VIDEO LECTURE 1

In the previous discussion we discussed the rules in connection with Coastwise

Shipping which is the shipment of goods within the Philippines. Likewise in the previous
discussion of Transportation, in general particularly concerning common carriers, we made
mention of the rule or law applicable when it comes to common carriage or transportation
when the Philippines would be the country of destination; and of course the applicable law is
the Philippine law because if the country of destination were another country, it would be the
law of the country of destination which will govern the transportation transaction.

Carriage of Goods by Sea Act (COGSA)

- It refers to transaction/transportation with regard to carriage of goods by sea
- It is an element for COGSA to apply that the Philippines must be the destination. In
other words, in this particular law it is a carriage of goods by sea where the
transportation will start from another country and the destination is the Philippines.

● Elements: (if the ff are present, then apply COGSA)

1. Carriage of goods by sea
2. Transportation where the goods are coming from another country
3. Philippines is the destination

Q. What if the carrier is also a common carrier?

A. If the carrier is also a common carrier, then necessarily, the primary law would be the
civil code because it is a common carrier and the COGSA will only be applied
suppletorily with respect to those matters that are not governed by the civil code.

Salient Points in COGSA

1. Among the requirements of COGSA is that all vessels must be seaworthy.
● Seaworthiness of a vessel is a relative term dependent on the kind of service to
be performed.
- A vessel may be seaworthy for some purpose but it Is not for other
purposes like a vessel might be seaworthy if the voyage would be from
the port of Taiwan to Manila, but may not probably be seaworthy if the
vessel will be passing through the Pacific or Indian Ocean.
- It may be dependent on what is carried. A small vessel might be
seaworthy for the carriage of relatively lighter goods but not for the
purposes of a set of container products.
- So it would really be dependent on the kind of voyage and the kind of
service to be performed.
● Seaworthiness can also partake of the requirement that a vessel should be
properly provisioned.
● Seaworthiness may be the fact that the vessel is properly manned and
depending on the kind of vessel involved, we have various requirements
concerning the manning of vessels. Smaller vessels might have relatively fewer
requirements for the crew, on the other hand for bigger vessels for commercial
shipment, then there are more stringent requirements for purposes of manning
the said vessel.
2. Whenever goods are carried, there is a requirement for issuing a bill of lading.
- Bill of lading is a requirement for international shipment but for coastwise
shipment, bill of lading is not a requisite. There may be instances where a bill of
lading is issued. But in COGSA, it is a requirement that a bill of lading must be
issued.

Character/Nature of Bill of Lading

a. As a receipt
 - It is a receipt that the carrier has received the goods from the shipper. So when a bill of
lading was issued, there is a presumption that the carrier had received the goods.
- If the carrier had received the goods without any qualification as to its condition or
status, then the presumption is that the carrier has received the goods in order or
in regular condition or known as the “clean bill of lading”. Clean, there are no
statements concerning the damage or the defective nature of the goods that were
received.

On board bill of lading - if a bill of lading specifies the vessel that will carry the goods.

Received shipment bill of lading - if it does not specify the vessel that will carry the goods.
Only acknowledging that the goods are received without specifying the vessel involved.

It is important to distinguish the two because if it is an onboard bill of lading then it is part of
the agreement of the parties that the carriage will be concerning that particular vessel. If it is a
received shipment bill of lading, then it depends on the carrier now to assign the goods to a
particular vessel that will do the carriage.

b. As an evidence of contract of carriage

- Aside from the carrier receiving the goods, there is a definite purpose for
receiving the goods - which is to transport.
- It is an important nature of the bill of lading because if you sue a carrier
concerning damage to goods, then your suit against the carrier will be an
EXTRACONTRACTUAL SUIT. If you can show a bill of lading, that means there
is a contract, which means you can sue for a breach of contract. Applying now
the Civil Law, if the carrier is a common carrier, then one can rely on the
PRESUMPTION OF NEGLIGENCE.

