TRANSPORTATION LAWSY 2015-2016

I. PRELIMINARY CONSIDERATIONSA. Governing Laws

1. New Civil Code – Primary law2. Warsaw Convention – for international transportation by air 3. Code of Commerce – governs suppletorily; it governs maritime

transaction4. Carriage of Goods by Sea Act – for transportation by sea; governs

suppletorily5. Salvage Law6. Public Service Act7. Article XII Sec 11 on operation of public convenience of the 1987

Philippine Constitution

Domestic/inter-island/coastwise- Applicable to Land, Water, and Air transportation

1. Civil Code - primary2. Code of Commerce (Arts. 349, 379, 573-734, 580, 806-845) – suppletory

International/foreign/overseas (Foreign country to Philippines)

- Applicable to Water/maritime and Air transportation- The law of the country of destination generally applies.

1. Civil Code – primary2. Code of Commerce – suppletory3. Others - suppletory

a. Water/maritime: Carriage of Goods by Sea Act (COGSA)b. Air: Warsaw Convention

B. Concept of Public Utility & public serviceSec. 13 (b) of the Public Service Act provides that: “The term 'public service' includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight

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

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JG Summit Holdings vs Court of Appeals GR No. 124293 September 24, 2003

FACTS: National Investment and Development Corporation (NIDC) and Kawasaki Heavy Industries entered into a Joint Venture Agreement in a shipyard business named PHILSECO, with a shareholding of 60-40 respectively. NIDC’s interest was later transferred to the National Government.

Pursuant to President Aquino’s Proclamation No.5, which established the Committee on Privatization (COP) and Asset Privatization Trust (APT), and allowed for the disposition of the government’s non-performing assets, the latter allowed Kawasaki Heavy Industries to choose a company to which it has stockholdings, to top the winning bid of JG Summit Holdings over PHILSECO. JG Summit protested alleging that such act would effectively increase Kawasaki’s interest in PHILSECO—a shipyard is a public utility--and thus violative of the Constitution.

ISSUE: Whether or not respondents’ act is valid.

HELD: No. A shipyard such as PHILSECO being a public utility as provided by law, the following provision of the Article XII of the Constitution applies:“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 shall be citizens of the Philippines.”

Notably, paragraph 1.4 of the JVA accorded the parties the right of first refusal “under the same terms.” This phrase implies that when either party exercises the right of first refusal under paragraph 1.4, they can only do so to the extent allowed them by paragraphs 1.2 and 1.3 of the JVA or under the proportion of 60%-40% of the shares of stock. Thus, should the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock of SNS or PHILSECO. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization.

National Development Company vs Court of Appeals164 SCRA 593

Facts: In accordance with a memorandum entered into between

defendants National Development Company (NDC) and Maritime Company of the Philippines (MCP) on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean-going vessels including one the name “Doña Nati” appointed defendant MCP as its agent to manage and operate said vessels in its behalf.The E. Phillipp Corporation of the New York loaded on board the vessel “Doña Nati” at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to Manila Banking Corporation, Manila and the People’s Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation.The vessel figured in a collision at Ise Bay, Japan with a japanese  vessel as a result of  which 550 bales of aforesaid cargo were lost and/or destroyed The damage and lost cargo was worth P344,977.86 which amount, the plaintiff Development Insurance and Surety Corporation as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed.The insurer filed before the CFI of Manila an action for the recovery of said amount from NDC and  MCP.

Issue: Whether or not the law of country or port of destination shall

apply.

Held:In Easter  Shipping  Lines, Inc., v.  IAC, 150 SCRA 469 (1987), we

held under similar circumstances that the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration. Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by especial laws (Article 1766, Civil Code). Hence, the carriage of Goods by Sea Act, a special law, is merely  suppletory  to the provisions of the Civil Code. The goods in question were being transported from San Francisco, California and Tokyo, Japan to the Philippines and that they  were lost or damaged due to a collision which was found to have been caused by negligence or fault of both captains of the colliding vessels.Under the above ruling, it is evident that laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.  It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent  court’s application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels. Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault shall indemnify the losses and damages incurred after an expert appraisal.  But more in point to the instant case in is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.There is, therefore, no room for NDCs  interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade.MCP next contends that it cannot be liable solidarily with NDC because it is merely the manager and operator of the vessel  “Doña Nati”, nor a ship agent. As the general managing agent, according, to MCP, it can only be liable if it acted in excess of its authority. The Memorandum Agreement of September 13, 1962 shows that NDC appointed MCP as agent, a term broad enough to include the concept of ship agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC. Consequently, under the circumstances, MCP cannot escape liability. It is well-settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded.       

