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

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

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

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

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

A. A is entitled to only P400.00. Article 1749 of the Civil Code provides that a stipulation that the common
carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or
owner declares a greater value, is binding. This provision applies to baggages that are checked in or under
the custody of the carrier. Hence, the stipulation limiting the carrier's liability to P400.00 is binding
because A did not declare a greater value. (1982)

4. Donñ a Buding checked in at the PAL counter of the Manila Domestic Airport on a flight to Bacolod. Noticing
that Donñ a Buding had two baggages being checked in, the counter clerk called her attention to the
stipulation in the plane ticket and asked if she was going to make any declaration on the value of the
same, but Donñ a Buding just looked at him and did not say anything. The plane arrived in Bacolod, but the
two baggages were nowhere to be found. PAL promised to deliver the two baggages the next day, but it
never did. Donñ a Buding sued PAL, claiming P10,000.00 damages for the loss of the two baggages. PAL
answered that it was liable for P200.00 for the plane ticket clearly stipulated that: "That total liability of
the carrier for lost or damaged baggage is limited to P100.00 per baggage, unless the passenger declares a
higher valuation in excess of P100.00 but not in excess, however, of a total valuation of P1,000.00 and
unless additional charges are paid pursuant to Carrier's Tariffs." The trial court ruled in favor of PAL.
Comment on the legality of the court's decision.

A. The ruling of the trial court in favor of PAL is supported by the provisions of the Civil Code. Article 1749 of
the Civil Code provides that a stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. This
provision applies to baggages that are checked in or under the custody of the carrier. Hence, the
stipulation limiting the carrier's liability to P200.00 is binding because A did not declare a greater value.
(1985)
5. X shipped through MN Kalayaan, spare parts worth P500,000.00. The bill of lading limits the liability of
the carrier to P500.00 and contains a notation indicating the amount of the letter of credit (i.e.,
P500,000.00) which X obtained from a bank to import the spare parts. The spare parts were not delivered
to X so X sued the carrier for P500,000.00. Decide.

A. X can recover the value of his actual loss, P500,000.00. Article 1750 of the Civil Code provides that a
contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon. It is believed that the stipulation involved is not just and reasonable under the
circumstances. This is especially true in this case where the bill of lading itself indicates the true value of
the goods shipped (supported by the letter of credit). (1989)

6. Martin Nove shipped an expensive video equipment to a friend in Cebu. Martin had bought the equipment
from Hong Kong for $5,000. The equipment was shipped through MIS Lapu-lapu under a bill of lading
which contained the following provision in big bold letters: "The limit of the carrier's liability for any loss
or damage to cargo shall be P200 regardless of the actual value of such cargo, whether declared by its
shipper or otherwise." The cargo was totally damaged before reaching Cebu. Martin Nove claimed for the
value of his cargo ($5,000) instead of just P200.00 as per limitation on the bill of lading. Is there any legal
basis for Nove's claim?

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

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

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

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

8. A, in Holland, shipped on board a vessel owned by B, 500 cases of canned milk to consignee C in Iloilo.
Upon arrival, the vessel discharged the canned milk into the custody and possession of the arrastre
operator appointed by the Bureau of Customs. In the Bill of Lading, it was stipulated that the vessel is no
longer liable for the cargo upon its delivery to the hands of the customs authorities. The cargo checker of
the arrastre found the cargo to be in good order. Upon delivery to the consignee, a marine surveyor found
 20 cases of milk missing. C sued B for the value of the missing cases on the ground that under the contract
of carriage, B was obliged to deliver the cargo safely to the consignee and that the stipulation limiting the
liability of the carrier is contrary to morals and public policy. B disclaims liability for short delivery.
Decide the dispute, with reasons.

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

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

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

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

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

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

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

a. Are those defenses valid?

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

A. (a) No. Those defenses are not valid defenses. As such, these stipulations are void. Article 1757 of the New
Civil Code provides, that "the responsibility of a common carrier for the safety of passengers as required
in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by posting of notices, by
statements on tickets, or otherwise." Articles 1733 and 1755 require extraordinary diligence or utmost
diligence in the carriage of passengers.

(b) The common carrier may exempt itself from liability if he can prove that: (1) He observed
extraordinary diligence, (2) the proximate and only cause of the incident is a fortuitous event or force
majeure, (3) the proximate and only cause of the loss was an act or omission of the shipper or owner of
the goods, (4) the proximate and only cause of the loss is the character of the goods or defects in the
 packing or in the containers, and (5) the proximate and only cause of the loss order or act of competent
public authority. To limit its liability or at least mitigate the same, the carrier can cite contributory
negligence of the plaintiff and the doctrine of avoidable consequences.
11. On December 19, 2000, Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from Jinsuk
Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of Ovaltine Power, 18 Glaminated plastic
packaging material. In order to ship the goods to the Philippines, JINSUK engaged the services of Protop
Shipping Corporation (PROTOP), a freight forwarder likewise based in South Korea, to forward the goods
to their consignee, NOVARTIS. The Bill of Lading issued by PROTOP provides that the cargo was on freight
prepaid basis and on "shipper's load and count" which means that the "container [was] packed with cargo
by one shipper where the quantity, description and condition of the cargo is the sole responsibility of the
shipper." Likewise stated in the bill of lading is the name Sagawa Express Phils., Inc., (SAGAWA)
designated as the entity in the Philippines which will obtain the delivery contract. PROTOP shipped the
cargo through Dongnama Shipping Co. Ltd. (DONGNAMA) which in turn loaded the same on M/V Heung-A
Bangkok V-019 owned and operated by Heung-A Shipping Corporation, (HEUNG-A), a Korean
corporation, pursuant to a 'slot charter agreement' whereby a space in the latter's vessel was reserved for
the exclusive use of the former. Wallem Philippines Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A
in the Philippines. NOVARTIS insured the shipment with Philam Insurance Company, Inc. (PHILAM, now
Chartis Philippines Insurance, Inc.) against all loss, damage, liability, or expense before, during transit and
even after the discharge of the shipment from the carrying vessel until its complete delivery to the
consignee's premises. The vessel arrived at the port of Manila, South Harbor, on December 27, 2000 and
was discharged without exception into the possession, custody and care of Asian Terminals, Inc. (ATI) as
the customs arrastre operator. The shipment was thereafter withdrawn on January 4, 2001 by NOVARTIS'
appointed broker, Stephanie Customs Brokerage Corporation (STEPHANIE) from ATI's container yard.
The shipment reached NOVARTIS' premises on January 5, 2001. Upon inspection, it was discovered that
the boxes of the shipment were wet and damp. The boxes on one side of the van were in disarray while
others were opened or damaged due to the dampness. Parts of the container van were damaged and
rusty. There were also water droplets on the walls and the floor was wet. Since the damaged packaging
materials might contaminate the product they were meant to hold, the entire shipment was rejected.
Chemical analysis showed that the cause of wetting in the carton boxes and kraft paper/lining materials
as well as the aluminum foil laminated plastic packaging material, was salt water. The issues that were
resolved are as follows: (a) Whether HEUNG-A, WALLEM and PROTOP are liable for the damage to the
shipment; and if so (b) Whether HEUNG-A's liability can be limited to US$500 per package pursuant to the
COGSA.

