transpo law reviewer 3d tesoro

ATENEO LAW SCHOOL TRANSPORTATION LAW3-D [ATTY. TESORO]L.T.J.F. 2nd Semester S.Y. 2013-2014

TRANSPORTATION AND PUBLIC UTILITIES LAW REVIEWER

PART 1: TRANSPORTATION LAW

I. GENERAL CONCEPTS

Common Carriers

Common carriers are: Persons, corporations, associations, firms Engaged in the business of carrying or

transporting passengers or goods or both For compensation Offering their services to the public

Characteristics An entity is a common carrier under the

Civil Code even if it did not secure a Certificate of Public Convenience

An entity is a common carrier whether the business of carrying persons or goods is a principal or ancillary activity

Although the clientele is limited, the regularity of the activities of the carrier may indicate that the same is a common carrier

The means of transportation need not be limited to motorized vehicles. Pipeline operators are common carriers – petroleum products are transported through pipelines

Common and Private CarrierCommon Carrier Private Carrier

Undertaking is part of a general business

Undertaking is a single transaction

Bound to exercise extraordinary diligence

Bound to exercise ordinary diligence

Cannot be exempt from liability for the negligence of its agents or employees

May validly enter into a stipulation exempting itself for the negligence of its agents or employees

Duties and Obligations

Exercise extraordinary diligence in the vigilance over the goods and for the safety of the passengers

Exercise of diligence does not only apply to the safety of the passengers but also extends to the maintenance of the vehicle and equipment

In strictly complying with the itinerary or schedule indicated in the contract

Passengers

Types1. Passenger – one who travels in a public

conveyance by virtue of a contract2. Passenger-for-hire – a person riding on a

driver's pass or a similar arrangement to look after livestock being transported, with the consent of the carrier

3. Accommodation passengers – persons who paid nothing for the service of the carrier; considered as invited guests

Characteristics of a Passenger One who has put himself in the charge of

the carrier and has been received by such carrier.

Must have the bona fide intention to use the facilities of the carrier AND present himself to the carrier for transportation in the place and manner provided

Awaiting transportation on the carrier's premises (eg: station, waiting room, etc) – ordinarily viewed as assuming the status of a passenger

Trespassers One who rides upon any part of the

vehicle which is unsuitable or which he knows is not intended for passengers

One who secures free passage by fraud or stealth

Strangers who are unlawfully on the premises of the carrier

Not entitled to the rights of a passenger and is precluded from recovery for any injury sustained through the negligence

Sources:Aquino,Timoteo B. and Ramon L. Hernando, Essentials of Transportation and Public Utilities Law (2011 ed.).Ateneo Law School Bar Ops 2013, Transportation Law Reviewer.San Beda College of Law, Transportation Law Reviewer. of 57


of the carrier.

Contract of Carriage

PerfectionContract to Carry Contract of Carriage

Agreement to carry the passenger or goods at some future date

Assumption of obligation upon the actual use of its facilities by the passenger or when the goods are unconditionally placed in the control and possession of the carrier

Consensual Real (delivery is required)

Contract to Carry Consensual in nature Mere meeting of the minds with respect

to the subject matter and consideration perfects the contract

Issuance of the tickets or payment of the fare is of no matter in the perfection of the contract since it is consensual

Contract of Carriage Aircraft – When the passenger had

checked in at the departure counter, passed through customs and immigration and proceeded to the ramp of the aircraft

Buses and Street Cars – When the passenger is already attempting to board the conveyances

Trains – When the passenger has purchased a ticket and has presented himself at the proper place and in a proper manner for transportation

Parties Involved Contract of Carriage of Persons

◦ Passenger◦ Carrier

Contract of Carriage of Goods◦ Shipper◦ Carrier ◦ Consignee

Tesoro Sez (His Personal Opinion):There is only 1 contract concerned when a passenger deals with a common carrier. He disagrees with the Supreme Court Rulings that there are 2 separate contracts involved – contract to carry (consensual) and contract of carriage (real). There is only 1 contract of carriage which commences at the negotiation and perfected by mere consent. The carrier's obligation (to safely carry the passengers, etc) commences at the consummation stage of the contract – not during the perfection stage of the contract of carriage (real contract – there is delivery) as determined by jurisprudence.

NOTE: Atty. Tesoro does not make any distinction between a contract to carry and a contract of carriage, precisely because he disagrees with the idea that there are 2 contracts involved. He uses the term “contract of carriage” to describe the single consensual contract between the passenger and the common carrier.

Case Doctrines

Nueca v MRR – Mere purchase of a ticket does not itself create the relation of carrier and passenger – but it is an element in the inception of the relation. The person, to be a passenger, must have a bona fide intention to use the facilities of the carrier and present himself to the carrier for transportation in the place and manner provided.

Lara v Valencia – Accommodation passengers (carrier did not charge any fee for the service) are invited guests of the owner/driver of the carrier. Thus the carrier is only required to observe ordinary care and is not duty bound to observe extraordinary diligence of a common carrier.

Heirs of Canas v Dabatos – Even if the passengers did not pay any money as fare, there can be other forms of valuable considerations in exchange for the



transportation fare. Patronizing the business of the carrier is a prestation or service rendered by the shipper of the goods to the carrier and it is a valid and legal consideration, in return for which the shipper is permitted to go along in the boat.

Tamayo v Pascua – The act of allowing and enabling a person to board the bus by slowing down is a manifestation of its offer to take the person as a passenger. The concurrence of the offer and the acceptance of the person by boarding the bus already perfects the contract of carriage.

Dangwa Co v CA – A public utility bus, once it stops, is in effect making a continuous offer to bus riders. It becomes the duty of the driver and conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a passenger while he was attempting to board the same. A person, by stepping and standing on the platform of the bus is already considered as a passenger and it entitled to all the rights and protection pertaining to the contractual relation.

Guerrero v Madrigal Shipping – A passenger ticket is in itself a complete written contract by and between the shipper and passenger. It has all the elements of a contract:

1. Consent – passenger boards the ship and the carrier accepts him

2. Consideration – fare paid by passenger3. Object – the transportation of the

passenger from one place to another

PAL v CA – The duty to exercise the utmost diligence on the part of common carriers is for the safety of passengers as well as for the members of the crew or complement operating the carrier.

Vasquez v CA – A typhoon is normally considered as a fortuitous event, which is a defense of the common carrier from any liability. However, there must be an entire

exclusion of human agency from the cause of injury or loss. If the crew of the carrier still set sail despite the knowledge of the typhoon and they ignored the typhoon advisory, they took a calculated risk, thus the defense of fortuitous event cannot be raised.

Benito v PANAM – A stipulation in the ticket granting the common carrier the power to “substitute alternate aircraft and change schedules without notice to the passenger” is void since it goes against public policy. To give full force to the stipulation would amount to permitting the carrier to unilaterally modify its contract with its passengers.

Vda de Abelo v PAL – In an action based on a contract of carriage, the court need not make an express finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages. By the contract of carriage, the carrier assumes the express obligation to transport the passenger to his destination safely and observe extraordinary diligence.

Bacarro v Castano – Even if the direct cause of the accident was another vehicle which sideswiped the carrier, it can be said that there was still contributory negligence on the part of the carrier since it maintained a fast speed while trying to overtake the other vehicle.

Gatchalian v Delim – Because what is involved is the liability of a common carrier for injuries sustained by passengers in respect of whose safety a common carrier must exercise extraordinary diligence, any purported waiver of any claims for damages against the common carrier must be construed strictly against the common carrier.

Necessito v Paras – The carrier, while not insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment (parts of the vehicle, engine maintenance, etc) if such flaws are at all



discoverable. Thus, any equipment failure due to poor maintenance of the carrier, cannot be considered as a fortuitous event. The good reputation of the manufacturer of the equipment or part is not a defense.

Quisumbing, Sr. v CA – Robbery on board or the hijacking of the aircraft may be considered as a fortuitous event provided it is proved that the common carrier has faithfully complied with the requirements of government agencies and adhered to the established procedures of the industry in providing security for its passengers.

Yobido v CA – A tire explosion cannot be considered as a fortuitous event if there are human factors involved in the situation. The fact that the tire was new did not imply that it was free from manufacturing defects. An accident caused either by defects in the automobile or through the negligence of its driver is not a fortuitous event that would exempt the carrier from liability for damages.

Gacal v PAL – The failure of the common carrier to detect the aircraft hijackers may be considered as a fortuitous event when it was impossible for the carrier to perform its obligation in a normal manner. In the case at bar the event happened during martial law when the military took control of airport security, including the frisking of passengers and the inspection of luggage.

II. DUTIES AND OBLIGATIONS

Controlling LawsLaw/ Convention Scope and Application

Civil Code Primary law governing all forms of contracts of carriage, whether goods or passengers

Code of Commerce (Arts. 349-379)

Suppletory law governing overland or river transport of goods (domestic shipping)

Code of Commerce: Maritime Commerce

Suppletory law governing domestic maritime trade and

transportation (domestic sea)

Carriage of Goods by Sea Act (COGSA)

Suppletory law governing foreign maritime (high seas) trade and transportation

Warsaw Convention Applies to all international carriage of persons, baggage or cargo by aircraft

Common Duties of Carriers1. Safety of passengers2. Vigilance over the cargo3. Maintenance of the vehicle4. Compliance with the terms of the contact

(not deviating from the prescribed route, no delay in the transportation, etc.)

Safety of Personnel Includes the passengers, crew of the

carrier and the “cargadores” (as staff of the shipper)

In case of death or injuries of the passengers, common carriers are presumed to have been at fault.

Carrier's responsibility over the safety of its passengers begins from the time the passenger presents itself at the place of the carrier for transportation (airport, bus station, etc). This responsibility continues up to the time the passenger disembarks AND had a reasonable time to leave the carrier's premises.

But the passenger also has the duty to observe due diligence to avoid injuries to himself. Contributory negligence of the passenger may mitigate the liability of the carrier.

Damages and injuries to passengers caused by third persons may exempt carrier from liability provided it can be proved that the carrier was in no position to prevent or avoid the acts of such third persons. (Gacal v PAL)

Vigilance Over Cargo

General Rule: Common carriers are responsible for the loss, destruction or



deterioration of the goods.

Exceptions: If the loss or destruction is due to:1. Flood, storm, earthquake, lightning or

other natural disasters or calamities2. Act of public enemy in war3. Act or omission of shipper or owner of

goods4. Character of the goods and defects in the

packaging (but carrier must still exercise due diligence to lessen or forestall loss)

5. Act of competent public authority

The law of the country to which the goods are to be transported shall govern the liability of the carrier for their loss, destruction or deterioration.

Even if the loss, destruction or deterioration of the goods is due to the nature of the goods or the faulty nature of the packaging, the carrier must still exercise due diligence to lessen the loss.

The carrier's duty to observe due diligence continues to be in force even:◦ During the time the goods are stored

in a warehouse of the carrier.◦ When the goods are temporarily

unloaded or stored in transit unless the shipper has made use of the right of stoppage in transitu.

Maintenance of Vehicle/Conveyance The effort exerted by the carrier in the

maintenance of its vehicles must be proportionate (or greater than) the wear and tear experienced by the vehicle.

Any equipment failure due to poor maintenance of the carrier cannot be considered as a fortuitous event.

The good reputation of the manufacturer of the equipment or part is not a defense. (Necessito v Paras)

Diversions and Delays If the common carrier negligently incurs

delay in the transportation of goods, a natural disaster shall NOT free the

carrier from responsibility. Stipulations limiting the carrier's liability

cannot be availed of in case the carrier delays the transportation without just cause.

If there is an agreement as to the road or route over which the conveyance is to be made, the carrier may NOT change the route unless by reason of force majeure.

Transshipment is “the transfer of goods from the vessel stipulated in the contract to another vessel before the place of destination named in the contract has been reached”

Transshipment of freight without legal excuse, however competent and safe the vessel into which the transfer is made, is a violation of the contract and subjects the carrier to liability.

Case Doctrines

PAL v CA – Flight diversion due to a fortuitous event (inclement weather) did not terminate the air carrier’s contract with its passengers. The relation of the passenger and carrier continues until the former has been landed at the port of destination and has left the carrier’s premises.

PAL v CA (188 SCRA 461) – The carrier’s agents, by allowing to board, persons who were not among those with valid confirmations and who consequently had no right to be given preference in taking said flight, deliberately created a situation that would place petitioner in arrant violation of its contract with its passengers who were “bumped off” by reason thereof. The carrier may not be allowed to relieve itself from any difficult situation created by its own lack of diligence in the conduct of its affairs in a manner prejudicial to its passengers.

Sulpicio Lines v CA – The carrier is liable for the death of the “cargadores” of the shipper’s goods despite the fact that there is no passenger-carrier relationship between the “cargadores”



and the carrier. What is involved was a breach of the contract to carry goods between the carrier and the shipper and the safety of the “cargadores” is necessarily a part of such contract.

La Mallorca v CA – The relation of carrier-passenger does not cease at the moment the passenger alights from the carrier’s vehicle, but continues to until the passenger has had a reasonable opportunity to leave the carrier’s premises.

Aboitiz Shipping Corp. v CA – The passenger-carrier relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier’s conveyance or has a reasonable opportunity to leave the carrier’s premises. All persons who remain on the premises a reasonable time after leaving the conveyance (eg: persons remaining in the premises to claim their baggages) are to be deemed passengers.

Landingin v Pantranco – Part of the carrier's duty in ensuring the safety of its passengers is to maintain the vehicle or conveyance used. 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 (eg: if the bus always travels with a full load of passengers and cargo and the it traverses a mountainous route, naturally the vehicle is subjected to more wear and tear. The carrier must then prove that it took extra measures to counteract the increased stress on the vehicle. In other words, the amount of maintenance must be proportionate to, if not greater than, the wear and tear the vehicle is subjected to.)

Batangas Transportation Co. v Caguimbal – Bus drivers are under the obligation to stop at a safe location where their passengers may embark and disembark – not just anywhere they like and expect other drivers and vehicles to watch

out for them. They are under the obligation to avoid a situation which would be hazardous for their passengers and make their safety dependent upon the diligence of other drivers.

Isaac v A.L Ammen Transportation Co. - Where a carrier's employee is confronted with a sudden emergency, the fact that he is obliged to act quickly and without a chance for deliberation must be taken into account and the failure on his part to exercise the best judgment possible does not establish lack of care and skill on his part which renders the company, liable. Of course, this “emergency rule” only applies when the carrier's employee is not negligent in the first place.

Brinas v People – It was negligence on the conductor's part to announce the next flag stop when the said stop was a full 3 minutes away. The announcement, which caused the passengers to stand up and proceed to the nearest exit, was premature and erroneous. The carrier is thus liable for the injuries sustained by the passengers who stood up and were thrown off the train believing that their stop was up ahead.

Cangco v MRR – If the accident was caused by the negligence of the passenger, no liability is imposed on the carrier, where as if the accident was caused by the negligence of the latter, and the passenger's negligence contributed to his injury, then the damages should be apportioned. But in this case, it is not negligence per se for a passenger to alight from a slowly moving train. (The fact that the place is familiar to the passenger and it was his daily custom to get on and off the train at this station was taken into account by the Court to reach this conclusion).

PNR v CA – If the carrier failed to observe extraordinary diligence but at the same time the passenger is guilty of contributory negligence, the amount of damages the carrier is liable for may be reduced.



Bayasen v CA – Skidding means the partial or complete loss of control of the car under circumstances not necessarily implying negligence since it may occur without fault. If the proximate cause of the accident was the skidding of the rear wheels of the vehicle and not the unreasonable speed of the vehicle, then it is a valid defense being an unforeseen event.

Trans-Asia Shipping Lines v CA – The failure of the common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty.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, without right to recover for losses and damages if the interruption is due to fortuitous event or force majeure, but with a right to indemnity if the interruption should have been caused by the captain exclusively. (Art. 698, Code of Commerce)

III. WARSAW CONVENTION

Application All international carriage of persons,

baggage or cargo performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking.

Requisites for application:◦ Must be an international flight◦ The 2 countries (origin and

destination) must both be signatories When Not Applicable:

◦ When public policy is contradicted◦ If the requirements under the

Convention are not complied with.

International TransportationAny transportation in which the place of departure and the place of destination are situated either:

1. Within the territories of two High Contracting Parties regardless of whether or

not there be a break in the transportation or transshipment, or 2. Within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, mandate or authority of another power, even though that power is not a party to the Convention.

Transportation to be performed by several successive air carriers shall be deemed to be one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a single contract or of a series of contracts, and it shall 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. (Art. 1 Sec.3)

Documents Involved1. Passenger ticket2. Baggage check - for checked-in baggage3. Air way bill – cargo to be shipped by air

Liability of Carrier for Damages

1. Death or injury of a passenger if the accident causing it took place on board the aircraft or in the course of its operations of embarking or disembarking; (Art. 17)

2. Destruction, loss or damage to any baggage or goods, if it took place during the “transportation by air”; (Art. 18) and

3. Delay in the transportation of passengers, baggage or goods. (Art. 19)

Transportation by Air The period during which the baggage or

goods are in the charge of the carrier, whether in an airport or on board an aircraft, or, in case of a landing outside an airport, in any place whatsoever.

