Transportation Law

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro TRANSPORTATION LAW PRELIMINARY CONSIDERATIONS: A. Governing Laws 1. New Civil Code – Primary law 2. Warsaw Convention – for international transportation by air 3. Code of Commerce – governs suppletorily; it governs maritime transaction 4. Carriage of Goods by Sea Act – for transportation by sea; governs suppletorily 5. Salvage Law 6. Public Service Act 7. Article XII Sec 11 on operation of public convenience of the 1987 Philippine Constitution B. Concept of Public Utility & public service Sec. 13 (b) of the Public Service Act provides that: “The term 'public service' includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railway, marine

repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless communications system, wire or wireless broadcasting stations and other similar public services: Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a motor vehicle and uses it personally and/or enters into a special contract whereby said motor vehicle is offered for hire or compensation to a third party or third engaged in agriculture, not itself or themselves a public service, for operation by the latter for a limited time and for a specific purpose directly connected with the cultivation of his or their farm, the transportation, processing, and marketing of agricultural products of such third party or third parties shall not be considered as operating a public service for the purposes of this Act.” Public utilities are privately owned and operated business whose services are essential to the general public. Case: National Development Company v CA C. Constitutional limitations on operation of public utilities Sec. 11 of Article XII of the 1987 Constitution states that: “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 1

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.” *The corporation must be a domestic corporation and that 60% of the capital must be owned by Filipino citizens. Sec. 18 of Article XII of the 1987 Constitution provides that: “The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government.” Q: What are the bases/reasons for regulation of public utilities? A: Basis: Police Power Justification: Common good D. Regulatory agencies

1. Land Transportation Franchising Regulatory Board (LTFRB) – land transportation 2. Land Transportation Office – issue license to drivers 3. Maritime Industry Authority (MARINA) – water transportation 4. National Telecommunications Commission – communication utilities and services, radio communications systems, wire or wireless telephone and telegraph systems, radio and television broadcasting systems and other similar public utilities 5. Energy Regulatory Board – electric or power companies 6. National Water Resources Council – water resources 7. Civil Aeronautics Board – air transportation Q: What conditions must concur in the grant of certificate of public convenience and necessity? A: 1. The grantee must be a citizen of the Philippines or a corporation or entity 60% of which is owned by such citizens; 2. The grantee must have sufficient financial capability to undertake the service; and 3. The service will promote public interest and convenience in a proper and suitable manner. *In Tatad v Garcia, the SC held that the controlling factor is the citizenship of the person operating a common carrier. Guiding Principles: 1. Prior or Old Operator Rule – the first licensee will be protected in his investment and will not be subjected to ruinous competition. 2

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro *No certificate of public convenience and necessity will be issued to other operator as long as the prior operator still in operation and can satisfy the public and that it still has the capacity to do so. 2. Protection Investment Rule – protects from unfair competition 3. Prior Applicant Rule – protects the first applicant. Principle: all things being equal *Public interest is the first and paramount consideration. E. Concept of franchise and certificate of public convenience Franchise is a grant or privilege from the sovereign power. Certificate of Public Convenience is a form of regulation through an administrative agency. Q: Is a legislative franchise necessary before a public utility can be allowed to secure a certificate of public convenience? A: General Rule: NO. Exception: If a pertinent law requires such legislative franchise. Factors: 1. Public interest 2. Public convenience 3. Public necessity GENERAL CONCEPTS: A. Contract of transportation in general Transportation is a contract whereby a person, natural or juridical, obligates to transport persons, goods, or both, from one place to another, by land, air, or water, for a price or commission.

*Importance: For liability purposes B. Perfection There is a perfected contract when there was a meeting of the minds as to the subject matter and consideration. C. Common Carrier 1. Statutory definition Article 1732 of the New Civil Code provides that: “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.” - one that holds itself out as ready to engage in the transportation of goods for hire as a public employment and not as a casual occupation. Implications being a common carrier: a. extraordinary diligence must be exercised b. in case of damage, presumption of negligence on the part of the common carrier *It is the activity of the carrier that is controlling. Cases: A.F. Sanchez Brokerage, Inc v CA; Asia Lighterage v CA; De Guzman v CA *The fact that there is no license at the time of the incident happen is of no moment for liability purposes. 2. Distinguished from private carrier Common Private Carrier Carrier 3

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro As to holds availabili himself out ty: for all people indiscrimin ately As to required diligence : As to regulatio n:

Extraordina ry diligence is required

Stipulati on limiting liability:

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

Subject to state regulation

Exemptin g circumst ance:

Prove extraordina ry diligence and Article 1734 NCC Presump There is a tion of presumptio Negligen n of fault or ce: negligence Governin g law:

Law on common carriers

Contracts with particular individual s or groups only Ordinary diligence is required Not subject to state regulatio n Parties may limit the carrier’s liability, provided it is not contrary to law, morals or good customs Caso fortuito, Article 1174 NCC No presumpt ion of fault or negligen ce Law on obligatio ns and contracts

3. Distinguished from towage, arrastre and stevedoring Distinctions:

Towage

Arrastre

Stevedo ring

One The The vessel is functions of function hired to an arrastre of bring operator stevedor another has nothing es vessel to to do with involves another the trade the place; and loading refers to a business of and service navigation, unloadin rendered nor to the g of to a use or coastwis vessel by operation e vessels towing for of vessels. calling at the mere He is no the port. purpose of different expediting from that of her a voyage depositary without or reference warehouse to any man. circumsta nces of danger. *The SC held that the following services are not considered a common carrier: 1) purely arrastre services; *comparable to that as warehouseman and depositor 2) purely stevedoring services; and 3) purely towage services. *In Crisostomo v CA, the SC held that the respondent being a travel agency is not a common carrier because the services offered is not one that carries passenger from one place to another. 4. Tests to determine common carrier Tests: a. He must engaged in the business of carrying goods for 4

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 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 as a casual occupation; b. He must undertake to carry goods of the kind to which his business is confined; c. He must undertake to carry by the method by which his business is conducted and over his established roads; d. The transportation must be for hire Case: First Philippine Industrial Corporation v CA *Under Sec. 22 of the Electric Power Distribution Reform Act, the company like MERALCO distributing electricity is a common carrier. 5. Parties to the contract of carriage a. Carriage of passengers: 1. Common carrier 2. Passengers b. Carriage of goods: 1. Shipper 2. Carrier D. Registered owner rule and Kabit system General Rule: Registered owner rule is applicable in this jurisdiction. Registered owner rule states that the person who is the registered owner of a vehicle is liable for any damages caused by the negligent operation of the vehicle although the same was already sold or conveyed to another person at the time of the accident. The registered owner is

liable to the injured party subject to his right of recourse against the transferee or the buyer. Purpose of this rule: easy identification of the owner to be sued for liability. Recourse: Registered owner may bring the case to the court to sue the buyer or operator of the vehicle at fault. Exception: in case of stolen vehicle registered owner is not liable. *In the case of Duavit v CA, the SC held that the registered owner is not liable if the vehicle was taken from his garage without his knowledge or consent. To hold the registered owner liable would be absurd as it would be holding liable the owner of a stolen vehicle for an accident caused by the person who stole such vehicle. 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. *Kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Article 1409 of the New Civil Code. *If the registered owner and the buyer entered into this transaction they are In pari delicto thus, in case something happen the court will not aid them. The court will leave them as they were. *This arrangement is a circumvention of the requirement for license.

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Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro OBLIGATIONS OF THE COMMON CARRIER IN A CONTRACT OF CARRIAGE OF GOODS: A. Vigilance over the goods 1. Duty to exercise extraordinary diligence Article 1733 of the New Civil Code states that: “Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756.” Reason: The nature of the business is imbued with public interest and public policy; because of the exigencies of the business. The public has no choice but to trust on the skills of the employees of the common carrier. The goods and the life of the passenger are placed in the hands of the common carrier. Article 363 of the Code of Commerce provides that: “Outside of the cases mentioned in the second paragraph of Article 361, the carrier shall be obliged to deliver the goods shipped in the same condition in which, according to the bill of lading, they were

found at the time they were received, without any damage or impairment, and failing to do so, to pay the value which those not delivered may have at the point and at the time at which their delivery should have been made. If those not delivered form part of the goods transported, the consignee may refuse to receive the latter, when he proves that he cannot make use of them independently of the others.” Article 364 of the Code of Commerce provides that: “If the effect of the damage referred to in Article 361 is merely a diminution in the value of the gods, the obligation of the carrier shall be reduced to the payment of the amount which, in the judgment of experts, constitutes such difference in value.” Article 365 of the Code of Commerce provides that: “If, in consequence of the damage, the goods are rendered useless for sale and consumption for the purposes for which they are properly destined, the consignee shall not be bound to receive them, and he may have them in the hands of the carrier, demanding of the latter their value at the current price on that day. If among the damaged goods there should be some pieces in good condition and without any defect, the foregoing provision shall be applicable with respect to those damaged and the consignee shall receive those which are sound, this segregation to be made 6

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro by distinct and separate pieces and without dividing a single object, unless the consignee proves that impossibility of conveniently making use of them in this form. The same rule shall be applied to merchandise in bales or packages, separating those parcels which appear sound.” Presumption of negligence Article 1735 of the New Civil Code provides that: “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.” 2. Duration of liability Article 1736 of the New Civil Code states that: “The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738.” Article 1737 of the New Civil Code states that: “The common carrier's duty to observe extraordinary diligence over the goods remains in full force and

effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the right of stoppage in transitu.” Article 1738 of the New Civil Code provides that: “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.” 3. Defenses of common carriers Article 1734 of the New Civil Code provides that: “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 of omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority.” *The enumeration is exclusive or a closed list. General Rule: Common carriers are responsible for the loss, 7

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro destruction or deterioration of the goods. Exceptions: 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 of omission of the shipper or owner of the goods; 4. The character of the goods or defects in the packaging or in the containers; and 5. Order or act of the competent public authority Article 1740 of the New Civil Code states that: “If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility.” a. Fortuitous event Article 1739 of the New Civil Code provides that: “In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of

an act of the public enemy referred to in Article 1734, No. 2.” *Fire is not within the ambit of natural disaster or calamity. *Calamity includes thunderstorm. *mechanical defect is not within the ambit of the natural disaster; it is within the control of the common carrier. Requisites: 1. Proximate cause is the natural calamity 2. Absence of negligence on the part of the common carrier 3. The common carrier must exercise due diligence to prevent loss before, during and after the occurrence of the disaster 4. Free from unreasonable delay by the common carrier or unreasonable deviation b. Public enemy Article 1739 of the New Civil Code states that: “In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The 8

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in Article 1734, No. 2.” *Public enemy includes pirates however it does not include robbery and thief. *Pirates are enemies of all civilized nation. General Rule: rebels and insurreccion is not included. Exception: If it they are cast of and took allegiance a hostile manner territory *Existence of actual war is imperative. c. Act of omission on the part of the shipper or owner of the goods *There must be no fault or contributory negligence on the part of the carrier. *In Compania Maritima v CA, the SC held that the common carrier is also at fault; the common carrier should have exercise extraordinary diligence by not relying solely on the statement of the shipper; it should have conducted its own weighing. In this case the common carrier is not totally absolved from its liability. d. Improper packing Article 1742 of the New Civil Code states that: “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.” *If the defect is apparent, the carrier may refuse to accept the goods for carriage; if the shipper insists, the remedy is to make a protestation; make a foul bill of lading. *In Iron Bulk v CA (Dec. 8, 2003), carrier issued pro forma bill of lading stated where in that it accepted goods in good condition. The goods arrived defective. The SC held that the carrier is not exempt from liability because it accepted the goods without protestation. *Foul Bill of Lading preserves the right of the carrier to use the excuse provided in 1734. e. Order of public authority Article 1743 of the New Civil Code states that: “If through the order of public authority the goods are seized or destroyed, the common carrier is not responsible, provided said public authority had power to issue the order.” *The important requisite is that the public authority has the power to issue an order. Case: Ganzon v CA 4. Contributory negligence of the shipper Article 1741 of the New Civil Code states that: “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 9