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

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

As the carrier of the subject shipment, HEUNG-A was bound to exercise extraordinary diligence
in conveying the same and its slot charter agreement with DONGNAMA did not divest it of such
characterization nor relieve it of any accountability for the shipment. Clearly then, despite its contract of
affreightment with DONGNAMA, HEUNG-A remained responsible as the carrier, hence, answerable for the
 damages incurred by the goods received for transportation. Here, HEUNG-A failed to rebut this prima
facie presumption when it failed to give adequate explanation as to how the shipment inside the
container van was handled, stored and preserved to forestall or prevent any damage or loss while the
same was in its possession, custody and control.

PROTOP is solidarily liable with HEUNG-A for the lost/damaged shipment in view of the bill of
lading the former issued to NOVARTIS. "A bill of lading is a written acknowledgement of the receipt of
goods and an agreement to transport and to deliver them at a specified place to a person named or on his
or her order. It operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated." PROTOP breached its contract with
NOVARTIS when it failed to deliver the goods in the same quantity, quality and description as stated in the
bill of lading.

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

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)

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)

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

A. I will make the carrier liable. The carrier is bound to exercise extraordinary diligence in carrying its
passengers. It is presumed to be negligent when its passengers died when the aircraft exploded.
Moreover, the negligence of the carrier is apparent because an explosive device was brought into the
carrier without being detected by the employees. Under R.A. 6235, the carrier is bound to inspect and
investigate suspicious packages that are being brought into the aircraft. This duty was not complied with
because the explosive device was not detected by the carrier's personnel.
CASE:
On September 1, 1983, Korean Air Lines (KAL) Flight 007, while on its way to New York, strayed off-
course into the airspace of the then Union of Soviet Socialist Republic (USSR). The USSR military sot it down over
the sea of Japan thereby resulting in the death of 269 passengers. It was established that the crew repeatedly
made aware of the deviation but elected not to reported the deviation, continued the flight and continued to
report being on course. Was there willful misconduct that is contemplated under the Warsaw Convention?

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

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

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

2. Toni, a copra dealer, loaded 1,000 sacks of copra on board the vessel M/V Tonichi (a common carrier engaged in
coastwise trade owned by Ichi) for shipment from Puerto Galera to Manila. The cargo did not reach Manila
because the vessel capsized and sank with all its cargo. When Toni sued Ichi for damages based on breach of
contract, the latter invoked the “limited liability rule.” a) What do you understand of the rule invoked by Ichi? b)
Are there exceptions to the limited liability rule.
A: a) “Limited liability rule” means that the liability of a shipowner for damages in case of loss is limited to the
value of his vessel. If the ship is totally lost, his liability is extinguished. If the ship or part thereof still exists, he can
escape liability by abandoning the vessel, its appurtenances and its freight. The other properties of the shipowner
cannot be reached by the persons entitled to damages.
b) Yes, there are exceptions. The exceptions to the limited liability rule are: (1) where the injury or death to a
passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner and the
captain; (2) where the vessel is insured; (3) in workmen’s compensation claims; and (4) expenses for repairs and
provisioning of the ship prior to the departure thereof. (1994, see also, 1985 1982)

3. X, a rich trader, boarded the MN Cebu, a small vessel within a value P3M and owned by Y, plying the route
Cotabato to Pagadian City. X had in his possession a diamond worth ₱5M. The vessel has a capacity, of 40
passengers. Near Pagadian, the vessel met equally weather and was hit by six-foot waves every three seconds.
Soon, water entered the engine room and the hull of the vessel. The patron of the water ordered the distribution of
life belts to the passengers. He told them the vessel was sinking and for them to take care of themselves. The
Vessel turned out to be overloaded by 20 passengers and had no sufficient life belts. X failed to get a life belt and
died when the vessel totally sunk. The heirs of X sued Y for ₱IOM damages. Y raised the defense of limited liability.
Decide.
A: Y cannot invoke the defense of limited liability. The doctrine of limited liability does not apply when death or
injury or damage sustained is attributable to the fault or negligence of the ship owner or ship agent and the
captain (or patron) of the vessel. In this case, the shipowner appears to be guilty of fault or negligence because he
did not make certain that the passenger vessel in not overloaded and he failed to provide sufficient life belts on
board the vessel. (1989)

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

A: The action will not prosper. The shipowner can escape liability by abandoning the vessel. This right of
abandonment applies not only to collisions and shipwreck but in the latter case only to: unpaid wages. (Articles
643 and 838, Code of Commerce) However. If the shipowner or ship agent knew or are expected to know the
overloading, then the limited liability rule cannot be applied.
5. X shipping Company spent almost a fortune in refitting and repairing its luxury passenger vessel, the MV
Marina, which plied the inter- island routes of the company from La Union in the north to Davao City in the south.
The MV Marina met an untimely fate during its poet-repair voyage. It sank off the coast of Zambales while en route
to La Union from Manila. The investigation showed that the captain alone was negligent. There were no casualties
in that disaster. Faced with a claim for the payment of the refitting and repair, X Shipping Company asserted
exemption from liability on the basis of the hypothecary or limited liability rule under Article 537 of the Code of
Commerce. Is X Shipping Company’s assertion valid? Explain.
A: No. The assertion of X Shipping Company is not valid. The liability of the ship owner for repairs on the vessel
accrued before the loss of the vessel. In fact the repairs were completed before its loss. Hence, the limited liability
rule does not apply. (2000)

