Transportation and Public Service Law (2014-2015)
December 4, 2014 Pre-Class Notes and Class
Discussion
Topics Discussed in the Cases:
I. Limited Liability Stipulation in the Bill of Lading
II. Limited Liability Doctrine in Maritime Commerce
III. Liability of the Arrastre Operator
IV. Forfeiture of Cargoes etc.
Misc - Class Discussion
I. Limited Liability Stipulation in the Bill of Lading
Liability of a common carrier under a contract of carriage
is governed by the laws of the country of destination. 62.
Sea Land Service Inc. v. Intermediate Apellate Court 153
SCRA 552
(1) What are the kinds of stipulations often made in
the Bill of Lading concerning the liability of the
common carrier? Are these stipulations valid?
Three (3) kinds of stipulations have often been made in a
bill of lading.
The first is one exempting the carrier from any and all
liability for loss or damage occasioned by its own
negligence.
The second is one providing for an unqualified
limitation of such liability to an agreed valuation.
And the third is 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.
According to an almost uniform weight of authority, the
first and second kinds of stipulations are invalid as
being contrary to public policy, but the third is valid
and enforceable. 92.Heacock v. Macondray 42 Phil 205;
93.Freixas & Co. v. Pacific Mail S/S Co. 42 Phil 198  OG 3261)
(2) Law Applicable
It is sanctioned by law, particularly Articles 1749 and
1750 of the Civil Code. 102 Phil. Charter Ins. v. Neptune
Orient Lines/Overseas Agency Services, 554 SCRA 325,
to wit:  contract of carriage, and valid and binding upon the
Art. 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
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shipper or owner declares a greater value, is
binding.
Art. 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.
[Please see other Articles in the Civil Code, 1745-1748 &
1751-1755]
(3) What is the nature of the stipulation in the bill of
lading?
It is what is known as a contract of "adhesion", in
regards which it has been said that contracts of
adhesion wherein one party imposes a ready-made form
of contract on the other, are contracts not entirely
prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres, he gives his
consent. A contract limiting liability upon an agreed
valuation does not offend against the policy of the law
forbidding one from contracting against his own
negligence. 95.Ong Yiu v. Court of Appeals 91 SCRA 223;
75 OG (No. 48) 9659
(4) When is the limitation on the carrier’s liability not
binding?
Where it appears that a bill of lading was issued to a
shipper containing a clause limiting the carrier's liability,
printed in fine letters on the back of the bill of lading, which he did not
sign and of which he was not advised, in an action for
damages, such shipper is not bound by the clause which
limits the carrier's liability. 87. Mirasol v. Robert Dollar
Co. 53 Phil 1214 
[Warning same point] Where the conditions are printed
at the back of the ticket stub in letters so small that they
are hard to read, this would not warrant the
presumption that the passenger was aware of those
conditions such that he had "fairly and freely agreed" to
those conditions. Therefore, the passenger cannot be,
bound by the conditions of carriage found at the back of
the ticket stub. (94. Shewaram v. PAL 17 SCRA 606; 64
BUT SEE 95.Ong Yiu v. Court of Appeals where
despite the fact that the passenger had not signed
the plane ticket, the Court found that he is
nevertheless bound by the provisions thereof. For
such provisions have been held to be a part of the
passenger regardless of the latter's lack of knowledge
or assent to the regulation. 91 SCRA 223; 75 OG (No.
48) 9659
 Citing Ong Yiu and Shewaram Cases, the Court, in
96.Panam v. IAC explained the difference, stating
that:
o in Shewaram, where the court held that the
stipulation limiting the carrier’s liability to a
specified amount was invalid because it was
premised on the finding that the conditions
printed at the back of the ticket were so small and
hard to read that they would not warrant the
presumption that the passenger was aware of the
conditions and that he had freely and fairly
agreed thereto,
o While in Ong Yiu and in PANAM, similar facts
that would make the case fall under the
exception have not been alleged.
(5) What is the default rule under the Carriage of Goods
by the Sea Act (COGSA)?
Citing 97. Aboitiz Shipping Corp. v. Court of Appeals 188
SCRA 387, the Court ruled that Section 4(5) of the
Carriage of Goods by Sea Act states that as a rule,
the carrier and the ship shall only be liable for any loss
or damage in connection with the transportation of
goods in an amount:
- not exceeding $500 per package of 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
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.
In this case the description of the nature and the
value of the goods shipped are declared and
reflected in the bills of lading. Thus, it is the
basis of the liability of the carrier as the actual
value of the loss.
(6) How should such stipulation limiting liability be
drafted?
Contracts against liability for negligence are not favored
in the law and should be strictly construed, with every
intendment against the party claiming the benefit of the
exemption from such liability. Thus the contract
should so explicit as to leave no room for doubt that
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the parties so intended. 88. MRR v. La. Cia.
