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Contract of Transportation/ CARRIAGE

F A contract whereby a person, natural or juridical, obligates to transport persons, goods, or both, from one place to another, by land, air or water, for a price or compensation.

F Classifications:

  1. Common or Private
  2. Goods or Passengers
  3. For a fee (for hire) or Gratuitous
  4. Land, Water/maritime, or Air
  5. Domestic/inter-island/coastwise or International/foreign

? It is a relationship which is imbued with the public interest.


Common Carrier

F Persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public (Art. 1732, Civil Code).

? Art. 1732 of the New Civil Code avoids any distinction between one whose principal business activity is the carrying of persons or goods or both and one who does such carrying only as an ancillary activity (sideline).  It also avoids a distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.

Neither does the law distinguish between a carrier offering its services to the general public that is the general community or population and one who offers services or solicits business only from a narrow segment of the general population.

A person or entity is a common carrier even if he did not secure a Certificate of Public Convenience (De Guzman vs. CA, 168 SCRA 612).

? It makes no distinction as to the means of transporting, as long as it is by land, water or air.  It does not provide that the transportation should be by motor vehicle.  (First Philippine Industrial Corporation vs. CA)

? One is a common carrier even if he has no fixed and publicly known route, maintains no terminals, and issues no tickets (Asia Lighterage Shipping, Inc. vs. CA).

F Characteristics:

1. Undertakes to carry for all people indifferently and thus is liable for refusal without sufficient reason (Lastimoso vs. Doliente, October 20, 1961);

2. Cannot lawfully decline to accept a particular class of goods for carriage to the prejudice of the traffic in these goods;

3.     No monopoly is favored (Batangas Trans. vs. Orlanes, 52 PHIL 455);

4.     Provides public convenience.

Private Carrier

F One which, without being engaged in the business of carrying as a public employment, undertakes to deliver goods or passengers for compensation. (Home Insurance Co. vs. American Steamship Agency, 23 SCRA 24)


F The SC in First Philippine Industrial Corporation vs. CA (1995) reiterated the following tests:

  1. It must be engaged in the business of carrying goods for others as a public employment and must hold itself out as ready to engage in the transportation of goods generally as a business and not as a casual occupation;
  2. It must undertake to carry goods of the kind to which its business in confined;
  3. It must undertake to carry by the method by which his business is conducted and over its established roads; and
  4. The transportation must be for hire.

? In National Steel Corp. vs. CA (1997) the SC held that the true test of a common carrier is the carriage of goods or passengers provided it has space for all who opt to avail themselves of its transportation for a fee.





1. As to availability

Holds himself out for all people indiscriminately

Contracts with particular individuals or groups only

2. As to required diligence

Extraordinary diligence is required

Ordinary diligence is required

3. As to regulation

Subject to State regulation

Not subject to State regulation

4. Stipulation limiting liability

Parties may not agree on limiting the carrier’s liability except when provided by law

Parties may limit the carrier’s liability, provided it is not contrary to law, morals or good customs

5. Exempting circumstance

Prove extraordinary diligence and Art. 1733, NCC

caso fortuito, Art. 1174 NCC

6.Presumption of negligence

There is a presumption of fault or negligence

No presumption of fault or negligence

7.Governing law

Law on common carriers

Law on obligations and contracts




A. Domestic/inter-island/coastwise

F Applicable to Land, Water, and Air transportation

1. Civil Code - primary

2. Code of Commerce (Arts. 349, 379, 573-734, 580, 806-845) - suppletory


B.    International/foreign/overseas (Foreign country to Philippines)

F Applicable to Water/maritime and Air transportation

? The law of the country of destination generally applies.

1. Civil Code - primary

2. Code of Commerce - suppletory

3. Others - suppletory

a. Water/maritime: Carriage of Goods by Sea Act (COGSA)

b. Air: Warsaw Convention



(Arts. 1732-1766)



F Rendition of service with the greatest skill and utmost foresight. (Davao Stevedore Co. v. Fernandez)

F Rationale:

  1. From the nature of the business and for reasons of public policy (Art. 1733)
  2. Relationship of trust
  3. Business is impressed with a special public duty
  4. Possession of the goods
  5. Preciousness of human life

F A common carrier is not an absolute insurer of all risks of travel.


1. Vigilance over goods (Arts. 1734-1754); and

2. Safety of passengers (Arts. 1755-1763).


F A person who has entered into a contract of carriage, express or implied, with the carrier. They are entitled to extraordinary diligence from the common carrier.

? The following are not considered passengers, and are entitled to ordinary diligence only:

  1. One who has not yet boarded any part of a vehicle regardless of whether or not he has purchased a ticket;
  2. One who remains on a carrier for an unreasonable length of time after he has been afforded every safe opportunity to alight;
  3. One who has boarded by fraud, stealth, or deceit;
  4. One who attempts to board a moving vehicle, although he has a ticket, unless the attempt be with the knowledge and consent of the carrier;
  5. One who has boarded a wrong vehicle, has been properly informed of such fact, and on alighting, is injured by the carrier;
  6. Invited guests and accommodation passengers. (Lara vs. Valencia)
  7. One who rides any part of the vehicle which is unsuitable or dangerous or which he knows is not designed or intended for passengers.



F Requisites:

  1. Must be the proximate and only cause of the loss
  2. Exercise of due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster (Art. 1739)
  3. Carrier has not negligently incurred in delay in transporting the goods (Art. 1740)

? Fire is not considered a natural disaster or calamity as it arises almost invariably from some act of man. (Eastern Shipping Lines Inc. vs. IAC)

? Mechanical defects are not force majeure if the same was discoverable by regular and adequate inspections. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.120-122)


F Requisites:

  1. Must be the proximate and only cause of the loss
  2. Exercise of due diligence to prevent or minimize the loss before, during or after the act causing the loss, deterioration or destruction of the goods (Art. 1739)



a. Sole and proximate cause: absolute defense

b.   Contributory: partial defense. (Art. 1741)


F Even if the damage should be caused by the inherent defect/character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. (Art. 1742)

F The carrier which, knowing the fact of improper packing of the goods upon ordinary observation, still accepts the goods notwithstanding such condition, is not relieved of liability or loss or injury resulting therefrom. (Southern Lines, Inc. v. CA, 4 SCRA 258)


F Said public authority must have the power to issue the order (Art. 1743). Consequently, where the officer acts without legal process, the common carrier will be held liable. (Ganzon v. CA 161 SCRA 646)

? Diligence in the selection and supervision of employees under Article 2180 of the Civil Code cannot be interposed as a defense by the common carrier because the liability of the carriers arises from the breach of the contract of carriage. The defense under said articles is applicable to negligence in quasi-delicts under Art. 2176. (Del Prado v. Manila Electric Co., 52 Phil 900)



death or injuries to passengers due to acts of ITS employees and other passengers or strangers



For acts of ITS Employees


Required diligence and defense

Extraordinary diligence

Ordinary diligence

Nature of liability

Tort; however,

The employee must be on duty at the time of the act. (Maranan v. Perez)

Not absolute; limited by Art. 1763


? The carrier is liable when its personnel allowed a passenger to drive the vehicle causing it to collide with another vehicle resulting to the injuries suffered by the other passengers. (MRR vs. Ballesteros, 16 SCRA 641)







1.     Common carrier

2.     Shipper

3.     Consignee

1.     Common carrier

2.     Passenger

Cause of liability

Delay in delivery, loss, destruction, or deterioration of the goods

Death or injury to the passengers

Duration of liability

From the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered actually or constructively by the carrier to the consignee or to the person who has the right to receive them. (Art. 1736)

F It remains in full force and effect even when they are temporarily unloaded or stored in transit unless the shipper or owner has made use of the right of stoppage in transitu. (Art. 1737)

F It continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination until the consignee has bee advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. (Art. 1738)

? Delivery of goods to the custom authorities is not delivery to the consignee. (Lu Do v. Binamira, 101 Phil 120)

The duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip, but for so long as the passengers are within its premises and where they ought to be in pursuance to the contract of carriage. (LRTA v. Navidad, [2003])

F All persons who remain on the premises within a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. (La Mallorca v. CA, 17 SCRA 739 ; Abiotiz Shipping Corporation v. CA, 179 SCRA 95)

F It is the duty of common carriers of passengers to stop their conveyances a reasonable length of time in order to afford passengers an opportunity to enter, and they are liable for injuries suffered from the sudden starting up or jerking of their conveyances while doing so.  The duty which the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom (Dangwa Trans Co., Inc. vs. CA 202 SCRA 574).

Presumption of negligence

Art.1735 Civil Code

Reason: As to when and how goods were damaged in transit is a matter peculiarly within the knowledge of the carrier and its employees. (Mirasol v. Dollar, 53 PHIL 124)

Mere proof of delivery of goods to a carrier in good order and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. (Coastwise Lighterage Corp. v. CA, 245 SCRA 796)

Art.1755 Civil Code

Reason: The contract between the passenger and the carrier imposes on the latter the duty to transport the passenger safely; hence the burden of explaining should fall on the carrier.


