IN ACT TO DECLARE THAT PUBLIC ACT NUMBERED FIVE HUNDRED AND TWENTY-

ONE, KNOWN AS “CARRIAGE OF GOODS BY SEA ACT,” ENACTED BY THE SEVENTY-

FOURTH CONGRESS OF THE UNITED STATES, BE ACCEPTED, AS IT IS HEREBY
ACCEPTED BY THE NATIONAL ASSEMBLY

WHEREAS, the 74th Congress of the United States enacted Public Act No. 521, entitled Carriage
of Goods by Sea Act;

WHEREAS, the primordial purpose of the said Acts is to bring about uniformity in ocean bills of
lading and to give effect to the Brussels Treaty, signed by the United States with other powers;

WHEREAS, the Government of the United States has left it to the Philippine Government to
decide whether or not the said Act shall apply to carriage of goods by sea in foreign trade to
and from Philippine ports;

WHEREAS, the said Act contains advanced legislation, which is in consonance with modern
maritime rules and the practices of the great shipping countries of the world;

WHEREAS, shipping companies, shippers, and marine insurance companies, and various
chambers of commerce, which are directly affected by such legislation, have expressed their
desire that said Congressional Act be made applicable and extended to the Philippines;
therefore, be it enacted by the National Assembly of the Philippines:

Section 1. That the provisions of Public Act No. 521 of the 74th Congress of the United States,
approved on April 16, 1936, be accepted, as it is hereby accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign trade:
Provided, that nothing in this Act shall be construed as repealing any existing provision of the
Code of Commerce which is now in force, or as limiting its application.

Section 2. This Act shall take effect upon its approval.

(Approved: October 22,1936).

TITLE I

Section 1. When used in this Act —

(a) The term “carrier” includes the owner or the charterer who enters into a contract of carriage
with a shipper.

(b) The term “contract of carriage” applies only to contracts of carriage covered by a bill of
lading or any similar document of title, insofar as such document relates to the carriage of
goods by sea, including any bill of lading or any similar document as aforesaid issued under or
pursuant to a charter party from the moment at which such bill of lading or similar document of
title regulates the relations between a carrier and a holder of the same.
(c) The term “goods” includes goods, wares, merchandise, and articles of every kind
whatsoever, except live animals and cargo which by the contract of carriage is stated as being
carried on deck and is so carried.

(d) The term “ship” means any vessel used for the carriage of goods by sea.

(e) The term “carriage of goods” covers the period from the time when the goods are loaded on
to the time when they are discharged from the ship.

RISKS

Section 2. Subject to the provisions of section 6, under every contract of carriage of goods by
sea, the carrier in relation to the loading handling, stowage, carriage, custody, care, and
discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to
the rights and immunities hereinafter set forth.

RESPONSIBILITIES AND LIABILITIES

Section 3. (1) The carrier shall be bound, before and at the beginning of the voyage,
to exercise due diligence to –

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

(c) Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which
goods are carried, fit and safe for their reception carriage and preservation.

(2) The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.

(3) After receiving the goods into his charge the carrier, or the master or agent of the carrier,
shall, on demand of the shipper, issue to the shipper a bill of lading showing among other
things —

(a) The leading marks necessary for identification of the goods as the same are furnished in
writing by the shipper before the loading of such goods starts, provided such marks are
stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings
in which such goods are contained, in such a manner as should ordinarily remain legible until
the end of the voyage.

(b) Either the number of packages or pieces, or the quantity or weight, as the case may be, as
furnished in writing by the shipper.
(c) The apparent order and conditions of the goods: Provided, That no carrier, master, or agent
of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity,
or weight which he has reasonable ground for suspecting not accurately to represent the goods
actually received, or which he has had no reasonable means of checking.

(4) Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods
as therein described in accordance with paragraphs (3) (a), (b), and (c) of this section: (The
rest of the provision is not applicable to the Philippines).

(5) The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of
shipment of the marks, number, quantity, and weight, as furnished by him; and the shipper
shall indemnify the carrier against all loss, damages, and expenses arising or resulting from
inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit
his responsibility and liability under the contract of carriage to any person other than the
shipper.

(6) Unless notice or loss or damage and the general nature of such loss or damage by given in
writing to the carrier or his agent at the port of discharge or at the time of the removal of the
goods into the custody of the person entitled to delivery thereof under the contract of carriage,
such removal shall be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.

Said notice of loss or damage may be endorsed upon the receipt for the goods given by the
person taking delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their receipt
been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered: Provided, that, if a notice of loss or damage, either apparent
or concealed, is not given as provided for in this section, that fact shall not affect or prejudice
the right of the shipper to bring suit within one year after the delivery of the goods or the date
when the goods should have been delivered.

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give
all reasonable facilities to each other for inspecting and tallying the goods.

(7) After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of
the carrier to the shipper shall if the shipper so demands, be a “shipped” bill of lading:
Provided, that if the shipper shall have previously taken up any document of title to such
goods, he shall surrender the same as against the issue of the “shipped” bill of lading, but at
the option of the carrier such document of title may be noted at the port of shipment by the
carrier, master, or agent with the name or names of the ship or ships upon which the goods
have been shipped and the date or dates of shipment, and when so noted the same shall for
the purpose of this section be deemed to constitute a “shipped” bill of lading.
(8) Any clause, covenant, or agreement in a contract of carriage relieving the carrier of the
ship from liability for loss or damage to or in connection with the goods, arising from
negligence, fault, or failure in the duties and obligations provide in this section or lessening
such liability otherwise than as provided in this Act, shall be null and void and of no effect. A
benefit of insurance in favor of the carrier, or similar clause, shall be deemed to be a clause
relieving the carrier from liability.

RIGHTS AND IMMUNITIES

Section 4. (1) Neither the carrier nor the ship shall be liable for loss or damage arising
or resulting from unseaworthiness unless caused by want of due diligence on the part of
the carrier to make the ship seaworthy, and to secure that the ship is properly
manned, equipped, and supplied, and to make to the holds, refrigerating and cool chambers,
and all other parts of the ship in which goods are carried fit and safe for their reception,
carriage, and preservation in accordance with the provisions of paragraph (1) of section
3. Whenever loss or damage has resulted from unseaworthiness, the burden of proving the
exercise of due diligence shall be on the carrier or other persons claiming exemption under the
section.

(2) Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting
from —

(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the
navigation or in the management of the ship;

(b) Fire, unless caused by the actual fault or privity of the carrier;

(c) Perils, dangers, and accidents of the sea or other navigable waters;

(d) Act of God;

(e) Act of war,

(f) Act of public enemies;

(g) Arrest or restraint of princes, rulers, or people, or seizure under legal process;

(h) Quarantine restrictions;

(i) Act or omission of the shipper or owner of the goods, his agent or representative;

(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or
general; Provided, That nothing herein contained shall be construed to relieve a carrier from
responsibility for the carrier’s own acts;

(k) Riots and civil commotions

(l) Saving or attempting to save life or property at sea;

(m) Wastage in bulk or weight or any other loss or damage arising from inherent defect,
quality, or vice of the goods;

(n) Insufficiency of packing;

(o) Insufficiency of inadequacy of marks;

(p) Latent defects not discoverable by due diligence; and

(q) Any other cause arising without the actual fault and privity of the carrier and without the
fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the
person claiming the benefit of this exception to show that neither the actual fault or privity of
the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the
loss or damage.

(3) The shipper shall not be responsible for loss or damage sustained by the carrier or the ship
arising from any cause without the act, fault, or neglect of the shipper, his agents, or servants.