Tatad Vs Garcia Jr. 243

SCRA 436

Facts:EDSA LRT Consortium, a foreign corporation, was awarded with the

construction of Light Rail Transit III (LRT III) as the only bidder who has qualified with the requirements provided by the PBAC. The said foreign corporation will construct the LRT III in a “Built-Lease-Transfer” agreement that such public utility will be leased by the government through the Department of Transportation and Communication (DOTC) and then it would be subsequently sold by the corporation to the government. An objection was raised by the petitioner stating that the awarding of the bid to the said corporation is against the Constitution. It was provided in the Constitution that only Filipinos are entitled to operate a public utility such as the LRT III.

Issue: Whether or not the awarding of the bid to EDSA LRT Consortium is

against the Constitution.

Held:The Court held that there is a distinction in the “operation” of a

public utility and ownership in the facilities and equipment to serve the public. The EDSA LRT Consortium fall under the latter because the said corporation will not operate the public utility. The said corporation will only own the facilities and equipment such as the train carts, the railings and the booths. In addition, such ownership will then be subsequently transferred to the government under “Built-Lease-Transfer” agreement. With that said, the operation of the public utility will fall to the Filipinos through its government. Therefore, the awarding of the bid to EDSA LRT Consortium is not against the provisions of the Constitution.

C. Constitutional Limitations on Operation of public Utilities (Art XII 1987 Constitution)

Sec. 11 of Article XII of the 1987 Constitution states that: “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their

proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.”

The corporation must be a domestic corporation and that 60% of the capital must be owned by Filipino citizens.

Sec. 18 of Article XII of the 1987 Constitution provides that: “The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government.”

Q: What are the bases/reasons for regulation of public utilities?A: Basis: Police PowerJustification: Common good

D. Concept of Franchise: Certificate of Public Convenience and Necessity vs Certificate of Public Convenience

- Franchise is a grant or privilege from the sovereign power.- Certificate of Public Convenience An authorization issued by the appropriate

government agency for the operation of public services for which no franchise, either municipal or legislative, is required by law, e.g., common carriers.

- Certificate of Public Convenience and Necessity An authorization issued by the appropriate government agency for the operation of public service for which a prior franchise is required by law; e.g. telephone and other services.

-Q: Is a legislative franchise necessary before a public utility can be allowed to secure a certificate of public convenience?

A: General Rule: NO.Exception: If a pertinent law requires such legislative franchise.

Factors:1. Public interest2. Public convenience3. Public necessity

Q: What conditions must concur in the grant of certificate of public convenience and necessity?

A: REQUREMENTS FOR GRANTING CPC OR CPCN1. Applicant must be a citizen of the Philippines or a corporation or entity 60% of

the capital of which is owned by such citizens;

2. Applicant must prove public necessity;3. Applicant must prove that the operation of the public service proposed and

the authorization to do business will promote the public interest on a proper and suitable manner;

4. Applicant must have sufficient financial capability to undertake the proposed services and meeting the responsibilities incident to its operation.

In Tatad v Garcia, the SC held that the controlling factor is the citizenship of the person operating a common carrier.

Guiding Principles:1. Prior or Old Operator Rule – the first licensee will be protected in his

investment and will not be subjected to ruinous competition.*No certificate of public convenience and necessity will be issued to other operator as long as the prior operator still in operation and can satisfy the public and that it still has the capacity to do so.

2. Protection Investment Rule – protects from unfair competition3. Prior Applicant Rule – protects the first applicant. Principle: all things

being equal*Public interest is the first and paramount consideration.

II. GENERAL CONCEPTS

A. Contract of Transportation in General

Transportation is a contract whereby a person, natural or juridical, obligates to transport persons, goods, or both, from one place to another, by land, air, or water, for a price or commission.

*Importance: For liability purposes

B. Perfection1. Contract to carry (Consensual)

- agreement to carry the passenger at some future date- consensual contract and perfected by mere consent- e.g. Aircraft - perfected even without issuance of ticket as long as there was

already meeting of minds with respect to the subject matter and consideration

2. Contract of Carriage (Real)- not until the facilities of the carrier are actually used can the carrier be said to

have assumed the obligation of the carrier- perfected by actual use

e.g. Aircraft - perfected if it was established that the passenger had checked in at the departure counter, passed through customs and immigration, boarded the shuttle bus and proceeded to the ramp of the aircraft and baggage already loaded to the aircraft.

