upon the
principle that the service creates a property in the thing saved. He is, to
all intents and purposes, a joint owner, and if the property is lost he
must bear his share like other joint owners.
“This is the governing principle here. The libellant and the owners
must mutually bear their respective share of the loss in value by the
sale. If the libellant has been unfortunate and has spent his time and
money in saving a property not worth the expenditure he made, or if,
having saved enough to compensate him, it is lost by the uncertainties
of a judicial sale for partition, so to speak, it is a misfortune not
uncommon to all who seek gain by adventurous speculations in values.
The libellant says in his testimony that he relied entirely on his rights as
a salvor. This being so, he knew the risk he ran and it was his own

614
CHAPTER X! THE SALVAGE LAW

folly :o expend more money in the service than his reasonable share
wouid have been worth under all circumstances and contingencies. He
can rely neither on the common law idea of an implied contract to pay
for work on and about one's property what the work is reasonably
worth with a lien attached by possession for satisfaction, nor upon any
motion of an implied maritime contract for the service, with a
maritime lien to secure it, as in the case of repairs, or supplies
furnished a needy vessel, or the like. In such a case the owner would
lose all if the property did not satisfy the debt, when fairly sold. But
this doctrine has no place in the maritime law of salvage. It does not
proceed upon any theory of an implied obligation, either of the owner
or the res, to pay a quantum meruit, nor actual expenses incurred, but
rather on that of a reasonable compensation or reward, as the case,
may be, to one who has rescued the res from danger of total loss. If he
gets the whole, the

property had as w ell been lost entirely, so far as the owner is

concerned. (Smith v. The
Joseph Stewart, Fe. Cas. No. 13070)
While salvage is of the nature of a reward for meritorious service,
and for determination of its amount the interests of the public and the
encouragement of others to undertake like service are taken into
consideration, as well as the risk incurred, and the value of the
property saved, and where the proceeds for division are small, the
proportion of allowance to the salvor may be enlarged to answer these
purposes, nevertheless, the doctrine of salvage requires, as a
prerequisite to any allowance, that the service must be productive of
some benefit to the owners of the property salved; for however
meritorious the exertions of alleged salvors may be if they are not
attended with benefit to the owners, they cannot be compensated as
such. (Abb. Shipp. [London
E. , 1892], 722) The claim of the libellant can only be supported as one
for salvage. It does not constitute a personal demand, upon quantum
meruit, against the owners, but gives an interest in the property saved,
which entitled the salvor to a liberal share of the proceeds.
“One of the grounds for liberality in salvage awards is the risk
assumed by the salvor — that he can have no recompense for service
or expense unless he is successful in the rescue of property, and that
his reward must be within the measure of success. He obtains an
interest in the property, and in its proceeds when sold, but
accompanied by the

615
TRANSPORTATION LAWS

same risk of any misfortune or depreciation, which may occur to

reduce its value. In other words, he can only have a portion, in any
event; and the fact that his exertions were meritorious and that their
actual value, or the expense actually incurred, exceeded the amount
produced by the service, cannot operate to absorb the entire proceeds
against the established rules of salvage.” (The Carl Schurz, Fed. Cas. No.
2414)
“There is no fixed rule for salvage allowance. The old rule in cases
of a derelict was 50 percent of the property salved; but under modem
decisions and practice, it may be less, or it may be more. The
allowance rests in the sound discretion of the court or judge, who
hears the case acquainted with the environments of the rescue. An
allowance for salvage should not be weighed in golden scales, but
should be made as a reward for meritorious voluntary services,
rendered at a time when danger of loss is imminent, as a reward for
such services so rendered, and for the purpose of encouraging others
in like services.”

Distinction Between Salvage and Towage

“It often becomes material too, for courts to draw a distinct line
between salvage and towage, for the reason that a reward ought
sometimes to be given to the crew of the salvage vessel and to other
participants in salvage services; and such reward should not be given if
the services were held to be merely towage.” (The Rebecca Shepherd, 148
F. 731)
“The master and members of the crew of a tug were not entitled
to participate in payment by liberty ship for services rendered by tug
which were towage services and not salvage services.” (Sause, et al. v.
United States, etal., supra)
“The distinction between salvage and towage is of importance to
the crew of the salvaging ship, for the following reasons: If the contract
for towage is in fact towage, then the crew does not have an interest
or rights in the remuneration pursuant to the contract. But if the
owners of the respective vessels are of a salvage nature, the crew of
the salvaging ship is entitled to salvage, and can look to the salvaged vessel for
its share.” (I Norris, The Law of Seamen, Sec.

