Download - 75922676 Formatted Transportation Law

Transportation law

Transportation lawBarOps HeadIPY Caunan

Acads HeadIBeth Liceralde

Subject HeadIJustin Christopher

C. Mendoza

(based on the outline and class notes from Prof. Rodrigo Lope Quimbos Transporation Law class

1st semester, AY 20062007)

TaBLE OF CONTENTS

1I. General Considerations

1A. Public Utilities

3B. Transportation

11II. Common Carriers

11A. In General

13B. Common Carriage of Goods

18C. Common carriers of passengers

21D. Damages Recoverable from Common Carriers

25III. Code of Commerce Provisions on Overland Transportation

25A. Scope of Overland Transportation

25B. Nature of Contract

25C. Effect of Civil Code

25D. Contract of Carriage

26E. Responsibility of the carrier

28F. Rights and Obligations of Shipper and/or Consignee

30G. Applicability of Provisions

31IV. Admiralty and Maritime Commerce

31A. Sources of Maritime/Admiralty Laws in the Philippines

31B. Concept of Admiralty; jurisdiction over admiralty cases

31C. Vessels

31D. Persons Participating in Maritime Commerce

39E. Accidents and Damages in Maritime Commerce

46F. Special Contracts of Maritime Commerce

53G. Bill of Lading

53H. Passengers on Sea Voyage

55I. Carriage of Goods by Sea Act

64V. INTERNATIONAL AIR TRANSPORT

64A. The Warsaw Convention

65B. Applicability; meaning of international transportation

65C. Liabilities under the Convention

66D. Limitations on Liability

66E. When Limitations Unavailable

66F. Conditions on Liability

66G. Venue of Court Actions

I. General ConsiderationsA. Public Utilities

1987 Constitution, Article XII

Section 11No 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.

Section 17In 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.

Section 18The 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.

Section 19The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. The Public Service Law, CA 146, as amended

Sec. 13(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, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whether 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 railways, marine repair shop, [warehouse] 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. What is a public utility?

Kilusang Mayo Uno Labor Center v. Garcia (1994)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. 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.

Albano v. Reyes (1989)

Franchises issued by Congress are not required before each and every public utility may operate.

A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence, such as electricity, gas, water, transportation, telephone or telegraph services. Apart from statutes which define public utilities that are within the purview of such statutes, it would be difficult to construct a definition of a public utility which would fit every conceivable case. As its name indicates, however, the term public utility implies a public use and service to the public. When is a business a public utility?

When it involves a commodity or service of public consequence.

2 concepts of public utility under the 1987 Constitution:1. A public utility is a partly nationalized business endeavor

2. It is a business affected with the public interest. (national emergency; general welfare; common good)2 tests for determining public utility:

1. Is it engaged in regularly supplying the public with some commodity or service (per definition in Albano v. Reyes below)

2. If #1 is uncertain, is it a public service as defined in the Public Service Law under CA 146 Sec 13(b)? If it falls under any one of the examples given under CA 146 Sec 13(b), then it is a public utility.

What does regularly supplying the public mean?

The utility must hold itself out to the public as a public utility by demand and as a matter of right, and not by permission. To determine what constitutes regularity, look at it from the perspective of the public, and not the operator.It is a service or a readiness to serve an indefinite portion of the population subject only to the limitations of the service as given by the grant such that [the utility] incurs a liability as a violation of its duty if it refuses, such that the availment of the service has become, through time, a matter of right and not of mere privilege. (also in US v. Tan Piaco)Are all public utilities commodities or service of public consequence?

Yes. All public utilities have a public consequence. But not all businesses bearing public consequence are public utilities. This is because almost all types of business have some form of regulation from the State.

To whom does public refer to? Is the word public in public utility the same in public service?

There are three senses of the word public in Transportation Law: a) public utility; b) public service; and c) definition of a common carrier under Art. 1732 of the Civil Code.

To determine a public utility, the two tests above & the definition under Albano v. Reyes apply.What is a public service?

Kilusang Mayo Uno Labor Center v. Garcia Jr. (1994)

In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of proving that there is no need for a proposed service shall be with the oppositor(s).

Public convenience and necessity exists when the proposed facility or service meets a reasonable want of the public and supply a need which the existing facilities do not adequately supply. The existence or nonexistence 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.

Albano v. Reyes (1989)

Franchises issued by Congress are not required before each and every public utility may operate.

A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence, such as electricity, gas, water, transportation, telephone or telegraph services. Apart from statutes which define public utilities that are within the purview of such statutes, it would be difficult to construct a definition of a public utility which would fit every conceivable case. As its name indicates, however, the term public utility implies a public use and service to the public. Tatad v Garcia

What constitutes a public utility is not their ownership but their use to serve the public.PAL v. Civil Aeronautics Board (1997)

WON certificates of Public Convenience and Necessity (franchise required) as used in RA 776 to authorize the Board is different from Certificates of Public Convenience (no franchise required)? No

There is no authoritative basis in distinguishing a Certificate of Public Convenience and Necessity (franchise required) and a Certificate of Public Convenience (no franchise required) based only on the use of the words convenience and necessity. 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.

