CHAPTER I

PRELIMINARY CONSIDERATIONS

TRANSPORTATION LAWS IN THE PHILIPPINES

Transportation laws in the Philippines whether by land, sea, or
air, are generally governed by the New Civil Code (Arts. 1732-1766)
thus, it declared:

“In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code
of Commerce and by special laws.”
In the absence, therefore, of any provision of the New Civil
Code on the rights and obligations of common carriers, the Code of
Commerce and other special laws such as the Carriage of Goods By
Sea Act, Salvage Law, and other special laws insofar as pertinent may
be applied. (See National Development Company v. The Court of Appeals
and Development Insurance and Surety Corporation, No. L-49409, August
19, 1998; Maritime Company of the Philippines v. The Court of Appeals
and Development Insurance and Surety Corporation, No. L-49467, August
19, 1988; Eastern Shipping Lines, Inc. v. IAC, No. L-69044, March 29,
1987; Maritime Company of the Philippines v. Court of Appeals and Rizal
Surety and Insurance Co., G.R. No. 47004, March 8, 1989)

TRANSPORTATION LAWS AND THE CONSTITUTION

It is time honored that the Constitution is the Supreme Law of
the land. It is the law of all laws. If there is conflict between a statute
and the [Constitution, the statute shall yield to the [C]onstitution.
(Diaz, Statutory Construction, p. 249, 2000 Ed.)

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 TRANSPORTATION LAWS

The 1987 Philippine Constitution provides, some restrictions or limitations

in the issuance of franchise to public utilities, which includes transportation
industries. Article XII of the National Economy and Patrimony provides, thus:
“Sec. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, 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.
xxx xxx xxx
Sec. 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations.
Government-owned or -controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability.
Sec. 17. In times of national emergency, when the public interest so
requires, the State may, during the emergency and under reasonable terms
prescribed by it, temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest.
Sec. 18. 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.

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Sec. 19. The State shall regulate or prohibit monopolies when the
public interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.”
Likewise, Article XVI on the general provisions states that:
“Sec. 11.(1) The ownership and management of mass media shall
be limited to citizens of the Philippines, or to corporations, cooperatives
or associations, wholly-owned and managed by such citizens.
The Congress shall regulate or prohibit monopolies in commercial
mass media when the public interest so requires. No combinations in
restraint of trade or unfair competition therein shall be allowed.
(2) The advertising industry is impressed with public interest, and
shall be regulated by law for the protection of consumers and the
promotion of the general welfare.
Only Filipino citizens or corporations or associations at least
seventy per centum of the capital of which is owned by such citizens
shall be allowed to engage in the advertising industry.
The participation of foreign investors in the governing body of
entities in such industry shall be limited to their proportionate share in the
capital thereof, and all the executive and managing officers of such
entities must be citizens of the Philippines.”

MAY A 100% FOREIGN CORPORATION OWN A PUBLIC

UTILITY?
Apparently, this question was answered in the case of the People of the
Philippines v. William M. Quasha, L-6055, June 12, 1953 and the landmark
decision in Tatad, et al. v. Sec. Garcia and EDSA LRT Corporation Ltd.,
G.R. No. 114222, April 16, 1995.
The Supreme Court, when confronted with the issue of whether
respondent EDSA LRT Corporation, Ltd., a foreign corporation can own EDSA
LRT III, a public utility, said: “The phrasing of the question is erroneous, it is
loaded. What private respondent owns are the rail

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 TRANSPORTATION LAWS

tracks, rolling stocks like the coaches, rail stations, terminals and the power
plant, not a public utility. While a franchise is needed to operate these facilities to
serve the public, they do not, by themselves, constitute a public utility. What
constitute a public utility is not their ownership but their use to serve the public.”
(Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551,
557-558 [1923])
The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise before one
can own the facilities needed to operate a public utility so long as it does not
operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

“No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than
fifty years x x x . ”
In law, there is a clear distinction between the “operation” of a public
utility and the ownership of the facilities and equipment used to serve the public.
Ownership is defined, as a relation in law, by virtue of which a thing
pertaining to one person is completely subjected to his will in everything not
prohibited by law or the concurrence with the rights of another. (Tolentino, II
Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992])
The exercise of the rights encompassed in ownership is limited by law so
that a property cannot be operated and used to serve the public as a public utility
unless the operator has a franchise. The operation of a rail system, as a public
utility, includes the transportation of passengers from one point to another point,
their loading and unloading at designated places and the movement of the trains
at prescheduled times, (cf. Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz
282, 180

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

P. 159, 7 A.L.R. 1149 [1919]; United States Fire Ins. Co. v. Northern PR.
Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948])
The right to operate a public utility may exist independently and
separately from the ownership of the facilities thereof. One can own said
facilities without operating them as a public utility, or conversely, one may
operate a public utility without owning the facilities used to serve the public.
The devotion of property to serve the public may be done by the owner or by the
person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very well appreciated
when we consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them
themselves.
Since DOTC shall operate the EDSA LRT III, it shall assume all the
obligations and liabilities of a common carrier. For this purpose, DOTC shall
indemnify and hold harmless private respondent from any losses, damages,
injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the EDSA
LRT III on account of the defective condition of equipment or facilities or the
defective maintenance of such equipment or facilities.
In sum, private respondent will not run the light rail vehicles and collect
fees from the riding public. It will have no dealings with the public and the
public will have no right to demand any services from it.
Indeed, a mere owner and lessor of the facilities used by a public utility is
not a public utility. (Providence and W.R. Co. v. United States, 46 F. 2d
149,152 [1930]; Chippewa Power Co. v. Railroad Commission of
Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, III. 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed.
1036 [1914]) Neither are owners of tank, refrigerator, wine, poultry and beer
cars who supply cars under contract to railroad companies considered as public
utilities. (Crystal Car Line v. State Tax Commission, 174 P. 2d 984, 987
[1946])

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 TRANSPORTATION LAWS

Even the mere formation of a public utility corporation does not ipso facto
characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for that purpose. (People v.
Quasha, 93 Phil 333 [1953]; Francisco Tatad, John Osmeha and Rodolfo
Biazon v. Hon. Jesus Garcia, Jr. and EDS A LRT Corporation Ltd., G.R. No.
114222, April 6, 1995)

The President, the Congress, and the Court cannot create directly franchises that are
exclusive in character. What the President, Congress, and the Court cannot legally do
directly, they cannot not do indirectly.