6. MV Mariposa, one of five passenger ships owned by Marina Navigation Co., sank off the coast of Mindoro while
en route to Iloilo City. More than 200 passengers perished in the disaster. Evidence showed that the ship captain
ignored typhoon bulletins issued by PAGASA during the 24-hour period immediately prior to the vessel’s
departure from Manila. The bulletins warned all types of sea crafts to avoid the typhoon’s expected path near
Mindoro. To make matters worse, he took more load than was allowed for the ship’s rated capacity. Sued for
damages by the victim’s surviving relatives, Marina Nav. Co contented 1) that its liability, if any, had been
extinguished with the sinking of MV Mariposa; 2) that assuming it had not been so extinguished, such liability
should be limited to the loss of the cargo. Are these contentions meritorious in the context of applicable provisions
of the Code of Commerce?
A: No. The contentions of Marina Nav. Co. are not meritorious. The problem states that there was already a
PAGASA bulletin within one day before the departure of the vessel. In addition, there was also overloading. It is
therefore believed that the shipowner itself did not exercise extraordinary diligence. It is believed that the
negligence cannot be ascribed entirely to the captain. Although the captain of MV Mariposa was negligent in
ignoring the typhoon bulletins issued by PAGASA and in overloading the vessel, it is believed that the shipowner
cannot escape a finding of negligence. Therefore, the shipowner cannot invoke the doctrine of limited liability.
(2000)

PROBLEM:
Two vessels figured in a collision along the Straits of Guimaras resulting in considerable loss of cargo. The
damaged vessels were safely conducted to the Port of Iloilo. Passenger A failed to file a maritime protest. B, a non-
passenger but a shipper who suffered damage to his cargo, likewise did not tile a maritime protest at all.
a. What is a maritime protest?
b. Can A and B successfully maintain and recover losses and damages arising from the collision? Reason
briefly.
A: (a) Protest is the written statement by the master of a vessel or any authorized officer, attested by proper
officer or a notary, to the effect that damages has been suffered by the ship. In collisions, the maritime protest
must be made within 24 hours after a collision and the circumstances of the collision are declared or made known
before a competent authority at the point of accident or the first port of arrival if in the Philippines or the
Philippine consul in a foreign country.
(b) B can recover their losses and damages arising from the collision while A cannot recover from the collision. B
cannot be expected to know the circumstances regarding the collision, hence, a maritime protest is not required.
However, A, the passenger, knows the circumstances of the collision, hence, he cannot maintain an action if he did
not file a maritime protest as provided for under Article 863 of the Code of Commerce. (2007)

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)

PROBLEMS:

1. X Mining Co. shipped a cargo of machineries on board the S/S Good Ship which was chartered by the Able
Shipping Co., a foreign corporation represented in the Philippines by its agent, Best Lines, Inc. When the goods
were delivered to the consignee, Y Corporation, they were found to have sustained losses. The insurer, Sunshine
Insurance Co., paid for the losses, thereby subrogating itself to the rights of X Mining Co. of Y Mining Co. vis-a-vis
the shipping company and the shipping agent.
Upon arrival of the S/S Good Ship in Manila, Beet Lines, Inc. took charge of the following: (a) unloading of
the cargo and issuing of cargo receipts in its name for the purpose of evidencing the condition and the discharge
of the cargo from the vessel to the arrastre operator and/or unto the barge lighters; (b) filing and processing of
claims against the vessel S/S Good Ship for damages/losses sustained by the cargo.
When Sunshine Insurance Co. sued both Able Shipping Co. and Best Lines, Inc. the latter contended that it
was a disclosed agent and could not therefore be held liable, despite the insolvency of Able Shipping Co.
Rule on the contention of Best Lines, Inc. with reasons.
A: Best Lines, Inc.’s contention lacks merit. Articles 586 and 587 of the Code of Commerce make the ship agent
liable for the civil liabilities in favor of third persons that arise from the conduct of the captain in the care of the
goods. The liability of the ship agent is solidary together with the ship owner; hence, the liability remains even if
the principal shipowner is insolvent. (1984)
2. Q: S shipped goods from Australia on board a foreign vessel owned and operated by X Shipping Co., based in
Australia and represented in the Philippines by R. The goods were consigned to T of Manila and insured by U
against all risks. Upon arrival in Manila Bay, the goods were discharged from the vessel to a lighter owned by the
Bay Brokerage Co.
When delivered to and received by T. the goods were found to have sustained losses or damages. Evidence
disclosed that the damage occurred while the goods were in the custody of the carrier.
The insurance company paid the amount of the loss but sought reimbursement from X and/or R. R
disclaimed any liability alleging that he is a mere agent of X, and having acted as agent of a disclosed principal is,
therefore, not liable.
 Can the insurance company recover from R? Reasons.
A: Yes, the ship agent is solidarily liable with the ship owner for indemnities in favor of third person that may arise
in connection with the care of the goods (Articles 586 and 587, Code of Commerce). Therefore, insurance
company can recover from R the amount representing the value of the goods lost or damaged. (1981)
3. Under a charter party, XXO trading Company shipped sugar to Coca-Cola Company through SS Negros Shipping
Corp., insured by Capitol Insurance Company. The cargo arrived but with shortages. Coca-Cola demanded from
Capitol Insurance Co. P500.00 in settlement for XXO Trading. The MM Regional Trial Court, where the civil suit
was filed, “absolved the insurance company, declaring that under the Code of Commerce, the shipping agent is
civilly liable for damages in favor of third persons due to the conduct of the carrier’s captain, and the stipulation in
the charter party exempting the owner from liability is not against public policy. Coca-Cola appealed. Will its
appeal prosper? Reason briefly.
A: No, if the charter was a bareboat charter. The shipowner and the ship agent are liable for damages in favor of
third persons due to the conduct of the carrier’s captain. However, a stipulation in the bareboat charter party
exempting the owner from liability is valid because the carrier is converted into a private carrier. Such stipulation
is therefore not against public policy.
However, the appeal will prosper if the charter is a time charter or a voyage charter. The shipowner and
the ship agent would still be liable because the stipulation exempting the shipowner from liability is not valid.
(2004)

PROBLEMS:
1. X owns the ship M/V Aguinaldo. He bareboat chartered the ship to Y who appointed all its crew members from
the captain down to its last official. Y then transported a shipment of 10,000 bags of sugar belonging to Z. Through
the negligence of the ship captain, half of the sugar was damaged due to sea water. Since Y is bankrupt, Z sued the
captain and X. Will the suit succeed?
A: The suit will succeed against the captain but not against X. The captain is liable because his negligence caused
the damage or injury. On the other hand, the bareboat charterer becomes the owner pro hac vice, hence, he is
responsible for the acts of his captain. The shipowner is not liable because the contract is between the bareboat
charterer and Y. The ship owner was neither a party to the contract for the shipment of the goods nor an employer
of the ship captain. (1989)
2. X chartered the ship of Y to transport his logs from Zamboanga to Manila. In the course of their voyage, the ship
met a storm and had to dock in Cebu for three days. Z, the captain of the ship borrowed P20,000.00 from X on the
pretext that he would need the money for the repair of the ship. Z misappropriated the money and converted it to
his own benefit. What is the liability of Y, if any?
A: Mr. Y is not liable. Under Article 586 of the Code, a shipowner would only be liable for contracts made by the
captain (a) when duly authorized or (b) even when unauthorized, for ship repairs, or for equipping or
provisioning the vessel when the proceeds are invested therein. The loan by the captain from X does not fall under
any of the foregoing cases. (1989)