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro liable in damages, which however, shall be equitably reduced.” 5. Stipulation limiting liability of carrier Article 1744 of the New Civil Code states that: “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.” *This is for the benefit of the carrier. Consideration: Reduction of fare *The stipulation must be in writing for the purpose of preventing abuse from the carrier. Article 1748 of the New Civil Code provides that: “An agreement limiting the common carrier's liability for delay on account of strikes or riots is valid.” Article 1749 of the New Civil Code states that: “A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.” Article 1750 of the New Civil Code provides that: “A contract fixing the sum that may be

recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon.” a. Requisites Article 1744 of the New Civil Code states that: “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 1751 of the New Civil Code provides that: “The fact that the common carrier has no competitor along the line or route, or a part thereof, to which the contract refers shall be taken into consideration on the question of whether or not a stipulation limiting the common carrier's liability is reasonable, just and in consonance with public policy.” *Liability can be limited but cannot be totally exempted. *Stipulations reducing diligence or limiting liability must be in writing to be enforceable. b. Invalid stipulations 10

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Article 1745 of the New Civil Code states that: “Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy: (1) That the goods are transported at the risk of the owner or shipper; (2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods; (3) That the common carrier need not observe any diligence in the custody of the goods; (4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary prudence in the vigilance over the movables transported; (5) That the common carrier shall not be responsible for the acts or omission of his or its employees; (6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished; (7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.”

*Even if they agreed with regard to numbers 1,2 and 3, the stipulation is void because it is contrary to public policy because all these stipulations exempt the carrier from liability. General Rule: The degree of diligence may be lowered Exception: Not lower than that of a good father of a family. General Rule: stipulations exempting from liability acts committed by robbers and thieves who do not act with grave threat or irresistible threats are not valid. Exception: In case the robbers or thieves used grave threat or irresistible threats. *In this case, the presumption of negligence is still applicable, the stipulation only affects the outcome of the case. c. Effect of delay Article 1747 of the New Civil Code states that: “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.” *Delay will prevent the carrier from raising natural disaster as a defense and that the agreement limiting its liability cannot be raised as a defense. d. Rule on presumption of negligence despite stipulation 11

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Article 1752 of the New Civil Code states that: “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.” B. Other obligations 1. Duty to accept goods a. Grounds for valid refusal to accept goods i. General Rule: Goods sought to be transported are dangerous objects or substances including dynamite and other explosives; Exception: Carriers that are permitted or allowed to transport dangerous objects or substances for the reason that it is their function to do so or it is their operation. ii. Goods are unfit for transportation; *This can be found under Article 356 of the Code of Commerce iii. Acceptance would result in overloading; iv. Contrabands or illegal goods; v. Goods are injurious to health; vi. Goods will be exposed to untoward danger like flood, capture by enemies and the like; vii. Goods like livestock will be exposed to disease; viii. Strike; and

ix. Failure to tender goods on time 2. Duty to deliver goods a. Time of delivery General Rule: It is by stipulation Exception: In the absence of stipulation Code of Commerce governs. Article 358 of the Code of Commerce provides that: “If there is no period fixed for the delivery of the goods the carrier shall be bound to forward them in the first shipment of the same or similar goods which he may make to the point where he must deliver them; and should he not do so, the damages caused by the delay should be for his account.” *When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence of any agreement as to the time of delivery. *Mercantile usage or practice With Without stipulation stipulation Carrier is 1. Within a bound to reasonable fulfil the time. contract and 2. Carrier is is liable for bound to any delay; forward no matter them in from what the first cause it may shipment have arisen of the same or 12

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro similar goods which he may make to the point of delivery b. Consequences of delay Article 1740 of the New Civil Code provides that: “If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility.” Article 1747 of the New Civil Code provides that: “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 370 of the Code of Commerce provides that: “If a period has been fixed for the delivery of the goods, it must be made within such time, and, for failure to do so, the carrier shall pay the indemnity stipulated in the bill of lading, neither the shipper nor the consignee being entitled to anything else. If no indemnity has been stipulated and the delay exceeds the time fixed in the bill of lading, the carrier shall be liable for the damages which the delay may have caused.”

Article 371 of the Code of Commerce provides that: “In case of delay through the fault of the carrier, referred to in the preceding articles, the consignee may leave the goods transported in the hands of the former, advising him thereof in writing before their arrival at the point of destination. When this abandonment takes place, the carrier shall pay the full value of the goods as if they had been lost or mislaid. If the abandonment is not made, the indemnification for losses and damages by reason of the delay cannot exceed the current price which the goods transported would have had on the day and at the place in which they should have been delivered; this same rule is to be observed in all other cases in which this indemnity may be due.” Article 372 of the Code of Commerce states that: “The value of the goods which the carrier must pay in cases of loss or misplacement shall be determined in accordance with that declared in the bill of lading, the shipper not being allowed to present proof that among the goods declared therein there were articles of greater value and money. Horses, vehicles, vessels, equipment and all other principal and accessory means of transportation shall be especially bound in favour of 13

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro the shipper, although with respect to railroads said liability shall be subordinated to the provisions of the laws of concession with respect to the property, and to what this Code established as to the manner and form of effecting seizures and attachments against said companies.” Article 373 of the Code of Commerce states that: “The carrier who makes the delivery of the merchandise to the consignee by virtue of combined agreements or services with other carriers shall assume the obligations of those who preceded him in the conveyance, reserving his right to proceed against the latter if he was not the party directly responsible for the fault which gave rise to the claim of the shipper or consignee. The carrier who makes the delivery shall likewise acquire all the actins and rights of those who preceded him in the conveyance. The shipper and the consignee shall have an immediate right of action against the carrier who executed the transportation contract, or against the other carriers who may have received the goods transported without reservation. However, the reservation made by the latter shall not relieve them from the responsibilities which they may

have incurred by their own acts.” Article 374 of the Code of Commerce states that: “The consignees to whom the shipment was made may not defer the payment of the expenses and transportation charges of the goods they receive after the lapse of 24 hours following their delivery; and in case of delay in this payment, the carrier may demand the judicial sale of the goods transported in an amount necessary to cover the cost of transportation and the expenses incurred.” Effects of delay: 1. Excusable delay in carriage merely suspends and generally does not terminate the contract of carriage. When the cause is removed, the master must proceed with the voyage and make delivery; 2. Carrier remains duty bound to exercise extraordinary diligence; 3. Natural disaster shall not free the carrier from responsibility; 4. If delay is without just cause, the contract limiting the common carrier’s liability cannot be availed of in case of loss or deterioration of the goods. c. Place of Delivery Article 360 of the Code of Commerce provides that: “The 14

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro shipper, without changing the place where the delivery is to be made, may change the consignment of the goods which he delivered to the carrier, provided that at the time of ordering the change of consignee the bill of lading signed by the carrier, if one has been issued, be returned to him, in exchange for another wherein the novation of the contract appears. The expenses which this change of consignment occasions shall be for the account of the shipper.” d. To whom delivery shall be made Article 368 of the Code of Commerce provides that: “The carrier must deliver to the consignee, without any delay or obstruction, the goods which he may have received, by the mere fact of being named in the bill of lading to receive them; and if he does not do so, he shall be liable for the damages which may be caused thereby.” Article 369 of the Code of Commerce provides that: “If the consignee cannot be found at the residence indicated in the bill of lading, or if he refuses to pay the transportation charges and expenses, or if he refuses to receive the goods, the municipal judge, where there is none of the first instance, shall provides for their deposit at the disposal of the shipper, this deposit producing all the effects

of delivery without prejudice to third parties with a better right.” OBLIGATIONS OF THE COMMON CARRIER IN A CONTRACT OF CARRIAGE OF PASSENGERS: A. Safety of Passengers 1. Duty to observe utmost diligence Article 1755 of the New Civil Code provides that: “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.” *There are claims not really focused on death, injuries, loss or damage of goods but concentrates on moral damages; and the SC said that these claims can still prosper in because there is still a breach of contract of carriage. *Behavior of the employees towards to passengers is also a factor considered by the court to rule against a common carrier. *In CAL v PAL, the SC held that hijacking of the airplane is considered to be a force majeure thus cannot held the carrier liable. Case: Singapore Airline v Andion Fernandez *In Japan Airlines v Asuncion (January 28, 2005), the SC held that the things invoked by the respondent do not fall within the ambit of extraordinary diligence. Though it is the duty of the carrier to check that travel documents are 15

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro with the passengers but it is not under the obligation of the carrier to check the veracity of the information in the travel document; it also held that the obligation of the carrier is limited to endorsing and not to influence. The issue of whether or not an alien be admitted entrance to a country is a sovereign act and such cannot be interfered by the petitioner. 2. Duration of liability *The carrier is bound to exercise utmost diligence with respect to passengers the moment the person who purchases the ticket or token from the carrier presents himself at the proper place and in a proper manner to be transported. Such person must have a bona fide intention to use the facilities of the carrier, possess sufficient fare with which to pay for his passage, and present himself to the carrier for transportation in the place and manner provided. *In LRTA v Navidad, the SC held the petitioner carrier liable for breach of contract. The SC held that Nicanor Navidad was a passenger when he died after he fell on the LRT tracks and was struck by a moving train. He was considered a passenger because he entered the LRT station after having purchased a token and he fell while he was on the platform waiting for a train. Thus, he was where he was supposed to be with the intention of boarding a train. *Once created, the relationship will not ordinarily terminate until the

passenger has, after reaching his destination, safely alighted from the carrier’s conveyance or has had a reasonable opportunity to leave the carrier’s premises. All persons who remain on the premises within a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes reasonable time to look after his baggage and prepare for his departure. *In La Mallorca v CA, the SC held that there was a breach of duty to exercise extraordinary diligence with respect to the 4 year old child and the carrier is liable as a consequence. The presence of passengers near the bus was not unreasonable and they were, therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract. *In Aboitiz Shipping Corporation v CA, the SC held that extraordinary diligence was still owed to AV at the time of the accident. It was ruled that AV’s presence in the premises was not without cause. The victim had to claim his baggage which was possible only one hour after the vessel arrived since it was the standard procedure in the case of petitioner’s vessels that the unloading operation shall start only after that time. 16

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro *The differences between the La Mallorca case and Aboitiz Shipping Corporation are: 1. The business is different from that of La Mallorca case; and 2. The capacity of passengers and baggages are different 3. Presumption of negligence Article 1756 of the New Civil Code states that: “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.” 4. Liability for acts of employees Article 1759 of the New Civil Code provides that: “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.” Case: Maranan v Perez 5. Liability for acts of strangers Article 1763 of the New Civil Code provides that: “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 the diligence of a good father of a family could have prevented or stopped the act or omission. “ Case: Bachelor Express v CA 6. Effect of stipulation on liability Article 1757 of the New Civil Code provides that: “The responsibility of a common carrier for the safety of passengers as required in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise.” Article 1758 of the New Civil Code provides that: “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.” Article 1760 of the New Civil Code states that: “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.” B. Passenger’s Baggages Article 1754 of the New Civil Code provides that: “The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody or in that of his employee. As to other baggage, the rules in Articles 1998 and 2000 to 17

