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CHAPTER DISTRIBUTION:

Chapters 5-8 & 21 – Section A


Chapters 9-11 – Section B
Chapters 13/14/16 – Section C
Chapters 17/19/20 – Section JD
CHAPTER 5

(264-265)

PROBLEM:

On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti
Tiga at Shanghai Port China, 8,260 metric tons or 165,200 bags of Grey Portland Cement to
be discharged at the Port of Manila and delivered to its consignee, Heindrich Trading Corp.
(HEINDRICH). The subject shipment was insured with respondents, FGU Insurance Corp.
(FGU) and Pioneer Insurance and Surety Corp. (PIONEER), against all risks under Marine
Open Policy No. 062890275 for the amount of P18,048,421.00. P.T. Pakarti Tata (PAKARTI)
owns the subject vessel that it chartered to Shinwa Kaiun Kaisha Ltd. (SHINWA).
Representing itself as owner of the vessel, SHINWA entered into a charter party contract
with Sky International, Inc. (SKY), an agent of Kee Yeh Maritime Co. (KEE YEH), which
further chartered it to Regency Express Lines S.A. (REGENCY), Thus, it was REGENCY that
directly dealt with consignee HEINDRICH, and accordingly, issued Clean Bill of Lading. On
July 23, 1990, the vessel arrived at the Port of Manila and the shipment was discharged.
However, upon inspection of HEINDRICH and petitioner Ace Navigation Co., Inc. (ACENAV),
agent of CARDIA, it was found that out of the 165,200 bags of cement, 43,905 bags were in
bad order and condition. Unable to collect the sustained damages in the amount of
P1,423,454.60 from the shipper, CARDIA, and the charterer, REGENCY, the respondents, as
co-insurers of the cargo, each paid the consignee, HEINDRICH, the amounts of P427,036.40
and P284,690.94, respectively, and consequently became subrogated to all the rights and
causes of action accruing to HEINDRICH. On August 8, 1991, respondents filed a complaint
for damages against the following defendants: "REGENCY EXPRESS LINES, S.A./UNKNOWN
CHARTERER OF THE VESSEL TAKARTI TIGA'/UNKNOWN OWNER and/or DEMIFE (sic)
CHARTERER OF THE VESSEL TAKARTI TIGA', SKY INTERNATIONAL, INC. and/or ACE
NAVIGATION COMPANY, INC." Maintaining that it was not a party to the bill of lading,
ACENAV asserts that it cannot be held liable for the damages sought to be collected by the
respondents. It also alleged that since its principal, CARDIA, was not impleaded as a party-
defendant/respondent in the instant suit, no liability can therefore attach to it as a mere
agent. Who are the parties in the bill of lading?

As a contract, the Bill of Lading names the contracting parties, which include the consignee,
fixes the route, destination, and freight rates or charges, and stipulates the rights and
obligations assumed by the parties. As such, it shall only be binding upon the parties who
make them, their assigns and heirs. In this case, the original parties to the bill of lading are:
(a) the shipper CARDIA; (b) the carrier PAKARTI; and (c) the consignee HEINDRICH.
However, by virtue of their relationship with PAKARTI under separate charter
arrangements, SHINWA, KEE YEH and its agent SKY likewise became parties to the bill of
lading. In the same vein, ACENAV, as admitted agent of CARDIA, also became a party to the
said contract of carriage. However, ACENAV, as a mere agent is not liable based on the
provisions of the New Civil Code. (Ace Navigation Co., Inc. v. FGU Insurance Corporation, et
al., G.R. No. 171591, June 25, 2012)

(290-297)

PROBLEMS AND CASES:

1. Juan, a paying passenger, noted the stipulation at the back of the bus ticket stating
that the liability of the bus company is limited to P1,000.00 in case of injuries to its
passengers and to P500.00 in case of loss or damage to baggage caused by the
negligence or willful acts of its employees. Upon arrival at his destination, Juan got
into an altercation with the ticket conductor, who pulled out a knife and inflicted
several wounds on Juan. The bus driver intervened, heaping abusive language on
Juan and completely destroying Juan's baggage which contained expensive goods
worth P3,000.00. The hospital expenses for Juan would probably amount to at least
P6,000.00. Give the extent of the liability of the bus company.

A. The bus company is liable to Juan for damages in the amount of P3,000.00 for the
loss of his good and P6,000.00 for his hospital expenses, as well as, other damages
that he can establish including loss of earning capacity, moral damages, exemplary
damages and attorney's fees.

The stipulation at the back of the bus ticket stating that the liability is limited
to P1,000.00 in case of injuries to its passengers caused by negligence or willful acts
of its employees is void under Article 1757 of the Civil Code. Article 1757 provides
that the responsibility of a common carrier to exercise utmost diligence for the
safety of passengers cannot be dispensed with or lessened by stipulation or
statement on tickets or otherwise. The stipulation in the ticket that the carrier is
liable only up to P500.00 in case of loss or damage to baggage caused by negligence
or willful acts of its employees is likewise void. Article 1750 of the Civil Code
provides that a contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed
upon. It is believed that the stipulation involved is not just and reasonable under the
circumstances. (1984)
2. Mabuhay Lines, Inc., a common carrier, entered into a contract with Company X,
whereby it agreed to furnish Company X, for a fixed amount, a bus for a company
excursion on its anniversary day. It was agreed that Company X would have the use
of the bus and its driver from 7:00 A.M. to 7:00 P.M. on the stipulated date, and that
the bus driver would be obliged to follow the instructions of the company's general
manager as to the places to be visited. Company X agreed to bear the cost of the
gasoline consumed. The transportation contract signed by Company X contained a
stipulation that Mabuhay Lines, Inc., would be exempt from liability on account of
acts or omissions of its employees. On the return trip from the excursion site, the
bus had an accident and several employees of Company X were injured. State the
liability, if any, of Mabuhay Lines, Inc.

A. Mabuhay Lines, Inc. is liable for the injuries of several employees of Company X. It is
submitted that Mabuhay Lines, Inc. remains a common carrier although the bus was
hired to carry the employees for a fixed amount. The carrier, through its driver who
was still in control of the bus, was still required to exercise extraordinary diligence.
Consequently, the responsibility of Mabuhay Lines, Inc. for the safety of passengers,
cannot be dispensed with or lessened by stipulation. (Articles 1757 and 1764, New
Civil Code) (1984)

3. A takes a plane from Manila bound for Cagayan de Oro via Cebu, where there was a
change of planes. A arrived at Cagayan de Oro safely, but to his dismay, his two
suitcases were left behind in Cebu. The airline company assured him that the
suitcases would come in the next flight but they never did. A claims P1,000.00
damages for the loss of the both suitcases, but the airline is willing to pay only
P400.00 on the ground that the airline ticket stipulates that unless a higher value is
declared; any claim for loss cannot exceed P200.00 for each luggage. A had not
declared a greater value, despite the fact that the clerk had called his attention to the
stipulation in the ticket. Is A entitled to P1,000.00 or only P400.00? Explain.

A. A is entitled to only P400.00. Article 1749 of the Civil Code provides that a
stipulation that the common carrier's liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value,
is binding. This provision applies to baggages that are checked in or under the
custody of the carrier. Hence, the stipulation limiting the carrier's liability to
P400.00 is binding because A did not declare a greater value. (1982)
4. Donñ a Buding checked in at the PAL counter of the Manila Domestic Airport on a
flight to Bacolod. Noticing that Donñ a Buding had two baggages being checked in, the
counter clerk called her attention to the stipulation in the plane ticket and asked if
she was going to make any declaration on the value of the same, but Donñ a Buding
just looked at him and did not say anything. The plane arrived in Bacolod, but the
two baggages were nowhere to be found. PAL promised to deliver the two baggages
the next day, but it never did. Donñ a Buding sued PAL, claiming P10,000.00 damages
for the loss of the two baggages. PAL answered that it was liable for P200.00 for the
plane ticket clearly stipulated that: "That total liability of the carrier for lost or
damaged baggage is limited to P100.00 per baggage, unless the passenger declares a
higher valuation in excess of P100.00 but not in excess, however, of a total valuation
of P1,000.00 and unless additional charges are paid pursuant to Carrier's Tariffs."
The trial court ruled in favor of PAL. Comment on the legality of the court's decision.

A. The ruling of the trial court in favor of PAL is supported by the provisions of the Civil
Code. Article 1749 of the Civil Code provides that a stipulation that the common
carrier's liability is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding. This provision
applies to baggages that are checked in or under the custody of the carrier. Hence,
the stipulation limiting the carrier's liability to P200.00 is binding because A did not
declare a greater value. (1985)

5. X shipped through MN Kalayaan, spare parts worth P500,000.00. The bill of lading
limits the liability of the carrier to P500.00 and contains a notation indicating the
amount of the letter of credit (i.e., P500,000.00) which X obtained from a bank to
import the spare parts. The spare parts were not delivered to X so X sued the carrier
for P500,000.00. Decide.

A. X can recover the value of his actual loss, P500,000.00. Article 1750 of the Civil Code
provides that a contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed
upon. It is believed that the stipulation involved is not just and reasonable under the
circumstances. This is especially true in this case where the bill of lading itself
indicates the true value of the goods shipped (supported by the letter of credit).
(1989)
6. Martin Nove shipped an expensive video equipment to a friend in Cebu. Martin had
bought the equipment from Hong Kong for $5,000. The equipment was shipped
through MIS Lapu-lapu under a bill of lading which contained the following
provision in big bold letters: "The limit of the carrier's liability for any loss or
damage to cargo shall be P200 regardless of the actual value of such cargo, whether
declared by its shipper or otherwise." The cargo was totally damaged before
reaching Cebu. Martin Nove claimed for the value of his cargo ($5,000) instead of
just P200.00 as per limitation on the bill of lading. Is there any legal basis for Nove's
claim?

A. Martin Nove's claim has legal basis. Article 1750 of the Civil Code provides that a
contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under
the circumstances and has been fairly and freely agreed upon. It is believed that the
stipulation involved is not just and reasonable under the circumstances and has not
been fairly and freely agreed upon. It is unfair to stipulate that the carrier's liability
is only up to a certain amount "regardless of the actual value of such cargo, whether
declared by its shipper or otherwise." It is unfair to deny the shipper the right to
declare the actual value of his cargoes and to recover such true value in case of loss
or damage. (1987)

7. In a plane ticket stub of Air Manila (AMI), there appears a statement that the liability
"if any loss or damage of checked in baggage or for delay in the delivery thereof of
the AMI "is limited to its value and unless the passenger declares in advance a higher
valuation and pays an additional charge therefore, the value shall be conclusively
deemed not to exceed P100.00 for each ticket." A passenger whose baggage was lost
in transit from Manila to Cebu sued for a higher amount, i.e., P5,000.00. May AMI
successfully claim that the above statement precludes the plaintiff from asking more
than P100.00? Decide. Give reasons for your answers.

A. Yes. AMI may successfully claim that the plaintiff was precluded from asking more
than P100.00 for each ticket. Article 1749 of the Civil Code provides that a
stipulation that the common carrier's liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value,
is binding. This provision applies to baggages that are checked in or under the
custody of the carrier. Hence, the stipulation limiting the carrier's liability to
P100.00 is binding because A did not declare a greater value. (1978)

[It has been suggested that the limitation is invalid because it was not signed
by the shipper. However, this requirement under Article 1744 applies only to
reduction of diligence.]

8. A, in Holland, shipped on board a vessel owned by B, 500 cases of canned milk to


consignee C in Iloilo. Upon arrival, the vessel discharged the canned milk into the
custody and possession of the arrastre operator appointed by the Bureau of
Customs. In the Bill of Lading, it was stipulated that the vessel is no longer liable for
the cargo upon its delivery to the hands of the customs authorities. The cargo
checker of the arrastre found the cargo to be in good order. Upon delivery to the
consignee, a marine surveyor found 20 cases of milk missing. C sued B for the value
of the missing cases on the ground that under the contract of carriage, B was obliged
to deliver the cargo safely to the consignee and that the stipulation limiting the
liability of the carrier is contrary to morals and public policy. B disclaims liability for
short delivery. Decide the dispute, with reasons.

A. The case should be decided in favor of B. It is submitted that B may disclaim liability
for short delivery. It is believed that it is just and reasonable to stipulate that he is no
longer responsible when the goods are delivered to customs authorities. The
stipulation is valid because nothing therein is contrary to morals or public policy,
said stipulation being adopted to mitigate the responsibility of the carrier. (Lu Do &
Ym Corp. v. Binamira, April 22, 1957) (1979)

9. Discuss whether or not the following stipulations in a contract of carriage of a


common carrier are valid:

a. a stipulation limiting the sum that may be recovered by the shipper or owner
to 90% of the value of the goods in case of loss due to theft.

b. A stipulation that in the event of loss, destruction or deterioration of goods


on account of the defective condition of the vehicle used in the contract of
carriage, the carrier's liability is limited to the value of the goods appearing in
the bill of lading unless the shipper or owner declares a higher value.