What is the difference between a public utility and a public service?

For all intents and purposes, they are the same and are used interchangeably.

However, public utility is a broader concept that embraces public service. A public service is necessarily a public utility, but not all public utilities are public services.

When is a public utility not a public service?

If it is not included in the enumeration in the Public Service Act (CA 146 Sec. 13(b)) and Albano v. Reyes.

How do they differ in Constitutional restrictions and requirements?

If a business is a public utility, then it is subject to the limitations and restrictions provided for in the 1987 Constitution (Art 12 Secs. 11,17,18,19) Since a public service is necessarily a public utility, therefore public services are subject to the same Constitutional limitations and restrictions.

If a public utility is not a public service, it is still subject to the same Constitutional limitations and restrictions.

Therefore, public utility = Constitution

public service = Constitution + Public Service Act

B. Transportation

Definition

The movement of goods or persons from one place to another, by a carrier. (Blacks Law Dictionary)

A contract of transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, news from one place to another for a fixed price. It is the removal of goods or persons from one place to another.

Public Nature

It is for public use, which means that the use is not confined to privileged individuals, but is instead open to an indefinite public. It is this indefinite or unrestricted quality that gives it its public character. The true criterion by which to judge the character of the use is whether the public may enjoy it by right or by permission. There must be, in general, a right under the law which compels the owner to give the service for the general public.Public Service Act

THE PUBLIC SERVICE LAW (CA 146)

(As amended, and as modified particularly by PD No. 1, Integrated Reorganization Plan and EO 546)

CHAPTER IORGANIZATION

SECTION 1This Act shall be known as the "Public Service Act."

SECTION 2There is created under the Department of Justice a commission which shall be designated and known as the Public Service Commission, composed of one Public Service Commissioner and five Associate Commissioners, and which shall be vested with the powers and duties hereafter specified. Whenever the word "Commission" is used in this Act, it shall be held to mean the Public Service Commission, and whenever the word "Commissioner" is used in this Act it shall be held to mean the Public Service Commissioner or anyone of the Associate Commissioners. The Public Service Commissioner and the Associate Public Service Commissioners shall be natural born citizens and residents of the Philippines, not under thirty years of age; members of the Bar of the Philippines, with at least five years of law practice or five years of employment in the government service requiring a lawyer's diploma; and shall be appointed by the President of the Philippines, with the consent of the Commission on Appointments of the Congress of the Philippines: Provided, however, That the present Commissioner and the personnel of the Commission shall continue in office without the necessity of re-appointment. The Commissioners shall have the rank and privilege of retirement of Judges of the Courts of First Instance. (As amended by Republic Act Nos. 178 and 2677)

SECTION 3The Commissioner and Associate Commissioners shall hold office until they reach the age of seventy years, or until removed in accordance with the procedures prescribed in section one hundred and seventy-three of Act Numbered Twenty-seven hundred and eleven, known as the Revised Administrative Code: Provided, however, That upon retirement any Commissioner of Associate Commissioner shall be entitled to all retirement benefits and privileges for Judges of the Courts of First Instance or under the retirement law to which he may be entitled on the date of his retirement. In case of the absence, for any reason, of the Public Service Commissioner, the Associate Commissioner with seniority of appointment shall act as Commissioner. If on account of absence, illness, or incapacity of any of three Commissioners, or whenever by reason of temporary disability of any Commissioner or of a vacancy occurring therein, the requisite number of Commissioners necessary to render a decision or issue an order in any case is not present, or in the event of a tie vote among the Commissioners, the Secretary of Justice may designate such number of Judges of the Courts of First Instance, or such number of attorneys of the legal division of the Commission, as may be necessary to sit temporarily as Commissioners in the Public Service Commission.

The Public Service Commission shall sit individually or as a body en banc or in two divisions of three Commissioners each. The Public Service Commissioner shall preside when the Commission sits en banc and in one division. In the other division, the Associate Commissioner with seniority of appointment in that division shall preside. Five Commissioners shall constitute a quorum for sessions en banc and two Commissioners shall constitute a quorum for the sessions of a division. In the absence of a quorum, the session shall be adjourned until the requisite number is present.

All the powers herein vested upon the Commission shall be considered vested upon any of the Commissioners, acting either individually or jointly as hereinafter provided. The Commissioners shall equitably divide among themselves all pending cases and those that may hereafter be submitted to the Commissioner, in such manner and form as they may determine, and shall proceed to hear and determine the case assigned to each or to their respective divisions, or to the Commission en banc as follows: uncontested cases, except those pertaining to the fixing of rates, shall be decided by one Commissioner; contested cases and all cases involving the fixing of rates shall be decided by the Commission in division and the concurrence of at least two Commissioners in the division shall be necessary for the promulgation of a decision or non-interlocutory order in these cases: Provided, however, That any motion for reconsideration of a decision or non-interlocutory order of any Commissioner or division shall be heard directly by the Commission en banc and the concurrence of at least four Commissioners shall be necessary for the promulgation of a final decision or order resolving such motion for reconsideration. (As amended by Republic Act Nos. 723 and 2677)