222)
 616
itO /' /// a -

VI JUrrP* / < * , 1* A **<■ O*

*'*• cr/m JKA

7
" /-'"1^/;, Jr/4 '*'/ :s* A.1PSS,*,SA
*‘ ,#/ MUM; j//4* f/i ,v# 5^ ; >.*; dll Ming ulov/ly V/Uf)r//a;d Szt;u {A
,U

\'i//s;.'/r T’Sf'P/, " "''.ft up'n < lun;> V,a at f)w m^y/ </i ''> ',’,/f/vtfK **>#&'■>
* "A A V<*r >*rt MM 'r*
#
» duvfmM by ' / ] ; • : , M V Htr.r/ 1 '<r&»■*£'''.%
''.ft
disMctyx’d Signal arid v/)f;; tv; '/r,fi/v/‘ KA <:/;-*y-/sjp 'Z 'i'Jt 'jz.'jzr:. mi<l/of
M»;n*.i<',r of MV bon Alf/cAo ;,//S'S-S/'A. ";>•> :/* MVA V'^X <t rj;,f‘’ !>,;,< 4‘
where it ym/sJcavyj to M7 l/./? a titter V::t '£ Sr/• S*:tAA Ml die vicinity of
Apo hfondt of Tegr/t rjr.ec3L.
William J,incj>, Jric. owner of MV Hevry ' eri AI f^r damage;, ;>nd
remuneration, However, Hooor:o zz:r//. c^pcarr. ' MV I lemy I claimed
salvage reward. 7Ve co-i^rt. fiv.r:.iv/Zi ±e ^,.
ISSUE: Whether or riot ur.der toe faet* of toe caoe. t'c ser*:ce rendered
by

plaintiff to defendant cwrithetec or ~'zr*c%st7 and if so, whether or

riot plaintiff may recover frorr. 5eter.'Csr~ compensation for such
service.

HELD: Was there a marine peril, in the instant case, to justify a

valid salvage claim by plaintiff against defendant? Like the trial
court, the Court does not think there was. It appears that although
the defendant’s vessel in question was, on the night of May L 1958,
in a helpless condition due to engine failure, it did not drift too far
from the place where it was. As found by the court a quo the
weather was fair, clear, and good. 7he waves were small and too
slight so much so that there were only ripples on the sea, which
was quite smooth. During the towing of the vessel on the same
night, there was moonlight. Although said vessel was drifting towards
the open sea, there was no clanger of its floundering or being
stranded, as it was far from any island or rocks. In case of danger of
stranding, its anchor could be released, to prevent such
occurrence. There was no danger that defendant’s vessel would
sink, in view of the smoothness of the sea and the fairness of the
weather. That there was absence of danger is shown by the fact
that said vessel or its crew did not even find it necessary to lower
its launch and two motorboats, in order to evacuate its passengers
aboard. Neither did they find occasion to jettison the vessel’s cargo
as a safety measure. Neither

on

j£.
TRANSPORTATION LAWS

the passengers nor the cargo were in danger of perishing. All tr#t v>t
vessel's crewmembers could not do was to move the vessel or, it$
ov.r, power. That did not make the vessel a quasi-derelict,

considering even before the appellant extended the help to the

 distressed ship, * sister vessel was known to be on its way to succor
it.
If plaintiff’s service to defendant does not constitute “salvager”
within the purview of the Salvage Law, can it be considered as a
quasi- contract of “towage” created in the spirit of the new Civil
Code? The answer seems to incline in the affirmative, for in
consenting to plaintiff's offer to tow the vessel, defendant
(through the captain of its vessel MV Don Alfredo) thereby
impliedly entered into a juridical relation of “towage” with the
owner of the vessel MV Henry I, captained by plaintiff, the
William Lines, Incorporated.
If the contract thus created, in this case, is one for towage,
then only the owner of the towing vessel, to the exclusion of the
crew of the said vessel, may be entitled to remuneration. And, as
the vessel- owner, William Lines, Incorporated, had expressly
waived its claim for compensation for the towage service
rendered to defendant, it is clear that plaintiff, whose right if at
all depends upon and not separate from the interest of his
employer, is not entitled to payment for such towage service.
Neither may plaintiff invoke equity in support of his claim for
compensation against defendant. There being an express
provision of law (Art. 2144, Civil Code) applicable to the relationship
created in this case, that is, that of a quasi-contract of towage
where the crew is not entitled to compensation separate from
that of the vessel, there is no occasion to resort to equitable
considerations.
LETTER OF INSTRUCTION NO. 134 September 24,1973
 TO: The Commissioner Bureau
of Customs