A. The stipulation is invalid. Article 1745 of the Civil Code states that a stipulation is
unreasonable, unjust and contrary to public policy if "the common carrier's liability
for acts committed by thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished." The stipulation involved
diminishes liability for theft without distinction if there is grave or irresistible
threat, violation or force.

B. The stipulation is valid under Article 1749 of the Civil Code. Article 1749 of the Civil
Code provides that a stipulation that the common carrier's liability is limited to the
value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding. (2002)

10. Suppose "A" was riding on an airplane of a common carrier when the accident
happened and "A" suffered serious injuries. In an action by "A" against the common
carrier, the latter claimed that — (1) there was a stipulation in the ticket issued to
"A" absolutely exempting the carrier from liability from the passenger's death or
injuries and notices were posted by the common carrier dispensing with the
extraordinary diligence of the carrier, and (2) "A" was given a discount on his plane
fare thereby reducing the liability of the common carrier with respect to "A" in
particular.

a. Are those defenses valid?

b. What are the defenses available to any common carrier to limit or exempt it
from liability?

A. (a) No. Those defenses are not valid defenses. As such, these stipulations are void.
Article 1757 of the New Civil Code provides, that "the responsibility of a common
carrier for the safety of passengers as required in Articles 1733 and 1755 cannot be
dispensed with or lessened by stipulation, by posting of notices, by statements on
tickets, or otherwise." Articles 1733 and 1755 require extraordinary diligence or
utmost diligence in the carriage of passengers.
(b) The common carrier may exempt itself from liability if he can prove that: (1) He
observed extraordinary diligence, (2) the proximate and only cause of the incident is
a fortuitous event or force majeure, (3) the proximate and only cause of the loss was
an act or omission of the shipper or owner of the goods, (4) the proximate and only
cause of the loss is the character of the goods or defects in the packing or in the
containers, and (5) the proximate and only cause of the loss order or act of
competent public authority. To limit its liability or at least mitigate the same, the
carrier can cite contributory negligence of the plaintiff and the doctrine of avoidable
consequences.

11. On December 19, 2000, Novartis Consumer Health Philippines, Inc. (NOVARTIS)
imported from Jinsuk Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200
rolls of Ovaltine Power, 18 Glaminated plastic packaging material. In order to ship
the goods to the Philippines, JINSUK engaged the services of Protop Shipping
Corporation (PROTOP), a freight forwarder likewise based in South Korea, to
forward the goods to their consignee, NOVARTIS. The Bill of Lading issued by
PROTOP provides that the cargo was on freight prepaid basis and on "shipper's load
and count" which means that the "container [was] packed with cargo by one shipper
where the quantity, description and condition of the cargo is the sole responsibility
of the shipper." Likewise stated in the bill of lading is the name Sagawa Express
Phils., Inc., (SAGAWA) designated as the entity in the Philippines which will obtain
the delivery contract. PROTOP shipped the cargo through Dongnama Shipping Co.
Ltd. (DONGNAMA) which in turn loaded the same on M/V Heung-A Bangkok V-019
owned and operated by Heung-A Shipping Corporation, (HEUNG-A), a Korean
corporation, pursuant to a 'slot charter agreement' whereby a space in the latter's
vessel was reserved for the exclusive use of the former. Wallem Philippines Shipping,
Inc. (WALLEM) is the ship agent of HEUNG-A in the Philippines. NOVARTIS insured
the shipment with Philam Insurance Company, Inc. (PHILAM, now Chartis
Philippines Insurance, Inc.) against all loss, damage, liability, or expense before,
during transit and even after the discharge of the shipment from the carrying vessel
until its complete delivery to the consignee's premises. The vessel arrived at the port
of Manila, South Harbor, on December 27, 2000 and was discharged without
exception into the possession, custody and care of Asian Terminals, Inc. (ATI) as the
customs arrastre operator. The shipment was thereafter withdrawn on January 4,
2001 by NOVARTIS' appointed broker, Stephanie Customs Brokerage Corporation
(STEPHANIE) from ATI's container yard. The shipment reached NOVARTIS' premises
on January 5, 2001. Upon inspection, it was discovered that the boxes of the
shipment were wet and damp. The boxes on one side of the van were in disarray
while others were opened or damaged due to the dampness. Parts of the container
van were damaged and rusty. There were also water droplets on the walls and the
floor was wet. Since the damaged packaging materials might contaminate the
product they were meant to hold, the entire shipment was rejected. Chemical
analysis showed that the cause of wetting in the carton boxes and kraft paper/lining
materials as well as the aluminum foil laminated plastic packaging material, was salt
water. The issues that were resolved are as follows: (a) Whether HEUNG-A, WALLEM
and PROTOP are liable for the damage to the shipment; and if so (b) Whether
HEUNG-A's liability can be limited to US$500 per package pursuant to the COGSA.

A. (a) HEUNG-A and the ship agent WALLEM are liable for the damage was sustained
while the shipment was in possession of HEUNG-A. There was evidence that
seawater seeped into the panels/ sidings and roofing of the container van. This was
confirmed by the examination conducted by the chemist of PRECISION. Although the
container van had defects, they were not, however, so severe as to accommodate
heavy saturation of seawater. The holes were tiny and the rusty portions did not
cause gaps or tearing. Hence, the van was still in a suitable condition to hold the
goods and protect them from natural weather elements or even the normal flutter of
waves in the seas.

The scale of the damage sustained by the cargo inside the van could have
been only caused by large volume of seawater since not a single package inside was
spared. Aside from the defective condition of the van, some other circumstance or
occurrence contributed to the damages sustained by the shipment. Since the
presence of sea water is highly concentrated in the high seas and considering
HEUNG-A's failure to demonstrate how it exercised due diligence in handling and
preserving the container van while in transit, it is liable for the damages sustained
thereby.

As the carrier of the subject shipment, HEUNG-A was bound to exercise


extraordinary diligence in conveying the same and its slot charter agreement with
DONGNAMA did not divest it of such characterization nor relieve it of any
accountability for the shipment. Clearly then, despite its contract of affreightment
with DONGNAMA, HEUNG-A remained responsible as the carrier, hence, answerable
for the damages incurred by the goods received for transportation. Here, HEUNG-A
failed to rebut this prima facie presumption when it failed to give adequate
explanation as to how the shipment inside the container van was handled, stored
and preserved to forestall or prevent any damage or loss while the same was in its
possession, custody and control.
PROTOP is solidarily liable with HEUNG-A for the lost/damaged shipment in
view of the bill of lading the former issued to NOVARTIS. "A bill of lading is a written
acknowledgement of the receipt of goods and an agreement to transport and to
deliver them at a specified place to a person named or on his or her order. It
operates both as a receipt and as a contract. It is a receipt for the goods shipped and
a contract to transport and deliver the same as therein stipulated." PROTOP
breached its contract with NOVARTIS when it failed to deliver the goods in the same
quantity, quality and description as stated in the bill of lading.

(b) The rule on Package Liability Limitation under COGSA applies. It should be noted that
Philippine laws apply because Philippines is the country of destination. Hence, when there
is a loss/damage to goods covered by contracts of carriage from a foreign port to a
Philippine port and in the absence a shipper's declaration of the value of the goods in the
bill of lading, as in the present case, the provisions of the COGSA shall apply. Under the
circumstances, HEUNG-A, WALLEM and PROTOP's liability is limited to $500 per package
or pallet. HEUNG-A, WALLEM and PROTOP are liable only for the lost/damaged 17 pallets
instead of 19 pallets stated in the bill of lading. (Philam Insurance Company, Inc. v. Heung-A
Shipping Corporation, et al., G.R. No. 187701 and 187812, July 23, 2014)
CHAPTER 6

(309)

PROBLEM:

While docking the vessel, "Taurus," the master, through negligence, damaged the wharf and
the merchandise loaded on the deck. The owner of the wharf and the owner of the damaged
merchandise sued the owner of the vessel and master of the vessel for the damage.

a) What is the basis of the liability of the owner of the vessel with respect to the
damage to the wharf?

b) With respect to the damage to the merchandise?

a) The shipowner may be made liable based on quasi-delict under Article 2176 of the Civil
Code with respect to the damaged wharf. The master of the vessel caused damage to the
wharf through negligence without any pre-existing contractual relations between the
parties. The liability of the shipowner may be predicated on Article 2180 of the Civil Code.

b) The shipowner may be made liable for breach of contract for the damage to the
merchandise. The carrier has an obligation to carry the goods safely to their destination.
The carrier failed to do so because of the negligence of his employee. (1976)

(311)

PROBLEM:

1. X, a businessman boarded a Pantranco bus bound for Dagupan City where he would meet
Y, to arrange a business transaction. Somewhere in San Fernando, Z, the Deputy Sheriff,
intercepted and seized the Pantranco but at the instance of W who had earlier obtained
from the court a writ of attachment. As a result of the seizure by the sheriff, X failed to reach
Dagupan City where he was supposed to transact business. Feeling aggrieved by the loss of
an otherwise juicy transaction, sued Pantranco for breach of contract. Decide.

A: X cannot recover for the alleged loss of a juicy business transaction. The alleged loss is
only speculative and does not appear to be an actual loss. Moreover, even if the loss is not
speculative, the carrier cannot be liable for the alleged loss because it was not attended by
fraud, bad faith, malice or wanton attitude on the part of the carrier. Article 2201 of the Civil
Code provides that in contracts, the damages for which the obligor who acted in good faith
is liable shall be those that are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen at the time the obligation was constituted.
(1977)
CHAPTER 8

(387-388)

PROBLEM:

1. A, as paying passenger, boarded a plan of X & Co., a duly authorized air carrier bound
from Manila to Cebu. On the way, the plane exploded in mid-air, and crashed, causing
the death of all persons on board. It was determined that the mid-air explosion was
due to the explosive device contained in a suitcase by another passenger in the ill-
fated aircraft. If you are the judge, how will you rule?

A. I will make the carrier liable. The carrier is bound to exercise extraordinary
diligence in carrying its passengers. It is presumed to be negligent when its
passengers died when the aircraft exploded. Moreover, the negligence of the carrier
is apparent because an explosive device was brought into the carrier without being
detected by the employees. Under R.A. 6235, the carrier is bound to inspect and
investigate suspicious packages that are being brought into the aircraft. This duty
was not complied with because the explosive device was not detected by the
carrier's personnel.
CHAPTER 9

(402)

CASE:

On September 1, 1983, Korean Air Lines (KAL) Flight 007, while on its way to New
York, strayed off-course into the airspace of the then Union of Soviet Socialist Republic
(USSR). The USSR military sot it down over the sea of Japan thereby resulting in the death
of 269 passengers. It was established that the crew repeatedly made aware of the deviation
but elected not to reported the deviation, continued the flight and continued to report being
on course. Was there willful misconduct that is contemplated under the Warsaw
Convention?

A: Yes. The magnitude and duration of the deviation, supported by the inference that the
crew realized the deviation so time prior to the last position report, showed that the crew
was repeatedly made aware of the deviation but elected not to report the deviation,
continued the flight and continued to report being on course. The crew’s decision to
conceal the error, rather than simply correcting it, was an intentional act. There was
sufficient evidence that the crew knew that flying over the USSR was prohibited and that it
was dangerous. It was solely KAL’s misconduct that put the plane in the vulnerable position.
(In Re Korean Airlines Disaster, 704 F.Supp. 1135 [1988]).

(413-414)

1. PR purchased from S Airlines in Manila conjunction tickets for Manila -Singapore -


Athens -Larnaca - Rome - Turin - Zurich - Geneva - Copenhagen - New York. X Airline was
not a participating airline in any of the segments in the itinerary under the said conjunction
tickets. In Geneva the PR decided to forego his trip to Copenhagen and to go straight to New
York and in the absence of a direct flight under his conjunction tickets from Geneva to New
York, PR on June 7, 1989 exchanged the unused portion of the conjunction ticket for a one-
way ticket from Geneva to New York from the petitioner airline. X Airline issued its own
ticket to PR in Geneva and claimed the value of the unused portion of the conjunction ticket
from the IATA clearing house in Geneva. Later, PR filed an action for damages against X
Airline before the regional trial court of Cebu for the alleged embarassment and mental
anguish he suffered at the Geneva Airport when the petitioner’s security officers prevented
him from boarding the plane, detained him for about an hour and allowed him to board the
plane only after all the other passengers have boarded. One of the defenses relied upon by X
Airline is that the case cannot be filed in Manila because the ticket was issued in Geneva
and no part of the flight of X Airline occurred in Manila. Is such defense tenable?
A: No, the defense is not tenable. The case against X Airline can be filed in Manila. The
contract of carriage between PR and S Airlines although performed by different carriers
under a series of airline tickets, including that issued by X Airline, constitutes a single
operation. Thus, when X Airline accepted the unused portion of the conjunction tickets,
entered it in the IATA clearing house and undertook to transport the private respondent
over the route covered by the unused portion of the conjunction tickets, i.e., Geneva to New
York, X Airline tacitly recognized its commitment under the IATA pool arrangement to act as
agent of the principal contracting airline, S Airlines, as to the segment of the trip the X
Airline agreed to undertake. As such, X Airline thereby assumed the obligation to take the
place of the carrier originally designated in the original conjunction ticket. The X Airline’s
argument that it is not a designated carrier in the original conjunction tickets and that it
issued its own ticket is not decisive of its liability. The new ticket was simply a replacement
for the unused portion of the conjunction ticket, both tickets being for the same amount of
US$2,760 and having the same points of departure and destination. By constituting itself as
an agent of the principal earner the X Airline’s undertaking should be taken as part of a
single operation under the contract of carriage executed by the private respondent and S
Airlines in Manila. (American Airlines v. Court of Appeals, GR. No. 116044. 45, March 9,
2000)
CHAPTER 10

(437-439)

PROBLEMS:

1. Pablo Esparadon, a duly-licensed ship captain of the MN Don Jose was drunk while he
was on duty as such, and while M/V Don Jose was sailing from Manila to the Visayas. As a
consequence thereof, the WV Don Jose rammed another vessel near Corregidor, causing
both vessel to sink completely and thus become total losses. The cargo owner of both
sunken vessels sued the owner of the WV Don Jose for their losses. Is the ship owner of MN
Don Jose liable? Explain your answer?

