Transportation Law Outline with Statutory Provisions and Case Doctrines

8/11/2019 Transportation Law Outline with Statutory Provisions and Case Doctrines

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Outline with Statutory Provisions,

Cases and Doctrine

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TRANSPORTATION LAW

MIDTERMS

I. CONCEPT OF COMMON CARRIERS

A. Definition (Art. 1732)

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.

De Guzman v. Court of Appeals, G.R. No. L-47822, December 22, 1988, 168 SCRA 612 (1988)

The above article makes no distinction between one whoseprincipalbusiness activity is thecarrying of persons or goods or both, and one who does such carrying only as an ancillaryactivity (in localIdiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person orenterprise offering transportation service on a regular or scheduled basisand one offering such service onan 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 offersservices or solicits business only from a narrow segment of the general population. We think that Article1733 deliberaom making such distinctions.

Planters Products Inc. v. Court of Appeals, 226 SCRA 76 (1993)

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter ofthe whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as inthe case of a time-charter or voyage-charter. It is only when the charter includes both the vessel and itscrew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particularvoyage covering the charter-party is concerned.

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

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessarythat the carrier be issued a certificate of public convenience, and this public character is not altered by thefact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.

B. Tests/Characteristics

First Phil. Industrial Corp. v. Court of Appeals, 300 SCRA 661

The test for determining whether a party is a common carrier of goods is:1. He must be engaged in the business of carrying goods for others as a public employment, and must hold

himself out as ready to engage in the transportation of goods for person generally as a business andnot 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; and4. The transportation must be for hire.

National Steel Corp. v. Court of Appeals, 283 SCRA 45 (1997)

Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms orassociations 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 acommon carrier is the carriage of passengers or goods, provided it has space, forallwho opt to avail

themselves of its transportation service for a fee. 11A carrier which does not qualify under the above test isdeemed a private carrier. "Generally, private carriage is undertaken by special agreement and the carrierdoes not hold himself out to carry goods for the general public. The most typical, although not the only formof private carriage, is the charter party, a maritime contract by which the charterer, a party other than theshipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or

voyages."

Phil. American Gen. Ins. Company v. PKS Shipping Company, G.R. No. 149038, April 9, 2003

Much of the distinction between a common or public carrier and a private or special carrier liesin the character of the business, such that if the undertaking is an isolated transaction, not a part of thebusiness or occupation, and the carrier does not hold itself out to carry the goods for the general public or toa limited clientele, although involving the carriage of goods for a fee,[3] the person or corporation providingsuch service could very well be just a private carrier. A typical case is that of a charter party which includes
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both the vessel and its crew, such as in a bareboat or demise, where the charterer obtains the use andservice of all or some part of a ship for a period of time or a voyage or voyages[4] and gets the control of thevessel and its crew.[5] Contrary to the conclusion made by the appellate court, its factual findings indicatethat PKS Shipping has engaged itself in the business of carrying goods for others, although for a limitedclientele, undertaking to carry such goods for a fee. The regularity of its activities in this area indicates morethan just a casual activity on its part.[6] Neither can the concept of a common carrier change merely

because individual contracts are executed or entered into with patrons of the carrier. Such restrictiveinterpretation would make it easy for a common carrier to escape liability by the simple expedient of enteringinto those distinct agreements with clients.

Addressing now the issue of whether or not PKS Shipping has exercised the proper diligencedemanded of common carriers, Article 1733 of the Civil Code requires common carriers to observeextraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction ordeterioration of goods, common carriers are presumed to have been at fault or to have acted negligently,and the burden of proving otherwise rests on them.[7] The provisions of Article 1733, notwithstanding,common carriers are exempt from liability for loss, destruction, or deterioration of the goods due to any ofthe 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; and

(5) Order or act of competent public authority.

Asia Lighterage and Shipping, Inc. v. Court of Appeals, G.R. No. 147246, August 19, 2003

We therefore hold that petitioner is a common carrier whether its carrying of goods is done on anirregular rather than scheduled manner, and with an only limited clientele. A common carrier need not havefixed and publicly known routes. Neither does it have to maintain terminals or issue tickets.

To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court ofAppeals.[24] The test to determine a common carrier is whether the given undertaking is a part of the

business engaged in by the carrier which he has held out to the general public as his occupation rather thanthe quantity or extent of the business transacted.[25] In the case at bar, the petitioner admitted that it isengaged in the business of shipping and lighterage,[26] offering its barges to the public, despite its limitedclientele for carrying or transporting goods by water for compensation

Spouses Cruz v. Sun Holidays, Inc., G.R. No. 186312, June 29, 2010

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main businessas to be properly considered ancillary thereto. The constancy of respondents ferry services in its resortoperations is underscored by its having its own Coco Beach boats. And the tour packages it offers, whichinclude the ferry services, may be availed of by anyone who can afford to pay the same. These services arethus 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 ofbeach resort operators offering tour packages to factor the transportation fee in arriving at the tour packageprice. That guests who opt not to avail of respondents ferry services pay the same amount is likewiseinconsequential. These guests may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberatelyrefrained from making distinctions on whether the carrying of persons or goods is the carriers principalbusiness, whether it is offered on a regular basis, or whether it is offered to the general public. The intent ofthe law is thus to not consider such distinctions. Otherwise, there is no telling how many other distinctionsmay 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.