(4) Any deviation in saving or attempting to save life or property at sea, or any reasonable
deviation shall not be deemed to be an infringement or breach of this Act or of the contract of
carriage, and the carrier shall not be liable for any loss or damage resulting therefrom:
Provided, however, That if the deviation is for the purpose of loading cargo or unloading cargo
or passengers it shall, prima facie, be regarded as unreasonable.

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500 per
package lawful money of the United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency, unless the nature and
value of such goods have been declared by the shipper before shipment and inserted in the bill
of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but
shall not be conclusive on the carrier.

By agreement between the carrier, master, or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be liable
for more than the amount of damage actually sustained.

Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in
connection with the transportation of the goods if the nature or value thereof has been
knowingly and fraudulently misstated by the shipper in the bill of lading.

(6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof, the
carrier, master or agent of the carrier, has not consented with knowledge of their nature and
character, may at any time before discharge be landed at any place or destroyed or rendered
innocuous by the carrier without compensation, and the shipper of such goods shall be liable for
all damages and expenses directly or indirectly arising out of or resulting from such shipment. If
any such goods shipped with such knowledge and consent shall become a danger to the ship or
cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by
the carrier without liability on the part of the carrier except to general average, if any.

SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF RESPONSIBILITIES

AND LIABILITIES

Section 5. A carrier shall be at liberty to surrender in whole or in part all or any of his rights
and immunities or to increase any of his responsibilities and liabilities under this Act, provided
such surrender or increase shall be embodied in the bill of lading issued to the shipper.

The provisions of this Act shall not be applicable to charter parties; but if bills of lading are
issued in the case of a ship under charter party, they shall comply with the terms of this Act.
Nothing in this Act shall be held to prevent the insertion in a bill of lading of any lawful
provision regarding general average.

SPECIAL CONDITIONS

Section 6. Notwithstanding the provisions of the preceding section, a carrier, master or agent
of the carrier, and a shipper shall, in regard to any particular goods be at liberty to enter into
any agreement in any terms as to the responsibility and liability of the carrier for such goods,
and as to the rights and immunities of the carrier in respect of such goods, or his obligation as
to seaworthiness (so far as the stipulation regarding seaworthiness is not contrary to public
policy), or the care or diligence of his servants or agents in regard to the loading, handling
stowage, carriage, custody, care, and discharge of the goods carried by sea: Provided, That in
this case no bill of lading has been or shall be issued and that the terms agreed shall be
embodied in a receipt which shall be a non-negotiable document and shall be marked as
such.

Any agreement so entered into shall have full legal effect: Provided, That this section shall not
apply to ordinary commercial shipments made in the ordinary course of trade but only to other
shipments where the character or condition of the property to be carried or the circumstances,
terms, and conditions under which the carriage is to be performed are such as reasonably to
justify a special agreement.

Section 7. Nothing contained in this Act shall prevent a carrier or a shipper from entering into
any agreement, stipulation, condition, reservation, or exemption as to the responsibility and
liability of the carrier or the ship for the loss or damage to or in connection with the custody
and care and handling of goods prior to the loading on and subsequent to the discharge
from the ship on which the goods are carried by sea.

Section 8. The provisions of this Act shall not affect the rights and obligations of the carrier
under the provisions of the Shipping Act, 1916, or under the provisions of Section 4281 to
4289, inclusive, of the Revised Statutes of the United States, or of any amendments thereto;
or under the provisions of any other enactment for the time being in force relating to the
limitation of the liability of the owners of seagoing vessels.

TITLE II
Section 9. Nothing contained in this Act shall be construed as permitting a common carrier by
water to discriminate between competing shippers similarly place in time and circumstances,
either (a) with respect to the right to demand and receive bills of lading subject to the
provisions of this Act; or (b) when issuing such bills of lading, either in the surrender of any of
the carrier’s rights and immunities or in the increase of any of the carrier’s responsibilities and
liabilities pursuant to section 6, title I, of this Act or (c) in any other way prohibited by the
Shipping Act, 1916, s amended.

Section 10. (Not applicable to the Philippines.).

Section 11. Where under the customs of any trade the weight of any bulk cargo inserted in
the bill of lading is a weight ascertained or accepted by a third party other than the carrier or
the shipper, and the fact that the weight is so ascertained or accepted is stated in the bill of
lading, then, notwithstanding anything in this Act, the bill of lading shall not be deemed to
be prima facie evidence against the carrier of the receipt of goods of the weight so inserted in
the bill of lading, and the accuracy thereof at the time of shipment shall not be deemed to have
been guaranteed by the shipper.

Section 12. (Not applicable to the Philippines.).

Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from ports
of the United States in foreign trade. As used in this Act the term “United States” includes its
districts, territories, and possessions: Provided, however, That the Philippine legislature may by
law exclude its application to transportation to or from ports of the Philippine Islands. The term
“foreign trade” means the transportation of goods between the ports of the United States and
ports of foreign countries. Nothing in this Act shall be held to apply to contracts for carriage of
goods by sea between any port of the United States or its possessions, and any other port of
the United States or its possession: Provided, however, That any bill of lading or similar
document of title which is evidence of a contract for the carriage of goods by sea between
such ports, containing an express statement that it shall be subject to the provisions of this Act,
shall be subjected hereto as fully as if subject hereto as fully as if subject hereto by the express
provisions of this Act: Provided, further, That every bill of lading or similar document of title
which is evidence of a contract for the carriage of goods by sea from ports of the United
States, in foreign trade, shall contain a statement that it shall have effect subject to the
provisions of this Act.

Section 14. Upon the certification of the Secretary of Commerce that the foreign commerce
of the United States in its competition with that of foreign nations is prejudiced the provisions,
or any of them, of Title I of this Act, or by the laws of any foreign country or countries relating
to the carriage of goods by sea, the President of the United States, may, from time to time, by
proclamation, suspend any or all provisions of Title I of this Act for such periods of time or
indefinitely as may be designated in the proclamation. The President may at any time rescind
such suspension of Title I hereof, and any provisions thereof which may have been suspended
shall thereby be reinstated and again apply to contracts thereafter made for the carriage of
goods by sea. Any proclamation of suspension or rescission of any such suspension shall take
effect on a date named therein, which date shall be not less than ten days from the issue of
the proclamation.
Any contract for the carriage of goods by sea, subject to the provisions of this Act, effective
during any period when title I hereof, or any part thereof, is suspended, shall be subject to all
provisions of law now or hereafter applicable to that part of Title I which may have thus been
suspended.

Section 15. This Act shall take effect ninety days after the date of its approval; but nothing in
this Act shall apply during a period not to exceed one year following its approval to any
contract for the carriage of goods by sea, made before the date on which this Act is approved,
nor to any bill of lading or similar document of title issued, whether before or after such date
of approval in pursuance of any such contract as aforesaid.

Section 16. This Act may be cited as the “Carriage of Goods by Sea Act.”

Approved, April 16, 1936.

 TITLE VII – COMMERCIAL CONTRACTS FOR TRANSPORTATION

ARTICLE 349. A contract of transportation by land or water ways of any kind shall be
considered commercial:

1. When it has for its object merchandise or any article of commerce.

2. When, whatever its object may be, the carrier is a merchant or is habitually engaged in
transportation for the public.

ARTICLE 350. The shipper as well as the carrier of merchandise or goods may mutually
demand that a bill of lading be made, stating:

1. The name, surname and residence of the shipper.

2. The name, surname and residence of the carrier.

3. The name, surname and residence of the person to whom or to whose order the
goods are to be sent or whether they are to be delivered to the bearer of said bill.