A: No. The shipowner of MN Don Jose is no longer liable because of the total loss of the
vessel. Generally, the shipowner is liable for the negligence of the captain in collision cases.
However, the liability is limited to the value of the vessel. In other words, the civil liability
for collision is merely co-existent with his interest in the vessel; since there was total lose,
his liability is also extinguished. (1978)

2. Toni, a copra dealer, loaded 1,000 sacks of copra on board the vessel M/V Tonichi (a
common carrier engaged in coastwise trade owned by Ichi) for shipment from Puerto
Galera to Manila. The cargo did not reach Manila because the vessel capsized and sank with
all its cargo. When Toni sued Ichi for damages based on breach of contract, the latter
invoked the “limited liability rule.” a) What do you understand of the rule invoked by Ichi?
b) Are there exceptions to the limited liability rule.

A: a) “Limited liability rule” means that the liability of a shipowner for damages in case of
loss is limited to the value of his vessel. If the ship is totally lost, his liability is extinguished.
If the ship or part thereof still exists, he can escape liability by abandoning the vessel, its
appurtenances and its freight. The other properties of the shipowner cannot be reached by
the persons entitled to damages.

b) Yes, there are exceptions. The exceptions to the limited liability rule are: (1) where the
injury or death to a passenger is due either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the captain; (2) where the vessel is insured;
(3) in workmen’s compensation claims; and (4) expenses for repairs and provisioning of
the ship prior to the departure thereof. (1994, see also, 1985 1982)
3. X, a rich trader, boarded the MN Cebu, a small vessel within a value P3M and owned by Y,
plying the route Cotabato to Pagadian City. X had in his possession a diamond worth ₱5M.
The vessel has a capacity, of 40 passengers. Near Pagadian, the vessel met equally weather
and was hit by six-foot waves every three seconds. Soon, water entered the engine room
and the hull of the vessel. The patron of the water ordered the distribution of life belts to
the passengers. He told them the vessel was sinking and for them to take care of
themselves. The Vessel turned out to be overloaded by 20 passengers and had no sufficient
life belts. X failed to get a life belt and died when the vessel totally sunk. The heirs of X sued
Y for ₱IOM damages. Y raised the defense of limited liability. Decide.

A: Y cannot invoke the defense of limited liability. The doctrine of limited liability does not
apply when death or injury or damage sustained is attributable to the fault or negligence of
the ship owner or ship agent and the captain (or patron) of the vessel. In this case, the
shipowner appears to be guilty of fault or negligence because he did not make certain that
the passenger vessel in not overloaded and he failed to provide sufficient life belts on board
the vessel. (1989)

4. Captain Hook, the ship captain of MN Peter Pan, overloaded the MN Peter Pan, as a
consequence of which the vessel sank in the middle of the 8qu Sea, and nothing whatsoever
was recovered. The owners of the cargo and the heirs of the three passengers of the vessel
tiled an action for damages in the amount of ₱500,000 against Mr. Wendy, the owner. Will
the action prosper? Reasons.

A: The action will not prosper. The shipowner can escape liability by abandoning the vessel.
This right of abandonment applies not only to collisions and shipwreck but in the latter
case only to: unpaid wages. (Articles 643 and 838, Code of Commerce) However. If the
shipowner or ship agent knew or are expected to know the overloading, then the limited
liability rule cannot be applied.

5. X shipping Company spent almost a fortune in refitting and repairing its luxury
passenger vessel, the MV Marina, which plied the inter- island routes of the company from
La Union in the north to Davao City in the south. The MV Marina met an untimely fate
during its poet-repair voyage. It sank off the coast of Zambales while en route to La Union
from Manila. The investigation showed that the captain alone was negligent. There were no
casualties in that disaster. Faced with a claim for the payment of the refitting and repair, X
Shipping Company asserted exemption from liability on the basis of the hypothecary or
limited liability rule under Article 537 of the Code of Commerce. Is X Shipping Company’s
assertion valid? Explain.
A: No. The assertion of X Shipping Company is not valid. The liability of the ship owner for
repairs on the vessel accrued before the loss of the vessel. In fact the repairs were
completed before its loss. Hence, the limited liability rule does not apply. (2000)

6. MV Mariposa, one of five passenger ships owned by Marina Navigation Co., sank off the
coast of Mindoro while en route to Iloilo City. More than 200 passengers perished in the
disaster. Evidence showed that the ship captain ignored typhoon bulletins issued by
PAGASA during the 24-hour period immediately prior to the vessel’s departure from
Manila. The bulletins warned all types of sea crafts to avoid the typhoon’s expected path
near Mindoro. To make matters worse, he took more load than was allowed for the ship’s
rated capacity. Sued for damages by the victim’s surviving relatives, Marina Nav. Co
contented 1) that its liability, if any, had been extinguished with the sinking of MV Mariposa;
2) that assuming it had not been so extinguished, such liability should be limited to the loss
of the cargo. Are these contentions meritorious in the context of applicable provisions of
the Code of Commerce?

A: No. The contentions of Marina Nav. Co. are not meritorious. The problem states that
there was already a PAGASA bulletin within one day before the departure of the vessel. In
addition, there was also overloading. It is therefore believed that the shipowner itself did
not exercise extraordinary diligence. It is believed that the negligence cannot be ascribed
entirely to the captain. Although the captain of MV Mariposa was negligent in ignoring the
typhoon bulletins issued by PAGASA and in overloading the vessel, it is believed that the
shipowner cannot escape a finding of negligence. Therefore, the shipowner cannot invoke
the doctrine of limited liability. (2000)

(440)

PROBLEM:

Two vessels figured in a collision along the Straits of Guimaras resulting in considerable
loss of cargo. The damaged vessels were safely conducted to the Port of Iloilo. Passenger A
failed to file a maritime protest. B, a non-passenger but a shipper who suffered damage to
his cargo, likewise did not tile a maritime protest at all.

a. What is a maritime protest?

b. Can A and B successfully maintain and recover losses and damages arising from the
collision? Reason briefly.

A: (a) Protest is the written statement by the master of a vessel or any authorized officer,
attested by proper officer or a notary, to the effect that damages has been suffered by the
ship. In collisions, the maritime protest must be made within 24 hours after a collision and
the circumstances of the collision are declared or made known before a competent
authority at the point of accident or the first port of arrival if in the Philippines or the
Philippine consul in a foreign country.

(b) B can recover their losses and damages arising from the collision while A cannot
recover from the collision. B cannot be expected to know the circumstances regarding the
collision, hence, a maritime protest is not required. However, A, the passenger, knows the
circumstances of the collision, hence, he cannot maintain an action if he did not file a
maritime protest as provided for under Article 863 of the Code of Commerce. (2007)
CHAPTER 11

(450-451)

PROBLEM:

1. On February 10, 1927, the plaintiff, who is a resident of the municipality of Silay,
Occidental Negros, was desirous of embarking upon the interisland steamer San Jacinto in
order to go to Iloilo. This boat was at the time in the anchoring ground of the port of Silay,
some half a mile distant from the port. The plaintiff therefore embarked at the landing in
the motor boat Jison, which was then engaged in conveying passengers and luggage back
and forth from the landing to boats at anchor, and which was owned and Operated by the
defendant Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on
this trip was one Rodolin Duruelo, a boy of only 16 years of age. He is alleged to have been a
mere novice without experience in the running of motor boats; and the day of the
occurrence now in contemplation is said to have been the third day of his apprenticeship in
this capacity. It is alleged that the Jison, upon this trip, was grossly overladen, having
aboard 14 passengers, while its capacity was only for eight or nine.

As the motor boat approached the San Jacinto in a perfectly quiet sea, it came too near to
the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the blades
of the propeller struck the motor boat and sank it at once. It is alleged in the complaint that
the approach of the Jison to this dangerous proximity with the propeller of the San Jacinto
was due to the fault, negligence and lack of skill of the defendant Juan Duruelo, as patron of
the Jison. As the Jison sank, the plaintiff was thrown into the water against the propeller,
and the revolving blades inflicted various injuries upon him, consisting of a bruise in the
breast, two serious fractures of the bones of the left leg, and a compound fracture of the left
femur. As a consequence of these injuries the plaintiff was kept in bed in a hospital in the
City of Manila from the February 28 until October 19 of the year 1927, or approximately
eight months. The plaintiff then filed an action for damages against the defendant. The
defendant moved to dismiss the complaint on the ground that the complaint does not allege
that a protest had been presented by the plaintiff, within 24 hours after the occurrence, to
the competent authority at the port where the accident occurred in accordance to Article
835 of the Code of Commerce. Is protest under Article 835 necessary?

A: No, protest is not necessary. Article 835 referred to was not intended to include all ships,
craft or floating structures of every kind without limitation, and the provisions of that
section should not be held to include minor craft engaged only in river and bay traffic.
Vessels which are licensed to engage in maritime commerce, or commerce by sea, whether
in foreign or coastwise trade, are no doubt regulated by Book III of the Code of Commerce.
Other vessels of a minor nature not engaged in maritime commerce, such as river boats and
those carrying passengers from ship to shore, must be governed, as to their liability to
passengers, by the provisions of the Civil Code or other appropriate special provisions of
law. (Lopez vs. Duruelo, et al., GR No. 29166, October 22, 1928)
CHAPTER 13

(511-512)

PROBLEMS:

1. X Mining Co. shipped a cargo of machineries on board the S/S Good Ship which was
chartered by the Able Shipping Co., a foreign corporation represented in the Philippines by
its agent, Best Lines, Inc. When the goods were delivered to the consignee, Y Corporation,
they were found to have sustained losses. The insurer, Sunshine Insurance Co., paid for the
losses, thereby subrogating itself to the rights of X Mining Co. of Y Mining Co. vis-a-vis the
shipping company and the shipping agent.

Upon arrival of the S/S Good Ship in Manila, Beet Lines, Inc. took charge of the
following: (a) unloading of the cargo and issuing of cargo receipts in its name for the
purpose of evidencing the condition and the discharge of the cargo from the vessel to the
arrastre operator and/or unto the barge lighters; (b) filing and processing of claims against
the vessel S/S Good Ship for damages/losses sustained by the cargo.

When Sunshine Insurance Co. sued both Able Shipping Co. and Best Lines, Inc. the
latter contended that it was a disclosed agent and could not therefore be held liable, despite
the insolvency of Able Shipping Co.

Rule on the contention of Best Lines, Inc. with reasons.

A: Best Lines, Inc.’s contention lacks merit. Articles 586 and 587 of the Code of Commerce
make the ship agent liable for the civil liabilities in favor of third persons that arise from the
conduct of the captain in the care of the goods. The liability of the ship agent is solidary
together with the ship owner; hence, the liability remains even if the principal shipowner is
insolvent. (1984)

2. Q: S shipped goods from Australia on board a foreign vessel owned and operated by X
Shipping Co., based in Australia and represented in the Philippines by R. The goods were
consigned to T of Manila and insured by U against all risks. Upon arrival in Manila Bay, the
goods were discharged from the vessel to a lighter owned by the Bay Brokerage Co.

When delivered to and received by T. the goods were found to have sustained losses
or damages. Evidence disclosed that the damage occurred while the goods were in the
custody of the carrier.
The insurance company paid the amount of the loss but sought reimbursement from
X and/or R. R disclaimed any liability alleging that he is a mere agent of X, and having acted
as agent of a disclosed principal is, therefore, not liable.

Can the insurance company recover from R? Reasons.

A: Yes, the ship agent is solidarily liable with the ship owner for indemnities in favor of
third person that may arise in connection with the care of the goods (Articles 586 and 587,
Code of Commerce). Therefore, insurance company can recover from R the amount
representing the value of the goods lost or damaged. (1981)

3. Under a charter party, XXO trading Company shipped sugar to Coca-Cola Company
through SS Negros Shipping Corp., insured by Capitol Insurance Company. The cargo
arrived but with shortages. Coca-Cola demanded from Capitol Insurance Co. P500.00 in
settlement for XXO Trading. The MM Regional Trial Court, where the civil suit was filed,
“absolved the insurance company, declaring that under the Code of Commerce, the shipping
agent is civilly liable for damages in favor of third persons due to the conduct of the
carrier’s captain, and the stipulation in the charter party exempting the owner from liability
is not against public policy. Coca-Cola appealed. Will its appeal prosper? Reason briefly.