SECTION 4The Public Service Commissioner shall receive an annual compensation of thirteen thousand pesos; and each of the Associate Commissioners an annual compensation of twelve thousand pesos. The Commissioners shall be assisted by one chief attorney, one finance and rate regulation officer, one chief utilities regulation engineer, one chief accountant, one transportation regulation chief, one secretary of the Public Service Commission, and three public utilities advisers who shall receive an annual compensation of not less than ten thousand eight hundred pesos each; five assistant chiefs of division who shall receive an annual compensation of not less than nine thousand six hundred pesos each; twelve attorneys who shall receive an annual compensation of not less than nine thousand pesos each; and a technical and confidential staff to be composed of two certified public accounts, two electrical engineers, two mechanical or communication engineers, and two special assistants who shall receive an annual compensation of not less than seven thousand two hundred pesos each. (As amended by Republic Act Nos. 723, 2677 and 3792)

SECTION 5The Public Service Commissioner, the Associate Public Service Commissioners, and all other officers and employees of the Public Service Commission shall enjoy the same privileges and rights as the officer and employees of the classified civil service of the Government of the Philippines. They shall also be entitled to receive from the Government of the Philippines their necessary travelling expenses while travelling on the business of the Commission, which shall be paid on proper voucher therefor, approved by the Secretary of Justice, out of funds appropriated for the contingent expenses of the Commission.

When the exigency of the service so requires and with the approval of the Secretary of Justice, and subject to the provisions of Commonwealth Act Numbered Two hundred forty-six, as amended, funds may be set aside from the appropriations provided for the Commission and/or from the fees collected under Section forty of this Act to defray the expenses to be incurred by the Public Service Commissioner or any of the Associate Commissioners, officers or employees of the Commission to be designated by the Commissioner, with the approval of the Secretary of Justice, in the study of modern trends in supervision and regulation of public services. (As amended by Republic Act No. 3792)

SECTION 6The Secretary of Justice, upon recommendation of the Public Service Commissioner, shall appoint all subordinate officers and employees of the Commission as may be provided in the Appropriation Act. The Public Service Commissioner shall have general executive control, direction, and supervision over the work of the Commission and of its members, body and personnel, and over all administrative business. (As amended by Republic Act Nos. 178 and 3792)

SECTION 7The Secretary of the Commission, under the direction of the Commissioner, shall have charge of the administrative business of the Commission and shall perform such other duties as may be required of him. He shall be the recorder and official reporter of the proceedings of the Commission and shall have authority to administer oaths in all matters coming under the jurisdiction of the Commission. He shall be the custodian of the records, maps, profiles, tariffs, itineraries, reports, and any other documents and papers filed with the Commission or entrusted to his care and shall be responsible therefor to the Commission. He shall have authority to designate from time to time any of his delegates to perform the duties of Deputy Secretary with any of the Commissioners.

SECTION 8The Commission shall furnish the Secretary such of its findings and decisions as in its judgment may be of general public interest; the Secretary shall compile the same for the purpose of publication in a series of volumes to be designated "Reports of the Public Service Commission of the Philippines," which shall be published in such form and manner as may be best adapted for public information and use, and such authorized publications shall be competent evidence of the reports and decisions of the Commission therein contained without any further proof or authentication thereof.

SECTION 9No member or employee of the Commission shall have any official or professional relation with any public service as herein defined, or hold any office of profit or trust with the Government of the Philippines.

SECTION 10The Commission shall have its office in the City of Manila or at such other place as may be designated, and may hold hearings on any proceedings at such times and places, within the Philippines, as it may provide by order in writing: Provided, That during the months of April and May of each year, at least three Commissioners shall be on vacation in such manner that once every two years at least three of them shall be on duty during April and May: Provided, however, That in the interest of public service, the Secretary of Justice may require any or all the Commissioners not on duty to render services and perform their duties during the vacation months. (As amended by Republic Act Nos. 176 and 3792)

SECTION 11The Commission shall have the power to make needful rules for its Government and other proceedings not inconsistent with this Act and shall adopt a common seal, and judicial notice shall be taken for such seal. True copies of said rules and other amendments shall be promptly furnished to the Bureau of Printing and shall be forthwith published in the Official Gazette.

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 services 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, or 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, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whether 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 railways, marine repair shop, [warehouse] 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.

(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 services. (As amended by Com. Act 454 and RA No. 2677)

SECTION 14The following are exempted from the provisions of the preceding section:

(a) Warehouses;

(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats and lighters;

(c) Airships 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 Com. Act 454, RA No. 2031, and RA No. 2677)

SECTION 15With 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 public convenience and 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 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 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.

SECTION 16Proceedings 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 service 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 certificates of public convenience and necessity will be granted only to citizens of the Philippines or of the United States or to corporations, co-partnerships, 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 corporations, 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. Six Hundred and Sixty-seven, as amended by Act No. One Thousand and twenty-two, by any political subdivision of 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, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage, kilometrage, and other special rates which shall be imposed observed and followed thereafter by any 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, measurement, or service to be furnished, imposed, observed, and followed thereafter by any public service.