4. The description of the goods, with a statement of their kind, of their weight, and of the
external marks or signs of the packages in which they are contained.

5. The cost of transportation.

6. The date on which shipment is made.

7. The place of delivery to the carrier.

8. The place and the time at which delivery to the consignee shall be made.

9. The indemnity to be paid by the carrier in case of delay, if there should be any agreement
on this matter.

ARTICLE 351. In transportation made by railroads or other enterprises subject to regulation

rate and time schedules, it shall be sufficient for the bills of lading or the declaration of
shipment furnished by the shipper to refer, with respect to the cost, time and special conditions
of the carriage, to the schedules and regulations the application of which he requests; and if
the shipper does not determine the schedule, the carrier must apply the rate of those which
appear to be the lowest, with the conditions inherent thereto, always including a statement or
reference to in the bill of lading which he delivers to the shipper.

ARTICLE 352. The bills of lading, or tickets in cases of transportation of passengers, may be
diverse, some for persons and others for baggage; but all of them shall bear the name of the
carrier, the date of shipment, the points of departure and arrival, the cost, and, with respect to
the baggage, the number and weight of the packages, with such other manifestations which
may be considered necessary for their easy identification.
ARTICLE 353. The legal evidence of the contract between the shipper and the carrier shall be
the bills of lading, by the contents of which the disputes which may arise regarding their
execution and performance shall be decided, no exceptions being admissible other than those
of falsity and material error in the drafting.

After the contract has been complied with, the bill of lading which the carrier has issued shall be
returned to him, and by virtue of the exchange of this title with the thing transported, the
respective obligations and actions shall be considered cancelled, unless in the same act the
claim which the parties may wish to reserve be reduced to writing, with the exception of that
provided for in Article 366.

In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by
the carrier, because of its loss or of any other cause, he must give the latter a receipt for the
goods delivered, this receipt producing the same effects as the return of the bill of lading.

ARTICLE 354. In the absence of a bill of lading, disputes shall be determined by the legal
proofs which the parties may present in support of their respective claims, according to the
general provisions established in this Code for commercial contracts.

ARTICLE 355. The responsibility of the carrier shall commence from the moment he receives
the merchandise, personally or through a person charged for the purpose, at the place
indicated for receiving them.

ARTICLE 356. Carriers may refuse packages which appear unfit for transportation; and if the
carriage is to be made by railway, and the shipment is insisted upon, the company shall
transport them, being exempt from all responsibility if its objections, is made to appear in the
bill of lading.

ARTICLE 357. If by reason of well-founded suspicion of falsity in the declaration as to the

contents of a package the carrier should decide to examine it, he shall proceed with his
investigation in the presence of witnesses, with the shipper or consignee in attendance.

If the shipper or consignee who has to be cited does not attend, the examination shall be made
before a notary, who shall prepare a memorandum of the result of the investigation, for such
purpose as may be proper.

If the declaration of the shipper should be true, the expense occasioned by the examination
and that of carefully repacking the packages shall be for the account of the carrier and in a
contrary case for the account of the shipper.

ARTICLE 358. If there is no period fixed for the delivery of the goods the carrier shall be
bound to forward them in the first shipment of the same or similar goods which he may make
point where he must deliver them; and should he not do so, the damages caused by the delay
should be for his account.

ARTICLE 359. If there is an agreement between the shipper and the carrier as to the road
over which the conveyance is to be made, the carrier may not change the route, unless it be by
reason of force majeure; and should he do so without this cause, he shall be liable for all the
losses which the goods he transports may suffer from any other cause, beside paying the sum
which may have been stipulated for such case.

When on account of said cause of force majeure, the carrier had to take another route which
produced an increase in transportation charges, he shall be reimbursed for such increase upon
formal proof thereof.

ARTICLE 360. The shipper, without changing the place where the delivery is to be made, may
change the consignment of the goods which he delivered to the carrier, provided that at the
time of ordering the change of consignee the bill of lading signed by the carrier, if one has been
issued, be returned to him, in exchange for another wherein the novation of the contract
appears.

The expenses which this change of consignment occasions shall be for the account of the
shipper.

ARTICLE 361. The merchandise shall be transported at the risk and venture of the shipper, if
the contrary has not been expressly stipulated. As a consequence, all the losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent nature and defect of the goods, shall be for the account
and risk of the shipper. Proof of these accidents is incumbent upon the carrier.

ARTICLE 362. Nevertheless, the carrier shall be liable for the losses and damages resulting
from the causes mentioned in the preceding article if it is proved, as against him, that they
arose through his negligence or by reason of his having failed to take the precautions which
usage has established among careful persons, unless the shipper has committed fraud in the bill
of lading, representing the goods to be of a kind or quality different from what they really were.

If, notwithstanding the precautions referred to in this article, the goods transported run the risk
of being lost, on account of their nature or by reason of unavoidable accident, there being no
time for their owners to dispose of them, the carrier may proceed to sell them, placing them for
this purpose at the disposal of the judicial authority or of the officials designated by special
provisions.

ARTICLE 363. Outside of the cases mentioned in the second paragraph of Article 361, the
carrier shall be obliged to deliver the goods shipped in the same condition in which, according
to the bill of lading, they were found at the time they were received, without any damage or
impairment, and failing to do so, to pay the value which those not delivered may have at the
point and at the time at which their delivery should have been made.

If those not delivered form part of the goods transported, the consignee may refuse to receive
the latter, when he proves that he cannot make use of them independently of the others.

ARTICLE 364. If the effect of the damage referred to in Article 361 is merely a diminution in
the value of the goods, the obligation of the carrier shall be reduced to the payment of the
amount which, in the judgment of experts, constitutes such difference in value.
ARTICLE 365. If, in consequence of the damage, the goods are rendered useless for sale and
consumption for the purposes for which they are properly destined, the consignee shall not be
bound to receive them, and he may have them in the hands of the carrier, demanding of the
latter their value at the current price on that day.

If among the damaged goods there should be some pieces in good condition and without any
defect, the foregoing provision shall be applicable with respect to those damaged and the
consignee shall receive those which are sound, this segregation to be made by distinct and
separate pieces and without dividing a single object, unless the consignee proves the
impossibility of conveniently making use of them in this form.

The same rule shall be applied to merchandise in bales or packages, separating those parcels
which appear sound.

ARTICLE 366. Within the twenty-four hours following the receipt of the merchandise, the
claim against the carrier for damage or average be found therein upon opening the packages,
may be made, provided that the indications of the damage or average which gives rise to the
claim cannot be ascertained from the outside part of such packages, in which case the claim
shall be admitted only at the time of receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no
claim shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered.

ARTICLE 367. If doubts and disputes should arise between the consignee and the carrier with
respect to the condition of the goods transported at the time their delivery to the former is
made, the goods shall be examined by experts appointed by the parties, and, in case of
disagreement, by a third one appointed by the judicial authority, the results to be reduced to
writing; and if the interested parties should not agree with the expert opinion and they do not
settle their differences, the merchandise shall be deposited in a safe warehouse by order of the
judicial authority, and they shall exercise their rights in the manner that may be proper.

ARTICLE 368. The carrier must deliver to the consignee, without any delay or obstruction, the
goods which he may have received, by the mere fact of being named in the bill of lading to
receive them; and if he does not do so, he shall be liable for the damages which may be caused
thereby.