● Because one has a written contract, prescriptive periods may also be effected.

c. As an evidence of title over the goods

● This is especially applicable for bills of lading where these are considered as documents
of title:
● Comparisons:
○ Law on sales: there are documents considered as “documents of title”
○ Law on negotiable instruments: the promise is to pay a sum certain in money; in
documents of title, the promise is to deliver the goods to the order of a specified
person or to the bearer of the document of title.
● The one in possession of the bill of lading, especially if the tenor of the bill of lading is
one of a negotiable document of title, the promise is to deliver to the order of a person
or to the bearer of the document of title. Then the one in possession of the bearer
document of title or the one in possession of the document of title and the same has
been endorsed to him, if it is an order document of title, would be able to claim title
over the goods.

Example: If the bill of lading where the carrier will be delivering the goods to whoever is in
possession of the document of titled (hence, a bearer document of title), without any
endorsement and just the mere possession of the bill of lading, can give rise to a cause of
action, on the part of the holder to claim against the carrier.

On the other hand, if the tenor of the document of title, where the carrier will deliver to the
“order of X, the shipper”, and now the one who is in possession of the document of title is Y,
then Y, aside from holding the document of title, should have an indorsement from X. The
indorsement should state that the goods should be delivered to Y and no longer to X. This is
because the tenor of the document of title is to deliver to the order of Y, X is ordering that the
goods should be delivered to Y. Y can now claim title over the goods.
N.B. This is the nature of a document of title affected by the character of the bill of lading.

SUMMARY: Three-fold character of a bill of

lading
a. It is a receipt
b. It is an evidence of a contract of
carriage
c. It can serve as a document of title

Recap: APPLICABILITY OF LAWS | Carriage of Goods by Sea

a. CIVIL CODE
As earlier mentioned, if there is an issue with respect to which law is applicable with
respect to carriage of goods by sea, international shipment and Philippines is the destination,
AND, the carrier is a common carrier, the Civil Code is the primarily law

b. COGSA
Other issues or matters not regulated by Civil Code with respect to which law is
applicable with respect to carriage of goods by sea, international shipment and Philippines is
the destination, AND, the carrier is a common carrier

NOTICE OF LOSS OR DAMAGE

● Requirement of Notice of Loss or Damage
● Matter affected under the COGSA
● If goods arrived at a damaged condition or the goods did not arrive, COGSA
requires that notification be made to the carrier

Distinction between COGSA and Code of Commerce

COGSA CRITERIA Code of Commerce

International shipment Coverage Coastwide Shipping or within the

Philippines only

a. If the goods arrived at a Conditions where a. If there is damage as to the

damaged condition and the notice and claim goods that arrived, then
damage is APPARENT, notice to is required notification and claim must be
the carrier should be filed made IMMEDIATELY
immediately
b. If the damage is NOT
c. If the damage is NOT APPARENT, notice and claim
APPARENT, then notice and claim should be made within 24 hours
to the carrier should be filed within from delivery
three days from delivery

The failure to file a claim is NOT a Failure to File If no claim is made within these
condition precedent for a filing of Notice and Claim periods, the recovery shall be
a suit against the carrier | Effect barred.

Note: If you do not file the notice

and claim for damage within the
prescribed period (immediately or
within 24 hours), one can no
 longer file a claim successfully
against the carrier.

Period in the filing of claims |COGSA

If there is damage to goods or the goods were not delivered, there is a limitation of the period to
file a claim against the carrier is ONE YEAR

Reckoning: from the delivery of the goods to the arrastre operator

**not from the time of delivery to the consignee

Arrastre Operator: one who receives the goods at a port and keep the goods for eventual
delivery to the consignee

Illustration as to the Arrastre Operator:

Shipper of goods through the services of the carrier from Japan to Manila. The shipper will ship
the goods at the port of Japan and the carrier will transport the goods up to the port of Manila.
At the port of Manila, there will be port operators. Upon arrival of the vessel, the carrier will
still be in charge of unloading the goods. The requirement of exercising extraordinary diligence
continues at this moment of unloading. The actual unloading is being rendered by the port
operators/arrastre operators. But the conduct of unloading will still be supervised by the
carrier because the obligation continues at this point.

Now, the actual unloading is being rendered by the arrastre operator. But the conduct of
unloading itself will still be under the supervision of the carrier because the supervision
continues at that point. Here is the arrastre operator now taking charge of removing the goods
from the vessel and then placing them in the warehouse. Again, for eventual delivery to the
consignee. That is the role of the arrastre operator.