(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.

(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 warrants 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 track, or with any other line of any other railroad, street railway or traction to promote, such just and reasonable connection as shall be necessary to promote the convenience of shippers of property, or of passengers, and in like manner direct any railroad, street railway, 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 out 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 tracks 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 about such other reasonable measures as may in the judgment of the Commission be necessary for the protection of the public are passing grade crossing of (1) public highways and railroads, (2) public highways and streets railway, or (3) railways and street railways.

(l) To fix and determine proper and adequate rates of depreciation of the property of any public service which will be observed in a proper and adequate depreciation account to 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 moneys 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 construction, extensions or conditions to the properly of such public service.

(m) To amend, modify or revoke at any time 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-busses, 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 more those charged for auto-busses, trucks, and motor trucks of types not made regulation under the subsection.

SECTION 18It shall be unlawful for any individual, co-partnership, association, corporation or joint-stock company, their lessees, trustees or receivers appointed by any court whatsoever, or any municipality, province, or other department of the Government of the Philippines to engage in any public service business without having first secured from the Commission a certificate of public convenience or certificate of public convenience and necessity as provided for in this Act, except grantees of legislative franchises expressly exempting such grantees from the requirement of securing a certificate from this Commission as well as concerns at present existing expressly exempted from the jurisdiction of the Commission, either totally or in part, by the provisions of section thirteen of this Act.

SECTION 19Unlawful Acts. - It shall be unlawful for any public service:

(a) To provide or maintain any service that is unsafe, improper, or inadequate or withhold or refuse any service which can reasonably be demanded and furnished, as found and determined by the Commission in a final order which shall be conclusive and shall take effect in accordance with this Act, upon appeal of otherwise.

(b) To make or give, directly or indirectly, by itself or through its agents, attorneys or brokers, or any of them, discounts or rebates on authorized rates, or grant credit for the payment of freight charges, or any undue or unreasonable preference or advantage to any person of corporation or to any locality or to any particular description of traffic or service, or subject any particular person or corporation or locality or any particular description of traffic to any prejudice or disadvantage in any respect whatsoever; to adopt, maintain, or enforce any regulation, practice or measurement which shall be found or determined by the Commission to be unjust, unreasonable, unduly preferential or unjustly discriminatory in a final order which shall be conclusive and shall take effect in accordance with the provisions of this Act, upon repeal or otherwise.

(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 thereof, with those of any other public service. The approval herein required shall be given, after notice to the public and hearing the persons interested at a public hearing, if it be shown that there are just and reasonable grounds for making the mortgaged 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.Y Transit v. NLRC

The sale, alienation or other encumbrance of a public service operators properties requires the previous approval and authorization of the Commission.

NOTE: The Public Service Commission does not exist anymore. It is now the Department of Transportation and Communications.

The Certificate of Public Convenience (CPC); the Certificate of Public Convenience & Necessity (CPCN) and the Prior Operator Rule

Does the sale of a CPC, CPCN or other properties of the public utility have to be approved before it is sold to a third person?

No. The approval of the sale of CPCs, CPCNs or other properties does not affect the validity (perfection) of the sale between the parties as long as all the elements of a contract are met. This only affectes the relation of the parties to the DOTC or to 3rd parties. If there is no approval, then the sale does not bind the DOTC or 3rd parties. The controlling factor therefore is the registration.

If a stockholder of a public utility transfers his stock to the 3rd person, is there a need to obtain the approval of the DOTC?

It depends. If the transfer results in the transferee owning more than 40% of the stock of the public utility, then the approval of the DOTC is needed.

When must the approval of the DOTC be secured?

Before or after the execution of the contract.

What if the transferree is an alien?

VOID. An alien cannot own more than 40% of the stock of a public utility.

What is a Certificate of Public Convenience? (CPC)

The Public Service Law, Sec. 15With 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 public convenience and 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 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 cancellation of the certificate without the necessity of any express action on the part of the Commission.

A CPC is any authorization to operate a public service issued by the PSC (now DOTC).

It is an authorization issued by the Commission for the operation of public services for which no franchise, either municipal or legislative, is required by law) e.g. motor vehicles

It constitutes neither a franchise nor a contract, it does not confer property rights, and is a mere license or privilege. (Pantranco v. PSC) Such privilege is forfeited when the grantee fails to comply with his commitments to serve the public and public necessity. However, these certificates represent property rights to the extent that if the rights which any public utility is exercising pursuant to the lawful orders of the PSC (now DOTC) has been invaded by another public utility, in appropriate cases, actions may be maintained by the complainant public utility.

Which public utilities are exempted from getting a CPC?

The Public Service Law, Sec. 14The following are exempted from the provisions of the preceding section:

(a) Warehouses;

(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats and lighters;

(c) Airships 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 Com. Act 454, RA No. 2031, and RA No. 2677)

What is a Certificate of Public Convenience & Necessity? (CPCN)

It is a certificate issued by the PSC to a public service to which any political subdivision has granted a franchise under RA 667 after the PSC has approved the same under Sec. 16(b). It is an authorization issued by the PSC for the operation of public services for which a franchise is required by law. (e.g. electric, telephone)What is the difference between a CPC & a CPCN?