Manila
In order to hasten the completion of the Pasig River Development
Project through a

sustained and continuous clearing of the Pasig

River,

618
CHAPTER XI THE SALVAGE LAW

adjoining esteros and waterways within the Greater Manila Area of

derelicts and other discarded matters, and to enable the authorized
salvers or salved derelicts to recover the early return of their
investment and thereby replenish their operating capital, I hereby
direct that settlement of the salvage claim on and/or disposition of
those salved derelicts be expedited by adopting, as an exception to the
technical requirements of the Salvage Law, the following procedures:
1. That, upon receipt of the salver’s report on the successful
salvage of any derelict, known owner(s) and rightful party(ies)
thereto must immediately be informed thereof in seventy-two
(72) hours within which to file their claim, otherwise the same
shall immediately be awarded to the salving party by way of
salvage compensation.
2. With respect to those the owner(s) or rightful party(ies) of
which are unknown, the salved derelicts shall be published for
public bidding for three successive days in a newspaper of
general circulation, after which, bidding shall immediately be
 held as scheduled. Should there be no bidder and/or shall the
highest bid offered thereon is insufficient to cover the
reasonable salvage claim, such bid shall be denied and the
salved derelict shall be awarded to the salving party. For
immediate compliance.

619
Appendix A

EXECUTIVE ORDER NO. 125

(As Amended by Executive Order No. 125-A dated 13 April 1987 and Executive
Order No. 201 dated 19 June 1987)
REORGANIZING THE MINISTRY OF TRANSPORTATION AND
COMMUNICATIONS, DEFINING ITS POWERS AND FUNCTION AND FOR
OTHER PURPOSES.
RECALLING that the reorganization of the government is
mandated expressly in Article II, Section 1 (a), and Article III of the
Freedom

Constitution;
HAVING IN MIND that pursuant to Executive Order No. 5 (1986),
it is directed that necessary and proper changes in the organizational
and functional structures of the government, its agencies and
 instrumentalities, be effected in order to promote efficiency and
effectiveness in the delivery of public services;
CONSIDERING that viable and dependable
transportation

communications networks are necessary tools for economic

recovery;
CONSIDERING further that rapid technological advances in
communication facilities require a distinct response to the peculiar
problems of this field;
REALIZING that the growing complexity of the transportation
sector has necessitated its division into various sub-sectors to
facilitate the regulation and promotion of the sector as a whole; and
REALIZING further that the State needs to regulate these
networks and promote their continuous upgrading in order to
preserve their viability and enhance their dependability;
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the

Philippines, by virtue of the powers vested in me by the sovereign

620
Am-'NOW A EXFCTTIYF OROVR NO i:>

will of the Filipino people and the Freedom Constitution, do hereby order:
Section l. Title. — This Executive Order shall otherwise be knovm as the
“Reorganization Act of the Ministry of Transportation and
Communications."
 Section 2. Reorganization. —The Ministry of Transportation and
Communications is hereby reorganized, structurally and functionally, in
accordance with the provisions of this Executive Order.
Section 3. Declaration of Policy. — The State is committed to the
maintenance and expansion of viable, efficient and dependable
transportation and communications systems as effective instruments
for national recovery and economic progress. It shall not compete as a
matter of policy with private enterprise and shall operate
transportation and communications facilities only in those areas where
private initiatives are inadequate or non-existent.
Section 4. Mandate. — The Ministry shall be the primary policy,
planning, programming, coordinating, implementing, regulating and
administrative entity of the Executive Branch of the government in the
promotion, development and regulation of dependable and
coordinated ' networks of transportation and communications
systems, as well as in the fast, safe, efficient, and reliable postal,
transportation and communications services.
To accomplish such mandate, the Ministry shall have the following
objectives:
a) Promote the development of dependable and
coordinated
networks of transportation and communications systems;
b) Guide government and private investments in the
development of the country’s inter-modal transportation and
communications systems in a most practical, expeditious and
orderly fashion for maximum safety, service and cost effectiveness;
 c) Impose appropriate measures so that technical,
economic and other conditions for the continuing economic
viability of the transportation and communications entities are not

621
TRANSPORTATION I. AWS

jeopardized and do not encourage inefficiency and distortion of

traffic patronage;
d) Develop an integrated plan for a nationwide
transmission system in accordance with national and international
telecommunications service requirements including, among
others, radio and television broadcast relaying, leased channel
services and data transmission;
e) Guide government and private investments in the
establishment, operation and maintenance of an international
switching system for incoming and outgoing telecommunications
services;
f) Encourage the development of a domestic
telecommunications industry in coordination with the concerned
entities particularly the manufacture of
communications/electronics equipment and components to
complement and support, as much as possible, the expansion,
 development, operation and maintenance of the nationwide
telecommunications network; and
g) Provide for a safe, reliable and efficient postal system
for
the country.
Section 5. Powers and Functions. — To accomplish its mandate, the
Department shall have the following powers and functions:
a) Formulate and recommend national policies and guidelines for
the preparation and implementation of integrated and comprehensive
transportation and communications systems at the national, regional
and local levels;
b) Establish and administer comprehensive and integrated
programs for transportation and communications, and for this
purpose, may call on any agency, corporation, or organization, whether
public or private, whose development programs include transportation
and communications as an integral part thereof, to participate and
assist in the preparation and implementation of such programs;