BAD ORDER CONDITION

The mechanics here is that usually, when the arrastre operator performed the unloading of the
goods under the supervision of the carrier, they should already monitor if the goods are in bad
order kaya nga meron silang documentation, yung bad order condition, if they notice that the
goods are in bad order, they execute a document of a bad order condition. That will now
point to who was responsible for the damage. Remember, presumption of negligence, if the
goods arrived in bad condition, there is a presumption that the carrier is negligent. It is not the
arrastre operator who will be blamed if that happens.

If the arrastre operator executes a bad order condition, a document that shows that there
is a bad order of arrival of the goods, then, the liability is imputable upon the carrier. Pero
if the arrastre operator does not execute a bad order condition, again, there is a presumption
that the goods arrived at a good condition and the mishandling must have been in the hands
of the arrastre operator. And because the arrastre operator is also in charge of handling the
goods, transporting them, they also have the obligation of taking charge of the goods.

First PH Insurance Company v Wallem PH Shipping, March 26, 2009

For this purpose, take note of the ruling in First PH Insurance Company v Wallem PH
Shipping, March 26, 2009, in this case referring to previous cases, the SC discussed the legal
relationship between the consignee and the arrastre operator, the legal relationship between
the consignee and the arrastre operator is akin to that of a depositor and a 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 under the 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, in
other words, both the arrastre and the carrier must observe extraordinary diligence.

ARRASTRE OPERATOR AND CARRIER AS ALTERNATIVE DEFENDANTS

That is why in several cases that reached the Courts, if a consignee cannot identify who caused
the damage but the facts were proven are as follows; the goods were shipped to the carrier in a
good condition because they were covered by a clean bill of lading, and the goods arrived at
a damaged condition, if you will sue the carrier, you have a cause of action. But sometimes,
the carrier throws the burden upon the arrastre operator. Sasabihin ni carrier, “we are not at
fault, it is the arrastre who was negligent.'' Itong si consignee, usually, he engages the services
of surveyors, but they are not the geodetic engineers, they are maritime surveyors. These
surveyors take charge of investigating who caused the damage and they make a report. And
then from there, you will see who was negligent. But if really, for some reasons, you cannot
trace whose negligence it was, the Rules of Court allow you some available remedies. Under the
Rules, you are allowed to sue defendants in the alternative if you do not know who is
liable.

So, here is a consignee, he sues the carrier AND the arrastre operator as alternative
defendants. In some situations, the courts rule that parties should be held solidarily liable.
Like if it cannot really be traced who between them is negligent, then the courts can
declare that they will be solidarily liable. If it can be traced, then, you make that party liable.
That is the mechanic of how these things work in maritime transportation.

PERIOD TO FILE SUIT

Going back, the limitation of period is ONE YEAR to file a suit against the carrier if the
goods arrived at a damaged condition, the ONE YEAR period is to be counted from the
delivery to the arrastre operator.

Q: What if the goods were not delivered?

A: if not delivered, then, it is one year from the time it is supposed to have been delivered. It is
ONE YEAR from the time the goods were SUPPOSED to have been delivered.

Q: Can there be an agreement as to a different period? Can the parties agree that the
carrier and the shipper or consignee would fix a different period?
A: In the case Asian terminals Inc. v PhilAm Insurance, July 24, 2013, the SC said that
there could be an agreement between the carrier and the shipper extending the one-year
period to file a claim. This case recognizes the validity of a period LONGER than one year.

Q: Can there be an agreement for a period SHORTER than one year?

A: If it is a period shorter than one year, then, the case is Pioneer Insurance v APL Company,
August 2, 2017, in this case, the bill of lading provides a period of NINE months to file a suit.
Is that a valid agreement? The SC ruled that an agreement between the parties providing for a
shorter period is GENERALLY CONSIDERED AS VALID. It is generally considered as valid. A
stipulated prescriptive period shorter than one year is generally valid because it does not
affect the liability of the carrier but merely affects the shipper’s remedy . Meaning, you
can still file a suit but do it in a shorter period. The Court recognized the validity. As a general
rule, it is valid.

