A.

CONCEPT OF COMMON CARRIER

1. Definition

Article 1732 NCC,

De Guzman vs. Court of Appeals 168 SCRA 612 (1993)

The Civil Code defines “common carriers” in the following terms: “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.”

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as “sideline”).

Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service or a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis.

Neither does Article 1732 distinguish between carrier offering its service to the
“general public”, i.e. the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population.

A certificate of public convenience is not a requisite for the incurring of liability

under the Civil Code provisions governing common carriers.

Planters Products Inc vs. CA 226 SCRA 76 (1993)

Upon the other hand, the term “common or public carrier” is defined in Article 1732 of
the Civil Code. The definition extends to carriers either by land, air or water which hold
themselves out as ready to engage in carrying of goods or transporting passengers or
both for compensation as a public employment and not as a casual occupation.

The distinction between a “common or public carrier” and a “private or special

carrier” lies in the character of the business, such that if the undertaking is a
single transaction, not a part of the general business or occupation, although
involving the carriage of goods for a fee, the person or corporation offering such
service is a private carrier.

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2. Characteristics

Fisher vs. Yangco Steamship Co. 31 Phil 1 (1915)

A. Common carriers cannot lawfully decline to accept a particular class of goods for
carriage to the prejudice of the traffic in those goods unless it appears that for some
sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary.

Mere prejudice or whim will not suffice. The grounds for discrimination must be
substantial ones, such as will justify the courts in holding the discrimination to
have been reasonable and necessary under all the circumstances of the case.

B. The nature of the business of a common carrier as a public employment is such that
it is clearly within the power of the state to impose such just and reasonable regulations
thereon in the interest of the public as the legislator may deem proper.

The right to enter the public employment as a common carrier and to offer one’s
services to the public for hire does not carry with it the right to conduct that
business as one pleases, without regard to the interest of the public, and free
from such reasonable and just regulations as may be prescribed for the
protection of the public from the reckless or careless indifference of the carrier
as to the public welfare and for the prevention of unjust and unreasonable
discriminations of any kind whatsoever in the performance of the carrier’s duties
as a servant of the public.

US vs. Quinahon 31 Phil 189 (1915)

C. A common carrier is a person or corporation who regular business is to carry

passengers or property for all persons who may choose to employ and remunerate him.

A common carrier cannot, under the law, give any unnecessary or unreasonable
preference or advantage to any particular person, company, firm, corporation or
locality, or any particular kind of traffic, or subject any particular person,
company, firm, or corporation or locality, or any particular kind of traffic, to any
undue or unreasonable prejudice or discrimination whatsoever.

A common carrier can not make a different rate to different persons for carrying
persons or merchandise, unless the actual cost of handling and shipping is
different. It is when the price charged is for the purpose of favoring persons or
localities or particular kinds of merchandise, that the law intervenes and
prohibits. It is favoritism and discrimination which the law prohibits. If the
services are alike and contemporaneous, discrimination in the price charged is
prohibited.

Loadstar Shipping Co., Inc. vs. Court of Appeals 315 SCRA 339 (1999)

D. A certificate of public convenience is not a requisite for the incurring of liability under
the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, with out regard to whether or not such carrier
has also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public convenience or
other franchise.

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 To exempt a private respondent from the liabilities of a common carrier because
he has not secured the necessary certificate of public convenience, would be
offensive to the sound public policy; that would reward private respondents
precisely for failing to comply with applicable statutory requirements.

The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.

First Phil. Industrial vs. Court of Appeals 300 SCRA 661 (1998)

E. The test for determining whether a party is a common carrier of goods is: 1. He must
be engaged in the business of carrying goods for others as a public employment, and
must hold himself out as ready to engage in the transportation of goods for person
generally as a business and not a casual occupation; 2. He must undertake to carry
goods of the kind to which his business is confined; 3. He must undertake to carry by
the method by which his business is conducted and over his established roads; and 4.
The transportation must be for hire.

As correctly pointed out by petitioner, the definition of “common carrier” in the

Civil Code makes no distinction as to the means of transporting, as long as it is
by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States,
oil pipe line operators are considered common carriers.

3. Distinguished from Private Carrier

Home Insurance Co. vs. American Steamship 23 SCRA 24 (1968)
San Pablo vs. Pantranco 153 SCRA 199 (1987)
National Steel Corp. vs. Court of Appeals 283 SCRA 45 (1997)

4. Government Regulation of Common Carrier’s Business

KMU Labor Center vs. Garcia, Jr. 239 SCRA 386 (1994)
Tatad vs. Garcia, Jr. 243 SCRA 436 (1995)

5. Governing Law
Samar Mining Co., Inc. vs. Nordeutscher Llyod 132 SCRA 529 (1984)
Eastern Shipping Lines vs. IAC 150 SCRA 464 (1984)
National Development Co. vs. Court of Appeals 164 SCRA 593 (1988)

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 B. TRANSPORATION OF GOODS

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 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.

Extraordinary diligence. “Under the Civil Code, common carriers, from the nature of
their business and for reasons of public policy, are bound to observe extraordinary
diligence for the safety of the passengers transported by them, according to all the
circumstances of each case. They are bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances.” Spouses Dante Cruz and Leonora
Cruz vs. Sun Holidays, Inc., G.R. No. 186312, June 29, 2010, Third Division, J. Carpio
Morales.

Note on Goods. “The CA concluded that common carriers are not absolute
insurers against all risks in the transport of the goods”. Here the Supreme Court
sustained the findings of the Court of Appeals and the Trial Court. Philippine
Charter Insurance Corporation, Vs. Unknown Owner of the Vessel M/V “National
Honor,” National Shipping Corporation of the Philippines and International
Container Services, Inc, G.R. No. 161833, July 8, 2005, Second Division, J.
Callejo, Sr.

Note on Passengers. “While the law requires the highest degree of diligence from
common carriers in the safe transport of their passengers and creates a
presumption of negligence against them, it does not, however, make the carrier
an insurer of the absolute safety of its passengers.”. Herminio Mariano Jr. vs.
Ildefonso C. Callejas and Edgar De Borja, G.R. No. 166640, July 31, 2009, First
Division, CJ. Puno.

Registered Owner Rule. “Under Section 5 of Republic Act No. 4136 as amended, all
motor vehicles used or operated on or upon any highway of the Philippines must be
registered with the Bureau of Land Transportation (now Land Transportation Office) for
the current year. Furthermore, any encumbrances of motor vehicles must be recorded
with the Land Transportation Office in order to be valid against third parties. FEB
Leasing and Finance Corporation (now BPI Leasing Corporation) vs. Spouses Sergio P.
Baylon and Martess Villena-Baylon, BG Hauler, Inc., and Manuel Y. Estilloso, G.R. No.
181398, June 29, 2011, Second Division, J. Carpio.

In accordance with the law on compulsory motor vehicle registration, this Court
has consistently ruled that, with respect to the public and third persons, the
registered owner of a motor vehicle is directly and primarily responsible for the
consequences of its operation regardless of who the actual vehicle owner might
be. Well-settled is the rule that the registered owner of the vehicle is liable for
quasi-delicts resulting from its use. Thus, even if the vehicle has already been
sold, leased, or transferred to another person at the time the vehicle figured in
an accident, the registered vehicle owner would still be liable for damages
caused by the accident. The sale, transfer or lease of the vehicle, which is not
registered with the Land Transportation Office, will not bind third persons
aggrieved in an accident involving the vehicle. The compulsory motor vehicle
registration underscores the importance of registering the vehicle in the name of
the actual owner. (id)

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 The policy behind the rule is to enable the victim to find redress by the expedient
recourse of identifying the registered vehicle owner in the records of the Land
Transportation Office. The registered owner can be reimbursed by the actual
owner, lessee or transferee who is known to him. Unlike the registered owner,
the innocent victim is not privy to the lease, sale, transfer or encumbrance of the
vehicle. Hence, the victim should not be prejudiced by the failure to register such
transaction or encumbrance.” (id)

Kabit System. “The kabit system is an arrangement whereby a person who has been
granted a certificate of public convenience allows other persons who own motor
vehicles to operate them under his license, sometimes for a fee or percentage of the
earnings. Although the parties to such an agreement are not outrightly penalized by
law, the kabit system is invariably recognized as being contrary to public policy and
therefore void and inexistent under Art. 1409 of the Civil Code.” Abelardo Lim and
Esmadito Gunnaban, vs. Court of Appeals and Donato H. Gonzales, G.R. No. 125817,
January 16, 2002, Second Division, J. Bellosillo.

In the early case of Dizon v. Octavio the Court explained that one of the primary
factors considered in the granting of a certificate of public convenience for the
business of public transportation is the financial capacity of the holder of the
license, so that liabilities arising from accidents may be duly compensated. The
kabit system renders illusory such purpose and, worse, may still be availed of
by the grantee to escape civil liability caused by a negligent use of a vehicle
owned by another and operated under his license. If a registered owner is
allowed to escape liability by proving who the supposed owner of the vehicle is,
it would be easy for him to transfer the subject vehicle to another who possesses
no property with which to respond financially for the damage done. Thus,
for the safety of passengers and the public who may have been wronged and
deceived through the baneful kabit system, the registered owner of the vehicle is
not allowed to prove that another person has become the owner so that he may
be thereby relieved of responsibility. Subsequent cases affirm such basic
doctrine. (Id)

Twist in this Lim case: The vehicle engaged in Kabit System is the one damaged
and owner sought damages. It would seem then that the thrust of the law in
enjoining the kabit system is not so much as to penalize the parties but to
identify the person upon whom responsibility may be fixed in case of an accident
with the end view of protecting the riding public. The policy therefore loses its
force if the public at large is not deceived, much less involved. (Id)

In the present case it is at once apparent that the evil sought to be prevented in
enjoining the kabit system does not exist. First, neither of the parties to the
pernicious kabit system is being held liable for damages. Second, the case
arose from the negligence of another vehicle in using the public road to whom no
representation, or misrepresentation, as regards the ownership and operation of
the passenger jeepney was made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said that private
respondent Gonzales and the registered owner of the jeepney were in estoppel
for leading the public to believe that the jeepney belonged to the registered
owner. Third, the riding public was not bothered nor inconvenienced at the very
least by the illegal arrangement. On the contrary, it was private respondent
himself who had been wronged and was seeking compensation for the damage
done to him. Certainly, it would be the height of inequity to deny him his right.
(Id)

In light of the foregoing, it is evident that private respondent has the right to
proceed against petitioners for the damage caused on his passenger jeepney as
well as on his business. Any effort then to frustrate his claim of damages by the
ingenuity with which petitioners framed the issue should be discouraged, if not
repelled. (Id)

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Boundary System. “It is already settled that the relationship between jeepney
owners/operators and jeepney drivers under the boundary system is that of employer-
employee and not of lessor-lessee. The fact that the drivers do not receive fixed wages
but only get the amount in excess of the so-called “boundary” that they pay to the
owner/operator is not sufficient to negate the relationship between them as employer
and employee.” Primo E. Caong, Jr., Alexander J. Tresquio, and Loriano D. Daluyon vs.
Avelino Regualos, G.R. No. 179428, January 26, 2011, Second Division, J. Nachura.

Suspension ground on failure to pay boundary in arrears is not illegal dismissal .

“We have no reason to deviate from such findings. Indeed, petitioners’
suspension cannot be categorized as dismissal, considering that there was no
intent on the part of respondent to sever the employer-employee relationship
between him and petitioners. In fact, it was made clear that petitioners could put
an end to the suspension if they only pay their recent arrears. As it was, the
suspension dragged on for years because of petitioners’ stubborn refusal to pay.
It would have been different if petitioners complied with the condition and
respondent still refused to readmit them to work. Then there would have been a
clear act of dismissal. But such was not the case. Instead of paying, petitioners
even filed a complaint for illegal dismissal against respondent.” (Id)

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 of 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 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 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
passengers is further set forth in Articles 1755 and 1756.

Article 1745. Any of the following or similar

stipulations shall be considered unreasonable, unjust
and contrary to public policy;

(5) That the common carrier shall not be responsible

for the acts or omissions of his or its employees;

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 (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 forced, 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.

Discussion.

General Rule: “Common carriers are responsible for the loss, destruction, or
deterioration of the goods” (Article 1734). “if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted
negligently” (Article 1735).

Absolute Exception, presumption of negligence does not attach: Loss, destruction

or deterioration is caused by “(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 of act of competent public authority. (Article 1734)

Absolute Exception requires compliance with Article 1739. “In order that
the common carrier may be exempted from responsibility, the natural
disaster must have been the (1) proximate and only cause of the loss.
However, the (2) 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 exempt
from liability for the loss, destruction, or deterioration of the goods”

Exception by carrier’s proof of extraordinary diligence: “ 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 1735).

Extraordinary diligence. “Utmost diligence of very cautious persons, with due

regard for all the circumstances”. Spouses Dante Cruz and Leonora Cruz vs. Sun
Holidays, Inc., G.R. No. 186312, June 29, 2010, Third Division, J. Carpio
Morales.

Latest Jurisprudence:

(1) Rules for the Liability of Common Carriers for lost or damaged cargo. Regional
Container Lines (RCL) of Singapore and Edsa Shipping Agency, vs. The Netherlands
Insurance Co. (Philippines), Inc., G.R. No. 168151, September 4, 2009, Second
Division, J. Quisumbing.

“In Central Shipping Company, Inc. v. Insurance Company of North America, we

reiterated the rules for the liability of a common carrier for lost or damaged
cargo as follows:

(1) Common carriers are bound to observe extraordinary diligence over the
goods they transport, according to all the circumstances of each case;

(2) In the event of loss, destruction, or deterioration of the insured goods,

common carriers are responsible, unless they can prove that such loss,
destruction, or deterioration was brought about by, among others, “flood, storm,
earthquake, lightning, or other natural disaster or calamity”; and

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 (3) In all other cases not specified under Article 1734 of the Civil Code, common
carriers are presumed to have been at fault or to have acted negligently, unless
they observed extraordinary diligence.”

(2) Fire, not among those enumerated in Article 1734. Edgar Cokaliong Shipping Lines,
Inc. vs. UCPB General Insurance Company, Inc., G.R. No. 146018, June 25, 2003, Third
Division, J. Panganiban. Reiterated in Dsr-Senator Lines and C.F. Sharp and Company,
Inc., vs. Federal Phoenix Assurance Co., Inc., G.R. No. 135377, October 7, 2003, Third
Division, J. Sandoval-Gutierrez.

“Fire is not one of those enumerated under the above provision which exempts a
carrier from liability for loss or destruction of the cargo.

“In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, we ruled that
since the peril of fire is not comprehended within the exceptions in Article 1734,
then the common carrier shall be presumed to have been at fault or to have
acted negligently, unless it proves that it has observed the extraordinary
diligence required by law.”

“Even if fire were to be considered a natural disaster within the purview of Article
1734, it is required under Article 1739 of the same Code that the natural disaster
must have been the proximate and only cause of the loss, and that the carrier
has exercised due diligence to prevent or minimize the loss before, during or
after the occurrence of the disaster.”

(3) The records reveal that petitioner took a shortcut route, instead of the usual route,
which exposed the voyage to unexpected hazard. Loadstar Shipping Co., Inc., vs.
Pioneer Asia Insurance Corp., G.R. No. 157481, January 24, 2006, Third Division, J.
Quisumbing.

“As a common carrier, petitioner is required to observe extraordinary diligence in

the vigilance over the goods it transports. When the goods placed in its care are
lost, petitioner is presumed to have been at fault or to have acted negligently.
Petitioner therefore has the burden of proving that it observed extraordinary
diligence in order to avoid responsibility for the lost cargo.”

“Article 1734 enumerates the instances when a carrier might be exempt from
liability for the loss of the goods. These are:

(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;
and
(5) Order or act of competent public authority.”

“Petitioner claims that the loss of the goods was due to a fortuitous event under
paragraph 1. Yet, its claim is not substantiated. On the contrary, we find
supported by evidence on record the conclusion of the trial court and the Court
of Appeals that the loss of the entire shipment of cement was due to the gross
negligence of petitioner.”

(4) Rule on presumption of Negligence applicable only to common carrier. Here the
Supreme Court sustained the findings of the Court of Appeals. FGU Insurance
Corporation vs. G.P. Sarmiento Trucking Corporation and Labert M. Eroles, G.R. No.
141910, August 6, 2002, First Division, J. Vitug.

“The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS.
The appellate court, in its decision of 10 June 1999, discoursed, among other
things, that -

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 in order for the presumption of negligence provided for under the law governing
common carrier (Article 1735, Civil Code) to arise, the appellant must first prove
that the appellee is a common carrier. Should the appellant fail to prove that the
appellee is a common carrier, the presumption would not arise; consequently,
the appellant would have to prove that the carrier was negligent.”

Article 1736. The extraordinary responsibility of the common carriers 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 provision of
Article 1738.

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 1737. The common carrier’s duty to observe extraordinary

diligence in the vigilance 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.

Art. 1526. Subject to the provisions of this Title, notwithstanding

that the ownership in the goods may have passed to the buyer, the
unpaid seller of goods, as such, has:

(1) A lien on the goods or right to retain them for the price while
he is in possession of them;

(2) In case of the insolvency of the buyer, a right of stopping the

goods in transitu after he has parted with the possession of them;

(3) A right of resale as limited by this Title;

(4) A right to rescind the sale as likewise limited by this Title.

Where the ownership of the goods has not passed to the buyer, the
unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and coextensive with his rights of
lien and stoppage in transitu where the ownership has passed to
the buyer.

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.

Discussion. Commencement, Duration and Termination of carrier’s responsibility over

the goods.

Commencement and Termination: “The extraordinary responsibility of the common

carriers 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” (Article 1736).

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 Duration 1, even when goods are stored in a warehouse of the carrier: “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 1738).

Duration 2, even when goods are temporarily unloaded or stored in transit: “The
common carrier’s duty to observe extraordinary diligence in the vigilance 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 1737).

Latest Jurisprudence:

(1) Loss was caused while fuel is still being unloaded and there was a backflow . Here
the Supreme Court sustained the findings of the Court of Appeals and the Trial Court.
Delsan Transport Line, Inc. vs. American Home Assurance Corporation, G.R. No.
149019, August 15, 2006, Second Division, J. Garcia.

“In the herein challenged decision, the CA affirmed the findings of the trial court.
In so ruling, the CA declared that Delsan failed to exercise the extraordinary
diligence of a good father (?) of a family in the handling of its cargo . Applying
Article 1736 of the Civil Code, the CA ruled that since the discharging of the
diesel oil into Caltex bulk depot had not been completed at the time the losses
occurred, there was no reason to imply that there was actual delivery of the
cargo to Caltex, the consignee.”

(2) Delivery to “notify party” and not directly to the “consignee” considered as valid
delivery. Benito Macam, Ben-Mac Enterprises, vs. Court of Appeals, China Ocean
Shipping Co., and/or Wallem Philippines Shipping, Inc. G.R. No. 125524, August 15,
2009, Second Division, J. Bellosillo.

“We emphasize that the extraordinary responsibility of the common carriers lasts
until actual or constructive delivery of the cargoes to the consignee or to the
person who has a right to receive them. PAKISTAN BANK was indicated in the
bills of lading as consignee whereas GPC was the notify party. However, in the
export invoices GPC was clearly named as buyer/importer. Petitioner also
referred to GPC as such in his demand letter to respondent WALLEM and in his
complaint before the trial court. This premise draws us to conclude that the
delivery of the cargoes to GPC as buyer/importer which, conformably with Art.
1736 had, other than the consignee, the right to receive them was proper.”

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 exempt 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.

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Discussion. Natural disaster must have been the proximate and only cause of the loss.

Natural disaster. “This must be so as it arises almost invariably from some act of man
or by human means. It does not fall within the category of an act of God unless caused
by lighting or by other natural disaster or calamity” In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, cited in Edgar Cokaliong Shipping Lines, Inc. vs. UCPB
General Insurance Company, Inc., G.R. No. 146018, June 25, 2003, Third Division, J.
Panganiban.

Proximate and only cause of the loss. “Proximate cause is that which, in natural and
continuous sequence, unbroken by an efficient intervening cause, produces injury, and
without which, the result would not have occurred. An injury or damage is proximately
caused by an act or failure to act, whenever it appears from the evidence in the case
that the act or omission played a substantial part in bringing about or actually causing
the injury or damage, and that the injury or damage was either a direct result or a
reasonably probable consequence of the act or omission.” Ocean Builders Construction
Corp. and/or Dennis Hao, vs. Spouses Antonio and Anicia Cubacub, G.R. No. 150898,
April 13, 2011, Third Division, J. Carpio Morales.

Diligence to prevent or minimize the loss. “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 exempt 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 1739)

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

Contributory negligence of the Shipper. “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 1741)

Latest Jurisprudence:

(1) Loss occasioned by a natural disaster does not automatically relieve common carrier
from liability. Asia Lighterage and Shipping, Inc. vs. Court of Appeals and Prudential
Guarantee and Assurance, Inc., G.R. No. 147246, August 19, 2003, Third Division, J.
Puno.

“In the case at bar, the barge completely sank after its towing bits broke,
resulting in the total loss of its cargo. Petitioner claims that this was caused by a
typhoon, hence, it should not be held liable for the loss of the cargo. However,
petitioner failed to prove that the typhoon is the proximate and only cause of the
loss of the goods, and that it has exercised due diligence before, during and after
the occurrence of the typhoon to prevent or minimize the loss. The evidence
show that, even before the towing bits of the barge broke, it had already
previously sustained damage when it hit a sunken object while docked at the
Engineering Island. It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel was refloated but its
hole was patched with only clay and cement. The patch work was merely a
provisional remedy, not enough for the barge to sail safely. Thus, when
petitioner persisted to proceed with the voyage, it recklessly exposed the cargo
to further damage.”

(2) Loss occasioned by a natural disaster does not automatically relieve common carrier
from liability. New World International Development (Phils.), Inc., vs. NYK-Filjapan
Shipping Corp, G.R. No. 171468, August 24, 2011, Third Division, J. Abad.