A: No, if the charter was a bareboat charter. The shipowner and the ship agent are liable for
damages in favor of third persons due to the conduct of the carrier’s captain. However, a
stipulation in the bareboat charter party exempting the owner from liability is valid
because the carrier is converted into a private carrier. Such stipulation is therefore not
against public policy.

However, the appeal will prosper if the charter is a time charter or a voyage charter.
The shipowner and the ship agent would still be liable because the stipulation exempting
the shipowner from liability is not valid. (2004)

(533-537)

PROBLEMS:

1. X owns the ship M/V Aguinaldo. He bareboat chartered the ship to Y who appointed all
its crew members from the captain down to its last official. Y then transported a shipment
of 10,000 bags of sugar belonging to Z. Through the negligence of the ship captain, half of
the sugar was damaged due to sea water. Since Y is bankrupt, Z sued the captain and X. Will
the suit succeed?

A: The suit will succeed against the captain but not against X. The captain is liable because
his negligence caused the damage or injury. On the other hand, the bareboat charterer
becomes the owner pro hac vice, hence, he is responsible for the acts of his captain. The
shipowner is not liable because the contract is between the bareboat charterer and Y. The
ship owner was neither a party to the contract for the shipment of the goods nor an
employer of the ship captain. (1989)

2. X chartered the ship of Y to transport his logs from Zamboanga to Manila. In the course of
their voyage, the ship met a storm and had to dock in Cebu for three days. Z, the captain of
the ship borrowed P20,000.00 from X on the pretext that he would need the money for the
repair of the ship. Z misappropriated the money and converted it to his own benefit. What
is the liability of Y, if any?

A: Mr. Y is not liable. Under Article 586 of the Code, a shipowner would only be liable for
contracts made by the captain (a) when duly authorized or (b) even when unauthorized, for
ship repairs, or for equipping or provisioning the vessel when the proceeds are invested
therein. The loan by the captain from X does not fall under any of the foregoing cases.
(1989)

CASES:

1. Private respondent Captain Rizalino Tayong, a licensed Master Mariner with experience
in commanding ocean-going vessels, was employed on July 6, 1989 by petitioners Trenda
World Shipping (Manila), Inc. and Sea Horse Ship Management, Inc. through petitioner
Inter-Orient Maritime Enterprises, Inc. as Master of the vessel M/V Oceanic Mindoro, for a
period of one year, as evidenced by an employment contract. On July 15, 1989, Captain
Tayong assumed command of petitioners’ vessel at the port of Hong Kong. His instructions
were to replenish bunker and diesel fuel, to sail forthwith to Richard Bay, South Africa, and
there to load 120,000 metric tons of coal.

On 16 July 1989, while at the Port of Hong Kong and in the process of unloading
cargo, Captain Tayong received a weather report that a storm code-named “Gordon” would
shortly hit Hong Kong. Precautionary measures were taken to secure the safety of the
vessel, as well as its crew, considering that the vessel’s turbo-charger was leaking and the
vessel was 14 years old.

On July 21, 1989, Captain Tayong followed-up the requisition by the former captain
of the Oceanic Mindoro for supplies of oxygen and acetylene, necessary for the welding-
repair of the turbo-charger and the economizer. This requisition had been made upon
request of the Chief Engineer of the vessel and had been approved by the shipowner.

On July 25, 1989, the vessel sailed from Hong Kong for Singapore. In the Master’s
sailing message, Captain Tayong reported a water leak from M.E. Turbo Charger No. 2
Exhaust gas casing. He was subsequently instructed to blank off the cooling water and
maintain reduced RPM unless authorized by the owners.

On July 29, 1989, while the vessel was en route to Singapore, Captain Tayong
reported that the vessel had stopped in mid-ocean for six hours and 45 minutes due to a
leaking economizer. He was instructed to shut down the economizer and use the auxiliary
boiler instead.

On July 31, 1989 at 0607 hrs., the vessel arrived at the port of Singapore. The Chief
Engineer reminded Captain Tayong that the oxygen and acetylene supplies had not been
delivered. Captain Tayong inquired from the ship’s agent in Singapore about the supplies.
The ship agent stated that these could only be delivered at 0800 hours on August 1, 1989 as
the stores had closed.

Captain Tayong called the shipowner, Sea Horse Ship Management, Ltd., in London
and informed them that the departure of the vessel for South Africa may be affected
because of the delay in the delivery of the supplies.

Sea Horse advised Captain Tayong to contact its Technical Director, Mr. Clark, who
was in Tokyo and who could provide a solution for the supply of said oxygen and acetylene.

On the night of July 31, 1989, Mr. Clark received a call from Captain Tayong
informing him that the vessel cannot sail without the oxygen and acetylene for safety
reasons due to the problems with the turbo charger and economizer. Mr. Clark responded
that by shutting off the water to the turbo chargers and using the auxiliary boiler, there
should be no further problems. According to Mr. Clark, Captain Tayong agreed with him that
the vessel could sail as scheduled on 0100 hours on August 1, 1989 for South Africa.

According to Captain Tayong, however, he communicated to Sea Horse his


reservations regarding proceeding to South Africa without the requested supplies, and was
advised by Sea Horse to wait for the supplies at 0800 hrs. of August 1, 1989, which Sea
Horse had arranged to be delivered on board the Oceanic Mindoro. At 0800 hours on
August 1, 1989, the requisitioned supplies were delivered and Captain Tayong immediately
sailed for Richard Bay.

When the vessel arrived at the port of Richard Bay, South Africa on August 16, 1989,
Captain Tayong was instructed to turnover his post to the new captain. He was thereafter
repatriated to the Philippines, after serving petitioners for a little more than two weeks. He
was not informed of the charges against him.

Was there a valid ground to dismiss Captain Tayong?


A: No. According to the report of Mr. Robert Clark, Technical Director of petitioner Sea
Horse Ship Management, Inc., the Oceanic Mindoro had stopped in mid-ocean for six hours
and 45 minutes on its way to Singapore because of its leaking economizer.

Hence, it cannot be said that Captain Tayong‘s decision (arrived at after consultation
with the vessel’s Chief Engineer) to wait seven hours in Singapore for the delivery on board
the Oceanic Mindoro of the requisitioned supplies needed for the welding-repair, on board
the ship, of the turbo-charger and the economizer equipment of the vessel, constituted
merely arbitrary, capricious or grossly insubordinate behavior on his part.

Clearly, petitioners were angered at Captain Tayong’s decision to wait for delivery of
the needed supplies before sailing from Singapore, and may have changed their estimate of
their ability to work with him and of his capabilities as a ship captain. Assuming that to be
petitioners’ management prerogative, that prerogative is nevertheless not to be exercised,
in the case at bar, at the cost of loss of Captain Tayong’s rights under his contract with
petitioners and under Philippine law. (Inter-Orient Maritime Enterprises, Inc. v. NLRC, GR.
No. 115286, August 11, 1994)

2. Private respondents purchased first-class tickets from petitioner at the latter’s office in
Cebu City. They were to board petitioner’s vessel, M/V Sweet Grace, bound for Catbalogan,
Western Samar. Instead of departing at the scheduled hour of about midnight on July 8,
1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed back to Cebu due to
engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs having been
accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 A.M. Instead of
docking at Catbalogan, which was the first port of call, the vessel proceeded direct to
Tacloban at around 9:00 PM. of July 10, 1972. Private respondents had no recourse but to
disembark and board a ferryboat to Catbalogan. Is the carrier liable to the private
respondent?

A: Yes, the carrier is liable. The voyage to Catbalogan was “interrupted” by the captain upon
instruction of management. The “interruption” was neither due to fortuitous event or force
majeure nor to disability of the vessel. Having been caused by the captain upon instruction
of management, the passengers’ right to indemnity is evident. The owner of a vessel and
the ship agent shall be civilly liable for the acts of the captain. Article 614 of the Code of
Commerce provides that a captain, who, having agreed to make a voyage, fails to fulfill his
undertaking, without being prevented by fortuitous event or force majeure, shall indemnify
all the losses that his failure may cause, without prejudice to criminal penalties that may be
proper. Article 698 provides that “in case of interruption of a voyage already begun, the
passengers shall only be obliged to pay the fare in proportion to the distance covered,
without right to recover 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. If the interruption should be caused by the disability of the vessel, and
the passenger should agree to wait for her repairs, he may not be required to pay any
increased fare of passage, but his living expenses during the delay shall be for his own
account.” Articles 614 and 698 are applicable in this case. There was no fortuitous event or
force majeure which prevented the vessel from fulfilling its undertaking of taking private
respondents to Catbalogan. In the first place, mechanical defects in the carrier are not
considered a caso fortuito that exempts the carrier from responsibility. Even granting
arguendo that the engine failure was a fortuitous event, it accounted only for the delay in
departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no
longer any force majeure that justified by-passing a port of call. The vessel was completely
repaired the following day after it was towed back to Cebu. In fact, after docking at Tacloban
City, it left the next day for Manila to complete its voyage. The reason for bypassing the port
of Catbalogan, as admitted by petitioner’s General Manager, was to enable the vessel to
catch up with its schedule for the next week. The record also discloses that there were 50
passengers for Tacloban compared to 20 passengers for Catbalogan, so that the Catbalogan
phase could be scrapped without too much loss for the company. (Sweet Lines, Inc. v. The
Hon. Court of Appeals, GR. No. L-46340, April 28, 1983)
CHAPTER 14

(570-571)

CASE:

In a contract dated April 26, 1983, respondent was appointed as the exclusive
Philippine indent representative of Richco Rotterdam B.V. (Richco), a foreign corporation,
in the sale of the latter’s commodities. Under one of the terms of the contract, respondent
was to assume the liabilities of all the Philippine buyers, should they fail to honor the
commitments on the discharging operations of each vessel, including the payment of
demurrage and other penalties. In such instances, Richco shall have the option to debit the
account of respondent corresponding to the liabilities of the buyers, and respondent shall
then be deemed to be subrogated to all the rights of Richco against these defaulting buyers.
Sometime in 1987, petitioner purchased Canadian barley and soybean meal from Richco.
The latter thereafter chartered four vessels to transport the products to the Philippines.
Each of the carrier bulk cargoes was covered by a Contract of Sale executed between
respondent as the seller and duly authorized representative of Richco and petitioner as the
buyer. The four contracts specifically referred to the charter party in determining
demurrage or dispatch rate. The contract further provided that petitioner guarantees to
settle any demurrage due within one month from respondent’s presentation of the
statement. Upon delivery of the barley and soybean meal, petitioner failed to discharge the
cargoes from the four vessels at the computed allowable period to do so. Thus, it incurred a
demurrage amounting to a total of US$ 193,937.41. On numerous occasions, on behalf of
Richco, respondent demanded from petitioner the payment of the demurrage, to no avail.
Consequently, on October 20, 1991, Richco sent a communication to respondent, informing
it that the demurrage due from petitioner had been debited from the respondent’s account.
The respondent argued that the Richco had no right to debit the account because Richco is
not the shipowner and only the shipowner is entitled to the payment of demurrage. Is the
argument tenable?

A: The argument is not tenable. In this case, the delay incurred by petitioner in
discharging the cargoes from the vessels was due to its own fault. Its obligation to
demurrage is established by the Contracts of Sale it executed, wherein it agreed to the
conditions to provide all discharging facilities at its expense in order to effect the
immediate discharge of cargo; and to place for its account all discharging costs, fees, taxes,
duties and all other charges incurred due to the nature of the importation.

Meanwhile, respondent unequivocally established that Richco charged to it the


demurrage due from petitioner. Thus, at the moment that Richco debited the account of
respondent, the latter is deemed to have subrogated to the rights of the former, who in turn,
paid demurrage to the ship owner. It is therefore immaterial that respondent is not the ship
owner, since it has been able to prove that it has stepped into the shoes of the creditor.

Subrogation is either “legal” or “conventional.” Legal subrogation is an equitable


doctrine and arises by operation of the law, without any agreement to that effect executed
between the parties; conventional subrogation rests on a contract, arising where “an
agreement is made that the person paying the debt shall be subrogated to the rights and
remedies of the original creditor.” The case at bar is an example of legal subrogation, the
petitioner and respondent having no express agreement on the right of subrogation. Thus,
it is of no moment that the Contracts of Sale did not expressly state that demurrage shall be
paid to respondent. By operation of law, respondent has become the real party-in-interest
to pursue the payment of demurrage. (Republic Flour Mills Corp. v. Forbes Factors, Inc.,
October 19, 2011)

(590-593)

PROBLEMS AND CASES:

1. The Sand Developing Corporation enters into a voyage charter with XYZ Shipping
Corporation, over the latter’s vessel, M/V Lady Love. Before the Sand Development
Corporation could load it, XYZ Shipping Corporation sold M/V Lady Love to Oslob Maritime
Corp., which decided to load it for its own amount.

a) May XYZ Shipping Corporation validly ask for the rescission of the Charter Party?
If so, can Sand Development Corporation recover damages? To what extent?

b) If the Oslob Maritime Corporation, did not load it for its own account, is it bound
by the charter party?

c) Explain the meaning of “Owner Pro Hac Vice” of the vessel. In what kind of charter
party does this obtain?