1.     Ordinary circumstance: Exercise of extraordinary diligence (Art. 1735)

2.     Special circumstances:

a. Flood, storm, earthquake, lighting, or  other natural disaster or calamity (plus force majeure)

b. Act of the public enemy in war, whether international or civil

c.  Act or omission of the shipper or the owner of  goods

d. The character of the goods or defects in the packing or in the containers

e. Order or act of competent public authority (Art. 1734)

1.   Exercise of extraordinary diligence (Art. 1756)

2.   Caso fortuito

Valid stipulations

1. Reduction of degree of diligence to ordinary diligence, provided it be:

a)   In writing, signed by the shipper or owner;

b)   Supported by a valuable consideration other than the service rendered by the carriers; and

c)   Reasonable, just and not contrary to public policy. (Art. 1744)

2. Fixed amount of liability: A contract fixing the sum to be recovered by the owner or shipper for the loss, destruction or deterioration of the goods, if it is reasonable and just under the circumstances and has been fairly and freely agreed upon. (Art. 1750)

3. Limited liability for delay: An agreement limiting the common carrier’s liability for delay on account of strikes or riots (Art. 1748)

4. Stipulation limiting liability to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value. (Art. 1749)

? The diligence required in the carriage of the goods may be reduced by only one degree, from extraordinary to ordinary diligence or diligence of a good father of a family. (Art. 1744, Art. 1745, no. 4)

Stipulation limiting liability when a passenger is carried gratuitously, but not for willful acts or gross negligence. (Art. 1758)

Void stipulations

1.     That the goods are transported at the risk of the owner or shipper;

2.     That carrier will not be liable for any loss, destruction or deterioration of the goods;

3.     That the carrier need not observe any diligence in the custody of the goods;

4.     That the carrier shall exercise a degree of diligence less than that of a good father of a family over the movable transported;

5.     That the carrier shall not be responsible for the acts or omissions of his or its employees;

6.     That the carrier’s liability for acts committed by thieves or robbers who do not act with grave or irresistible threat, violence or force is dispensed with or diminished;

7.     That the carrier is not responsible for the loss, destruction or deterioration of the goods on account of the defective condition of the car, vehicle, ship or other equipment used in the contract of carriage. (Art. 1745)

Dispensing with or lessening the extraordinary responsibility of a common carrier for the safety of passengers imposed by law by stipulation, by posting of notices, by statements on tickets or otherwise. (Art. 1757)


Rules on Passengers’ Baggage





Legal nature of the baggage

Necessary deposit

Considered as “goods”

Required diligence by the common carrier

Diligence of a depositary (ordinary diligence)

Extraordinary diligence

Applicable rules

Arts. 1998 and 2000-2003

Arts. 1733-1753


1. Culpa contractual (breach of contract)

F Only the carrier is primarily liable and not the driver, because there is no privity between the driver and the passenger.

F Basis: Art.1759, NCC.

F No defense of due diligence in the selection and supervision of employees.

2. Culpa aquiliana (quasi-delict)

F The carrier and driver are solidarily liable as joint tortfeasors.

F Basis: Art. 2180, NCC.

F Defense of due diligence in the selection and supervision of employees is available. Exception: maritime tort resulting in collision. (See notes on Collision)

3. Culpa criminal (criminal negligence)

F The driver is primarily liable. The carrier is subsidiarily liable only if the driver is convicted and declared insolvent.

F Basis: Art. 100, RPC.

? In case of injury to a passenger due to the negligence of the driver of the bus on which he is riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages.  It makes no difference that the liability of the bus driver and owner springs from contract while that of the owner and driver of the other vehicle arises from quasi-delict.  (Fabre vs. CA)





1. One exempting the carrier from any and all liability for loss or damage occasioned by its own negligence.

2. An unqualified limitation of liability to an agreed valuation.

1. One limiting the liability of the carrier to an agreed valuation, unless the shipper declares a higher value and pays a higher rate of freight

(H.E. Heacock Company vs. Macondray & Company Inc.)

F However, the carrier cannot limit its liability for injury to, or loss of, goods shipped where such injury or loss was caused by its own negligence.

(Shewaram vs. PAL, 17 SCRA 606)



1. In case of flight diversion due to bad weather or other circumstances beyond the pilot’s control, the relation between the carrier and the passenger continues until the latter has been landed at the port of destination and has left the carrier’s premises. The carrier should necessarily exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. (Philippine Airlines vs. CA, 226 SCRA 423)

2. Even where overbooking of passengers is allowed as a commercial practice, the airline company would still be guilty of bad faith and still be liable for damages if it did not properly inform passenger that it could breach the contract of carriage even if they were confirmed passengers.  (Zalamea vs. CA, 228 SCRA 23)

3. An open-dated ticket constitutes a complete contract between the carrier and passenger.  Hence, the airline company is liable if it refused to confirm a passenger’s flight reservation. (Singson vs. CA, 282 SCRA 149)

4. An airline company which issued a confirmed ticket to a passenger covering successive trips on different airlines can be held liable for damages occasioned by “bumping off” by one of the successive airlines. (Lufthansa German Airlines vs. CA, 238 SCRA 290)

5. An airline ticket providing that carriage by successive air carriers is to be regarded as a “single operation” is to make the issuing carrier liable for the tortuous conduct of the other carrier. A printed provision in the ticket limiting liability only to its own conduct is not enough to rebut that liability. (KLM Royal Dutch Airlines vs. CA, 65 SCRA 237)



(Arts. 349-379)


1. Domestic land and water/maritime transportation. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

2. Domestic Air Transportation. (Commercial Law Review, Cesar Villanueva, 2004 ed.)


  1. Bill of lading
  2. Obligations of the carrier
  3. Right of abandonment
  4. Notice of damage
  5. Combined carrier agreement

Bill of Lading

F The written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or to his order.

F Rules:

 1. It is not indispensable for the creation of a contract of carriage. (Compania Maritima vs. Insurance Company of North America, 12 SCRA 213)


2. Ambiguity is construed against the carrier, the contract being one of adhesion.

3. The consignee, although the instrument is oftentimes drawn up only by the consignor and carrier, becomes bound by all the stipulations contained therein by making a claim for loss on the basis of said bill of lading.  (Sea-Land Services Inc. vs. IAC)

4. The right of a party to recover for loss of shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency between him and the shipper, or his status as stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation. (Art. 1311 (2), (Mendoza vs. PAL Inc.) 

5.  Acceptance of the bill of lading without dissent raises the presumption that all the terms therein where brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake; he is estopped from thereafter denying that he assented to such terms. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.261)


 F Kinds:

  1. On board - issued when the goods have been actually placed aboard the ship with very reasonable expectation that the shipment is as good as on its way.
  2. Received - one in which it is stated that the goods have been received for shipment with or without specifying the vessel by which the goods are to be shipped.
  3. Negotiable - one in which it is stated that the goods referred to therein will be delivered to the bearer or to the order of any person named therein.
  4. Non-negotiable - One in which it is stated that the goods referred to therein will be delivered to a specified person.
  5. Clean – One which does not indicate any defect in the goods.
  6. Foul – One which contains a notation thereon indicating that the goods covered by it are in bad condition.


  1. Spent ­– One which covers goods that already have been delivered by the carrier without a surrender of a signed copy of the bill.
  2. Through – One issued by the carrier who is obliged to use the facilities of other carriers as well as his own facilities for the purpose of transporting the goods from the city of the seller to the city of the buyer, which bill of lading is honored by the second and other interested carriers who do not issue their own bills.
  3. Custody – One wherein the goods are already received by the carrier but the vessel indicated therein has not yet arrived in the port.
  4. Port – One which is issued by the carrier to whom the goods have been delivered, and the vessel indicated in the bill of lading by which the goods are to be shipped is already in the port where the goods are held for shipment.

 F Functions:

  1. Best evidence of the existence of the contract of carriage of cargo (Art. 353)
  2. Document of title
  3. Receipt of cargo
  4. Contract to transport and deliver goods as stipulated
  5. Symbol of the goods


A. Duty to accept the goods

þGENERAL RULE: A common carrier cannot ordinarily refuse to carry a particular class of goods.

þEXCEPTION: For some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. (Fisher vs. Yangco Steamship Co. 31 Phil 1).

? Instances when the carrier may validly refuse to accept the goods include the ff:

1.) Goods sought to be transported are dangerous objects, or substances including dynamite and other explosives

2.) Goods are unfit for transportation

3.) Acceptance would result in overloading

4.) Contrabands or illegal goods

5.) Goods are injurious to health

6.) Goods will be exposed to untoward danger like flood, capture by enemies and the like

7.) Goods like livestock will be exposed to disease

8.) Strike

9.) Failure to tender goods on time. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.68)

? In case of carriage by railway, the carrier is exempted from liability if carriage is insisted upon by the shipper, provided its objections are stated in the bill of lading.

? However, when a common carrier accepts cargo for shipment for valuable consideration, it takes the risk of delivering it in good condition as when it was loaded. (PAL vs. CA)

B. Duty to deliver the goods

F Not only to transport the goods safely but to the person indicated in the bill of lading.  The goods should be delivered to the consignee or any other person to whom the bill of lading was validly transferred or negotiated.