11
 “That the loss was occasioned by a typhoon, an exempting cause under Article
1734 of the Civil Code, does not automatically relieve the common carrier of
liability. The latter had the burden of proving that the typhoon was the
proximate and only cause of loss and that it exercised due diligence to prevent
or minimize such loss before, during, and after the disastrous typhoon. As found
by the RTC and the CA, NYK failed to discharge this burden.”

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.

Discussion.

Loss (1) due to character of the goods or (2) the faulty nature of the packing or of (3)
of the containers. Rule: the common carrier must exercise due diligence to forestall or
lessen the loss.

Latest Jurisprudence.

(1) Steel sheets were covered by rust, carrier should have applied additional safety.
Iron Bulk Shipping Philippines, Co., Ltd., vs. Remington Industrial Sales Corporation,
G.R. No. 136960, December 8, 2003, Second Division, J. Austria-Martinez.

“Under Article 1742 of the Civil Code, even if the loss, destruction, or
deterioration of the goods should be caused, among others, by the character of
the goods, the common carrier must exercise due diligence to forestall or lessen
the loss. This extraordinary responsibility 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. In the
instant case, if the carrier indeed found the steel sheets to have been covered by
rust at the time that it accepted the same for transportation, such finding should
have prompted it to apply additional safety measures to make sure that the
cargo is protected from corrosion. This, the carrier failed to do.”

Article 1743. If through 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.

Discussion.

Loss through order of public authority, common carrier is not responsible. Rule:
Provided 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;

12
 (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 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 omissions 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 forced, 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 of 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
reasonably, 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.

13
Discussion.

General Rule. “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 1744)

Stipulation allowed on account of strikes or riots. “An agreement limiting the

common carrier’s liability for delay on account of strikes or riots is valid” (Article
1748)

Stipulation allowed on account of declaring a higher value. “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 1749)

Presumption even with stipulation allowed still against the carrier. 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. (1752)

Exception: by stipulations 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
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 omissions 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 forced, 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 1745)

Exception: by annulment of the shipper. 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 1746)

Exception: by delay of the transportation. 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 1747)

Fixing the sum that may be recovered. 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 1750)

No competitor in the line. The fact that the common carrier has no competitor along the
line of 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 reasonably, just and in consonance with public policy. (Article 1751)

Latest Jurisprudence.

(1) This rule on stipulations and exceptions does not apply to private carriers.
Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven
Brothers Shipping Corporation, G.R. No. 102316, June 30, 1997, Third Division, J.
Panganiban.

14
 “The provisions of our Civil Code on common carriers were taken from Anglo-
American law. Under American jurisprudence, a common carrier undertaking to
carry a special cargo or chartered to a special person only, becomes a private
carrier. As a private carrier, a stipulation exempting the owner from liability for
the negligence of its agent is not against public policy, and is deemed valid.”

“Such doctrine We find reasonable. The Civil Code provisions on common

carriers should not be applied where the carrier is not acting as such but as a
private carrier. The stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent would be void only if the strict
public policy governing common carriers is applied. Such policy has no force
where the public at large is not involved, as in this case of a ship totally
chartered for the use of a single party.”

(2) The voyage charter stipulated that cargo insurance was for the charterer’s account
contrary to public policy. Cebu Salvage Corporation, vs. Philippine Home Assurance
Corporation, G.R. No. 150403, January 25, 2007, First Division, J. Corona.

“Finally, petitioner asserts that MCCII should be held liable for its own loss since
the voyage charter stipulated that cargo insurance was for the charterer’s
account. This deserves scant consideration. This simply meant that the
charterer would take care of having the goods insured. It could not exculpate
the carrier from liability for the breach of its contract of carriage. The law, in
fact, prohibits it and condemns it as unjust and contrary to public policy.”

(3) Article 1749 and 1750 has similar provision under the COGSA. Everett Steamship
Corporation, vs. Court of Appeals and Hernandez Trading Co., Inc., G.R. No. 122494,
October 8, 1998, Second Division, J. Martinez; and Philippine Charter Insurance
Corporation, vs. Neptune Orient Lines/Overseas Agency Services, Inc., G.R. No.
145044, June 12, 2008, First Division, J. Azcuna.

“Such limited-liability clause has also been consistently upheld by this court in a
number of cases. Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate
Court, we ruled:

‘It seems clear that even if said section 4 (5) of the Carriage of Goods by
Sea Act did not exist, the validity and binding effect of the liability
limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That said
stipulation is just and reasonable is arguable from the fact that it echoes
Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would
amount to questioning the justness and fairness of the law itself.... But
over and above that consideration, the just and reasonable character of
such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in
the bill of lading.’”

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.

Discussion.

Conflict of laws, law of the country to which goods are to be transported govern. “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 1753)

15
 Article 1754. The provisions of Articles 1733 to 1753 shall apply to
passenger’s baggage which is not in his personal custody or in
that of his employees. As to other baggage, the rules in Articles
1998 and 2000 to 2003 concerning the responsibility of hotel-
keepers shall be applicable.

(Necessary deposit)

Article 1998. The deposit of effects made by travellers in

hotels or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for them as
depositaries, provided that notice was given to them, or to
their employees, of the effects brought by the guests and
that, on the part of the latter, they take the precautions
which said hotel-keepers or their substitutes advised
relative to the care and vigilance of their effects.

Article 2000. The responsibility referred to in the two

preceding articles shall include the loss of, or injury to
personal property of the guests caused by the servants or
employees of the keepers of hotels or inns as well as by
strangers; but not that which may proceed from any force
majeure. The fact that travellers are constrained to rely on
the vigilance of the keeper of the hotel or inn shall be
considered in determining the degree of care required of
them.

Article 2001. The act of a thief or robber, who has entered

the hotel is not deemed force majeure, unless it is done with
the use of arms or through an irresistible force.

Article 2002. The hotel-keeper is not liable for

compensation if the loss is due to the acts of the guest, his
family, servants or visitors, or if the loss arises from the
character of the things brought into the hotel.

Article 2003. The hotel-keeper cannot free himself from

responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to
2001 is suppressed or diminished shall be void.

Discussion.

Rule. The provisions of Articles 1733 to 1753 shall apply to passenger’s baggage which
is not in his personal custody or in that of his employees. As to other baggage, the
rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers
shall be applicable” (Article 1754)

C. TRANSPORATION OF PASSENGERS

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.

16
 Article 1759. Common carriers are liable for the death of or
injuries to passengers through the negligence and wilful 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.

Article 1763. A common carrier is responsible for injuries suffered

by a passenger on account of the wilful acts or negligence of other
passengers or of strangers, if the common carrier’s employees
through the exercise of diligence of a good father of a family could
have prevented or stopped the act or omission.

Discussion.

Extraordinary diligence. “Utmost diligence of very cautious persons, with due regard for
all the circumstances”. Spouses Dante Cruz and Leonora Cruz vs. Sun Holidays, Inc.,
G.R. No. 186312, June 29, 2010, Third Division, J. Carpio Morales.

Reminder note on passengers: “While the law requires the highest degree of
diligence from common carriers in the safe transport of their passengers and
creates a presumption of negligence against them, it does not, however, make
the carrier an insurer of the absolute safety of its passengers.” Herminio Mariano
Jr. vs. Ildefonso C. Callejas and Edgar De Borja, G.R. No. 166640, July 31, 2009,
First Division, CJ. Puno.

But that its liability for personal injuries sustained by its passenger rests upon its
negligence, its failure to exercise the degree of diligence that the law requires.
Pilapil v. Court of Appeals, cited in the case of Herminio Mariano Jr. (id)

Common carrier liable for death of passenger: (a) through the negligence or wilful acts
of its employees (Article 1759) or b) on account of wilful acts or negligence of other
passengers or of strangers if the common carrier’s employees through the exercise of
due diligence could have prevented or stopped the act or omission (Article 1763).

Breach of contract of carriage. Upon the happening of the accident, the presumption of
negligence at once arises, and it becomes the duty of a common carrier to prove that
he observed extraordinary diligence in the care of his passengers. It must be stressed
that in requiring the highest possible degree of diligence from common carriers and in
creating a presumption of negligence against them, the law compels them to curb the
recklessness of their drivers. Agapita Diaz vs. Court of Appeals, Heirs of Sherly Moneño,
etc., G.R. No. 149749, July 25, 2006, Second Division, J. Corona.

“In a contract of carriage, it is presumed that the common carrier is at fault or is

negligent when a passenger dies or is injured. In fact, there is even no need for
the court to make an express finding of fault or negligence on the part of the
common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence.” Heirs of Jose Marcial K. Ochoa
vs. G & S Transport Corporation, G.R. No. 170071, March 9, 2011, First Division,
C.J. Corona.

Two Japan Airlines Cases. (a) Common carrier is not liable for acts of state. (b)
Common carrier liable if it arrogates unto itself the acts of state.

(a) Common carrier is not liable for acts of state. It may be true that JAL has the
duty to inspect whether its passengers have the necessary travel documents,
however, such duty does not extend to checking the veracity of every entry in
these documents. Japan Airlines vs. Michael Asuncion and Jeanette Asuncion,
G.R. No. 161730, January 28, 2005, First Division, J. Ynares-Santiago

17
 (b) Common carrier liable if it arrogates unto itself the acts of state. We find
untenable JAL’s defense of “verification of respondent’s documents” in its breach
of contract of carriage. It bears repeating that the power to admit or not an alien
into the country is a sovereign act which cannot be interfered with even by JAL.
Japan Airlines vs. Jesus Simangan, G.R. No. 170141, April 22, 2008, Third
Division, J. Reyes, R.T.

These rules apply to common carrier and not to travel agents. Since the contract
between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a family under Article 1173 of the Civil Code.
Estela L. Crisostomo vs. Court of Appeals and Caravan Travel and Tours International,
Inc., G.R. No. 138334, August 25, 2003, First Division, J. Ynares-Santiago.

A flight attendant is overweight was his termination valid; is this justified under the
transportation law. The law leaves no room for mistake or oversight on the part of a
common carrier. Thus, it is only logical to hold that the weight standards of PAL show
its effort to comply with the exacting obligations imposed upon it by law by virtue of
being a common carrier. Armando G. Yrasuegui vs. Philippine Airlines, Inc., G.R. No.
168081, October 17, 2008, Third Division, J. Reyes, R.T.

Latest Jurisprudence:

Article 1755

(1) Person had fist fight with LRT guard. Victim fell and hit by a passing train and died.
Regional Container Lines (RCL) of Light Rail Transit Authority and Rodolfo Roman vs.
Marjorie Navidad, heirs of the late Nicanor Navidad and Prudent Security Agency, G.R.
No. 145804, February 6, 2003, First Division, J. Vitug.

Law and jurisprudence dictate that a common carrier, both from the nature of its
business and for reasons of public policy, is burdened with the duty of exercising
utmost diligence in ensuring the safety of passengers. The Civil Code, governing
the liability of a common carrier for death of or injury to its passengers,
provides:

“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 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 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.”

18
 The law requires common carriers to carry passengers safely using the utmost
diligence of very cautious persons with due regard for all circumstances. Such
duty of a common carrier to provide safety to its passengers so obligates it not
only during the course of the trip but for so long as the passengers are within its
premises and where they ought to be in pursuance to the contract of carriage.
The statutory provisions render a common carrier liable for death of or injury to
passengers (a) through the negligence or wilful acts of its employees or b) on
account of wilful acts or negligence of other passengers or of strangers if the
common carrier’s employees through the exercise of due diligence could have
prevented or stopped the act or omission. In case of such death or injury, a
carrier is presumed to have been at fault or been negligent, and by simple proof
of injury, the passenger is relieved of the duty to still establish the fault or
negligence of the carrier or of its employees and the burden shifts upon the
carrier to prove that the injury is due to an unforeseen event or to force
majeure. In the absence of satisfactory explanation by the carrier on how the
accident occurred, which petitioners, according to the appellate court, have failed
to show, the presumption would be that it has been at fault, an exception from
the general rule that negligence must be proved.

The foundation of LRTA’s liability is the contract of carriage and its obligation to
indemnify the victim arises from the breach of that contract by reason of its
failure to exercise the high diligence required of the common carrier. In the
discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or
an independent firm to undertake the task. In either case, the common carrier
is not relieved of its responsibilities under the contract of carriage.

(2) The Supreme Court outlined the interplay of Articles 1733, 1755 and 1756.
Herminio Mariano Jr. vs. Ildefonso C. Callejas and Edgar de Borja, G.R. No. 166640,
July 31, 2009, First Division, J. Vitug.

The following are the provisions of the Civil Code pertinent to the case at bar:

ART. 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.

ART. 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.

ART. 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.

In accord with the above provisions, Celyrosa Express, a common carrier,

through its driver, respondent De Borja, and its registered owner, respondent
Callejas, has the express obligation “ 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,” and to observe
extraordinary diligence in the discharge of its duty. The death of the wife of the
petitioner in the course of transporting her to her destination gave rise to the
presumption of negligence of the carrier. To overcome the presumption,
respondents have to show that they observed extraordinary diligence in the
discharge of their duty, or that the accident was caused by a fortuitous event.

This Court interpreted the above quoted provisions in Pilapil v. Court of Appeals.
We elucidated:

19
 While the law requires the highest degree of diligence from common
carriers in the safe transport of their passengers and creates a
presumption of negligence against them, it does not, however, make the
carrier an insurer of the absolute safety of its passengers.

Article 1755 of the Civil Code qualifies the duty of extraordinary care,
vigilance and precaution in the carriage of passengers by common carriers
to only such as human care and foresight can provide. What constitutes
compliance with said duty is adjudged with due regard to all the
circumstances.

Article 1756 of the Civil Code, in creating a presumption of fault or

negligence on the part of the common carrier when its passenger is
injured, merely relieves the latter, for the time being, from introducing
evidence to fasten the negligence on the former, because the presumption
stands in the place of evidence. Being a mere presumption, however, the
same is rebuttable by proof that the common carrier had exercised
extraordinary diligence as required by law in the performance of its
contractual obligation, or that the injury suffered by the passenger was
solely due to a fortuitous event.

In fine, we can only infer from the law the intention of the Code
Commission and Congress to curb the recklessness of drivers and
operators of common carriers in the conduct of their business.

Thus, it is clear that neither the law nor the nature of the business of a
transportation company makes it an insurer of the passenger's safety, but
that its liability for personal injuries sustained by its passenger rests upon
its negligence, its failure to exercise the degree of diligence that the law
requires.

In the case at bar, petitioner cannot succeed in his contention that respondents
failed to overcome the presumption of negligence against them. The totality of
evidence shows that the death of petitioner’s spouse was caused by the reckless
negligence of the driver of the Isuzu trailer truck which lost its brakes and
bumped the Celyrosa Express bus, owned and operated by respondents.

First, we advert to the sketch prepared by PO3 Magno S. de Villa, who

investigated the accident. The sketch shows the passenger bus facing the
direction of Tagaytay City and lying on its right side on the shoulder of the road,
about five meters away from the point of impact. On the other hand, the trailer
truck was on the opposite direction, about 500 meters away from the point of
impact. PO3 De Villa stated that he interviewed De Borja, respondent driver of
the passenger bus, who said that he was about to unload some passengers when
his bus was bumped by the driver of the trailer truck that lost its brakes.

(3) Passenger bus collided with a truck parked at road due to damaged wheels.
Passenger of bus died. William Tiu (“D” Rough Riders) and Virgilio Te Las Piñas vs.
Pedro A. Arriesgado, Benjamin Condor, Sergio Pedrano and Philippine Phoenix Surety
and Insurance, Inc., G.R. No. 138060, September 1, 2004, Second Division, J. Callejo
Sr. Reiterated in the case of Agapita Diaz vs. Court of Appeals, Heirs of Sherly Moneño,
etc., G.R. No. 149749, July 25, 2006, Second Division, J. Corona.

20
 The rules which common carriers should observe as to the safety of their
passengers are set forth in the Civil Code, Articles 1733, 1755 and 1756. In this
case, respondent Arriesgado and his deceased wife contracted with petitioner
Tiu, as owner and operator of D’ Rough Riders bus service, for transportation
from Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00. It is
undisputed that the respondent and his wife were not safely transported to the
destination agreed upon. In actions for breach of contract, only the existence of
such contract, and the fact that the obligor, in this case the common carrier,
failed to transport his passenger safely to his destination are the matters that
need to be proved. This is because under the said contract of carriage, the
petitioners assumed the express obligation to transport the respondent and his
wife to their destination safely and to observe extraordinary diligence with due
regard for all circumstances.

Any injury suffered by the passengers in the course thereof is immediately

attributable to the negligence of the carrier. Upon the happening of the accident,
the presumption of negligence at once arises, and it becomes the duty of a
common carrier to prove that he observed extraordinary diligence in the care of
his passengers. It must be stressed that in requiring the highest possible degree
of diligence from common carriers and in creating a presumption of negligence
against them, the law compels them to curb the recklessness of their drivers.

While evidence may be submitted to overcome such presumption of negligence,

it must be shown that the carrier observed the required extraordinary diligence,
which means that the carrier must show the utmost diligence of very cautious
persons as far as human care and foresight can provide, or that the accident was
caused by fortuitous event. As correctly found by the trial court, petitioner Tiu
failed to conclusively rebut such presumption. The negligence of petitioner
Laspiñas as driver of the passenger bus is, thus, binding against petitioner Tiu,
as the owner of the passenger bus engaged as a common carrier.

(4) These rules apply to common carrier and not to travel agents. Estela L. Crisostomo
vs. Court of Appeals and Caravan Travel and Tours International, Inc., G.R. No.
138334, August 25, 2003, First Division, J. Ynares-Santiago.

The nature of the contractual relation between petitioner and respondent is

determinative of the degree of care required in the performance of the latter’s
obligation under the contract. For reasons of public policy, a common carrier in a
contract of carriage is bound by law to carry passengers as far as human care
and foresight can provide using the utmost diligence of very cautious persons
and with due regard for all the circumstances. As earlier stated, however,
respondent is not a common carrier but a travel agency. It is thus not bound
under the law to observe extraordinary diligence in the performance of its
obligation, as petitioner claims.

Since the contract between the parties is an ordinary one for services, the
standard of care required of respondent is that of a good father of a family under
Article 1173 of the Civil Code. This connotes reasonable care consistent with that
which an ordinarily prudent person would have observed when confronted with a
similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent
act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence.

(5) Carrier not liable for acts of State. Japan Airlines vs. Michael Asuncion and Jeanette
Asuncion, G.R. No. 161730, January 28, 2005, First Division, J. Ynares-Santiago.

21
 Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to
carry its passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with due regard for all the
circumstances. When an airline issues a ticket to a passenger, confirmed for a
particular flight on a certain date, a contract of carriage arises. The passenger
has every right to expect that he be transported on that flight and on that date
and it becomes the carrier’s obligation to carry him and his luggage safely to the
agreed destination. If the passenger is not so transported or if in the process of
transporting he dies or is injured, the carrier may be held liable for a breach of
contract of carriage.

We find that JAL did not breach its contract of carriage with respondents. It may
be true that JAL has the duty to inspect whether its passengers have the
necessary travel documents, however, such duty does not extend to checking
the veracity of every entry in these documents. JAL could not vouch for the
authenticity of a passport and the correctness of the entries therein. The power
to admit or not an alien into the country is a sovereign act which cannot be
interfered with even by JAL. This is not within the ambit of the contract of
carriage entered into by JAL and herein respondents. As such, JAL should not be
faulted for the denial of respondents’ shore pass applications.

(6) Carrier can not assume acts of state to inspect passport and then bump off a
passenger; the twin requisites to prove liability. Japan Airlines vs. Jesus Simangan,
G.R. No. 170141, April 22, 2008, Third Division, J. Reyes, R.T.

Apart from the fact that respondent’s plane ticket, boarding pass, travel
authority and personal articles already passed the rigid immigration and security
routines, JAL, as a common carrier, ought to know the kind of valid travel
documents respondent carried. As provided in Article 1755 of the New Civil
Code: “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.” Thus, We find
untenable JAL’s defense of “verification of respondent’s documents” in its breach
of contract of carriage.

It bears repeating that the power to admit or not an alien into the country is a
sovereign act which cannot be interfered with even by JAL.

In an action for breach of contract of carriage, all that is required of plaintiff is to

prove the existence of such contract and its non-performance by the carrier
through the latter’s failure to carry the passenger safely to his destination.
Respondent has complied with these twin requisites.

(7) Passenger failed to reach his destination because he died due to a vehicular
incident. Heirs of Jose Marcial K. Ochoa vs. G & S Transport Corporation, G.R. No.
170071, March 9, 2011, First Division, C.J. Corona.

What is clear from the records is that there existed a contract of carriage
between G & S, as the owner and operator of the Avis taxicab, and Jose Marcial,
as the passenger of said vehicle. As a common carrier, G & S “is bound to carry
[Jose Marcial] safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the
circumstances.” However, Jose Marcial was not able to reach his destination
safely as he died during the course of the travel.

22
 “In a contract of carriage, it is presumed that the common carrier is at fault or is
negligent when a passenger dies or is injured. In fact, there is even no need for
the court to make an express finding of fault or negligence on the part of the
common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence.” Unfortunately, G & S
miserably failed to overcome this presumption. Both the trial court and the CA
found that the accident which led to Jose Marcial’s death was due to the reckless
driving and gross negligence of G & S’ driver, Padilla, thereby holding G & S
liable to the heirs of Jose Marcial for breach of contract of carriage.

(8) On December 20, 1987, MV Doña Paz collided with the MT Vector, carriers warrant
impliedly the seaworthiness of the ship. Vector Shipping Corporation and Francisco
Soriano vs. Adelfor B. Macasa, G.R. No. 160219, July 21, 2008, Third Division, J.
Nachura. (Citing Caltex Philippines, Inc. vs. Sulpicio Lines, Inc.)

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the
ship. For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and crew.
The failure of a common carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code.

The provisions owed their conception to the nature of the business of common
carriers. This business is impressed with a special public duty. The public must of
necessity rely on the care and skill of common carriers in the vigilance over the
goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid,
more complicated and somehow more hazardous. For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection
of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.

(9) A flight attendant is overweight was his termination valid; is this justified under the
transportation law. Armando G. Yrasuegui vs. Philippine Airlines, Inc., G.R. No.
168081, October 17, 2008, Third Division, J. Reyes, R.T.