CASES:
1. Private respondent Captain Rizalino Tayong, a licensed Master Mariner with experience in commanding ocean-
going vessels, was employed on July 6, 1989 by petitioners Trenda World Shipping (Manila), Inc. and Sea Horse
Ship Management, Inc. through petitioner Inter-Orient Maritime Enterprises, Inc. as Master of the vessel M/V
Oceanic Mindoro, for a period of one year, as evidenced by an employment contract. On July 15, 1989, Captain
Tayong assumed command of petitioners’ vessel at the port of Hong Kong. His instructions were to replenish
bunker and diesel fuel, to sail forthwith to Richard Bay, South Africa, and there to load 120,000 metric tons of coal.
On 16 July 1989, while at the Port of Hong Kong and in the process of unloading cargo, Captain Tayong
received a weather report that a storm code-named “Gordon” would shortly hit Hong Kong. Precautionary
measures were taken to secure the safety of the vessel, as well as its crew, considering that the vessel’s turbo-
charger was leaking and the vessel was 14 years old.
On July 21, 1989, Captain Tayong followed-up the requisition by the former captain of the Oceanic
Mindoro for supplies of oxygen and acetylene, necessary for the welding-repair of the turbo-charger and the
economizer. This requisition had been made upon request of the Chief Engineer of the vessel and had been
approved by the shipowner.
On July 25, 1989, the vessel sailed from Hong Kong for Singapore. In the Master’s sailing message, Captain
Tayong reported a water leak from M.E. Turbo Charger No. 2 Exhaust gas casing. He was subsequently instructed
to blank off the cooling water and maintain reduced RPM unless authorized by the owners.
On July 29, 1989, while the vessel was en route to Singapore, Captain Tayong reported that the vessel had
stopped in mid-ocean for six hours and 45 minutes due to a leaking economizer. He was instructed to shut down
the economizer and use the auxiliary boiler instead.
On July 31, 1989 at 0607 hrs., the vessel arrived at the port of Singapore. The Chief Engineer reminded
Captain Tayong that the oxygen and acetylene supplies had not been delivered. Captain Tayong inquired from the
ship’s agent in Singapore about the supplies. The ship agent stated that these could only be delivered at 0800
hours on August 1, 1989 as the stores had closed.
Captain Tayong called the shipowner, Sea Horse Ship Management, Ltd., in London and informed them
that the departure of the vessel for South Africa may be affected because of the delay in the delivery of the
supplies.
Sea Horse advised Captain Tayong to contact its Technical Director, Mr. Clark, who was in Tokyo and who
could provide a solution for the supply of said oxygen and acetylene.
On the night of July 31, 1989, Mr. Clark received a call from Captain Tayong informing him that the vessel
cannot sail without the oxygen and acetylene for safety reasons due to the problems with the turbo charger and
economizer. Mr. Clark responded that by shutting off the water to the turbo chargers and using the auxiliary boiler,
there should be no further problems. According to Mr. Clark, Captain Tayong agreed with him that the vessel could
sail as scheduled on 0100 hours on August 1, 1989 for South Africa.
According to Captain Tayong, however, he communicated to Sea Horse his reservations regarding
proceeding to South Africa without the requested supplies, and was advised by Sea Horse to wait for the supplies
at 0800 hrs. of August 1, 1989, which Sea Horse had arranged to be delivered on board the Oceanic Mindoro. At
0800 hours on August 1, 1989, the requisitioned supplies were delivered and Captain Tayong immediately sailed
for Richard Bay.
When the vessel arrived at the port of Richard Bay, South Africa on August 16, 1989, Captain Tayong was
instructed to turnover his post to the new captain. He was thereafter repatriated to the Philippines, after serving
petitioners for a little more than two weeks. He was not informed of the charges against him.
Was there a valid ground to dismiss Captain Tayong?
A: No. According to the report of Mr. Robert Clark, Technical Director of petitioner Sea Horse Ship Management,
Inc., the Oceanic Mindoro had stopped in mid-ocean for six hours and 45 minutes on its way to Singapore because
of its leaking economizer.
Hence, it cannot be said that Captain Tayong‘s decision (arrived at after consultation with the vessel’s
Chief Engineer) to wait seven hours in Singapore for the delivery on board the Oceanic Mindoro of the
requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and the economizer
equipment of the vessel, constituted merely arbitrary, capricious or grossly insubordinate behavior on his part.
Clearly, petitioners were angered at Captain Tayong’s decision to wait for delivery of the needed supplies
before sailing from Singapore, and may have changed their estimate of their ability to work with him and of his
capabilities as a ship captain. Assuming that to be petitioners’ management prerogative, that prerogative is
nevertheless not to be exercised, in the case at bar, at the cost of loss of Captain Tayong’s rights under his contract
with petitioners and under Philippine law. (Inter-Orient Maritime Enterprises, Inc. v. NLRC, GR. No. 115286, August
11, 1994)
2. Private respondents purchased first-class tickets from petitioner at the latter’s office in Cebu City. They were to
board petitioner’s vessel, M/V Sweet Grace, bound for Catbalogan, Western Samar. Instead of departing at the
scheduled hour of about midnight on July 8, 1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed
back to Cebu due to engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs having been
accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 A.M. Instead of docking at Catbalogan,
which was the first port of call, the vessel proceeded direct to Tacloban at around 9:00 PM. of July 10, 1972.
Private respondents had no recourse but to disembark and board a ferryboat to Catbalogan. Is the carrier liable to
the private respondent?
A: Yes, the carrier is liable. The voyage to Catbalogan was “interrupted” by the captain upon instruction of
management. The “interruption” was neither due to fortuitous event or force majeure nor to disability of the
vessel. Having been caused by the captain upon instruction of management, the passengers’ right to indemnity is
evident. The owner of a vessel and the ship agent shall be civilly liable for the acts of the captain. Article 614 of the
Code of Commerce provides that a captain, who, having agreed to make a voyage, fails to fulfill his undertaking,
without being prevented by fortuitous event or force majeure, shall indemnify all the losses that his failure may
cause, without prejudice to criminal penalties that may be proper. Article 698 provides that “in case of
interruption of a voyage already begun, the passengers shall only be obliged to pay the fare in proportion to the
distance covered, without right to recover damages if the interruption is due to fortuitous event or force majeure,
but with a right to indemnity, if the interruption should have been caused by the captain exclusively. If the
interruption should be caused by the disability of the vessel, and the passenger should agree to wait for her
repairs, he may not be required to pay any increased fare of passage, but his living expenses during the delay shall
be for his own account.” Articles 614 and 698 are applicable in this case. There was no fortuitous event or force
majeure which prevented the vessel from fulfilling its undertaking of taking private respondents to Catbalogan. In
the first place, mechanical defects in the carrier are not considered a caso fortuito that exempts the carrier from
responsibility. Even granting arguendo that the engine failure was a fortuitous event, it accounted only for the
delay in departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no longer any force
majeure that justified by-passing a port of call. The vessel was completely repaired the following day after it was
towed back to Cebu. In fact, after docking at Tacloban City, it left the next day for Manila to complete its voyage.
The reason for bypassing the port of Catbalogan, as admitted by petitioner’s General Manager, was to enable the
vessel to catch up with its schedule for the next week. The record also discloses that there were 50 passengers for
Tacloban compared to 20 passengers for Catbalogan, so that the Catbalogan phase could be scrapped without too
much loss for the company. (Sweet Lines, Inc. v. The Hon. Court of Appeals, GR. No. L-46340, April 28, 1983)