Tawang Multi-Purpose Cooperative v.

La Trinidad Water District
GR. No. 166471, March 22, 2011
FACTS: Tawang Multi-Purpose Cooperative (TMPC) is a cooperative,
registered with the Cooperative Development Authority, and organized to provide
domestic water services in Barangay Tawang, La Trinidad, Benguet. La Trinidad
Water District (LTWD) is a local water utility created under P.D. No. 198, as
amended. It is authorized to supply water for domestic, industrial, and commercial
purposes within the municipality of La Trinidad, Benguet. On October 9, 2000,
TMPC Filed with the National Water Resources Board (NWRB) an application for a
Certificate of Public Convenience (CPC) to operate and maintain waterworks system
in Barangay Tawang. LTWD opposed TMPC’s application. LTWD claimed that
under Section 47 of P.D. No. 198, as amended, its franchise is exclusive. Section 47
states that:
Sec. 47. Exclusive Franchise. - No franchise shall be granted to any
other person or agency domestic, industrial or commercial water service
within the district or any portion thereof unless and except to the extent that
the board of directors of said district consents thereto by resolution duly
adopted, such resolution, however, shall be subject to review by the
Administration.

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

In its Resolution No. 04-0702, dated July 23, 2002, the NWRB approved
TMPC’s application for a CPC. In its August 15, 2002 Decision, the NWRB
held that LTWD’s franchise cannot be exclusive since exclusive franchises are
unconstitutional and found that TMPC is legally and financially qualified to
operate and maintain a waterworks system. LTWD filed a motion for
reconsideration. In its November 18, 2002 Resolution, the NWRB denied the
motion. LTWD appealed to the Regional Trial Court (RTC).
In its October 1, 2004 Judgment, the RTC set aside the NWRB’s July 23,
2002 Resolution and August 15, 2002 Decision, and canceled TMPC’s CPC.
The RTC held that Section 47 is valid.
ISSUE: Whether or not the RTC erred in holding that Section 47 of P.D.
No. 198, as amended, is valid.
HELD: The President, the Congress, and the Court cannot create
directly franchises for the operation of a public utility that is exclusive in
character. The 1935, 1973, and 1987 Constitutions expressly and clearly
prohibit the creation of franchises that are exclusive in character. Section 8,
Article XIII of the 1935 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 other entities
organized under the laws of the Philippines, sixty per centum of the capital of
which is owned by citizens of the Philippines, nor shall such franchise,
certificate or authorization be exclusive in character or for a longer period that
fifty years.” (Emphasis supplied)
Section 5, Article XIV of the 1973 Constitution and Section 11, Article
XII of the 1987 Constitution similarly provides the same prohibition.
Plain words do not require explanations. The 1935, 1973, and 1987
Constitutions are clear — franchises for the operation of a public utility cannot
be exclusive in character. The 1935, 1973, and 1987 Constitutions expressly
and clearly states that “nor shall franchise xxx be exclusive in character, ”
There is no exception.
When the law is clear, there is nothing for the courts to do but to apply it.
The duty of the Court is to apply the law the way it is worded.

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 TRANSPORTATION LAWS

Indeed, the President, the Congress, and the Court cannot create directly
franchises that are exclusive in character. What the President, the Congress, and
the Court cannot legally do directly, they cannot do indirectly. Thus, the
President, the Congress, and the Court cannot create indirectly franchises that are
exclusive in character by allowing the Board of Directors (BOD) of a water
district and the Local Water Utilities Administration (LWUA) to create
franchises that are exclusive in character.
In P.D. No. 198, as amended, former President Ferdinand E. Marcos
(President Marcos) created indirectly franchises that are exclusive in character by
allowing the BOD of LTWD and the LWUA to create directly franchises that are
exclusive in character. Section 47 of P.D. No. 198, as amended, allows the BOD
and the LWUA to create directly franchises that are exclusive in character.
In case if conflict between the Constitution and a statute, the Constitution
always prevails because the Constitution is the basic law to which all other laws
must conform to. The duty of the Court is to uphold the Constitution and to
declare void all laws that do not conform to it.

Section 47 gives the BOD and LWUA the authority to make an exception
to the absolute prohibition in the Constitution. In short, the BOD and the LWUA
are given the discretion to create franchises that are exclusive in character. The
BOD and the LWUA are not even legislative bodies. The BOD is not a regulatory
body but simply a management board of a water district. Indeed, neither the BOD
nor the LWUA can be granted the power to create any exception to the absolute
prohibition in the Constitution, a power that Congress itself cannot exercise.
Nonetheless, while the prohibition in Section 47 of P.D. No. 198 applies to the
issuance of CPCs for the reasons discussed above, the same provision must be
deemed void ab initio being irreconcilable with Section 5, Article XIV of the
1973 Constitution, which was ratified on January 17, 1973, the Constitution in
force when P.D. No. 198 was issued on May 25, 1973. Since Section 47 of P.D.
No. 198, which vests and “exclusive franchise” upon public utilities, is clearly
repugnant to Section 5, Article XIV of the 1973 Constitution, it is
unconstitutional

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 CHAPTER I
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and may not, therefore, be relied upon by petitioner in support of its opposition
against respondent’s application for CPC and the subsequent grant thereof by
the NWRB.

ARTICLES 1732 AND 1733

ARTICLE 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to
the public.

Common Carrier Defined and Explained.

The Civil Code defines “common carriers ” in the following terms:
“Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air for compensation offering their services to the
public.”
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does
such carrying only as an ancillary activity (in local idiom, as “a sideline”).
Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic, or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the “general public,” i.e.9 the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. Article 1732 deliberately refrained from making such distinctions.
So understood, the concept of “common carriers” under Article 1732 may
be seen to coincide neatly with the notion of “Public Service,” under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, “public service ” includes:

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 TRANSPORTATION LAWS

“x x x 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, subway 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 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 systems,
wire or wireless broadcasting stations and other similar public services, x x
x” (Emphasis supplied.)
A certificate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers. That
liability arises the moment a person or firm acts as a common carrier, without
regard to whether or not such carrier has also complied with the requirements of
the applicable regulatory statute and implementing regulations and has been
granted a certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public
policy; that would be to reward private respondent precisely for failing to comply
with applicable statutory requirements. The business of a common carrier
impinges directly and intimately upon the safety and well-being and property of
those members of the general community who happen to deal with such carrier.
The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations. (De Guzman v. Court of
Appeals, No. L-47822, December 12, 1988; Bascos v. Court of Appeals, G.R.
No. 101089, April 7, 1993; Loadstar Shipping Co., Inc. v. Court of Appeals,
G.R. No. 131627, September 28, 1999; Calvo

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

v. UCPB General Insurance Company; Inc., 379 SCRA 510, March 19,
2002; Asia Lighterage Shipping, Inc. v. Court of Appeals, 409 SCRA 340,
August 19, 2003)
The above statutory provision and jurisprudential discussion laid down
the following elements of a common carrier:
1. Any persons, corporations, firms or associations;
2. Such persons, corporations, firms or associations must be engaged
in the business of carrying or transporting passengers or goods or
both;
3. The means of carriage or transporting passengers, goods or both is
by land, water or air;
4. The carrying or transporting of passengers or goods or both is for a
fee or compensation; and
5. The services are offered to the public without distinction.