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 2003 concerning the responsibility of hotel-keepers shall be applicable.” Article 1998 of the New Civil Code states that: “The deposit of effects made by the 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 hotelkeepers or their substitutes advised relative to the care and vigilance of their effects.” Article 2000 of the New Civil Code states that: “The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as 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 hotels or inns shall be considered in determining the degree of care required of him.” Article 2001 of the New Civil Code provides that: “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 of the New Civil Code provides that: “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 of the New Civil Code provides that: “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.” *The baggage in the personal custody of the passenger or his employee in that the baggage in transit will be considered as necessary deposits. The common carrier shall be responsible for the baggage as depositaries, provided that notice was given to them or its employees, and the passenger took the necessary precaution, which the carrier has advised them relative to the care and vigilance of their baggage. In case of loss due to the fault of the passenger the carrier will not be liable. *They are not absolutely responsible as depository because the law requires notice. *It is also required to declare the value of the baggage. *The carrier who has in his custody the baggage of the passenger to be carried like any other goods is required to observe extraordinary diligence. In case of loss or damage the carrier is presumed negligent. OBLIGATIONS OF THE SHIPPER, CONSIGNEE AND PASSENGER: 18

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro A. Effect of negligence of shipper or passenger Article 1741 of the New Civil Code states that: “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 1761 of the New Civil Code provides that: “The passenger must observe the diligence of a good father of a family to avoid injury to himself.” Article 1762 of the New Civil Code states that: “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.” *The shipper is also obliged to exercise due diligence in avoiding damage or injury. *With respect to carriage of passengers, the said passengers are likewise bound to observe due diligence to avoid injury. *The contributory negligence on the part of the passenger is not a defense that will excuse the carrier from liability. It will only mitigate such liability. *The carrier may be able to prove that the only cause of the loss of the goods is any of the following acts of the shipper: 1. failure of the shipper to disclose the nature of the goods; 2. improper marking or direction as to destination; and

3. improper loading when he assumed such responsibility. *The shipper must likewise see to it that the goods are properly packed; otherwise, liability of the carrier may be mitigated or barred depending on the circumstances. B. Payment of freight Who will pay: Shipper - before or at the time he delivers the goods to the carrier for shipment. Consignee - if agreed upon by the parties at the point of destination is bound by such stipulation the moment he accepts the goods. Passengers - they are contractually bound to pay the fare within such time as prescribed by regulations or by the carrier. Time to pay: Tickets are purchased in advance from ticket outlets. Consignees to whom the shipment was made may not defer the payment of the expenses and transportation charges of the goods they receive after the lapse of 24 hours following their delivery. *In case of delay in payment, the carrier may demand the judicial sale of the goods transported in an amount necessary to cover the cost of transportation and the expenses incurred. Article 374 of the Code of Commerce provides that: “The carrier who makes the delivery of the merchandise to the consignee by virtue of combined agreements or services with other carriers shall assume the obligations of those who 19

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro preceded him in the conveyance, reserving his right to proceed against the latter if he was not the party directly responsible for the fault which gave rise to the claim of the shipper or consignee. The carrier who makes the delivery shall likewise acquire all the actions and rights of those who preceded him in the conveyance. The shipper and the consignee shall have an immediate right of action against the carrier who executed the transportation contract, or against the other carriers who may have received the goods transported without reservation. However, the reservation made by the latter shall not relieve them from the responsibilities which they may have incurred by their own acts.” Article 375 of the Code of Commerce provides that: “The goods transported shall be especially bound to answer for the cost of transportation and for the expenses and fees incurred for them during their conveyance and until the moment of their delivery. This special right shall prescribe 8 days after the delivery has been made, and once prescribed, the carrier shall have no other action than that corresponding to him as an ordinary creditor.” C. Liability for demurrage Demurrage is the compensation provided for in the contract of affreightment for the detention of the vessel beyond the time agreed on for loading and unloading. It is a claim for damages for failure to accept delivery.

*Liability for demurrage exists only when expressly stipulated in the contract. EXTRAORDINARY DILIGENCE: A. Underlying reason Reasons: 1. From the nature of the business and for reasons of public policy; 2. Relationship of trust; 3. Business is impressed with a special public duty; 4. Possession of the goods; 5. Preciousness of human life B. Effect of Stipulation Article 1744 of the New Civil Code states that: “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 1757 of the New Civil Code states that: “The responsibility of a common carrier for the safety of passengers as required in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise.” 20

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Article 1758 of the New Civil Code states that: “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.” Article 1760 of the New Civil Code states that: “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.” C. Extraordinary diligence in carriage by sea 1. Seaworthiness of the vessel Sec. 3 [1] of the COGSA provides that: “The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to — (a) Make the ship seaworthy; (b) Properly man,equip, and supply the ship; (c) Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage, and preservation.” Sec. 3 [2] of the COGSA provides that: “The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.”

Sec. 116 of the IC Sec. 119 of the IC Article 609 of the Code of Commerce states that: “Captains, masters or patrons of vessels must be Filipinos, have legal capacity to contract in accordance with this code, and prove the skill, capacity, and qualifications necessary to command and direct the vessel, as established by marine or navigation laws, ordinances, or regulations, and must not be disqualified according to the same for the discharge of the duties of the position. If the owner of a vessel desires to be the captain thereof, without having the legal qualifications therefor, he shall limit himself to the financial administration of the vessel, and shall intrust the navigation to a person possessing the qualifications required by said ordinances and regulations.” *Extraordinary diligence requires that the ship which will transport the passengers and goods is seaworthy. *The carriers are deemed to warrant impliedly the seaworthiness of the ship. 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 NCC. *Shippers of goods are not expected to inquire into the 21

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro

2.

3.

4.

5.

vessel’s seaworthiness and compliance with all maritime laws. *The unseaworthiness can be established by the fact that it did not withstand the natural and inevitable action of the sea. Overloading *Duty to exercise due diligence includes the duty to take passengers or cargoes that are within the carrying capacity of the vessel. Proper storage *The ship must not be only seaworthy but it must also be cargoworthy. The ship must be an efficient storehouse for her cargo. *The vessel must be adequately equipped and properly manned. Obligation of captain and crew *If the negligence of the captain and crew can be traced to the fact that they are really incompetent, the Limited Liability Rule cannot be invoked because the ship owner may be deemed negligent. Rule on deviation and transhipment Deviation *If route is stipulated upon by the shipper and carrier, carrier can’t change unless due to force majeure. *Carrier shall be liable for all losses suffered from any other cause, beside the sum stipulated for such case. *If due to said force majeure he took another route and incurred expenses by reason thereof, he

shall be reimbursed for such increase upon formal proof thereof (Art. 359, Code of Commerce). Transshipment is the act of taking cargo out of one ship and loading it in another. *When done without legal excuse, however competent and safe the vessel into which the transfer is made, is a violation of the contract and an infringement of the right of the shipper and subjects the carrier to liability if the freight is lost even by a cause otherwise excepted (Magellan Manufacturing Corp. v. CA). Article 359 of the Code of Commerce provides that: “If there is an agreement between the shipper and the carrier as to the road over which the conveyance is to be made, the carrier may not change the route, unless it be by reason of force majeure; and should he do so without this cause, he shall be liable for all the losses which the goods he transports may suffer from any other cause, beside paying the sum which may have been stipulated for such case. When on account of said cause of force majeure, the carrier had to take another route which produced an increase in transportation charges, he shall be reimbursed for such increase upon formal proof thereof.” 22

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro D. Extraordinary diligence in carriage by land 1. Vehicle’s condition *Owners are required to make sure that the vehicles they are using are in good order and condition. 2. Traffic rules (RA 4136) *In cases involving breach of contract of carriage, proof of violation of traffic rules confirms that the carrier failed to exercise extraordinary diligence. 3. Obligation to Inspect *in overland transportation, common carrier is not bound nor empowered to make an examination of the contents of packages or bags particularly those hand carried. Airline companies are required to inspect each and every cargo brought into the aircraft (RA 6235). E. Extraordinary diligence in carriage by air 1. Airworthiness - an aircraft, its engines, propellers and other components and accessories are of proper design and construction, and are safe for air navigation purposes, such design and construction being consistent with accepted engineering practice and in accordance with aerodynamic laws and aircraft science (RA 779). 2. Competent and well trained crew 3. To take the required and prescribed route 4. Adverse weather conditions or extreme climatic changes are some

of the perils involved in air travel consequence of which the passenger must assume or expect. 5. RA 6235 (An Act Prohibiting Certain Acts Inimical to Civil Aviation and for Other Purposes) acts punishable: a. to compel a change in the course or destination of an aircraft of Philippine registry; or b. to seize or usurp control of the aircraft while in flight. ACTIONS IN CASE OF CONTRACT OF CARRIAGE:

BREACH

OF

A. Causes of action and nature/extent of liability (culpa contractual, culpa aquiliana and culpa delictual) Culpa contractual only the carrier is primarily liable and not the driver. Reason: There is no privity between the driver and the passenger. *The party to be impleaded is the carrier itself. Basis: Article 1759 of the New Civil Code Culpa delictual/criminal the driver is primarily liable. The carrier is subsidiarily liable only if the driver is convicted and declared insolvent. Basis: Article 100 of the Revised Penal Code Culpa aquiliana the carrier and the driver are solidarily liable as joint tortfeasor. Basis: Article 2180 of the New Civil Code

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Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro B. Prescriptive period and conditions precedent 1. Overland transportation of goods and coastwise shipping (Domestic) Article 366 of the Code of Commerce provides that: “Within the 24 hours following the receipt of the merchandise, the claim against the carrier for damage or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which gives rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.” *Prior notice of claim does not apply to misdelivery of goods. Purpose of notice: To inform the carrier that the shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to make an investigation and fix responsibility while the matter is fresh. *The filing of notice of claim is a condition precedent for recovery in case of damage condition of the goods.

