formatted transportation law

7/29/2019 Formatted Transportation Law

1/71

Transportation law

BarOps Head I PY Caunan

Acads Head I Beth Liceralde

Subject Head I Justin ChristopherC. Mendoza(based on the outline and class notes from

Prof. Rodrigo Lope Quimbos Transporation Law class1st semester, AY 20062007)


2/71


3/71

I. General ConsiderationsTransportation Law

I. General Considerations

A. Public Utilities

1987 Constitution, Article XII

Section 11No franchise, certificate, or any other form of

authorization for the operation of a public utilityshall be granted except to citizens of thePhilippines or to corporations or associations

organized under the laws of the Philippines, at leastsixty per centum of whose capital is owned by suchcitizens; nor shall such franchise, certificate, or

authorization be exclusive in character or for alonger period than fifty years. Neither shall any

such franchise or right be granted except under thecondition that it shall be subject to amendment,

alteration, or repeal by the Congress when the

common good so requires. The State shallencourage equity participation in public utilities bythe general public. The participation of foreign

investors in the governing body of any public utilityenterprise shall be limited to their proportionate

share in its capital, and all the executive andmanaging officers of such corporation or

association must be citizens of the Philippines.

Section 17

In times of national emergency, when the publicinterest so requires, the State may, during the

emergency and under reasonable terms prescribedby it, temporarily take over or direct the operation

of any privately-owned public utility or businessaffected with public interest.

Section 18

The State may, in the interest of national welfareor defense, establish and operate vital industriesand, upon payment of just compensation, transfer

to public ownership utilities and other privateenterprises to be operated by the Government.

Section 19The State shall regulate or prohibit monopolies

when the public interest so requires. Nocombinations 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 personthat now or hereafter may own, operate, manage,

or control in the Philippines, for hire orcompensation, with general or limited clientele,

whether permanent, occasional or accidental, anddone 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 carrierservice of any class, express service, steamboat orsteamship line, pontines, ferries, and water craft,engaged in the transportation of passengers or

freight or both, shipyard, marine railways, marinerepair 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 orwireless communications system, wire or wireless

broadcasting stations and other similar publicservices: Provided, however, That a person

engaged in agriculture, not otherwise a publicservice, who owns a motor vehicle and uses it

personally and/or enters into a special contractwhereby said motor vehicle is offered for hire orcompensation to a third party or third parties

engaged in agriculture, not itself or themselves apublic service, for operation by the latter for alimited 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 thirdparties 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 operatedbusinesses whose services are essential to the

general public. They are enterprises which speciallycater to the needs of the public and conduce to

their comfort and convenience. As such, publicutility services are impressed with public interestand concern. When, therefore, one devotes his

property to a use in which the public has aninterest, he, in effect grants to the public an

interest in that use, and must submit to the controlby the public for the common good, to the extentof the interest he has thus created.

Albano v. Reyes (1989)

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

A public utility is a business or service engaged inregularly supplying the public with some

commodity or service of public consequence, suchas electricity, gas, water, transportation, telephone

or telegraph services. Apart from statutes whichdefine public utilities that are within the purview of

such statutes, it would be difficult to construct adefinition 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.

WHENISABUSINESSAPUBLICUTILITY?When it involves a commodity or service of

public consequence.

2 CONCEPTSOFPUBLICUTILITYUNDERTHE 1987CONSTITUTION:

1. A public utility is a partly nationalized businessendeavor

2. It is a business affected with the public interest.(national emergency; general welfare;

common good)

UP LAW BAROPS 2007 ONE UP LAW1 of 71


4/71


2 TESTSFORDETERMININGPUBLICUTILITY:

1. Is it engaged in regularly supplying the public

with some commodity or service (per definition

inAlbano 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 theexamples given under CA 146 Sec 13(b), then itis a public utility.

WHATDOES REGULARLYSUPPLYINGTHEPUBLIC MEAN?

The utility must hold itself out to the public asa public utility by demand and as a matter of right,

and not by permission. To determine whatconstitutes 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 tothe limitations of the service as given by the grant

such that [the utility] incurs a liability as a violationof its duty if it refuses, such that the availment of

the service has become, through time, a matter ofright and not of mere privilege. (also in US v. Tan

Piaco)

AREALLPUBLICUTILITIESCOMMODITIESORSERVICEOFPUBLICCONSEQUENCE?

Yes. All public utilities have a publicconsequence. But not all businesses bearing public

consequence are public utilities. This is becausealmost all types of business have some form of

regulation from the State.

TOWHOMDOES PUBLIC REFERTO? ISTHEWORD PUBLICIN PUBLICUTILITY THESAMEIN PUBLIC

SERVICE?There are three senses of the word public in

Transportation Law: a) public utility; b) publicservice; 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. Reyesapply.

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 ofthe applicant. The burden of proving that there is

no need for a proposed service shall be with theoppositor(s).

Public convenience and necessity exists whenthe proposed facility or service meets a reasonable

want of the public and supply a need which theexisting facilities do not adequately supply. The

existence or nonexistence of public convenienceand necessity is therefore a question of fact that

must be established by evidence, real and/ortestimonial; empirical data; statistics and such

other means necessary, in a public hearingconducted for that purpose. The object and

purpose of such procedure, among other things, is

to look out for, and protect, the interests of boththe public and the existing transport operators.

Albano v. Reyes (1989)Franchises issued by Congress are not

required before each and every public utility mayoperate.

A public utility is a business or serviceengaged in regularly supplying the public with

some commodity or service of public consequence,such as electricity, gas, water, transportation,

telephone or telegraph services. Apart fromstatutes which define public utilities that are within

the purview of such statutes, it would be difficult toconstruct a definition of a public utility which wouldfit every conceivable case. As its name indicates,

however, the term public utility implies a public useand service to the public.

Tatad v GarciaWhat 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 fromCertificates of Public Convenience (no franchise

required)? NoThere is no authoritative basis in

distinguishing a Certificate of Public Convenienceand Necessity (franchise required) and a Certificate

of Public Convenience (no franchise required)based only on the use of the words convenienceand necessity. The use of the word necessity in

conjunction with public convenience in acertificate of authorization to a public service entity

to operate, does not in any way modify the natureof such certification, or the requirements for theissuance of the same. It is the law which

determines the requisites for the issuance of suchcertification, and not the title indicating the

certificate.

