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27, 2002 Vern Nava/Kasmot

Article 1732 of the Civil Code

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.

Contracts of carriage are governed primarily by the Civil Code, then in a suppletory manner,
by the provisions of the Code of Commerce on Maritime Commerce, the COGSA (Carriage of Goods
by Sea Act), and the Salvage Law.

For someone to be considered a common carrier, it is not required that it should be his
principal business. Even if that is what is known as his “sideline”, he is still a common carrier.

De Guzman vs. CA (168 SCRA 612)

• The law defining a common carrier makes no distinction whether the carriage of goods or
persons is the principal or merely ancillary activity of the carrier.
• The fact that there is no fixed or regular schedule in transporting goods for others does not
distract from the fact that he is a common carrier.

A school bus service is a Common Carrier and although it does not cater to the general
public, but to a limited clientele, and the school bus was hired for a special trip to the province, court
said that it is still a common carrier although it usually caters only to a limited segment of society
and that the trip to the province was not a regular trip but an unscheduled and special trip.

The fact that the Common Carrier does not have a certificate of public convenience does not
distract from the fact that it is a common carrier (although operating illegally). Otherwise, it would
be better off than a company that is operating legally.

First Philippine Industrial Pipeline vs. CA (300 SCRA 661)

• A company which transports petroleum products from a refinery to a terminal by means of a
pipeline is a common carrier because it is transporting goods.

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

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

For the common carrier to be exempt from liability, these must be the only cause of the loss.
There must be no concurring negligence on the part of the common carrier.
The law requires that before, during and after the loss, the common carrier must have
exercised extraordinary diligence to try to prevent or minimize the loss.

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

If there was delay, common carrier cannot invoke fortuitous event to be exempt.

Where the captain departed although there was already a warning from PAGASA that there
was a strong typhoon brewing, the vessel sank, cargoes were lost. They cannot invoke that as an
excuse because there was concurring negligence. They should not have left port.

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Where the coils of wire the vessel was transporting became wet because of the rain and
became rusty. The court said that it is not due to a fortuitous event because the rain would not
have reached the coils if the hatches were properly closed. So there was concurring negligence.

• As a rule, fire is not a fortuitous event because it is always traceable to human negligence.
• Exception would be if it was cause by lightning.

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

Under international law, merchant vessels can be seized as prices of war during war.

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

For example, if he planted a bomb with the goods he was shipping.

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

Fruits cannot be prevented from becoming ripe during the course of the voyage, natural

Southern Lines vs. CA (4 SCRA 159)

• If the fact of improper packing is known to the carrier, or apparent upon ordinary observation,
but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or

(5) Order or act of competent public authority.

Ganzon vs. CA (161 SCRA 646)

• The order must be a valid order, not an illegal order. One cannot invoke that as a valid excuse.


If there is a collision, its exclusively the fault of another vessel, of course the other vessel will
be excused from liability. But if there is concurring negligence, that will not exempt the carrier from

For example, a vessel collided with a tanker when they should have had a lookout at night,
and then the person in charge of the vessel was unskilled, and when it became apparent that a
collision might occur, the vessel steered to the left, when under the rules of navigation, it should
steer to the right, so they collided.

Or when a vessel saw that a collision might occur but it took evasive action too late or started
taking evasive action when collision was already imminent.

The fault of the owner will only minimize the liability of the shipping company but will not
exempt it from liability.

Armed Robbery

In the de Guzman case, a stipulation providing that a common carrier will not be liable for
acts committed by robbers who act without irresistible force would not be valid.

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A carrier cannot be exempt from liability if it fails to show that the robbers acted with
irresistible force.

Article 1735. In all cases other than those mentioned in [1734], 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.

Mechanical failure is not a fortuitous event.

• Crack in the steering knuckle
• Tires exploded
• Defect in the brakes

Article 1736. The extraordinary responsibility of the common carrier lasts from the time
the goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.

Notice of the arrival and the consignee fails to claim the goods after the laps of a reasonable
period, there will be constructive delivery.

If the consignee still fails to take delivery, from that point on, the contract between the
carrier and the consignee will no longer be a contract of carriage but a contract of deposit.
Therefore, the carrier is no longer required to exercise extraordinary diligence, but only the due
diligence of a good father of a family.

Article 1737. Even if the goods are temporarily unloaded or stored while in transit, the
duty of the common carrier to exercise extraordinary diligence subsists.

For example, they are transferring the goods to another vessel and the vessel develops
mechanical trouble, it could not continue. So meanwhile, the look for another vessel. They
unloaded the goods. While in the warehouse, under the law, liability to exercise extraordinary
diligence remains.

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

Although bills of lading provided that they did not guarantee to deliver the goods at any
particular date, court said, that has to be given a reasonable interpretation. That should not be
interpreted that you can deliver the goods even beyond what is a reasonable period. A delay of 2
months and 7 days I not reasonable. Common carrier cannot invoke fortuitous event to escape

Article 1744. A stipulation limiting the liability of the common carrier would be valid if:
(1) in writing;
(2) supported by valuable consideration;
(3) reasonable, just and not contrary to public policy.

Article 1745. The following or similar stipulations shall be considered unreasonable,

unjust and contrary to public policy (void) :
(1) That the goods are transported at the risk of the shipper or owner of the goods;
(2) That the common carrier will not be liable for any loss, destruction or
deterioration of the goods;

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(3) That the common carrier need not observe any diligence in the custody of the
goods (at all);
(4) That the common carrier need not observe any diligence less than that of a good
father of a family;
(5) That the common carrier shall not be responsible for the acts or omissions of his
(6) That the common carriers liability for acts committed by thieves or robbers who
do not act with grave and irresistible force, threat or violence is dispensed with or
(7) That the common carrier is not responsible for the loss, destruction or
deterioration of the goods on account of the defective condition of the car,
vehicle, hip, airplane or other equipment used in the contract of carriage.

A provision saying that the carrier is not liable for loss is void. A provision limiting the
liability to a fixed amount is also void. But, a provision limiting the liability to a certain fixed amount
unless the shipper declared a higher value and pays the corresponding freight for that higher value
would b reasonable.

Provisions limiting the liability of the carrier cannot be invoked if the carrier incurs in delay.
Unless, the delay is due to the fault of the government or of 3rd persons, beyond the control of the

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

Law of the destination governs under conflicts of law.

Article 1754. In the case of baggage of passengers, if they are in the personal custody of
the passenger, then liability of the common carrier will be that of a bailee/depositary.

For example, hand carried baggage of a passenger. The common carrier is required only to
observe the due diligence of a good father of a family. BUT, for check-in luggage, the carrier will
have to exercise extraordinary diligence.

Article 1755. Common carriers are required to observe extraordinary diligence for the
safety of their passengers.

Article 1756. In the case of death or injury to passengers, it is presumed that the carrier
is at fault, unless they prove thy exercised extraordinary diligence.

The liability of the common carrier will begin from the time the passenger places his foot
upon the carrier.

The act of boarding represents a perfected contract of carriage.

The contract will not be terminated upon arrival at the destination until the passenger has
had reasonable opportunity to leave the premises.

The carrier is not an insurer of the safety of the passengers. If the death or injury was due
to a cause beyond the control of the carrier, it will not be liable to the passenger. However, it must
do everything in its power to try to prevent any passengers from getting hurt. It must take
precautionary measures.

If there is a collision with another bus company, and they were both at fault, both will still be
liable. They cannot invoke the Last Clear chance rule. The rule is only for determining who will bear

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the loss as between the two. Since the carriers are both at fault, it will not apply. But, with respect
to passengers, each will be liable for their own.

If the bus was speeding, a passenger was injured, the bus company will be liable. But if the
passenger is guilty of contributory negligence, then that will minimize, but will not exempt the
liability of the carrier.