C. Distinguished from private carrier

Home Insurance Co. v. American Steamship, 23 SCRA 24 (1968)

The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 UnderAmerican jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a specialperson only, becomes a private carrier.8 As a private carrier, a stipulation exempting the owner from liabilityfor the negligence of its agent is not against public policy,9 and is deemed valid.
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Such doctrine We find reasonable. The Civil Code provisions on common carriers should not beapplied where the carrier is not acting as such but as a private carrier. The stipulation in the charter partyabsolving the owner from liability for loss due to the negligence of its agent would be void only if the strictpublic policy governing common carriers is applied. Such policy has no force where the public at large is notinvolved, as in the case of a ship totally chartered for the use of a single party.

San Pablo v. Pantranco, 153 SCRA 199 (1987)

The contention of private respondent PANTRANCO that its ferry service operation is as a privatecarrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucksis absurd. PANTRANCO does not deny that it charges its passengers separately from the charges for thebus trips and issues separate tickets whenever they board the MV "Black Double" that crosses Matnog toAllen, 20PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrierand not as a common carrier. The Court does not see any reason why inspite of its amended franchise tooperate a private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing thesea between Matnog and Allen. Indeed evidence to this effect has been submitted. 21What is even moredifficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrierinsofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicatefrom its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportationof its passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to

operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards itspassengers and cargo. Such an anomalous situation that will jeopardize the safety and interests of itspassengers and the cargo owners cannot be allowed.

National Steel Corp. v. Court of Appeals, 283 SCRA 45 (1997)

. . . in a contract of private carriage, the parties may freely stipulate their duties and obligationswhich perforce would be binding on them. Unlike in a contract involving a common carrier, private carriagedoes not involve the general public. Hence, the stringent provisions of the Civil Code on common carriersprotecting the general public cannot justifiably be applied to a ship transporting commercial goods as aprivate carrier. Consequently, the public policy embodied therein is not contravened by stipulations in acharter party that lessen or remove the protection given by law in contracts involving common carriers.

Because theMV Vlasons Iwas 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, placestheprima faciepresumption 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 toprove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged whilein the carrier's custody does not put the burden of proof on the carrier.

Since . . . a private carrier is not an insurer but undertakes only to exercise due care in theprotection of the goods committed to its care, the burden of proving negligence or a breach of that duty restson plaintiff and proof of loss of, or damage to, cargo while in the carrier's possession does not cast on it theburden of proving proper care and diligence on its part or that the loss occurred from an excepted cause inthe contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the benefit ofthe presumptions and inferences by which the law aids the bailor in an action against a bailee, and since thecarrier is in a better position to know the cause of the loss and that it was not one involving its liability, thelaw requires that it come forward with the information available to it, and its failure to do so warrants an

inference or presumption of its liability. However, such inferences and presumptions, while they may affectthe burden of coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and,where the carrier comes forward with evidence explaining the loss or damage, the burden of going forwardwith the evidence is again on plaintiff.

Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving abreach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proofthat the goods were lost or damaged while in the carrier's possession does not cast on it the burden ofproving seaworthiness. . . . Where the contract of carriage exempts the carrier from liability forunseaworthiness not discoverable by due diligence, the carrier has the preliminary burden of proving the

exercise of due diligence to make the vessel seaworthy.20

D. Government regulation KMU Labor Center v. Garcia, Jr., 239 SCRA 386 (1994)

Public utilities are privately owned and operated businesses whose service are essential to thegeneral public. They are enterprises which specially cater to the needs of the public and conduce to theircomfort and convenience. As such, public utility services are impressed with public interest and concern.The same is true with respect to the business of common carrier which holds such a peculiar relation to thepublic interest that there is superinduced upon it the right of public regulation when private properties areaffected with public interest, hence, they cease to be juris privationly. When, therefore, one devotes hisproperty to a use in which the public has an interest, he, in effect grants to the public an interest in that use,


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and must submit to the control by the public for the common good, to the extent of the interest he has thus

created.1

An abdication of the licensing and regulatory government agencies of their functions as the instantpetition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimicalto public trust and public interest as well.

Tatad v. Garcia, Jr., 241 SCRA 334 (1997)

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for theoperation of a public utilityshallbe granted except to citizens of the Philippines or to corporations or associations organized under the lawsof the Philippines at least sixtyper centumof whose capital is owned by such citizens, nor shall suchfranchise, certificate or authorization be exclusive character or for a longer period than fifty years . . .(Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the ownership of thefacilities 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 iscompletely subjected to his will in everything not prohibited by law or the concurrence with the rights ofanother (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 beoperated and used to serve the public as a public utility unless the operator has a franchise. The operationof 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 pre-scheduled times(cf.Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United StatesFire Ins. Co. v. Northern P.R. 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 ofthe facilities thereof. One can own said facilities without operating them as a public utility, or conversely, onemay operate a public utility without owning the facilities used to serve the public. The devotion of property toserve 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 toserve the public can be very well appreciated when we consider the transportation industry. Enfranchisedairline and shipping companies may lease their aircraft and vessels instead of owning them themselves.

E. Governing Law Samar Mining Co., Inc. v. Nordeutscher Lloyd, 132 SCRA 529 (1984)

The liability of the common carrier for the loss, destruction or deterioration of goods transportedfrom a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters notregulated by said Code, the rights and obligations of common carriers shall be governed by the Code ofCommerce and by special laws. 16 A careful perusal of the provisions of the New Civil Code on commoncarriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: t.hqw

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

Article 1738 referred to in the foregoing provision runs thus:

Article 1738. The extraordinary liability of the common carrier continues to be operative evenduring the time the goods are stored in a warehouse of the carrier at the place of destination, until theconsignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter toremove them or otherwise dispose of them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said articlecontemplates a situation where the goods had already reached their place of destination and are stored in

the warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination,and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736 isapplicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss ordamage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or tothe person who has a right to receive them. In sales, actual delivery has been defined as the ceding ofcorporeal possession by the seller, and the actual apprehension of corporeal possession by the buyer or bysome person authorized by him to receive the goods as his representative for the purpose of custody ordisposal. 17 By the same token, there is actual delivery in contracts for the transport of goods whenpossession has been turned over to the consignee or to his duly authorized agent and a reasonable time is


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given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee

through its duly authorized agent, the carrier.