622

\ITI Nni\ A t At VI' l!\ 1 OKDI K

NO i:%

c)Assess, review ami provide clireel ion l<> Imnspor f;if ion and
communications research ami development programs of the government in
coordination with other institutions concerned;
d) Administer and enforce all laws, rules and regulations in the
held of
transportation and communications;
e) Coordinate with the Department of Public Works and Highways
in the design, location, development, rehabilitation, improvement,
construction, maintenance and repair of all infrastructure projects and
facilities of the Department. However, government corporate entities
attached to the Department shall be authorized to undertake
specialized telecommunications, ports, airports and railways projects
and facilities as directed by the President of the Philippines or as
provided by law; (As amended by EO 125-A)
f) Establish, operate and maintain a nationwide postal system
that shall include mail processing, delivery services, and money order
services and promote the art of philately;
g) Issue certificates of public convenience for the operation of
public land and rail transportation utilities and services; (As added by EO
125-A)

h) Accredit foreign aircraft manufacturers and/or international

organizations for aircraft certification in accordance with established
procedures and standards;
i) Establish and prescribe rules and regulations for identification
of routes, zones and/or areas of operation of particular operators of
public land services; (As added by EO 125- A)
j) Establish and prescribe rules and regulations for the
establishment, operation and maintenance of such
telecommunications facilities in areas not adequately served by the
private sector in order to render such domestic and overseas services
that are necessary with due consideration for advances in technology;
(As added by EO 125-A)
 623

TRANSPORT VTtON LAWS

kj Establish and prescribe rules and regulations for the operation

and maintenance of a nationwide postal system that shall include mail
processing, delivery services, money order services and promotion of
philately; (As added by EO 125-A)
l) Establish and prescribe rules and regulations for the issuance
of certificate of public convenience for public land transportation
utilities, such as motor vehicles, trimobiles and railways;
(As added by EO 125-A)
m) Establish and prescribe rules and regulations for the inspection
and registration of air and land transportation facilities, such as motor
vehicles, trimobiles, railways and aircrafts; (As added by EO
125-A)
n) Establish and prescribe rules and regulations for the issuance
of licenses to qualified motor vehicle drivers, conductors, and airmen;
(As added by EO 125-A)

o) Establish and prescribe the corresponding rules and regulations

for the enforcement of laws governing land transportation, air
transportation and postal services, including the penalties for
violations thereof, and for the deputation of appropriate law
enforcement agencies in pursuance thereof; (As added by EO 125-A)
p) Determine, fix and/or prescribe charges and/or rates pertinent
to the operation of public air and land transportation utility facilities
and services, except such rates and/or charges as may be prescribed by
the Civil Aeronautics Board under the charter, and, in cases where
charges or rates are established by international bodies or associations
of which the Philippines is a participating member or by bodies or
associations recognized by the Philippine government as the proper
arbiter of such charges or rates; (As added by EO 125-A)
q)Establish and prescribe the rules, regulations, procedures
and standards for the accreditation of driving schools; (As added by
EO 125-A)

624
At'I'f'ihl/ A

rxi/ u t r / f f r i ' i J k h <i(> \v>

0 Administer mid operate the Civil Aviation 'training ( Viiln

(( A'l( ') mid the National Telecommunications Training tnot 111ill'
(M i l l) (As added by HO I25-Aj; and

a) Perform midi other powers and functions as may be

prescribed by law, or as may be necessary, incidental, or proper to
its mandate, or as may be assigned from time to time by the
President of the Republic of the Philippines. (As amended by EG U S A )

Sect hm 6. Authority and Responsibility. — The authority and

responsibility for the exercise of the mandate of the Ministry and for
the discharge of its powers and functions shall be vested in the
Minister of Transportation and Communications, hereinafter referred
to as the Minister, who shall have supervision and control over the
Ministry and shall be appointed by the President.
 Section 7. Office of the Secretary. — The Office of the Secretary shall
consist of the Secretary, his immediate staff, the Franchising Review
Staff and the Investigation, Security and Law Enforcement Staff. The
Franchising Review Staff shall be headed by a Review Staff Director
with the same rank, salary and privileges of a Department Regional
Director who shall be appointed by the President upon the
recommendation of the Secretary. The Franchising Review Staff shall
assist the Secretary in the review of cases and matters pertaining to,
among others, grants of franchises and the regulation thereof.