COMMON CARRIERS DISTINGUISHED FROM PRIVATE

CARRIERS
By definition, a contract of carriage or transportation is one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. Such person
or association of persons are regarded as carriers and are classified as private or
special carriers and common or public carriers. (Crisostomo v. Court of
Appeals, 409 SCRA 528, August 28, 2003)
The nature of the contractual relation between carrier and passenger is
determinative of the degree of care required in the performance of the latter’s
obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human care
and foresight can provide using the utmost diligence of very cautious persons
and with due regard for all the circumstances.
Private carrier is not bound under the law to observe extraordinary
diligence in the performance of its obligation.

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 TRANSPORTATION LAWS

The standard of care required of private carriers is that of a good father of a

family under Article 1173 of the Civil Code. This connotes reasonable care
consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. (Crisostomo v. CA, supra)
Much of the distinction between a “common or public carrier” and a “private
or special carrier” lies in the character of the business, such that if the undertaking is
an isolated transaction, not a part of the business or occupation, and the carrier does
not hold itself out to carry the goods for the general public or to a limited clientele,
although involving the carriage of goods for a fee, the person or corporation
providing such service could very well be just a private carrier. The concept of a
common carrier does not change merely because individual contracts are executed
or entered into with patrons of the carrier — such restrictive interpretation would
make it easy for a common carrier to escape liability by the simple expedient of
entering into those distinct agreements with clients. (Philippine-American
General Insurance Company v. PKS Shipping Company, 401 SCRA 222, April
9, 2003)

Test for determining whether a party is a common carrier of goods.

First Philippine Industrial Corporation

v. Court of Appeals
G.R. No. 125948, December 29,1998

FACTS: Petitioner is a grantee of a pipeline concession under R.A. No. 387, as

amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 1967 and renewed by the Energy Regulatory Board in 1992.
Sometime in January 1995, petitioner applied for a mayor’s permit with the
Office of the Mayor of Batangas City. However, before the mayor’s permit could be
issued, the respondent City Treasurer required petitioner to pay a local tax based on its
gross receipts for the fiscal year 1993 pursuant to the Local Government Code. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for

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 CHAPTER I
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CONSIDERATIONS
products pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid the tax
under protest in the amount of P239,019.01 for the first quarter of 1993.
On June 15, 1994, petitioner filed with the Regional Trial Court of
Batangas City a complaint for tax refund with prayer for writ of preliminary
injunction against respondents City of Batangas and Adoracion Arellano in her
capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that:
(1) the imposition and collection of the business tax on its gross receipts violates
Section 133 of the Local Government Code; (2) the authority of cities to impose
and collect a tax on the gross receipts of “contractors and independent
contractors” under Sections 141(e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Section 131
(h), the term “contractors” excludes transportation contractors; and
(3) the City Treasurer illegally and erroneously imposed and collected the said
tax, thus meriting the immediate refund of the tax paid.
Traversing the complaint, the respondents argued that petitioner cannot be
exempt from taxes under Section 133(j) of the Local Government Code as said
exemption applies only to “transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water.” Respondents
assert that pipelines are not included in the term “common carrier” which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term “common carrier” under the said Code pertains to the
mode or manner by which a product is delivered to its destination.
ISSUE: Whether or not petitioner is a common carrier so that in the
affirmative, he is not liable to pay the carriers tax under the Local Government
Code of 1991.
HELD: There is merit in the petition.
A “common carrier” may be defined, broadly, as one who holds himself
out to the public as engaged in the business of transporting persons or property
from place to place, for compensation, offering his services to the public
generally.

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 TRANSPORTATION LAWS

Article 1732 of the Civil Code defines a “common carrier ” as “any

person, corporation, firm or association engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.”
The test for determining whether a party is a common carrier of goods
is:
1. He must be engaged in the business of carrying goods for others
as a public employment, and must hold himself out as ready to
engage in the transportation of goods or person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his
business is confined;
3. He must undertake to carry by the method by which his business
is conducted and over his established roads; and
4. The transportation must be for hire.
Based on the above definitions and requirements, there is no doubt
that petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e., petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently, that is, to all
persons who choose to employ its services, and transports the goods by land
and for compensation. The fact that petitioner has a limited clientele does
not exclude it from the definition of a common carrier. In De Guzman v.
Court of Appeals, the Court ruled that:
“The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such
carrying only as ancillary activity (in local idiom, as a sideline).
Article 1732 xxx avoids making any distinction between a person
or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the ‘general
public, ’ i.e., the general community or population, and one who

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offers services or solicits business only from a narrow segment of the

general population. We think Article 1732 deliberately refrained from
making such distinctions. ”
So understood, the concept of “common carrier” under Article 1733 may
be seen to coincide neatly with the notion of “public service,” under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, “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, subway 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 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 systems, wire or wireless broadcasting
stations and other similar public services. ” (Underscoring supplied.)
Also, respondent’s argument that the term "common carrier” as used in
Section 133(j) of the Local Government Code refers only to common carriers
transporting goods and passengers through moving vehicles or vessels either by
land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of “common
carriers” in the Civil Code makes no distinction as to the means of transporting
as long as it is by land, water, or air. It does not provide that the transportation of
the passengers or goods should be by motor vehicle. In fact, in the United States,
oil pipeline operators are considered common carriers.

