transportation angel notes

TRANSPORTATION NOTES 1

MA. ANGELA AGUINALDO ATENEO LAW 2010

GENERAL CONSIDERATIONS

PUBLIC UTILITIES

1987 PHILIPPINE CONSTITUTION Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest. Section 18. The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government. Section 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. TWO IDEAS CONVEYED BY THE PROVISIONS ON PUBLIC UTILITY

1. It is a partly nationalized business endeavor 2. It is viewed with public interest

A PUBLIC UTILITY IS A PARTLY NATIONALIZED BUSINESS ENDEAVOR

• Public utilities may only be operated by Filipino citizens or corporations, associations, partnerships organized and constituted under the laws of the Philippines, and wherein at least 60% of the capital stock or paid-up capital is owned by Filipinos

• Another aspect of this idea is that the participation of foreign investors shall be limited to their proportionate share, and all the executive and managing officers of such corporation or association must be citizens of the Philippines

• The constitution reserves part of ownership of public utilities to Filipinos

• Fully-nationalized, as given by the Constitution: mass media, exercise of profession

A PUBLIC UTILITY IS A BUSINESS ENDEAVOR VIEWED WITH PUBLIC INTEREST

• The issuance of a franchise, certificate or any other form of authorization is needed for the operation of a public utility

• Franchise granted is subject to the condition that can be amended, altered, or repealed by the Congress when common good so requires

• The State may temporarily take over • The State may permanently acquire vital industries and private

enterprises • The State shall regulate or prohibit monopolies

WHAT IS A PUBLIC UTILITY?

• May fall under those enumerated in Section 13 (b) in CA 146 1 REPUBLIC V. MANILA ELECTRIC COMPANY 391 SCRA 700 FACTS: MERALCO filed an application with the ERB for the increase of its rate schedules, which included application for provisional increase pending decision of the same agency. ERB allowed the provisional increase and referred the matter to the COA. The COA consequently made a recommendation that income taxes should not be included by MERALCO in



its operating expenses. Likewise, the COA recommended that net average investment method should be used by the company in the valuation of its properties. The ERB adopted this recommendation, ordered MERALCO to a lower increase than applied for, and ordered as well for the company to adopt the net average investment method. This was however overturned by the CA. HELD: The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation. In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does not give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on investment. Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon the value of the property performing the service and one that is reasonable to the public for the services rendered. Income tax as operating expense cannot be allowed in rate-determination process The ERB correctly ruled that income tax should not be included in the computation of operating expenses of a public utility. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general, operating expenses are those which are reasonably incurred in connection with business operations to yield revenue or income. They are items of expenses which contribute or are attributable to the production of income or revenue. As correctly put by the ERB, operating expenses "should be a requisite of or necessary in the operation of a utility, recurring, and that it redounds to the service or benefit of customers."

Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralco's alone and should not be shifted to the consumers by including the same in the computation of its operating expenses. The usage of net average investment method is not unreasonable The ERB did not abuse its discretion when it applied the net average investment method. The reasonableness of net average investment method is borne by the records of the case. In its report, the COA explained that the computation of the proportionate value of the property and equipment in accordance with the actual number of months such property or equipment is in service for purposes of determining the rate base is favored, as against the trending method employed by MERALCO, "to reflect the real status of the property."36 By using the net average investment method, the ERB and the COA considered for determination of the rate base the value of properties and equipment used by MERALCO in proportion to the period that the same were actually used during the period in question. This treatment is consistent with the settled rule in rate regulation that the determination of the rate base of a public utility entitled to a return must be based on properties and equipment actually being used or are useful to the operations of the public utility. 2 DAVID, ET. AL. V. GLORIA ARROYO, ET. AL. GR 171396, 3 MAY 2006 FACTS: The president issued PP1017, on the advent of the 20th EDSA People Power Anniversary. This was allegedly due to the incessant activities staged by the activists and opposition, who sought the downfall of the present administration. The president ordered in said proclamation the cancellation of all activities related to the celebration of the EDSA anniversary, as well as



rally permits. This notwithstanding, rallies were still staged. This led to the warrantless arrests of many as well as the take-over of two pro-opposition newspaper companies—Daily Tribune and Malaya. Together with other petitions assailing the constitutionality of PP 1017 and GO5, it was averred that the take-over the newspaper companies constituted censorship and prior restraint. HELD: Generally, Congress is the repository of emergency powers, such as the taking over of public utilities. This is evident in the tenor of Section 23 (2), Article VI authorizing it to delegate such powers to the President. Certainly, a body cannot delegate a power not reposed upon it. However, knowing that during grave emergencies, it may not be possible or practicable for Congress to meet and exercise its powers, the Framers of our Constitution deemed it wise to allow Congress to grant emergency powers to the President, subject to certain conditions, thus: (1) There must be a war or other emergency. (2) The delegation must be for a limited period only. (3) The delegation must be subject to such restrictions as the Congress may prescribe. (4) The emergency powers must be exercised to carry out a national policy declared by Congress. Section 17, Article XII must be understood as an aspect of the emergency powers clause. The taking over of private business affected with public interest is just another facet of the emergency powers generally reposed upon Congress. Thus, when Section 17 states that the "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," it refers to Congress, not the President. Now, whether or not the President may exercise such power is dependent on whether Congress may delegate it to him pursuant to a law prescribing the reasonable terms thereof. PUBLIC SERVICE LAW (CA 146)

SECTION 13. xxx (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. 3 ALBANO V. REYES 175 SCRA 224 FACTS: A public bidding was conducted for the management and operation of the Manila International Container Terminal. Seven consortia of companies submitted their respective bids and consequently, the bidding committee recommended the award to be given to ICTSI. Subsequently, two petitions were filed questioning the regularity of the bidding conducted. One of the allegations forwarded was that since MICT is a public utility, prior franchise from the legislature is needed.



HELD: A review of the applicable provisions of law indicates that a franchise specially granted by Congress is not necessary for the operation of the Manila International Container Port (MICP) by a private entity, a contract entered into by the PPA and such entity constituting substantial compliance with the law. Thus, while the PPA has been tasked, under E.O. No. 30, with the management and operation of the Manila International Port Complex and to undertake the providing of cargo handling and port related services thereat, the law provides that such shall be "in accordance with P.D. 857 and other applicable laws and regulations." On the other hand, P.D. No. 857 expressly empowers the PPA to provide services within Port Districts "whether on its own, by contract, or otherwise" [See. 6(a) (v)]. Therefore, under the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the International Container Terminal Services, Inc. (ICTSI) for the management, operation and development of the MICP. Even if the MICP be considered a public utility, or a public service on the theory that it is a "wharf' or a "dock" as contemplated under the Public Service Act, its operation would not necessarily call for a franchise from the Legislative Branch. Franchises issued by Congress are not required before each and every public utility may operate. Thus, the law has granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202) As stated earlier, E.O. No. 30 has tasked the PPA with the operation and management of the MICP, in accordance with P.D. 857 and other applicable laws and regulations. However, P.D. 857 itself authorizes the PPA to perform the service by itself, by contracting it out, or through other means. Reading E.O. No. 30 and P.D. No. 857 together, the inescapable conclusion is that the lawmaker has empowered the PPA to undertake by itself the operation and management of the MICP or to authorize its operation and management by another by contract or other means, at its option. The latter power having been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary.

In the instant case, the PPA, in the exercise of the option granted it by P.D. No. 857, chose to contract out the operation and management of the MICP to a private corporation. This is clearly within its power to do. Thus, PPA's acts of privatizing the MICT and awarding the MICT contract to ICTSI are wholly within the jurisdiction of the PPA under its Charter which empowers the PPA to "supervise, control, regulate, construct, maintain, operate and provide such facilities or services as are necessary in the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857) The contract between the PPA and ICTSI, coupled with the President's written approval, constitute the necessary authorization for ICTSI's operation and management of the MICP. The award of the MICT contract approved by no less than the President of the Philippines herself enjoys the legal presumption of validity and regularity of official action. In the case at bar, there is no evidence which clearly shows the constitutional infirmity of the questioned act of government. 4 TATAD V. GARCIA 243 SCRA 436 FACTS: The DOTC planned to construct LRT 3. Special technical teams were formed to evaluate the project. Coincidentally, the BOT law was signed into law, which provided for two arrangements, BOT and BT. Upon the passage of the law, modifications were made to the prequalification proceedings. Five groups forwarded their interests to undertake the project but it was only EDSA LRT consortium which was said to have complied with the requirements. DOTC recommended the award to be made to the consortium but was informed that the prequalification procedure wasn't the bidding process contemplated by the BOT law. in light of this, amendments were made to the agreement with the consortium, which proposed a BLT arrangement. Later on, amendments were made to the BOT law. The petition mainly rests on the question of whether a foreign corporation can own a public utility. HELD: What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility.



While a franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve the public. The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them themselves. While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not enfranchised to operate a public utility. In view of this incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a common carrier and private respondent shall provide technical maintenance and repair services to DOTC. Technical maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire system. Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the agreement. Training consists of theoretical and live training of DOTC operational personnel which includes actual driving of light rail

vehicles under simulated operating conditions, control of operations, dealing with emergencies, collection, counting and securing cash from the fare collection system. Personnel of DOTC will work under the direction and control of private respondent only during training. The training objectives, however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ personnel capable of undertaking training of all new and replacement personnel. In other words, by the end of the three-year construction period and upon commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by itself. Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon. Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such equipment facilities. In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public and the public will have no right to demand any services from it. 5 PAL V. CAB 270 SCRA 538 FACTS: Grand Air applied with the CAB for the issuance of a Certificate of Public Convenience and Necessity. Notice for hearing was issued by the agency. Here comes PAL, which alleges the lack of jurisdiction of CAB to entertain the application or rule upon it. PAL further alleges that a legislative franchise is prior needed for the issuance of the CPCN. Private respondent on the other hand, following pronouncements of earlier cases, allege that no



legislative franchise is anymore needed with respect to air transportation before a CPCN be issued. HELD: Many and varied are the definitions of certificates of public convenience which courts and legal writers have drafted. Some statutes use the terms "convenience and necessity" while others use only the words "public convenience." The terms "convenience and necessity", if used together in a statute, are usually held not to be separable, but are construed together. Both words modify each other and must be construed together. The word 'necessity' is so connected, not as an additional requirement but to modify and qualify what might otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable thing. The 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. Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport services, has delegated to the said body the authority to determine the capability and competence of a prospective domestic air transport operator to engage in such venture. This is not an instance of transforming the respondent Board into a mini-legislative body, with unbridled authority to choose who should be given authority to operate domestic air transport services.

TRANSPORTATION

TRANSPORTATION, DEFINED. • One whereby a certain person or association of persons obligate

themselves to transport persons, things, or news from one place to another for a fixed price

PUBLIC NATURE

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 14. The 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 15. With the exception of those enumerated in the preceding section, no public service shall operate in the Philippines without possessing a valid and subsisting certificate from the Public Service Commission known as "certificate of public convenience," or "certificate of 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 16. Proceedings of the Commission, upon notice and hearing. - The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary : (a) To issue certificates which shall be known as certificates of public convenience, authorizing the operation of public 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. xxx Section 18. It 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 19. Unlawful 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. (c) To refuse or neglect, when requested by the Director of Posts or his authorized representative, to carry public mail on the regular trips of any public land transportation service maintained or operated by any such public service; upon such terms and conditions and for a consideration in such amount as may be agreed upon between the Director of Posts and the public service carrier of fixed by the Commission in the absence of an agreement between the Director of Posts and the carrier. In case the Director of Posts and public service carrier are unable to agree on the amount of the compensation to be paid for the carriage of the mail, the Director of Posts shall forthwith request the Commission to fix a just and reasonable compensation for such carriage and the same shall be promptly fixed by the Commission in accordance with Section sixteen of this Act. Section 20. Acts requiring the approval of the Commission. - Subject to established limitations and exceptions and saving provisions to the contrary,



it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had - (a) To adopt, establish, fix, impose, maintain, collect or carry into effect any individual or joint rates, commutation, mileage or other special rate, toll, fare, charge, classification or itinerary. The Commission shall approve only those that are just and reasonable and not any that are unjustly discriminatory or unduly preferential, only upon reasonable notice to the public services and other parties concerned, giving them a reasonable opportunity to be heard and the burden of the proof to show that the proposed rates or regulations are just and reasonable shall be upon the public service proposing the same. (b) To establish, construct, maintain, or operate new units or extend existing facilities or make any other addition to or general extension of the service. xxx (e) Hereafter to issue any stock or stock certificates representing an increase of capital; or issue any share of stock without par value; or issue any bonds or other evidence of indebtedness payable in more than one year from the issuance thereof, provided that it shall be the duty of the Commission, after hearing, to approve any such issue maturing in more than one year from the date thereof, when satisfied that the same is to be made in accordance with law, and the purpose of such issue be approved by the Commission. (f) To capitalize any franchise in excess of the amount, inclusive of any tax or annual charge, actually paid to the Government of the Philippines or any political subdivision thereof as the consideration of said franchise; capitalize any contract for consolidation, merger or lease, or issue any bonds or other evidence of indebtedness against or as a lien upon any contract for consolidation, merger, or lease: Provided, however, that the provisions of this section shall not prevent the issuance of stock, bonds, or other evidence of indebtedness subject to the approval of the Commission by any lawfully merged or consolidated public services not in contravention of the provisions of this section. (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. 6 Y TRANSIT V. NLRC 226 SCRA 508 FACTS: Yujuico Transit mortgaged its 10 buses to DBP to be able to secure a loan from the latter. With the authorization of the board, the company president entered into a dacion en pago to settle its obligations. After the buses were relieved of the mortgage, the same were sold to Y Transit. In the meantime, Yujuico Transit was held liable in a labor case and levy was made to the buses. Y Transit opposed the same averring that it owned the buses already. However, private respondents argue that the transfer was void as



BOT approval was not sought. The private respondents were sustained. In the end, levy was reinstated over the buses. HELD: The law really requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission so that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before approval is granted, there should be a public hearing with notice to all interested parties in order that the commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to public interest. Such being the reason and philosophy behind this requirement, it follows that if the property covered by the franchise is transferred, or leased to another without obtaining the requisite approval, the transfer is not binding against Public Service Commission and in contemplation of law, the grantee continues to be responsible under the franchise in relation to the Commission and to the public. There being no prior BOT approval in the transfer of property from Yujuico Transit Co., Inc. to Jesus Yujuico, it only follows that as far as the BOT and third parties are concerned, Yujuico Transit Co., Inc. still owned the properties. and Yujuico, and later, "Y" Transit Co., Inc. only held the same as agents of the former. CERTIFICATE OF PUBLIC CONVENIENCE

• Authorization to operate a public service issued by the Public Service Commission, for which no franchise is required by law

• This is merely a license or privilege and this can be forfeited when the grantee fails to comply with his commitments

• May represent property rights to the extent that if the rights which any public utility is exercising pursuant to lawful orders of the Public Utility Commissioner has been invaded by another public utility, in appropriate cases actions may be maintained by the complainant public utility

CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY

• Authorization to operate a public service for which a franchise is required by law

REQUISITES FOR GRANT OF CERTIFICATE

1. Applicant must be a citizen of the Philippines, or a corporation, association or partnership constituted and organized under the laws of the Philippines, 60% at least of the stock or paid-up capital is owned by Filipinos

2. The applicant must prove 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

3. The applicant is financially capable of undertaking the proposed service and meeting the responsibilities incident to its operations (otherwise he will not be allowed to operate since it is something he wouldnʼt be able to sustain)

PRIOR OPERATOR RULE

• The first licensee will be protected in his investment and will not be subjected to a ruinous competition

• It is not the lawʼs policy for the PSC to issue a CPC to a second operator to cover the same field and in competition with a first operator who is rendering sufficient, adequate, and satisfactory service, and who in all things and respects is complying with the rules and regulations of the Commission

• Criticized because it allegedly fosters monopolies: no, since this is made in pursuant to the power of the State to regulate

7 RAYMUNDO V. LUNETA MOTOR 58 PHIL 389 FACTS: Guzco Transit purchased from Luneta Motors buses for its operations, for which it promised to pay through promissory notes with chattel mortgage. Upon failure to pay, action was filed Guzco and attaching therein the buses in question. The notice of garnishment was served as well to the PSC. In the meantime, the certificates of public convenience and necessity were sold by Guzco to Raymundo but still, the same were subject to attachment. HELD:



The Public Service Law, Act No. 3108, as amended, authorizes certificates of public convenience to be secured by public service operators from the Public Service Commission. (Sec. 15 [i].) A certificate of public convenience granted to the owner or operator of public service motor vehicles, it has been held, grants a right in the nature of a limited franchise. The rule tested the liability of property to execution by determining if the interest of the judgment debtor in the case can be sold or conveyed to another in any way. Now the Public Service Law permits the Public Service Commission to approved 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 Public Service Commission. If the holder of a certificate of public convenience can sell it voluntarily, there is no valid reason why the same certificate cannot be taken and sold involuntarily pursuant to process. Certificates of public convenience 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. As a consequence, the decision brought on review will be affirmed, with costs against the appellant. 8 BATANGAS TRANSPORTATION V. ORLANES 52 PHIL 455 FACTS: Batangas Transportation has been for five years operating its bus line in the province of Batangas as well as in the province of Tayabas, prior to Orlanes. Orlanes filed an application for the issuance of the certificate of public convenience, and requested for the operation in a fixed schedule. The company filed an application to this petition by Orlanes, averring therein that it had been operating for five years in the Province of Batangas, and likewise alleged that its operations is sufficient to cater to public convenience. Nevertheless, the Commission issued the permit and certificate to Orlanes notwithstanding the existence of a prior operator. HELD:

In the instant case, the evidence is conclusive that the Batangas Transportation Company operated its line five years before Orlanes ever turned a wheel, yet the legal effect of the decision of the Public Service Commission is to give an irregular operator, who was the last in the field, a preferential right over a regular operator, who was the first in the field. That is not the law, and there is no legal principle upon which it can be sustained. So long as the first licensee keeps and performs the terms and conditions of its license and complies with the reasonable rules and regulations of the Commission and meets the reasonable demands of the public, it should have more or less of a vested and preferential right over a person who seeks to acquire another and a later license over the same route. Otherwise, the first license would not have protection on his investment, and would be subject to ruinous competition and thus defeat the very purpose and intent for which the Public Service Commission was created. It does not appear that the public has ever made any complaint the Batangas Transportation Company, yet on its own volition and to meet the increase of its business, it has applied to the Public Service Commission for authority to increase the number of daily trips to nineteen, thus showing a spirit that ought to be commended. 9 SAN PABLO V. PANTRANCO 153 SCRA 199 FACTS: PANTRANCO is a domestic corporation engaged in the land transportation business with PUB service for passengers and freight and various certificates for public conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross San Bernardo Strait. In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on the basis that the run was already adequately serviced and that additional tonnage cannot be accomodated. This notwithstanding, the company still pushed through with the purchase of the



vessel and wrote a letter to the BOT applying to approve its operations. Not being able to wait however for BOT to reply, it started operations and was reprimanded to stop until the scheduled hearing. San Pablo and Cardinal Transportation entered their respective opposition, alleging that they have adequately serviced PANTRANCO with the ferry off their buses. However, in the end, the Commission ruled that the operation o the ferry boat was part of the CPC of PANTRANCO. HELD: We are not unmindful of the reasons adduced by the Commission in considering the motorboat service between Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of ferry as above quoted we have the impression and we are inclined to believe that the Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway which is interrupted by the body of water, or in some cases to connect two points on opposite shores of an arm of the sea such as bay or lake which does not involve too great a distance or too long a time to navigate But where the line or service involves crossing the open sea like the body of water between the province of Batangas and the island of Mindoro which the oppositors describe thus "the intervening waters between Calapan and Batangas are wide and dangerous with big waves where small boat barge, or raft are not adapted to the service," then it is more reasonable to regard said line or service as more properly belonging to interisland or coastwise trade. This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As the San

Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by such steamboats or vessels as the MV "Black Double. 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. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. 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. The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets whenever they board the MV "Black Double" that crosses Matnog to Allen, PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this effect has been submitted. What is even more difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers and cargo.



Such an anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be allowed. 10 PAL V. CAB Supra Caveat of the decision—this decision brings to a blur the question on when it is needed to secure a franchise from Congress. Before, when it is a CPCN, a legislative franchise is a mandatory requirement. However, with this case, it imports that no franchise is anymore needed. 11 TEJA V. IAC 148 SCRA 347 FACTS: Nale purchased from Teja Marketing a motorbike with a side car. He accordingly gave a downpayment and promised to pay the balance in 60 days. However, he failed to pay the balance and asked for an extension of one year. Still, he was not able to pay. An action for sum of money and damages was filed and though Nale didn't deny that he owed Teja Marketing money, he alleged that the latter failed to register the chattel mortgage and motor vehicle yearly with the LTC. The trial courts sustained Teja Marketing and dismissed the counterclaim, ordering Nale top pay the balance of the purchase price. However, this was reversed by the Court of Appeals on the ground that there was a illegal transaction involved. The transaction that transpired was that of a kabit system, prohibited by law. HELD: Unquestionably, the parties herein 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. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. 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. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it would be error to accord the parties relief from their predicament PRIVATE NATURE; RIGHTS AND OBLIGATIONS OF PARTIES INTER SE ARISING FROM TRANSACTIONS RELATING TO TRANSPORTATION ABSENT A TRANSPORTATION CONTRACT 12 LARA V. VALENCIA 104 PHIL 65 FACTS: Lara was an inspector of the Bureau of Forestry. The defendant is engaged in the business of exporting logs from his lumber concession in Cotabato. Lara went to said concession upon instructions of his chief to classify the logs of defendant which were about to be loaded on a ship anchored in the port of Parang. The work Lara of lasted for six days during which he contracted malaria fever. On a later date, Lara who then in a hurry to return to Davao asked defendant if he could take him in his pick-up as there was then no other means of transportation, to which defendant agreed, and in that same morning the pick-up left Parang bound for Davao taking along six passengers, including Lara. The pick-up has a front seat where the driver and two passengers can be accommodated and the back has a steel flooring enclosed with a steel walling of 16 to 17 inches tall on the sides and with a 19 inches tall walling at the back. In the middle Lara sat on a bag. Before leaving Parang, defendant invited Lara to sit with him on the front seat but Lara declined. It was their understanding that upon reaching barrio Samoay, Cotabato, the passengers were to alight and take a bus bound for Davao, but when they arrived at that place, only one alighted and the other passengers requested defendant to allow them to ride with him up to Davao because there was then no available bus that they could take in going to that place. Defendant again accommodated the passengers. When they continued their trip, the sitting arrangement of the passengers remained the same, Lara being seated on a bag in the middle with his arms



on a suitcase and his head cove red by a jacket. Upon reaching Km. 96, barrio Catidtuan, Lara accidentally fell from the pick-up and as a result he suffered serious injuries. Valencia stopped the pick-up to see what happened to Lara. He sought the help of the residents of that place and applied water to Lara but to no avail. They brought Lara to the nearest place where they could find a doctor and not having found any they took him to St. Joseph's Clinic of Kidapawan. But when Lara arrived he was already dead. From there they proceeded to Davao City and immediately notified the local authorities. HELD: It therefore appears that the deceased, as well his companions who rode in the pick-up of defendant, were merely accommodation passengers who paid nothing for the service and so they can be considered as invited guests within the meaning of the law. As accommodation passengers or invited guests, defendant as owner and driver of the pick-up owes to them merely the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, "The rule is established by the weight of authority that the owner or operator of an automobile owes the duty to an invited guest to exercise reasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing the hazard of travel. This rule, as frequently stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary or reasonable care to avoid injuring him. Since one riding in an automobile is no less a guest because he asked for the privilege of doing so, the same obligation of care is imposed upon the driver as in the case of one expressly invited to ride" (5 Am. Jur., 626-627). Defendant, 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 (Articles 1755 and 1756, new Civil Code). ARISING FROM A TRANSPORTATION CONTRACT

REGULATION OF THE TRANSPORTATION INDUSTRY

DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS EO 125. SECTION 4. Mandate. The Ministry shall be the primary policy, planning, programming, coordinating, implementing, regulating, and

administrative entity of the Executive Branch of the government in the promotion, development and regulation of dependable and coordinated networks of transportation and communication system, as well as in the fast, sale, efficient and reliable postal, transportation and communication services. To accomplish such mandate, the Ministry shall have the following objectives: 1. Promote the development of dependable and coordinated networks of

transportation and communication systems; 2. Guide government and private investment in the development of the

country's inter- model transportation and communication systems in a most practical, expeditious, and orderly fashion for maximum safety, service, and cost effectiveness;

3. Impose appropriate measure so that technical, economic and other condition for the continuing economic viability of the transportation and communication entities are not jeopardized and do not encourage inefficiency and distortion of traffic patronage;

4. Develop an integrated plan for a nationwide transmission system in accordance with the national and international telecommunication service requirement including, among others,radio and television broadcast relaying, leased channel services and data transmission;

5. Guide government and private investment in the establishment, operation and maintenance of an international switching system for incoming and outgoing telecommunication services;

6. Encourage the development of a domestic telecommunication industry in coordination with the concern entities particularly, the manufacture of communications/ electronics equipment and components to complement and support as much as possible, the expansion, development, operation and maintenance of the nationwide telecommunications network;

7. Provide for a safe, reliable and efficient postal system for the country. AIR AIR TRANSPORTATION OFFICE EO 125. SECTION 12. Bureau of Air Transportation. The Bureau of Air Transportation, as reorganized herein, shall have the function of developing,



formulating and recommending plans, policies, program, projects, standards, specification and guidelines related to Air Transportation including air space utilization, air traffic control and aeronautics communication and information services, aircraft and air navigational facilities, services, maintenance and operations. For such purposes, it shall, with the approval of the Minister: 1. Establish and prescribe rules and regulations for the inspection and

registration of aircraft's; 2. Establish and prescribe rules and regulations for the issuance of

licenses to qualified airmen; 3. Establish and prescribe rules and regulations for the enforcement of

laws governing air transportation, including the penalties for violations thereof, and for the deputization of appropriate law enforcement agencies in pursuant thereof;

4. Determine, fix and/or prescribe charges and/or rates pertinent to the operation of public air utility facilities and services except in cases where charges or rates are established by international bodies or associations of which the Philippines is a participating member or by bodies or associations reorganized by the Philippine Government as the proper arbiter of such charges or rates;

5. Administer and operate the Civil Aeronautics Training Center; 6. Perform such other function as may be provided by law.

RA 776, Section 25. Organization of the Civil Aeronautics Administration. The Civil Aeronautics Administration shall be under the Administrative supervision and control of the Department of Commerce and Industry. The Civil Aeronautics Administration shall have one Chief and one Deputy Chief who shall be known as "Administrator" and "Deputy Administrator", respectively. CIVIL AERONAUTICS BOARD SECTION 5. Composition of the Board. - The Civil Aeronautics Board shall be composed of the Secretary of Transportation and Communications or his designated representative as Chairman, the Assistant Secretary for Air Transportation of the Department of Transportation and Communications as Vice-Chairman, the Commanding General of the Philippine Air Force* and two (2) members to be appointed by the President of the Philippines. They shall hold office at the pleasure of the President.

SECTION 10. Powers and duties of the Board. (A) Except as otherwise provided herein, the Board shall have the power to regulate the economic aspect of air transportation, and shall have the general supervision and regulation of, the jurisdiction and control over, air carriers, general sales agents, cargo sales agents, and airfreight forwarders as well as their property, property rights, equipment, facilities, and franchise, in so far as may be necessary for the purpose of carrying out the provisions of this Act. xxx (C) The Board shall have the following specific powers and duties: (1) In accordance with the provisions of Chapter 4 of this Act, to issue, deny, amend, revise, alter, modify, cancel, suspend, or revoke, in whole or in part, upon petition or complaint, or upon its own initiative, any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines. (2) To fix and determine reasonable individual, joint or special rates, charges or fares, which an air carrier may demand, collect or receive for any service in connection with air commerce. The Board may adopt any original, amended, or new individual, joint or special rates, charges or fares proposed by an air carrier if the proposed individual, joint, or special rates, charges for fares are not unduly preferential or unduly discriminatory or unreasonable. The burden of proof to show that the proposed individual, joint or special rates, charges or fares are just and reasonable shall be upon the air carrier proposing the same. In fixing rates, charges, fares under the provisions of this Act, the Board shall take into consideration, among other factors:

(a) The effect of such rates upon the movement of traffic; (b) The need in the public interest of adequate and efficient transportation of persons and property by air carriers at the lowest cost consistent with the furnishing of such service. (c) Such standards respecting the character and quality of service to be rendered by air carriers as may be prescribed by or pursuant to law;



(d) The inherent advantages of transportation by aircraft; and (e) The need of each air carrier for revenues sufficient to enable such air carrier, under honest, economical, and efficient management, to provide adequate and efficient air carrier service.

(3) To authorize any type of charters whether domestic or international and special air services or flight under such terms and conditions as in its judgment public interest requires. Notwithstanding the existence of bilateral air agreement, the CAB is authorized to grant any foreign airline increase in frequencies and/or capacities on international routes when in its judgment the national interest requires it, provided that the utilization of the increase frequencies and capacities is not more than thirty days. All grants of frequencies and/or capacities shall be subject to the approval of the President. (4) To approve or disapprove increase and/or decrease of capital, lease, purchase, sales of aircraft of air carrier engaged in air commerce; consolidation, merger, purchase, lease and acquisition and control of operating contracts between domestic foreign air carriers, or between domestic air carriers or any person engaged in any phase of aeronautics. (5) To inquire into the management of the business of any air carrier and, to the extent reasonably necessary for such inquiry, to obtain from such carrier, and from any person controlling, or controlled by, or under common control with, such air carrier, full and complete reports and othe informations. Such reports shall be under oath whenever the Board so requires. (6) To require annual, monthly, periodical, and special reports from any air carrier, to prescribe the manner and form in which such reports shall be made, and to require from any air carrier specific answers to all questions upon which the Board may deem information to be necessary. Such reports shall be under oath whenever the Board so requires. The Board may also require any air carrier to file with it any contract, agreement, understanding or arrangement, or a true copy thereof, between such air carrier and any other carrier or person, in relation to any traffic affected by the provisions of this Act. (7) To prescribe the forms of any and all accounts, records, and memoranda of the movement of traffic, as well as of the receipts and expenditures of

money, and the length of times such accounts, records and memoranda shall be preserved: Provided, that any air carrier may keep additional accounts, records, or memoranda if they do not impair the integrity of the accounts, records, or memoranda prescribed or approved by the Board and do not constitute an undue financial burden on such air carrier. (8) To require each officer and director of any air carrier to transmit a report describing the shares of stock with any persons engaged in any phase or other interest held by such air carrier of aeronautics, and the holding of the stock in and control of, other persons engaged in any phase of aeronautics. SECTION 11. Nature, terms and conditions. - Certificate of Public Convenience and Necessity is a permit issued by the Board authorizing a person to engage in air commerce and/or transportation, foreign and/or domestic. No person shall engage in air commerce unless there is in force a permit issued by the Board. No general sales agent, cargo sales agent or airfreight forwarder shall engage in any of the activities mentioned in Section 3 paragraphs (jj), (kk) and (ll) respectively, unless there is in force a permit or any other form of authorization issued by the Board. Any permit may be altered, amended, modified, suspended, canceled or revoked by the Board in whole or in part, upon complaints or petition or upon the Boardʼs initiative as hereinafter provided, whenever the Board finds such action to be in the public interest. There shall be attached to the exercise of the privileges granted by the permit, or amendment thereto, such reasonable terms, conditions, or limitations as, in the judgment of the Board, the public interest may require. No permit shall confer any proprietary, property, or exclusive right in the use of any air space, civil airway, landing area of government air navigation facility. The permit shall, among others specify the terminal and intermediate points, if any, between which the air carrier is authorized to operate the service to be rendered, the time of arrival and departure at each point, and the frequency of flights. Provided, that no change in routes, rates, schedules or frequency nor supplemental or additional flights to those covered by an air



commerce permit or franchise shall be affected without prior approval of the Civil Aeronautics Board. In so far as the operation is to take place within the Philippines, the permit shall designate the terminal and intermediate points only insofar as the Board shall deem practicable, and otherwise shall designate only the general route or routes to be followed. No carrier shall abandon any route, or part thereof for which a permit has been issued, unless upon findings by the Civil Aeronautics Board that such an abandonment is uneconomical and is in the public interest. SECTION 12. Citizenship requirement. - Except as otherwise provided, in the Constitution and existing treaty or treaties, permit authorizing a person to engage in domestic air commerce and/or transportation shall be issued only to citizens of the Philippines. CIVIL AERONAUTICS AUTHORITY (RA9497) 12 PAL V. CAB 23 SCRA 992 FACTS: Fairways petitioned the CAB for authority to operate its scheduled and non-scheduled domestic flights. Upon hearing, it was granted provisional authority to which PAL opposed. Fairways was sustained. HELD: The first ground is devoid of merit. Section 10-C(1) of Republic Act No. 776, reading: (C) The Board shall have the following specific powers and duties: (1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel suspend or revoke, in whole or in part, upon petitioner complaint, or upon its own initiative, any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines....

explicitly authorizes CAB to issue a "temporary operating permit," and nothing contained, either in said section, or in Chapter IV of Republic Act No. 776, negates the power to issue said "permit", before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own initiative," strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Moreover, we perceive no cogent reason to depart, in connection with the commercial air transport service, from the policy of our public service law, which sanctions the issuance of temporary or provisional permits or certificates of public convenience and necessity, before the submission of a case for decision on the merits. The overriding considerations in both instances are the same, namely, that the service be required by public convenience and necessity, and, that the applicant is fit, as well as willing and able to render such service properly, in conformity with law and the pertinent rules, regulations and requirements. 13 PAL V. CAB 270 SCRA 538 FACTS: PAL sought the annulment of the issuance of a temporary operating permit to Grand Air by the CAB. Grand Air has filed a petition for the issuance of a Certificate of Public Convenience and Necessity and upon compliance prayed for the issuance of the temporary permit. Mainly it alleges that Grand Air shouldnʼt be granted any temporary operating permit absent any legislative franchise to operate. PAL also alleged that the CBA had illegally exercised jurisdiction over the matter due to the same reason. HELD: There The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968.[12] The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity, and nothing contained in the said law negates the power to issue said permit before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its



own initiative" strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit. The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since Congress is that branch of government vested with plenary powers of legislation. Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature. The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control the operation of public services under reasonable rules and regulations, and as a general rule, courts will not interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right. It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent issuances governing the Philippine Ports Authority, proves that the PPA is empowered to undertake by itself the operation and management of the Manila International Container Terminal, or to authorize its operation and management by another by contract or other means, at its option. The latter power having been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary.

Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such requirements were enumerated in Section 21 of R.A. 776. There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress' control over any franchise, certificate or authority to operate a public utility, it does not mean Congress has exclusive authority to issue the same. Franchises issued by Congress are not required before each and every public utility may operate. In many instances, Congress has seen it fit to delegate this function to government agencies, specialized particularly in their respective areas of public service. LAND LAND TRANSPORTATION OFFICE SECTION 13. Bureau of Land Transportation. The Bureau of Land Transportation is hereby created and shall have the functions of developing, formulating and recommending plans, programs, policies, standards, specifications and guidelines pertaining to land transportation. For such purposes, it shall, with the approval of the Minister: 1. Establish a prescribe rules and regulations for routes, zones and/or

areas of particular operators of public land services; 2. Establish and prescribe rules and regulations for the issuance of

certificates of public convenience for the operation of public and land transportation utilities and services such as motor vehicles, trimobiles, and railroad lines;

3. Establish and prescribe rules and regulation for the inspection and registration of public and land transportation facilities such as motor vehicles, trimobiles, and railroad lines;

4. Establish and prescribe rules and regulations for the issuance of licenses to qualified motor vehicle drivers, trimobile drivers, motor vehicle conductors, train engineers and train conductors;



5. Establish and prescribe the corresponding rules and regulation for the enforcement of laws governing land transportation, including the penalties for violation thereof, and for the deputation of appropriate law enforcement agencies in pursuance thereof;

6. Determine, fix and/or prescribe charges and/or rates pertinent to the operation of public and land utility facilities and services except in cases where charges or rates are established by international bodies or association of which the Philippines is a participating member or by bodies or association recognized by the Philippine Government as the proper arbiter of such charges or rates;

7. Establish and prescribe the rules, regulations, procedures and standards for the accreditation of driving schools;

8. Performs such other functions as may be provided by law. LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD (LTFRB) EO 202. Sec. 1. Creation of the Land Transportation Franchising and Regulatory Board. There is hereby created in the Department of Transportation and Communications, the Land Transportation Franchising and Regulatory Board hereinafter referred to as the "Board". Sec. 2. Composition of the Board. The Board shall be composed of a Chairman and two (2) members with the same rank, salary and privileges of an Assistant Secretary, all of whom shall be appointed by the President of the Philippines upon recommendation of the Secretary of Transportation and Communications. One (1) member of the Board shall be a member of the Bar and shall have engaged in the practice of law in the Philippines for at least five (5) years, another a holder of a degree in civil engineering, and the other a holder of a degree in economics, finance or management both with the same number of years of experience and practice. Sec. 3. Executive Director and Support Staff of the Board. The Board shall have an Executive Director who shall also appointed by the President of the Philippines upon the recommendation of the Secretary of Transportation and Communications. He shall have the rank, salary and privileges of a Department Service Chief. He shall assist the Board in the performance of its powers and functions.

The Board shall be supported by the Technical Evaluation Division, Legal Division, Management Information Division, Administrative Division and Finance Division. Sec. 5. Powers and Functions of the Land Transportation Franchising and Regulatory Board. The Board shall have the following powers and functions: a. To prescribe and regulate routes of service, economically viable capacities and zones or areas of operation of public land transportation services provided by motorized vehicles in accordance with the public land transportation development plans and programs approved by the Department of Transportation and Communications; b. To issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the operation of public land transportation services provided by motorized vehicles, and to prescribe the appropriate terms and conditions therefor; c. To determine, prescribe and approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles; d. To issue preliminary or permanent injunction, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply; e. To punish for contempt of the Board, both direct and indirect, in accordance with the pertinent provisions of, and the penalties prescribed by, the Rules of Court; f. To issue subpoena and subpoena duces tecum and summon witnesses to appear in any proceedings of the Board, to administer oaths and affirmations; g. To conduct investigations and hearings of complaints for violation of the public service laws on land transportation and of the Board's rules and regulations, orders, decisions and/or rulings and to impose fines and/or penalties for such violations; h. To review motu proprio the decisions/actions of the Regional Franchising and Regulatory Office herein created; i. To promulgate rules and regulations governing proceedings before the Board and the Regional Franchising and Regulatory Office: Provided, That except with respect to paragraphs d, e, f and g hereof, the rules of procedure and evidence prevailing in the courts of laws should not be controlling and it is the spirit and intention of said rules that the Board and the Regional Franchising and Regulatory Offices shall use every and all reasonable



means to ascertain facts in its case speedily and objectively and without regard to technicalities of law and procedures, all in the interest of due process; j. To fix, impose and collect, and periodically review and adjust, reasonable fees and other related charges for services rendered; k. To formulate, promulgate, administer, implement and enforce rules and regulations on land transportation public utilities, standards of measurements and/or design, and rules and regulations requiring operators of any public land transportation service to equip, install and provide in their utilities and in their stations such devices, equipment facilities and operating procedures and techniques as may promote safety, protection, comfort and convenience to persons and property in their charges as well as the safety of persons and property within their areas of operations; l. To coordinate and cooperate with other government agencies and entities concerned with any aspect involving public land transportation services with the end in view of effecting continuing improvement of such services; and m. To perform such other functions and duties as may be provided by law, or as may be necessary, or proper or incidental to the purposes and objectives of this Executive Order. Sec. 6. Decision of the Board; Appeals therefrom and/or Review thereof. The Board, in the exercise of its powers and functions, shall sit and render its decisions en banc. Every such decision, order, or resolution of the Board must bear the concurrence and signature of at least two (2) members thereof. The decision, order or resolution of the Board shall be appealable to the Secretary within thirty (30) days from receipt of the decision: Provided, That the Secretary may motu proprio review any decision or action of the Board before the same becomes final. Sec. 7. Creation of Regional Franchising and Regulatory Offices. There shall be a Regional Franchising and Regulatory Office in each of the administrative regions of the country which shall be headed by a Board Regional Manager having the rank, salary and privileges of a Department Assistant Regional Director. The Regional Franchising and Regulatory Offices shall hear and decide uncontested applications/petitions for routes, within their respective administrative regions: Provided, That

applications/petitions for routes extending their respective territorial jurisdictions shall be heard and decided by the Board. 14 KMU LABOR CENTER V. GARCIA 239 SCRA 386 FACTS: Certain orders and circulars of the DOTC and LFTRB are being assailed for its unconstitutionality and illegality. These pertain to, but not limited to the following-- (a) authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing and due process. HELD: On the fare-ranging scheme… Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles."



In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. A further delegation of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. The policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to do so. On the presumption of public need… While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states: The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor's. The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service proposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail.

By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basic requirements for the grant of a CPC, 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 non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators. Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. WATER SECTION 14. Maritime Industry Authority. The Maritime Industry Authority is hereby retained and shall have the following functions: 1. Develop and formulate, plans, policies, programs, project, standards,

specifications and guidelines geared towards the promotion and development of the Maritime Industry, the growth and effective regulation of shipping enterprises, for the national security objectives of the country;

2. Establish, prescribe and regulate routes, zones and /or areas of operation of particular operators of public water services;

3. Issue certificates of public convenience for the operation of domestic and overseas water carriers;

4. Register vessels as well as issue certificates, licenses or documents necessary or incident thereto;

5. Undertake the safety regulatory functions pertaining to vessels construction and operations including the determination of manning levels and issuance of certificates competency to seamen;

6. Enforce laws, prescribe and enforce rules and regulation, including penalties for violation thereof, governing water transportation and the Philippine merchant marine with the aid of other law enforcement agencies;



7. Undertake the issuance of licenses to qualified seamen and harbor, bay and river pilots;

8. Determine, fix and/or prescribe charges and/or rates pertinent to the operation of public water transport utilities, facilitate all services except in cases where charges or rates are established by international bodies or association of which the Philippine is a participating member or by bodies or association recognized by the Philippine Government as the proper arbiter of such charges or rates;

9. Accredit marine surveyors and maritime enterprises engaged in shipbuilding, ship repair, ship breaking, domestic and overseas shipping, ship management and agency;

10. Supervise the Philippine Merchant Marine Academy as recognized herein in accordance with its charter, the provision hereof and applicable laws, rules and regulation under the chairmanship of the maritime administrator;

11. Issue and register the Continuous Discharge Book of Filipino Seamen; 12. Establish and prescribe rules and regulation, standards and procedures

for the efficient and effective discharge of the above functions; 13. Perform such other function as may now or hereafter be provided by the

law.