The Investigation, Security and Law Enforcement Staff shall be

headed by a Staff Director with the same rank, salary and privileges of
a Department Service Chief. The Investigation, Security and Law
Enforcement Staff shall be responsible for: (a) providing security and
intelligence for the Department; (b) coordinating security and
intelligence activities of security units of its offices and attached
agencies; (c) undertaking law enforcement functions and activities
relating to land transportation. (As amended by EO 201)

Section 8. Undersecretaries. — The Secretary shall be assisted by

four (4) Undersecretaries appointed by the President upon the
recommendation of the Secretary. (As amended by EO 125-A)

625
TPANSf'OKTAl ION UkW>

Section 9. Assistant Secretaries and Service Chiefs. — The Secretary shall

also be assisted by eight (8) Assistant Secretaries appointed by the
President upon recommendation of the Secretary, each of whom shall
be respectively responsible for the four (4) staff offices composed of
eight (8) services and four (4) line offices, and shall report to the
respective Undersecretaries assigned by the Secretary, which
Undersecretary shall have control and supervision over said respective
services and offices:
a) Office of the Assistant Secretary for Administrative and Legal
Affairs:
1. Administrative Service, and 2. Legal Service.
b) Office of the Assistant Secretary for Finance and Comptrol-
lership:
1. Finance and Management Service, and 2.
Comptrollership Service.
c) Office of the Assistant Secretary for Planning and Project
Development:
1. Planning Service, and
2. Project Development Service.
d) Office of the Assistant Secretary for Management Information
Service and Project Management:
1. Management Information Service, and
2. Project Management Service.
e) Office of the Assistant Secretary for Land Transportation;
f) Office of the Assistant Secretary for Postal Service;
g) Office of the Assistant Secretary for Telecommunications;
h) Office of the Assistant Secretary for Air Transportation.
Each of the above-named services shall be headed by a service
chief appointed by the President upon the recommendation of the
Secretary. (As amended by EO 125-A)

626
Al'lM Nl)IX A i \» ( trilVI OKDI K NO |/*j

The Offices ot' the Assistant Secretaries !<>t I,and '1

ranspv/tfcS'/;^ Postal Ser\ ices, Teleeommunicalions, and Ail
rranH|)<nfaiion; ^m\\KWA have an Executive Director who shall assist I lie
respective Assist*?,'/* Secretaries in the implementation and
enforcement of the policies, programs and projects, and the pertinent
laws on their respective <z/c<sts of responsibilities. ( Tv added by FA) 201)
Section 10. Structural Organization, ----- The Department, aside from
the Department proper, which is comprised, of the Offices of the
Secretary, Undersecretary and Assistant Secretaries shall include the
Department Regional Offices and the attached agencies and
corporations referred to in Section 14 hereof.
The Office of the Secretary shall have direct line supervision and
control over the Department regional offices. The Department proper
shall be responsible for developing and implementing policies, plans,
programs and projects for the Department. (As amended by EO 125-A)
Section 11. Department Regional Offices. — The Department shall have
three (3) Department Regional Offices in each of the administrative
regions of the country: the Department Regional Office for

Land Transportation, the Department Regional

Office for
Telecommunications and the Department Regional Office for Postal

Services. The present Regional Offices of the Land Transportation

Commission are hereby abolished and their functions are transferred
to the respective Department Regional Offices for Land Transportation.
The present Regional Offices of the Bureau of Telecommunications are
hereby abolished and their functions are transferred to the respective
Department Regional Offices for Telecommunications. The present
Regional Offices of the Bureau of Posts are hereby abolished and their
functions are transferred to the corresponding Department Regional
Offices for Postal Services. Each Department Regional Office shall be
headed by a Department Regional Director and assisted by a
Department Assistant Regional Director. The present Airport Offices of
the Bureau of Air Transportation are hereby abolished and their
functions are transferred to the Department Airport Offices. The
abolition of the herein Regional Offices and the transfer of their
functions shall be governed by the provisions of Section 15(b) hereof.