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 TRANSPORTATION LAWS

Under the Petroleum Act of the Philippines (R.A. No. 387), petitioner is
considered a “common carrier.” Thus, Article 86 thereof provides that:
“Art. 86. Pipeline concessionaire as common carrier. — A
pipeline shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to utilize the
remaining transportation capacity pro rata for the transportation of such
other petroleum as may be offered by others for transport, and to charge
without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources.”

Test of a Common Carrier

Vlasons Shipping, Inc. v. Court of Appeals

and National Steel Corporation
G.R. No. L-112350, December 12,1997
FACTS: On July 17, 1974, plaintiff National Steel Corporation (NSC) as
Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a
Contract of Voyage Charter Hire whereby NSC hired VSI’s vessel, the MV
‘VLASONS I’ to make one (1) voyage to load steel products at Ilagan City and
discharge them at North Harbor, Manila.
The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on
August 12,1974. The following day, August 13,1974, when the vessel’s three
(3) hatches containing the shipment were opened by plaintiff’s agents, nearly
all the skids of tinplates and hot rolled sheets were allegedly found to be wet
and rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24,1974 after incurring a
delay of eleven (11) days due to the heavy rain, which interrupted the unloading
operations.
On September 6, 1974, on the basis of the aforesaid Report No. 1770,
plaintiff filed with the defendant its claim for damages suffered due to the
downgrading of the damaged tinplates in the amount of

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P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of

said claim but defendant VSI refused and failed to pay. Plaintiff filed its
complaint against defendant on April 21, 1976, which was docketed as Civil
Case No. 23317, CFI, Rizal.
ISSUE: Whether or not the provisions of the Civil Code of the Philippines
on common carriers pursuant to which there exist(s) a presumption of negligence
against the common carrier in case of loss or damage to the cargo are applicable
to a private carrier.
HELD: At the outset, it is essential to establish whether VSI contracted
with NSC as a common carrier or as a private carrier. The resolution of this
preliminary question determines the law, standard of diligence and burden of
proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as “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.” It has been held that the true
test of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a fee. A
carrier, which does not qualify under the above test, is deemed a private carrier.
Generally, “private carriage is undertaken by special agreement and the carrier
does not hold himself out to carry goods for the general public. The most typical,
although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use
and service of all or some part of a ship for a period of time or a voyage or
voyages.”
In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a “special contract of charter party.” As
correctly concluded by the Court of Appeals, the MV Vlasons I “was not a
common but a private carrier.” Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or
charter party.

17
 TRANSPORTATION LAWS

In view of the aforementioned contractual stipulations, NSC must prove

that the damage to its shipment was caused by VSI’s willful negligence or failure
to exercise due diligence in making MV Vlasons I seaworthy and fit for holding,
carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed
on NSC by the parties’ agreement.
This view finds further support in the Code of Commerce, which
pertinently provides:
“Art 361. Merchandise shall be transported at the risk and
venture of the shipper, if the contrary has not been expressly
stipulated. ”
Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event .force majeure, or the nature and inherent
defect of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
“Art 362. The carrier, however, shall be liable for damages
arising from the causes mentioned in the preceding article if proofs
against him show that they occurred on account of his negligence or
his omission to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading,
making him believe that the goods were of a class or quality different
from what they really were. ”
Because the MV Vlasons I was a private carrier, the shipowner’s
obligations are governed by the foregoing provisions of the Code of Commerce
and not by the Civil Code which, as a general rule, places the prima facie
presumption of negligence on a common carrier. It is a hornbook doctrine that:
“In an action against a private carrier for loss of, or injury to,
cargo, the burden is on the plaintiff to prove that the carrier was
negligent or unseaworthy, and the fact that the goods were lost or
damaged while in the carrier’s custody does not put the burden of proof
on the carrier.”

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

In a contract of private carrier, the parties may freely stipulate their

duties and obligations which perforce be binding on them. Unlike in a
contract involving common carrier, private carriage does not involve
the general public.

Valenzuela Hardwood and Industrial Supply, Inc. v. Court

of Appeals and Seven Brothers Shipping Corporation
SfQ. 3-BBACK -Transpo Laws: Nows ana oases am eo. mto or vmt o*w

G.R. No. 102316, June 30,1997

FACTS: It appears that on 16 January 1984, plaintiff (Valenzuela
Hardwood and Industrial Supply, Inc.) entered into a charter party with the
defendant Seven Brothers (Shipping Corporation) whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the former’s
lauan round logs numbering 940 at the port of Maconacon, Isabela for
shipment to Manila.
The said vessel M/V Seven Ambassador sank on January 25,1984
resulting in the loss of the plaintiff’s insured logs. There is no dispute
between the parties that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the “snapping of the
iron chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the
vessel and not due to fortuitous event.” Likewise undisputed is the status
of private respondent Seven Brothers as a private carrier when it
contracted to transport the cargo of petitioner Valenzuela. Even the latter
admits this in its petition.
The trial court deemed the charter party stipulation void for being
contrary to public policy, citing Article 1745 of the Civil Code.
Petitioner Valenzuela adds that the stipulation is void for being
contrary to Articles 586 and 587 of the Code of Commerce and Articles
1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1,
Article 1409 of the Civil Code, petitioner further contends that said
stipulation “gives no duty or obligation to the private respondent to
observe the diligence of a good father of a family in the custody and
transportation of the cargo.”
ISSUE: Whether or not respondent Court (of Appeals) committed a
reversible error in upholding the validity of the stipulation in the

19
 TRANSPORTATION LAWS

charter party executed between the petitioner and the private respondent
exempting the latter from liability for the loss of petitioner’s logs arising from
the negligence of its (Seven Brothers) captain.
HELD: The Court is not persuaded. As adverted earlier, it is undisputed
that private respondent had acted as a private carrier in transporting
petitioner’s lauan logs. Thus, Article 1745 and other Civil Code provisions on
common carriers, which were cited by petitioner, may not be applied unless
expressly stipulated by the parties in their charter party.
In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the cargo caused even by the
negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such
stipulation is valid because it is freely entered into by the parties and the same
is not contrary to law, morals, good customs, public order, or public policy.
Indeed, their contract of private carriage is not even a contract of adhesion. We
stress that in a contract of private carriage, the parties may freely stipulate their
duties and obligations, which perforce would be binding on them. Unlike in a
contract involving a common carrier, private carriage does not involve the
general public. Hence, the stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably be applied to a ship
transporting commercial goods as a private carrier. Consequently, the public
policy embodied therein is not contravened by stipulations in a charter party
that lessen or remove the protection given by law in contracts involving
common carriers.
The issue posed in this case and the arguments raised by petitioner are
not novel; they were resolved long ago by this Court in Home Insurance Co.
v. American Steamship Agencies, Inc. In that case, the trial court similarly
nullified a stipulation identical to that involved in the present case for being
contrary to public policy based on Article 1744 of the Civil Code and Article
587 of the Code of Commerce. Consequently, the trial court held the
shipowner liable for damages resulting from the partial loss of the cargo. This
Court reversed the trial