Time of delivery

Stipulated in Contract/Bill of Lading

No stipulation

1. Carrier is bound to fulfill the contract and is liable for any delay; no matter from what cause it may have arisen.

1. Within a reasonable time. 

2. Carrier is bound to forward them in the 1st shipment of the same or similar goods which he may make to the point of delivery. (ART. 358 Code of Commerce)


Effects of delay

  1. Merely suspends and generally does not terminate the contract of carriage
  2. Carrier remains duty bound to exercise extraordinary diligence
  3. Natural disaster shall not free the carrier from responsibility (Art.1740)
  4. If delay is without just cause, the contract limiting the common carrier’s liability cannot be availed of in case of loss or deterioration of the goods (Art.1747)



F Instances:

  1. Partial non-delivery, where the goods are useless without the others (Art. 363);
  2. Goods are rendered useless for sale or consumption for the purposes for which they are properly destined (Art. 365); and
  3. In case of delay through the fault of the carrier (Art. 371).


F Requisites for applicability:

  1. Domestic/inter-island/coastwise transportation
  2. Land/water/air transportation
  3. Carriage of goods
  4. Goods shipped are damaged

F Rules:

a. Patent damage: shipper must file a claim against the carrier immediately upon delivery (it may be oral or written)

b. Latent damage: shipper should file a claim against the carrier within 24 hours from delivery.

Note: These rules does not apply to misdelivery of goods. (Roldan vs. Lim Ponzo)

FPurpose of notice: To inform the carrier that the shipment has been damaged, and it is charged with liability therefore, and to give it an opportunity to make an investigation and fix responsibility while the matter is fresh.

F The filing of notice of claim is a condition precedent for recovery.

? Shorter period may be stipulated by the parties  because  it merely affects the shipper’s remedy and does not affect the liability of the carrier. (PHILAMGEN vs. Sweetlines, Inc.)

Prescriptive Period

F Not provided by Article 366. Thus, in such absence, Civil Code rules on prescription apply.

F If despite the notice of claim, the carrier refuses to pay, action must be filed in court.

  1. No bill of lading was issued: within 6 years
  2. Bill of lading was issued: within 10 years.


COGSA Sec.3 (6)


1.  Domestic/inter-island/coastwise transportation

2.  Land, water, air transportation

3.  Carriage of goods

1.   International/

overseas/foreign (from foreign country to Phils.)

Note: subject to the rule on Paramount Clause

2.  Water/maritime transportation

3. Carriage of goods

Notice of damage

1.  Condition precedent

2.  24-hour period for claiming latent damage

1.   Not a condition precedent

2.   3-day period for claiming latent damage

Prescriptive period

None provided; Civil Code applies.

One year from the date of delivery (delivered but damaged goods), or date when the vessel left port or from the date of delivery to the arrastre (non-delivery or loss).


þGENERAL RULE: In case of a contract of transportation of several legs, each carrier is responsible for its particular leg in the contract.

þEXCEPTION: A combined carrier agreement where a carrier makes itself liable assuming the obligations and acquiring as well the rights and causes of action of those which preceded it.


(Arts. 573-869)


  1. Merchant vessel
  2. Maritime lien and Preference of Credit
  3. Doctrine of limited liability
  4. Causes of revocation of voyage
  5. Participants in maritime commerce
  6. Charter party
  7. Loans on bottomry and respondentia
  8. Accidents in maritime commerce


F It is the system of laws which particularly relates to the affairs and business of the sea, to ships, their crews and navigation, and to maritime conveyance of persons and property. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino & Hernando, citing Francisco, p.254)

? Maritime laws apply only to maritime trade and sea voyages. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

? Arrastre service is not maritime in character. It refers to a contract for the unloading of goods from a vessel. (ICTSI vs. Prudential Guarantee, 320 SCRA 244)



1. Real - similar to transactions over real property with respect to effectivity against third persons which is done through registration. (Rubiso vs. Rivera, 37 Phil. 72).  The evidence of real nature is shown by: 1) the limitation of the liability of the agents to the actual value of the vessel and the freight money; and 2) the right to retain the cargo and embargo and detention of the vessel (Luzon Stevedoring Corp v. CA, 156 SCRA 169);

2. Hypothecary - the liability of the owner of the value of the vessel is limited to the vessel itself (Doctrine of Limited Liability).

? The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which stands as the guaranty for their settlement. (Aboitiz Shipping Corp. vs. General Accident Fire and Life Assurance Corp. 217 SCRA 359).



F Vessel engaged in maritime commerce, whether foreign or otherwise. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)

F Constitutes property which may be acquired and transferred by any of the means recognized by law. They shall continue to be considered as personal property. (Arts. 573, 585)

F They are susceptible to maritime liens such as for the repair, equipping and provisioning of the vessel in the preparation of a voyage, as well as mortgage liabilities, in satisfaction of which a vessel may be validly arrested and sold. (Ship Mortgage Decree of 1978)



F It constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. (PNB vs. CA, 337 SCRA 381)

F If the maritime lien arose prior to the recording of a preferred mortgage, it shall have priority over the said mortgage lien. (PNB vs. CA, 337 SCRA 381)



R.A. 6106


P.D. 1521

Effectivity date




Overseas shipping only

Both domestic and overseas shipping

Kind of sale


Judicial and extrajudicial

Order of Preference

A preferred mortgage shall have priority over all claims against the vessel, except the following preferences in the order stated:

1. Judicial costs of the proceedings;

2. Taxes due the Philippine Government;

3. Salaries and wages of the Captain and Crew of the vessel during its last voyage;

4. General average or salvage including contract salvage, bottomry loans, and indemnity due shippers for the value of goods transported but which were not delivered to the consignee;

5. Costs of repair and equipment of the vessel, and provisioning of food, supplies and fuel during its last voyage; and

6. Preferred mortgages registered prior in time.

The preferred mortgage lien shall have priority over all claims against the vessel, except the following preferences in the order stated:

1. Expenses and fees allowed and costs taxed by the court and taxes due to the Government;

2. Crew’s wages;

3. General average;

4. Salvage, including contract salvage;

5. Maritime liens arising prior in time to the recording of the preferred mortgage;

6. Damages arising out of tort; and

7. Preferred mortgage registered prior in time.


? Effect of sale: All pre-existing claims in the vessel are terminated. They will then be satisfied from the proceeds of the sale subject to the order of preference.




F Cases where applicable:

  1. 587 – civil liability for indemnities to third persons
  2. 590 – indemnities from negligent acts of the captain (not the shipowner or ship agent)
  3. 837 – collision
  4. 643 – liability for wages of the captain and the crew and for advances made by the ship agent if the vessel is lost by shipwreck or capture

þGENERAL RULE: The liability of shipowner and ship agent is limited to the amount of interest in said vessel such that where vessel is entirely lost, the obligation is extinguished. (Luzon Stevedoring v. Escano, 156 SCRA 169) The interest extends to: 1) the vessel itself; 2) equipments; 3) freightage; and 4) insurance proceeds. (Chua v. IAC, 166 SCRA 183)


  1. Claims under Workmen’s Compensation (Abueg vs. San Diego 77 Phil 730);
  2. Injury or damage due to shipowner or to the concurring negligence of the shipowner and the captain;
  3. The vessel is insured (Vasquez vs. CA 138 SCRA 553).
  4. Expenses for repair on vessel completed before loss;
  5. In case there is no total loss and the vessel is not abandoned;
  6. Collision between two negligent vessels;

? Abandonment of the vessel is necessary to limit the liability of the shipowner.  The only instance were abandonment is dispensed with is when the vessel is entirely lost (Luzon Stevedoring vs. CA 156 SCRA 169).


F Instances:

  1. In case of civil liability from indemnities to third persons (Art. 587);
  2. In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687); and
  3. In case of constructive loss of the vessel (Sec. 138, Insurance Code).






What may be abandoned


Goods shipped


1. In case of civil liability from indemnities to third persons (Art. 587);

2. Sec. 138, Insurance Code;

3. In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687)

1. Partial non-delivery, where the goods are useless without the others (Art. 363);

2. Goods are rendered useless for sale or consumption for the purposes for which they are properly destined (Art. 365); and

3. In case of delay through the fault of the carrier (Art. 371).


1.  Transfer of ownership of the vessel from the shipowner to the shippers or insurer.

2.  In case of (2), the insurer must pay the insured as if there was actual total loss of the vessel.

1.   Transfer of ownership on the goods from the shipper to the carrier.

2.   Carrier should pay the shipper the market value of the goods at the point of destination.



  1. War or interdiction of commerce;
  2. Blockade;
  3. Prohibition to receive cargo at destination;
  4. Embargo;
  5. Inability of the vessel to navigate. (Art. 640)



  1. Interdiction of commerce – A governmental prohibition of commercial intercourse intended to bring about an entire cessation for the time being of all trade whatever.
  2. Blockade – A sort of circumvallation of a place by which all foreign connection and correspondence is, as far as human power can effect it, to be cut off.
  3. Embargo – A proclamation or order of a state, usually issued in time of war or threatened hostilities, prohibiting the departure of ships or goods from some or all the ports of such state until further order.


A. Shipowners and ship agents

B. Captains and masters of the vessel

C. Officers and crew of the vessel

D. Supercargoes

E. Pilot



Shipowner (proprietario)

F Person who has possession, control and management of the vessel and the consequent right to direct her navigation and receive freight earned and paid, while his possession continues.


Ship agent (naviero)

F Person entrusted with provisioning and representing the vessel in the port in which it may be found; also includes the shipowner.