Article 1758. If the passenger is carried gratuitously, the liability of the common carrier
may be limited by stipulation to only due diligence of a good father of a family. BUT, it
cannot exempt it from gross negligence.

Pleasantville Development Corp. vs. CA (253[?] SCRA 10)

• A stipulation exempting a party from negligence is void because it is against public policy.

Feb, 28, 2002 Rexy Garcia


Article 1759 of the New Civil Code reads:

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

In other words, if a taxi driver holds up and kills passengers, operator will be liable. The
liability will subsist, and the common carrier cannot raise the defense of due diligence in the
selection and supervision of its employees. Liability is based on contract, and diligence in the
selection is a defense for quasi-delict, not for breach of contract.

Article 1763. A common carrier is responsible for injuries suffered by a passenger on

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

Bachelor Express case

A particular bus did not have any doors. One of the passengers ran amuck and started
assaulting other passengers. So the passengers panicked and tried to get off the bus. Some jumped
off the bus and were injured. The driver just kept on driving and did not stop.
Held: Bachelor Express is liable for damages. It was negligent. Bus did not have doors, and
driver did not even bother to stop.

The liability for damages is defined by the New Civil Code. First of all, in case of death,
minimum liability is P50,000 and then, actual damages can be recovered like funeral expenses and
hospitalization expenses if hospitalized before death.
If you have lost income, the formula being used here is 80 minus age, multiplied by annual
income, and you get 2/3 of that. In other words, the formula is:

2/3 [(80-age) x annual income]

Now, you have that Padilla case. A plane of PAL crashed. In the case of Davila vs. PAL, the
Court ruled that it was the fault of PAL. PAL was claiming that there were disturbances in the
weather, etc. But the Court did not accept that. So the Supreme Court said that in the Davila case,

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PAL was at fault. After that case was decided, this Padilla case was litigated. Padilla was another
passenger there. He was a chance passenger but was accomodated because the regular passengers
did not show up. Padilla was hurrying to return to Manila for his wedding. He perished in that plane
crash (female classmates instantly reacted, “awww!”). So his widowed mom sued for damages. I
handled the case for PAL in the Court of Appeals, and argued that since SC already ruled in Davila
case that PAL was at fault, then the only issue is the extent of PAL’s liability. So I tried to reduce
the liability of PAL. I cited some cases that in computing the income, you should use the life
expectancy of the mother. Because even if the son had not died, the mother would not have
received the income of the son until the death of the son, because the mother could have died ahead
of the son, because in the normal course of events, the mother would die ahead of her son.
Therefore, she could not have received the income of her son after her death. So you only compute
her life expectancy. The CA ruled in favor of the mother. On appeal, the SC rejected that
argument. The SC said that the life expectancy of the son should be used as the basis even if the life
expectancy of the mother is shorter.

Moral damages

The Court has said that moral damages can be recovered in case of death. The court
recently ruled that you don’t have to prove mental anguish. In previous cases, the court said that
moral damages can’t be recovered in cases of death because nobody testified. But in a recent
decision, the Court said that mental anguish need not be proven, because it is presumed.

Also, under the Civil Code, as a rule, you can recover moral damages for the breach of
contract only if there is death or bad faith. The Court has applied that to gross negligence
amounting to bad faith. There’s this one case where the bus was speeding, and the passengers
were already asking the driver to slow down, but he just ignored them. The Court said that it was
gross negligence amounting to bad faith.

Attorney’s fees

This can be recovered in any of the cases under Article 2208 of the Civil Code, like if the
carrier acted in bad faith in refusing to settle with the heirs of the passengers who died.

PAL case # 1
PAL was flying to Ozamis City, but it was not able to proceed because of the inclement
weather. So they went to Cotabato. A passenger sued. He said that he was not provided with
transportation from airport to hotel, and was not given any hotel accommodation and meals.
Held: The contract of carriage is not terminated until the passenger reaches its destination.
So in this case, the contract of carriage was only temporarily suspended, so PAL should have
provided the passenger with hotel accommodation and meals, etc.

JAL case
JAL could not proceed to Manila because Mt. Pinatubo erupted and the runway was covered
with ash. Passenger sued, and said that he was not provided with hotel accommodation and meals.
He invoked the ruling in PAL.
Held: The delay was due to fortuitous event. It was not due to the fault of JAL, and they are
not obliged to provide for hotel accommodation.

PAL case # 2
In a subsequent case involving another passenger in that suspended PAL flight to Ozamis, a
passenger was invoking the ruling in PAL case # 1. But the Court backtracked and said that its
ruling in the PAL case # 1 was misunderstood. The reason why PAL was held liable was because
there was discrimination. They provided other passengers with the hotel accommodation, so it was
because of discrimination.

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So the PRESENT RULE: if the flight is interrupted due to fortuitous event, the airline company is not
obliged to provide hotel accommodation and meals. But if it is due to their fault, like engine trouble,
they have to provide accommodation. Usually, may mga tie-up na naman yang mga hotel na yan.
Like PAL, that’s why I never take PAL… (Jack’s story about how bad PAL is – omitted ).

Airline cases

Cuenca case
Cuenca was going to Japan. He was downgraded from 1st class to economy. He sued for
damages, and the Court held Northwest Airlines liable.

Air France v. Carrascoso

Carrascoso (C) was taking the flight of Air Farnce, 1st class. When he arrived in Bangkok, he
was told to give up his seat for a white man, and to transfer to Economy. C said, “Over my dead
body.” There was a heated argument. But C eventually transferred to Economy, but later on sued
for damages.
Held: Common carrier is not only obliged to transport its passengers safely, but also
courteously. Therefore, C can sue for tort. Because when you sue for breach of contract, you can
recover moral damages only if there is death or bad faith/ fraud. But if you are suing on tort, you
can always recover moral damages.

Caguioa criticizes this doctrine. He said that that is true in common law. We follow Civil Law.
Under the Civil Code, for a quasi-delict to exist, there must be no contractual relation. There’s a
recent decision of Justice Pardo where he said that if there’s a contract, you can’t have a quasi-delict
by express provision of law… although the case did not involve a contract of carriage. But he said
that in a recent decision.

Zulueta case
His wife and daughter were returning from US to Philippines. At that time, wala pang non-
stop flights. When the plane had a stop-over at a certain island, Zulueta said that he had an upset
stomach, but the lavatories were occupied. So he went to the beach (female classmates react again,
“yuuuck!”). When the flight was about to resume the flight, he was not yet there. So the plane
waited for him, because once you checked in your luggage and you don’t return, the plane will not
leave you. There might be a reason why you are not there…there might be a bomb in your luggage.
They will have to either wait for you or unload all the luggage and leave yours behind. So they
sent employees to look for Zulueta. The employees saw Zulueta strolling in the beach, so they
brought him back to the plane. The pilot ordered the search of his luggage. Zulueta refused, unless
there’s a search warrant. So the pilot left the luggage behind.
Zulueta sued for damages. He claimed that the pilot shouted at him. Pilot said that they
received a tip that there was a bomb, so they suspected Zulueta who was reluctant to board the
Held: Awarded moral and exemplary damages. He was insulted. There was humiliation.

Cathay Pacific case

Passenger was going to Jakarta. Suitcase was sent to HK. He asked for help, but Cathay
replied, “O, what can we do?” He was treated rudely. Passenger sued for damages.
Held: For being discourteous, Cathay shall be held liable for damages.

Exemplary damages

This is awarded as a penalty for misconduct or wrongdoing. Therefore, you impose it only
against the person who’s guilty of misconduct. So even if the driver is reckless, you cannot impose
it on the employer, unless you can show that the employer shared in the misconduct, i.e., he was
aware that the driver was negligent, but they tolerated it.