A: a) Yes, XYZ Shipping Corporation may ask for the rescission of the Charter party.
Rescission is allowed under Article 689 of the Code of Commerce if, as in this case, the
owner sold the vessel before the charter has begun to load the vessel and the purchaser
loads it for his own amount. However, Sand Corporation may recover damages to the extent
of its losses.

b) Yes. The last paragraph of Article 689 of the Code of Commerce provides that “if
the new owner of the vessel should not load it for his own account, the charter party shall
be respected, and the vendor shall indemnify the purchaser if the former did not inform
him of the charter pending at the time of making the sale.” Hence, if, Oslob Maritime
Corporation did not load M/V Lady Love for its own account, it would be bound by the
charter party with the right of action against XYZ Shipping by Oslob Maritime for damages
if the latter was not informed of the charter party at the time of sales.

c) The term “Owner Pro Hac Vice” of the vessel is generally understood to be the
charterer of the vessel who entered into a Charter Party with the shipowner that is in the
nature of a bareboat or demise charter. The charterer an “owner pro hac vice” because he
controls the ship with his own set of captain and crew thereby effectively becoming the
owner for the voyage or service stipulated. (1991)

2. O’Farrel y Cia, operating under the tradename Malaysian Navigation Company, entered
into an agreement with the Manila Electric Co. whereby the Malaysian Navigation Co.
undertook to transport seventy-five thousand tons of coal (10 per cent more or less), from
Hongay to Manila at the freight rate of four pesos and fifty centavos (4.50), per ton of 1,016
kilos, less a rebate of 1 per cent. The agreement provides that “loading to be for account and
risk of shippers according to customary quick dispatch subject to turn of mines.” The
practice followed by the parties in the performance of this contract was that, upon the
receipt of information in Manila by the defendant company from the coal company, advising
that a cargo of coal was, or soon would be available in Hongay, the message was turned over
to O’Farrel y Cia, and the latter company made the arrangements for the sending of a boat
to Hongay. But delay in the taking on of coal occurred in Hongay, owing to the inability of
the coal company to deliver the coal to the waiting boats. The preponderance of the proof
shows that this delay was due to the fact that the cranes of the coal company at Hongay
were defective and often out of order. At any rate the result was that the plaintiff’s boats
were frequently kept waiting in the port; and it in fact appears that altogether they were
held there idle one hundred twenty-three days, to say nothing of the time occupied in the
lading of the ships after their turn had come for taking cargo. Hence, these delays were
attributable to the coal company. Malaysian Navigation Company is now demanding
payment of demurrage from the Manila Electric Company. Will the claim prosper?

A: No, the claim will not prosper. The expression “subject to turn of mines” should be
interpreted, we think, to mean that the lading of the vessels should be subject to the output
of the mines and that vessels should take their turn in taking on the coal. It results that the
lading of the coal was dependent upon the output of the mines and the order of ships
seeking cargo at the loading places. The expression “subject to turn of mines” was no doubt
inserted in the contract in lieu of a stipulation for demurrage. The insertion of that
expression in clause 3 made the Malaysian ships dependent upon the loading facilities of
the coal company at Hongay, and relieved the defendant from any liability for demurrage by
reason of delays that might occur in the port incident to the obtaining and loading of the
coal.

Article 656 of the Code of Commerce provides that “if in the charter party the time in
which the loading and unloading is to take place is not stated, the customs of the port
where these acts take place shall be observed. After the period stipulated or the customary
one has passed, and should there not be in the freight contract an express clause fixing the
indemnification for the delay, the captain shall be entitled to demand demurrage for the
usual and extra lay days which may have elapsed in loading and unloading.” However, that
the stipulation of the contract making the loading of coal subject to the turn of mines
renders Article 656 inapplicable, this being a special stipulation determining the order of
loading. It results that the defendant cannot be held responsible for the delay that occurred.
(O’Farrel Y Cia v. The Manila Electric Co., G.r.. No. 31222, October 29, 1929)

3. On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex. MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on
board gasoline and other oil products owned by Caltex by virtue of a charter contract
between them. On December 20, 1987 , at about 6:30 a.m., the passenger ship MV Dona Paz
left the port of Tacloban headed for Manila with a complement of 59 crew members
including the master and his officers, and passengers totaling 1,493 as indicated in the
Coast Guard Clearance. Actually, there were more than 4,000 passengers. The MV Dona Paz
is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route
of Manila/Tacloban/Catbalogan/Manila/Catbalogan/Tacloban/Manila, making trips twice a
week. At about 10:30 pm. of December 20, 1987, the two vessels collided in the open sea
within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the
crewmembers of MV Dona Paz died, while the two survivors from MT Vector claimed that
they were sleeping at the time of the incident. The MV Dona Paz carried an estimated 4,000
passengers; many indeed, were not in the passenger manifest. Only 24 survived the tragedy
after having been rescued from the burning waters by vessels that responded to distress
calls. Among those who perished were public school teacher Sebastian Canezal (47 years
old) and his daughter Corazon Canezal (11 years old), both unmanifested passengers but
proved to be on board the vessel. On September 15, 1992, the trial court rendered
judgment making Sulpicio Lines liable. The Court of Appeals modified the trial court’s
ruling and included petitioner Caltex as one of the those liable for damages thereby making
said petitioner Caltex and Vector Shipping Co. equally liable under the third party complaint
to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages,
attorney’s fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other
half by Caltex (Phils.) Inc. One of the arguments of Vector Shipping is that MT Vector was a
private carrier and as such is not liable to third parties. Caltex is the one that is allegedly
liable. Decide with reasons.

A: MT Vector is a common carrier. The charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a voyage charter, which
retains the character of the vessel as a common carrier. If the charter is a contract of
affreightment, which leaves the general owner in possession of the ship as owner for the
voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is
free from liability to third persons in respect of the ship. (Caltex [Philippines], Inc. v. Sulpicio
Lines, Inc., GR. No. 131166, September 30, 1999)
CHAPTER 16

(621-623)

PROBLEM:

1. MV SuperFast, a passenger-cargo vessel owned by SF Shipping Company plying the inter-


island routes, was on its way to Zamboanga City from the Manila port when it accidentally,
and without fault or negligence of anyone on the ship, hit a huge floating object. The
accident caused damage to the vessel and loss of an accompanying crated cargo of
passenger PR. In order to lighten the vessel and save it from sinking and in order to avoid
risk of damage to loss of the rest of the shipped items (none of which was located on the
deck), some had to be jettisoned. SF Shipping had the vessel repaired at its port of
destination. SF Shipping thereafter filed a complaint demanding all the other cargo owners
to share in the total repair costs incurred by the company and in the value of the lost and
jettisoned cargoes. In answer to the complaint, the shippers’ sole contention was that,
under the Code of Commerce, each damaged party should bear its or his own damage and
those that did not suffer any loss or damage were not obligated to make any contribution in
favor of those who did. Is the shipper’s contention valid? Explain.

A. No. The shippers’ contention is not valid. There was general average loss in the case. The
cargoes were jettisoned to save the vessel from sinking and to save the rest of the cargoes.
Hence, the shipper of the cargoes which were saved as well as the shipowner is liable for
general average contribution. (2000)

CASE:

1. The SS “San Antonio,” vessel owned and operated by plaintiff, left Manila on October 6,
1949, bound for Basco, Batanes, via Aparri, Cagayan, with general cargo belonging to
different shippers, among them the defendant. The vessel reached Aparri on the 10th of
that month, and after a day's stopover in that port, weighed anchor to proceed to Basco. But
while still in port, it ran aground at the mouth of the Cagayan River due to the
unforeseeable sudden shifting of the sandbars at the mouth of the river. Attempts to refloat
it under its own power having failed, plaintiff had it refloated by the Luzon Stevedoring Co.
at an agreed compensation in order to enable it “to proceed to its port of destination.” Once
afloat the vessel returned to Manila to refuel and then proceeded to Basco, the port of
destination. There the cargoes were delivered to their respective owners or consignees,
who, with the exception of defendant, made a deposit or signed a bond to answer for their
contribution to the average. Is the cost of refloating considered a general average?

A: No, the facts presented do not make out a case for general average. The requisites for
general average contribution are as follows: (1), there must be a common danger, (2) that
for the common safety part of the vessel or of the cargo or both is sacrificed deliberately, (3)
that from the expenses or damages caused follows the successful saving of the vessel and
cargo, and (4) that the expenses or damages should have been incurred or inflicted after
taking proper legal steps and authority.

With respect to the first requisite, it does appear that the expenses sought to be
recovered from defendant were incurred to save vessel and cargo from a common danger. It
does not appear that vessel and cargo were at the time in no imminent danger or a danger
which might “rationally be sought to be certain and imminent.” It is, of course, conceivable
that, if left indefinitely at the mercy of the elements, they would run the risk of being
destroyed. But as stated at the above quotation, this last requirement excludes measures
undertaken against a distant peril. It is the deliverance from an immediate, impending peril,
by a common sacrifice, that constitutes the essence of general average. The fact that the
refloating is necessary in order to enable the vessel to proceed to its port of destination,
will not make it a general average expense because it is the safety of the property, and not
of the voyage, which constitutes the true foundation of the general average.

It follows that the second and third requisites are also absent. The expenses in question
were not incurred for the common safety of vessel and cargo, since they, or at least the
cargo, were not in imminent peril. The cargo could, without need of expensive salvage
operation, have been unloaded by the owners if they had been required to do so. Although
the cargo was saved, they were not saved from a common danger. (A. Magsaysay, Inc. v.
Agan, G.R. No. L-6393, January 31, 1955)

(630-632)

CASE:

1. By contract of charter dated February 8, 1915, Manuel Lopez Castelo, as owner, let the
small interisland steamer Batangueno for the term of one year to Jose Lim Chumbuque for
use in the conveying of cargo between certain ports of the Philippine Islands. In this
contract it was stipulated that the officers and crew of the Batangueno should be supplied
by the owner, and that the charterer should have no other control over the captain, pilot,
and engineers than to specify the voyages that they should make and to require the owner
to discipline or relieve them as soon as possible in case they should fail to perform the
duties respectively assigned to them.

While the boat was being thus used by the charterer in the interisland trade, the
Standard Oil Company delivered to the agent of the boat in Manila a quantity of petroleum
to be conveyed to the port of Casiguran, in the Province of Sorsogon. For this consignment a
bill of lading of the usual form was delivered, with the stipulation that freight should be
paid at the destination. Said bill of lading contained no provision with respect to the storage
of the petroleum, but it was in fact placed upon the deck of the ship and not in the hold.

While the boat was on her way to the port mentioned, and off the western coast of
Sorsogon, a violent typhoon passed over that region, and while the storm was at its height
the captain was compelled for the safety of all to jettison the entire consignment of
petroleum consisting of two hundred cases. When the storm abated the ship made port,
and thirteen cases of the petroleum were recovered, but the remainder was wholly lost.

a) Was there a general average loss?

b) Did the carrier validly comply with the procedure required under Article 852 of
the Code of Commerce?

c) Can the shipper recover from the shipowner if the captain failed to comply with
the procedure prescribed under Article 852 of the Code of Commerce?

A: (a) Yes, there was general average loss. The loss of this petroleum is a general and
not a special average, with the result that the plaintiff is entitled to recover in some way and
from somebody an amount bearing such proportion to its total loss as the value of both the
ship and the saved cargo bears to the value of the ship and entire cargo before the jettison
was effected.

(b) No. Now, by Article 852 of the Code of Commerce the captain is required to
initiate the proceedings for the adjustment, liquidation, and distribution of any gross
average to which the circumstances of the voyage may have given origin; and it is therefore
his duty to take the proper steps to protect any shipper whose goods may have been
jettisoned for the general safety. In ordinary practice this, we suppose, would be primarily
accomplished by requiring the consignees of other cargo, as a condition precedent to the
delivery of their goods to them, to give a sufficient bond to respond for their proportion of
the general average. But it is not necessary here to inquire into details. It is sufficient to say
that the captain is required to take the necessary steps to effect the adjustment, liquidation,
and distribution of the general average. In the case before us, the captain of the vessel did
not take those steps; and we are of the opinion that the failure of the captain to take those
steps gave rise to a liability for which the owner of the ship must answer.

(c) Yes. The defendant is not correct in arguing that that the liquidation of the
general average is, under Article 852 and related provisions, a condition precedent to the
liability of the defendant, and that at any rate the defendant, as owner of the ship, should
only be held liable for his proportion of the general average. This argument involves a
misconception of the true import of the provisions relating to the adjustment and
liquidation of general average. Clearly, for one thing, those provisions are intended to
supply the shipowner, acting of course in the person of the captain, with a means whereby
he may escape bearing the entire burden of the loss and may distribute it among all the
persons who ought to participate in sharing it; but the making of the liquidation is not a
condition precedent to the liability of the shipowner to the shipper whose property has
been jettisoned.