F Not a mere agent under civil law; he is solidarily liable with the ship owner.

F Powers and functions:

  1. Capacity to trade;
  2. Discharge duties of the captain, subject to Art.609;
  3. Contract in the name of the owners with respect to repairs, details of equipment, armament, provisions of food and fuel, and freight of the vessel, and all that relate to the requirements of navigation;
  4. Order a new voyage, make a new charter or insure the vessel after obtaining authorization from the shipowner or if granted in certificate of appointment.

Civil Liabilities of the Shipowner And Ship Agent

  1. All contracts of the captain, whether authorized or not, to repair, equip and provision the vessel; (Art. 586)
  2. Loss and damage to the goods loaded on the vessel without prejudice to their right to free themselves from liability by abandoning the vessel to the creditors. (Art. 587)

Duty of Ship Agent to Discharge the Captain and Members of the Crew

F If the seamen contract is not for a definite period or voyage, he may discharge them at his discretion. (Art. 603)

F If for a definite period, he may not discharge them until after the fulfillment of their contracts, except on the following grounds:

  1. Insubordination in serious matters;
  2. Robbery;
  3. Theft;
  4. Habitual drunkenness;
  5. Damage caused to the vessel or to its cargo through malice or manifest or proven negligence. (Art. 605)


F They are the chiefs or commanders of ships.

F The terms have the same meaning, but are particularly used in accordance with the size of the vessel governed and the scope of transportation, i.e., large and overseas, and small and coastwise, respectively.

F Nature of position (3-fold character):

  1. General agent of the shipowner;
  2. Technical director of the vessel;
  3. Representative of the government of the country under whose flag he navigates.

F Qualifications:

  1. Filipino citizen;
  2. Legal capacity to contract;
  3. Must have passed the required physical and mental examinations required for licensing him as such. (Art. 609)

F Inherent powers:

  1. Appoint crew in the absence of ship agent;
  2. Command the crew and direct the vessel to its port of destination;
  3. Impose correctional punishment on those who, while on board vessel, fail to comply with his orders or are wanting in discipline;
  4. Make contracts for the charter of vessel in the absence of ship agent.
  5. Supply, equip, and provision the vessel; and
  6. Order repair of vessel to enable it to continue its voyage. (Art. 610)

F Sources of funds to comply with the inherent powers of the captain (in successive order):

  1. From the consignee of the vessel;
  2. From the consignee of the cargo;
  3. By drawing on the ship agent;
  4. By a loan on bottomry;
  5. By sale of part of the cargo. (Art. 611)

F Duties:

  1. Bring on board the proper certificate and documents and a copy of the Code of Commerce;
  2. Keep a Log Book, Accounting Book and Freight Book;
  3. Examine the ship before the voyage;
  4. Stay on board during the loading and unloading of the cargo;
  5. Be on deck while leaving or entering the port;
  6. Protest arrivals under stress and in case of shipwreck;
  7. Follow instructions of and render an accounting to the ship agent;
  8. Leave the vessel last in case of wreck;
  9. Hold in custody properties left by deceased passengers and crew members;
  10. Comply with the requirements of customs, health, etc. at the port of arrival;
  11. Observe rules to avoid collision;
  12. Demand a pilot while entering or leaving a port. (Art. 612)

? A ship’s captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage (Inter-Orient Maritime Enterprises Inc. vs. CA).

F No liability for the following:

  1. Damages caused to the vessel or to the cargo by force majeure;
  2. Obligations contracted for the repair, equipment, and provisioning of the vessel unless he has expressly bound himself personally or has signed a bill of exchange or promissory note in his name. (Art. 620)

Solidary Liabilities of the Ship Agent/Shipowner for Acts Done by the Captain towards Passengers and Cargoes

  1. Damages to vessel and to cargo due to lack of skill and negligence;
  2. Thefts and robberies of the crew;
  3. Losses and fines for violation of laws;
  4. Damages due to mutinies;
  5. Damages due to misuse of power;
  6. For deviations;
  7. For arrivals under stress;
  8. Damages due to non-observance of marine regulations. (Art. 618)



  1. Sailing Mate/First Mate
  2. Second Mate
  3. Engineers
  4. Crew

F No liability under the following circumstances:

  1. If, before beginning voyage, captain attempts to change it, or a naval war with the power to which the vessel was destined occurs;
  2. If a disease breaks out and be officially declared an epidemic in the port of destination;
  3. If the vessel should change owner or captain. (Art. 647)


Sailing Mate/First Mate

F Second chief of the vessel who takes the place of the captain in case of absence, sickness, or death and shall assume all of his duties, powers and responsibilities. (Art. 627)      

F Duties:

  1. Provide himself with maps and charts with astronomical tables necessary for the discharge of his duties;
  2. Keep the Binnacle Book;
  3. Change the course of the voyage on consultation with the captain and the officers of the boat, following the decision of the captain in case of disagreement;
  4. Responsible for all the damages caused to the vessel and the cargo by reason of his negligence. (Arts. 628 - 631)

Second Mate

F Takes command of the vessel in case of the inability or disqualification of the captain and the sailing mate, assuming in such case their powers and responsibilities.

F Third in command

F Duties:

  1. Preserve the hull and rigging of the vessel;
  2. Arrange well the cargo;
  3. Discipline the crew;
  4. Assign work to crew members;
  5. Inventory the rigging and equipment of the vessel, if laid up. (Art. 632)


F Officers of the vessel but have no authority except in matters referring to the motor apparatus. When two or more are hired, one of them shall be the chief engineer.

F Duties:

  1. In charge of the motor apparatus, spare parts, and other instruments pertaining to the engines;
  2. Keep the engines and boilers in good condition;
  3. Not to change or repair the engine without authority of the captain;
  4. Inform the captain of any damage to the motor apparatus;
  5. Keep an Engine Book;
  6. Supervise all personnel maintaining the engine. (Art. 632)


F The aggregate of seamen who man a ship, or the ship’s company.

F Hired by the ship agent, where he is present and in his absence, the captain hires them, preferring Filipinos, and in their absence, he may take in foreigners, but not exceeding 1/5 of the crew.  (Art. 634)


Classes of Seaman’s Contracts

  1. By the voyage;
  2. By the month; and

3.    By share of profits or freightage.


Just Causes for the Discharge of Seaman While Contract Subsists

  1. Perpetration of a crime;
  2. Repeated insubordination, want of discipline;
  3. Repeated incapacity and negligence;
  4. Habitual drunkenness;
  5. Physical incapacity;
  6. (Art. 637)

Rules in case of Death of a Seaman

F The seaman’s heirs are entitled to payment as follows:

  1. If death is natural:
  2. compensation up to time of death if engaged on wage
  3. if by voyage - half of amount if death occurs on voyage out; and full, if on voyage in
  4. if by shares - none, if before departure; full, if after departure
  5. if death is due to defense of vessel - full payment;
  6. if captured in defense of vessel - full payment;
  7. if captured due to carelessness - wages up to the date of the capture. (Art. 645)

Complement of the Vessel

F All persons on board, from the captain to the cabin boy, necessary for the management, maneuvers, and service, thus including the crew, the sailing mates, engineers, stokers and other employees on board not having specific designations.

F Does not include the passengers or the persons whom the vessel is transporting.


F Persons who discharges administrative duties assigned to him by ship agent or shippers, keeping an account and record of transaction as required in the accounting book of the captain. (Art. 649)


F A person duly qualified, and licensed, to conduct a vessel into or out of ports, or in certain waters.

F The term generally connotes a person taken on board at a particular place for the purpose of conducting a ship through a river, road or channel, or from a port.

F Master pro hac vice for the time being in the command and navigation of the ship.

F While in exercising his functions a pilot is in sole command of the ship and supersedes the master for the time being in the command and navigation of the ship, the master does not surrender his vessel to the pilot and the pilot is not the master.  There are occasions when the master may and should interfere and even displace the pilot, as when the pilot is obviously incompetent or intoxicated (Far Eastern Shipping Company vs. CA).

? Compulsory Pilotage – States possessing harbors have enacted laws or promulgated rules requiring vessels approaching their ports to take on board pilots licensed under the local laws. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p. 518)

Liablity of Pilot

þGENERAL RULE: On compulsory pilotage grounds, the Harbor Pilot is responsible for damage to a vessel or to life or property due to his negligence.


1. Accident caused by force majeure or natural calamity provided the pilot exercised prudence and extra diligence to prevent or minimize damages. 

 2. Countermand or overrule by the master of the vessel in which case the registered owner of the vessel is liable. (Sec.11, Art.III PPA Admin Order 03-85)


  1. Charter party
  2. Bill of lading
  3. Contract of transportation of passengers on sea voyages
  4. Loan on bottomry
  5. Loan on respondentia
  6. Marine insurance


F A contract by virtue of which the owner or agent binds himself to transport merchandise or persons for a fixed price.

F A contract by which an entire ship, or some principal part thereof is let/leased by the owner to another person for a specified time or use. (Planters Products, Inc. vs. CA, 226 SCRA 476)

F Parties:

  1. Ship owner or ship agent
  2. Charterer

F Classes:

1. Bareboat or demise – The charterer provides crew, food and fuel. The charterer is liable as if he were the owner, except when the cause arises from the unworthiness of the vessel. The shipowner leases to the charterer the whole vessel, transferring to the latter the entire command, possession and consequent control over the vessel’s navigation, including the master and the crew, who thereby become the charter’s servants. It transforms a common carrier into a private carrier.