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In US, under the rules of Civil Aeronautics Board, airline companies are allowed to overbook
by 10%. From experience, not everyone shows up, so if there are vacancies, that’s lost revenue.
So overbooking is allowed. The problem is if everyone shows up. In such a case, the airline
company should ask for volunteers who are willing to give up their seats, and they’ll be given some
sort of compensation for that. If no volunteers, those who checked in last will be displaced.

Zalamea case
Zalamea was not accommodated because flight was overbooked. The Court said that since
ticket was bought in the Philippines, Philippine laws should govern, and so the airline company
cannot invoke that ruling of the US CAB.

PAL case
PAL made a stop over in Honolulu and unloaded luggage of some passengers so it could take
in cargoes to earn more freight. Court said that there’s bad faith. PAL deliberately left behind
luggage of passengers to earn more freight. Liable for damages.

Northwest case
Northwest left some baggage because of weight and balance restriction. Court said that NW
cannot be held liable for damages. Well, you know, those Filipinos carry a lot of Balikbayan boxes.
And I think that if you are going to US, the flight going there is shorter than the flight returning. E
pano, ang mga Pilipino, madaming dala, so the plane is slower (This time, everybody, not just the
girls, reacted. Tawang tawa si Pedro!)


There’s a limitation on liability of lost luggage. However, the court has said that:
1) Under the WC, if a passenger was not given a baggage claim tab, the Airline Company cannot
invoke that limited liability.
2) WC says that limited liability cannot be invoked when the word used is the French word, “dol”,
equivalent to the Spanish word, “dolo”. But in the English translation of the WC, it was
translated as “willful misconduct”. The Court has said time and again that when the luggage is
lost because of recklessness of the airline company, it can’t invoke its limited liability under the

The provisions under the WC do not bar the passenger to sue instead under the Civil Code.
Like there’s a provision there for lost luggage, you have to file a claim from the airline company
within 14 days, otherwise, your claim will be barred. The Court has said that even if the passenger
does not do that, the WC does not bar him to claim under the Civil Code. Or the 2-year prescriptive
period under the WC.

That will not apply if the passenger was humiliated and treated discourteously. In the United
Airlines case, the passenger made a demand, but he was given the run around. The Court said that
since the delay in filing was due to the evasiveness of the airline company, the prescriptive period
under the WC shall not apply.

PAL case
PAL unloaded luggage of passengers to take in cargoes to earn more freight.
Held: There was misconduct. So you can’t invoke limited liability.

British Airways
Passenger proved that the value of his lost suitcase was greater than the value provided in
the WC. No objection was made.
Held: That is waiver of the limited liability under the WC.

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Requisites for the Application of WC

1) It must be an international flight. If the ticket was bought in Bangkok for a flight in the US,
from LA to Chicago, that is domestic flight.
2) Two countries must both be signatories. Singapore is not a signatory.

A flight that is covered by the WC is a single operation. Example, if you’re going to Europe
and taking different flights:

Manila to Rome = Alitalia

Rome to Paris = Air France
Paris to London = British Airways
Alitalia will issue the ticket. So it will cover the legs to be flown by the other airlines.

KLM case
Passenger was going to Europe. Ticket was issued by KLM. KLM will fly from Manila to
Amsterdam, then to another place by another airline. But he was not accommodated. So he sued
Held: KLM liable. A flight covered by the WC is a single operation.

They interpreted to mean that the airline company which issued the ticket is liable for
everything that happens down the line, although the other portions may be flown by other airlines.
That is wrong! Single operation means that the moment a leg is covered by the WC, the WC will
apply all throughout. The SC interpreted otherwise. Moreover, the ticket clearly stated that the
issuing airline is an agent of the other airlines for the legs to be flown by the other airlines.

When we already said in KLM that the issuing company is liable for all the other legs to be
flown by other airlines because it is a single operation…when a passenger bought a ticket here to go
to US, and took for a certain portion of US, say Manila to NY = Northwest, and NY to LA= American
Airlines, the Court has said that American Airlines can be sued here because the ticket was issued
here because that is a single operation under the WC.

Santos v. NW Orient Airlines

Santos was a student in California. He was planning to go home for a Christmas vacation, so
he bought a ticket in San Francisco, NW Orient. He had his ticket confirmed. On the day of
departure, while checking in, he was told, “We can’t guarantee that you’ll be accommodated from
Narita to Manila. You might be stranded in Japan.”
Santos backed out. He was eventually accommodated but he sued for damages. NW Orient
said that under Article 18 of the WC, you could sue an airline company only in any of the following
1) Place where it is incorporated
2) Place where it has its principal office
3) Place where ticket was bought
4) Destination
NW Orient claimed that NW was incorporated in Minnesota; it has its principal office there;
the ticket was bought in San Francisco; and the ticket was a round trip ticket, so the point of
departure is also the point of destination. Therefore, it is claimed that the point of destination is also
SF. In other words, NW claims that Manila is not one of the places where you can sue.
Held: No, WC was adopted in the French language. Am Jur has repeatedly said that it is the
French jurisprudence that should be consulted in interpreting the WC. In French jurisdiction,
principal office is any place where a corporation has a branch office. NW has a branch office in
Manila, so it can be sued here.
Moreover, in round trip tickets, the place of departure is the place of destination only when
the roundtrip ticket has a definite date of return. If the date of return is left open, the place of

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departure is not equivalent to the place of destination. What you have is an option to take the flight
to the place where you came from. In this case, therefore, the place of destination is Manila.

Spencer vs. NW Orient Airlines

When you are suing on a tort, the WC provisions on venue are not applicable.

Mar. 4, 2002 Pedro Ariston


Bill of Lading [v. Arts. 706-718, Code of Commerce]

1. Contract
2. Receipt for the goods – the shipping company recognizes it as receipt for the goods.
3. Symbol of the goods covered by it – that is why the goods can be sold and ownership can be
transferred by merely delivering the bill of lading

One of the more important classes of bill of lading is the clean bill of lading – that means it is an
acknowledgement by the vessel that there are no defects in the cargoes when they took delivery,
therefore if upon delivery to the consignee there are damages, then the common carrier will be

The carrier may refuse to transport packages which appear unfit for transportation. And if the carrier
believes that the declaration made by the shipper regarding the contents of the package is false,
then the carrier can examine the package in the presence of witnesses of the shipper or consignee.
And if it turns out that the suspicions of the common carrier are false, and that the declaration is
correct then the expenses for re-packing the goods will be borne by the carrier.

The shipper may change the consignee but he must surrender the bill of lading. The carrier will be
liable for any damages, loss of the goods or diminution in their value.

The Court has said that the delivery of cargoes to consignee is valid even if the original bill of lading
was not surrendered where the bill of lading was not received by the consignee or anyway the goods
were delivered to the actual consignee.

Consolidated Mines Case. Consolidated Mines imported mining equipment and opened a
letter of credit. The bill of lading was sent to the bank which opened the letter
of credit because the bank has not been paid. The carrier delivered the
equipment to Consolidated Mines even if the bill of lading was not surrendered
by the latter because the bill was in the possession of the bank. Consolidated
Mines did not pay the bank. Now, the bank questioning the carrier, “why did
you deliver the equipment to Consolidated Mines without requiring the
surrender of the bill of lading and the bill is in our possession?” The Court said
that the bank could not sue the carrier if the consignee, Consolidated Mines,
did not pay it because the consignee iwas Consolidate Mines. So they delivered
the equipment to the correct person. If the bank was not paid, that’s between
the bank and the consignee.
 Macaber (?) Case. This fellow exported goods to Hong Kong. Following long practice, they
instructed the shipping company to deliver the goods to the buyer in Hong Kong, without
requiring the presentation of bill of lading. Shipper complied with that. The buyer did not pay.
The seller wanted to run after the shipping company—“why did you release the cargo without
requiring the presentation of the bill of lading?” The Court said, “Well that was your instruction.
They complied with your instruction. So you cannot hold the shipping company liable.”