CASE:

In a contract dated April 26, 1983, respondent was appointed as the exclusive Philippine indent
representative of Richco Rotterdam B.V. (Richco), a foreign corporation, in the sale of the latter’s commodities.
Under one of the terms of the contract, respondent was to assume the liabilities of all the Philippine buyers,
should they fail to honor the commitments on the discharging operations of each vessel, including the payment of
demurrage and other penalties. In such instances, Richco shall have the option to debit the account of respondent
corresponding to the liabilities of the buyers, and respondent shall then be deemed to be subrogated to all the
rights of Richco against these defaulting buyers. Sometime in 1987, petitioner purchased Canadian barley and
soybean meal from Richco. The latter thereafter chartered four vessels to transport the products to the
Philippines. Each of the carrier bulk cargoes was covered by a Contract of Sale executed between respondent as
the seller and duly authorized representative of Richco and petitioner as the buyer. The four contracts specifically
referred to the charter party in determining demurrage or dispatch rate. The contract further provided that
petitioner guarantees to settle any demurrage due within one month from respondent’s presentation of the
statement. Upon delivery of the barley and soybean meal, petitioner failed to discharge the cargoes from the four
vessels at the computed allowable period to do so. Thus, it incurred a demurrage amounting to a total of US$
193,937.41. On numerous occasions, on behalf of Richco, respondent demanded from petitioner the payment of
the demurrage, to no avail. Consequently, on October 20, 1991, Richco sent a communication to respondent,
informing it that the demurrage due from petitioner had been debited from the respondent’s account. The
respondent argued that the Richco had no right to debit the account because Richco is not the shipowner and only
the shipowner is entitled to the payment of demurrage. Is the argument tenable?
A: The argument is not tenable. In this case, the delay incurred by petitioner in discharging the cargoes from
the vessels was due to its own fault. Its obligation to demurrage is established by the Contracts of Sale it executed,
wherein it agreed to the conditions to provide all discharging facilities at its expense in order to effect the
immediate discharge of cargo; and to place for its account all discharging costs, fees, taxes, duties and all other
charges incurred due to the nature of the importation.
Meanwhile, respondent unequivocally established that Richco charged to it the demurrage due from
petitioner. Thus, at the moment that Richco debited the account of respondent, the latter is deemed to have
subrogated to the rights of the former, who in turn, paid demurrage to the ship owner. It is therefore immaterial
that respondent is not the ship owner, since it has been able to prove that it has stepped into the shoes of the
creditor.
Subrogation is either “legal” or “conventional.” Legal subrogation is an equitable doctrine and arises by
operation of the law, without any agreement to that effect executed between the parties; conventional subrogation
rests on a contract, arising where “an agreement is made that the person paying the debt shall be subrogated to
the rights and remedies of the original creditor.” The case at bar is an example of legal subrogation, the petitioner
and respondent having no express agreement on the right of subrogation. Thus, it is of no moment that the
Contracts of Sale did not expressly state that demurrage shall be paid to respondent. By operation of law,
respondent has become the real party-in-interest to pursue the payment of demurrage. (Republic Flour Mills Corp.
v. Forbes Factors, Inc., October 19, 2011)

PROBLEMS AND CASES:

1. The Sand Developing Corporation enters into a voyage charter with XYZ Shipping Corporation, over the latter’s
vessel, M/V Lady Love. Before the Sand Development Corporation could load it, XYZ Shipping Corporation sold
M/V Lady Love to Oslob Maritime Corp., which decided to load it for its own amount.
a) May XYZ Shipping Corporation validly ask for the rescission of the Charter Party? If so, can Sand
Development Corporation recover damages? To what extent?
b) If the Oslob Maritime Corporation, did not load it for its own account, is it bound by the charter party?
c) Explain the meaning of “Owner Pro Hac Vice” of the vessel. In what kind of charter party does this
obtain?
A: a) Yes, XYZ Shipping Corporation may ask for the rescission of the Charter party. Rescission is allowed
under Article 689 of the Code of Commerce if, as in this case, the owner sold the vessel before the charter has
begun to load the vessel and the purchaser loads it for his own amount. However, Sand Corporation may recover
damages to the extent of its losses.
b) Yes. The last paragraph of Article 689 of the Code of Commerce provides that “if the new owner of the
vessel should not load it for his own account, the charter party shall be respected, and the vendor shall indemnify
the purchaser if the former did not inform him of the charter pending at the time of making the sale.” Hence, if,
Oslob Maritime Corporation did not load M/V Lady Love for its own account, it would be bound by the charter
party with the right of action against XYZ Shipping by Oslob Maritime for damages if the latter was not informed
of the charter party at the time of sales.
c) The term “Owner Pro Hac Vice” of the vessel is generally understood to be the charterer of the vessel
who entered into a Charter Party with the shipowner that is in the nature of a bareboat or demise charter. The
charterer an “owner pro hac vice” because he controls the ship with his own set of captain and crew thereby
effectively becoming the owner for the voyage or service stipulated. (1991)