Kumbaga, hindi daw ito unreasonable as a general rule. But it is still to be tested in future
cases like for example, what if they limit it to just days, will that be considered as
unreasonable? We do not know yet. But, generally, for as long as it remains to be a reasonable
period, then, the court said that is valid.

In this case of Pioneer Insurance v APL, even if the bill of lading provided for a period of 9
months, the SC still refused to make use of the 9-month period.
What is the reason?
- The Supreme Court said that, if we take the particular bill of lading in this case itself,
the 9-month period provided in the bill of lading subject of the case, does not actually
preclude the application of the one year period under the COGSA. The tenor of the bill
of lading in this case states that, the period to file a claim is 9 months after the delivery
unless there is a contrary provision of law concerning a compulsory period. Kumbaga,
yung bill of lading mismo is open ended. It says, okay, the period is 9 months unless
there is another law that provides a period.
- And the court said, in the Philippines, there is another law that provides a period, the
period of one year under the COGSA. Thus, even though the bill of lading mentions its 9
months, it is not exclusive. If you want the period to be 9 months, the terms of the Bill
of lading must strictly state 9 months.

Bottomline, an agreement as to period greater than one year is allowed, lesser than one
year, generally allowed because it is still reasonable. But applying the case of Pioneer
Insurance, the period must be strictly imposed.

Q: Do we apply the one-year limitation concerning misdelivery of goods?

A: The SC said, misdelivery is different from non-delivery. In misdelivery, you know where
they are, they were delivered but they were delivered wrongly. If they are misdelivered, do not
apply the one-year period under the COGSA. If you cannot apply COGSA, then we go back to
the general rule of prescriptive periods under the Civil Code and because this is
international shipment where a bill of lading is required to be issued. There is written evidence
of a contract. And under the Civil Code, if your cause of action is based on a contract, the
prescriptive period is 10 years. And that is the important effect of the requirement of issuing a
bill of lading. If there is no bill of lading that was issued, and it is an oral contract, and if it is
an oral contract, the prescriptive period is 6 years. Pagdating sa COGSA iba, general rule is
one year. But if it is misdelivery, do not apply COGSA, but apply the prescriptive period of a
cause of action based on contract.

The same is true with respect to claims against the carrier on account of damage by reason of
the goods being delivered out of season. What do we mean by this? For example the goods
being delivered are electronic products. And let's say there is a delay, a long delay in the
delivery of goods. Alam niyo pag ganyan, yung electronic products nadelay ng matagal, there
will be damage to the consignee, and the damage is relatively high. And dahil sa delay, the
goods are now out of season. Can we still make use of the one year period under the
COGSA? No, damages on account of delay are not governed by the COGSA and therefore apply
the Civil Code.

Q: What if the claim is to be filed against an insurer?

Scenario: X, shipper, ships his goods from the port of Japan to the port of Manila, he is also
the consignee. The shipment is through the services of Y carrier. The goods are insured by
A,insurer. The goods arrived in a damaged condition. If X will file a suit against Y, then the
prescription of the suit will be 1 year under the COGSA. Itong si X will not file against the
carrier, because his goods were insured, he will file against his insurer. Pano pag nagkataon
that the claim by X against the insurer is already beyond the 1-year period of limitation under
the COGSA? Can X still file a claim against the insurer?

A: The SC said, YES. Why? According to the Court, the 1 year period of limitation under the
COGSA is binding with respect to the suit against the carrier. That is what's governed by the 1
year period of limitation. But when it is a suit between the shipper and his insurer, then
that is governed by their insurance contract. And their insurance contract as a general rule
prescribes in 10 years, unless you have a different period of prescription which is allowed by
the Insurance Code, not less than 1 year. But without that the default period is 10 years.
Therefore, in that case, the shipper can still claim from his insurer. There would still be a
period for him to file his claim against his insurer.