*Not provided by Article 366 of the Code of Commerce. Thus, in such absence, the New Civil Code rules on prescription apply. Prescriptive period: General Rule: If written, 10 years, if not written, 6 years Exceptions: 1. COGSA – 1 year 2. Warsaw Convention – 2 years Example: Q: In case of pending extrajudicial claim, does it suspend the one year period? A: NO *One year period applies to shipper, assignee, insurer, subrogees, and successor in interest. *One year period does not apply in cases of delay or misdelivery. International Carriage of Goods by Sea Sec. 3 [6] of the COGSA substantially provides that in case of patent damage, the shipper should file a claim with the carrier immediately upon delivery. In case of latent damage, the shipper should file a claim with the carrier within 3 days from delivery. Action for loss or damage to the cargo should be brought within one year after: delivery of the goods (delivered but damaged goods); or the date when the goods should have been delivered (loss). *The filing of a notice of claim is not a condition precedent. 24

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Recoverable Damages The court may award the following damages: 1. Actual/Compensatory Damages 2. Temperate Damages 3. Liquidated Damages 4. Exemplary Damages 5. Moral Damages 6. Nominal Damages Actual/Compensatory damages are those awarded to the aggrieved party as adequate compensation only for such pecuniary loss suffered by him as he has alleged and duly proved. Article 2199 of the Civil Code states that: “Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.” *To claim this award, proving the amount is necessary. *Procedures or plastic surgeries performed to restore the part of the body injured are included as a component of actual damages. Temperate damages or moderate damages these are damages the amount of which is left to the sound discretion of the court, but it is necessary that there be some injury or pecuniary loss established, the exact amount of which, could not be determined by the plaintiff by reason of the nature of the case. Article 2224 of the New Civil Code provides that: “Temperate or moderate damages, which are more than nominal but less than

compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be provided with certainty.” *The court is convinced that there is pecuniary loss. *There is no actual certainty of the actual amount loss. The court is allowed to calculate the amount. *This is in the form of actual damages Liquidated damages are fixed damages previously agreed by the parties to the contract and payable to the innocent party in case of breach by the other. Article 2226 of the New Civil Code provides that: “Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.” *This is in the form of actual damages but a stipulated one. *Proving the amount is not necessary. *In this kind of damages, estoppel applies. General Rule: The court cannot change the amount. Exception: If the amount stipulated is excessive the court may disregard said amount and may compute the actual damages. *The only thing to be proved is the fact of loss. Exemplary damages are mere accessories to other forms of damages except nominal damages. They are mere additions to actual, moral, temperate and liquidated damages which may or may not be granted at all depending upon the necessity of setting an example for the public good 25

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro as a form of deterrent to the repetition of the same act by any one. Article 2229 of the New Civil Code provides that: “Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.” *Awarded because of the wanton, fraudulent, malevolent, oppressive acts of the carrier. *This is awarded to prevent other carrier to commit oppressive acts. *This cannot be awarded unless the plaintiff is entitled to moral at the same time actual or temperate damages. Article 2231 of the New Civil Code states that: “In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence.” Article 2232 of the New Civil Code states that: “In contracts and quasicontracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.” Article 2233 of the New Civil Code states that: “Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated.” Article 2234 of the New Civil Code states that: “While the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of

whether or not exemplary damages should be awarded In case liquidated damages have been agreed upon, although no proof of loss is necessary in order that such liquidated damages may be recovered, nevertheless, before the court may consider the question of granting exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to moral, temperate or compensatory damages were it not for the stipulation for liquidated damages.” Article 2235 of the New Civil Code states that: “A stipulation whereby exemplary damages are renounced in advance shall be null and void.” Nominal damages are not for indemnification of loss but for vindication of a right violated. Article 2221 of the New Civil Code provides that: “Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.” Article 2222 of the New Civil Code states that: “The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has been invaded.” Article 2223 of the New Civil Code states that: “The adjudication of nominal damages shall preclude further contest upon the right involved and all accessory questions, as between the parties to the suit, or their respective heirs and assigns.” 26

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro *In Japan Airlines v CA, JAL failed to give the plaintiff the priority for the first available flight. The SC awarded nominal damages. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. Article 2217 of the New Civil Code provides that: “Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act for omission.” Q: When moral damages may be awarded? A: 1. Death of a passenger; 2. Carrier is guilty of fraud, malice, bad faith even if there is no death of a passenger (Case: Lopez v PanAmerican); 3. In Air France case MARITIME LAW: Source: Code of Commerce A. Concept of Maritime Law Maritime Law is the system of laws which particularly relates to the affairs and business of the sea, to ships, their crews and navigation, and to maritime conveyance of persons and property. *Apply only to maritime trade and sea voyages. B. Limited Liability Rule 1. Concept

The exclusively real and hypothecary nature of maritime law operates to limit the liability of the shipowner to the value of the vessel, earned freightage and proceeds of the insurance, if any. “NO VESSEL NO LIABILITY” expresses in a nutshell the limited liability rule. The total destruction of the vessel extinguishes maritime lien as there is no longer any res to which it can attach. Q: Is this rule applies in the handling of the passengers? A: YES Q: Whose liability is this? A: Shipowner or Agents. Article 586 2nd paragraph states that: “By ship agent is understood the person entrusted with provisioning or representing the vessel in the port in which it may be found.” *Ship agent is the only person that can be sued directly. Reason: Article 618 of the Code of Commerce provides so. Article 618 1st paragraph states that: “The ship captain shall be civilly liable to the ship agent, and the latter to the third persons who may have made contracts with the former; x x x.” Q: What kind? A: Maritime in nature; marine transactions connected with maritime law; maritime trade and commerce Purpose: To encourage shipbuilding and maritime transactions Article 587 of the Code of Commerce provides that: “The 27

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight it may have earned during the voyage.” Article 590 of the Code of Commerce provides that: “The coowners of a vessel shall be civilly liable in the proportion of their interests in the common fund, for the results of the acts of the captain, referred to in Article 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.” Article 837 of the Code of Commerce provides that: “The civil liability incurred by the 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 earned during the voyage.” When applicable: The Code of Commerce sanctions the application of the doctrine in the following cases: 1. Civil liability for indemnities in favor of third persons which arise from the conduct of the captain in the case of the goods which the vessel carried; 2. Civil liability arising from collisions; 3. Unpaid wages of the captain and the crew if the vessel

and its cargo are totally lost by reason of capture of shipwreck. 2. Exceptions to the rule Exceptions: 1. When the injury to or death of a passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner and the captain; 2. When the vessel is insured to the extent of the insurance proceeds; and *Freightage collectible Q: How come insurance is an exception? A: Because there is no loss. The loss was compensated by the insurance company 3. In Workmen’s Compensation claims Q: Why is an exception? A: Because not maritime in nature *In Yangco v Laserna case, the SC held that it covers anything that is connected with maritime transactions 3. Abandonment Q: If there’s partial loss can the shipowner/agent be exempted from liability? A: YES. If there is abandonment. Q: If there is total loss, is it necessary to abandon? A: NO. There is nothing to abandon. Case: Luzon Stevedoring Article 587 of the Code of Commerce states that: “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 28

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 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.” Q: How claims are satisfied under the Limited Liability Rule? A: All claims should be collated before they can be satisfied from what remains of the insurance proceeds and freightage at the time of the loss. No claimant should be given preference over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus, the execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy the claim. Case: Aboitiz Shipping Co. v General Accident Fire and Life Insurance Corporation C. Vessels - Those engaged in navigation, whether coastwise or on the high seas, including floating docks, pontoons, dredges, scows and any other floating apparatus destined for the services of the industry or maritime commerce. Excluded are local and foreign military vessels, bancas and other

watercrafts of less than 3 tons gross capacity and small watercrafts engaged in river and bay traffic. 1. Acquisition a. By prescription Article 573 of the Code of Commerce states that: “Merchant vessels constitute property which may be acquired and transferred by any of the means recognized by law. The acquisition of a vessel must appear in a written instrument, which shall not produce any effect with respect to third persons if not inscribed in the registry of vessels. The ownership of a vessel shall likewise be acquired by possession in good faith, continued for three years, with a just title duly recorded. In the absence of any of these requisites, continuous possession for ten years shall be necessary in order to acquire ownership. A captain may not acquire by prescription the vessel of which he is in command.” Requisites: 1. Acquisition must appear in a written instrument 2. Such shall not produce any effect to third persons if not inscribed in the registry of vessels 3. Shall be acquired by possession in good faith, continued for 3 years 29

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 4. With a just title duly recorded 5. In the absence of any of there, continuous possession for 10 years shall be necessary to acquire ownership Q: Can the ship captain acquire vessel by prescription? A: NO. The character of possession he has is not those for acquisitive possession. The requisite for acquisitive possession is that possession as an owner. Article 575 of the Code of Commerce states that: “Coowners of vessels shall have the right of repurchase and redemption in sales made to strangers, but they may exercise the same only within the 9 days following the inscription of the sale in the registry, and by depositing the price at the same time.” b. By sale Article 576 of the Code of Commerce states that: “In the sale of a vessel it shall always be understood as included the rigging, masts, stores and engine of a steamer appurtenant thereto, which at the time belongs to the vendor. The arms, munitions of war, provisions and fuel shall not be considered as included in the sale. The vendor shall be under the obligation to deliver to the purchaser a certified copy of the

record sheet of the vessel in the registry up to the date of sale.” Article 577 of the Code of Commerce states that: “If the alienation of the vessel should be made while it is on voyage, the freightage which it earns from the time it receives its last cargo shall pertain entirely to the purchaser, and the payment of the crew and other persons who make up its complement for the same voyage shall be for his account. If the sale is made after the vessel has arrived at the port of its destination, the freightage shall pertain to the vendor, and the payment of the crew and other individuals who make up its complement shall be for his account, unless the contrary is stipulated in either case. *If made while it is on voyage, the freightage which it earns from the time it receives its last cargo shall pertain entirely to the purchaser, and the payment of the crew and other persons who make up its complement shall be for his account. *If made after vessel arrived at port of its destination, freightage shall pertain to the vendor, and the payment of the crew and other individuals who make up its complement shall be for his account, unless the contrary is stipulated in either case. Article 578 of the Code of Commerce states that: “If the 30

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro vessel being on a voyage or in a foreign port, its owner or owners should voluntarily alienate it, either to Filipinos or to foreigners domiciled in the capital or in a port of another country, the bill of sale shall be executed before the consul of the Republic of the Philippines at the port where it terminates its voyage and said instrument shall produce no effect with respect to third persons if it is not inscribed in the registry of the consulate. The consul shall immediately forward a true copy of the instrument of purchase and sale of the vessel to the registry of vessels of the port where said vessel is inscribed and registered. In every case the alienation of the vessel must be made to appear with a statement of whether the vendor receives its price in whole or in part, or whether he preserves in whole or in part any claim on said vessel. In case the sale is made to a Filipino, this fact shall be stated in the certificate of navigation. When a vessel, being in a voyage, shall be rendered useless for navigation, the captain shall apply to the competent judge or court of the port of arrival, should it be in the Philippines; and should it be in a foreign country, to the consul of the Republic of the Philippines, should there be

one, or, where there is none, to the judge or court or to the local authority; and the consul, or the judge or court, shall order an examination of the vessel to be made. If the consignee or the insurer should reside at said port, or should have representatives there, they must be cited in order that they may take part in the proceedings on behalf of whoever may be concerned.” c. Registration Section 810 of the Tariff and Customs Code provides that: “The Bureau of Customs is vested with exclusive authority over the registration and documentation of Philippine vessels. By it shall be kept and preserved the records of registration and of transfers and encumbrances of vessels; and by it shall be issued all certificates, licenses or other documents incident to registration and documentation, or otherwise requisite for Philippine vessels.” *Through the MARINA d. Ship’s manifest Sec. 906 of the Tariff and Customs Code provides that: “Manifests shall be required for cargo and passengers transported from one place or port in the Philippines to another only when one or both of such places is a port of entry.” 31

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro *Declaration of the entire cargo. The object is to furnish customs officers with a list to check against, to inform the revenue officers what goods are brought into a port of the country on a vessel. Hence, the requirement that a vessel must carry a manifest is not complied with even if a bill of lading can be presented. *A bill of lading is just a declaration of a specific cargo rather than the entire cargo. It is issued as a matter of convenience by virtue of a contract. D. Persons who take part in Maritime Commerce 1. Shipowners and shipagents Article 586 of the Code of Commerce provides that: “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. By ship agent is understood the person entrusted with provisioning or representing the vessel in the port in which it may be found.” Article 587 of the Code of Commerce provides that: “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 thereform by abandoning the vessel with all her equipments and the freight it may have earned during the voyage.” Article 588 of the Code of Commerce provides that: “Neither the shipowner nor the ship agent shall be liable for the obligations contracted by the captain, if the latter exceeds the powers and privileges pertaining to him by reason of his position or conferred upon him by the former. Nevertheless, if the amounts claimed were invested for the benefit of the vessel, the responsibility therefor shall devolve upon its owner or agent.” a. Rules in case of part-owners Article 589 of the Code of Commerce provides that: “If two or more persons should be part owners of a merchant vessel, a partnership shall be presumes as estrablished by the co-owners. This partnership shall be governed by the resolution of the majority of the members. If the part-owners should not be more than two, the disagreement of views, if any, shall be decided by the vote of the member having the largest interest. If the interests are equal, it should be decided by lot. The person having the smallest share in the ownership shall have one vote; and proportionately the other part owners as many votes as they have parts equal to the smallest 32