Eastern Shipping Lines v. IAC, 150 SCRA 464 (1984)

The law of the country to which the goods are to be transported governs the liability of the commoncarrier in case of their loss, destruction or deterioration. 4As the cargoes in question were transported fromJapan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5However,in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed bythe Code of Commerce and by special laws.6Thus, the Carriage of Goods by Sea Act, a special law, issuppletory to the provisions of the Civil Code.7

National Dev. Co. v. Court of Appeals, 164 SCRA 593 (1988)

The pivotal issue in these consolidated cases is the determination of which laws govern loss ordestruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well asthe rules of prescription provided thereunder.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50

SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country to which thegoods are to be transported governs the liability of the common carrier in case of their loss, destruction ordeterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoestransported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Codeand in all matters not regulated by said Code, the rights and obligations of common carrier shall begoverned by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods bySea Act, a special law, is merely suppletory to the provision of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from SanFrancisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision whichwas found to have been caused by the negligence or fault of both captains of the colliding vessels. Underthe above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collisionactually occurred in foreign waters, such as Ise Bay, Japan.

I. CONTRACTUAL EFFECTSA. Vigilance over goods

1. Extra-ordinary diligence required of common carriers (Art. 1733)

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.

a. Registered Owner Rule Gelisan v. Alday, 154 SCRA 388 (1987)

The Court has invariably held in several decisions that the registered owner of a public servicevehicle is responsible for damages that may arise from consequences incident to its operation or that maybe caused to any of the passengers therein. 5The claim of the petitioner that he is not hable in view of thelease contract executed by and between him and Roberto Espiritu which exempts him from liability to thirdpersons, cannot be sustained because it appears that the lease contract, adverted to, had not beenapproved by the Public Service Commission. It is settled in our jurisprudence that if the property covered bya franchise is transferred or leased to another without obtaining the requisite approval, the transfer is notbinding upon the public and third persons.6

Benedicto v. IAC, 187 SCRA 547 (1990)

The prevailing doctrine on common carriers makes the registered owner liable for consequencesflowing from the operations of the carrier, even though the specific vehicle involved may already have beentransferred to another person. This doctrine rests upon the principle that in dealing with vehicles registered

under the Public Service Law, the public has the right to assume that the registered owner is the actual orlawful owner thereof It would be very difficult and often impossible as a practical matter, for members of thegeneral public to enforce the rights of action that they may have for injuries inflicted by the vehicles beingnegligently operated if they should be required to prove who the actual owner is. 11The registered owner isnot allowed to deny liability by proving the identity of the alleged transferee. Thus, contrary to petitioner'sclaim, private respondent is not required to go beyond the vehicle's certificate of registration to ascertain theowner of the carrier. In this regard, the letter presented by petitioner allegedly written by Benjamin Teeadmitting that Licuden was his driver, had no evidentiary value not only because Benjamin Tee was notpresented in court to testify on this matter but also because of the aforementioned doctrine. To permit the


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ostensible or registered owner to prove who the actual owner is, would be to set at naught the purpose orpublic policy which infuses that doctrine.

Philtranco v. Court of Appeals, 273 SCRA 562 (1997)

Civil Case No. 373 is an action for damages based on quasi-delic t[15] under Article 2176 and 2180

of the Civil Code against petitioner Manilhig and his employer, petitioner Philtranco, respectively. Thesearticles pertinently provide:

ART. 2176. Whoever by act or omission causes damage to another, there being fault ornegligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existingcontractual relation between the parties, is called a quasi-delict and is governed by the provisions of thisChapter.

ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts oromissions, but also for those of persons for whom one is responsible.

...The owners and managers of an establishment or enterprise are likewise responsible for damages

caused by their employees in the service of the branches in which the latter are employed or on theoccasion of their functions.

Employers shall be liable for the damages caused by their employees and household helpersacting within the scope of their assigned tasks even though the former are not engaged in any business orindustry.

...The responsibility treated of in this article shall cease when the persons herein mentioned prove

that they observed all the diligence of a good father of a family to prevent damage.

We have consistently held that the liability of the registered owner of a public service vehicle, likepetitioner Philtranco,[16] for damages arising from the tortious acts of the driver is primary,direct, and jointand several or solidary with the driver.[17]As to solidarity, Article 2194 expressly provides:

ART. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.

Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for

damages is satisfied by it is to recover what it has paid from its employee who committed the fault ornegligence which gave rise to the action based on quasi-delict. Article 2181 of the Civil Code provides:

ART. 2181. Whoever pays for the damage caused by his dependents or employees may recoverfrom the latter what he has paid or delivered in satisfaction of the claim.

b. Kabit System Santos v. Sibug, 104 SCRA 520 (1981)

The controversy in this case will be resolved on the basis of the following facts and expositions.Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorizedpassenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, forshort) was the owner of a passenger jeep, but he had no certificate of public convenience for the operationof the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that itcould be operated under the latter's certificate of public convenience. ln other words, SANTOS became whatis known in ordinary parlance as a kabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private document presumably to be registered if andwhere it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement.