20
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PRELIMINARY CONSIDERATIONS

court and laid down, through Mr. Justice Jose P. Bengzon, the following
well-settled observation and doctrine:
“The provisions of our Civil Code on common carriers were
taken from Anglo-American Law. Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to
special person only, becomes a private carrier. As a private carrier,
a stipulation exempting the owner from liability for the negligence of
its agent is not against public policy, and is deemed valid.
Such doctrine we find reasonable. The Civil Code provisions
on common carriers should be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy
governing common carriers is applied. Such policy has no force
where the public at large is not involved, as in this case of a ship
totally chartered for the use of a single party. "
Indeed, where the reason for the rule ceases, the rule itself does not
apply. The general public enters into a contract of transportation with common
carriers without a hand or a voice in the preparation thereof. The riding public
merely adheres to the contract; even if the public wants to, it cannot submit its
own stipulations for the approval of the common carrier. Thus, the law on
common carriers extends its protective mantle against one-sided stipulations
inserted in tickets, invoices or other documents over which the riding public
has no understanding or, worse, no choice. Compared to the general public, a
charterer in a contract of private carriage can stipulate the carrier’s obligations
and liabilities over the shipment, which, in turn, determines the price or
consideration of the charter. Thus, a charterer, in exchange for convenience
and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal
business risk.
The naked assertion of petitioner that the American rule enunciated in
Home Insurance is not the rule in the Philippines deserves scant
consideration. The Court there categorically held that said rule was
“reasonable” and proceeded to apply it in the resolution

21
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of that case. Petitioner miserably failed to show such circumstances or arguments,

which would necessitate a departure from a well-settled rule. Consequently, our
ruling in said case remains a binding judicial precedent based on the doctrine of
stare decisis and Article 8 of the Civil Code which provides that “(j) judicial
decisions applying or interpreting the laws or the Constitution shall form part of
the legal system of the Philippines.”
In fine, the respondent appellate court aptly stated, “(in the case of) a
private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid.”
Article 6 of the Civil Code provides that “rights may be waived, unless the
waiver is contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a person with a right recognized by law.” As a general rule,
patrimonial rights may be waived as opposed to rights to personality and family
rights, which may not be made the subject of waiver. Being patently and
undoubtedly patrimonial, petitioner’s right conferred under said articles may be
waived. This, the petitioner did by acceding to the contractual stipulation that it is
solely responsible for any damage to the cargo, thereby exempting the private
carrier from any responsibility for loss or damage thereto. Furthermore, as
discussed above, the contract of private carriage binds petitioner and private
respondent alone; it is not imbued with public policy considerations for the
general public or third persons are not affected thereby.

A customs broker, whose principal business is the preparation of the correct

customs declaration and the proper shipping documents, is still considered a
common carrier if it also undertakes to deliver the goods for its customers.

Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance

Co., Inc. and Benjamin P. Manalastas, doing business under the
name of BMT Trucking Services G.R. No. 194121, July 11, 2016
FACTS: On October 7, 2000, a shipment of various electronic goods from
Thailand and Malaysia arrived at the Port of Manila for Sony

22
 CHAPTER I
PRELIMINARY CONSIDERATIONS

Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the services of
TMBI to facilitate, withdraw, and deliver the shipment from the port to its
warehouse in Binan, Laguna. TMBI, who did not own any delivery trucks,
subcontracted the services of Benjamin Manalastas’ company, BMT Trucking
Services (BMT), to transport the shipment from the port to the Binan warehouse. In
the early morning of October 9, 2000, the four trucks left BMT’s garage for
Laguna. However, only three trucks arrived at Sony’s Binan warehouse. At around
12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found
abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City. Both
the driver and the shipment were missing. Later that evening, BMT’s Operations
Manager Melchor Manalastas informed Victor Torres, TMBI’s General Manager,
of the development. They went to Muntinlupa together to inspect the truck and to
report the matter to the police. Victor Torres also filed a complaint with the
National Bureau of Investigation (NBI) against Lapesura for “hijacking.” The
complaint resulted in a recommendation by the NBI to the Manila City
Prosecutor’s Office to prosecute Lapesura for qualified theft. TMBI notified Sony
of the loss through a letter. It also sent BMT a letter demanding payment for the
lost shipment. BMT refused to pay, insisting that the goods were “hijacked.” In the
meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods.
After evaluating the merits of the claim, Mitsui paid Sony P7,293,386.32
corresponding to the value of the lost goods.
After being subrogated to Sony’s rights, Mitsui sent a demand letter for
payment of the lost goods. TMBI refused to pay Mitsui’s claim. As a result, Mitsui
filed a complaint against TMBI on November 6,2001. TMBI, in turn, impleaded
Benjamin Manalastas, the proprietor of BMT, as a third-party defendant. TMBI
alleged that BMT’s driver, Lapesura, was responsible for the theft/hijacking of the
lost cargo and claimed BMT’s negligence as the proximate cause of the loss. TMBI
prayed that in the event it is held liable to Mitsui for the loss, it should be
reimbursed by BMT. On August 5, 2008, the Regional Trial Court (RTC) found
that TMBI and Benjamin Manalastas jointly and solidarily liable to pay Mitsui
P7,293,386.23 as actual damages, attorney’s fees equivalent to 25% of the amount
claimed, and the costs of the suit. The