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro one. A vessel may not be detained, attached or levied upon in execution in its entirety, for the private debts of a part owner, but the proceedings shall be limited to the interest which the debtor may have in the vessel, without interfering with the navigation.” Article 590 of the Code of Commerce provides that: “The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund, for the results of the acts of the captain, referred to in Article 587.” Article 591 of the Code of Commerce provides that: “All the part owners shall be liable, in proportion to their respective ownership, for the expenses for repairing the vessel, and for other expenses which are incurred by virtue of a resolution of the majority. They shall likewise be liable in the same proportion for the expenses for the maintenance, equipment, and provisioning of the vessel, necessary for navigation.” Article 592 of the Code of Commerce provides that: “The resolution of the majority with regard to the repair, equipment, and provisioning of the vessel in the port of departure shall bind the minority, unless the minority members renounce their interests, which must be acquired by the other co-

owners, after a judicial appraisement of the value of the portion or portions assigned. The resolutions of the majority relating to the dissolution of the partnership and sale of the vessel shall also be binding on the minority. The sale of the vessel must be made at public auction, subject to the provisions of the law of civil procedure, unless the coowners unanimously agree otherwise, saving always the right of repurchase and redemption provided for in Article 575.” Article 593 of the Code of Commerce provides that: “The owners of a vessel shall have preference in her charter over other persons, under the same conditions and price. If two or more of them should claim this right, the one having the greater interest shall be preferred; and should they have equal interests, the matter shall be decided by lot.” Article 594 of the Code of Commerce states that: “The co-owners shall elect the manager who is to represent them in the capacity of ship agent. The appointment of director or ship agent shall be revocable at the will of the members.” b. Rules in case of shipagents Article 595 of the Code of Commerce states that: “The ship agent, whether he is at the 33

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro same time the owner of the vessel, or a manager for an owner or for an association of co-owners, must have the capacity to trade and must be recorded in the merchant’s registry of the province. The ship agent shall represent the ownership of the vessel, and may, in his own name and in such capacity, take judicial and extrajudicial steps in matters relating to commerce.” Article 596 of the Code of Commerce provides that: “The ship agent may discharge the duties of captain of the vessel, subject in every case to the provision of Article 609. If two or more co-owners apply for the position of captain, the disagreement shall be decided by a vote of the members; and if the vote should result in a tie, it shall be decided in favor of the co-owner having the larger interest in the vessel. If the interests of the applicants should be equal, and there should be a tie, the matter shall be decided by lot.” Article 597 of the Code of Commerce states that: “The ship agent shall designate and come to terms with the captain, and shall contract in the name of the owners, who shall be bound in all that refer to repairs, details equipment, armament, provisions of food and fuel, and freight of the vessel, and, in

general, in all that relate to the requirements of navigation.” Article 598 of the Code of Commerce states that: “The ship agent may not order a new voyage, or make contracts for a new charter, or insure the vessel, without the authorization of its owner or resolution of the majority of the co-owners, unless these powers were granted him in the certificate of his appointment. If he insures the vessel without authorization therefore, he is subsidiarily liable for the solvency of the insurer.” Article 599 of the Code of Commerce states that: “The ship agent managing for an association shall render to his associates an account of the results of each voyage of the vessel, without prejudice to always having the books and correspondence relating to the vessel and to its voyages at their disposal.” Article 600 of the Code of Commerce states that: “After the account of the managing agent has been approved by a relative majority, the co-owners shall pay the expenses in proportion to their interest, without prejudice to the civil or criminal actions which the minority may deem fit to institute afterwards. In order to enforce the payment, the managing agent shall be entitled to an executor action 34

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro (‘accion ejecutiva’), which shall be instituted by virtue of a resolution of the majority, and without further proceedings than the acknowledgment of the signatures of the persons who voted for the resolution.” Article 601 of the Code of Commerce states that: “Should there be any profits, the coowners may demand of the managing agent the amount corresponding to their interests by means of an executor action (‘accion ejecutiva’), without any other requisite than the acknowledgment of the signatures on the instrument approving the account.” Article 602 of the Code of Commerce states that: “The ship agent shall indemnify the captain for all the expenses he may have incurred with funds of his own or of others, for the benefit of the vessel.” *The ship agent is entrusted with the provisioning and representing the vessel in the port in which it may be found. His liability to passengers and cargo owners for loss or injury is the same as the shipowner. *He is solidarily liable with the owner for such loss or damage subject to his right to claim reimbursement from the shipowner. *Only agent that can be sued directly. 2. Captains and masters of vessels

a. Qualifications Article 609 of the Code of Commerce states that: “Captains, masters or patrons of vessels must be Filipinos, have legal capacity to contract in accordance with this code, and prove the skill, capacity, and qualifications necessary to command and direct the vessel, as established by marine or navigation laws, ordinances, or regulations, and must not be disqualified according to the same for the discharge of the duties of the position. If the owner of a vessel desired to be the captain thereof, without having the legal qualifications therefor, he shall limit himself to the financial administration of the vessel, and shall intrust the navigation to a person possessing the qualifications required by said ordinances and regulations.” b. Powers and functions Article 610 of the Code of Commerce states that: “The following powers shall be inherent in the position of captain, master or patron of a vessel: 1. To appoint or make contracts with the crew in the absence of the ship agent, and to propose said crew, should said agent be present; but the ship agent may not employ any member against the captain’s express refusal; 2. To command the crew and direct the vessel to the port of its destination, in 35

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro accordance with the instructions he may have received from the ship agent; 3. To impose, in accordance with the contracts and with the laws and regulations of the merchant marine, and when on board the vessel, correctional punishment upon those who fail to comply with his orders or are wanting in discipline, holding a preliminary hearing on the crimes committed on board the vessel on the seas, which crimes shall be turned over to the authorities having jurisdiction over the same at the first port touched; 4. To make contracts for the charter of the vessel in the absence of the ship agent or of its consignee, acting in accordance with the instructions received and protecting the interests of the owner with utmost care; 5. To adopt all proper measures to keep the vessel well supplied and equipped, purchasing all that may be necessary for the purpose, provided there is no time to request instruction from the ship agent; and 6. To order, in similar urgent cases while on a voyage, the repairs on the hull and engines of the vessel and in its rigging and equipment, which are absolutely necessary to enable it to continue and finish its voyage; but if he should arrive at a point where there is a consignee of the

vessel, he shall act in concurrence with the latter.” Article 611 of the Code of Commerce states that: “In order to comply with the obligations mentioned in the preceding article, the captain, when he has no funds and does not expect to receive any from the ship agent, shall obtain the same in the successive order stated below: 1. By requesting said funds from the consignee of the vessel or correspondents of the ship agent; 2. By applying to the consignees of the cargo or to those interested therein; 3. By drawing on the ship agent; 4. By borrowing the amount required by means of a loan on bottomry; and 5. By selling a sufficient amount of the cargo to cover the sum absolutely indispensable for the repair of the vessel and to enable it to continue its voyage. In these two last cases he must apply to the judicial authority of the port, if in the Philippines, and to the consul of the Republic of the Philippines if in a foreign country, and where there is none, to the local authority, proceeding in accordance with the provisions of Article 583, and with the provisions of the law of civil procedure.” Article 612 of the Code of Commerce states that: “The following obligations shall be inherent in the office of the captain: 36

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 1. To have on board before starting on a voyage a detailed inventory of the hull, engines, rigging, spare-masts, tackle, and other equipment of the vessel; the royal or the navigation certificate; the roll of the persons who make up the crew of the vessel, and the contracts entered into with them; the lists of passengers; the bill of health; the certificate of the registry proving the ownership of the vessel and all the obligations which encumber the same up to that date; the charter parties or authenticated copies thereof; the invoices or manifests of the cargo, and the memorandum of the visit or inspection by experts, should it have been made at the port of departure; 2. To have a copy of this code on board; 3. To have thee folioed and stamped books, placing at the beginning of each one a memorandum of the number of folios it contains, signed by the maritime authority, and in his absence by the competent authority. In the first book, which shall be called “log book,” he shall enter day by day the condition of the atmosphere, the prevailing winds, the courses taken, the rigging carried, the power of the engines used in navigation, the distances covered, the maneuvers executed, and other incidents of navigation; he shall

also enter the damage suffered by the vessel in her hull, engines, rigging, and tackle, no matter what its cause may be, as well as the impairment and damage suffered by cargo, and the effect and importance of the jettison, should there be any; and in cases of serious decisions which require the advice or a meeting of the officers of the vessel, or even of the crew and passengers, he shall record the decisions adopted. For the information indicated he shall make use of the binnacle book and of the steam of engine book kept by the engineer. In the second book called the “accounting book,” he shall record all the amounts collected and paid for the account of the vessel, entering specifically the article by article, the source of the collection and the amounts spent for provisions, repairs, acquisitions of equipment or goods, fuel, food, outfits, wages, and other expenses of whatever nature they may be. He shall furthermore enter therein a list of all the members of the crew, stating their domiciles, their wages and salaries, and the amounts they may have received on account, directly or by delivery to their families. In the third book, called “freight book,” he shall record the loading and discharge of all the 37

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro gods, stating their marks and packages, names of the shippers and of the consignees, ports of loading and unloading, and the freightage they give. In this same book he shall record the names and places of sailing of the passengers, the number of packages in their baggage, and the price of passage; 4. Before receiving cargo, to make with the officers of the crew and two experts, if required by the shippers and passengers, an examination of the vessel, in order to ascertain whether it is water-tight, with the rigging and engines in good condition, and with the equipment required for good navigation, preserving under his responsibility a certificate of the memorandum of his inspection, signed by all those who may have taken part therein. The experts shall be appointed, one by the captain of the vessel and another by those who request its examination, and in case of disagreement a third shall be appointed by the marine authority of the port or by the authority exercising his functions; 5. To remain constantly on board the vessel with the crew while the cargo is being taken on board and to carefully watch the stowage thereof; not to consent to the loading of any merchandise or matter of a dangerous character, such as

inflammable or explosive substances, without the precautions which are recommended for their packing, handling and isolation; not to permit the carriage on deck of any cargo which by reason of its arrangement, volume, or weight makes the work of the sailors difficult, and which might endanger the safety of the vessel; and if, on account of the nature of the merchandise, the special character of the shipment, and principally the favorable season in which it is undertaken, merchandise may be carried on deck, he must hear the opinion of the officers of the vessel and have the consent of the shippers and of the ship agent; 6. To demand a pilot at the expense of the vessel whenever required by the navigation, and principally when he has to enter a port, canal, or river, or has to take a roadstead or anchoring place with which neither he nor the officers and crew are acquainted; 7. To be on deck on reaching land and to take command on entering and leaving ports, canals, roadsteads, and rivers, unless there is a pilot on board discharging his duties. He shall not spend the night away from the vessel except for serious causes or by reason of official business; 38