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If the consignee delays in taking delivery of the goods he will be liable for the voyage.
 Keng Hua (?) Products Case. Keng Hua refused to take delivery of the goods—paper products—
because they said that they did not comply with the specifications with the contract. Meanwhile
the vessel was stuck there accumulating demurrage. The court said: if the products delivered by
the seller have not complied with the specification of the contract, the vessel is not liable for
that. You run after the seller. So you cannot refuse and delay in taking delivery of the goods on
that ground. So you’ll be liable for the demurrage.

However if the delay was due to a fortuitous event, the consignee will not be liable for demurrage.
E.g. : (a) In one case, where the consignee was not able to take delivery right away because there
was error in the manifest and then the equipment of the arrastre operator broke down, so that’s not
his fault; (b) Or because there was a strike in the pier.
 Magellan(?) Case. The letter of credit, which the buyer of the imported goods opened, contained
a provision prohibiting transshipment of the goods. The shipping transshipped the goods on
another vessel. And, there was a provision in the bill of lading issued that there be a
transshipment. The seller accepted the bill of lading without protesting. Although the in the letter
of credit there was a stipulation there will be no transshipment, the bill of lading said there will
be a transshipment. The buyer refused to accept the goods, our agreement was that there shall
be no transshipment. The seller now was running after the vessel. The court said: No, because
that agreement that there shall be no transshipment is just between the two of you. The carrier
is not bound by that and in the bill of lading which the seller issued there is a stipulation that the
goods would be transshipped, and you accepted it, you did not object. So in the contract
between you and the [carrier] there was a provision for transshipment, you cannot sue the
carrier if the buyer refuse to take delivery of the goods.

The consignee may refuse to take delivery of the goods and may abandon the goods in certain
cases, viz.:
1. If there was partial non-delivery and you cannot make use of the parts delivered. Like they are
components of an equipment and without the missing parts you cannot use the equipment.
2. If the goods were rendered useless for the purpose for which they were intended. E.g. you
imported a thoroughbred and the legs of the horse were broken during the shipment.
3. If there is delay thru the fault of the carrier

Now, if upon delivery of the goods, it is obvious from the external appearance of the packages that
there were damages, the consignee must immediately file a claim. If that is not apparent from the
external condition of the packages, then he has 24 hours from delivery within which to file a claim. If
the claim is not filed within this period as mentioned in the law, then that will be barred because
compliance with that is a condition precedent for a filing a case in court.

Management contracts with the arrastre operators contain this common provisions that: (a) the
consignee must file the claims within 15 days otherwise all claims will be barred; (b) in case the
claim is denied, he has 1 year to sue, otherwise the action will be barred; (c) the arrastre will only
be liable for a certain amount, I think like P2,000, unless a higher value is declared. The court has
said: where this is provided in the management contract between the government and the arrastre
operator is a contract with a stipulation for the benefit of a third person, the consignee. And
therefore, they are bound by the stipulation if they make use of the services of the arrastre operator
pursuant to that management contract. But if they did not avail of the services, like the goods were
never delivered, they never took delivery, so that…(inaudible)…that limitation of liability will not
 In one case, like what San Miguel did, they wanted to play safe, to make sure that any claims
will not be barred…that although they haven’t received the goods, they already filed a provisional
claim. The Court said: that is not valid, you haven’t seen the goods, you haven’t received them
and you filed a claim. In other words, your claim is speculative, that is not valid.

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If the goods are to be transshipped, the last carrier to deliver the goods shall be liable for either
damage or loss, even if that occurred while the goods were in the custody of a previous vessel.
 Suppose the goods were imported from Japan. They were brought by Japanese vessel from
Tokyo to Manila. Then they were transshipped to Cebu by domestic shipping company,
Sweetlines. And the goods arrived in Cebu in a damaged condition, the consignee can run after
Sweetlines even if the goods might have been damaged while in custody of that Japanese vessel.
The recourse of Sweetlines is to run after that Japanese vessel for reimbursement.

The carrier has a lien on the goods if the freight is not paid. If the freight is not yet paid, it must be
paid within 24 hours after their delivery. If there is delay in the payment, the carrier may ask that
the goods be sold. Under the Civil Code, Article ___, it is provided that the lien of the carrier is up to
30 days.

Limited Liability
One of the basic principles in maritime commerce is the limited liability. The hypothecary nature of
maritime commerce—this has been a principle of maritime commerce dating back to ancient times
because of the hazards connected with maritime commerce. Because hazardous nature of maritime
commerce the liability of shipowners is limited to the vessel. If the vessel sinks or he abandons it,
his liability is extinguished. His liability is limited to the vessel and its value. And that limited liability
applies even to the shipping agent. That is why in a number of cases, the Court has said that were
the vessel sank the liability of the owner is extinguished.

The shipowner and the ship agent are liable under the law in certain instances
1. for acts of the captain under Article 586, Code of Commerce
2. under the same provision, they are liable for contracts entered into by the captain for repair of
the vessel or to obtain provisions or supplies for the vessel
3. under Article 587, Code of Commerce, they are liable for damages due third persons because to
the conduct of the captain
4. they are liable for tort committed by the captain
5. they are also liable in case of collision

Exceptions to the rule on limited liability:

1. when the shipowner is at fault. As was laid down in the Pagbilawan(?) case, where the vessel
sank it turns out that at the time it sunk, the ship was not seaworthy, it did not have enough life
boats, the captain and crew were not licensed, the vessel was not properly equipped, the liability
of the shipowner is not extiguished. The Court has applied that in other cases, like
 the Negros Navigation case, Dona Paz, where the vessel was overloaded, did not have lifeboats
 Don Juan case where the vessel departed although PAGASA already warned that there is already
an oncoming strong typhoon. And the vessel encountered that strong typhoon because it delayed
its departure. Had it left on time, it would not have encountered the typhoon. The departure was
delayed, because the captain overloaded it and the shipowner was aware of that and he did not
order the captain to leave immediately. The vessel was overloaded, did not have radar which
could have allowed it to navigate for shelter.
 A fishing vessel entered into a contract to transport 2500 cases of Coca Cola. It was a fishing
vessel, so it was not equipped and designed to carry cargoes. It was not seaworthy to carry
cargo, especially 2500 cases of softdrinks. So it became top heavy. The Court said that the
liability of the shipowner is not extinguished.
But for the liability to subsist, it should be the shipowner who is at fault. If it is the captain who is at
fault, then the liability of the shipowner will be extinguished. The shipowner must be personally at

2. If the vessel is insured, then the liability will not be extinguished because the proceeds of the
insurance will take the place of the vessel. The liability will be limited to the proceeds of the

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 That’s why in that Aboitiz case, where the vessel owned by Aboitiz shipping sank but there was
insurance, the Court said: the first consignee of the goods who was able to get a final judgment
cannot collect because there were other consignees who were still suing. So you have to wait
until all claims have been adjudicated so that the claimants can be paid pro rata from the
proceeds of the insurance. Because if you allow the one who got the judgment first to collect, the
others might not be able to collect. And since they are all similarly situated, you have to wait
until all claims have been finally decided then you divide the money pro rata among all the
claimants who got a judgment in their favor.

3. The Court has said that liabilities for repairs and provisioning the vessel, before their loss, is not
extinguished if the vessel sinks.
 In this case where a Russian vessel was docking in the piers, they had a Filipino harbor pilot, but
it became apparent that the vessel was going to ram against the pier. The captain did nothing.
The Court said: even if the vessel hired a harbor pilot while the vessel was docking, the captain
remains in command. Therefore, when it became apparent that a collision will occur, he should
have taken steps to prevent the collision, but he did nothing. The master is liable, so the
shipowner would be liable for the damages to the pier.