In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registeredowner and operator of record at the time of the accident. lt is true that VIDAD had executed a re-sale toSANTOS, but the document was not registered. Although SANTOS, as the kabit was the true owner asagainst VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is directly andprimarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence ofthe negligent or careless operation of the vehicle. 6 This ruling is based on the principle that the operator ofrecord is considered the operator of the vehicle in contemplation of law as regards the public and thirdpersons 7 even if the vehicle involved in the accident had been sold to another where such sale had notbeen approved by the then Public Service Commission.

SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid hisresponsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. Thisis one way of curbing the pernicious kabit system that facilitates the commission of fraud against thetravelling public.

Lita Enterprises v. Court of Appeals, 129 SCRA 464 (1984)

"Ex pacto illicito non oritur actio"[No action arises out of an illicit bargain] is the tune-honoredmaxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neithercan seek relief from the courts, and each must bear the consequences of his acts.
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Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabitsystem", whereby a person who has been granted a certificate of convenience allows another person whoowns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is aspecial privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot becountenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft

and corruption in the government transportation offices. In the words of Chief Justice Makalintal, 1"this is apernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith ofthe government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognizedas being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It isa fundamental principle that the court will not aid either party to enforce an illegal contract, but will leavethem both where it finds them. Upon this premise, it was flagrant error on the part of both the trial andappellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Codedenies them such aid. It provides:t.hqw

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute acriminal offense, the following rules shall be observed;

(1) 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 ofin pari delictois well known not only in this jurisdiction but also in the United Stateswhere common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition isuniversal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for itsspecific performance, or to recover the property agreed to be sold or delivered, or damages for its propertyagreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down asthough it was equally universal, that where the parties are in pari delicto,no affirmative relief of any kind willbe given to one against the other."3Although certain exceptions to the rule are provided by law, We see nocogent reason why the full force of the rule should not be applied in the instant case.

Teja Marketing v. IAC, 148 SCRA 347 (1987)

'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time -honored maxim

that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither canseek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129SCRA 81.)

Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabitsystem" whereby a person who has been granted a certificate of public convenience allows another personwho owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is aspecial privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot becountenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graftand corruption in the government transportation offices.

Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized asbeing contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is afundamental principle that the court will not aid either party to enforce an illegal contract, but will leave bothwhere it finds then. Upon this premise it would be error to accord the parties relief from their predicament.Article 1412 of the Civil Code denies them such aid. It provides:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminaloffense, the following rules shall be observed:

1. When the fault is on the part of both contracting parties, neither may recover that he has givenby virtue of the contract, or demand, the performance of the other's undertaking.

The defect of in existence of a contract is permanent and cannot be cured by ratification or byprescription. The mere lapse of time cannot give efficacy to contracts that are null and void.

c. Boundary System Magboo v. Bernardo, 7 SCRA 952 (1963)

A similar contention has been rejected by this Court in several cases. In National Labor Union v.Dinglasan, 52 O.G., No. 4, 1933, it was held that the features which characterize the "boundary system" namely, the fact that the driver does not receive a fixed wage but gets only the excess of the receipt of farescollected by him over the amount he pays to the jeep-owner and that the gasoline consumed by the jeep isfor the account of the driver are not sufficient to withdraw the relationship between them from that ofemployer and employee. The ruling was subsequently cited and applied in Doce v. Workmen'sCompensation Commission, L-9417, December 22, 1958, which involved the liability of a bus owner forinjury compensation to a conductor working under the "boundary system."


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The same principle applies with greater reason in negligence cases concerning the right of thirdparties to recover damages for injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953, theowner and operator of a passenger jeepney leased it to another, but without the approval of the PublicService Commission. In a subsequent collision a passenger died. We ruled that since the lease was madewithout such approval, which was required by law, the owner continued to be the operator of the vehicle inlegal contemplation and as such was responsible for the consequences incident to its operation. The same

responsibility was held to attach in a case where the injured party was not a passenger but a third person,who sued on the theory ofculpa aquiliana(Timbol vs. Osias, L-7547, April 30, 1955). There is no reasonwhy a different rule should be applied in a subsidiary liability case under Article 103 of the Revised PenalCode. As in the existence of an employer-employee relationship between the owner of the vehicle and thedriver. Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundarysystem" on the ground that he is a mere lessor would be not only to abet flagrant violations of the PublicService law but also to place the riding public at the mercy of reckless and irresponsible drivers - recklessbecause the measure of their earnings depends largely upon the number of trips they make and, hence, thespeed at which they drive; and irresponsible because most if not all of them are in no position to pay thedamages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).

2. Liability of carriers for loss, destruction and deterioration of goods; Exceptions; Presumption of negligence(Art. 1734-1735; 1739-1743)

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration

of the goods, unless the same is due to any of the following causes only:(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

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

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

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

(5) Order or act of competent public authority.

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the

preceding article, if the goods are lost, destroyed or deteriorated, common carriers

are presumed to have been at fault or to have acted negligently, unless they prove

that they observed extraordinary diligence as required in Article 1733.

Art. 1739. In order that the common carrier may be exempted from

responsibility, the natural disaster must have been the proximate and only

cause of the loss. However, the common carrier must exercise due diligence to

prevent or minimize loss before, during and after the occurrence of flood,

storm or other natural disaster in order that the common carrier may be

exempted from liability for the loss, destruction, or deterioration of the goods.

The same duty is incumbent upon the common carrier in case of an act of the

public enemy referred to in Article 1734, No. 2.