? The charterer becomes the owner of the vessel pro hac vice, just for that one particular purpose only.  Because the charterer is treated as owner pro hac vice, the charterer assumes the customary rights and liabilities of the shipowner to third persons and is held liable for the expense of the voyage and the wages of the seamen.

2. Contract of AffreightmentA contract whereby the owner of the vessel leases part or all of its space to haul goods for others.

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

F Kinds:

  1. Time charter – vessel is chartered for a fixed period of time or duration of voyage.
  2. Voyage or trip charter – the vessel is leased for one or series of voyages usually for purposes of transporting goods for charterer.



If for a definite period, lessee cannot give up the lease by paying a portion of the amount agreed upon.

Charterer may rescind charter party by paying half of the freightage agreed upon.

If the leased property is sold to one who knows of the existence of the lease, the new owner must respect the lease.

The new owner is not compelled to respect the charter party so long as he can load the vessel with his own cargo. (Art. 689)

Civil law concept

Commercial law concept





An entire or complete contract.

More like a private receipt which the captain gives to accredit goods received from persons

Consensual contract

Real contract





Charterer becomes liable to others caused by its negligence

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

Charterer regarded as owner pro hac vice for the voyage

Charterer is not regarded as owner.

Owner of vessel relinquishes possession, command and navigation to charterer

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

Common carrier is converted to private carrier.

Common carrier is not converted to a private carrier.





  1. Owner or owners of the vessel, either in whole or in majority part, who have legal control and possession of the vessel
  2. Charterer may subcharter entire vessel to 3rd person only if not prohibited in original charter. (Art.679)
  3. Ship agent if authorized by the owner/s or given such power in the certificate of appointment. (Art.598)
  4. Captain in the absence of the ship agent or consignee and only if he acts in accordance with the instructions of the agent or owner and protects the latter’s interests. (Art.609)



  1. Consent of the contracting parties
  2. Existing vessel which should be placed at the disposition of the shipper
  3. Freight
  4. Compliance with Art. 652 of the Code of Commerce

Clauses Which May Be Included In a Charter Party


Jason clause


Clause paramount or paramount clause

A stipulation in a charter party that in case of a maritime accident for which the shipowner is not responsible by law, contract or otherwise, the cargo shippers, consignees or owners shall contribute with the shipowner in general average. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

A clause in a charter party providing that the COGSA shall apply, even though the transportation is domestic, subject to the extent that any term of the bill of lading is repugnant to the COGSA or applicable law, then to the extent thereof the provision of the bill of lading is void. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

Rights and Obligations of Parties





1.     If the vessel is chartered wholly, not to accept cargo from others;

2.     To observe represented capacity;

3.     To unload cargo clandestinely placed

4.     To substitute another vessel if load is less than 3/5 of capacity;

5.     To leave the port if the charterer does not bring the cargo within the lay days and extra lay days allowed;

6.     To place in a vessel in a condition to navigate;

7.     to bring cargo to nearest neutral port in case of war or blockade. (Arts. 669-678)

1.     To pay the agreed charter price;

2.     To pay freightage on unboarded cargo;

3.     To pay losses to others for loading uncontracted cargo and illicit cargo;

4.     To wait if the vessel needs repair;

5.     To pay expenses for deviation. (Arts. 679-687)


Rescission of a Charter Party

At charterer’s request

(Art 688)


At shipowner’s request

(Art. 689)

Fortuitous causes

(Art. 690)

1. By abandoning the charter and paying half of the freightage;

2. Error in tonnage or flag;

3. Failure to place the vessel at the charterer’s disposal;

4. Return of the vessel due to pirates, enemies or bad weather;

5. Arrival at a port for repairs. 

1. If the extra lay days terminate without the cargo being placed alongside the vessel;

2. Sale by the owner of the vessel before loading by the charterer;

1. War or interdiction of commerce;

2. Blockade;

3. Prohibition to receive cargo;

4. Embargo; and

5. Inability of the vessel to navigate.



  1. Primage - bonus to be paid to the captain after the successful voyage.
  2. Demurrage – the sum fixed in the charter party as a remuneration to the owner of the ship for the detention of his vessel beyond the number of days allowed by the charter party for loading or unloading or for sailing.
  3. Deadfreight – the amount paid by or recoverable from a charterer of a ship for the portion of the ship’s capacity the latter contracted for but failed to occupy.
  4. Lay Days - days allowed to charter parties for loading and unloading the cargo.
  5. Extra Lay Daysdays which follow after the lay days have elapsed.

Usual forms of Consummating Contracts

  1. I.F. – cost, insurance and freight;
  2. O.B. - free on board;
  3. A.S. - free alongside ship; and
  4. & F. - cost and freight.


TranSshipment of Goods

F The act of taking cargo out of one ship and loading it in another, or the transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the contract has been reached, or the transfer for further transportation from one ship or conveyance to another.

? It is not dependent on the ownership of the transporting ships or in the change of carriers, but rather on the fact of actual physical transfer of cargo from one vessel to another.

? If done without legal excuse, however competent and safe the vessel into which the transfer is made, is a violation of contract and infringement of right of shipper and subjects carrier to liability if freight is lost event by cause otherwise excepted. (Magellan Manufacturing vs. CA, 201 SCRA 102)



F A real, unilateral, aleatory contract, by virtue of which one person lends to another a certain amount of money or goods on things exposed to maritime risks, which amount, with its earnings, is to be returned if the things are safely transported, and which is lost if the latter are lost.






Loan made by shipowner or ship agent guaranteed by vessel itself and repayable upon arrival of vessel at destination.  (Art. 719)

Loan taken on security of the cargo laden on a vessel, and repayable upon safe arrival of cargo at destination.  (Art. 719)

Who may contract

Shipowner or ship agent.  Outside of the residence of the owners - the captain.

Only the owner of the cargo.

Common elements:

1.     Exposure of security to marine peril;

2.     Obligation of the debtor conditioned only upon safe arrival of the security at the point of destination.


1.     Public instrument

2.     Policy signed by the contracting parties and the broker taking part therein

3.     Private instrument   (Art. 720)


1.     Kind, name and registry of the vessel;

2.     Name, surname and domicile of the captain;

3.     Names, surnames and domiciles of the borrower and the lender;

4.     Amount of the loan and the premium stipulated;

5.     Time for repayment;

6.     Goods pledged to secure repayment;

7.     Voyage during which the risk is run (Art.721)





Not subject to Usury Law

Subject to Usury Law

Liability of the borrower is contingent on the safe arrival of the vessel or cargo at destination

Not subject to any contingency (absolute liability)

The last lender is a preferred creditor

The first lender is a preferred creditor



  1. Lender loaned an amount larger than the value of the object due to fraudulent means employed by the borrower. (ART.726)
  2. Full amount of the loan is not used for the cargo or given on the goods if all of them could not have been loaded, the balance will be considered a simple loan. (ART.727)
  3. If the effects on which the money is taken is not subjected to any risk. (ART.729)

Note: Under existing laws, the parties to a loan, whether ordinary or maritime, may agree on any rate of interest. (CB Circular 905)






Indemnity is paid after the loss has occurred

Indemnity is paid in advance by way of a loan

In case of loss of the vessel due to a risk insured against, the obligation of the insurer becomes absolute

In case of loss of the vessel due to a marine peril, the obligation of the borrower to pay is extinguished

Consensual contract

Real contract


Hypothecary Nature of Bottomry/ Respondentia

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


  1. Loss due to inherent defect;
  2. Loss due to the barratry on the part of the captain;
  3. Loss due to the fault or malice of the borrower;
  4. The vessel was engaged in contraband; and
  5. The cargo loaded on the vessel be different in from that agreed upon.

Concurrence of Marine Insurance and Loan on Bottomry/Respondentia

  1. The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of the value over the amount secured by bottomry. (Sec. 101, Insurance Code)
  2. The value of what may be saved in case of shipwreck shall be divided between the lender and the insurer in proportion to the interest of each one. (Art. 735)

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


  1. Averages
  2. Arrival Under Stress
  3. Collision
  4. Shipwreck


F An extraordinary or accidental expense incurred during the voyage in order to preserve the cargo, vessel or both, and all damages or deterioration suffered by the vessel from departure to the port of destination, and to the cargo from the port of loading to the port of consignment.  (Art. 806)

? The person whose property has been saved must contribute to reimburse the damage caused or expense incurred if the situation constitutes general average.

F Classes:

  1. Particular or Simple Average
  2. Gross or General Average

? Where both vessel and cargo are saved, it is general average; where only the vessel or only the cargo is saved, it is particular average.

? Expenses incurred to refloat a vessel, which accidentally ran aground, in order to continue its voyage, do not constitute general average. Not only is there absence of a marine peril, common safety factor, and deliberateness. It is the safety of the property, and not the voyage, which constitutes the true foundation of general average. (A. Magsaysay, Inc. vs. Agan, G.R.No. L-6393, Jan. 31, 1955) 







Damages or expenses caused to the vessel or cargo that did not inure to the common benefit, and borne by respective owners.  (Art. 809)

Damages or expenses deliberately caused in order to save the vessel, its cargo or both from real and known risk.  (Art. 811)



1.     common danger;

2.     deliberate sacrifice;

3.     success;

4.     proper formalities and legal steps.