COMMON CARRIERS

IN GENERAL

DEFINITIONS; ESSENTIAL ELEMENTS 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. ELEMENTS OF COMMON CARRIER OPEN FOR DISCUSSION:

(1) Persons, corporations, associations or firms (2) Engaged in the business of carrying or transporting (3) For compensation (4) Public—the same “public” term employed in public utilities

PERSONS, CORPORATIONS, ASSOCIATIONS, OR FIRMS, WHAT DOES IT ENTAIL?

• Important for suability PUBLIC, WHAT DOES IT MEANS

• Engenders the same notion with public utilities • Not confined to privileged individuals, but is open to the indefinite

public • Doesnʼt have to make reference to all the people in a given

population as long as the offer to provide the service is made indiscriminately whether to a certain section of the population or the whole populace

• One of the tests: public may enjoy it by right or only by permission? • It is connected with the conduct of offering (see US v. Tan Piaco) or

mode of doing it FOR COMPENSATION, MEANING

• When he holds himself to the public as he holds business for compensation and not for free

ENGAGED IN CARRYING OR TRANSPORTING, MEANING.

• De Guzman v. Court of Appeals: 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; 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 it 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.

15 US V. TAN PIACO

IMPORTANT!!! Burden of proof upon the one who alleges the other is a common

carrier



40 PHIL 853 FACTS: The appellant rented two automobile trucks and was using them upon the highways of the Province of Leyte for the purpose of carrying some passengers and freight; that he carried passengers and freight under a special contract in each case; that he had not held himself out to carry all passengers and all freight for all persons who might offer passengers and freight. He was charged consequently for violating the Public Utility Act for operating a public utility without authorization from the Commission. In settling this issue, it should be determined if appellant was operating a public utility. HELD: Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694, provides that: "The Public Utility Commission or Commissioners shall have general supervision and regulation of, jurisdiction and control over, all public utilities. . . . The term 'public utility' is hereby defined to include every individual, copartnership, association, corporation or joint stock company, etc., etc., that now or hereafter may own, operate, managed, or control any common carrier, railroad, street railway, etc., etc., engaged in the transportation of passengers, cargo, etc., etc., for public use." Under the provisions of said section, two things are necessary: (a) The individual, copartnership, etc., etc., must be a public utility; and (b) the business in which such individual, copartnership, etc. etc., is engaged must be for public use. So long as the individual or copartnership, 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." The essential feature of the public use is that it is not confined to privilege individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In determining whether a use is public, we must look not only the character of the business to be done, but also to the proposed mode of doing it. 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. There must be, in general, a right which the law compels the power to give to the general public. It is not enough that the general prosperity of the public is promoted. 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. For all of the foregoing reasons, we agree with the Attorney-General that the appellant was not operating a public utility, for public use, and was not, therefore, subject to the jurisdiction of the Public Utility Commission. 16 HOME INSURANCE V. AMERICAN STEAMSHIP 23 SCRA 24 FACTS: "Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading. The cargo, consigned to San Miguel Brewery, and insured by Home Insurance Company arrived in Manila and was discharged into the lighters of Luzon Stevedoring Company. When the cargo was delivered to consignee San Miguel Brewery Inc., there were shortages causing the latter to lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies, owner and operator of SS Crowborough. Because the others denied liability, Home Insurance Company paid the consignee the insurance value of the loss, as full settlement of the claim. Having been refused reimbursement by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed against them. HELD: A perusal of the charter party referred to shows that while the possession and control of the ship were not entirely transferred to the charterer, the vessel was chartered to its full and complete capacity. Furthermore, the, charter had the option to go north or south or vice-versa, loading, stowing and discharging at its risk and expense. Accordingly, the charter party contract is one of affreightment over the whole vessel rather than a demise.



As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation. Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods caused by personal want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable except for said paragraph.. The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. 17 DE GUZMAN V. CA 168 SCRA 612 FACTS: Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which various merchants wanted to be delivered to differing establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than regular commercial rates. On the relevant date, he was contracted for the shipping of packaged milk but these did not make it to their destination for the trucks were hijacked on the road. Consequently, petitioner sought recovery of the value of the milk, interest, damages amongst others. He alleged that being a common carrier, respondent should have exercised extraordinary diligence.

HELD: The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a periodic or occasional rather than regular or scheduled manner, and even though private respondent's principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here. Absent any CPCN, a certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common



carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations. Note: the court was wrong when it rendered Cendana as a common carrier. It was wrong also for the court to rely on article 1745 since this provision provides for prohibited stipulations. WHAT ARE THE ARGUABLE CONSEQUENCES OF THE DECISION IN DE GUZMAN AND SUBSEQUENT CASES?

(1) Shangri-La hotel may be argued to be a common carrier since it provides transportation services to those who lodge in their hotel

(2) Asian hospital may likewise be considered as a common carrier because it furnishes its patients ambulance service to and from the hospital

(3) A person who owns a jeepney which is kept in his garage for 364 days a year and uses it just once to bring his family to a trip, and correspondingly, allows other people to have a free ride to Cubao, may be considered as a common carrier.

18 BASCOS V. CA 221 SCRA 318 FACTS: Cipriano entered into a hauling contract with Jibfair Shipping Agency for the hauling of soy bean meal to a Pure Foods warehouse. In turn, the former entered into a subcontract with petitioner. Petitioner failed to deliver the cargo and subsequently Cipriano was asked to pay for the amount of the undelivered soya bean meal. Cipriano in turn sought reimbursement from petitioner. HELD: The test to determine a common carrier is whether the given undertaking is part of a business engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the business transacted. In this case, the petitioner herself has made the admission that she was in the trucking business.

19 PLANTERS PRODUCTS V. CA 226 SCRA 476 FACTS: Petitioner ordered from Mitsubishi International urea fertilizer. The latter in turn shipped the same through a vessel owned by another. The two parties entered into a charter party which included some agreements regarding inspection, loading/unloading, among other concerns. When the shipment arrived and petitioner had it surveyed, it was discovered there was deficiency and that some were contaminated with dirt. Planters filed a complaint consequently with the resident agent of KKKK, the ship owner. The respondent denies liability on the ground that provisions on common carriers isnʼt applicable as they have become private carriers through the operation of the charter party. HELD: A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight. Charter parties are of two types: (a) contract of affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command and possession and consequent control over its navigation, including the master and the crew, who are his servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the ship. Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. The definition extends to carriers either by land, air or water which hold themselves out as ready to engage in carrying goods or transporting passengers or both for compensation as a public employment



and not as a casual occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the business, such that if the undertaking is a single transaction, not a part of the general business or occupation, although involving the carriage of goods for a fee, the person or corporation offering such service is a private carrier. Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business, should observe extraordinary diligence in the vigilance over the goods they carry. In the case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. On the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or deterioration of the goods carried has the onus of proving that the cause was the negligence of the carrier. It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner and therefore continued to be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer did not have any control of the means in doing so. This is evident in the present case considering that the steering of the ship, the manning of the decks, the determination of the course of the voyage and other technical incidents of maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the shipowner. It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or

voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. 20 FABRE V. CA 259 SCRA 426 FACTS: Petitioners were the owners of a minibus which they used as school service for students, mostly those who studied in St. Scholastica Manila. They employed a driver who drove the minibus in its school services. On a relevant date, WWCF hired the services of the petitioners for transportation from and back to Manila, going to La Union. The bus left late and since one of the roads to be passed through was under repair, a different route was taken by petitioner driver. And since he was unfamiliar with the route he was taking, and the road being slippery due to the rains, he wasnʼt able to notice a sharp curve till it was too late. This resulted to numerous injuries to his passengers and likewise, to the vehicle. HELD: Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the congregation's delayed meeting) could have a averted the mishap and (2) under the contract, the WWCF was directly responsible for the conduct of the trip. Neither of these contentions hold water. The hour of departure had not been fixed. Even if it had been, the delay did not bear directly on the cause of the accident. With respect to the second contention, it was held in an early case that: [A] person who hires a public automobile and gives the driver directions as to the place to which he wishes to be conveyed, but exercises no other control over the conduct of the driver, is not responsible for acts of negligence of the latter or prevented from recovering for injuries suffered from a collision between the automobile and a train, caused by the negligence or the automobile driver. As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to be engaged in the business of public transportation for the provisions of the Civil Code on common carriers to apply to them.



As common carriers, the Fabres were found to exercise "extraordinary diligence" for the safe transportation of the passengers to their destination. This duty of care is not excused by proof that they exercise the diligence of a good father of the family in the selection and supervision of their employee. As Art. 1759 of the Code provides: Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former's employees although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. 21 FIRST PHILIPPINE INDUSTRIAL CORPORATION V. CA 300 SCRA 661 FACTS: Petitioner was granted a pipeline concession by the government under the Petroleum Act. It applied for a mayorʼs permit on a relevant date but before it was entertained, it was required to pay for local taxes based on its gross receipts. Petitioner claims that it is exempted from payment, given that it is one given a concession under the Petroleum Act. Respondent on the other hand, alleges that the petitioner is not a common carrier to be exempted from local and business taxes. HELD: A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is: 1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods 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. Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. 22 ASIA LIGHTERAGE V. CA 409 SCRA 340 FACTS: Better Western White Wheat was shipped on board a vessel for delivery to consignee General Milling Corporation. The latter contracted the services of petitioner to deliver the goods to its warehouse upon arrival. The goods arrived and were loaded in petitionerʼs barge. The transport of the goods was suspended due to news of an incoming typhoon. Thereafter, several mishaps happened to the barge. It developed a list, then it almost sank completely twice during its voyage. It consequently filed marine protests for the same. General Milling wrote to petitioner regarding the goods which obviously was destroyed during the whole voyage. It sought indemnity from the insurance company and the latter then sought indemnity from the petitioner. Petitioner alleged that it wasnʼt a common carrier, among others. HELD: In the case at bar, the principal business of the petitioner is that of lighterage and drayage and it offers its barges to the public for carrying or transporting goods by water for compensation. Petitioner is clearly a common carrier. In



De Guzman, we considered private respondent Ernesto Cendaña to be a common carrier even if his principal occupation was not the carriage of goods for others, but that of buying used bottles and scrap metal in Pangasinan and selling these items in Manila. Therefore, petitioner is a common carrier whether its carrying of goods is done on an irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets. To be sure, petitioner fits the test of a common carrier. The test to determine a common carrier is "whether the given undertaking is a part of the business engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the business transacted." In the case at bar, the petitioner admitted that it is engaged in the business of shipping and lighterage, offering its barges to the public, despite its limited clientele for carrying or transporting goods by water for compensation. 23 CRISOSTOMO V. COURT OF APPEALS 409 SCRA 528 FACTS: Crisostomo engaged the services of Carnival Tours to facilitate her travel and booking needs to join a tour called the Jewels of Europe. She was duly assisted and was given a discount, since her niece was an employee in said agency. When her niece delivered the pertinent travel documents to her, she was informed that her flight was on a Saturday. Without checking her documents, she proceeded only to find out she was a day late for her flight. She then complained against the agency who told her she could avail of another tour upon payment of an additional fee. She did so and when she returned from her tour, she demanded for reimbursement from the agency of the difference in amounts between her prior booked tour and the tour she actually took. She wasnʼt reimbursed and she was then prompted to file the complaint. HELD: The travel agency is not an entity engaged in the business of transporting either passengers or goods and is therefore neither a public or private

common carrier. Its simple covenant was to only make travel arrangements in their behalf. And as such, it is not bound under the law to exercise extraordinary diligence in the performance of its obligations, as petitioner claims. This notwithstanding, there is no finding of concurrent negligence from respondent agency. Evidence shows that there was indeed due diligence on its part in making the necessary arrangements for petitioner. It was through petitionerʼs own fault and negligence that she incurred any injury. NATURE OF BUSINESS; POWER OF 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. 24 PANTRANCO V. PSC 70 PHIL 221 FACTS: HELD: The National Assembly, by virtue of the Constitution, logically succeeded to the Congress of the United States in the power to amend, alter or repeal any franchise or right granted prior to or after the approval of the Constitution; and when Commonwealth Acts Nos. 146 and 454 were enacted, the National Assembly, to the extent therein provided, has declared its will and purpose to amend or alter existing certificates of public convenience.

Upon the other hand, statutes enacted for the regulation of public utilities, being a proper exercise by the state of its police power, are applicable not only to those public utilities coming into existence after its passage, but likewise to those already established and in operation. This right of the state to regulate public utilities is founded upon the police power, and statutes for the control and regulation of utilities are a legitimate



exercise thereof, for the protection of the public as well as of the utilities themselves. Such statutes are, therefore, not unconstitutional, either impairing the obligation of contracts, taking property without due process, or denying the equal protection of the laws, especially inasmuch as the question whether or not private property shall be devoted to a public and the consequent burdens assumed is ordinarily for the owner to decide; and if he voluntarily places his property in public service he cannot complain that it becomes subject to the regulatory powers of the state. NATURE AND BASIS OF LIABILITY Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756. 25 CANGCO V. MRR 38 PHIL 767 FACTS: This is the same Torts case wherein when Cangco alighted from the train, he slipped from the platform due to some melons negligently placed therein. He suffered serious injuries due to the accident and filed a case against MRR. HELD: It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and immediate, differing essentially, in legal viewpoint from that presumptive responsibility for the negligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu,

but only to extra-contractual obligations � or to use the technical form of expression, that article relates only to culpa aquiliana and not to culpa contractual. The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to provide safe means of entering and leaving its trains (civil code, article 1258). 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 defendant's servants. 26 ISAAC V. A.L. AMMEN 101 PHIL 1046 FACTS: Isaac was a passenger in one of Ammenʼs buses transversing the Albay-Camarines Sur route. During the voyage, the bus collided with another motor vehicle which caused Isaac to severe his arm. He underwent serious medical treatment and as a result thereof, he filed a complaint against the bus company. HELD: From the above legal provisions, we can make the following restatement of the principles governing the liability of a common carrier: (1) the liability of a carrier is contractual and arises upon breach of its obligation. There is breach if it fails to exert extraordinary diligence according to all circumstances of each case; (2) a carrier is obliged to carry its passenger with the utmost diligence of a very cautious person, having due regard for all the circumstances; (3) a carrier is presumed to be at fault or to have acted negligently in case of death of, or injury to, passengers, it being its duty to prove that it exercised extraordinary diligence; and (4) the carrier is not an insurer against all risks of travel. The question that now arises is: Has defendant observed extraordinary diligence or the utmost diligence of every cautious person, having due regard for all circumstances, in avoiding the collision which resulted in the injury caused to the plaintiff? The evidence would appear to support the above finding. Thus, it appears that Bus No. 31, immediately prior to the collision, was running at a



moderate speed because it had just stopped at the school zone of Matacong, Polangui, Albay. The pick-up car was at full speed and was running outside of its proper lane. The driver of the bus, upon seeing the manner in which the pick-up was then running, swerved the bus to the very extreme right of the road until its front and rear wheels have gone over the pile of stones or gravel situated on the rampart of the road. Said driver could not move the bus farther right and run over a greater portion of the pile, the peak of which was about 3 feet high, without endangering the safety of his passengers. And notwithstanding all these efforts, the rear left side of the bus was hit by the pick-up car. 27 FORES V. MIRANDA 105 PHIL 266 FACTS: Miranda was a passenger in a jeep owned by Fores. Since the jeep was driving at excessive speed and it lost control while crossing a bridge, it collided with the bridge wall causing the passengers, one of whom was Miranda, serious physical injuries. HELD: It is also suggested that a carrier's violation of its engagement to safety transport the passenger involves a breach of the passenger's confidence, and therefore should be regarded as a breach of contract in bad faith, justifying recovery of moral damages under Art. 2220. This theory is untenable, for under it the carrier would always be deemed in bad faith, in every case its obligation to the passenger is infringed, and it would be never accountable for simple negligence; while under the law (Art. 1756). the presumption is that common carriers acted negligently (and not maliciously), and Art. 1762 speaks of negligence of the common carrier. The action for breach of contract imposes on the defendant carrier a presumption of liability upon mere proof of injury to the passenger; that latter is relieved from the duty to established the fault of the carrier, or of his employees, and the burden is placed on the carrier to prove that it was due to an unforseen event or to force majeure (Cangco vs. Manila Railroad Co., 38 Phil., 768, 777). Moreover, the carrier, unlike in suits for quasi-delict, may not escape liability by proving that it has exercised due diligence in the selection and supervision of its employees (Art. 1759, new civil code;

Cangco vs. Manila Railroad Co., supra; Prado vs. Manila Electric Co., 51 Phil., 900). 28 PHIL. RABBIT V. IAC 189 SCRA 159 FACTS: On Christmas eve, passengers were on board a jeepney. The jeepneyʼs right rear tire suddenly cut loose causing the jeep to take a sharp and swift u-turn to the opposite lane of the road. This was evinced by the skid marks on the road. As it made the sharp u-turn to the opposite side, petitionerʼs bus bumped the jeepney. This caused the death and serious physical injuries of the passengers of the jeep. HELD: The principle about "the last clear" chance, would call for application in a suit between the owners and drivers of the two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual obligations. For it would be inequitable to exempt the negligent driver of the jeepney and its owners on the ground that the other driver was likewise guilty of negligence. In this case, evidence shows that the bus driver could not be held liable for the deaths and serious physical injuries of the jeepneyʼs passengers. He could not have foreseen the sharp u-turn made by the jeepney when its right rear tire got loose. It shows as well that the bus was traveling at an expected speed in the highway. 29 LRTA V. NAVIDAD 397 SCRA 75 FACTS: This is the same Torts case wherein there was an altercation between a drunk passenger and a security guard which eventually led to the untimely demise of the passenger when he fell in the tracks and got hit. HELD: The law requires common carriers to carry passengers safely using the utmost diligence of very cautious persons with due regard for all



circumstances. Such duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip but for so long as the passengers are within its premises and where they ought to be in pursuance to the contract of carriage. The statutory provisions render a common carrier liable for death of or injury to passengers (a) through the negligence or wilful acts of its employees or (b) on account of wilful acts or negligence of other passengers or of strangers if the common carrierʼs employees through the exercise of due diligence could have prevented or stopped the act or omission. In case of such death or injury, a carrier is presumed to have been at fault or been negligent, and8 by simple proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier or of its employees and the burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to force majeure. In the absence of satisfactory explanation by the carrier on how the accident occurred, which petitioners, according to the appellate court, have failed to show, the presumption would be that it has been at fault, an exception from the general rule that negligence must be proved. The foundation of LRTAʼs liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage. CLASSES OF COMMON CARRIERS Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756. Art. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. LAWS APPLICABLE Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration.

COMMON CARRIER OF GOODS

LIABILITY AND PRESUMPTION OF NEGLIGENCE



CARRIAGE OF

GOODS CARRIAGE OF PASSENGERS

DEGREE OF NEGLIGENCE

Extraordinary diligence Extraordinary diligence

PRESUMPTION OF NEGLIGENCE

Loss, deterioration, damage

Death or injury

WHEN DOES PRESUMPTION OF NEGLIGENCE DOESNʼT ATTACH

Flood, storm, earthquake, lightning, or other natural disaster Act of public enemy in war, whether international or civil Act or omission of the shipper or owner of goods The character of goods

None

or defects in the packing or in the containers Order or act of competent authority

MAY COMMON CARRIER BE STILL HELD LIABLE OTHER THAN BREACH OF CONTRACT OF CARRIAGE?

Yes, under jurisprudence, the following circumstances may prompt liability on the part of the common carrier—

• Delay • Rude conduct (Zulueta v. Pan America) • Article 20 and 21

Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756. Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act 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. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.

Extraordinary diligence

Presumption of negligence

Goods

Damage Deterioration

Destruction

Passengers

Death Injury



Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in Articles 1733 and 1755. 30 YNCHAUSTI STEAMSHIP V. DEXTER 41 PHIL 289 FACTS: Petitioner filed for mandamus against the government for payment of its shipping fees for the shipment of mineral oil. The government withheld payment on the ground that there was loss of one or two of its caskets. HELD: In section 646 of the Administrative Code it is provided that when Government property is transmitted from one place to another by carrier, it shall be upon proper bill of lading, or receipt, from such carrier, and it shall be the duty of the consignee, or his representative, to make full notation of any evidence of loss, shortage, or damage, upon the bill of lading, or receipt, before accomplishing it. It is admitted by the petitioner in the agreed statement of facts that the consignee, at the time the oil was delivered, noted the loss in the present case upon the two respective bills of lading. The notation of these losses by the consignee, in obedience to the precept of section 646 of the Administrative Code, is competent evidence to show that the shortage in fact existed. As the petitioner admits that the oil was received by it for carriage and inasmuch as the fact of loss is proved in the manner just stated, it results that there is a presumption that the petitioner was to blame for the loss; and it was incumbent upon the petitioner in order to entitle it to relief in the case to rebut that presumption by proving, as is alleged in the petition, that the loss was not due to any fault or negligence of the petitioner. 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. (4 R. C. L., p. 917.) It is incumbent upon the carrier to prove that the loss was due to accident or some other circumstance inconsistent with its liability. (Articles 361-363, Code of Commerce.) Indeed, if the Government of the Philippine Islands had

instituted an action in a court of law against the petitioner to recover the value of the oil lost while these consignments were in the court of transportation, it would, upon the facts appearing before us, have been entitled to judgment. From this it is apparent that the mandamus prayed for cannot be granted. It is a rule of universal application that a petition for extraordinary relief of the character here sought must show merit. That is, the petitioner's right to relief must be clear. Such cannot be said to be the case where, as here, a presumption of responsibility on the part of the petitioner stands unrefuted upon the record. 31 MIRASOL V. DOLLAR 53 PHIL 125 FACTS: Plaintiff was the owner and shipper of goods of books from New York. He sought the shipment of the books to Manila through engaging the services of defendant. A bill of lading included a clause limiting defendantʼs liability but the same wasnʼt signed by defendant or otherwise known to him. Upon arrival of the books, it was in bad order, prompting plaintiff to file an action against defendant for damages. HELD: The defendant having received the two boxes in good condition, its legal duty was to deliver them to the plaintiff in the same condition in which it received them. From the time of their delivery to the defendant in New York until they are delivered to the plaintiff in Manila, the boxes were under the control and supervision of the defendant and beyond the control of the plaintiff. The defendant having admitted that the boxes were damaged while in transit and in its possession, the burden of proof then shifted, and it devolved upon the defendant to both allege and prove that the damage was caused by reason of some fact which exempted it from liability. As to how the boxes were damaged, when or where, was a matter peculiarly and exclusively within the knowledge of the defendant and in the very nature of things could not be in the knowledge of the plaintiff. To require the plaintiff to prove as to when and how the damage was caused would force him to call and rely upon the employees of the defendant's ship, which in legal effect would be to say that he could not recover any damage for any reason. That



is not the law. Shippers who are forced to ship goods on an ocean liner or any other ship have some legal rights, and when goods are delivered on board ship in good order and condition, and the shipowner delivers them to the shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove that the goods were damaged by the reason of some fact which legally exempts him from liability; otherwise, the shipper would be left without any redress, no matter what may have caused the damage. In the final analysis, the cases were received by the defendant in New York in good order and condition, and when they arrived in Manila, they were in bad condition, and one was a total loss. The fact that the cases were damaged by "sea water," standing alone and within itself, is not evidence that they were damaged by force majeure or for a cause beyond the defendant's control. The words "perils of the sea," as stated in defendant's brief apply to "all kinds of marine casualties, such as shipwreck, foundering, stranding," and among other things, it is said: "Tempest, rocks, shoals, icebergs and other obstacles are within the expression," and "where the peril is the proximate cause of the loss, the shipowner is excused." "Something fortuitous and out of the ordinary course is involved in both words 'peril' or 'accident'." EXEMPTION FROM LIABILITY NATURAL DISASTER Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

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

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be

exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in Article 1734, No. 2. Art. 1740. If 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 Commerce. Merchandise shall be transported at the risk and venture of the shipper, unless the contrary was expressly stipulated. Therefore, all damages and impairment suffered by the goods in transportation, by reason of accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the account and risk of the shipper. The proof of these accidents in incumbent on the carrier. ELEMENTS FOR THE EXEMPTION OF NATURAL DISASTER TO APPLY—

(1) The natural disaster is the proximate and only cause of the loss, deterioration, and destruction

(2) The carrier exercised due diligence to prevent or minimize loss before, during or after the occurrence of the natural disaster or calamity

a. The carrier isnʼt allowed to just fold his hands by virtue of the natural disaster

(3) The carrier must not have negligently incurred in delay in transporting the goods

a. As a general rule, delay is punished and looked at by law as a kind of breach

b. Cf. Article 1169 32 TAN CHIONG V. YNCHAUSTI 22 PHIL 153 FACTS: Tan Choing engaged the services of defendant for the shipment of cases of general merchandise. However, it is alleged that the merchandise was almost lost for the failure of defendant to ship the same.



HELD: The general rule established in the first of the foregoing articles is that the loss of the vessel and of its cargo, as the result of shipwreck, shall fall upon the respective owners thereof, save for the exceptions specified in the second of the said articles.

These legal provisions are in harmony with those of articles 361 and 362 of the Code of Commerce, and are applicable whenever it is proved that the loss of, or damage to, the goods was the result of a fortuitous event or of force majeure; but the carrier shall be liable for the loss or the damage arising from the causes aforementioned, if it shall have been proven that they occurred through his own fault or negligence or by his failure to take the same precautions usually adopted by diligent and careful persons.

In the contract made and entered into by and between the owner of the goods and the defendant, no term was fixed within which the said merchandise should be delivered to the former at Catarman, nor was it proved that there was any delay in loading the goods and transporting them to their destination. From the 28th of November, when the steamer Sorsogon arrived at Gubat and landed the said goods belonging to Ong Bieng Sip to await the lorcha Pilar which was to convey them to Catarman, as agreed upon, no vessel carrying merchandise made the voyage from Gubat to the said pueblo of the Island of Samar, and with Ong Bieng Sip's merchandise there were also to be shipped goods belonging to the defendant company, which goods were actually taken on board the said lorcha and suffered the same damage as those belonging to the Chinaman. So that there was no negligence, abandonment, or delay in the shipment of Ong Bieng Sip's merchandise, and all that was done by the carrier, Inchausti & Co., was what it regularly and usually did in the transportation by sea from Manila to Catarman of all classes of merchandise. No attempt has been made to prove that any course other than the foregoing was pursued by that firm on this occasion; therefore the defendant party is not liable for the damage occasioned as a result of the wreck or stranding of the lorcha Pilar because of the hurricane that overtook this craft while it was anchored in the port of Gubat, on December 5, 1908, ready to be conveyed to that of Catarman. 33 MARTINI V. MACONDRAY 39 PHIL 934

FACTS: Martini engaged the services of defendant for the shipment of several cases of chemical products from Manila to Japan. Under the bill of lading, the goods shall be carried on deck entirely at the shipperʼs risk. When the shipment arrived in Japan, it was damaged. Plaintiff sought recovery of damages from defendant. HELD: The defendant company cannot be held liable. Where a cargo is shipped with the ownerʼs consent, on the deck of the vessel upon a bill of lading exempting the ship owner from liability for damage, the risk of any damages resulting from the voyage must be borne by the owner. 34 EASTERN SHIPPING V. IAC 150 SCRA 463 FACTS: M/S Asiatica was a vessel owned by petitioner, which loaded carolized lance pipes consigned to Phil. Blooming Mills and cases of spare parts, this time consigned to Central Textile Mills. Likewise, cartons of general merchandise and garments, and surveying instruments were loaded. On the way to Manila, the ship caught fire and sank. This resulted to the loss of all the cargo shipped therein. HELD: As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law. In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law.



The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily. 35 ASIA LIGHTERAGE V. CA Supra HELD: n the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the goods, and that it has exercised due diligence before, during and after the occurrence of the typhoon to prevent or minimize the loss. The evidence show that, even before the towing bits of the barge broke, it had already previously sustained damage when it hit a sunken object while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partly-submerged vessel was refloated but its hole was patched with only clay and cement. The patch work was merely a provisional remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly exposed the cargo to further damage. Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape liability for the loss sustained by the private

respondent. Surely, meeting a typhoon head-on falls short of due diligence required from a common carrier. More importantly, the officers/employees themselves of petitioner admitted that when the towing bits of the vessel broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor, i.e., negligence had intervened. ACT OF PUBLIC ENEMY xxx (2) Act of the public enemy in war, whether international or civil; Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in Article 1734, No. 2. ACT OR OMISSION OF SHIPPER xxx (3) Act of omission of the shipper or owner of the goods; Art. 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages, which however, shall be equitably reduced. CHARACTER OF GOODS, ETC. xxx (4) The character of the goods or defects in the packing or in the containers; Art. 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages, which however, shall be equitably reduced.



Article 366, Code of Commerce. Within the 24 hours following the receipt of the merchandise a claim be brought against the carrier on account of damage or average found therein on opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim would only be admitted on the receipt of the package. After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. 36 GOVERNMENT V. YNCHAUSTI 40 PHIL 219 FACTS: The government shipped through Ynchaustiʼs vessel, roofing tiles, to Manila. Upon delivery of the tiles to the consignee of the government, the tiles were found to be damaged. The tiles in this case were admittedly of fragile nature and were shipped in bundles, without any protective covering. The question arises regarding the alleged negligence of the carrier in shipping the tiles. HELD: Under the provisions of article 361 the defendant, in order to free itself from liability, was only obliged to prove that the damages suffered by the goods were "by virtue of the nature or defect of the articles." Under the provisions of article 362 the plaintiff, in order to hold the defendant liable, was obliged to prove that the damages to the goods by virtue of their nature, occurred on account of its negligence or because the defendant did not take the precaution usually adopted by careful persons. The defendant herein proved, and the plaintiff did not attempt to dispute, that the tiles in question were of a brittle and fragile nature and that they were delivered by the plaintiff to the defendant without any packing or protective covering. The defendant also offered proof to show that there was no negligence on its part, by showing that the tiles were loaded, stowed, and discharged in a careful and diligent manner.

In this jurisdiction there is no presumption of negligence on the part of the carriers in case like the present. The plaintiff, not having proved negligence on the part of the defendant, is not entitled to recover damages. 37 SOUTHERN LINES V. CA 4 SCRA 256 FACTS: The City of Iloilo requisitioned rice from NARIC, based on Manila. Upon order of the same, NARIC shipped through Southern Lines the sacks of rice. Upon receipt of the same, the city government paid for it and noted down in the bill of lading that the rice received was lesser than what was ordered. This gave rise to a complaint against the shipper and NARIC. HELD: Under the provisions of Article 361, the defendant-carrier in order to free itself from liability, was only obliged to prove that the damages suffered by the goods were "by virtue of the nature or defect of the articles." Under the provisions of Article 362, the plaintiff, in order to hold the defendant liable, was obliged to prove that the damages to the goods by virtue of their nature, occurred on account of its negligence or because the defendant did not take the precaution adopted by careful persons. Petitioner claims exemption from liability by contending that the shortage in the shipment of rice was due to such factors as the shrinkage, leakage or spillage of the rice on account of the bad condition of the sacks at the time it received the same and the negligence of the agents of respondent City of Iloilo in receiving the shipment. The contention is untenable, for, if the fact of improper packing is known to the carrier or his servants, or apparent upon ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injury resulting thereform. (9 Am Jur. 869.) Furthermore, according to the Court of Appeals, "appellant (petitioner) itself frankly admitted that the strings that tied the bags of rice were broken; some bags were with holes and plenty of rice were spilled inside the hull of the boat, and that the personnel of the boat collected no less than 26 sacks of rice which they had distributed among themselves." This finding, which is binding upon this Court, shows that the shortage resulted from the negligence of petitioner.



ORDER OF COMPETENT AUTHORITY 38 GANZON V. CA 161 SCRA 646 FACTS: Tumambing contracted the services of Ganzon for the shipping of tons of scrap iron from Mariveles to Manila. Ganzon was the owner of the ligther LCT “Batman”. While the scrap iron was being loaded to the lighter, the mayor of Mariveles arrived and demanded money from Tumambing. This led to an altercation and the shooting of Tumambing. After Tumambing was rushed to the hospital and the loading of scrap iron was resumed, the acting mayor demanded from Ganzon to throw the scrap iron already loaded to the dock and the remaining scrap to be transported to another place. Upon order of the mayor, Ganzon complied. This led to a case filed by Tumambing against Ganzon for damages. Ganzon was held liable. HELD: By the said act of delivery, the scraps were unconditionally placed in the possession and control of the common carrier, and upon their receipt by the carrier for transportation, the contract of carriage was deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the loss, destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee, or to the person who has a right to receive them. The fact that part of the shipment had not been loaded on board the lighter did not impair the said contract of transportation as the goods remained in the custody and control of the carrier, albeit still unloaded. The petitioner has failed to show that the loss of the scraps was due to any of the following causes enumerated in Article 1734 of the Civil Code, namely: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority.

Hence, the petitioner is presumed to have been at fault or to have acted negligently. By reason of this presumption, the court is not even required to make an express finding of fault or negligence before it could hold the petitioner answerable for the breach of the contract of carriage. Still, the petitioner could have been exempted from any liability had he been able to prove that he observed extraordinary diligence in the vigilance over the goods in his custody, according to all the circumstances of the case, or that the loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the part of the petitioner to prove that he exercised such extraordinary diligence. DURATION OF EXTRAORDINARY RESPONSIBILITY Art. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738.

Art. 1737. The 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. Cf. with respect to contract of carriage of passengers (see discussion in that part) TWO POINTS UNDER CONSIDERATION

1. When the duty arises 2. When the contract is perfected

CONTRACT TO CARRY



• All the elements of contract are present but there is no duty yet on the part of the common carrier

• The contract is in its executory form CONTRACT OF CARRIAGE

• There is a duty on the part of common carrier to exercise extraordinary diligence

• There has been delivery • There arises a real contract

Note: the distinction between contract to carry and contract of carriage arises when the time of delivery is different from the time the contract is perfected QUESTIONS THAT MAY ARISE WITH RESPECT TO DUTY AND CONTRACT OF CARRIAGE

1. When contract is perfected but duty doesnʼt arise yet 2. When there is duty but no contract yet 3. When simultaneously the contract and duty arise

WHY IS CONTROL AN IMPORTANT CONSIDERATION WITH RESPECT TO THE EXERCISE OF EXTRAORDINARY DILIGENCE IN CONTRACT OF CARRIAGE OF GOODS?

• Because without control, no amount of extraordinary conduct will be tantamount to extraordinary diligence

• Extraordinary diligence cannot be discussed without discussing control

• Due to the aspect of control, the shipper or carrier can shorten the duration of responsibility but it has to take into consideration control

IS CONTROL MATERIAL WITH RESPECT TO CONTRACT OF CARRIAGE OF PASSENGERS?

• The elements of control exist through the regulations that the passengers need to follow while the contract exists, e.g fastening of seat belt, no smoking

39 COMPANIA MARITIMA V. INSURANCE COMPANY 12 SCRA 213 FACTS:

Macleod and Company of the Philippines contracted by telephone the services of the Compañia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. Upon confirmation of contract, the shipping company sent to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp. The lighters were subsequently loaded with bales of hemp. However, during the night, one of the lighters sank. Due to the deterioration and loss of some of the bales of hemp, claim was filed against the insurance company.

HELD: First, there is a contract of carriage between the shipper and Macleod. The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the maritime law. In other words, here we have a complete contract of carriage the consummation of which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage. The claim that there can be no contract of affreightment because the hemp

PrivatepierinDavao

Lighterstobringto

BowlineKnotManila Boston:SSSteel

Navigator



was not actually loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage. 40 LU DO V. BINAMIRA 101 PHIL 243 FACTS: Delta Photo Supply Company of New York shipped on board the M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or photographic supplies consigned to the order of respondent I. V. Binamira. Petitioner was the agent of the carrier and contracted stevedoring services. During the discharge, good order cargo was separated from the bad, and a separate list of the latter was prepared. The cargo was given to the possession of the arrastre and was well-accounted for. However, when the respondent picked up the cargo, it had the same surveyed and found out that quantities of film were missing. Is the carrier still liable for the loss despite the fact that it has already discharged the cargo to the arrastre services? HELD: It is true that, as a rule, a common carrier is responsible for the loss, destruction or deterioration of the goods it assumes to carry from one place to another unless the same is due to any to any of the causes mentioned in Article 1734 on the new Civil Code, and that, if the goods are lost, destroyed or deteriorated, for causes other that those mentioned, the common carrier is presumed to have been at fault or to have acted negligently, unless it proves that it has observed extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary liability lasts from the time the goods are placed in the possession of the carrier until they are delivered to the consignee, or "to the person who has the right to receive them" (Article 1736, Idem.), but these provisions only apply when the loss, destruction or deterioration takes place while the goods are in the possession of the carrier, and not after it has lost control of them. The reason is obvious. While the goods are in its possession, it is but fair that it exercise extraordinary diligence in protecting them from damage, and if loss occurs, the law

presumes that it was due to its fault or negligence. This is necessary to protect the interest the interest of the owner who is at its mercy. The situation changes after the goods are delivered to the consignee. While we agree with the Court of Appeals that while delivery of the cargo 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, we believe however that 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. And this is precisely what was done by the parties herein. In the bill of lading that was issued covering the shipment in question, both the carrier and the consignee have stipulated to limit the responsibility of the carrier for the loss or damage that may because to the goods before they are actually delivered. It therefore appears clear that the carrier does not assume liability for any loss or damage to the goods once they have been "taken into the custody of customs or other authorities", or when they have been delivered at ship's tackle. These stipulations are clear. They have been adopted precisely to mitigate the responsibility of the carrier considering the present law on the matter, and we find nothing therein that is contrary to morals or public policy that may justify their nullification. 41 APL V. KLEPPER 110 PHIL 243 FACTS: Klepper shipped on board through SS President Cleveland, owned by American President Lines, a lift van containing personal effects. When the shipment arrived and was being unloaded, it fell to the pier and its contents were scattered and spilled. Klepper now seeks the recovery of damages exceeding that mentioned in the bill of lading. HELD: The carrier is liable. It has the duty to deliver the cargo in good condition to



the consignee. Agreeing with the contention of the appellate court, regardless of negligence, the shipping companyʼs liability would attach because being a common carrier, its responsibility is extraordinary and lasts from the time the goods are placed in its possession until they are delivered actually or constructively to the consignee or the person who has the right to receive them. It can only be exempted under circumstances enumerated under Article 1734. 42 EASTERN SHIPPING V. CA 243 SCRA 79 FACTS: Two drums of riboflavin was shipped from Japan to Manila, on board the SS Eastern Comet, owned by petitioner. Upon arrival, it was discharged to the custody of the Metro Port Services. One of the drums was found to be in bad order and was made known to the respondent. When again it was transferred, this time to the customs broker, it was noted to be in bad order, being unsealed, containing spillages, and adulterated. This resulted to financial loss on the part of the respondent and gives rise to question of whether its solidary or joint liability for loss occurred, among the carrier, arrastre services, and customs broker. HELD: It therefore appears clear that the carrier does not assume liability for any loss or damage to the goods once they have been "taken into the custody of customs or other authorities", or when they have been delivered at ship's tackle. These stipulations are clear. They have been adopted precisely to mitigate the responsibility of the carrier considering the present law on the matter, and we find nothing therein that is contrary to morals or public policy that may justify their nullification. When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable. There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be applied to this case. The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman. The relationship between the

consignee and the common carrier is similar to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. Of course, it is not implied by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. AGREEMENT LIMITING LIABILITY (IT IS THE CARRIERʼS INTEREST TO LIMIT LIABILITY) AS TO DILIGENCE REQUIRED Art. 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of the former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided it be: (1) In writing, signed by the shipper or owner; (2) Supported by a valuable consideration other than the service rendered by the common carrier; and (3) Reasonable, just and not contrary to public policy. Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:



(1) That the goods are transported at the risk of the owner or shipper; (2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods; (3) That the common carrier need not observe any diligence in the custody of the goods; (4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary prudence in the vigilance over the movables transported; (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. 1751. The fact that the common carrier has no competitor along the line or route, or a part thereof, to which the contract refers shall be taken into consideration on the question of whether or not a stipulation limiting the common carrier's liability is reasonable, just and in consonance with public policy. AS TO AMOUNT OF LIABILITY Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely

agreed upon. TWO TYPES OF AGREEMENTS LIMITING LIABILITY

1. As to the diligence standard 2. As to the amount of liability

REQUIREMENTS: AGREEMENT AS TO DILIGENCE STANDARD

1. In writing, signed by shipper (this involves contracts of adhesion; naturally it is the shipper who needs to sign)

2. Supported by valuable consideration other than the service rendered by the common carrier

3. Reasonable and not contrary to public policy REQUIREMENTS: AGREEMENT AS TO AMOUNT OF LIABILITY

1. Fairly and freely agreed upon 2. Just and reasonable

43 HEACOCK V. MACONDRAY 42 PHIL 90 FACTS: Plaintiff caused to be delivered on board of steamship Bolton Castle, then in the harbor of New York, four cases of merchandise one of which contained twelve (12) 8-day Edmond clocks properly boxed and marked for transportation to Manila, and paid freight on said clocks from New York to Manila in advance. The said steampship arrived in the port of Manila on or about the 10th day of September, 1919, consigned to the defendant herein as agent and representative of said vessel in said port. Neither the master of said vessel nor the defendant herein, as its agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand was made upon them for their delivery. Under the bill of lading are the following stipulations— 1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon. 9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not be liable for more than the net invoice price



plus freight and insurance less all charges saved, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis. The lower court adjudged that the defendant is liable for the value of the goods, plus freight charges and insurance costs. The defendant would like to pay for a lesser amount, which is the freight charges. HELD: Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a certain amount unless the shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a valuation of the property carried, with the rate of freight based on the condition that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or damage by the negligence of the carrier, the contract will be upheld as proper and lawful mode of securing a due proportion between the amount for which the carrier may be responsible and the freight he receives, and protecting himself against extravagant and fanciful valuations." It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in question are not contrary to public order. Article 1255 of the Civil Code provides that "the contracting parties may establish any agreements, terms and conditions they may deem advisable, provided they

are not contrary to law, morals or public order." Said clauses of the bill of lading are, therefore, valid and binding upon the parties thereto. 44 SHEWARAM V. PAL 17 SCRA 606 FACTS: Parmanand Shewaram was on his flight to Manila with three suitcases, one of which was a suitcase. The personnel of PAL mistagged the luggages, and marked it to be bound to Iligan instead of Manila. When he arrived, the baggage didnʼt arrive with him. PAL personnel even wanted him to redeem one suitcase which looked like his but he refused as it wasnʼt his as it didnʼt contain his clothes and other articles. Upon search by PAL, the luggages were found to be in Iligan. The plaintiff instituted an action to recover damages suffered by him due to the alleged failure of defendant-appellant Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After trial the municipal court of Zamboanga City rendered judgment ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of the action. HELD: The requirements provided in Article 1750 of the New Civil Code must be complied with before a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken to transport. In the case before us We believe that the requirements of said article have not been met. It cannot be said that the appellee had actually entered into a contract with the appellant, embodying the conditions as printed at the back of the ticket stub that was issued by the appellant to the appellee. The fact that those 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 the appellee was aware of those conditions such that he had "fairly and freely agreed" to those conditions. The trial court has categorically stated in its decision that the "Defendant admits that passengers do not sign the ticket, much less did plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore, that the appellee is not, and cannot be, bound by the conditions of carriage found at the back of the ticket stub issued to him when he made the flight on appellant's plane on November 23, 1959.