A CPCN requires a franchise from Congress. The public utility cannot be issued a CPCN and cannot operate, therefore, without a franchise from Congress

A CPC does not.

What is a franchise?

It is a legislative grant from Congress or a local legislative body. If it is of nationwide application (e.g. Philippine Air Lines), then it must take the form of a Republic Act.

How does one get a franchise?

It is the same procedure for any law (file a bill, 3 readings in Congress, etc) The applicant must a)prove that he or she is a Filipino citizen; b) demonstrate financial capacity, and c) must show that he or she is applying for a business of public convenience, that the public shall benefit from the grant of the franchise.

Is a franchise enough in order to operate?

No. All public utilities require either a CPC or CPCN to operate. Those public utilities for which franchises have been granted still require a CPCN in order to operate. Those public utilities that did not require a franchise for there creation still require a CPC in order to operate.

Raymundo v. Luneta Motor Corporation (1933)

The Public Service Law, Act No. 3108, as amended, authorizes certificates of public convenience to be secured by public service operators from the PSC. A CPC granted to the owner or operator of public service motor vehicles grants a right in the nature of a limited franchise.

The Code of Civil Procedure establishes the general rule that "property, both real and personal, or any interest therein of the judgment debtor, not exempt by law, and all property and rights of property seized and held under attachment in the action, shall be liable to execution." The statutory exemptions do not include franchises or certificates; of public convenience. The word "property" as used in section 450 of the Code of Civil Procedure comprehends every species of title, inchoate or complete, legal or equitable. The TEST to determine whether or not property can be attached and sold upon execution is whether the judgment debtor has such a beneficial interest therein that he can sell or otherwise dispose of it for value.

Now the Public Service Law permits the PSC to approve the sale, alienation, mortgaging, encumbering, or leasing of property, franchises, privileges, or rights or any part thereof (sec. 16 [h]), and in practice the purchase and sale of certificates of public convenience has been permitted by the PSC. If the holder of a CPC can sell it voluntarily, there is no valid reason why the same certificate cannot be taken and sold involuntarily pursuant to court process.

CPCs secured by public service operators are liable to execution, and the Public Service Commission is authorized to approve the transfer of the certificates of public convenience to the execution creditor.

What is the prior operator rule?

The prior operator rule works to protect the prior operator if it maintains an adequate service and is able to meet the demands of the public. His or her investment is protected by not allowing a subsequent operator to be granted a license for the same route. The rationale for this rule is for the preservation of public convenience and to prevent ruinous competition.

What are some of the instances where the prior operator rule does NOT apply?

The prior operator rule does not apply when the CPC or CPCN granted to the applicant is a maiden franchise that covers a new route, even if it overlaps with the route of the prior operator.

The prior operator rule is inapplicable where the corporate existence of the prior operator has expired.

Regular operators are preferred over irregular operators.

The Commission cannot grant a CPC or CPCN that comprises a larger territory than that applied for.

How do you know whether there is ruinous competition enough for the prior operator rule to take effect?

Ruinous competition means that there is actual ruin of the business of the operator; that the existing operator will not gain enough profits if another person is allowed to enter the business; that which will result in the deprivation of sufficient gain in respect of reasonable return of investment, therefore the oppositor, alleging this, must show that he will be deprived of a reasonable return on his investment.

The mere possibility of reduction in the earnings of the business or the deterioration in the income of his business is not sufficient to prove ruinous competition. It must be shown that the business would not have sufficient gains to pay a fair rate of interest on his capital investments.

Does the prior operator rule create a monopoly?

Legally speaking, there cannot be a monopoly when a property is operated as a public utility. The prior operator rule does not encourage a monopoly because the theory is that one operator keeps the prices low.

Batangas Transportation Co. v. Cayetano Orlanes (1928)

So long as the 1st 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 demands of the public, it should have more or less of a bested and preferential right over a person who seeks to acquire another and a later license over same route. Otherwise, the first licensee would not have protection on his investment and would be subject to ruinous competition and this defeat the very purpose and intent for the PSC was created.

San Pablo v. Pantranco (1987)

Before private respondent may be issued a franchise or CPC for the operation of the said service as a common carrier, it must comply with the usual requirements of filing an application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the opportunity to be heard, among others, as provided by law. Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be considered a continuation of the highway, Matnog and Allen are separated by an open sea. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service.

What is an example of the kabit system?

A, a grantee of a CPC from the LTFRB, is given the authority to operate 10 units of taxis. B, a non-grantee, wishes to operate as a common carried and kabits with the CPC of A who will obtain approval from the LTFRB to operate another taxi. The taxi will be registered in the name of A, who will be paid by B.

Assume that A executed a deed of sale in favor of B in case B decides not to go on with the arrangement, in order to safeguard the rights of B. However, in case of injury to a passenger of the taxi actually operated by B (and previously sold to B as well) it is still A who will be liable. The illegal contract of sale between A & B cannot be put up as a defense.