WHAT IS THE DIFFERENCE BETWEEN APUBLIC UTILITY AND A PUBLIC

SERVICE?

For all intents and purposes, they are thesame and are used interchangeably.

However, public utility is a broader conceptthat embraces public service. A public service is

necessarily a public utility, but not all public utilitiesare public services.

WHEN IS A PUBLIC UTILITY NOT A PUBLICSERVICE?

If it is not included in the enumeration in thePublic Service Act (CA 146 Sec. 13(b)) andAlbano

v. Reyes.

HOW DO THEY DIFFER IN CONSTITUTIONALRESTRICTIONS AND REQUIREMENTS?

If a business is a public utility, then it is

subject to the limitations and restrictions providedfor in the 1987 Constitution (Art 12 Secs.

11,17,18,19) Since a public service is necessarily apublic utility, therefore public services are subject



5/71


to the same Constitutional limitations andrestrictions.

If a public utility is not a public service, it isstill subject to the same Constitutional limitations

and restrictions.

Therefore, public utility = Constitutionpublic service = Constitution + Public

Service Act

B. Transportation

DEFINITION

The movement of goods or persons from oneplace to another, by a carrier. (Blacks Law

Dictionary)

A contract of transportation is one whereby acertain person or association of persons obligatethemselves to transport persons, things, news from

one place to another for a fixed price. It is theremoval of goods or persons from one place toanother.

PUBLIC NATURE

It is for public use, which means that the useis not confined to privileged individuals, but is

instead open to an indefinite public. It is thisindefinite or unrestricted quality that gives it its

public character. The true criterion by which tojudge 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 compelsthe owner to give the service for the generalpublic.

PUBLIC SERVICE ACT

THE PUBLIC SERVICE LAW (CA 146)(As amended, and as modified particularly by PDNo. 1, Integrated Reorganization Plan and EO 546)

CHAPTER I

ORGANIZATIONSECTION 1

This 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 knownas the Public Service Commission, composed of one

Public Service Commissioner and five AssociateCommissioners, and which shall be vested with the

powers and duties hereafter specified. Wheneverthe 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 ServiceCommissioner or anyone of the AssociateCommissioners. The Public Service Commissioner

and the Associate Public Service Commissionersshall be natural born citizens and residents of thePhilippines, 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 thegovernment service requiring a lawyer's diploma;

and shall be appointed by the President of thePhilippines, 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 continuein office without the necessity of re-appointment.

The Commissioners shall have the rank andprivilege of retirement of Judges of the Courts of

First Instance. (As amended by Republic Act Nos.178 and 2677)

SECTION 3The Commissioner and Associate Commissionersshall hold office until they reach the age of seventy

years, or until removed in accordance with theprocedures prescribed in section one hundred and

seventy-three of Act Numbered Twenty-sevenhundred and eleven, known as the Revised

Administrative Code: Provided, however, That upon

retirement any Commissioner of AssociateCommissioner shall be entitled to all retirementbenefits and privileges for Judges of the Courts of

First Instance or under the retirement law to whichhe may be entitled on the date of his retirement. In

case of the absence, for any reason, of the PublicService Commissioner, the Associate Commissioner

with seniority of appointment shall act asCommissioner. If on account of absence, illness, or

incapacity of any of three Commissioners, orwhenever by reason of temporary disability of anyCommissioner or of a vacancy occurring therein,

the requisite number of Commissioners necessaryto render a decision or issue an order in any case is

not present, or in the event of a tie vote among theCommissioners, the Secretary of Justice maydesignate such number of Judges of the Courts of

First Instance, or such number of attorneys of thelegal division of the Commission, as may be

necessary to sit temporarily as Commissioners inthe Public Service Commission.

The Public Service Commission shall sit individuallyor as a body en banc or in two divisions of three

Commissioners each. The Public ServiceCommissioner shall preside when the Commission

sits en banc and in one division. In the otherdivision, the Associate Commissioner with seniority

of appointment in that division shall preside. FiveCommissioners shall constitute a quorum for

sessions en banc and two Commissioners shallconstitute a quorum for the sessions of a division.

In the absence of a quorum, the session shall beadjourned until the requisite number is present.All the powers herein vested upon the Commissionshall be considered vested upon any of the

Commissioners, acting either individually or jointlyas hereinafter provided. The Commissioners shall

equitably divide among themselves all pendingcases and those that may hereafter be submitted

to the Commissioner, in such manner and form asthey may determine, and shall proceed to hear and

determine the case assigned to each or to theirrespective divisions, or to the Commission en banc

as follows: uncontested cases, except thosepertaining to the fixing of rates, shall be decided by

one Commissioner; contested cases and all casesinvolving the fixing of rates shall be decided by the



6/71


Commission in division and the concurrence of atleast two Commissioners in the division shall be

necessary for the promulgation of a decision ornon-interlocutory order in these cases: Provided,

however, That any motion for reconsideration of adecision or non-interlocutory order of any

Commissioner or division shall be heard directly bythe Commission en banc and the concurrence of at

least four Commissioners shall be necessary for thepromulgation of a final decision or order resolving

such motion for reconsideration. (As amended byRepublic Act Nos. 723 and 2677)

SECTION 4The Public Service Commissioner shall receive anannual compensation of thirteen thousand pesos;

and each of the Associate Commissioners anannual compensation of twelve thousand pesos.

The Commissioners shall be assisted by one chiefattorney, 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 tenthousand eight hundred pesos each; five assistant

chiefs of division who shall receive an annualcompensation of not less than nine thousand six

hundred pesos each; twelve attorneys who shallreceive an annual compensation of not less than

nine thousand pesos each; and a technical andconfidential staff to be composed of two certifiedpublic accounts, two electrical engineers, two

mechanical or communication engineers, and twospecial assistants who shall receive an annual

compensation of not less than seven thousand twohundred pesos each. (As amended by Republic ActNos. 723, 2677 and 3792)

SECTION 5

The Public Service Commissioner, the AssociatePublic Service Commissioners, and all other officers

and employees of the Public Service Commissionshall enjoy the same privileges and rights as the

officer and employees of the classified civil serviceof the Government of the Philippines. They shall

also be entitled to receive from the Government ofthe 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 fundsappropriated for the contingent expenses of the