Q: If now the insurer will exercise the right of subrogation and claim from the carrier.
Can the insurer still claim from the carrier?
A: If you will apply the ruling of the Supreme Court under the case of Henson vs. UCPB,
August 14, 2019, (warning: the case is not a transportation case, but an insurance law
case) The Supreme Court said that the cause of action by an insurer who is exercising the
right of subrogation, emanates from the right of the insured and therefore, the right of the
insurer to file a suit against the one responsible cannot be higher than the right of the insured
against the person who is responsible. Because the insurer’s right is traced from the right of
the insured being subrogated then whatever defenses are available against the insured
would also be available defenses against an insurer. That is why the Supreme Court in
Henson vs. UCPB, August 14, 2019, that if the period to file a claim by the insured is already
time-barred, it has already prescribed, then by all means whatever an insurer can claim would
also be time-barred.

In our problem, if the one year period has already expired, while it may be true that the
insured shipper can file a claim against the insurer, the insurer cannot anymore file a claim
against the carrier. He cannot go after the other anymore.

Important Observation: You know the concept of subrogation in civil law as well as in
insurance, that if the insured himself by his own action defeats the right of subrogation
by the insurer, the insurer can refuse liability.

Although no SC decision has ever touched on this, sir has wondered, but sir was just young
with this idea. The SC said, the insured shipper cannot file against the carrier because your
claim is already time-barred BUT you can file against the insurer because the obligation of
your insurer is governed by a different prescriptive period which is 10 years but your suit
against the carrier is only 1 year. So you can file a claim against your insurer.

NOW, applying the insurance code and civil code, if by the very action of the insured, he
defeats the right of subrogation by the insurer, the insurer can refuse liability.

Taking it all together, if the insurer will say that they are not liable anymore but because the
claimant defeated the right of subrogation by not immediately filing your claim, we will not be
liable to you. Is this argument tenable?
A: There is no decision of the SC yet. We have to wait for it. As things stand right now, the
court has allowed the insured to file a claim against the insurer. No insurer has raised this
issue yet that they should not be liable because the claimants defeated their right of
subrogation. Let’s wait for a case to revolve around this argument.

Take note: Damages arising from delays or late delivery are NOT covered by COGSA.

❖ Claims against the arrastre operator are not governed by COGSA

The SC said that COGSA does not mention that an arrastre operator may invoke the
prescriptive period of one year. Hence, COGSA doesn't cover the arrastre operator.

Q: If the one year prescriptive period is not applicable with the arrastre operator, how then do
we determine the arrastre operator’s liability?
A: The case of Oriental Assurance Corporation v. Ong, GR No. 189524, Oct. 11, 2017, the
SC discussed and focused on the arrastre operator’s liability and the liability of the arrastre
operator is determined by the terms of the contract between the arrastre operator and the
Philippine Ports Authority.
The SC said that under this agreement with the PH Ports authority and the arrastre operator,
the period to file a formal claim is limited to 15 days only and the limit is Php 5,000 per
package UNLESS the shipper declares a higher value.

In this case, the SC also said that there must be a lot of leniency with respect to the
determination of complying with the 15 day period. The court said, the period in this case was
filed within 17 days but the SC said it was within a reasonable time and period even if the
agreement fixes a 15 day period.

The SC stressed that an arrastre operator is a PUBLIC UTILITY. Therefore, the performance
of its function is heavily invested with public interest.

For as long as it can be shown that even if there was non-compliance with the 15 days period,
the claim was made within a reasonable time, the court said that it should be respected.

Case: Wallem Philippines vs. SR Farms, July 7, 2010

Facts: The Shipper filed a suit within a 1 year period but the original complaint, did not
implead the proper defendant-carrier. It had to amend the complaint to implead the proper
defendant-carrier. The amendment was done beyond the 1 year period. The carrier moved to
dismiss on the ground that under the COGSA, the filing of the suit should be made within 1-
year period

Issue: Was the action timely filed against the carrier?

Decision: NO. The SC said that it was not, because the one-year period under the COGSA is
from the date the goods had been delivered. In this case, when the defendant carrier was
impleaded, it was already beyond the one-year period.

The plaintiff argued that they filed the complaint within the 1-year period so when they
amended the complaint the effects of the amendments should retroact to the time when they
first filed the complaint.