ARTICLE 369. If the consignee cannot be found at the residence indicated in the bill of lading,
or if he refuses to pay the transportation charges and expenses, or if he refuses to receive the
goods, the municipal judge, where there is none of the first instance, shall provide for their
deposit at the disposal of the shipper, this deposit producing all the effects of delivery without
prejudice to third parties with a better right.

ARTICLE 370. If a period has been fixed for the delivery of the goods, it must be made within
such time, and, for failure to do so, the carrier shall pay the indemnity stipulated in the bill of
lading, neither the shipper nor the consignee being entitled to anything else.
If no indemnity has been stipulated and the delay exceeds the time fixed in the bill of lading,
the carrier shall be liable for the damages which the delay may have caused.
ARTICLE 371. In case of delay through the fault of the carrier, referred to in the preceding
articles, the consignee may leave the goods transported in the hands of the former, advising
him thereof in writing before their arrival at the point of destination.

When this abandonment takes place, the carrier shall pay the full value of the goods as if they
had been lost or mislaid.

If the abandonment is not made, the indemnification for losses and damages by reason of the
delay cannot exceed the current price which the goods transported would have had on the day
and at the place in which they should have been delivered; this same rule is to be observed in
all other cases in which this indemnity may be due.

ARTICLE 372. The value of the goods which the carrier must pay in cases if loss or
misplacement shall be determined in accordance with that declared in the bill of lading, the
shipper not being allowed to present proof that among the goods declared therein there were
articles of greater value and money.

Horses, vehicles, vessels, equipment and all other principal and accessory means of
transportation shall be especially bound in favor of the shipper, although with respect to
railroads said liability shall be subordinated to the provisions of the laws of concession with
respect to the property, and to what this Code established as to the manner and form of
effecting seizures and attachments against said companies.

ARTICLE 373. The carrier who makes the delivery of the merchandise to the consignee by
virtue of combined agreements or services with other carriers shall assume the obligations of
those who preceded him in the conveyance, reserving his right to proceed against the latter if
he was not the party directly responsible for the fault which gave rise to the claim of the
shipper or consignee.

The carrier who makes the delivery shall likewise acquire all the actions and rights of those who
preceded him in the conveyance. The shipper and the consignee shall have an immediate right
of action against the carrier who executed the transportation contract, or against the other
carriers who may have received the goods transported without reservation.
However, the reservation made by the latter shall not relieve them from the responsibilities
which they may have incurred by their own acts.

ARTICLE 374. The consignees to whom the shipment was made may not defer the payment
of the expenses and transportation charges of the goods they receive after the lapse of twenty-
four hours following their delivery; and in case of delay in this payment, the carrier may
demand the judicial sale of the goods transported in an amount necessary to cover the cost of
transportation and the expenses incurred.
 SECTION 4
Common Carriers

SUBSECTION 1. General Provisions

Article 1732. Common carriers are 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.

Article 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.

SUBSECTION 2. Vigilance Over Goods

Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in article 1733.

Article 1736. The extraordinary responsibility of the common carrier lasts 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 a right to receive them, without prejudice to the provisions
of article 1738.

Article 1737. The common carrier’s duty to observe extraordinary diligence over the goods
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.
Article 1738. The extraordinary liability of the common carrier 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 been advised of the arrival of the goods and has had reasonable
opportunity thereafter to remove them or otherwise dispose of them.

Article 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or minimize loss before, during and
after the occurrence of flood, storm or other natural disaster in order that the common carrier
may be exempted from liability for the loss, destruction, or deterioration of the goods. The
same duty is incumbent upon the common carrier in case of an act of the public enemy referred
to in article 1734, No. 2.

Article 1740. If the common carrier negligently incurs in delay in transporting the goods, a
natural disaster shall not free such carrier from responsibility.

Article 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration
of the goods, the proximate cause thereof being the negligence of the common carrier, the
latter shall be liable in damages, which however, shall be equitably reduced.

Article 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common
carrier must exercise due diligence to forestall or lessen the loss.

Article 1743. If through the order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue the order.

Article 1744. A stipulation between the common carrier and the shipper or owner limiting the
liability of the former for the loss, destruction, or deterioration of the goods to a degree less
than extraordinary diligence shall be valid, provided it be:

(1) In writing, signed by the shipper or owner;

(2) Supported by a valuable consideration other than the service rendered by the common
carrier; and

(3) Reasonable, just and not contrary to public policy.

Article 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:

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

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

(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father
of a family, or of a man of ordinary prudence in the vigilance over the movables transported;

(5) That the common carrier shall not be responsible for the acts or omission of his or its
employees;

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

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

Article 1746. An agreement limiting the common carrier’s liability may be annulled by the
shipper or owner if the common carrier refused to carry the goods unless the former agreed to
such stipulation.

Article 1747. If the common carrier, without just cause, delays the transportation of the goods
or changes the stipulated or usual route, the contract limiting the common carrier’s liability
cannot be availed of in case of the loss, destruction, or deterioration of the goods.

Article 1748. An agreement limiting the common carrier’s liability for delay on account of strikes
or riots is valid.

Article 1749. A stipulation that the common carrier’s liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.

Article 1750. A contract fixing the sum that may be recovered. by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

Article 1751. The fact that the common carrier has no competitor along the line or route, or a
part thereof, to which the contract refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier’s liability is reasonable, just and in
consonance with public policy.

Article 1752. Even when there is an agreement limiting the liability of the common carrier in the
vigilance over the goods, the common carrier is disputably presumed to have been negligent in
case of their loss, destruction or deterioration.

Article 1753. The law of the country to which the goods are to be transported shall govern the
liability of the common carrier for their loss, destruction or deterioration.

Article 1754. The provisions of articles 1733 to 1753 shall apply to the passenger’s baggage
which is not in his personal custody or in that of his employee. As to other baggage, the rules in
articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be
applicable.
SUBSECTION 3. Safety of Passengers

Article 1755. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances.

Article 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.

Article 1757. The responsibility of a common carrier for the safety of passengers as required in
articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the posting of
notices, by statements on tickets, or otherwise.

Article 1758. When a passenger is carried gratuitously, a stipulation limiting the common
carrier’s liability for negligence is valid, but not for willful acts or gross negligence.

The reduction of fare does not justify any limitation of the common carrier’s liability.

Article 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former’s employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

Article 1760. The common carrier’s responsibility prescribed in the preceding article cannot be
eliminated or limited by stipulation, by the posting of notices, by statements on the tickets or
otherwise.

Article 1761. The passenger must observe the diligence of a good father of a family to avoid
injury to himself.

Article 1762. The contributory negligence of the passenger does not bar recovery of damages
for his death or injuries, if the proximate cause thereof is the negligence of the common carrier,
but the amount of damages shall be equitably reduced.

Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of
the willful acts or negligence of other passengers or of strangers, if the common carrier’s
employees through the exercise of the diligence of a good father of a family could have
prevented or stopped the act or omission.

SUBSECTION 4. Common Provisions

Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by a common carrier.
Article 1765. The Public Service Commission may, on its own motion or on petition of any
interested party, after due hearing, cancel the certificate of public convenience granted to any
common carrier that repeatedly fails to comply with his or its duty to observe extraordinary
diligence as prescribed in this Section.

Article 1766. In all matters not regulated by this Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special laws.
 The Salvage Law

SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of
the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place
by other persons, the latter shall be entitled to a reward for the salvage. Those who, not being
included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a like reward.

SECTION 2. If the captain of the vessel, or the person acting in his stead, is present, no one
shall take from the sea, or from the shores or coast merchandise or effects proceeding from a
shipwreck or proceed to the salvage of the vessel, without the consent of such captain or
person acting in his stead.