23
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RTC held that TMBI and Manalastas were common carriers and had acted
negligently. Both TMBI and BMT appealed the RTC’s verdict. The Court of
Appeals (CA) affirmed the lower court’s decision.
TMBI denied that it was a common carrier required to exercise
extraordinary diligence because it does not own a single truck to transport its
shipment and it does not offer transport services to the public for compensation. It
emphasized that Sony knew TMBI did not have its own vehicles and would
subcontract the delivery to a third- party. Further, TMBI insists that the service it
offered was limited to the processing of paperwork attendant to the entry of
Sony’s goods. It denies that delivery of the shipment was a part of its obligation. It
maintains that it exercised the diligence of a good father of a family, and should be
absolved of liability because the truck was “hijacked,” and it was a fortuitous
event. BMT claimed that it had exercise extraordinary diligence over the lost
shipment, and argued as well that the loss resulted from a fortuitous event.
ISSUE: (1) Whether or not a brokerage may be considered as a common
carrier; (2) Whether or not hijacking is a fortuitous event.
HELD: Common carriers are persons, corporations, firms, or associations,
engaged in the business of transporting passengers, or goods, or both, by land,
water, or air, for compensation, offering their services to the public. By nature of
their business, and for reasons of public policy, they are bound to observe
extraordinary diligence in the vigilance over the goods, and in the safety of their
passengers. In A.F. Sanchez Brokerage, Inc. v. Court of Appeals, the Court held
that a custom broker, whose principal business is the preparation of the correct
customs declaration and the proper shipping documents, is still considered a
common carrier if it also undertakes to deliver the goods for its customers. The
law does not distinguish between one, whose principal business activity is the
carrying of goods, and one, who undertakes this task only as an ancillary activity.
This ruling has been reiterated in Schmitz Transport & Brokerage Corp. v.
Transport Venture, Inc.; Loadmasters Customs Services, Inc. v. Glodel
Brokerage Corporation; and, Westwind Shipping Corporation v. UCPB
General Insurance Co., Inc.

24
 CHAPTER I
PRELIMINARY
CONSIDERATIONS
Despite TMBI’s present denials, the Court finds that the delivery of the
goods is an integral, albeit ancillary, part of its brokerage services. TMBI
admitted that it was contracted to facilitate, process, and clear the shipments from
the customs authorities, withdraw them for the pier, then transport and deliver
them to Sony’s warehouse in Laguna. That TMBI does not own trucks and has to
subcontract the delivery of its client’s goods is immaterial. As long as an entity
holds itself to the public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has to actually
hire one. Lastly, TMBI’s customs brokerage services, including the
transport/delivery of the cargo, are available to anyone willing to pay its fees.
Given these circumstances, the Court finds it undeniable that TMBI is a common
carrier. Consequently, TMBI should be held responsible for the loss, destruction,
or deterioration of the goods it transports unless it results from five exemptions
under Article 1734 of the Civil Code.
For all other cases, such as theft or robbery, a common carrier is presumed
to have been at fault or to have acted negligently, unless it can prove that it
observed extraordinary diligence. Simply put, the theft or the robbery of the goods
is not considered a fortuitous event or a force majeure. Nevertheless, a common
carrier may absolve itself of liability for resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the goods; or
(2) if it stipulated with the shipper/owner of the goods to limit its liability for the
loss, destruction, or deterioration of the goods to a degree less than extraordinary
diligence. However, a stipulation diminishing or dispensing with the common
carrier’s liability for acts committed by thieves or robbers, who do not act with
grave or irresistible threat, violence, or force is void under Article 1745 of the
Civil Code for being contrary to public policy. Jurisprudence, too, has expanded
Article 1734’s five exemptions. De Guzman v. Court of Appeals interpreted
Article 1745 to mean that a robbery attended by “grave or irresistible threat,
violence or force” is a fortuitous event that absolves the common carrier from
liability.
In the present case, the shipper, Sony, engaged the services of TMBI, a
common carrier, to facilitate the release of its shipment and

25
 TRANSPORTATION LAWS

deliver the goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation, the delivery of the cargo, to another common carrier, BMT. Despite the
subcontract, TMBI remained responsible for the cargo. Under Article 1736, a
common carrier’s extraordinary responsibility over the shipper’s goods lasts from the
time these goods are unconditionally placed in the possession of, and received by, the
carrier for transportation, until they are delivered, actually or constructively, by the
carrier, to the consignee. That the cargo disappeared during the transit while under
the custody of BMT, TMBI’s subcontractor, did not diminish nor terminate TMBI’s
responsibility over the cargo. Article 1735 of the Civil Code presumes that it was at
fault. Instead of showing that it had acted with extraordinary diligence, TMBI simply
argued that it was not a common carrier bound to observe extraordinary diligence. Its
failure to successfully establish this premise carries with it the presumption of fault or
negligence, thus, rendering it liable to Sony/ Mitsui for breach of contract.
Specifically, TMBI’s current theory, that the hijacking was attended by force or
intimidation, is untenable.

ART. 1733. Common carriers, from the nature of their

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

The law itself (Art. 1733) provides what kind of diligence is required of
common carriers. This is in view of the nature of the business of common carrier and
for reasons of public policy.
To overcome the presumption of negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. (Asia Litherage and Shipping, Inc. v. Court of Appeals,
409 SCRA 340, August 19, 2003)

26

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to fol low the required
precaution for avoiding damage to, or destruction of the goods entrusted to it for
sale, carriage and delivery. It requires common carriers to render service with
the greatest skill and foresight and “to use all reasonable means to ascertain the
nature and characteristic of goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature
requires.” (Compania Maritima v. Court of Appeals, 164 SCRA 685)
As a rule, the diligence required of every obligor is ordinary diligence,
i.e., diligence of a good father of a family. However, the requirement of proper
diligence may be controlled by law or stipulation of the parties (Art. 1163,
NCC), thus, the extraordinary diligence required of common carriers may be
limited by the parties themselves as Articles 1744 and 1748 provide.
Non-ownership of the vessel or vehicle use by the carrier does not render
ineffective observance of extraordinary diligence in the vigilance over the
goods and for the safety of passengers transported by the carrier.
“The fact that it did not own the vessel it decided to use to consummate
the contract of carriage did not negate its character and duties as a common
carrier. As a practical matter, it is very difficult and often impossible for the
general public to enforce its rights of action under a contract of carriage if it
should be required to know who the actual owner of the vessel is. To permit a
common carrier to escape its responsibility for the goods it agreed to transport
(by the expedient of alleging non-ownership of the vessel it employed) would
radically derogate from the carrier’s duty of extraordinary diligence. It would
also open the door to collusion between the carrier and the supposed owner and
to the possible shifting of liability from the carrier to one without any financial
capability to answer for the resulting damages.” (Cebu Salvage Corp. v.
Philippine Home Assurance Corp., 512 SCRA 667, January 25, 2007)

27
 TRANSPORTATION LAWS

For a vessel to be seaworthy, it must be adequately equipped

for the voyage and manned with a sufficient number of
competent officers and crew.