Commission.When the exigency of the service so requires andwith the approval of the Secretary of Justice, andsubject 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 feescollected under Section forty of this Act to defray

the expenses to be incurred by the Public ServiceCommissioner or any of the Associate

Commissioners, officers or employees of theCommission to be designated by the

Commissioner, with the approval of the Secretaryof Justice, in the study of modern trends in

supervision and regulation of public services. (Asamended by Republic Act No. 3792)

SECTION 6

The Secretary of Justice, upon recommendation ofthe Public Service Commissioner, shall appoint all

subordinate officers and employees of theCommission as may be provided in the

Appropriation Act. The Public Service Commissionershall have general executive control, direction, and

supervision over the work of the Commission andof its members, body and personnel, and over all

administrative business. (As amended by RepublicAct Nos. 178 and 3792)

SECTION 7The Secretary of the Commission, under thedirection of the Commissioner, shall have charge of

the administrative business of the Commission andshall perform such other duties as may be required

of him. He shall be the recorder and officialreporter of the proceedings of the Commission and

shall have authority to administer oaths in all

matters coming under the jurisdiction of theCommission. He shall be the custodian of therecords, maps, profiles, tariffs, itineraries, reports,

and any other documents and papers filed with theCommission or entrusted to his care and shall be

responsible therefor to the Commission. He shallhave authority to designate from time to time any

of his delegates to perform the duties of DeputySecretary with any of the Commissioners.

SECTION 8The Commission shall furnish the Secretary such of

its findings and decisions as in its judgment may beof general public interest; the Secretary shall

compile the same for the purpose of publication ina series of volumes to be designated "Reports ofthe Public Service Commission of the Philippines,"

which shall be published in such form and manneras may be best adapted for public information and

use, and such authorized publications shall becompetent evidence of the reports and decisions of

the Commission therein contained without anyfurther proof or authentication thereof.

SECTION 9

No member or employee of the Commission shallhave any official or professional relation with any

public service as herein defined, or hold any officeof profit or trust with the Government of the

Philippines.

SECTION 10The Commission shall have its office in the City ofManila or at such other place as may bedesignated, and may hold hearings on any

proceedings at such times and places, within thePhilippines, as it may provide by order in writing:

Provided, That during the months of April and Mayof each year, at least three Commissioners shall be

on vacation in such manner that once every twoyears at least three of them shall be on duty during

April and May: Provided, however, That in theinterest of public service, the Secretary of Justice

may require any or all the Commissioners not onduty to render services and perform their duties

during the vacation months. (As amended byRepublic Act Nos. 176 and 3792)



7/71


SECTION 11

The Commission shall have the power to makeneedful rules for its Government and other

proceedings not inconsistent with this Act and shalladopt a common seal, and judicial notice shall be

taken for such seal. True copies of said rules andother amendments shall be promptly furnished to

the Bureau of Printing and shall be forthwithpublished in the Official Gazette.

SECTION 13

(a) The Commission shall have jurisdiction,supervision, and control over all public services

and their franchises, equipment, and otherproperties, and in the exercise of its authority, it

shall have the necessary powers and the aid of thepublic force: Provided, That public services ownedor operated by government entities or

government-owned or controlled corporations shallbe regulated by the Commission in the same way

as privately-owned public services, but certificatesof public convenience or certificates of publicconvenience 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 orinstrumentality to obtain certificate of public

convenience or to prescribe their definite routes orlines of service.

(b) The term "public service" includes everyperson 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, anddone 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 andwhether may be its classification, freight or carrier

service of any class, express service, steamboat orsteamship line, pontines, ferries, and water craft,

engaged in the transportation of passengers orfreight 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 supplyand power, petroleum, sewerage system, wire or

wireless communications system, wire or wirelessbroadcasting stations and other similar public

services: Provided, however, That a personengaged in agriculture, not otherwise a public

service, who owns a motor vehicle and uses itpersonally and/or enters into a special contract

whereby said motor vehicle is offered for hire orcompensation to a third party or third parties

engaged in agriculture, not itself or themselves apublic service, for operation by the latter for alimited time and for a specific purpose directly

connected with the cultivation of his or their farm,the transportation, processing, and marketing ofagricultural products of such third party or third

parties shall not be considered as operating apublic 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, theirlessees, trustees, or receivers, as well as any

municipality, province, city, government-owned orcontrolled corporation, or agency of the

Government of the Philippines, and whatever otherpersons or entities that may own or possess or

operate public services. (As amended by Com. Act454 and RA No. 2677)

SECTION 14

The following are exempted from the provisions ofthe 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 onfreight 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 byany government-owned or controlled corporation,except with respect to the fixing of rates. (As

amended by Com. Act 454, RA No. 2031, and RANo. 2677)

SECTION 15

With the exception of those enumerated in thepreceding section, no public service shall operate in

the Philippines without possessing a valid andsubsisting certificate from the Public Service

Commission known as "certificate of publicconvenience," or "certificate of public convenience

and necessity," as the case may be, to the effect

that the operation of said service and theauthorization to do business will promote thepublic interests in a proper and suitable manner.

The Commission may prescribe as a condition forthe issuance of the certificate provided in the

preceding paragraph that the service can beacquired by the Republic of the Philippines or any

instrumentality thereof upon payment of the costprice of its useful equipment, less reasonable

depreciation; and likewise, that the certificate shallbe valid only for a definite period of time; and that

the violation of any of these conditions shallproduce the immediate cancellation of the

certificate without the necessity of any expressaction on the part of the Commission.

In estimating the depreciation, the effect of theuse of the equipment, its actual condition, the age

of the model, or other circumstances affecting itsvalue in the market shall be taken into

consideration.The foregoing is likewise applicable to any

extension or amendment of certificates actually inforce and to those which may hereafter be issued,

to permit to modify itineraries and time schedulesof public services, and to authorizations to renewand increase equipment and properties.