SECTION 3. He who shall save or pick up a vessel or merchandise at sea, in the absence of the
captain of the vessel, owner, or a representative of either of them, they being unknown, shall
convey and deliver such vessel or merchandise, as soon as possible, to the Collector of
Customs, if the port has a collector, and otherwise to the provincial treasurer or municipal
mayor.

SECTION 4. After the salvage is accomplished, the owner or his representative shall have a
right to the delivery of the vessel or things saved, provided that he pays, or gives a bond to
secure, the expenses and the proper reward. The amount and sufficiency of the bond, in the
absence of agreement, shall be determined by the Collector of Customs or by the Judge of the
Court of First Instance of the province in which the things saved may be found.

SECTION 5. The Collector of Customs, provincial treasurer, or municipal mayor, to whom a

salvage is reported, shall order:

a. That the things saved be safeguard and inventoried.

b. The sale at public auction of the things saved which may be in danger of immediate loss or
of those whose conservation is evidently prejudicial to the interests of the owner, when no
objection is made to such sale.

c. The advertisement within thirty days subsequent to the salvage, in one of the
local newspapers or in the nearest newspaper published, of all the details of the disaster, with
a statement of the mark and number of the effects requesting all interested persons to
make their claims.

SECTION 6. If, while the vessel or things saved are at the disposition of the authorities, the
owner or his representative shall claim them, such authorities shall order their delivery to such
owner or his representative, provided that there is no controversy over their value, and a bond
is given by the owner or his representative to secure the payment of the expenses and the
proper reward. Otherwise, the delivery shall not be made until the matter is decided by the
Court of First Instance of the province.

SECTION 7. No claim being presented in the three months subsequent to the publication of the
advertisement prescribed in sub-section (c) of Section five, the things save shall be sold at
public auction, and their proceeds, after deducting the expenses and the proper reward shall be
deposited in the insular treasury. If three years shall pass without anyone claiming it, one-half
of the deposit shall be adjudged to him who saved the things, and the other half to the insular
government.

SECTION 8. The following shall have no right to a reward for salvage or assistance:

a. The crew of the vessel shipwrecked or which was in danger of a shipwreck;

b. He who shall have commenced the salvage in spite of opposition of the captain or
his representative; and

c. He who shall have failed to comply with the provisions of Section three.

SECTION 9. If, during the danger, an agreement is entered into concerning the amount of the
reward for salvage or assistance, its validity may be impugned because it is excessive, and it
may be required to be reduced to an amount proportionate to the circumstance.

SECTION 10. In a case coming under the last preceding section, as well as in the absence of an
agreement, the reward for salvage or assistance shall be fixed by the Court of First Instance of
the province where the things salvaged are found, taking into account principally the
expenditures made to recover or save the vessel or the cargo or both, the zeal demonstrated,
the time employed, the services rendered, the excessive express occasioned the number of
persons who aided, the danger to which they and their vessels were exposed as well as that
which menaced the things recovered or salvaged, and the value of such things after deducting
the expenses.

SECTION 11. From the proceeds of the sale of the things saved shall be deducted, first, the
expenses of their custody, conservation, advertisement, and auction, as well as whatever taxes
or duties they should pay for their entrance; then there shall be deducted the expenses of
salvage; and from the net amount remaining shall be taken the reward for the salvage or
assistance which shall not exceed fifty per cent of such amount remaining.

SECTION 12. If in the salvage or in the rendering of assistance different persons shall have
intervened the reward shall be divided between them in proportion to the services which each
one may have rendered, and, in case of doubt, in equal parts. Those who, in order to save
persons, shall have been exposed to the same dangers shall also have a right to participation in
the reward.

SECTION 13. If a vessel or its cargo shall have been assisted or saved, entirely or partially, by
another vessel, the reward for salvage or for assistance shall be divided between the owner, the
captain, and the remainder of the crew of the latter vessel, so as to give the owner a half, the
captain a fourth, and all the remainder of the crew the other fourth of the reward, in proportion
to their respective salaries, in the absence of an agreement to the contrary. The express of
salvage, as well as the reward for salvage or assistance, shall be a charge on the things
salvaged on their value.

SECTION 14. This Act shall take effect on its passage.

ENACTED, FEBRUARY 4, 1916.
 AN ACT PROMOTING THE DEVELOPMENT OF PHILIPPINE DOMESTIC SHIPPING,
SHIPBUILDING, SHIP REPAIR AND SHIP BREAKING, ORDAINING REFORMS IN
GOVERNMENT POLICIES TOWARDS SHIPPING IN THE PHILIPPINES AND FOR
OTHER PURPOSES.

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

CHAPTER I
GENERAL PROVISIONS

SECTION 1. Short Title. – This Act shall be known as the “Domestic Shipping Development Act
of 2004.”

SECTION 2. Declaration of Policy. – The State recognize that shipping is a necessary

infrastructure, which is vital to the economic development of our country.

The Philippines needs a strong and competitive domestic merchant fleet owned and controlled
by Filipinos or by corporations at least sixty percent (60%) of the capital of which is owned by
Filipinos and manned by qualified Filipino officers and crew which shall: (a) bridge our islands
by ensuring safe, reliable, efficient, adequate and economic passenger and cargo services; (b)
encourage the dispersal of industry and the economic development of our regional communities
by ensuring the availability of regular, reliable and efficient shipping services; (c) ensure the
growth of exports by providing necessary, competitive and economical domestic sea linkage;
(d) serve as a naval and military auxiliary in times of war and other national emergencies; and
(e) function as an employment support base for our Filipino seafarers.

To attain these objectives, it is hereby declared to the policy of the State to; (a) promote
Filipino ownership of vessels operated under the Philippine flag; (b) attract private capital to
invest in the shipping industry by creating a healthy and competitive investment and operating
environment; (c) provide necessary assistance and incentives for the continued growth of the
Philippine domestic merchant marine fleet; (d) encourage the improvement and upgrading of
the existing domestic merchant marine fleet and Filipino crew to meet international standards;
(e) ensure the continued viability of domestic shipping operations; and (f) encourage the
development of a viable shipbuilding and ship repair industry to support the expansion and
modernization of the Philippine domestic merchant marine fleet and its strict adherence to
safety standards which will ensure the seaworthiness of all sea-borne structures.

SEC. 3. Definition of Terms. – As used in and for purposes of this Act, the following terms,
whether in singular or plural are hereby defined as follows:

(a) “Domestic shipping” shall mean the transport of passenger or cargo, or both, by ships duly
registered and licensed under Philippine law to engage in trade and commerce between
Philippine ports and within Philippine territorial or internal waters, for hire or compensation,
with general or limited clientele, whether permanent occasional or incidental, with or without
fixed routes, and done for contractual or commercial purposes;
(b) “Domestic trade” shall mean the sale, barter or exchange of goods, materials or products
within the Philippines;

(c) “Domestic Ship Operator” or “Domestic Ship Owner” may be used interchangeably and shall
mean a citizen of the Philippines, or a commercial partnership wholly owned by Filipinos, or a
corporation at least sixty percent (60%) of the capital of which is owned by Filipinos, which is
duly authorized by the Maritime Industry Authority (MARINA) to engage in the business of
domestic shipping;

(d) “Shipper” shall mean any person, partnership or corporation who shall procure for itself the
services of a domestic ship operator for the carriage of its cargo in the domestic trade upon
payment of proper compensation;