Art. 1740. If the common carrier negligently incurs in delay in transporting the

goods, a natural disaster shall not free such carrier from responsibility.

Art. 1741. If the shipper or owner merely contributed to the loss, destructionor deterioration of the goods, the proximate cause thereof being the

negligence of the common carrier, the latter shall be liable in damages, which

however, shall be equitably reduced.

Art. 1742. Even if the loss, destruction, or deterioration of the goods should be

caused by the character of the goods, or the faulty nature of the packing or of

the containers, the common carrier must exercise due diligence to forestall or

lessen the loss.

Art. 1743. If through the order of public authority the goods are seized or

destroyed, the common carrier is not responsible, provided said public

authority had power to issue the order.

Eastern Shipping Lines v. IAC, 150 SCRA 464 (1984)

The heavy seas and rains referred to in the masters report were not caso fortuito, but normaloccurrences that an ocean going vessel, particularly in the month of September which, in our area, is amonth of rains and heavy seas would encounter as a matter of routine. They are not unforeseen nor


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unforeseeable. These are conditions that ocean-going vessels would encounter and provide for, in theordinary course of voyage.

The rain water (not sea water) found its way into Japri Venture is a clear indication that care andforesight did not attend the closing of the ships hatches so that rain water would not find its way into thecargo,

Since Easter has failed to establish any caso fortuito, the presumption of fault or negligence on thepart of the carrier applies; and the carrier must present evidence that it has observed the extraordinarydiligence required in Art. 1733 to escape liability.

The SC held that the presumption that the cargo was in apparent good condition when it wasdelivered by the vessel to the arrastre operation by the clean tally sheets has been overturned. Theevidence is clear to the effect that the damage to the cargo was suffered while aboard petitioners vessel.

Ganzon v. Court of Appeals, 161 SCRA 646 (1985)

Petitioner Ganzon failed to show that the loss of the scrap iron due to any cause enumerated in Art.1734. The order of the acting Mayor did not constitute valid authority for petitioner to carry out. In any case,the intervention of the municipal officials was not of a character that would render impossible the fulfillment

by the carrier of its obligation. The petitioner was not duly bound to obey the illegal order to dump into thesea the scrap of iron. Moreover, there is absence of sufficient proof that the issuance of the same order wasattended with such force or intimidation as to completely overpower the will of the petitioners employees.

By the delivery made during Dec. 1, 1956, the scraps were unconditionally placed in thepossession and control of the common carrier, and upon their receipt by the carrier of transportation, thecontract of carriage was deemed perfected. Consequently, Ganzons extraordinary responsibility for theloss, destruction or deterioration of the goods commenced. According to Art 1738, such extraordinaryresponsibility would cease only upon the delivery by the carrier to the consignee or persons with right toreceive them. The fact that part of the shipment had not been loaded on board did not impair the contract oftransportation as the goods remained in the custody & control of the carrier.

Eastern Shipping Lines v. Court of Appeals, 196 SCRA 570 (1991)

The heavy seas and rains referred to in the masters report were not caso fortuito but normal

occurrences that an ocean-going vessel, particularly in the month of September which, in our area, is amonth of rains and heavy seas would encounter as a matter of routine. They are not unforeseen norunforeseeable. These are conditions that ocean-going vessels would encounter and provide for, in theordinary course of a voyage. That rain water (not sea water) found its way into the holds of the Jupri Ventureis a clear indication that care and foresight did not attend the closing of the ship's hatches so that rain waterwould not find its way into the cargo holds of the ship.

Since the carrier has failed to establish any caso fortuito, the presumption by law of fault ornegligence on the part of the carrier applies; and the carrier must present evidence that it has observed theextraordinary diligence required by Article 1733 of the Civil Code in order to escape liability for damage ordestruction to the goods that it had admittedly carried in this case. No such evidence exists of record. Thus,the carrier cannot escape liability.

Sarkies Tours Phils. v. Court of Appeals, 280 SCRA 58 (1997)

Under the Civil Code, common carriers, from the nature of their business and for reasons of publicpolicy, are bound to observe extraordinary diligence in the vigilance over the goods transported by them,and this liability lasts from the time the goods are unconditionally placed in the possession of, and receivedby the carrier for transportation until the same are delivered, actually or constructively, by the carrier to theperson who has a right to receive them, unless the loss is due to any of the excepted causes under Article1734 thereof.

Where the common carrier accepted its passenger's baggage for transportation and even had itplaced in the vehicle by its own employee, its failure to collect the freight charge is the common carrier's ownlookout. It is responsible for the consequent loss of the baggage. In the instant case, defendant appellant'semployee even helped Fatima Minerva Fortades and her brother load the luggages/baggages in the bus'baggage compartment, without asking that they be weighed, declared, receipted or paid for. Neither was thisrequired of the other passengers.

Valenzuela Hardwood & Industrial Supply v. Court of Appeals, 274 SCRA 642 (1997)

In a contract of private carriage, the parties may validly stipulate that responsibility for the cargorests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargocaused even by the negligence of the ship captain. Pursuant to Article 1306 17 of the Civil Code, suchstipulation 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 contractof adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties andobligations which perforce would be binding on them. Unlike in a contract involving a common carrier,


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private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code oncommon carriers protecting the general public cannot justifiably be applied to a ship transporting commercialgoods as a private carrier. Consequently, the public policy embodied therein is not contravened bystipulations in a charter party that lessen or remove the protection given by law in contracts involvingcommon carriers.