The SC said that is not the effect of an amended pleading. If you amend the pleading, the
consequences of the amendment will only have effect at the time the amendment was made. In
the filing of the amendment pleading, it did not retroact to the date of the filing of the original.
The statute of limitation runs until the submission of the amendment. This highlights the
importance of properly suing the defendant, who should be the proper suit in that case.
The SC said that if you belatedly impleaded the carrier, and at the time it is already
beyond the one year period, then the action will already be barred.

PUBLIC SERVICE ACT (PSA)

- Sir has mentioned that common carriers are engaged in public service and because
it is one of the businesses engaged in public service, it is governed by provisions of law
governing public service, which is the “Public Service Act [CA 146]”
-
- The discussion will be very limited because: (1) PSA itself, right now, is in the process of
amendment; and (2) the provisions of PSA have been affected by a lot of issuances
because we do not have a public commission right now. It has been replaced by various
government agencies that are in charge of different types of public service.
 - EX: if we take a look at the concept of “Public Service” under PSA, as discussed
in the case of LTFRB v. Valenzuela (Angkas Case), the concept of public
service has been described as:

Public Service “includes every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or compensation, with
general or limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad, street
railway, traction railway, sub-way motor vehicle, either for freight or passenger,
or both with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat or steamship
line, pontines, ferries, and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine 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 communications system, wire or wireless broadcasting
stations and other similar public services;

- Provided, however, That a person engaged in agriculture, not otherwise a

public service, who owns a motor vehicle and uses it personally and/or
enters into a special contract whereby said motor vehicle is offered for
hire or compensation to a third party or third [parties] engaged in
agriculture, not itself or themselves a public service, for operation by the
latter for a limited time and for 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” (as in enumerated by Sir in the Vlec)

- A lot of those engaged in the rendition of businesses that are involving public
interest are within the contemplation of public service. As you have noticed from
the enumeration, there are a lot of agencies involved in public service. Examples
are LTFRB (mass transportation under the DOTR), MARINA (for maritime
transportation), NTC (for broadcasting companies), DOE and attached agencies
such as ERB (for energy related services).

DISCUSSION PROPER
Q: What is a public service?
A: See above-cited definition from the case of LTFRB v. Angkas.

TAKE NOTE: If a person would operate a business which is considered as a public service, the
general rule is that there is a requirement of securing a special license from the
government. It may be in the form of:
1. Certificate of Public Convenience (CPC)
- Basic policy is obtaining a CPC
- Examples:
■ with respect to the operation of motor vehicle for the public, then there is
a requirement of obtaining a franchise which is referred to as CPC
■ Securing a legislative franchise in instance of broadcasting companies

- BASIC REQUIREMENTS:

a. QUALIFICATION
- Citizenship - public utilities are required by the Constitution to
be Filipinos.
 - BASIS: Sec. 11, Art. 12 of the 1987 Philippine Constitution:

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.

*In case of a natural person, we have no problem.

Q: What about Filipino Corporations?

A: The Constitution requires at least 60% of the capital should be
owned by citizens.

Q: What do we mean by capital?

A: In the case of Gamboa v. Teves, the Supreme Court discussed
the meaning of “capital” with respect to the 60% capital
requirement as the “shares that are entitled to vote” - so it
involves common shares and preferred shares (if entitled to vote).
Share which are entitled to vote which should be owned by
Filipino citizens. Take note that it should cover FULL
BENEFICIAL OWNERSHIP, not just the nominal ownership, of
the stocks with voting rights.

This involves the capitalization of PLDT which has been proven

that majority of the voting shares of PLDT are owned by foreigners
(60%); a little over 30% is owned by Filipinos. The contention of
PLDT is that the common shares are owned by Filipino and
because of such, they have already complied with the
requirements of the Constitution.

The SC held that you do not have to limit the requirement within
common shares, but you also take a look at the preferred shares
if they are entitled to vote. If they are, they can participate in the
control of the corporation so effectively, this corporation is
controlled not by Filipinos. Hence, at least 60% of the full
beneficial ownership of the persons entitled to vote should be
Filipinos.

b. THE RENDITION OF SERVICE SHOULD BE TO PROMOTE PUBLIC

INTEREST
- The grant of a CPC should be for the benefit of the public.

c. FINANCIAL CAPACITY
 - Owners or operators of public utility should be capable of running the
project.
Q: Why?
A: how can you afford rendering services to the public if you do not have
the means

- Q: How do we treat a CPC? Do we consider it as a right or as a privilege?