It includes any transportation by land or



water outside an airport if such takes place in the performance of a contract for transportation by air, for the purpose of loading, delivery, or transshipment.

NOTE: The Hague Protocol amended the Warsaw Convention by removing the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely. (Art. 20(1)). (Alitalia v IAC, 192 SCRA 9)

Limitation of Liability As amended by Guatemala Protocol General Rule is that the parties may

stipulate a higher limit of liability but NOT lower than what is stated in the convention.

An agreement relieving the carrier from liability or fixing a lower limit is null and void. (Art. 23)

Carrier is not entitled to the foregoing limit if the damage is caused by willful misconduct or default on its part. (Art. 25)

1. Passengers General Rule: $100,000 per passengerException: Agreement to a higher limit

2. Checked-in BaggageGeneral Rule: $20 per kilogramException: In case of special declaration of value and payment of a supplementary sum by consignor, carrier is liable to not more than the declared sum unless it proves the sum is greater than actual value.

3. Hand-carried baggageGeneral Rule: $1000/passenger

4. Goods to be shippedGeneral Rule: $20 per kilogramException: In case of special declaration of value and payment of a supplementary sum by consignor, carrier is liable to not more than the declared sum unless it proves the sum is

greater than actual value.

When Limitation is Not Applicable1. Willful misconduct2. Default amounting to willful misconduct3. Accepting passengers without a ticket4. Accepting goods without airway bill or

baggage without baggage check

Action for Damages

A. Notice of claimA written complaint must be made within:

a. 3 days from receipt of baggageb. 7 days from receipt of goodsc. In case of delay, 14 days from receipt of

baggage/goods

The complaint is a condition precedent. Without the complaint, the action is barred except in case of fraud on the part of the carrier. (Art. 26)

B. Prescriptive period Action must be filed within 2 years from:

date of arrival at the destination date of expected arrival date on which the transportation

stopped. (Art. 29)

Various Successive Carriers

A. Passengers General Rule: Action is filed only against the carrier in which the accident or delay occurred.

Exception: Agreement or contract whereby the first carrier assumed liability for the whole journey.

B. Carriage of baggage or goods 1. Passenger or consignor can file an action

against the first carrier and the carrier in which the damage occurred

2. Passenger or consignee can file an action against the last carrier and the carrier in which the damage occurred.



These carriers are jointly and severally liable for the baggage and cargo. (Art. 30)

Under a general pool partnership agreement, the ticket-issuing airline is the principal in a contract of carriage while the endorsee-airline is the agent. The obligation of the former remained and did not cease even when the breach occurred not on its own flight but on that of another airline which had undertaken to carry the passengers to one of their destinations. (China Airlines vs. Chiok)

JurisdictionAt the option of the plaintiff, the action for damages may be filed in the:

Court of domicile of the carrier; Court of its principal place of business; Court where it has a place of business

through which the contract has been made; or

Court of the place of destination. (Art. 28(1))

NOTE: It is the passenger’s “ultimate destination” not “an agreed stopping place” that determines the country where suit is to be filed.The forum of action provided in Art. 28(1) is a matter of jurisdiction rather than of venue. (Santos III vs. Northwest; 2A C.J.S.)

Case Doctrines

United Airlines v Uy – (Warsaw Convention) A cause of action arising from the damage of the luggage and the loss of its contents are within the bounds of the Warsaw Convention. But a cause of action arising from the humiliating treatment received from the airline employee is not included.

American Airlines vs. CA - A contract of international carriage by air, although performed by different carriers under a series of airline tickets constitutes a single operation. They act as agent of each other in the issuance

of tickets to contracted passengers to boost ticket sales worldwide and at the same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world.

Alitalia v CA – The Warsaw Convention does not operate as an exclusive enumeration of the instances of an absolute limit of the extent of liability. It does not preclude the application of the Civil Code and other pertinent local laws. It does not regulate or exclude liability for other breaches of contract by the carrier, or misconduct of its employees, or for some particular or exceptional type of damage.

PanAm v. IAC – The Warsaw Convention was applied as regards the limitation on the carrier’s liability, there being a simple loss of baggage without any improper conduct on the part of the officials or employees of the airline or other special injury sustained by the passenger.

KLM Royal v. Tuller – The Warsaw Convention has invariably been held inapplicable, or as not restrictive of the carrier’s liability, where there was satisfactory evidence of malice or bad faith attributable to its officers and employees.

IV. BILLS OF LADING

Contracts of Transportation A contract for transportation shall be

considered commercial:◦ When it involves merchandise or any

commercial goods◦ When the carrier is a merchant or is

customarily engaged in making transport for the public (Art. 349 Code of Commerce)

A bill of lading may be considered as a contract but it is not a necessary element for the perfection of a contract of carriage in general. In maritime commerce, it is expressly provided that the captain and the shipper are obliged to draft the bill of lading (Art. 706)



Shipper as well as the carrier may mutually demand of each other the issuance of a bill of lading.

In the absence of a bill of lading, disputes shall be determined by the legal proofs which the parties may present, according to the general provisions of the code of commerce. (Art. 354)

In maritime commerce, a bill of lading is required. In overland transportation, a bill of lading is NOT required.

Functions1. As a receipt2. As a contract3. As a document of title

As a Receipt It is an acknowledgment that the goods

have been received by the carrier After the contract has been complied

with, the bill is returned to the carrier and by virtue of the exchange of the bill for the article transported, the respective obligations shall be considered cancelled. (Art. 353 par. 2)

If the bill of lading cannot be returned by the consignee, he shall give the carrier a receipt for the goods delivered and this will have the same effects as the return of the bill of lading.

Under COGSA, the bill of lading is prima facie evidence of the receipt of goods by the carrier

As a Contract Stipulates the rights and obligations of

the parties When the consignee is a third-person,

there is a stipulation pour autrui (stipulation demanded by the shipper from the carrier in favor of consignee)

A kind of contract of adhesion – the only participation of the party is the signing of his signature. Contract is usually drafted by the carrier alone and unconditionally accepted by the shipper.

As a contract of adhesion, any ambiguities are strictly construed against the one who drafted it.

As evidence, the bill of lading must be properly pleaded and formally offered in evidence. Parol evidence rule applies.

As a Document of Title A bill of lading is also a symbol of the

goods covered by it. Bill of lading becomes a negotiable

instrument provided it contains the words of negotiability (Art.1507 Civil Code).

Negotiation of the document has the effect of manual delivery so as to constitute the transferee the owner of the goods.

Negotiation results in the same transfer of ownership because transfer of the document likewise transfers control over the goods.

Title of goods described in a bill of lading running to the consignee by name and not to his order, nor to bearer, cannot be transferred by means of a mere indorsement by the consignee. Had the bill of lading run to their order, then title would have passed by the indorsement of it, or had it payable to the bearer, then in that case, by mere delivery of it. In this case, the freight was deliverable to the consignees by name and their interest could be transferred only by document purporting to convey the property. (Dela Riva v Lizarraga Hermanos, 7 Phil 309)

Bill of Lading In International Shipping*

Parties Involved1. Shipper – the one sending the goods;

usually a seller 2. Consignee – the person entitled to

received the goods; usually a buyer3. Financial Intermediary – one facilitating

the financial transaction between the



buyer and the seller; usually a bank4. Carrier – the one shipping the goods

Steps1. Buyer and seller, who are located in

different countries, perfect a contract of sale.

2. Seller (as shipper) delivers the goods to the carrier.

3. Carrier issues a bill of lading to the seller.

4. Carrier proceeds to ship the goods.5. Seller gives bill of lading to the bank in

exchange for the price of the sale. (NOTE: at this point, the buyer has not paid yet. The bank is paying the seller out of its own account.)

6. Buyer (as consignee) goes to the bank's branch or agent in the place where the goods are to be delivered to pay the purchase price. In exchange, the bank gives him the bill of lading.

7. When the goods arrive, the buyer surrenders the bill of lading to the carrier. (NOTE: if Art. 353 of the Code of Commerce is to be incorporated, the consignee may give the carrier a receipt for the goods in case the bill of lading becomes lost or destroyed)

8. Upon such exchange, any obligations and actions shall be considered cancelled, unless the consignee files a claim. (either under Art. 366 of the Code of Commerce or under COGSA)

*Based on the usual practice in international shipment. Source: http://howtoexportimport.com

Kinds of Bills of Lading

1. On Board – which states that the goods have been received on board the vessel which is to carry the goods.

2. Received for Shipment – which states that the goods have been received for shipment with or without specifying the vessel by which the goods are to be

shipped.3. Through Bill of Lading – issued by a

carrier who is obliged to use the facilities of other carriers as well as his own for the purpose of transporting the goods from the city of the seller to the city of the buyer.

4. Spent Bill of Lading – where the goods are already delivered but the bill of lading is not returned.

5. Clean Bill of Lading – one which does NOT contain any notation indicating any defect in the goods.

6. Foul Bill of Lading - one which contains a notation indicating any defect in the goods.

7. Custody Bill of Lading – where the goods are already received by the carrier but the vessel indicated therein has not yet arrived in port. The goods are not yet placed on board the vessel.

8. Port Bill of Lading – where the vessel that will transport the goods is already in port.

Change of Bill of Lading The shipper may change the consignee

stated in the bill of lading provided:◦ Shipper does NOT change the place

where delivery is to be made.◦ Shipper returns the bill of lading

previously issued by the carrier. This results in the novation of the

contract. Expenses arising from the change of

consignee shall be defrayed by shipper.

Containerization A system where the shipper loads his

cargoes in a specially designed container, seals it and delivers it to the carrier for transportation. It is devised to facilitate the expeditious loading and unloading of cargoes. (US Lines v Commissioner of Customs)

The bill of lading contains the following phrases:


http://howtoexportimport.com/


◦ “s.t.c.” - “Said to Contain”◦ “Shipper's Load and Count”

These phrases indicate that the carrier does NOT participate in the counting of the merchandise, the loading thereof inside the container and the sealing of the container. The carrier merely relies on what the shipper states in the bill of lading or cargo manifest.

Under this arrangement, the carrier is not obliged to check and conduct an inventory of the goods – the shipper has the sole responsibility for the quantity, description and condition of the cargo.

What the carrier concerns itself with is NOT the condition of the cargo inside the container but the condition of the container itself (exterior condition).

Thus, a statement in the Bill of Lading that the shipment was in apparent good condition is sufficient to sustain a finding of absence of defects in the merchandise, but this will create a prima facie presumption only as to the external condition and not to that not open to inspection (PCIC v Unknown Owner of M/V National Honor, 463 SCRA 202)

Case Doctrines

Keng Hua Paper v CA – A bill of lading delivered and accepted constitutes the contract of carriage, even though not signed.

PC Ailmal Co v Macondray – Bill of lading is prima facie evidence of the receipt of the merchandise by the carrier.

Robles v Santos – The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations or as a condition imposed in the contract.

US Lines v Commissioner of Customs – Where the words “said to contain” appear, the carrier simply admits the information furnished by the shipper in the bill of lading. Having no

knowledge of the actual condition of the goods inside the container, the carrier cannot be held liable in case of any discrepancies between what is declared in the bill of lading and the actual contents of the containers.

Reyma Brokerage v Phil Home Assurance – Where the carrier makes an explicit acknowledgment of the declarations of the shipper in the bill of lading, it guarantees the correctness of the weight, value, quality, etc. of the goods. It is an express admission of the carrier that the goods were received as declared by the shipper, so in case of shortage or other discrepancies, the carrier makes itself liable. (this is an exception to the doctrine in US Lines)

V. RIGHTS AND OBLIGATIONS

Liabilities and Obligations of Carrier The liability of the carrier shall begin

from the moment he receives the merchandise in the place indicated for their reception (Art. 355)

Should no delivery period be fixed, the carrier is under the obligation to forward the goods in the first shipment of the same or similar class of merchandise. Any damages by reason of delay shall be suffered by the carrier. (Art. 358)

Carrier is obliged to follow the route stated in the contract, unless prevented by force majeure. (Art. 359)

General Rule: Damages suffered by the goods by reason of accident or force majeure shall be for the account of the shipper.

Exceptions:1. The contrary is expressly stipulated in

the contract.2. If the carrier was not able to prove the

accident or force majeure.3. If the accident occurred on account of

the negligence of the carrier. (NOTE: A combination of negligence AND force majeure does not exempt carrier from



liability)

Exception to the Exceptions: If the shipper committed fraud or misrepresentations in the bill of lading.

Rights of Carrier Right to refuse to accept packages which

appear unfit for transportation (Art. 356) Right to inspect the contents of the

package if only by reason of well-founded suspicion (Art. 357). He shall examine it:◦ Before witnesses, in the presence of

the shipper or consignee. -OR-◦ Before a notary.◦ If shipper's declaration is correct,

carrier bears cost of repackaging.◦ If carrier's declaration is correct,

shipper bears cost of repackaging. Right to be compensated for the cost of

taking another route by reason of force majeure. (Art. 359)

Claims by Consignee ( Arts. 366-367 ) Applicable only to cases of claims for

damage to goods received by consignee Filing of notice of claim is a condition

precedent to the accrual of a right of action for damages against the carrier.

Non-filing of notice bars recovery If damage is apparent – file claim

immediately If damage is not apparent – file claim

within 24 hours from receipt of goods◦ A longer period may be stipulated but

not a shorter one.◦ “Receipt of goods” may mean actual

or constructive delivery by the carrier (see Rosario Farmers v MRR)

Rule does not apply to:◦ Misdelivery cases◦ Claims for refund; not for damages.◦ When the cargo never arrived or was

never received by the consignee.◦ Breach of contract by the carrier.

Abandonment by Consignee Right of consignee to refuse to receive

the goods delivered to him. Instances when consignee may abandon

the goods delivered:1. Incomplete or partial delivery. (goods

delivered cannot be used without the others not yet delivered)

2. The goods are damaged and rendered useless.

3. Delay due to the fault of the carrier.

How Right is Exercised:1. Incomplete or Partial Delivery (Art. 363)

Consignee must prove that he cannot make use of the delivered goods without the others.

2. Damaged Goods (Art. 365) Consignee leaves the goods in the

hands of the carrier -AND- Demand payment at current market

prices.3. Delay in Delivery (Art. 371)

Inform the carrier in writing of the abandonment before the arrival of the goods at the point of destination.

Carrier shall satisfy the total value of the goods as if they have been lost.

NOTE: Among all the instances of abandonment, this is the only situation where a limitation on liability of the carrier is provided. See section VI. for explanation.

Remedy of Carrier ( Art. 369 ) In case consignee cannot be found or

refuses to pay or receive the goods:◦ Carrier may: deposit the goods in

court, hold the goods or return it to the shipper or sender.

◦ If the shipper cannot be found – deposit goods in court.

This deposit having all the effects of delivery.

Query: Does this provision contemplate a situation where the consignee unjustly refuses



to receive the goods and not where he exercises his right of abandonment?

Case Doctrines

Samar Mining v Nordeutscher – A carrier is liable for the loss of goods even after discharge from ship if such goods were deposited in the warehouse of the carrier, but NOT if the goods are stored in the warehouse of a third party.

RCL v Netherlands Insurance – Cargoes while being unloaded generally remain under the custody of the carrier.

Mariano v Admiral Line – Where a carrier fails to deliver the goods within a reasonable time, although he makes himself liable for damages, the consignee cannot refuse to accept the goods. In cases of delay, prior demand for delivery is necessary before the consignee may waive all title to the goods and sue for conversion (sue for the value of the goods).

Go Pun v Fieldman's Insurance – The liability of the common carrier and the insurer of the goods lost or damaged while in transit is solidary, not joint.

Eastern Shipping Lines v IAC – Fire may not be considered a natural disaster or calamity as it arises almost invariably from some act of man or by human means. It does not fall under the category of Acts of God unless caused by lightning or other natural disaster.

Lu Do v Binamira – While delivery of the cargo to the customs authorities is not the “delivery to the person who has the right to receive them” contemplated by the Civil Code, it is unfair that the carrier is held liable for any loss during this interregnum since the carrier loses its control of the goods to the government.

Rosario Farmers v MRR – The time prescribed in Art. 366 of the Code of Commerce begins to run from the moment the shipper or consignee has

possession of the cargo. But notice by the carrier that the cargo has already arrived amounts to a constructive delivery of the cargo, which automatically releases the carrier of the extraordinary responsibility for the cargo. The 24 hour period begins to run from the time of constructive delivery.

Cordoba v Warner – The 24 hour period runs from the moment the consignee has such possession that he may exercise the ordinary control of ownership. It cannot commence when the goods are still in the hands of the customs authorities since the consignee obviously cannot exercise any right of dominion over the goods while in the hands of the Government.

New Zealand Insurance v Choa Joy – Art. 366 does not apply when the cargo was never received by the consignee. The failure of the carrier to deliver the cargo to the consignee is a breach of its contract, thus it forfeited its right to invoke in its favor Art. 366.