Yobido v. Court of Appeals, 281 SCRA 1 (1997)

The explosion of the new tire is not a fortuitous event. There are human factors involved in thesituation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects orthat it was properly mounted on the vehicle. Neither may the fact that the tire bought and used is of a brandname noted for quality, resulting in the conclusion that it could not explode within five days use. It is settledthat an accident caused either by defects in the automobile or through the negligence of its driver is not acaso fortuito. Moreover, a common carrier may not be absolved from liability in case of force majeure. Acommon carrier must still prove that it was not negligent in causing the death or injury resulting from theaccident. Thus, having failed to overthrow the presumption of negligence with clear and convincingevidence, petitioners are hereby held liable for damages.

3. Commencement, duration and termination of carriers responsibility over the goods (Art. 1736-1738)

Art. 1736. The extraordinary responsibility of the common carrier lasts fromthe time the goods are unconditionally placed in the possession of, and

received by the carrier for transportation until the same are delivered, actually

or constructively, by the carrier to the consignee, or to the person who has a

right to receive them, without prejudice to the provisions of Article 1738.

Art. 1737. The common carrier's duty to observe extraordinary diligence over

the goods remains in full force and effect even when they are temporarily

unloaded or stored in transit, unless the shipper or owner has made use of the

right of stoppage in transitu.

Art. 1738. The extraordinary liability of the common carrier continues to beoperative even during the time the goods are stored in a warehouse of the

carrier at the place of destination, until the consignee has been advised of the

arrival of the goods and has had reasonable opportunity thereafter to remove

them or otherwise dispose of them.

Compania Maritima v. Insurance Co. of North America, 12 SCRA 213 (1964)

The receipt of goods by the carrier has been said to lie at the foundation of the contract to carryand deliver, and if actually no goods are received there can be no such contract. The liability andresponsibility of the carrier under a contract for the carriage of goods commence on their actual delivery to,or receipt by, the carrier or an authorized agent and delivery to a lighter in charge of a vessel for shipmenton the vessel, where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving

the freight, the liability commencing at the time of delivery to the lighter and, similarly, where there is acontract to carry goods from one port to another, and they cannot be loaded directly on the vessel andlighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that thebill of landing is applicable to the goods as soon as they are placed on the lighters.

Whenever the control and possession of goods passes to the carrier and nothing remains to bedone by the shipper, then it can be said with certainty that the relation of shipper and carrier has beenestablished. A bill of lading is not indispensable for the creation of a contract of carriage. The bill of lading isjuridically a documentary proof of the stipulations and conditions agreed upon by both parties. The liability ofthe carrier as common carrier begins with the actual delivery of the goods for transportation, and not merelywith the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary tocomplete delivery and acceptance. Even where it is provided by statute that liability commences with theissuance of the bill of lading, actual delivery and acceptance are sufficient to bind the carrier.

Lu Do v. Binamira, 101 Phil. 120 (1957)

While delivery of the cargo to the consignee, or to the person who has a right to receive them,contemplated in Article 1736, because in such case the goods are still in the hands of the Government andthe owner cannot exercise dominion over them, we believe however that the parties may agree to limit theliability of the carrier considering that the goods have still to through the inspection of the customs authoritiesbefore they are actually turned over to the consignee. This is a situation where we may say that the carrierlosses control of the goods because of a custom regulation and it is unfair that it be made responsible forwhat may happen during the interregnum.


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American President Lines Ltd. v. Klepper, 110 PHIL 243

With regard to the contention of the carrier that COGSA should control in this case, the same is ofas moment. Art. 1763 of the New Civil Code provides that the laws of the country to which the goods aretransported shall govern the liability of the common carrier in case of loss, destruction and deterioration.This means that the law of the Philippines on the New Civil Code. Under 1766 of NCC, in all matter not

regulated by this Code, the rights and obligations of common carriers shall be governed by the Code ofCommerce and by Special Laws. Art. 1736-1738, NCC governs said rights and obligations. Therefore,although Sec 4(5) of COGSA states that the carrier shall not be liable in an amount exceeding $500 perpackage unless the value of the goods had been declared by the shipper and asserted in the bill of lading,said section is merely supplementary to the provisions of the New Civil Code.

Servando v. Phil. Steam, 117 SCRA 832 (1982)

The court a quo held that the delivery of the shipment in question to the warehouse of the Bureauof Customs is not the delivery contemplated by Article 1736; and since the burning of the warehouseoccurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable againstthe appellant.

It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the

parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to theshipment therein the following stipulation:

Clause 14. Carrier shall not be responsible for loss or damage to shipments billed 'owner's risk'unless such loss or damage is due to negligence of carrier. Nor shall carrier be responsible for loss ordamage caused by force majeure, dangers or accidents of the sea or other waters; war; public enemies; . . .fire . ...

We sustain the validity of the above stipulation; there is nothing therein that is contrary to law,morals or public policy.

Appellees would contend that the above stipulation does not bind them because it was printed infine letters on the back-of the bills of lading; and that they did not sign the same. This argument overlooksthe pronouncement of this Court in Ong Yiu vs. Court of Appeals, where the same issue was resolved in thiswise:

While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound bythe provisions thereof. 'Such provisions have been held to be a part of the contract of carriage, and valid andbinding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation'. It iswhat is known as a contract of 'adhesion', in regards which it has been said that contracts of adhesionwherein one party imposes a ready made form of contract on the other, as the plane ticket in the case atbar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject itentirely; if he adheres, he gives his consent."