Public Utility Bus or Jeepneys or Street Cars – once it stops it is in effect making a continuous offer to riders; perfected when passenger is already attempting to board the vehicle

Trains – perfected when a person:

a. purchased a ticket/ possess sufficient fare with which to pay for his passageb. presented himself at the proper place and in a proper manner to be transportedc. has a bona fide intention to use facilities of the carrier

British Airways vs Court of Appeals 218 SCRA 699

FACTS: On April 6, 1989, Mahtani decided to visit his relative in Bombay, India.  In anticipation of his visit, he obtained the services of a certain Mr. Gemar to prepare his travel plan.  Since british Airways had no ticket flights from Manila to Bombay, Maktani had to take a connecting flight to Bombay on board British Airways.  Prior to his departure, Maktani checked in the PAL counter in Manila his two pieces of luggage containing his clothing and personal effects, confident that upon reaching Hong Kong, the same would be transferred to the BA flight bound for Bombay, Unfortunately, when Maktani arrived in Bombay, he discovered that his luggage was missing and that upon inquiry from the BA representatives, he was told that the same might have been diverted to London.  After plaintiff waiting for his luggage for one week, BA finally advised him to file a claim accomplishing the property

ISSUE: Whether or not defendant BA is liable for compulsory damages and attorney’s fee, as well as the dismissal of its third party complaint against PAL

HELD: The contract of transportation was exclusively between Maktani and BA.  The latter merely endorsing the Manila to Hong Kong log of the former’s journey to PAL, as its subcontractor or agent.  Conditions of contacts was one of continuous air transportation from Manila to Bombay. The Court of Appeals

should have been cognizant of the well-settled rule that an agent is also responsible for any negligence in the performance of its function and is liable for damages which the principal may suffer by reason of its negligent act.  Since the instant petition was based on breach of contract of carriage, Maktani can only sue BA and not PAL, since the latter was not a party in the contract.

III. Common Carrier1. Statutory Definition (Art 1732, NCC)

Article 1732 of the New Civil Code provides that: “Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.”

- one that holds itself out as ready to engage in the transportation of goods for hire as a public employment and not as a casual occupation.

Implications being a common carrier:a. extraordinary diligence must be exercisedb. in case of damage, presumption of negligence on the part of the common carrier

It is the activity of the carrier that is controlling.The fact that there is no license at the time of the incident happen is of no moment for liability purposes

2. Distinguished from private carrier

Common Carrier Private CarrierAs to availability:

holds himself out for all people indiscriminately

Contracts with particular individuals or groups only

As to required diligence:

Extraordinary diligence is required

Ordinary diligence is required

As to regulation: Subject to state regulation

Not subject to state regulation

Stipulation limiting liability:

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

Parties may limit the carrier’s liability, provided it is not contrary to law, morals or good customs

Exempting Prove extraordinary Caso fortuito, Article 1174 NCC

circumstance: diligence and Article 1734 NCC

Presumption of Negligence:

There is a presumption of fault or negligence

No presumption of fault or negligence

Governing law: Law on common carriers

Law on obligations and contracts

3. Distinguished from towage, arrastre, stevedoring

Towage Arrastre Stevedoring

One vessel is hired to bring another vessel to another place; refers to a service rendered to a vessel by towing for the mere purpose of expediting her voyage without reference to any circumstances of danger.

The functions of an arrastre operator has nothing to do with the trade and business of navigation, nor to the use or operation of vessels. He is no different from that of a depositary or warehouseman.

The function of stevedores involves the loading and unloading of coastwise vessels calling at the port.

The SC held that the following services are not considered a common carrier: 1) Purely arrastre services -comparable to that as warehouseman and depositor2) Purely stevedoring services; and 3) Purely towage services.

In Crisostomo v CA, the SC held that the respondent being a travel agency is not a common carrier because the services offered is not one that carries passenger from one place to another.

4. Tests to determine common carriera. He must engaged in the business of carrying goods for others as a public

employment and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;

b. He must undertake to carry goods of the kind to which his business is confined;

c. He must undertake to carry by the method by which his business is conducted and over his established roads;

d. The transportation must be for hire

True Test of 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

5. Parties to a contract of carriage

1. CARRIAGE OF PASSENGERS- Common carrier & Passenger (carried gratuitously or not)- Passenger – one who travels in a public conveyance by virtue of contract,

express or implied, with the carrier as to the payment of fare or that which is accepted as an equivalent thereof.

2. CARRIAGE OF GOODS- Parties: shipper & carrier- Shipper – the person who delivers the goods to the carrier for transportation;

pays the consideration or on whose behalf payment is made- Consignee – person to whom the goods are to be delivered. May be the

shipper himself or a third person who is not actually a party to the contract.

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De Guzman vs Court of Appeals168 SCRA 612

Facts:

Herein respondent Ernesto Cendana was engaged in buying up used bottles and scrap metal in Pangasinan. Normally, after collection respondent would bring such material to Manila for resale. He utilized (2) two six-wheelers trucks which he owned for the purpose. Upon returning to Pangasinan, he would load his vehicle with cargo belonging to different merchants to different establishments in Pangasisnan which respondents charged a freight fee for.