Loadstar Shipping Co., Inc. v. Court of Appeals

and the Manila Insurance Co., Inc.
G.R. No. 131621, September 28, 1999
FACTS: On November 19, 1984, LOADSTAR received on board
its M/V “Cherokee” (hereafter, the vessel) the following goods for
shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of moulding R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178 were insured for the same amount
with MIC against various risks including “TOTAL LOSS BY TOTAL LOSS
OF THE VESSEL.” The vessel, in turn, was insured by Prudential Guarantee &
Assurance, Inc. (hereafter PGAI) for P4 million. On November 20, 1984, on its
way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with
its cargo, sank off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with LOADSTAR, which, however, ignored the
same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its
claim and the latter executed a subrogation receipt therefore.
On February 4, 1985, MIC filed a complaint against LOADSTAR and
PGAI, alleging that the sinking of the vessel was due to the fault and negligence
of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay
the insurance proceeds from the loss of the vessel directly to MIC, said amount
to be deducted from MIC’s claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the
shipper’s goods and claimed that the sinking of its vessel was due to force
majeure. PGAI, on the other hand, averred that MIC had no cause of action
against it, LOADSTAR being the party insured. In any event,

28
 CHAPTER 1
PRELIMINARY CONSIDERATIONS

PGA1 was later dropped as a party defendant after it paid the insurance
proceeds to LOADSTAR.
The Regional Trial Court of Manila rendered judgment in favor
of MIC, prompting LOADSTAR to elevate the matter to the Court of
Appeals, which, however, agreed with the trial court and affirmed its
decision in toto.
ISSUE: Whether or not Loadstar observed due and/or ordinary
diligence in these premises.
HELD: M/V “Cherokee” was not seaworthy when it embarked
on its voyage on November 19, 1984. The vessel was not even
sufficiently manned at the time. “For a vessel to be seaworthy, it must
be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier
to maintain in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code.”
Neither do the Court agrees with LOADSTAR’S argument that the
8WCFU-

“limited liability” theory should be applied in this case. The doctrine of

limited liability does not apply where there was negligence on the part
c-£

of the vessel owner or agent. LOADSTAR was at fault or negligent in

not maintaining a seaworthy vessel and in having allowed its vessel
to sail despite knowledge of an approaching typhoon. In any event,
it did not sink because of any storm that may be deemed as force
majeure, inasmuch as the wind condition in the area where it sank was
determined to be moderate. Since it was remiss in the performance of its
duties, LOADSTAR cannot hide behind the “limited liability” doctrine
to escape responsibility for the loss of the vessel and its cargo.
Fault or Negligence; Proximate Cause, Defined

Sabena Belgian World Airlines v. Hon. Court of Appeals

and Ma. Paula San Agustin
G.R. No. 104685, March 14,1996
FACTS: On August 21, 1987, plaintiff was a passenger on board
Flight SN 284 of defendant airline originating from Casablanca to
29

J DIVERSITY OF THE CORDILLERAS |

 TRANSPORTATION LAWS

Brussels, Belgium, on her way back to Manila. Plaintiff checked in her luggage, which
contained her valuables, namely: jewelries valued at $2,350; clothes, $1,500;
shoes/bag, $150; accessories $75; luggage itself, $ 10.00; or a total of $4,265.00, for
which she was issued Tag No. 71423. She stayed overnight in Brussels and her luggage
was left on board Flight SN 284.
Plaintiff arrived at Manila International Airport on September 2, 1987 and
immediately submitted her Tag No. 71423 to facilitate the release of her luggage, but
the luggage was missing. She was advised to accomplish and submit a Property
Irregularity Report, which she submitted and filed on the same day.
She followed up her claim on September 14, 1987, but the luggage remained to
be missing.
On September 15, 1987, she filed her formal complaint with the Office of Ferge
Massed, defendant’s Local Manager, demanding immediate attention.
On September 30, 1987, on the occasion of plaintiff’s following up of her
luggage claim, she was furnished copies of defendant’s telexes with an information
that the Brussels’s Office of defendant found the luggage and that they have broken the
locks for identification. Plaintiff was assured by the defendant that it has notified its
Manila Office that the luggage will be shipped to Manila on October 27, 1987. But
unfortunately plaintiff was informed that the luggage was lost for the second time.
At the time of the filing of the complaint, the luggage with its contents had not
been found.
Plaintiff demanded from the defendant the money value of the luggage and its
contents amounting to $4,265 or its exchange value, but defendant refused to settle the
claim.
Defendant asserts in its Answer and its evidence tends to show that while it
admits that the plaintiff was a passenger on board Flight No. SN 284 with a piece of
checked in luggage bearing Tag No. 71423, the loss of the luggage was due to
plaintiff’s sole if not contributory negligence; that she did not declare the valuable
items in her checked

30
 CHAPTER I
PRELIMINARY CONSIDERATIONS

in luggage at the flight counter when she checked in for her flight from
Casablanca to Brussels so that either the representative of the defendant at the
counter would have advised her to secure an insurance on the alleged valuable
items and required her to pay additional charges, or would have refused
acceptance of her baggage as required by the generally accepted practices of
international carriers; that Section 9(a), Article IX of General Conditions of
carriage requiring passengers to collect their checked baggage at the place of
stopover, plaintiff neglected to claim her baggage at the Brussels Airport; that
plaintiff should have retrieved her undeclared valuables from her baggage at the
Brussels Airport since her flight from Brussels to Manila will still have to visit for
confirmation inasmuch as only her flight from Casablanca to Brussels was
confirmed; that defendant incorporated in all Sabena Plane Tickets, including
Sabena Ticket No. 082422-72502241 issued to plaintiff in Manila on August 21,
1987, a warning that “Items of value should be carried on your person” and that
some carriers assume no liability for fragile, valuable or perishable articles and
that further information may be obtained from the carrier for guidance; that
granting without conceding that defendant is liable, its liability is limited only to
US$20.00 per kilo due to plaintiff’s failure to declare a higher value on the
contents of her checked in luggage and pay additional charges thereon.
The trial court rendered judgment, ordering petitioner Sabena Belgian
World Airlines to pay private respondent Ma. Paula San Agustin — actual, moral,
and exemplary damages, and attorney’s fees. Said decision was affirmed in toto
by the Court of Appeals in its decision of February 27, 1992.
ISSUE: Whether or not there was negligence on the part of petitioner
airline.
HELD: Fault or negligence consists in the omission of that diligence
which is demanded by the nature of an obligation and corresponds with the
circumstances of the person, of the time, and of the place. When the source of an
obligation is derived from a contract, the mere breach or non-fulfillment of the
prestation gives rise to the presumption of fault on the part of the obligor. This
rule is no different in the case of common carriers in the carriage of goods, which
indeed,