Charter Party [v. Articles 652-654, 669-692, Code of Commerce)

The term “charter party” came from the Italian carta partita—a “divided contract.” It started with
Italy in the Middle Ages, when Italy was the center of commerce. Because when a charter party
would be…(inaudible)…in those days, it would be written on a piece of paper and the provisions will
be copied twice on the paper. Then they will tear it up in the middle and give one copy to the
shipowner and the other copy to the charterer. So it became to be known as carta partita, a “divided

The SC has said in the Litonjua case that there are 3 basic types of charter party:
1. Bareboat charter: the shipowner will merely deliver the possession of the vessel to a charterer.
It’s up to the charterer to provide the crew, supplies and provisions, fuel for the duration of the
charter. He might choose the regular crew to man the vessel but that is his choice. In a bareboat
charter, the charterer will exercise the rights and obligations of the owner for the duration of the
charter. He is the one who is liable to pay for the salaries of the crew. If there are repairs to be
made, he is the one who has to pay. On the other hand, if goods are lost the (inaudible) will be
liable. Now this was asked when C.J. Davide was the chairman: what do you understand by the
statement that in a bareboat charter the charterer is owner pro hac vice. Pro hac vice means “for
this occasion.” It means that during the duration of the bareboat charter, he will assume the
rights and liabilities of the shipowner. In a bare boat charter the vessel ceases to be a common
carrier, it becomes a private carrier. It is the charterer who will be liable to the holders of the
goods if the goods get lost. And since it is a private carrier, if the charterer does not pay the
shipowner the stipulated fees, the shipowner cannot ask that the cargoes be sold to satisfy his
claims because he has no lien on the goods. Because the one who is liable and who is dealing
with the owners of the goods is the charterer. There is no privity of contract between the
shipowner and the owners of the goods so he cannot ask that the goods be sold to satisfy his
claim for his fees.
2. Time Charter: It is a contract for the use of the vessel for a specified period or for the duration
of specified vessel.
3. Voyage Charter or Contract of Affreightment: It is a contract for the carriage of goods from
one or more ports of loading to one or more ports of unloading.

In Time Charter and Voyage Charter, the shipowner remains in control of the vessel. So the vessel
remains a common carrier. If goods are lost, it is the shipowner who will be liable.

The charterer will usually be liable for deadfreight. Like I had a case where the client (inaudible) the
vessel to transport molasses he is selling to somebody in Japan. So the vessel arrived here. When

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they loaded the molasses, there was a shortage in the molasses. It was the fault of the
warehouseman. Anyway, so the shipowner filed a claim for deadfreight—were there was shortage in
the molasses so that freight he could have earned was an opportunity lost. You have to make good
that amount because you agreed to load so many tons of molasses. That is deadfreight.

The charterer will not be liable for the voyage if the delay in loading is due to fortuitous event—e.g.,
the arrastre workers went on strike—that is beyond the control of the charterer, he won’t be liable
for the demurrage.

The Court has said that in a bareboat charter of a private carrier, a stipulation there that the
shipowner will not be liable in case of loss and damage, the Court said since this is a private carrier,
not a common carrier, that stipulation is valid. So the shipowner will not be liable for the loss of the
goods due to the negligence of the captain.

The Court said that a stipulation in a voyage charter that the charterer will be liable for the loading
and unloading of the goods, while the owner will be liable for the care of the cargo during the
voyage, that is valid.
 Don Juan case. Don Juan collided with a tanker which Caltex chartered to transport oil. __
wanted to run after Caltex because it had deeper pockets than the owner of the tanker. The
tanker was at fault, it was navigating at nighttime without any lights. The Court said: No,
because this was a voyage charter. And in a voyage charter, the tanker remained a common
carrier. Thus, Caltex, the charterer, will not be liable. It will be the owner of the tanker who will
remain liable.
 In one case, the shipowner (inaudible) option: either you claim the goods and pay the freight or
you abandon the goods. He said: I am abandoning the goods. You gave him the option to
abandon the goods so you cannot claim anymore for freight.

The goods may be deposited (inaudible) (a) if there are reasons to believe that freight will not be
paid or (b) the consignee cannot be found or (c) the consignee refuses to receive the goods. On the
other hand, the goods may be sold to pay for the freight, expenses and __ due the captain, to pay
for freight under Article 667: (a) if the consignee cannot be found, (b) if the consignee refuses to
receive the goods or (c) the goods will deteriorate like fruits that will become ripe.

A stipulation in the bill of lading limiting the liability of the carrier unless the shipper declares a
higher value, that is valid and that is binding upon the consignee. (inaudible) The consignee
becomes a party to the bill of lading, the contract for the benefit of a third party. [That is why(?)]
the Court has said that a stipulation in a bill of lading saying that an action must be filed within a
certain period, that is valid.

Averages [v. Articles 806-810, Code of Commerce]

What is important here is the distinction between general and particular average. In general average
there are 4 requisites:
1. There must be common danger to the ship and the cargoes
2. Part of the vessel or the cargoes aboard is deliberately sacrificed for the common safety
3. There was success
4. The procedure under the Code for making a general average must be followed, like the captain
should call a meeting with the members of the crew and if the owner of the goods happens to be
on board he must be called to attend the meeting. And then if the captain decides to make a
general average, that must be entered in the log book.

Now the enumeration in the law of general and particular average are merely given by way of
example and they are not exhaustive.
 Magsaysay v. Agan (?): where the vessel got stranded and the shipowner wanted to collect from
the owners of the cargo expenses for refloating the vessel. The Court said: there is no general

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average. There was no common danger because there was no danger that the vessel would sink.
The weather was fair, and the vessel simply got stranded on the shoals.
 In this case where fire broke out in the vessel. It has been burning for several days before they
discovered it. And now the vessel wants to declare a general average, and claim from the other
cargo owners. The court said: no, that is not general average. That is damage due to the
negligence of the crew.

Collisions [v. Articles 826-839, Code of Commerce]

The law lays down the rules for determining liability in case of collisions. Like this provision lay down
the rules that govern collisions. Therefore the provisions of the Civil Code on quasi-delict are not
applicable. This is a case of maritime tort governed by the provisions of the Code of Commerce and
not by the Civil Code. The rules are laid down here.

Section 8(?) [should be Article] says if a vessel collides with another through the fault the captain or
crew, then the owner of the vessel at fault will answer for all damages. If both vessels are at fault,
each one bears its own loss and they will be jointly and severally liable to the owners of the cargoes
of both vessels. This is a special rule of maritime tort, you don’t apply the Civil Code, even the last
clear chance rule. And one vessel cannot avoid liability by claiming that it has exercised diligence in
the selection and supervision of its crew. Neither do you apply the principle of comparative fault and
say you were at greater fault, you should have a bigger share in damages. All those rules will be
irrelevant because these are special rules governing maritime commerce.

Doctrine of Inscrutable Fault. If you cannot determine which vessel is at fault, each one bears its
own loss and the shipowners of the two vessels will be jointly and severally liable for the owners of
the cargoes of both vessels. This is the doctrine of inscrutable fault. “Inscrutable,” you cannot
determine. Where two vessel collides and you cannot determine who is at fault, then each vessel
bears its own loss and the vessels will be jointly and severally liable for the owners of the cargoes of
both vessels.