A does not have a cause of action against B either. They are in pari delicto.

Teja Marketing v. IAC (1987)

Parties operated under an arrangement, commonly known as the "kabit 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 conferred by 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 in existent under Article 1409 of the Civil Code. Private Nature; rights and obligations of parties arising from transactions relating to transportationAbsent a transportation contract

Lara v. Valencia (1958)The owner and driver of a vehicle owes to accommodation passengers or invited guests merely the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, The rule is established by the weight of authority that the owner or operator of an automobile owes the duty to an invited guest to exercise reasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing the hazard of travel. Valencia therefore is only required to observe ordinary care, and is not in duty bound to exercise extraordinary diligence as required of a common carrier by our law (Art. 1755 & 1756, new CC)

Arising from a transportation contract

Contract of transportation, defined;

A contract of transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one to another for a fixed price.Contract of transportation, elements;

Parties to the contract:

Shipper - one who gives rise to the contract of transportation by agreeing to deliver the things or news to be transported, or to present his own person or those of other or others in the case of transportation of passengers

Carrier or conductor - one who binds himself to transport person, things, or news, as the case may be, or one employed in or engaged in the business of carrying good for others for hire

Consignee - the party to whom the carrier is to deliver the things being transported; to whom the carrier may lawfulyy make delivery in accordance with its contract of carriage. The shipper and the consignee may be the same person.

II. Common Carriers

Unless otherwise indicated, reference is to the Civil Code

A. In General

Art. 1732Common 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.

Art. 1733Common 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.

1. Definition, essential elements

Art. 1732Common 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.What are the classes of carriers?Common or private

As to the object: goods or personsWhat are the elements of a common carrier?

1. It is engaged in the business of carrying or transporting goods for others as a public employment

2. It is for compensation or for hire3. It is operated generally as a business and not as a casual occupation4. It holds out to the public as ready to engage in the transportation of goods of the kind to which his business is confined (see also First Phil. Industrial v. CA)Why is there a need to determine whether it is a common carrier or not?

Common carriers are subject to the presumption of negligence. In order to rebut this presumption, they must show that they employed extraordinary diligence.

Do you need a CPC or CPCN in order to become a common carrier?

No. It is the conduct that makes you a common carrier. (De Guzman v. CA) The liability arises from the Civil Code.

What is the difference between a common carrier and a private carrier?

COMMON - It holds itself out as ready to engage in the transportation of goods or persons for hire as a public employment and not as a casual occupation whether:

1. regular or scheduled

2. occasional, episodic or unscheduled3. offered to the general public or merely a narrow segment of the general population(De Guzman v. CA)

PRIVATE - Carriers who transport or undertake to transport goods or persons in a particular instance for hire or for rewardAs to its natureCommon - it holds itself out in common to all persons who choose to employ him, as ready to carry for hire in such a manner as to render him liable should he refuse to carry anyone who wishes to employ him

Private - it agrees in some special case with a private individual to carry for hire

As to the basis for or consideration of the contract of transportationCommon - it is bound to carry all who offer such goods, as it is accustomed to carry and with tender of reasonable compensation for carrying them

Private - it is not bound to carry for any reason unless it enters into a special agreement to do so

As to its regulationCommon - it is considered a public service and is therefore subject to regulation

Private - it does not hold itself out as engaged in the business for the public and is therefore not subject to the same rules on regulation as a common carrier

As to the level of diligence requiredCommon - extraordinary

Private - diligence of a good father

As to stipulations on liabilityCommon - it cannot stipulate that it will be exempt from liability or future negligence

Private - it may stipulate that it will be exempt from liability or future negligence

FGU v. Sarmiento Trucking

Common carriers are persons, corporations, firms or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for hire or compensation, offering their services to the public, whether to the public in general or to a limited clientele in particular, but never on an exclusive basis. The true test of a common carrier is the carriage of passengers or goods, providing space for those who opt to avail themselves of its transportation services for a fee.

US v. Tan Piaco

These trucks, so far as indicated by the evidence and as far as the appellant is concerned, furnished service under special agreements to carry particular persons and property. . . . So long as the individual or co-partnership, etc., etc., is engaged in a purely private enterprise, without attempting to render service to all who may apply, he can in no sense be considered a public utility, for public use."Public use" means the same as "use by the public; it is not confined to privileged individuals, but is open to the indefinite public. If the use is merely optional with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the exercise of the jurisdiction of the public utility commission. Public use is not synonymous with public interest. The true criterion by which to judge of the character of the use is whether the public may enjoy it by right or only by permission.

Home Insurance Co. v. American Steamship

Stipulations of non-liability of owners of carriers are held contrary to public policy by the Civil Code. However, a common carrier undertaking to carry special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, stipulations exempting the owner from liability for negligence of its agent is not against public policy and is deemed valid. The Civil Code should not be applied where the common carrier acted as private carrier.

De Guzman v. CA

The Civil Code defines "common carriers" in the following terms:

"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."

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 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 offers services or solicits business only from a narrow segment of the general population.

Under Article 1745 (6), 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." We believe and so hold 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."