(e) “MARINA” shall mean the Maritime Industry Authority;

(f) “Ship” or “Vessel” may be used interchangeably and shall mean any kind, class or type of
craft or artificial contrivance capable of floating in water, designed to be used, or capable of
being used as a means of water transport in the domestic trade for the carriage of passengers
or cargo, or both, utilizing its own motive power or that of another;

(g) “Importation” shall mean the direct purchase, lease or charter of newly constructed or
previously owned ships, or the purchase of ship’s spare parts from foreign sources or from
registered enterprises operating in special economic zones as this terms is defined in Republic
Act No. 7916 entitled, “The Special Economic Zone Act of 1995,”

(h) “Spare parts” shall mean the replacement parts or components of vessel, including but not
limited to its hull, engines, machineries, equipment, appurtenances, necessaries accessories,
article, supplies, materials, steel plates, aluminum plates, other metal plates, communications,
equipment, and other parts or components thereof, installed abroad the ships necessary for its
safe and efficient navigation and operation;

(i) “Certificate of Public Convenience’ shall mean the license on authority issued by MARINA to a
domestic ship operator to engage in domestic shipping;

(j) “Cargo handling equipment’ shall mean any machinery, gear or equipment used by the ship
operator or a duly authorized and licensed port operator to service or handle cargo, on board
the vessel at the port or in the terminal or container yard such as, but not limited to cranes,
forklifts, top lifts, stackers, tractor heads, containers, pallet boards and the like, including all
spare parts, replacement parts, appurtenances accessories, articles, supplies and materials
thereof;

(k) “Shipbuilding” shall mean the design, construction, launching and outfitting of all types of
ships and watercraft;

(l) “Ship repair” shall mean the overhaul, refurbishment renovation improvement, or alteration
of the hull, machineries, equipment, outfits and components of all types of ships;
(m) “Shipyard” shall mean the shipbuilding or repair facilities which have the capability to lift
vessels above the waterline in order to effect ship work on vessels, appendages, structure,
machinery and equipment; and

(n) “Shipbuilder” or “Ship repairer” shall mean a citizen of the Philippines, or a commercial
partnership owned by majority of Filipinos or a corporation incorporated under the laws of the
Philippines, the capital of which is owned or controlled in any proportion by Filipinos or by
foreign nationals, or by both such Filipinos or foreign nationals, or by corporations whether
Filipino or foreign-owned, which is duly authorized by the MARINA to engage in the business of
shipbuilding or ship repair or to otherwise operate a shipyard, graving dock or marine repair
yard.

CHAPTER II
INVESTMENT INCENTIVES

SEC. 4. Investment Incentives. – To insure the continued viability of domestic shipping, and to
encourage investments in the domestic shipping industry, the following incentives shall be
granted to qualified domestic ship operators:

(a) Exemption from value-added tax on the importation and local purchase of passenger and/or
cargo vessels of one hundred fifty (150) tons and above, including engine and spare parts of
said vessels: Provided: That the vessels to be imported shall comply with the age limit
requirement at the time of acquisition counted from the date of the vessels, original
commissioning, as follows; 1) For passenger and/or cargo vessels, the age limit is fifteen (15)
years old, 2) For tankers, the age limit is ten (10) years old, and 3) For high-speed passenger
crafts, the age limit is five (5) years old; and

(b) Exemption from value-added tax on the importation of life saving equipment , safety and
rescue equipment and communication and navigational safety equipment, steel plates and other
metal plates including marine-grade aluminum plates, used for transport operations.

The importation of the articles under Section 4(a) and (b) of the Act shall be granted exemption
from value-added tax subject to the following conditions: (1) That said articles are not
manufactured domestically in sufficient quantity, of comparable quality and at reasonable
prices; (2) That said articles are directly imported by a MARINA-registered domestic shipping
operator; (3) That said articles are reasonably-needed and will be used exclusively by the
registered domestic shipping operator in its transport operations; (4) That the approval of
MARINA was obtained prior to the importation of said articles; and (5) That exemption from
value-added tax on the importation of said articles shall be granted to all domestic shipping
operators within a period of ten (10) years from the effectivity of this Act.

Any sale, transfer or disposition of articles covered under Section 4 (a) and (b) within ten (10)
years from the effectivity of this Act to another registered shipping operator enjoying similar
incentive shall require prior approval of MARINA. If the sale, transfer or disposition was made
without prior approval of MARINA, both the vendor and the transferee or assignee shall be
liable to pay twice the amount of value-added tax exemption given him: Provided, further, That
if the sale transfer or disposition was made to nonexempt entity or to a party other than a
registered domestic ship operator within ten (10) years from the effectivity of this Act, both the
vendor and the transferee or assignee shall be solidarily liable to pay twice the amount of the
value-added tax waived: Provided, finally. That the sale, transfer or disposition made after ten
(10) years from the effectivity of this Act shall be made by informing MARINA in writing. The
purchasers, transferees, or recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax due on such importation shall
constitute a lien on the article itself, and such lien shall be superior to all charges or liens on the
goods, irrespective of the possessor thereof. The Bureau of Internal Revenue (BIR) shall be
furnished with notice of actions taken by the MARINA.

(c) Net operating loss carry over. A net operating loss in any taxable year immediately
preceding the current taxable year, which had not been previously offset as a deduction from
gross income shall be carried over for the next three (3) consecutive taxable years immediately
following the year of such loss subject to the pertinent provisions of the National Internal
Revenue Code of 1997, as amended.

(d) Accelerated depreciation. Fixed assets may be depreciated as follows:

(i) To the extent of not more than twice as fast as the normal rate of depreciation or
depreciated at normal rate of depreciation if the expected life is ten (100 years or less; or

(ii) Depreciation over any number of years between five (5) years and the expected life if the
latter is more than ten (10) years, and the depreciation thereon allowed as deduction from
taxable Income: Provided, That the domestic shipping operator notifies the BIR at the
beginning of the depreciation period which depreciation rate allowed by this section will be
used.

CHAPTER III
DEREGULATION OF THE DOMESTIC SHIPPING INDUSTRY-AUTHORITY
OF THE MARITIME INDUSTRY AUTHORITY

SEC. 5. Authority to Operate. – No franchise, certificate or any other form authorization for the
carriage of cargo or passenger, or both in the domestic trade, shall be granted except of
domestic ship owners or operators.

SEC. 6. Foreign Vessels Engaged in Trade and Commerce in the Philippines Territorial Waters. –
No foreign vessel shall be allowed to transport passengers or cargo between ports or place
within the Philippine territorial waters, except upon the grant Special Permit by the MARINA
when no domestic vessels is available or suitable to provide the needed shipping service and
public interest warrants the same.

SEC. 7. Issuance of Authority to operate. – the MARINA shall have the power and authority to
issue certificates of public convenience to qualified domestic ship operators, taking into
consideration the economic and beneficial effect which the proposed services shall have to the
port province or region which it proposes to serve, and the financial capacity of the domestic
ship operator to provide and sustain safe, reliable, adequate, efficient and economic service in
accordance with the standards set by the government regulation.
Every domestic ship operator shall state in its application the route it proposes to serve, and the
service it proposes to offer. Domestic ship operators who do not intend to operate in a fixed
route shall nevertheless state in its application the service it proposes to offer.

SEC. 8. Deregulation of the Domestic Shipping Industry. – In order to encourage investments in

the domestic shipping industry by existing domestic ship operators and attract new investment
from new operators and investors, domestic ship operators are hereby authorized to establish
their own domestic shipping rates: Provided, That effective competition is fostered and public
interest is served.