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 8. To present himself, when making a port in distress, to the maritime authority if in the Philippines and to the consul of the Republic of the Philippines if in a foreign country, before 24 hours have elapsed, and to make a statement of the name registry, and port of departure of the vessel, of its cargo, and the cause of arrival which declaration shall be visaed by the authority or the consul, if after examining the same it is found to be acceptable, giving the captain the proper certificate proving his arrival in distress and the reasons therefor. In the absence of the maritime authority or of the consul, the declaration must be made before the local authority; 9. To take the necessary steps before the competent authority in order to record in the certificate of the vessel in the registry of vessels the obligations which he may contract in accordance with Article 583; 10. To place under good care and custody all the papers and belongings of any members of the crew who might die on the vessel, drawing up a detailed inventory, in the presence of passengers, or, in their absence, of members of the crew as witnesses; 11. To conduct himself according to the rules and precepts contained in the

instructions of the ship agent, being liable for all that which he may do in violation thereof; 12. To inform the ship agent from the port at which the vessel arrives, of the reason of his arrival, taking advantage of the semaphore, telegraph, mail, etc., as the case may be; to notify him of the cargo he may have received, stating the names and domiciles of the shippers, freightage earned, and amounts borrowed on bottomry loan; to advise him of his departure, and of any operation and date which may be of interest to him; 13. To observe the rules with respect to situation, lights and maneuvers in order to avoid collisions; 14. To remain on board, in case the vessel is in danger, until all hope to save it is lost, and before abandoning it, to hear the officers of the crew, abiding by the decision of the majority; and if the boats are to be taken to, he shall take with him, before anything else, the books and papers, and then the articles of most value, being obliged to prove, in case of the loss of the books and papers, that he did all he could to save them; 15. In case of wreck, to make the proper protest in due form at the first port of arrival, before the competent authority or the Philippine consul, within 24 39

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro hours, specifying therein all the incidents of the wreck, in accordance with subdivision 8 of this article; 16. To comply with the obligations imposed by the laws and regulations on navigation, customs, health, and others.” c. Discretion powers *A ship’s captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage. Case:Inter-Orient Maritime Enterprises Inc. v CA 3. Pilot a. Concept Pilot is a person duly qualified and licensed to conduct a vessel into or out of ports or in certain waters. *Generally connotes a person taken on board at a particular place for the purpose of conducting a ship through a river, road or channel or from a port. *If he is in command, he becomes the Master pro hac vice. *While exercising his functions a pilot is in sole command of the ship and supersedes the master for the time being in the command and navigation of the ship; the master does not surrender his vessel to the pilot and the pilot is not the master. There are occasions when the master may and should

interfere and even displace the pilot, as when the pilot is obviously incompetent or intoxicated. Case: Far Eastern Shipping v CA b. Relationship to master and shipowner 4. Officers and crew of the vessel i. Sailing mate/First mate ii. Second mate iii. Engineers – marine engineers iv. Crew – cabin boy; paramedics; watchkeeper; radio officers 5. Supercargoes person who discharges administrative duties assigned to him by ship agent or shippers, keeping an account and record of transaction as required in the accounting book of the captain. E. Charter parties 1. Concept Article 655 of the Code of Commerce states that: “Charter parties executed by the captain in the absence of the ship agent shall be valid and effective, even though in executing them he should have acted in violation of the orders and instructions of the ship agent or shipowner; but the latter shall have a right of action against the captain for indemnification of damages.” Charter party is a lease contract by which with the entire ship or some principal part thereof is let by the owner to another person for a specified period of time or use. 2. Kinds; bareboat and contract of affreightment Kinds: 40

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 1. Bareboat or demise means the whole vessel is lend to the charterer which transfers to him its entire command and possession and consequent control over its navigation, including the master and crew who are his servants. The charterer is treated as owner pro hac vice of the vessel. In such case, a common carrier becomes a private carrier. *Charterer means the vessel assumes all responsibilities of navigation and provides his own people. *Shipowner is not liable to third person; it is the charterer who is liable to them. General Rule: The charterer is liable to the third person. Exception: Shipowner may still be held liable if the injury was caused by unseaworthiness or negligence of the shipowner beyond before the demise or bareboat took over. 2. Contract of affreightment involves that use of shipping space leased by the owner in part or as a whole, to carry goods for others. *The shipowner retains the possession, command and navigation of the ship, the charterer merely having use of the space in the vessel in return for his payment of the charter hired. *The shipowner is liable to third person.

3. Persons qualified to make charter Q: Can the captain enter into a charter contract? A: YES provided that he is authorized. Q: Can the charterer enter into a sub-charter contract? A: YES provided it is not prohibited. This is just like the rule in lease. 4. Requisites of a valid charter Article 652 of the Code of Commerce states that: “A charter party must be drawn in duplicate and signed by the contracting parties, and when either does not know how or is not able to do so, by two witnesses at his request. The charter party shall contain, besides the conditions freely stipulated, the following circumstances: 1. The kind, name, and tonnage of the vessel; 2. Its flag and port of registry; 3. The name, surname, and domicile of the captain; 4. The name, surname, and domicile of the ship agent, if the latter should make the charter party; 5. The name, surname, and domicile of the charterer; and if he states that he is acting by commission, that of the person for whose account he makes the contract; 6. The port of loading and unloading; 7. The capacity, number of tons or the weight or measurement which they respectively bind themselves to load and to transport, or whether the charter party is total; 8. The freightage to be paid, stating 41

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro whether it is to be a fixed amount for the voyage or so much per month, or for the space to be occupied, or for the weight or measure of the goods of which the cargo consists, or in any other manner whatsoever agreed upon; 9. The amount of primage to be paid to the captain; 10. The days agreed upon for loading and unloading; 11. The lay days and extra lay days to be allowed and the demurrage to be paid for each of them.” Requisites: 1. Consent of the contracting parties 2. Existing vessel which should be placed at the disposition of the shipper 3. Freight 4. Compliance with Article 652 of the Code of Commerce 5. Concept of and liability for demurrage Demurrage is the sum due, by express contract, for the detention of the vessel, in loading and unloading, beyond the time allowed in the contract of affreightment, and to any other improper detention or delay beyond the time set for loading. 6. Rights and obligations of charter parties Shipowner or Charterer Ship agent If the vessel is To pay the chartered agreed charter wholly, not to price accept cargo from others To observe To pay

represented capacity To unload cargo clandestinely placed

freightage on unboarded cargo To pay losses to others for loading uncontracted cargo or illicit cargo To substitute To wait if the another vessel if vessel needs load is less than repair 3/5 of capacity To leave the port To pay expenses if the charterer for deviation does not bring the cargo within the lay days and extra lay days allowed To place in a vessel in a condition to navigate; to bring cargo to nearest neutral port in case of war or blockade F. Loans on Bottomry and Respondentia 1. Definition Article 719 of the Code of Commerce states that: “A loan in which under any condition whatever, the repayment of the sum loaned and of the premium stipulated depends upon the safe arrival in port of the goods on which it is made, or of the price they may receive in case of accident, shall be considered a loan on bottomry or respondentia.” Bottomry is a loan secured by the shipowner or ship agent guaranteed by the vessel itself and 42

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro payable only upon arrival of vessel at destination. *Captain may enter into bottomry loan provided there is justification, example of which is, for immediate repairs. Respondentia is a loan secured by the owner of the cargo payable upon safe arrival of cargo at destination. Barratry is an act of the captain or crew for fraudulent purposes. 2. Distinguished from ordinary loan Ordinary Loan With or without collateral Any property may be used as collateral Absolutely payable Obligation to pay still exists in the event the collateral was lost First lender is the first priority Need not be in writing to be enforceable

Bottomry/Respon dentia Always with collateral Property is limited to vessel/cargo Conditionally payable Loan is extinguished in the event that the vessel/cargo was lost Last lender is the first priority Need to be writing to enforceable

3. Parties to the loan Parties: 1. Ship owner or ship agent 2. Owner of the cargo 3. Lender 4. Formalities needed

in be

Article 720 of the Code of Commerce states that: “Loans on bottomry or respondentia may be executed: 1. By means of a public instrument; 2. By means of a policy signed by the contracting parties and the broker taking part therein; 3. By means of a private instrument. Under whichever of these forms the contract is executed, it shall be entered in the certificate of the registry of the vessel and shall be recorded in the registry of vessels, without which requisites the credits of this kind shall not have, with regard to other credits, the preference which, according to their nature, they should have, although the obligation shall be valid between the contracting parties.” Formal Requirements: a. By means of public instrument; b. Policy signed by the contracting parties and the broker taking part therein; and c. by means of private instrument. Reason: Must be in writing to be enforceable. 5. Effect of loss of on loan Article 731 of the Code of Commerce states that: “The actions pertaining to the lender shall be extinguished by the absolute loss of the goods on which the loan was made, if it arose from an accident of the sea at the time and during the voyage designated in the contract, and it is proven that the cargo was on board; but 43

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro this shall not take place if the loss was caused by the inherent defect of the thing, or through the fault or malice, of the borrower, or barratry on the part of the captain, or if it was caused by damages suffered by the vessel as a consequence of being engaged in contraband, or if it arose from having loaded the merchandise on a vessel different from that designated in the contract, unless this change should have been made by reason of force majeure. Proof of the loss as well as of the existence of the vessel of the goods declared to the lender as the object of the loan is incumbent upon him who received the loan.” General Rule: If the property that was collateral was loss, the loan is extinguished. Exceptions: 1. Perished due to inherent defects; 2. Brought about by malicious conduct of the shipowner; 3. Barratry of the captain; 4. Engaged in unlawful transaction; and 5. The cargo loaded on the vessel be different in from that agreed upon. *Commonality of all the exceptions is that the borrower is at fault. 6. Cases where loan is regarded as simple loan a. The loan must be made in connection with the maritime transaction otherwise the loan becomes a simple loan. b. If the loan is bigger than the value of the collateral, the loan becomes a simple loan. c. If the property is not exposed to maritime peril.

Reason: To prevent abuse by the borrower of the benefits of this loan. Article 726 of the Code of Commerce states that: “If the lender should prove that he loaned as amount larger than the value of the object liable for the bottomry loan, on account of fraudulent measures employed by the borrower, the loan shall be valid only for the amount at which said object is appraised by experts. The surplus principal shall be returned with legal interests for the entire time required for repayment.” Article 727 of the Code of Commerce states that: “If the full amount of the loan contracted in order to load the vessel should not be used for the cargo, the balance shall be returned before clearing. The same procedure shall be observed with regard to the goods taken as loan, if they were not loaded.” Article 728 of the Code of Commerce states that: “The loan which the captain takes at the point of residence of the owners of the vessel shall only affect that part thereof which belongs to the captain, if the other owners or their agents should not have given their express authorization therefor or should not have taken part in the transaction. If one or more of the owners should be requested to furnish the amount necessary to repair or provision the vessel, and they should not do so within 24 hours, the interest which the 44

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro parties in default may have in the vessel shall be liable for the loan in the proper proportion. Outside of the residence of the owners the captain may contract loans in accordance with the provisions of Articles 583 and 611.” Article 729 of the Code of Commerce provides that: “Should the goods on which money is taken not be subjected to risk, the contract shall be considered a simple loan, with the obligation on the part of the borrower to return the principal and interest at the legal rate, if that agreed upon should not be lower.” G. Averages 1. Concept Article 806 of the Code of Commerce provides that: “For the purposes of this code the following shall be considered averages: 1. All extraordinary or accidental expenses which may be incurred during the voyage in order to preserve the vessel, the cargo, or both; 2. Any damages or deteriorations which the vessel may suffer from the time it puts to sea from the port of departure until it casts anchor in the port of destination, and those suffered by the merchandise from the time they are loaded in the port of shipment until they are unloaded in the port of their consignment.” 2. Classes of average and the persons liable a. Simple average