The law leaves no room for mistake or oversight on the part of a common
carrier. Thus, it is only logical to hold that the weight standards of PAL show its
effort to comply with the exacting obligations imposed upon it by law by virtue of
being a common carrier.

The business of PAL is air transportation. As such, it has committed itself to

safely transport its passengers. In order to achieve this, it must necessarily rely
on its employees, most particularly the cabin flight deck crew who are on board
the aircraft. The weight standards of PAL should be viewed as imposing strict
norms of discipline upon its employees.

In other words, the primary objective of PAL in the imposition of the weight
standards for cabin crew is flight safety. It cannot be gainsaid that cabin
attendants must maintain agility at all times in order to inspire passenger
confidence on their ability to care for the passengers when something goes
wrong. It is not farfetched to say that airline companies, just like all common
carriers, thrive due to public confidence on their safety records. People,
especially the riding public, expect no less than that airline companies transport
their passengers to their respective destinations safely and soundly. A lesser
performance is unacceptable.

23
 The task of a cabin crew or flight attendant is not limited to serving meals or
attending to the whims and caprices of the passengers. The most important
activity of the cabin crew is to care for the safety of passengers and the
evacuation of the aircraft when an emergency occurs. Passenger safety goes to
the core of the job of a cabin attendant. Truly, airlines need cabin attendants
who have the necessary strength to open emergency doors, the agility to attend
to passengers in cramped working conditions, and the stamina to withstand
grueling flight schedules.

On board an aircraft, the body weight and size of a cabin attendant are
important factors to consider in case of emergency. Aircrafts have constricted
cabin space, and narrow aisles and exit doors. Thus, the arguments of
respondent that “[w]hether the airline’s flight attendants are overweight or not
has no direct relation to its mission of transporting passengers to their
destination”; and that the weight standards “has nothing to do with
airworthiness of respondent’s airlines,” must fail.

The rationale in Western Air Lines v. Criswell relied upon by petitioner cannot
apply to his case. What was involved there were two (2) airline pilots who were
denied reassignment as flight engineers upon reaching the age of 60, and a flight
engineer who was forced to retire at age 60. They sued the airline company,
alleging that the age-60 retirement for flight engineers violated the Age
Discrimination in Employment Act of 1967. Age-based BFOQ and being
overweight are not the same. The case of overweight cabin attendants is
another matter. Given the cramped cabin space and narrow aisles and
emergency exit doors of the airplane, any overweight cabin attendant would
certainly have difficulty navigating the cramped cabin area.

In short, there is no need to individually evaluate their ability to perform their

task. That an obese cabin attendant occupies more space than a slim one is an
unquestionable fact which courts can judicially recognize without introduction of
evidence. It would also be absurd to require airline companies to reconfigure the
aircraft in order to widen the aisles and exit doors just to accommodate
overweight cabin attendants like petitioner.

The biggest problem with an overweight cabin attendant is the possibility of

impeding passengers from evacuating the aircraft, should the occasion call for it.
The job of a cabin attendant during emergencies is to speedily get the
passengers out of the aircraft safely. Being overweight necessarily impedes
mobility. Indeed, in an emergency situation, seconds are what cabin attendants
are dealing with, not minutes. Three lost seconds can translate into three lost
lives. Evacuation might slow down just because a wide-bodied cabin attendant is
blocking the narrow aisles. These possibilities are not remote.

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.

Discussion.

Extraordinary diligence. “Utmost diligence of very cautious persons, with due regard for
all the circumstances”. Spouses Dante Cruz and Leonora Cruz vs. Sun Holidays, Inc.,
G.R. No. 186312, June 29, 2010, Third Division, J. Carpio Morales.

24
Article 1756 (Culpa-Contractual) compared to Article 2180 (Culpa-Aquiliana or Quasi-
Delicts). “The obligation imposed by Article 2176 (Quasi-Delicts) is demandable not
only for one’s own acts or omissions, but also for those of persons for whom one is
responsible. xxx Employers shall be liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks, even though the
former are engaged in any business or industry. xxx The responsibility treated of in this
article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of family to prevent damage.”

(a) In both cases the employer is liable to the negligence of its employees that
resulted to damage;

(b) In culpa-contractual proof of diligence of good father of family in the

selection and supervision of employees is not a defense while in Culpa-Aquiliana
proof of diligence of good father of family in selection and supervision of
employees is a defense;

(c) In culpa-contractual Article 1756 is applicable while in Culpa-Aquiliana Article

2180 is the one applicable;

(d) In culpa-contractual the victim is a passenger while in Culpa-Aquiliana the

victim is a pedestrian or third person who is not a passenger;

(e) In culpa-contractual the defense is “diligence in the vigilance over the goods
and safety of passengers while in Culpa-Aquiliana the defense is “diligence in the
selection and supervision of the employees”

(f) In culpa-contractual “proximate” cause of the damage is not material to the

liability while in culpa-aquiliana “proximate” cause of the damage is material to
the liability.

ARTICLE 1756

Latest Jurisprudence:

(1) Passenger already purchased an LRT token but was run over by the train. Lightrail
Transit Authority and Rodolfo Roma, vs. Marjorie Navidad, G.R. No. 145804, February
6, 2003, First Division, J. Vitug.

“In the absence of satisfactory explanation by the carrier on how the accident
occurred, which petitioners, according to the appellate court, have failed to
show, the presumption would be that it has been at fault”

(2) LRT sought reconsideration of February 6, 2003 ruling. Court lecture on culpa
contractual and culpa aquiliana. Lightrail Transit Authority and Rodolfo Roma, vs.
Marjorie Navidad, G.R. No. 145804, May 9, 2003, First Division, Resolution.

It must be stressed that the foundation of the liability of the common carrier is
based on culpa contractual and it is not dependent upon proof of prior negligence
on the part of its employees. In fact, the law cannot be any clearer; 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 have observed
extraordinary diligence required of them.

The defense raised by LRTA would have been relevant had petitioner’s liability
been derived solely on account of the fault (willful acts or negligence) of its
employees or from culpa aquiliana. But such is not the basis for the Court’s
holding in this case. Irrefutably, petitioner failed to discharge its burden to prove
that it had exercised utmost diligence in ensuring the safety of its passenger
which duty the law imposed upon it as a common carrier.

25
 The Court is not unaware of the dictum that a common carrier is not an insurer
of the safety of its passengers. Petitioner had the opportunity to exonerate itself
from liability by proving extraordinary diligence required of it but the fact of the
matter is that it did not; hence, the presumption established by Article 1756 of
the Civil Code stands and petitioner is liable

(3) Common carrier bumped pedestrian it is Article 2180 that is applicable and not
Article 1756. This is the ruling of the Court of Appeals modifying the findings of the
RTC and sustained by the Supreme Court. Cecilia Yambao, vs. Melchorita C. Zuñiga,
et.al., G.R. No. 146173, December 11, 2003, Second Division, J. Quisumbing.

“While sustaining the trial court’s findings that Venturina had been reckless and
negligent in driving the petitioner’s bus, thus hitting the victim with fatal results,
the appellate court, however, found the trial court’s reliance on Articles 1755 and
1756 of the Civil Code misplaced. It held that this was a case of quasi-delict,
there being no pre-existing contractual relationship between the parties. Hence,
the law on common carriers was inapplicable. The court a quo then found the
petitioner directly and primarily liable as Venturina’s employer pursuant to Article
2180 of the Civil Code as she failed to present evidence to prove that she has
observed the diligence of a good father of a family in the selection and
supervision of her employees.”

(4) Common carrier hit a tree and a house due to the recklessness of its driver thus the
passenger was injured. R Trasport Corporation, vs. Eduarte Pante, G.R. No. 162104,
September 15, 2009, Third Division, J. Peralta.

Under the Civil Code, common carriers, like petitioner bus company, from the
nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence for the safety of the passengers transported by them,
according to all the circumstances of each case. They are bound to carry the
passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the
circumstances.

Article 1756 of the Civil Code states that “[i]n 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 by Articles 1733 and 1755.”

Further, Article 1759 of the Civil Code provides that “[c]ommon carriers are
liable for the death or injury 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.”

In this case, the testimonial evidence of respondent showed that petitioner,

through its bus driver, failed to observe extraordinary diligence, and was,
therefore, negligent in transporting the passengers of the bus safely to Gapan,
Nueva Ecija on January 27, 1995, since the bus bumped a tree and a house, and
caused physical injuries to respondent.

Article 1759 of the Civil Code explicitly states that the common carrier is liable
for the death or injury to passengers through the negligence or willful acts of its
employees, and that such liability does not cease upon proof that the common
carrier exercised all the diligence of a good father of a family in the selection and
supervision of its employees. Hence, even if petitioner was able to prove that it
exercised the diligence of a good father of the family in the selection and
supervision of its bus driver, it is still liable to respondent for the physical injuries
he sustained due to the vehicular accident.

26
(5) Effect on the presumption of negligence on the part of the carrier when the driver
pleaded guilty to the offense. Herminio Mariano, Jr., vs. Ildefonso C. Callejas and
Edgar de Borja, G.R. No. 166640, July 31, 2009, First Division, C.J. Puno.

In the case at bar, petitioner cannot succeed in his contention that respondents
failed to overcome the presumption of negligence against them. The totality of
evidence shows that the death of petitioner’s spouse was caused by the reckless
negligence of the driver of the Isuzu trailer truck which lost its brakes and
bumped the Celyrosa Express bus, owned and operated by respondents.

In fine, the evidence shows that before the collision, the passenger bus was
cruising on its rightful lane along the Aguinaldo Highway when the trailer truck
coming from the opposite direction, on full speed, suddenly swerved and
encroached on its lane, and bumped the passenger bus on its left middle portion.

Secondly, any doubt as to the culpability of the driver of the trailer truck ought
to vanish when he pleaded guilty to the charge of reckless imprudence resulting
to multiple slight physical injuries and damage to property in Criminal Case No.
2223-92, involving the same incident.

(6) March 16, 1983 Bus No. 142 fell into a river while traversing the Bugko Bailey
Bridge. Although victim survived the fall but he later died of asphyxia secondary to
drowning. Jose Baritua and JB Line, vs. Nimfa Divina Mercader, G.R. No. 136048,
January 23, 2001, Third Division, J. Panganiban.

We agree with the findings of both courts that petitioners failed to observe
extraordinary diligence that fateful morning. It must be noted that a common
carrier, by the nature of its business and for reasons of public policy, is bound to
carry passengers safely as far as human care and foresight can provide. It is
supposed to do so by using the utmost diligence of very cautious persons, with
due regard for all the circumstances. In case of death or injuries to passengers,
it is presumed to have been at fault or to have acted negligently, unless it proves
that it observed extraordinary diligence as prescribed in Articles 1733 and 1755
of the Civil Code. We sustain the ruling of the CA that petitioners failed to prove
that they had observed extraordinary diligence.

(7) Bus collided with a parked truck. Victims were injured. William Tiu, vs. Pedro A.
Arriesgado, G.R. No. 138060, September 1, 2004, Second Division, J. Callejo, Sr.

The rules which common carriers should observe as to the safety of their
passengers are set forth in the Civil Code, Articles 1733, 1755 and 1756. In this
case, respondent Arriesgado and his deceased wife contracted with petitioner
Tiu, as owner and operator of D’ Rough Riders bus service, for transportation
from Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00.

It is undisputed that the respondent and his wife were not safely transported to
the destination agreed upon. In actions for breach of contract, only the existence
of such contract, and the fact that the obligor, in this case the common carrier,
failed to transport his passenger safely to his destination are the matters that
need to be proved.

27
 This is because under the said contract of carriage, the petitioners assumed the
express obligation to transport the respondent and his wife to their destination
safely and to observe extraordinary diligence with due regard for all
circumstances. Any injury suffered by the passengers in the course thereof is
immediately attributable to the negligence of the carrier. Upon the happening of
the accident, the presumption of negligence at once arises, and it becomes the
duty of a common carrier to prove that he observed extraordinary diligence in
the care of his passengers. It must be stressed that in requiring the highest
possible degree of diligence from common carriers and in creating a presumption
of negligence against them, the law compels them to curb the recklessness of
their drivers.

While evidence may be submitted to overcome such presumption of negligence,

it must be shown that the carrier observed the required extraordinary diligence,
which means that the carrier must show the utmost diligence of very cautious
persons as far as human care and foresight can provide, or that the accident was
caused by fortuitous event. As correctly found by the trial court, petitioner Tiu
failed to conclusively rebut such presumption. The negligence of petitioner
Laspiñas as driver of the passenger bus is, thus, binding against petitioner Tiu,
as the owner of the passenger bus engaged as a common carrier.

(8) Victim Sunga rode on the jeepney of Calalas but was bumped by a truck owned by
Salva. Liability of Calalas is the issue. Vicente Calalas, vs. Court of Appeals, Eliza
Jujeurche Sunga and Francisco Salva, G.R. No. 122039, May 31, 2000, Second Division,
J. Mendoza.

Consequently, in quasi-delict, the negligence or fault should be clearly

established because it is the basis of the action, whereas in breach of contract,
the action can be prosecuted merely by proving the existence of the contract and
the fact that the obligor, in this case the common carrier, failed to transport his
passenger safely to his destination. In case of death or injuries to passengers,
Art. 1756 of the Civil Code provides that common carriers are presumed to have
been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This
provision necessarily shifts to the common carrier the burden of proof.

There is, thus, no basis for the contention that the ruling in Civil Case No. 3490,
finding Salva and his driver Verena liable for the damage to petitioner’s jeepney,
should be binding on Sunga. It is immaterial that the proximate cause of the
collision between the jeepney and the truck was the negligence of the truck
driver.

The doctrine of proximate cause is applicable only in actions for quasi-delict, not
in actions involving breach of contract. The doctrine is a device for imputing
liability to a person where there is no relation between him and another party. In
such a case, the obligation is created by law itself. But, where there is a pre-
existing contractual relation between the parties, it is the parties themselves
who create the obligation, and the function of the law is merely to regulate the
relation thus created. Insofar as contracts of carriage are concerned, some
aspects regulated by the Civil Code are those respecting the diligence required of
common carriers with regard to the safety of passengers as well as the
presumption of negligence in cases of death or injury to passengers

(9) PUV’s (Public Utility Vehicles) required to obtain insurance policies as part of its
Article 1756 duty. Eastern Assurance & Surety Corporation (EASCO), vs. Land
Transportation Franchising and Regulatory Board (LTFRB), G.R. No. 149717, October 7,
2003, Third Division, J. Panganiban.

28
 It should be stressed that PUVs, as common carriers, are engaged in a business
affected with public interest. Under Article 1756 of the Civil Code, in cases of
death or injuries to passengers, common carriers are presumed to be at fault
and are required to compensate the victims, unless they observed extraordinary
diligence. To assure this compensation, PUVs are required to obtain insurance
policies.

(10) Husband of Gemma Sulit died in a vehicular accident. She sued the common
carrier. Philhawk Transport, vs. Court of Appeals, G.R. No. 164946, April 4, 2005, Third
Division, Resolution.

Considering that the contract of carriage was established, the court need not
make an express finding of fault or negligence on the part of the carrier in order
to hold it responsible for the payment of damages sought by the passenger, or in
this case, the passenger's widow. Under Article 1756 of the Civil Code, in case of
death or injuries to passengers, a common carrier is presumed to have been at
fault or to have acted negligently, unless it proves that it observed extraordinary
diligence.

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 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 1758. When a passenger is carried gratuitously, a

stipulation limiting the common carrier’s liability for negligence is
valid, but not for wilful acts or gross negligence.

The reduction of fare does not justify any limitation of the

common carrier’s liability.

Discussion.

Note that this is not similar in terms of carriage of goods or baggage since there
responsibility of a common carrier for the safety of goods can be subject matter of
stipulations.

Note that under Article 1758 if passengers are carried gratuitously, a stipulation limiting
the common carrier’s liability for negligence is valid but not for wilful acts of gross
negligence.

Article 1759. Common carriers are liable for the death of or

injuries to passengers through the negligence and wilful 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.

The 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.

Discussion

Similar to the discussion under Articles 1755 and Article 1756.

29
 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 1759

Latest Jurisprudence:

(1) Passenger was injured on account of the negligence of the driver of the carrier.
Baliwag Transit Inc., vs. Court of Appeals, spouses Antonio Garcia, A & J Trading, and
Julio Recontique, G.R. No. 116110, May 15, 1996, Second Division, J. Quisumbing.

The records are bereft of any proof to show that Baliwag exercised extraordinary
diligence. On the contrary, the evidence demonstrates its driver's recklessness.
Leticia Garcia testified that the bus was running at a very high speed despite the
drizzle and the darkness of the highway. The passengers pleaded for its driver to
slow down, but their plea was ignored. Leticia also revealed that the driver was
smelling of liquor. She could smell him as she was seated right behind the driver.
Another passenger, Felix Cruz testified that immediately before the collision, the
bus driver was conversing with a co-employee. All these prove the bus driver's
wanton disregard for the physical safety of his passengers, which makes Baliwag
as a common carrier liable for damages under Article 1759 of the Civil Code.

(2) Passenger was injured when the bus hit a tree and a house to the bus driver’s
recklessness; due diligence in the selection of its driver is immaterial. R Transport
Corporation represented by Rizalina Lamzon, vs. Eduardo Pante, G.R. No. 162104,
September 15, 2009, Third Division, J. Peralta.

Article 1759 of the Civil Code provides that “[c]ommon carriers are liable for the
death or injury 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.”

In this case, the testimonial evidence of respondent showed that petitioner,

through its bus driver, failed to observe extraordinary diligence, and was,
therefore, negligent in transporting the passengers of the bus safely to Gapan,
Nueva Ecija on January 27, 1995, since the bus bumped a tree and a house, and
caused physical injuries to respondent.

Article 1759 of the Civil Code explicitly states that the common carrier is liable
for the death or injury to passengers through the negligence or willful acts of its
employees, and that such liability does not cease upon proof that the common
carrier exercised all the diligence of a good father of a family in the selection and
supervision of its employees. Hence, even if petitioner was able to prove that it
exercised the diligence of a good father of the family in the selection and
supervision of its bus driver, it is still liable to respondent for the physical injuries
he sustained due to the vehicular accident.

(3) Passenger was injured when a taxi ram the railing at EDSA Santolan due to driver’s
recklessness; due diligence in the selection of its driver is immaterial. Heirs of Jose
Marcial K. Ochoa, vs. G & S Transport Corporation, G.R. No. 170071, March 9, 2011,
First Division, J. Del Castillo.

30
 On the other hand, the heirs maintained that Padilla was grossly negligent in
driving the Avis taxicab on the night of March 10, 1995. They claimed that
Padilla, while running at a very high speed, acted negligently when he tried to
overtake a ten-wheeler truck at the foot of the fly-over. This forced him to
swerve to the left and as a consequence, the Avis taxicab hit the center of the
railing and was split into two upon hitting the ground. The manner by which
Padilla drove the taxicab clearly showed that he acted without regard to the
safety of his passenger.

The heirs also averred that in order for a fortuitous event to exempt one from
liability, it is necessary that he has committed no negligence or conduct that may
have occasioned the loss. Thus, to be exempt from liability for the death of Jose
Marcial on this ground, G & S must clearly show that the proximate cause of the
casualty was entirely independent of human will and that it was impossible to
avoid. And since in the case at bar it was Padilla’s inexcusable poor judgment,
utter lack of foresight and extreme negligence which were the immediate and
proximate causes of the accident, same cannot be considered to be due to a
fortuitous event. This is bolstered by the fact that the court trying the case for
criminal negligence arising from the same incident convicted Padilla for said
charge.

At any rate, the heirs contended that regardless of whether G & S observed due
diligence in the selection of its employees, it should nonetheless be held liable
for the death of Jose Marcial pursuant to Article 1759 of the Civil Code.

(4) Passenger was injured when the bus figured in an accident; due diligence in the
selection of its driver is immaterial. Engracio Fabre, Jr. et. al. vs. Court of Appeals, The
Word for the World Christian Fellowship, Inc., et. al., G.R. No. 111127, July 26, 1996,
Second Division, J. Mendoza.

As common carriers, the Fabres were bound to exercise “extraordinary diligence”

for the safe transportation of the passengers to their destination. This duty of
care is not excused by proof that they exercised the diligence of a good father of
the family in the selection and supervision of their employee. As Art. 1759 of
the Code provides:

Common carriers are liable for the death of or injuries to passengers

through the negligence or wilful 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 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.

Discussion

Note passengers are required to observe ordinary diligence to avoid injury to himself.

Note that contributory negligence of passengers does not bar recovery of damages for
his death or injuries. Contributory negligence of the shipper of goods (Article 1741)
states that “the common carrier shall be liable for damages, which however, shall be
equitably reduced”.

31
 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 passenger
caused by the breach of contract by a common carrier.

Discussion:

Moral Damages. In fine, moral damages may be recovered in an action upon breach of
contract of carriage only when: (a) where death of a passenger results, or (b) it is
proved that the carrier was guilty of fraud and bad faith, even if death does not result.
Sulpicio Lines, Inc., vs. Domingo E. Curso, et. al., G.R. No. 157009, March 17, 2010,
First Division, J. Vitug.

Relative can claim moral damages. Article 2206 of the Civil Code entitles the
descendants, ascendants, illegitimate children, and surviving spouse of the deceased
passenger to demand moral damages for mental anguish by reason of the death of the
deceased. (Id)

Article 1764 vis-à-vis Article 2206. of the Civil Code holds the common carrier in breach
of its contract of carriage that results in the death of a passenger liable to pay the
following: (1) indemnity for death, (2) indemnity for loss of earning capacity and (3)
moral damages. Spouses Dante Cruz and Leonara Cruz, vs. Sun Holidays, Inc., G.R.
No. 186312, June 29, 2010, Third Division, J. Carpio Morales.

Life Expectancy. The first factor, i.e., life expectancy, is computed by applying the
formula (2/3 x [80 — age at death]) adopted in the American Expectancy Table of
Mortality or the Actuarial of Combined Experience Table of Mortality. (Id. Spouses
Dante)

ARTICLE 1764

Latest Jurisprudence:

(1) The surviving brothers and sisters of a passenger of a vessel that sinks during a
voyage are entitled to recover moral damages from the vessel owner as common
carrier. Sulpicio Lines, Inc., vs. Domingo E. Curso, et. al., G.R. No. 157009, March 17,
2010, First Division, J. Vitug.