Emergency Rule. Were there are 3 __. The first __ when the vessels are near each other. The
second is where collision is imminent. The third __ is when collision is a certainty and actual impact
takes place. Now, you apply the emergency rule if in a situation like this, in the third __, the one
who is privileged, that is, the vessel who has the right of way committed an error. If a person
exercising due diligence of reasonable man makes an error of judgment during an emergency and
[inaudible] has the right of way, he must be laible [or not liable? N.B. not sure about this, recording
rather inaudible].
 But in that case of Don Juan. The Court said: both vessels were at fault because while one vessel
is at fault, the other one did not take evasive action on time, well it took evasive action when
collision was already [imminent]. It should have taken evasive action earlier. So they were both
at fault.
 Dona Paz case. While the boat was sinking, the captain was playing mahjong. He did not take
steps to try to delay the sinking of the vessel. He did not supervise the abandonment of the

If 2 vessels collide because of a fortuitous event, nobody is at fault, each one bears its own loss and
the cargo owners will also bear their own loss.

If a third vessel who is at fault, causing 2 vessels to collide. Such third vessel will answer for
everything—all losses and damages to the vessels and losses to the cargo owners.

Lastly, if because of a fortuitous event, e.g. a typhoon, a vessel which is properly and safely moored
collides with another, that is again a fortuitous event, each vessel will bear its own loss, the cargo
owners will bear their losses.

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There are 4 instances when a protest should be made:
1. When there is a general average
2. When there is a shipwreck
3. When there is a collision
4. When there is arrival under stress

Of course, if the captain cannot make the protest because of a fortuitous event, that is
excusable. Like he was injured and was in the hospital, so he is not in a condition to make the

Mar. 6, 2002 January


Well, this idea of having a law that would regulate these public utilities is really vitiated by the
railroad companies in the United States in that they have to preserve their oligopoly so that no
newcomer could come in unless you could get a certificate of public convenience, and of course they
would oppose any new application.

Now before, the Public Service Commission (PSC) regulated all the public utilities but after
Martial Law, it was dissolved and its functions were parted out with different regulatory agencies coz
that commission had become notoriously corrupt because it was regulating properties worth billions
of pesos. So now you have different agencies regulating public utilities like the Land Transportation
Franchising and Regulatory Board (LTFRB), although under the Local Government Code, the
regulation of the issuance of certificates of public convenience (CPC) for tricycles has now been
transferred to the cities and municipalities. So the tricycle operators do not have to go to LTFRB,
they just go to the cities and municipalities, that’s where they apply. And for water transportation,
you have the Maritime Industry Authority (MIA), telecommunications you have the National
Telecommunications Commission (NTC), for the commercial aircrafts the Civil Aeronautics Board
(CAB), then the Energy Regulatory Board (ERB), the National Water Resources Council (NWRC).

Regulatory agencies do not have judicial power

Now the regulatory agencies do not have judicial power so that they cannot entertain
complaints, let’s say, of customers for damages. That will have to be decided by the regular courts.
You have this case where somebody sent a telegram. Then there was delay. Now the regular courts
have jurisdiction over that. Like in the NTC case, the court said this is a collegial body and therefore
an order denying a motion which was signed by the Commissioner only without the involvement of
any associate commissioner was not valid, because it was a collegial body, so you need a majority.

Some enterprises not covered by the law

Now the public service law mentions certain enterprises that are not covered by the law so
they can operate even without a certificate of public convenience. Warehouses. Vehicles drawn by
animals like yang mga karitelas, tartanillas, kalesas, bancas moved by sails, tugboats and lighters,
mga pedicabs, tricycab (ano ‘to?). Well radio companies have to get their certificates from the NTC.

Then ice plants before were covered by the law, but when the commission had been
abolished, and its functions were parted out, ice plants were not included, ice plants are not
considered public utilities anymore. Now in this case of the SJG Summit, what happens is that these
shipyards were defined as public utilities. And then a decree repealed that. But then a law brought
it back. So shipyards, at the moment, are considered public utilities.

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Now the law mentions that public utilities operated by the government or government-owned
instrumentalities are exempt from the law but they will be subject to regulation by the appropriate
agency and the fixing of the fares that they will charge the public.


So, to operate a public utility, one must have a certificate of public convenience.

And the court has said that as a rule, there is no need to get a legislative franchise because
the legislature has delegated to the regulatory agencies to issue the authority to operate a public
utility. That’s why the court said Grand Air could operate a commercial operation service without
need of getting a legislative franchise. However, in the case of telecommunication companies,
Congress passed a special law providing that you need a legislative franchise to operate a telephone

Powers and functions of the Regulatory Agencies

1. Issuance of certificates of public convenience

Now the law says that these regulatory agencies have the power to issue certificates of
public convenience authorizing the operation of public utilities. Now, usually they have the
power to issue provisional authority. In CAB, they will usually grant first a provisional authority
before they grant a regular certificate of public convenience.

Remember that the court has said that ownership of equipment used to operate a public
utility does not make one a public utility like that railway system along EDSA that is owned by a
foreign company but the owner is not the one transporting the passengers. It’s the government
who is rendering services to the public because it is leasing the equipment and ownership of that
does not make that corporation a public utility. In the same way that our airline companies are
merely leasing the airplanes they’re using from foreign companies.

In the case of Petron, the court said that it is not a public utility coz it was argued that the
Petroleum Act of 1949 provides that refining of oil is a public utility. The court said that refers to
domestically extracted oil and the oil that Petron is refining is imported oil and Petron is not
refining oil for someone to whom it will charge a fee. It is refining oil for itself. So it is not a
public utility.

So even if you get a legislative franchise, you still have to get a certificate of public
convenience from the regulatory agency in order to operate. Now there is this old old law
passed by the Philippine Commission authorizing local governments to issue franchises in certain
cases, but you still have to get a certificate of public convenience.

Now to get a certificate of public convenience, there are three requisites:

1. The applicant must be a Filipino citizen or if it’s a corporation or partnership, it must be
organized in the Philippines and must be at least 60% Filipino-owned;
2. Then the applicant must prove that its proposed service will promote the public interest;
3. It must be financially capable of meeting the responsibilities of the operation.

So 60% ownership, you submit your Articles of Incorporation to know if you’re 60%
Filipino-owned. Financial capability, well you show your financial statements.

Now you have this Pantranco. They’re offering this service – you board the bus in Pasay
and you get off in Samar. The court said: You only have a certificate of public convenience to

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operate land transportation service. But from Sorsogon to Samar, you have to cross the sea.
It’s not merely ferry service. It involves crossing the sea. It involves inter-island shipping. So
you need a certificate of public convenience in transporting passengers between Sorsogon and

Now usually, the franchise given by the legislature provides that you cannot sell or
dispose of that without the approval of the legislature. That’s why the court said, where
somebody, a radio company was given a certificate, a franchise and agreed with somebody else
that they will operate, the Crusader Broadcasting System (not so sure about the name), that
they will operate the radio company jointly, that is void. So the legislative franchise is peculiar
to the grantee. It cannot ask somebody to enjoy those rights without the consent of Congress.

Now you have that prior operator rule. It says that before you allow a new applicant to
come in, the prior operator should be allowed to expand his service provided that his service is
satisfactory. That you should not allow a new applicant to come in if it will result in ruinous
competition. But the mere fact that the income of an existing operator will be reduced does not
mean that that is ruinous competition. Ruinous competition means that because of the
competition, his income will be so reduced that it will not give him an adequate return on his
investment. But up to now I never saw anyone succeed in proving ruinous competition.