Sometime in November 1970, herein petitioner Pedro de Guzman, a merchant and dealer of General Milk Company Inc. in Pangasinan contracted with respondent for hauling 750 cartons of milk. Unfortunately, only 150 cartons made it, as the other 600 cartons were intercepted by hijackers along Marcos Highway. Hence, petitioners commenced an action against private respondent.

In his defense, respondent argued that he cannot be held liable due to force majuere, and that he is not a common carrier and hence is not required to exercise extraordinary diligence.

Issues:1. Whether or not respondent can be held liable for loss of the

cartons of milk due to force majeure.2. Whether or not respondent is a common carrier.

Held:

1. The court ruled the affirmative. The circumstances do not fall under the exemption from liability as enumerated in Article 1734 of the Civil Code. The general rule is established by the article that common carriers are responsible for the loss, destruction or deterioration of the goods which they carry, unless the same is due to any of the following causes only:

a. Flood, storm, earthquake, lightning or other natural disasters;

b. Act of the public enemy, whether international or civil;c. Act or omission of the shipper or owner of the goods;d. Character of the goods or defects in the packing;e. Order or act of competent public authority.

2. The court ruled the affirmative. Article 1732 of the New Civil Code avoids any 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. It also avoids a distinction between a person or enterprise offering transportation services on a regular or scheduled basis and one offering such services on an occasional, episodic, and unscheduled basis.

First Philippine Industrial Corporation vs Court of Appeals 300 SCRA 661

Facts:Herein petitioner applied for a mayor’s permit to operate its

pipeline concession. Before such permit was issued, the City treasurer required petitioner to pay local tax. In order not to hamper its operations, petitioner paid the tax under protest.

Then the petitioner filed a letter protest addressed to the treasurer claiming exemption from payment of the tax because according to the Local Government Code of 1991, transportation contractors are not included in the enumeration of contractors which are liable to pay taxes. The city treasurer denied the protest. The petitioner filed a case before the trial court for tax refund, however it was subsequently dismissed. Hence, this petition.

Issue:

Whether or not the petitioner is a common carrier as contemplated to be exempted under the law.

Held:The court rules the affirmative. The court enunciated the (4) tests

in determining whether the carrier is that of a common carrier:a. must be engaged int eh business of carrying goods for other

as a public employment and must hold itself out as ready to engage in the transportation of goods generally as a business and not a casual occupation

b. it must undertake to carry goods of the kind which its business is confined;

c. it must undertake the method by which his business is conducted and over its established roads;

d. the transportation must be for hire.In the case at bar, the court categorically ruled that the

transporting of oil through pipelines is still considered to be an activity of a common carrier. The petitioner is a common carrier because it is engaged in the business of transporting passengers or goods; like petroleum. It undertakes to carry for all persons indifferently. The fact that the petitioner has limited clientele does not exclude it from the definition of common carrier. Under the petroleum act of the Philippines, the petitioner is considered a common carrier even if it is a pipeline concessionaire.

And even as regards the petroleum operation, it is of public utility. Specifically, the Bureau of Internal Revenue considers petitioners as common carrier not subject to withholding tax.

FGU Insurance Corporation vs GPP Sarmiento Truckinh GR No, 141910 August 6, 2002

Facts:

GPS is an exclusive contractor and hauler of Concepcion Industries, Inc. One day, it was to deliver certain goods of Concepcion Industries, Inc. aboard one of its trucks. On its way, the truck collided with an unidentified truck, resulting in damage to the cargoes. FGU, insurer of the shipment paid to Concepcion Industries, Inc. the amount of the damage and filed a suit against GPS. GPS filed a motion to dismiss for failure to prove that it was a common carrier.

Issue: Whether or not GPS falls under the category of a common carrier.

Held:

Note that GPS is an exclusive contractor and hauler of Concepcion Industries, Inc. offering its service to no other individual or entity. A common carrier is one which offers its services whether to the public in general or to a limited clientele in particular but never on an exclusive basis. Therefore, GPS does not fit the category of a common carrier although it is not freed from its liability based on culpa contractual.

Everett Stearnship Vs CA297 SCRA 496

Facts:  Hernandez Trading Co., respondent herein, imported 3 crates of

bus spare parts from its supplier, Maruman Trading Company, Ltd., a foreign corporation based in Japan. The crates were shipped from Japan to Manila on board "ADELFAEVERETTE," a vessel owned by the principal of the petitioner herein, Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN. The vessel arrived in Manila and it was discovered that the one crate was missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner. Respondent rejected the offer and filed a case to collect payment for the loss against the petitioner.

Issue:Whether or not the petitioner is liable for the actual value and not the maximum value recoverable under the bill of lading.