2. O’Farrel y Cia, operating under the tradename Malaysian Navigation Company, entered into an agreement with
the Manila Electric Co. whereby the Malaysian Navigation Co. undertook to transport seventy-five thousand tons
of coal (10 per cent more or less), from Hongay to Manila at the freight rate of four pesos and fifty centavos (4.50),
per ton of 1,016 kilos, less a rebate of 1 per cent. The agreement provides that “loading to be for account and risk
of shippers according to customary quick dispatch subject to turn of mines.” The practice followed by the parties
in the performance of this contract was that, upon the receipt of information in Manila by the defendant company
from the coal company, advising that a cargo of coal was, or soon would be available in Hongay, the message was
turned over to O’Farrel y Cia, and the latter company made the arrangements for the sending of a boat to Hongay.
But delay in the taking on of coal occurred in Hongay, owing to the inability of the coal company to deliver the coal
to the waiting boats. The preponderance of the proof shows that this delay was due to the fact that the cranes of
the coal company at Hongay were defective and often out of order. At any rate the result was that the plaintiff’s
boats were frequently kept waiting in the port; and it in fact appears that altogether they were held there idle one
hundred twenty-three days, to say nothing of the time occupied in the lading of the ships after their turn had come
for taking cargo. Hence, these delays were attributable to the coal company. Malaysian Navigation Company is now
demanding payment of demurrage from the Manila Electric Company. Will the claim prosper?
A: No, the claim will not prosper. The expression “subject to turn of mines” should be interpreted, we think, to
mean that the lading of the vessels should be subject to the output of the mines and that vessels should take their
turn in taking on the coal. It results that the lading of the coal was dependent upon the output of the mines and the
order of ships seeking cargo at the loading places. The expression “subject to turn of mines” was no doubt inserted
in the contract in lieu of a stipulation for demurrage. The insertion of that expression in clause 3 made the
Malaysian ships dependent upon the loading facilities of the coal company at Hongay, and relieved the defendant
from any liability for demurrage by reason of delays that might occur in the port incident to the obtaining and
loading of the coal.
Article 656 of the Code of Commerce provides that “if in the charter party the time in which the loading
and unloading is to take place is not stated, the customs of the port where these acts take place shall be observed.
After the period stipulated or the customary one has passed, and should there not be in the freight contract an
express clause fixing the indemnification for the delay, the captain shall be entitled to demand demurrage for the
usual and extra lay days which may have elapsed in loading and unloading.” However, that the stipulation of the
contract making the loading of coal subject to the turn of mines renders Article 656 inapplicable, this being a
special stipulation determining the order of loading. It results that the defendant cannot be held responsible for
the delay that occurred. (O’Farrel Y Cia v. The Manila Electric Co., G.r.. No. 31222, October 29, 1929)

3. On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate,
loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. MT Vector is a tramping motor
tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting fuel products
such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on board
gasoline and other oil products owned by Caltex by virtue of a charter contract between them. On December 20,
1987 , at about 6:30 a.m., the passenger ship MV Dona Paz left the port of Tacloban headed for Manila with a
complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated
in the Coast Guard Clearance. Actually, there were more than 4,000 passengers. The MV Dona Paz is a passenger
and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of
Manila/Tacloban/Catbalogan/Manila/Catbalogan/Tacloban/Manila, making trips twice a week. At about 10:30
pm. of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between
Marinduque and Oriental Mindoro. All the crewmembers of MV Dona Paz died, while the two survivors from MT
Vector claimed that they were sleeping at the time of the incident. The MV Dona Paz carried an estimated 4,000
passengers; many indeed, were not in the passenger manifest. Only 24 survived the tragedy after having been
rescued from the burning waters by vessels that responded to distress calls. Among those who perished were
public school teacher Sebastian Canezal (47 years old) and his daughter Corazon Canezal (11 years old), both
unmanifested passengers but proved to be on board the vessel. On September 15, 1992, the trial court rendered
judgment making Sulpicio Lines liable. The Court of Appeals modified the trial court’s ruling and included
petitioner Caltex as one of the those liable for damages thereby making said petitioner Caltex and Vector Shipping
Co. equally liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the
above-mentioned damages, attorney’s fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half by Caltex (Phils.)
Inc. One of the arguments of Vector Shipping is that MT Vector was a private carrier and as such is not liable to
third parties. Caltex is the one that is allegedly liable. Decide with reasons.
A: MT Vector is a common carrier. The charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel as a common carrier. If
the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for
the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability
to third persons in respect of the ship. (Caltex [Philippines], Inc. v. Sulpicio Lines, Inc., GR. No. 131166, September 30,
1999)

PROBLEM:

1. MV SuperFast, a passenger-cargo vessel owned by SF Shipping Company plying the inter-island routes, was on
its way to Zamboanga City from the Manila port when it accidentally, and without fault or negligence of anyone on
the ship, hit a huge floating object. The accident caused damage to the vessel and loss of an accompanying crated
cargo of passenger PR. In order to lighten the vessel and save it from sinking and in order to avoid risk of damage
to loss of the rest of the shipped items (none of which was located on the deck), some had to be jettisoned. SF
Shipping had the vessel repaired at its port of destination. SF Shipping thereafter filed a complaint demanding all
the other cargo owners to share in the total repair costs incurred by the company and in the value of the lost and
jettisoned cargoes. In answer to the complaint, the shippers’ sole contention was that, under the Code of
Commerce, each damaged party should bear its or his own damage and those that did not suffer any loss or
damage were not obligated to make any contribution in favor of those who did. Is the shipper’s contention valid?
Explain.
A. No. The shippers’ contention is not valid. There was general average loss in the case. The cargoes were
jettisoned to save the vessel from sinking and to save the rest of the cargoes. Hence, the shipper of the cargoes
which were saved as well as the shipowner is liable for general average contribution. (2000)
CASE:

1. The SS “San Antonio,” vessel owned and operated by plaintiff, left Manila on October 6, 1949, bound for Basco,
Batanes, via Aparri, Cagayan, with general cargo belonging to different shippers, among them the defendant. The
vessel reached Aparri on the 10th of that month, and after a day's stopover in that port, weighed anchor to
proceed to Basco. But while still in port, it ran aground at the mouth of the Cagayan River due to the unforeseeable
sudden shifting of the sandbars at the mouth of the river. Attempts to refloat it under its own power having failed,
plaintiff had it refloated by the Luzon Stevedoring Co. at an agreed compensation in order to enable it “to proceed
to its port of destination.” Once afloat the vessel returned to Manila to refuel and then proceeded to Basco, the port
of destination. There the cargoes were delivered to their respective owners or consignees, who, with the exception
of defendant, made a deposit or signed a bond to answer for their contribution to the average. Is the cost of
refloating considered a general average?
A: No, the facts presented do not make out a case for general average. The requisites for general average
contribution are as follows: (1), there must be a common danger, (2) that for the common safety part of the vessel
or of the cargo or both is sacrificed deliberately, (3) that from the expenses or damages caused follows the
successful saving of the vessel and cargo, and (4) that the expenses or damages should have been incurred or
inflicted after taking proper legal steps and authority.
With respect to the first requisite, it does appear that the expenses sought to be recovered from defendant
were incurred to save vessel and cargo from a common danger. It does not appear that vessel and cargo were at
the time in no imminent danger or a danger which might “rationally be sought to be certain and imminent.” It is, of
course, conceivable that, if left indefinitely at the mercy of the elements, they would run the risk of being
destroyed. But as stated at the above quotation, this last requirement excludes measures undertaken against a
distant peril. It is the deliverance from an immediate, impending peril, by a common sacrifice, that constitutes the
essence of general average. The fact that the refloating is necessary in order to enable the vessel to proceed to its
port of destination, will not make it a general average expense because it is the safety of the property, and not of
the voyage, which constitutes the true foundation of the general average.
It follows that the second and third requisites are also absent. The expenses in question were not incurred for the
common safety of vessel and cargo, since they, or at least the cargo, were not in imminent peril. The cargo could,
without need of expensive salvage operation, have been unloaded by the owners if they had been required to do
so. Although the cargo was saved, they were not saved from a common danger. (A. Magsaysay, Inc. v. Agan, G.R. No.
L-6393, January 31, 1955)

CASE:

1. By contract of charter dated February 8, 1915, Manuel Lopez Castelo, as owner, let the small interisland steamer
Batangueno for the term of one year to Jose Lim Chumbuque for use in the conveying of cargo between certain
ports of the Philippine Islands. In this contract it was stipulated that the officers and crew of the Batangueno
should be supplied by the owner, and that the charterer should have no other control over the captain, pilot, and
engineers than to specify the voyages that they should make and to require the owner to discipline or relieve them
as soon as possible in case they should fail to perform the duties respectively assigned to them.
While the boat was being thus used by the charterer in the interisland trade, the Standard Oil Company
delivered to the agent of the boat in Manila a quantity of petroleum to be conveyed to the port of Casiguran, in the
Province of Sorsogon. For this consignment a bill of lading of the usual form was delivered, with the stipulation
that freight should be paid at the destination. Said bill of lading contained no provision with respect to the storage
of the petroleum, but it was in fact placed upon the deck of the ship and not in the hold.
While the boat was on her way to the port mentioned, and off the western coast of Sorsogon, a violent
typhoon passed over that region, and while the storm was at its height the captain was compelled for the safety of
all to jettison the entire consignment of petroleum consisting of two hundred cases. When the storm abated the
ship made port, and thirteen cases of the petroleum were recovered, but the remainder was wholly lost.
a) Was there a general average loss?
b) Did the carrier validly comply with the procedure required under Article 852 of the Code of
Commerce?
c) Can the shipper recover from the shipowner if the captain failed to comply with the procedure
prescribed under Article 852 of the Code of Commerce?
A: (a) Yes, there was general average loss. The loss of this petroleum is a general and not a special average,
with the result that the plaintiff is entitled to recover in some way and from somebody an amount bearing such
proportion to its total loss as the value of both the ship and the saved cargo bears to the value of the ship and
entire cargo before the jettison was effected.
(b) No. Now, by Article 852 of the Code of Commerce the captain is required to initiate the proceedings for
the adjustment, liquidation, and distribution of any gross average to which the circumstances of the voyage may
have given origin; and it is therefore his duty to take the proper steps to protect any shipper whose goods may
have been jettisoned for the general safety. In ordinary practice this, we suppose, would be primarily
accomplished by requiring the consignees of other cargo, as a condition precedent to the delivery of their goods to
them, to give a sufficient bond to respond for their proportion of the general average. But it is not necessary here
to inquire into details. It is sufficient to say that the captain is required to take the necessary steps to effect the
adjustment, liquidation, and distribution of the general average. In the case before us, the captain of the vessel did
not take those steps; and we are of the opinion that the failure of the captain to take those steps gave rise to a
liability for which the owner of the ship must answer.
(c) Yes. The defendant is not correct in arguing that that the liquidation of the general average is, under
Article 852 and related provisions, a condition precedent to the liability of the defendant, and that at any rate the
defendant, as owner of the ship, should only be held liable for his proportion of the general average. This
argument involves a misconception of the true import of the provisions relating to the adjustment and liquidation
of general average. Clearly, for one thing, those provisions are intended to supply the shipowner, acting of course
in the person of the captain, with a means whereby he may escape bearing the entire burden of the loss and may
distribute it among all the persons who ought to participate in sharing it; but the making of the liquidation is not a
condition precedent to the liability of the shipowner to the shipper whose property has been jettisoned.
It is true that if the captain does not comply with the article relating to the adjustment, liquidation, and
distribution of the general average, the next Article (852) gives to those concerned -whether shipowner (naviero)
or shipper - the right to maintain an action against the captain for indemnification for the loss; but the recognition
of this right of action does not by any means involve the suppression of the right of action which is elsewhere
recognized in the shipper against the ship’s owner. The shipper may in our opinion go at once upon the owner and
the latter, if so minded, may have his recourse for indemnification against his captain.
In considering the question now before us it is important to remember that the owner of the ship ordinarily has
vastly more capital embarked upon a voyage than has any individual shipper of cargo. Moreover, the owner of the
ship, in the person of the captain, has complete and exclusive control of the crew and of the navigation of the ship,
as well as of the disposition of the cargo at the end of the voyage. It is therefore proper that any person whose
property may have been cast overboard by order of the captain should have a right of action directly against the
ship’s owner for the breach of any duty which the law may have imposed on the captain with respect to such
cargo. To adopt the interpretation of the law for which the appellant contends would place the shipowner in a
position to escape all responsibility for a general average of this character by means of the delinquency of his own
captain. This cannot be permitted. The evident intention of the Code, taken in all of its provisions, is to place the
primary liability upon the person who has actual control over the conduct of the voyage and who has most capital
embarked in the venture, namely, the owner of the ship, leaving him to obtain recourse, as it is very easy to do,
from other individuals who have been drawn into the venture as shippers. (Standard Oil Company of New York v.
Castelo, G.R. No. 13695, October 18, 1921)
PROBLEMS:
1. Two vessels coming from the opposite directions collided with each other due to fault imputable to both. What
are the liabilities of the two vessels with respect to the damage caused to them and their cargoes? Explain
A: Each vessel must bear its own damage. Article 827 of the Code of Commerce provides that if the collision is
imputable to both vessels, each one shall suffer its own damages, and both shall be solidarily responsible for the
losses and damages occasioned to their cargoes. (1995)

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

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

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

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

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

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

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

a. What laws apply to the given problem?