It is true that if the captain does not comply with the article relating to the
adjustment, liquidation, and distribution of the general average, the next Article (852) gives
to those concerned -whether shipowner (naviero) or shipper - the right to maintain an
action against the captain for indemnification for the loss; but the recognition of this right
of action does not by any means involve the suppression of the right of action which is
elsewhere recognized in the shipper against the ship’s owner. The shipper may in our
opinion go at once upon the owner and the latter, if so minded, may have his recourse for
indemnification against his captain.

In considering the question now before us it is important to remember that the owner of
the ship ordinarily has vastly more capital embarked upon a voyage than has any individual
shipper of cargo. Moreover, the owner of the ship, in the person of the captain, has complete
and exclusive control of the crew and of the navigation of the ship, as well as of the
disposition of the cargo at the end of the voyage. It is therefore proper that any person
whose property may have been cast overboard by order of the captain should have a right
of action directly against the ship’s owner for the breach of any duty which the law may
have imposed on the captain with respect to such cargo. To adopt the interpretation of the
law for which the appellant contends would place the shipowner in a position to escape all
responsibility for a general average of this character by means of the delinquency of his
own captain. This cannot be permitted. The evident intention of the Code, taken in all of its
provisions, is to place the primary liability upon the person who has actual control over the
conduct of the voyage and who has most capital embarked in the venture, namely, the
owner of the ship, leaving him to obtain recourse, as it is very easy to do, from other
individuals who have been drawn into the venture as shippers. (Standard Oil Company of
New York v. Castelo, G.R. No. 13695, October 18, 1921)
CHAPTER 17

(655-661)

PROBLEMS:
1. Two vessels coming from the opposite directions collided with each other due to fault
imputable to both. What are the liabilities of the two vessels with respect to the damage
caused to them and their cargoes? Explain
A: Each vessel must bear its own damage. Article 827 of the Code of Commerce provides
that if the collision is imputable to both vessels, each one shall suffer its own damages, and
both shall be solidarily responsible for the losses and damages occasioned to their cargoes.
(1995)

2. Vessels "U" and "V"collided with each other causing damage to both vessels. Vessel "U"
had the last clear chance to avoid collision but failed to do so. Is the doctrine of last clear
chance in tort applicable to collisions of vessels at sea under the Code of Commerce? Which
vessel should shoulder the liability for the damage suffered by both vessels and by the
cargo?
A: The doctrine of last clear chance in tort is not applicable to collisions of vessels at sea
under the Code of Commerce, and the case is deemed as if the collision is imputable to both
vessels; thus, each one of the vessels shall suffer her own damage, and both shall be
solidarily liable for the damages occasioned to their cargoes. (See Articles 827 and 829 of
the Code of Commerce) (1980)

3. Vessels "U" and "V" collided with each other causing damage to both vessels. Vessel U had
the last clear chance of avoiding the collision but failed to do so. Assume that the negligence
of the captain of vessel "U" was the proximate cause of the collision, while the negligence of
the captain of vessel "V" was merely contributory. To which vessel should the collision be
deemed imputable?
A: The collision should be deemed imputable also to both vessels. Since the doctrine of
"contributory negligence" in tort is not also applicable to collisions of vessel at sea under
the Code of Commerce, the case is deemed as if the collision is imputable to both vessels.
(Articles 827 and 828 of the Code of Commerce) (1980)

4. If it cannot be determined which of the two vessels was at fault resulting in the collision,
which party should bear the damage caused to the vessels and the cargoes? Explain.
A: Each of them should bear their respective damages. Since it cannot be determined as to
which vessel is at fault. This is under the doctrine of "inscrutable fault." (1995)

5. There was a severe typhoon when the vessel M/V Fortuna collided with M/V Suerte. It is
conceded that the typhoon was a major cause of the collision, although there was a strong
possibility that it could have been avoided if the captain of the M/V Fortuna was not drunk
and the captain of M/V Suerte was not asleep at the time of the collision. Who should bear
the damages to the vessels and their cargoes?
A: Under the doctrine of inscrutable fault, neither of the carriers may go after the other. The
shipper may claim damages against the ship owners and the captains of both vessels,
having been both negligent. Their liability is solidary.
The ship owners have the right to recover damages from the masters of the vessels
who were both guilty of negligence. The presence of typhoon in the area in fact warranted a
greater degree of alertness on their part. (1987)

6. In a collision between M/T Manila, a Tanker Don Claro, an inter-island vessel, M/V Dom
Claro sank and many of its passengers drowned and died. All its cargoes were lost. The
collision occurred at night time but the sea was calm, the weather fair and visibility was
good. Prior to the collision and while still four nautical miles apart, M/V Don Claro sighted
M/T Manila on its radar screen. M/T Manila had no radar equipment. As for speed, M/V
Don Claro was twice as fast as M/T Manila.
At the time of the collision, M/T Manila failed to follow Rule 19 of the International
Rules of the road which requires two vessels meeting head on to change their course by
each vessel steering to star board (right) so that each vessel may pass on the port side (left)
of the other, M/T Manila signified that it would turn to port side and steered accordingly,
thus resulting in the collision. M/T Claro's captain was off-duty and was having a drink at
the ship's bar at the time of the collision. Who would you hold liable for the collision?
A: I can hold the two vessels liable. In the problem given, whether on the basis of the factual
settings or under the doctrine of inscrutable fault, both vessels can be said to have been
guilty of negligence. The liability of the two carriers for the death or injury of passengers
and for the loss of or damage to the goods arising from the collision is solidary. Neither
carrier may make the doctrine of last clear chance which can only be relevant, if at all,
between the two vessels but not on the claims made by passengers or shippers. (Litonjuu
Shipping v. National Seamen Board, G.R. No. 51910, 10 August 1989) (1991)

7. In the morning of April 2, 1977, the southbound FS-190 belonging to William Lines, Inc.
reached the waters of the Verde Island Passage. About the same time, the M.S. General del
Pilar, another inter-island vessel owned by the General Shipping, was likewise in the same
waters, steaming northward to Manila. The vessels, coming from opposite directions and
towards each other, suddenly collided at a certain point of the passage which resulted in the
sinking of FS-190, together with all its cargoes, part of which belonged to Tanya, who was a
paying passenger and Rafael, who was a shipper. Tanya and Rafael brought action in court
to recover for their losses and for damages arising from the collision. Were they under
obligation to file a maritime protest for a successful maintenance of the action? Why?
A: No. Tanya and Rafael are not under obligation to file a maritime protest. Article 835 of
the Code of Commerce states that “the action for recovery of damages and losses arising
from collisions cannot be admitted without a previous protest or declaration presented by
the captain within twenty-four hours before the competent authority of the point where the
collision took place, or of the first port of arrival." Therefore, a maritime protest is required
to be made by the master of the vessel not by the passenger or shipper.

8. On September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean
going vessels including one with the name 'Dona Nati' appointed defendant MCP as its
agent to manage and operate said vessel for and in its behalf and account. Thus, on
February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel “Dona
Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to
the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company
acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents
Riverside Mills Corporation. Also loaded on the same vessel at Tokyo, Japan, were the cargo
of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation
consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil. En route to
Manila, the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay,
Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid
cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged
were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500
and 15 bales were not landed and deemed lost. The damaged and lost cargoes was worth
P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation
as holder of the negotiable bills of lading duly endorsed. Also considered totally lost were
the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila
Banking Corporation, Manila, acting for Guilcon, Manila. The total loss was P19,938.00
which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading.
Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or
their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this
complaint to recover said amount from the defendants-NDC and MCP as owner and ship
agent respectively, of the said 'Dofia Nati' vessel.

a. What laws apply to the given problem?


b. Is MCP liable?
c. MCP argues that the law on averages should be applied in determining their
liability. Is the argument tenable?

A: (a) The law of the country to which the goods are to be transported governs the liability
of the common carrier in case of their loss, destruction or deterioration. For cargoes
transported from Japan to the Philippines, the liability of the carrier is governed primarily
by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by laws. Since collision
falls among matters not specifically regulated by the Civil Code, Articles 826 to 839, Book
Three of the Code of Commerce, which deal exclusively with collision of vessels, apply. More
in point to the instant case is Article 827 of the same Code, which provides that if the
collision is imputable to both vessels, each one shall suffer its own damages and both shall
be solidarily responsible for the losses and damages suffered by their cargoes.
(b) Yes. NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-
agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the
vessel, including the power to contract in the name of the NDC. It is well-settled that both
the owner and agent of the offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of
collision, both the owner and the agent are civilly responsible for the acts of the captain
(Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code
of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]) ; that
while it is true that the liability of the naviero in the sense of charterer or agent, is not
expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the
general doctrine of jurisprudence under the Civil Code but more specially as regards
contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held
that both the owner and agent (Naviero) should be declared jointly and severally liable,
since the obligation which is the subject of the action had its origin in a tortious act and did
not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]).
Consequently, the agent, even though he may not be the owner of the vessel, is liable to the
shippers and owners of the cargo transported by it, for losses and damages occasioned to
such cargo, without prejudice, however, to his rights against the owner of the ship, to the
extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y. Co. v.
McMicking, et al., 11 Phil. 276 [1908]).
(c) MCP's contention is devoid of merit. The declared value of the goods was stated in the
bills of lading and corroborated no less by invoices offered as evidence during the trial.
Besides, common carriers, in the language of the court in Juan Ysmael & Co. Inc. v. Barrette
et al. (51 Phil. 90 [1927]), "cannot limit its liability for injury to a loss of goods where such
injury or loss was caused by its own negligence." Negligence of the captains of the colliding
vessel being the cause of the collision, and the cargoes not being jettisoned to save some of
the cargoes and the vessel, the law on averages are therefore not applicable.

9. The steamer Subic, owned by the defendant, collided with the launch Euclid owned by
the plaintiff, in the Bay of Manila at an early hour on the morning of January 9, 1911, and
the Euclid sank five minutes thereafter. The defendant filed an action to recover the value of
the Euclid. The court below held from the evidence submitted that the Euclid was worth at
a fair valuation P10,000.00 and that both vessels were responsible for the collision; and
that the loss should be divided equally between the respective owners, P5,000.00 to be paid
to the plaintiff by the defendant, and P5,000.00 to be borne by the plaintiff himself. Is the
decision of the trial court?
A: No, the decision is not correct and the decision of the trial court should be reversed. It
will be seen that the trial judge was of opinion that the vessels were jointly responsible for
the collision and should be held jointly liable for the loss resulting from the sinking of the
launch. But actions for damages resulting from maritime collisions are governed in this
jurisdiction by the provisions of Section 3, Title 4, Book III of the Code of Commerce, and
among these provisions we find the following: "ART. 827. If both vessels may be blamed for
the collision, each one shall be liable for its own damages, and both shall be jointly
responsible for the loss and damage suffered by their cargoes."
In disposing of this case the trial judge apparently had in mind that portion of the
section which treats of the joint liability of both vessels for loss or damage suffered by their
cargoes. In the case at bar, however, the only loss incurred was that of the launch Euclid
itself, which went to the bottom soon after the collision. Manifestly, under the plain terms of
the statute, since the evidence of record clearly discloses, as found by the trial judge, that
"both vessels may be blamed for the collision," each one must be held liable for its own
damages, and the owner of neither one can recover from the other in an action for damages
to his vessel.
In cases of a disaster arising from mutual negligence of two parties, the party who
has a last clear opportunity of avoiding the accident, notwithstanding the negligence of his
opponent, is considered wholly responsible for it under the common-law rule of liability as
applied in the courts of common law in the United States. But this rule (which is not
recognized in the courts of admiralty in the United States, wherein the loss is divided in
cases of mutual and concurring negligence, as also where the error of one vessel has
exposed her to danger of collision which was consummated by the negligence of the other),
is limited in its application by the further rule, that where the previous act of negligence of
one vessel has created a position of danger, the other vessel is not necessarily liable for the
mere failure to recognize the perilous situation; and it is only when in fact it does discover
it in time to avoid the casualty by the use of ordinary care, that it becomes liable for the
failure to make use of this last clear opportunity to avoid the accident (See cases cited in
Notes, 7 Cyc., pp. 311, 312, 313). So, under the English rule which conforms very nearly to
the common-law rule as applied in the American courts, it has been held that the fault of
the first vessel in failing to exhibit proper lights or to take the proper side of the channel
will relieve from liability one who negligently runs into such vessel before he sees it;
although it will not be a defense to one who, having timely warning of the danger of
collision, fails to use proper care to avoid it (Pollock on Torts, 374.). In the case at bar, the
most that can be said in support of plaintiff's contention is that there was negligence on the
part of the officers on defendant's vessel in failing to recognize the perilous situation
created by the negligence of those in charge of plaintiff's launch, and that had they
recognized it in time, they might have avoided the accident. But since it does not appear
from the evidence that they did, in fact, discover the perilous situation of the launch in time
to avoid the accident by the exercise of ordinary care, it is very clear that under the above
set out limitation to the rule, the plaintiff cannot escape the legal consequences of the
contributory negligence of his launch, even were we to hold that the doctrine is applicable
in this jurisdiction, upon which point we expressly reserve our decision at this time.
CHAPTER 19