Saludo, Jr. v. Court of Appeals, 207 SCRA 498 (1992)

Except as may be prohibited by law, there is nothing to prevent an inverse order of events, that is,the execution of the bill of lading even prior to actual possession and control by the carrier of the cargo to betransported. There is no law which requires that the delivery of the goods for carriage and the issuance of

the covering bill of lading must coincide in point of time or, for that matter, that the former should precede thelatter. While we agree with petitioners' statement that "an airway bill estops the carrier from denying receiptof goods of the quantity and quality described in the bill," a further reading and a more faithful quotation ofthe authority cited would reveal that "(a) bill of lading may contain constituent elements of estoppel and thusbecome something more than a contract between the shipper and the carrier. . . . (However), as betweenthe shipper and the carrier, when no goods have been delivered for shipment no recitals in the bill canestopped the carrier from showing the true facts . . . Between the consignor of goods and receiving carrier,recitals in a bill of lading as to the goods shipped raise only a rebuttable presumption that such goods weredelivered for shipment. As between the consignor and a receiving carrier, the fact must outweigh the recital."

There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raisesa presumption that all terms therein were brought to the knowledge of the shipper and agreed to by him, andin the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms.This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of itscontents, and acceptance under such circumstances makes it a binding contract. In order that any

presumption of assent to a stipulation in a bill of lading limiting the liability of a carrier may arise, it mustappear that the clause containing this exemption from liability plainly formed a part of the contract containedin the bill of lading. A stipulation printed on the back of a receipt or bill of lading or on papers attached tosuch receipt will be quite as effective as if printed on its face, if it is shown that the consignor knew of itsterms. Thus, where a shipper accepts a receipt which states that its conditions are to be found on the back,such receipt comes within the general rule, and the shipper is held to have accepted and to be bound by theconditions there to be found.


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Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of thecommon carrier begins from the time the goods are delivered to the carrier. This responsibility remains in fullforce and effect even when they are temporarily unloaded or stored in transit, unless the shipper or ownerexercises the right of stoppage in transitu, and terminates only after the lapse of a reasonable time for theacceptance, of the goods by the consignee or such other person entitled to receive them. And, there isdelivery to the carrier when the goods are ready for and have been placed in the exclusive possession,

custody and control of the carrier for the purpose of their immediate transportation and the carrier hasaccepted them. Where such a delivery has thus been accepted by the carrier, the liability of the commoncarrier commences. Only when such fact of delivery has been unequivocally established can the liability forloss, destruction or deterioration of goods in the custody of the carrier, absent the exempting causes underArticle 1734, attach and the presumption of fault of the carrier under Article 1735 be invoked.

Macam v. Court of Appeals, 313 SCRA 77 (1999)

The extraordinary responsibility of the common carriers lasts until actual or constructive delivery ofthe cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK wasindicated in the bills of lading as consignee whereas GPC was the notify party. However, in the exportinvoices GPC was clearly named as buyer/importer. Petitioner also referred to GPC as such in his demandletter to respondent WALLEM and in his complaint before the trial court. This premise draws us to concludethat the delivery of the cargoes to GPC as buyer/importer which, conformably with Art. 1736 had, other thanthe consignee, the right to receive them was proper.

The real issue is whether respondents are liable to petitioner for releasing the goods to GPCwithout the bills of lading or bank guarantee. From the testimony of petitioner, we gather that he has beentransacting with GPC as buyer/importer for around two (2) or three (3) years already. When mangoes andwatermelons are in season, his shipment to GPC using the facilities of respondents is twice or thrice a week.The goods are released to GPC. It has been the practice of petitioner to request the shipping lines toimmediately release perishable cargoes such as watermelons and fresh mangoes through telephone callsby himself or his "people." In transactions covered by a letter of credit, bank guarantee is normally requiredby the shipping lines prior to releasing the goods. But for buyers using telegraphic transfers, petitionerdispenses with the bank guarantee because the goods are already fully paid. In his several years ofbusiness relationship with GPC and respondents, there was not a single instance when the bill of lading wasfirst presented before the release of the cargoes.

4. Stipulations limiting carriers liability

a. Degree of diligence; Reasonable time in the delivery (Art. 1744-1745)

Art. 1744. A stipulation between the common carrier and the shipper or

owner limiting the liability of the former for the loss, destruction, or

deterioration of the goods to a degree less than extraordinary diligence shall

be valid, provided it be:

(1) In writing, signed by the shipper or owner;

(2) Supported by a valuable consideration other than the service rendered by

the common carrier; and

(3) Reasonable, just and not contrary to public policy.

Art. 1745. Any of the following or similar stipulations shall be consideredunreasonable, unjust and contrary to public policy:

(1) That the goods are transported at the risk of the owner or shipper;

(2) That the common carrier will not be liable for any loss, destruction, or

deterioration of the goods;

(3) That the common carrier need not observe any diligence in the custody of

the goods;

(4) That the common carrier shall exercise a degree of diligence less than that

of a good father of a family, or of a man of ordinary prudence in the vigilance

over the movables transported;

(5) That the common carrier shall not be responsible for the acts or omission

of his or its employees;

(6) That the common carrier's liability for acts committed by thieves, or ofrobbers who do not act with grave or irresistible threat, violence or force, is

dispensed with or diminished;

(7) That the common carrier is not responsible for the loss, destruction, or

deterioration of goods on account of the defective condition of the car,

vehicle, ship, airplane or other equipment used in the contract of carriage.


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Maersk Line v. Court of Appeals, 222 SCRA 108 (1993)

While it is true that common carriers are not obligated by law to carry and to deliver merchandise,and persons are not vested with the right to prompt delivery, unless such common carriers previouslyassume the obligation to deliver at a given date or time, delivery of shipment or cargo should at least bemade within a reasonable time.