It having been clearly found by the trial court that the transistor radio and the camera of the appellee were lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant is clear � it must pay the appellee the value of those two articles. 45 ONG YIU V. CA 91 SCRA 223 FACTS: Ong Yiu was one of the passengers of a flight from Mactan to Butuan. He had one baggage with him which he checked in. It contained vital documents he needed for a hearing next day. When he arrived however, the baggage wasnʼt there. He demanded for it and through different communications between PAL personnel, it was found out that the luggage was brought to Manila and it will be shipped the next day. The information was however didnʼt receive on time by Ong Yiu. He was prompted to move for the postponement of the hearing and afterwards, personnel of PAL Cebu delivered to him his luggage. Nonetheless, he still filed for damages. HELD: There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is the correctness of respondent Court's conclusion that there was no gross negligence on the part of PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral and exemplary damages. From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad faith means a breach of a known duty through some motive of interest or ill will. It was the duty of PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in complying with such duty. In the absence of any bad faith, petitioner isnʼt entitled to moral damages. Regarding the limitation on liability of PAL, while it may be true that petitioner had not signed the plane ticket, he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation". It is what is known as a

contract of "adhesion", in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. And as held in American jurisprudence, "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. Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in excess of P100.00. Besides, passengers are advised not to place valuable items inside their baggage but "to avail of our V-cargo service " It is likewise to be noted that there is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner. 46 PAN AM V. IAC 164 SCRA 268 FACTS:

(1) Pangan, president and general manager of the plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and Primo Quesada of Prime Films, San Francisco, California, entered into an agreement whereby the former, for and in consideration of the amount of US $2,500.00 per picture, bound himself to supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United States. It was also their agreement that plaintiffs would provide the necessary promotional and advertising materials for said films on or before May 30, 1978.

(2) On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with Slutchnick for the exhibition of two of the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per picture. Plaintiff Pangan undertook to provide the necessary promotional and advertising materials for said films on or before the exhibition date on May 30,1978.

(3) By virtue of the above agreements, plaintiff Pangan caused the



preparation of the requisite promotional handbills and still pictures for which he paid accordingly for. Likewise in preparation for his trip abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00

(4) On May 18, 1978, plaintiff Pangan obtained from defendant an economy class airplane ticket with No. 0269207406324 for passage from Manila to Guam on defendant's Flight No. 842 upon payment by said plaintiff of the regular fare.

(5) Two hours before departure time plaintiff Pangan was at the defendant's ticket counter at the Manila International Airport and presented his ticket and checked in his two luggages, for which he was given baggage claim tickets. The two luggages contained the promotional and advertising materials, the clutch bags, barong tagalog and his personal belongings. Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight No. 842 in the economy class. Since there was no space in the economy class, plaintiff Pangan took the first class because he wanted to be on time in Guam to comply with his commitment, paying an additional sum of $112.00.

(6) When plaintiff Pangan arrived in Guam, his two luggages did not arrive with his flight, as a consequence of which his agreements with Slutchnick and Quesada for the exhibition of the films in Guam and in the United States were cancelled. Thereafter, he filed a written claim for his missing luggages.

HELD: In the absence of a showing that petitioner's attention was called to the special circumstances requiring prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private respondents' contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in Guam and California were cancelled because of the loss of the two luggages in question." The evidence reveals that the proximate cause of the

cancellation of the contracts was private respondent Pangan's failure to deliver the promotional and advertising materials on the dates agreed upon. For this petitioner cannot be held liable. Private respondent Pangan had not declared the value of the two luggages he had checked in and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its attention called to the condition therein requiring delivery of the promotional and advertising materials on or before a certain date. 47 CATHAY PACIFIC V. CA 219 SCRA 520 FACTS: Alcantara was a first-class passenger of petitionerʼs flight from Manila on the way to Jakarta, passing by Hong Kong mid-way. He was on the way to Jakarta to represent his company, the Iligan Cement Corporation in a meeting with the Trade Secretary of Indonesia. When he arrived in Jakarta, the luggage was missing. When it was located, it wasnʼt delivered to petitionerʼs hotel but instead ordered it to be picked up by an official of the Philippine embassy. This prompted Alcantara to file an action against petitioner once he arrived in Philippines. The lower court decided in his favor. HELD: Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in death of a passenger, 4 or where the carrier is guilty of fraud or bad faith. In the case at bar, both the trial court and the appellate court found that CATHAY was grossly negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place and time. We agree. CATHAY alleges that as a result of mechanical trouble, all pieces of luggage on board the first aircraft bound for Jakarta were unloaded and transferred to the second aircraft which departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner was not even aware that it left behind private respondent's luggage until its attention was called by the Hongkong Customs authorities. More, bad faith or otherwise improper conduct may be attributed to the employees of petitioner. While the mere failure of CATHAY to deliver respondent's luggage at the agreed place and time did not ipso facto amount to willful misconduct since the luggage was eventually delivered to private



respondent, albeit belatedly, We are persuaded that the employees of CATHAY acted in bad faith. We refer to the deposition of Romulo Palma, Commercial Attache of the Philippine Embassy at Jakarta, who was with respondent Alcantara when the latter sought assistance from the employees of CATHAY. This deposition was the basis of the findings of the lower courts when both awarded moral damages to private respondent. Indeed, on the basis of the Philippine embassyʼs attaché officerʼs testimony, the language and conduct of petitioner's representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not sincere because the representative knew that the passenger was limited only to $20.00 which, certainly, was not enough to purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a revenue passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial Attache of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more courteous and accommodating to private respondent, instead of giving him a curt reply, "What can we do, the baggage is missing. I cannot do anything . . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." CATHAY's employees should have been more solicitous to a passenger in distress and assuaged his anxieties and apprehensions. To compound matters, CATHAY refused to have the luggage of Alcantara delivered to him at his hotel; instead, he was required to pick it up himself and an official of the Philippine Embassy. Under the circumstances, it is evident that petitioner was remiss in its duty to provide proper and adequate assistance to a paying passenger, more so one with first class accommodation. As regards its second assigned error, petitioner airline contends that the extent of its liability for breach of contract should be limited absolutely to that set forth in the Warsaw Convention. We do not agree. As We have repeatedly held, although the Warsaw Convention has the force and effect of law in this country, being a treaty commitment assumed by the Philippine government, said convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability.

FACTORS AFFECTING AGREEMENT Art. 1746. An agreement limiting the common carrier's liability may be annulled by the shipper or owner if the common carrier refused to carry the goods unless the former agreed to such stipulation. Art. 1747. If the common carrier, without just cause, delays the transportation of the goods or changes the stipulated or usual route, the contract limiting the common carrier's liability cannot be availed of in case of the loss, destruction, or deterioration of the goods. Art. 1748. An agreement limiting the common carrier's liability for delay on account of strikes or riots is valid. Art. 1751. The fact that the common carrier has no competitor along the line or route, or a part thereof, to which the contract refers shall be taken into consideration on the question of whether or not a stipulation limiting the common carrier's liability is reasonable, just and in consonance with public policy. Art. 1752. Even when there is an agreement limiting the liability of the common carrier in the vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of their loss, destruction or deterioration. APPLICABLE LAW IN FOREIGN TRADE Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration. RULES ON PASSENGER BAGGAGE Art. 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody or in that of his employee. As to other baggage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable.



Art. 1998. The deposit of effects made by the travellers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. (1783) Art. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall be considered in determining the degree of care required of him. (1784a) Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible force. (n) Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. (n) Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. (n) WHAT IS BAGGAGE?

• Concept of carriage of goods and carriage of passengers

ILLUSTRATION: A PASSENGER RIDES THE BUS WITH HIS BAGGAGE. ON A STOPOVER, HE LEFT HIS BAGGAGE INSIDE THE BUS. TWO CULPRITS PICKLOCKED THE BUS AND WAS ABLE TO GET THE BAGGAGE. WAS THE BAG IN QUESTION CONSIDERED BAGGAGE? WAS THE BAGGAGE IN CUSTODY OF THE PASSENGER?

• Yes it is baggage • It was in custody of the passenger and thus, the provisions on

necessary deposit is applicable

COMMON CARRIER OF PASSENGERS

NATURE AND EXTENT OF RESPONSIBILITY Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Art. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. (Note: this is a repetition of Article 1733 though with a different wording) 48 ISAAC V. AMMEN TRANSPORTATION Supra 49 LANDINGIN V. PANTRANCO

Baggage

Not in the custody of the passengers

Provisions on carriage of goods

applicable

In the custody of passengers

Provisions on necessary deposit

(1998)



33 SCRA 284 FACTS: Spouses Landinginʼs two daughters were passengers of the bus operated by PANTRANCO on an excursion trip to Baguio city. Allegedly due to the fault and negligence of the driver, while uphill on Kennon Road, it halted and this caused the motor of the bus to stop working. When it tried to swerve to the mountainside, this caused several passengers to be thrown off through the open side of the bus. This eventually led to the death of complainantʼs daughters due to the serious injuries they suffered. HELD: As a common carrier, defendant-appellant PANTRANCO was duty bound to carry its passengers "safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances." (Article 1755, Civil Code.) Did defendant-appellant PANTRANCO measure up to the degree of care and foresight required it under the circumstances? We think not. The court below found that the cross-joint of the bus in which the deceased were riding broke, which caused the malfunctioning of the motor, which in turn resulted in panic among some of the passengers. This is a finding of fact which this Court may not disturb. We are of the opinion, however, that the lower court's conclusion drawn from that fact, i.e., that "the accident was caused by a fortuitous event or an act of God brought about by some extraordinary circumstances independent of the will of the Pantranco or its employees," is in large measure conjectural and speculative, and was arrived at without due regard to all the circumstances, as required by Article 1755. In Lasam vs. Smith (45 Phil. 660), this Court held that an accident caused by defects in the automobile is not a caso fortuito. The rationale of the carrier's liability is the fact that "the passenger has neither the choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier." When a passenger dies or is injured, the presumption is that the common carrier is at fault or that it acted negligently (Article 1756). This presumption is only rebutted by proof on the carrier's part that it observed the "extraordinary diligence" required in Article 1733 and the "utmost diligence of very cautious persons" required in Article 1755 (Article 1756). In the instant case it appears that the court below considered the presumption rebutted on the strength of defendants-appellants' evidence that only the day before the

incident, the crossjoint in question was duly inspected and found to be in order. It does not appear, however, that the carrier gave due regard for all the circumstances in connection with the said inspection. The bus in which the deceased were riding was heavily laden with passengers, and it would be traversing mountainous, circuitous and ascending roads. Thus the entire bus, including its mechanical parts, would naturally be taxed more heavily than it would be under ordinary circumstances. The mere fact that the bus was inspected only recently and found to be in order would not exempt the carrier from liability unless it is shown that the particular circumstances under which the bus would travel were also considered. 50 LANDICHO V. BT CO.

52 OG 7640 51 NECESSITO V. PARAS 104 PHIL 75 FACTS: Severina Garces and her one-year old son, Precillano Necesito, carrying vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus Lines at Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell, then proceeded on its regular run from Agno to Manila. After passing a town, the bus passed through a wooden bridge. The front tires suddenly swerved. The wooden bridge consequently wreaked and the bus fell in the creek where the water was breast deep. This caused the mother to drown and the baby to suffer several injuries. After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the bad condition of the road; that the accident was caused by the fracture of the right steering knuckle, which was defective in that its center or core was not compact but "bubbled and cellulous", a condition that could not be known or ascertained by the carrier despite the fact that regular thirty-day inspections were made of the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of an inch all around; that the knuckles are designed and manufactured for heavy duty and may last up to ten years; that the knuckle of bus No. 199 that broke on January 28, 1954, was last inspected on January 5, 1954, and was due to be inspected again on February 5th. Hence, the trial court, holding that the accident was exclusively due to fortuitous event, dismissed both actions. Plaintiffs



appealed directly to this Court in view of the amount in controversy. HELD: We are inclined to agree with the trial court that it is not likely that bus No. 199 of the Philippine Rabbit Lines was driven over the deeply rutted road leading to the bridge at a speed of 50 miles per hour, as testified for the plaintiffs. Such conduct on the part of the driver would have provoked instant and vehement protest on the part of the passengers because of the attendant discomfort, and there is no trace of any such complaint in the records. We are thus forced to assume that the proximate cause of the accident was the reduced strength of the steering knuckle of the vehicle caused by defects in casting it. While appellants hint that the broken knuckle exhibited in court was not the real fitting attached to the truck at the time of the accident, the records they registered no objection on that ground at the trial below. The issue is thus reduced to the question whether or not the carrier is liable for the manufacturing defect of the steering knuckle, and whether the evidence discloses that in regard thereto the carrier exercised the diligence required by law (Art. 1755, new Civil Code). ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for the all the circumstances. It is clear that the carrier is not an insurer of the passengers' safety. His liability rests upon negligence, his failure to exercise the "utmost" degree of diligence that the law requires, and by Art. 1756, in case of a passenger's death or injury the carrier bears the burden of satisfying the court that he has duly discharged the duty of prudence required. In the American law, where the carrier is held to the same degree of diligence as under the new Civil Code, the rule on the liability of carriers for defects of equipment is thus expressed: "The preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the

good repute of the manufacturer will not relieve the carrier from liability" The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not in insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. In the case now before us, the record is to the effect that the only test applied to the steering knuckle in question was a purely visual inspection every thirty days, to see if any cracks developed. It nowhere appears that either the manufacturer or the carrier at any time tested the steering knuckle to ascertain whether its strength was up to standard, or that it had no hidden flaws would impair that strength. And yet the carrier must have been aware of the critical importance of the knuckle's resistance; that its failure or breakage would result in loss of balance and steering control of the bus, with disastrous effects upon the passengers. No argument is required to establish that a visual inspection could not directly determine whether the resistance of this critically important part was not impaired. Nor has it been shown that the weakening of the knuckle was impossible to detect by any known test; on the contrary, there is testimony that it could be detected. We are satisfied that the periodical visual inspection of the steering knuckle as practiced by the carrier's agents did not measure up to the required legal standard of "utmost diligence of very cautious persons" � "as far as human care and foresight can provide", and therefore that the knuckle's failure can not be considered a fortuitous event that exempts the carrier from responsibility. 52 PAL V. CA 106 SCRA 91 FACTS: On a flight to Daet, Samson was the co-pilot of the airplane owned and operated by petitioner. Due to the poor judgment and slow reaction of the pilot, the plane overshot the airfield and as a result, notwithstanding the efforts of Samson to avoid the accident, the plane crash. This caused Samsonʼs head to hit the windshield and consequently suffered serious brain



injury. And instead of giving expert and medical treatment, the company just referred him to a company physician who only treated external injuries. HELD: PAL should be held liable. The duty to exercise the utmost diligence is for the passengers as well as for the members of the crew or the complement operating the carrier. And this must be so for any omission, lapse or neglect thereof will result certainly to the damage, prejudice, and injuries and even death to all aboard a plane. 53 SULPICIO V. CA 246 SCRA 299 FACTS: A contract of carriage was entered into between petitioner and ALC for the transport of the latter's timber from Pugad, Lianga, Surigao del Sur. On a relevant date, petitioner sent its tugboat "MT Edmund" and barge "Solid VI" to Lianga to pick up ALC's timber. However, no loading could be made because of the heavy downpour. The next morning, several stevedores of CBL, who were hired by ALC, boarded the "Solid VI" and opened its storeroom. The stevedores were warned of the gas and heat generated by the copra stored in the holds of the ship. Not heeding the warning, a stevedore entered the storeroom and fell unconscious. Two other stevedores followed, one of whom was Leoncio L. Pamalaran. He also lost consciousness and eventually died of gas poisoning. HELD: Although Pamalaran was never a passenger of petitioner, still the latter is liable as a common carrier for his death. ALC had a contract of carriage with petitioner. The presence of the stevedores sent by ALC on board the barge of petitioner was called for by the contract of carriage. For how else would its lumber be transported unless it is placed on board? And by whom? Of course, the stevedores. Definitely, petitioner could not expect the shipper itself to load the lumber without the aid of the stevedores. Furthermore, petitioner knew of the presence and role of the stevedores in its barge and thus consented to their presence. Hence, petitioner was responsible for their safety while on board the barge. It is not enough that appellant's employees have warned the laborers not to

enter the barge after the hatch was opened. Appellant's employees should have been sufficiently instructed to see to it that the hatch of the barge is not opened by any unauthorized person and that the hatch is not easily opened by anyone. At the very least, precautionary measures should have been observed by appellant's employees to see to it that no one could enter the bodega of the barge until after they have made sure that it is safe for anyone to enter the same. Failing to exercise due diligence in the supervision of its employees, the lower court was correct in holding appellant liable for damages. Note: According to Quimbo, the way the court decided this case is wrong. It anchored its decision on extraordinary diligence whereas the persons involved were not passengers and yet the court treated them as such. 54 JAPAN AIRLINES V. CA 449 SCRA 544 FACTS: Respondents Asuncion left Manila on board Japan Airlines Flight 742 bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their applications for shore pass and directed them to the Japanese immigration official. A shore pass is required of a foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours. During their interview, the Japanese immigration official noted that Michael appeared shorter than his height as indicated in his passport. Because of this inconsistency, respondents were denied shore pass entries and were brought instead to the Narita Airport Rest House where they were billeted overnight. The immigration official also handed Mrs. Higuchi a Notice where it was stated that respondents were to be "watched so as not to escape". International Service Center (ISC), the agency tasked by Japanʼs Immigration Department to handle passengers who were denied shore pass entries, brought respondents to the Narita Airport Rest House where they stayed overnight until their departure the following day for Los Angeles. Respondents were charged US$400.00 each for their accommodation, security service and meals.



The respondents filed a complaint for damages claiming that JAL did not fully apprise them of their travel requirements and that they were rudely and forcibly detained at Narita Airport. JAL denied the allegations of respondents. It maintained that the refusal of the Japanese immigration authorities to issue shore passes to respondents is an act of state which JAL cannot interfere with or prevail upon. Consequently, it cannot impose upon the immigration authorities that respondents be billeted at Hotel Nikko instead of the airport resthouse. HELD: JAL did not breach its contract of carriage with respondents. It may be true that JAL has the duty to inspect whether its passengers have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of respondents’ shore pass applications. WHAT KIND OF DILIGENCE IS REQUIRED FOR PERSONS WHO ARE NOT CONSIDERED AS PASSENGERS?

• Ordinary diligence • Extraordinary diligence is not required for crew members—liability

doesnʼt arise from contract of carriage but instead, on contract of employment

WHAT ARE THE TWO (2) REPERCUSSIONS OF LIABILITY NOT ARISING FROM CONTRACT OF CARRIAGE?

• There is no presumption of negligence • Carrier is not judged with the exercise of extraordinary diligence • However, in the case of PAL, the court extended the coverage of

the exercise of extraordinary diligence to even non-passengers

DURATION OF RESPONSIBILITY Art. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. Article 17, Warsaw Convention. The carrier is liable for damage sustained in the event of death or wounding of a passenger or any other bodily injury suffered by a passenger, if the accident which caused the damage so sustained took place on board of the aircraft or in the course of any of the operations of embarking or disembarking.

Passengers (contract of carriage; extraordinary diligence)

Crew members (captains, stewards, etc.) (contract of employment)

Licensees (quasi-delicts)

Guests (quasi-delicts)

Stow-aways • Not discovered: ??? • Discovered mid-passage: quasi-delict



Article 698, Code of Commerce. In case a voyage already begun should be interrupted the passengers shall be obliged only to pay the passage in proportion to the distance covered, and shall not be entitled to recover loss and damages if the interruption were due to an accidental cause or to force majeure, but have a right to indemnity, if the interruption should have been caused by the captain exclusively. If the interruption should have been by reason of the disability of the vessel, and the passenger should agree to await her repair, he cannot be required to pay any increased price of passage, but his support during the delay shall be for his own account. In case the departure of the vessel is delayed the passengers have a right to remain on board and to board for the account of the vessel unless the delay is due to an accidental cause or force majeure. If the delay should exceed 10 days, the passengers who request it shall be entitled to the return of the passage; and if it were due exclusively to the fault of the captain or agent they may furthermore demand imdemnity for losses and damages. A vessel which is exclusively destined to the transportation of passengers must take them directly to the port or ports of destination, no matter what the number of passengers may be, making all the stops indicated in her itinerary. REVIEW: TWO POINTS UNDER CONSIDERATION

1. When the duty arises 2. When the contract is perfected

REVIEW: CONTRACT TO CARRY V. CONTRACT OF CARRIAGE

• Contract to carry o All the elements of contract are present but there is no

duty yet on the part of the common carrier o The contract is in its executory form

• Contract of carriage o There is a duty on the part of common carrier to exercise

extraordinary diligence o There has been delivery o There arises a real contract

Note: the distinction between contract to carry and contract of carriage arises

when the time of delivery is different from the time the contract is perfected WHEN DOES A CONTRACT FOR CARRIAGE OF PERSONS BEGIN?

• When there is concurrence of the elements of a contract WHEN DOES EXTRAORDINARY DILIGENCE FOR CARRIAGE OF PERSONS BEGIN?

• If we follow the Warsaw Convention, it begins during the operations of embarkation, lasting throughout the duration of the voyage, and ends after the operations of disembarkation

NOTE: Duration of responsibility co-terminus with the contract of carriage

When does liability begin? When the K begin. Does the law require physical contact between passenger and carrier before liability starts? The law doesnʼt say anything. As long as human care and foresight can provide. Cangco: Ingress and egress—physical contract not required

When does the liability end? La Mallorca v. CA: It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances.

55 CANGCO V. MANILA RAILROAD Supra HELD: The contract of defendant to transport plaintiff carried with it, by implication,

Duration of responsibility; Carriage of passengers



the duty to carry him in safety and to provide safe means of entering and leaving its trains (civil code, article 1258). 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 defendant's servants. 56 DEL PRADO V. MERALCO 52 PHIL 900 FACTS: Meralco was engaged in the operation of street cars. On the relevant date, a street car was being operated by Florenciano and it was running from east to west on R. Hidalgo Street, the scene of the accident being at a point near the intersection of said street and Mendoza Street. After the car had stopped at its appointed place for taking on and letting off passengers, just east of the intersection, it resumed its course at a moderate speed under the guidance of the motorman. The car had proceeded only a short distance, however, when the plaintiff del Prado, ran across the street to catch the car, his approach being made from the left. The car was of the kind having entrance and exist at either end, and the movement of the plaintiff was so timed that he arrived at the front entrance of the car at the moment when the car was passing. When del Prado was approaching the car, he signaled to the motorman of his intention to board the car. This caused the motorman to slow the vehicle down. Del Prado boarded the car, with his foot stepping on the platform and a hand holding a handrail. When the motorman saw that he already boarded, he accelerated the speed, causing a jerk, which eventually caused del Prado to slip from the platform and his foot got ran over by the car. Days later, it was amputated and he needed to have an artificial member. He sued for damages against MERALCO and he won. HELD: With respect to the legal aspects of the case we may observe at the outset that there is no obligation on the part of a street railway company to stop its cars to let on intending passengers at other points than those appointed for stoppage. In fact it would be impossible to operate a system of street cars if a company engage in this business were required to stop any and everywhere to take on people who were too indolent, or who imagine themselves to be in too great a hurry, to go to the proper places for boarding

the cars. Nevertheless, although the motorman of this car was not bound to stop to let the plaintiff on, it was his duty to do act that would have the effect of increasing the plaintiffʼs peril while he was attempting to board the car. The premature acceleration of the car was, in our opinion, a breach of this duty. The relation between a carrier of passengers for hire and its patrons is of a contractual nature; and in failure on the part of the carrier to use due care in carrying its passengers safely is a breach of duty (culpa contractual) under articles 1101, 1103 and 1104 of the Civil Code. Furthermore, the duty that the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom. 57 LA MALLORCA V. COURT OF APPEALS 17 SCRA 739 FACTS: Mariano and his family were passengers in a bus owned by petitioner. After about an hour's trip, the bus reached Anao whereat it stopped to allow the passengers bound therefor, among whom were the plaintiffs and their children to get off. Mariano, then carrying some of their baggages, was the first to get down the bus, followed by his wife and his children. Mariano led his companions to a shaded spot on the left pedestrians side of the road about four or five meters away from the vehicle. Afterwards, he returned to the bus in controversy to get his other bayong, which he had left behind, but in so doing, his daughter Raquel followed him, unnoticed by her father. While Mariano was on the running board of the bus waiting for the conductor to hand him his bayong which he left under one of its seats near the door, the bus, whose motor was not shut off while unloading, suddenly started moving forward, evidently to resume its trip, notwithstanding the fact that the conductor has not given the driver the customary signal to start, since said conductor was still attending to the baggage left behind by Mariano. Incidentally, when the bus was again placed into a complete stop, it had travelled about ten meters from the point where the plaintiffs had gotten off.

Sensing that the bus was again in motion, Mariano immediately jumped from the running board without getting his bayong from the conductor. He landed on the side of the road almost in front of the shaded place where he left his wife and children. At that precise time, he saw people beginning to gather



around the body of a child lying prostrate on the ground, her skull crushed, and without life. The child was none other than his daughter Raquel, who was run over by the bus in which she rode earlier together with her parents. HELD: Under the facts as found by the Court of Appeals, we have to sustain the judgement holding petitioner liable for damages for the death of the child, Raquel Beltran. It may be pointed out that although it is true that respondent Mariano Beltran, his wife, and their children (including the deceased child) had alighted from the bus at a place designated for disembarking or unloading of passengers, it was also established that the father had to return to the vehicle (which was still at a stop) to get one of his bags or bayong that was left under one of the seats of the bus. There can be no controversy that as far as the father is concerned, when he returned to the bus for his bayong which was not unloaded, the relation of passenger and carrier between him and the petitioner remained subsisting. For, the relation of carrier and passenger does not necessarily cease where the latter, after alighting from the car, aids the carrier's servant or employee in removing his baggage from the car. The issue to be determined here is whether as to the child, who was already led by the father to a place about 5 meters away from the bus, the liability of the carrier for her safety under the contract of carriage also persisted.

It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. In the present case, the father returned to the bus to get one of his baggages which was not unloaded when they alighted from the bus. Raquel, the child that she was, must have followed the father. However, although the father was still on the running board of the bus awaiting for the conductor to hand him the bag or bayong, the bus started to run, so that even he (the father) had to jump down from the moving vehicle. It was at this instance that the child, who must be near the bus, was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had exercised

the "utmost diligence" of a "very cautions person" required by Article 1755 of the Civil Code to be observed by a common carrier in the discharge of its obligation to transport safely its passengers. In the first place, the driver, although stopping the bus, nevertheless did not put off the engine. Secondly, he started to run the bus even before the bus conductor gave him the signal to go and while the latter was still unloading part of the baggages of the passengers Mariano Beltran and family. The presence of said passengers near the bus was not unreasonable and they are, therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract of carriage. 58 BATACLAN V. MEDINA 104 PHIL 181 FACTS: Shortly after midnight, a passenger bus owned by defendant traveled from Amadeo, Cavite to Pasig City. One of the passengers was Baticlan, who was sitting at the right beside the driver. While traveling through Imus, one of the front tires burst, which caused the bus to zigzag and eventually turned turtle. The passengers were able to climb out but unfortunately for Baticlan and three others, they were trapped inside. They called out for help and in a few minutes, men from the barrio came, one of whom was carrying a torch fueled with petroleum. When they approached, the bus suddenly caught fire and the passengers inside were charred to death. HELD: The case involves a breach of contract of transportation for hire, the Medina Transportation having undertaken to carry Bataclan safely to his destination, Pasay City. There was negligence on the part of the defendant, through his agent, the driver Saylon. There is evidence to show that at the time of the blow out, the bus was speeding, as testified to by one of the passengers, and as shown by the fact that according to the testimony of the witnesses, including that of the defense, from the point where one of the front tires burst up to the canal where the bus overturned after zig-zagging, there was a distance of about 150 meters. The chauffeur, after the blow-out, must have applied the brakes in order to stop the bus, but because of the velocity at which the bus must have been running, its momentum carried it over a distance of 150 meters before it fell into the canal and turned turtle.



59 ABOITIZ V. CA 179 SCRA 95 FACTS: Viana boarded the vessel M/V Antonia, owned by defendant, at the port at San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket. Said vessel arrived at Pier 4, North Harbor, Manila, and the passengers therein disembarked, a gangplank having been provided connecting the side of the vessel to the pier. Instead of using said gangplank Anacleto Viana disembarked on the third deck which was on the level with the pier. After said vessel had landed, the Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded on said vessel pursuant to the Memorandum of Agreement. The crane owned by the third party defendant and operated by its crane operator Alejo Figueroa was placed alongside the vessel and one (1) hour after the passengers of said vessel had disembarked, it started operation by unloading the cargoes from said vessel. While the crane was being operated, Anacleto Viana who had already disembarked from said vessel obviously remembering that some of his cargoes were still loaded in the vessel, went back to the vessel, and it was while he was pointing to the crew of the said vessel to the place where his cargoes were loaded that the crane hit him, pinning him between the side of the vessel and the crane. He died after being brought to the hospital. HELD: The rule is that the relation of carrier and passenger continues until the passenger has been landed at the port of destination and has left the vessel owner's dock or premises. Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier's conveyance or had a reasonable opportunity to leave the carrier's premises. All persons who remain on the premises a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. The carrier-passenger relationship is not terminated merely by the fact that the person transported has been carried to his destination if, for example, such person remains in the carrier's premises to claim his baggage.

It is of common knowledge that, by the very nature of petitioner's business as a shipper, the passengers of vessels are allotted a longer period of time to disembark from the ship than other common carriers such as a passenger bus. With respect to the bulk of cargoes and the number of passengers it can load, such vessels are capable of accommodating a bigger volume of both as compared to the capacity of a regular commuter bus. Consequently, a ship passenger will need at least an hour as is the usual practice, to disembark from the vessel and claim his baggage whereas a bus passenger can easily get off the bus and retrieve his luggage in a very short period of time. Verily, petitioner cannot categorically claim, through the bare expedient of comparing the period of time entailed in getting the passenger's cargoes, that the ruling in La Mallorca is inapplicable to the case at bar. On the contrary, if we are to apply the doctrine enunciated therein to the instant petition, we cannot in reason doubt that the victim Anacleto Viana was still a passenger at the time of the incident. When the accident occurred, the victim was in the act of unloading his cargoes, which he had every right to do, from petitioner's vessel. As earlier stated, a carrier is duty bound not only to bring its passengers safely to their destination but also to afford them a reasonable time to claim their baggage. It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked from the vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his cargoes, the vessel had already docked an hour earlier. In consonance with common shipping procedure as to the minimum time of one (1) hour allowed for the passengers to disembark, it may be presumed that the victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already disembarked an hour earlier, his presence in petitioner's premises was not without cause. The victim had to claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly standard procedure in the case of petitioner's vessels that the unloading operations shall start only after that time. Consequently, under the foregoing circumstances, the victim Anacleto Viana is still deemed a passenger of said carrier at the time of his tragic death. 60 PAL V. CA 226 SCRA 423



FACTS: Zapatos was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound for Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes before landing at Ozamiz City, the pilot received a radio message that the airport was closed due to heavy rains and inclement weather and that he should proceed to Cotabato City instead. Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take the next flight to Cebu the following day, or remain at Cotabato and take the next available flight to Ozamiz City on 5 August 1975. The Station Agent likewise informed them that Flight 560 bound for Manila would make a stop-over at Cebu to bring some of the diverted passengers; that there were only six (6) seats available as there were already confirmed passengers for Manila; and, that the basis for priority would be the check-in sequence at Cebu. Private respondent chose to return to Cebu but was not accommodated because he checked-in as passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in the accommodation, but the Station Agent refused private respondent's demand explaining that the latter's predicament was not due to PAL's own doing but to be a force majeure. Private respondent tried to stop the departure of Flight 560 as his personal belongings, including a package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe Obid of Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private respondent a free ticket to Iligan city, which the latter received under protest. Private respondent was left at the airport and could not even hitch a ride in the Ford Fiera loaded with PAL personnel. PAL neither provided private respondent with transportation from the airport to the city proper nor food and accommodation for his stay in Cotabato City. The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL personnel that he would not use the free ticket because he was filing a case against PAL. In Iligan City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching Ozamiz City by

crossing the bay in a launch. His personal effects including the camera, which were valued at P2,000.00 were no longer recovered. HELD: With regard to the award of damages affirmed by the appellate court, PAL argues that the same is unfounded. It asserts that it should not be charged with the task of looking after the passengers' comfort and convenience because the diversion of the flight was due to a fortuitous event, and that if made liable, an added burden is given to PAL which is over and beyond its duties under the contract of carriage. It submits that granting arguendo that negligence exists, PAL cannot be liable in damages in the absence of fraud or bad faith; that private respondent failed to apprise PAL of the nature of his trip and possible business losses; and, that private respondent himself is to be blamed for unreasonably refusing to use the free ticket which PAL issued. The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the business of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations as in the case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier and passenger continues until the latter has been landed at the port of destination and has left the carrier's premises. Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. PRESUMPTION OF NEGLIGENCE Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in Articles 1733 and 1755. FORCE MAJEURE 61 BACHELOR EXPRESS V. CA 188 SCRA 217



FACTS: Bus No. 800 owned by Bachelor Express, Inc. and driven by Cresencio Rivera was the situs of a stampede which resulted in the death of passengers Ornominio Beter and Narcisa Rautraut. The evidence shows that the bus came from Davao City on its way to Cagayan de Oro City passing Butuan City; that while at Tabon-Tabon, Butuan City, the bus picked up a passenger; that about fifteen (15) minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and panic among the passengers; that when the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were found lying down the road, the former already dead as a result of head injuries and the latter also suffering from severe injuries which caused her death later. The passenger assailant alighted from the bus and ran toward the bushes but was killed by the police. HELD: The running amuck of the passenger was the proximate cause of the incident as it triggered off a commotion and panic among the passengers such that the passengers started running to the sole exit shoving each other resulting in the falling off the bus by passengers Beter and Rautraut causing them fatal injuries. The sudden act of the passenger who stabbed another passenger in the bus is within the context of force majeure. However, in order that a common carrier may be absolved from liability in case of force majeure, it is not enough that the accident was caused by force majeure. The common carrier must still prove that it was not negligent in causing the injuries resulting from such accident. Considering the factual findings of the Court of Appeals-the bus driver did not immediately stop the bus at the height of the commotion; the bus was speeding from a full stop; the victims fell from the bus door when it was opened or gave way while the bus was still running; the conductor panicked and blew his whistle after people had already fallen off the bus; and the bus was not properly equipped with doors in accordance with law-it is clear that the petitioners have failed to overcome the presumption of fault and negligence found in the law governing common carriers. The petitioners' argument that the petitioners "are not insurers of their passengers" deserves no merit in view of the failure of the petitioners to

prove that the deaths of the two passengers were exclusively due to force majeure and not to the failure of the petitioners to observe extraordinary diligence in transporting safely the passengers to their destinations as warranted by law. LIMITATION OF LIABILITY; VALIDITY OF STIPULATIONS Art. 1757. The responsibility of a common carrier for the safety of passengers as required in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise. Art. 1758. When a passenger is carried gratuitously, a stipulation limiting the common carrier's liability for negligence is valid, but not for willful acts or gross negligence. The reduction of fare does not justify any limitation of the common carrier's liability. NOTES:

• General rule: invalid to have stipulation limiting liability of common carrier of passengers

• Exception: when passenger is carried gratuitously, a stipulation limiting common carrierʼs liability for negligence is valid (as to diligence required)

• Exception to the exception: willful acts or gross negligence • Limitation of liability re: carriage of goods

o As to diligence required o As to amount of liability

• There is no jurisprudence that allows a stipulation limiting amount of liability but according to the Warsaw Convention, the law provides for the limit of amount

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



This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. Art. 1760. The common carrier's responsibility prescribed in the preceding article cannot be eliminated or limited by stipulation, by the posting of notices, by statements on the tickets or otherwise. 62 BATACLAN V. MEDINA Supra 63 DE DILLACO V. MRR 97 PHIL 884 FACTS:

1. That at about 7:30 a.m., on the morning of April 1, 1946, Lt. Tomas Gillaco, husband of the plaintiff, was a passenger in the early morning train of the Manila Railroad Company from Calamba, Laguna to Manila;

2. That when the train reached the Paco Railroad station, Emilio Devesa, a train guard of the Manila Railroad Company assigned in the Manila-San Fernando, La Union Line, happened to be in said station waiting for the same train which would take him to Tutuban Station, where he was going to report for duty;

3. That Emilio Devesa had a long standing personal grudge against Tomas Gillaco, same dating back during the Japanese occupation;

4. That because of this personal grudge, Devesa shot Gillaco with the carbine furnished to him by the Manila Railroad Company for his use as such train guard, upon seeing him inside the train coach;

5. That Tomas Gillaco died as a result of the would which he sustained from the shot fired by Devesa.

HELD: There can be no quarrel with the principle that a passenger is entitled to protection from personal violence by the carrier or its agents or employees, since the contract of transportation obligates the carrier to transport a passenger safely to his destination. But under the law of the case, this responsibility extends only to those that the carrier could foresee or avoid

through the exercise of the degree of car and diligence required of it. The act of guard Devesa in shooting passenger Gillaco (because of a personal grudge nurtured against the latter since the Japanese occupation) was entirely unforeseeable by the Manila Railroad Co. The latter had no means to ascertain or anticipate that the two would meet, nor could it reasonably foresee every personal rancor that might exist between each one of its many employees and any one of the thousands of eventual passengers riding in its trains. The shooting in question was therefore "caso fortuito" within the definition of article 105 of the old Civil Code, being both unforeseeable and inevitable under the given circumstances; and pursuant to established doctrine, the resulting breach of appellant's contract of safe carriage with the late Tomas Gillaco was excused thereby. No doubt that a common carrier is held to a very high degree of care and diligence in the protection of its passengers; but, considering the vast and complex activities of modern rail transportation, to require of appellant that it should guard against all possible misunderstanding between each and every one of its employees and every passenger that might chance to ride in its conveyances at any time, strikes us as demanding diligence beyond what human care and foresight can provide. Another very important consideration that must be borne in mind is that, when the crime took place, the guard Devesa had no duties to discharge in connection with the transportation of the deceased from Calamba to Manila. The stipulation of facts is clear that when Devesa shot and killed Gillaco, Devesa was assigned to guard the Manila-San Fernando (La Union) trains, and he was at Paco Station awaiting transportation to Tutuban, the starting point of the train that he was engaged to guard. In fact, his tour of duty was to start at 9:00 a.m., two hours after the commission of the crime. Devesa was therefore under no obligation to safeguard the passenger of the Calamba-Manila train, where the deceased was riding; and the killing of Gillaco was not done in line of duty. The position of Devesa at the time was that of another would be passenger, a stranger also awaiting transportation, and not that of an employee assigned to discharge any of the duties that the Railroad had assumed by its contract with the deceased. As a result, Devesa's assault cannot be deemed in law a breach of Gillaco's contract of transportation by a servant or employee of the carrier.



64 MARANAN V. PEREZ 20 SCRA 442 FACTS: Rogelio Corachea was a passenger in a taxicab owned and operated by Pascual Perez when he was stabbed and killed by the driver, Simeon Valenzuela. Valenzuela was prosecuted for homicide in the Court of First Instance of Batangas. Found guilty, he was sentenced to suffer imprisonment and to indemnify the heirs of the deceased in the sum of P6,000. Appeal from said conviction was taken to the Court of Appeals. Pending appeal, a case was likewise filed against Perez, the owner of the taxi. HELD: The Civil Code provisions on the subject of Common Carriers1 are new and were taken from Anglo-American Law.2 There, the basis of the carrier's liability for assaults on passengers committed by its drivers rests either on (1) the doctrine of respondeat superior or (2) the principle that it is the carrier's implied duty to transport the passenger safely. Under the first, which is the minority view, the carrier is liable only when the act of the employee is within the scope of his authority and duty. It is not sufficient that the act be within the course of employment only. Under the second view, upheld by the majority and also by the later cases, it is enough that the assault happens within the course of the employee's duty. It is no defense for the carrier that the act was done in excess of authority or in disobedience of the carrier's orders. The carrier's liability here is absolute in the sense that it practically secures the passengers from assaults committed by its own employees. As can be gleaned from Art. 1759, the Civil Code of the Philippines evidently follows the rule based on the second view. At least three very cogent reasons underlie this rule. As explained in Texas Midland R.R. v. Monroe, 110 Tex. 97, 216 S.W. 388, 389-390, and Haver v. Central Railroad Co., 43 LRA 84, 85: (1) the special undertaking of the carrier requires that it furnish its passenger that full measure of protection afforded by the exercise of the high degree of care prescribed by the law, inter alia from violence and insults

at the hands of strangers and other passengers, but above all, from the acts of the carrier's own servants charged with the passenger's safety; (2) said liability of the carrier for the servant's violation of duty to passengers, is the result of the formers confiding in the servant's hands the performance of his contract to safely transport the passenger, delegating therewith the duty of protecting the passenger with the utmost care prescribed by law; and (3) as between the carrier and the passenger, the former must bear the risk of wrongful acts or negligence of the carrier's employees against passengers, since it, and not the passengers, has power to select and remove them. Accordingly, it is the carrier's strict obligation to select its drivers and similar employees with due regard not only to their technical competence and physical ability, but also, no less important, to their total personality, including their patterns of behavior, moral fibers, and social attitude. Applying this stringent norm to the facts in this case, therefore, the lower court rightly adjudged the defendant carrier liable pursuant to Art. 1759 of the Civil Code. 65 LRTA V. NAVIDAD 397 SCRA 75 FACTS: Nicanor was currently drunk when he arrived at the LRT station. An altercation ensued between him and a security guard, which led to a fist fight. He fell off the platform while there was an upcoming train, which resulted to his instantaneous death. This prompted his widow to file a case against the LRTA, security agency, etc. HELD: Law and jurisprudence dictate that a common carrier, both from the nature of its business and for reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the safety of passengers. The Civil Code, governing the liability of a common carrier for death of or injury to its passengers, provides: “Article 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.



“Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755.” “Article 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the formerʼs employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. “This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees.” “Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers, if the common carrierʼs employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission.” The law requires common carriers to carry passengers safely using the utmost diligence of very cautious persons with due regard for all circumstances. Such duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip but for so long as the passengers are within its premises and where they ought to be in pursuance to the contract of carriage. The statutory provisions render a common carrier liable for death of or injury to passengers (a) through the negligence or 61herefo acts of its employees or b) on account of 61herefo acts or negligence of other passengers or of strangers if the common carrierʼs employees through the exercise of due diligence could have prevented or stopped the act or omission. In case of such death or injury, a carrier is presumed to have been at fault or been negligent, and by simple proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier or of its employees and the burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to force majeure. In the absence of satisfactory explanation by the carrier on how the accident occurred, which petitioners, according to the appellate court, have

failed to show, the presumption would be that it has been at fault, an exception from the general rule that negligence must be proved. The foundation of LRTAʼs liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage. RESPONSIBILITY FOR ACTS OF STRANGERS AND CO-PASSENGERS Art. 1763. A common carrier is responsible for injuries suffered by a passenger on account of the wilful acts or negligence of other passengers or of strangers, if the common carrier's employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission. 66 PILAPIL V. CA 180 SCRA 546 FACTS: Pilapil, a paying passenger, boarded respondent-defendant's bus. While said bus No. 409 was in due course negotiating the distance between Iriga City and Naga City, upon reaching the vicinity of the cemetery of the Municipality of Baao, Camarines Sur, on the way to Naga City, an unidentified man, a bystander along said national highway, hurled a stone at the left side of the bus, which hit petitioner above his left eye. Private respondent's personnel lost no time in bringing the petitioner to the provincial hospital in Naga City where he was confined and treated. Considering that the sight of his left eye was impaired, petitioner was taken to Dr. Malabanan of Iriga City where he was treated for another week. Since there was no improvement in his left eye's vision, petitioner went to V. Luna Hospital, Quezon City where he was treated by Dr. Capulong. Despite the treatment accorded to him by Dr. Capulong, petitioner lost partially his left eye's vision and sustained a permanent scar above the left eye.



HELD: In consideration of the right granted to it by the public to engage in the business of transporting passengers and goods, a common carrier does not give its consent to become an insurer of any and all risks to passengers and goods. It merely undertakes to perform certain duties to the public as the law imposes, and holds itself liable for any breach thereof. Under Article 1733 of the Civil Code, common carriers are required to observe extraordinary diligence for the safety of the passenger transported by them, according to all the circumstances of each case. The requirement of extraordinary diligence imposed upon common carriers is restated in Article 1755: "A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances." Further, in case of death of or injuries to passengers, the law presumes said common carriers to be at fault or to have acted negligently. While the law requires the highest degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does not, however, make the carrier an insurer of the absolute safety of its passengers. 67 BACHELOR EXPRESS V. CA Supra HELD: The petitioners' argument that the petitioners "are not insurers of their passengers" deserves no merit in view of the failure of the petitioners to prove that the deaths of the two passengers were exclusively due to force majeure and not to the failure of the petitioners to observe extraordinary diligence in transporting safely the passengers to their destinations as warranted by law.

REVIEW: INJURIES AND DEATH OF PASSENGER

• Diligence • Stipulation • Presumption • Defenses

Injury and/or death to

passenger

Nature

Employee (Maranan and Gillaco) • Diligence: ordinary • Defenses: not an employee

(incomplete); defenses under vicarious liability in tort prohibited expressly by law in common carrier

• This disparity highlights the difference between responsibility of employer and c. carrier

Co-passenger (Bachelor Express) • Diligence: ordinary • Defense: extraordinary

diligence

Stranger (Pilapil) • Diligence: ordinary • Defense: employees

has exercised diligence of good father of family; extraordinary diligence

Self-inflicted • The passenger must

observe due diligence to avoid injury to himself



DUTY OF PASSENGER; EFFECT OF CONTRIBUTORY NEGLIGENCE Art. 1761. The passenger must observe the diligence of a good father of a family to avoid injury to himself. Art. 1762. The contributory negligence of the passenger does not bar recovery of damages for his death or injuries, if the proximate cause thereof is the negligence of the common carrier, but the amount of damages shall be equitably reduced. 68 CANGCO V. MRR

Supra

HELD: It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular injury suffered by him could not have occurred. Defendant contends, and cites many authorities in support of the contention, that it is negligence per se for a passenger to alight from a moving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the opinion that this proposition is too badly stated and is at variance with the experience of every-day life. In this particular instance, that the train was barely moving when plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight from trains under these conditions every day of the year, and sustain no injury where the company has kept its platform free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place. The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be used by the prudent man generally, but the care which a man of ordinary prudence would use under similar circumstances, to avoid injury." Was there anything in the circumstances surrounding the plaintiff at the time

he alighted from the train which would have admonished a person of average prudence that to get off the train under the conditions then existing was dangerous? If so, the plaintiff should have desisted from alighting; and his failure so to desist was contributory negligence. As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed and the surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature of the platform, constructed as it was of cement material, also assured to the passenger a stable and even surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no means so risky for him to get off while the train was yet moving as the same act would have been in an aged or feeble person. In determining the question of contributory negligence in performing such act that is to say, whether the passenger acted prudently or recklessly the age, sex, and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger, and should be considered. Women, it has been observed, as a general rule are less capable than men of alighting with safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get on and of the train at this station. There could, therefore, be no uncertainty in his mind with regard either to the length of the step which he was required to take or the character of the platform where he was alighting. Our conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty of contributory negligence.

69 ISAAC V. A.L AMMEN Supra

DAMAGES RECOVERABLE FROM COMMON CARRIERS

IN GENERAL



Art. 2195. The provisions of this Title shall be respectively applicable to all obligations mentioned in Article 1157. Art. 2196. The rules under this Title are without prejudice to special provisions on damages formulated elsewhere in this Code. Compensation for workmen and other employees in case of death, injury or illness is regulated by special laws. Rules governing damages laid down in other laws shall be observed insofar as they are not in conflict with this Code. Art. 2197. Damages may be: (1) Actual or compensatory; (2) Moral; (3) Nominal; (4) Temperate or moderate; (5) Liquidated; or (6) Exemplary or corrective. Art. 2198. The principles of the general law on damages are hereby adopted insofar as they are not inconsistent with this Code.

CONTRACT

ACTUAL Obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

MORAL Not recoverable generally Exception: malice or bad faith, fraud

NOMINAL For the right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized

TEMPERATE When the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be provided with certainty

LIQUIDIATED Breach of contract EXEMPLARY Generally not recoverable

Wanton, fraudulent, reckless, oppressive, or malevolent manner

ACTUAL OR COMPENSATORY DAMAGES Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. (1107a) Art. 2203. The party suffering loss or injury must exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition:



(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of Article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased.

70 CARIAGA V. LTB CO. AND MRR

110 PHIL 346 FACTS: Cariaga was a medical student who was a passenger in a bus when the accident occurred. The accident left Cariaga an invalid, mentally and physically. HELD: Appellant LTB admits that under Art. 2201 of the Civil Code the damages for which the obligor, guilty of a breach of contract but who acted in good faith, is liable shall be those that are the natural and probable consequences of the breach and which the parties had forseen or could have reasonably forseen at the time the obligation was constituted, provided such damages, according to Art. 2199 of the same Code, have been duly proved. Upon this premise it claims that only the actual damages suffered by Edgardo Cariaga consisting of medical, hospital and other expenses in the total sum of P17,719.75 are within this category. We are of the opinion, however, that the income which Edgardo Cariaga could earn if he should finish the medical course and pass the corresponding board examinations must be deemed to be within the same category because they could have reasonably been foreseen by the parties at the time he boarded the bus No. 133 owned and operated by the LTB. At that time he was already a fourth-year student in medicine in a reputable university. While his scholastic may not be first rate (Exhibits 4, 4-A to 4-C), it is, nevertheless, sufficient to justify the assumption that he could have passed the board test in due time. As regards the income that he could possibly earn as a medical practitioner, it appears that, according to Dr. Amado Doria, a witness for the LTB, the amount of P300.00 could easily be expected as the minimum monthly income of Edgardo had he finished his studies. Upon consideration of all the facts mentioned heretofore this Court is of the opinion, and so holds, that the compensatory damages awarded to Edgardo Cariaga should be increased to P25,000.00. Plaintiffs' claim for moral damages cannot also be granted. Article 2219 of the Civil Code enumerates the instances when moral damages may be covered and the case under consideration does not fall under any one of them. The present action cannot come under paragraph 2 of said article because it is not one of the quasi-delict and cannot be considered as such

Actual damages

Damnun emergens

(actual pecuniary

loss)

Goods Loss, damage, deterioration

Passengers Injury or death (Death: P50,000)

Lucrum cessans

Goods

Good faith: limited to natural and probable consequences of the breach which can be foreseen/

foreseeable

Bad faith: reasonably attributable to the breach

Passengers

If he was earning income or could have earned

income

Life expectency divided by net annual income



because of the pre-existing contractual relation between the Laguna Tayabas Bus Company and Edgardo Cariaga. Neither could defendant Laguna Tayabas Bus Company be held liable to pay moral damages to Edgardo Cariaga under Article 2220 of the Civil Code on account of breach of its contract of carriage because said defendant did not act fraudulently or in bad faith in connection therewith. Defendant Laguna Tayabas Bus Company had exercised due diligence in the selection and supervision of its employees like the drivers of its buses in connection with the discharge of their duties and so it must be considered an obligor in good faith. The plaintiff Edgardo Cariaga is also not entitled to recover for attorney's fees, because this case does not fall under any of the instances enumerated in Article 2208 of the Civil Code. 71 PAN AM V. IAC Supra HELD: In the absence of a showing that petitioner's attention was called to the special circumstances requiring prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private respondents' contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in Guam and California were cancelled because of the loss of the two luggages in question." The evidence reveals that the proximate cause of the cancellation of the contracts was private respondent Pangan's failure to deliver the promotional and advertising materials on the dates agreed upon. For this petitioner cannot be held liable. Private respondent Pangan had not declared the value of the two luggages he had checked in and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its attention called to the condition therein requiring delivery of the promotional and advertising materials on or before a certain date. 72 VILLA-REY V. CA

31 SCRA 511 FACTS: At about 1:30 in the morning, an Izuzu First Class passenger bus owned and operated by the defendant, left Lingayen, Pangasinan, for Manila. Among its paying passengers was the deceased, Policronio Quintos, Jr. who sat on the first seat, second row, right side of the bus. At about 4:55 o'clock a.m. when the vehicle was nearing the northern approach of the Sadsaran Bridge on the national highway in barrio Sto. Domingo, municipality of Minalin, Pampanga, it frontally hit the rear side of a bullcart filled with hay. As a result the end of a bamboo pole placed on top of the hayload and tied to the cart to hold it in place, hit the right side of the windshield of the bus. The protruding end of the bamboo pole, about 8 feet long from the rear of the bullcart, penetrated through the glass windshield and landed on the face of Policronio Quintos, Jr. who, because of the impact, fell from his seat and was sprawled on the floor. The pole landed on his left eye and the bone of the left side of his face was fractured. He suffered other multiple wounds and was rendered unconscious due, among other causes to severe cerebral concussion. A La Mallorca passenger bus going in the opposite direction towards San Fernando, Pampanga, reached the scene of the mishap and it was stopped by Patrolman Felino Bacani of the municipal police force of Minalin who, in the meantime, had gone to the scene to investigate. Patrolman Bacani placed Policronio Quintos, Jr. and three other injured men who rode on the bullcart aboard the La Mallorca bus and brought them to the provincial hospital of Pampanga at San Fernando for medical assistance. Notwithstanding such assistance, Policronio Quintos, Jr. died due to traumatic shock due to cerebral injuries. HELD: The determination of the indemnity to be awarded to the heirs of a deceased person has therefore no fixed basis. Much is left to the discretion of the court considering the moral and material damages involved, and so it has been said that "(t)here can be no exact or uniform rule for measuring the value of a human life and the measure of damages cannot be arrived at by precise mathematical calculation, but the amount recoverable depends on the particular facts and circumstances of each case. The life expectancy of the deceased or of the beneficiary, whichever is shorter, is an important factor.' Other factors that are usually considered are: (1) pecuniary loss to plaintiff or beneficiary; (2) loss of support; (3) loss of service; (4) loss of society; (5)



mental suffering of beneficiaries; and (6) medical and funeral expenses. Thus, life expectancy is, not only relevant, but, also, an important element in fixing the amount recoverable by private respondents herein. Although it is not the sole element determinative of said amount, no cogent reason has been given to warrant its disregard and the adoption, in the case at bar, of a purely arbitrary standard, such as a four-year rule. In short, the Court of Appeals has not erred in basing the computation of petitioner's liability upon the life expectancy of Policronio Quintos, Jr. At this juncture, it should be noted, also, that We are mainly concerned with the determination of the losses or damages sustained by the private respondents, as dependents and intestate heirs of the deceased, and that said damages consist, not of the full amount of his earnings, but of the support, they received or would have received from him had he not died in consequence of the negligence of petitioner's agent. In fixing the amount of that support, We must reckon with the "necessary expenses of his own living", which should be deducted from his earnings. Thus, it has been consistently held that earning capacity, as an element of damages to one's estate for his death by wrongful act is necessarily his net earning capacity or his capacity to acquire money, "less the necessary expense for his own living. Stated otherwise, the amount recoverable is not loss of the entire earning, but rather the loss of that portion of the earnings which the beneficiary would have received. In other words, only net earnings, not gross earning, are to be considered that is, the total of the earnings less expenses necessary in the creation of such earnings or income6 and less living and other incidental expenses. 73 PAL V. CA 185 SCRA 110 FACTS: Starlight Flight No. 26 of the Philippine Air Lines (hereafter PAL) took off from the Manduriao Airport in Iloilo, on its way to Manila, with 33 persons on board, including the plane's complement. The plane did not reach its destination but crashed on Mt. Baco, Mindoro, one hour and fifteen minutes after takeoff .The plane was Identified as PI-C133, a DC-3 type aircraft manufactured in 1942 and acquired by PAL in 1948. It had flown almost 18,000 hours at the time of its illfated flight. It had been certified as airworthy

by the Civil Aeronautics Administration. Among the fatalities was Nicanor Padilla who was a passenger on the star crossed flight. He was 29 years old, single. His mother, Natividad A. Vda. de Padilla, was his only legal heir. As a result of her son's death, Mrs. Padilla filed a complaint (which was amended twice) against PAL, demanding payment of P600,000 as actual and compensatory damages, plus exemplary damages and P60,000 as attorney's fees. HELD: Under Article 1764 and Article 2206(1) of the Civil Code, the award of damages for death is computed on the basis of the life expectancy of the deceased, not of his beneficiary. In the case of Davila vs. PAL, 49 SCRA 497 which involved the same tragic plane crash, this Court determined not only PALs liability for negligence or breach of contract, but also the manner of computing the damages due the plaintiff therein which it based on the life expectancy of the deceased, Pedro Davila, Jr. This Court held thus:

The deceased, Pedro Davila, Jr., was single and 30 years of age when he died. At that age one's normal life expectancy is 33-1/3 years, according to the formula (2/3 x [80-30]) adopted by this Court in the case of Villa Rey Transit, Inc. vs. Court of Appeals on the basis of the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality. However, although the deceased was in relatively good health, his medical history shows that he had complained of and been treated for such ailments as backaches, chest pains and occasional feelings of tiredness. It is reasonable to make an allowance for these circumstances and consider, for purposes of this case, a reduction of his life expectancy to 25 years.

PALʼs contention makes sense. Nevertheless, the court stuck with the doctrine that it is the life expectancy of the deceased which is taken into consideration.



MORAL DAMAGES Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act for omission. Art. 2218. In the adjudication of moral damages, the sentimental value of property, real or personal, may be considered. Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in Article 309; (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants, and brothers and sisters may bring

the action mentioned in No. 9 of this article, in the order named. Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: xxx (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. 74 FORES V. MIRANDA Supra HELD: Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have repeatedly ruled, that moral damages are not recoverable in damage actions predicted on a breach of the contract of transportation. Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; x x x x x x x x x Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under circumstances, such damages are justify due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. By contrasting the provisions of these two article it immediately becomes



apparent that: (a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and (b) That a breach of contract can not be considered included in the descriptive term "analogous cases" used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused by contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where there is a "preexisting contractual relation between the parties." The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art. 2206, that entitles the deceased passenger to "demand moral damages for mental anguish by reason of the death of the deceased". But the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does not die, moral damages are not recoverable unless it is proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per se constitute of justify an inference of malice or bad faith on the part of the carrier; and in the case at bar there is no other evidence of such malice to support the award of moral damages by the Court of Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art. 220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation. 75 AIR FRANCE V. CARRASCOSO 18 SCRA 155 FACTS: Plaintiff was ousted from his first-class seat in favor of a white man by the plane manager. HELD: Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on guard on what Carrascoso

intended to prove: That while sitting in the plane in Bangkok, Carrascoso was ousted by petitioner's manager who gave his seat to a white man; and (b) evidence of bad faith in the fulfillment of the contract was presented without objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to whether or not there is sufficient averment in the complaint to justify an award for moral damages. Deficiency in the complaint, if any, was cured by the evidence. An amendment thereof to conform to the evidence is not even required. 76 LOPEZ V. PAN AM 16 SCRA 431 FACTS: Reservations for first class accommodations in Flight No. 2 of PAN-AM from Tokyo to San Francisco were made with PAN-AM by "Your Travel Guide" agency, for then Senator Fernando Lopez, and his family. PAN-AM's San Francisco head office confirmed the reservations. First class tickets for the abovementioned flight were subsequently issued by PAN-AM, in favor of Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid before the tickets were issued. As scheduled Senator Lopez and party left Manila by Northwest Airlines arriving in Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the Philippine Embassy to contact PAN-AM's Tokyo office regarding their first class accommodations for that evening's flight. For the given reason that the first class seats therein were all booked up, however, PAN-AM's Tokyo office informed Minister Busuego that PAN-AM could not accommodate Senator Lopez and party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to Minister Busuego for him to show the same to PAN-AM's Tokyo office, but the latter firmly reiterated that there was no accommodation for them in the first class, stating that they could not go in that flight unless they took the tourist class therein. Due to pressing engagements awaiting Senator Lopez and his wife, Senator Lopez and party were constrained to take PAN-AM's flight from Tokyo to San Francisco as tourist passengers. Senator Lopez however made it clear, as



indicated in his letter to PAN-AM's Tokyo office on that date that they did so "under protest" and without prejudice to further action against the airline. According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And in support of its contention that what was done to plaintiffs is an oftrepeated practice of defendant, evidence was adduced relating to two previous instances of alleged racial discrimination by defendant against Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to (1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife. HELD: From the foregoing evidence of defendant it is in effect admitted that defendant through its agents � first cancelled plaintiffs, reservations by mistake and thereafter deliberately and intentionally withheld from plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first class reservations stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in the conviction that they had confirmed reservations for the same, when in fact they had none, defendant wilfully and knowingly placed itself into the position of having to breach its a foresaid contracts with plaintiffs should there be no last-minute cancellation by other passengers before flight time, as it turned out in this case. Such actuation of defendant may indeed have been prompted by nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as passengers in its flight and foreclosing on their chances to seek the services of other airlines that may have been able to afford them first class accommodations. All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through some motive of interest or ill-will. Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is malice nevertheless. At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so gross and reckless as to amount to malice or bad faith. Firstly, notwithstanding the entries in the reservation cards that the reservations cancelled are those of the Rufinos only, Herranz made the mistake, after reading said entries, of sending a wire cancelling all the reservations, including those of Senator Lopez and party. Secondly, after

sending a wire to San Francisco head office stating his error and asking for reinstatement, Herranz simply forgot about the matter. Notwithstanding the reply of San Francisco head Office on April 22, 1960 that it cannot reinstate Senator Lopez and party, it was assumed and taken for granted that reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in a phone call to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card that they were only waitlisted passengers. Fourthly, defendant's ticket sellers issued plaintiffs' tickets without first checking their reservations just before issuing said tickets. And, finally, no one among defendant's agents notified Senator Lopez and party that their reservations had been cancelled, a precaution that could have averted their entering with defendant into contracts that the latter had already placed beyond its power to perform. Accordingly, there being a clear admission in defendant's evidence of facts amounting to a bad faith on its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course of the trial does not need to be proved Addressing ourselves now to the question of damages, it is well to state at the outset those rules and principles. First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently or in bad faith. Second, in addition to moral damages, exemplary or corrective damages may be imposed by way of example or correction for the public good, in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. And, third, a written contract for an attorney's services shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable. First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they were given only the tourist class. At stop-overs, they were expected to be among the first-class passengers by those awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating to travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully to be expected from the contractual



undertaking. 77 ORTIGAS V. LUFTHANSA 64 SCRA 610 FACTS: Lufthansaʼs failure to "comply with its obligation to give first class accommodation to (the latter) a (Filipino) passenger holding a first class ticket," aggravated by the giving of the space instead to a Belgian and the improper conduct of its agents in dealing with him during the occasion of such discriminatory violation of its contract of carriage. HELD: Disputing the foregoing conclusions, Lufthansa claims firstly that the Alitalia employee who validated and confirmed Ortigas' reservation must have made a mistake because actually, he was informed by the Lufthansa Rome office that Ortigas could only be waitlisted. Assuming, however, there was such an error, it has been indisputably proven that under the so-called pool arrangement among different airline companies pursuant to the International Air Transport Association (IATA) agreement of which Alitalia and Lufthansa are signatories, both companies are constituted thereby as agents of each other in the issuing of tickets and other matters pertaining to their relations with those who would need their services, and since there can be no question that on its face, the annotations made by Alitalia on the ticket here in dispute cannot have any (other meaning than that the reservation of Ortigas for the Rome � Hongkong flight was validated and confirmed, Lufthansa's disclaimer is unavailing. Besides, it appears that when Ortigas checked in at the airport, the Lufthansa lady employee thereat told him, after making the proper verification, that the reservation was correct. What is more, in the unconcluded testimony of Ivo Lazzari, the striking out of which is questioned by Lufthansa, he admitted that it was a fact that the said reservation of plaintiff for first class was confirmed, albeit he qualified that this was done already in the morning of November 18th, the day of the flight, almost at the last hour. What seems to have happened was that somehow the first class accommodations for that flight were overboard and Lufthansa tried to solve the problem by downgrading Ortigas to the economy class in favor of a Belgian, as Ortigas was told by the Lufthansa employee who paged him over the public address system for the purpose just as he was about to go to the departure area, with his luggage already checked and his

overweight fees duly paid, so much so that they were already loaded in the plane. Verily, such treatment given to plaintiff was completely wrong and absolutely unjustifiable. Nobody, much less a common carrier who is under constant special obligation to give utmost consideration to the convenience of its customers, may be permitted to relieve itself from any difficulty situation created by its own lack of diligence in the conduct of its affairs in a manner prejudicial to such customers. It is Our considered view that when it comes to contracts of common carriage, inattention and lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud which entitles the passenger to the award of moral damages in accordance with Article 2220 of the Civil Code. But in the instant case, the breach appears to be of graver nature, since the preference given to the Belgian passenger over plaintiff was done willfully and in wanton disregard of plaintiff's rights and his dignity as a human being and as a Filipino, who may not be discriminated against with impunity. As found by the court below what worsened the situation of Ortigas was that Lufthansa succeeded in keeping him as its passenger by assuring him that he would be given first class accommodation at Cairo, the next station, the proper arrangements therefor having been made already, when in truth such was not the case. Thus, instead of complying with the request of Ortigas that other airlines be contacted to find out it they had first class space for him, the Lufthansa employee who had indifferently told him about his downgrading paid very little attention if ever to said request. And to keep him from giving the business to another company, he was made to believe that he would be given first class accommodation at Cairo. Although molested and embarrassed to the point that he had to take nitroglycerine pills to ward off a possible heart attack, Ortigas hardly had any choice, since his luggage was already in the plane. To his disappointment, when the plane reached Cairo, he was told by the Lufthansa office there that no word at all had been received from Rome and they had no space for him in first class. Worse, similar false representations were made to him at Dharham and Calcutta. It was only at Bangkok where for the first time, Ortigas was at last informed that he could have a first class seat in that leg of the flight, from Bangkok to Hongkong. This Ortigas rejected, if only to make patent his displeasure and indignation at being so inconsiderately treated in the earlier part of his journey.



n the light of all the foregoing, there can be no doubt as to the right of Ortigas to damages, both moral and exemplary. Precedents We have consistently adhered to so dictate. Beginning with Cuenca, 2 wherein the Court rejected the theory that an air carrier is liable only in the event of death or injury suffered by a passenger, because, according to the Court, to so hold would be tantamount to declaring the carrier "exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd", We have uniformly upheld the right of a passenger to damages in all cases wherein, after having contracted and paid for first class accommodations duly confirmed and validated, he is transferred over his objection to economy, class, which he has to take in order to be able to arrive at his destination on his scheduled time. 78 PAL V. MIANO 242 SCRA 235 FACTS: Private respondent took petitioner's flight PR 722, Mabuhay Class, bound for Frankfurt, Germany. He had an immediate onward connecting flight via Lufthansa flight LH 1452 to Vienna, Austria. At the Ninoy Aquino International Airport, he checked-in one brown suitcase weighing twenty (20) kilograms but did not declare a higher valuation. He claimed that his suitcase contained money, documents, one Nikkon camera with zoom lens, suits, sweaters, shirts, pants, shoes, and other accessories. Upon private respondent's arrival at Vienna via Lufthansa flight LH 1452, his checked-in baggage was missing. He reported the matter to the Lufthansa authorities. After three (3) hours of waiting in vain, he proceeded to Piestany, Czechoslovakia. Eleven (11) days after or on September 11, 1988, his suitcase was delivered to him in his hotel in Piestany, Czechoslovakia. He claimed that because of the delay in the delivery of his suitcase, he was forced to borrow money to buy some clothes, to pay $200.00 for the transportation of his baggage from Vienna to Piestany, and lost his Nikkon camera. HELD: The trial court erred in awarding moral damages to private respondent. The established facts evince that petitioner's late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In fact, it

immediately coordinated with its Central Baggage Services to trace private respondent's suitcase and succeeded in finding it. At the hearing, petitioner's Manager for Administration of Airport Services Department Miguel Ebio testified that their records disclosed that Manila, the originating station, did not receive any tracer telex. A tracer telex, an airline lingo, is an action of any station that the airlines operate from whom a passenger may complain or have not received his baggage upon his arrival. It was reasonable to presume that the handling of the baggage was normal and regular. Upon inquiry from their Frankfurt Station, it was however discovered that the interline tag of private respondent's baggage was accidentally taken off. According to Mr. Ebio, it was customary for destination stations to hold a tagless baggage until properly identified. The tracer telex, which contained information on the baggage, is matched with the tagless luggage for identification. Without the tracer telex, the color and the type of baggage are used as basis for the matching. Thus, the delay. 79 CATHAY PACIFIC V. VASQUEZ 399 SCRA 207

FACTS: Vasquez spouses were granted an upgrade by Cathay Pacific. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their guests, in the Business Class; and moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu that she could have other passengers instead transferred to the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that the Business Class was fully booked, and that since they were Marco Polo Club members they had the priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin. Upon arrival in the Philippines, the spouses filed an action for breach of contract. HELD: We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading through insidious



words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathay�s Marco Polo Club. She was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other passengers. But, we find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment. Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew; thus, the difference in fare between the First Class and Business Class at that time was $250. Needless to state, an upgrading is for the better condition and, definitely, for the benefit of the passenger. Furthermore, according to the Economic Regulations pertinent to this case, an overbooking that does not exceed ten percent is not considered deliberate and therefore does not amount to bad faith. EXEMPLARY DAMAGES Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated. 80 MECENAS V. COURT OF APPEALS 180 SCRA 83 FACTS: M/T "Tacloban City," a barge-type oil tanker of Philippine registry, with a

gross tonnage of 1,241,68 tons, owned by the Philippine National Oil Company (PNOC) and operated by the PNOC Shipping and Transport Corporation (PNOC Shipping), having unloaded its cargo of petroleum products, left Amlan, Negros Occidental, and headed towards Bataan. At about 1:00 o'clock in the afternoon of that same day, the M/V "Don Juan," an interisland vessel, also of Philippine registry, of 2,391.31 tons gross weight, owned and operated by the Negros Navigation Co., Inc. (Negros Navigation) left Manila bound for Bacolod with seven hundred fifty (750) passengers listed in its manifest, and a complete set of officers and crew members. On the evening of the same day, the "Tacloban City" and the "Don Juan" collided at the Talbas Strait near Maestra de Ocampo Island in the vicinity of the island of Mindoro. When the collision occurred, the sea was calm, the weather fair and visibility good. As a result of this collision, the M/V "Don Juan" sank and hundreds of its passengers perished. Among the ill-fated passengers were the parents of petitioners, the spouses Perfecto Mecenas and Sofia Mecenas, whose bodies were never found despite intensive search by petitioners. HELD: There is, therefore, no question that the "Don Juan" was at least as negligent as the M/T "Tacloban City" in the events leading up to the collision and the sinking of the "Don Juan." The remaining question is whether the negligence on the part of the "Don Juan" reached that level of recklessness or gross negligence that our Civil Code requires for the imposition of exemplary damages. Our own review of the record in the case at bar requires us to answer this in the affirmative. M/S Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the time of collision. Moreover, after the collision, he failed to institute appropriate measures to delay the sinking MS Don Juan and to supervise properly the execution of his order of abandonship. As regards the officer on watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed or did not call or inform Capt. Santisteban of the imminent danger of collision and of the actual collision itself Also, he failed to assist his master to prevent the fast sinking of the ship. The record also indicates that Auxiliary Chief Mate Antonio Labordo displayed laxity in maintaining order among the passengers after the collision.



We believe that the behaviour of the captain of the "Don Juan" in tills instance-playing mahjong "before and up to the time of collision constitutes behaviour that is simply unacceptable on the part of the master of a vessel to whose hands the lives and welfare of at least seven hundred fifty (750) passengers had been entrusted. Whether or not Capt. Santisteban was "off-duty" or "on-duty" at or around the time of actual collision is quite immaterial; there is, both realistically speaking and in contemplation of law, no such thing as "off-duty" hours for the master of a vessel at sea that is a common carrier upon whom the law imposes the duty of extraordinary diligence. Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the collision, "to institute appropriate measures to delay the sinking of M/V Don Juan." This appears to us to be a euphemism for failure to maintain the sea-worthiness or the water-tight integrity of the "Don Juan." The record shows that the "Don Juan" sank within ten (10) to fifteen (15) minutes after initial contact with the "Tacloban City. 15 While the failure of Capt. Santisteban to supervise his officers and crew in the process of abandoning the ship and his failure to avail of measures to prevent the too rapid sinking of his vessel after collision, did not cause the collision by themselves, such failures doubtless contributed materially to the consequent loss of life and, moreover, were indicative of the kind and level of diligence exercised by Capt. Santisteban in respect of his vessel and his officers and men prior to actual contact between the two (2) vessels. The officer-on-watch in the "Don Juan" admitted that he had failed to inform Capt. Santisteban not only of the "imminent danger of collision" but even of "the actual collision itself ". We hold that under these circumstances, a presumption of gross negligence on the part of the vessel (her officers and crew) and of its ship-owner arises; this presumption was never rebutted by Negros Navigation. Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in its consequence by creating negative incentives or deterrents against such behaviour. In requiring compliance with the standard which is in fact that of the highest possible degree of diligence, from common carriers and in creating a presumption of negligence against them, the law seels to compel them to control their employees, to tame their reckless instincts and to force them to take adequate care of human beings and their property. The Court will take

judicial notive of the dreadful regularity with which grievous maritime disasters occur in our waters with massive loss of life. The bulk of our population is too poor to afford domestic air transportation. So it is that notwithstanding the frequent sinking of passenger vessels in our waters, crowds of people continue to travel by sea. This Court is prepared to use the instruments given to it by the law for securing the ends of law and public policy. One of those instruments is the institution of exemplary damages; one of those ends, of special importance in an archipelagic state like the Philippines, is the safe and reliable carriage of people and goods by sea. Considering the foregoing, we believe that an additional award in the amount of P200,000.00 as exmplary damages, is quite modest. NOMINAL, TEMPERATE AND LIQUIDATED DAMAGES Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be provided with certainty. Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. 81 ALITALIA V. IAC 192 SCRA 9 FACTS: Dr. Pablo was a faculty member of the University of the Philippines. She is also a distinguished expert in her chosen field. As such, she was invited to a meeting in Italy. She took an ALITALIA flight and upon arrival, she was informed that her baggage was in delay and would be arriving soon. However, it didnʼt arrive. She then filled up the required forms and upon arrival in Manila, she filed an action for damages. HELD:



In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of petitioner and the luggage was eventually returned to her, belatedly, it is true, but without appreciable damage. The fact is nevertheless that some special species of injury was caused to her because petitioner misplaced her baggage and failed to deliver to her at the time appointed—a breach of the contract of carriage—with the result that she was unable to read her paper and make the scientific presentation. 82 SALUDO V. CA 207 SCRA 498 FACTS: After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago Illinois, Pomierski and Son Funeral Home of Chicago, made the necessary preparations and arrangements for the shipment, of the remains from Chicago to the Philippines. Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made the necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national service used by undertakers to throughout the nation (U.S.A.), they furnish the air pouch which the casket is enclosed in, and they see that the remains are taken to the proper air freight terminal. In the meantime, plaintiffs Maria Saludo, thru a travel agent, were booked with United Airlines from Chicago to California, and with PAL from California to Manila. She then went to the funeral director of Pomierski Funeral Home who had her mother's remains and she told the director that they were booked with United Airlines. But the director told her that the remains were booked with TWA flight to California. This upset her, and she and her brother had to change reservations from UA to the TWA flight after she confirmed by phone that her mother's remains should be on that TWA flight. They went to the airport and watched from the look-out area. She saw no body being brought. So, she went to the TWA counter again, and she was told there was no body on that flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug, that he would look into the matter and inform her about it on the plane or have it radioed to her. But no confirmation from her cousin reached her that her mother was on the West Coast. Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to inquire about her mother's remains. She was told they did

not know anything about it. She then called Pomierski that her mother's remains were not at the West Coast terminal, and Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him that the remains were on a plane to Mexico City, that there were two bodies at the terminal, and somehow they were switched; he relayed this information to Miss Saludo in California; later C.M.A.S. called and told him they were sending the remains back to California via Texas HELD: The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver property within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or charge, and the party is disabled from performing it without any default in himself, and has no remedy over, then the law will excuse him, but where the party by his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier to be determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation of contracts. Also, the theory of petitioners that the specification of the flights and dates of departure and arrivals constitute a special contract that could prevail over the printed stipulations at the back of the airway bill is vacuous. To countenance such a postulate would unduly burden the common carrier for that would have the effect of unilaterally transforming every single bill of lading or trip ticket into a special contract by the simple expedient of filling it up with the particulars of the flight, trip or voyage, and thereby imposing upon the carrier duties and/or obligations which it may not have been ready or willing to assume had it been timely, advised thereof.



Note: the siblings were inquiring about the shipment of the remains of their mother. They were inquiring as consignees under the bill of lading. Take note that the extraordinary diligence extends to the goods and not to the consignees or shipper in this case. 83 JAPAN AIRLINES V. CA 294 SCRA 19 FACTS: Jose Miranda boarded JAL flight No. JL 001 in San Francisco, California bound for Manila. Likewise, on the same day private respondents Enrique Agana, Maria Angela Nina Agana and Adelia Francisco left Los Angeles, California for Manila via JAL flight No. JL 061. As an incentive for travelling on the said airline, both flights were to make an overnight stopover at Narita, Japan, at the airlines' expense, thereafter proceeding to Manila the following day. Upon arrival at Narita, Japan, private respondents were billeted at Hotel Nikko Narita for the night. The next day, private respondents, on the final leg of their journey, went to the airport to take their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting ashfall blanketed Ninoy Aquino International Airport (NAIA), rendering it inaccessible to airline traffic. Hence, private respondents' trip to Manila was cancelled indefinitely. To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound passengers on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel expenses for their unexpected overnight stay. However, much to the dismay of the private respondents, their long anticipated flight to Manila was again cancelled due to NAIA's indefinite closure. At this point, JAL informed the private respondents that it would no longer defray their hotel and accommodation expense during their stay in Narita. Since NAIA was only reopened to airline traffic 6 days after, private respondents were forced to pay for their accommodations and meal expenses from their personal funds in the meanwhile. Their unexpected stay in Narita ended on June 22, 1991 when they arrived in Manila on board JL flight No. 741.

HELD: The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the hotel and meal expenses of its stranded passengers until they have reached their final destination, even if the delay were caused by "force majeure." To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to Manila on schedule. Likewise, private respondents concede that such event can be considered as "force majeure" since their delayed arrival in Manila was not imputable to JAL. However, private respondents contend that while JAL cannot be held responsible for the delayed arrival in Manila, it was nevertheless liable for their living expenses during their unexpected stay in Narita since airlines have the obligation to ensure the comfort and convenience of its passengers. While we sympathize with the private respondents' plight, we are unable to accept this contention. We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract to transport passengers is quite different in kind, and degree from any other contractual relation. It is safe to conclude that it is a relationship imbued with public interest. Failure on the part of the common carrier to live up to the exacting standards of care and diligence renders it liable for any damages that may be sustained by its passengers. However, this is not to say that common carriers are absolutely responsible for all injuries or damages even if the same were caused by a fortuitous event. To rule otherwise would render the defense of "force majeure," as an exception from any liability, illusory and ineffective. Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force majeure," the general rule is that he cannot be held liable for damages for non-performance. 6 Corollarily, when JAL was prevented from resuming its flight to Manila due to the effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal expenses the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL assumed the hotel expenses of respondents for their unexpected overnight stay on June 15, 1991. Admittedly, to be stranded for almost a week in a foreign land was an



exasperating experience for the private respondents. To be sure, they underwent distress and anxiety during their unanticipated stay in Narita, but their predicament was not due to the fault or negligence of JAL but the closure of NAIA to international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for the amenities of its stranded passengers by reason of a fortuitous event is too much of a burden to assume. Furthermore, it has been held that airline passengers must take such risks incident to the mode of travel. In this regard, adverse weather conditions or extreme climatic changes are some of the perils involved in air travel, the consequences of which the passenger must assume or expect. After all, common carriers are not the insurer of all risks. FUNNY QUIMBO ANECDOTE: Plaintiffs asked for damages because Japan Airlines officials were allegedly rude. How they were rude? When asked by plaintiffs when they can fly back to Manila, officials told them to ask the volcano. Atty. RSQ, as counsel, said that such was not rude but in actuality, the officials were merely being humorous and wished to entertain the passengers. PUNCHLINE? He was cited in contempt. 84 SAVELLANO V. NORTHWEST 405 SCRA 416 FACTS: Savellanoʼs family was on the way to Manila from Seattle. Two and a half hours in flight, the plane had to make an emergency landing due to fire in one of the planeʼs engines. The family together with other passengers was billeted in a hotel. During the night, plaintiffs were informed of their early flight the next day. Other mishaps happened when they rode the airplane the next day. Petitioners' contract of carriage with Northwest was for the San Francisco-Tokyo (Narita)-Manila flights scheduled for October 27, 1991. This itinerary was not followed when the aircraft used for the first segment of the journey developed engine trouble. Petitioners stress that they are questioning, not the cancellation of the original itinerary, but its substitution, which they allegedly had not contracted for or agreed to. They insist that, like the other passengers of the distressed flight, they had the right to be placed on Flight

27, which had a connecting flight from Japan to Manila. They add that in being treated differently and shabbily, they were being discriminated against. HELD: After an examination of the conditions printed on the airline ticket, we find nothing there authorizing Northwest to decide unilaterally, after the distressed flight landed in Seattle, what other stopping places petitioners should take and when they should fly. True, Condition 9 on the ticket allowed respondent to substitute alternate carriers or aircraft without notice. However, nothing there permits shuttling passengers � without so much as a by your-leave � to stopping places that they have not been previously notified of, much less agreed to or been prepared for. Substituting aircrafts or carriers without notice is entirely different from changing stopping places or connecting cities without notice. Furthermore, the change in petitioners' flight itinerary does not fall under the situation covered by the phrase "may alter or omit stopping places shown on the ticket in case of necessity." A case of necessity must first be proven. The burden of proving it necessarily fell on respondent. This responsibility it failed to discharge. Petitioners do not question the stop in Seattle, so we will not delve into this matter. The airplane engine trouble that developed during the flight bound for Tokyo from San Francisco definitely merited the "necessity" of landing the plane at some place for repair � in this case, Seattle � but not that of shuttling petitioners to other connecting points thereafter without their consent. Northwest failed to show a "case of necessity" for changing the stopping place from Tokyo to Los Angeles and Seoul. It is a fact that some of the passengers on the distressed flight continued on to the Tokyo (Narita) connecting place. No explanation whatsoever was given to petitioners as to why they were not similarly allowed to do so. It may be that the Northwest connecting flight from Seattle to Tokyo to Manila could no longer accommodate them. Yet it may also be that there were other carriers that could have accommodated them for these sectors of their journey, and whose route they might have preferred to the more circuitous one unilaterally chosen for them by respondent.