Phil-Am Gen v Sweet Lines – Art. 366 applies to cases for recovery of damage on account of loss or damage to cargo, but NOT to an action for refund for overpayment.

Federal Express v American Home Assurance – The fundamental reason for requiring the giving of notice of loss or damage to the goods:

1. To inform the carrier that the cargo has been damaged and that it is being charged with liability therefor -AND-

2. To give the carrier an opportunity to examine the nature and extent of the injury to safeguard itself from false and fraudulent claims.

VI. LIMITATIONS OF LIABILITY

Sources of Limitations and Defenses Limitations under Civil Code

◦ General provisions for all forms of contracts of carriage.

◦ Mostly refers to the contractual



stipulations between the carrier and shipper or passenger.

Limitations under Code of Commerce◦ Refers to the defenses and limitations

that may be availed of by the carrier itself in the course of the shipment.

◦ Contemplates specific situations in the course of shipment, whether overland or river transportation.

Limitations under Maritime Commerce◦ Found under Title II Code of

Commerce◦ Applies to the affairs and business of

the sea, ships, their crew and to marine conveyance of persons and property.

◦ Mostly refers to the liabilities of the persons involved in maritime commerce: ship agent, shipowners, captain, etc.

Prescription◦ A period for a party to file his claim

and upon expiration thereof, the right to file the claim is barred forever.

◦ Various prescriptive periods provided by the different laws

Civil Code Civil Code still serves as the primary law

on contracts of carriage and the code of commerce applies suppletorily.

There is always the presumption that the carrier is at fault and it is his duty to rebut such presumption.

A. For the Carriage of GoodsGeneral Rule: Exercise extraordinary diligence over the care of the goods.

Exception: Stipulation limiting the liability to a degree less than extraordinary diligence is valid provided it is:

1. In writing, signed by shipper2. Supported by valuable consideration

other than the service of the carrier (example: higher premium)

3. Reasonable and just

Exception to the Exception: If the carrier, without just cause, delays the transportation, the stipulation of limited liability cannot be availed of in case of loss, deterioration or destruction of the goods. The delay must be coupled with the loss, deterioration or destruction of the goods. (Art. 1747 Civil Code)

Absolute Defenses – No Liability Flood, storm, earthquake, lightning or

other natural disasters or calamities Act of public enemy in war Act or omission of shipper or owner of

goods Character of the goods and defects in the

packaging (but carrier must still exercise due diligence to lessen or forestall loss)

Act of competent public authority

Mitigating Defenses – Limited Liability Contributory negligence of the shipper Delay due to strikes (if stipulated) Stipulation limiting liability to the value

of the goods stated in the bill of lading (unless shipper declares a higher value)

A fixed sum that may recovered, freely and fairly agreed upon.

B. For the Carriage of PassengersGeneral Rule: Exercise extraordinary diligence over the care of its passengers.

Exceptions: NO EXCEPTIONS. Carrier cannot lessen degree of diligence even if with consent of the parties or with valuable consideration

Absolute Defenses – No Liability Acts or negligence of other persons

provided the carrier was in no position to prevent the same

Mitigating Defenses – Limited Liability Stipulation limiting liability when a

passenger is carried gratuitously (but not for gross negligence)

Contributory negligence of passenger



Duty of passenger to observe due diligence to avoid injury to himself

No Limitation of Liability (Void) When there are fine prints on tickets

lessening the liability of the carrier Reduction of fare does not justify any

limitation of liability

Code of Commerce

In Case No Abandonment by Consignee The consignee accepts the delayed goods

and carrier has to pay damages Indemnity cannot exceed the current

price of the goods on the day and place where it was to be delivered (Art. 371)

Example: Goods were sent from point A where its price was $10. Goods arrived late to point B (destination) where the price depreciated to $8. Consignee may demand damages not exceeding $8.

Transportation Charges Not Paid The consignee has 24 hours from time of

delivery within which to pay the transportation charges (Art. 374)

In case of delay in making payment, the carrier may demand the judicial sale of the goods to answer for the transportation charges (Art. 374)

The goods transported are obligated to answer for the transportation charges and expenses caused by the same during their transportation and until their time of delivery (Art. 375)

The preference of the carrier for payment shall not be affected by the insolvency of the consignee.

The right of preference of the carrier and the lien on the goods shall prescribe after 30 days from time of delivery.

After the lapse of 30 days from the date of delivery, the cargo is released from any maritime lien for unpaid freight. (Ouano v Court of Appeals)

If the right prescribes, the carrier loses

his lien over the goods but he can still file an action as an ordinary creditor.

NOTE: The 8-day limitation in the Code of Commerce has been amended by Art. 2249 of the New Civil Code providing for a 30 day period

Maritime Commerce

Real and Hypothecary Nature The liabilities of the shipowners or ship

agents, arising from the operation of a ship, are confined to the value of the vessel, equipment and freight or insurance. (No vessel, no liability). This rule applies only to shipowners or ship agents and NOT to the carriers.

Purpose is to offset against the hazards of sea voyages and to encourage ship building in maritime commerce.

The vessel stands as guaranty for the settlement of the shipowner's obligations

Total destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach. (Monarch Insurance Co. v. CA)

Application1. Art. 587 – civil liability for indemnities to

third persons2. Art. 590 – indemnities from negligent

acts of the captain (not the shipowner or ship agent)

3. Art. 837 – collision4. Art. 643 – liability for wages of the

captain and the crew and for advances made by the ship agent if the vessel is lost by shipwreck or capture

Abandonment It is how the doctrine of limited liability

is exercised or enforced. Abandonment amounts to an offer to the

injured party of the value of the vessel. The creditor's acceptance of the abandonment is compulsory as he cannot refuse it. (Doctrine of Limited



Liability of Shipowners and Ship Agents, 96 SCRA 309)

It is an indispensable requirement before the shipowners or ship agent can enjoy the benefits of the limited liability rule.

NOTE: This is NOT the same as the right of abandonment exercised by the consignee – this is exercised by the ship owners and ship agents.

General Rule: Liability of the shipowner or ship agent is limited to that portion of the vessel which he has interest in and he is entitled to abandon.

Exceptions:1. There is no abandonment (acts of the

shipowner or ship agent are inconsistent with that of abandonment)

2. Injury or death of a passenger is due to the fault of the shipowner or the concurring negligence of the shipowner and the captain.

3. The vessel is insured – Insurer's claim against shipowner is not affected by the limited liability rule. The insurer as subrogee is entitled to the benefits of the limited liability rule.

4. Claims under workmen's compensation5. Voyage is NOT maritime (ex: by river)6. Liability for the repairs, equipment and

provisions of the vessel completed BEFORE its loss.

7. Unseaworthiness of the vessel.8. Any damages arising from the negligence

of the shipowner.

NOTE: If the damage or injury is solely the captain's fault, then the shipowner or ship agent may still exercise the right of abandonment to limit their liability.

How Abandonment is Exercised By ship agent or a sole shipowner – no

prescribed form of abandonment is required.

By a shipowner in cases of co-ownership

– abandonment of his share or interest in the vessel before a notary.

PrescriptionLaw or

ConventionPeriod to File

Notice or ProtestPeriod to File

Action in Court

Art 366 Code of Commerce

Non- apparent Damage - Within 24 hours after receipt

Apparent Damage - Immediately upon receipt

Written Contacts – 10 years

Verbal Contracts – 6 years

COGSA Non- apparent Damage - Within 3 days from delivery

Apparent Damage - Immediately upon receipt

Within 1 year from date of delivery or from date when the goods should have been delivered

Warsaw Convention

Damage to baggage – 3 days from receipt

Damage to goods – 7 days from receipt

Delay in delivery – 21 days from receipt

NOTE: Protest must be in writing

2 years from date of arrival of the aircraft

NOTE: For both the Code of Commerce and the Warsaw Convention, filing of notice is a condition precedent when filing an action in court. Failure to file a notice or protest bars the right to file court action.

Case Doctrines

Mirasol v Robert Dollar Co. - Where the limited liability clause is printed in fine letters at the back of the bill of lading, which the shipper did not sign, he cannot be bound by its terms.

Manila Railroad v Transatlantica – A carrier is



liable upon its contract of carriage for damages to the cargo by reason of the negligence of a contracting company in discharging the cargo from the ship's hold. The consignee cannot sue the contracting company for lack of privity in the contract (between the carrier and the contracting company). The consignee's remedy is to go after the carrier.

C.F. Sharp v Commissioner of Customs – Any vessel transporting unlawful cargo shall be subject to forfeiture. There is a presumption that the vessel is engaged in smuggling, thus the burden is shifted to the vessel's owner to prove that the cargo is lawful.

Commissioner of Customs v CTA – Forfeiture proceedings are proceedings in rem. The fact that the carrier had no actual knowledge that the vessel was carrying illegal goods does not render the vessel immune from forfeiture. This is because forfeiture proceedings is instituted against the vessel itself.

Shewaram v PAL – Where the limited liability clause of the carrier is printed at the back of the ticket in very fine print that it is hard to read, this would not warrant the presumption that the passenger was aware of those conditions and freely agreed to them.

Aboitiz Shipping v CA – The package/container contemplated should be related to the unit in which the shipper packed the goods, not a large metal object, functionally a part of the ship, in which the carrier caused them to be contained.

Aboitiz Shipping v CA – Real and Hypothecary nature of maritime law means that the liability of the carrier (assuming the carrier is also the shipowner) in connection with losses related to maritime contracts is confined to the vessel. Claimants or creditors are limited in their recovery to the remaining value of the accessible assets, in this case, the insurance proceeds and pending freightage of the voyage.

Dela Torre v CA – The only person who could avail of the limited liability rule is the shipowner. Charterers cannot invoke this as a defense.

Chua Yek Hong v IAC – For the exception to the limited liability rule to apply, the loss must be due to the fault of the shipowner or to the concurring negligence of the shipowner and the captain.

Heirs of Amparo v CA – The limited liability rule (Art. 587 Code of Commerce) speaks only of situations where the fault is committed solely by the captain. In cases where the shipowner is likewise to be blamed, Art 587 does not apply.

VII. PERSONS IN MARITIME COMMERCE

Parties Involved

Shipowner Maybe a sole owner, co-owners or a

juridical entity (corporation or partnership)

Person who is primarily liable for damages sustained in the operation of a vessel

Ship Agent A person entrusted with provisioning the

vessel or who represents her in the port in which she happens to be

While the captain is acting on behalf of the shipowner, the captain is NOT necessarily the ship agent

Ship agents may be akin to an officer representing a juridical entity (eg: Board of directors as agents of a corporation)

Ship Agent Civil Law Agent

Represents the vessel Represents the principal

Appointment must be recorded in the merchant's registry of the province

Appointment is consensual

Personally liable with the Personally liable only



ship owner for the lawful acts of the captain

when agent act in excess of his authority

Liabilities and Defenses Both ship agent and shipowner shall be

civilly liable for the acts of the captain:◦ in maintaining, repairing and

supplying the ship◦ for indemnities in favor of 3rd persons

in the care of the goods in the ship The shipowner is solidarily liable with the

ship agent (Wing Kee v Bark) In case of a co-owned ship, each co-

owner is civilly liable in the proportion of his interest in the common fund

General Rule: Shipowners and ship agents are liable for the acts of the captain

Exception: If the captain acts in excess of the powers conferred upon him

Exception to the Exception: If the obligations contracted by the captain were invested for the benefit of the vessel, the shipowners and ship agents are liable

Defenses In Case of Co-Ownership

Abandonment A co-owner may exempt himself from his

liability by abandonment of the part of the vessel belonging to him

But abandonment must be done before a notary

Proportion of Interest Co-owners of a vessel shall be liable in

the proportion of their interest in the common fund

This is not to say that the co-owner's liability is limited to what he invested but only proportionate to what he invested

Captains and Ship Masters Liable for the cargo from the time it is

delivered to him at the dock or alongside

the vessel UNTIL he delivers it on the discharging wharf at the port of unloading

Force majeure exempts captain from any liability

Other liabilities of the captain to the ship agent (and of the agent to 3rd persons):◦ Damages suffered by the vessel or

cargo by reason of negligence of the captain

◦ Thefts and robberies committed by the crew

◦ Losses, fines and confiscations imposed for the violation of the laws of customs, police, health and navigation

◦ Losses and damages caused by mutinies on board the vessel if he fails to make full use of his authority to avoid them

◦ Undue use of powers◦ Deviating from the shipping route

without sufficient cause◦ Non-observance of the regulations to

prevent collisions

General Rule: Captain is not personally liable for the obligations he may have contracted which shall devolve upon the ship agent

Exception: When the captain has expressly bound himself personally or has signed a bill of exchange or promissory note in his name

Case Doctrines

Madrigal Shipping v Ogilive – Where the contract is for a definite voyage, the crew of the ship may not be discharged (thus they are entitled to their wages) until after the contract shall have been performed, except by reason of serious insubordination, robbery, theft, habitual drunkenness or damage to the vessel or its cargo by reason of malice or negligence.

Switzerland Insurance v Ramirez – The law does not make the liability of the ship agent



dependent upon the solvency of the shipowner.

Wing Kee v Bark – When the agents buy in their own names, but really for the account of their principal, the seller has the option to look to either for payment, unless 1) he trusted the agent; or 2) by the usage and understanding of the business the agent only is held; or 3) unless the special circumstances of the case show that only the agent was intended to be bound and the seller knew it.

Inter-Orient Maritime v NLRC – The captain of a vessel is a confidential and managerial employee. He commonly performs 3 roles: 1) he is a general agent of the shipowner, 2) he is commander and technical director of the vessel, 3) he is a representative of the country under whose flag he navigates.

Compagnie de Commerce v Hamburg Amerika –Port of refuge – In the absence of instructions from the shipper whose goods are found aboard a vessel lying in a port of refuge, whose master has compelled to abandon the attempt to transport the cargo, the duty clearly rests upon the master to make such other advantageous disposition of the property of the absent shipper (ex: if the cargoes are perishable, they must be sold immediately)

Abandonment – Where the master relinquishes the attempt either to carry on the goods on his own ship or to send them to their destination in another ship, he thereby wholly abandons any claim for freight in respect to them.

VIII. CARRIAGE OF GOODS BY SEA ACT

Application Transport of goods by sea Foreign shipment (from a foreign port to

the Philippines) Covered by a bill of lading or a similar

document of title The term “Goods” do not include:

◦ Live animals -AND-

◦ Cargo carried on deck as stated by the contract of carriage

NOTE: Even in foreign transportation of goods, the Civil Code remains the primary governing statute and the COGSA is merely suppletory.

NOTE: COGSA may also apply to domestic trade when agreed upon by the parties and it is a stipulated in their contract.

Obligations of Parties

Carrier Use due care with respect to the cargo Provide a seaworthy vessel

Shipper Deemed to have guaranteed to the

carrier the accuracy of the marks, quantity, number and weight of the shipment

Shipper shall indemnify the carrier against all loss, damages and expenses arising from such inaccuracies

Notice of Claim

General Rules:1. If the damage is apparent (external),

notice must be given at the time of the removal of the goods into the custody of the persons entitled to receive the same.

2. If the damage is not apparent, notice must be given within 3 days from delivery.

Exception: Notice need not be given if the goods have been the subject of a joint inspection at the time of their receipt.

Giving of notice is NOT a condition precedent in filing an action in court

Prescriptive Period Carrier's liability is extinguished if no suit

is filed in court within 1 year



1 year period continuous to run against an insurer in cases of subrogation

Period is not applicable:◦ In cases of misdelivery or conversion◦ Actions for damages in due to delay◦ Claims for refund of shipping fees◦ In such cases, the Civil Code

provisions on prescription shall apply (10 years for written contracts)

When Deemed Commenced After delivery of goods – in cases of

damaged goods After the date when the goods should

have been delivered - in cases of loss

NOTES: The one-year period shall run from

delivery of the last package and is not suspended by extrajudicial demand. (Dole Phils.,Inc. vs. Maritime Co.,148 SCRA 118)

The one-year period shall run from delivery to the arrastre operator and not to the consignee. (Union Carbide Phils Inc. v Manila Railroad Co., 77 SCRA 359)

When Deemed Suspended Actions filed in court By express stipulation of the parties to

the contrary

Defenses Against Liability1. If there is fraudulent misrepresentation

as to the value and nature of the goods by the shipper

2. Damage resulted from the dangerous nature of the goods loaded without consent of the carrier

3. If unseaworthiness was not due to the negligence of the carrier

4. If the deviation was to save life or property at sea

5. Prescription6. Fortuitous Events

Limitation of Liability

General Rule: Shipper is allowed to recover a maximum of USD 500.00 per package or per freight unit (ex: per weight or volume)

Exception: When the shipper declares a higher amount and such amount is the real value of the goods.

NOTE: “Per package” means each unit shipped by the shipper stated in the bill of lading and not the container van housing those units.