Article 809 of the Code of Commerce provides that: “As a general rule, simple or particular averages shall include all the expenses and damages caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and her cargo, and especially the following: 1. The losses suffered by the cargo from the time of its embarkation until it is unloaded, either on account of inherent defect of the goods or by reason of an accident of the sea or force majeure, and the expenses incurred to avoid and repair the same; 2. The losses and expenses suffered by the vessel in its hull, rigging, arms, and equipment, for the same causes and reasons, from the time it puts to sea from the port of departure until it anchors and lands in the port of destination; 3. The losses suffered by the merchandise loaded on deck, except in coastwise navigation, if the marine ordinances allow it; 4. The wages and victuals of the crew when the vessel is detained or embargoed by legitimate order or force majeure, if the charter has been contracted for a fixed sum for the voyage; 45

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 5. The necessary expenses on arrival at a port, in order to make repairs or secure provisions; 6. The lowest value of the goods sold by the captain in arrivals under stress for the payment of provisions and in order to save the crew, or to meet any other need of the vessel, against which the proper amount shall be charged; 7. The victuals and wages of the crew while the vessel is in quarantine; 8. The loss inflicted upon the vessel or cargo by reason of an impact or collision with another, if it is accidental and unavoidable. If the accident should occur through the fault or negligence of the captain, the latter shall be liable for all the losses caused; 9. Any loss suffered by the cargo through the fault, negligence, or barratry of the captain or of the crew, without prejudice to the right of the owner to recover the corresponding indemnity from the captain, the vessel, and the freightage.” General Rule: No reimbursement Principle: Loss will lie where it falls Reason: There was no common benefit Exception: if there is insurance

Exception to the Exception: Stipulated in the insurance policy stating no liability on the part of the insurer regarding particular average. Article 810 of the Code of Commerce provides that: “The owner of the goods which gave rise to the expense or suffered the damage shall bear the simple or particular averages.” Q: Who is liable? A: Owner of the goods b. General average Article 811 of the Code of Commerce provides that: “As a general rule, general or gross averages shall include all the 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, and particularly the following: 1. The goods or cash invested in the redemption of the vessel or of the cargo captured by enemies, privateers, or pirates, and the provisions, wages, and expenses of the vessel detained during the time the settlement or redemption is being made; 2. The goods jettisoned to lighten the vessel, whether they belong to the cargo, to the vessel, or to the crew, and the damage suffered through said act by the goods which are kept on board; 46

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 3. The cables and masts which are cut or rendered useless, the anchors and the chains which are abandoned, in order to save the cargo, the vessel, or both; 4. The expenses of removing or transferring a portion of the cargo in order to lighten the vessel and place it in condition to enter a port or roadstead, and the damage resulting therefrom to the goods removed or transferred; 5. The damage suffered by the goods of the cargo by the opening made in the vessel in order to drain it and prevent its sinking; 6. The expenses caused in order to float a vessel intentionally stranded for the purpose of saving it; 7. The damage caused to the vessel which had to be opened, scuttled or broken in order to save the cargo; 8. The expenses for the treatment and subsistence of the members of the crew who may have been wounded or crippled in defending or saving the vessel; 9. The wages of any member of the crew held as hostage by enemies, privateers, or pirates, and the necessary expenses which he may incur in his imprisonment, until he is returned to the

vessel or to his domicile, should he prefer it; 10.The wages and victuals of the crew of a vessel chartered by the month, during the time that it is embargoed or detained by force majeure or by order of the government, or in order to repair the damage caused for the common benefit; 11.The depreciation resulting in the value of the goods sold at arrival under stress in order to repair the vessel by reason of gross average; 12.The expenses of the liquidation of the average.” Article 812 of the Code of Commerce provides that: “In order to satisfy the amount of the gross or general averages, all the persons having an interest in the vessel and cargo therein at the time of the occurrence of the average shall contribute.” Article 813 of the Code of Commerce provides that: “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. If the latter shall object, and the captain and officers or a majority of them, or the captain, 47

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro if opposed to the majority, should consider certain measures necessary, they may be executed under his responsibility, without prejudice to the right of the shippers to proceed against the captain before the competent judge or court, if they can prove that he acted with malice, lack of skill, or negligence. If the persons interested in the cargo, being on board the vessel, have not been heard, they shall not contribute to the gross average, their share being chargeable against the captain, unless the urgency of the case should be such that the time necessary for previous deliberations was wanting.” Article 816 of the Code of Commerce states that: “In order that the goods jettisoned may be included in the gross average and the owners thereof be entitled to indemnity, it shall be necessary insofar as the cargo is concerned that their existence on board be proven by means of the bill of lading; and with regard to those belonging to the vessel, by means of the inventory prepared before the departure in accordance with the first paragraph of Article 812.” Article 817 of the Code of Commerce states that: “if in lightning a vessel on account of a storm, in order to facilitate its entry into a port or roadstead,

part of the cargo should be transferred to lighters or barges and be lost, the owner of said part shall be entitled to indemnity, as if the loss had originated from a gross average, the amount thereof being distributed between the vessel and cargo from which it came. If, on the contrary, the merchandise transferred should be saved and the vessel should be lost, no liability may be demanded of the salvage.” Article 818 of the Code of Commerce states that: “If, as a necessary measure to extinguish a fire in port, roadstead, creek, or bay, it should be decided to sink any vessel, this loss shall be considered gross average, to which the vessels saved shall contribute.” Article 732 of the Code of Commerce provides that: “Lenders on bottomry or respondentia shall suffer, in proportion to their respective interest, the general average which may take place in the goods on which the loan is made. In particular averages, in the absence of an express agreement between the contracting parties, the lender on bottomry or respondentia shall also contribute in proportion to his respective interest, should it not belong to the kind of risks excepted in the foregoing article.” 48

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Article 859 of the Code of Commerce provides that: “The insurers of the vessel of the freightage, and of the cargo shall be obliged to pay for the indemnification of the gross average, insofar as is required of each one of these objects respectively.” Article 860 of the Code of Commerce provides that: “If, notwithstanding the jettison of merchandise, breakage of masts, ropes, and equipment, the vessel should be lost running the same risk, no contribution whatsoever by reason of gross average shall be proper. The owners of the goods saved shall not be liable for the indemnification of those jettisoned, lost, or damaged.” Article 861 of the Code of Commerce provides that: “If, after the vessel has been saved from the risk which gave rise to the jettison, it should be lost through another accident taking place during the voyage, the goods saved and existing from the first risk shall continue liable to contribution by reason of the gross average according to their value in the condition in which they may be found, deducting the expenses incurred in saving them.” Remedy: Reimbursement General Rule: The sacrifice made must be in the course of the voyage.

Exceptions: General average exists even if there is no voyage yet: 1. Article 817 of the Code of Commerce which covers fire in the port; and 2. Article 818 of the Code of Commerce which covers transfer of cargo to another vessel for the necessity to enter another port. Requisites: 1. Exposure to common danger to ship and the cargo after it has been loaded whether during voyage or port of loading and unloading; 2. That for the common safety part of the vessel or the cargo or both is sacrificed deliberately; 3. That from the expenses or damages caused follows the successful saving of the vessel and cargo; 4. That the expenses or damages should have been incurred or inflicted after taking legal steps and authority Formalities: 1. There must be a resolution of the captain, adopted after a deliberation with the other officers of the vessel and after hearing all persons interested in the cargoes. If the latter disagree, the decision of the captain should prevail but they shall register their objections. 2. The resolution must be entered in the logbook, stating the reasons and 49

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro motives for the dissent, and the irresistible and urgent causes if he acted in his own accord. It must be signed, in the first case, by all persons present in the hearing. In the second case, by the captain and all the officers of the vessel. The minutes must also contain a detail of all the goods jettisoned and those injuries caused to those on board. H. Collisions 1. Definition Collision is an impact of two vessels both of which are moving. Allision is an impact between a moving vessel and a stationary one. Possible damage: a. Damage to vessel b. Loss/damage to cargo c. Injury or death of passenger Example: Q: A and B collided, A was found to be negligent, who bears the consequential damages? A: A shall be liable for the consequential damages for she is at fault. Q: What if A and B were found to be negligent, who bears the consequential damages? A: With regard to the vessel, each vessel shall be liable for their own losses. With regard to the cargoes and passengers, they are solidarily liable. 2. Zones in collision (Doctrine of error in extremis)

*Knowing these zones are important for liability purposes. 1. First zone – all time up to the moment when risk of collision begins 2. Second zone – time between moment when risk of collision begins and moment it becomes a practical certainty. *It is in this period where conduct of the vessels is primordial. It is in this zone that vessels must strictly observe nautical rules unless a departure therefrom becomes necessary to avoid imminent danger. 3. Third zone – time when collision is certain and time of impact. *An error in this zone would no longer be legally consequential. Doctrine of Error in Extremis is a sudden movement made by a faultless vessel during the third zone of collision with another vessel which is at fault during the second zone. Even if such sudden movement is wrong, no responsibility will fall on said faultless vessel. Doctrine of Last Clear Chance provides that a negligent defendant is held liable to a negligent plaintiff or even to a plaintiff who has been grossly negligent where he should have been aware of it in the reasonable exercise of due care, had in fact an opportunity later than that of the plaintiff to avoid an accident. 50

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro *In this doctrine, both parties are at fault but only one party is liable. Only the party who has the last clear opportunity to avoid the impact is held liable. *This doctrine is inapplicable in the following instances: 1. If the suit is between a parties of contract of carriage; and 2. In case of collision of vessels 3. Rule on liability Article 826 of the Code of Commerce provides that: “If a vessel should collide with another, through the fault, negligence, or lack of skill of the captain, sailing mate, or any other member of the complement, the owner of the vessel at fault shall indemnify the losses and damages suffered, after an expert appraisal.” Article 827 of the Code of Commerce provides that: “If the collision is imputable to both vessels, each one shall suffer its own damages, and both shall be solidarily responsible for the losses and damages occasioned to their cargoes.” *This is known as the Doctrine of Inscrutable Fault. Doctrine of Inscrutable Fault provides that in case of collision where it cannot be determined which between the two vessels was at fault, both vessels bear their respective damage, but both should be solidarily liable for damage to the cargo of both vessels. Article 828 of the Code of Commerce states that: “The

provisions of the preceding article are applicable to the use in which it cannot be determined which of the two vessels has caused the collision.” Article 829 of the Code of Commerce states that: “In the cases above mentioned the civil action of the owner against the person causing the injury as well as the criminal liabilities, which may be proper, are reserved.” Article 830 of the Code of Commerce states that: “If a vessel should collide with another, through fortuitous event or force majeure, each vessel and its cargo shall bear its own damages.” Requisites: 1. The natural disaster must have been the proximate and only cause of the loss; 2. The common carrier must have exercised due diligence to prevent or minimize loss before, during and after the occurrence of the natural disaster; 3. The common carrier must not have been guilty of delay; and 4. The captain must have made a protest before the competent authority at the first port he touched within the 24 hours following his arrival, and should have ratified it within the same period when he arrived at the port of destination, proceeding immediately with the proof of the facts, without opening the hatches until after this has been done. 51