627
TRANSPORTATION TAWS

The Department Regional Offices shall essentially he line in

character and shall be responsible for the delivery of all front line
services of the Department.
For such purposes, the Department Regional Offices shall have,
within their respective administrative regions, the following functions:
a) Implement laws, and policies, plans, programs,
projects,
rules and regulations of the Department;
 b) Provide efficient, and effective service to the people;
c)Coordinate with regional offices of other departments,
offices and agencies;
d) Coordinate with local government units;
e) Perform such other functions as may be provided by
law. (As amended by EO 125-A)
Section 12. Maritime Industry Authority. — The Maritime Industry
Authority is hereby retained and shall have the following functions:

a) Develop and formulate plans, policies, programs,

projects, standards, specifications and guidelines geared toward
the promotion and development of the maritime industry, the
growth and effective regulation of shipping enterprises, and for
the national security objectives of the country;
b) Establish, prescribe and regulate routes, zones and/or
areas
of operation of particular operators of public water services;
c) Issue Certificates of Public Convenience for the
operation
of domestic and overseas water carriers;
d) Register vessels as well as issue certificates, licenses or
documents necessary or incident thereto;
e) Undertake the safety regulatory functions pertaining to
vessel construction and operation including the determination of
manning levels and issuance of certificates of competency to
seamen;
 628
APPENDIX A EXECUTIVE ORDHK NO. 125

f) Enforce laws, prescribe and enforce rules and

regulations, including penalties for violations thereof, governing
water transportation and the Philippine merchant marine, and
deputize the Philippine Coast Guard and other law enforcement
agencies to effectively discharge these functions;
g) Undertake the issuance of licenses to qualified seamen
and
harbor, bay and river pilots;
h) Determine, fix and/or prescribe charges and/or rates
pertinent to the operation of public water transport utilities.
facilities and services except in cases where charges or rates are
established by international bodies or associations of which the
Philippines is a participating member or by bodies or associations
recognized by the
Philippine Government as the proper arbiter of such charges or rates;
i) Accredit marine surveyors and maritime enterprises
engaged in shipbuilding, ship repair, shipbreaking, domestic and
overseas shipping, ship management and agency;
j) Issue and register the continuous discharge book of
Filipino
seamen;
k) Establish and prescribe rules and regulations,
standards and procedures for the efficient and effective discharge
of the above functions;
 l) Perform such other functions as may now or hereafter
be
provided by law. (As amended by EO 125-A)
Section 13. Abolition/Transfer/Consolidation. —
a) The Land Transportation Commission is hereby abolished and
its staff functions are transferred to the service offices of the
Department Proper and its line functions are transferred to the
Department Regional Offices for Land Transportation as provided in
Section 11 herein. Such transfer of functions is subject to the
provisions of Section 15(b) hereof. The quasi-judicial powers and
functions of the Commission are transferred to the Department. The
corresponding position structure and staffing

629

TRANSPORTATION l AWS

pattern shall be approved and prescribed by the Secret 1117 pursuant

to Section 1 e> hereof.
b) PNL Leasing, Inc. is hereby abolished and its functions are
transferred to Philippine National Lines, Inc. subject to the provisions
of Section 15(b) hereof. The Secretary of Transportation and
Communications or his designated representative shall be the
Chairman of the Board.
c) The National Aero Manufacturing, Inc. and the Philip-
pine Aero Systems, Inc. are hereby abolished in accordance with the
provisions of Section 15(a) hereof.
d) The Civil Aeronautics Board is hereby transferred from the
Department of Tourism to the Department as an attached agency in
accordance with the provision of Section 15(a) hereof. The Secretary of
Transportation and Communications or his designated representative
shall be the Chairman of the Board.
e) The Maritime Training Council’s function of issuing certificates
of competency to seamen under LOI 1404 is hereby transferred to the
Maritime Industry Authority. (As amended by EO 125-A)
Section 14. Attached Agencies and Corporations. —
a) The following agencies and corporations are attached to the
Ministry: the Philippine National Railways, the Maritime Industry
Authority, the Philippine National Lines, the Philippine Aerospace
Development Corporation, the Metro Manila Transit Corporation,
the Office of Transport Cooperatives, the Philippine Ports Authority,
the Philippine Merchant Marine Academy, the Toll Regulatory
Board, the Light Rail Transit Authority, the Transport Training
Center, the Civil Aeronautics Board, the
National Telecommunications Commission and the Manila
International Airport Authority.
b) An Airport Security Center is hereby created within the
Manila International Airport Authority, to plan, supervise, control,
coordinate, integrate and direct intelligence and operational
activities of all police and military units, security and safety
630
 \m;vo\\ A