COGSA vs. Art 366 Code of CommerceCOGSA Code of Commerce

Applies to international shipping

Applies to domestic shipping

Covers maritime transportation only

Covers land, sea and air transportation

Notice of claim must be written

Notice of claim may be written or verbal

For apparent damages – notice must be given immediately at the time of removal of the goods

For apparent damages – claim must be made immediately at the time of receipt of goods

For latent damages – notice must be given within 3 days from delivery

For latent damages – claim must be made within 24 hours from receipt of goods

Notice of claim is NOT mandatory or a condition precedent in instituting a court action

Notice of claim is mandatory or a condition precedent in instituting a court action

Prescriptive period for filing a case in court is 1 year from date of delivery- COGSA

Prescriptive period is 10 years (written contract) or 6 years (verbal contract) – Civil Code

Case Doctrines

Chua Kuy v Everrett - A mere proposal for arbitration or the fact that negotiations have been made for the adjustment of the controversy between the parties does NOT suspend the running of the prescriptive period, unless there is an agreement to the contrary.



Ang v American Steamship Inc. - The 1 year period of prescription does not apply to misdelivery cases. The applicable period is the one provided under the Civil Code: 10 years for breach of a written contract or 4 years for torts.

Mitsui OSK Lines v CA – Deterioration of goods due to delay in their transportation constitutes “loss” or “damage” within the meaning contemplated by COGSA. Thus it falls within the 1 year prescriptive period.

Tan Lao v American President Lines – There is no distinction between the damages to goods and damages to shipper. Whatever damage or injury is suffered by the goods while in transit would result in the loss or damage to either the shipper or consignee. In either case, the action must be brought within the 1 year prescriptive period.

Sveriges v Qua Chee Gan – The 1 year prescriptive period does not apply where the shipper seeks to recover what it had paid the carrier for the cargo the latter failed to load for shipment (refund cases).

American Insurance v Maritima – The transshipment of the cargo from Manila to Cebu was not a separate transaction from that originally entered into by the carrier. The fact that the transshipment was made via an inter-island vessel did not operate to remove the transaction from the operation of COGSA.

Union Carbide v Manila Railroad Co. - The term “delivery” contemplated by the prescription period of COGSA means delivery to the arrastre operator and not delivery to the consignee. The 1 year period runs from the delivery of the carrier to the arrastre operator. If the 1 year period is computed to run from the delivery to the consignee, it will generate confusion between loss or damage sustained by the goods while in the carrier's custody and the loss or damage caused to the goods while in the

arraste operator's custody.

FH Stevens v Lloyd – Where an action was commenced in the municipal court and it was dismissed for lack of jurisdiction, the period within which plaintiff could bring a new action in the proper court was renewed for another year.

Rizal Surety v Macondray – COGSA contemplates not only of damage but also of loss. If the goods were lost and no delivery was made, then the 1 year period should be computed from the date when the goods should have been delivered. If the carrier arrived in Manila on Nov 2 and left it on Nov 4, it was on the latter date that the carrier had the last opportunity to deliver the goods. The period of 1 year commenced to run from Nov 5. (First day excluded; last day included – Art. 13 Civil Code)

Eastern Australian v Great American Insurance – By providing that $500 is the maximum liability, the law does not disallow an agreement for liability at a lesser amount. Art. 1749 of the Civil Code expressly allows the limitation of the carrier's liability.

Mayer Steel Pipe v CA – The 1 year prescriptive period extinguishes the liability of the carrier – not the liability of the insurer. This is because the insurer's liability is not based on the contract of carriage but on the contract of insurance. After the 1 year period, no suit may be brought against the carrier either by the shipper, consignee or the insurer. But this does not mean that the shipper may no longer file a claim against the insurer after such period.

Dole Philippines v Maritime Company - Written extrajudicial demand by the creditor does not toll the running of the 1 year prescriptive period

IX. CHARTER PARTIES

As a Contract A contract whereby an entire ship or a

part of it is leased by the owner to a



merchant or other person for a specified time, or use for commercial purposes

Bareboat Charter – shipowner leases the entire vessel to the charter

Contract of Affreightment – space in the vessel is leased for a specific voyage or period◦ Time Charter – fixed period◦ Voyage Charter – specific voyage

Elements1. Consent of the shipowner and charterer2. Existing vessel placed at the disposition

of the charterer3. Freight (Consideration)4. Formalities required by law

Charter Party and Bill of Lading Charter party remains to be the contract

between the shipowner and the charterer Bill of lading merely operates as

evidence of the receipt of goods If the charter party is unsigned

(incomplete contract), the bill of lading is deemed to be the contract in force

Bareboat Charter Contract of AffreightmentCharterer becomes liable to others caused by its negligence

Owner remains liable as carrier and must answer for any breach of duty

The charterer provides crew, food and fuel. The charterer is liable as if he were the owner, except when the cause arises from the unworthiness of the vessel.

The shipowner retains possession, command and navigation of the ship, the charterer merely having use of the space in the vessel in return for his payment of the charter hired.

Charterer regarded as owner pro hac vice for the voyage

Charterer is not regarded as owner.

Owner of vessel relinquishes possession, command and navigation to charterer

The vessel owner retains possession, command and navigation of the ship

Common carrier is converted to private carrier.

Common carrier is not converted to a private carrier.

As Evidence Order of preference as evidence

1. Charter party Copy of the broker Copy of the parties (as long as

forgery is not an issue)2. Bill of Lading3. Proofs of the parties

If the charter party is executed with the intervention of a broker, and there is conflict between the copies of the contracting parties, the copy kept by the broker in his registry shall govern.

The contracts shall also be admitted in evidence even though a broker has not taken part there in if the contracting parties acknowledge their signatures to their own (no allegation of forgery).

If no broker intervened, doubts shall be resolved by what is provided for in the bill of lading.

In the absence of a bill of lading, by proofs submitted by the parties.

Obligations of the Captain Charter parties executed by the captain

shall be valid but should he execute them in violation of the orders of the ship agent or shipowner, the latter shall have a right of action against the captain

If during the voyage the vessel should be rendered unseaworthy, the captain shall be obliged to charter another vessel at his expense. For this purpose, he shall look for a vessel not only in the port of arrival but also in other ports within a distance of 50 kilometers.

If the captain fails to furnish a replacement vessel, the shippers, after demand to the captain, may charter one and apply to the judicial authority for summary approval of the charter party which they have made.

If the captain fails to find a replacement vessel, despite his efforts, he shall deposit the cargo to the shippers.



The captain shall lose freightage and shall indemnify the charterers if the latter should prove that the vessel was not in a condition to navigate at the time of receiving the cargo.

If a declaration of war or blockage takes place during the voyage:◦ The charter party shall subsist◦ The captain must proceed to the

nearest safe and neutral port and request and await orders from the shipper. Expenses incurred shall be paid as general average.

◦ If, by orders of the shipper, the cargo should be discharged at the port of arrival, freightage shall be paid in full

◦ If the captain receives no order from the shipper, the cargo shall be deposited in court and subsequently sold to pay for the freightage.

When Freightage Shall Accrue In the absence of any stipulations in the

contract or should they be ambiguous, the following rules shall be observed:

If Vessel has been Chartered:

When Freightage Starts to Run

By months or by days From the day the loading of the vessel has begun

For a fixed period From the very starting day of that period

If freightage is charged according to weight, the payment shall be made according to gross weight of the cargo.

Merchandise and Freightage

General Rule: The cargo shall be liable for the payment of the freightage expenses and duties. The cargo stands as security or guaranty for the payment of the cost of transportation.

Exceptions:1. When the cargo is jettisoned for the

common safety of the vessel and its cargo.

2. When the cargo is lost by reason of shipwreck, stranding or seized by pirates or enemies.

When Cargo is Still Liable Merchandise or cargo sold by the captain

to pay for the necessary repairs or for urgent and unavoidable requirements, shall pay freightage.

If the vessel or merchandise should be recovered or salvaged, the freightage corresponding to the distance covered by the vessel shall be paid, without prejudice to what may be due by reason of average.

Merchandise which is damaged or reduced on account of its own defects or bad condition of the packaging, shall pay full freightage.

Sale of the Goods The goods loaded shall be liable for their

freightage for a period of 30 days from the date of their delivery or deposit. During this period, the sale of the same may be requested, even though there be other creditors and the case of insolvency of the shipper or consignee should occur. This right may not be used if the goods, after being delivered, were turned over to a third person for valuable consideration.

The captain may turn over the goods to the court for their deposit and subsequent sale when:◦ The consignee should not be found.◦ The consignee should refuse to

receive the cargo.◦ The goods run the risk of

deteriorating and the expenses of preservation and custody should be disproportionate to the value thereof.

Rights and Obligations of Owners Maximum discrepancy in the capacity of



the vessel between what is stated in the ship registry and its actual capacity: 2%

Should there be several charter parties and all of the cargo cannot be accommodated, and none would want to rescind the contract, preference shall be given to the person who is first in loading his cargo. The others shall have preference in the order of the dates of their charter.

Should there be no priority among the charterers, they may load pro rata to the amounts of weight or space they may have engaged. The person from whom the vessel was chartered shall be obliged to indemnify them for the losses.

The shipowner may effect a substitution of the vessel provided:◦ The substitute vessel is seaworthy◦ The capacity of the original vessel is

less than 3/5 full. After 3/5 of the vessel's capacity is

loaded, there can be no substitution without consent of the charterers or shippers.

The shipowner shall be liable for all losses caused by the voluntary delay of the captain in putting to sea provided he has been requested to put to sea at the proper time through a notary or judicially

If there are goods placed on board the vessel clandestinely, the captain may:◦ Unload the merchandise before

leaving port -OR-◦ Transport the goods and charge the

highest price which may have been stipulated for said voyage.

Obligations of Charterers A charterer may subcharter the whole or

a part of the vessel provided:◦ There is no prohibition in the first

charter (original)◦ The conditions of the first charter are

not changed◦ The price agreed upon is paid in full

A charterer who loads goods different

from that contracted upon, without the knowledge of the shipowner or captain, and which results to damage due to confiscation, embargo, detention and other causes to the shipowner, shall be liable to indemnify the parties injured.

Should illicit cargo be shipped by the charterer, with the knowledge of the shipowner or captain, said charterer shall be jointly liable with the shipowner for all damages caused to the other shippers.

If the charterer, without the occurrence of any cases of force majeure, should wish to unload his merchandise before arriving at the port of destination, he shall pay full freightage, the expenses of unloading the cargo and other damages suffered by the other shippers.

In charters for transportation of general freight, any of the shippers may unload the merchandise before the beginning of the voyage by paying one half of the freightage, the expenses of unloading the cargo and other damages suffered by the other shippers.

Once the vessel has been unloaded and the cargo has been placed at he disposal of the consignee, the latter must immediately pay the captain the freightage due, and other expenses.

Charterers and shippers cannot abandon merchandise damaged on account of its own inherent defect or fortuitous event for the payment of the freightage and other expenses (NOTE: Art. 687 does NOT refer to a consignee)

However, abandonment may be proper if the cargo should consist of liquids and should they have leaked out and what remains is 25% of its contents or less.

Rescinding the Charter Party

How Charter Party is Rescinded1. By the charterer2. By the shipowner, ship agent or any



person from whom the vessel is chartered

3. By operation of law (automatic)

A. Rescission by the Charterer1. Abandonment – If before loading the

vessel he should abandon the charter, he must pay half of the freightage.

2. Misrepresentation – If there is an error or discrepancy with the capacity of the vessel or in the statement of the flag under which the vessel sails, the charterer is entitled to rescind the charter party.

3. Delay – If the vessel should not be placed at the disposal of the charterer within the period and manner agreed upon.

4. Fortuitous Event – If, after the vessel has sailed, it should return to the port of departure, on account of risk from pirates, enemies or bad weather AND the shippers decide to unload the cargo.

5. Emergency Repairs – If a vessel should make a port during the voyage to make urgent repairs, and the charterers should prefer to dispose of the merchandise.

In the second and third cases (misrepresentation and delay in the delivery of the vessel), the person from whom the vessel was chartered shall be liable for the losses suffered by the charterer.

In the fourth case (fortuitous event): The person from whom the vessel was

chartered shall have a right to the freightage in full.

If the charter is made by months, the charterers shall pay full freightage for 1 month if the voyage is for a port in the same waters (ex: within the Philippines). 2 months if the voyage is for a port in different waters.

In the fifth case (emergency repairs): When the delay does not exceed 30

days, the shippers shall pay full freightage.

Should the delay exceed 30 days, the shippers shall only pay the freight in proportion to the distance covered.

B. Rescission by the Shipowner or Agent1. Delay by Charterer – If, after the

termination of the extra lay days, the charterer does not place the cargo alongside the vessel.

2. Vessel is Sold – If the vessel is sold before the charterer has begun to load the vessel.

Delay by Charterer – the charterer must pay half of the freightage stipulated on top of the demurrage due.

Vessel is Sold – Contemplates 2 scenarios Should the purchaser load the vessel for

his own account – the charter party is rescinded but the charterer is entitled to damages.

Should the purchaser NOT load the vessel for his own account – The charter party shall be respected.

In both cases, the vendor shall indemnify the charterer for any loss suffered and also the purchaser if the vendor fails to inform him of the existing charter party.

C. Automatic RescissionThe charter party is deemed rescinded and all obligations extinguished if any of the cases occur before the vessel departs from port:

1. Declaration of war or interdiction of commerce with the power to whose ports the vessel was to make its voyage

2. Blockade of the port of destination, or the outbreak of an epidemic after the contract was executed.

3. Prohibition to receive at said port the merchandise

4. Indefinite detention, by reason of an embargo of the vessel by order of the government.



5. Impossibility of the vessel to navigate without fault of the captain or ship agent

In these cases, the cost of unloading shall be for the account of the charterer.

Case Doctrines

Guzman v William X – An agreement by which a party binds itself to tow another vessel for a certain consideration is not a charter party but a contract for the hire of services, and is subject to the provisions of the Civil Code.

Puromines v CA – A contract of affreightment is one where the shipowner leases part or all of the vessel's space to haul good for others. The shipowner retains possession, command and navigation of the ship, the charterer merely having use of the space in the vessel. Responsibilities of ownership rests on the shipowner and the charterer is usually free from liability to third persons in respect of the ship.

International Harvester v Hamburg-American – The outbreak of war between two states does not abrogate a contract between a subject of one of the belligerents and the subject of a neutral state. If the carrier's destination is an enemy port but it carriers the cargo of a neutral state, the carrier is absolved from its obligation from transporting the cargo, however it is liable for the cost of forwarding the cargo by another carrier, the full freight having received at the commencement of the voyage.

NOTE: The prepayment of the freight seems to qualify the liability of the carrier to forward the cargo to the port of destination.

Marimperio v CA – In a contract of sub-lease, the personality of the lessee does not disappear and he does not transmit absolutely his rights and obligations to the sub-lessee. The sub-lessee generally does not have any direct action against the owner of the thing leased as lessor to require the compliance of the obligations

contracted with the plaintiff as lessee.

Market Developers Inc. v IAC – a charter party may be executed orally, in which case the terms thereof, not having been reduced to writing, shall be those embodied in the bill of lading.

National Union v Stolt-Nielsen – In a charter party, a bill of lading operates as a receipt for the goods and as document of title, but not as varying the contract between the charterer and the shipowner.

Ouano v CA There is no subchartering where the

Charter party allowed cargo of another to be shipped on the chartered vessel subject to the Charter party management because possession, operation and management of the vessel remained with the charterer.

In a bareboat charter, the shipowner has NO LIEN on the cargo because the charterer is deemed owner pro hac vice

X. VESSELS AND SHIP ACQUISITION

Definition Any barge, lighter, bulk carrier …. fishing

boat or any other artificial contrivance utilizing any source of motive power, designed, used or capable of being used as a means of transportation (PD 474)

“artificial contrivance” - man-made As long as human work is applied on the

thing designed to be used as a means of transportation, it is a vessel◦ Ordinary log made to float on a river

– not a vessel◦ Log hollowed out for passenger

seating – a vessel

Ownership and Acquisition Vessels are considered personal property Mortgage of a vessel is subject to the

chattel mortgage law, but registry is to be made with the Maritime Industry



Authority (MARINA) and not in the local register of deeds.

Acquisition may be through sale, donation or prescription.

Deeds of sale of vessels must also be registered with the MARINA.

Prescription Requisites:

1. Person who claims ownership must be in continuous possession

2. Possession must be for 3 years3. Possession is in good faith

A possessor is in good faith if he is not aware of the flaw or defect in his title.

If the possessor is in bad faith, the acquisitive prescription is extraordinary and there must be an uninterrupted possession for 10 years.

A captain cannot acquire by prescription the ship which he is in command.

Co-ownership of a Vessel All part owners shall be liable in

proportion to their respective ownership for expenses:◦ of repairs to the vessel◦ maintenance, equipment and

provisioning of the vessel◦ other expenses incurred by virtue of

a resolution of the majority, Resolutions of the majority relating to

the sale of the vessel shall be binding on the minority.