Held: A stipulation in the bill of lading limiting the liability of the common carrier for the loss, damages of cargo to a certain sum, unless the shipper declares or a higher value is sanctioned by law, particularly Articles 1749 and 1780 of the Civil Code. The stipulations in the bill of lading are reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to Y100,000.00 (Yen). However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. The trial court’s decision that private respondent could not have fairly agreed to the limited liability clause in the

bill of lading because the said condition were printed in small letters does not make the bill of lading invalid.

Spouses Cruz vs Sun Holidays Inc. GR 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, Matute and 25 other Resort guests including petitioners’ son and his 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 to 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 one after the other, M/B Coco Beach III capsized putting all passengers underwater. The passengers, who had put on their life jackets, 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 niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four crew members, who were brought to Pisa Island. Eight passengers, including petitioners’ son and his wife, died during the incident.

Issue: Whether or not respondent is a common carrier.

Held: The Civil Code defines "common carriers" in the following terms:

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

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "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., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions.

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 its having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may 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.

D. Registered Owner Rule and Kabit System (relate to concept of Certificate of Public Convenience and Necessity and Certiificate of Public Convenience)

General Rule: Registered owner rule is applicable in this jurisdiction.

Registered owner rule - states that the person who is the registered owner of a vehicle is liable for any damages caused by the negligent operation of the vehicle although the same was already sold or conveyed to another person at the time of the

accident. The registered owner is liable to the injured party subject to his right of recourse against the transferee or the buyer.

Purpose of this rule: easy identification of the owner to be sued for liability.

Recourse: Registered owner may bring the case to the court to sue the buyer or operator of the vehicle at fault.

Exception: in case of stolen vehicle registered owner is not liable.

In the case of Duavit v CA, the SC held that the registered owner is not liable if the vehicle was taken from his garage without his knowledge or consent. To hold the registered owner liable would be absurd as it would be holding liable the owner of a stolen vehicle for an accident caused by the person who stole such vehicle.

Kabit System is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings.

Kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Article 1409 of the New Civil Code.

If the registered owner and the buyer entered into this transaction they are In pari delicto thus, in case something happen the court will not aid them. The court will leave them as they were.

This arrangement is a circumvention of the requirement for license.

Erezo Vs Jepte 102 Phil 103

Facts:

Defendant-appellant is the registered owner of a six by six truck bearing. On August, 9, 1949, while the same was being driven by Rodolfo Espino y Garcia, it collided with a taxicab at the intersection of San Andres and Dakota Streets, Manila. As the truck went off the street, it hit Ernesto Erezo and another, and the former suffered injuries, as a result of which he died.

The driver was prosecuted for homicide through reckless negligence. The accused pleaded guilty and was sentenced to suffer imprisonment and to pay the heirs of Ernesto Erezo the sum of P3,000. As the amount of the

judgment could not be enforced against him, plaintiff brought this action against the registered owner of the truck, the defendant-appellant.

The defendant does not deny at the time of the fatal accident the cargo truck driven by Rodolfo Espino y Garcia was registered in his name. He, however, claims that the vehicle belonged to the Port Brokerage, of which he was the broker at the time of the accident. He explained, and his explanation was corroborated by Policarpio Franco, the manager of the corporation, that the trucks of the corporation were registered in his name as a convenient arrangement so as to enable the corporation to pay the registration fee with his backpay as a pre-war government employee. Franco, however, admitted that the arrangement was not known to the Motor Vehicle Office.

The trial court held that as the defendant-appellant represented himself to be the owner of the truck and the Motor Vehicle Office, relying on his representation, registered the vehicles in his name, the Government and all persons affected by the representation had the right to rely on his declaration of ownership and registration. It, therefore, held that the defendant-appellant is liable because he cannot be permitted to repudiate his own declaration.

Issue: WoN Jepte should be liable to Erezo for the injuries occasioned to the latter because of the negligence of the driver even if he was no longer the owner of the vehicle at the time of the damage (because he had previously sold it to another)

Held:

YES. The registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant

The Revised Motor Vehicle Law provides that no vehicle may be used or operated upon any public highway unless the same is properly registered. Not only are vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered for the current year, but that dealers in motor vehicles shall furnish the Motor Vehicles Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturer's serial number and motor number.

Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any

essential relation to the contract of sale between the parties, but to permit the use and operation of the vehicle upon any public

The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicles on the public highways, responsibility therefore can be fixed on a definite individual, the registered owner. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle.