- A: It is a mere privilege afforded by the State to a particular operator. That is why
these CPCs are subject to amendment, modification, depending on the needs of the
public. These are subject to certain limitations that may be imposed by the appropriate
government agencies. It is not a right, but a mere privilege.

ILLUSTRATION:
What if A has been granted a certificate of Public Convenience to fly the route Manila to
Batanes by land. As to how A can do that, he was able to show that he can do it, he was able to
show that it's for the benefit of the public. He was able to create a market, establish the
tourism industry in Batanes. He promoted that Batanes is an area where you could really have
a tourism boost. He is successful in the rendition of service.

Here comes B, who owns motor vehicles. Now he is flying the route Manila to Batanes without
a certificate of Public Convenience.

Q: What did A do?

A: A filed a suit for injunction to enjoin B from flying that route because he doesn't have any
license.

Defense of B to A: Injunction requires that a person should have right in esse, a clear and
unmistakable right. If you trace your supposed right from a Certificate of Public Convenience,
which is a privilege not a right, therefore you don't have right, you do not have entitlement to
an injunctive relief.

Q: Is the argument of B tenable?

A: No. It is not tenable because the concept of Certificate of Public Convenience, being a
privilege, is one where we are dealing with the government’s relationship with the grantee
A. BUT with respect to the economic consequences of Certificate of Public Convenience, to
that degree, the holder of the cert can actually claim a right

So, between A and B, B is actually trampling on the right of A. A has that prerogative of
operating the route from Manila to Batanes. He has a right. Therefore, that right can be
protected by an injunctive relief.

In relation to Certificate of Public Convenience, one of the important discussions is,

PRIOR-OPERATOR RULE / OLD OPERATOR RULE/ PRIOR INVESTOR RULE

- The prior operator is afforded the opportunity to continue with the service that he is
rendering provided that he is able to successfully fulfill public interest.
- If another person would be applying for the same Certificate of Public Convenience, the
prior operator may oppose the application on the ground that there is already a prior
operator who is rendering satisfactory service. This is a basic concept that the
operation of a prior operator should be protected.
Q: Why?
A: Because if the government has already granted to you a Certificate of Public
Convenience, you must be given an opportunity to earn, for you to be able to improve
your services.
 - NB: Prior Operator Rule can only be invoked if the prior operator has been rendering
satisfactory services. If the prior operator service is not satisfactory, or if public
interest dictates that another person be granted a certificate, then that's within the
prerogative of the government.
- The idea behind the prior operator rule is to prevent ruinous competition or cut-
throat competition, if parties are so numerous already that they are engaged in cut-
throat competition, the idea is public service might suffer. It all boils down to rendition
of satisfactory service.

CASE: MMDA v. VIRON TRANSPORT | AUGUST 15, 2007

Q: IS IT WITHIN THE POWER OF MMDA TO PRESCRIBE A CENTRAL BUS STATION AND
THEREFORE, IN THE PROCESS CLOSE THE DIFFERENT BUS TERMINAL ALONG EDSA?
SC: No. That is not within the power of the MMDA. That is not within the prerogative of the
MMDA. MMDA is a mere policy-implementer and it cannot prohibit the operation of bus
terminals along EDSA. If the government wishes to have a central terminal station, it should
not be the MMDA doing that, it should be the Department of Transportation. So if you see
successful efforts in fixing a central bus terminal, it's an effort of the Department of
Transportation, not through the MMDA. The SC also said that it is not a reasonable measure
for the government to close bus terminals. It is already an overbreadth of the government to
be closing the terminals themselves but if the process is you just prohibit unloading at certain
points, that’s reasonable. But prohibiting the use of the terminals themselves, that is going
beyond the allowable authority of the government. It cannot and it is not authorized by the
Public Service Act.

FIXING OF RATES
- Public hearing and consultations are required to be done by the government.
- There must be a possibility on the part of the operator to have a reasonable rate of
return.