Part owners of vessels shall enjoy the right of preemption and redemption in sales made to stranger

Sale of Vessels

Voluntary Sale The rigging, tackle, stores and engine of

the vessel shall always be understood as included in the sale of the vessel if they are owned by the vendor at the time of the sale.

Voluntary sale of the vessel terminates

all contracts between the ship agent and the captain.

Arms, munitions of war, provisions and fuel shall not be included in the sale.

Vendor shall be under the obligation to deliver to the purchaser a certificate of the record of the vessel in the registry up to the date of the sale

If the sale takes place:Vessel Freightage Payment of Crew

While on voyage Belongs to buyer

Obligation of buyer

After arrival at port of destination

Belongs to seller

Obligation of seller

Involuntary Sale When the vessel is damaged beyond

repair and is rendered useless Rules of Public Auction:

◦ Appraisal of the vessel◦ Notice to persons interested to take

part in the auction◦ Publication and posting of the order

or decree of the public auction◦ Publication must be repeated every

10 days. Period for the auction shall not be less than 20 days.

◦ If public auction should take place in a foreign port, the special provisions governing such cases shall be observed.

Sale in a Foreign Port Bill of sale shall be executed before the

consul of the Republic of the Philippines of the port where the vessel terminates her voyage.

For the bill of sale to be binding to third persons, it must be recorded in the registry of the consulate.

The consulate shall immediately forward a true copy of the bill of sale to the registry of vessels of the port where said vessel is recorded and registered.

Right of Redemption



Part owners shall enjoy the right of preemption and the right of redemption in the sales made to a stranger.

Redemption – to buy back from the vendee what was sold to him.

Preemption – right of purchasing before others. (like a right of first refusal)

How to exercise right:1. Right given only to part owners of

the vessel sold2. Vendee is a stranger3. Exercise right within 9 days following

the record of the sale in the registry4. Buyer must deliver the price at once

Civil Code provision (Art. 1620):◦ A co-owner may exercise the right of

redemption in case the shares of any or all of the co-owners are sold to a third person.

◦ If the price for alienation is grossly excessive, the redemptioner shall pay only a reasonable one.

◦ Should 2 or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the owned in common

Case Doctrines

Overseas Factors v South Seas Shipping – The fact that the freight was already included in the purchase price of the goods paid by the purchaser did not free the cargo from the carrier's lien if the freight has not yet been fully prepaid by the charterer.

Plumelet v Morales Shipping – Freightage may be claimed by the shipowner direct from the shipper. The shipowner may retain the cargo at the port of destination until freightage is paid.

Rubiso v Rivera – 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 third persons.

Atienza v CA – No authority to operate a vessel can be granted independently of a certificate of ownership and vessel registry. The denial or revocation of the a shipowner's authority to operate a vessel is a logical consequence of the cancellation of the certificates of ownership and vessel registry.

XI. SHIP MORTGAGE DECREE

Ship Mortgage Decree (PD 1521) The purposes are to accelerate the

growth and development of the shipping industry in the Philippines and to finance the acquisition, purchase, construction or initial operation of vessels.

Who may constitute a ship mortgage:◦ Filipino Citizens◦ Partnerships or corporations at least

60% Filipino-owned Mortgage may be made with any bank or

other financial institution, whether foreign or domestic.

No mortgage shall be valid against any person other than the mortgagor and a person having actual notice thereof, until such mortgage is recorded in the Maritime Industry Authority (MARINA).

The MARINA replaces the Philippine Coast Guard as the agency administering the annotation and/or cancellation of any mortgage over vessels.

Preferred Mortgages The ship mortgage must be recorded or

registered, otherwise the same is void except as to the parties or persons with actual notice thereof.

Formal Requisites:1. The mortgage is recorded in MARINA2. Affidavit of good faith (that the

mortgage is made in good faith and without any design to defraud any existing or future creditor)

3. The mortgage does NOT stipulate that the mortgagee waives the



preferred status thereof.4. The mortgage includes the whole of

any vessel of domestic ownership A mortgage which includes property

other than a vessel shall not be held a preferred mortgage unless the mortgage provides for a separate discharge of such property.

Any preferred mortgage lien in case of a foreign vessel shall be subordinate to maritime liens for repairs, supplies, towage or other necessaries performed or supplied in the Philippines.

Preferred Claims The following claims are forms of

maritime liens. They are superior over preferred mortgages.

Their priority is in the order stated:1. Fees and taxes due to the Government2. Crew's wages3. General Average4. Salvage5. Maritime liens arising prior in time of

recording of the preferred mortgage6. Damages arising from tort7. Preferred mortgage registered prior in

time

Maritime Lien It is a privileged claim on a vessel for

some service rendered to it to facilitate its use in navigation.

It is a special property right in a ship given to a creditor by law as a security for a debt or a claim with a right to have the ship sold and debt paid out of the proceeds.

The transfer of ownership over the vessel does NOT extinguish the lien.

Enforcement of the maritime lien is in the nature and character of a proceeding quasi in rem.

Ranking of preference:1. Preferred Claims2. Preferred Mortgage3. Other Claims

Maritime Lien Preferred Mortgage

Special property right given by law as security

Must be registered to be valid and effective

In certain instances, some liens are superior over the preferred mortgage

Shall have priority over all other claims except for the 7 liens mentioned in sec. 17 of PD 1521.

May be waived anytime by agreement.

The mortgage does NOT stipulate that the mortgagee waives the preferred status thereof.

Foreclosure Proceedings1. Jurisdiction of Court

The Regional Trial Court has jurisdiction in all actions in admiralty and maritime jurisdiction where the demand or claim exceeds P300,000 or, in Metro Manila, where such demand or claim exceeds P400,000.(Sec 19(3) B.P. 129)

2. Filing of Suit Notice of action shall be given to the

master or caretaker of the vessel AND the person who has recorded a notice of claim of an undischarged lien upon the vessel.

For judicial foreclosures, Rule 68 of the Rules of Court shall apply.

3. Arrest of Vessel Applicant may apply ex-parte for an

order for the arrest of the mortgaged vessels.

Applicant files a bond not exceeding applicant's claim.

Adverse party may file a counter bond for the discharge of the order of arrest for double the value of the claim.

Bond is good for only 1 year4. Sale of the vessel

May be judicial or extrajudicial◦ Vessel shall be sold free from all

pre-existing claims◦ But the mortgagee may ask the



court to require the buyer a new mortgage on the vessel to cover the balance of the original mortgage

◦ If such new mortgage is given, the mortgagee shall not be paid from the proceeds of the sale - he will rely on the new mortgage.

Who may bid◦ Citizens of the Philippines◦ Corporations 60% Filipino-owned◦ A foreign mortgagee or foreign

national whose country:▪ Has diplomatic relations with

the Philippines▪ Grants reciprocal rights to

Filipino citizens5. Distribution of proceeds of sale The preferred maritime lien shall have

priority over the preferred mortgage Next, pay the preferred mortgage Finally, pay the other creditors. Proceeds

shall be divided pro rata in case it is insufficient.

Unsatisfied credits may be enforced by personal action against the debtor.

PrescriptionAs provided by the Civil Code:

Mortgage Action – 10 years (Art.1142) Action upon an obligation created by law

– 10 years (Art.1144) Maritime Torts – 4 years (Art.1146)

Case Doctrines

Crescent Petroleum v M/V Lok Maheshwari Whether or not a contract is maritime

depends not on the place where the contract was made but on the subject matter of the contract, making the true criterion a maritime service or a maritime transaction. (American Rule)

PD 1521 was enacted primarily to protect Filipino suppliers and was not intended to create a lien from a contract of supplies between foreign entities

delivered in a foreign port.

International Harvester v Aragon 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.

Admiralty has jurisdiction of a proceeding in rem or in personam for the breach of contract of affreightment, whether evidenced by a bill of lading or a charter party.

Philippine Refining Co. v Jarque – The mere mortgage of a ship without reference to navigation or perils of the sea does NOT confer admiralty jurisdiction. Failure to conform to the requisites of a mortgage of a vessel makes the same like any other chattel mortgage as to its requisites and validity. Absent any affidavit of good faith renders the mortgage unenforceable against third persons.

XII. LOANS ON BOTTOMRY AND RESPONDENTIA

Definitions and Concept Loan on Bottomry

◦ A loan guaranteed by the vessel itself, repayable upon the arrival at destination.

◦ May be contracted by the shipowner or ship agent. Outside of the residence of the owners - the captain.

◦ As a general rule, the captain may NOT enter into a loan on bottomry. But if it is necessary for him to do so, he must apply for one before:▪ The judicial authority of the port,

if in the Philippines▪ The Philippine consul, if in a

foreign country▪ If there be none, to any local

authority Loan on Respondentia



◦ Where the goods are hypothecated as security for a loan, repayable upon arrival at destination.

◦ May be entered into only by the owner of the goods or cargo.

In both forms of loans, there is a marine risk upon which the loan is predicated and payment of the loan is conditioned only upon the safe arrival of the security at the point of destination.

If the security, whether it may be the ship or the cargo, should be lost due to perils of the sea, the lender (bottomry or respondentia) shall lose the principal of the loan (but not the interest or premium).

Characteristics1. Shipowner borrows money for the use,

equipment or repair of the vessel.2. For a definite period or term and with

extraordinary interest called premium.3. Secured by pledge of the vessel or a

portion thereof in case of a loan on bottomry or pledge of goods in case of a loan on respondentia.

4. Loan repayment is conditioned on the safe arrival of the vessel for bottomry or safe arrival of the goods for respondentia and obligation to repay is extinguished if the pledged goods are lost.

5. Obligation to pay is extinguished if vessel is lost due to specified marine perils in the course of the voyage or within limited time. (the loan may cover a only specific period of the voyage and not necessarily the entire voyage)

General Rule: The obligation of the borrower to pay the loan is extinguished if the goods given as security are absolutely lost by reason of an accident of the sea, during the voyage designated, and if it is proven that the goods were on board.

Exceptions:1. Loss due to inherent defect of the thing;

2. Loss due to the barratry on the part of the captain;

3. Loss due to the fault or malice of the borrower;

4. The vessel was engaged in contraband;5. The cargo loaded on the vessel be

different in from that stated in the contract. Exception to this exception: Unless this change should have been made by reason of force majeure.

Distinguished from Simple LoanBottomry/Respondentia Simple Loan

Must have a collateral May or may not have a collateral

Must be a vessel or cargo subject to maritime risks

Collateral may be real or personal property

Repayment is dependent on the safe arrival of the collateral of the loan

Absolutely repayable

Not subject to usury law Subject to usury law

Must be in writing May be verbal or written

Must be recorded in the registry of vessels

Need not be registered except to bind 3rd parties

Loss of the collateral extinguishes obligation

Loss of collateral does not extinguish obligation

The last lender is a preferred creditor

The first lender is a preferred creditor

When Contract is Considered Simple Loan1. If the lender loaned an amount larger

than the value of the object due to fraudulent means employed by the borrower, the loan on the amount in excess of the value of the object as appraised by experts is a simple loan.

2. 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 (the balance is treated as simple loan).

3. If the goods on which money is taken not be subjected to maritime 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.

Form of the Loans May be executed by means of a:

1. Public Instrument2. Policy signed by the contracting

parties and the broker taking part therein

3. Private Instrument The instrument shall be recorded in the

registry of vessels. If there is no registry, the obligation is still valid but the loan will not have preference over other credits.

Contracts not reduced in writing shall not be the basis of a judicial action.

Preference and Payment Loans made during the voyage shall

have preference over those made before the clearing of the vessel, and they shall be graduated by the inverse order of their dates.

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.

In case of shipwreck, the amount liable for the payment of the loan shall be reduced to the proceeds of the goods saved, after deducting the cost of the salvage. If the loan should be on the vessel or any of its parts, the freightage earned during the voyage, for which the loan was contracted, shall also be liable for the payment of the loan.

Should there be any delay in the repayment of the principal and premiums of the loan, only the principal shall bear legal interest.

Concurrence of Marine Insurance and Loan on

Bottomry/Respondentia1. The insurable interest of the owner of a

ship hypothecated by bottomry is only the excess of the value over the amount secured by bottomry. (Sec. 101, Insurance Code)

2. The value of what may be saved in case of shipwreck shall be divided between the lender and the insurer in proportion to the interest of each one. (Art. 735)

NOTE: If a vessel is hypothecated by bottomry only the excess is insurable, since a loan on bottomry partakes of the nature likewise of an insurance coverage to the extent of the loan accommodation. The same rule would apply to the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

XIII. DEMURRAGE

Definitions Demurrage

◦ Amount stipulated in the charter party to be paid to the shipowner for any delay in the sailing of his ship.

◦ In the form of a penalty or liquidated damages for delays.

◦ Applicable to voyage charter parties – not for time or bareboat charter parties.

Lay time◦ Time for the loading or unloading of

the cargo. Period must be stipulated.◦ During lay time, the charterer or

carrier is not charged anything.

Lay Time

How to Determine Lay Time Count the number of “working days” Holidays and Sundays are not covered Customs of the port are observed (ex:

holidays and rest days of the port) Consider also the “weather working

days” - there is work when the weather



permits it (work stops during a storm) If lay time is not specified or there is no

demurrage clause, “damages for detention” instead of liquidated damages are claimed.

When Deemed Commenced (Requisites)1. Ship is an arrived ship2. Readiness to load or unload (a factual

issue)3. Notice of such readiness

Meaning of “Arrived Ship” Location of the ship before it is

considered to have “arrived” as defined by the charter party. May either be:◦ Berth Charter Party◦ Port Charter Party

Berth Charter Party◦ When the ship arrives at a

designated “parking space” in port Port Charter Party

◦ When the ship arrives within the vicinity or area of the port

◦ Depends on the geographical boundaries of the port

Near clause – the ship gets as close as possible to the port to be considered as an arrived ship.

Exceptions to Lay Time When lay time is not counted for

demurrage computation:1. Delay brought about by the shipowner's

fault (ex: failure to maintain the ship)2. Strike of port workers3. Acts of Government4. Other exceptions in the charterer party

extending lay time

If the Loading or Unloading is Completed Before Expiration of Lay Time

Charterer has to return the ship to the shipowner regardless of the lay time remaining.

Bonus (dispatch money)

Case Doctrines

Plumelet v Morales Shipping – Demurrage is not chargeable to the ship agent if he had not agreed to pay for it.

O'Farrel v Manila Electric Co. – The delay of taking the cargo at the port of origin, resulting from the failure of the supplier to make prompt delivery was not imputable to the buyer (buyer is the shipper and consignee at the same time in this case) and the latter is not liable for demurrage incident to such delay.

XIV. ARRASTRE

Definition The hauling of cargo on the wharf or

between the establishment of the consignee or shipper and the ship's tackle.

Stevedoring on the other hand, involves the loading or unloading of cargo on or from a vessel on port. It consists of the handling of cargo from the hold of the ship to the dock.

Responsibility of the arrastre operator begins from the time the merchandise are place upon the wharves or piers or delivered along sides of ships and lasts until the delivery of the cargo to the consignee.

Functions include:1. Receive, handle, care for and deliver

all merchandise imported and exported, upon or passing over Government-owned wharves and piers in the port.

2. Record or check all merchandise which may be delivered to said port at ship side and in general.

3. Furnish light and water services and other incidental services in order to undertake its arrastre service.

Nature of Operations Nature of the arrastre operator's services



are NOT maritime. The services are not related to the trade and business of navigation or to the use or operation of vessels.

Relationship between its clients are purely contractual in nature.

The terms and conditions of prescriptive periods and limitation of liabilities are governed by the parties' contractual agreement – usually called a “management contract”

Relationship between the arrastre operator and a consignee is akin to that of a warehouseman and a depositor.

A management contract is also binding on the consignee since he benefits from the services of the arrastre operator, making the contract a sort of a stipulation pour autrui.

Degree of diligence required of an arrastre operator is the same as that required of a common carrier and a warehouseman (extraordinary diligence).

Limitation of Liabilities

General Rule: The arrastre operator and the customs broker are NOT solidarily liable with the carrier fore the damages sustained by the cargo.

Exception: When there is sufficient evidence that the shipment sustained damage while in the successive possession of the said parties.

Prescriptive Period There is a stipulated period where the

consignee may file a notice of loss or damage to the arrastre operator – usually 15 days. (but length of period is still dependent on what the parties agreed on in the management contract)

The notice of loss or damage is a condition precedent to holding the arrastre operator liable or to filing a court action (unless the contrary is stipulated in the management contract)

Failure to file the claim within the prescribed period relieves the arrastre operator of any liability.

The reckoning period has been interpreted by the courts liberally to promote equity, justice and fairness.

The management contract usually states that the reckoning period for the filing of notice will run from the moment the shipment is discharged from the vessel. However, the Court has interpreted this period, instead, to run from the date the consignee learns of the loss, damage or misdelivery of the goods.

If the loss or damage is apparent, the prescriptive period runs from the moment the consignee accepts the goods.

Provisional Claims This remedy is available to the consignee A provisional claim is one which

sufficiently identifies the goods being referred to by the consignee in the claim but the value of the said goods are not specified therein.