In the absence of evidence as to the actual situation, the Court is hard pressed to determine if there was a "case of necessity" sanctioning the alteration of the Tokyo stopping place in the case of petitioners. Thus, we hold that in the absence of a demonstrated necessity thereof and their rerouting to Los Angeles and Seoul as stopping places without their consent, respondent committed a breach of the contract of carriage. Nominal damages are recoverable if no actual, substantial or specific damages were shown to have resulted from the breach. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances. In the present case, we must consider that petitioners suffered the inconvenience of having to wake up early after a bad night and having to miss breakfast; as well as the fact that they were business class passengers. They paid more for better service; thus, rushing them and making them miss their small comforts was not a trivial thing. We also consider their social and official status. Victorino Savellano was a former mayor, regional trial court judge and chairman of the Commission on Elections. Virginia B. Savellano was the president of five rural banks, and Deogracias Savellano was then the incumbent vice governor of Ilocos Sur. Hence, it will be proper to grant one hundred fifty thousand pesos (P150,000) as nominal damages to each of them, in order to vindicate and recognize their right to be notified and consulted before their contracted stopping place was changed. Highest nominal damages on record. This is even bigger than what Zapatos got as actual damages. ATTORNEYʼS FEES AND INTEREST Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen's compensation and employer's liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. In all cases, the attorney's fees and expenses of litigation must be reasonable. Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.

CODE OF COMMERCE PROVISIONS ON OVERLAND TRANSPORTATION

SCOPE OF OVERLAND TRANSPORTATION

WHAT IS OVERLAND TRANSPORTATION?



NATURE OF CONTRACT

Art. 349. A contract for all kinds of transportation overland or river shall be considered commercial—

1. When it involves merchandise or any commercial goods 2. When, no matter what his object may be, the carrier is a merchant

or customarily is engaged in transporting goods for the public.

EFFECT OF CIVIL CODE

Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. Art. 2270. The following laws and regulations are hereby repealed: (1) Those parts and provisions of the Civil Code of 1889 which are in force on the date when this new Civil Code becomes effective: (2) The provisions of the Code of Commerce governing sales, partnership, agency, loan, deposit and guaranty; (3) The provisions of the Code of Civil Procedure on prescription as far as inconsistent with this Code; and (4) All laws, Acts, parts of Acts, rules of court, executive orders, and administrative regulations which are inconsistent with this Code. (n) NOTES:

• The CC provides for a hierarchy. See Article 1766. The Civil Code provisions shall apply first and in the absence of provisions relevant to common carrier law, the Code of Commerce shall apply first.

CONTRACT OF CARRIAGE

BILL OF LADING DEFINITION, SUBJECT MATTER Art. 352. Bills of lading or tickets in the case of transportation of passengers

may be different, one for persons and another for baggage, but all of them shall contain the name of the carrier, the date of shipment, the points of departure and arrival, the price, and with regard the baggage, the number and weight of the packages, with any other indications which may be considered necessary in order to easily identify them. FORM, CONTENTS, 350-351 Art. 350. The shipper as well as the carrier of merchandise and goods may mutually demand of each other the issue of a bill of lading in which there shall be stated—

1. The name, surname, and domicile of the shipper 2. The name, surname, and domicile of the carrier 3. The name, surname, and domicile of the person to whom or to

whose order the goods are addressed, or whether they are to be delivered to the bearer of the said bill

4. A statement of the goods, stating their generic character, their weight, and the external marks or signs of the packages containing the same

5. The cost of transportation 6. The date on which the shipment is made 7. The place of delivery to the carrier 8. The place and time the delivery is to be made to the consignee 9. The damages to be paid the carrier in case of delay, if any

agreement is made on this point. Art. 351. In shipments made over railroads or by other enterprise which are subject to fixed schedules or the time fixed by regulations, it shall be sufficient that the bills of lading or declarations of shipment furnished by the shipper refer, with regard to the rate, time, and special conditions of the transportation, to the schedules and regulations, the application of which is requested; and should no schedule be determined the carrier must apply the rates of the merchandise paying the lowest, with the condition inherent thereto, always including their statement or reference in the bill of lading delivered to the shipper. FUNCTION Art. 353. The legal instruments of the contract between the shipper and the



carrier shall be the bills of lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided without admission of other exceptions than forgery or material errors in the drafting thereof. After the contract has been consummated the bill of lading issued shall be returned to the carrier, and by virtue of the exchange of this certificate for the article transported, the respective obligations and actions shall be considered as cancelled, unless in the same act the claims which the contracting parties desire to reserve are reduced to writing, exception being made of the provisions of Article 360. If in case of loss for any reason whatsoever, the consignee cannot return upon receiving the merchandise the bill of lading subscribed by the carrier, he shall give said carrier a receipt for the goods delivered, this receipt producing the same effects as the return of the bill of lading. REFUSAL TO TRANSPORT Art. 356. Carriers may refuse to accept packages which appear unfit for transportation; and if said transportation is to be made over a railroad, and the shipment is insisted on, the company shall carry it, being exempt from all liability if it so states in the bill of lading. DOUBTFUL DECLARATION OF CONTENTS Art. 357. If the carrier by reason of well-founder suspicions as to the correctness of the declaration of the contents of a package should determine to examine it, he shall do so before witnesses, in the presence of the shipper or of the consignee. Should the shipper or consignee to be cited not appear, the examination shall be made before a notary, who shall draft a certificate of the result of the examination, for the proper purposes. If the declaration of the shipper should be correct, the expenses caused by the examination and those of carefully repackaging the packages shall be defrayed by the carrier, and in a contrary case by the shipper.

NO BILL OF LADING Art. 351. In shipments made over railroads or by other enterprise which are subject to fixed schedules or the time fixed by regulations, it shall be sufficient that the bills of lading or declarations of shipment furnished by the shipper refer, with regard to the rate, time, and special conditions of the transportation, to the schedules and regulations, the application of which is requested; and should no schedule be determined the carrier must apply the rates of the merchandise paying the lowest, with the condition inherent thereto, always including their statement or reference in the bill of lading delivered to the shipper. Art. 354. In the absence of a bill of lading disputes shall be decided by virtue of the legal proofs each contracting party may submit in support of his respective claim, in accordance with the general provisions established in this code for commercial contracts.

RESPONSIBILITY OF CARRIER

WHEN IT COMMENCES Art. 355. The liability of the carrier shall begin from the moment he receives the merchandise, in person or through a person entrusted thereto in the place indicated for their reception. ROUTE Art. 359. If there should be an agreement between the shipper and the carrier with regard to the road over which the transportation is to be made, the carrier cannot change the route, unless obliged to do so by force majeure; and should he do so without being forced to, he shall be liable for any damage which may be suffered by the goods transported for any cause whatsoever, besides being required to pay the amount which may have been stipulated for such a case. When on account of the said force majeure, the carrier is obliged to take another route, causing an increase in the transportation charges, he shall be reimbursed for said increase after presenting the formal proof thereof.



CARE OF GOODS Art. 360. The shipper may, without changing the place where the delivery is to be made, change the consignment of the goods delivered to the carrier, and the latter shall comply with his orders, provided that at the time of making the change of the consignee the bill of lading subscribed by the carrier be returned to him, if one were issued, exchanging it for another containing the novation of the contract. The expenses arising from the change of consignment shall be defrayed by the shpper.. Art. 361. Merchandise shall be transported at the risk and venture of the shipper, unless the contrary was not expressly stipulated. Therefore, all damages and impairment suffered by the goods in transportation, by reason of accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the account and risk of the shipper. The proof of these accidents is incumbent on the carrier. Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act 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. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. DELIVERY

CONDITION OF GOODS Art. 363. With the exception of the cases prescribed in the second paragraph of article 361, the carrier shall be obliged to deliver the goods transported in the same condition in which, according to the bill of lading, they were at the time of their receipt, without any detriment or impairment, and should he not do so, he shall be obliged to pay the value of the goods not delivered at the point where they should have been and at the time the delivery should have taken place. If part of the goods transported should be delivered the consignee may refuse to receive them, when he proves that he cannot make use thereof without the others. Art. 364. If, on account of the averages, the goods are rendered useless for purposes of sale or consumption in the manner proper to the same, the consignee shall not be bound to receive them, and may leave them on the hands of the carrier, demanding payment therefore at current market prices. If among the goods damaged, there should be some in good condition and without any defect whatsoever, the foregoing provision shall be applicable with regard to the damaged ones, and the consignee shall receive those which are perfect, this separation being made by distinct and separate articles, no object being divided for the purpose, unless the consignee proves the impossibility of conveniently making use thereof in this form. The same provision shall be applied to merchandise in bales or packages, with distinction of the pages which appear perfect.. Art. 366. Within the 24 hours following the receipt of the merchandise a claim may be brought against the carrier on account of damage or average found therein on opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim would only be admitted on the receipt of the packages. After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the



carrier with regard to the condition in which the goods transported were delivered. Art. 367. If there should occur doubts and disputes between the consignee and the carrier with regard the condition of goods transported at the time of their delivery to the former, the said goods shall be examined by experts appointed by the parties, and a third one, in case of disagreement, by the judicial authority, the result of the examination always being reduced to writing; and if the persons interested should not agree to the report of the experts and could not reach an agreement, said judicial authority shall have the merchandise deposited in a safe warehouse, and the parties interested shall make use of their rights in the proper manner. TO WHOM DELIVERY IS MADE Art. 368. The carrier must deliver to the consignee without any delay or difficulty the merchandise received by him, by reason of the mere fact of being designated in the bill of lading to receive it; and should said carrier not do so, he shall be liable for the damages which may arise therefrom. JUDICIAL DEPOSIT Art. 369. Should the consignee not be at the domicile indicated in the bill of lading, or should refuse to pay the transportation charges and expenses, or to receive the goods, the deposit of said goods shall be ordered by the municipal judge, where there is no judge of first instance, to be placed at the disposal of the shipper or sender, without prejudice to a third person having a better right, this deposit having all the effects of a delivery. Art. 1752. Even when there is an agreement limiting the liability of the common carrier in the vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of their loss, destruction or deterioration. WHEN TO BE MADE Art. 370. If a period has been fixed for the delivery of the goods, it must be made within the same, and otherwise the carrier shall pay the indemnity agreed upon in the bill of lading, neither the shipper nor the consignee being

entitled to anything else. Art. 358. Should no period within which goods are to be delivered to be previously fixed, the carrier shall be under the obligation to forward them in the first shipment of the same or similar merchandise which he may make to the point of delivery; and should he not do so, the damage occasioned by the delay shall be suffered by him. TWO OR MORE CARRIERS Art. 373. A carrier who delivers merchandise to a consignee by virtue of agreements or combined services with other carriers shall assume the obligations of the carriers who preceded him, reserving his right to proceed against the latter if he should not be directly responsible for the fault which gives rise to the claim of the shipper or of the consignee. The carrier making the delivery shall also assume all the actions and rights of those who may have preceded him in the transportation. The sender and the consignee shall have a right of action against the carrier who executed the transportation contract, or against the other carriers who received the goods transported without reserve. The reservations made by the latter shall not exempt them, however from the liabilities they may have incurred by reason of their own acts. OBLIGATION TO KEEP REGISTRY Art. 378. Transportation agents shall be obliged to keep a special registry, with the formalities required by article 36, in which there shall be entered, in progressive order of numbers and dates, all the goods the transportation of which is undertaken, stating the circumstances required by articles 30 et seq. for the respective bills of lading. COMPLIANCE WITH ADMINISTRATIVE REGULATIONS Art. 377. The carrier shall be liable for all the consequences arising from non-compliance on his part with the formalities prescribed by the laws and regulations of the public administration during the entire course of the trip



and on the arrival at the point of destination, except when his omission arise from having been induced into error by false statements of the shipper in the declaration of the merchandise. If the carrier has acted in accordance with a formal order received from the shipper or consignee of the merchandise both shall incur liability.

RIGHTS AND OBLIGATIONS OF SHIPPER AND/OR CONSIGNEE

RIGHT TO DAMAGES CONDITION IMPOSED ON RIGHT Art. 366. Within the twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages. After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. Art. 357. If by reason of well-founded suspicions of falsity in the declaration of the contents of a package, the carrier should decide to examine it, he shall do so before witnesses, in the presence of the shipper or of the consignee. Should the shipper or consignee cited not appear, the examinations shall be made before a notary, who shall draft a certificate of the result of the examination, for such purposes as may be proper. If the declaration of the shipper should be correct, the expenses caused by the examination and those of carefully repacking the packages shall be defrayed by the carrier, and in a contrary case by the shipper.

Art. 353. The legal basis of the contract between the shipper and the carrier shall be the bills of lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided, no exceptions being admissible other than forgery or material errors in the drafting thereof. After the contract has been complied with, the bill of lading shall be returned to the carrier who may have issued it, and by virtue of the exchange of this title for the article transported, the respective obligations and actions shall be considered canceled, unless the same act the claims which the contracting parties desire to reserve are reduced to writing, exception being made of the provisions of Article 366. In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier, due to its loss or for any other cause, he shall give said carrier a receipt for the goods delivered, this receipt producing the same effect as the return of the bill of lading. AMOUNT OF DAMAGES FOR LOSS Art. 372. The value of the goods which the carrier must pay in case of their being lost or mislaid shall be fixed in accordance with what is stated in the bill of lading, no proofs being allowed on the part of the shipper that there were among the goods declared therein articles of greater value, and money. Horses, vehicles, vessels, equipments, and all the other principal and accessory means of transportation, shall be especially obligated in favor of the shipper, although with respect to railroads said obligation shall be subordinated to the provisions of the laws of concession with regard to property and to those of this Code with regard to the manner and form of making attachments and seizures against the said companies. Art. 1744. A stipulation between the CC 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 cc; and 3. Reasonable, just, and not contrary to public policy.

AMOUNT OF DAMAGES FOR DELAY Art. 371. In cases of delay on account of the fault of the carrier, referred to in the foregoing articles, the consignee may leave the goods transported in the hands of the carrier, informing him thereof in writing before the arrival of the same at the point of destination. When this abandonment occurs, the carrier shall satisfy the total value of the goods, as if they had been lost or mislaid. Should the abandonment not occur the indemnity for loss and damages on account of the delays cannot exceed the current price of the goods transported on the day and at the place where the delivery was to have been made. The same provision shall be observed in all cases where this indemnity is due. RIGHT TO ABANDON Art. 371. In cases of delay on account of the fault of the carrier, referred to in the foregoing articles, the consignee may leave the goods transported in the hands of the carrier, informing him thereof in writing before the arrival of the same at the point of destination. When this abandonment occurs, the carrier shall satisfy the total value of the goods, as if they had been lost or mislaid. Should the abandonment not occur the indemnity for loss and damages on account of the delays cannot exceed the current price of the goods transported on the day and at the place where the delivery was to have been made. The same provision shall be observed in all cases where this indemnity is due. Art. 360. The shipper may, without changing the place where the delivery is to be made, change the consignment of the goods delivered to the carrier, and the latter shall comply with his orders, provided that at the time of making the change of the consignee the bill of lading subscribed by the carrier, if one were issued, be returned to him, exchanging it for another containing the novation of the contract. The expenses arising from the change of consignment shall be defrayed by

the shipper. Art. 365. If, on account of the damage, the goods are rendered useless for sale or consumption for the use for which they are properly destined the consignee shall not be bound to receive them, and may leave them in the hands of the carrier, demanding payment of their value at the current market price that day. If among the goods damages there should be some in good condition and without any defect whatsoever, the foregoing provision shall be applicable with regard to the damaged ones, and the consignee shall receive those which are sound, this separation being made by distinct and separate articles, no object being divided for the purpose, unless the consignee proves the impossibility of conveniently making use thereof in this form. The same provision shall be applied to merchandise in bales or packages, with distinction of the packages which appear sound. Art. 363. With the exception of the cases prescribed in the second paragraph of Article 361, the carrier shall be obliged to deliver the goods transported in the same condition in which, according to the bill of lading, they were at the time of their receipt, without any damage or impairment, and should he not do so, he shall be obliged to pay the value of the goods not delivered at the point where they should have been and at the time the delivery should have taken place. If part of the goods transported should be delivered the consignee may refuse to receive them, when he proves that he cannot make use thereof without the others. RIGHT TO CHANGE CONSIGNMENT Art. 360. The shipper may, without changing the place where the delivery is to be made, change the consignment of the goods delivered to the carrier, and the latter shall comply with his orders, provided that at the time of making the change of the consignee the bill of lading subscribed by the carrier, if one were issued, be returned to him, exchanging it for another containing the novation of the contract.



The expenses arising from the change of consignment shall be defrayed by the shipper. OBLIGATION TO PAY TRANSPORTATION CHARGES Art. 374. The consignees to whom the remittance may have been made may not defer the payment of the expenses and transportation charges on the goods that they received after twenty-four hours have elapsed from the time of the delivery; and in case of delay in making this payment, the carrier may demand the judicial sale of the goods he transported to a sufficient amount to cover the transportation charges and the expenses incurred. Art. 375. The goods transported shall be specifically bound to answer for the transportation charges and for the expenses and fees caused by the same during their transportation, and until the time of their delivery. This special right shall be limited to eight days after the delivery has been made, and after said prescription the carrier shall have no further right of action than that corresponding to an ordinary creditor. Art. 376. The preference of the carrier to the payment of what is due him for the transportation and expenses of the goods delivered to the consignee shall not be affected by the bankruptcy of the latter, provided the action is brought within the eight days mentioned in the foregoing article. Art. 2241. With reference to specific movable property of the debtor, the ff. claims or liens shall be preferred: xxx (9) Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter. OBLIGATION TO RETURN BILL OF LADING Art. 353. The legal basis of the contract between the shipper and the carrier shall be the bills of lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment shall be decided, no exceptions being admissible other than forgery or material errors in the

drafting thereof. After the contract has been complied with, the bill of lading shall be returned to the carrier who may have issued it, and by virtue of the exchange of this title for the article transported, the respective obligations and actions shall be considered canceled, unless the same act the claims which the contracting parties desire to reserve are reduced to writing, exception being made of the provisions of Article 366. In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier, due to its loss or for any other cause, he shall give said carrier a receipt for the goods delivered, this receipt producing the same effect as the return of the bill of lading.

APPLICABILITY OF PROVISIONS

Art. 379. The provisions contained in article 349, et. seq. shall also be understood as relating to persons who, although they donʼt personally effect the transportation of commercial goods, contract to do so through others, either as contractors for a special and fixed transaction or as freight and transportation agents. In either case, they shall be subrogated to the place of the carriers with regard to the obligations and liability of the latter, as well as with regard to their right.

ADMIRALTY AND MARITIME COMMERCE

CONCEPT OF ADMIRALTY

JURISDICTION OVER ADMIRALTY CASES

Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction: (3) In all actions in admiralty and maritime jurisdiction where he demand or claim exceeds One hundred thousand pesos (P100,000.00) or , in Metro



Manila, where such demand or claim exceeds Two hundred thousand pesos (200,000.00); xxx Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in civil cases. � Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise: (1) Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of provisional remedies in proper cases, where the value of the personal property, estate, or amount of the demand does not exceed One hundred thousand pesos (P100,000.00) or, in Metro Manila where such personal property, estate, or amount of the demand does not exceed Two hundred thousand pesos (P200,000.00) exclusive of interest damages of whatever kind, attorney's fees, litigation expenses, and costs, the amount of which must be specifically alleged: Provided, That where there are several claims or causes of action between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions; xxx

85 INTERNATIONAL HARVESTER V. ARAGON 84 PHIL 363 FACTS: Yaras and Company, Far East, filed a complaint against the Manila Terminal Co., Inc., and International Harvester Company of the Philippines. The complaint alleges that the defendant Manila Terminal Co., Inc., is in charge of the custody and delivery to the respective owners of cargoes discharged at the Government piers in the City of Manila; that the defendant International Harvester Company of the Philippines is the agent in the Philippines of the vessel Belle of the Sea; that the S/S Belle of the Sea took on board at Los Angeles, California, U. S. A., goods for shipment to Manila, Philippines; that the S/S Belle of the Sea arrived in Manila and discharged her cargo at the Government piers under the supervision and custody of the

defendant Manila Terminal Co., Inc.; that one carton of assorted samples with a stipulated value of P200 was not delivered to Yaras and Company; and said merchandise was lost through the negligence either of the Manila Terminal Co., Inc., or of the International Harvester Company of the Philippines. Before the trial could be proceeded with, the International Harvester of the Philippines filed a motion to dismiss, on the ground that the Municipal Court of Manila had no jurisdiction to try case because the action involves admiralty or maritime jurisdiction, which motion was overruled by the municipal court. HELD: Admiralty has jurisdiction over all maritime contracts, in whatever form, wherever they were executed or are to be performed, but not over non-maritime contracts. Whether or not a contract is maritime depends not on the place where the contract is made and is to be executed, making the locality the test, but on the subject-matter of the contract, making the true criterion a maritime service or a maritime transaction. Specifically, admiralty has jurisdiction of a proceeding in rem or in personam for the breach of a contract of affreightment, whether evidenced by a bill of lading or a charter party. And typical of a controversy over contracts of affreightment is a suit of one party against the other for loss of or damage to the cargo. This is the very case now before us, because the respondent Yaras and Company seeks to recover from the petitioner International Harvester Company of the Philippines the value of a certain lost cargo. The contention of the respondent Yaras and Company that admirally jurisdiction is not involved herein because the contract in question was made upon land and to be terminated upon land, merely reflects the English rule which had long been rejected in the United States. It is now settled in the latter country that "the jurisdiction of admiralty in matters of contract depends upon the subject-matter, i.e., the nature and character of the contract, and that the English rule which conceded jurisdiction (with few exceptions) only to contracts made upon and the to be performed upon navigable waters, is inadmissable, the true criterion being that the contract has reference to maritime service or maritime transaction." We choose to adopt the sound American rule. Even in England the English rule was not without protest. Lord Kenyon, in Menetone vs. Gibbons, 3 Term, 269, had expressed the following criticism: "if the admiralty has jurisdiction over the subject-matter, to say that it is necessary



for the parties to go upon the sea to execute the instrument borders upon absurdity." The respondent Yaras and Company cannot invoke the rule against multiplicity of suits, for the simple reason that said rule has to be subservient to the superior requirement that the court must have jurisdiction. In view of our conclusion that the cause of action of said respondent against International Harvester Company of the Philippines involves admiralty over which the courts of first instance have original jurisdiction (Par. 4, Sec. 56, Act No. 136 of the Philippine Commission, as reproduced in sec. 43 [d] of Republic Act No. 296), and to which the jurisdiction of the justice of the peace courts (including municipal courts) does not extend (sec. 68, Act No. 136 of the Philippine Commission, as amended by Commonwealth Act No. 4090, reproduced in par, 2, sec. 88, Republic Act No. 296), the respondent judge was properly restrained from further proceeding with civil case No. IV-262.

VESSELS

MEANING 86 LOPEZ V. DURUELO 52 PHIL 229 FACTS: Lopez wanted to embark upon the interisland steamer San Jacinto in order to go to Iloilo. This boat was at the time in the anchoring-ground of the port of Silay, some half a mile distant from the port. The plaintiff therefore embarked at the landing in the motor boat Jison, which was then engaged in conveying passengers and luggage back and forth from the landing to boats at anchor, and which was owned and operated by the defendant Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on this trip was one Rodolin Duruelo, a boy of only 16 years of age. He is alleged to have been a mere novice without experience in the running of motor boats; and the day of the occurrence now in contemplation is said to have been the third day of his apprenticeship in this capacity. It is alleged that the Jison, upon this trip, was grossly overladen, having aboard fourteen passengers, while its capacity was only for eight or nine. As the motor boat

approached the San Jacinto in a perfectly quiet sea, it came too near to the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the blades of the propeller struck the motor boat and sank it at once. It is alleged in the complaint that the approach of the Jison to this dangerous proximity with the propeller of the San Jacinto was due to the fault, negligence and lack of skill of the defendant Juan Duruelo, as patron of the Jison. As the Jison sank, the plaintiff was thrown into the water against the propeller, and the revolving blades inflicted various injuries upon him, consisting of a bruise in the breast, two serious fractures of the bones of the left leg, and a compound fracture of the left femur. HELD: The article in question (835, Code of Com.) is found in the section dealing with collisions, and the context shows the collisions intended are collisions of sea-going vessels. Said article cannot be applied to small boats engaged in river and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime Commerce, of which the section of Collisions forms a part, was evidently intended to define the law relative to mechant vessels and marine shipping; and, as appears from said Code, the vessels intended in that Book are such as are run by masters having special training, with the elaborate apparatus of crew and equipment indicated in the Code. The word "vessel" (Spanish "buque," "nave"), used in the section referred to was not intended to include all ships, craft or floating structures of every kind without limitation, and the provisions of that section should not be held to include minor craft engaged only in river and bay traffic. Vessels which are licensed to engage in maritime commerce, or commerce by sea, whether in foreign or coastwise trade, are no doubt regulated by Book III of the Code of Commerce. Other vessels of a minor nature not engaged in maritime commerce, such as river boats and those carrying passengers from ship to shore, must be governed, as to their liability to passengers, by the provisions of the Civil Code or other appropriate special provisions of law. When the mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they do not include war ships furthermore, they almost always refer to craft which are not accessory to another as is the case of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the words ship, vessels, boat, embarkation, etc., refer exclusively to those which are engaged in the transportation of passengers and freight from one port to another or from one place to



another; in a word, they refer to merchant vessels and in no way can they or should they be understood as referring to pleasure craft, yachts, pontoons, health service and harbor police vessels, floating storehouses, warships or patrol vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other uses, such as for instance coast and geodetic survey, those engaged in scientific research and exploration, craft engaged in the loading and discharge of vessels from same to shore or docks, or in transhipment and those small craft which in harbors, along shore, bays, inlets, coves and anchorages are engaged in transporting passengers and baggage. NATURE AND ACQUISITION OF Art. 573. Merchant vessels constitute property which may be acquired and transferred by any of the means recognized by law. The acquisition of a vessel must be included in a written instrument, which shall not produce any effect with regard to third persons if not recorded in the registry of vessels. The ownership of a vessel shall also be acquired by the possession thereof in good faith for three years, with a good title duly recorded. In the absence of any of these requisites, uninterrupted possession for ten years shall be necessary in order to acquire ownership. A captain cannot acquire by prescription the ship of which he is in command. Art. 574. Builders of vessels may employ the material and follow with regard to their construction and rigging the systems most suitable to their interest. Ship owners and seamen shall be subject to the provisions of the laws and regulations of the public administration on navigation, customs, health, safety of vessels, and other similar matters. Art. 585. For all purposes of law not modified or restricted by the provisions of this Code, vessels shall continue to be considered as personal property. Art. 712. Ownership is acquired by occupation and by intellectual creation. Ownership and other real rights over property are acquired and transmitted by law, by donation, by estate and intestate succession, and in consequence of certain contracts, by tradition.

They may also be acquired by means of prescription. REGISTRATION, CERTIFICATES ISSUED, DISTINCTIONS Tariff and Customs Code, Sec. 802.

1. Vessels - every sort of boat, craft or other artificial contrivance used, or capable of being used, as a means of transportation on water

2. Duly registered - person, natural or juridical, registered with the proper govt. Agencies, as bureau of commerce, sec, nacida, boi, export incentives board or oil commission, as now or may hereafter be required by law.

PD 761 as amended by PD 1064, 1521, Sec. 806. Upon registration of a vessel of domestic ownership, and of more than 15 tons gross, a certificate of Philippine registry shall be issued for it. If the vessel is of domestic ownership and of 15 tons gross or less, the taking of the certificate of Philippine registry shall be optional with the owner. Domestic ownership means ownership vested in the citizens of the Philippines or corporations or association organized under the laws of the Philippines at least 60% of the C/S or capital of which is wholly owned by citizens of the Philippines, and in the case of corporations or associations which will engage in coastwise trade the president and managing directors hereof shall be such citizens xxx xxx an enterprise duly registered with the Board of Investments WON entirely owned by foreign nationals, may register its own vessels xxx if such vessels are to be used exclusively to transport its own raw materials and finished products in Philippine waters as an incident to its manufacturing, processing or business activity registered with the BOI and certified to by said Board as an essential element in the operation of the registered project. CERTIFICATES OF PHILIPPINE REGISTER

• Upon registration of a vessel of domestic ownership and of more than 15 tons gross, a certificate of Phil. register shall be issued for it



PURPOSE OF CERTIFICATES OF REGISTER OF VESSELS • To declare the nationality of a vessel engaged in trade with foreign

nations and to enable her to assert that nationality wherever found PRIVILEGES OF CERTIFICATE

• It confers upon the vessel the right to engage, consistently with law, in the Philippines coastwise trade and entitles it to the protection of the authorities and the flag of the Philippines in all ports and on the high seas, and at the same time secures to it the same privileges and subjects it to the same disabilities as, under the laws of the Philippines, pertain to foreign built vessels transferred abroad to citizens of the Philippines

CERTIFICATES OF OWNERSHIP

• Upon registration of a vessel of more than 5 tons gross, a certificate of ownership shall be issued for it

SIGNIFICANCE OF REGISTRATION OF TRANSACTIONS AFFECTING VESSELS 87 ARROYO V. YU 54 PHIL 511 FACTS: In the Court of First Instance of Iloilo, the sheriff of that province instituted an action to compel the various persons and entities with claims to the lorchas China and Cuylim to interplead with one another to determine their conflicting rights. During the trial, the court held that the mortgage of the lorchas China and Cuylim executed in favor of J. M. Po Pauco through notarial deed Exhibit 2, and the transfer of said mortgage by J. M. Po Pouco, the mortgagee, to the Philippine National Bank through notarial deed Exhibit 1, duly recorded in the registry of deeds of the Province of Iloilo on November 29, 1919, are valid and legal. Furthermore, the court held that the fact that this mortgage was not registered in the Bureau of Customs of the port of Iloilo until March 5th of this year does not invalidate it; since it was proved at the trial of this case that such deferred registration was due to certain doubts entertained by the collector of customs of the port of Iloilo touching the applicability of Act No.

3324, amending section 1176 of the Administrative Code; and that said collector only decided to admit and register said mortgage upon lochas China and Cuylim in March of this year after receipt of advice from Manila regarding the applicability of Act No. 3324, which was approved on December 4, 1926, to a mortgage executed on November 6, 1918, in favor of a Chinese subject � a prohibition not found in the original section 1176 of the Administrative Code, but which went into effect when the aforementioned Act No. 3324, approved on December 4, 1926, took effect. HELD: The registration of vessels is now governed by the Administrative Code. Section 1171 thereof provides: Record of documents affecting title. � In the record of transfers and incumbrances of vessels, to be kept at each principal port of entry, shall be recorded at length all transfers, bills of sale, mortgages, liens, or other document which evidence ownership or directly or indirectly affect the title of registered vessels, and therein shall be recorded all receipts, certificates, or acknowledgments canceling or satisfying, whole or in part, any such obligation. No other record of any such document or paper shall be required than such as is affected hereunder. It is clear that section 1171 of the Administrative Code has modified the provisions of the Chattel Mortgage Law, Act No. 1508, particularly section 4 thereof. It is now not necessary for a chattel mortgage of a vessel to be noted in the registry of the register of deeds. On the other hand, it is essential that a record of documents affecting the title of a vessel be entered in the office of the collector of customs, at a port of entry. The law as now existing is designed to protect persons who deal with a vessel on the strength of the record title. Mortgages on vessels, although not recorded, are good as between the parties. But as against creditors of the mortgagor, an unrecorded mortgage is invalid. Consolidating the facts, we find the mortgage of the Philippine National Bank dated November 28, 1919, but not recorded in the office of the collector of customs until March 5, 1929. The execution sued out by Maria Corazon Yu de Sane was dated December 6, 1928, and noted at the port of entry two days prior thereto. Under these facts, the execution holder would have a prior right over the unrecorded mortgage. However, in the decision of the trial



court we find an explanation of the delay which appears to have been proved at the trial, and which we must accept since there is nothing in the record to the contrary. His Honor states that the fact that the mortgage was not registered in the office of the collector of customs of Iloilo until March 5, 1929, was because of the doubts entertained by the collector relative to the applicability of Act No. 3324 to a mortgage executed in 1918 in favor of a Chinese subject. This uncontradicted fact must be taken as curing the bank's defective title. That the collector of customs did not perform his duty was no fault of the bank. Constructive registration of the mortgage must, therefore, be accepted. 88 RUBISO V. RIVERA 37 PHIL 72 FACTS: On April 10, 1915, counsel for plaintiff brought suit in the Court of the First Instance of this city and alleged in the complaint that his clients were the owners of the pilot boat named Valentina, which had been in bad condition since the year 1914 and, on the date of the complaint, was stranded in the place called Tingloy, of the municipality of Bauan, Batangas; that the defendant Florentino E. Rivera took charge or possession of said vessel without the knowledge or consent of the plaintiff and refused to deliver it to them, under claim that he was the owner thereof; and that such procedure on the defendant's part caused the plaintiffs to suffer damages, not only because they could not proceed to repair the vessel, but also because they were unable to derive profit from the voyages for which said pilot boat was customarily used; and that the net amount of such uncollected profit was P1,750. The complaint terminated with a petition that judgment be rendered by ordering the defendant to deliver said pilot boat to the plaintiffs and indemnify them in the amount aforementioned or in such amount as should be proven at trial, and to pay the costs. According to the records of the case, the pilot boat Valentina was twice sold: first privately by its owner Sy Qui to the defendant Florentino E. Rivera, on January 4, 1915, and afterwards by the sheriff at public auction in conformity with the order contained in the judgment rendered by the justice of the peace, court, on January 23 of the same year, against the Chinaman Sy Qui and in behalf of the plaintiff, Fausto Rubiso.

It is undeniable that the defendant Rivera acquired by purchase the pilot boat Valentina on a date prior to that of the purchase and adjudication made at public auction, by and on behalf of the plaintiff Rubiso; but it is no less true that the sale of the vessel by Sy Qui to Florentino E. Rivera, on January 4, 1915, was entered in the customs registry only on March 17, 1915, while its sale at public auction to Fausto Rubiso on the 23d of January of the same year, 1915, was recorded in the office of the Collector of Customs on the 27th of the same month, and in the commercial registry on the 4th of March, following; that is, the sale on behalf of the defendant Rivera was prior to that made at public auction to Rubiso, but the registration of this latter sale was prior by many days to the sale made to the defendant. HELD: The requisite of registration in the registry, of the purchase of a vessel, is necessary and indispensable in order that the purchaser's rights may be maintained against a claim filed by a third person. Such registration is required both by the Code of Commerce and by Act No. 1900. The amendment solely consisted in charging the Insular Collector of Customs, as at present, with the fulfillment of the duties of the commercial register concerning the registering of vessels; so that the registration of a bill of sale of a vessel shall be made in the office of the insular Collector of Customs, who, since May 18, 1909, has been performing the duties of the commercial register in place of this latter official. In view of said legal provisions, it is undeniable that the defendant Florentino E. Rivera's rights cannot prevail over those acquired by Fausto Rubiso in the ownership of the pilot boat Valentina, inasmuch as, though the latter's acquisition of the vessel at public auction, on January 23, 1915, was subsequent to its purchase by the defendant Rivera, nevertheless said sale at public auction was antecedently recorded in the office of the Collector of Customs, on January 27, and entered in the commercial registry � an unnecessary proceeding � on March 4th; while the private and voluntary purchase made by Rivera on a prior date was not recorded in the office of the Collector of Customs until many days afterwards, that is, not until March 17, 1915. The legal rule set down in the Mercantile Code subsists, inasmuch as the amendment solely refers to the official who shall make the entry; but, with respect to the rights of the two purchasers, whichever of them first registered his acquisition of the vessel is the one entitled to enjoy the protection of the



law, which considers him the absolute owner of the purchased boat, and this latter to be free of all encumbrance and all claims by strangers for, pursuant to article 582 of the said code, after the bill of the judicial sale at auction has been executed and recorded in the commercial registry, all the other liabilities of the vessel in favor of the creditors shall be considered canceled.

PERSONS PARTICIPATING IN MARITIME COMMERCE

WHO ARE THE PERSONS PARTICIPATING IN MARINE COMMERCE?

1. The shipowner and shipagents 2. Captain and master 3. Other personnel and crew 4. Supercargoes

SHIPOWNERS AND SHIPAGENTS, 586 TO 608, 618 Art. 586. The owner of a vessel and ship agent shall be civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditors proves that the amount claimed was invested therein. By agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the port in which she happens to be. Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freightage he may have earned during the voyage. Art. 588. Neither the owner of the vessel nor the agent shall be liable for the obligations contracted by the captain if the latter exceeds his powers and privileges inherent in his position or those which may have been conferred upon him by the former. However, if the amounts claimed were made use of for the benefit of the vessel, the owner or agent shall be liable. Art. 589. If two or more persons should be part owners of a merchant vessel, an association shall be presumed as established by the part owners.

This association shall be governed by the resolutions of a majority of the members. A majority shall be the relative majority of the voting members. If there should be only two part owners, in case of disagreement the vote of the member having the largest interest shall be decisive. If the interests are equal, it shall be decided by lot. The representation of the smallest part in the ownership shall have one vote; and proportionately the other part owners as many votes as they have parts equal to the smallest one. A vessel cannot be detained, attached or levied upon execution in her entirety for the private debts of a part owner, but the proceedings shall be limited to the interest the debtor may have in the vessel, without interfering with her navigation. Art. 590. The co-owners of a vessel shall be civilly liable, in the proportion of their contribution to the common fund, for the results of the acts of the captain, referred to in Article 587. Each part owner may exempt himself from this liability by the abandonment before a notary of the part of the vessel belonging to him. Art. 591. All the part owners shall be liable, in proportion to their respective ownership, for the expenses which are incurred by virtue of a resolution of the majority. They shall likewise be liable in the same proportion for the expenses of maintenance, equipment, and provisioning of the vessel, necessary for navigation. Art. 592. The resolutions of the majority with regard to the repair, equipment, and provisioning of the vessel in the port of departure shall bind the minority, unless they renounce their participation therein, which must be acquired by the other part owners after a judicial appraisement of the value of the portion or portions assigned.



The resolutions of the majority relating to the dissolution of the association and sale of the vessel shall also be binding on the minority. The sale of the vessel shall be made at a public auction, subject to the provisions of the law of civil procedure unless the part owners unanimously agree otherwise, subject always to the right of pre-emption and redemption mentioned in Article 575. Art. 593. The owners of a vessel shall have preference in her charter over other persons, offering equal conditions and price. If two or more of the former should claim said right the one having greater interest shall be preferred, and should they have an equal interest it shall be decided by lot. Art. 594. The part owners shall elect the manager who is to represent them in the capacity of agent. The appointment of director or agent shall be revocable at the will of the partners. Art. 595. The agent, be he at the same time an owner of a vessel or a manager for an owner or for an association of co- owners, must be qualified to trade and must be recorded in the merchant's registry of the province. The agent shall represent the ownership of the vessel, and may in his own name and in such capacity take judicial and extrajudicial steps in all that relates to commerce. Art. 596. The agent may discharge the duties of captain of the vessel, subject, in every case, to the provisions contained in Article 609. If two or more co-owners request the position of captain, the disagreement shall be decided by a vote of the members; and if the vote should result in a tie, the position shall be given to the part owner having the larger interest in the vessel. If the interest of the petitioners should be the same, and there should be a tie, the matter shall be decided by lot. Art. 597. The agent shall select and enter into an agreement with the captain, and shall contract in the name of the owners, who shall be bound in

all that refers to repairs, details of equipment, armament, provisions, fuel, and freight of the vessel, and, in general, in all that relates to the requirements of navigation. Art. 598. The agent cannot order a new voyage, nor make contracts for a new charter, nor insure the vessel, without the authority of her owner or by virtue of a resolution of the majority of the co-owners, unless these powers were granted him in the certificate of his appointment. If he should insure the vessel without authority therefor he shall be subsidiarily liable for the solvency of the underwriter. Art. 599. The managing agent of an association, shall give his co-owners an account of the results of each voyage of the vessel, without prejudice to always having the books and correspondence relating to the vessel and to its voyages at their disposal. Art. 600. After the account of the managing agent has been approved by a relative majority, the co-owners shall satisfy the expenses in proportion to their interest, without prejudice to the civil or criminal actions which the minority may deem fit to institute afterwards. In order to enforce the payment, the managing agents shall be entitled to an executory action, which shall be instituted by virtue of a resolution of the majority, and without further proceedings than the acknowledgment of the signatures of the persons who voted for the resolution. Art. 601. Should there be any profits, the co-owners may demand of the managing agent the amount due them, by means of an executory action without further requisite than the acknowledgment of the signatures in the instrument approving the account. Art. 602. The agent shall indemnify the captain for all the expenses he may have made from his own funds or from those of other persons, for the benefit of the vessel. Art. 603. Before a vessel goes out to sea the agent may at his discretion, discharge the captain and members of the crew whose contract did not state a definite period nor a definite voyage, paying them the salaries earned



according to their contracts, and without any indemnity whatsoever, unless there is an expressed and specific agreement in respect thereto. Art. 604. If the captain or any other member of the crew should be discharged during the voyage, they shall receive their salary until their return to the place where the contract was made, unless there are good reasons for the discharge, all in accordance with Art. 636 et seq. of this Code. Art. 605. If the contracts of the captain and members of the crew with the agent should be for a definite period or voyage, they cannot be discharged until the fulfillment of their contracts, except for reasons of insubordination in serious matters, robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or proven negligence. Art. 606. If the captain should be a part owner in the vessel, he may not be discharged unless the agent returns to him the amount of his interest therein, which, in the absence of an agreement between the parties, shall be appraised by experts appointed in the manner established in the law of civil procedure. Art. 607. If the captain who is a part owners should have obtained the command of the vessel by virtue of a special agreement contained in the articles of copartnership, he cannot be deprived thereof except for the reasons mentioned in Article 605. Art. 608. In case of the voluntary sale of the vessel, all contracts between the agent and captain shall terminate, reserving to the latter his right to the indemnity which may be proper, according to the agreements made with the agent. The vessel sold shall remain subject to the security of the payment of said indemnity if, after the action against the vendor has been instituted, the latter should be insolvent. Art. 618. The captain shall be civilly liable to the ship agent and the latter to the third persons who may have made contracts with the former -

(1) For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence on his part. If a misdemeanor or crime has been committed he shall be liable in accordance with the Penal

Code. (2) For all the thefts and robberies committed by the crew, reserving

his right of action against the guilty parties. (3) For the losses, fines, and confiscations imposed on account of

violation of the laws and regulations of customs, police, health, and navigation.