In fine, moral damages may be recovered in an action upon breach of contract of

carriage only when: (a) where death of a passenger results, or (b) it is proved
that the carrier was guilty of fraud and bad faith, even if death does not result.
Article 2206 of the Civil Code entitles the descendants, ascendants, illegitimate
children, and surviving spouse of the deceased passenger to demand moral
damages for mental anguish by reason of the death of the deceased.

(2) The surviving brothers and sisters of a passenger of a vessel that sinks during a
voyage are entitled to recover moral damages from the vessel owner as common
carrier. Trans-Asia Shipping Lines, Inc., vs. Court of Appeals and Atty. Renato T.
Arroyo, G.R. No. 118126, March 4, 1996, Third Division, J. Davide, Jr.

As to its liability for damages to the private respondent, Article 1764 of the Civil
Code expressly provides:

ART. 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 common carrier.

32
 The damages comprised in Title XVIII of the Civil Code are actual or
compensatory, moral, nominal, temperate or moderate, liquidated, and
exemplary.

In his complaint, the private respondent claims actual or compensatory, moral,

and exemplary damages.

Actual or compensatory damages represent the adequate compensation for

pecuniary loss suffered and for profits the obligee failed to obtain.

In contracts or quasi-contracts, the obligor is liable for all the damages which
may be reasonably attributed to the non-performance of the obligation if he is
guilty of fraud, bad faith, malice, or wanton attitude.

Moral damages include moral suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, or
similar injury. They may be recovered in the cases enumerated in Article 2219 of
the Civil Code, likewise, if they are the proximate result of, as in this case, the
petitioner’s breach of the contract of carriage. Anent a breach of a contract of
common carriage, moral damages may be awarded if the common carrier, like
the petitioner, acted fraudulently or in bad faith.

(3) Jose Marcial K. Ochoa (Jose Marcial) died on the night of March 10, 1995 while on
board an Avis taxicab owned and operated by G & S Transport Corporation (G & S), a
common carrier. Heirs of Jose Marcial K. Ochoa, etc., vs. G & S Transport Corporation,
G.R. No. 170071, March 9, 2011, First Division, J. Del Castillo.

In Victory Liner Inc. v. Gammad we awarded P100,000.00 by way of moral

damages to the husband and three children of the deceased, a 39-year old
Section Chief of the Bureau of Internal Revenue, to compensate said heirs for
the grief caused by her death. This is pursuant to the provisions of Articles 1764
and 2206(3) which provide:

Art. 1764. Damages in cases comprised in this Section shall be awarded

in accordance with Title XVIII of this Book, concerning Damages. Articles
2206 shall also apply to the death of a passenger caused by the breach of
contract by a common carrier.

Art. 2206. x x x

(3) The spouse, legitimate and illegitimate descendants and the

ascendants of the deceased may demand moral damages for mental
anguish by reason of the death of the deceased.

Here, there is no question that the heirs are likewise entitled to moral damages
pursuant to the above provisions, considering the mental anguish suffered by
them by reason of Jose Marcial’s untimely death, as can be deduced from the
testimony of his wife Ruby.

Under this circumstance, we thus find as sufficient and “somehow proportional to

and in approximation of the suffering inflicted” an award of moral damages in an
amount similar to that awarded in Victory which is P100,000.00.

(4) Death of newly-weds when the transportation to the resort capsized; American
Expectancy Table of Mortality or the Actuarial of Combined Experience Table of
Mortality. Spouses Dante Cruz and Leonara Cruz, vs. Sun Holidays, Inc., G.R. No.
186312, June 29, 2010, Third Division, J. Carpio Morales.

Article 1764 vis-à-vis Article 2206 of the Civil Code holds the common carrier in
breach of its contract of carriage that results in the death of a passenger liable to
pay the following: (1) indemnity for death, (2) indemnity for loss of earning
capacity and (3) moral damages.

33
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at
P50,000. As for damages representing unearned income, the formula for its
computation is:

Net Earning Capacity = life expectancy x (gross annual income -

reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 — age of deceased at the time of death]

The first factor, i.e., life expectancy, is computed by applying the formula
(2/3 x [80 — age at death]) adopted in the American Expectancy Table of
Mortality or the Actuarial of Combined Experience Table of Mortality.

The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental
expenses. The loss is not equivalent to the entire earnings of the deceased, but
only such portion as he would have used to support his dependents or heirs.
Hence, to be deducted from his gross earnings are the necessary expenses
supposed to be used by the deceased for his own needs.

In computing the third factor – necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life expectancy as
follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$900 which, when converted to Philippine peso applying the annual average
exchange rate of $1 = P44 in 2000, amounts to P39,600. Ruelito’s net earning
capacity is thus computed as follows:

Net Earning Capacity = life expectancy x (gross annual income -

reasonable and necessary living expenses).

= 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carrier’s

breach of contract of carriage resulted in the death of petitioners’ son, following
Article 1764 vis-à-vis Article 2206 of the Civil Code, petitioners are entitled to
moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence

required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in
contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.

34
 Under the circumstances, it is reasonable to award petitioners the amount of
P100,000 as moral damages and P100,000 as exemplary damages.

(5) Suit between a passenger and a travel agent. Expertravel & Tours, Inc., vs. The
Hon. Court of Appeals and Ricardo Lo, G.R. No. 130030, June 25, 1999, Third Division,
J. Vitug.

By special rule in Article 1764, in relation to Article 2206, of the Civil Code, moral
damages may also be awarded in case the death of a passenger results from a
breach of carriage.

(6) Bus fell into a ravine and the passengers died and were insured. Victory Liner, Inc.,
vs. Rosalito Gammad, et. al., G.R. No. 159636, November 25, 2004, First Division, J.
Ynares-Santiago.

Article 1764 in relation to Article 2206 of the Civil Code, holds the common
carrier in breach of its contract of carriage that results in the death of a
passenger liable to pay the following: (1) indemnity for death, (2) indemnity for
loss of earning capacity, and (3) moral damages.

In the present case, respondent heirs of the deceased are entitled to indemnity
for the death of Marie Grace which under current jurisprudence is fixed at
P50,000.00.

By special rule in Article 1764 in relation to Article 2206 of the Civil Code, moral
damages may also be awarded in case the death of a passenger results from a
breach of carriage. On the other hand, exemplary damages, which are awarded
by way of example or correction for the public good may be recovered in
contractual obligations if the defendant acted in wanton, fraudulent, reckless,
oppressive, or malevolent manner.

(7) The bus fell into a ravine and struck a tree. Tito Tumboy died and physical injuries
to other passengers. Alberta Yobido and Cresencio Yobido, vs. Court of Appeals, Leny
Tumboy, etc., G.R. No. 113003, October 17, 1997, Third Division, J. Romero.

Having failed to discharge its duty to overthrow the presumption of negligence

with clear and convincing evidence, petitioners are hereby held liable for
damages. Article 1764 in relation to Article 2206 of the Civil Code prescribes the
amount of at least three thousand pesos as damages for the death of a
passenger. Under prevailing jurisprudence, the award of damages under Article
2206 has been increased to fifty thousand pesos (P50,000.00).

Moral damages are generally not recoverable in culpa contractual except when
bad faith had been proven. However, the same damages may be recovered
when breach of contract of carriage results in the death of a passenger, as in this
case. Exemplary damages, awarded by way of example or correction for the
public good when moral damages are awarded, may likewise be recovered in
contractual obligations if the defendant acted in wanton, fraudulent, reckless,
oppressive, or malevolent manner. Because petitioners failed to exercise the
extraordinary diligence required of a common carrier, which resulted in the death
of Tito Tumboy, it is deemed to have acted recklessly. As such, private
respondents shall be entitled to exemplary damages.

(8) Flight was cancelled but passenger was not properly rebooked. China Airlines, vs.
Daniel Chiok, G.R. No. 152122, July 30, 2003, Third Division, J. Panganiban.

Moral damages cannot be awarded in breaches of carriage contracts, except in

the two instances contemplated in Articles 1764 and 2220 of the Civil Code,
which we quote:

35
 “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 2220. Willful injury to property may be a legal ground for

awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad
faith.”

There is no occasion for us to invoke Article 1764 here. We must therefore

determine if CAL or its agent (PAL) is guilty of bad faith that would entitle
respondent to moral damages.

Since the status of respondent on Flight PR 311 was “OK,” as a matter of right
testified to by PAL’s witness, he should have been automatically transferred to
and allowed to board Flight 307 the following day. Clearly resulting from
negligence on the part of PAL was its claim that his name was not included in its
list of passengers for the November 24, 1981 PR 311 flight and, consequently, in
the list of the replacement flight PR 307. Since he had secured confirmation of
his flight -- not only once, but twice -- by personally going to the carrier’s offices
where he was consistently assured of a seat thereon -- PAL’s negligence was so
gross and reckless that it amounted to bad faith.

In view of the foregoing, we rule that moral and exemplary damages were
properly awarded by the lower courts.

(9) The right of a passenger affected by the interruption of a vessel’s voyage and the
consequent delay in the vessel’s arrival at its port of destination. Trans-Asia Shipping
Lines, Inc., vs. Court of Appeals and Atty. Renato T. Arroyo, G.R. No. 118126, March 4,
1996, Third Division, J. Davide Jr.

As to its liability for damages to the private respondent, Article 1764 of the Civil
Code expressly provides:

ART. 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 common carrier.

The damages comprised in Title XVIII of the Civil Code are actual or
compensatory, moral, nominal, temperate or moderate, liquidated, and
exemplary.

(10) Determination of earning capacity to fix the amount of damages. Smith Bell
Dodwell Shipping Agency Corporation, vs. Catalino Borja and International Towage and
Transport Corporation, G.R. No. 143008, June 10, 2002, Third Division, J. Panganiban.

Both parties have a point. In determining the reasonableness of the damages

awarded under Article 1764 in conjunction with Article 2206 of the Civil Code,
the factors to be considered are: (1) life expectancy (considering the health of
the victim and the mortality table which is deemed conclusive) and loss of
earning capacity; (b) pecuniary loss, loss of support and service; and (c) moral
and mental sufferings. The loss of earning capacity is based mainly on the
number of years remaining in the person’s expected life span. In turn, this
number is the basis of the damages that shall be computed and the rate at which
the loss sustained by the heirs shall be fixed.

(11) Rule on damages also apply to the death of the crew of the vessel but based on
the other provisions. Candano Shipping Lines, Inc., vs. Florentina J. Sugata-on, G.R.
No. 163212, March 13, 2007, Third Division, J. Chico-Nazario.

36
 The obligation of the common carrier to indemnify its passenger or his heirs for
injury or death arose from the contract of carriage entered into by the common
carrier and the passenger. By the very nature of the obligation which is imbued
with public interest, in contract of carriage the carrier assumes the express
obligation to transport its passenger to his destination safely and to observe
extraordinary diligence with due regard to all the circumstances, and any injury
that might be suffered by the passenger is right away attributable to the fault or
negligence of the carrier and thus gives rise to the right of the passenger or his
heirs for indemnity.

In the same breadth, the employer shall be liable for the death or personal injury
of its employees in the course of employment as sanctioned by Article 1711 of
the New Civil Code. The liability of the employer for death or personal injury of
his employees arose from the contract of employment entered into between the
employer and his employee which is likewise imbued with public interest.

Accordingly, when the employee died or was injured in the occasion of

employment, the obligation of the employer for indemnity, automatically
attaches. The indemnity may partake of the form of actual, moral, nominal,
temperate, liquidated or exemplary damages, as the case may be depending on
the factual milieu of the case and considering the criterion for the award of these
damages as outlined by our jurisprudence.

In the case at bar, only the award of actual damages, specifically the award for
unearned income is warranted by the circumstances since it has been duly
proven that the cause of death of Melquiades is a fortuitous event for which
Candano Shipping cannot be faulted.

(12) Carrier can not assume acts of state to inspect passport and then bump off a
passenger; liability for damages. Japan Airlines vs. Jesus Simangan, G.R. No. 170141,
April 22, 2008, Third Division, J. Reyes, R.T.

As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract for it is not one of the items enumerated
under Article 2219 of the Civil Code. As an exception, such damages are
recoverable: (1) in cases in which the mishap results in the death of a
passenger, as provided in Article 1764, in relation to Article 2206(3) of the Civil
Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Article 2220.

The acts committed by JAL against respondent amounts to bad faith. As found
by the RTC, JAL breached its contract of carriage with respondent in bad faith.
JAL personnel summarily and insolently ordered respondent to disembark while
the latter was already settled in his assigned seat. He was ordered out of the
plane under the alleged reason that the genuineness of his travel documents
should be verified.

(13) Employee of the common carrier died while fixing the brakes of the truck. Unusual
as the Supreme Court used the rule on passenger-common carrier. Baliwag Transit,
Inc. vs. Court of Appeals, Divina Vda. De Dionisio, G.R. No. 116624, September 20,
1996, First Division, J. Bellosillo.

As regards the reasonableness of the damages awarded, under Art. 1764, in

conjunction with Art. 2206, of the Civil Code, as well as established
jurisprudence, several factors are considered, namely: (a) life expectancy
(considering the health of the deceased and the mortality table being deemed
conclusive) and loss of earning capacity; (b) pecuniary loss, loss of support and
service; and, (c) moral and mental sufferings. The loss of earning capacity is
based mainly on two factors, namely, the number of years on the basis of which
the damages shall be computed, and the rate at which the loss sustained by the
heirs should be fixed.

37
(14) Baggage were lost on a trip to the Philippines from abroad. Sabena Belgian World
Airlines vs. Court of Appeals and Paula San Agustin, G.R. No. 104685, March 14, 1996,
First Division, J. Vitug.

The Court thus sees no error in the preponderant application to the instant case
by the appellate court, as well as by the trial court, of the usual rules on the
extent of recoverable damages beyond the Warsaw limitations. Under domestic
law and jurisprudence (the Philippines being the country of destination), the
attendance of gross negligence (given the equivalent of fraud or bad faith) holds
the common carrier liable for all damages which can be reasonably attributed,
although unforeseen, to the non-performance of the obligation, including moral
and exemplary damages.

(15) Victim Sunga rode on the jeepney of Calalas but was bumped by a truck owned by
Salva. Award of moral damages is the issue. Vicente Calalas, vs. Court of Appeals,
Eliza Jujeurche Sunga and Francisco Salva, G.R. No. 122039, May 31, 2000, Second
Division, J. Mendoza.

As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract for it is not one of the items enumerated
under Art. 2219 of the Civil Code. As an exception, such damages are
recoverable: (1) in cases in which the mishap results in the death of a
passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the Civil Code;
and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Art. 2220.

In this case, there is no legal basis for awarding moral damages since there was
no factual finding by the appellate court that petitioner acted in bad faith in the
performance of the contract of carriage. Sunga’s contention that petitioner’s
admission in open court that the driver of the jeepney failed to assist her in
going to a nearby hospital cannot be construed as an admission of bad faith. The
fact that it was the driver of the Isuzu truck who took her to the hospital does
not imply that petitioner was utterly indifferent to the plight of his injured
passenger. If at all, it is merely implied recognition by Verena that he was the
one at fault for the accident.

(15) Passenger was injured when the bus figured in an accident; award of damages is
the issue. Engracio Fabre, Jr. et. al. vs. Court of Appeals, The Word for the World
Christian Fellowship, Inc., et. al., G.R. No. 111127, July 26, 1996, Second Division, J.
Mendoza.

On the theory that petitioners are liable for breach of contract of carriage, the
award of moral damages is authorized by Art. 1764, in relation to Art. 2220,
since Cabil’s gross negligence amounted to bad faith. Amyline Antonio’s
testimony, as well as the testimonies of her father and co-passengers, fully
establish the physical suffering and mental anguish she endured as a result of
the injuries caused by petitioners’ negligence.

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.

ARTICLE 1766

38
Latest Jurisprudence:

(1) Liability of common carrier for the sustenance of passenger while in delay; not
provided for in civil code but code of commerce is suppletory. Trans-Asia Shipping
Lines, Inc., vs. Court of Appeals and Atty. Renato T. Arroyo, G.R. No. 118126, March 4,
1996, Third Division, J. Davide, Jr.

Undoubtedly, there was, between the petitioner and the private respondent, a
contract of common carriage. The laws of primary application then are the
provisions on common carriers under Section 4, Chapter 3, Title VIII, Book IV of
the Civil Code, while for all other matters not regulated thereby, the Code of
Commerce and special laws.

As to the rights and duties of the parties strictly arising out of such delay, the
Civil Code is silent. However, as correctly pointed out by the petitioner, Article
698 of the Code of Commerce specifically provides for such a situation. It reads:

In case a voyage already begun should be interrupted, the passengers

shall be obliged to pay the fare in proportion to the distance covered,
without right to recover for losses and damages if the interruption is due
to fortuitous event or force majeure, but with a right to indemnity if the
interruption should have been caused by the captain exclusively. If the
interruption should be caused by the disability of the vessel and a
passenger should agree to await the repairs, he may not be required to
pay any increased price of passage, but his living expenses during the
stay shall be for his own account.

This article applies suppletorily pursuant to Article 1766 of the Civil Code.

(2) Cargo transported from Hong Kong to the Philippines were damaged; COGSA
applicable suppletory to the Civil Code. Philippine Charter Insurance Corporation vs.
Neptune Orient Lines/Overseas Agency Services, Inc., G.R. No. 145044, June 12, 2008,
First Division, J. Azcuna.

Since the subject cargoes were lost while being transported by respondent
common carrier from Hong Kong to the Philippines, Philippine law applies
pursuant to the Civil Code which provides:

Art. 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.

Art. 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 rights and obligations of respondent common carrier are thus governed by
the provisions of the Civil Code, and the COGSA, which is a special law, applies
suppletorily.

The pertinent provisions of the Civil Code applicable to this case are as follows:

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 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.

39
 In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign
trade, provides:

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 be conclusive on
the carrier.

(3) Coils of various Prime Cold Rolled steel sheets were damages when shipped from
Germany to Manila. Belgian Overseas Chartering and Shipping N.V. and Jardine Davies
Transport Services, Inc. vs. Philippine First Insurance Co., Inc., G.R. No. 143133, June
5, 2002, Third Division, J. Panganiban.

It is to be noted, however, that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package. In all matters not regulated by
the Civil Code, the right and the obligations of common carriers shall be
governed by the Code of Commerce and special laws. Thus, the COGSA, which is
suppletory to the provisions of the Civil Code, supplements the latter by
establishing a statutory provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading. The provisions on
limited liability are as much a part of the bill of lading as though physically in it
and as though placed there by agreement of the parties.

Some related terms:

Doctrine of Last Clear Chance. Furthermore, under the doctrine of "last clear chance"
(also referred to, at times as "supervening negligence" or as "discovered peril"),
petitioner bank was indeed the culpable party. This doctrine, in essence, states
that where both parties are negligent, but the negligent act of one is appreciably
later in time than that of the other, or when it is impossible to determine whose
fault or negligence should be attributed to the incident, the one who had the last
clear opportunity to avoid the impending harm and failed to do so is chargeable
with the consequences thereof. [LBC Air Cargo, Inc. vs. Court of Appeals, 241
SCRA 619, 624 [1995], citing Picart vs. Smith, supra]

Stated differently, the rule would also mean that an antecedent negligence of a
person does not preclude the recovery of damages for the supervening
negligence of, or bar a defense against liability sought by another, if the latter,
who had the last fair chance, could have avoided the impending harm by the
exercise of due diligence. [Pantranco North Express. Inc. vs. Baesa, 179 SCRA
384; Glan People's Lumber and Hardware vs. Intermediate Appellate Court, 173
SCRA 464]. Cited in the case of Philippine Bank of Commerce vs. Court of
Appeals, G.R. No. 97626, March 14, 1997, First Division, J. Hermosisima Jr.

40
 The Court had occasion to reiterate the well-established doctrine of last clear
chance in Philippine National Railways v. Brunty [G.R. No. 169891, November 2,
2006, 506 SCRA 685.] as follows: The doctrine of last clear chance states that
where both parties are negligent but the negligent act of one is appreciably later
than that of the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear opportunity to avoid
the loss but failed to do so, is chargeable with the loss. Stated differently, the
antecedent negligence of plaintiff does not preclude him from recovering
damages caused by the supervening negligence of defendant, who had the last
fair chance to prevent the impending harm by the exercise of due diligence.[Id]
Cited in the case of Sealoader Shipping Corporation vs. Grand Cement
Manufacturing Corporation, G.R. No. 167363, December 15, 2010, First Division,
J. Leonardo-de Castro.

Accommodation passengers. The owner and driver of a vehicle owes to accommodation

passengers or invited guests merely the duty to exercise reasonable care so that they
may be transported safely to their destination. Thus, “The rule is established by weight
of authority that the owner or operator of an automobile owes the duty to an invited
guest to exercise reasonable care in its operation, and not unreasonably to expose him
to danger and injury by increasing the hazard of travel. The owner of the vehicle in the
case at bar is only required to observe ordinary care, and is not in duty bound to
exercise extraordinary diligence required by our law. Lourdes J. Lara, et al. vs. Brigido
R. Valencia, G.R. No. L-9907, June 60, 198, J. Angelo Bautista.

Note: Compare with Article 1758. Article 1758. When a passenger is carried
gratuitously, a stipulation limiting the common carrier’s liability for negligence is
valid, but not for wilful acts or gross negligence. The reduction of fare does not
justify any limitation of the common carrier’s liability.

Res Ipsa Loquitor. While negligence is not ordinarily inferred or presumed, and while
the mere happening of an accident or injury will not generally give rise to an inference
or presumption that it was due to negligence on defendant’s part, under the doctrine of
res ipsa loquitur, which means, literally, the thing or transaction speaks for itself, or in
one jurisdiction, that the thing or instrumentality speaks for itself, the facts or
circumstances accompanying an injury may be such as to raise a presumption, or at
least permit an inference of negligence on the part of the defendant, or some other
person who is charged with negligence. D.M. Consunji, Inc. case cited in Malayan
Insurance Co., Inc. vs. Rodelio Alberto and Enrico Albeto Reyes, G.R. No. 194320,
February 1, 2012, Third Division, J. Velasco Jr.