A provisional claim is sufficient as long as it describes the goods sufficiently to permit its identification by the arrastre operator and the determination by the latter of the facts relevant thereto.

Filing a provisional claim is substantial compliance with the rule of filing a notice of loss or damage, thus suspending the prescriptive period.

Rules on Provisional Claims (Malayan Insurance v Manila Railroad):◦ A provisional claim filed before the

goods were discharged from the carrying vessel is not the claim contemplated in the management contract (which states that the claim must be filed after discharge of cargo) since the same is premature and speculative.

◦ A provisional claim filed after the discharge from the carrying vessel



and within the 15-day prescriptive period is a sufficient compliance with the proviso therein.

Limitation on the Value of the Goods

General Rule: The arrastre operator may fix a limit on the amount of liability on the management contract.

Exception: When the consignee declares a higher value for the cargo, said value will be followed.

The limitation on the operator's liability does NOT apply if the value of the cargo is communicated to the operator before the discharge of the cargoes.

The arrastre operator cannot be made liable for the full value of the goods where the consignee has paid the arrastre charges only on a basis much lower than the true value of the goods. (Asian Terminals v Daehan Insurance)

Burden of Proof In a claim for loss, the burden of proof to

show compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator.

The arrastre operator must do more than merely show the possibility of that some other party could be responsible for the loss or the damage.

It must also prove that it exercised due care in the handling of the goods.

Regulatory Agency The PPA is a government-owned and

controlled corporation in charge of administering the ports in the country.

The Philippine Ports Authority (PPA) has the power to revoke the temporary permits of arrastre operators, assuming the existence of valid temporary permits, and take over the operations of the port.

The PPA has valid authority to charge a reasonable rate for arrastre and stevedoring services contracted out to private operators.

When the PPA enters into a management contract, it only performs a proprietary function, thus judicial notice is inapplicable.

Case Doctrines

Chiok Ho v Compania Maritima – It is not enough that the consignee be notified of the discharge of the shipment in order that the 15-day prescriptive period in filing a claim may be applicable. It is equally important to indicate the date when the shipment was actually delivered to the consignee in order that he may be given the chance to discover if there is something missing or lost in the shipment.

Summa Insurance v CA – A management contract, which is a sort of stipulation pour autrui is also binding on the consignee because it is incorporated in the gate pass and delivery receipt which must be presented by the consignee before delivery can be effected to it. Thus, the insurer, as successor-in-interest of the consignee, is likewise bound by the management contract.

American Insurance v Manila Port Services – The 15-day period should be reckoned from:

The date the consignee or claimant learns of the loss or damage -OR-

The date when the exercise of due diligence information regarding the loss or damage should have been obtained (ex: notice through the consignee's broker is notice to the consignee)

MA-AO Sugar Central v Manila Port Service – Meaning of “discharge of last package” in counting the 15-day period – If 40 of the 44 cartons composing the shipment were discharged on June 24, and 4 additional cartons were discharged on July 10 of the same year,



the computation of the 15-day period must start NOT from June 24 but from July 11, the day following the event.

New Zealand Insurance v Navarro – A request for a bad order examination by the consignee operates as a formal claim for loss or damages since the arrastre operator was able to verify and ascertain not only the existence of its liability but also the exact amount thereof.

Asian Terminals v Malayan Insurance – Presentation in evidence of the marine insurance policy is not indispensable before the insurer may recover from the common carrier. The subrogation receipt, by itself, is sufficient to establish the relationship between the insurer and the assured shipper and also the amount paid to settle the insurance claim.

XV. CAPTAINS AND CREWS OF VESSELS

Captains and Masters of Vessels

Qualifications Must be Filipinos, having legal capacity

to bind themselves in accordance with this code (Code of Commerce).

Must prove that they have the skill, capacity and qualifications required to command the vessel as established by maritime laws, ordinances or regulations.

If the owner of a vessel desires to be the captain, but does not have the legal qualifications, he shall limit himself to the financial administration of the vessel. He shall entrust the vessel's navigation to a qualified person.

Inherent Powers1. Appoint the crew in the absence of the

ship agent; Propose said crew, should there be a ship agent present. But the ship agent cannot employ any crew member against the express refusal of the captain.

2. Command the crew and direct the vessel

to the port of destination in accordance with the ship agent's instructions.

3. Discipline the crew members; hold preliminary investigation on the crimes committed on board the vessel on the high seas and turn over the suspects to the authorities at the first port touched.

4. Make contracts for the charter of the vessel in the absence of the ship agent or of its consignee, acting in accordance with the instructions received from the shipowner.

5. To make, in similar urgent cases and on a voyage for the repairs to the hull, engines and equipment of the vessel which are absolutely necessary in order for the vessel to continue and conclude her voyage. If the vessel should arrive at a point where there is a consignee of the vessel, the captain shall act in concurrence of the latter.

When the captain has no funds and does not expect to receive any from the ship agent, he shall procure the same in the successive order:

1. Request funds of the consignees of the vessel or the correspondents of the ship agent.

2. Applying to the consignees of the cargo.3. Drawing on the ship agent.4. Borrowing the amount by means of

bottomry loan.5. Sell a sufficient amount of cargo to cover

the necessary repairs and expenses.

In case of applying for bottomry loan or the sale of the cargo, the captain must apply, by presenting the certificate of registry and the instruments proving the obligation contracted, to the following:

Judicial authority of the port, if in the Republic of the Philippines

Philippine consul, if in a foreign port The local authority, in the absence of the

2 officials mentioned above.



Inherent Duties (Art. 612 Code of Commerce) Have the following documents on board:

◦ Roll of persons who make the crew◦ Inventory of the hull, engine and

equipment of the vessel◦ Contracts entered with the crew◦ List of passengers◦ Health certificate◦ Certificate of registry◦ Charters or their authenticated copies◦ Invoices or manifest of the cargo◦ Copy of the Code of Commerce

Have the following record books:◦ Log book – to record the conditions

of the vessel and the weather◦ Accounting book – to record the

amounts collected and paid for the account of the vessel

◦ Freight book – to record the entry and exit of all the goods, stating the names of the shippers, consignees and the ports of loading and unloading

Conduct an examination of the vessel to ensure it is seaworthy.

To give an account to the ship agent from the port where the vessel arrives – notify the ship agent of the names of the shippers, freightage earned, amounts borrowed on bottomry loan, etc.

To remain on board in case of danger to the vessel, until all hope to save her is lost (the captain goes down with the ship)

Obligations and Restrictions A captain who navigates for freight

cannot make any separate transaction for his own account. Should he do so, the profit will belong to the other persons in interest, and the losses shall be for the captain's exclusive account.

A captain who fails to make the voyage shall indemnify for all the losses his action may cause, except if he is prevented by fortuitous event.

A captain may not have himself

substituted by another person without the consent of the ship agent. Should he do so, he shall be liable for the acts of the substitute. The captain and the substitute may both be discharged by the ship agent.

If the provisions and fuel of the vessel are consumed before arriving at the port of destination, the captain shall decide, with the consent of the officers of the same, to make the nearest port to get a supply of either; but if there are persons on board who have provisions of their own, he may compel them to turn said provisions over for the common consumption of all persons of board, paying the price thereof immediately, or, at the least, at the first port reached.

The captain may NOT contract loans on respondentia secured by cargo; any contract shall be void (NOTE: but the captain MAY contract loans on bottomry secured by the vessel)

Should the captain contract a loan on bottomry, he cannot borrow money for his own transactions, except, on the portion of the vessel which he may own, provided:◦ No money has been previously

borrowed on the whole vessel◦ There does not exist any other kind

of lien or obligation on the vessel.

Pirates and Perils of the Sea If the captain shall encounter pirates or

men of war against his flag, when on voyage, he shall be obliged to go to the nearest neutral port, inform the ship agent or shippers and wait an occasion to sail under convoy or until the danger is over.

Should he be attacked by pirates and after having tried to avoid the encounter and should the cargo be forcibly taken away from him, he shall make an entry in his freight book and prove the facts before the competent authority at the



first port he touches. After the force majeure has been proven, he shall be exempted from any liability

A captain whose vessel has gone through a hurricane or who believes that the cargo has suffered damages or averages, shall make a protest before the competent authority at the first port he touches within 24 hours following his arrival. He shall ratify his protest, within the same period, with the proof of the facts, it not being permitted to open the hatches [of the vessel] until this has been done.

If the vessel has been wrecked, the captain shall follow the same procedure on protest and he shall appear before the nearest authority and make a sworn statement of the facts.

Pilots in Maritime Law A pilot is a person duly qualified and

licensed to conduct a vessel into or out of ports, or in certain waters.

Pilots include both:◦ Those whose duty is to guide vessels

into or out of ports, or in particular waters -AND-

◦ Those entrusted with the navigation of vessels on the high seas.

Pilots are responsible for a full knowledge of the channel and of the navigation only so far as they can accomplish it through the officers and crew. They cannot be held responsible for damage when the evidence shows that the officers and crew of the ship failed to obey their orders.

A pilot is in sole command of the ship and supersedes the master of the vessel for the time being. He becomes master pro hac vice of a vessel piloted by him.

But the master of the ship does not surrender his vessel to the pilot and the pilot is not the master – the master is not wholly absolved from his duties while a pilot is on board, and may advise with

or offer suggestions to the pilot. A pilot is personally liable for damages

caused by his own negligence or default to the owners of the vessel, and to third parties for damages sustained in collisions. The shipowner is only exempt from liability for the negligence of the pilot if the latter is actually in charge and solely in fault.

Officers and Crews of Vessels

Sailing Mate The second chief of the vessel Shall take the place of the captain in

case of absence, sickness or death, except, when the ship agent orders otherwise.

In case of disagreement with the captain as to the navigation or management of the vessel, he shall make the proper protest in the logbook.◦ The entry must be signed by him and

by another one of the officers◦ He shall obey the captain, who shall

be the only person liable for the consequences of his order.

◦ The protest serves as evidence to exempt the sailing mate from any liability arising from the orders of the captain.

Sailors The captain must maintain a crew, at

least 80% of which, are Filipino sailors. In foreign ports, where the captain could

not find a sufficient number of Filipino sailors, he may make up the crew with foreigners, with the consent of the consul of marine responsibilities.

A sailor who has been contracted to serve on a vessel cannot rescind his contract nor fail to comply therewith except by reason of a legitimate impediment which may have occurred to him.

A sailor cannot pass from the service of



one vessel to another without obtaining the written consent of the captain of the vessel in which he may be.

Should he violate the above-mentioned rule, the second contract shall be void and he shall lose the wages earned on his first contract.

The captain who entered into the second contract with the erring sailor shall also be personally liable to the captain of the vessel to which the sailor first belonged for that part of the indemnity, which the sailor could not pay.

The captain cannot discharge a sailor during the time of his contract except for sufficient cause such as:◦ Perpetration of a crime on board the

vessel◦ Repeated offenses of insubordination◦ Incapacity and repeated negligence◦ Habitual drunkenness◦ Any occurrence which incapacitates

the sailor to carry out his work except for those provided for in Art. 644 (Sickness of the sailor)

◦ Desertion

Revocation of Voyage and Crew Wages When the voyage is revoked by the will

of the ship agent or the charterers, the crew shall be entitled to wages depending on the scenario:

Revocation by Will Amount of Wages

Before vessel departs port

1 month's salary

Fixed wage for the voyage and the duration of the revoked voyage is approximately 1 month

15 days, discounting in all cases the sums advanced

After the vessel has put to sea

Saliors engaged for fixed wages – receive entire amount

Sailors engaged for monthly wages – receive entire amount

Revocation by the ship agent or charterer by giving a different destination other than what was agreed upon AND the crew members disagree thereto

Half of the amount fixed in the first case (revocation before vessel departs port) - half of 1 month's salary

Reevocation by a change in destination AND the crew members accepts the changes

If the change gives rise to a longer voyage – salary shall increaseIf the change gives rise to a shorter voyage – NO reduction of wages

If the revocation should arise from a just cause independent of the will of the ship agent or charterers, AND the vessel has not left the port, the crew shall be entitled to collect wages earned only up to the day on which the revocation took place.

Just causes for revocation of voyage:◦ Declaration of war or interdiction of

commerce with the power to whose territory the vessel was bound

◦ Blockade at the port of destination◦ Outbreak of an epidemic after the

agreement◦ Prohibition to receive in said port the

goods which make up the cargo of the vessel

◦ Detention or embargo of the same by order of the government, or for any other reason independent of the will of the ship agent

◦ In ability of the vessel to navigate

Revocation by Just Cause Amount of Wages

Declaration of war, prohibition to receive goods, blockade or outbreak of an epidemic

Sailors are paid according to the time they may have served thereon if the voyage ends

If the voyage is to be continued, the captain or crew may mutually demand the enforcement of the contract



Detention or embargo Crew paid monthly – they shall continue to receive half of the wages

If detention exceeds 3 months – contract shall be rescinded and the crew shall be paid what they should have earned according to the contract

Fixed wage for the voyage – the contract must be complied within the terms agreed upon

Inability of the vessel to navigate

The crew shall not have any other right than to be entitled to recover the wages earned

The captain shall indemnify the crew for the losses if the vessel's inability is caused by his negligence or lack of skill

If the vessel and her cargo should be totally lost by reason of capture or wreck, all rights of the crew to demand any wages shall be extinguished, as well as that of the ship agent for the recovery of the advances made.

If a portion of the vessel or cargo should be saved, the crew engaged on wages, including the captain, shall retain their rights on the salvage. Sailors who are engaged on shares shall not have any right to the salvage of the hull, but only on the portion of the freightage saved.

Sickness of the Sailor

General Rule: A sailor who falls sick shall not lose his right to wages during the voyage.

Exception: If the sickness is the result of his own fault, he will lose his right to wages.

Medical expenses shall be defrayed from

the common funds in the form of a loan. If the sickness is caused by an injury in

the service or defense of the vessel, the cost of the medical attendance shall be deducted from the freightage proceeds.

Death or Capture of the SailorTime of Death Wages Received

Sailor dies during the voyage

Heir shall be given the wages earned AND not received according to his contract.

Sailor dies a natural death

Heir shall be given what may have been earned up to the date of his death.

Sailor dies and contract is for a fixed sum for the whole voyage

Sailor dies on the voyage out (departure) – wages shall be half the amount earned.

Sailor dies on the return voyage – wages shall be paid in full.

Sailor dies and contract is made on shares

Sailor dies after the voyage has begun – heirs shall be paid the entire portion due to the sailor

Sailor dies before vessel's departure from port – heirs shall receive nothing

Sailor dies in the defense of the vessel

Heirs shall receive full amount of wages or the full part of profits due to him (sailor shall be considered as living up to the end of the voyage)

Sailor is captured in the defense of the vessel

GR: Sailor shall be considered as present and entitled to the same benefits as the rest

EX: If he is captured due to his carelessness or accident, he shall only receive the wages due up to the day of his capture.



Vessel as Security for Wages The vessel, her engines, rigging,

equipment and freightage shall be liable for the wages earned by the crew engaged per month or for the trip.

After a new voyage has been undertaken, credits of such kind pertaining to the preceding voyage shall lose their right of preference.

Exemptions of Officers and Crew The officers and crew of the vessel shall

be exempted from all obligations contracted 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. Outbreak of a disease AND is officially declared epidemic in the port of destination.

3. If the vessel should change owner or captain.

Supercargoes Person charged with the administrative

duties which the ship agent or shippers may have assigned to them.

The supercargo assumes the powers and liabilities of the captain with regard to that part of the administration legitimately conferred upon the latter. But the captain retains the powers and liabilities which are inseparable from his authority and office.

General Rule: Supercargoes cannot make any transaction for their own account during the voyage.

Exception: If they have special authorization from or agreement with the principals.

Exception to the Exception: Ventures which, in accordance with the custom of the port of destination, they are permitted to do.

Case Doctrines

Vir-Jen Shipping v NLRC – The contract made by the National Seamen Board (NSB) merely embodies the basic minimums which must be incorporated as part of an employment contract. It is not meant to be a collective bargaining agreement, thus the seamen may petition their employer for higher salaries.

Stolt-Nielsen Marine v NLRC – The ship's log books are prima facie evidence of the incident only if the logbook itself containing such entries or photocopies of the pertinent pages are presented in evidence. The log book is a respectable record that can be relied upon to authenticate the charges filed and procedure taken against the employees prior to their dismissal.

Wallem Maritime Services v NLRC – A copy of an official entry in the ship captain's handbook is legally binding and serves as an exception to the hearsay rule.

XVI. TOWAGE AND PRIVATE CARRIERS

Towage A contract where one vessel is hired to

bring another vessel to another place. Refers to a service rendered to a vessel

by towing for the mere purpose of expediting her voyage without reference to any circumstances of danger.

A contract whereby a vessel, usually motorized, pulls another from one place to another for compensation.

It is a service contract – NOT a contract for the carriage of goods

Only the owner of the towing vessel can ask for compensation for the towage. Not the captain, even if the owner waived the claim for the towage, unless the owner assigned or conveyed his right to the captain.