(4) For the losses and damages caused by mutinies on board the vessel, or by reason of faults committed by the crew in the service and defense of the same, if he does not prove that he made full use of his authority to prevent or avoid them.

(5) For those arising by reason of a misuse of powers and nonfulfillment of the duties which pertain to him in accordance with Articles 610 and 612.

(6) For those arising by reason of his going out of his course or taking a course which, in the opinion of the officers of the vessel, at a meeting attended by the shippers or supercargoes who may be on board, he should not have taken without sufficient cause. No exception whatsoever shall exempt him from his obligation.

(7) For those arising by reason of his voluntarily entering a port other than his destination, with the exception of the cases or without the formalities referred to in Article 612.

(8) For those arising by reason of the nonobservance of the provisions contained in the regulations for lights and maneuvers for the purpose of preventing collisions.

89 STANDARD OIL V. CASTELO 42 PHIL 256 FACTS: Manuel Lopez Castelo, as owner, let the small interisland steamer Batangueño for the term of one year to Jose Lim Chumbuque for use in the conveying of cargo between certain ports of the Philippine Islands. In this contract it was stipulated that the officers and crew of the Batangueño should be supplied by the owner, and that the charterer should have no other control over the captain, pilot, and engineers than to specify the voyages that they should make and to require the owner to discipline or relieve them as soon as possible in case they should fail to perform the duties respectively assigned to them.



While the boat was being thus used by the charterer in the interisland trade, the standard Oil Company delivered to the agent of the boat in Manila a quantity of petroleum to be conveyed to the port of Casiguran, in the Province of Sorsogon. For this consignment a bill of lading of the usual form was delivered, with the stipulation that freight should be paid at the destination. Said bill of lading contained no provision with respect to the storage of the petroleum, but it was in fact placed upon the deck of the ship and not in the hold. While the boat was on her way to the port mentioned, and off the western coast of Sorsogon, a violent typhoon passed over that region, and while the storm was at its height the captain was compelled for the safety of all to jettison the entire consignment of petroleum consisting of two hundred cases. When the storm abated the ship made port, and thirteen cases of the petroleum were recovered, but the remainder was wholly lost. To recover the value of the petroleum thus jettisoned but not recovered, the present action was instituted by the Standard Oil Company against the owner of the ship in the Court of First Instance of Manila, where judgment was rendered in favor of the plaintiff. From this judgment the defendant appealed. HELD: That the owner of the ship is a person to whom the plaintiff in this case may immediately look for reimbursement to the extent above stated is deducible not only from the general doctrines of admiralty jurisprudence but from the provisions of the Code of Commerce applicable to the case. It is universally recognized that the captain is primarily the representative of the owner; and article 586 of the Code of Commerce expressly declares that both the owner of the vessel and the naviero, or charterer, shall be civil liable for the acts of the master. In this connection, it may be noted that there is a discrepancy between the meaning of naviero, in articles 586 of the Code of Commerce, where the word is used in contradistinction to the term "owner of the vessel" ( propietario), and in article 587 where it is used alone, and apparently in a sense broad enough to include the owner. Fundamentally the word "naviero" must be understood to refer to the person undertaking the voyage, who in one case may be the owner and in another the charterer. But this is not vital to the present discussion. The real point to which we direct attention is that, by the express provision of the Code, the owner of the vessel is civilly liable

for the acts of the captain; and he can only escape from this civil liability by abandoning his property in the ship and any freight that he may have earned on the voyage (arts. 587, 588, Code of Comm.). Now, by article 852 of the Code of Commerce the captain is required to initiate the proceedings for the adjustment, liquidation, and distribution of any gross average to which the circumstances of the voyage may have given origin; and it is therefore his duty to take the proper steps to protect any shipper whose goods may have been jettisoned for the general safety. In ordinary practice this, we supposed, would be primarily accomplished by requiring the consignees of other cargo, as a condition precedent to the delivery of their goods to them, to give a sufficient bond to respond for their proportion of the general average. But it is not necessary here to inquire into details. It is sufficient to say that the captain is required to take the necessary steps to effect the adjustment, liquidation, and distribution of the general average. In the case before us the captain of the vessel did not take those steps; and we are of the opinion that the failure of the captain to take those steps gave rise to a liability for which the owner of the ship must answer. In considering the question now before us it is important to remember that the owner of the ship ordinarily has vastly more capital embarked upon a voyage than has any individual shipper of cargo. Moreover, the owner of the ship, in the person of the captain, has complete and exclusive control of the crew and of the navigation of the ship, as well as of the disposition of the cargo at the end of the voyage. It is therefore proper that any person whose property may have been cast overboard by order of the captain should have a right of action directly against the ship's owner for the breach of any duty which the law may have imposed on the captain with respect to such cargo. To adopt the interpretation of the law for which the appellant contends would place the shipowner in a position to escape all responsibility for a general average of this character by means of the delinquency of his own captain. This cannot be permitted. The evident intention of the Code, taken in all of its provisions, is to place the primary liability upon the person who has actual control over the conduct of the voyage and who has most capital embarked in the venture, namely, the owner of the ship, leaving him to obtain recourse, as it is very easy to do, from other individuals who have been drawn into the venture as shippers. RESPONSIBILITIES AND LIABILITIES



90 YU CON V. IPIL 41 PHIL 770 FACTS: The evidence shows that the plaintiff Yu Con, a merchant and a resident of the town of San Nicolas, of the city of Cebu, engaged in the sale of cloth and domestic articles and having a share in a shop, or small store, situated in the town of Catmon, of said province, had several times chartered from the defendant Narciso Lauron, a banca named Maria belonging to the latter, of which Glicerio Ipil was master and Justo Solamo, supercargo, for the transportation of certain merchandise and some money to and from the said town and the port of Cebu, that, on or about the 17th of October, 1911, the plaintiff chartered the said banca from the defendant Lauron for the transportation of various merchandise from the port of Cebu to Catmon, at the price of P45 for the round trip, which merchandise was loaded on board the said craft which was then at anchor in front of one of the graded fills of the wharf of said port; that in the afternoon of the following day, he delivered to the other two defendants, Ipil, and Solamo, master and supercargo, respectively, of the afore-named banca, the sum of P450, which was in a trunk belonging to the plaintiff and was taken charge of by said two defendants, who received this money from the plaintiff, for the purpose of its delivery to the latter's shop in Catmon for the purchase of corn in this town; that while the money was still in said truck abroad the vessel, on the night of the said 18th of October, the time scheduled for the departure of the Maria from the port of Cebu, said master and said supercargo transferred the P450 from the plaintiff's trunk, where it was, to theirs, which was in a stateroom of the banca, from which stateroom both the trunk and the money disappeared during that same night, and that the investigations, made to ascertain their whereabouts, produced no result. The facts are also admitted by the aforementioned master and supercargo, two of the defendants, that they received from the plaintiff said P450, which sum was in the latter's own trunk which was placed outside the stateroom of the banca, for the reason, as they said, that there was no room for it inside the stateroom; that these defendants therefore transferred said money to their trunk, which was inside the stateroom, and that this trunk and the P450 therein contained disappeared from the boat during the night of that same day; that said sum had not been found or returned to the plaintiff; that the

plaintiff, being on the banca in the afternoon of that day, when his trunk containing the P450 was carried aboard, and seeing that said two defendants, who had the key of the trunk, has removed said sum to their trunk inside the stateroom, charged them to take special care of the money; that the master Ipil assured the plaintiff that there was no danger of the money being lost; and that, final, during the night in question, both the master and the supercargo and four cabin-boys were aboard the banca. HELD: It is unquestionable that the defendants Glicerio Ipil and Justo Solamo were the carriers of the said P450 belonging to the plaintiff, and that they received this sum from the latter for the purpose of delivering it to the store of the town of Catmon, to which it had been consigned. Under such circumstances, said defendants were the depositaries of the money. With respect to the other defendant, Narciso Lauron, as he was the owner of the vessel in which the loss or misplacement of the P450 occurred, of which vessel, as aforestated, Glicerio Ipil was master and Justo Solamo, supercargo, both of whom were appointed to, or chosen for, the positions they held, by the defendant himself, and, as the aforementioned sum was delivered to the said master, Ipil, and the merchandise to be transported by means of said vessel from the port of Cebu to the town of Catmon was laden by virtue of a contract executed by and between the plaintiff and the owner of the vessel, Narciso Lauron, it behooves us to examine whether the latter, also, should be held to be liable, as requested by the plaintiff in his complaint. Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the port of Cebu to Catmon, and had been equipped and victualed for this purpose by its owner, Narciso Lauron, with whom, as aforesaid, the plaintiff contracted for the transportation of the merchandise which was to be carried, on the date hereinabove mentioned, from the port of Cebu to the town of Catmon. It is therefore evident that, in accordance with the provisions of the Code of Commerce in force, which are applicable to the instance case, the defendant Narciso Lauron, as the proprietor and owner of the craft of which Glicerio Ipil was the master and in which, through the fault and negligence of the latter and of the supercago Justo Solamo, there occurred the loss, theft, or



robbery of the P450 that belonged to the plaintiff and were delivered to said master and supercargo, a theft which, on the other hand, as shown by the evidence, does not appear to have been committed by a person not belonging to the craft, should, for said loss or theft, be held civilly liable to the plaintiff, who executed with said defendant Lauron the contract for the transportation of the merchandise and money aforementioned between the port of Cebu and the town of Catmon, by means of the said craft. 91 MANILA STEAMSHIP V. ABDULHAMAN 100 PHIL 32 FACTS: The M/V Consuelo V left the Zamboanga port in the evening of the relevant date. Plaintiff and his family were passengers onboard. The ship was then towing a kumpit, “Sta. Maria Bay”. The weather was good and fair. On the same night, the M/V Bowline Knot was navigating the seas as well. A few hours later, heavy rains poured in and the sea roared and appeared choppy. The two vessels collided with one another which caused Consuelo to capsized. Before this happened however, passengers found themselves already swimming and floating on the crest of the waves, which resulted to the death of 9 passengers. HELD: The shipowner is directly and primarily responsible in tort resulting in a collision at sea, and it may not escape liability on the ground that it exercised due diligence in the selection and supervision of the vesselʼs officers and crew. DOCTRINE OF LIMITED LIABILITY (synonymous to the REAL AND HYPOTHECARY NATURE OF MARITIME LAW) Art. 587. The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the voyage. NOTES:

• The liability of the shipowner for the acts of the captain may be

limited to the res that is co-extensive with the interest of the shipowner in the venture such that the shipownerʼs interest consists of the vessel and the vessel is lost, the liability of the shipowner to that extent is completely extinguished

PARTIES IN A COMMERCIAL/MARITIME VENTURE (Remember that these are conflicting interests)

92 MANILA STEAMSHIP V. ABDULHAMAN Supra HELD: In fact, it is a general principle that shipowners and ship agents are civilly liable for the acts of the captain and for indemnities due to third persons, so that injured parties may immediately look for reimbursement to the owner of the ship, it being universally recognized that the ship master or captain is primarily the representative of the owner. This direct liability moderated and limited by the ownerʼs right of abandonment of the vessel and earned freight has been declared to exist not only in case of breached contracts, but also in cases of tortuous negligence. NOTES:

• First in the series of cases decided by the Court in citing exemptions to the doctrine of limited liability

93 YANGCO V. LASERNA

Ship owner or common carrier



73 PHIL 330 FACTS: At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner here, Teodoro R. Yangco, left the port of Romblon on its return trip to Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly advised and his attention thereto called by the passengers themselves before the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to 7 inches below the surface of the water. Baggage, trunks and other equipments were heaped on the upper deck, the hold being packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and about one hundred sacks of copra and some lumber. The passengers, numbering about 180, were overcrowded, the vessel's capacity being limited to only 123 passengers. After two hours of sailing, the boat encountered strong winds and rough seas between the islands of Banton and Simara, and as the waves splashed the ladies' dresses, the awnings were lowered. As the sea became increasingly violent, the captain ordered the vessel to turn left, evidently to return to port, but in the manuever, the vessel was caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers died in the mishap. HELD: The provisions accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to abandon "the vessel with all her equipments and the freight it may have earned during the voyage." It is true that the article appears to deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the

vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier, and that the as a vessel engaged in interisland trade, is a common carrier, and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured. Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with law of not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle ceremony. 94 ABUEG V. SAN DIEGO 77 PHIL 730 FACTS: The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro Island on Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and totally lost. Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities perished in the shipwreck. HELD: Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel together with all her tackle and freight money earned during the voyage are abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the goods which the ship carried is extinguished (Yangco vs. Laserna, 73 Phil., 330); article 837 of the same code which provides that in cases of collision, the ship owners' liability is limited to the value of the vessel with all her equipment and freight earned during the voyage (Philippine Shipping company vs. Garcia, 6 Phil., 281), and article 643 of the same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages of the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October 1, 1941, was



extinguished. The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing continues of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his liability was extinguished. But the provisions of the Code of Commerce invoked by appellant have no room in the application of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the ship as result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents and laborers and employees in the event of death caused by their employment. Such compensation has nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be included in the budget of any well-managed industry. 95 ABOITIZ SHIPPING V. GENERAL ACCIDENT FIRE AND LIFE

ASSURANCE CORPORATION 217 SCRA 359 FACTS: Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage from Hongkong to the Philippines on October 31, 1980. Private respondent General Accident Fire and Life Assurance Corporation,

Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of several cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid. The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine Inquiry, which found that such sinking was due to force majeure and that subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding, the trial court found against the carrier on the basis that the loss subject matter therein did not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this Court with Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the judgment award in said case plus legal interest has given rise to the instant petition. On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was seaworthy at the time of the sinking, and that such sinking was due to force majeure. HELD: The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as the guaranty for their settlement. It has its origin by reason of the conditions and risks attending maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and to encourage people and entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if any, which limitation served to induce capitalists into effectively wagering their resources against the consideration of the large profits attainable in the trade. It might be noteworthy to add in passing that despite the modernization of



the shipping industry and the development of high-technology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even practically absolute in well-developed maritime countries such as the United States and England where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both international maritime conventions and generally accepted practices relative to maritime trade and travel. In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage. Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him. Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. (Emphasis supplied) Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837). In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen, the reasons for its being are still apparently much in

existence and highly regarded. We now come to its applicability in the instant case. In the few instances when the matter was considered by this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent. The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while not absolute, must be swept aside only in the established existence of the most compelling of reasons. In the absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights aside on mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely punitive in nature and must never be taken lightly. More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be able to gain access to the assets of the individual shareholders, but must limit their recovery to what is left in the name of the corporation. In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending freightage for the particular voyage. In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant



can be given precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims. SPECIFIC RIGHTS AND PREROGATIVES Art. 575. Part owners of vessels shall enjoy the right of option of purchase and withdrawal in sales made to other persons but they can only exercise it within the nine days following the record of the sale in the registry and paying cash. Art. 593. The owners of the vessel shall have preference in her charter to other persons, offering equal conditions and price. If two or more of the former should claim said right the one having the greater interest shall be preferred, and should they have an equal interest it shall be decided by lot. Art. 594. The part owners shall elect the manager who is to represent them in the capacity of agent. The appointment of director or agent may be revoked at the will of the members. Art. 596. The agent may discharge the duties of captain of the vessel, subject, in every case, to the provisions contained in article 600. If two or more co-owners request the position of captain, the disagreement shall be decided by a vote of the members; and if the vote should result in a tie, the position shall be given to the part owner having the larger interest in the vessel. If the interest of the petitioners should be the same, and there should b a tie, the matter shall be decided by lot. Art. 601. Should there be any profits, the coowners may demand of the managing agent the amount due them, by means of an action including

attachment, without further requisites than the acknowledgement of the signatures of the instrument approving the account. CAPTAINS AND MASTERS QUALIFICATIONS AND LICENSING Republic Act 5173 Section 3. Specific Functions. The Philippine Coast Guard shall perform the following functions: (a) To prevent and suppress illegal entry, smuggling, other customs frauds and violations of other maritime laws that may be committed within the waters subject to the jurisdiction of the Republic of the Philippines, and for the purpose surveillance by the Philippine Coast Guard may be made on vessels entering and/or leaving the Philippine territory; (b) To assist in the suppression of fishing by means of dynamite, explosives or toxic substances or other methods as may be declared destructive by proper authorities; (c) To promulgate and enforce rules for lights, signals, speed, steering, sailing, passing, anchorage, movement and towlines of vessels and lights and signals on bridges; (d) To approve plans for the construction, repair, or alteration of vessels; approve materials, equipment and appliances of vessels; approved the classification of vessels; inspect vessels and their equipment and appliances; register all types of motorized watercraft plying in Philippine waters; issue certificates of inspection and of permits indicating the approval of vessels for operation; issue certificates of Philippine registry of vessels; administer load line requirements; promulgate and enforce other provisions for the safety of life and property on vessels; and determine the numbering of undocumented vessels: Provided, That certification and approval of any plans, equipment and any vessel by internationally known classification societies which are recognized by the Philippine Government shall be deemed to have complied with this section; (e) To issue licenses and certificates to officers, pilots, major and minor patrons and seamen, as well as suspend and revoke such licenses and certificates; (f) To investigate marine casualties and disasters including those arising from marine protests filed with the Bureau of Customs relative to the liability



of shipowners and officers; (g) To enforce laws, rules and regulations governing manning, citizenship and mustering and drilling of crews requirements, control of logbooks, shipment, discharge, protection, and welfare merchant seamen; (h) To enforce laws requiring the performance of duties of shipowners and officers after accidents; (i) To prescribe and enforce regulations for outfitting and operation of motorboats and the licensing of motorboat operators; (j) To regulate regattas and marine parades; (k) To render aid to distressed persons or vessels on the high seas and on waters subject to the jurisdiction of the Philippines, and, in this connection, the Philippine Coast Guard may perform any and all acts necessary to rescue and aid persons; furnish clothing, food, lodging, medicine and other necessary supplies and services to persons succored; protect, save, and take charge of all property saved from marine disasters until such property is delivered to persons authorized to receive it or is otherwise disposed of in accordance with law or applicable regulations; and collect and take charge of bodies of those who may perish in such disasters; (l) To develop, establish, maintain, and operate aids to maritime navigation. In the performance of these functions, the Philippine Coast Guard is authorized to destroy or tow in port sunken of floating dangers to navigation; (m) To supervise nautical schools with reference to activities relative to navigation, seamanship, marine engineering and other allied matters, in coordination with the Department of Education; (n) To perform functions pertaining to maritime communications which are not specifically delegated to some other office or department; and (o) To assist, within its capabilities and upon request of the appropriate authorities, other Government agencies in the performance of their functions, within the waters subject to the jurisdiction of the Philippines, relating to matters and activities not specifically mentioned in this section: Provided, That in the exercise of these functions, personnel of the Philippine Coast Guard shall be deemed to be acting as agents of the particular departments, bureau, office, agency or instrumentality charged with the enforcement and administration of the particular law. Members of the Philippine Coast Guard are peace officers for all purposes of this Act and shall be, and shall act, as law enforcement agents of the Bureau of Customs, and the Bureau of Immigration, the Bureau of Internal Revenue, the Fisheries Commission, and such other departments, bureaus or offices in the enforcement of pertinent laws, rules and regulations.

Code of Commerce, art. 609. Captains and masters of vessels must be (Spaniards) having legal capacity to bind themselves in accordance with this Code, and must prove that they have the skill, capacity and conditions required to command and direct the vessel, as established by marine laws, ordinances, or regulations, or by those of navigation, and that they are disqualified according to the same for the discharge of said position. If the owner of a vessel desires to be captain thereof and doesnʼt have the legal qualifications therefore, he shall limit himself to the financial administration of the vessel, and shall entrust her navigation to the person having the qualifications required by said ordinances and regulations. POWERS AND DUTIES (CAN BE SECTIONED INTO THREE—BEFORE THE VOYAGE, DURING THE VOYAGE, AFTER THE VOYAGE) 622, 624, 625 Art. 610. The following powers are inherent in the position of captain or master of a vessel:

(1) To appoint or make contracts with the crew in the absence of the ship agent and propose said crew, should said agent be present; but the agent may not employ any member against the captain's express refusal.

(2) To command the crew and direct the vessel to the port to its destination, in accordance with the instructions he may have received from the ship agent.

(3) To impose, in accordance with the contracts and the laws and regulations of the merchants marine, on board the vessel, correctional punishment upon those who do not comply with his orders or who conduct themselves against discipline, holding a preliminary investigation on the crimes committed on board the vessel on the high seas, which he shall turn over to the authorities, who are to take cognizance thereof, at the first port touched.

(4) To make contracts for the charter of the vessel in the absence of the shipagent or of the consignee, acting in accordance with the instructions received and protecting the interests of the owner with utmost care.

(5) To adopt all the measures which may be necessary to keep the



vessel well supplied and equipped, purchasing all that may be necessary for the purpose, provided there is no time to request instructions of the agent.

(6) To provide in similar urgent cases and on a voyage, for the repairs to the hull and engines of the vessel and to her rigging and equipment which are absolutely necessary in order for her to be able to continue and conclude her voyage; but if she should arrive at a point where there is a consignee of the vessel, he shall act in concurrence with the latter.

Art. 611. In order to comply with the obligations mentioned in the foregoing article, and when he has no funds and does not expect to receive any from the agent, the captain shall procure the same in the successive order stated below:

(1) By requesting said funds of the consignees of the vessel or the correspondents of the ship agent.

(2) By applying to the consignees of the cargo or to the persons interested therein.

(3) By drawing on the ship agent. (4) By borrowing the amount required by means of a bottomry loan. (5) By selling a sufficient amount of the cargo to cover the amount

absolutely necessary to repair the vessel and to equip her to pursue the voyage.

In the two last cases he must apply to the judicial authority of the port, if in the Philippines and to the Filipino consul, if in a foreign country; and where there should be none, to the local authority, proceeding in accordprovisions of the law of civil procedure. Art. 612. The following duties are inherent in the office of captain:

(1) To have on board before starting on a voyage a detailed inventory of the hull, engines, rigging, tackle, stores, and other equipments of the vessel; the navigation certificate; the roll of the persons who make up the crew of the vessel, and the contracts entered into with the crew; the list of passengers; the health certificate; the certificate of the registry proving the ownership of the vessel; and all the obligations which encumber the same up to that date; the charters or authenticated copies thereof; the invoices or manifest of the cargo, and the instrument of the expert visit or inspection, should it

have been made at the port of departure. (2) To have a copy of this Code on board. (3) To have three folioed and stamped books, placing at the beginning

of each one a note of the number of folios it contains, signed by the marine official, and in his absence by the competent authority.

In the first book, which shall be called "log book," he shall enter every day the condition of the atmosphere, the prevailing winds, the course sailed, the rigging carried, the horsepower of the engines, the distance covered, the maneuvers executed, and other incidents of navigation. He shall also enter the damage suffered by the vessel in her hull engines, rigging, and tackle, no matter what is its cause, as well as the imperfections and averages of the cargo, and the effects and consequence of the jettison, should there be any; and in cases of grave resolutions which require the advice or a meeting of the officers of the vessel, or even of the passengers and crew, he shall record the decision adopted. For the informations indicated he shall make use of the binnacle book, and of the steam or engine book kept by the engineer. In the second book, called the "accounting book", he shall enter all the amounts collected and paid for the account of the vessel, entering specifically article by article, the sources of the collection, and the amounts invested in provisions, repairs, acquisition of rigging or goods, fuel, outfits, wages, and all other expenses. He shall furthermore enter therein a list of all the members of the crew, stating their domiciles, their wages and salaries, and the amounts they may have received on accounts, either directly or by delivery to their families. In the third book, called "freight book," he shall record the entry and exit of all the goods, stating their marks and packages, names of the shippers and of the consignees, ports of loading and unloading, and the freight earned. In the same book he shall record the names and places of sailing of the passengers and the number of packages of which their baggage consists, and the price of the passage.

(4) To make, before receiving the freight, with the officers of the crew, and the two experts, if required by the shippers and passengers, an examination of the vessel, in order to ascertain whether she is watertight, and whether the rigging and engines are in good



condition; and if she has the equipment required for good navigation, preserving a certificate of the memorandum of this inspection, signed by all the persons who may have taken part therein, under their liability.

The experts shall be appointed one by the captain of the vessel and the other one by the persons who request the examination, and in case of disagreement a third shall be appointed by the marine authority of the port.

(5) To remain constantly on board the vessel with the crew during the time the freight is taken on board and carefully watch the stowage thereof; not to consent to any merchandise or goods of a dangerous character to be taken on, such as inflammable or explosive substances, without the precautions which are recommended for their packing, management and isolation; not to permit that any freight be carried on deck which by reason of its disposition, volume, or weight makes the work of the sailors difficult, and which might endanger the safety of the vessel; and if, on account of the nature of the merchandise, the special character of the shipment, and principally the favorable season it takes place, he allows merchandise to be carried on deck, he must hear the opinion of the officers of the vessel, and have the consent of the shippers and of the agent.

(6) To demand a pilot at the expense of the vessel whenever required by navigation, and principally when a port, canal, or river, or a roadstead or anchoring place is to be entered with which neither he, the officers nor the crew are acquainted.

(7) To be on deck at the time of sighting land and to take command on entering and leaving ports, canals, roadsteads, and rivers, unless there is a pilot on board discharging his duties. He shall not spend the night away from the vessel except for serious causes or by reason of official business.

(8) To present himself, when making a port in distress, to the maritime authority if in the Philippines and to the Filipino consul if in a foreign country, before twenty-four hours have elapsed, and make a statement of the name, registry, and port of departure of the vessel, of its cargo, and reason of arrival, which declaration shall be vised by the authority of by the consul if after examining the same it is found to be acceptable, giving the captain the proper certificate in

order to show his arrival under stress and the reasons therefore. In the absence of marine officials or of the consul, the declaration must be made before the local authority.

(9) To take the steps necessary before the competent authority in order to enter in the certificate of the vessel in the registry of the vessels, the obligations which he may contract in accordance with Article 583.

(10) To put in a safe place and keep all the papers and belongings of any members of the crew who might die on the vessel, drawing up a detailed inventory, in the presence of passengers as witnesses, and, in their absence, of members of the crew.

(11) To conduct himself according to the rules and precepts contained in the instructions of the agent, being liable for all that he may do in violation thereof.

(12) To give an account to the agent from the port where the vessel arrives, of the reason therefore, taking advantage of the semaphore, telegraph, mail, etc., according to the cases; notify him the freight he may have received, stating the name and domicile of the shippers, freight earned, and amounts borrowed on bottomry bond, advise him of his departure, and give him any information and date which may be of interest.

(13) To observe the rules on the situation of lights and evolutions to prevent collisions.

(14) To remain on board in case of danger to the vessel, until all hope to save her is lost, and before abandoning her to hear the officers of the crew, abiding by the decision of the majority; and if he should have to take a boat he shall take with him, before anything else, the books and papers, and then the articles of most value, being obliged to prove in case of the loss of the books and papers that he did all he could to save them.

(15) In case of wreck he shall make the proper protest in due form at the first port reached, before the competent authority or Filipino consul, within twenty-four hours, stating therein all the incidents of the wreck, in accordance with case 8 of this article.

(16) To comply with the obligations imposed by the laws and rules of navigation, customs, health, and others.

Art. 622. If when on a voyage the captain should receive news of the appearance of privateers or men of war against his flag, he shall be obliged



to make the nearest neutral port, inform his agents or shippers, and await an occasion to sail under convoy or until the danger is over or to receive final orders from the ship agent or shippers. Art. 624. A captain whose vessel has gone through a hurricane or who believes that the cargo has suffered damages or averages, shall make a protest thereon before the competent authority at the first port he touches within the twenty-four hours following his arrival, and shall ratify it within the same period when he arrives at the place of his destination, immediately proceeding with the proof of the facts, it not being permitted to open the hatches until after this has been done. The captain shall proceed in the same manner if, the vessel having been wrecked, he is saved alone or with part of his crew, in which case he shall appear before the nearest authority, and make a sworn statement of the facts. The authority or the consul abroad shall verify the said facts, receiving sworn statements of the members of the crew and passengers who may have been saved, and taking such other steps as may help in arriving at the facts, he shall make a statement of the result of the proceedings in the log book and in that of the sailing mate, and shall deliver the original records of the proceedings to the captain, stamped and folioed, with a memorandum of the folios, which he must rubricate, for their presentation to the judge or court of the port of destination. The statement of the captain shall be believed if it is in accordance with those of the crew and passengers; if they disagreed, the latter shall be accepted, unless there is proof to the contrary. Art. 625. Upon arrival at the port of destination, the captain shall, under his personal liability, turn over the cargo, without any defalcation, to the consignees, and, in a proper case, the vessel, rigging, and freights to the agent, after having obtained the necessary permission from the health and customs officers and fulfilled the other formalities required by the regulations of the administration. [If, by reason of the absence of the consignee or on account of the nonappearance of a legal holder of the invoices, the captain does not know

to whom he is to make the legal delivery of the cargo, he shall place it at the disposal of the proper judge or court or authority, in order that he may decide with regard to its deposit, preservation, and custody.] A live coward is better than a dead hero. 96 INTER ORIENT V. NLRC 235 SCRA 269 (Vessel #66) FACTS: Tayong was employed on 6 July 1989 by petitioners as Master of the vessel M/V Oceanic Mindoro, for a period of one (1) year, as evidenced by an employment contract. He then assumed command of petitioners' vessel at the port of Hongkong. His instructions were to replenish bunker and diesel fuel, to sail forthwith to Richard Bay, South Africa, and there to load 120,000 metric tons of coal. While at the Port of Hongkong and in the process of unloading cargo, Captain Tayong received a weather report that a storm code-named "Gordon" would shortly hit Hongkong. Precautionary measures were taken to secure the safety of the vessel, as well as its crew, considering that the vessel's turbo-charger was leaking and the vessel was fourteen (14) years old. During the course of the voyage, there was a reported leak in one of the gas casings. Later, the economizer failed. He reported this to the owners and reported the delay in the supply of the needed provisions. He also conveyed his reservations on the continuation of the journey as for safety reasons, the oxygen and acythelene supplies werenʼt furnished yet. The owner ordered to continue the journey, use the turbo boiler instead. Upon arrival in the destination, Tayong was relieved of his duty and repatriated. HELD: The captain of a vessel is a confidential and managerial employee within the meaning of the above doctrine. A master or captain, for purposes of maritime commerce, is one who has command of a vessel. A captain commonly performs three (3) distinct roles: (1) he is a general agent of the shipowner; (2) he is also commander and technical director of the vessel; and (3) he is a representative of the country under whose flag he navigates. Of these roles,



by far the most important is the role performed by the captain as commander of the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive Officer" [CEO] of a present-day corporate enterprise) has to do with the operation and preservation of the vessel during its voyage and the protection of the passengers (if any) and crew and cargo. In his role as general agent of the shipowner, the captain has authority to sign bills of lading, carry goods aboard and deal with the freight earned, agree upon rates and decide whether to take cargo. The ship captain, as agent of the shipowner, has legal authority to enter into contracts with respect to the vessel and the trading of the vessel, subject to applicable limitations established by statute, contract or instructions and regulations of the shipowner. To the captain is committed the governance, care and management of the vessel. Clearly, the captain is vested with both management and fiduciary functions. PROHIBITED ACTS AND TRANSACTIONS Art. 613. A captain who navigates for freight in common or on shares may not make any separate transaction for his own account, and should he do so the profits shall belong to the other persons interested, and the losses shall be borne by him alone. Art. 615. Without the consent of the ship agent, the captain may not have himself substituted by another person; and should he do so, besides being liable for all the acts of the substitute and bound to pay the indemnities mentioned in the foregoing article, the substitute as well as the captain may be discharged by the ship agent. Art. 617. The captain may not contract loans on respondentia secured by the cargo, and should he do so the contract shall be void. Neither may he borrow money on bottomry for his own transactions, except on the portion of the vessel he owns, provided no money has been previously borrowed on the whole vessel, and provided there does not exist any other kind of lien or obligation chargeable against the vessel. When he is permitted to do so, he must necessarily state what interest he has in the vessel. In case of violation of this article the principal, interest, and costs shall be

charged to the private account of the captain, and the ship agent may furthermore discharge him. Art. 621. A captain who borrows money on the hull, engine, rigging, or tackle of the vessel, or who pledges or sells merchandise or provisions outside of the cases and without the formalities prescribed in this Code, shall be liable for the principal, interest, and costs, and shall indemnify for the damages he may cause. He who commits fraud in his accounts shall reimburse the amount defrauded, and shall be subject to the provisions of the Penal Code. Art. 583. If the ship being on a voyage the captain should find it necessary to contract one or more of the obligations mentioned in Nos. 8 and 9 of Article 580, he shall apply to the judge or court if he is in Philippine territory, and otherwise to the Filipino consul, should there be one, and in his absence to the judge or court or to the proper local authority, presenting the certificate of the registry of the vessel treated of in Article 612, and the instruments proving the obligation contracted. The judge or court, the consul or the local authority as the case may be in view of the result of the proceedings instituted, shall make a temporary memorandum in the certificate of their result, in order that it may be recorded in the registry when the vessel returns to the port of her registry, or so that it can be admitted as a legal and preferred obligation in case of sale before the return, by reason of the sale of the vessel by virtue of a declaration of unseaworthiness. The lack of this formality shall make the captain personally liable to the creditors who may be prejudiced through his fault. OTHER OFFICERS AND CREW CONTRACTS AND FORMALITIES Art. 634. The captain may make up his crew with the number he may consider advisable, and in the absence of Filipino sailors he may ship foreigners residing in the country, the number thereof not to exceed one-fifth of the total crew. If in foreign ports the captain should not find a sufficient



number of Filipino sailors, he may make up the crew with foreigners, with the consent of the consul or marine authorities. The agreements which the captain may make with the members of the crew and others who go to make up the complement of the vessels, to which reference is made in Article 612 (obligations inherent in the office of captain) must be reduced to writing in the account book without the intervention of a notary public or clerk of court, signed by the parties thereto, and vised by the marine authority if they are executed in Filipino territory, or by the consuls or consular agents of the Philippines if executed abroad, stating therein all the obligations which each one contracts and all the rights they acquire, said authorities taking care that these obligations and rights are recorded in a concise and clear manner, which will not give rise to doubts or claims. The captain shall take care to read to them the articles of this Code which concern them, stating in the said document that they were read. If the book includes the requisites prescribed in Article 612, and there should not appear any signs of alterations in its entries, it shall be admitted as evidence in questions which may arise between the captain and the crew with regard to the agreements contained therein and the amounts paid on account of the same. Every member of the crew may demand of the captain a copy, signed by the latter, of the agreement and of the liquidation of his wages, as they appear in the book. DUTIES AND LIABILITIES Art. 635. A sailor who has been contracted to serve on a vessel cannot rescind his contract nor fail to comply therewith except by reason of a legitimate impediment which may have occurred. Neither can he pass from the service of one vessel to another without obtaining the written consent of the vessel on which he may be. If, without obtaining said permission, the sailor who has signed for one vessel should sign for another one, the second contract shall be void, and the captain may choose between forcing him to fulfill the service to which he

first bound himself or look for a person to substitute him at his expense. Said sailor shall furthermore lose the wages earned on his first contract to the benefit of the vessel for which he may have signed. A captain who, knowing that a sailor is in the service of another vessel, should have made a new agreement with him, without having requested the permission referred to in the foregoing paragraphs, shall be personally liable to the captain of the vessel to which the sailor first belonged for that part of the indemnity, referred to in the third paragraph of this article, which the sailor may not be able to pay. RIGHTS Art. 636. Should there be no fixed period for which a sailor has been contracted, he cannot be discharged until the end of the return voyage to the port where he enlisted. Art. 637. Neither may the captain discharge a sailor during the time of his contract except for just cause, the following being considered as such: 1. The perpetration of a crime which disturbs order on the vessel. 2. Repeated insubordination, want of discipline, or nonfulfillment of the service. 3. Incapacity and repeated negligence in the fulfillment of the service which he should render. 4. Habitual drunkenness. 5. Any occurrence which incapacitates the sailor to perform the work entrusted to him, with the exception of that provided in Article 644. Art. 638. If, after the crew has been engaged, the voyage is revoked by the will of the ship agent or of the charterers, before or after the vessel has put to sea, or if the vessel is for the same reason given a different destination from that fixed in the agreement with the crew, the latter shall be indemnified on account of the rescission of the contract, according to the following cases:

(1) If the revocation of the voyage should be decided before departure of the vessel from the port, each sailor engaged shall be given one month's salary, besides what may be due him, in accordance with his contract, for the services rendered to the vessel up to the date of the revocation.

(2) If the agreement should have been for a fixed amount for the whole



voyage, what may be due for said month and days shall be determined in proportion to the approximate duration of the voyage, in the judgment of the experts, in the manner established by the law of civil procedure; and if the proposed voyage should be of such short duration that it is calculated at approximately one month, the indemnity shall be fixed at fifteen days, discounting in all cases the sums advanced.

(3) If the revocation should take place after the vessel has put to sea, the sailors engaged for a fixed amount for the voyage shall receive the entire salary which may have been offered them if the voyage had terminated; and those engaged by the month shall receive the amount corresponding to the time they might have been on board and to the time they may require to arrive at the port of destination, the captain being obliged, furthermore, to pay said sailors in both cases the passage to the said port or to the port of sailing of the vessel, as may be convenient for them.

(4) If the ship agent or the charterers of the vessel should give it a destination different from that fixed in the agreement, and the members of the crew should not agree thereto, they shall be given by way of indemnity half the amount fixed in the first case, in addition to what may be due them for the part of the monthly wages corresponding to the days which may have elapsed from the date of their agreements.

If they accept the change, and the voyage, on account of greater distance or of other reasons, should give rise to an increase of wages, the latter shall be adjusted privately, or through friendly adjusters in case of disagreement. Even if the voyage should be shortened to a nearer point, this shall not give rise to a reduction in the wages agreed upon. Should the revocation or change of the voyage originate from the shippers or charterers, the ship agent shall have a right to demand of them the indemnity which may be justly due. Art. 639. Should the revocation of the voyage arise from a just cause independent of the will of the ship agent and the charterers, and the vessel should not have left the port, the members of the crew shall no other right than to collect the wages earned up to the day the revocation was made.

Art. 640. The following shall be just causes for the revocation of the voyage:

(1) A declaration of war or interdiction of commerce with the power to whose territory the vessel was bound.

(2) The blockade of the port of its destination or the breaking out of an epidemic after the agreement.

(3) The prohibition to receive in said port the goods which make up the cargo of the vessel.

(4) The detention or embargo of the same by order of the government, or for any other reason independent of the will of the agent.

(5) The inability of the vessel to navigate. Art. 641. If, after a voyage has been begun, and any of the first three causes mentioned in the foregoing article should occur, the sailors shall be paid at the port which the captain may deem advisable to make for the benefit of the vessel and cargo, according to the time they may have served thereon; but if the vessel is to continue its voyage, the captain and the crew may mutually demand the enforcement of the contract. In case of the occurrence of the fourth cause, the crew shall continue to be paid half wages, if the agreement is by month; but if the detention should exceed three months, the contract shall be rescinded and the crew shall be paid what they should have earned according to the contact, as if the voyage had been made. And if the agreement should be for a fixed sum for the voyage, the contract must be complied with in the terms agreed upon. In the fifth case, the crew shall have no other right than to collect the wages earned; but if the disability of the vessel should have been caused by the negligence or lack of skill of the captain, engineer, or sailing mate, they shall indemnify the crew for the damages suffered, always without prejudice to the criminal liability which may be proper. Art. 642. If the crew has been engaged on shares it shall not be entitled, by reason of the revocation, delay, or greater extension of the voyage, to anything but the proportionate part of the indemnity which may be paid to the common funds by the persons responsible for said occurrences. Art. 643. If the vessel and her cargo should be totally lost by reason of



capture or shipwreck, all rights shall be extinguished, both as regards the right of the crew to demand any wages and as regards the right of the ship agent to recover the advances made. If a portion of the vessel or of the cargo, or of both, should be saved, the crew engaged on wages, including the captain, shall retain their rights on the salvage, as far as possible, on the remainder of the vessel as well as on the value of the freightage or the cargo saved; but sailors who are engaged on shares shall have no right on the salvage of the hull, but only on the portion of the freightage saved. (If they should have worked to recover the remainder of the shipwrecked vessel, they shall be given from the amount of the salvage an award in proportion to the efforts made and to the risks encountered in order to accomplish the salvage.) Art. 644. A sailor who falls sick shall not lose his right to wages during the voyage, unless his sickness is the result of his own fault. At any rate, the costs of medical attendance and treatment shall be defrayed from the common funds, in the form of a loan. If the sickness should be caused by an injury received in the service or defense of the vessel, the sailor shall be attended and treated at the expense of the common funds, deducting, before anything else, from the proceeds of the freightage, the cost of the attendance and treatment. Art. 645. If a sailor should die during the voyage, his heirs shall be given the wages earned and not received, according to his contract and the cause of his death, namely --- If he died a natural death and was engaged on wages, that which may have been earned up to the date of his death shall be paid. If the contract was for a fixed sum for the whole voyage, half the amount earned shall be paid if the sailor died on the voyage out, and the whole amount if he died on the return voyage. And if the contract was on shares and the death occurred after the voyage was begun, the heirs shall be paid the entire portion due the sailor; but if the latter died before the departure of the vessel from the port, the heirs shall not be entitled to claim anything.

If death occurred in the defense of the vessel, the sailor shall be considered as living, and his heirs shall be paid, at the end of the voyage, the full amount of wages or the entire part of the profits which may be due him as others of his class. The sailor shall likewise be considered as present if he was captured while defending the vessel, in order to enjoy the benefits as the rest; but should he have been captured on account of carelessness or other accident not related to the service, he shall only receive the wages due up to the day of his capture. Art. 646. The vessel with her engines, rigging, equipment, and freightage shall be liable for the wages earned by the crew engaged per month or for the trip, the liquidation and payment to take place between one voyage and the other. After a new voyage has been undertaken, credits of such kind pertaining to the preceding voyage shall lose the preference. Art. 647. The officers and the crew of the vessel shall be exempted from all obligations contracted, if they deem if proper, in the following cases;

(1) If, before the beginning of the voyage, the captain attempts to change it, or there occurs a naval war with the power to which the vessel was destined.