The MARINA shall monitor all shipping operations and exercise regulatory intervention where it
is established after due process that public interest needs to be protected and safeguarded.

SEC. 9. Safety Standards. – All vessels operate by domestic ship operators shall at all times be
in seaworthy condition properly equipped with adequate life-saving, communication, safety and
other equipment operated and maintained in accordance with the standards set by MARINA,
and manned by duly licensed and competent vessel crew.

The MARINA shall have the power to inspect vessels and all equipment on board to ensure
compliance with safety standards.

SEC. 10. Jurisdiction; Power; and Duties of MARINA. – The MARINA shall have the power and
authority to:

(1) Register vessels;

(2) Issue certificates of public convenience or any extensions or amendments thereto,

authorizing the operation of all kinds. Classes and types of vessels in domestic shipping:
Provided, That no such certificate shall be valid for a period of more than twenty-five (25)
years;

(3) Modify, suspend or revoke at any time upon notice and hearing, any certificate, license or
accreditation it may have issued to any domestic ship operator;

(4) Establish and prescribe routes, zones or areas of operations of domestic ship operators;

(5) Require any domestic ship operator to provide shipping services to any coastal area, island
or region in the country where such services are necessary for the development of the area, to
meet emergency sea lift requirements, or when public interest so requires;

(6) Set safety standards for vessels in accordance with applicable conventions and regulations;

(7) Require all domestic ship operators to comply with operational and safety standards for
vessels set by applicable conventions and regulations, maintain its vessels in safe and
serviceable conditions, meet the standards of safety of life at sea and safe manning
requirements, and furnish safe, adequate, efficient, reliable and proper service at all times;
(8) Inspect all vessels to ensure and enforce compliance with safety standards and other
regulations;

(9) Ensure that all domestic ship operators shall have the financial capacity to provide and
sustain safe, reliable, efficient and economic passenger or cargo service, or both;

(10) Determine the impact which any new service shall have to the locality it will serve;

(11) Adopt and enforce such rules and regulations which will ensure compliance by every
domestic ship operator with required safety standards and other rules and regulations on vessel
safety;

(12) Adopt such rules and regulations which ensure the reasonable stability of passengers and
freight rates and, if necessary, to intervene in order to protect public interest;

(13) Hear and adjudicate any complaint made in writing involving any violation of this law or
the rules and regulations of the Authority;

(14) Impose such fines and penalties on, including the revocations of licenses of any domestic
ship operator who shall fail to maintain its vessels in safe and serviceable condition, or who
shall violate or fail to comply with safety regulations;

(15) Investigate any complaint made in writing against any domestic ship operator, or any
shipper, or any group of shippers regarding any matter involving violations of the provisions of
this Act;

(16) Upon notice and hearing, impose such fines, suspend or revoke certificates of public
convenience or other license issued, or otherwise penalize any ship operator, shipper or group
of shippers found violating the provisions of this Act; and

(17) Issue such rules and regulations necessary to implement the provisions of this Act:
Provided, That such rules and regulations cannot change or in any way amend or be contrary to
the intent and purposes of this Act.

CHAPTER IV
RATES

SEC. 11. Rates. – Every domestic ship operator shall have the right to fix its own passenger pr
cargo rates, or both.

SEC. 12. Government Cargo. – Every domestic ship operator shall have the obligation to carry
mail on mutually agreed terms and conditions and preferential, negotiated conditions shall be
given for the carriage of other government cargo.

SEC. 13. Monopolized Routes. – The MARINA shall have the authority to draw up such rules and
regulations necessary for service in monopolized routes to determine the fairness of passenger
and cargo rates needed to sustain the service taking into consideration the economic and
beneficial effect which the service shall have to the port, province, island or region it proposes
to serve, the volume of passengers and cargo available, the level and quality of service offered
by the ship operator, and the available port facilities and terminal handling services.

CHAPTER V
COMPULSORY INSURANCE COVERAGE

SEC. 14. Compulsory Insurance Coverage for Passenger and Cargo. – To meet its financial
responsibility for any liability which a domestic ship operator may incur for any breach of the
contract of carriage, every domestic ship operator shall be required to submit annually the
following;

(1) Adequate insurance coverage for each passenger in an amount to be computer in

accordance with existing laws, rules and regulations, and the total amount of such coverage
shall be equivalent to the total number of passenger accommodations being offered by the
vessel;

(2) Adequate insurance coverage for cargo in an amount to be computed in accordance with
existing laws, rules and regulations, and the total amount of such coverage shall be equivalent
to the total cargo capacity being offered by the vessel; and

(3) If a domestic ship operator should offer both passenger and cargo service, then the total
insurance coverage shall be in the total sum equivalent to that stipulated in paragraphs (1) and
(2) of this section. Provided, That if a domestic ship operator should operate more than one (1)
vessels, the amount of insurance coverage required under this section, for purposes of
providing financial capacity, shall be the amount equivalent to the total number of passenger
accommodations, or total cargo capacity, or both, of the largest operating vessel which the
domestic ship operator may have: Provided, further, That the total insurance coverage which
may be required of any domestic ship operator shall not exceed the value of such vessel:
Provided, finally, that adequate insurance coverage shall be obtained from any duly licensed
insurance company or international protection and indemnity association.

SEC. 15. Other Insurance Coverage. – the MARINA shall have the power to require every ship
operator to obtain such other compulsory insurance coverage necessary to adequately cover
claims for damages.

CHAPTER VI
PROHIBITED ACT AND PRACTICES

SEC. 16. Prohibited Acts and Practices of Domestic Ship Operators. – the MARINA shall have the
power to impose such fines and penalties against every domestic ship operator who shall:

(1) Operate without a valid certificate of public convenience, accreditation or other form of
authority required by this Act;

(2) Refuse to accept or carry any passenger or cargo without just cause;

(3) Fail to maintain its vessels in safe and serviceable condition, or violate safety rules and
regulations;
(4) Fail to obtain or maintain adequate insurance coverage;

(5) Fail to meet or maintain safe manning requirements; and

(6) Such other acts which the MARINA shall determine, after due notice and hearing, to be
detrimental or prejudice to the safety, stability and integrity of domestic shipping.

CHAPTER VII
FEE, FINES AND PENALTIES

SEC. 17. Fees. – The MARINA shall have the power to impose, fix, collect and receive, in
accordance with the schedules approved by its Board, such fees necessary for the licensing,
supervision, regulation, inspection, approval and accreditation of domestic ship operators and
the promotion and development of the country’s maritime industry. The MARINA shall have the
power to establish and manage a trust fund for this purpose.

Fees prescribed by the MARINA under this section shall be imposed and collected in order to
recover the cost for rendering the service and shall not be used in order to impose a penalty on
the domestic ship operator. Excessive fees, multiple fees and duplicative fees shall at all times
be avoided.

The supervision fee provided in Section 40(e) of Commonwealth Act No. 146 insofar as the
same applies to the operation, management, control and regulation of vessels, steamboats,
steamship lines, ferries, water craft and the like, is hereby repealed.