There are exceptions to this prior operator rule:

1. If the old operator operated less units that what he was authorized to operate. Like a taxicab
operator who’s authorized to operate 20 units but is only operating 10. He cannot even
operate what he was authorized to operate. He cannot object to any new operators [haay..
puro “operate” ]
2. If the old operator is opposing the application because there is no need, and if he does not
recognize that there is a need to expand his service then the prior operator rule does not
3. If the old operator did not apply to meet the increased demand until the new applicant came
in. In other words, you must always be alert, be ready to respond to the need of the public
for expanded service. You only woke up when a new applicant came in. You cannot invoke
the prior operator rule.
4. If the service is unsatisfactory.
5. If the old operator failed to increase his service although he was given the authority to do so.
6. If he abandoned his service.
7. If it is a different route. Suppose here is an operator’s certificate of public convenience
covering Caloocan to Paranaque along EDSA. Here is somebody applying from Pasig to
Quiapo. So his route will be from Pasig, then along Shaw Boulevard, along EDSA, then from
EDSA he will turn right to Buendia, then to Quiapo. Although his route will cover EDSA, those
other operators along EDSA cannot complain because that is a different route although it will
overlap with a portion of the route they are servicing.

Then in the old Red Line case, the court said that this agreement between two
operators that they will divide the territory so that they will not compete is void. That is in
restraint of trade.

And remember, even if you’re client is limited, you can still be considered a public
utility. Like school bus services. They are public utilities although they cater only to
students in the schools.

2. Fixing of rates

Then to fix the rates which the utilities will charge, again, they are given the power to
approve provisional authority to be valid for 30 days. Now the court has said that a regulation

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issued by the Sec. of Transportation saying that when an application is filed the burden will be
oppositor to prove that there is no need for the proposed service, that is void. Coz under the
law, the burden is on the applicant. And that regulation shifts the burden to the oppositor,
therefore void.

Likewise, the regulation issued by the Sec. of Transportation saying that operators of
provincial buses are allowed to adjust the fare they’re charging up to 50% more or 50% less
than what is authorized by the LTFRB, that is void. Under the law, the power to fix the rate is
with the Board. The effect of that regulation is to delegate the power to the bus companies. So
that is not valid.

Now the court has said, a customer who is suing Meralco, claiming that he is
overcharged, should be filed with the regular courts, not with the Energy Regulatory Board
because the issue does not involve fixing of the rates to be charged the public. The question is
not about the rate to be charged. The question is whether he was overcharged. Likewise when
a customer is asking for the basis of the computation for this power adjustment, that is within
the jurisdiction of the regular courts coz again it does not involve fixing of the power rates. If it’s
a question of how to fix the rates, then it’s the Energy Regulatory Board which has jurisdiction.
But this is just asking how you arrived at that computation. So it’s the regular courts that have
a power to do that.


Now the court has said that even if a… this is the Ceniza (?) case and this was asked in
the Bar Exams, even if a customer is contesting the bill of the public utility, they can disconnect
the service if he does not pay, otherwise the customer can compel the public utility to continue
rendering services by mere questioning the actual receipt of the bill.

And there’s this old, old regulation issued by the defunct Public Service Commission, has
been repealed, and it said that if a public utility will disconnect the service, it must give its
customer 48-hour advance notice so he can pay. If he disconnects without prior notice, he is
liable for damages.

And the court said, even if the meter was not tampered with but it is not correctly
registering the electric consumption, the customer is still liable to pay the correct amount.
Remember, that is in the Civil Code. If there is an error in accounting, you simply correct it.

I remember when my uncle was still alive, Raffy Recto went to him. He said that the
Lopezes of the Meralco would want my uncle to be an expert witness. My uncle said, “Well I will
only testify as a witness subject to certain conditions. First, I will check your meter to find out if
it’s accurate or not. An then you cannot tell me what I will tell in court. It has to be the results
of my findings. Then secondly, I will not be paid. I don’t want to be cross-examined and be
asked “And how much were you paid to testify in court?” Recto said, “Okay.” So he examined
the meter. And it was running very slow, it is not registering correctly your consumption. So
Raffy Recto did not present my uncle as a witness. Meralco instead presented him as a witness
and said that yes, the meter was running too slow. And in court, he was asked what explanation
does he give for this. Well there are many factors. It could be the factor defect in the
manufacture of the meter, or because of wear and tear, the meter is no longer registering the
consumption, and of course, there is always the possibility of human intervention. My uncle
said, he did not tell in court what was the possible cause, but he said, “The way I examined that
meter, most probably it was due to human intervention.”

Now but in that Radio (?) Tape and Chemical Corporation case, the court said that while it
is true that the meter did not register the consumption correctly, but Meralco did not discover it
after a long, long time and now suddenly they slapped the customer with their whopping bill.

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The court said, because of that since you were also negligent, you did not discover the fact that
the meter was not registering consumption correctly, then the liability of the customer should be
reduced. I think they reduced it to 50%.

Now the court has fixed 12% of the (___) sum or return on investment of the public
utility. Where did they get that 12%? From old American decisions. Ang laki nung 12% return.
And that is based on the cost, ha? If you were to reconstruct the facilities being used by the
customer, like a public utility servicing the public, of course you consider the present value, what
is the value today. That’s why you will notice that the Public Service Commission adopted a
formula in 1964 and the Supreme Court upheld it. That’s why usually these public utilities
periodically have their assets re-appraised. So they will tell the regulatory agency that well this
is what our assets are worth today, we are entitled to 12% return. We are entitled to adjust our

3. Fixing just and reasonable standards.

Then to fix just and reasonable standards, like your buses are required to have doors,
unlike before there is no such requirement.

4. Ascertaining and fixing standards for measurement of the service.

Then to ascertain and fix standards for measurement of the service, like taxes are
required to use these electronic meters, before the meters were mechanical.

5. Compelling the public utility to furnish safe, adequate and proper service.

6. Requiring a public utility to extend its service.

7. Fixing the rate of depreciation.

8. Modifying, revoking and suspending the certificate of public convenience.

Then to modify and revoke the certificate of public convenience issued. Well the court
has said that the mere fact that a taxi has been used by robbers for their getaway is not a just
ground for revoking the certificate of public convenience in the absence of proof that there is a
conspiracy with the robbers.

And the law authorizes the regulatory agency to suspend the operation of the public
operator for not more than 30 days before and while it is still investigating whether or not the
certificate should be suspended or revoked. That’s why you have that Del (?) Transit before
which almost every week was being involved in a vehicular accident and Justice Villaluz was then
with the LTFRB. He said, you should not order suspending operations for 30 days while the
board was studying whether the sanction should be imposed. (parang inconsistent?)

9. Grant or denial of applications for expansion

Then the court has said in that case of Victory Liner which applied to expanded service, the
court said it earlier applied to suspend its operations because of lack of financial capability. So
the court said that the application to expand should not be granted because of it earlier applied
to suspend its operations because of lack of financial capability.


Then the court has said in the Lagman case, that was asked in the Bar Exams before,
that the City of Manila can prohibit bus companies, provincial buses from entering their city. So

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the provincial buses said that their certificate of public convenience says that Manila is their
destination, the effect of the ordinance is to amend the certificate of public convenience. The
court said NO coz under its charter Manila has control over its streets and therefore it has the
power to prohibit provincial buses from using the streets in Manila in order to reduce the
volume of traffic.

Matters that can be acted upon without need of prior hearing

Now under Sec. 17, there are certain matters which can be acted upon without need of prior

1. Investigation of any matter within its jurisdiction.

It can investigate any matter within the jurisdiction of the agency. Remember they are
just to investigate. They don’t need public hearing to determine whether or not they will

2. Requiring the public utility to furnish safe and adequate service.

3. Requiring the public utility to comply with the standards.

4. Requiring the public utility to pay for investigation expenses.

It can require the public utility to pay for the expenses incurred by the Commission in any
investigation. So every year the public service utilities are assessed by their regulatory

5. Appraisal of the properties of the public utilities.

6. Testing and applying its devices to measure service.

So if a customer complains that the meter of a taxi runs too fast so the LTFRB can test
that meter without conducting a public hearing on whether it could test the meter or not.