The owner of the goods which gave rise to the expense or suffered the damage shall bear this average.  (Art. 810)

All the persons having an interest in the vessel and the cargo therein at the time of the occurrence of the average shall contribute to satisfy this average. (Art. 812)

@ The insurers (Art.859) and lenders on bottomry and respondentia shall likewise contribute.  (Art.732).

Number of interests involved

Only one interest involved

Several interests involved

Share in the damage or expense

100% share

In proportion to the value of the owner’s property saved

Right to recover

No reimbursement

There may be reimbursement

Kinds (not exclusive)

Art. 809

Art. 811

Procedure for recovery


1.   Assembly and deliberation

2.   Resolution of the captain

3.   Entry of the resolution in the logbook

4.   Detailed minutes

5.   Delivery of the minutes to the maritime judicial authority of the first port, within 24 hours from arrival,

6.   Ratification by captain under oath. (Arts. 813-814)



  1. Goods carried on deck. (ART.855)
  2. Goods not recorded in the books or records of the vessel. (ART.855 (2))
  3. Fuel for the vessel if there is more than sufficient fuel for the voyage. (Rule IX, York-Antwerp Rule)



F Act of throwing cargo overboard in order to lighten the vessel.

F Order of goods to be cast overboard:

  1. Those which are on the deck, preferring the heaviest one with the least utility and value;
  2. Those which are below the upper deck, beginning with the one with greatest weight and smallest value. (Art. 815)

? Jettisoned goods are not res nullius nor deemed “abandoned” within the meaning of civil law so as to be the object of occupation by salvage. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

? In order that the jettisoned goods may be included in the gross or general average, the existence of the cargo on board should be proven by means of the bill of lading. (Art. 816)

York-Antwerp (Y-A) Rules on Determining Liability for Averages With Regard To Deck Cargo

  1. Deck cargo is allowed only in domestic/coastwise/inter-island shipping, and is prohibited in international/overseas/foreign shipping.
  2. If deck cargo is loaded with the consent of the shipper on overseas trade, it must always contribute to general average, but should the same be jettisoned, it would not be entitled to reimbursement because there is violation of the Y-A Rules.
  3. If deck cargo is loaded with the consent of the shipper on coastwise shipping, it must always contribute to general average and if jettisoned would be entitled to reimbursement.

? Reason: In domestic shipping, voyages are usually short and the seas are generally not rough. In overseas shipping, the vessel is exposed for many days to perils of the sea.



Deck cargo is allowed

Deck cargo is not allowed

With shipper’s consent

General average

Particular average

Without shipper’s consent

Captain is liable

Captain is liable


F The arrival of a vessel at the nearest and most convenient port instead of the port of destination, if during the voyage the vessel cannot continue the trip to the port of destination.

 When lawful

 When unlawful

Who bears expenses:

The inability to continue voyage is due to lack of provisions, well-founded fear of seizure, privateers, pirates, or accidents of the sea disabling it to navigate. (Art. 819)

1.     Lack of provisions due to negligence to carry according to usage and customs;

2.     Risk of enemy not well known or manifest

3.     Defect of vessel due to improper repair; and

4.     Malice, negligence, lack of foresight or skill of captain.  (Art. 820)

The shipowner or ship agent is liable in case of unlawful arrival under stress. But they shall not be liable for the damages caused by reason of a lawful arrival. (Art. 821)

? It is the duty of the captain to continue the voyage without delay after the cause of the arrival under stress has ceased failing in such duty renders him liable. However, in case the cause has been risk of enemies, there must first be an assembly before departure. (Art. 825)

F Steps:

  1. Captain should determine during the voyage if there is well founded fear of seizure, privateers and other valid grounds;
  2. Captain shall assemble the officers and summon the persons interested in the cargo who may attend the meeting but without a right to vote;
  3. The officers shall determine and agree if there is well-founded reason after examining the circumstances. The captain shall have the deciding vote;
  4. The agreement shall be drafted and the proper minutes shall be signed and entered in the log book;
  5. Objections and protests shall likewise be entered in the minutes.


F Impact of two vessels both of which are moving.



F Impact between a moving vessel and a stationary one.

Nautical Rules to Determine Negligence

  1. When two vessels are about to enter a port, the farther one must allow the nearer to enter first; if they collide, the fault is presumed to be imputable to the one who arrived later, unless it can be proved that there was no fault on its part.
  2. When two vessels meet, the smaller should give the right of way to the larger one.
  3. A vessel leaving port should leave the way clear for another which may be entering the same port.
  4. The vessel which leaves later is presumed to have collided against one which has left earlier.
  5. There is a presumption against the vessel which sets sail in the night.
  6. There is a presumption against the vessel with spread sails which collides with another which is at anchor and cannot move, even when the crew of the latter has received word to lift anchor, when there was not sufficient time to do so or there was fear of a greater damage or other legitimate reason.
  7. There is a presumption against an improperly moored vessel.
  8. There is a presumption against a vessel which has no buoys to indicate the location of its anchors to prevent damage to vessels which may approach it.
  9. Vessels must have “proper look-outs” or persons trained as such and who have no other duty aside therefrom. (Smith Bell v. CA)


Nautical Rules as to Sailing Vessel and Steamship

1.     Where a steamship and a sailing vessel are approaching each other from opposite directions, or on intersecting lines, the steamship from the moment the sailing vessel is seen, shall watch with the highest diligence her course and movements so as to be able to adopt such timely means of precaution as will necessarily prevent the two boats from coming in contact.

2.     The sailing vessel is required to keep her course unless the circumstances require otherwise. 

Zones of Time in the Collision of Vessels

  1. First zone – all time up to the moment when risk of collision begins.

F No rule is as yet applicable for none is necessary.

  1. Second zone – time between moment when risk of collision begins and moment it becomes a practical certainty.

F It is in this period where conduct of the vessels is primordial. It is in this zone that vessels must strictly observe nautical rules, unless a departure therefrom becomes necessary to avoid imminent danger.

  1. Third zone – time when collision is certain and time of impact.

F An error in this zone would no longer be legally consequential.

? Error in Extremis - sudden movement made by a faultless vessel during the third zone of collision with another vessel which is at fault during the 2nd zone.  Even if such sudden movement is wrong, no responsibility will fall on said faultless vessel. (Urrutia and Co. v. Baco River Plantation Co., 26 PHIL 632)

Cases Covered By Collision and Allision

  1. One vessel at fault

F Vessel at fault is liable for damage caused to innocent vessel as well as damages suffered by the owners of cargo of both vessels. (Art. 826)

  1. Both vessels at fault

F Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners who will be solidarily liable. (Art. 827)

  1. Vessel at fault not known

F Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners who will be solidarily liable. (Art. 828)

? Doctrine of Inscrutable Fault – In case of collision where it cannot be determined which between the two vessels was at fault, both vessels bear their respective damage, but both should be solidarily liable for damage to the cargo of both vessels.

  1. Third vessel at fault

F The third vessel will be liable for losses and damages. (Art. 831)

  1. Fortuitous event/force majeure

F No liability. Each bears its own loss. (Art. 830)

? The doctrine of res ipsa loquitur applies in case a moving vessel strikes a stationary object, such as a bridge post, dock, or navigational aid. (Far Eastern Shipping v. CA, Luzon Stevedoring vs. CA)

? Even if the cause of action against the common carrier is based on quasi-delict, the defense of due diligence in the selection and supervision of employees is unavailing in case of a maritime tort resulting in collision. It is not a civil tort governed by the Civil Code but a maritime one governed by Arts. 826-839 of the Code of Commerce. (Manila Steamship vs. Insa Abdulhaman)  

? Doctrine of Last Clear Chance and Rule on Contributory Negligence cannot be applied in collision cases because of Art.827 of the Code of Commerce. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed.)


F Condition precedent or prerequisite to recovery of damages arising from collisions and other maritime accidents.

F It is a written statement made under oath by the captain of a vessel after the occurrence of an accident or disaster in which the vessel or cargo is lost or damaged, with respect to the circumstances attending such occurrence, for the purpose of recovering losses and damages.

? Excuses for not filing protest: 1) where the interested person is not on board the vessel; and 2) on collision time, need not be protested.  (Art. 836)

F Cases applicable:

  1. Collision (Art. 835);
  2. Arrival under stress (Art. 612(8));
  3. Shipwrecks (Arts. 612(15), 843);
  4. Where the vessel has gone through a hurricane or when the captain believes that the cargo has suffered damages or averages (Art. 624).

F Who makes: Captain

F When made: within 24 hours from the time the collision took place.

F Before whom made: competent authority at the point of collision or at the first port of arrival, if in the Philippines and to the Philippine consul, if the collision took place abroad.  (Art. 835)


F It is the loss of the vessel at sea as a consequence of its grounding, or running against an object in sea or on the coast. It occurs when the vessel sustains injuries due to a marine peril rendering her incapable of navigation.

? If the wreck was due to malice, negligence or lack of skill of the captain, the owner of the vessel may demand indemnity from said captain. (Art. 841)

? The rules on collision or allision, as may be pertinent, can equally apply to shipwrecks.