First Phil. Industrial Corp v. CA

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 for 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.

2.Nature of business; and power of the state to regulate

Art. 1765. The Public Service Commission may, on its own motion or on petition of any interested party, after due hearing, cancel the certificate of public convenience granted to any common carrier that repeatedly fails to comply with his or its duty to observe extraordinary diligence as prescribed in this Section.

Pantranco v. PSC

Under Section 16 (a) of CA 146., the Commission is empowered to issue certificates of public convenience whenever it "finds that the operation of the public service proposed and the authorization to do business will promote the public interests in a proper and suitable manner." When private property is "affected with a public interest it ceased 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 be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discounting the use, but so long as he maintains the use he must submit to control. Indeed, this right of regulation is so far beyond question that it is well settled that the power of the state to exercise legislative control over public utilities may be exercised through boards of commissioners. This right of the state to regulate public utilities is founded upon the police power. If one voluntarily places his property in public service he cannot complain that it becomes subject to the regulatory powers of the state. A certificate of public convenience constitutes neither a franchise nor a contract, confers no property right, and is a mere license or privilege.

3. Nature and basis of liability



Cangco v. MRR

The liability of the carrier is contractual in nature. It arises from the contract of carriage. The liability is direct and immediate, and differs from presumptive responsibility for the negligence of [Manila Railroads] servants.

The contract of Manila Railroad Comapny to transport Cangco carried with it the duty to carry him in safety and provide safe means of entering and leaving its trains. That duty, being contractual, was direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to Manila Railroads servants. There was no contributory negligence on the part of Cangco.

What laws govern over common carriers?The Civil Code primarily governs over common carriers. The Code of Commerce and special laws have suppletory effect.

What are the limitations on the power to regulate common carriers?The same rules on due process apply to the regulation of common carriers.

Phil. Rabbit v. IAC

The driver cannot be held jointly liable with the owenrs of the jeep in case of breach of the contract of carriage. The contract of carriage is between the carrier and the passenger, and in the event of contractual liability, the carrier is exclusively responsible therefore to the passenger, even if such breach be due to the negligence of the driver. To make the driver jointly liable would make the carriers liability personal instead of merely vicarious and consequently, the victim is entitled to recover only the share which corresponds to the driver. 4.Classes of Common Carriers

Art. 1732Common 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.Art. 1733Common 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.


Art. 1755A 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.

5. Laws applicable

Art. 1766In 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.

Art. 1753The 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.

B. Common Carriage of Goods

1. Liability and presumption of negligence


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. Art. 1734Common 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 of omission of the shipper or owner of the goods;

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

(5) Order or act of competent public authority.

Art. 1735In 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.

When does extraordinary diligence for goods start?

Extraordinary diligence starts from the time the goods are loaded into the vessels.

When does extraordinary diligence for goods stop?

Extraordinary diligence ends when the goods are discharged and delivered to the consignee

Ynchausti vs. Dexter (1920)

The mere proof of delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad order, makes out a prima facie case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other circumstance inconsistent with its liability.

2. Exemption from liability

Natural Disaster

Art. 1734Common 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;

Art. 1739In 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.

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

Art. 361, Code of CommerceThe merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly stipulated.

As a consequence, all the losses and deteriorations which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the inherent nature and defect of the goods, shall be for the accountand risk of the shipper.

Proof of these accidents is incumbent upon the carrier.

What are the requisites for exemption due to natural disaster?

1. The natural disaster must have been the proximate and only cause

2. The common carrier must exercise due diligence to prevent or minimize the loss before, during and after the occurrence of the flood, storm or natural disaster

3. The common carrier must not have been guilty of delay

4. The shipment was at shippers risk

Tan Chiong Sian v. Inchausti & Co. (1912)

Loss of a ship and of its cargo, in a wreck due to accident or force majeure must, as a general rule, fall upon their respective owners, except in cases where the wrecking or stranding of the vessel occurred through malice, carelessness or lack of skill on the part of the captain and in the remaining cases indicated in article 841 of the Code of Commerce.

Under article 361 of the Code of Commerce transportation of merchandise is for account, risk and hazard of the shipper, unless the contrary has been expressly stipulated. The carrier is exempt from liability if he proves, as it is incumbent upon him to do, that the loss or destruction of the merchandise was due to accident and force majeure and not to fraud, fault, or negligence on the part of the captain or owners of the ship. Martini v. Macondray (1919)

In every contract of affreightment, losses by the dangers of the seas are excepted from the risks w/c the master takes upon himself, whether the exception is expressed in the contract or not. The exception is made by law, & falls whether or not the general principle that no one is responsible for fortuitous events & accidents of major force. But the general law is subject to an exception, that when the inevitable accident is preceded by fault of the debtor or person bound, without which it would not have happened, then he becomes responsible for it.