(671-673)

CASE:
1. On the 26th day of September 1905, the sailing vessel Alta was wrecked and stranded
upon the coast of Cavite Province. The captain of the ship removed the cargo and after
working ten or twelve days in attempts to float the ship made a contract, in writing, with
the plaintiffs, which is as follows:
MANILA, November 1, 1905.
Mr. CHARLES S. ROBINSON, Manila.
DEAR SIR: Referring to your offer of 31st ultimo, re the raising of the ship Alta - viz., to
put her into Cavite and in such condition that it will admit of her being sailed to Hong Kong or
other port, subject to being passed by Lloyds' surveyor — for the sum of fifteen thousand
pesos (P15,000), Philippine currency, I accept the same and shall esteem it a favor if you will
commence the work with the least possible delay. Should you not be successful, it is distinctly
understood that no money whatever is to be paid for any work done or appliances used.
Yours, faithfully, (Sgd.) W. T'HONAGEL.
P.S. — It is understood that by “other port" is meant Singapore.
(Sgd.) W. T.
The plaintiffs went to work immediately upon the vessel, raised it, and towed it to
Cavite on the 10th day of December 1905. It was at once decided to put her into the dry
dock or slip there for the purpose of examining her hull and ascertaining the extent of the
damages. This could not be done until the 18th day of January, owing to other demands
upon the dock company. On that day she was put upon the slip, was examined, and again
taken off. The exact day on which she came off from the slip does not appear, but it probably
was the 19th day of January. On the 20th day of January plaintiffs removed all of their
machinery, tackle, and utensils from the ship and did no more work upon her.
The plaintiffs, on the 30th day of December, 1905, were paid by the defendants the
sum of 3,000 pesos on account of the contract. They brought this action against the ship
and her master on the 27th day of February, 1906, claiming to recover the reasonable worth
and value of the services performed by them, which they fixed at 15,000 pesos.
(a) Is the contract binding on the salvor?
(b) Is the salvor entitled to full compensation?
A: (a) Yes, the salvor is bound by contracts which they have made. The contract appears to
have been entered into openly and fairly in all respects, and there is no principle or
authority upon which the court can disregard it, or make a new contract for the parties. It
must, therefore, be enforced as it stands.
Where an agreement fixing the amount of the remuneration to be paid for salvage
services has been deliberately entered into, at the time of the commencement of the danger,
between perfectly competent parties, the court should not allow the agreement to be set
aside merely because the execution of it has turned out more difficult than was anticipated
at the time of making the contract.
(b) No. The salvor is not entitled to the full amount of compensation agreed upon in the
contract. That part of the contract which required the plaintiffs to bring the ship to Cavite
they performed, but that part of it which required them to put her in condition to be sailed
to Hong Kong they never performed. They should have continued performing the contract
even if it would have cost the plaintiffs 22,000 pesos to do what they had agreed in the
contract to do for 15,000 pesos. The case may be hard one for the plaintiffs but when
parties have voluntarily entered into a contract they can disregard it if it turns out to be
unprofitable to them, and can recover as if no contract had been made.

(690-691)

CASE:
On September 13, 1914, the British steamer Bengloe owned by W. Thompson & Co.,
while en route from Manila to European ports, stranded on the Mayone shoal in the Sulu
sea some 25 miles from Brook's Point on the Island of Palawan. At this time, Jose
Fernandez, O. N. Holmsen, and M. A. Macleod, now plaintiffs, were residents of Palawan. On
learning of the abandonment of the Bengloe by her crew, these gentlemen formed a
partnership, with a capital of P1,500.00, for the purpose of salving the vessel and cargo.
They hired the launch Florence of between thirty and forty tons capacity from the
provincial authorities of Puerto Princesa, and with a number of laborers proceeded to the
wreck to ascertain its condition, where they arrived on October 7. They immediately took
possession of the vessel and removed 14.937 kilos of copra and certain furniture and
effects, of the approximate value of P2,500.00. Holmes and Fernandez proceeded with the
launch to Brook's Point, the copra and other effects were stored in the Government
warehouse. The copra being perishable was later sold by an order of court and the
proceeds amounting to P2,051.63 deposited with the clerk of court. The other articles were
left in the custody of the provincial treasurer of Palawan. Holmsen and Fernandez began
negotiations with various owners of vessels in Manila, including the Neil Macleod and one
of the Pujalte boats. Neither of these boats, however, was ever chartered or placed at the
disposition of the plaintiffs.
In the meantime, the London Salvage Association acting in the interest of the
underwriters of the ship and the cargo, and with the consent of the ship's agents, engaged
Ker & Co. to take charge of the salvage operations. The latter firm in its turn employed
William Swan, an engineer and marine surveyor, to conduct the work. Swan left Manila on
the Coast Guard Cutter Polillo on October 6 for the scene of the wreck. On the way there, the
Polillo intercepted the Paglima, which had the captain and members of the crew of the
Bengloe on board, and took them back to the wreck. Swan, the captain of the Bengloe, and
their assistants arrived at the wreck on October 9, that is, two days after the arrival of
Fernandez, Holmsen, and Macleod, and after the copra and other effects had been removed.
Macleod and the two laborers found on board were shown scant hospitality by the second
party, and were pointedly given to understand that their presence was not desired. Against
his vigorous protest, MaCleod was finally forced to leave the vessel by the captain of the
Polillo and a lieutenant of the Constabulary sent to the wreck with constabulary soldiers to
protect it from plunder. When the other plaintiffs Holmsen and Fernandez, returned on the
launch, they were prevented from taking any further part in the salvage operations.
Were the first salvors (Fernandez, Holmsen and Macleod) properly compelled to
leave the vessel?
Were the first salvors entitled to full salvage compensation?
A: Yes. The first set of salvors had no right to retain the derelict. The first set of salvors had
no right to exclude the second set from saving the merchandise in the vessel, the first set
not having at the time the means to save it. (The Concordia [1855], 6 Fed. Cases, 3092).
(b) No. The only equipment actually in the possession of the plaintiffs for salving the
Bengloe and the cargo was a small launch and some baskets and sacks. This was the best
salvage equipment available in Puerto Princesa on the Island of Palawan. The services
rendered by the plaintiffs contributed immediately to the preservation of a small amount of
property on the stranded vessel, but as an actual fact, their further exertions, however
meritorious they were intended to be were not successful in any degree and cannot be
compensated in damages. (Fernandez v. Thompson & Co., et al., G.R. No. 12475, March 21,
1918)
CHAPTER 20
(702)

CASE:

On August 11, 1962, a certain cargo insured with plaintiff corporation was shipped
in New York, U.S.A. aboard "M/S TOREADOR," of which the general agent in the Philippines
is appellee Macondray & Co. Inc. (hereinafter referred to as Macondray). The cargo, with an
invoice value of $3,539.61 CIF Cebu, was consigned to the order of the importer Atlas
Consolidated Mining and Development Corporation. Inasmuch as the final port of call of the
"M/S TOREADOR" was Manila, the carrier, in accepting the cargo at the point of shipment,
agreed to transship the same, after its discharge in Manila, aboard an inter-island vessel to
its destination in Cebu. On September 18, 1962 the "M/S TOREADOR" arrived at the port of
Manila and on the same date discharged the cargo in question. Pursuant to the
arrangement the cargo was subsequently loaded aboard the "SS SIQUIJOR, an inter-island
vessel. The shipment was finally discharged in Cebu on September 24, 1962. When the
consignee took delivery of the shipment it was found to be short of two pieces of tractor
parts. When a case was filed against Macondray, it moved to dismiss the amended
complaint against it on the ground that plaintiff's action had already prescribed under the
provisions of the Carriage of Goods by Sea Act because the reckoning date was allegedly the
date of discharge in Manila. Is the contention tenable?
A: No. The contention is not tenable. The prescriptive period started when the good were
discharged in Cebu. The transshipment of the cargo from Manila to Cebu was not a separate
transaction from that originally entered into by Macondray, as general agent for the "M/S
TOREADOR." It was part of Macondray's obligation under the contract of carriage and the
fact that the transshipment was made via an inter-island vessel did not operate to remove
the transaction from the operation of the Carriage of Goods by Sea Act. ( See Go Chang & Co.,
Inc. v. Aboitiz & Co., Inc., 98 Phil. 197)

CHAPTER 21

(721-722)

PROBLEMS AND CASES:

1. WWW Communications Inc. is an e-commerce company whose present business


activity is limited to providing its clients with all types of information technology
hardware. It plans to refocus its corporate direction of gradually converting itself
into a full convergence organization. Toward this objective, the company has been
aggressively acquiring telecommunications businesses and broadcast media
enterprises, and consolidating their corporate structures. The ultimate plan is to
have only two organizations: one to own the facilities of the combined businesses
and to develop and produce content materials, and another to operate the facilities
and provide mass media and commercial telecommunications services. WWW
Communications will be the flagship entity which will own the facilities of the
conglomerate and provide content to the other new corporation which, in turn, will
operate those facilities and provide the services. WWW Communications seeks your
professional advice on whether or not its reorganized business activity would be
considered a public utility requiring a franchise. What will be your advice? Explain.

A. No. The reorganized business activity of WWW Communications Inc. would not be
considered a public utility. Hence, WWW Communications Inc. does not require a
franchise or certificate or any other form of authorization before it can operate.
Although the company acquired telecommunications businesses and broadcast
media enterprises, this may mean that it is a shareholder in the corporations
conducting the business. On the other hand, the plan to own the facilities does not
convert the company into a public utility. It is only when the company will operate
the business that a franchise is necessary. (2000)

2. The private respondent is the owner of the facilities necessary to operate the EDSA
LRT III but it is not enfranchised to operate a public utility. In view of this incapacity,
private respondent and DOTC agreed that on completion date, private respondent
will immediately deliver possession of the LRT system by way of lease for 25 years,
during which period DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair services to DOTC.
Technical maintenance consists of providing: (1) repair and maintenance facilities
for the depot and rail lines, services for routine clearing and security; and (2)
producing and distributing maintenance manuals and drawings for the entire
system. Private respondent shall also train DOTC personnel for familiarization with
the operation, use, maintenance and repair of the rolling stock, power plant,
substations, electrical, signaling, communications and all other equipment as
supplied in the agreement. By the end of the three-year construction period and
upon commencement of normal revenue operation, DOTC shall be able to operate
the EDSA LRT III on its own and train all new personnel by itself. Fees for private
respondent's services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and
financing cost, plus a reasonable rate of return thereon. Since DOTC shall operate the
EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier.
For this purpose, DOTC shall indemnify and hold harmless private respondent from
any losses, damages, injuries or death which may be claimed in the operation or
implementation of the system, except losses, damages, injury or death due to defects
in the EDSA LRT III on account of the defective condition of equipment or facilities
or the defective maintenance of such equipment facilities. Is it required for the
private respondent to meet the minimum 60% capitalization requirements under
the Constitution?

A. No. The nationalization requirement applies only if the private respondent will
operate the public utility. In this case, private respondent will not run the light rail
vehicles and collect fees from the riding public. It will have no dealings with the
public and the public will have no right to demand any services from it. (Tatad v.
Garcia, Jr., 243 SCRA 436 [1995])

3. Philippine Gaming Management Corporation (PGMC) entered into a Contract of


Lease with Philippine Charity Sweepstakes Office (PCSO) prescribed under the
charter of the PCSO. In the Contract of Lease, PGMC, the lessor obligated itself to
build, at its own expense, all the facilities necessary to operate and maintain a
nationwide on-line lottery system from whom PCSO was to lease the facilities and
operate the same. Upon due examination of the contract, the Court found that
PGMC's participation was not confined to the construction and setting up of the on-
line lottery system. It spilled over to the actual operation thereof, becoming
indispensable to the pursuit, conduct, administration and control of the highly
technical and sophisticated lottery system. Assuming for the sake of argument that
the activity is a nationalized activity, it required for PGMC to meet the minimum
Filipino capitalization requirement?