Lim vs Court of Appeals

Facts:

Private respondent herein purchased an Isuzu passenger jeepney from Gomercino Vallarta, a holder of a certificate of public convenience for the operation of a public utility vehicle. He continued to operate the public transport business without transferring the registration of the vehicle to his name. Thus, the original owner remained to be the registered owner and operator of the vehicle. Unfortunately, the vehicle got involved in a road mishap which caused it severe damage. The ten-wheeler-truck which caused the accident was owned by petitioner Lim and was driven by co-petitioner Gunnaban. Gunnaban admitted responsibility for the accident, so that petitioner Lim shouldered the costs of hospitalization of  those wounded, compensation for the heirs of the deceased passenger and the restoration of the other vehicle involved. He also negotiated for the repair of the private respondent's jeepney but the latter refused and demanded for its replacement. Hence, private respondent filed a complaint for damages against petitioners. Meanwhile, the jeepney was left by the roadside to corrode and decay. The trial court decided in favor of private respondent and awarded him his claim. On appeal, the Court of  Appeals affirmed the decision of the trial court. Hence, petitioner filed this petition.

Issue: WoN the new owner of a passenger jeepney who continued to operate the same under the so-called kabit system and in the course thereof met an accident has the legal personality to bring the action for damages against the erring vehicle.

Held: YES. According to the Court, the thrust of the law in enjoining the kabit system is not much as to penalize the parties but to identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. In the present case, it is once apparent that the evil sought to be prevented in enjoining the kabit system does not exist. First, neither of the parties to the pernicious kabit system is

being held liable for damages. Second, the case arose from the negligence of another vehicle in using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of the passenger jeepney was made and to whom no such representation, or misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal arrangement. On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the damage done to him. Certainly, it would be the height of inequity to deny him his right. Hence, the private respondent has the right to proceed against petitioners for the damage caused on his passenger jeepney as well as on his business

KABIT SYSTEM

The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings. Although the parties to such an agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil Code. In the early case of Dizon v. Octavio the Court explained that one of the primary factors considered in the granting of a certificate of public convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising from accidents may be duly compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent use of a vehicle owned by another and operated under his license. If a registered owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no property with which to respond financially for the damage done. Thus, for the safety of passengers and the public who may have been wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person has become the owner so that he may be thereby relieved of responsibility. Subsequent cases affirm such basic doctrine. It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force if the public at large is not deceived, much less involved.

Lita Enterprises vs IAC 129 SCRA 347

Facts:

Spouses Nicasio Ocampo and Francisca Garcia (private respondents) purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxi. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprise, Inc., through its representative Manuel Concordia, for the use of the latter’s certificate of public convenience for a consideration of P1, 000.00and a monthly rental of P200.00/taxicab unit. For the agreement to take effect, the cars were registered in the name of Lita Enterprises, Inc. The possession, however, remains with spouses Ocampo and Garcia who operated and maintained the same under Acme Taxi, petitioner’s trade name. A year later, one of the taxicabs, driven by their employee, Emeterio Martin, collided with a motorcycle. Unfortunately the driver of the motorcycle ,Florante Galvez died from the injuries it sustained. Criminal case was filed against Emeterio Martin, while a civil case was filed by the heir of the victim against Lita Enterprises. In the decision of the lower court Lita Enterprises was held liable for damages for the amount ofP25, 000.00 and P7, 000.00 for attorney’s fees. A writ of execution for the decision followed, 2 of the cars of the respondent’s spouses were levied and were sold to a public auction. On March 1973, respondent Ocampo decided to register his taxicabs in his own name. The manager of petitioner refused to give him the registration papers. Thus, making spouses file a complaint against petitioner. In the decision, Lita Enterprise was ordered to return the three certificate of registration not levied in the prior case. Petitioner now prays that private respondent be held liable to pay the amount they have given to the heir of Galvez.

Issue:

Whether or not petitioner can recover from private respondent, knowing they are in an arrangement known as “kabit system”.

Held:

“Kabit system” is defined as, when a person who has been granted a certificate of convenience allows another person who owns a motor vehicle to operate under such franchise for a fee. This system is not penalized as a criminal offense but is recognized as one that is against public policy; therefore it is void and inexistent. It is fundamental that the court will not aid either of the party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both trial and appellate courts to have accorded the parties relief from their predicament. Specifically Article1412 states that: “If the act in

which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: “when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking.” The principle of in pari delicto is evident in this case. “the proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation.” The parties in this case are in paridelicto, therefore no affirmative relief can be granted to them

Teja Marketing Inc. vs IAC 148 SCRA 347

Facts:

Pedro Nale bought from Teja Marketing a motorcycle with complete accessories and a sidecar. A chattel mortgage was constituted as a security for the payment of the balance of the purchase price. The records of the Land Transportation Commission show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made to appear that way only as the defendant had no franchise of his own and he attached the unit to the plaintiffs MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Commission. The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed to comply with some requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC forstenciling, the plaintiff said that the defendant was hiding the motorcycle fromhim. Lastly, the plaintiff also explained that though the ownership of themotorcycle was already transferred to the defendant, the vehicle was stillmortgaged with the consent of the defendant to the Rural Bank of Camaliganfor the reason that all motorcycle purchased from the plaintiff on credit wasrediscounted with the bank. Teja Marketing made demands for the payment of the motorcycle butjust the same Nale failed to comply, thus forcing Teja Marketing to consult alawyer and file an action for damage before the City Court of Naga in theamount of P546.21 for attorneys fees and P100.00 for expenses of litigation.Teja Marketing also claimed that as of 20 February 1978, the total account ofNale was already P2, 731, 05 as shown in a statement of account; includesnot only the balance of P1, 700.00 but an additional 12% interest per annumon the said balance from 26 January 1976 to 27 February 1978; a 2% servicecharge; and P546.21 representing attorneys fees. On his part, Nale did notdispute the sale and the

outstanding balance of P1,700.00 still payable toTeja Marketing; but contends that because of this failure of Teja Marketing tocomply with his obligation to register the motorcycle, Nale suffered damageswhen he failed to claim any insurance indemnity which would amount to no less than P15,000.00 for the more than 2 times that the motorcycle figured inaccidents aside from the loss of the daily income of P15.00 as boundary feebeginning October 1976 when the motorcycle was impounded by the LTC fornot being registered. The City Court rendered judgment in favor of TejaMarketing, dismissing the counterclaim, and ordered Nale to pay TejaMarketing On appeal to the Court of First Instance of Camarines Sur, thedecision was affirmed in toto. Nale filed a petition for review with theIntermediate Appellate Court. On 18 July 1983, the appellate court set asidethe decision under review on the basis of doctrine of "pari delicto," andaccordingly, dismissed the complaint of Teja Marketing, as well as thecounterclaim of Nale; without pronouncements as to costs. Hence, thepetition for review was filed by Teja Marketing and/or Angel Jaucian.

Issue:

Whether the defendant can recover damages against the plaintiff?

Held:

Unquestionably, the parties herein operated under an arrangement,commonly known as the "kabit system" whereby a person who has beengranted a certificate of public convenience allows another person who ownsmotor vehicles to operate under such franchise for a fee. A certificate ofpublic convenience is a special privilege conferred by the government. Abuseof this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been identified as one of the root causes of theprevalence of graft and corruption in the government transportation offices.Although not out rightly penalized as a criminal offense, the kabit system isinvariably recognized as being contrary to public policy and, therefore, voidand in existent under Article 1409 of the Civil Code. It is a fundamentalprinciple that the court will not aid either party to enforce an illegal contract,but will leave both where it finds then. Upon this premise it would be error toaccord the parties relief from their predicament.

Santos vs Sibog 104 SCRA 520

Santos v. Sibug

Facts:

Petitioner Adolfo Santos was the owner of a passenger jeep, but hehad no certificate of public conveyance for the operation of the vehicle as apublic passenger jeep. Santos then transferred his jeep to the name of Vidadso that it could be operated under the latter’s certificate of publicconvenience. In other words, Santos became what is known as kabitoperator. Vidad executed a re-transfer document presumably to be registeredit and when it was decided that the passenger jeep of Santos was to bewithdrawn from kabit arrangement. On the accident date, Abraham Sibug was bumped by the saidpassenger jeep.

Issue:

Whether the Vidad is liable being the registered owner of the jeepney?

Held:

As the jeep in question was registered in the name of Vidad, thegovernment or any person affected by the representation that said vehicle isregistered under the name of the particular person had the right to rely on hisdeclaration of his ownership and registration. And the registered owner or anyother person for that matter cannot be permitted to repudiate said declarationwith the objective of proving that the said registered vehicle is owned byanother person and not by the registered owner. Santos, as the kabit, should not be allowed to defeat the levy in hisvehicle and to avoid his responsibility as a kabit owner for he had led thepublic to believe that the vehicle belongs to Vidad. This is one way of curbingthe pernicious kabit system that facilitates the commissions of fraud againstthe traveling public.

III. CONTRACT OF CARRIAGE OF GOODS

A. Obligation of the Carrier to Observe Vigilance of Goods

6. Duty to exercise extraordinary diligence (Art 1733, NCC, Article 363, 364, 365, CC)

Article 1733 “Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756.”

Reason: The nature of the business is imbued with public interest and public policy; because of the exigencies of the business. The public has no choice but to trust on the

skills of the employees of the common carrier. The goods and the life of the passenger are placed in the hands of the common carrier.

Article 363 CC: “Outside of the cases mentioned in the second paragraph of Article 361, the carrier shall be obliged to deliver the goods shipped in the same condition in which, according to the bill of lading, they were found at the time they were received, without any damage or impairment, and failing to do so, to pay the value which those not delivered may have at the point and at the time at which their delivery should have been made. If those not delivered form part of the goods transported, the consignee may refuse to receive the latter, when he proves that he cannot make use of them independently of the others.”