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro Article 831 of the Code of Commerce provides that: “If a vessel should be forced by a third vessel to collide with another, the owner of the third vessel shall indemnify the losses and damages caused, the captain thereof being civilly liable to said owner.” *This is known as the Doctrine of Proximate Cause Article 832 of the Code of Commerce states that: “If by reason of a storm or other cause of force majeure, a vessel which is properly anchored and moored should collide with those nearby, causing them damages, the injury occasioned shall be considered as particular average of the vessel run into.” 4. Limited liability rule *There must be no fault on the part of the shipowner. *The fault falls only with his crew. Article 837 of the Code of Commerce states that: “The civil liability incurred by the 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.” I. Arrival under stress 1. Concept The arrival of a vessel at the nearest and most convenient port instead of the port of destination, if during the voyage the vessel cannot continue the trip to the port of destination. Article 819 of the Code of Commerce provides that: “If

during the voyage the captain should believe that the vessel can not continue the trip to the port of destination on account of the lack provisions, well founded fear of seizure, privateers, or pirates, or by reason of any accident of the sea disabling it to navigate, he shall assemble the officers and shall summon the persons interested in the cargo who may be present, and who may attend the meeting without the right to vote; and if, after examining the circumstances of the case, the reason should be considered well-founded, the arrival at the nearest and most convenient port shall be agreed upon, drafting and entering the proper minutes, which shall be signed by all, in the log book. The captain shall have the deciding vote, and the persons interested in the cargo, may make the objections and protests they may deem proper, which shall be entered in the minutes in order that they may make use thereof in the manner they may consider advisable.” 2. When improper Article 820 of the Code of Commerce provides that: “An arrival shall not be considered lawful in the following cases: 1. If the lack of provisions should arise from the failure to take the necessary provisions for the voyage according to usage and customs, or if they should have been rendered useless or lost 52

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro through bad stowage or negligence in their care; 2. If the risk of enemies, privateers, or pirates should not have been well known, manifest, and based on positive and provable facts; 3. If the defect of the vessel should have arisen from the fact that it was not repaired, rigged, equipped, and prepared in a manner suitable for the voyage, or from some erroneous order of the captain; 4. When malice, negligence, want of foresight, or lack of skill on the part of the captain exists in the act causing the damage.” 3. Expenses Article 821 of the Code of Commerce provides that: “The expenses of an arrival under stress shall always be for the account of the shipowner or agent, but they shall not be liable for the damages which may be caused the shippers by reason of the arrival, provided the latter is legitimate. Otherwise, the ship agent and the captain shall be jointly liable.” Article 822 of the Code of Commerce provides that: “If in order to make repairs to the vessel or because there is danger that the cargo may suffer, it should be necessary to unload, the captain must request the authorization from the competent judge or court for the removal, and carry it out with the knowledge of the person interested in the cargo, or his representative, should there be

any. In a foreign port, it shall be the duty of the Philippine Consul, where there is one, to give the authorization. In the first case, the expenses shall be for the account of the ship agent or owner, and in the second, they shall be chargeable against the owners of the merchandise for whose benefit the act was performed. If the unloading should take place for both reasons, the expenses shall be divided proportionately between the value of the vessel and that of the cargo.” 4. Custody of Cargo Article 823 of the Code of Commerce provides that: “The custody and preservation of the cargo which has been unloaded shall be intrusted to the captain, who shall be responsible for the same, except in cases of force majeure.” Article 824 of the Code of Commerce states that: “If the entire cargo or part thereof should appear to be damaged, or there should be imminent danger of its being damaged, the captain may request of the competent judge or court, or of the consul in a proper case, the sale of all or of part of the former, and the person taking cognizance of the matter shall authorize it, after an examination and declaration of experts, advertisements, and other formalities required by the case, and an entry in the book, in accordance with the provisions of Article 624. The captain shall, in 53

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro proper case, justify the legality of his conduct, under the penalty of answering to the shipper for the price the merchandise would have brought if they had arrived in good condition at the port of destination.” 5. Captain’s liability Article 825 of the Code of Commerce states that: “The captain shall be responsible for the damages caused by his delay, if after the cause of the arrival under stress has ceased, he should not continue the voyage. If the cause of arrival should have been the fear of enemies, privateers, or pirates, a deliberation and resolution in a meeting of the officers of the vessel and persons interested in the cargo who may be present, in accordance with the provisions contained in Article 819, shall precede the departure.” 6. Rules in case of shipwreck Shipwreck denotes all types of loss/ wreck of a vessel at sea either by being swallowed up by the waves, by running against another vessel or thing at sea or on coast where the vessel is rendered incapable of navigation. Article 840 of the Code of Commerce provides that: “The losses and deteriorations by a vessel and her cargo by reason of shipwreck or stranding shall be individually for the account of the owners, the part which may be saved belonging to them in the same proportion.”

Article 841 of the Code of Commerce states that: “If the wreck or stranding should be caused by the malice, negligence, or lack of skill of the captain, or because the vessel put to sea was insufficiently repaired and equipped, the ship agent or the shippers may demand indemnity of the captain for the damages caused to the vessel or to the cargo by the accident, in accordance with the provisions contained in Articles 610, 612, 614, and 621.” Article 842 of the Code of Commerce states that: “The goods saved from the wreck shall be specially bound for the payment of the expenses of the respective salvage, and the amount thereof must be paid by the owners of the former before they are delivered to them, and with preference over any other obligation if the merchandise should be sold.” Article 843 of the Code of Commerce states that: “If several vessels sail under convoy, and any of them should be wrecked, the cargo saved shall be distributed among the rest in proportion to the amount which each one is able to take. If any captain should refuse, without sufficient cause, to receive what may correspond to him, the captain of the wrecked vessel shall enter a protest against him, before two sea officials, of the losses and damages resulting therefrom, ratifying the protest within 24 hours after arrival at the first port, 54

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro and including it in the proceedings he must institute in accordance with the provisions contained in Article 612. If it is not possible to transfer to the other vessels the entire cargo of the vessel wrecked, the goods of the highest value and smallest volume shall be saved first, the designation thereof to be made by the captain with the concurrence of the officers of his vessel.” Article 844 of the Code of Commerce provides that: “A captain who may have taken on board the goods saved from the wreck shall continue his course to the port of destination, and on arrival shall deposit the same, with judicial intervention, at the disposal of their legitimate owners. In case he changes his course, if he can unload them at the port of which they were consigned, the captain may make said port if the shippers or supercargoes present and the officers and passengers of the vessel consent thereto; but he may not do so, even with said consent, in time of war or when the port is difficult and dangerous to make. The owners of the cargo shall defray all the expenses of this arrival as well as the payment of the freightage which, after taking into consideration the circumstances of the case, may be fixed by agreement or by a judicial decision.” Article 845 of the Code of Commerce provides that: “If on the vessel there should be no

person interested in the cargo who can pay the expenses and freightage corresponding to the salvage, the competent judge or court may order the sale of the part necessary to cover the same. This shall also be done when its preservation is dangerous, or when in a period of one year it should not have been possible to ascertain who are its legitimate owners. In both cases the proceedings shall be with the publicity and formalities prescribed in Article 579, and the net proceeds of the sale shall be safely deposited, in the discretion of the judge or court, so that they may be delivered to the legitimate owner thereof.” *It is the loss of the vessel at sea as a consequence of its grounding, or running against an object in sea or on the coast. It occurs when the vessel sustains injuries due to a marine peril rendering her incapable of navigation. *The rules on collision or allusion, as may be pertinent, can equally apply to shipwrecks. J. Salvage 1. Definition Salvage - Compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from an impending or actual peril, shipwrecks, derelicts or recapture - Services one person render to the owner of a ship or goods, by his own labor, preserving the goods or 55

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro the ship which the owner or those entrusted with the care of them have either abandoned in distress at sea, or are unable to protect or secure. 2. Rights and obligations of salvors and owners (Salvage Law) Salvors Entitled to compensation for services rendered Acquires a lien upon the property salvaged until he is compensated

To all intents and purposes, he is a joint owner and if the property is lost he must bear his share Acquires the right of possession of derelict for purposes of a salvage claim Entitled to half of the deposit of the derelict sold, if after the lapse of 3 years no claim was made WARSAW CONVENTION:

Owners He does not renounce his right to the derelict Has a right to the delivery of the vessel or things saved after the salvage is accomplished, provided he pays or gives a bond Should make a claim within 3 months after the publication of a salvage report, otherwise the thing saved shall be sold Entitled to the salvage reward for the use of his vessel in rendering salvage services

Warsaw Convention is an agreement among sovereign countries concerning the regulation in a uniform manner of the conditions of international transportation by air in respect of the documents used for such transportation and of the liability of the carrier. Signed on October 12, 1929 in Warsaw, Poland. Purpose: To protect the emerging air transportation industry and to secure the uniformity of recovery by the passengers. Applicability: The transportation must be: 1. International transportation 2. Air transportation 3. Carriage of passengers, baggage or goods *The Warsaw Convention shall also apply to fortuitous events affecting transportation by aircraft performed by an air transportation enterprise. *The Convention is likewise applicable to air transportation by legal entities constituted under public law of the High Contracting Parties. *The Convention does not apply to transportation performed under the terms of any international postal convention. International Transportation is any transportation in which the place of departure and the place of destination are situated either: 1. Within the territories of two High Contracting Parties regardless of whether or not there be a break in the transportation or transhipment; or Controlling: Two territories must be High Contracting Parties *Also called as one way ticket 2. Within the territory of a single High Contracting Parties, if there is an agreed stopping place within a 56

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro territory subject to the sovereignty, mandate or authority of another power, even though that power is not a party to the Convention. Controlling: There must be a stopping place in another territory. *Also called as round trip ticket. High Contracting Party is one of the original parties to the convention. When inapplicable: 1. When public policy is contradicted; 2. If the requirement under the Convention are not complied with Transportation Documents: a. Passenger – passenger ticket b. Checked-in baggage – baggage check c. Goods to be shipped – airway bill Liability of carrier for damages: 1. Death or injury of a passenger if the accident causing it took place on board the aircraft or in the course of its operations of embarking or disembarking; 2. Destruction, loss or damage to any baggage or goods, if it took place during the transportation by air; and 3. Delay in the transportation of passengers, baggage or goods. Limit of Liability: 1. Passenger: In case of death or injury, general rule: 100,000 STR per passenger *1.51 US Dollar Exception: Agreement to a higher limit In case of delay, 4150 STR per passenger 2. Checked in baggage: General Rule: 20 STR per kilogram Exception: In case of special declaration of value and payment of a supplementary sum by consignor, carrier is liable to not more than the

declared sum unless it proves the sum is greater than actual value. 3. Hand carried baggage: 1000 STR per passenger 4. Goods to be shipped: General Rule: 17 STR per kilogram Exception: In case of special declaration of value and payment of a supplementary sum by consignor, carrier is liable to not more than the declared sum unless it proves the sum is greater than actual value. Action for damages: 1. Notice of claim *A written complaint must be made within: 3 days from receipt of baggage; 7 days from receipt of goods; in case of delay, 14 days from receipt of baggage/goods. *The complaint is a condition precedent. Without the complaint, the action is barred except in case of fraud on the part of the carrier. 2. Prescriptive period *Action must be filed within 2 years from: a. The date of arrival at the destination *An intermediate place where carriage may be broken is not a place of destination. b. The date of expected arrival c. The date on which the transportation stopped Venue: At the option of the plaintiff, the action for damages may be filed in the: 1. Court of domicile of the carrier; 2. Court of its principal place of business; 3. Court where it has a place of business through which the contract has been made; or 57

Commercial Law Review Transportation Law Maria Zarah Villanueva - Castro 4. Court of the place of destination. *In Santos III v Northwest Airline, the SC held that the forum of action is a matter of jurisdiction rather than of venue.

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