A: Yes, this case involves not only ownership of the facilities that will be used in the
operation. In effect, the PCSO leased out its franchise to PGMC that actually operated
and managed the same. What was entered into was actually a collaboration or joint
venture agreement whereby the operation of the business will be undertaken by PGMC.
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994])

(734-736)

CASES:

1. The Philippine Railway Co. applied that its present rates be considered the
maximum and that it be allowed to fix other lower rates whenever in our opinion it
will be to the advantage of the Railway Company to do so. The Public Service
Commission granted Philippine Railway Co. the power of altering its freight rates
whenever it should find it necessary to do so in order to meet the competition of
road trucks and autobuses, or to change its freight rates at will, or to regard its
present rates as maximum rates, and to fix lower rates whenever in the opinion of
the Philippine Railway Co. it would be to its advantage to do so. Is the authority
given to Philippine Railway Co. valid?
A. No. The authority given to Philippine Railway Co. is not valid. The Legislature has
delegated to the Public Service Commission the power of fixing the rates of public
services, but it has not authorized the Public Service Commission to delegate that
power to a common carrier or other public service. The rates of public services like
the Philippine Railway Co. have been approved or fixed by the Public Service
Commission, and any change in such rates must be authorized or approved by the
Public Service Commission after they have been shown to be just and reasonable.
The public service may, of course, propose new rates, as the Philippine Railway Co.
did in case No. 31827, but it cannot lawfully make said new rates effective without
the approval of Public Service Commission, and the Public Service Commission itself
cannot authorize a public service to enforce new rates without the prior approval of
said rates by the commission. The commission must approve new rates when they
are submitted to it, if the evidence shows them to be just and reasonable, otherwise
it must disapprove them. Clearly, the commission cannot determine in advance
whether or not the new rates of the Philippine Railway Co. will be just and
reasonable, because it does not know what those rates will be. In the present case,
the Philippine Railway Co. in effect asked for permission to change its freight rates at
will. It may change them every day or every hour, whenever it deems it necessary to
do so in order to meet competition or whenever in its opinion it would be to its
advantage. Such a procedure would create a most unsatisfactory state of affairs and
largely defeat the purposes of the public service law. (Panay Autobus Co. v. Philippine
Railway Co., G.R. No. L-37869, February 17, 1933, 57 Phil. 872)

2. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a
P0.37 centavo per kilometer fare for ordinary buses. At the same time, they were
allowed to impose and collect a fare range of plus or minus 15°0 over the authorized
rate. Thus PO.37 centavo per kilometer authorized fare plus P0.05 centavos (which
is 1590 of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990.
Supposing the LTFRB grants another P0.05 centavo increase per kilometer in 1994,
then, the base or reference for computation would have to be P0.47 centavos (which
is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an
additional 2000 over and above the authorized fare, then the fare to be collected
shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of PO.47
which is P0.29). In effect, commuters will be continuously subjected, not only to a
double fare adjustment but to a compounding fare as well. On their part, transport
operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for,
they can still collect an additional amount by virtue of the authorized fare range.

Mathematically, the situation translates into the following:

Year** LTFRB authorized Fare Range Fare to be rate*** collected per


kilometer

1990 P0.37 15°6 (P0.05) P0.42

1994 P0.42 + 0.05 = 0.47 20°0 (P0.09) P0.56

1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73

2002 £0.73 + 0.05 = 0.78 20°0 0'0,16) P0.94

Was the authority given to the bus operators valid?

A: No. the authority given by the LTFRB to the provincial bus operators to set a fare
range over and above the authorized existing fare, is illegal and invalid as it is
tantamount to an undue delegation of legislative authority. The power of the LTFRB
to regulate rates is a delegated power. What Congress has delegated cannot be
delegated by the LTFRB. (Kilusang Mayo Uno Labor Center v. Garcia, Jr., G.R. No.
115381 December 23, 1994)

(788-791)

PROBLEMS:

1. Acme Transportation Co. has a certificate of public convenience to operate buses in


southern Luzon and the Eastern Visayas, including the Manila-Bicol-Samar-Leyte
route. In order to get to Samar, its buses take a ferry from Matnog, Sorsogon, across
the Babuyan Channel, an 8-kilometer ride more or less to the coastal town of Allen
Samar. Acme Transportation Co. finds that the fees it pays for the ferry come to quite
a substantial amount each year and it calculates that it will be more economical to
have its own ferry to transport its buses. It therefore applies for an authorization to
operate such ferry as an additional unit of equipment for the exclusive use of its
buses on the Manila-Leyte route.

X Lighterage Service Co. which has been operating a ferry service on the said
route for the past six years, objects on the following grounds: (a) the certificate of
public convenience of Acme is to operate a land transportation and this does not
include ferry service which is already inter-island shipping. It therefore needs a new
certificate of public convenience to operate inter-island transportation, a mere
authority to acquire and operate an additional unit not being sufficient, and (b)
granting that the operation of said ferry is within Acme's certificate of public
convenience, X Lighterage Service Co. is a prior proprietor, and since it is giving
adequate service, there is no need for an additional service on said route. In fact
Acme Transportation Co. has been availing itself of the ferry service of X Lighterage
Service Co. for several years.

Decide with reasons.

A. Acme transportation may not be given the permit it seeks. The objection of X
Lighterage Service Co. is tenable because a Certificate of Public Convenience is
necessary in order to operate the service covered by Acme's application. Since the
"ferry" will cross open seas, the service is not merely a ferry service but it is actually
coastwise shipping. (San Pablo v. Pantranco South Express, Inc., G.R. No. L-61461,
August 21, 1987)

2. A was granted by the Board of Transportation a certificate of public convenience to


operate 50 provincial buses, plying between Ilocos Norte and Manila, passing
through Rizal Avenue Extension then right on Doroteo Jose. Because of traffic
congestion between hours of 7 and 9 o'clock in the morning, and 4 to 8 o'clock in the
evening, a municipal ordinance, was passed prohibiting provincial buses from
entering Manila on these hours but allowing them to use one shuttle bus for every
five buses. A challenged the validity of the ordinance, on the ground that it infringes
on his certificate of public convenience, and that he acquired a vested right to enter
Manila at anytime of the day, through the aforementioned route. Decide with
reasons.

A. The ordinance is valid. There is no infringement on the certificate of public


convenience. The City of Manila has the power, under its Charter, to regulate the use
of its streets. This charter is a special law and therefore prevails over the Public
Service Act. Consequently, the power of the LTFRB to grant certificates is subject to
this provision of the charter of Manila. A has thus not acquired any vested right as
alleged by him. (Lagman v. City of Manila, G.R. No. L-23305, June 30, 1966) (1976)

3. Pepay, a holder of a certificate of public convenience, failed to register the complete


number of units required by her certificate. However, she tried to justify such failure
by the accidents that allegedly befell her, claiming that she was shocked and
burdened by the successive accidents and misfortunes that she did not know what
she was doing, she was confused and thrown off tangent momentarily, although she
always had the money and financial ability to buy new trucks or repair the destroyed
one. Are the reasons given by Pepay sufficient grounds to excuse her from
completing her units? Explain.

A. No. The reasons given by Pepay are not sufficient grounds to excuse her from
completing her units. Even assuming that she really suffered misfortunes, the same
could not prevent her from authorizing her representatives from performing the
required acts. (Section 16[n] Public Service Act: Halili v. Herras, 10 SCRA 769). (1993)

4. Mr. Mangasiwa applied for a certificate of public convenience to operate five


jeepneys from the Batasang Pambansa area to Cubao, Q.C. The application was
opposed by Hallelujah Transit and Kingdom Bus Co., because they are already
serving the line. They invoked the "prior or old operator rule" in their opposition.
Mangasiwa, in turn, invoked the "prior applicant rule."

Discuss the "prior operator rule" and the limitations or provisos on its
application. In case of conflict between the "prior or old operator rule and the "prior
applicant rule," which shall prevail? Explain.

A. Under the "prior or old operator rule," an existing franchise operator may claim
priority right to render the public service within the authorized territory as long as
he does so satisfactorily and economically. The "prior operator rule" normally
prevails in case of conflict between the "prior operator rule" and the "prior applicant
rule," so long as the interest of the public is best served. (1986)

5. Robert is a holder of a certificate of public convenience to operate a taxi cab service


in Manila and suburbs. One evening, one of his taxicab units was boarded by three
robbers as they escaped after staging a hold-up. Because of said incident, the Land
Transportation and Regulatory Board revoked the certificate of public convenience
of Robert on the ground that said operator failed to render safe, proper and
adequate service as required under Section 19(a) of the Public Service Act.
a) Was the revocation of the certificate of public convenience of Robert justified?
Explain. A: a) No, the revocation was not justified. It is true that a certificate may be
revoked if the operator failed to render safe, proper and adequate service. However,
unsafe, improper or inadequate service cannot be established just by citing a single
hold-up incident. This may be sufficient only if Robert was involved in the criminal
act but the same does not appear in the problem. (Manzanal v. Ausejo G.R. No.
31056, August 4, 1988, 164 SCRA 36) (1993) 6. Antonio was granted a certificate of
public convenience (CPC) in 1986 to operate a ferry between Mindoro and Batangas
using the motor vessel "MV Lotus." He stopped operations in 1988 due to
unserviceability of the vessel. In 1989, Basilio was granted a CPC for the same route.
After a few months, he discovered that Carlos was operating on his route under
Antonio's CPC. Because Basilio filed a complaint for illegal operations with the
Maritime Industry Authority, Antonio and Carlos jointly filed an application for sale
and transfer of Antonio's CPC and substitution of the vessel "MV Lotus" with another
owned by Carlos. Should Antonio's and Carlos' joint application be approved? Give
your reasons. A: No, the application should not be approved. The Maritime Industry
Authority should deny the joint application of Antonio and Carlos for the sale and
transfer of Antonio's CPC and substitution of the vessel MV Lotus with another
vessel owned by the transferee. The certificate of public convenience was issued for
a particular vessel, MV Lotus, and is therefore inseparable from the latter. The fact
that the vessel designated in the CPC is unserviceable had likewise rendered
ineffective the certificate itself. Hence, there is in fact nothing to transfer to Carlos.
(1992). The City of Manila passed an ordinance banning provincial buses from the
city. The ordinance was challenged as invalid under the public service act by X who
had a certificate of public convenience to operate auto trucks with fixed routes from
certain towns in Bulacan and Rizal to Manila and within Manila. Firstly, he claimed
that the ordinance was null and void because, among other things, it in effect
amends his certificate of public convenience, a thing which only the Public Service
Commission can do under Section 16(m) of the Public Service Act. Under said
section, the Commission is empowered to amend. Modify or revoke a CPC after
notice and hearing. Secondly, he contended that even if the ordinance is valid, it is
only the Commission which can require compliance with its provisions under
Section 17(j) of said Act and since the implementation of the ordinance was without
sanction or approval of the Commission, its enforcement was unauthorized and
illegal. a) May the reliance of X on Section 16(m) of Public Service Act be sustained?
Explain.

a) Was the revocation of the certificate of public convenience of Robert


justified? Explain.
A. a) No, the revocation was not justified. It is true that a certificate may be revoked if
the operator failed to render safe, proper and adequate service. However, unsafe,
improper or inadequate service cannot be established just by citing a single hold-up
incident. This may be sufficient only if Robert was involved in the criminal act but
the same does not appear in the problem. (Manzanal v. Ausejo G.R. No. 31056, August
4, 1988, 164 SCRA 36) (1993)

6. Antonio was granted a certificate of public convenience (CPC) in 1986 to operate a


ferry between Mindoro and Batangas using the motor vessel "MV Lotus." He stopped
operations in 1988 due to unserviceability of the vessel. In 1989, Basilio was granted
a CPC for the same route. After a few months, he discovered that Carlos was
operating on his route under Antonio's CPC. Because Basilio filed a complaint for
illegal operations with the Maritime Industry Authority, Antonio and Carlos jointly
filed an application for sale and transfer of Antonio's CPC and substitution of the
vessel "MV Lotus" with another owned by Carlos. Should Antonio's and Carlos' joint
application be approved? Give your reasons.
A. No, the application should not be approved. The Maritime Industry Authority should
deny the joint application of Antonio and Carlos for the sale and transfer of
Antonio's CPC and substitution of the vessel MV Lotus with another vessel owned by
the transferee. The certificate of public convenience was issued for a particular
vessel, MV Lotus, and is therefore inseparable from the latter. The fact that the vessel
designated in the CPC is unserviceable had likewise rendered ineffective the
certificate itself. Hence, there is in fact nothing to transfer to Carlos. (1992). The City
of Manila passed an ordinance banning provincial buses from the city. The ordinance
was challenged as invalid under the public service act by X who had a certificate of
public convenience to operate auto trucks with fixed routes from certain towns in
Bulacan and Rizal to Manila and within Manila. Firstly, he claimed that the ordinance
was null and void because, among other things, it in effect amends his certificate of
public convenience, a thing which only the Public Service Commission can do under
Section 16(m) of the Public Service Act. Under said section, the Commission is
empowered to amend. Modify or revoke a CPC after notice and hearing. Secondly, he
contended that even if the ordinance is valid, it is only the Commission which can
require compliance with its provisions under Section 17(j) of said Act and since the
implementation of the ordinance was without sanction or approval of the
Commission, its enforcement was unauthorized and illegal.
a) May the reliance of X on Section 16(m) of Public Service Act be sustained?
Explain.
b) Was X correct in his contention that under Section 17(f) of the Public
Service Act it is only the Commission that can require compliance with the
provisions of the ordinance? Explain.

A. a) No, reliance of X on Section 16(m) of the Public Service Act is not justified. The
power of the City of Manila is anchored on its Charter that is a special law. Hence, the
power vested in the Public Service Commission and its successor agency under
Section 16(m) is subordinate to the authority of the City of Manila. A special law
prevails over a general law.

b) No. Section 170) of the Public Service Act does not deny or supersede the
regulatory power of local governments over motor traffic in the streets subject to
their control. (Lagman v. City of Manila, 17 SCRA 579) (1993)

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