Obligations and Liabilities



Degree of diligence the tug (towing vessel) must observe – Ordinary diligence.

The tug is liable for the reasonable care and of the tow and that reasonable care is measured by the dangers and hazards to which the tow is or may be exposed.

The duty of the tug to a tow is a continuous one from the time service commences until it is completed.

The responsibility of the tug includes:◦ the proper and safe navigation of the

tug on the journey◦ furnish safe, sound and suitable

appliances and instrumentalities for the service to be performed (eg: a seaworthy tugboat).

Private CarriersCommon Carrier Private Carrier

Undertaking is part of a general business

Undertaking is a single or isolated transaction

Holds itself out to carry the goods or passengers for the general public or a limited clientele

The undertaking is not part of the business or occupation

Bound to exercise extraordinary diligence

Bound to exercise ordinary diligence

Presumption of fault or negligence in case of damage or injury in the performance of its duties

No presumption of fault or negligence applies

Cannot be exempt from liability for the negligence of its agents or employees

May validly enter into a stipulation exempting itself for the negligence of its agents or employees

Much of the distinction between a common and a private carrier lies in the character if the business, such that if the undertaking is a single transaction, not part of the general business, the entity offering such service is a private carrier.

The concept of a common carrier does not change merely because individual contracts are executed or entered into

with patrons of the carrier. The public at large is not involved, as in

the case of a vessel chartered for the use of a single party

In a contract of private carriage, the parties are free to contract respecting the liability for damage to the goods and other matters.

In an action against a private carrier the burden to prove that the carrier was negligent or not seaworthy rests on the plaintiff.

Jurisprudential Test of a Common Carrier (FPIC v CA, 300 SCRA 661):

1. 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 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

4. The transportation must be for hire

Charters and Private Carriers In a time or voyage charter, the ship

remains as a common carrier provided it holds itself out to carry the goods for the general public or a limited clientele.

It is only when the charter includes both the vessel and its crew (as in a bareboat charter), that a common carrier becomes private, insofar as the particular voyage covering the charter-party is concerned.

In a bareboat charter:◦ The carrier is private in nature only

as between the ship owner and the charterer.

◦ But when the charterer (owner pro hac vice) hold himself out to carry the goods for the general public, he is a common carrier as far as the public is concerned.



Obligations and Liabilities As a private carrier, the stipulation

exempting the owner from liability for the negligence of its agent is valid. The stipulation would only be void if the strict public policy governing common carriers is applied.

Freight Forwarder (Unsworth Transport v CA) Refers to a firm holding itself out to the

general public to provide transportation of property for compensation and, in the ordinary course of business:

1. To assemble and consolidate or provide for break-bulk and distribution operations of the shipments

2. To assume responsibility for the transportation of goods from the place of receipt to the place of destination

3. To use any part of the transportation a carrier subject to the federal law pertaining to common carriers.

A freight forwarder's liability is limited to the damages arising from its own negligence, including negligence in choosing the carrier. However, where the forwarder contracts to deliver the goods instead of merely arranging for their transportation, it becomes liable as a common carrier for the loss or damage to the goods.

Case Doctrines

FPIC v CA – The mere fact that the carrier had a limited clientele does not exclude it from the definition of a common carrier.

Loadstar Shipping v CA – A certificate of public convenience is NOT a requisite for the incurring of liability under the Civil Code governing common carriers. The mere fact the carrier does not have a certificate of public convenience does NOT automatically make it a private carrier.

Crisostomo v CA – A travel agency is not a

common carrier since its covenant with its customers is simply to make travel arrangements in their behalf. Under the law, a travel agency, not being a common carrier, is not bound to observe extraordinary diligence.

Loadstar Shipping v Pioneer Asia – A common carrier remains 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 where the shipowner retains possession and control of the vessel.

Loadmasters v Glodel Brokerage – A customs broker is also regarded as a common carrier, the transportation of goods being an integral part of its business.

XVII. SUCCESSIVE CARRIAGE

Code of Commerce Provisions ( Art 373 ) A carrier who delivers merchandise to a

consignee by virtue of combined services with other carriers assume the obligations of the carriers who preceded him.

The carrier making the delivery must reserve his right to proceed against the other carriers if he should not be directly responsible for the fault which gives rise to the claim of the shipper or 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 shipper or consignee shall have an immediate right of action:◦ Against the carrier who executed the

transportation contract -OR-◦ Against the other carriers who

received the goods transported without reservation.

The reservations made by the other carriers shall not exempt them from liabilities they may have incurred by reason of their own acts.



International Air Carriage [SEE DISCUSSION UNDER PART III OF

THIS REVIEWER ON THE WARSAW CONVENTION]

Case Doctrines

Mapa v CA – If the place of departure and the place of destination are all in the territory of the United States, or of a single High Contracting Party, then the contracts of carriage cannot come within the purview of the first or second category of international transportation.

KLM v CA – Art 30 of the Warsaw Convention (rules in determining which carrier is liable in case of successive carriage) is not applicable where an airline refuses to transport a passenger with confirmed reservations.

American Airlines v CA – Where an airline accepts an unused portion of a conjunction ticket, such airline tacitly recognizes its commitment under the IATA (International Air Transport Association) pool arrangement to act as agent of the principal airline. Its undertaking should be taken as part of a single operation under the contract of carriage executed by the passenger and the principal carrier.

China Airlines v Chiok – Under a general pool partnership agreement, the ticket-issuing airline is the principal in a contract of carriage while the endorsee-airline is the agent. The obligation of the ticket-issuing airline remained and did not cease, regardless of the fact that another airline had undertaken to carry the passengers to one of their destinations.

XVIII. ARRIVALS UNDER STRESS AND COLLISIONS

Arrivals Under Stress Arrival of a vessel at the nearest and

most convenient port not of destination on account of:

◦ Lack of provisions◦ Well-founded fear of seizure,

privateers or pirates◦ By reason of any accident of the sea

disabling it to navigate. If the arrival is legitimate, the ship agent

or ship owner shall always be liable for the expenses of such arrival.

If the arrival is improper, the ship agent or ship owner shall be liable for damages in addition to the expenses. The ship agent shall also be jointly liable with the captain.

Proper Arrival Improper Arrival

Lack of provisions Lack of provisions arising from the failure to take the necessary provisions for the voyage or if they should be lost through negligence.

Well-founded fear of seizure, privateers or pirates

If the risk of enemies or pirates should not have been well known (no well-founded fear), manifest and based on justifiable facts.

By reason of any accident of the sea disabling the vessel to navigate

If the defect of the vessel should have been caused by reason of her not being repaired or maintained in a convenient manner for the voyage or by reason of some erroneous order of the captain or whenever malice, negligence or lack of skill on the part of the captain exists in the act causing the damage.

Unloading of the Cargo Should it be necessary to unload the

cargo, the captain must request authorization from:◦ If in a Philippine port – the judge or

court of competent jurisdiction AND



with the knowledge of the person interested in the cargo.

◦ If in a foreign port – the Filipino consul, if there is one.

If the unloading occurred in a Philippine port, the expenses shall be defrayed by the shipowner or ship agent.

If the unloading occurred in a foreign port, the expenses shall be for the account of the owners of the merchandise, for whose benefit the act took place.

If the unloading occurred for both reasons, the expenses shall be defrayed in proportion of the value of the vessel and that of the cargo.

If the entire cargo or a part thereof should appear to be damaged, or there is imminent danger of being damaged, the captain may request the judge or court or the consul the sale of the cargo. The person taking cognizance of the matter shall authorize the sale after an examination of experts and other formalities required by the case.

The custody and preservation of the unloaded cargo shall be in the charge of the captain, who shall be responsible for the same, except in cases of force majeure.

Collisions Collision – the impact of two vessels

both of which are moving Allision – the striking of a moving vessels

against one that is stationary Applicable law in determining liabilities is

not the Civil Code on quasi-delict, but on the provisions of the Code of Commerce. As a result, the tort doctrines of Last Clear Chance and Contributory Negligence are NOT applicable.

If the colliding vessels should have pilots at the time of their collision, their presence shall not exempt the captains from the liabilities they incur. But the captains shall have the right to be

indemnified by the pilots.

Determination of LiabilitiesCause of Collision Party Liable

Fault, negligence or lack of skill of the captain or crew member

Shipowner is liable for the losses and damages

Fortuitous Event Each vessel and its cargo shall bear its own damages

Cannot be determined which vessel is at fault or if both vessels are at fault

Each vessel shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes

A vessel forced to collide with another one by a third vessel

Owner of the third vessel shall indemnify the damages caused

Collisions in Foreign Waters or the High Seas The vessel must reach a foreign port (if

it doesn't it is considered a shipwreck) The Filipino consul in said foreign 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.

Limitation of Liabilities

Real and Hypothecary Nature Rules on the limitation of liability under

Maritime Law applies in cases of shipwrecks.

The civil liability of shipowners shall be limited to the value of the vessel with all its appurtenances and freightage earned during the voyage.

Error in Extremis In collision between vessels, there exists

3 divisions or zones of time. In each zone, certain rules apply.

3 Zones or Divisions of Time◦ The first division covers all the time



up to the moment when the risk of collision may be said to have begun.

◦ The second division covers the time between the moment when the risk of collision begins and the moment when it has become practically certain.

◦ The third division covers the time between the moment when the collision has become a practical certainty and the moment of actual contact.

Applicable rules in each zone:◦ First zone – No rules apply.◦ Second zone – Burden is on the

vessel required to keep away and avoid the danger.

◦ Third zone – The vessel which has forced the privileged vessel into danger is responsible even if the privileged vessel has committed an error within that zone.

Maritime Protest A protest is a written statement, under

oath, made by the master of the vessel, after the occurrence of the accident or disaster in which the vessel or cargo is lost or injured, with respect to the circumstances attending to such occurrence.

Usually intended to show that the loss or damage resulted from a peril of the sea or from some other cause for which neither the ship master or owner is responsible. It concludes with the protest against any liability of the owner for such loss or damage.

Maritime protest in required in:◦ Arrival under stress◦ Shipwrecks◦ Collisions

The action for recovery of losses and damages arising from collisions cannot be admitted if a protest is not presented:◦ Within 24 hours following the arrival

of the vessel at the first port.

◦ Before the competent authority of the point where the collision took place, or at the first port of arrival of the vessel (if in Philippine territory) or to the consul of the Philippines (if collision occurred in a foreign state)

◦ And the captain shall ratify the protest within 24 hours.

Case Doctrines

Government of PI v Phil. Steamship Co. – In case of a collision between two vessels, both are solidarily liable for the loss of cargo carried by either, not only in cases where both vessels may be at fault but also in a case where only one vessel was at fault, but the evidence does not show which.

Where two ships are both negligent, with the result that a collision occurs and one is sunk with total loss of both ship and cargo, the owner of the other vessel is liable to any shipper of cargo on board the sunken vessel to the full extent of the value thereof. It makes no difference that the negligence imputable to the two vessels may have differed somewhat in character and degree and that the negligence of the sunken ship was somewhat more marked than that of the other.

Sarasola v Sonuta – Where it appears that the negligence of vessel A was the primary cause of the collision and it further appears that the negligence of vessel B was the secondary cause, the provisions of Art. 827 of the Code of Commerce (each vessel suffers its own loss) apply, and vessel B cannot recover damages from vessel A for the collision.

XIX. SHIPWRECKS AND SALVAGE

Shipwrecks Denotes all types of loss or wreck 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 where the vessel is rendered incapable of navigation.

The goods saved from the wreck shall be specially bound for the payment of the expenses of the respective salvage, and the amount thereof shall be paid by the owners of the former before they are delivered to them.

General Rule: Each owner, whether of the vessel or cargo, shall bear his own loss.

Exception: If the shipwreck or stranding should be caused by the malice, lack of skill or negligence of the captain, or the vessel was insufficiently repaired and prepared, the ship agent or the shippers may demand indemnity from the captain.

Obligations of Captains A captain who may have taken on board

the goods saved from the wreck shall continue his course to the port of destination. On arrival, he shall deposit the same, with judicial intervention, at the disposal of their legitimate owners.

In case of changing his course, should he be able to unload them at the port of which they were consigned, the captain may make said port if the shippers or supercargoes and the officers and passengers consent thereto.

All expenses of this arrival shall be defrayed by the owners of the cargo as well as the payment of the freight.

If there should be no person interested in the cargo who can pay the expenses and freightage, the court may order the sale of the part of the salvage necessary to cover the same. This shall also be done when:◦ The preservation of the cargo is

dangerous -OR-◦ In the period of 1 year, its legitimate

owners has not been ascertained.

Wrecks of Vessels Under Convoy

If several vessels navigate under convoy and any of them should be wrecked, the cargo saved shall be distributed among the rest in proportion to the amount which one can receive (according to the respective capacities of each vessel)

If any captain should refuse to receive the corresponding cargo, without sufficient cause, the captain of the wrecked vessel shall enter a protest against him.

Protest of the captain of the wrecked vessel:1. Protest is entered into before 2 sea

officials2. Protest states the losses and

damages resulting therefrom3. The complaint is ratified within 24

hours after arrival at the first port

Salvage (Act No. 2616) Compensation to persons by whose

voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from an impending peril, or such property recovered from actual peril or loss, in cases of shipwrecks, derelict or recapture.

A service which one person renders to the owner of a ship or goods by his own labor, preserving the goods or ship which the owner or those entrusted with the care of them either abandoned in distress at sea or are unable to protect.

Derelict – a ship or cargo which is abandoned and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any intention of returning it.

Salvage is not contractual in nature. The compensation is in the form of a

reward and not measured through quantum meruit.

Elements of a Valid Salvage1. Marine Peril2. 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 services rendered contributed to such success

Factors in Computing Reward:1. Labor expended by the salvors2. Promptitude, skill and energy displayed

in rendering the salvage service3. Value of the property and equipment

employed in rendering the service and the danger to which such property was exposed

4. Risk incurred by the salvors in securing the property from the impending peril

5. Value of the property saved6. Degree of danger from which the

property was rescued

Remedies of the Salvor In case the Salvor is not compensated,

he may claim a maritime lien on the ship or cargo rescued.

In case several persons intervened in the salvage, the reward shall be divided between them in proportion to the service which each one may have rendered. In case of doubt, it shall be divided in equal parts.

In case a vessel has been saved or assisted by another vessel, and in the absence of an agreement to the contrary, the reward for salvage shall be divided between the owner, captain and the crew of the rescuing vessel in the following manner:◦ Owner of vessel – ½ of the reward◦ Captain – ¼ of the reward◦ Crew – ¼ of the reward

Procedure of Salvage1. The saved vessel or cargo shall be

delivered to the Collector of Customs of the port and in the absence of the Collector, to the municipal treasurer or to the municipal mayor.

2. The collector of customs, municipal treasurer or mayor shall:1. Safeguard and make an inventory of

the things saved2. Put up for sale at a public auction the

things saved which may be in danger of immediate loss AND no objection is made to such sale

3. Advertise within 30 days subsequent to the salvage in one local newspaper of all the details of the disaster, with a statement requesting all interested persons to make their claims

3. If the owner shall claim the vessel or cargo saved, the authorities shall deliver the same provided:1. There is no controversy over their

value2. A bond is given by the owner to

secure payment of the expenses and the proper reward

4. If there is controversy or the bond is not given, the Regional Trial Court shall decide on the matter

Persons Not Entitled to Reward1. Crew of the vessel shipwrecked or which

was in danger of shipwreck2. He who shall have commenced the

salvage in spite of the opposition of the captain or his representative

3. He who shall have failed to deliver the rescued vessel or cargo to the collector of customs, the municipal treasurer or to the municipal mayor

Salvage vs. TowageSalvage Towage

Crew of the salvaging ship is entitled to salvage, and can look to the salvaged vessel for their share.

Crew of the towing ship does not have any interest or rights with the remuneration pursuant to the contract.

Salvor takes possession and may retain possession until he is paid or compensated.

Tower has no possessory lien; only an action for recovery of sum of money.



Court has power to reduce the amount of remuneration is unconscionable.

Court has no power to change the amount in the towage contract even if unconscionable.

PART 2: PUBLIC UTILITIES LAW

XX. PUBLIC UTILITIES AND SERVICES

Concept Short definition: A public utility is a

business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service (NPC v CA 279, SCRA 408).

Long definition: see Sec. 13(b) of Commonwealth Act No. 146.

Public utilities are privately owned and operated businesses whose services are essential to the general public.

Principal determinative characteristic of a public utility is that of service to, or readiness to serve, an indefinite public or portion of the public as such with has a legal right to demand and receive its services and commodities. The true criterion is whether the public may enjoy it by right or only by permission.

2 characteristics of a public utility:o Private character – considered as

a private enterprise owned and operated by private entities, thus the owners and operators have a right to a reasonable return of their investments.

o Public character – engaged in providing services to the general public, thus impressed with public interest.