b'WCVTW V ORDt R NO. 1YS

service units, government monitoring mul intelligence units and

other security operating units employed by government entities
and or by private agencies in the Manila International An port.
The Center is under the direct supervision and control of the
MIAA General Manager. Moreover, the Authority shall be
authorized to organize a Manila International Airport Police
Force with all the police powers necessary to implement the
objectives of the Center.
The exercise of supervision and control by the Airport
Security’ Center does not include the transfer of appropriation,
equipment and personnel to the said Authority : Provided, That
the Airport Security Center may cause the deployment of
equipment and personnel in such manner it deems necessary in
the discharge of its functions.
Section 15. Transitory Provisions. — In accomplishing the acts of
reorganization herein prescribed, the following transitory provisions
shall be complied with, unless otherwise provided elsewhere in this
Executive Order:
a) The transfer of a government unit shall include the functions,
appropriations, funds, records, equipment, facilities, chooses in
action, rights, other assets and liabilities, if any, of the transferred
unit as well as the personnel thereof, as may be necessary, who
shall, in a hold over capacity, continue to perform their respective
duties and responsibilities and receive the corresponding salaries
and benefits unless in the meantime they are separated from
government service pursuant to Executive Order No. 17 (1986) or
 Article III of the Freedom Constitution. Those personnel of the
transferred unit whose positions are not included in the
Ministry’s new position structure and staffing pattern approved
and prescribed by the Minister or who are not reappointed shall
be deemed separated from the service and shall be entitled to
the benefits provided in the second paragraph of Section 16
hereof.
b)The transfer of functions which results in the abolition of the
government unit that has exercised them shall include the

631
I KANSI'ORIAI ION I.AWS

appropriations, funds, records, equipment, facilities, choscs in action,

rights, other assets and personnel as may be necessary to the proper
discharge of the transferred functions. The abolished unit's remaining
appropriations and funds, if any, shall revert to the General Fund and
its remaining assets, if any, shall be allocated to such appropriate units
as the Minister shall determine or shall otherwise be disposed in
accordance with the Government Auditing Code and other pertinent
laws, rules and regulations. Its liabilities, if any, shall likewise be
treated in accordance with the Government Auditing Code and other
pertinent laws, rules and regulations. Its personnel shall, in a hold over
capacity, continue to perform their duties and responsibilities and
receive the corresponding salaries and benefits unless in the meantime
they are separated from the service pursuant to Executive Order No.
17 (1986) or Article III of the Freedom Constitution. Its personnel,
whose positions are not included in the Ministry’s new position
structure and staffing pattern approved and prescribed by the Minister
under Section 16 hereof or who are not reappointed, shall be deemed
separated from the service and shall be entitled to the benefits
provided in the second paragraph of the same Section 16.
c) The transfer of functions which does not result in the abolition
of the government unit that has exercised them shall include the
appropriations, funds, records, equipment, facilities, chooses in action,
rights, other assets and personnel as may be necessary to the proper
discharge of the transferred functions. The liabilities, if any, that may
have incurred in connection with the discharge of the transferred
functions, shall be treated in accordance with the Government
Auditing Code and other pertinent laws, rules and regulations. Such
personnel shall, in a hold-over capacity, continue to perform their
respective duties and responsibilities and receive the corresponding
salaries and benefits unless in the meantime they are separated from
the service pursuant to Executive Order No. 17 (1986) or Article III of
the Freedom Constitution. Personnel, whose positions are not included
in the Ministry’s new position structure and staffing pattern approved
and prescribed by the Minister under Section 16 hereof or who

632

MM'INI’IV \
IMi I'llN I \ Mil MM Nl » \)‘\
Ivi'v » U M Krn ivappointed. shall In* deemed sepiuntrd hotn tin: i\ \wy \' u\y\ ho t’nlifIt'll to llu'
benefits provided in tin; second l* M ojoiph o( the same Section 16.

'll In ease oflhe abolition of a government unit which dees not «vsnlt in the
transfer of its functions to another unit, the unions nnil funds of the abolished unit shall
revert to the 'Amoral fund while the records, equipment, facilities, chooses in aeiion.
lights, and other assets thereof shall be allocated to such appiopnato units as the Minister
shall determine or shall otherwise Iv disposed in accordance with the Government
Auditing Code and other pertinent laws, rules and regulations. The liabilities of
the abolished unit shall be treated in accordance with the Government Auditing C ode and
other pertinent laws, rules and regulations, while the personnel thereof, whose positions are
not included in the Ministry's new position structure and staffing pattern approved and prescribed by
(he Minister under Section 16 hereof or who have not been reappointed, shall be deemed separated
from the service and shall be entitled to the benefits provided in the second paragraph of the same
Section 16.

e) In case of merger or consolidation of government units, the

new or surviving unit shall exercise the functions (subject to the
reorganization herein prescribed and the laws, rules and
regulations pertinent to the exercise of such functions) and shall
acquire the appropriations, funds records, equipment, facilities,
chooses in action, rights, other assets, liabilities if any, and
personnel, as may be necessary, of (1) the units that compose the
merged unit or (2) the absorbed unit, as the case may be, Such
personnel shall, in a hold over capacity, continue to pci form their
respective duties and responsibilities and receive the
corresponding salaries and benefits unless in the meantime they
arc separated from the service pursuant to Executive Order No.