Res ipsa loquitur is a rule of necessity and it applies where evidence is absent or
not readily available, provided the following requisites are present: (1) the
accident was of a kind which does not ordinarily occur unless someone is
negligent; (2) the instrumentality or agency which caused the injury was under
the exclusive control of the person charged with negligence; and (3) the injury
suffered must not have been due to any voluntary action or contribution on the
part of the person injured. x x x. (Id.)

D. BILL OF LADING

Bill of Lading under Article 352 of the Code of Commerce (Title

VII, Commercial Contract of Transportation Overland, Article 349
to 379)

Bill of Lading under Article 706 to 718 of the Code of Commerce

(Title III, Special Contracts on Maritime Commerce, No. 6, Article
706 to 718)

1. Three Fold Character

41
 "BILL OF LADING": This is a key document for cargo claims. A bill of lading
generally serves three purposes: (1) document of title; (2) a contract of carriage
and (3) a receipt for goods. Ocean bills can be negotiable instruments and
control possession of the goods.

(http://www.mondaq.com/unitedstates/article.asp?articleid=94406)

Keng Hua Paper Products Co. Inc., vs. Court of Appeals, Regional Trial Court
Manila and Sea-Land Services, Inc., G.R. NO. 116863, February 12, 1998,
First Division, J. Panganiban. Facts: Sea-Land received at its Hong Kong
terminal a sealed container with seventy-six bales of “unsorted waste paper” for
shipment to Keng Hua in Manila. A bill of lading (Exh. A) to cover the shipment
was issued by Sea-Land. Keng Hua did not claim the goods for 481 days alleging
over shipment. Demurrage accrued. RTC ruled in favor of Sea-Land. CA and SC
affirmed the RTC. Held: A bill of lading serves two functions. First, it is a receipt
for the goods shipped. Second, it is a contract by which three parties, namely,
the shipper, the carrier, and the consignee undertake specific responsibilities and
assume stipulated obligations. A “bill of lading delivered and accepted constitutes
the contract of carriage even though not signed,” because the “(a)cceptance of a
paper containing the terms of a proposed contract generally constitutes an
acceptance of the contract and of all of its terms and conditions of which the
acceptor has actual or constructive notice.” The acceptance of a bill of lading by
the shipper and the consignee, with full knowledge of its contents, gives rise to
the presumption that the same was a perfected and binding contract. Keng Hua
admits that it “received the bill of lading immediately after the arrival of the
shipment” having been afforded an opportunity to examine the said document, it
did not immediately object to or dissent from any term or stipulation therein

Cebu Salvage Corporation vs. Philippine Home Assurance Corporation, G.R. No.
150403, January 25, 2007, First Division, J. Corona. Facts: Cebu Salvage
(as carrier) and Maria Cristina Chemicals Industries, Inc. [MCCII] (as charterer)
entered into a voyage charter wherein Cebu Salvage was to load 800 to 1,100
metric tons of silica quartz on board M/T Espiritu that ALS Timber Enterprises
(ALS). ALS issued a bill of lading to MCCII. The vessel sank resulting in the total
loss of the cargo. Philippine Home Assurance Corporation paid MCCII and was
subrogated to its rights. Home Assurance filed a complaint at RTC against Cebu
Salvage for reimbursement. RTC ruled in favor of Home Assurance. CA and SC
sustained the RTC. Held: The bill of lading was merely a receipt issued by ALS to
evidence the fact that the goods had been received for transportation. It was
not signed by MCCII, as in fact it was simply signed by the supercargo of ALS.
This is consistent with the fact that MCCII did not contract directly with ALS.
While it is true that a bill of lading may serve as the contract of carriage between
the parties, it cannot prevail over the express provision of the voyage charter

2. Delivery of Goods

a) Period of Delivery

Article 358, Commercial Contract of Transportation Overland.

“Should not period within which goods are to be delivered be
previously fixed, the carrier shall be under the obligation to
forward them in the first shipment of the same or similar
merchandise which he may make to the point of delivery; and
should he not do so the damages occasioned by the delay shall be
suffered by him.”

b) Delivery without surrender of bill of lading

(As per Article 353 of the Code of Commerce; acknowledgment of the

delivery by signing the delivery receipt suffices)

42
National Trucking and Forwarding Corporation vs. Lorenzo Shipping
Corporation, G.R. No. 153563, February 7, 2005, First Division, J.
Quisumbing. Facts: The Department of Health engaged National Trucking to
ship 4,868 bags of non-fat dried milk to Zamboanga. National Trucking engaged
Lorenzo Shipping Corporation (LSC) as the shipper and Lorenzo Shipping issued
bills of lading. The consignee named in the bills of lading was Abdurahman
Jama, National Trucking’s branch supervisor in Zamboanga City. Lorenzo
Shipping’s agent delivered the bags to Adburahman but the latter as the named
consignee did not surrender the originals of the bill of lading. The goods were not
received and so National Trucking sued Lorenzo Shipping. RTC ruled in favor of
Lorenzo Shipping. CA and SC sustained the RTC. Held: Although the original
bills of lading remained with National Trucking, Lorenzo Shipping’s agents
demanded from Abdurahman the certified true copies of the bills of lading. They
also asked the latter and in his absence, his designated subordinates, to sign the
cargo delivery receipts. This practice, which respondent’s agents testified to be
their standard operating procedure, finds support in Article 353 of the Code of
Commerce:

ART. 353 xxx 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, xxx 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. (Emphasis
supplied)

Conformably with the aforecited provision, the surrender of the original bill of
lading is not a condition precedent for a common carrier to be discharged of its
contractual obligation. If surrender of the original bill of lading is not possible,
acknowledgment of the delivery by signing the delivery receipt suffices. This is
what Lorenzo Shipping did.

(As a standard maritime practice upon request of the shipper when

goods are perishable)

43
Benito Macam vs. Court of Appeals, China Ocean Shipping Co and Wallem
Philippines Shipping, Inc., G.R. No. 125524, August 25, 1999, Second
Division, J. Bellosillo. Facts: Benito Macam shipped perishable fruits using
the vessel of China Ocean Shipping Co. through its local agent Wallem. The
goods were covered by Bill of Lading and exported through a letter of credit that
Pakistan Bank issued. The bill of lading requires that “one must be surrendered
duly endorsed in exchange for the goods or delivery order”. Pakistani Bank was
the consignee and Great Prospect Company (GPC) as notify party. As per letter
of credit requirement copies of the bill of lading were submitted to Macam’s
depositary bank (Solid Bank) which paid Macam the total value of the shipment.
Wallem delivered directly the goods to GPC not to Pakistani Bank without
surrender of the bill of lading. GPC failed to pay Pakistani Bank and so Pakistani
Bank refused to reimburse Solid Bank of what it has paid to Macam. Macam
allegedly returned the amount to Solid Bank and Macam demanded payment
from Wallem. Macam sued Wallem for delivery to the goods to GPC without the
bill of lading but Wallem contended that delivery was done upon Macam’s Telex
instruction. Wallem explained that it is a standard maritime practice, when
immediate delivery is of the essence, for the shipper (Macam) to request or
instruct the carrier (Wallem) to deliver the goods to the buyer (GPC) upon arrival
at the port of destination without requiring presentation of the bill of lading as
that usually takes time. RTC ruled in favor of Macam. CA reversed the RTC. SC
affirmed the SC. Held: Macam declared that it was his practice to ask the
shipping lines to immediately release shipment of perishable goods through
telephone calls by himself or his “people.” Macam no longer required
presentation of a bill of lading nor of a bank guarantee as a condition to
releasing the goods in case Macam was already fully paid. Thus, taking into
account that subject shipment consisted of perishable goods and SOLIDBANK
pre-paid the full amount of the value thereof, it is not hard to believe the claim
of respondent WALLEM that petitioner indeed requested the release of the goods
to GPC without presentation of the bills of lading and bank guarantee.

c) Refusal of Consignee to take delivery

(consignee not privy to the contract of affreightment)

MOF Company, Inc. vs. Shin Yang Brokerage Corporation, G.R. No. 172822,
December 18, 2009, Second Division, J. Del Castillo. Facts: Halla Trading
Co. (shipper) shipped secondhand cars through Hanjin Shipping Co., Ltd.
(carrier) and designated Shin Yang as the consignee. The bill of lading was
prepared by Hanjin payment was “freight collect” basis meaning the consignee
Shin Yang would pay freight and other charges. The shipment arrived in Manila
and MOF Company (Hanjin’s exclusive general agent) demanded payment from
Shin Yang. Shin Yang refused to pay contending that it did not cause the
importation of the goods and the bill of lading was prepared without its consent.
MTC and RTC ruled in favor of MOF. CA reversed RTC and ruled in favor of Shin
Yang. SC sustained the CA. Held: A consignee, although not a signatory to the
contract of carriage between the shipper and the carrier, becomes a party to the
contract by reason of either a) the relationship of agency between the consignee
and the shipper/consignor; b) the unequivocal acceptance of the bill of lading
delivered to the consignee, with full knowledge of its contents or c) availment of
the stipulation pour autrui, i.e., when the consignee, a third person, demands
before the carrier the fulfillment of the stipulation made by the consignor/shipper
in the consignee’s favor, specifically the delivery of the goods/cargoes shipped.

In the instant case, Shin Yang consistently denied in all of its pleadings that it
authorized Halla Trading to ship the goods on its behalf; or that it got hold of the
bill of lading covering the shipment or that it demanded the release of the cargo.
Basic is the rule in evidence that the burden of proof lies upon him who asserts
it, not upon him who denies, since, by the nature of things, he who denies a fact
cannot produce any proof of it. Thus, MOF has the burden to controvert all these
denials, it being insistent that Shin Yang asserted itself as the consignee and the
one that caused the shipment of the goods to the Philippines.

44
3. Period for Filing Claims

Article 366, Commercial Contract of Transportation Overland. “Within the

twenty-four hours following the receipt of the merchandise, a claim may be
made against the carrier on account of damage or average found therein on
opening the packages, provided that the indications of the damage or average
giving arise to the claim cannot be ascertained from the exterior of said
packages, in which case said claim would only be admitted on the receipt of the
packages.

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

(Period as stipulated in the bill of lading)

Provident Insurance Corp., vs. Court of Appeals and Azucar Shipping Corp.,
G.R. No. 118030, January 15, 2004, First Division, J. Ynares-Santiago.
Facts: Azucar Shipping Corp. (MV Eduardo II) shipped from Toledo City 32,000
plastic woven bags it was consigned to Atlas Fertilizer and insured by Provident
Insurance Corporation. The cargo was damaged. Provident after it paid Atlas
was subrogated to its rights and filed a complaint against Azucar Shipping. The
period for filing claims outlined in the bill of landing however was not followed.
RTC dismissed the complaint as the period of filing claims outlined in the bill of
landing was not followed. CA and SC affirmed the RTC. Held: There is also no
dispute that the consignee failed to strictly comply with Stipulation No. 7 of the
Bill of Lading in not making claims for damages to the goods within the twenty-
four hour period from the time of delivery, and that there was no exterior sign of
damage of the goods. The bill of lading defines the rights and liabilities of the
parties in reference to the contract of carriage. Stipulations therein are valid and
binding in the absence of any showing that the same are contrary to law, morals,
customs, public order and public policy. Where the terms of the contract are
clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control.
The twenty-four hour requirement under the said stipulation is, by agreement of
the contracting parties, a sine qua non for the accrual of the right of action to
recover damages against the carrier.

A bill of lading is in the nature of a contract of adhesion, defined as one where

one of the parties imposes a ready-made form of contract which the other party
may accept or reject, but which the latter cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his signature or
his “adhesion” thereto, giving no room for negotiation and depriving the latter of
the opportunity to bargain on equal footing. Nevertheless, these types of
contracts have been declared as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it entirely. The
acceptance of the bill without dissent raises the presumption that all the terms
therein were brought to the knowledge of the shipper and agreed to by him and,
in the absence of fraud or mistake, he is estopped from thereafter denying that
he assented to such terms.

4. Period for Filing Actions

Article 1144 of the Civil Code. “The following actions must be

brought within ten years from the time the right of action accrues:
(1) Upon a written contract; (2) Upon an obligation created by
law; (3) Upon a judgment”.

E. MARITIME COMMERCE

Title III Special Contracts of Maritime Commerce

45
 A. Charter Parties (Section 1, Article 652 to 718 of the Code of
Commerce) Includes:

Forms and Effects of Charter Parties (Article 652 to 668)

Rights and Obligations of Owners (Article 669 to 678)
Obligations of Charterers (Article 679 to 687)
Total and Partial Rescissions of Charter Parties (Article 688
to 692)
Passengers of Sea Voyages (Article 693 to 705)
Bills of Lading (Article 706 to 718)

1. Charter Parties

(San Miguel Corporation vs. Heirs of Sabiniano Inguito and Julius Ouano,
G.R. No. 141716, July 4, 2002, First Division, J. Ynares Santiago)

Rule: A charter party is a contract by virtue of which the owner or the agent of a
vessel binds himself to transport merchandise or persons for a fixed price. It has
also been defined as a contract by virtue of which the owner or the agent of the
vessel leases for a certain price the whole or a portion of the vessel for the
transportation of goods or persons from one port to another.

A charter party may either be a (1) bareboat or demise charter or (2) contract of
affreightment. Under a demise or bareboat charter, the charterer mans the
vessel with his own people and becomes, in effect, the owner of the ship for the
voyage or service stipulated, subject to liability for damages caused by
negligence.

In a contract of affreightment, on the other hand, the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for special service
to be rendered by the owner of the vessel. Under such contract the ship owner
retains the possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for his payment
of the charter hire. Otherwise put, a contract of affreightment is one by which
the owner of a ship or other vessel lets the whole or part of her to a merchant or
other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight.

A contract of affreightment may be either time charter, wherein the leased

vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charterer
provides for the hire of the vessel only, either for a determinate period of time or
for a single or consecutive voyage, the ship owner to supply the ship’s store, pay
for the wages of the master of the crew, and defray the expenses for the
maintenance of the ship.

If the charter is a contract of affreightment, which leaves the general owner in

possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.

46
Lea Mer Industries, Inc. vs. Malayan Insurance Co., Inc. G.R. No. 161745,
September 30, 2005, Third Division, J. Panganiban. Facts: Ilian Silica
Mining through Lea Mer Industries, Inc., shipped of 900 metric tons of silica sand
valued at P565,000 consigned to Vulcan Industrial and Mining Corporation for
transport from Palawan to Manila. The cargo was placed on board Judy VII a
barge leased by Lea Mer. The vessel sank and the cargo lost. Malayan Insurance
was subrogated to the rights of Vulcan after it paid it. Malayan sued Lea Mer for
reimbursement. RTC dismissed the complaint grounded on fortuitous event. CA
reversed the RTC finding that the vessel was not seaworthy when it left port. SC
affirmed the CA Held: Charter parties are classified as contracts of (1) demise
(or bareboat) and (2) affreightment, which are distinguished as follows:

“Under the demise or bareboat charter of the vessel, the charterer will
generally be considered as owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages
caused by negligence. To create a demise, the owner of a vessel must
completely and exclusively relinquish possession, command and
navigation thereof to the charterer; anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or
not a charter party at all.”

The distinction is significant, because a demise or bareboat charter indicates a

business undertaking that is private in character. Consequently, the rights and
obligations of the parties to a contract of private carriage are governed
principally by their stipulations, not by the law on common carriers.

Also (1) Valenzuela Hardwood and Industrial Supply, Inc. vs. Court of
Appeals and Seven Brothers Shipping Corporation, G.R. No. 102316,
June 30, 1997, Third Division, J. Panganiban; (2) National Food
Authority, Roselinda Geraldez, Ramon Sargan and Adelina A. Yap vs.
Court of Appeals and HongFil Shipping Corporation, G.R. No. 96453,
August 4, 1999, Third Division, J. Purisima; (3)

a) Bareboat/demise charter

“Under a demise or bareboat charter, the charterer mans the vessel with his own
people and becomes, in effect, the owner of the ship for the voyage or service
stipulated, subject to liability for damages caused by negligence”. (Now a Private
Carrier)

b) Time charter

“A contract of affreightment may be either time charter, wherein the leased

vessel is leased to the charterer for a fixed period of time.” (Still a Common
Carrier)

c) Voyage/trip charter

“A contract of affreightment may be either voyage charter, wherein the ship is

leased for a single voyage.” (Still a Common Carrier)

Title II. Persons Who May Take Part in Maritime Commerce (Code of Commerce)

Ship owners and ship agents (Section 1, Article 586 to 608)

Captains and Masters of Vessels (Section 2, Article 609 to 625)
Officers and Crews of Vessels (Section 3, Article 626 to 648)
Supercargoes (Section 4, Article 649 to 651)

2. Liabilities of ship owners and shipping agents

47
a) Liability for acts of captain

Abandonment in Maritime Transport (587, 590, 837, Code of

Commerce), Real and Hypothecary Nature of a Shipping Transportation
Contract

(Agustin P. Dela Torre vs. Court of Appeals, Crisostomo G. Concepcion,

Ramon Larrazabal, Philippine Trigon Shipyard Corporation and Roland G.
Dela Torre, G.R. No. 160088, July 13, 2011, Third Division, J. Mendoza,
citing Yangco v. Laserna and Monarch Insurance Co., Inc. v. CA)

Rule ‘No vessel, no liability,’ expresses in a nutshell the limited liability rule. The
shipowner’s or agent’s liability is merely coextensive with his interest in the
vessel such that a total loss thereof results in its extinction. The total destruction
of the vessel extinguishes maritime liens because there are no longer any res to
which it can attach. This doctrine is based on the real and hypothecary nature of
maritime law which has its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by innumerable
hazards and perils. To offset against these adverse conditions and to encourage
shipbuilding and maritime commerce, it was deemed necessary to confine the
liability of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any.

‘Grotius, in his law of War and Peace, says that men would be deterred from
investing in ships if they thereby incurred the apprehension of being rendered
liable to an indefinite amount by the acts of the master,’

Agustin P. Dela Torre vs. Court of Appeals, Crisostomo G. Concepcion, Ramon

Larrazabal, Philippine Trigon Shipyard Corporation and Roland G. Dela
Torre, G.R. No. 160088, July 13, 2011, Third Division, J. Mendoza. Facts:
Crisostomo G. Concepcion entered into a bareboat charter party over LCT-
Josephine in favor of Roland G. Dela Torre and Trigon Shipyard Corporation, who
in turn sub-chartered it in favor of Agustin P. Dela Torre through a special power
of attorney he issued to Roland again sub-chartered the vessel to Ramon
Larrazabal. LCT-Josephine sank. It was Agustin’s crew who manned the vessel
when it sank. Concepcion sued Roland, who in turn sued Agustin, who in turned
sued Larrazabal. Roland invoked the Limited Liability Rule and the Real and
Hypothecary Nature of Shipping Transportation contract. RTC ruled in favor of
Concepcion holding defendants solidarily liable. CA and SC affirmed the RTC.
Held:

With respect to petitioners’ position that the Limited Liability Rule under the
Code of Commerce should be applied to them, the argument is misplaced. The
said 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. In this jurisdiction, this rule is provided in three articles of the
Code of Commerce. These are:

Art. 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 equipment and
the freight it may have earned during the voyage.

Art. 590. The co-owners of the 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 Art. 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.

48
 Art. 837. The civil liability incurred by shipowners in the case prescribed in
this section, shall be understood as limited to the value of the vessel with
all its appurtenances and freightage served during the voyage.

Article 837 specifically applies to cases involving collision which is a necessary

consequence of the right to abandon the vessel given to the shipowner or ship
agent under the first provision – Article 587. Similarly, Article 590 is a reiteration
of Article 587, only this time the situation is that the vessel is co-owned by
several persons.

Obviously, the forerunner of the Limited Liability Rule under the Code of
Commerce is Article 587. Now, the latter is quite clear on which indemnities may
be confined or restricted to the value of the vessel pursuant to the said Rule, and
these are 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.”
Thus, what is contemplated is the liability to third persons who may have dealt
with the shipowner, the agent or even the charterer in case of demise or
bareboat charter.

The only person who could avail of this is the shipowner, Concepcion. He is the
very person whom the Limited Liability Rule has been conceived to protect. The
petitioners cannot invoke this as a defense.

In Yangco v. Laserna, this Court, through Justice Moran, wrote: The policy which
the rule is designed to promote is the encouragement of shipbuilding and
investment in maritime commerce.

‘Grotius, in his law of War and Peace, says that men would be deterred
from investing in ships if they thereby incurred the apprehension of being
rendered liable to an indefinite amount by the acts of the master,’

Later, in the case of Monarch Insurance Co., Inc. v. CA, this Court, this time
through Justice Sabino R. De Leon, Jr., again explained:

‘No vessel, no liability,’ expresses in a nutshell the limited liability rule.

The shipowner’s or agent’s liability is merely coextensive with his interest
in the vessel such that a total loss thereof results in its extinction. The
total destruction of the vessel extinguishes maritime liens because there
is no longer any res to which it can attach. This doctrine is based on the
real and hypothecary nature of maritime law which has its origin in the
prevailing conditions of the maritime trade and sea voyages during the
medieval ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and to encourage shipbuilding and
maritime commerce, it was deemed necessary to confine the liability of
the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any.

Also (1) (Liability of Ship Agent) Macondray & Co. Inc., vs Provident Insurance
Corporation, G.R. No. 154305, December 9, 2004, Third Division, J. Panganiban;
(2) Monarch Insurance Co., Inc. Tabacalera Insurance Co., Inc and Hon. Judge
Amante Purisima, vs. Court of Appeals and Aboitiz Shipping Corporation, G.R.
No. 92735, March 29, 1999, Second Division, J. De Leon, Jr.

b) Exceptions to Limited Liability

(Liability of the vessel’s insurer and negligence on the part of the

shipowner)

(Aboitiz Shipping Corporation vs. Court of Appeals, Malayan Insurance

Company, Inc., Compagnie Maritimes Des Chargeurs Reunis and F.E.
Zuellig (M), Inc., G.R. No. 121833, October 17, 2008, Second Division, J.
Tinga)

49
 Rule: As a general rule, a ship owner’s liability is merely co-extensive with his
interest in the vessel, except where actual fault is attributable to the shipowner.
Thus, as an exception to the limited liability doctrine, a shipowner or ship agent
may be held liable for damages when the sinking of the vessel is attributable to
the (1) actual fault or negligence of the shipowner or its (2) failure to ensure the
seaworthiness of the vessel.