7. Regulate on how the books of accounts should be kept.

Now public utilities are audited by the Commission on Audit. Then they shall be required
to submit their annual reports. But they’re also required to submit reports of any accident.
They’re required to submit a list of their officers. They can investigate any accident.

Acts which require approval by the regulatory agency

Then Sec. 20 says that there are certain acts which should require approval by the
regulatory agency.

1. to collect rates or fees, it has to be approved by the regulatory agency

2. to operate new units or to extend the facilities. In fact, on authorities given, particular
units will be mentioned. For example, agricultural spraying, you need a certificate of public
convenience. If one of the planes crashed, and they will replace it with another plane, they
have to file a petition to substitute the plane that crashed with a new unit. Your certificate
will mention the unit that you will operate.
3. to abandon a service, you need a certificate of public convenience for that. You have this
authorization to abandon or to stop a service.
4. to increase capital stock

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5. to enter into consolidations, mergers
6. to lease. That’s why this boundary-system is illegal. In effect the operator is leasing the
jeepney to the driver without the approval of the LTFRB.
7. to sell, alienate, mortgage or encumber its property, certificate of public
convenience, etc., you need prior approval

Now even without approval, the contract is valid between the parties. But only
between them. And not with respect to the regulatory agency and the public. That’s why if a
public utility sold certain buses but the approval has not been approved yet, creditors of the
public utility can levy on the buses because the sale is valid only between the parties and not
with respect to the public and the regulatory agency.


Well in that Cohon (?) case which was asked in the Bar Exams and Justice Herrera was
the examiner, where the certificate of public convenience mentions the vessel to be operated
by the operator or shipping company and the vessel sank, so a total loss, the court said the
vessel has become unseaworthy, it can no longer be operated. The court said the certificate
of public convenience cannot be sold because it attached and adhered to that vessel because
the certificate will specify the unit you will operate and that vessel is no longer seaworthy. So
there is no subject matter of a valid sale.


And because of this kabit system, the ostensible operator and the actual operator will be
solidarily liable. “Kabit” system, here is somebody with a certificate of public convenience to operate
let’s say 20 units. And then somebody now will operate a taxi or jeepney using that certificate of
public convenience. He doesn’t have one. He will operate it in the name of the one who owns the
certificate of public convenience. Now the court has said that they will be solidarily liable because if
we will uphold the liability of the actual operator and exempt the ostensible operator, this could
result in collusion to the prejudice of the public. The one who has the certificate of public
convenience will allow someone who has no financial capability to operate using his certificate and
then if that is involved in an accident, he will disown any liability. They will be solidarily liable but
the ostensible operator can sue the actual operator for reimbursement.

However, the Supreme Court said in a decision penned by Justice Escolin that the actual
operator cannot sue the ostensible operator to recover the units because say he was operating taxis
using the certificate of the actual operator. So the taxis will be registered in the name of the owner
of the certificate of public convenience. If you check with the LTO he’s the owner. The actual owner
sued the ostensible operator to get back the vehicles. The court said, this is an illegal agreement,
and therefore you cannot sue the ostensible operator to recover the units which you illegally
registered in your name.

Then to sell your shares of stocks of more than 40%, you need the approval of the
regulatory agency.

Carriage of Goods by the Sea Act

Then you have that COGSA. This governs… well, the carriage of goods involves foreign or
international trade. However, the court has said that it is valid for the parties to stipulate that this
will apply even if the contract will provide domestic carriage of goods. So there’s nothing against
public policy to limit it to apply it to domestic carriage of goods.

The two main features of this law are:

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1. The one-year prescriptive period to file a case against the shipping company
2. The limitation of liability - $500 per package.

Now this COGSA applies up to the final port of destination even if there is transshipment by a
domestic carrier. So if you have goods imported from Japan, transported by a Japanese vessel from
Tokyo to Manila, and they were transshipped say by Sweet Lines from Manila to Cebu and
somewhere between Manila and Cebu, the goods were lost or damaged, COGSA will still apply coz it
applies up to the final port of destination.

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Re: One-year Prescriptive Period

Now as a rule you have to file a case within one year from the date the last item was
delivered to the consignee. Now if the goods were not delivered, then you count the one-year
period from the last day that delivery could have been made. So if the vessel stayed here for three
days and then it left, then you count from the last day that it stayed here. Now the court has said
that if the goods were lost and the insurance company paid the consignee and now the insurance
company is suing, if the action had prescribed insofar as the consignee is concerned, that should
also be prescribed insofar as the insurance company is concerned coz it is merely subrogated to the
rights of the consignee. So any defense that a person may raise against the consignee, like
prescription, then that may also be raised against the insurance company. Coz the consignee can
circumvent the one-year prescriptive period by simply asking the insurance company to pay on the
ground that, anyway, the one-year period will not apply to him. No.

And the court has said that the one-year prescriptive period will not be suspended or
interrupted by making a written demand. That provision in the Civil Code that the prescriptive
period will be interrupted by a written demand does not apply to the prescriptive period under the
COGSA coz it is the policy of the law that claims involving maritime commerce should be decided as
soon as possible.

However, there are also cases which are not covered by the one-year prescriptive period.
This applies to delivery of lost or damaged goods or non-delivery. This does not apply to
misdelivery. Where the goods are delivered to the wrong person, that involves conversion of goods,
then what will apply will be the prescriptive period in the Civil Code, not the COGSA. Ten years if
you’re suing on the basis of a written contract, and four years if you’re suing on the basis of a quasi-

And you have this case… the old Code of Civil Procedure contains provisions on prescription.
Those provisions have not been repealed by the Civil Code coz the Civil Code says that the
provisions on prescription of the Code of Civil Procedure are repealed insofar as they are inconsistent
with the Civil Code. So provisions in the Code of Civil Procedure which are not inconsistent with the
Civil Code are still applicable. Now there is a provision in the Code of Civil Procedure that if a case
was filed and it was dismissed, you have one year from the dismissal to refile the case. Now in the
old law, all admiralty cases irrespective of the amount were cognizable by the Court of First
Instance. So if the amount is only P100 you have to file that with CFI. No what happened is that
the case is filed with the City Court and because it was an admiralty case, filed under COGSA, it was
dismissed. Then the case was refiled with the CFI, the court said that the action is not barred by
prescription because in accordance with that provision in the Code of Civil Procedure where the case
was dismissed, that one-year period was revived or renewed.

And the court has also said that the parties may agree to extend the one-year prescriptive
period. A consignee filed a claim and the one-year period is about to expire. Now the shipping
company tells the consignee, don’t file a case yet coz we are still investigating, looking into your
claim. So give us time. And they agreed to extend. The court said that the parties can agree to
extend the one-year prescriptive period.

And the court also said that where the customs broker took the delivery of the goods of the
consignee and then the goods were lost in the course of the broker, the one-year prescriptive period
will no longer apply coz the one liable is the customs broker, not the shipping company.

Likewise, the court said that where the goods were delivered to the consignee but there was
delay, and because of that the goods were sold at a very low price. So the shipping company was
sued for the damages suffered because of the delay in the delivery. The court said that the COGSA
will not apply coz this is not a case where the goods were lost or damaged. This is a case of delay in

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the delivery of the goods. So this is not covered by COGSA and what will apply is the prescriptive
period in the Civil Code. So if based on a written contract, you have 10 years to sue.

Re: Limitation in the Liability - $500 per package

Now the court has said that in computing the $500 per package, you refer to the cartons
inside the container van, it does not refer to the container van. The value of the container van will
be worth millions, so you use the cartons inside that. That will be considered.

God bless 4A-2002. It was great being with wonderful people… Here’s to a 100% passing
rate on the 2012 Bar Examinations! See you around!

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