17 (1986) or Article 111 of the Freedom Constitution. Any such

personnel, whose position is not included in the Ministry’s new
position structure and staffing pattern approved and prescribed
by the Minister under Section 16 hereof or who is not
reappointed, shall be deemed separated from the service and
shall be entitled
TRANSPORTATION LAWS

to the benefits provided in the second paragraph of the same

Section 16. fj In case of termination of a function which does not
result in the abolition of the government unit which has performed
such function, the appropriations and funds intended to finance
the discharge of such function shall revert to the General Fund,
while the records, equipment, facilities, chooses in action, rights
and other assets used in connection with the discharge of such
function shall be allocated to the appropriate units as the Minister
shall determine or shall otherwise be disposed in accordance with
the Government Auditing Code and other pertinent laws, rules and
regulations. The liabilities, if any, that may have been incurred in
connection with the discharge of such function shall likewise be
treated in accordance with the Government Auditing Code and
other pertinent laws, rules and regulations. The personnel who
have performed such function, whose positions are not included in
the Ministry’s new position structure and staffing pattern
approved and prescribed by the Minister under Section 16 hereof
or who have not been reappointed, shall be deemed separated
from the service and shall be entitled to the benefits provided in
the second paragraph of the same Section 16.
Section 16. New Structure and Pattern. — Upon approval of this
Executive Order, the officers (the term “officer” as used in this
Executive Order is intended to be within the meaning of the term
“official” as used in the Freedom Constitution) and employees of the
Ministry shall, in a hold over capacity, continue to perform their
respective duties and responsibilities and receive the corresponding
salaries and benefits unless in the meantime they are separated from
government service pursuant to Executive Order No. 17 (1986) or
Article III of the Freedom Constitution.
The new position structure and staffing pattern of the Ministry shall
be approved and prescribed by the Minister, for the Ministry, within
one hundred twenty (120) days from the approval of this Executive
Order and the authorized positions created thereunder shall be filled
with regular appointments by him or by the President as the

634
AIM’KNDJX A l<XI*(UJTIVi: ORDER NO. 125

case may he. Those incumbents whose positions are not included
therein or who are not reappointed shall be deemed separated from
the service. Those separated from the service shall receive the
retirement benefits to which they may be entitled under existing laws,
rules, and regulations. Otherwise, they shall be paid the equivalent of
one-month basic salary for every year of service, or the equivalent
nearest fraction thereof favorable to them on the basis of the highest
salary received, but in no case shall such payment exceed the
equivalent of 12 month’s salary.
No court or administrative body shall issue any writ or
preliminary injunction or restraining order to enjoin the
separation/replacement of any officer or employee effected under this
Executive Order.
Section 17. Prohibition Against Changes. — No change in the
reorganization herein prescribed shall be valid except upon prior
approval of the President for the purpose of promoting efficiency
and effectiveness in the delivery of public service.
Section 18. Implementing Authority of Minister. — The Minister shall
issue such orders, rules, regulations and other issuances as may be
necessary to ensure the effective implementation of the provisions
of this Executive Order.
Section 19. Notice or Consent Requirements. — If any
reorganizational change herein authorized is of such substance or
materiality as to prejudice third persons with rights recognized by
law or contract such that notice to or consent of creditors is
required to be made or obtained pursuant to any agreement
entered into with any of such creditors, such notice or consent
requirement shall be complied with prior to the implementation of
such reorganizational change.
Section 20. Funding. — Funds needed to carry out the provisions of
this Executive Order shall be taken from funds available in the Ministry.
Section 21. Change of Nomenclature. — In the event of the
adoption of a new Constitution, which provides for a presidential
form of government, the Ministry shall be called Department of
Transportation and

Communications and the titles of Minister, Deputy Minister, and

 635

TRANSPORTATION LAWS

Assistant Minister shall be changed to Secretary,

Undersecretary and Assistant Secretary, respectively.
Section 22. Separability. — Any portion or provision of
this Executive Order that may be declared unconstitutional
shall not have the effect of nullifying other portions or
provisions hereof, as long as such remaining portions or
provisions hereof, as long as such remaining portions or
provisions can still consist and be given effect in their
entirety.
Section 23. Repealing Clause. — Presidential Decree No.
890, Letter of Instruction Nos. 263 and 371, Executive
Order No. 1011 dated March 20, 1985 are hereby
repealed. All laws, ordinances, rules, regulations, other
issuances of parts thereof which are inconsistent with this
Executive Order are hereby repealed or modified
accordingly.
Section 24. Ejfectivity. — This Executive Order shall take
effect immediately upon its approval.
DONE in the City of Manila, Philippines, this 30th day
of January in the year of Our Lord, Nineteen Hundred and
Eighty-Seven.
— oOo —
636