SECTION 16Proceedings of the Commission, upon notice and

hearing. - The Commission shall have power, uponproper notice and hearing in accordance with the

rules and provisions of this Act, subject to the



8/71


limitations and exceptions mentioned and savingprovisions to the contrary:

(a) To issue certificates which shall be known ascertificates of public convenience, authorizing the

operation of public service within the Philippineswhenever the Commission finds that the operation

of the public service proposed and theauthorization 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 convenienceand necessity will be granted only to citizens of the

Philippines or of the United States or tocorporations, co-partnerships, associations or joint-

stock companies constituted and organized underthe laws of the Philippines; Provided, That sixty per

centum of the stock or paid-up capital of any suchcorporations, 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 constitutionallimitations 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 thePhilippines when, in the judgment of the

Commission, such franchise or privilege willproperly conserve the public interests, and the

Commission shall in so approving impose suchconditions as to construction, equipment,

maintenance, service, or operation as the publicinterests and convenience may reasonably require,

and to issue certificates of public convenience and

necessity when such is required or provided by anylaw or franchise.(c) To fix and determine individual or joint rates,

tolls, charges, classifications, or schedules thereof,as well as commutation, mileage, kilometrage, andother special rates which shall be imposedobserved and followed thereafter by any public

service: Provided, That the Commission may, in itsdiscretion, approve rates proposed by public

services provisionally and without necessity of anyhearing; but it shall call a hearing thereon within

thirty days, thereafter, upon publication and noticeto the concerns operating in the territory affected:

Provided, further, That in case the public serviceequipment 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 ofsuch 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 serviceablestandards for the measurement of quantity,

quality, pressure, initial voltage, or other conditionpertaining to the supply of the product or servicerendered by any public service, and to prescribe

reasonable regulations for the examination andtest 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 appliancesfor 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 themaintenance of the necessary material and

equipment.(h) To require any public service to establish,

construct, maintain, and operate any reasonableextension of its existing facilities, where in the

judgment of said Commission, such extension isreasonable and practicable and will furnish

sufficient business to justify the construction andmaintenance of the same and when the financial

condition of the said public service reasonablywarrants the original expenditure required inmaking and operating such extension.

(i) To direct any railroad, street railway or tractioncompany to establish and maintain at any junction

or point of connection or intersection with anyother line of said road or track, or with any otherline of any other railroad, street railway or traction

to promote, such just and reasonable connectionas shall be necessary to promote the convenience

of shippers of property, or of passengers, and inlike manner direct any railroad, street railway, or

traction company engaged in carryingmerchandise, to construct, maintain and operate,

upon reasonable terms, a switch connection withany private sidetrack which may be constructed by

any shipper to connect with the railroad, streetrailway or traction company line where, in the

judgment of the Commission, such connection is

reasonable and practicable and can be out in withsafety and will furnish sufficient business to justifythe construction and maintenance of the same.

(j) To authorize, in its discretion, any railroad,street railway or traction company to lay its tracksacross the tracks of any other railroad, streetrailway or traction company or across any public

highway.(k) To direct any railroad or street railway

company to install such safety devices or aboutsuch other reasonable measures as may in the

judgment of the Commission be necessary for theprotection of the public are passing grade crossing

of (1) public highways and railroads, (2) publichighways 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 publicservice which will be observed in a proper and

adequate depreciation account to be carried for theprotection of stockholders, bondholders or creditors

in accordance with such rules, regulations, andform of account as the Commission may prescribe.

Said rates shall be sufficient to provide theamounts required over and above the expense ofmaintenance to keep such property in a state of

efficiency corresponding to the progress of theindustry. Each public service shall conform itsdepreciation accounts to the rates so determined

and fixed, and shall set aside the moneys soprovided for out of its earnings and carry the same

in a depreciation fund. The income frominvestments of money in such fund shall likewise



9/71


be carried in such fund. This fund shall not beexpended otherwise than for depreciation,

improvements, new construction, extensions orconditions to the properly of such public service.

(m) To amend, modify or revoke at any timecertificate issued under the provisions of this Act,

whenever the facts and circumstances on thestrength 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 theholder thereof has violated or willfully and

contumaciously refused to comply with any orderrule or regulation of the Commission or any

provision of this Act: Provided, That theCommission, for good cause, may prior to the

hearing suspend for a period not to exceed thirtydays any certificate or the exercise of any right orauthority issued or granted under this Act by order

of the Commission, whenever such step shall in thejudgment of the Commission be necessary to avoid

serious and irreparable damage or inconvenienceto the public or to private interests.(o) To fix, determine, and regulate, as the

convenience of the state may require, a specialtype for auto-busses, trucks, and motor trucks to

be hereafter constructed, purchased, and operatedby 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 feesshall be smaller than more those charged for auto-

busses, trucks, and motor trucks of types notmade regulation under the subsection.

SECTION 18It shall be unlawful for any individual, co-partnership, association, corporation or joint-stock

company, their lessees, trustees or receiversappointed by any court whatsoever, or anymunicipality, province, or other department of theGovernment of the Philippines to engage in any

public service business without having first securedfrom the Commission a certificate of public

convenience or certificate of public convenienceand necessity as provided for in this Act, except

grantees of legislative franchises expresslyexempting such grantees from the requirement of

securing a certificate from this Commission as wellas 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 orrefuse any service which can reasonably bedemanded and furnished, as found and determined

by the Commission in a final order which shall beconclusive and shall take effect in accordance withthis Act, upon appeal of otherwise.

(b) To make or give, directly or indirectly, by itselfor 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 oradvantage to any person of corporation or to any

locality or to any particular description of traffic orservice, or subject any particular person or

corporation or locality or any particular descriptionof traffic to any prejudice or disadvantage in any

respect whatsoever; to adopt, maintain, or enforceany regulation, practice or measurement which

shall be found or determined by the Commission tobe unjust, unreasonable, unduly preferential or

unjustly discriminatory in a final order which shallbe conclusive and shall take effect in accordance

with the provisions of this Act, upon repeal orotherwise.

(g) To sell, alienate, mortgage, encumber or leaseits property, franchises, certificates, privileges, or

rights or any part thereof; or merge or consolidateits property, franchises privileges or rights, or any

part thereof, with those of any other public service.

The approval herein required shall be given, afternotice to the public and hearing the persons

interested at a public hearing, if it be shown thatthere are just and reasonable grounds for makingthe 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 detrimentalto the public interest, and in case of a sale, the

date on which the same is to be consummatedshall be fixed in the order of approval: Provided,

however, that nothing herein contained shall beconstrued to prevent the transaction from being

negotiated or completed before its approval or toprevent 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 orsale of shares of its capital stock, if the result of

that sale in itself or in connection with anotherprevious sale, shall be to vest in the transfereemore than forty per centum of the subscribedcapital of said public service. Any transfer made in

violation of this provision shall be void and of noeffect and shall not be registered in the books of

the public service corporation. Nothing hereincontained 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 transfershares of its capital stock to any alien if theresult of that sale, alienation, or transfer in

itself or in connection with another previoussale shall be the reduction to less than sixty

per centum of the capital stock belonging toPhilippine citizens. Such sale, alienation or

transfer shall be void and of no effect and shallbe sufficient cause for ordering the cancellation

of the certificate.