Things exempted from the requirement of securing a certificate of public convenience:

o Warehouseso Vehicles drawn by animals and

bancas moved by oar or sail, and tugboats and lighters

o Airships within the Philippines except as regards the fixing of the maximum rates on freight and passengers

o Radio companies except with respect to the fixing of rates

o Public services owned and operated by the National Government, or by any government-owned and controlled corporation, except with respect to the fixing of rates

License to Operate The authorization to operate a public

utility may either be through:o Legislative Franchise – grant

straight from Congresso License or permit issued by

regulatory agency – power to issue licenses is delegated by Congress

Certificate of Public Convenience – an authorization to operate a public service issued by the appropriate government agency

Certificate of Public Convenience and Necessity – an authorization issued by the appropriate government agency for the operation of a public service for which a prior franchise is required by law

Factors to be Considered when granting a Certificate of Public Convenience:

o The service will promote public interest (paramount consideration)

o Citizenship requiremento Financial capacity of the granteeo Ability and willingness to provide

excellent and efficient service to the public.

o Whether or not the grant will result in the ruinous competition in the market.



Ownership Regulation Constitutional provision – No franchise,

certificate or any other form of authorization for the operation of a public utility shall be granted except to:

o Citizens of the Philippines -OR-o Corporations or associations

organized under the laws of the Philippines at least 60% of whose capital is owned by Filipinos.

The capitalization requirement under the Constitution is limited only to those entities which will operate the public utility – not own its equipment.

Police power of the State justifies the regulation of public convenience.

Ownership of public utilities is subject to regulation by the State, including capitalization requirements.

NOTE: The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. Consequently, a corporation is not subject to the 60% Filipino equity requirement under the Constitution if it will just own the equipment or properties that will be used by another entity which shall operate the public utility. (Tatad v Garcia, Jr., 243 SCRA 436)

Regulation of Rates Regulation of rates charged by the public

utility is in line with the policy of the State to protect the public against arbitrary and excessive charges.

But this power to regulate 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.

Regulatory AgenciesAgency Industry or Area

Department of Transportation and Communications (DOTC)

Railroad carriers

Land Transportation Franchising Regulatory

Land Transportation

Board (LTFRB)Land Transportation Office (LTO)

Registration of drivers and motor vehicles

Maritime Industry Authority (MARINA)

Water transportation

National Telecommunications Commission (NTC)

Communication utilities, radio and TV broadcasting systems and similar utilities

Energy Regulatory Commission (ERC)

Electric or power companies

National Water Resources Council (NWRC)

Water resources

Powers and Functions Regulate the rates charged by the public

utilities. Investigate any matter regarding the

quality of services provided by the public utility

Issue permits and certificates for the operation of a public utility and revoke the same

Case Doctrines

JG Summit v CA - If the public benefit is merely incidental, it is not a public use. There must be, in general, a right which the law compels the owner to give to the general public.

People v Quasha – Mere formation of a public utility corporation without the requisite Filipino capital is NOT prohibited. What is prohibited is the granting of franchise for the operation of a public utility already in existence but without the requisite Filipino capital.

Veneracion v Congson Ice Plant – The authority of the commission to issue ex parte a provisional permit to operate proposed public service is based on the superior and imperative necessity of meeting an urgent public need.

Republic v PLDT – Regulatory agencies have no authority to pass upon actions for the taking of private property under the sovereign right of eminent domain.



Abe-Abe v Manta – The National Water Resources Council has exclusive original jurisdiction over disputes regarding water rights for irrigation purposes.

Chamber of Filipino Retailers v Villegas – The privilege of doing business at a definite location in the city market partakes the nature of a lease. A public market is not a public service or utility contemplated by the Public Service Act. Thus the City of Manila may fix the rates for the use of the public markets without prior approval of the Public Service Commission.

Luzon Stevedoring v PSC – Public utility is not defined by the number of people actually served. Nor does the mere fact that the service is rendered only under contract prevent a company from being a public utility. The casual or incidental service devoid of public character and interest is not brought within the category of public utility.

XXI. WATER UTILITES

Water Code of the Philippines (PD 1067)The following belong to the State (Art. 5):

1. Rivers and their natural beds;2. Continuous or intermittent waters of

springs and brooks running in their natural beds and the beds themselves;

3. Natural lakes and lagoons;4. All other categories of surface waters

such as water flowing over lands, water from rainfall whether natural, or artificial, and water from agriculture runoff, seepage and drainage;

5. Atmospheric water;6. Subterranean or ground waters;7. Seawater.

The following waters found on private lands belong to the State (Art. 6):

1. Continuous or intermittent waters rising on such lands;

2. Lakes and lagoons naturally occurring on

such lands;3. Rain water falling on such lands;4. Subterranean or ground waters; and,5. Water in swamps and marshes.

The owner of the land where the water is found may use the same for domestic purposes without securing a permit, provided that such use shall be registered, when required by the Council. The Council, however, may regulate such when there is wastage, or in times of emergency.

The use of water resources shall be regulated by the National Water Resources Council

Document evidencing the right to appropriate water – water permit

Only citizens of the Philippines, of legal age, as well as juridical persons, who are duly qualified by law to exploit and develop water resources, may apply for water permits.

Water permits may be revoked after due notice and hearing on grounds of non-use; gross violation of the conditions imposed in the permit.

The permits may also be transferred to other persons with prior approval of the Council.

Provincial Water Utilities Act (PD 198) Formation of local water districts (LWD)

within a municipality, city, province or portions thereof

Purposes of Local Water Districts:1. Acquiring, installing, improving,

maintaining and operating water supply and distribution systems within the boundaries of such districts

2. Providing, maintaining and operating waste-water collection, treatment and disposal facilities

3. Conduct such other functions and operations incidental to water resource development, utilization and disposal within such districts



Powers of the Local Water Districts:1. Purchase, construct, or otherwise

acquire works, water, water rights, land, rights and privileges useful or necessary to convey, supply, store, collect, treat, dispose of or make other use of water for any purpose authorized by this Title.

2. Sell water, pursuant to generally applicable rules and regulations, to any person for use within the district.

3. The District may require the filing of a written application for service, payment of established charges or deposits and execution of water service contract.

4. Enter into contracts with any person for the purpose of performing any functions of the district: Provided, that the Board of Directors may not by contract delegate any of the discretionary powers vested in the board by this Title.

5. Commence, maintain, intervene in, defend and compromise actions, and proceedings to prevent interference with or deterioration of water quality or the natural flow of any surface, stream or ground water supply which may be used or useful for any purpose of the district or be a common benefit to the lands or its inhabitants.

Local Water Utilities Administration Attached to the National Economic and

Development Authority (NEDA) While the Local Water Districts monitor

the extraction and distribution of the water resources, the Local Water Utilities Administration interacts with the investor-owned public utility or cooperative corporation which owns or operates a water system serving an urban center in the Philippines.

Exclusive Franchise: No Franchise shall be granted to any other person or

agency for domestic industrial or commercial water service within the district or any portion thereof unless and expect to the extent that the board of directors of said district consents there to by resolution duly adopted, such resolution, however, shall be subject to review by the Administration.

Purposes:1. Prescribe minimum standards and

regulations to assure acceptable standards of construction materials and supplies, maintenance, operation, personnel, training, accounting and fiscal practices for local water utilities;

2. Furnish technical assistance and personnel training programs for local water utilities;

3. Monitor and evaluate local water standards;

4. To effect system integration, joint investment and operations district annexation and deannexation whenever economically warranted;

Bureau of Fisheries (PD 43, Sec. 6.B.14)Sec. 6.B.14 – Designate and set the boundaries of Fishery Districts and submit to the Council, a program within one (1) year after the passage of this Act for the Organization of District Fishery Corporations or Cooperatives to be composed of the various components of the industry in each district which shall engage in the buying, processing, storing and marketing of fish and fishery products. To serve this purpose, the Bureau shall promote in each of the Fishery Districts to be established under this Act, the establishment of adequate refrigerating plants for ice making, storage and quick-freezing to be owned preferably by the District Fishery Corporation or Cooperatives: Provided, That the refrigerating and cold storage plants belonging to the Bureau shall be sold to the District Fishery Corporations or Cooperatives under such terms and conditions promulgated by the Bureau, subject to the approval of the



Council: Provided, further, That ice-making, cold storage and quick-freezing facilities may be established by any person, corporation or cooperative in any part or municipal franchise, notwithstanding the provisions of the law to the contrary.

XXII. ENERGY AND ELECTRICITY

National Electrification Administration (PD 269) Attached agency of the Department of

Energy Tasked to promote, encourage and assist

public service entities, particularly cooperatives, to the end of achieving the objective of making electric service available throughout the nation on an area coverage basis as rapidly as possible.

Franchising powers are delegated to the agency. All franchising powers of municipal, city and provincial governments are hereby repealed

Has the power to conduct hearings regarding the issuance, alteration and cancellation of certificates and to review existing franchises of cooperatives.

Electric Cooperatives Cooperative non-stock, non-profit

membership corporations. Organized for the purpose of and of

promoting and encouraging the fullest use of, service on an area coverage basis at the lowest cost consistent with sound economy and the prudent management.

Cooperatives shall be exempt from regulation by the Board of Powers and Waterworks.

The provisions of the Securities Act shall not apply to any note, bond or other evidence of indebtedness issued by any cooperative or to any mortgage, deed of trust, indenture or other instrument executed to secure the same. The provisions of said Act shall not apply to the issuance of membership certificates

or any other evidence of member or patron interest by a cooperative.

General Rule: Whenever two or more public service entities are affected by and have competing or conflicting interests with respect to the granting, repeal, alteration or conditioning of the same franchise or franchises, and one or more of such entities are cooperatives, the NEA shall accord preference to a cooperative over any other type of public service entity

Exception: When an order in favor of another type of public service entity (or of another cooperative) will result in the furnishing and extending of area coverage service (1) to a greater number of households, (2) over a larger geographic area, and (3) on the basis of the same or lower rates, charges and fees.

Department of Energy (RA 7638) Exercises jurisdiction over the non-price

regulatory powers and functions of the Energy Regulatory Board. (eg: funds, property, equipment and personnel).

Formulate policies for the planning and implementation of a comprehensive program for the efficient supply and economical use of energy

Develop and update the existing Philippine energy program which shall provide for an integrated and comprehensive exploration, development, utilization, distribution and conservation of energy resources, with preferential bias for environment-friendly, indigenous, and low-cost sources of energy.

Establish and administer programs for the exploration, transportation, marketing, distribution, utilization, conservation, stockpiling and storage of energy resources of all forms, whether conventional or non-conventional.

The Secretary of the Department or his representative shall have visitorial and



examining authority over non-government entities with contracts for the exploration, development, or utilization of the natural resources for energy purposes in order to determine the share of the Government in the revenue or product thereof.

Energy Regulatory Commission (ERC) Replaced the abolished Energy

Regulatory Board Has the power to determine, prescribe

and fix the rates being charged by the National Power Corporation and Electric Cooperatives.

Under the EPIRA (RA 9136), the rate-fixing power of the ERC extends to those entities engaged in power distribution, transmission and supply. The prices charged by a generation company for supply of electricity shall not be subject to regulation by the ERC except as otherwise provided under said Act.

Power to issue Certificates of Public Convenience for the operation of electric power utilities and services, except electric cooperatives (which remains under the NEA).

Decisions regarding the fixing of rates are appealable to the Public Service Commission and ultimately to the Supreme Court.

Any complaint against such rates or fees shall be filed with the Public Service Commission within thirty (30) days after the effectivity of such rates or fees, but the filing of such complaint or action shall not stay the effectivity of said rates or fees.

Electric Power Industry Reform Act (RA 9136) Divided the electric power industry into 4

sectors:◦ Generation◦ Transmission◦ Distribution◦ Supply

Express declaration that power generation shall NOT be considered as a public utility operation.

Consequences:◦ For this purpose, any person or entity

engaged or which shall engage in power generation and supply of electricity shall not be required to secure a local or national franchise.

◦ Citizenship requirements do not apply and foreign investors may own beyond the 60% capitalization limit.

Even if a franchise is not necessary, the power generating entities still needs to secure from the ERC a certificate of compliance as well as other health, safety and environmental clearances from the appropriate government agencies.

The distribution sector is deemed by law to be a regulated common carrier.

NOTE: The EPIRA only exempts the power generating entities from securing a franchise. Entities engaged in power distribution, transmission and supply are different matters altoghether. They still need to secure a franchise or certificate from the ERC and shall be regulated by the same agency.

XXIII. CERTIFICATE OF PUBLIC CONVENIENCE

CPC vs. CPCNCertificate of Public

ConvenienceCertificate of Public

Convenience and Necessity

Any authorization to operate a public service issued by the appropriate government agency

Issued by the appropriate government agency to a public service to which any political subdivision has granted a franchise

An authorization issued by the proper government agency for the operation of public services for which no franchise, either

An authorization issued by the proper government agency for the operation of public services for which a franchise is required by law



municipal or legislative is required by law

Issuance, Suspension and Revocation

Requisites for Issuance of CPC1. Filipino citizenship2. Financial ability3. Public necessity4. Profit motive

The Public Service Commission may issue a provisional permit pending final determination of an application for a certificate of public convenience when the following requisites are present:

1. The case cannot be decided at once2. The Commission issues the provisional

permit to meet an urgent public need3. For TPU (Transportation Public Utility)

services, that the case is not for new public service, but a mere adjustment of an existing service.

A. Prior Operator Rule The Commission will not issue a CPC to a

second operator if there is a first operator who is rendering sufficient and satisfactory service.

Purpose of the rule is to:◦ Protect the investment of the prior

operator◦ Avoid ruinous competition

Before permitting a new operator to invade the territory of another existing operator with a CPC, thereby entering into competition with it, the prior operator must be given an opportunity to extend its service to meet the public demand.

Main basis for granting new permits – public interest or public necessity

Non-applicability of rule:◦ Where certificate granted is a maiden

franchise (there is no prior existing line or service in said route or area)

◦ Where public interest would be better

served by the new operator◦ Where the old operator failed to

make an offer to meet the increase in traffic.

B. Prior Applicant Rule Where there are various applicants for a

public utility over the same territory, all conditions being equal, priority in the filing of the application for a CPC becomes an important factor in granting or refusing a certificate.

C. Third Operator Rule Where two operators are more than what

the public needs, there is no reason to permit a third operator to engage in competition with them.

If later on, circumstances would change requiring the operation of new units or extending existing facilities, the third operator would be subject to the prior applicant rule and also as to who may best serve the public interest.

D. Protection of Investment Rule One of the primary purposes of the

Public Service Act is to protect and conserve the investments made by the public service operators.

It is the duty of the Commission to protect the investment of an operator who is in good standing and not those whose investment has deteriorated through their own fault.

This rule is not applicable when:◦ The application of the rule will result

in a monopoly of the public service.◦ When the operator failed to render

satisfactory service and has violated the terms and conditions of the certificate as well as the rules and regulations of the Commission.

Suspension and Revocation1. When the facts and circumstances on the

strength of which the certificate was



issued have been misrepresented or materially altered.

2. The holder has violated or willfully refused to comply with any order, rule or regulation of the Commission.

3. The common carrier repeatedly fails to comply with its duty to observe extraordinary diligence.

Necessity of Notice and Hearing

In the following cases, the powers of the Public Service Commission may be exercised only upon prior notice and hearing:

1. Issuance of CPC or CPCN2. Fixing of rates, tolls and charges3. Setting up of just and reasonable

standards and classifications4. Issuance of orders requiring public

services to establish and maintain extensions of facilities

5. Suspension, revocation or modification of certificates of public convenience.

Notice and hearing may be dispensed with in the following cases:

1. When the Commission investigates any matter concerning public services

2. Require any public service to furnish safe, adequate and proper service

3. Appraise and value the property of any public service

4. Grant any public service special permits to make extra or special trips

5. Require any public service to properly keep books, records and accounts, and to make a report on its finances

6. Require the public service to comply with laws and ordinances

Registered Owner Rule The person who is the registered owner

of a vehicle or conveyance is liable for any damage caused by the negligent operation of the vehicle although the same was already sold or transferred to another person at the time of the

accident. The registered owner is liable to the

injured party, subject to his right of recourse against the transferee.

The registered owner is solidarily liable with the driver or operator for the injuries incurred by third persons.

The rule applies even if the registered owner leased the vehicle to another who is the actual operator. In order to be free from liability, the lessor-owner should register the lease contract with the LTO.

NOTE: Prior approval from the Regulatory Agency is required if the public utility is planning to increase the rates of its services. But if the intent of the public utility is to give discounts on the rates, prior approval from the Agency may be dispensed with. Discount rates are reduction in rates, thus the Agency's prior approval of the discount is not necessary. (NAPOCOR v. PEPOA, 486 SCRA 577, 2006)

Kabit System An unlawful arrangement where the

grantee of a CPC allows another person who owns motor vehicles to operate under such license for a fee.

The registered owner or grantee of the CPC shall still be liable to the public.

Although not penalized outright as a criminal offense, the kabit system is recognized as being contrary to public policy and, therefore, a void contract.

But even if the kabit system is void as a contract, the registered owner may still be indemnified for the amount he is required to pay as damages for injuries caused to third persons.