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are bound to observe not just the due diligence of a good father of a family but
that of “extraordinary” care in the vigilance over the goods. The appellate
court has aptly observed:
“x x x Art. 1733 of the (Civil) Code provides that from the
very nature of their business and by reasons of public policy,
common carriers are bound to observe extraordinary diligence in
the vigilance over the goods transported by them. This
extraordinary responsibility, according to Art. 1736, lasts from the
time the goods are unconditionally placed in the possession of and
received by the carrier until they are delivered actually or
constructively to the consignee or person who has the right to
receive them. Article 1737 states that the common carriers duty to
observe extraordinary diligence in the vigilance over the goods
transported by them remains in full force and effect when they are
temporarily unloaded or stored in transit. And Art. 1735
establishes the presumption that 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 had
observed extraordinary diligence as required in Article 1733.
“The only exceptions to the foregoing extraordinary
responsibility of the common carrier is when the loss, destruction,
or deterioration of the goods is due to any of the following causes:
‘(1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
‘(2) Act of the public enemy in war, whether international or
civil;
‘(3) Act or omission of the shipper or owner of the goods;
‘(4) The character of the goods or defects in the packing or
in the containers;
‘(5) Order or act of competent public authority.
Not one of the above excepted causes obtains in this case. ”
The above rules remain basically unchanged even when the contract is
breached by tort although non-contradictory principles

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 CHAPTER I
PRELIMINARY CONSIDERATIONS

on quasi-delict may then be assimilated as also forming part of the governing

law. Petitioner is not thus entirely off track when it has likewise raised in its
defense the tort doctrine of proximate cause. Unfortunately for petitioner,
however, the doctrine cannot, in this particular instance, support its case.
Proximate causes is that which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces injury and without which the result
would not have occurred.
Under domestic law and jurisprudence (the Philippines being the country
of destination), the attendance of gross negligence (given the equivalent of fraud
or bad faith) holds the common carrier liable for all damages, which can be
reasonably attributed, although unforeseen, to the non-performance of the
obligation, including moral and exemplary damages.

Spouses Dante Cruz and Leonora Cruz

v. Sun Holidays, Inc.
G.R. No. 186312, June 29, 2010
FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a
Complaint on January 25,2001 against Sun Holidays, Inc. (respondent) with the
Regional Trial Court (RTC) of Pasig City for damages arising from the death of
their son Ruelito C. Cruz (Ruelito), who perished with his wife on September
11, 2000 on board the boat M/B Coco Beach III that capsized en route to
Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at
Coco Beach Island Resort (Resort) owned and operated by respondent.
On September 11, 2000, as it was still windy, Miguel C. Matute
(Matute), a scuba diving instructor, and 25 other Resort guests including
petitioner’s son and wife trekked to the other side of the Coco Beach mountain
that was sheltered from the wind where they boarded M/B Coco Beach III,
which was to ferry them to Batangas. Shortly after the boat sailed, it started to
rain. As it moved farther away from Puerto Galera and into the open seas, the
rain and wind got stronger, causing the boat to tilt from side to side, and the
captain step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves, which came

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after the other, M/B Coco Beach III capsized, putting all passengers underwater.
The passengers, who had put on their lifejackets, struggled to get out of the boat.
Upon seeing the captain, Matute and the other passengers, who reached the
surface, asked him what they could do to save the people who were still trapped
under the boat. The captain replied, “Iligtas ninyo na lang ang sarili ninyo ”
(Just save yourselves).
At the time of Ruelito’s death, he was 28 years old and employed as a
contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd., in Saudi
Arabia, with a basic monthly salary for S900. Petitioners, by letter of October 26,
2000, demanded indemnification from respondent for the death of their son in the
amount of at least P4,000,000.
Replying, respondent denied any responsibility for the incident, which it
considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of PI0,000 to petitioners upon their signing of a
waiver.
By Decision of February 16, 2005, Branch 267 of the Pasig RTC dismissed
petitioners’ Complaint and respondent’s Counterclaim. Petitioner’s Motion for
Reconsideration, having been denied, they appealed to the Court of Appeals.
By Decision of August 19, 2008, the appellate court denied petitioners’
appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier, which is only required to observe ordinary
diligence; that respondent in fact observed extraordinary diligence in transporting
its guests on board M/B Coco Beach III; and that the proximate cause of the
incident was a squall, a fortuitous event.
ISSUE: Whether or not the respondent is a common carrier.
HELD: The petition is impressed with merit.
Indeed, respondent is a common carrier. Its ferry services are so intertwined
with its main business as to be properly considered ancillary thereto. The
constancy of respondent’s ferry services in its resort operations is underscored by
it having its own Coco Beach boats. And the tour packages it offers, which
include the ferry services, may

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 CHAPTER F
PRELIMINARY CONSIDERATIONS

be availed of by anyone who can afford to pay the same. These services are thus
available to the public.
That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondent’s ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining “common
carriers” has deliberately refrained from making distinctions on whether the
carrying of persons or goods is the carrier’s principal business, whether it is
offered on a regular basis, or whether it is offered to the general public. The intent
of the law is thus to not consider such distinctions. Otherwise, there is no telling
how many other distinctions may be concocted by unscrupulous businessmen
engaged in the carrying of persons or goods in order to avoid the legal obligations
and liabilities of common carriers.
The evidence shows that PAGASA issued 24-hour public weather forecasts
and tropical cyclone warnings for shipping on September 10 and 11, 2000,
advising of tropical depressions in Northern Luzon, which would also affect the
province of Mindoro. By the testimony of Dr. Frisco Nilo, supervising weather
specialist of PAGASA, squalls are to be expected under such weather condition.
A very cautious person exercising the utmost diligence would thus not brave
such stormy weather and put other people’s lives at risk. The extraordinary
diligence required of common carriers demands that they take care of the goods or
lives entrusted to their hands as if they were their own. This respondent failed to do
so.

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