Y Transit v. NLRCThe sale, alienation or other encumbrance of a

public service operators properties requires theprevious approval and authorization of the

Commission.

NOTE: The Public Service Commission does not

exist anymore. It is now the Department ofTransportation and Communications.



10/71


THE CERTIFICATE OF PUBLIC CONVENIENCE (CPC); THECERTIFICATE OF PUBLIC CONVENIENCE & NECESSITY

(CPCN) ANDTHE PRIOROPERATORRULE

Does the sale of a CPC, CPCN or other properties ofthe 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 onlyaffectes the relation of the parties to the DOTC orto 3rd parties. If there is no approval, then the sale

does not bind the DOTC or 3rd parties. Thecontrolling factor therefore is the registration.

If a stockholder of a public utility transfers hisstock 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 isneeded.

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% ofthe stock of a public utility.

What is a Certificate of Public Convenience? (CPC)

The Public Service Law, Sec. 15

With the exception of those enumerated in the

preceding section, no public service shall operatein the Philippines without possessing a valid andsubsisting certificate from the Public Service

Commission known as "certificate of publicconvenience," or "certificate of public convenienceand necessity," as the case may be, to the effectthat the operation of said service and the

authorization to do business will promote thepublic interests in a proper and suitable manner.

The Commission may prescribe as a condition forthe issuance of the certificate provided in the

preceding paragraph that the service can beacquired by the Republic of the Philippines or any

instrumentality thereof upon payment of the costprice of its useful equipment, less reasonable

depreciation; and likewise, that the certificate shallbe valid only for a definite period of time; and that

the violation of any of these conditions shallproduce the immediate cancellation of the

certificate without the necessity of any expressaction 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 theCommission for the operation of public services for

which no franchise, either municipal orlegislative, is required by law) e.g. motor

vehicles

It constitutes neither a franchise nor acontract, 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 publicand public necessity. However, these certificates

represent property rights to the extent that if therights which any public utility is exercising pursuant

to the lawful orders of the PSC (now DOTC) hasbeen invaded by another public utility, in

appropriate cases, actions may be maintained bythe complainant public utility.

Which public utilities are exempted from getting aCPC?

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 onfreight 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 byany government-owned or controlled corporation,

except with respect to the fixing of rates. (Asamended 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 hasgranted a franchise under RA 667 after thePSC has approved the same under Sec. 16(b).

It is an authorization issued by the PSC for theoperation 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 andcannot operate, therefore, without a franchise from

CongressA CPC does not.

What is a franchise?

It is a legislative grant from Congress or alocal legislative body. If it is of nationwide

application (e.g. Philippine Air Lines), then it musttake the form of a Republic Act.

How does one get a franchise?

It is the same procedure for any law (file abill, 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 publicconvenience, 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 whichfranchises have been granted still require a CPCN



11/71


in order to operate. Those public utilities that didnot 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 publicconvenience to be secured by public service

operators from the PSC. A CPC granted to theowner or operator of public service motor vehiclesgrants a right in the nature of a limited franchise.

The Code of Civil Procedure establishes thegeneral rule that "property, both real and personal,or any interest therein of the judgment debtor, not

exempt by law, and all property and rights ofproperty seized and held under attachment in the

action, shall be liable to execution." The statutoryexemptions do not include franchises or

certificates; of public convenience. The word

"property" as used in section 450 of the Code ofCivil Procedure comprehends every species of title,inchoate or complete, legal or equitable. The TEST

to determine whether or not property can beattached and sold upon execution is whether the

judgment debtor has such a beneficial interesttherein 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 ofcertificates of public convenience has been

permitted by the PSC. If the holder of a CPC cansell it voluntarily, there is no valid reason why thesame 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 isauthorized to approve the transfer of the

certificates of public convenience to the executioncreditor.

What is the prior operator rule?

The prior operator rule works to protect theprior operator if it maintains an adequate service

and is able to meet the demands of the public. Hisor her investment is protected by not allowing a

subsequent operator to be granted a license for thesame route. The rationale for this rule is for the

preservation of public convenience and to preventruinous 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 amaiden franchise that covers a new route, even if it

overlaps with the route of the prior operator.

The prior operator rule is inapplicable wherethe corporate existence of the prior operator has

expired.

Regular operators are preferred over irregularoperators.

The Commission cannot grant a CPC or CPCN

that comprises a larger territory than that appliedfor.

How do you know whether there is ruinous

competition enough for the prior operator rule totake effect?

Ruinous competition means that there isactual ruin of the business of the operator; that the

existing operator will not gain enough profits ifanother 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 showthat he will be deprived of a reasonable return on

his investment.

The mere possibility of reduction in theearnings of the business or the deterioration in the

income of his business is not sufficient to prove

ruinous competition. It must be shown that thebusiness would not have sufficient gains to pay afair rate of interest on his capital investments.

Does the prior operator rule create a monopoly?

Legally speaking, there cannot be a monopolywhen a property is operated as a public utility. The

prior operator rule does not encourage a monopolybecause the theory is that one operator keeps the

prices low.

Batangas Transportation Co. v. Cayetano

Orlanes (1928)

So long as the 1

st

licensee keeps and performsthe terms and conditions of its license and complieswith 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 toacquire another and a later license over same

route. Otherwise, the first licensee would not haveprotection on his investment and would be subject

to ruinous competition and this defeat the verypurpose and intent for the PSC was created.

San Pablo v. Pantranco (1987)

Before private respondent may be issued afranchise or CPC for the operation of the said

service as a common carrier, it must comply withthe usual requirements of filing an application,

payment of the fees, publication, adducingevidence at a hearing and affording the oppositorsthe opportunity to be heard, among others, asprovided by law. Considering the environmental

circumstances of the case, the conveyance ofpassengers, trucks and cargo from Matnog to Allen

is certainly not a ferry boat service but a coastwiseor interisland shipping service. Under no

circumstance can the sea between Matnog andAllen be considered a continuation of the highway,

Matnog and Allen are separated by an open sea. ItsCPC as a bus transportation cannot be merely

amended to include this water service under theguise that it is a mere private ferry service.