Transatlantica et al. 38 Phil 875 
Note the difference between Limited Liability in the Bill of
Lading and…
II. Limited Liability Doctrine in Maritime Commerce
(7) Distinction?
Limited liability clauses in the bills of lading are different
from the limited liability doctrine arising from the real
and hypothecary nature of maritime trade.
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 is hypothecated [mortgaged] for such
obligations or which stands as the guaranty for their
settlement. 98.Aboitiz Shipping Corp. v. General Accident
Fire & Life Ins. Co. 217 SCRA 359
(8) What is the reason for the doctrine?
By reason of the conditions and risks attending maritime
trade in its earliest years when such trade was replete
with innumerable and unknown hazards since vessels
had to go through largely uncharted waters to ply their
trade. The doctrine was designed to offset such adverse
conditions and to encourage people and entities to venture
into maritime commerce despite the risks and the
prohibitive cost of shipbuilding. (Id.)
(9) What is the practical effect of the doctrine?
The liability of the vessel owner and agent arising from
the operation of such vessel were confined to the vessel
itself, its equipment, freight, and insurance, if any,
which limitation served to induce capitalists into
effectively wagering their resources against the
consideration of the large profits attainable in the trade.
(Id.)
The rights of parties to claim against an agent or owner
of a vessel may be compared to those of creditors against
an insolvent corporation whose assets are not enough to
satisfy the totality of claims as against it. While each
individual creditor may, and in fact shall, be allowed to
prove the actual amounts of their respective claims, this
does not mean that they shall all be allowed to recover
fully thus favoring those who filed and proved their
claims sooner to the prejudice of those who come later.
In such an instance, such creditors too would not also be
able to gain access to the assets of the individual
shareholders, but must limit their recovery to what is left
in the name of the corporation. (Id.)
The Limited Liability Rule has been explained to be that
of the real and hypothecary doctrine in maritime law
where the shipowner or ship agent’s liability is held as
merely co-extensive with his interest in the vessel such
that a total loss thereof results in its extinction. Given
the nature of the rule, the only person who could avail of
this is the shipowner He is the very person whom the
Limited Liability Rule has been conceived to protect, it
cannot be used by other persons, such as the charterer.
100. De la Torre v. Court of Appeals 653 SCRA 714
(10) What are the evidence of this "real" nature of the
maritime law?
(a) the limitation of the liability of the agents to the
actual value of the vessel and the freight money, and
(b) the right to retain the cargo and the embargo and
detention of the vessel even cases where the ordinary
civil law would not allow more than a personal
action against the debtor or person liable. 99.Luzon
Stevedoring Co. v. Court of Appeals 156 SCRA 169  limited as aforesaid, and
(11) Governing laws
A. cursory examination will disclose that the principle of
limited liability of a shipowner or agent is provided for in
but three articles of the Code of Commerce— Article 587
aforequoted and Articles 590 and 837, to wit:
ARTICLE 587. The ship agent shall also be
civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the
captain in the care of the goods which he loaded on
the vessel; but he may exempt himself therefrom
by abandoning the vessel with all her
equipments and the freight it may have earned
during the voyage.
ARTICLE 590. The co-owners of a vessel shall
be civilly liable in the proportion of their interests in
the common fund, for the results of the acts of the
captain, referred to in Article 587. Each co-owner
may exempt himself from this liability by the
abandonment, before a notary, of the part of the
vessel belonging to him.
ART. 837. The civil liability incurred by the
shipowners in the cases prescribed in this section,
shall be understood as limited to the value of the
vessel with all her appurtenances and freight
earned during the voyage.
Article 590 merely reiterates the principle embodied in
Article 587, where the vessel is owned by several
persons. Article 837 applies the same principle in cases
of collision, and it has been observed that said article is
but 'a necessary consequence of the right to abandon the
vessel given to the shipowner in Article 587 to the Code,
and it is one of the many superfluities contained in the
Code.' In effect, therefore, only Articles 587 and 590 are
the provisions contained in our Code of Commerce on
the matter, and the framers of said code had intended
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those provisions to embody the universal principle of
limited liability in all cases. (Id.)
Thus, if the shipowner or agent may in any way be held
civilly liable at all for injury to or death of passengers
arising from the negligence of the captain in cases of
collisions or shipwrecks, his liability is merely co-
extensive with his interest in the vessel such that a
total loss thereof results in its extinction.
101.Yangco v. Laserna 73 Phil 330
(12) Examples where Limited Liability Rule applies,
1. where the' vessel is lost the sailors and members
of the crew cannot recover their wages;
2. in case of collision, the liability of the agent is
3. in case of shipwreck, those who loan their
money on the vessel and cargo lose all their
rights and can not claim reimbursement under
the law. 99.Luzon Stevedoring Co. v. Court of
Appeals 156 SCRA 169 
(13) When not applicable?
