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:

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.
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)

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.
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)
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 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)
Doña Buding checked in at the PAL counter of the Manila Domestic Airport on a flight to
Bacolod. Noticing that Doña 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 Doña 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. Doña 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.
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)
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.
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)
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?
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)
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.
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.]

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.
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)
Discuss whether or not the following stipulations in a contract of carriage of a common carrier
are valid:

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.
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.
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.
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)
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.
Are those defenses valid?
What are the defenses available to any common carrier to limit or exempt it from liability?
(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.
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) 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:

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?
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 crews 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 KALs
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 embarassmentand mental anguish he suffered at the Geneva
Airport when the petitioners 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 Airlines 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 Airlines 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 rulemeans 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 workmens
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 Companys 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 vessels departure from Manila. The bulletins warned
all types of sea crafts to avoid the typhoons expected path near Mindoro. To make matters
worse, he took more load than was allowed for the ships rated capacity. Sued for damages by
the victims 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.

What is a maritime protest?

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 carriers 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 carriers 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 petitionersvessel 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 Gordonwould shortly hit
Hong Kong. Precautionary measures were taken to secure the safety of the vessel, as well as its
crew, considering that the vessels 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 Mindorofor 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 Masters 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 routeto 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 ships 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 Mindorohad 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 Tayongs decision (arrived at after consultation with
the vessels Chief Engineer) to wait seven hours in Singapore for the delivery on board the
Oceanic Mindoroof 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 Tayongs 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
petitionersmanagement prerogative, that prerogative is nevertheless not to be exercised, in the
case at bar, at the cost of loss of Captain Tayongs 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 latters office in Cebu
City. They were to board petitioners 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 interruptedby the captain upon
instruction of management. The interruptionwas 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 passengersright 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 fortuitothat 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 majeurethat 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 petitioners 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
latters 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
respondents 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
respondents 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 legalor 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 latters 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 Viceof 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 Viceof 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 vicebecause 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. OFarrel 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 OFarrel 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 plaintiffs 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 minesshould 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 mineswas 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. (OFarrel 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 courts 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, attorneys 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 shipperssole 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 shippers contention
valid? Explain.

A. No. The shipperscontention 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, viaAparri, 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 ships 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 ships 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 routeto Manila, the vessel DofiaNati 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 'DofiaNati' 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 navieroin 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 (Seecases 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 Bengloeowned 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 Bengloeby 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 Florenceof 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 andFernandez 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 Macleodand 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 Polilloon
October 6 for the scene of the wreck. On the way there, the Polillointercepted the Paglima,
which had the captain and members of the crew of the Bengloeon 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, MaCleodwas finally forced to leave the
vessel by the captain of the Polilloand 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
Bengloeand 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:

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.
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)
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?
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])
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:
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?
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:

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.

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)
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.
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)
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.
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)
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.

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)
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) 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)
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.
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) 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)