What is an example of the kabit system?



12/71


A, a grantee of a CPC from the LTFRB, is giventhe authority to operate 10 units of taxis. B, a non-

grantee, wishes to operate as a common carriedand 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 thearrangement, in order to safeguard the rights of B.

However, in case of injury to a passenger of thetaxi actually operated by B (and previously sold toB as well) it is still A who will be liable. The illegal

contract of sale between A & B cannot be put up asa 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 publicconvenience allows another person who ownsmotor vehicles to operate under such franchise for

a fee. A certificate of public convenience is aspecial privilege conferred by the government.

Although not outrightly penalized as a criminaloffense, 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 ANDOBLIGATIONS OF PARTIES ARISING FROM

TRANSACTIONS RELATING TOTRANSPORTATION

ABSENTATRANSPORTATIONCONTRACT

Lara v. Valencia (1958)

The owner and driver of a vehicle owes toaccommodation passengers or invited guests

merely the duty to exercise reasonable care so thatthey may be transported safely to their destination.

Thus, The rule is established by the weight ofauthority that the owner or operator of an

automobile owes the duty to an invited guest toexercise reasonable care in its operation, and notunreasonably to expose him to danger and injuryby 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 ourlaw (Art. 1755 & 1756, new CC)

ARISINGFROMATRANSPORTATIONCONTRACT

Contract of transportation, defined;

A contract of transportation is one whereby acertain person or association of persons obligate

themselves to transport persons, things, or newsfrom 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 ornews to be transported, or to present his own

person or those of other or others in the case oftransportation of passengers

Carrier or conductor - one who binds himself totransport person, things, or news, as the case may

be, or one employed in or engaged in the businessof carrying good for others for hire

Consignee - the party to whom the carrier is to

deliver the things being transported; to whom thecarrier may lawfulyy make delivery in accordancewith its contract of carriage. The shipper and the

consignee may be the same person.



13/71

II. Common CarriersTransportation Law

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 carryingor transporting passengers or goods or both, by

land, water, or air, for compensation, offering theirservices to the public.

Art. 1733

Common carriers, from the nature of their businessand for reasons of public policy, are bound toobserve extraordinary diligence in the vigilance

over the goods and for the safety of thepassengers transported by them, according to allthe circumstances of each case.

Such extraordinary diligence in the vigilance overthe goods is further expressed in Articles 1734,

1735, and 1745, Nos. 5, 6, and 7, while theextraordinary diligence for the safety of the

passengers is further set forth in Articles 1755 and1756.

1. DEFINITION, ESSENTIAL ELEMENTS

Art. 1732

Common carriers are persons, corporations, firmsor associations engaged in the business of carrying

or transporting passengers or goods or both, by

land, water, or air, for compensation, offering theirservices to the public.

What are the classes of carriers?

Common or privateAs to the object: goods or persons

What are the elements of a common carrier?

1. It is engaged in the business of carrying ortransporting goods for others as a publicemployment

2. It is for compensation or for hire3. It is operated generally as a business and not

as a casual occupation

4. It holds out to the public as ready to engage inthe transportation of goods of the kind towhich his business is confined (see also First

Phil. Industrial v. CA)

Why is there a need to determine whether itis 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 extraordinarydiligence.

Do you need a CPC or CPCN in order to

become a common carrier?

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

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

COMMON - It holds itself out as ready to engage

in the transportation of goods or persons for hireas a public employment and not as a casual

occupation whether:

1. regular or scheduled2. 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 instancefor hire or for reward

As to its nature

Common - it holds itself out in common to allpersons who choose to employ him, as ready to

carry for hire in such a manner as to render himliable 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 tenderof 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 inthe business for the public and is therefore not

subject to the same rules on regulation as acommon 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 exemptfrom liability or future negligence

FGU v. Sarmiento Trucking

Common carriers are persons, corporations, firmsor association engaged in the business of carrying

or transporting passengers or goods or both, byland, water, or air, for hire or compensation,

offering their services to the public, whether to the

public in general or to a limited clientele inparticular, but never on an exclusive basis. Thetrue test of a common carrier is the carriage of



14/71


passengers or goods, providing space for thosewho opt to avail themselves of its transportation

services for a fee.

US v. Tan PiacoThese trucks, so far as indicated by the evidence

and as far as the appellant is concerned, furnishedservice under special agreements to carry

particular persons and property. . . . So long as theindividual or co-partnership, etc., etc., is engaged

in a purely private enterprise, without attemptingto render service to all who may apply, he can inno sense be considered a public utility, for public

use."Public use" means the same as "use by thepublic; 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 publicbenefit is merely incidental, it is not a public use,

authorizing the exercise of the jurisdiction of thepublic utility commission. Public use is not

synonymous with public interest. The true criterion

by which to judge of the character of the use iswhether the public may enjoy it by right or only bypermission.

Home Insurance Co. v. American Steamship

Stipulations of non-liability of owners of carriersare held contrary to public policy by the Civil Code.

However, a common carrier undertaking to carryspecial cargo or chartered to a special person only,

becomes a private carrier. As a private carrier,stipulations exempting the owner from liability fornegligence of its agent is not against public policy

and is deemed valid. The Civil Code should not beapplied where the common carrier acted as private

carrier.

De Guzman v. CA

The Civil Code defines "common carriers" in thefollowing terms:

"Article 1732. Common carriers are persons,corporations, firms or associations engaged in the

business of carrying or transporting passengers orgoods 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 thecarrying of persons or goods or both, and one who

does such carrying only as an ancillary activity (inlocal idiom, as "a sideline"). Article 1732 also

avoids making any distinction between a person orenterprise offering transportation service on a

regular or scheduled basis and one offering suchservice on an occasional, episodic or unscheduledbasis. Neither does Article 1732 distinguishbetween a carrier offering its services to the

"general public," i.e., the general community orpopulation, and one who offers services or solicits

business only from a narrow segment of thegeneral population.