(2) If a disease should break out and be officially declared epidemic in the port of destination.

(3) If the vessel should change owner or captain. SUPERCARGOES Art. 649. Supercargoes shall discharge on board the vessel the administrative duties which the agent or shippers may have assigned them; they shall keep an account and record of their transactions in a book which shall have the same conditions and requisites as required for the accounting book of the captain, and shall respect the latter in his duties as chief of the vessel. The powers and liabilities of the captain shall cease, when there is a supercargo, with regard to that part of the administration legitimately conferred upon the latter, but shall continue in force for all acts which are



inseparable from his authority and office. Art. 650. All the provisions contained in the second section of Title III, Book II, with regard to qualifications, manner of making contracts, and liabilities of factors shall be applicable to supercargoes. Art. 651. Supercargoes cannot, without special authorization or agreement, make any transaction for their own account during the voyage, with the exception of the ventures which, in accordance with the custom of the port of destination, they are permitted to do. Neither shall they be permitted to invest in the return trip more than the profits from the ventures, unless there is a special authorization therefor from the principals.

ACCIDENTS AND DAMAGES IN MARITIME COMMERCE

AVERAGES NATURE AND KINDS Art. 806. For the purposes of this Code the following shall be considered averages:

(1) All extraordinary or accidental expenses which may be incurred during the voyage for the preservation of the vessel or cargo, or both.

(2) All damages or deterioration which the vessel may suffer from the time it puts to sea at the port of departure until it casts anchor at the port of destination, and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment.

Art. 807. The petty and ordinary expenses incident to navigation, such as those of pilotage of coasts and ports, lighterage and towage, anchorage, inspection, health, quarantine lazaretto, and other so-called port expenses, costs of barges, and unloading, until the merchandise is placed on the wharf, and other usual expenses of navigation shall be considered ordinary expenses to be defrayed by the shipowner, unless there is an express agreement to the contrary.

Art. 808. Averages shall be: 1. Simple or particular. 2. General or gross. WHY IS AVERAGE IMPORTANT?

• It is a commercial venture • And if there is damage incurred, naturally one would look for

another to shoulder the costs • There is an interest to recover costs which may have been incurred

as expense or damage

PARTICULAR AVERAGE

• Any partial loss caused by the peril insured against which isnʼt a general average

• Insurer is liable for a particular average unless the policy excludes it • When it has been stipulated that the insurance shall not cover

particular average, the marine insurance is not liabile for any particular average loss which doesn't deprive the insured of the possession, at the point of destination, of the whole of such thing, or class of things even though it becomes entirely worthless, but such insurer is liable for the proportion of all general average loss assessed upon the thing insured, even in the absence of any agreement to that effect

Art. 809. As a general rule, simple or particular averages include all the expenses and damages caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and her cargo, especially the following:

(1) The losses suffered by the cargo from the time of its embarkation until it is unloaded, either on account of the inherent defect of the goods or by reason of a marine accident or force majeure, and the expenses incurred to avoid and repair the same.

Average Expense

Damage



(2) The losses and expenses suffered by the vessel in its hull, rigging, arms, and equipments, for the same causes and reasons, from the time it puts to sea from the port of departure until it anchors in the port of destination.

(3) The losses suffered by the merchandise loaded on deck, except in coastwise navigation, if the marine ordinances allow it.

(4) The wages and victuals of the crew when the vessel is detained or embargoed by a legitimate order or force majeure, if the charter has been contracted for a fixed sum for the voyage.

(5) The necessary expenses on arrival at port, in order to make repairs or secure provisions.

(6) The lowest value of the goods sold by the captain in arrivals under stress for the payment of provisions and to save the crew, to meet any other need of the vessel against which the proper amount shall be charged.

(7) The victuals and wages of the crew while the vessel is in quarantine.

(8) The loss inflicted upon the vessel or cargo by reason of an impact or collision with another, if it is accidental and unavoidable. If the accident should occur through the fault or negligence of the captain, the latter shall be liable for all the damage caused.

(9) Any loss suffered by the cargo through the faults, negligence, or barratry of the captain or of the crew, without prejudice to the right of tindemnity from the captain, the vessel, and the freight.

Art. 810. The owner of the goods which gave rise to the expense or suffered the damage shall bear the simple or particular averages. GENERAL AVERAGE

• Includes all damages and expenses which are deliberately caused in order to save the vessel, its cargo, both at the same time, for a real and known risk

• Gives rise to a right of the owner to contribution from those benefited thereby or if he is insured, he has the alternative of seeking indemnity from his insurer, surrogating the latter to his right of contribution

• However if the owner neglects or waives his right to such contribution, he loses his alternative

Art. 811. As a general rule, general or gross averages shall include all the damages and expenses which are deliberately caused in order to save the vessel, its cargo, or both at the same time, from a real and known risk, and particularly the following:

(1) The goods or cash invested in the redemption of the vessel or of the cargo captured by enemies, privateers, or pirates, and the provisions, wages, and expenses of the vessel detained during the time the settlement or redemption is being made.

(2) The goods jettisoned to lighten the vessel, whether they belong to the cargo, to the vessel, or to the crew, and the damage suffered through said act by the goods which are kept on board.

(3) The cables and masts which are cut or rendered useless, the anchors and the chains which are abandoned, in order to save the cargo, the vessel, or both.

(4) The expenses of removing or transferring a portion of the cargo in order to lighten the vessel and place it in condition to enter a port or roadstead, and the damage resulting therefrom to the goods removed or transferred.

(5) The damage suffered by the goods of the cargo by the opening made in the vessel in order to drain it and prevent its sinking.

(6) The expenses caused in order to float a vessel intentionally stranded for the purpose of saving it.

(7) The damage caused to the vessel which had to be opened, scuttled or broken in order to save the cargo.

(8) The expenses for the treatment and subsistence of the members of the crew who may have been wounded or crippled in defending or saving the vessel.

(9) The wages of any member of the crew held as hostage by enemies, privateers, or pirates, and the necessary expenses which he may incur in his imprisonment, until he is returned to the vessel or to his domicile, should he prefer it.

(10) The wages and victuals of the crew of a vessel chartered by the month, during the time that it is embargoed or detained by force majeure or by order of the Government, or in order to repair the damage caused for the common benefit.

(11) The depreciation resulting in the value of the goods sold at arrivals under stress in order to repair the vessel by reason of gross average.

(12) The expenses of the liquidation of the average.



Art. 817. If in the lightening a vessel on account of a storm, in order to facilitate its entry into a port or roadstead, part of her cargo should be transferred to lighters or barges and be lost, the owner of said part shall be entitled to indemnity, as if the loss had originated from a gross average, the amount thereof being distributed between the vessel and cargo from which it came. If, on the contrary, the merchandise transferred should be saved and the vessel should be lost, no liability may be demanded of the salvage. Art. 818. If, as a necessary measure to extinguish a fire in port, roadstead, creek, or bay, it should be decided to sink any vessel, this loss shall be considered gross average, to which the vessels saved shall contribute. Art. 813. In order to incur the expenses and cause the damages corresponding to gross average, there must be a resolution of the captain, adopted after deliberation with the sailing mate and other officers of the vessel, and after hearing the persons interested in the cargo who may be present. If the latter should object, and the captain and officers or a majority of them, or the captain, if opposed to the majority, should consider certain measures necessary, they may be executed under his responsibility, without prejudice to the right of the shippers to proceed against the captain before the competent judge or court, if they can prove that he acted with malice, lack of skill, or negligence. If the persons interested in the cargo, being on board the vessel, have not been heard, they shall not contribute to the gross average, their share being chargeable against the captain, unless the urgency of the case should be such that the time necessary for previous deliberation was wanting. Art. 814. The resolution adopted to cause the damages which constitute general average must necessarily be entered in the log book, stating the motives and reasons on which it is based, the votes against it and the reason for the dissent, should there be any, and the irresistible and urgent causes which impelled the captain if he acted of his own accord.

In the first case the minutes shall be signed by all the persons present who could do so before taking action, if possible; and if not, at the first opportunity. In the second case, it shall be signed by the captain and by the officers of the vessel. In the minutes, and after the resolution, shall be stated in detail all the goods jettisoned, and mention shall be made of the injuries caused to those kept on board. The captain shall be obliged to deliver one copy of these minutes to the maritime judicial authority of the first port he may make, within twenty- four hours after his arrival, and to ratify it immediately under oath. Art. 860. If, notwithstanding the jettison of the merchandise, breakage of masts, ropes, and equipment, the vessel should be lost running same risk, no contribution whatsoever by reason of gross average shall be proper. The owners of the goods saved shall not be liable for the indemnification of those jettisoned, lost or damaged. Note: it is only here that there can be reimbursement. 97 MAGSAYSAY V. AGAN 96 PHIL 504 HELD: In classifying averages into simple or particular and general or gross and defining each class, the Code of Commerce at the same time enumerate certain specific cases as coming specially under one or the other class. While the expenses incurred in putting the vessel afloat may well come under No. 2 of Art. 809 - referring to expenses suffered by the vessel due to an accident of the sea or force majeure- said expenses do not fit into any of the specific cases of general average enumerated in ART. 811. No. 6 of Art. 811 mentions expenses caused to afloat a vessel, but it specifically refers to a vessel intentionally stranded for the purpose of saving it, and would have no application where the stranding was unintentional. The following are the requisites for a general average: 1) there must be common danger, 2) for the common safety part of the vessel or cargo or both is sacrificed deliberately, 3) from the expenses or damages caused follows the successful saving of the vessel and cargo, and 4) the expenses



or damages should have been incurred or inflicted after taking the proper legal steps and authority. It is the deliverance from an immediate peril, by reason of a common sacrifice, that constitutes the essence of a general average. Where there is no proof that the stranded vessel had to be put afloat to save it from imminent danger, and what does appear is that the vessel had to be salvaged in order to enable it to proceed to its port of destination, the expenses incurred in floating the vessel do not constitute general average. It is the safety of the property, and not of the voyage which constitutes the true foundation of general average. The expenses incurred for the common safety of the vessel and cargo in this case did not arise from the imminent peril of both. The cargo could have been unloaded by the owners had they been required to do so. The refloating was a success, but as the sacrifice was for the vessel's benefit -- to enable it to proceed to its destination -- and not for the purpose of saving the cargo, the cargo owners are not in law bound to contribute to expenses. The final requisite has not been proved for it does not appear that the expenses in question were incurred after following the procedure laid down in Art. 913. EFFECTS Art. 812. In order to satisfy the amount of the gross or general averages, all the persons having an interest in the vessel and cargo therein at the time of the occurrence of the average shall contribute. JETTISON Art. 815. The captain shall direct the jettison, and shall order the goods cast overboard in the following order:

(1) Those which are on deck, beginning with those which embarrass the maneuver or damage the vessel, preferring, if possible, the heaviest ones with the least utility and value.

(2) Those which are below the upper deck, always beginning with those of the greatest weight and smallest value, to the amount and number absolutely indispensable.

Art. 816. In order that the goods jettisoned may be included in the gross average and the owners thereof be entitled to indemnity, it shall be

necessary in so far as the cargo is concerned that their existence on board be proven by means of the bill of lading; and with regard to those belonging to the vessel, by means of the inventory prepared before the departure, in accordance with the first paragraph of Article 612. JASON CLAUSES (SEE YORK-ANTWERP RULES, RULE D) In the event of accident, danger, damage or disaster before or after the commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, the carrier is not responsible, by statute, contract or otherwise, the goods, shippers, consignees or owners of the goods shall contribute with the carrier in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the goods. If a salving ship is owned or operated by the carrier, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the carrier or his agents may deem sufficient to cover the estimated contribution of the goods and any salvage and special charges thereon shall, if required, be made by the goods, shippers, consignees or owners of the goods to the carrier before delivery. PROOF AND LIQUIDATION OF AVERAGES MODES Art. 846. Those interested in the proof and liquidation of averages may mutually agree and bind themselves at any time with regard to the liability, liquidation and payment thereof. In the absence of agreements, the following rules shall be observed:

(1) The proof of the average shall take place in the port where the repairs are made, should any be necessary, or in the port of unloading.

(2) The liquidation shall be made in the port of unloading, if it is a Philippine port.

(3) If the average occurred outside of the jurisdictional waters of the



Philippines, or the cargo has been sold in a foreign port by reason of an arrival under stress, the liquidation shall be made in the port of arrival.

(4) If the average has occurred near the port of destination, so that said port can be made, the proceedings mentioned in rules 1 and 2 shall be held there.

Art. 847. In the case where the liquidation of the averages is made privately by virtue of agreement, as well as when a judicial authority intervenes at the request of any of the parties interested who do not agree thereto, all of them shall be cited and heard, should they not have renounced this right. Should they not be present or should they have no legal representative, the liquidation shall be made by the consul in a foreign port, and where there is none, by the competent judge or court, according to the laws of the country and for the account of the proper party. When the representative is a person well known in the place where the liquidation is made, his intervention shall be admitted and shall produce legal effects, even though he be authorized only by a letter of the ship agent, the shipper, or the insurer. Art. 848. Claims for averages shall not be admitted if they do not exceed 5 per cent of the interest which the claimant may have in the vessel or in the cargo if it be gross average, and 1 per cent of the goods damaged if particular average, deducting in both cases the expenses of appraisal, unless there is an agreement to the contrary. APPRAISAL OF GENERAL AVERAGE Art. 850. If by reason of one or more accidents of the sea, particular and gross averages of the vessel, of the cargo, or of both, should take place on the same voyage, the expenses and damages corresponding to each average shall be determined separately in the port where the repairs are made, or where the merchandise is discharged, sold, or utilized. For this purpose the captains shall be obliged to demand of the expert appraisers and of the contractors making the repairs, as well as of those appraising and taking part in the unloading, repair, sale, or utilization of the

merchandise, that in their appraisements or estimates and accounts they set down separately and accurately the expenses and damages pertaining to each average, and in those of each average those corresponding to the vessel and to the cargo, also stating separately whether or not there are damages proceeding from inherent defect of the thing and not from accident of the sea; and in case there should be expenses common to the different averages and to the vessel and its cargo, the amount corresponding to each must be estimated and stated distinctly. Art. 851. At the instance of the captain, the adjustment, liquidation, and distribution of gross averages shall be held privately, with the consent of all the parties in interest. For this purpose, within forty-eight hours, following the arrival of the vessel at the port, the captain shall convene all the persons interested in order that they may decide as to whether the adjustment or liquidation of the gross average is to be made by experts and liquidators appointed by themselves, in which case did shall be so done if the interested parties agree. If an agreement is not possible, the captain shall apply to the competent judge or court, who shall be the one in the port where these proceedings are to be held in accordance with the provisions of this Code, or to the consul of the Philippines should there be one, and should there be none, to the local authority when they are to be held in a foreign port. Art. 852. If the captain does not comply with the provisions of the preceding article, the ship agent or the shippers shall demand the liquidation, without prejudice to the action they may bring to demand indemnity from him. Art. 853. After the experts have been appointed by the persons interested, or by the court, and after the acceptance, they shall proceed to the examination of the vessel and of the repairs required and to the appraisal of their cost, separating these losses and damages from those arising from the inherent defect of the things. The experts shall also declare whether the repairs may be made immediately, or whether it is necessary to unload the vessel in order to e examine and repair it. With regard to the merchandise, if the average should be visible at a mere



glance, the examination thereof must be made before they are delivered. Should it not be visible at the time of unloading, said examination may be made after the delivery, provided that it is done within forty-eight hours from the unloading, and without prejudice to the other proofs which the experts may deem proper. Art. 854. The valuation of the objects which are to contribute to the gross average, and that of those which constitute the average, shall be subject to the following rules: 1. The merchandise saved which is to contribute to the payment of the gross average shall be valued at the current price at the port of unloading, deducting the freightage, customs duties, and expenses of unloading, as may appear from a material inspection of the same, without taking the bills of lading into consideration, unless there is an agreement to the contrary. 2. If the liquidation is to be made in the port of departure, the value of the merchandise loaded shall be determined by the purchase price, including the expenses until they are placed on board, the insurance premium excluded. 3. If the merchandise should be damaged, it shall be appraised at its true value. 4. If the voyage having been interrupted, the merchandise should have been sold in a foreign port, and the average cannot be estimated, the value of the merchandise in the port of arrival, or the net proceeds obtained at the sale thereof, shall be taken as the contributing capital. 5. Merchandise lost, which constitutes the gross average, shall be appraised at the value which merchandise of its kind may have in the port of unloading, provided that its kind and quality appear in the bill of lading; and should they not appear, the value shall be that stated in the invoices of the purchase issued in the port of shipment, adding thereto the expenses and freightage subsequently arising. 6. The masts cut down, the sails, cables, and other equipment of the vessel rendered useless for the purpose of saving it, shall be appraised at the current value, deducting one-third by reason of the difference between new and old. This deduction shall not be made with respect to anchors and chains. 7. The vessel shall be appraised at its true value in the condition in which it is found.

8. The freightage shall represent 50 per cent by way of contributing capital. Art. 855. The merchandise loaded on the upper deck of the vessel shall contribute to the gross average should it be saved; but there shall be no right to indemnify if it should be lost by reason of having been jettisoned for common safety, except when the marine ordinances allow its shipment in this manner in coastwise navigation. The same shall take place with that which is on board and is not included in the bills of lading or inventories, according to the cases. In any case the shipowner and the captain shall be liable to the shippers for the damages from the jettison, if the storage on the upper deck was made without the consent of the latter. Art. 857. After the appraisement of the goods saved and of those lost which constitute the gross average, has been concluded by the experts, the repairs, if any, made on the vessel, and, in this case, the accounts of the same approved by the persons interested or by the judge or court, the entire record shall be turned over to the liquidator appointed, in order that he may proceed with the distribution of the average. LIQUIDATION OF GENERAL AVERAGE, 858, 865 TO 869 Art. 858. In order to effect the liquidation, the liquidator shall examine the protest of the captain, comparing it, if necessary, with the log book, and all the contracts which may have been made among the persons interested in the average, the appraisements, expert examinations, and accounts of repairs made. If, as a result of this examination, he should find any defect in the procedure which might injure the rights of the persons interested or affect the liability of the captain, he shall call attention thereto in order that it may be corrected, if possible, and otherwise he shall include it in the exordial of the liquidation. Immediately thereafter he shall proceed with the distribution of the amount of the average, for which purpose he shall fix:

(1) The contributing capital, which he shall determine by the value of the cargo, in accordance with the rules established in Article 854.

(2) That of the vessel in its actual condition, according to a statement of experts.

(3) The 50 per cent of the amount of the freightage, deducting the



remaining 50 per cent for wages and maintenance of the crew. After the amount of the gross average has been determined in accordance with the provisions of this Code, it shall be distributed pro rata among the goods which are to cover the same. Art. 865. The distribution of the gross average shall not be final until it has been agreed to, or in the absence thereof, until it has been approved by the judge or court, after an examination of the liquidation and a hearing of the persons interested who may be present or of their representatives. Art. 866. After the liquidation has been approved, it shall be the duty of the captain to collect the amount of the contribution, and he shall be liable to the owners of the goods averaged for the damages they may suffer through his delay or negligence. Art. 867. If the persons contributing should not pay the amount of the contribution at the end of the third day after having been required to do so, the goods saved shall be proceeded against, at the request of the captain, until payment has been made from their proceeds. Art. 868. If the person interested in receiving the goods saved should not give security sufficient to answer for the amount corresponding to the gross average, the captain may defer the delivery thereof until payment has been made. LIQUIDATION OF PARTICULAR AVERAGE, 869 Art. 869. The experts whom the court or the persons interested may appoint, as the case may be, shall proceed with the examination and appraisement of the averages in the manner prescribed in Articles 853 and 854, Rules 2 to 7, in so far as they are applicable. ARRIVALS UNDER STRESS CAUSES Art. 819. If during the voyage the captain should believe that the vessel cannot continue the trip to the port of destination on account of the lack of

provisions, well-founded fear of seizure, privateers, or pirates, or by reason of any accident of the sea disabling it to navigate, he shall assemble the officers and shall summon the persons interested in the cargo who may be present, and who may attend the meeting without the right to vote; and if, after examining the circumstances of the case, the reason should be considered well-founded, the arrival at the nearest and most convenient port shall be agreed upon, drafting and entering the proper minutes, which shall be signed by all, in the log book. The captain shall have the deciding vote, and the persons interested in the cargo may make the objections and protests they may deem proper, which shall be entered in the minutes in order that they may make use thereof in the manner they may consider advisable. Art. 820. An arrival shall not be considered lawful in the following cases: 1. If the lack of provisions should arise from the failure to take the necessary provisions for the voyage according to usage and custom, or if they should have been rendered useless or lost through bad stowage or negligence in their care. 2. If the risk of enemies, privateers, or pirates should not have been well known, manifest, and based on positive and provable facts. 3. If the defector the vessel should have arisen from the fact that it was not repaired, rigged, equipped, and prepared in a manner suitable for the voyage, or from some erroneous order of the captain. 4. Whenever malice, negligence, want of foresight, or lack of skill on the part of the captain exists in the act causing the damage. FORMALITIES Art. 822. If in order to make repairs to the vessel or because there is danger that the cargo may suffer damage, it should be necessary to unload, the captain must request authorization from the competent judge or court for the removal, and carry it out with the knowledge of the person interested in the cargo, or his representative, should there be any. In a foreign port, it shall be the duty of the Filipino consul, where there is one, to give the authorization. In the first case, the expenses shall be for the account of the ship agent or



owner, and in the second, they shall be chargeable against the owners of the merchandise for whose benefit the act was performed. If the unloading should take place for both reasons, the expenses shall be divided proportionately between the value of the vessel and that of the cargo. EXPENSES Art. 821. The expenses of an arrival under stress shall always be for the account of the shipowner or agent, but they shall not be liable for the damages which may be caused the shippers by reason of the arrival, provided the latter is legitimate. Otherwise, the ship agent and the captain shall be jointly liable. Art. 822, supra. RESPONSIBILITIES OF CAPTAIN Art. 823. The custody and preservation of the cargo which has been unloaded shall be entrusted to the captain, who shall be responsible for the same, except in cases of force majeure. Art. 824. If the entire cargo or part thereof should appear to be damaged, or there should be imminent danger of its being damaged, the captain may request of the competent judge or court, or of the consul in a proper case, the sale of all or of part of the former, and the person taking cognizance of the matter shall authorize it, after an examination and declaration of experts, advertisements, and other formalities required by the case, and an entry in the book, in accordance with the provisions of Article 624. The captain shall, in a proper case, justify the legality of his conduct, under the penalty of answering to the shipper for the price the merchandise would have brought if it had arrived in good condition at the port of destination. Art. 825. The captain shall be responsible for the damages caused by his delay, if after the cause of the arrival under stress has ceased, he should not continue the voyage.

If the cause of the arrival should have been the fear of enemies, privateers, or pirates, a deliberation and resolution in a meeting of the officers of the vessel and persons interested in the cargo who may be present, in accordance with the provisions contained in Article 819, shall precede the departure. COLLISION COLLISION, DEFINITION

• Impact of two vessels both of which are moving COMPARED WITH ALLISION

• Striking of a moving vessel against one that is stationary CLASSES AND EFFECTS

(1) Fortuitous/force majeure Art. 830. If a vessel should collide with another through fortuitous event or force majeure, each vessel and its cargo shall bear its own damages. Art. 832. If, by reasons of a storm or other cause of force majeure, a vessel which is properly anchored and moored should collide with those nearby, causing them damages, the injury occasioned shall be considered as particular average of the vessel run into.

(2) Culpable Art. 826. If a vessel should collide with another, through the fault, negligence, or lack of skill of the captain, sailing mate, or any other member of the complement, the owner of the vessel at fault shall indemnify the losses and damages suffered, after an expert appraisal. Art. 827. If the collision is imputable to both vessels, each one shall suffer its own damages, and both shall be solidarily responsible for the losses and damages occasioned to their cargoes. Art.831. If a vessel should be forced by a third vessel to collide with another, the owner of the third vessel shall indemnify the losses and damages



caused, the captain thereof being civilly liable to said owner.

(3) Inscrutable fault Art. 828. The provisions of the preceding article are applicable to the case in which it cannot be determined which of the two vessels has caused the collision. PRESUMPTION OF LOSS BY COLLISION Art.833. A vessel which, upon being run into, sinks immediately, as well as that which, having been obliged to make a port to repair the damages caused by the collision, is lost during the voyage or is obliged to be stranded in order to be saved, shall be presumed as lost by reason of collision. LIABILITIES

(1) Shipowner or agent Art. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage earned during the voyage. Art. 838. When the value of the vessel and her appurtenances should not be sufficient to cover all the liabilities, the indemnity due by reason of the death or injury of persons shall have preference.

(2) Captain, pilot or others Art. 829. In the cases above mentioned the civil action of the owner against the person causing the injury as well as the criminal liabilities, which may be proper, are reserved. Art. 834. If the vessels colliding with each other should have pilots on board discharging their duties at the time of the collision, their presence shall not exempt the captains from the liabilities they incur, but the latter shall have the right to be indemnified by the pilots, without prejudice to the criminal liability which the latter may incur.

(3) Conditions, protests

Art. 835. The action for the recovery of losses and damages arising from collisions cannot be admitted if a protest or declaration is not presented within twenty-four hours before the competent authority of the point where the collision took place, or that of the first port of arrival of the vessel, if in Philippine territory and to the consul of the Philippines, if it occurred in a foreign country. Note: the 24-hour requirement mentioned here is not a reglamentary period, rather, it is a condition precedent. Art. 836. With respect to damages caused to persons or to the cargo, the absence of a protest may not prejudice the persons interested who were not on board or were not in a condition to make known their wishes. Art. 839. If the collision should take place between Philippine vessels in foreign waters, of if having taken place in the open seas, and the vessels should make a foreign port, the Filipino consul in said port shall hold a summary investigation of the accident, forwarding the proceedings to the Secretary of the Department of Foreign Affairs for continuation and conclusion. SUMMARY OF CASES WHERE PROTEST IS REQUIRED

(1) Under 612, when the vessel makes an arrival under stress (2) Under 612, 624 and 843, where the vessel is shipwrecked (3) Under 624, where the vessel has gone through a hurricane or when

the captain believes that the cargo has suffered damages or averages

(4) Under 835, in case of maritime collisions SHIPWRECKS Art. 840. The losses and deteriorations suffered by a vessel and her cargo by reason of shipwreck or stranding shall be individually for the account of the owners, the part which may be saved belonging to them in the same proportion. Art. 841. If the wreck or standing should be caused by the malice,e negligence, or lack of skill of the captain, or because the vessel put to sea



insufficiently repaired and equipped, the ship agent or the shippers may demand indemnity of the captain for the damages caused to the vessel or to the cargo by the accident, in accordance with the provisions contained in Articles 610, 612, 614, and 621. Art. 842. The goods saved from the wreck shall be specially bound for the payment of the expenses of the respective salvage, and the amount thereof must be paid by the owners of the former before they are delivered to them, and with preference over any other obligation if the merchandise should be sold. Art. 843. If several vessels sail under convoy, and any of them should be wrecked, the cargos saved shall be distributed among the rest in proportion to the amount which each one is able to take. If any captain should refuse, without sufficient cause, to receive what may correspond to him, the captain of the wrecked vessels shall enter a protest against him, before two sea officials, of the losses and damages resulting therefrom, ratifying the protest within twenty-four hours after arrival at the first port, and including it in the proceedings he must institute in accordance with the provisions contained in Article 612. If it is not possible to transfer to the other vessels the entire cargo of the vessel wrecked, the goods of the highest value and smallest volume shall be saved first, the designation thereof to be made by the captain with the concurrence of the officers of his vessel. SHIPWRECK, DEFINITION.

• Loss of a vessel at sea, either by being swallowed up by the waves, by running against another vessel or thing at sea, or on coast --> renders the ship incapable of navigation

• Under 841, in case the wreck or stranding is due to the (1) malice, negligence, or lack of skill of the captain, or (2) because the vessel put to sea was insufficiently repaired and equipped, the captain shall be liable

SALVAGE LAW, ACT NO. 2616 SECTION 1. When in case of shipwreck, the vessel or its cargo shall be

beyond the control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage. Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be entitled to a like reward. SECTION 2. If the captain of the vessel, or the person acting in his stead, is present, no one shall take from the sea, or from the shores or coast merchandise or effects proceeding from a shipwreck or proceed to the salvage of the vessel, without the consent of such captain or person acting in his stead. SECTION 3. He who shall save or pick up a vessel or merchandise at sea, in the absence of the captain of the vessel, owner, or a representative of either of them, they being unknown, shall convey and deliver such vessel or merchandise, as soon as possible, to the Collector of Customs, if the port has a collector, and otherwise to the provincial treasurer or municipal mayor. SECTION 4. After the salvage is accomplished, the owner or his representative shall have a right to the delivery of the vessel or things saved, provided that he pays, or gives a bond to secure, the expenses and the proper reward. The amount and sufficiency of the bond, in the absence of agreement, shall be determined by the Collector of Customs or by the Judge of the Court of First Instance of the province in which the things saved may be found. SECTION 5. The Collector of Customs, provincial treasurer, or municipal mayor, to whom a salvage is reported, shall order: a. That the things saved be safeguard and inventoried. b. The sale at public auction of the things saved which may be in danger of immediate loss or of those whose conservation is evidently prejudicial to the interests of the owner, when no objection is made to such sale. c. The advertisement within the thirty days subsequent to the salvage, in one of the local newspapers or in the nearest newspaper published, of all the



details of the disaster, with a statement of the mark and number of the effects requesting all interested persons to make their claims. SECTION 6. If, while the vessel or things saved are at the disposition of the authorities, the owner or his representative shall claim them, such authorities shall order their delivery to such owner or his representative, provided that there is no controversy over their value, and a bond is given by the owner or his representative to secure the payment of the expenses and the proper reward. Otherwise, the delivery shall nor be made until the matter is decided by the Court of First Instance of the province. SECTION 7. No claim being presented in the three months subsequent to the publication of the advertisement prescribed in sub-section (c) of Section five, the things save shall be sold at public auction, and their proceeds, after deducting the expenses and the proper reward shall be deposited in the insular treasury. If three years shall pass without anyone claiming it, one-half of the deposit shall be adjudged to him who saved the things, and the other half to the insular government. SECTION 8. The following shall have no right to a reward for salvage or assistance: a. The crew of the vessel shipwrecked or which was is danger of shipwreck; b. He who shall have commenced the salvage in spite of opposition of the captain or his representative; and c. He who shall have failed to comply with the provisions of Section three. SECTION 9. If, during the danger, an agreement is entered into concerning the amount of the reward for salvage or assistance, its validity may be impugned because it is excessive, and it may be required to be reduced to an amount proportionate to the circumstances. SECTION 10. In a case coming under the last preceding section, as well as in the absence of an agreement, the reward for salvage or assistance shall be fixed by the Court of First Instance of the province where the things salvaged are found, taking into account principally the expenditures made to

recover or save the vessel or the cargo or both, the zeal demonstrated, the time employed, the services rendered, the excessive express occasioned the number of persons who aided, the danger to which they and their vessels were exposed as well as that which menaced the things recovered or salvaged, and the value of such things after deducting the expenses. SECTION 11. From the proceeds of the sale of the things saved shall be deducted, first, the expenses of their custody, conservation, advertisement, and auction, as well as whatever taxes or duties they should pay for their entrance; then there shall be deducted the expenses of salvage; and from the net amount remaining shall be taken the reward for the salvage or assistance which shall not exceed fifty per cent of such amount remaining. SECTION 12. If in the salvage or in the rendering of assistance different persons shall have intervened the reward shall be divided between them in proportion to the services which each one may have rendered, and, in case of doubt, in equal parts. Those who, in order to save persons, shall have been exposed to the same dangers shall also have a right to participation in the reward. SECTION 13. If a vessel or its cargo shall have been assisted or saved, entirely or partially, by another vessel, the reward for salvage or for assistance shall be divided between the owner, the captain, and the remainder of the crew of the latter vessel, so as to give the owner a half, the captain a fourth, and all the remainder of the crew the other fourth of the reward, in proportion to their respective salaries, in the absence of an agreement to the contrary. The express of salvage, as well as the reward for salvage or assistance, shall be a charge on the things salvaged on their value. SALVAGE, DEFINITION.

• The compensation allowed to persons by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture

THREE REQUISITES FOR A VALID SALVAGE CLAIM

1. A marine peril



2. Service voluntarily rendered when not required as an existing duty or from a special contract

3. Success in whole or in part, or that the service rendered contributed to such success

98 BARRIOS V. GO THONG 7 SCRA 535 FACTS: Barrios was captain and/or master of the MV Henry I of the William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other southern cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At one evening, plaintiff in his capacity as such captain and/or master of the aforesaid MV Henry I, received or otherwise intercepted an S.O.S. or distress signal by blinkers from the MV Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong & Company. Acting on and/or answering the S.O.S. call, Barrios, altered the course of said vessel, and steered and headed towards the beckoning MV Don Alfredo, which plaintiff found to be in trouble, due to engine failure and the loss of her propeller, for which reason, it was drifting slowly southward from Negros Island towards Borneo in the open China Sea, at the mercy of a moderate easterly wind. A few hours later, the MV Henry I, under the command of the plaintiff, succeeded in getting near the MV Don Alfredo and with the consent and knowledge of the captain and/or master of the MV Don Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and connected with two lines from the MV Henry I; and in that manner, position and situation, the latter had the MV Don Alfredo in tow and proceeded towards the direction of Dumaguete City. After almost nine hours during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were approaching the vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of the MV Don Alfredo, was sighted heading towards the direction of the aforesaid two vessels, reaching then fifteen minutes later, or at about 5:25 o'clock on that same morning. Thereupon, at the request and instance of the captain and/or master of the MV Don Alfredo, the plaintiff caused the tow lines to be released, thereby also releasing the MV Don Alfredo. Under the circumstances, plaintiff concludes that they establish an impending sea peril from which salvage of a ship worth more than

P100,000.00, plus life and cargo was done, the defendant insists that the facts made out no such case, but that what merely happened was only mere towage from which plaintiff cannot claim any compensation or remuneration independently of the shipping company that owned the vessel commanded by him. HELD: Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant? Like the trial court, we do not think there was. It appears that although the defendant's vessel in question was, on the night of May 1, 1958, in a helpless condition due to engine failure, it did not drift too far from the place where it was. As found by the court a quo the weather was fair, clear, and good. The waves were small and too slight, so much so, that there were only ripples on the sea, which was quite smooth. During the towing of the vessel on the same night, there was moonlight. Although said vessel was drifting towards the open sea, there was no danger of it floundering or being stranded, as it was far from any island or rocks. In case of danger of stranding, its anchor could released, to prevent such occurrence. There was no danger that defendant's vessel would sink, in view of the smoothness of the sea and the fairness of the weather. That there was absence of danger is shown by the fact that said vessel or its crew did not even find it necessary to lower its launch and two motor boats, in order to evacuate its passengers aboard. Neither did they find occasion to jettison the vessel's cargo as a safety measure. Neither the passengers nor the cargo were in danger of perishing. All that the vessel's crew members could not do was to move the vessel on its own power. That did not make the vessel a quasi-derelict, considering that even before the appellant extended the help to the distressed ship, a sister vessel was known to be on its way to succor it. If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law, can it be considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer seems to incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant (through the captain of its vessel MV Don Alfredo) thereby impliedly entered into a juridical relation of "towage" with the owner of the vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated. Tug which put line aboard liberty ship which was not in danger or peril but



which had reduced its engine speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by while ship proceeded to dock under own power, was entitled, in absence of written agreement as to amount to be paid for services, to payment for towage services, and not for salvage services. (Sause, et al. v. United States, et al., 107 F. Supp. 489) If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to the exclusion of the crew of the said vessel, may be entitled to remuneration.

SPECIAL CONTRACTS OF MARITIME COMMERCE

CHARTER PARTY DEFINITION

• A charter party is a contract by virtue of which the owner or agent of a vessel binds himself to transport merchandise or persons for a fixed price. It is a contract by which the owner or agent of the vessel leases for a certain price the whole or a portion of the vessel for the transportation of goods or persons from one port to another.

KINDS OF CHARTER PARTY 99 PLANTERS PRODUCTS V. CA Supra HELD: A charter-party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use. There are 2 kinds : (1) contract of affreightment which involves the use of shipping space or vessels leased by the owner in part or as a whole, to carry goods for others; and (2) charter by demise or bareboat charter where the whole vessel is let to the charterer with a transfer to him of its entire command and possession and consequent control over its navigation, including the master and the crew, who are his servants. It is not disputed that the carrier operates as a CC in the ordinary course of business. When PPI chartered the vessel, the ship captain, its officers and

crew were under the employ of the shipowner and therefore continued to be under its direct supervision and control. Thus it continued to be a public carrier. It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel, provided the charter is limited to the ship only, as in the case of a time- charter or a voyage-charter. It is only when the charter includes both the vessel and the crew, as in a bareboat or demise that a CC becomes private, insofar as such particular voyage is concerned. 100 COASTWISE LIGHTERAGE CORPORATION V. CA 245 SCRA 796 HELD: Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court are as follows: Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation. Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish possession, command and navigation thereof to the charterer, anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for special service to be rendered by the owner of the vessel and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property of the charterer, remains liable as carrier and must answer for any



breach of duty as to the care, loading and unloading of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment on account of the aforementioned distinctions between the two. FORMS AND EFFECTS Art. 652. A charter party must be drawn in duplicate and signed by the contracting parties, and when either does not know how or is not able to do so, by two witnesses at his request. The charter party shall include, besides the condition stipulated, the following circumstances:

(1) The kind, name, and tonnage of the vessel. (2) Her flag and port or registry. (3) The name, surname, and domicile of the captain. (4) The name, surname, and domicile of the agent, if the latter should

make the charter party. (5) The name, surname, and domicile of the charterer, and if he states

that he is acting by commission, that of the person for whose account he makes the contract.

(6) The port of loading and unloading. (7) The capacity, number of tons or weight, or measure which they

respectively bind themselves to load and transport, or whether it is the total cargo.

(8) The freightage to be paid, stating whether it is to be a fixed amount for the voyage or so much per month, or for the space to be occupied, or for the weight or measure of the goods of which the cargo consists, or in any other manner whatsoever agreed upon.