IMPOSITION OF PENALTIES
- In imposing penalty or fine, it is a requirement of the Public Service Act that there
should be prior notice and hearing.

CASE: GMA v. NATIONAL TELECOMMUNICATIONS COMMISSION | Sept 13, 2017

The SC discussed the requirements for a government agency to be imposing fines. The SC
makes use of Section 21 of the PSA, that says that before a fine is imposed, notice and
hearing must be compiled with and are mandatory requirements.

In this particular case, GMA continued operating its broadcasting services even if it does not
have any approved legislative franchise. It was NTC that granted GMA a temporary franchise to
operate but notwithstanding the grant of Temporary Franchise by the NTC, NTC still imposed a
fine.

Q: Is that a valid act on the part of the NTC?

SC: Yes. It is valid for the NTC to impose a fine. The fact is GMA is operating without a
legislative franchise and because of this, which is required by law, it is appropriate that fines
can be imposed.

Imagine GMA operating without a legislative franchise is imposed only with a fine. As compared
to the issue of ABS-CBN.

ABS-CBN v. NTC | August 25, 2020

Facts: ABS CBN is operating without legislative franchise. It was issued a cease-and-desist
order by the NTC ordering it to stop operation.
SC: Dismissed the petition of ABS-CBN for being moot and academic. It is considered moot and
academic because Congress decided to kill the franchise of ABS-CBN. There is no more
purpose in hearing the case because of the act of Congress in refusing the grant a legislative
franchise to ABS-CBN

AGREEMENT IN CONNECTION WITH PUBLIC SERVICE

1. REGISTERED OWNER RULE
➔ In imposing liabilities concerning motor vehicles, whether the registered owner is
presumed to be the owner of a vehicle i.e. a vehicle figured in an accident and the same
was registered in the name of a person but that person already sold the vehicle to
another but the registration has not been changed, the registered owner remains to
be liable.
➔ Lesson: if you are selling a vehicle make sure that the buyer will transfer the owner in
his name so that you can free yourself from any form of liability or impose certain
conditions at the time of your transaction.

2. KABIT SYSTEM
➔ A person who does not have a franchise or Certificate of Public Convenience (CPC), but
who owns a vehicle will ride on the name of a person who has a CPC.

➔ Example 1: X has a CPC to operate 20 buses. The 20 buses are not his own, rather
they are owned by Y. So, in reality, Y is the real owner but he is riding on the franchise
of X “nakikikabit siya”

➔ Consequence: if that vehicle will figure in an accident. The one who will be held liable
is the franchise operator, X, because he is the one who is registered, one who has a
franchise and one recognized by the government to be operating the vehicle.

Q: But can X file a third-party complaint against the real owner Y?

A: NO. The Kabit System prohibits that because they are in pari delicto- courts will
not run in their favor and afford them relief. The Court will leave them as they are and
will not grant any relief from X to be able to recover from Y.

➔ Example 2: Even if there was Kabit system a person can still file a suit in his own name

Lim v. CA | January 16, 2002

Facts: A passenger jeepney, which has a CPC, is sold to another. The buyer continued
to operate it under the same CPC of the previous owner under a Kabit System. The new
owner which was operating the jeepney under the CPC of the previous owner figured in
an accident with another vehicle through the fault of that other vehicle.

Issue: Can the new owner sue damages against the erring vehicle owner?

SC: Yes. The SC allowed the new owner to file a suit.

The reason behind the prohibition in so far as Kabit System is concerned is not
applicable here. SC discussed that the Kabit system is being contrary to public
policy but the SC made mention of the fact that the Kabit System is there for the
safety of the passengers and the public who may be wronged and deceived through
the Kabit System.

In that, the registered owner of the vehicle is not allowed to prove that another person
has become the owner so that he can get rid of liability or responsibility. The SC said
that it is not applicable in this particular case because 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 this case, there is no involvement of the public. The new owner was the one who
figured in an accident caused by another person. The principles involving the public
policy consideration of the Kabit System are not applicable here. Therefore, being the
person who had been damaged is the one who has a real party in interest in the
suit against the tortfeasor.

END