However, despite the total loss of the vessel, its (3) insurance answers for the
damages for which a shipowner or agent may be held liable.

Aboitiz Shipping Corporation vs. Court of Appeals, Malayan Insurance

Company, Inc., Compagnie Maritimes Des Chargeurs Reunis and F.E.
Zuellig (M), Inc., G.R. No. 121833, October 17, 2008, Second Division, J.
Tinga. Facts: These insurance companies Malayan Insurance Company, Inc.,
Compagnie Maritimes Des Chargeurs Reunis and F.E. Zuellig (M), Inc. were
subrogated to the rights of the shipper who have claims against Aboitiz Shipping
occasion upon the sinking of M/V P. Aboitiz on 31 October 1980. Aboitiz
Shipping invoked the Limited Liability Rule founded on the Real and Hypothecary
Nature of a Shipping Transportation Contract since the vessel was totally lost.
RTC ruled in favor of the insurance companies. CA and SC sustained the RTC.
Held: The court citing 587, 590, 837, Code of Commerce said these articles
precisely intend to limit the liability of the shipowner or agent to the value of the
vessel, its appurtenances and freightage earned in the voyage, provided that the
owner or agent abandons the vessel. When the vessel is totally lost in which case
there is no vessel to abandon, abandonment is not required. Because of such
total loss the liability of the shipowner or agent for damages is extinguished.

However, despite the total loss of the vessel, its insurance answers for the
damages for which a shipowner or agent may be held liable. Nonetheless, there
are exceptional circumstances wherein the ship agent could still be held
answerable despite the abandonment of the vessel, as where the loss or injury
was due to the fault of the shipowner and the captain. The international rule is to
the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner’s liability, does not apply to cases where the injury or average was
occasioned by the shipowner’s own fault. Likewise, the shipowner may be held
liable for injuries to passengers notwithstanding the exclusively real and
hypothecary nature of maritime law if fault can be attributed to the shipowner.

The instant petitions provide another occasion for the Court to reiterate the well-
settled doctrine of the real and hypothecary nature of maritime law. As a general
rule, a ship owner’s liability is merely co-extensive with his interest in the vessel,
except where actual fault is attributable to the shipowner. Thus, as an exception
to the limited liability doctrine, a shipowner or ship agent may be held liable for
damages when the sinking of the vessel is attributable to the actual fault or
negligence of the shipowner or its failure to ensure the seaworthiness of the
vessel. The instant petitions cannot be spared from the application of the
exception to the doctrine of limited liability in view of the unanimous findings of
the courts below that both Aboitiz and the crew failed to ensure the
seaworthiness of the M/V P. Aboitiz.

Also (1) Central Shipping Company Inc., vs. Insurance Company of North
America, G.R. No. 150751, September 20, 2004, Third Division, J. Panganiban;

Shipwrecks (Article 840-845, Code of Commerce)

50
Seven Brothers Shipping Corporation vs. Oriental Assurance Corporation, G.R.
No. 140613, October 15, 2002, Third Division, J. Sandoval-Gutierrez.
Facts: Alcantara and Sons entered into a charter party with Seven Brothers
Shipping involving the shipment of logs where Alcantara and Sons was the
consignee. The entire cargo was lost when the vessel sank off the coast of Mati,
Davao Oriental. Oriental Assurance paid Alcantara and was subrogated it rights.
Oriental sued Seven Brothers Shipping. RTC dismissed the complaint. CA
reversed the RTC and ruled in favor of Oriental. SC dismissed the petition on
ground of finality of judgment Held: The CA citing Articles 840 and 841 of the
Code of Commerce as well as Tan Chiong Sian vs. Inchausti and Co. (22 Phil.
152) said:

'Treating of shipwrecks, article 840 of the Code of Commerce prescribes:

‘The losses and damages suffered by a vessel and her cargo by reason of
shipwreck or stranding shall be individually for the account of the owners,
the part of the wreck which may be saved belonging to them in the same
proportion.

'And Article 841 of the same Code reads:

'If the wreck or stranding should arise through malice, negligence, or lack
of skill of the captain, or because the vessel put to sea insufficiently
repaired and supplied, the owner or the freighters may demand indemnity
of the captain for the damages caused to the vessel or cargo by the
accident, in accordance with the provisions contained in articles 610, 612,
614 and 621.

'The general rule established in the first of the foregoing articles is that the loss
of the vessel and of its cargo as the result of shipwreck, shall fall upon the
respective owners thereof save for the exceptions specified in the second of the
said articles. 'These legal provisions are in harmony with those of Articles 361
and 362 of the Code of Commerce, and are applicable whenever it is proved that
the loss of or damage to the goods was the result of fortuitous event or of force
majeure; but the carrier shall be liable for the loss or damage arising from the
causes aforementioned if it shall have been proven that they occurred through
his own fault or negligence or by his failure to take the same precautions usually
adopted by diligent and careful persons.'

The Salvage Law (Act 2616)

Philippine Home Assurance Corporation vs. Court of Appeals and Eastern

Shipping Lines, Inc. G.R. No. 106999, June 20, 1996, First Division, J.
Kapunan. Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS
Eastern Explorer in Kobe, Japan, cargoes for carriage to Manila and Cebu. The
vessel caught fire but was salvaged by a tugboat under the control of Fukuda
Salvage Co. arrived near the vessel and commenced to tow the vessel for the
port of Naha, Japan. ESLI the assessed the consignees additional freight and
salvage charges. Philippine Home Assurance paid under protest the charges and
then sued ESLI to recover the sum under protest. RTC dismissed the complaint
and CA sustained the RTC. SC reversed the CA on the issue that fire may not be
considered a natural disaster or calamity since it almost always arises from some
act of man or by human means ruled in Held: (The RTC had the occasion to
mention the elements of a valid Salvage claim that the SC did not bother to
discuss) Citing Section 1 of Act No. 2616 the RTC mentioned, “in relation to the
above provision, the Supreme Court has ruled in Erlanger & Galinger v. Swedish
East Asiatic Co., Ltd., 34 Phil. 178, that three elements are necessary to a valid
salvage claim, namely (a) a marine peril (b) service voluntarily rendered when
not required as an existing duty or from a special contract and (c) success in
whole or in part, or that the service rendered contributed to such success.”

Maritime Protest (Sea Protest)

51
 It is a written statement under oath made by the captain or master of the vessel
after the occurrence of an accident or disaster in which the vessel or cargo is lost
or injured with respect to circumstances attending such occurrence. It is usually
intended to show that the loss or damage resulted from (a) a peril of the sea, or
(b) some other cause for which neither the master nor owner was responsible.
It concludes with the protestation against any liability of the owner of such loss
or damage.

Liabilities of ship owners and shipping agents (Article 586 of the Code of
Commerce states that a ship agent is “the person entrusted with provisioning or
representing the vessel in the port in which it may be found.”)

(a) Liable for Acts of captain by Article 586 and 587 of the Code of
Commerce.

Macondray & Co., Inc. vs. Provident Insurance Corporation, G.R. No. 154305,
December 9, 2004, Third Division, J. Panganiban.

“Article 586. The shipowner and the ship agent shall be civilly liable for
the acts of the captain and for the obligations contracted by the latter to
repair, equip, and provision the vessel, provided the creditor proves that
the amount claimed was invested for the benefit of the same.”

“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.”

(b) Liable for negligent acts of the captain in the care of goods (Article
587)

(1) The Philippine American General Insurance Company, Inc. vs. Court of
Appeals and Felman Shippping Lines, G.R. No. 116940, June 11, 1997, First
Division, J. Bellosillo; (2) Valenzuela Hardwood and Industrial Supply, Inc. vs.
Court of Appeals and Seven Brother Shipping Corporation, G.R. No. 102316,
June 30, 1997, Third Division, J. Panganiban; (3) Monarch Insurance Co., Inc.
Tabacalera Insurance Co., Inc. and Hon. Judge Amante Purisima vs. Court of
Appeals and Aboitiz Shipping, G.R. No. 92735, June 8, 2000, De Leon Jr.; (4)
Aboitiz Shipping Corporation vs. Court of Appeals, Malayan Insurance Company
Inc., et. al., G.R. No. 121833, October 17, 2008, Second Division, J. Tinga; (5)
Philippine First Insurance Co., Inc., vs. Wallem Philippines, et. al., G.R. No.
165647, March 26, 2009, Second Division, J. Tinga; (6) Agustin P. Dela Torre vs.
Court of Appeals, Crisostomo G. Concepcion, Ramon “Boy” Larrazabal, Philippine
Trigon Shipyard Corporation and Roland G. Dela Torre, G.R. No. 160088, July
13, 2011, Third Division, J. Mendoza;

(c) Not liable for acts of captain if loss was due to fortuitous event

Philippine American General Insurance Company vs. PKS Shippping Company,

G.R. No. 149038, April 9, 2003, First Division, J. Vitug.

(d) Ship owner or agent exercised the limited liability rule. (Discussed
earlier)

Supercargoes (Articles 649 to 651, Code of Commerce)

A person specially employed by the owner of cargo to take charge of and sell to
the best advantage, merchandise which has been shipped, to purchase returning
cargoes and to receive freight.

52
 Title IV. Risks, Damages and Accidents of Maritime Commerce
(Code of Commerce)

Averages (Section 1, Article 806 to 818)

Arrivals Under Stress (Section 2, Article 819 to 825)
Collisions (Section 3, Article 826 to 839)
Shipwrecks (Section 4, Article 840 to 845)

Title V. Proof and Liquidation of Averages (Code of Commerce)

Provisions Common to All Kinds of Averages (Sec. 1 Article

846 to 850)
Liquidation of Gross Average (Section 2, Article 851 to 868)
Liquidation of Ordinary Averages (Section 3, Article 869)

3. Accidents and damages in maritime commerce

a) General Average (require formalities under Article 813 and 814 of the Code
of Commerce)

A General or Gross Averages include all damages and expenses which are
deliberately caused in order to save the vessel, its cargo, or both at the same
time, from a real and known risk.

Article 813. “In order to incur the expenses and cause the
damages corresponding to gross average, there must be a
resolution of the captain, adopted after deliberation with the
sailing mate and other officers of the vessel, and after hearing the
persons interested in the cargo who may be present. xxx”

Article 814. “The resolution adopted to cause the damages which

constitute a general average must necessarily be entered in the
logbook, stating the motives and reasons therefor, the votes
against it, and the reason for the disagreement should there be
any, and irresistible and urgent causes which move the captain if
he acted of his own accord. xxx”

Marine insurance provision under which damages or expenses incurred by

shippers (whose cargo is exposed to a common danger) are shared among them
in proportion to the value of their exposed cargo. Such damages or expenses
occur by direct harm to the ship and/or to the cargo, or in a course of action to
prevent initial or additional harm to them. General-average, like particular-
average, is independent of the insurance cover bought for the cargo. Instead, it
arises out of the contract between the cargo owner and the ship owner. Now
largely replaced by relevant institute cargo clause.

(http://www.businessdictionary.com/definition/general-average.html)

53
Philippine Home Assurance Corporation vs. Court of Appeals and Eastern
Shipping Lines, Inc. G.R. No. 106999, June 20, 1996, First Division, J.
Kapunan. Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS
Eastern Explorer in Kobe, Japan, cargoes for carriage to Manila and Cebu. The
vessel caught fire but was salvaged by a tugboat under the control of Fukuda
Salvage Co. arrived near the vessel and commenced to tow the vessel for the
port of Naha, Japan. ESLI the assessed the consignees additional freight and
salvage charges. Philippine Home Assurance paid under protest the charges and
then sued ESLI to recover the sum under protest. RTC dismissed the complaint
and CA sustained the RTC. SC reversed the CA on the issue that fire may not be
considered a natural disaster or calamity since it almost always arises from some
act of man or by human means Held: On the issue of whether or not respondent
court committed an error in concluding that the expenses incurred in saving the
cargo are considered general average, we rule in the affirmative. As a rule,
general or gross averages include all damages and expenses which are
deliberately caused in order to save the vessel, its cargo, or both at the same
time, from a real and known risk. While the instant case may technically fall
within the purview of the said provision, the formalities prescribed under Article
813 and 814 of the Code of Commerce in order to incur the expenses and cause
the damage corresponding to gross average were not complied with.
Consequently, respondent ESLI's claim for contribution from the consignees of
the cargo at the time of the occurrence of the average turns to naught.

Particular Average

Marine insurance provision under which damages or expenses incurred by a

shipper (whose cargo is exposed to a danger) are borne by that shipper only.
Such damages or expenses occur by direct harm to the ship and/or cargo, or in a
course of action to prevent initial or additional harm to them. Particular average,
like general-average is independent of the insurance cover bought for the cargo.
Instead, it arises out of the contract between the cargo-owner and the ship-
owner. Now largely replaced by the relevant institute cargo clause.

(http://www.businessdictionary.com/definition/particular-average.html)

Institute Cargo Clause. Set of terms for cargo insurance policies

voluntarily adopted as standard terms by many international marine
insurance organizations, including the Institute Of London Underwriters
and the American Institute Of Marine Underwriters. Widest insurance
cover is provided under 'Institute Cargo Clause A', a more restrictive
cover under 'Institute Cargo Clause B', and the most restrictive cover
under 'Institute Cargo Clause C.' These clauses have replaced the older
'All Risks,' 'With Average,' and 'Free Of Particular Average' clauses. Also
called American Institute cargo clauses.

(http://www.businessdictionary.com/definition/institute-cargo-
clauses.html)

Jettison (Article 815 and 816, Code of Commerce)

Article 815. The captain shall direct the jettison, and shall order
the goods cast overboard in the following order: (1) Those which
are on deck, beginning with those which embarrass the
maneuvers or damage the vessel, preferring if possible, the
heaviest ones and those of least utility and valued. (2) Those
which are below the upper deck, always beginning with those of
the greatest weight and small value, to the amount and number
absolutely indispensable.

54
 Article 816. In order that the goods jettisoned may be included in
the gross average and the owners therefore be entitled to
indemnity, it shall be necessary in so far as the cargo is concerned
that their existence on board be proved by means of the bill of
lading; and with regard to those belonging to the vessel, by means
of the inventory made up before the departure in accordance with
the first paragraph of Article 612.

BEQ 2009 VII: [a] Will you characterize the jettison of Romualdo’s TV
sets as an average? If so, what kind of an average, and why? If not, why
not? (3%) [b] Against whom does Romualdo have a cause of action for
indemnity of his lost TV sets? Explain. (3%)

Jason Clause. Provision in a contract of carriage that requires cargo owners to

contribute in general-average even for an 'incident' caused by the carrier's
negligence.

(http://www.businessdictionary.com/definition/Jason-clause.html)

b) Collisions (the impact of two vessels both of which are moving)

Cases: (1) Cokaliong Shipping Lines, Inc. vs. Hon. Omar U. Amin, Presiding
Judge of the RTC, Makati, Branch 135 and Prudential Guarantee & Assurance,
Inc., G.R. No. 112233, July 31, 1996; (2) Malayan Insurance Corporation vs.
Court of Appeals and TKC Marketing Corporation, G.R. No. 119599, March 20,
1997, Second Division, J. Romero; (3) Negros Navigation Co., Inc. vs. The Court
of Appeals, Ramon Miranda, Spouses Ricardo and Virginia Dela Victoria, G.R. No.
110398, November 7, 1997, Second Division, J. Mendoza; (4) PNOC Shipping
and Transport Corporation vs. Court of Appeals and Maria Efigenia Fishing
Corporation, G.R. No. 107518, October 8, 1998, Third Division, J. Romero; (5)
Sulpicio Lines, Inc. vs. Cresencio G. Castaneda vs. Court of Appeals and Aquarius
Fishing Co., Inc., G.R. No. 93291, March 29, 1999, Third Division, J. Purisima;
(6) Monarch Insurance Co., Inc. Tabacalera Insurance Co., Inc and Hon. Judge
Amante Purisima, vs. Court of Appeals and Aboitiz Shipping Corporation, G.R.
No. 92735, March 29, 1999, Second Division, J. De Leon, Jr. (7) Rizal Surety &
Insurance Company vs. Court of Appeals and Transworld Knitting Mills, Inc., G.R.
No. 112360, July 18, 2000, Third Division, J. Purisima; (8) Habagat Grill through
Louie Biraogo vs. DMC-Urban Properties Developer, Inc., G.R. No. 155110,
March 31, 2005, Third Division, J. Panganiban; (9) Victor Shipping Corporation
and Francisco Soriano vs. Adelfo B. Macasa, et. al., G.R. No. 160219, July 21,
2008, Third Division, J. Nachura, citing the case of Caltex Philippines Inc. vs.
Sulpicio Lines Inc., G.R. No. 131166, September 30, 1999, First Division, J.
Pardo; (10) Agustin P. Dela Torre vs. Court of Appeals, Crisostomo G.
Concepcion, Ramon Larrazabal, Philippine Trigon Shipyard Corporation and
Roland G. Dela Torre, G.R. No. 160088, July 13, 2011, Third Division, J. Mendoza

a. Fortuitous (Article 830 and 832, Code of Commerce)

Due to fortuitous event or force majeure. Each vessel and its cargo shall bear its
own damages (Fortuitous)

b. Culpable (Article 826, 827 and 831, Code of Commerce)

Due to the fault, negligence or lack of skill of the captain, sailing mate or the
complement
of the vessel. Ship owner liable for the losses and damages (Culpable Fault)

c. Doubtful collision (Article 828, Code of Commerce); Doctrine of

Inscrutable Fault

55
 It cannot be determined which of the 2 vessels caused the collision - each vessel
shall suffer its own damages, and both shall be solidarily responsible for the
losses and damages occasioned to their cargoes. (Inscrutable Fault)

d. Presumption of collision (Article 838, Code of Commerce)

e. Liability (Articles 829, 834, 835, 836, 837 and 838 Code of Commerce)

f. Error in Extremis

Where a navigator, suddenly realizing that a collision is imminent by no fault of

his own, in confusion and excitement of the moment, does something which
contributes to the collision or omits to do something by which the collision might
be avoided, such act or omission is ordinarily considered to be in extremis and
the ordinary rules of strict accountability does not apply.

Allision the striking of a moving vessel against one that is stationary.

Cases: (1) The Philippine American General Insurance Company, Inc. vs. Court
of Appeals and Felman Shippping Lines, G.R. No. 116940, June 11, 1997, First
Division, J. Bellosillo; (2) Far Eastern Shipping Company vs. Court of Appeals
and Philippine Ports Authority, G.R. No. 130068, October 1, 1998, en banc, J.
Regalado;

(U.S. and Canadian decided cases on collisions)

(http://admiraltylaw.com/collisions.htm)

(COGREGS, International Regulations for Preventing Collisions at Sea,

1972, up to and including those annexed to IMO Resolution A.910 (22).
In accordance with the Convention, the latest amendments come into
force internationally on 29 November 2003.)

(http://www.collisionregs.com/MSN1781.pdf)

(COGREGS, Amendments, Resolution A.910 (22), Adopted on 29

November 2001, (Agenda item 14) Amendments to the International
Regulations for Preventing Collisions At Sea) 1972

(http://www.collisionregs.com/Amendments.pdf)

CARRIAGE OF GOODS BY SEA ACT

(Republic Act No. 521, 1936)

“Section 1. That the provisions of Public Act No. 521 of the 7 th

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 the
Philippine ports in foreign trade: Provided, that nothing in this Act
shall be construed to repealing any existing provision of the Code
of Commerce which is now in forced, or as limiting its application”

4. Carriage of Goods by Sea Act

a) Application (Section 1, COGSA) “That the provisions of Public Act No. 521 of the
7th 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 the 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.”

56
Philippine First Insurance Co., Inc. vs. Wallem Phils. Shipping, Inc., et. al., G.R.
No. 165647, March 26, 2009, Third Division, J. Tinga. Facts: Philippines
First Insurance Co., Inc was subrogated to the rights of L.G. Atkimson Import-
Export, Inc. (consignee) with its claim against Wallem Phils. Shipping, Inc. for
the damage cargo shipped to the Port of Manila. The arrastre operator Asian
Terminals, Inc. caused the damage to the cargo. RTC awarded damages and
held the arrastre operator solidarily liable with the shipper. CA reversed the RTC
making the arrestre operator solely liable. SC reversed the CA. Held: It is
beyond question that respondent’s vessel is a common carrier. Thus, the
standards for determining the existence or absence of the respondent’s liability
will be gauged on the degree of diligence required of a common carrier.
Moreover, as the shipment was an exercise of international trade, the provisions
of the Carriage of Goods by Sea Act (COGSA), together with the Civil Code and
the Code of Commerce, shall apply.

Also, Insurance Company of North America vs. Asian Terminals Inc., G.R.
No. 180784, February 15, 2012, Third Division, J. Peralta.

b) Notice of Loss or damage (Section 3 [6], COGSA) Unless notice of loss or

damage and the general nature of such loss or damage be 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 the 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. Such notice of loss or damage may be endorsed upon the receipt of
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.

Also Article 366 of the Code of Commerce. (But this is under Title VII,
Commercial Contracts of Transportation Overland [?]) “With the twenty-four
hours following the receipt of the merchandise, a claim may be made against the
carrier on account of damage or average found therein on opening the packages,
provided that the indications of the damage or average giving rise to the claim
cannot be ascertained from the exterior of said packages, in which case said
claim would only be admitted on the receipt of the packages.

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

UCPB General Insurance Co., Inc. vs. Aboitiz Shipping Corp., Eagle Express
Lines, Damco Intermodal Services, Inc., and Pimentel Customs
Brokerage Co., G.R. No. 168433, February 10, 2009, Second Division, J.
Tinga. Facts: UCPB was subrogated to the rights of San Miguel Corporation with
its claim against respondents for the damage to a waste water treatment
accessory shipped from Charleston, U.S.A. to Cebu. RTC ruled in favor of UCPB,
CA reversed the RTC because UCPB failed to file a formal notice of claim within
24 hours from (SMC’s) receipt of the damaged merchandise as required under
Art. 366 of the Code of Commerce, SC affirmed the CA. Held: The provisions of
the Code of Commerce, which apply to overland, river and maritime
transportation (?), come into play.