(9) The amount of primage to be paid the captain. (10) The days agreed upon for loading and unloading. (11) The lay days and extra lay days to be allowed and the rate of

demurrage. Art. 653. If the freight should be received without the charter party having been signed, the contract shall be understood as executed in accordance with what appears in the bill of lading, which shall be the only instrument with regard to the freight to determine the rights and obligations of the ship agent,

of the captain, and of the charterer. Art. 654. The charter parties executed with the intervention of a broker, who certifies to the authenticity of the signatures of the contracting parties made in his presence, shall be full evidence in court; and, if they should be conflicting, that which agrees with the one which the broker must keep in his registry, if kept in accordance with law, shall govern. The contracts shall also be admitted as evidence, even though a broker has not taken part therein, if the contracting parties acknowledge the signatures of the same as their own. Should no broker have taken part in the charter party and the signatures be not acknowledged, doubts shall be decided by what is provided for in the bill of lading, and, in the absence thereof, by the proofs submitted by the parties. Art. 655. Charter parties executed by the captain in the absence of the ship agent shall be valid and effective, even though in executing them he should have acted in violation of the orders and instructions of the agent or shipowner; but the latter shall have a right of action against the captain to recover damages. Art. 656. If in the charter party the time in which the loading and unloading are to take place is not stated, the usages of the port where these acts take place shall be observed. After the stipulated or customary period has passed, and should there not be in the freight contract an express provision fixing the indemnification for the delay, the captain shall be entitled to demand demurrage for the lay days and extra lay days which may have elapsed in loading and unloading. Art. 657. If during the voyage the vessel should be rendered unseaworthy the captain shall be obliged to charter at his expense another one in good condition, to carry the cargo to its destination, for which purpose he shall be obliged to look for a vessel not only at the port of arrival but also in the neighboring ports within a distance of 150 kilometers. If the captain, through indolence or malice, should not furnish a vessel to take the cargo to its destination, the shippers, after requesting the captain to charter a vessel within an unextendible period, may charter one and apply to the judicial authority for the summary approval of the charter party which



they may have made. The same authority shall judicially compel the captain to carry out for his account and under his responsibility the charter made by the shippers. If the captain, notwithstanding his diligence, should not find a vessel to charter, he shall deposit the cargo at the disposal of the shippers, to whom he shall communicate the facts on the first opportunity, the freight being adjusted in such cases by the distance covered by the vessel, with no right to any indemnification whatsoever. RIGHTS AND OBLIGATIONS OF SHIPOWNERS Art. 669. The shipowner of the captain shall observe in charter parties the capacity of the vessel or that expressly designated in its registry, a difference greater than 2 per cent between that registered and her true capacity not being permissible. If the shipowner or the captain should contract to carry a greater amount of cargo than the vessel can carry, in view of her tonnage, they shall indemnify the shippers whose contracts they do not fulfill for the losses they may have caused them by reason of their default, according to the cases, viz: If the vessel has been chartered by one shipper only, and there should appear to be an error or fraud in her capacity, and the charterer should not wish to rescind the contract, when he has a right to do so, the freightage shall be reduced in proportion to the cargo the vessel cannot receive, the person from whom the vessel is chartered being furthermore obliged to indemnify the charterer for the losses he may have caused him. If, on the contrary, there should be several charter parties, and by reason of the want of space all the cargo contracted for cannot be received, and none of the charterers desires to rescind the contract, preference shall be given to the person who has already loaded and arranged the cargo in the vessel, and the rest shall take the place corresponding to them in the order of the dates of their contracts. Should there be no priority, the charterers may load, if they wish, in proportion to the weight or space they may have engaged, and the person

from whom the vessel was chartered shall be obliged to indemnify them for losses and damages. Art. 670. If the person from whom the vessel is chartered, after receiving a part of the cargo, should not find sufficient to make up at least three fifths of the amount the vessel can hold, at the price he may have fixed, he may substitute for that transportation another vessel inspected and declared suitable for the same voyage, the expenses of transfer, and the increase in the price of the charter, should there be any, being for his account. Should he not be able to make this change, the voyage shall be undertaken at the time agreed upon; and should no time have been fixed, within fifteen days from the time the loading began, should nothing to the contrary have been stipulated. If the owner of the part of the cargo already loaded should procure some more at the same price and under similar or proportionate conditions to those accepted for the freight received, the person from whom the vessel is chartered or the captain may not refuse to accept the rest of the cargo; and should he do so, the charterer shall have a right to demand that the vessel put to sea with the cargo she may have on board. Art. 671. After three-fifths of the vessel is loaded, the person from whom she is chartered may not, without the consent of the charterers or shippers, substitute the vessel designated in the charter party with another one, under the penalty of making himself thereby liable for all the losses and damages occurring during the voyage to the cargo of those who did not consent to the change. Art. 672. If the vessel has been chartered in whole, the captain may not, without the consent of the person chartering her, accept cargo from any other person; and should he do so, said charterer may oblige him to unload it and to indemnify him for the losses suffered thereby. Art. 673. The person from whom the vessel is chartered shall be liable for all the losses caused the charterer by reason of the voluntary delay of the captain in putting to sea, according to the rules prescribed, provided he has been requested to put to sea at the proper time through a notary or judicially. Art. 674. If the charterer should carry to the vessel more cargo than that



contracted for, the excess may be admitted in accordance with the price stipulated in the contract if it can be well stowed without incurring the other shippers, but if in order to stow said cargo it should be necessary to stow it in such manner as to throw the vessel out of trim the captain must refuse it or unload it at the expense of its owner. The captain may likewise, before leaving the port, unload the merchandise clandestinely placed on board, or transport it, it he can do so and keep the vessel in trim, demanding by way of freightage the highest price which may have been stipulated for said voyage. Art. 675. If the vessel has been chartered to receive the cargo in another port, the captain shall appear before the consignee designated in the charter party, and should the latter not deliver the cargo to him, he shall inform the charterer and await his instructions, the lay days agreed upon, or those allowed by custom in the port, beginning to run in the meantime, unless there is an express agreement to the contrary. Should the captain not receive an answer within the time necessary therefore, he shall make efforts to find cargo; and should he not find any after the lay days and extra lay days have elapsed, he shall make a protest and return to the port where the charter was made. The charterer shall pay the freightage in full, discounting that which may have been earned on the merchandise which may have been carried on the voyage out or on the return trip, if carried for the account of third persons. The same shall be done if a vessel, having been chartered for the round trip, should not be given any cargo for her return. Art. 676. The captain shall lose the freightage and shall indemnify the charterers if the latter should prove, even against the certificate of inspection, if one has been made at the port of departure, that the vessel was not in a condition to navigate at the time of receiving the cargo. Art. 677. The charter party shall subsist if the captain should not have any instructions from the charterer, and a declaration of war or a blockade should take place during the voyage. In such case the captain must proceed to the nearest safe and neutral port,

requesting and awaiting orders from the shipper; and the expenses and salaries accruing during the detention shall be paid as general average. If, by orders of the shipper, the cargo should be discharged at the port of arrival, the freightage for the voyage out shall be paid in full. Art. 678. If the time necessary, in the opinion of the judge or court, to receive orders from the shippers should have elapsed without the captain having received any instructions, the cargo shall be deposited, and it shall be liable for the payment of the freightage and expenses incurred by reason of the delay, which shall be paid from the proceeds of the part first sold. OBLIGATIONS OF CHARTERERS Art. 679. The charterer of an entire vessel may subcharter the whole or part thereof for the amounts he may consider most convenient, the captain not being allowed to refuse to receive on board the cargo delivered by the second charterers, provided the conditions of the first charter are not changed, and that the price agreed upon is paid in full, even though the full cargo is not loaded, with the limitation established in the next article. Art. 680. A charterer who does not complete the full cargo he bound himself to ship shall pay the freightage of the amount he fails to load, if the captain does not take other freight to complete the load of the vessel, in which case he shall pay the first charterer the difference should there be any. Art. 681. If the charterer should ship goods different from those indicated at the time of executing the charter party, without the knowledge of the person from whom the vessel was chartered or of the captain, and should thereby give rise to losses, by reason of confiscation, embargo, detention, or other causes, to the person from whom the vessel was chartered or to the shippers, the person giving rise thereto shall be liable with the value of his shipment and furthermore with his property, for the full indemnity to all those injured through his fault. Art. 682. If the merchandise should have been shipped for the purpose of illicit commerce, and was taken on board with the knowledge of the person from whom the vessel was chartered or of the captain, the latter, jointly with the owner of the merchandise, shall be liable for all the losses which may be



caused to other shippers, and even though it may have been agreed, they cannot demand any indemnity whatsoever from the charterer for the damage caused the vessel. Art. 683. In case of making a port to repair the hull, machinery, or equipment of the vessel, the shippers must wait until the vessel is repaired, being permitted to unload her at their own expense should they deem it advisable. If, for the benefit of cargo which runs the risk of deterioration, the shippers or the court, or the consul, or the competent authority in a foreign land should order the merchandise to be unloaded, the expenses of unloading and reloading shall be for the account of the former. Art. 684. If the charterer, without the occurrence of any of the cases of force majeure mentioned in the foregoing article, should wish to unload his merchandise before arriving at the port of destination, he shall pay the full freightage, the expenses of the arrival made at his request, and the losses and damages caused the other shippers, should there be any. Art. 685. In charters for transportation of general freight any of the shippers may unload the merchandise before the beginning of the voyage, paying one half the freightage, the expense of stowing and restoring the cargo, and any other damage which may be caused the other shippers. Art. 686. After the vessel has been unloaded and the cargo placed at the disposal of the consignee, the latter must immediately pay the captain the freightage due and the other expenses for which the cargo may be liable. The primage must be paid in the same proportion and at the same time as the freightage, all the changes and modifications to which the latter should be subject also governing the former. Art. 687. The charterers and shippers may not abandon merchandise damaged on account of its own inherent defect or of fortuitous event for the payment of the freightage and other expenses. The abandonment shall be proper, however, if the cargo should consist of liquids which may have leaked out, there remaining in the containers not more than one-fourth of their contents.

101 CALTEX PHILS. V. SULPICIO LINES 315 SCRA 709 HELD: A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight. 11

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship's store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship. 12

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship. RESCISSION Art. 688. A charter party may be annulled at the request of the charterer: 1. If before loading the vessel he should abandon the charter, paying half the freightage agreed upon. 2. If the capacity of the vessel should not agree with that stated in the certificate of tonnage, or if there be an error in the statement of the flag under which she sails. 3. If the vessel should not be placed at the disposal of the charterer within the period and in the manner agreed upon.



4. If, after the vessel has put to sea, she should return to the port of departure, on account of risk from pirates, enemies, or bad weather, and the shippers should agree to unload her. In the second and third cases the person from whom the vessel was chartered shall indemnify the charterer for the losses he may suffer. In the fourth case the person from whom the vessel was chartered shall have a right to the freightage in full for the voyage out. If the charter should have been made by the month, the charterers shall pay the full freightage for one month, if the voyage is for a port in the same waters; and two months, if for a port in different waters. (From one port to another of the Peninsula (Philippines) and adjacent islands, the freightage for one month only shall be paid.) 5. If a vessel should make a port during the voyage in order to make urgent repairs and the charterers should prefer to dispose of the merchandise. When the delay does not exceed thirty days, the shippers shall pay the full freightage for the voyage out. Should the delay exceed thirty days, they shall pay the freight in proportion to the distance covered by the vessel. Art. 689. At the request of the person from whom the vessel is chartered the charter party may be rescinded: 1. If the charterer at the termination of the extra lay days does not place the cargo alongside the vessel. In such case the charterer must pay half of the freightage stipulated besides the demurrage due for the lay days and extra lay days. 2. If the person from whom the vessel was chartered should sell it before the charterer has begun to load it and the purchaser should load it for his own account. In such case the vendor shall indemnify the charterer for the losses he may suffer.

If the new owner of the vessel should not load it for his own account the charter party shall be respected, and the vendor shall indemnify the purchaser if the former did not inform him of the charter pending at the time of making the sale. Art. 690. The charter party shall be rescinded and all action arising therefrom shall be extinguished if, before the vessel puts to sea from the port of departure, any of the following cases should occur: 1. A declaration of war or interdiction of commerce with the power to whose ports the vessel was to make its voyage. 2. A condition of blockage of the port of destination of said vessel, or the breaking out of an epidemic after the contract was executed. 3. The prohibition to receive at the said port the merchandise constituting the cargo of the vessel. 4. An indefinite detention, by reason of an embargo of the vessel by order of the government, or for any other reason independent of the will of the ship agent. 5. The inability of the vessel to navigate, without fault of the captain or ship agent. The unloading shall be made for the account of the charterer. Art. 691. If the vessel cannot put to sea on account of the closing of the port of departure, or any other temporary cause, the charter shall remain in force without right of either of the contracting parties to claim damages. The subsistence and wages of the crew shall be considered as general average. During the interruption the charterer may, at the proper timer and for his own account, unload and load the merchandise, paying demurrage if the reloading should continue after the cause for the detention has ceased. Art. 692. A charter party shall be partially rescinded, unless there is an agreement to the contrary, and the captain shall only be entitled to the freightage for the voyage out, if, by reason of a declaration of war, closing of ports, or interdiction of commercial relations during the voyage, the vessel should make the port designated for such a case in the instructions of the charterer.



LOANS ON BOTTOMRY AND RESPONDENTIS LOAN ON BOTTOMRY

• A contract in the nature of a mortgage, by which the owner of the ship borrows money for the use, equipment and repair of the vessel and for a definite term, and pledges the ship (or the keel or bottom of the ship) as a security for its repayment, with maritime or extraordinary interest on account of the maritime risks to be borne by the lender, it being stipulated that if the ship be lost in the course of the specific voyage or during the limited time, by any of the perils enumerated in the contract, the lender shall also lose his money.

LOAN ON RESPONDENTIS

• One made on the goods laden on board the ship, and which are to be sold or exchanged in the course of the voyage, the borrower's personal responsibility being deemed the principal security for the performance of the contract, which is therefore called respondentia. The lender must be paid his principal and interest, thought the ship perishes, provided that the goods are saved.

CHARACTER Art. 719. A loan in which, under any condition whatever, the repayment of the sum loaned and of the premium stipulated depends upon the safe arrival in port of the goods on which it is made, or of the price they may receive in case of accident, shall be considered a loan on bottomry or respondentia. FORMS AND REQUISITES Art. 720. Loans on bottomry or respondentia may be executed: 1. By means of a public instrument. 2. By means of a policy signed by the contracting parties and the broker taking part therein. 3. By means of a private instrument. Under whichever of these forms the contract is executed, it shall be entered in the certificate of the registry of the vessel and shall be recorded in the registry of vessels, without which requisites the credits of this kind shall not

have, with regard to other credits, the preference which, according to their nature, they should have, although the obligation shall be valid between the contracting parties. The contracts made during a voyage shall be governed by the provisions of Articles 583 and 611, and shall be effective with regard to third persons from the date of their execution, if they should be recorded in the registry of vessels of the port of registry of the vessel before the lapse of eight days following its arrival. If said eight days should elapse without the record having been made in the registry of vessels, the contracts made during the voyage of a vessel shall produce no effect with regard to third persons, except from the day and date of their inscription. In order that the policy of the contracts executed in accordance with No.2 may have binding force, they must conform to the registry of the broker who took part therein. With respect to those executed in accordance with No. 3 the acknowledgment of the signature shall be required. Contracts which are not reduced in writing shall not give rise to judicial action. ON WHAT CONSTITUTED Art. 724. The loans may be constituted jointly or separately:

(1) On the hull of the vessel. (2) On the rigging. (3) On the equipment, provisions, and fuel. (4) On the engine, if the vessel is a steamer. (5) On the merchandise loaded.

If the loan is constituted on the hull of the vessel, the rigging, equipment and other goods, provisions, fuel, steam engines, and the freightage earned during the voyage on which the loan is made, shall also be considered as included in the liability for the loan. If the loan is made on the cargo, all that which constitutes the same shall be subject to the repayment; and if on a particular object of the vessel or of the cargo, only the object concretely and specifically mentioned shall be liable.



Art. 725. No loans on bottomry may be made on the salaries of the crew or on the profits expected. AMOUNT Art. 723. Loans may be made in goods and in merchandise, fixing their value in order to determine the principal of the loan. Art. 726. If the lender should prove that he loaned an amount larger than the value of the object liable for the bottomry loan, on account of fraudulent measures employed by the borrower, the loan shall be valid only for the amount at which said object is appraised by experts. The surplus principal shall be returned with legal interest for the entire time required for repayment. Art. 727. If the full amount of the loan contracted in order to load the vessel should not be used for the cargo, the balance shall be returned before clearing. The same procedure shall be observed with regard to the goods taken as loan, if they were not loaded. BY WHOM Art. 728. The loan which the captain takes at the point of residence of the owners of the vessel shall only affect that part thereof which belongs to the captain, if the other owners or their agents should not have given their express authorization therefor or should not have taken part in the transaction. If one or more of the owners should be requested to furnish the amount necessary to repair or provision the vessel, and they should not do so within twenty-four hours, the interest which the parties in default may have in the vessel shall be liable for the loan in the proper proportion. Outside of the residence of the owners, the captain may contract loans in accordance with the provisions of Articles 583 and 611.

Art. 617. The captain may not contract loans on respondentia secured by the cargo, and should he do so the contract shall be void. Neither may he borrow money on bottomry for his own transactions, except on the portion of the vessel he owns, provided no money has been previously borrowed on the whole vessel, and provided there does not exist any other kind of lien or obligation chargeable against the vessel. When he is permitted to do so, he must necessarily state what interest he has in the vessel. In case of violation of this article the principal, interest, and costs shall be charged to the private account of the captain, and the ship agent may furthermore discharge him. Art. 611. In order to comply with the obligations mentioned in the foregoing article, and when he has no funds and does not expect to receive any from the agent, the captain shall procure the same in the successive order stated below:

1. By requesting said funds of the consignees of the vessel or the correspondents of the ship agent.

2. By applying to the consignees of the cargo or to the persons interested therein.

3. By drawing on the ship agent. 4. By borrowing the amount required by means of a bottomry loan. 5. By selling a sufficient amount of the cargo to cover the amount

absolutely necessary to repair the vessel and to equip her to pursue the voyage.

In the two last cases he must apply to the judicial authority of the port, if in the Philippines and to the Filipino consul, if in a foreign country; and where there should be none, to the local authority, proceeding in accordance with the prescriptions of Article 583, and with the provisions of the law of civil procedure. Art. 583. If the ship being on a voyage the captain should find it necessary to contract one or more of the obligations mentioned in Nos. 8 and 9 of Article 580, he shall apply to the judge or court if he is in Philippine territory, and otherwise to the Filipino consul, should there be one, and in his absence



to the judge or court or to the proper local authority, presenting the certificate of the registry of the vessel treated of in Article 612, and the instruments proving the obligation contracted. The judge or court, the consul or the local authority as the case may be in view of the result of the proceedings instituted, shall make a temporary memorandum in the certificate of their result, in order that it may be recorded in the registry when the vessel returns to the port of her registry, or so that it can be admitted as a legal and preferred obligation in case of sale before the return, by reason of the sale of the vessel by virtue of a declaration of unseaworthiness. The lack of this formality shall make the captain personally liable to the creditors who may be prejudiced through his fault. EFFECTS OF CONTRACT Art. 719. A loan in which, under any condition whatever, the repayment of the sum loaned and of the premium stipulated depends upon the safe arrival in port of the goods on which it is made, or of the price they may receive in case of accident, shall be considered a loan on bottomry or respondentia. Art. 729. Should the goods on which money is taken not be subjected to risk, the contract shall be considered a simple loan, with the obligation on the part of the borrower to return the principal and interest at the legal rate, if that agreed upon should not be lower. Art. 726. If the lender should prove that he loaned an amount larger than the value of the object liable for the bottomry loan, on account of fraudulent measures employed by the borrower, the loan shall be valid only for the amount at which said object is appraised by experts. The surplus principal shall be returned with legal interest for the entire time required for repayment. Art. 727. If the full amount of the loan contracted in order to load the vessel should not be used for the cargo, the balance shall be returned before clearing.

The same procedure shall be observed with regard to the goods taken as loan, if they were not loaded. Art. 730. Loans made during the voyage shall have preference over those made before the clearing of the vessel, and they shall be graduated in the inverse order of their dates. The loans for the last voyage shall have preference over prior ones. Should several loans have been made at the same port of arrival under stress and for the same purpose, all of them shall be paid pro rata. BILL OF LADING CONTENTS Art. 706. The captain and the shipper shall have the obligation of drawing up the bill of lading, in which shall be stated:

(1) The name, registry, and tonnage of the vessel. (2) The name of the captain and his domicile. (3) The port of loading and that of unloading. (4) The name of the shipper. (5) The name of the consignee, if the bill of lading is issued in the

name of a specified person. (6) The quantity, quality, number of packages, and marks of the

merchandise. (7) The freightage and the primage stipulated.

The bill of lading may be issued to bearer, to order, or in the name of a specified person, and must be signed within twenty- four hours after the cargo has been received on board, the shipper being entitled to demand the unloading at the expense of the captain should the latter not sign it, and, in any case, the losses and damages suffered thereby. Art.707. Four true copies of the original bill of lading shall be made, and all of them shall be signed by the captain and by the shipper. Of these copies the shipper shall keep one and send another to the consignee; the captain shall take two, one for himself and the other for the ship agent.



There may also be drawn as many copies of the bill of lading as may be considered necessary by the parties; but, when they are issued to order or to bearer, there shall be stated in all the copies, be they the first four or the subsequent ones, the destination of each one, stating whether it is for the ship agent, for the captain, for the shipper, or for the consignee. If the copy sent to the latter should have a duplicate, this circumstance and the fact that it is not valid except in default of the first one must be stated therein. Art. 713. If before the delivery of the cargo a new bill of lading should be demanded of the captain, on the allegation that the failure to present the previous ones is on account of their loss or for any other just cause, he shall be obliged to issue it, provided that security for the value of the cargo is given to his satisfaction; but without changing the consignment and stating therein the circumstances prescribed in the last paragraph of Article 707, when dealing with the bills of lading referred to therein, under penalty, should he not do so, of being liable for said cargo if improperly delivered through his fault. Art. 714. If before the vessel puts to sea the captain should die or should cease to hold his position through any cause, the shipper shall have the right to demand of the new captain the ratification of the first bills of lading, and the latter must do so, provided that all the copies previously issued be presented or returned to him, and it should appear from an examination of the cargo that they are correct. The expenses arising from the examination of the cargo shall be for the account of the ship agent, without prejudice to his right of action against the first captain, if he ceased to be such through his own fault. Should said examination not be made, it shall be understood that the new captain accepts the cargo as it appears from the bills of lading. PROBATIVE VALUE Art. 709. A bill of lading drawn up in accordance with the provisions of this title shall be proof as between those interested in the cargo and between the latter and the insurers, evidence to the contrary being reserved by the latter. Art. 710. If the bills of lading do not agree, and no change or erasure appears in any of them, those in the possession of the shipper or consignee

signed by the captain shall be proof against the latter or ship agent in favor of the consignee or the shipper; and those possessed by the captain or ship agent signed by tfavor of the captain or ship agent. PASSENGERS ON SEA VOYAGE NATURE OF CONTRACT Art. 695. The right to passage, if issued to a specified person, may not be transferred without the consent of the captain or of the consignee. OBLIGATIONS OF PASSENGERS Art. 693. If the passage price has not been agreed upon, the judge or court shall summarily fix it, after a statement of experts. Art. 699. If the contract is rescinded, before or after the commencement of the voyage, the captain shall have a right to claim payment for what he may have furnished the passengers. Art. 704. In order to collect the fare and expenses of sustenance, the captain may retain the goods belonging to the passenger, and in case of their sale, he shall be given preference over other creditors, acting in the same way as in the collection of freightage. Art. 694. Should the passenger not arrive on board at the time fixed, or should he leave the vessel without permission from the captain, when the latter is ready to leave the port, the captain may continue the voyage and demand the full passage price. Art. 700. In all that pertains to the preservation of order and discipline on board the vessel, the passengers shall be subject to the orders of the captain, without any distinction whatsoever. RIGHTS OF PASSENGERS Art. 697. If before beginning the voyage it should be suspended through the sole fault of the captain or ship agent, the passengers shall be entitled to have their passage refunded and to recover for losses and damages; but if



the suspension was due to an accidental cause, or to force majeure, or to any other cause beyond the control of the captain or ship agent, the passengers shall only be entitled to the return of the passage money. Art. 698. In case a voyage already begun should be interrupted, the passengers shall be obliged to pay only the fare in proportion to the distance covered, and without right to recover for losses and damages if the interruption is due to a fortuitous event or to force majeure, but with a right to indemnify if the interruption should have been caused by the captain exclusively. If the interruption should be by reason of the disability of the vessel, and the passenger should agree to await the repairs, he may not be required to pay any increased price of passage, but his living expenses during the delay shall be for his own account. In case of delay in the departure of the vessel, the passengers have a right to remain on board and to be furnished food for the account of the vessel, unless the delay is due to an accidental cause or to force majeure. If the delay should exceed ten days, the passengers requesting the same shall be entitled to the return of the fare; and if it is due exclusively to the captain or ship agent they may furthermore demand indemnity for losses and damages. A vessel exclusively destined to the transportation of passengers must take them directly to the port or ports of destination, no matter what the number of passengers may be, making all the stops indicated in its itinerary. 102 SWEET LINES V. CA 121 SCRA 769 HELD: The voyage to Catbalogan was "interrupted" by the captain upon instruction of management. The "interruption" was not due to fortuitous event or for majeure nor to disability of the vessel. Having been caused by the captain upon instruction of management, the passengers' right to indemnity is evident. The owner of a vessel and the ship agent shall be civilly liable for the acts of the captain. Under Article 2220 of the Civil Code, moral damages are justly due in

breaches of contract where the defendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate Court found that there was bad faith on the part of petitioner in that: (1) Defendants-appellants did not give notice to plaintiffs- appellees as to the change of schedule of the vessel; (2) Knowing fully well that it would take no less than fifteen hours to effect the repairs of the damaged engine, defendants-appellants instead made announcement of assurance that the vessel would leave within a short period of time, and when plaintiffs-appellees wanted to leave the port and gave up the trip, defendants-appellants' employees would come and say, 'we are leaving, already.' (3) Defendants-appellants did not offer to refund plaintiffs-appellees' tickets nor provide them with transportation from Tacloban City to Catbalogan. 103 TRANS-ASIA SHIPPING V. CA 254 SCRA 260 HELD: Under Article 1733 of the Civil Code, the petitioner was bound to observe extraordinary diligence in ensuring the safety of the private respondent. That meant that the petitioner was, pursuant to Article 1755 of the said Code, bound to carry the private respondent safely as far as human care and foresight could provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. In this case, we are in full accord with the Court of Appeals that the petitioner failed to discharge this obligation. Before commencing the contracted voyage, the petitioner undertook some repairs on the cylinder head of one of the vessel's engines. But even before it could finish these repairs, it allowed the vessel to leave the port of origin on only one functioning engine, instead of two. Moreover, even the lone functioning engine was not in perfect condition as sometime after it had run its course, it conked out. This caused the vessel to stop and remain a drift at sea, thus in order to prevent the ship from capsizing, it had to drop anchor. Plainly, the vessel was unseaworthy even before the voyage began. For a



vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. RESPONSIBILITIES OF CAPTAIN Art. 701. The convenience or the interest of the passengers shall not obligate nor empower the captain to stand in-shore or enter places which may take the vessel out of her course, nor to remain in the ports he must or is under the necessity of touching for a period longer than that required by the needs of navigation. Art. 702. In the absence of an agreement to the contrary, the subsistence of the passengers during the voyage shall be deemed included in the price of the passage; but should it be for their account, the captain shall be under the obligation, in case of necessity, to supply the food necessary for their sustenance at a reasonable price. Art. 705. In case of the death of a passenger during the voyage the captain shall be authorized, with respect to the body, to take the steps required by the circumstances, and shall carefully take care of the papers and goods of said passenger which may be on board, complying with the provisions of case No. 10 of Article 612 with regard to members of the crew. Art. 612. Supra. Art. 1754. (NCC) The provisions of Arts. 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody or in that of his employee. As to the other baggage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable. CARRIAGE OF GOODS BY SEA ACT Section 1. When used in this Act � (a) The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper. (b) The term "contract of carriage" applies only to contracts of carriage

covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same. (c) The term "goods" includes goods, wares, merchandise, and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried. (d) The term "ship" means any vessel used for the carriage of goods by sea. (e) The term "carriage of goods" covers the period from the time when the goods are loaded on to the time when they are discharged from the ship.

RISKS

Section 2. Subject to the provisions of section 6, under every contract of carriage of goods by sea, the carrier in relation to the loading handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities hereinafter set forth.

RESPONSIBILITIES AND LIABILITIES

Section 3. (1) The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to � (a) Make the ship seaworthy; (b) Properly man, equip, and supply the ship; (c) Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception carriage and preservation. (2) The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. (3) After receiving the goods into his charge the carrier, or the master or agent of the carrier, shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things � (a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon



the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage. (b) Either the number of packages or pieces, or the quantity or weight, as the case may be, as furnished in writing by the shipper. (c) The apparent order and condition of the goods: Provided, That no carrier, master, or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has had no reasonable means of checking. (4) Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs (3) (a), (b), and (c) of this section: Provided, That nothing in this Act shall be construed as repealing or limiting the application of any part of the Act, as amended, entitled "An Act relating to bills of lading in interstate and foreign commerce," approved August 29, 1916 (U. S. C. title 49, secs. 81-124), commonly known as the "Pomerene Bills of Lading Act." (5) The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity, and weight, as furnished by him; and the shipper shall indemnify the carrier against all loss damages, and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage or to any person other than the shipper. (6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the

time of their receipt been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. (7) After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier to the shipper shall, if the shipper so demands, be a "shipped" bill of lading Provided, That if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same as against the issue of the "shipped" bill of lading, but at the option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with name or name the names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so noted the same shall for the purpose of this section be deemed to constitute a "shipped" bill of lading. (8) Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall be deemed to be a clause relieving the carrier from liability.

RIGHTS AND IMMUNITIES

Section 4. (1) Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to



secure that the ship is properly manned, equipped, and supplied, and to make to the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried fit and safe for their reception, carriage, and preservation in accordance with the provisions of paragraph (1) of section 3. Whenever loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence shall be on the carrier or other persons claiming exemption under the section. (2) Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from � (a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship; (b) Fire, unless caused by the actual fault or privity of the carrier; (c) Perils, dangers, and accidents of the sea or other navigable waters; (d) Act of God; (e) Act of war, (f) Act of public enemies; (g) Arrest or restraint of princes, rulers, or people, or seizure under legal process; (h) Quarantine restrictions; (i) Act or omission of the shipper or owner of the goods, his agent or representative; (j) Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or general; Provided, That nothing herein contained shall be construed to relieve a carrier from responsibility for the carrier's own acts; (k) Riots and civil commotions (l) Saving or attempting to save life or property at sea; (m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods; (n) Insufficiency of packing; (o) Insufficiency of inadequacy of marks; (p) Latent defects not discoverable by due diligence; and (q) Any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

(3) The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising from any cause without the act, fault, or neglect of the shipper, his agents, or servants. (4) Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of this Act or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom: Provided, however, That if the deviation is for the purpose of loading cargo or unloading cargo or passengers it shall, prima facie, be regarded as unreasonable. (5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $600 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier. By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained. Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the transportation of the goods if the nature or value thereof has been knowingly and fraudulently misstated by the shipper in the bill of lading. (6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof the carrier, master or agent of the carrier, has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place or destroyed or rendered innocuous by the carrier without compensation, and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be



landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any.

SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF RESPONSIBILITIES AND LIABILITIES

Section 5. A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and liabilities under this Act, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper. The provisions of this Act shall not be applicable to charter parties; but if bills of lading are issued in the case of a ship under charter party, they shall comply with the terms of this Act. Nothing in this Act shall be held to prevent the insertion in a bill of lading of any lawful provision regarding general average.

SPECIAL CONDITIONS

Section 6. Notwithstanding the provisions of the preceding sections, a carrier, master or agent of the carrier, and a shipper shall, in regard to any particular goods be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier for such goods, and as to the rights and immunities of the carrier in respect of such goods, or his obligation as to seaworthiness (so far as the stipulation regarding seaworthiness is not contrary to public policy), or the care or diligence of his servants or agents in regard to the loading, handling stowage, carriage, custody, care, and discharge of the goods carried by sea: Provided, That in this case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt which shall be a non-negotiable document and shall be marked as such. Any agreement so entered into shall have full legal effect: Provided, That this section shall not apply to ordinary commercial shipments made in the ordinary course of trade but only to other shipments where the character or condition of the property to be carried or the circumstances, terms, and conditions under which the carriage is to be performed are such as reasonably to justify a special agreement.

Section 7. Nothing contained in this Act shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation, or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by sea. Section 8. The provisions of this Act shall not affect the rights and obligations of the carrier under the provisions of the Shipping Act, 1916, or under the provisions of section 4281 to 4289, inclusive, of the Revised Statutes of the United States, or of any amendments thereto; or under the provisions of any other enactment for the time being in force relating to the limitation of the liability of the owners of seagoing vessels.

TITLE II

Section 9. Nothing contained in this Act shall be construed as permitting a common carrier by water to discriminate between competing shippers similarly place in time and circumstances, either (a) with respect to the right to demand and receive bills of lading subject to the provisions of this Act; or (b) when issuing such bills of lading, either in the surrender of any of the carrier's rights and immunities or in the increase of any of the carrier's responsibilities and liabilities pursuant to section 6, title I, of this Act or (c) in any other way prohibited by the Shipping Act, 1916, s amended. Section 10. Section 25 of the Interstate Commerce Act is hereby amended by adding the following proviso at the end of paragraph 4 thereof: "Provided, however, That insofar as any bill of lading authorized hereunder relates to the carriage of goods by sea, such bill of lading shall be subject to the provisions of the Carriage of Goods by Sea Act." Section 11. Where under the customs of any trade the weight of any bulk cargo inserted in the bill of lading is a weight ascertained or accepted by a third party other than the carrier or the shipper, and the fact that the weight is so ascertained or accepted is stated in the bill of lading, then, notwithstanding any thing in this Act, the bill of lading shall not be deemed to be prima facie evidence against the carrier of the receipt of goods of the weight so inserted in the bill of lading, and the accuracy thereof at the time of shipment shall not be deemed to have been guaranteed by the shipper.



Section 12. Nothing in this Act shall be construed as superseding any part of the Act entitled "An act relating to navigation of vessels, bills of lading, and to certain obligations, duties, and rights in connection with the carriage of property," approved February 13,1893, or of any other law which would be applicable in the absence of this Act, insofar as they relate to the duties, responsibilities, and liabilities of the ship or carrier prior to the time when the goods are loaded on or after the time they are discharged from the ship. Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from ports of the United States in foreign trade. As used in this Act the term "United States" includes its districts, territories, and possessions: Provided, however, That the Philippine legislature may by law exclude its application to transportation to or from ports of the Philippine Islands. The term "foreign trade" means the transportation of goods between the ports of the United States and ports of foreign countries. Nothing in this Act shall be held to apply to contracts for carriage of goods by sea between any port of the United States or its possessions, and any other port of the United States or its possession: Provided, however, That any bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea between such ports, containing an express statement that it shall be subject to the provisions of this Act, shall be subjected hereto as fully as if subject hereto as fully as if subject hereto by the express provisions of this Act: Provided, further, That every bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea from ports of the United States, in foreign trade, shall contain a statement that it shall have effect subject to the provisions of this Act. Section 14. Upon the certification of the Secretary of Commerce that the foreign commerce of the United States in its competition with that of foreign nations is prejudiced the provisions, or any of them, of Title I of this Act, or by the laws of any foreign country or countries relating to the carriage of goods by sea, the President of the United States, may, from time to time, by proclamation, suspend any or all provisions of Title I of this Act for such periods of time or indefinitely as may be designated in the proclamation. The President may at any time rescind such suspension of Title I hereof, and any provisions thereof which may have been suspended shall thereby be reinstated and again apply to contracts thereafter made for the carriage of goods by sea. Any proclamation of suspension or rescission of any such

suspension shall take effect on a date named therein, which date shall be not less than ten days from the issue of the proclamation. Any contract for the carriage of goods by sea, subject to the provisions of this Act, effective during any period when title I hereof, or any part thereof, is suspended, shall be subject to all provisions of law now or hereafter applicable to that part of Title I which may have thus been suspended. Section 15. This Act shall take effect ninety days after the date of its approval; but nothing in this Act shall apply during a period not to exceed one year following its approval to any contract for the carriage of goods by sea, made before the date on which this Act is approved, nor to any bill of lading or similar document of title issued, whether before or after such date of approval in pursuance of any such contract as aforesaid. Section 16. This Act may be cited as the "Carriage of Goods by Sea Act."

INTERNATIONAL AIR TRANSPORT

INTERNATIONAL CARRIAGE, DEFINITION. • The expression "international carriage" means any carriage in which,

according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the carriage or a transhipment, are situated either within the territories of two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or authority of another Power, even though that Power is not a party to this Convention. A carriage without such an agreed stopping place between territories subject to the sovereignty, suzerainty, mandate or authority of the same High Contracting Party is not deemed to be international for the purposes of this Convention.

• A carriage to be performed by several successive air carriers is deemed, for the purposes of this Convention, to be one undivided carriage, if it has been regarded by the parties as a single operation, whether it had been agreed upon under the form of a single contract or of a series of contracts, and it does not lose its international character merely because one contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty,



suzerainty, mandate or authority of the same High Contracting Party.

CONSTITUTIONALITY 104 SANTOS V. NORTHWEST 210 SCRA 256 HELD: Art. 28 (1) of Warsaw Con. is constitutional. Although the case can be decided on other grounds without resolving the constitutional question, the Warsaw Convention is a treaty commitment voluntarily assumed by the Philippine Government and as such, has the force and effect of law. The presumption is that this joint legislative-executive act was first carefully studied and determined to be constitutional before it was adopted. Petitioner's allegation have not overcome this presumption. Moreover, the treaty since 1950 has not been rejected by the Philippine Government.

WHEN APPLICABLE

Article 1

1. This Convention applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking. ***

LIABILITIES UNDER THE CONVENTION

Article 17

The carrier is liable for damage sustained in the event of the death or wounding of a passenger or any other bodily injury suffered by a passenger, if the accident which caused the damage so sustained took place on board the aircraft or in the course of any of the operations of embarking or disembarking.

Article 18

1. The carrier is liable for damage sustained in the event of the destruction or loss of, or of damage to, any registered luggage or any goods, if the occurrence which caused the damage so sustained took place during the carriage by air. 2. The carriage by air within the meaning of the preceding paragraph comprises the period during which the luggage or goods are in charge of the carrier, whether in an aerodrome or on board an aircraft, or, in the case of a landing outside an aerodrome, in any place whatsoever.

3. The period of the carriage by air does not extend to any carriage by land, by sea or by river performed outside an aerodrome. If, however, such a carriage takes place in the performance of a contract for carriage by air, for the purpose of loading, delivery or transshipment, any damage is presumed, subject to proof to the contrary, to have been the result of an event which took place during the carriage by air.

Article 19

The carrier is liable for damage occasioned by delay in the carriage by air of passengers, luggage or goods. 105 NORTHWEST V. CUENCA 14 SCRA 1063 HELD: The said articles merely declare the carrier liable for damages in the enumerated cases, if the conditions therein specified are present. Neither the provisions of said articles nor others regulate or exclude liability for other breaches of contract by the carrier. Under petitioner's theory, an air carrier would be exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd. 106 ALITALIA V. IAC 192 SCRA 10 HELD: The WC does not operate as an absolute limit of the extent of an airline's liability. It does not regulate or exclude liability for other breaches of contract



by the carrier. Under the WC, an air carrier is made liable for damages for delay in the transportation by air of passengers, luggage or goods. The WC also limits the liability of the carrier to 250 francs per kilo of the total weight of the package. The WC denies to the carrier availment of the provisions which exclude or limit his liability, if the damage is caused by his willful misconduct or by such default on his part as, in accordance with the law of the court seized of the case, is considered as willful misconduct, or if the damage is caused by any agent of the carrier acting w/in the scope of his employment. The WC does not regulate or exclude liability for other breaches of contract by the carrier or misconduct of its officers and employees or for some particular or exceptional damage. The WC has been held inapplicable where there was proof of malice or bad faith attributable to its officers and employees. Here, however, there was no bad faith on the part of the employees. Nominal damages however, was awarded because of the presence of some special species of injury caused to Dr. Pablo.

LIMITATIONS ON LIABILITY

Article 22 1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 125,000 francs. Where, in accordance with the law of the Court seised of the case, damages may be awarded in the form of periodical payments, the equivalent capital value of the said payments shall not exceed 125,000 francs. Nevertheless, by special contract, the carrier and the passenger may agree to a higher limit of liability. 2. In the carriage of registered luggage and of goods, the liability of the carrier is limited to a sum of 250 francs per kilogram, unless the consignor has made, at the time when the package was handed over to the carrier, a special declaration of the value at delivery and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that that sum is

greater than the actual value to the consignor at delivery. 3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5,000 francs per passenger. 4. The sums mentioned above shall be deemed to refer to the French franc consisting of 65 « milligrams gold of millesimal fineness 900. These sums may be converted into any national currency in round figures. 107 PAN AM V. IAC 164 SCRA 268 HELD: 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. Inasmuch as Pangan failed to declare any higher value for his luggage & to pay add'l charges, PanAm's liability is limited to $600, as stipulated at the back of the ticket.

WHEN LIMITATIONS UNAVAILABLE

Article 3. 1. For the carriage of passengers the carrier must deliver a passenger ticket which shall contain the following particulars:- (a) the place and date of issue; (b) the place of departure and of destination; (c) the agreed stopping places, provided that the carrier may reserve the right to alter the stopping places in case of necessity, and that if he exercises that right, the alteration shall not have the effect of depriving the carriage of its international character; (d) the name and address of the carrier or carriers; (e) a statement that the carriage is subject to the rules relating to liability established by this Convention. 2. The absence, irregularity or loss of the passenger ticket does not affect the existence or the validity of the contract of carriage, which shall none the less be subject to the rules of this Convention. Nevertheless, if the carrier accepts a passenger without a passenger ticket having been delivered he



shall not be entitled to avail himself of those provisions of this Convention which exclude or limit his liability. Article 25. 1. The carrier shall not be entitled to avail himself of the provisions of this Convention which exclude or limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the Court seised of the case, is considered to be equivalent to wilful misconduct. 2. Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused as aforesaid by any agent of the carrier acting within the scope of his employment. 108 TWA V. CA 165 SCRA 143 HELD: There was obvious discrimination & humiliation to w/c Vinluan was subjected. Such inattention and lack of care for interest of its passengers amount to bad faith w/c entitles passenger to moral damages.

CONDITIONS ON IMPOSITION OF LIABILITY

Article 26. 1. Receipt by the person entitled to delivery of luggage or goods without complaint is prima facie evidence that the same have been delivered in good condition and in accordance with the document of carriage. 2. In the case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within three days from the date of receipt in the case of luggage and seven days from the date of receipt in the case of goods. In the case of delay the complaint must be made at the latest within fourteen days from the date on which the luggage or goods have been placed at his disposal. 3. Every complaint must be made in writing upon the document of carriage

or by separate notice in writing despatched within the times aforesaid. 4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part. Article 28. 1. An action for damages must be brought, at the option of the plaintiff, in the territory of one of the High Contracting Parties, either before the Court having jurisdiction where the carrier is ordinarily resident, or has his principal place of business, or has an establishment by which the contract has been made or before the Court having jurisdiction at the place of destination. 2. Questions of procedure shall be governed by the law of the Court seised of the case. Article 29. 1. The right to damages shall be extinguished if an action is not brought within two years, reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which the carriage stopped. 2. The method of calculating the period of limitation shall be determined by the law of the Court seised of the case. 109 SANTOS V. NORTHWEST Supra HELD: Art. 28 (1) provides that an action for damage must be brought at the option of the plaintiff: (a) before the court of the domicile of the carrier; (b) the court of its principal place of business; (c) the court where it has a place of business thru w/c the contract had been made; (d) the court of the place of destination. In this case, the ff. were not followed, and hence the Philippines, not being



one of the courts mentioned in Art.28 (1), does not have jurisdiction over the case. (1) court of domicile is Minnesota, U.S.A; (2) principal place of business of carrier is also U.S.A; (3) place of business where contract was made was in San Francisco; (4) place of destination is also San Francisco, Santos having purchased a round trip-ticket from SFO-TYO-MNL, then back to TYO- SFO. The "ultimate destination" being San Francisco. 110 LUNA V. CA 216 SCRA 107 HELD: Previously, We ruled that the Warsaw Convention was a treaty commitment voluntarily assumed by the Philippine government; consequently, it has the force and effect of law in this country. But, in the same token, We are also aware of jurisprudence that the Warsaw Convention does not operate as an exclusive enumeration of the instances for declaring an airline liable for breach of contract of carriage or as an absolute limit of the extent of that liability. The Convention merely declares the carrier liable for damages in the enumerated cases, if the conditions therein specified are present. For sure, it does not regulate the liability, much less exempt, the carrier for violating the rights of others which must simply be respected in accordance with their contracts of carriage. The application of the Convention must not therefore be construed to preclude the operation of the Civil Code and other pertinent laws. In fact, in Alitalia v. IAC, We awarded Dr. Felipa Pablo nominal damages, the provisions of the Convention notwithstanding. Hence, petitioners' alleged failure to file a claim with the common carrier as mandated by the provisions of the Warsaw Convention should not be a ground for the summary dismissal of their complaints since private respondent may still be held liable for breach of other relevant laws which may provide a different period or procedure for filing a claim. Considering that petitioners indeed filed a claim which private respondent admitted having received on 21 June, 1989, their demand may have very well been filed within the period prescribed by those applicable laws. Consequently, respondent trial courts, as well as respondent appellate court, were in error when they limited themselves to the provisions of the Warsaw Convention and disregarding completely the provisions of the Civil Code.

transportation angel notes

Documents

general public

public utility franchise

public utility enterprise

privatelyowned public

public ownership utilities

ownership of public

filipino citizens

paidup capital