Article 364 CC: “If the effect of the damage referred to in Article 361 is merely a diminution in the value of the gods, the obligation of the carrier shall be reduced to the payment of the amount which, in the judgment of experts, constitutes such difference in value.”

Article 365 CC: “If, in consequence of the damage, the goods are rendered useless for sale and consumption for the purposes for which they are properly destined, the consignee shall not be bound to receive them, and he may have them in the hands of the carrier, demanding of the latter their value at the current price on that day. If among the damaged goods there should be some pieces in good condition and without any defect, the foregoing provision shall be applicable with respect to those damaged and the consignee shall receive those which are sound, this segregation to be made by distinct and separate pieces and without dividing a single object, unless the consignee proves that impossibility of conveniently making use of them in this form. The same rule shall be applied to merchandise in bales or packages, separating those parcels which appear sound.”

Sarkies Tours Philippines Inc vs Court of Appeals 280 SCRA 58

Facts:Fatima Fortades was a passenger of one of the buses of petitioner

Sarkies Tours bound for Legazpi City. She had onboard luggages which contained important documents and personal belongings. Her belongings were kept in the baggage compartment of the bus, but during a stopover at Daet, it was discovered that only one bag remained in the open compartment. The others, including Fatima's things, were missing and might have dropped along the way. Despite the suggestion of the passengers to retrace its route in order to recover their luggage, the driver nevertheless neglected them and continued driving. Consequently,

respondents filed a case to recover the value of the remaining lost items, as well as moral and exemplary damages, attorney's fees and expenses of litigation. They claimed that the loss was due to petitioner's failure to observe extraordinary diligence in the care of Fatima's luggage and that petitioner dealt with them in bad faith from the start. Petitioner, on the other hand, disowned any liability for the loss on the ground that Fatima allegedly did not declare any excess baggage upon boarding its bus.

Issue:Whether or not Sarkies is liable for damages for lost propery of its

passengers.

Held: The Supreme Court held that Sarkies is liable for the loss. The

cause of the loss was petitioner's negligence in not ensuring that the doors of the baggage compartment of its bus were securely fastened. As a result of this lack of care, almost the entire luggage was lost, to the prejudice of the paying passengers. 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 transported by them. This liability 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 person who has a right to receive them. The awarding of actual damages to respondents is just because their efforts in recovering the lost items must be well compensated. Moral and exemplary damages must also be awarded in the presence of bad faith and negligence on the part of the common carrier.

Westwind Shipping Corporation vs UCPB General Insurance 710 SCRA 544

7. Presumption of Negligence (Art 1735, NCC)8. Duration of Liability (Art 1736, 1737 & 1738, NCC)9. Defense of common carriers (Art 1734, 1739, 1740, 1742 & 1743)

a. Fortuitous event (Art 1739, NCC)b. Public Enemy ( Art. 1739, NCC)c. Improper Packing (Art 1742, NCC)d. Order of Public Authority (Art 1473, NCC)

De Guzman vs Court of Appeals, supra Bascos vs Court of Appeals 221 SCRA 318 Servando vs Philippines Stream Navigator 117 SCRA 832 Edgar Cokaliong Shipping Lines vs UCPB General Insurance 404 SCRA

706 Eastern Shipping Lines Inc. vs IAC 150 SCRA 463

Ganzon vs Court of Appeals 161 SCRA 64610. Contributory negligence of the sipper (Art 1471, NCC)11. Stipulation limiting liability of the carrier (Art 1744, 1748, 1749 & 1750,

NCC)a. Requisites (Art 1744, 1751 NCC)b. Invalid stipulations (Art 1745, NCC)c. Effect of Delay (Art 1747, NCC)d. Effect of presumption despite negligence despite stipulation (1752)

Calvo vs UCPB General Insurance Co. 379 SCRA 510 Belgian Overseas Chartering vs Philippine First Insurance 383 SCRA 23

B. Other Obligations1. Duty to Accept Goods

a. Grounds for valid refusal to accept goods Fisher vs Yango Stearnship Company 31 PHL 1

2. Duty to Deliver Goodsa. Time of Delivery (Art 358)b. Consequences of Delay ( Art 1470, 1747 NCC, Art 370-374 NCC)c. Place of Delivery ( Art 430, CC)d. To whom delivery shall be made ( Art 368 & 369, CC)

Macam vs Court of Appeals 313 SCRA 77 Samar Mining Co vs Nordeutscher Lloyd 132 SCRA 529 Saludo Jr. vs Court of Appeals 207 SCRA 498

C. Rights of Shipper, Consignee1. Rights of Abandonment (Art 371, CC) Magellan Marketing vs CA GR No. 95529 August 22, 1991

IV. CONTRACT OF CARRIAGE OF PASSENGERSA.