The master is responsible for the safe & proper stowage of the cargo, & there is no doubt that by the general maritime law he is bound to secure the cargo safely under deck. If the master carries goods on deck w/o the consent of the shipper, he does it at his own risk. If they are damaged or lost in consequence of their being thus exposed, he cannot protect himself from responsibility by showing that they were damaged or lost by the dangers of the seas. When the shipper consents to his goods being carried on deck, he takes the risks of any damage or loss sustained as a consequence of their being so carried.Eastern Shipping Lines v. IAC (1987)

However, fire may not be considered a natural disaster/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 boy other natural disaster/calamity. It may even be caused by the actual fault or privity of the carrier.

Act of public enemy


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

Art. 1739In 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.

What are the requisites for exemption due to the act of a public enemy?

1. The act of the public enemy must have been the proximate and only cause

2. The common carrier must exercise due diligence to prevent or minimize the loss before, during and after the act of the public enemy causing the loss, destruction or deterioration of the goods.

Act or omission of shipper


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

Art. 1741If 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.

What are the requisites for exemption due to the act or omission of the shipper?

1. The act or omission of the shipper must have been the proximate and only cause

2. If the shipper owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause being the negligence of the common carrier, then the common carrier shall be liable for the damages, which shall, however, be equitably reduced.

Character of goods


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

Art. 1742Even 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.

Art. 366, Code of CommerceWithin 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 package, may be made, provided that the indications of 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 were transported and delivered.

Southern Lines v. CA (1962)

If the fact of improper packing is known to the carrier or its servants or apparent upon ordinary observation, but [the carrier] accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injury resulting therefrom.

Order of competent authority


(5) Order or act of competent public authority.

Art. 1743If 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.

What are the requisites for exemption due to an order of competent authority?

1. There must be an order or act of competent authority

2. The said public authority must have had the power to issue the order. If the officer acts without legal process, then the common carrier will be held liable

Ganzon v. CA (1988)

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

Melencio-Herrera, dissent: Through the order or act of competent public authority, the performance of the contractual obligation was rendered impossible. Apparently, the seizure and destruction of the goods was done under legal process or authority so that petitioner should be freed from responsibility.

3. Duration of extraordinary responsibility

Art. 1736The 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.

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

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

What does unconditionally placed mean?

It means that the shipper cannot get the goods back from the common carrier at will.

When is the contract of transportation perfected?A contract of transportation is consensual in nature, therefore it is perfected at the meeting of the minds of the parties.

What if the goods are only for safekeeping?

If the common carrier received the goods not for transportation but only for safekeeping, where the goods have already been purchased by the shipper and ready for transportation, then the duty of extraordinary diligence has not yet started.

Who are these persons or entities who have a right to receive the goods?These persons include agents, brokers, and the like.

What is stoppage in transitu?This is the act by which the unpaid vendor of goods stops their progress and resumes possession of them constructively while they are in the court of transit from him to the purchaser, and not yet actually delivered to the latter. The duty of the common carrier to exercise extraordinary diligence ends in the middle of the journey or transit.

When the buyer of the goods becomes insolvent, the unpaid seller who has parted with the possession of the goods at any time while they are in transit, may resume the possession of the goods as he would have had if he had never parted with the possession.

Compania Maritima v. Insurance Company of North America (1964)

The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to complete delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the bill of lading, actual delivery and acceptance are sufficient to bind the carrier.

Lu Do v. Binamira (1957)

While delivery of the cargo to the customs authorities is not delivery to the consignee, or to the person who has a right to receive them, contemplated in Article 1736, because in such case the goods are still in the hands of the Government and the owner cannot exercise dominion over them, however the parties may agree to limit the liability of the carrier considering that the goods have still to through the inspection of the customs authorities before they are actually turned over to the consignee. This is a situation where we may say that the carrier losses control of the goods because of a custom regulation and it is unfair that it be made responsible for what may happen during the interregnum.

although Section 4(5) of the Carriage of Goods by Sea Act states that the carrier shall not be liable in an amount exceeding 8500.00 per package unless the value of the goods had been declared by the shipper and inserted in the bill of lading, said section is merely suppletory to the provisions of the Civil Code.

4. Stipulations/Agreement Limiting Liability

As to diligence required

Art. 1744A 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.

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

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

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

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

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

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

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

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

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

As to amount of liability

Art. 1749A 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. 1750A 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. Heacock v. Macondray (1921)

Shewaram v. PAL (1966)

There are two requisites that must be fulfilled in order that the liability of PAL be limited according to the the stipulations behind the ticket stub:

1. that the contract is just and reasonable under the circumstances

2. that the contract was fairly and freely agreed upon (per Art. 1750)

The fact that the conditions are printed at the back of the ticket stub in letters so small that they are hard to read would not warrant the presumption that plaintiff was aware of those conditions such that he had fairly and freely agreed to those conditions.

Ong Yiu v. CA (1979)

While the passenger had not signed the plane ticket, he is nevertheless bound by the provision thereof; such provisions have been held to be part of the contract of carriage and valid and binding upon the passenger regardless of the latters lack of knowledge or assent to the regulation. It is what is known as a contract of adhesion wherein one party imposes a ready made form of contract on the other. The one who adheres to the contract is in reality free to reject it entirely. A contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence.Factors affecting agreement

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

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

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

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

Art. 1752Even when

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