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

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

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

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.

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

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)

PROBLEMS AND CASES:

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

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

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

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

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

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

CASES:

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

2. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a P0.37 centavo per
kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range
of plus or minus 15°0 over the authorized rate. Thus PO.37 centavo per kilometer authorized fare plus
P0.05 centavos (which is 1590 of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in
1990. Supposing the LTFRB grants another P0.05 centavo increase per kilometer in 1994, then, the base
or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus
operators will exercise their authority to impose an additional 2000 over and above the authorized fare,
then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of
PO.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a double fare
adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a bigger
chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue
of the authorized fare range.
Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be rate*** collected per kilometer
1990 P0.37 15°6 (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20°0 (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 £0.73 + 0.05 = 0.78 20°0 0'0,16) P0.94
Was the authority given to the bus operators valid?
A: No. the authority given by the LTFRB to the provincial bus operators to set a fare range over and above
the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative
authority. The power of the LTFRB to regulate rates is a delegated power. What Congress has delegated
cannot be delegated by the LTFRB. (Kilusang Mayo Uno Labor Center v. Garcia, Jr., G.R. No. 115381
December 23, 1994)

PROBLEMS:

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

X Lighterage Service Co. which has been operating a ferry service on the said route for the past
six years, objects on the following grounds: (a) the certificate of public convenience of Acme is to operate
a land transportation and this does not include ferry service which is already inter-island shipping. It
therefore needs a new certificate of public convenience to operate inter-island transportation, a mere
 authority to acquire and operate an additional unit not being sufficient, and (b) granting that the
operation of said ferry is within Acme's certificate of public convenience, X Lighterage Service Co. is a
prior proprietor, and since it is giving adequate service, there is no need for an additional service on said
route. In fact Acme Transportation Co. has been availing itself of the ferry service of X Lighterage Service
Co. for several years.
Decide with reasons.
A. Acme transportation may not be given the permit it seeks. The objection of X Lighterage Service Co. is
tenable because a Certificate of Public Convenience is necessary in order to operate the service covered
by Acme's application. Since the "ferry" will cross open seas, the service is not merely a ferry service but it
is actually coastwise shipping. (San Pablo v. Pantranco South Express, Inc., G.R. No. L-61461, August 21,
1987)

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

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

3. Pepay, a holder of a certificate of public convenience, failed to register the complete number of units
required by her certificate. However, she tried to justify such failure by the accidents that allegedly befell
her, claiming that she was shocked and burdened by the successive accidents and misfortunes that she
did not know what she was doing, she was confused and thrown off tangent momentarily, although she
always had the money and financial ability to buy new trucks or repair the destroyed one. Are the reasons
given by Pepay sufficient grounds to excuse her from completing her units? Explain.
A. No. The reasons given by Pepay are not sufficient grounds to excuse her from completing her units. Even
assuming that she really suffered misfortunes, the same could not prevent her from authorizing her
representatives from performing the required acts. (Section 16[n] Public Service Act: Halili v. Herras, 10
SCRA 769). (1993)

4. Mr. Mangasiwa applied for a certificate of public convenience to operate five jeepneys from the Batasang
Pambansa area to Cubao, Q.C. The application was opposed by Hallelujah Transit and Kingdom Bus Co.,
because they are already serving the line. They invoked the "prior or old operator rule" in their
opposition. Mangasiwa, in turn, invoked the "prior applicant rule."
Discuss the "prior operator rule" and the limitations or provisos on its application. In case of
conflict between the "prior or old operator rule and the "prior applicant rule," which shall prevail?
Explain.
A. Under the "prior or old operator rule," an existing franchise operator may claim priority right to render
the public service within the authorized territory as long as he does so satisfactorily and economically.
The "prior operator rule" normally prevails in case of conflict between the "prior operator rule" and the
"prior applicant rule," so long as the interest of the public is best served. (1986)

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

6. Antonio was granted a certificate of public convenience (CPC) in 1986 to operate a ferry between
Mindoro and Batangas using the motor vessel "MV Lotus." He stopped operations in 1988 due to
unserviceability of the vessel. In 1989, Basilio was granted a CPC for the same route. After a few months,
he discovered that Carlos was operating on his route under Antonio's CPC. Because Basilio filed a
complaint for illegal operations with the Maritime Industry Authority, Antonio and Carlos jointly filed an
application for sale and transfer of Antonio's CPC and substitution of the vessel "MV Lotus" with another
owned by Carlos. Should Antonio's and Carlos' joint application be approved? Give your reasons.
A. No, the application should not be approved. The Maritime Industry Authority should deny the joint
application of Antonio and Carlos for the sale and transfer of Antonio's CPC and substitution of the vessel
MV Lotus with another vessel owned by the transferee. The certificate of public convenience was issued
for a particular vessel, MV Lotus, and is therefore inseparable from the latter. The fact that the vessel
designated in the CPC is unserviceable had likewise rendered ineffective the certificate itself. Hence, there
is in fact nothing to transfer to Carlos. (1992). The City of Manila passed an ordinance banning provincial
buses from the city. The ordinance was challenged as invalid under the public service act by X who had a
certificate of public convenience to operate auto trucks with fixed routes from certain towns in Bulacan
 and Rizal to Manila and within Manila. Firstly, he claimed that the ordinance was null and void because,
among other things, it in effect amends his certificate of public convenience, a thing which only the Public
Service Commission can do under Section 16(m) of the Public Service Act. Under said section, the
Commission is empowered to amend. Modify or revoke a CPC after notice and hearing. Secondly, he
contended that even if the ordinance is valid, it is only the Commission which can require compliance
with its provisions under Section 17(j) of said Act and since the implementation of the ordinance was
without sanction or approval of the Commission, its enforcement was unauthorized and illegal.
a) May the reliance of X on Section 16(m) of Public Service Act be sustained? Explain.
b) Was X correct in his contention that under Section 17(f) of the Public Service Act it is only the
Commission that can require compliance with the provisions of the ordinance? Explain.
A. a) No, reliance of X on Section 16(m) of the Public Service Act is not justified. The power of the City of
Manila is anchored on its Charter that is a special law. Hence, the power vested in the Public Service
Commission and its successor agency under Section 16(m) is subordinate to the authority of the City of
Manila. A special law prevails over a general law.

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