Under Article 1745 (6), a common carrier is held

responsible and will not be allowed to divest or todiminish such responsibility even for acts of

strangers like thieves or robbers, except wheresuch thieves or robbers in fact acted "with grave or

irresistible threat, violence or force." We believeand so hold that the limits of the duty of

extraordinary diligence in the vigilance over thegoods 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 acommon carrier of goods is: (1). He must be

engaged in the business of carrying goods forothers as a public employment, and must hold

himself out as ready to engage in thetransportation of goods for person generally as abusiness and not as a casual occupation; (2) He

must undertake to carry goods of the kind to whichhis business is confined; (3). He must undertake tocarry 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 OFTHE STATE TO REGULATE

Art. 1765. The Public Service Commission may, onits own motion or on petition of any interestedparty, after due hearing, cancel the certificate of

public convenience granted to any common carrierthat repeatedly fails to comply with his or its duty

to observe extraordinary diligence as prescribed inthis Section.

Pantranco v. PSC

Under Section 16 (a) of CA 146., the Commission isempowered to issue certificates of publicconvenience whenever it "finds that the operation

of the public service proposed and theauthorization to do business will promote the public

interests in a proper and suitable manner." Whenprivate property is "affected with a public interest itceased to be juris privati only." When, therefore,

one devotes his property to a use in which thepublic has an interest, he, in effect, grants to the

public an interest in that use, and must submit tobe 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 mustsubmit to control. Indeed, this right of regulation is

so far beyond question that it is well settled thatthe power of the state to exercise legislative

control over public utilities may be exercisedthrough boards of commissioners. This right of the

state to regulate public utilities is founded upon thepolice power. If one voluntarily places his property

in public service he cannot complain that itbecomes subject to the regulatory powers of thestate. A certificate of public convenienceconstitutes neither a franchise nor a contract,

confers no property right, and is a mere license orprivilege.

3. NATURE AND BASIS OF LIABILITY

Art. 1733

Common carriers, from the nature of their businessand for reasons of public policy, are bound to

observe extraordinary diligence in the vigilanceover the goods and for the safety of the passengers

transported by them, according to all thecircumstances of each case.



15/71


Such extraordinary diligence in the vigilance overthe goods is further expressed in Articles 1734,

1735, and 1745, Nos. 5, 6, and 7, while theextraordinary diligence for the safety of the

passengers is further set forth in Articles 1755 and1756.

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 frompresumptive responsibility for the negligence of[Manila Railroads] servants.

The contract of Manila Railroad Comapny totransport Cangco carried with it the duty to carryhim 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 wasmorally 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 lawshave 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. IACThe driver cannot be held jointly liable with theowenrs of the jeep in case of breach of the contract

of carriage. The contract of carriage is betweenthe carrier and the passenger, and in the event of

contractual liability, the carrier is exclusivelyresponsible 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 merelyvicarious and consequently, the victim is entitled to

recover only the share which corresponds to thedriver.

4. CLASSES OF COMMON CARRIERS

Art. 1732

Common carriers are persons, corporations, firmsor associations engaged in the business of carryingor transporting passengers or goods or both, byland, 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 toobserve extraordinary diligence in the vigilance

over the goods and for the safety of thepassengers 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 thepassengers is further set forth in Articles 1755 and

1756.

Art. 1755A common carrier is bound to carry the passengers

safely as far as human care and foresight canprovide, using the utmost diligence of very

cautious persons, with a due regard for all thecircumstances.

5. LAWS APPLICABLE

Art. 1766In all matters not regulated by this Code, the rightsand obligations of common carriers shall be

governed by the Code of Commerce and by speciallaws.

Art. 1753

The law of the country to which the goods are to be

transported shall govern the liability of thecommon carrier for their loss, destruction ordeterioration.

B. Common Carriage of Goods

1. LIABILITY AND PRESUMPTION OF

NEGLIGENCE

Art. 1733

Common carriers, from the nature of their businessand for reasons of public policy, are bound toobserve extraordinary diligence in the vigilance

over the goods and for the safety of the passengerstransported by them, according to all the

circumstances of each case.Such extraordinary diligence in the vigilance overthe goods is further expressed in Articles 1734,1735, and 1745, Nos. 5, 6, and 7, while the

extraordinary diligence for the safety of thepassengers is further set forth in Articles 1755 and

1756.

Art. 1734

Common carriers are responsible for the loss,destruction, or deterioration of the goods, unlessthe 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



16/71


carriers are presumed to have been at fault or tohave acted negligently, unless they prove that they

observed extraordinary diligence as required inArticle 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 aredischarged 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 placeof destination in bad order, makes out a prima

facie case against the carrier, so that if noexplanation is given as to how the injury occurred,

the carrier must be held responsible. It is

incumbent upon the carrier to prove that the losswas due to accident or some other circumstanceinconsistent with its liability.

2. EXEMPTION FROM LIABILITY

NATURAL DISASTER

Art. 1734

Common carriers are responsible for the loss,destruction, or deterioration of the goods, unlessthe same is due to any of the following causes

only:(1) Flood, storm, earthquake, lightning, or other

natural disaster or calamity;

Art. 1739

In order that the common carrier may beexempted from responsibility, the natural disaster

must have been the proximate and only cause ofthe loss. However, the common carrier must

exercise due diligence to prevent or minimize lossbefore, during and after the occurrence of flood,

storm or other natural disaster in order that thecommon 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 enemyreferred to in Article 1734, No. 2.

Art. 1740

If the common carrier negligently incurs in delay intransporting the goods, a natural disaster shall notfree such carrier from responsibility.

Art. 361, Code of Commerce

The merchandise shall be transported at the riskand 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 thetransportation by reason of fortuitous event,

force majeure, or the inherent nature anddefect 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 tonatural disaster?

1. The natural disaster must have been theproximate and only cause

2. The common carrier must exercise duediligence to prevent or minimize the loss

before, during and after the occurrence of the

flood, storm or natural disaster3. 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 vesseloccurred through malice, carelessness or lack ofskill on the part of the captain and in the remaining

cases indicated in article 841 of the Code ofCommerce.

Under article 361 of the Code of Commercetransportation of merchandise is for account, riskand hazard of the shipper, unless the contrary has

been expressly stipulated. The carrier is exemptfrom liability if he proves, as it is incumbent upon

him to do, that the loss or destruction of themerchandise was due to accident and force

majeure and not to fraud, fault, or negligence onthe part of the captain or owners of the ship.