57
 The requirement to give notice of loss or damage to the goods is not an empty
formalism. The fundamental reason or purpose of such a stipulation is not to
relieve the carrier from just liability, but reasonably to inform it that the
shipment has been damaged and that it is charged with liability therefor, and to
give it an opportunity to examine the nature and extent of the injury. This
protects the carrier by affording it an opportunity to make an investigation of a
claim while the matter is still fresh and easily investigated so as to safeguard
itself from false and fraudulent claims. The 24-hour claim requirement as a
condition precedent to the accrual of a right of action against a carrier for loss of,
or damage to, the goods. The shipper or consignee must allege and prove the
fulfillment of the condition. Otherwise, no right of action against the carrier can
accrue in favor of the former.

Sec. 3(6) of the COGSA provides a similar claim mechanism as the Code of
Commerce but prescribes a period of three (3) days within which notice of claim
must be given if the loss or damage is not apparent. UCPB seizes upon the last
paragraph which dispenses with the written notice if the state of the goods has
been the subject of a joint survey which, in this case, was the opening of the
shipment in the presence of an Eagle Express representative. It should be noted
at this point that the applicability of the above-quoted provision of the COGSA
was not raised as an issue by UCPB before the trial court and was only cited by
UCPB in its Memorandum in this case. Neither did the inspection of the cargo in
which Eagle Express’s representative had participated lead to the waiver of the
written notice under the Sec. 3(6) of the COGSA.

Also Wallem Philippines, Inc. vs. S.R. Farms, Inc., G.R. No. 161849, July
9, 2010, Second Division, J. Peralta;

c) Period of Prescription

(Section 3 [6], COGSA) “In any even 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 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.”

New World International Development (Phils.), Inc., vs. NKY-Fil Japan

Shipping Corp, et. al., G.R. No. 171468, August 24, 2011, Third Division,
J. Abad. Facts: Three (3) generator sets that petitioner bought from DMT was
damage when it was transported from Wisconsin to Manila. Petitioner filed
insurance claims against Seaboard but Seaboard delayed thus the complaint
against NKY-Fil Japan was filed beyond the one year provided under the Carriage
of Goods by Sea Act (COGSA). RTC ruled in favor of Seaboard, the CA on
motion reversed itself and also ruled in favor of Seaboard. The SC reversed the
CA. Held: Regarding prescription of claims, Section 3(6) of the COGSA provides
that the carrier and the ship shall be discharged from all liability in case of loss
or damage unless the suit is brought within one year after delivery of the goods
or the date when the goods should have been delivered. In the ordinary course,
if Seaboard had processed that claim and paid the same, Seaboard would have
been subrogated to petitioner New World’s right to recover from NYK. And it
could have then filed the suit as a subrogee

Also Loadstar Shipping Co., Inc. vs. Court of Appeals and Manila
Insurance Co., Inc., G.R. No. 131621, September 28, 1999, First
Division, CJ. Davide, Jr.; Wallem Philippines, Inc. vs. S.R. Farms, Inc.,
G.R. No. 161849, July 9, 2010, Second Division, J. Peralta;

Also Article 1144 of the Civil Code. “The following actions must be brought
within ten years from the time the right of action accrues: (1) Upon a written
contract; (2) Upon an obligation created by law; (3) Upon a judgment”.

58
 (Goods were not lost or damaged)

Mitsui O.S.K. Lines Ltd., vs. Court of Appeals and Lavine Loungewear Mfg.
Corp., G.R. No. 119571, March 11, 1998, Second Division, J. Mendoza.
Facts: Mitsui undertook to transport the goods of Lavine from Manila to Le Havre
France within 28 days from initial loading. The goods arrived almost four (4)
months after and already off season. It was only two (2) years later that Mitsui
was impleaded in an amended complaint and so it sought dismissal grounded on
prescription under Section 3 (6) of COGSA. RTC denied the motion to dismiss.
CA and SC sustained the RTC. Held: In the case at bar, there is neither
deterioration nor disappearance nor destruction of goods caused by the carrier’s
breach of contract. Whatever reduction there may have been in the value of the
goods is not due to their deterioration or disappearance because they had been
damaged in transit.

The question before the trial court is not the particular sense of “damages” as it
refers to the physical loss or damage of a shipper’s goods as specifically covered
by §3(6) of COGSA but petitioner’s potential liability for the damages it has
caused in the general sense and, as such, the matter is governed by the Civil
Code, the Code of Commerce and COGSA, for the breach of its contract of
carriage with private respondent. The suit below is not for “loss or damage” to
goods contemplated in §3(6), the question of prescription of action is governed
not by the COGSA but by Art. 1144 of the Civil Code which provides for a
prescriptive period of ten years.

(It was the arrestre that was sued)

Insurance Company of North America vs. Asian Terminals Inc., G.R. No.
180784, February 15, 2012, Third Division, J. Peralta. Facts: Insurance
Company of North America was subrogated to the rights of San Miguel
Corporation for the damage cargo shipped to the Port of Manila. The arrastre
operator Asian Terminals, Inc. caused the damage to the cargo. The carrier was
not made party to the suit. RTC found damages but dismissed the complaint as it
is barred by the Statutes of Limitation particularly Section 3 (6) of the COGSA.
SC Reversed the RTC. Held: From the provision above, the carrier and the ship
may put up the defense of prescription if the action for damages is not brought
within one year after the delivery of the goods or the date when the goods
should have been delivered. It has been held that not only the shipper, but also
the consignee or legal holder of the bill may invoke the prescriptive period.
However, the COGSA does not mention that an arrastre operator may invoke the
prescriptive period of one year; hence, it does not cover the arrastre operator.

Compare: Philippine First Insurance Co., Inc. vs. Wallem Phils.

Shipping, Inc., et. al., G.R. No. 165647, March 26, 2009, Third
Division, J. Tinga: Held: It is beyond question that respondent’s vessel
is a common carrier. Thus, the standards for determining the existence or
absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment was
an exercise of international trade, the provisions of the Carriage of Goods
by Sea Act (COGSA), together with the Civil Code and the Code of
Commerce, shall apply.

(It was the insurer that was sued)

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Mayer Steel Pipe Corporation and Hongkong Government Supplies Department
vs. Court of Appeals, South Sea Surety and Insurance Co., Inc. and
Charter Insurance Corporation, G.R. No. 124050, June 19, 1997, Second
Division, J. Puno. Facts: Mayer Steel shipped pipes to and fittings to Hongkong.
Mayer insured the pipes and fittings against all risks with South Sea Surety and
Insurance Co., Inc. and Charter Insurance Corp. The pipes and fittings were
damaged. Mayer and Hongkong sued the insurers for the damages. RTC ruled in
favor of Mayer and Hongkong. CA set aside the decision of RTC on prescription
based on Section 3 (6) of the COGSA. SC reversed the CA. Held: The liability
of the insurer is not extinguished because the insurer's liability is based not on
the contract of carriage but on the contract of insurance. The Carriage of Goods
by Sea Act governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage. It does not, however,
affect the relationship between the shipper and the insurer. The latter case is
governed by the Insurance Code.

Responsibility and Liability (Section 3 [2], COGSA). “The carrier shall

properly and carefully load, handle, stow, carry, keep, care for, and discharge
the goods carried”.

Philippine First Insurance Co., Inc. vs. Wallem Phils. Shipping, Inc., et. al., G.R.
No. 165647, March 26, 2009, Third Division, J. Tinga. Facts: Philippines
First Insurance Co., Inc was subrogated to the rights of L.G. Atkimson Import-
Export, Inc. (consignee) it is claim against Wallem Phils. Shipping, Inc. for the
damage cargo to the Port of Manila. The arrastre operator Asian Terminals, Inc.
caused the damage to the cargo. RTC awarded damages and held the arrastre
operator solidarily liable with the shipper. CA reversed the RTC making the
arrestre operator solely liable. SC reversed the CA. Held: Section 2 of the
COGSA provides that 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 set forth in the Act.

The aforementioned Section 3(2) of the COGSA states that among the carriers’
responsibilities are to properly and carefully load, care for and discharge the
goods carried. The bill of lading covering the subject shipment likewise stipulates
that the carrier’s liability for loss or damage to the goods ceases after its
discharge from the vessel. Article 619 of the Code of Commerce holds a ship
captain liable for the cargo from the time it is turned over to him until its
delivery at the port of unloading

d) Limitation of liability

Limitation of liability (Section 4 [5], COGSA). “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 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 declared by the
shipper before shipment and inserted in the bill of lading, shall be prima facie
evidence, but shall not be conclusive on the carrier”.

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Unsworth Transport International (Phils.), Inc., vs. Court of Appeals and
Pioneer Insurance and Surety Corporation, G.R. No. 166250, July 26,
2010, Second Division, J. Nachura. Facts: Sylvex Purchasing Corporation
delivered to Unsworth raw materials for pharmaceutical manufacturing insured
with Pioneer Insurance. One drum was damaged. Pioneer was subrogated to the
consignee Unilab. RTC ruled in favor of Pioneer awarding P76,231.27 more than
COGSA’s $500, CA affirmed the RTC. Held: SC affirmed the applicability of the
Package Limitation Rule under the COGSA, contrary to the RTC and the CA’s
findings. In the present case, the shipper did not declare a higher valuation of
the goods to be shipped. Liability should be limited to $500 per steel drum. In
this case, as there was only one drum lost, private respondent is entitled to
receive only $500 as damages for the loss.

Also, Philippine Charter Insurance Corporation vs. Neptune Orient

Lines/Overseas Agency Services, Inc., G.R. No. 145044, June 12, 2008,
First Division, J. Azcuna;

(How is “per package” determined)

Belgian Overseas Chartering and Shipping N.V. and Jardine Davies Transport
Services Inc. vs. Philippine First Insurance Co., Inc., G.R. No. 143133,
June 5, 2002, Third Division J. Panganiban. Facts: On June 13, 1990, CMC
Trading A.G. shipped on board the MN ‘Anangel Sky’ at Hamburg, Germany 242
coils of various Prime Cold Rolled Steel sheets for transportation to Manila
consigned to the Philippine Steel Trading Corporation. Four (4) coils were found
to be in bad order and unfit for the intended purpose, the consignee Philippine
Steel Trading Corporation declared the same as total loss. Philippine First
Insurance was subrogated to the consignee after it paid P506,086.50. RTC
dismissed the complaint. CA reversed the RTC and awarded P451,027.32. SC
modified award to $2,000. Held: The liability should be computed based on
US$500 per package and not on the per metric ton price declared in the Letter of
Credit. Citing the case of Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court the SC explained the meaning of package: “When what would ordinarily
be considered packages are shipped in a container supplied by the carrier and
the number of such units is disclosed in the shipping documents, each of those
units and not the container constitutes the ‘package’ referred to in the liability
limitation provision of Carriage of Goods by Sea Act.”

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the
Bill of Lading clearly disclosed the contents of the containers, the number of
units, as well as the nature of the steel sheets, the four damaged coils should be
considered as the shipping unit subject to the US$500 limitation

F. PUBLIC SERVICE ACT

Public Service Act (Commonwealth Act No. 146, 1936)

Public Service Act was enacted in 1936, the Public Service Commission (PSC) was
vested with jurisdiction over “public services”. (Divina Garcia, G.R. No. 162272, April 7,
2009).

Commonwealth Act No. 146, otherwise known as the Public Service Act, was approved
creating the Public Service Commission (PSC), which was vested with jurisdiction over
numerous “public utility services”. (San Pablo, G.R. No. 167641, May 10, 2005)

61
 Cases: (1) BF Homes Inc., vs. The Philippine Waterworks and Construction
Corp., vs. Manila Electric Company, G.R. No. 171624, December 6, 2010, First
Division, J. Leonardo-De Castro; (2) Santiago C. Divinagracia vs. Consolidated
Broadcasting System and People’s Broadcasting Service, Inc., G.R. No. 162272,
April 7, 2009, Second Division, J. Tinga; (3) The Metropolitan Manila
Development Authority and Bayani Fernando vs. Viron Transportation Co., Inc,
G.R. 170656, August 15, 2007, en banc, J. Carpio-Morales; and (4) San Pablo
vs. Marina, G.R. No. 167641, May 10, 2005, en banc.

1. Definition of public utility

“The business and operations of a public utility are imbued with public interest.
In a very real sense, a public utility is engaged in public service-- providing basic
commodities and services indispensable to the interest of the general public. For
this reason, a public utility submits to the regulation of government authorities
and surrenders certain business prerogatives, including the amount of rates that
may be charged by it. It is the imperative duty of the State to interpose its
protective power whenever too much profits become the priority of public
utilities.” (Republic of the Philippines, represented by Energy Regulatory Board,
vs. Manila Electric Company, G.R. No. 141314, April 9, 2003, Third Division,
J.Puno)

Ridjo Doctrine (Ridjo Tape & Chemical Corp. v. CA, 350 Phil. 184
[1998]).

The Ridjo doctrine simply states that the public utility has the imperative duty to
make a reasonable and proper inspection of its apparatus and equipment to
ensure that they do not malfunction. Its failure to discover the defect, if any,
considering the length of time, amounts to inexcusable negligence; its failure to
make the necessary repairs and replace the defective electric meter installed
within the consumer’s premises limits the latter’s liability. The use of the words
“defect” and “defective” in the above-cited case does not restrict the application
of the doctrine to cases of “mechanical defects” in the installed electric meters.
A more plausible interpretation is to apply the rule on negligence whether the
defect is inherent, intentional or unintentional, which therefore covers
tampering, mechanical defects and mistakes in the computation of the
consumers’ billing.

2. Necessity for certificate of public convenience

Registered Owner Rule. “Under Section 5 of Republic Act No. 4136 as amended, all
motor vehicles used or operated on or upon any highway of the Philippines must be
registered with the Bureau of Land Transportation (now Land Transportation Office) for
the current year. Furthermore, any encumbrances of motor vehicles must be recorded
with the Land Transportation Office in order to be valid against third parties. FEB
Leasing and Finance Corporation (now BPI Leasing Corporation) vs. Spouses Sergio P.
Baylon and Martess Villena-Baylon, BG Hauler, Inc., and Manuel Y. Estilloso, G.R. No.
181398, June 29, 2011, Second Division, J. Carpio.

In accordance with the law on compulsory motor vehicle registration, this Court
has consistently ruled that, with respect to the public and third persons, the
registered owner of a motor vehicle is directly and primarily responsible for the
consequences of its operation regardless of who the actual vehicle owner might
be. Well-settled is the rule that the registered owner of the vehicle is liable for
quasi-delicts resulting from its use. Thus, even if the vehicle has already been
sold, leased, or transferred to another person at the time the vehicle figured in
an accident, the registered vehicle owner would still be liable for damages
caused by the accident. The sale, transfer or lease of the vehicle, which is not
registered with the Land Transportation Office, will not bind third persons
aggrieved in an accident involving the vehicle. The compulsory motor vehicle
registration underscores the importance of registering the vehicle in the name of
the actual owner. (id)

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 The policy behind the rule is to enable the victim to find redress by the expedient
recourse of identifying the registered vehicle owner in the records of the Land
Transportation Office. The registered owner can be reimbursed by the actual
owner, lessee or transferee who is known to him. Unlike the registered owner,
the innocent victim is not privy to the lease, sale, transfer or encumbrance of the
vehicle. Hence, the victim should not be prejudiced by the failure to register such
transaction or encumbrance.” (id)

a) Requisites

(i) Citizenship

Section 11, Article XII of the 1987 Constitution which reads: “Section 11. No
franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; x x x.”

The term “capital” in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares,41 and not to the total outstanding capital
stock comprising both common and non-voting preferred shares. (Wilson P.
Gamboa vs. Finance Secretary Margarito B. Teves, et. al., G.R. No. 176579, June
28, 2011, en banc, J.Carpio)

The limiting thrust of the foregoing constitutional provision on the grant of

franchise or other forms of authorization to operate public utilities may, in
context, be stated as follows: (a) the grant shall be made only in favor of
qualified Filipino citizens or corporations; (b) Congress can impair the
obligation of franchises, as contracts; and (c) no such authorization shall
be exclusive or exceed fifty years.

Cases (1) Santiago C. Divinagracia vs. Consolidated Broadcasting System and

People’s Broadcasting Service, Inc., G.R. No. 162272, April 7, 2009, Second
Division, J. Tinga; (2) Ernesto B. Francisco, Jr. and Jose Ma. O. Hizon vs. Toll
Regulatory Board, Philippine National Construction Corporation, et. al., G.R. No.
166910, October 19, 2010, en banc, J. Velasco, Jr. (3) Tawang Multi-Purpose
Cooperative vs. La Trinidad Water District, G.R. No. 166471, March 22, 2011, en
banc, J. Carpio;

(ii) Promotion of public interests

b) Prior operator rule

(i) Meaning

(ii) Exceptions

(iii) Ruinous competition

3. Fixing of rate

a) Rate of return

b) Exclusion of income tax as expense

4. Unlawful arrangements

a) Boundary system

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Boundary System. “It is already settled that the relationship between jeepney
owners/operators and jeepney drivers under the boundary system is that of employer-
employee and not of lessor-lessee. The fact that the drivers do not receive fixed wages
but only get the amount in excess of the so-called “boundary” that they pay to the
owner/operator is not sufficient to negate the relationship between them as employer
and employee.” Primo E. Caong, Jr., Alexander J. Tresquio, and Loriano D. Daluyon vs.
Avelino Regualos, G.R. No. 179428, January 26, 2011, Second Division, J. Nachura.

Suspension ground on failure to pay boundary in arrears is not illegal dismissal .

“We have no reason to deviate from such findings. Indeed, petitioners’
suspension cannot be categorized as dismissal, considering that there was no
intent on the part of respondent to sever the employer-employee relationship
between him and petitioners. In fact, it was made clear that petitioners could put
an end to the suspension if they only pay their recent arrears. As it was, the
suspension dragged on for years because of petitioners’ stubborn refusal to pay.
It would have been different if petitioners complied with the condition and
respondent still refused to readmit them to work. Then there would have been a
clear act of dismissal. But such was not the case. Instead of paying, petitioners
even filed a complaint for illegal dismissal against respondent.” (Id)

b) Kabit system

Kabit System. “The kabit system is an arrangement whereby a person who has been
granted a certificate of public convenience allows other persons who own motor
vehicles to operate them under his license, sometimes for a fee or percentage of the
earnings. Although the parties to such an agreement are not outrightly penalized by
law, the kabit system is invariably recognized as being contrary to public policy and
therefore void and inexistent under Art. 1409 of the Civil Code.” Abelardo Lim and
Esmadito Gunnaban, vs. Court of Appeals and Donato H. Gonzales, G.R. No. 125817,
January 16, 2002, Second Division, J. Bellosillo.

In the early case of Dizon v. Octavio the Court explained that one of the primary
factors considered in the granting of a certificate of public convenience for the
business of public transportation is the financial capacity of the holder of the
license, so that liabilities arising from accidents may be duly compensated. The
kabit system renders illusory such purpose and, worse, may still be availed of
by the grantee to escape civil liability caused by a negligent use of a vehicle
owned by another and operated under his license. If a registered owner is
allowed to escape liability by proving who the supposed owner of the vehicle is,
it would be easy for him to transfer the subject vehicle to another who possesses
no property with which to respond financially for the damage done. Thus,
for the safety of passengers and the public who may have been wronged and
deceived through the baneful kabit system, the registered owner of the vehicle is
not allowed to prove that another person has become the owner so that he may
be thereby relieved of responsibility. Subsequent cases affirm such basic
doctrine. (Id)

Twist in this Lim case: The vehicle engaged in Kabit System is the one damaged
and owner sought damages. It would seem then that the thrust of the law in
enjoining the kabit system is not so much as to penalize the parties but to
identify the person upon whom responsibility may be fixed in case of an accident
with the end view of protecting the riding public. The policy therefore loses its
force if the public at large is not deceived, much less involved. (Id)

64
 In the present case it is at once apparent that the evil sought to be prevented in
enjoining the kabit system does not exist. First, neither of the parties to the
pernicious kabit system is being held liable for damages. Second, the case
arose from the negligence of another vehicle in using the public road to whom no
representation, or misrepresentation, as regards the ownership and operation of
the passenger jeepney was made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said that private
respondent Gonzales and the registered owner of the jeepney were in estoppel
for leading the public to believe that the jeepney belonged to the registered
owner. Third, the riding public was not bothered nor inconvenienced at the very
least by the illegal arrangement. On the contrary, it was private respondent
himself who had been wronged and was seeking compensation for the damage
done to him. Certainly, it would be the height of inequity to deny him his right.
(Id)

In light of the foregoing, it is evident that private respondent has the right to
proceed against petitioners for the damage caused on his passenger jeepney as
well as on his business. Any effort then to frustrate his claim of damages by the
ingenuity with which petitioners framed the issue should be discouraged, if not
repelled. (Id)

5. Approval of sale, encumbrance or lease of property

Title I. Vessels (Book Three, Maritime Commerce, Code of Commerce, Article

573 to Article 585)

Loans on bottomry and respondentia (Section 2, Article 719 to 736 of the Code
of Commerce)

Bottomry

Respondentia

Ship Mortgage Decree (Presidential Decree No. 1521, 1978)

G. THE WARSAW CONVENTION

WARSAW CONVENTION (Convention for the Unification of Certain Rules

Relating to International Carriage by Air, Signed at Warsaw on 12 October
1929)

Background of International Air Treaties

(http://www.cargolaw.com/presentations_montreal_cli.html)

1. Applicability

Jurisdiction of Philippine Courts (Article 28 [1], Warsaw Convention) “An action

for damages must be brought, at the option of the plaintiff, in the territory of
one of the High Contracting Parties, either before the Court having jurisdiction
where (a) the carrier is ordinarily resident, or (b) has his principal place of
business, or (c) has an establishment by which the contract has been made or
(d) before the Court having jurisdiction at the place of destination.”