SEC. 18. Fines and Penalties. – The MARINA, upon notice and hearing and a determination of
the existence of any breach or violation of the provisions of this Act or any rules and regulations
issued pursuant thereto, shall have the power and authority to:

(1) Suspend or revoke any certificate of public convenience, license, permit, accreditation, or
other form of authority issued to any domestic ship operator who shall violate any provision of
this Act or any rules and regulations issued pursuant thereto, or any condition impose on such
certificate of public convenience, license, permit or accreditation;

(2) Impose a fine on a domestic ship operator who shall operate without a valid certificate of
public convenience, license, permit, accreditation or other form of authority;

(3) Impose a fine on a domestic ship operator in an amount to be determined by the MARINA
for refusing to accept, or to carry passengers or cargo, without just cause, or for engaging in
any prejudicial, discriminatory or disadvantageous act towards any class of passengers or
shippers;

(4) Impose a fine on any domestic ship operator in an amount to be determined by the
MARINA, or suspend or revoke the certificate of public convenience of such domestic ship
operator, or both, who shall fail to meet the standards of such safety or who refuses to comply
with or violates safety regulations imposed by the MARINA or fails to maintain its vessels in safe
and serviceable condition;
(5) Impose a fine on any domestic ship operator in an amount to be determined by the
MARINA, or impose such other penalty, including the revocation of any certificate or license,
who fails to procure or renew required insurance policies;

(6) Impose a fine on any domestic ship operator in an amount to be determined by the MARINA
or impose such other penalty, including the revocation of any certificate or license who fails to
meet or maintain safe manning requirements; and

(7) Impose such other fines and penalties the MARINA may deem necessary and appropriate in
order to enforce the provision of this Act.

CHAPTER VIII
SHIPBUILDING

Sec. 19. Shipbuilding and Ship Repair Investment Incentives. – To encourage investments and
to and ensure the development of a viable shipbuilding and ship repair industry, the following
incentives are hereby granted:

(a) Exemption from value-added tax on the importation of capital equipment, machinery, spare
parts, life-savings and navigational equipment, steel plates and other metal plates including
marine -grade aluminum plates to be used in the construction, repair, renovation or alteration
or any merchant marine vessel operated or to be operated in the domestic trade.

The importation of the above articles shall be granted exemption from value-added tax subject
to the following conditions: (1) That said articles are not manufactured domestically in sufficient
quantity, of comparable quality and at reasonable prices; (2) That said articles are directly
imported by a MARINA-registered shipbuilders and ship repairer; (3) That said articles are
reasonably needed and will be used exclusively by the registered shipbuilders and ship repairer;
(4) That the approval of MARINA was obtained prior to the importation of said articles ; and (5)
That shipbuilders and ship repairers may avail of the exemption from value-added tax provided
herein within a period of ten (10) years from the approval of this Act.

Any sale, transfer or disposition of articles under Section 19 (a) within ten (10) years from the
effectivity of this Act to another registered shipbuilder or repairer enjoying similar incentive shall
require prior approval of MARINA. If the sale, transfer or disposition was made without prior
approval of MARINA, both the vendor and the transferee or assignee shall be liable to pay twice
the amount of the value-added tax exempt given him: Provided, further, That if the sale,
transfer or disposition was made to a nonexempt entity or to a party other than that a
registered shipbuilder or repairer within ten (10) years from the effectivity of this Act, both the
vendor and the transferee or assignee shall be solidarily liable to pay twice the amount of the
value-added tax waived; Provided, finally, That the sale, transfer or disposition made after ten
(10) years from the effectivity of this Act shall be made by Informing MARINA in writing. The
purchaser, transferees or recipients shall be considered the Importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax due on such importation shall
constitute a lien on the foods superior to all changes or liens on the goods, irrespective of the
possessor thereof. The BIR shall be furnished with notice of actions taken by the MARINA.
(b) Net operating loss carry-over. A net operating loss in any taxable year immediately
preceding the current taxable year, which had not been previously offset as a deduction from
gross income shall be carried over as a deduction from gross income for the next three (3)
consecutive taxable years immediately following the year of such loss subject to the pertinent
provisions of the National Internal Revenue Code of 1997, as amended;

(c) Accelerated depreciation. Fixed assets may be depreciated as follow:

(i) To the extent of not more than twice as fast as the normal rate of depreciation or
depreciated at normal rate of depreciation if the expected life is ten (10) years or less; or

(ii) Depreciated over any number of years between five (5) years and the expected life if the
latter is more than ten (10) years, and the depreciation thereon allowed as deduction from
taxable income. Provided, That the registered shipbuilder and ship repairer notifies the BIR at
the beginning of the depreciation period which depreciation rate allowed by this section will be
used.

SEC. 20. Restrictions on Vessel Importation. – Ten (10) years from the effective date of
this Act and every year thereafter, the MARINA shall evaluate and determine the progressive
capability of MARINA- registered shipyards to build and construct new vessels for the domestic
trade.

In the first year of evaluation, the MARINA shall determine the capability of MARINA-registered
shipyards to build new vessels below 500 GRT. If, upon evaluation, the capability of MARINA-
registered shipyards to build classed vessels below 500 GRT in quantities sufficient to meet
domestic demand is proven, then all domestic ship operators shall be discouraged from
importing new or previously owned vessels that are less than 500 GRT for the domestic trade
and vessels built in MARINA-registered shipyards shall be given priority for entry in the
Philippines Registry and allowed to operate in the domestic trade.

The MARINA shall undertake a yearly evaluation of the progressive capabilities of all MARINA-
registered shipyards to build larger classed vessels for the domestic trade in quantities sufficient
to meet the demand of domestic ship owners and shall correspondingly adjust the size of
vessels which may be sourced from MARINA-registered shipyards.

CHAPTER IX
TRANSITORY PROVISIONS

SEC. 21. Period of Transition. – Upon the approval of this Act existing liner operators shall
continue to operate in their route.

SEC. 22. Classification of Vessels in the Domestic Trade. – A vessels, whether newly built or
previously owned, which are acquired or after the effectivity of this Act shall be classed by a
government recognized classification society on the date of acquisition prior to the operation in
the domestic trade.
SEC. 23. Retirement of Old Vessels. – Immediately upon the approved of this Act, the MARINA
shall prepare and implement a mandatory vessel retirement program for all unclassed vessels
that fail to meet the classification standards of a government-recognized classification society.

All vessels which have attained the maximum vessel age stipulate by MARINA’s mandatory
vessel retirement program and which do not carry a class certificate issued by a government-
recognized classification society shall not be allowed to operate in the domestic trade and shall
be automatically de-listed from the Philippine Registry.

CHAPTER X
FINAL PROVISIONS

SEC. 24. Temporary Take-Over of Operations. – In times of national emergency, when the
public interest so requires, the State may during emergencies and under reasonable terms
prescribed by it, temporary take over or direct the operations or any vessel engaged in
domestic trade and commerce, or prescribe its rates or routes of operation. Immediately upon
the cessation of the emergency, the State shall immediately reinstate to the domestic ship
operation of its vessel under the same terms and conditions prior to the occurrence of the
emergency.

SEC. 25. Separability Clause. – If, for any reason, any section, subsection, sentence, clause or
term of this Act is held to be illegal invalid or unconstitutional, such parts not affected by such
declaration shall remain in full force and effect.

SEC. 26. Repealing Clause. – The provisions of Commonwealth Act No. 146, insofar as the same
applies to the operation, management control and regulation of vessels, steamboats,
steamships, lines, ferries, water craft and the like, as well as the provisions of Presidential
Decree No. 474, Executive Order Nos. 125 and 125-A, and such other laws, presidential
decrees, executive orders, issuances, rules and regulations or parts thereof, which are
inconsistent with the provisions of this Act are hereby repealed, amended or modified
accordingly.

SEC. 27. Effectivity. – This Act shall take effect after fifteen (15) days following its publication in
at least two (2) newspapers of general circulation.