F A contract for the unloading of goods from a vessel.

F Applicability: Overseas trade only. (Commercial Law Review, C. Villanueva, 2004 ed.)

F Significance: When a person brings in cargo from abroad, he cannot unload and deliver the cargo by himself. The unloading must be done by the arrastre operator, which will then deliver the cargo to the importer.  (Commercial Law Review, C. Villanueva, 2004 ed.)

F Nature of business: It is a public utility, discharging functions which are heavily invested with public interest.

F Liability:

1.     Similar to a warehouseman (Lua Kian v. Manila Railroad)

2.     Similar to a common carrier (Northern Motors v. Prince Line) 

3.     Solidary liability with the common carrier

Note: In order that the arrastre operator may be held liable, the consignee must prove that the damage was due to the negligence and while the goods are in the custody of the arrastre operator. (Hartford Fire Insurance v. E. Razon, Inc.)



F The carriage of goods from the warehouse or pier to the holds of the vessel. (Chief of Staff vs. CIR)

F As understood in the port business, the term consists of the handling of cargo from the hold of the ship to the dock, in case of pier-side unloading; or to a barge, in case of unloading at sea. (Anglo-Fil Trading Corp. vs. Lazaro)

? The loading on the ship of outgoing cargo is also part of stevedoring work. (Ibid.)


F System whereby the shipper loads his cargoes in a specially designed container, seals the container and delivers it to the carrier for transportation. The carrier does not participate in the counting of the merchandise for loading into the container, the actual loading, and the sealing of the container. (US Lines v. Comm. Of Customs, ICTSI v. Prudential Guarantee)

? The matter of quantity, description and conditions of the cargo inside the container is the sole responsibility of the shipper, unless there is stipulation to the contrary. (US Lines vs. Comm. Of Customs, Reyma Brokerage v. Phil. Home Assurance)

Note: In order to attribute to the carrier any damage to the shipment that may be found, inspection of the goods should be done at pier-side. (Bankers vs. CA)



F The transportation must be:

  1. Water/maritime transportation;
  2. for the carriage of goods; and
  3. overseas/international/foreign (from foreign port to Philippine port).

? It can be applied in domestic sea transportation if agreed upon by the parties. (Clause paramount or paramount clause)


  1. Amount of carrier’s liability
  2. Notice of damage
  3. Prescriptive period


F Under the Sec. 4(5), the liability limit is set at $500 per package or customary freight unit unless the nature and value of such goods is declared by the shipper.  This is deemed incorporated in the bill of lading even if not mentioned in it. (Eastern Shipping vs. IAC, 150 SCRA 463)

? Note that Art. 1749, NCC applies to domestic/inter-island/coastwise trade.



F Rules:

  1. Patent damage: shipper should file a claim with the carrier immediately upon delivery
  2. Latent damage: shipper should file a claim with the carrier within three days from delivery.

Note: The filing of a notice of claim is not a condition precedent.



F Action for loss or damage to the cargo should be brought within one year after:

  1. Delivery of the goods (delivered but damaged goods); or
  2. The date when the goods should have been delivered (non-delivery). (Sec. 3[6])

@ “Loss or Damage” as applied to the COGSA contemplates a situation where no delivery at all was made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered. Thus, it is inapplicable in case of misdelivery or conversion. (Ang vs. American Steamship Agencies Inc.) and damage arising from delay or late delivery (Mitsui O.S.K. Lines Ltd. vs. CA). In such instance the, Civil Code rules on prescription shall apply.

? The one-year prescriptive period is suspended by:

  1. The express agreement of the parties (Universal Shipping Lines, Inc. vs. IAC, 188 SCRA 170)
  2. The filing of an action in court until it is dismissed. (Stevens & Co. vs. Nordeutscher Lloyd, 6 SCRA 180)

? The one-year period shall run from delivery of the last package and is not suspended by extrajudicial demand. (Dole Phils.,Inc. vs. Maritime Co.,148 SCRA 118)

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

? The insurer exercising its right of subrogation is bound by the one-year prescriptive period.  However, it does not apply to the claim against the insurer for the insurance proceeds.  (Fil. Merchants Ins. Co. vs. Alejandro; Mayer Steel Pipe Corp. vs. CA)


PURPOSE: To protect the emerging air transportation industry and to secure the uniformity of recovery by the passengers.


F The transportation must be:

  1. International transportation;
  2. Air transportation; and
  3. Carriage of passengers, baggage or goods.

? The WC shall also apply to fortuitous transportation by aircraft performed by an air transportation enterprise.

? International transportation - any transportation in which the place of departure and the place of destination are situated either:

1. Within the territories of two High Contracting Parties regardless of whether or not there be a break in the transportation or transshipment, or

2. Within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, mandate or authority of another power, even though that power is not a party to the Convention. (“round trip”, Am. Jur.)

? Transportation to be performed by several successive air carriers shall be deemed to be one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a single contract or of a series of contracts, and it shall not lose its international character merely because one contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty, suzerainty, mandate, or authority of the same High Contracting Party. (Art. 1 Sec.3)



  1. When public policy is contradicted;
  2. If the requirements under the Convention are not complied with.


1. Transportation documents

  1. Passenger ticket
  2. Baggage check
  3. Air way bill

2. Liability of the carrier for damages

  1. Death or injury to passengers
  2. Loss or damage to baggage or goods
  3. Delay

3. Successive carrier agreement

4. Jurisdiction

5. Combined transportation agreement






Checked-in baggage

Goods to be shipped



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

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

? Transportation by air – The period during which the baggage or goods are in the charge of the carrier, whether in an airport or on board an aircraft, or, in case of a landing outside an airport, in any place whatsoever.

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

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

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


LIMIT OF LIABILITY (Art. 22, as amended by Guatemala Protocol, 1971; Alitalia vs. IAC)

1. Passengers                      

þGENERAL RULE: $100,000 per passenger

þEXCEPTION: Agreement to a higher limit

2. Checked-in baggage

þGENERAL RULE: $20 per kilogram

þEXCEPTION: In case of special declaration of value and payment of a supplementary sum by consignor, carrier is liable to not more than the declared sum unless it proves the sum is greater than actual value.

3. Hand-carried baggage

F $1000/passenger

4. Goods to be shipped

þGENERAL RULE: $20 per kilogram

þEXCEPTION: In case of special declaration of value and payment of a supplementary sum by consignor, carrier is liable to not more than the declared sum unless it proves the sum is greater than actual value.

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

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

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

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

? In KLM Royal v. Tuller, the WC has invariably been held inapplicable, or as not restrictive of the carrier’s liability, where there was satisfactory evidence of malice or bad faith attributable to its officers and employees. (Alitalia vs. IAC)


1. Notice of claim

F A written complaint must me made within:

  1. 3 days from receipt of baggage
  2. 7 days from receipt of goods
  3. In case of delay, 14 days from receipt of baggage/goods

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

2. Prescriptive period

F Action must be filed within 2 years from:

  1. date of arrival at the destination
  2. date of expected arrival
  3. date on which the transportation stopped. (Art. 29)

? In United Airlines vs. Uy the two-year prescriptive period was not applied where the airline employed delaying tactics.



  1. Carriage of passengers

þGENERAL RULE: Action is filed only against the carrier in which the accident or delay occurred.

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

  1. Carriage of baggage or goods
  2. Passenger or consignor can file an action against the first carrier and the carrier in which the damage occurred
  3. Passenger or consignee can file an action against the last carrier and the carrier in which the damage occurred.

? These carriers are jointly and severally liable. (Art. 30)

? A contract of international carriage by air, although performed by different carriers under a series of airline tickets constitutes a single operation. Members of the International Air Transportation Association (IATA) are under a general pool partnership agreement wherein they act as agent of each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world. (American Airlines vs. CA)

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


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

  1. Court of domicile of the carrier;
  2. Court of its principal place of business;
  3. Court where it has a place of business through which the contract has been made; or
  4. Court of the place of destination. (Art. 28(1))

 NOTE: It is the passenger’s “ultimate destination” not “an agreed stopping place” that determines the country where suit is to be filed.

? The forum of action provided in Art. 28(1) is a matter of jurisdiction rather than of venue. (Santos III vs. Northwest; 2A C.J.S.)

V. SALVAGE LAW (Act No. 2616)


F Two concepts:

1.     Services one person renders to the owner of a ship or goods, by his own labor, preserving the goods or the ship which the owner or those entrusted with the care of them have either abandoned in distress at sea, or are unable to protect or secure.

2.     Compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from impending sea peril, or such property recovered from actual peril or loss, as in cases of shipwreck, derelict or recapture.

F Requisites:

  1. Valid object of salvage;
  2. Object must have been exposed to marine peril (not perils of the ship);
  3. Services rendered voluntarily (neither an existing duty nor out of a pre-existing contract);
  4. Services are successful, total or partial.

F Subjects of Salvage:

1. Ship itself;

2. Jetsam – goods which are cast into the sea, and there sink and remain under water;

3. Floatsam or Flotsam – goods which float upon the sea when cast overboard;

4. Ligan or Lagan – goods cast into the sea tied to a buoy, so that they may be found again by the owners (p.173, Judge  Diaz).