65
Edna Diago Lhuillier vs. British Airways, G.R. No. 171092, March 15, 2010,
Second Division, J. Del Castillo. Facts: Petitioner filed a case in Makati for
misconduct of flight attendants in a trip from London, United Kingdom to Rome,
Italy. RTC Dismissed the case based on Article 28 (1). SC sustained the RTC
Held: SC citing Santos III v. Northwest Orient Airlines “In this case, it is not
disputed that respondent is a British corporation (a) domiciled in London, United
Kingdom with London as its (b) principal place of business. In the passenger
ticket and baggage check presented by both the petitioner and respondent, it
appears that (c) the ticket was issued in Rome, Italy. Finally, both the petitioner
and respondent aver that the (d) place of destination is Rome, Italy, which is
properly designated given the routing presented in the said passenger ticket and
baggage check. Accordingly, petitioner may bring her action before the courts of
Rome, Italy. RTC of Makati correctly ruled that it does not have jurisdiction over
the case.”

American Airlines vs. Court of Appeals, Hon. Bernardo Ll. Salas and Democrito
Mendoza, G.R. No. 116044-45, March 9, 2000, Third Division, J.
Gonzaga-Reyes. Facts: Private Respondent filed a case in Cebu for misconduct
of petitioner’s security at Geneva Airport in a trip through conjunction tickets for
Manila - Singapore - Athens - Larnaca - Rome - Turin - Zurich - Geneva -
Copenhagen - New York. RTC refused to dismissed the case based on Article 28
(1). SC sustained the RTC Held: The contract of carriage between the private
respondent and Singapore Airlines although performed by different carriers
under a series of airline tickets, including that issued by petitioner, constitutes a
single operation (Article 1 [3]). A contract of air transportation is taken as a
single operation whether it is founded on a single contract or a series of
contracts. The third option of the plaintiff under Art 28 (1) of the Warsaw
Convention e.g., to sue in the place of business of the carrier wherein the
contract was made, is therefore, Manila, and Philippine courts are clothed with
jurisdiction over this case. While this case was filed in Cebu and not in Manila
the issue of venue is no longer an issue as the petitioner is deemed to have
waived it when it presented evidence before the trial court.

Also: Purita S. Mapa, Carmina S. Mapa and Cornelio P. Mapa vs. Court of
Appeals and Trans-World Airline Inc., G.R. No. 122308, July 8, 1997, Third
Division, J. David, J.; China Airlines vs. Daniel Chiok, G.R. No. 152122, July 30,
2003, Third Division, J. Panganiban [A common carrier has a peculiar
relationship with and an exacting responsibility to its passengers. For reasons of
public interest and policy, the ticket-issuing airline acts as principal in a contract
of carriage and is thus liable for the acts and the omissions of any errant carrier
to which it may have endorsed any sector of the entire, continuous trip. (China
Airlines)]

2. Limitation of liability

Prescription (Article 29, Warsaw Convention) “The right to damages shall be

extinguished if an action is not brought within two years, reckoned from the date
of arrival at the destination, or from the date on which the aircraft ought to have
arrived, or from the date on which the carriage stopped”.

United Airlines vs. Willie J. Uy, G.R. No. 127768, November 19, 1999, Second
Division, J. Bellosillo. Facts: Private Respondent filed a case, against United
Airlines for humiliation at the airport and damaged baggage, two (2) years after
arrival at place of destination. RTC dismissed the case based on Article 29. CA
reversed the RTC, SC sustained the CA Held: Only the second cause of action
(damage baggage) falls within the convention. Cause of action based on
humiliation is not barred by Article 29. Within our jurisdiction the Warsaw
Convention can be applied, or ignored, depending on the peculiar facts presented
by each case. The Convention does not preclude the operation of the Civil Code
and other pertinent laws.

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 Despite the express mandate of Art. 29 of the Warsaw Convention that an action
for damages should be filed within two (2) years from the arrival at the place of
destination such rule shall not be applied in the instant case because of the
delaying tactics employed by petitioner airline itself. Thus, private respondent's
second cause of action cannot be considered as time-barred under Art. 29 of the
Warsaw Convention.

Philippine Airlines Inc., vs. Hon. Adriano Savillo and Simplicio Griño, G.R. No.
149547, July 4, 2008, Third Division, J. Chico-Nazario. Facts: Private
Respondent filed a case, against Philippine Airlines for their failure to board
Singapore Airlines as PAL failed to endorse their tickets. But the case was filed
three (3) years after the incident thus PAL sought dismissal under Article 29.
RTC refused to dismiss based on the Civil Code and not Article 29. CA and SC
sustained the RTC Held: Citing United vs. Uy, Nevertheless, this Court notes that
jurisprudence in the Philippines and the United States also recognizes that the
Warsaw Convention does not “exclusively regulate” the relationship between
passenger and carrier on an international flight. This Court finds that the
present case is substantially similar to cases in which the damages sought were
considered to be outside the coverage of the Warsaw Convention.

a) Liability to passengers

Liability to passengers (Chapter III, Article 17, Warsaw Convention) “The

carrier is liable for damage sustained in the event of the death or wounding of a
passenger or any other bodily injury suffered by a passenger, if the accident
which caused the damage so sustained took place on board the aircraft or in the
court of any of the operations of embarking and disembarking”

b) Liability for checked baggage

Liability for checked baggage (Chapter III, Article 19, Warsaw Convention)
“The carrier is liable for damage occasioned by delay in the carriage by air of
passengers, luggage or goods.”

Philippine Airlines Incorporated vs. Court of Appeals, Dr. Josefino Miranda and
Luisa Miranda, G.R. No. 119641, May 17, 1996, Second Division, J.
Regalado. Facts: Private Respondent’s baggage was off-loaded in Honolulu to
accommodate other baggages in a trip from Los Angeles – Honolulu - Manila.
RTC awarded damages more than that of the Warsaw Convention. CA and SC
sustained the RTC Held: Citing the case of Cathay Pacific, the Warsaw
Convention has the force and effect of law in this country, being a treaty
commitment assumed by the Philippine government, said convention does not
operate as an exclusive enumeration of the instances for declaring a carrier liable
for breach of contract of carriage or as an absolute limit of the extent of that
liability. The Warsaw Convention declares the carrier liable in the enumerated
cases and under certain limitations. However, it must not be construed to
preclude the operation of the Civil Code and pertinent laws.

Liability for checked baggage, limited liability (Article 22, Warsaw Convention)

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Philippine Airlines Incorporated vs. Court of Appeals, Gilda C. Mejia, G.R. No.
119706, March 14, 1996, Second Division, J. Regalado. Facts: Private
Respondent’s microwave oven was damaged while checked in from San
Francisco to Manila. She wanted to declare a higher value but the airline advised
her not to. RTC awarded more than the limited liability of U.S. $20.00 based on
weight. CA and SC sustained the RTC Held: The Warsaw Convention, being a
treaty to which the Philippines is a signatory, is as much a part of Philippine law
as the Civil Code, Code of Commerce and other municipal special laws. The
provisions therein contained, specifically on the limitation of carrier’s liability, are
operative in the Philippines but only in appropriate situations. Moreover, the
trial court underscored the fact that petitioner was not able to overcome the
statutory presumption of negligence in Article 1735 which, as a common carrier,
it was laboring under in case of loss, destruction or deterioration of goods,
through proper showing of the exercise of extraordinary diligence

British Airways vs. Court of Appeals, Gop Mahtani and Philippine Airlines, G.R.
No. 121824, March 29, 1998, Third Division, J. Romero. Facts: Private
Respondent’s luggage was lost while checked in from Manila to Bombay India.
He did declare a higher value to it but British Airways did not object and even
conducted cross examination when evidence to that effect was presented. RTC
awarded more than the limited liability of U.S. $20.00 (250 Francs) per kilogram.
CA and SC sustained the RTC Held: American jurisprudence provides that an air
carrier is not liable for the loss of baggage in an amount in excess of the limits
specified in the tariff which was filed with the proper authorities. This doctrine is
recognized in this jurisdiction. Notwithstanding the foregoing, we have,
nevertheless, ruled against blind reliance on adhesion contracts where the facts
and circumstances justify that they should be disregarded. In addition, we have
held that benefits of limited liability are subject to waiver such as when the air
carrier failed to raise timely objections during the trial when questions and
answers regarding the actual claims and damages sustained by the passenger
were asked.

Liability for luggage or goods; presumption (Article 26, Warsaw Convention)

“(1) Receipt by the person entitled to delivery of luggage or goods without
complaint is prima facie evidence that the same have been delivered in good
condition and in accordance with the document of carriage, (2) In case of
damage, the person entitled to delivery must complain to the carrier forthwith
after the discovery of the damage, and, at least, within three days from the date
of receipt in the case of luggage and seven days from the date of receipt in the
case of goods. In case of delay the complaint must be made at the latest within
fourteen days from the date which the luggage or goods have been placed at his
disposal, (3) Every complaint must be made in writing upon the document of
carriage or by separate notice in writing despatched within the times aforesaid,
(4) Failing complaint within the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on his part.”

Federal Express Corporation vs. American Home Assurance Company and

Philam Insurance Company, Inc., G.R. No. 150094, August 18, 2004,
Third Division, J. Panganiban. Facts: Private Respondent’s are subrogated to
the rights of Smithkline Beecham whose veterinary biologicals were damaged as
these were not refrigerated. The case was filed even without notice to the FedEx
provided in Article 26 (3). RTC awarded damages and CA affirmed. SC reversed
the RTC and CA Held: The requirement of giving notice of loss of or injury to the
goods is not an empty formalism. The fundamental reasons for such a stipulation
are (1) to inform the carrier that the cargo has been damaged, and that it is
being charged with liability therefor; and (2) to give it an opportunity to examine
the nature and extent of the injury. “This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims.”

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 Also: Victorino Savellano, Virginia B. Savellano and Deogracias B.
Savellano vs. Northwest Airlines, G.R. No. 157183, July 8, 2003, Third
Division, J. Panganiban.

c) Liability for hand-carried baggage

Section II, Luggage Ticket, Article 4 (1), Convention, “For the carriage of
luggage, other than small personal objects of which the passenger take charge
himself, the carrier must deliver a luggage ticket”.

3. Willful misconduct

Sabena Belgaian World Airlines vs. Court of Appeals and Ma. Paula San
Agustin, G.R. No. 104685, March 14, 1996, First Division, J. Vitug. Facts:
The “loss of said baggage not only once by twice,” said the appellate court,
“underscores the wanton negligence and lack of care” on the part of the carrier.
Held: The above findings, which certainly cannot be said to be without basis,
foreclose whatever rights petitioner might have had to the possible limitation of
liabilities enjoyed by international air carriers under the Warsaw Convention (as
amended by the Hague Protocol of 1955, the Montreal Agreement of 1966, the
Guatemala Protocol of 1971 and the Montreal Protocols of 1975).

Citing Alitalia vs. Intermediate Appellate Court “The Warsaw Convention however
denies to the carrier availment ‘of the provisions which exclude or limit his
liability, if the damage is caused by his wilful misconduct”

Also: Philippine Airlines Inc., vs. Court of Appeals and Gilda C. Mejia, G.R. No.
119706, March 14, 1996, Second Division, J. Regalado; Philippine Airlines Inc.,
vs. Court of Appeals, Dr. Josefino Miranda and Luisa Miranda, G.R. No. 119641,
May 17, 1996, Second Division, J. Regalado; Northwest Airlines vs. Court of
Appeals, Rolando Torres, G.R. No. 120334, January 30, 1998, First Division, J.
Davide, Jr.; United Airlines vs. Willie J. Uy, G.R. No. 127768, November 19,
1999, Second Division, J. Bellosillo; Edna Diago Lhuillier vs. British Airways, G.R.
No. 171092, January 15, 2010, Second Division, J. Del Castillo;

The Montreal Convention of 1999

(http://www.cargolaw.com/presentations_montreal_cli.html)

There are currently more than 135 parties to the Warsaw Convention either in its
original form or one of its amended forms. Some States separately have adopted
laws or regulations relating to international carrier liability. In addition, as noted
earlier, there are private voluntary agreements among carriers relating to
liability. The result of these many instruments is a patchwork of liability regimes.
The new Convention is designed to replace the Warsaw Convention and all of its
related instruments and to eliminate the need for the patchwork of regulation
and private voluntary agreements.

The most notable features of the new Convention include: (1) it removes all
arbitrary limits on recovery for passenger death or injury; (2) it imposes strict
liability on carriers for the first 100,000 SDR (``Special Drawing Rights'' which is
an artificial `basket' currency developed by the International Monetary Fund for
internal accounting purposes).) of proven damages in the event of passenger
death or injury; (3) it expands the bases for jurisdiction for claims relating to
passenger death or injury to permit suits in the passenger's homeland if certain
conditions are met; (4) it clarifies the obligations of carriers engaged in code-
sharing operations; and (5) it preserves all key benefits achieved for the air
cargo industry by Montreal Protocol No. 4. A more detailed review of the
essential elements of the Convention follows.

H. SPACE TRAVEL

http://space.xprize.org/ansari-x-prize

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 Ansari X PRIZE

"I think the [Ansari] X PRIZE should be viewed as the beginning of one giant leap..."

Dr. Buzz Aldrin

NASA Astronaut
Apollo 11

On October 4, 2004, the X PRIZE Foundation captured the world's attention when we
awarded the largest prize in history, the $10 million Ansari X PRIZE, to Scaled
Composites for their craft SpaceShipOne.

To win the prize, famed aerospace designer Burt Rutan and financier Paul Allen led the
first private team to build and launch a spacecraft capable of carrying three people to
100 kilometers above the earth's surface, twice within two weeks.

Spaceflight was no longer the exclusive realm of government. With that single flight,
and the winning of the $10 million Ansari X PRIZE, a new industry was born.

The Ansari X PRIZE was modeled after the Orteig Prize, won by Charles Lindbergh in
1927 for being the first to fly non-stop from New York to Paris, and mirrored the
hundreds of aviation incentive prizes offered early in the 20th century that helped
create today's $300 billion commercial aviation industry. Dr. Peter Diamandis designed
the prize after reading The Spirit of St. Louis about the winning of the Orteig Prize. In
1996, he formally announced the prize in St. Louis, and the race was on.

The Ansari family shared our vision and agreed to join the revolution by becoming the
title sponsors of the first X PRIZE, jumpstarting 26 teams from 7 different nations to
pursue their passions by competing for the prize. Those 26 teams combined spent more
than $100 million to win the prize. Since SpaceShipOne won the prize, there has been
more than $1.5 billion dollars in public and private expenditure in support of the private
spaceflight industry.

Following the success of the Ansari X PRIZE, Peter Diamandis and the rest of the X
PRIZE Foundation were inspired to create more prizes that would spur innovations in
other stalled industries. The Foundation has an ongoing goal of creating new Prizes in
the following areas: Exploration (Space & Deep Ocean); Energy & Environment;
Education & Global Development; and Life Sciences.

The Teams

The teams that competed for the Ansari X PRIZE were a dynamic and diverse group of
individuals and companies, each with their own unique idea of how to win the $10
million. Many of the Ansari teams are still reaching for space, even though the prize
money is no longer up for grabs. Others are competing in current X PRIZE
competitions, like the Google Lunar X PRIZE or the Northrop Grumman Lunar Lander
Challenge.

A list of all of the teams who competed in the Ansari X PRIZE is to the left. All content
on team pages is exactly the same as it was on the original X PRIZE Foundation website
in 2003, including tense.

SCALED COMPOSITES

http://www.scaled.com/about/

Scaled Composites, LLC is an aerospace and specialty composites development

company located in Mojave, California (about 80 miles north of Los Angeles).

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Founded in 1982 by Burt Rutan, Scaled has broad experience in air vehicle design,
tooling and manufacturing, specialty composite structure design, analysis and
fabrication, and developmental flight tests of air and space vehicles.

The employees at Scaled come from a diverse background of talents, experience, and
interests. This unique combination of individuals helps promote an innovative and
creative atmosphere. Scaled offers the opportunity to pursue career and personal
interests in a manner that can be found nowhere else by following one simple rule:
have fun.

Our normal business hours are from 7 am to 4:30 pm (Pacific), Monday through
Thursday. We are open every other Friday from 7 am to 3:30 pm (Pacific).

VIRGIN GALACTIC

http://www.virgingalactic.com/

Sir Richard Branson and New Mexico Governor Susana Martinez dedicate the ‘Virgin
Galactic Gateway to Space'WhiteKnightTwo and SpaceShipTwo soar over Spaceport
America New Science and Education Customers to Bring Benefits of Space Access to
Students and Researchers.

Looking skyward, more than 800 guests marveled at Virgin Galactic’s commercial space
vehicles as they soared through the skies of southern New Mexico during the dedication
ceremonies of Virgin Galactic’s new home at Spaceport America. The flight of
WhiteKnightTwo and SpaceShipTwo was the highlight of a spectacular ceremony which
featured the dedication of the Sir Norman Foster-designed building and announcements
of new scientific and educational customers for the world’s first commercial space line.

“Today is another history-making day for Virgin Galactic,” said Sir Richard Branson.
“We are here with a group of incredible people who are helping us lead the way in
creating one of the most important new industrial sectors of the 21st century. We’ve
never wavered in our commitment to the monumental task of pioneering safe,
affordable and clean access to space, or to demonstrate that we mean business at each
step along the way.”

Branson and his children, Sam and Holly, who will be the first commercial passengers
on SpaceShipTwo, brought the event to a spectacular conclusion by officially naming
the world’s first purpose-built spaceline terminal as the “Virgin Galactic Gateway to
Space” while rappelling together from the roof of the striking new building.

“I trust that will be the first of many safe landings at Spaceport America! What an
absolute joy to celebrate the naming of the Virgin Galactic Gateway to Space with
Governor Martinez!” said Sir Richard, as the family touched the ground.

The Virgin Galactic Gateway to Space, a combined terminal and hangar facility, will
support up to two WhiteKnightTwo and five SpaceShipTwo vehicles. In addition, The
Gateway will house all of the company’s astronaut preparation and celebration facilities,
a mission control center, and a friends and family area. There is also space committed
to public access via the planned New Mexico Spaceport Authority’s Visitor Experience.

The iconic 120,000 square-foot building, which meets LEED Gold standards for
environmental quality, was designed by world-renowned United Kingdom-based Foster
+ Partners, along with URS Corporation and local New Mexico architects SMPC. The trio
won an international competition in 2007 to build the first private spaceport in the
world.

Built using local materials and regional construction techniques, the facility is
sustainable with few additional energy requirements due to the use of a range of
sustainable features including geothermal heating and cooling.

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New Mexico Governor Susana Martinez participated in the dedication ceremony with
U.S. Congressman Steve Pearce, representing New Mexico’s 2nd District.

“New Mexico has a long tradition of pioneering innovation in aerospace and related
technologies,” said Governor Martinez. “We already possess an impressive array of
facilities and expertise in advanced technologies. Spaceport America and the opening of
the Virgin Galactic Gateway to Space significantly deepen those capabilities and
strengthen our global position as a powerhouse supporter of the space industry. Our
partnership with Virgin Galactic is a perfect example of how government and private
industry can work together to drive economic growth and science education.”

Virgin Galactic CEO and President George Whitesides said the company continues to
make excellent and unequalled progress, under the motto ‘safety is our North Star.’
Whitesides remarked, “Flight testing by prime contractor Scaled Composites is
progressing very well, with 30 SpaceShipTwo flights and 75 WhiteKnightTwo flights to
date. We are also recruiting aggressively and assembling a highly talented and
accomplished workforce focused on safe commercial operations led by Vice President of
Operations Mike Moses, who will run our efforts at the spaceport.”

In addition, the company is taking steps to expand its mission beyond commercial
space tourism. The company announced last week that it had been awarded a contract
under NASA’s Flight Opportunity Program for research flights to a potential value of
$4.5m. During the ceremony, it was announced that new flight reservations have been
made by research and education institutions to support research initiatives and inspire
students. Purdue University, Space Florida, the Challenger Center for Space Science
Education and Southwest Research Institute were recognized as the most recent
participants in this new growth area for Virgin Galactic.

“For me, my children and our ever growing community of future astronauts, many of
whom are with us today, standing in front of the Virgin Galactic Gateway to Space as it
glimmers majestically under the New Mexican sun brings our space adventure so close
we can almost taste it,” said Sir Richard.

Present for the dedication ceremony were over 150 Virgin Galactic customers from 21
countries who have already made deposits to fly to space. A total of over 450 future
astronauts worldwide have signed on to join Virgin Galactic for a voyage into space.

GOVERNMENT REGULATIONS ON SPACE TRAVEL

http://www.faa.gov/about/office_org/headquarters_offices/ast/human_space_flight_req
s/

New Regulations Govern Private Human Space Flight Requirements for Crew
and Space Flight Participants

The Federal Aviation Administration (FAA) today issued regulations establishing

requirements for crew and space flight participants (passengers) involved in private
human space flight. The new rules maintain FAAs commitment to protect the safety of
the uninvolved public and call for measures that enable passengers to make informed
decisions about their personal safety.

The regulations require launch vehicle operators to provide certain safety-related

information and identify what an operator must do to conduct a licensed launch with a
human on board. In addition, launch operators are required to inform passengers of the
risks of space travel generally and the risks of space travel in the operators vehicle in
particular. These regulations also include training and general security requirements for
space flight participants.

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The regulations also establish requirements for crew notification, medical qualifications
and training, as well as requirements governing environmental control and life support
systems. They also require a launch vehicle operator to verify the integrated
performance of a vehicles hardware and any software in an operational environment.
An operator must successfully verify the integrated performance of a vehicle's hardware
and any software in an operational flight environment before allowing any space flight
participant on board. Verificatioin must include flight testing.

Congress mandated these regulations in the Commercial Space Launch Amendments

Act of 2004. Recognizing that this is a fledgling industry, the law required a phased
approach in regulating commercial human space flight, with regulatory standards
evolving as the industry matures.

DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration 14 CFR Parts 401, 415, 431, 435, 440 and 460
[Docket No. FAA–2005–23449] RIN 2120–AI57
Human Space Flight Requirements for Crew and Space Flight Participants
AGENCY: Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
(http://www.gpo.gov/fdsys/pkg/FR-2006-12-15/pdf/E6-21193.pdf)

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