Exception: For the exception to the limited liability rule
(Article 587, Code of Commerce) to apply, the loss must
be due to the fault of the shipowner, or to the
concurring negligence of the shipowner and the
captain. 103. ChuaYek Hong v. IAC 168 SCRA 472
III. Liability of the Arrastre Operator
[note the case found in our assignment is too factual, the
case notes states thus:
Liability of carrier over goods discharged by it in bad
order condition, and of the arrastre operator for goods
damaged under its custody; The Court ruled that since
619 bags were discharged from the CARRIER already in
bad order condition, it follows that the remaining 431
bags were damaged while in the ARRASTRE’s custody for
which it should be held liable.]
To elucidate, you can read the following excerpts from
case not cited for today. [Warning, I did not read the
entire case]
The legal relationship between the consignee and the arrastre operator
is akin to that of a depositor and warehouseman. The relationship
between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and
to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the
goods in good condition to the consignee.
However, the Court clarifies that the liability of the arrastre operator
and the carrier are not always and necessarily solidarily liable as the
facts of a case may vary the rule. Philippines First Insurance Co., Inc. v.
Wallem Phils. Shipping, Inc., March 26, 2009, 582 SCRA 457.
IV. Forfeiture of Cargoes etc.
(14) What may be forfeited under the Tariff and Customs
Code?
Any vessel or aircraft, including cargo used unlawfully in
the importation or exportation of articles into or from
any Philippine port or place except a port of entry may
be subject to forfeiture under Sec. 2530(a) 90.C.F. Sharp
& Co. v. Comm. of Customs 22 SCRA 760 
(15) What if the carrier does not know? Still subject to
forfeiture? Yes.
A ship found smuggling blue seal cigarettes is subject to
forfeiture even if the owner thereof claims he does not
know such illegal use and even reported the vessels loss
to the Philippine Navy. 91.Comm. of Customs v. Court of
Tax Appeals &Pascual 138 SCRA 581 
Miscellaneous - Class Discussion
 What are the causes for the consignee to refuse to
pay freight?
{(1) Delay and (2) Can no longer be used}
 Before a carrier can request limitation of liability
what must first be established?
{There must first be a proof of liability.}
 Is a container a package as defined by COGSA?
{Depends. if it is agreed upon by the parties to be so
or as stated in the Bill of Lading.}
 How may a shipper claim for higher damages?
{He can state in the bill of lading that a container
contains several packages, e.g. 200 rolls of steel in 1
container.}
[Suggested Answer: SEE The
package/container contemplated by the law to
limit the liability of the carrier should be
sensibly related to the unit in which the shipper
packed the goods and described them, not a
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large metal object, functionally a part of the ship,
in which the carrier caused them to be
contained. 97.Aboitiz Shipping Corp. v. Court of
Appeals 188 SCRA 387 
 NOTE: HEACOCK CASE – Landmark decision on
limited liability in bills of lading

 What is the reason why shipper ought to pay a
higher amount of freight for the value of his goods?
The higher value equals higher freight equals charge
of higher premium to the insured-carrier.
 What is the significance of Guadalajara Convention?
Since the Warsaw Convention does not contain
particular rules relating to international carriage by
air performed by a person who is not a party to
the agreement for carriage, Guadalajara
Convention provides for rules relating to
international carriage by air performed by a person
other than the contractual carrier.
Article I (b) and (c) provides that the
(b) "contracting carrier" means a person who as a
principal makes an agreement for carriage governed
by the Warsaw Convention with a passenger or
consignor or with a person acting on behalf of the
passenger or consignor;
(c) "actual carrier" means a person, other than the
contracting carrier, who, by virtue of authority from
the contracting carrier, performs the whole or part of
the carriage contemplated in paragraph (b) but who
is not with respect to such part a successive carrier
within the meaning of the Warsaw Convention. Such
authority is presumed in the absence of proof to the
country.
 What is a freight forwarder?
A freight forwarder, forwarder, or forwarding agent,
also known as a non-vessel operating common carrier
(NVOCC), is a person or company that organizes
shipments for individuals or corporations to get goods
from the manufacturer or producer to a market. (Wiki)
He profits from charging higher amount to the individual
shippers from that charged him by the carrier.
 What is code-sharing?
A codeshare agreement, sometimes simply codeshare,
is an aviation business arrangement where two or more
airlines share the same flight.
 Now what’s the point of Atty. Tesoro asking about
these terms?

Well, point is, Atty. Tesoro was just providing

examples of an actual or a contractual carrier.
Example: Airlines X, Y and Z code-shared the same
flight of Airline X. Airline Y and Z are therefore
contractual carriers while X is an actual carrier of X,
Y, Z passengers and a contractual carrier of its
passengers.

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