F Persons who have no right to a reward for salvage:

1.   Crew of the vessel saved;

2.  Person who commenced Salvage in spite of opposition of the Captain or his representative;

 3.   In accordance with Sec. 3 of the Salvage Law, a person who fails to deliver a salvaged vessel or cargo to the Collector of Customs.  

? Derelict – a ship or her cargo which is abandoned and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any intention of returning to it.

? The intention of those in charge must be ascertained. If those in charge left with the intention of returning, or of procuring assistance, the property is not derelict, but if they quitted the property with the intention of finally leaving it, it is derelict and a change of their intention and an attempt to return will not change its nature (Erlanger & Galinger vs. Swedish East Asiatic Co. Ltd.).

? If it is clear that the intention to return is slight, the salvage which was done thereafter is considered valid. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p. 616)

Contract of Towage

F A contract whereby one vessel, usually motorized, pulls another, whether loaded or not with merchandise, from one place to another, for a compensation.  It is a contract for services rather than a contract of carriage.





Governed by special law (Act No. 2616)

Governed by Civil Code on contract of lease

Requires success, otherwise no payment

Success is not required

Must be done with the consent of the captain/crewmen

Only the consent of the tugboat owner is needed

Vessel must be involved in an accident

Vessel need not be involved in an accident

Fees distributed among crewmen

Fees belong to the tugboat owner


  1. The reward is fixed by the RTC judge in the absence of agreement or where the latter is excessive. (Sec. 9)
  2. The reward should constitute a sufficient compensation for the outlay and effort of the salvors and should be liberal enough to offer an inducement to others to render services in similar emergencies in the future.
  3. If sold (no claim being made within 3 months from publication), the proceeds, after deducting expenses and the salvage claim, shall go to the owner; if the latter does not claim it within 3 years, 50% of the said proceeds shall go to the salvors, who shall divide it equitably, and the other half to the government. (Secs. 11-12)
  4. If a vessel is the salvor, the reward shall be distributed as follows:
    1. 50% to the shipowner;
    2. 25% to the captain; and
  1. 25% to the officers and crew in proportion to their salaries. (Sec. 13)

? Taking passengers from a sinking ship, without rendering any service in rescuing the vessel, is not a salvage service, being a duty of humanity and not for reward.



(C.A. No. 146)



  1. To secure adequate, sustained service for the public at the least possible cost;
  2. To protect the public against unreasonable charges and poor, inefficient service;
  3. To protect and secure investments in public services;
  4. To prevent ruinous competition.


þGENERAL RULE: No public service shall operate without having been issued a certificate of public convenience or a certificate of public convenience and necessity.


  1. Warehouses;
  2. Animal drawn vehicles and bancas moved by oar or sail;
  3. Airships, except for the fixing of maximum rates for fare and freight;
  4. Radio companies, except for rates fixing;
  5. Public services owned or operated by the government, except as to rates fixing;
  6. Ice plants; and
  7. Public markets.


F A person who owns, operates, manages or controls in the Philippines for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier or public utility, ice plants, power and water supplies, communication and similar public services. (Sec. 13b, CA 146)

? A casual or incidental service devoid of public character and interest is not brought within the category. The question depends on such factors as the extent of services, whether such person or company has held himself or itself out as ready to serve the public or a portion of the public generally. (Luzon Stevedoring vs. PSC)

NOTE: The Public Service Commission created under the Public Service Law has already been abolished under P.D. No. 1 and other issuances. It has been replaced by the following government agencies: LTO; LTFRB; ATO; BOE; NTC; NEA; ERB; NWRC; CAB; and MIA.






 An authorization issued by the appropriate government agency for the operation of public services for which no franchise, either municipal or legislative, is required by law, e.g., common carriers.

  An authorization issued by the appropriate government agency for the operation of public service for which a prior franchise is required by law; e.g. telephone and other services.

? A CPC or a CPCN constitutes neither a franchise nor a contract, confers no property right, and is a mere license or a privilege. The holder of said certificate does not acquire a property right in the route covered thereby. Nor does it confer upon the holder any proprietary right or interest or franchise in the public highways. Revocation of this certificate deprives him of no vested right. New and additional burdens, alteration of the certificate, or even revocation or annulment thereof is reserved to the State. (Luque vs. Villegas, 30 SCRA 408)

? It is a “property” and has a considerable value and can be the subject of sale or attachment. (Cogeo-Cubao Operators and Drivers Assn. vs. CA, 207 SCRA 343, Raymundo vs. Luneta Motor Co.)



  1. Applicant must be a citizen of the Philippines or a corporation or entity 60% of the capital of which is owned by such citizens;
  2. Applicant must prove public necessity;
  3. Applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest on a proper and suitable manner;
  4. Applicant must have sufficient financial capability to undertake the proposed services and meeting the responsibilities incident to its operation.






1.     Issuance of CPC or CPCN;

2.     Fixing of rates, tolls, and charges;

3.     Setting up of standards and classifications;

4.     Establishment of rules to secure accuracy of all meters and all measuring appliances;

5.     Issuance of orders requiring establishment or maintenance of extension of facilities;

6.     Revocation, or modification of CPC or CPCN;

7. Suspension of CPC or CPCN, except when it is necessary to avoid serious and irreparable damage or inconvenience to the public or private interest, in which case, a suspension not more than 30 days may be ordered, prior to the hearing. (Soriano v. Medina, 164 SCRA 36)

1.     Investigation any matter concerning public service;

2.     Requiring operators to furnish safe, adequate, and proper service;

3.     Requiring public services to pay expenses of investigation;

4.     Valuation of properties of public utilities;

5.     Examination and test of measuring appliances;

6.     Grant of special permits to make extra or special trips in territories specified in the certificate;

7.     Uniform accounting system and furnishing of annual reports;

8.     Compelling compliance with the laws and regulations.



  1. Engagement in public service business without first securing the proper certificate;
  2. Providing or maintaining unsafe, improper or inadequate service as determined by the proper authority;
  3. Committing any act of unreasonable and unjust preferential treatment to any particular person, corporation or entity as determined by the proper authority;
  4. Refusing or neglecting to carry public mail upon request. (Secs. 18 and 19)


  1. Establish and maintain individual or joint rates;
  2. Establish and operate new units;
  3. Issue free tickets;
  4. Issue any stock or stock certificates representing an increase of capital;
  5. Capitalize any franchise in excess of the amount actually paid to the Government;
  6. Sell, alienate, mortgage or lease property, certificates or franchise.

? Under Sec. 20(g) of C.A. No. 146, the sale, etc. may be negotiated and completed before the approval by the proper authority. Its approval is not a condition precedent to the validity of the contract. The approval is necessary only to protect public interest.


F The rule allowing an existing franchised operator to invoke a preferential right within the authorized territory as long as he renders satisfactory and economical service.

F The policy is not to issue a certificate to a second operator to cover the same field and in competition with a first operator who is rendering sufficient, adequate and satisfactory service.  The prior operator must first be given an opportunity to improve its service, if inadequate or deficient.

F Purpose: To prevent ruinous and wasteful competition in order that the interests of the public would be conserved and preserved.

? It subordinates the prior applicant rule which gives the first applicant priority only if things and circumstances are equal.

? Where the operator either fails or neglects to make the improvement or effect the increase in services, especially when given the opportunity, new operators should be given the chance to give the services needed by the public.


F Presupposes a situation when two interested persons apply for a certificate to operate a public utility in the same community over which no person has as yet granted any certificate. If it turns out, after the hearing, that the circumstances between the two applicants are more or less equal, then the applicant who applied ahead of the other, will be granted the certificate.


F The rate to be fixed must be just, founded upon conditions which are fair and reasonable to both the owner and the public.

F A rate is just and reasonable if it conforms to the following requirements:

  1. One which yields to the carrier a fair return upon the value of the property employed in performing the service; and
  2. One which is fair to the public for the service rendered.


F The registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by third persons caused by the operation of said vehicle, even though the same had been transferred to a third person. 

@ The registered owner is not allowed to escape responsibility by proving that a third person is the actual and real owner Reason: It would be easy for him, by collusion with others or otherwise, to transfer the responsibility to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. (Erezo, et al. vs. Jepte 102 Phil 103).



F A system whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate under such license, for a fee or percentage of such earnings. It is void and inexistent under Art. 1409, Civil Code.

F Effects:

  1. The transfer, sale, lease or assignment of the privilege granted is valid between the contracting parties but not upon the public or third persons. (Gelisan vs. Alday, 154 SCRA 388)
  1. The registered owner is primarily liable for all the consequences flowing from the operations of the carrier.

? The public has the right to assume that the registered owner is the actual or lawful owner thereof. It would be very difficult and often impossible, as a practical matter, for the public to enforce their rights of action that they may have for injuries inflicted by the vehicle if they should be required to prove who the actual owner is. (Benedicto vs. IAC, 187 SCRA 547)

  1. The thrust of the law in enjoining the kabit system is to identify the person upon whom responsibility may be fixed with the end in view of protecting the riding public (Lim vs. CA 373 SCRA 394).
  2. The registered owner cannot recover from the actual owner and the latter cannot obtain transfer of the vehicle to himself, both being in pari delicto. (Teja Marketing vs. IAC)
  3. For the better protection of the public, both the registered owner and the actual owner are jointly and severally liable with the driver. (Zamboanga Transportation Co. vs. CA)