Martini v. Macondray (1919)

In every contract of affreightment, losses by thedangers of the seas are excepted from the risks

w/c the master takes upon himself, whether theexception is expressed in the contract or not. The

exception is made by law, & falls whether or notthe general principle that no one is responsible for

fortuitous events & accidents of major force. Butthe general law is subject to an exception, thatwhen the inevitable accident is preceded by fault ofthe debtor or person bound, without which it would

not have happened, then he becomes responsiblefor it.

The master is responsible for the safe & properstowage of the cargo, & there is no doubt that by

the general maritime law he is bound to secure thecargo safely under deck. If the master carries

goods on deck w/o the consentof the shipper, hedoes it at his own risk. If they are damaged or lost

in consequence of their being thus exposed, hecannot protect himself from responsibility by

showing that they were damaged or lost by thedangers of the seas. When the shipper consents



17/71


to his goods being carried on deck, he takesthe 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 arisesalmost invariably from some act of man or by

human means. It does not fall within the categoryof an act of God unless caused by lightning or boy

other natural disaster/calamity. It may even becaused by the actual fault or privity of the carrier.

ACTOFPUBLICENEMY

Art. 1734

Common carriers are responsible for the loss,destruction, or deterioration of the goods, unless

the same is due to any of the following causesonly:

(2) Act of the public enemy in war, whether

international or civil;

Art. 1739

In order that the common carrier may beexempted from responsibility, the natural disaster

must have been the proximate and only cause ofthe loss. However, the common carrier must

exercise due diligence to prevent or minimize lossbefore, during and after the occurrence of flood,

storm or other natural disaster in order that thecommon carrier may be exempted from liability forthe loss, destruction, or deterioration of the goods.

The same duty is incumbent upon the commoncarrier 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 beenthe proximate and only cause

2. The common carrier must exercise duediligence to prevent or minimize the loss

before, during and after the act of the publicenemy causing the loss, destruction ordeterioration of the goods.

ACTOROMISSIONOFSHIPPER

Art. 1734

Common carriers are responsible for the loss,destruction, or deterioration of the goods, unless


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

Art. 1741

If the shipper or owner merely contributed to theloss, destruction or deterioration of the goods, theproximate cause thereof being the negligence of

the common carrier, the latter shall be liable in

damages, which however, shall be equitablyreduced.

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

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

2. If the shipper owner merely contributed to theloss, destruction or deterioration of the goods,

the proximate cause being the negligence ofthe common carrier, then the common carrier

shall be liable for the damages, which shall,however, be equitably reduced.

CHARACTEROFGOODS

Art. 1734Common carriers are responsible for the loss,destruction, or deterioration of the goods, unless


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

Art. 1742Even if the loss, destruction, or deterioration of thegoods should be caused by the character of the

goods, or the faulty nature of the packing or of thecontainers, 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 fordamage or average which may be found thereinupon opening the package, may be made, provided

that the indications of damage or average whichgives rise to the claim cannot be ascertained from

the outside part of such packages, in which casethe claim shall be admitted only at the time ofreceipt.

After the periods mentioned have elapsed, or thetransportation charges have been paid no claim

shall be admitted against the carrier with regard tothe 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 ordinaryobservation, but [the carrier] accepts the goods

notwithstanding such condition, it is not relieved ofliability for loss or injury resulting therefrom.

ORDEROFCOMPETENTAUTHORITY

Art. 1734Common carriers are responsible for the loss,destruction, or deterioration of the goods, unless


(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 notresponsible, provided said public authority had

power to issue the order.

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



18/71


1. There must be an order or act of competent

authority2. The said public authority must have had the

power to issue the order. If the officer actswithout 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 thefulfillment by the carrier of the obligation. Thepetitioner was not duty bound to obey the illegal

order to dump into the sea the scrap iron. There isabsence of sufficient proof that the issuance of theorder was attended with such force or intimidation

as to completely overpower the will of petitionersemployees. 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 wasrendered impossible. Apparently, the seizure anddestruction of the goods was done under legal

process or authority so that petitioner should befreed from responsibility.

3. DURATION OF EXTRAORDINARY

RESPONSIBILITY

Art. 1736The extraordinary responsibility of the commoncarrier lasts from the time the goods are

unconditionally placed in the possession of, andreceived by the carrier for transportation until the

same are delivered, actually or constructively, bythe carrier to the consignee, or to the person whohas 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 infull force and effect even when they are

temporarily unloaded or stored in transit, unlessthe 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 evenduring the time the goods are stored in a

warehouse of the carrier at the place ofdestination, until the consignee has been advised

of the arrival of the goods and has had reasonableopportunity thereafter to remove them orotherwise 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 transportationperfected?

A contract of transportation is consensual innature, 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 fortransportation but only for safekeeping, where the

goods have already been purchased by the shipperand 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 goodsstops their progress and resumes possession of

them constructively while they are in the court oftransit from him to the purchaser, and not yetactually delivered to the latter. The duty of the

common carrier to exercise extraordinary diligenceends 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 arein transit, may resume the possession of the goodsas he would have had if he had never parted with

the possession.

Compania Maritima v. Insurance Company ofNorth America (1964)

The liability of the carrier as common carrier beginswith the actual delivery of the goods for

transportation, and not merely with the formalexecution of a receipt or bill of lading; the issuanceof a bill of lading is not necessary to complete

delivery and acceptance. Even where it is providedby statute that liability commences with the

issuance of the bill of lading, actual delivery andacceptance 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 tothe person who has a right to receive them,

contemplated in Article 1736, because in such casethe goods are still in the hands of the Government

and the owner cannot exercise dominion overthem, however the parties may agree to limit the

liability of the carrier considering that the goodshave still to through the inspection of the customs

authorities before they are actually turned over tothe consignee. This is a situation where we may

say that the carrier losses control of the goodsbecause of a custom regulation and it is unfair that

it be made responsible for what may happen duringthe interregnum.although Section 4(5) of the Carriage of Goods bySea Act states that the carrier shall not be liable in

an amount exceeding 8500.00 per package unlessthe value of the goods had been declared by the

shipper and inserted in the bill of lading, saidsection is merely suppletory to the provisions of

the Civil Code.

4. STIPULATIONS/AGREEMENT LIMITINGLIABILITY

ASTODILIGENCEREQUIRED

Art. 1744



19/71


A stipulation between the common carrier and theshipper or owner limiting the liability of the former

for the loss, destruction, or deterioration of thegoods 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 oth

formatted transportation law

Documents