While there was no special contract entered into by the parties indicating the date of arrival of thesubject shipment, petitioner nevertheless, was very well aware of the specific date when the goods wereexpected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to executeanother contract for the purpose as it would be a mere superfluity. In the case before us, we find that a delayin the delivery of the goods spanning a period of two months and seven days falls was beyond the realm ofreasonableness.

b. Amount of liability (Art. 1749-1750)

Art. 1749. A stipulation that the common carrier's liability is limited to the

value of the goods appearing in the bill of lading, unless the shipper or owner

declares a greater value, is binding.

Art. 1750. A contract fixing the sum that may be recovered. by the owner or

shipper for the loss, destruction, or deterioration of the goods is valid, if it is

reasonable and just under the circumstances, and has been fairly and freely

agreed upon.

Ysmael v. Barretto, 51 PHIL 90 (1927)

Limiting the common carriers liability for loss or damage from any cause or for any reason for lessthan 1/8 the actual value of the goods is unconscionable and therefore against public policy. A commoncarrier cannot lawfully stipulate for exemption from liability, unless such exemption is just and reasonableand the contract is freely and fairly made.

Shewaram v. Philippine Airlines, 17 SCRA 606 (1966)

It can not be said that a contract has been entered into between a passenger and the commoncarrier, embodying the conditions as printed at the back of the ticket. The fact that those conditions areprinted at the back of the ticket stub in letters so small that they are hard to read would not warrant thepresumption that the passenger was aware of those conditions such that he had "fairly and freely agreed" tothose conditions. The passenger is considered not having agreed to the stipulation on the ticket, asmanifested by the fact that he did not sign the ticket.

Ong Yiu v. Court of Appeals, 91 SCRA 223 (1966)

While it may be true that the passenger had not signed the plane ticket, he is nevertheless boundby the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and validand binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation". It is

what is known as a contract of "adhesion", in regards which it has been said that contracts of adhesionwherein one party imposes a ready made form of contract on the other, as the plane ticket in the case atbar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject itentirely; if he adheres, he gives his consent. A contract limiting liability upon an agreed valuation does notoffend against the policy of the law forbidding one from contracting against his own negligence.

Sea Land Services, Inc. v. IAC, 153 SCRA 552 (1987)

Since the liability of a common carrier for loss of or damage to goods transported by it under acontract of carriage so governed by the laws of the country of destination and the goods in question wereshipped from the United States to the Philippines, the liability of common carrier to the consignee isgoverned primarily by the Civil Code. Applying the Civil Code provisions (Article 1749 and 1750) thestipulation in the bill of lading limiting the liability of the common carrier for loss or damages to the shipmentcovered by said rule unless the shipper declares the value of the shipment and pays additional charges is

valid and binding on the consignee.

Citadel Lines, Inc. v. Court of Appeals, 184 SCRA 544 (1990)

Basic is the rule that a stipulation limiting the liability of the carrier to the value of the goodsappearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Furthermore,a contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction ordeterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairlyand freely agreed upon.


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In this case, the award based on the alleged market value of the goods is erroneous. It is providedin a clause in the BOL that its liability is limited to US$2.00/kilo. The consignee also admits in thememorandum that the value of the goods does not appear in the bill of lading. Hence, the stipulation on thecarriers limited liability applies.

Everett Steamship Corp. v. Court of Appeals, 297 SCRA 496 (1998)

In the bill of lading, the carrier made it clear that all claims for which it may be liable shall beadjusted and settled on the basis of the shipper's net invoice cost plus freight and insurance premiums, ifpaid, and in no event shall the carrier be liable for any loss of possible profits or any consequential loss. Itsliability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, had theoption 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 withthe stipulations.

The commercial Invoice does not in itself sufficiently and convincingly show that the commoncarrier has knowledge of the value of the cargo as contended by the shipper.

British Airways v. Court of Appeals, 285 SCRA 450 (1998)

The contract of transportation was exclusively between the passenger and common carrier BA.The latter merely endorsing the Manila to Hong Kong log of the formers journey to PAL, as its subcontractoror agent. Conditions of contracts were one of continuous air transportation. Well-settled rule that an agent isalso responsible for any negligence in the performance of its function and is liable for damages which theprincipal may suffer by reason of its negligent act. When an action is based on breach of contract ofcarriage, the passenger can only sue BA and not PAL, since the latter was not a party in the contract.

The contention of BA with respect to limited liability was overruled although it is recognized in thePhilippines, stating that BA had waived the defense of limited liability when it allowed Mahtani(thepassenger) to testify as to the actual damages he incurred due to the misplacement of his luggage, withoutany objection.

H.E. Heacock Co. v. Macondray & Co., 42 PHIL 205 (1921)

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting thecarrier from any and all liability for loss or damage occasioned by its own negligence. The second is oneproviding for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting theliability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higherrate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulationsare invalid as being contrary to public policy, but the third is valid and enforceable.

If a common carrier gives to a shipper the choice of two rates and if the shipper makes such achoice, understandingly and freely, and names his valuation, he cannot thereafter recover more than thevalue which he thus places upon his property. A limitation of liability based upon an agreed value does notconflict with any sound principle of public policy; and it is not conformable to plain principles of justice that ashipper may understate value in order to reduce the rate and then recover a larger value in case of loss.

c. Void stipulation (Art. 1745)

ARTICLE 1745. Any of the following or similar stipulations shall be consideredunreasonable, unjust and contrary to public policy:

(1) That the goods are transported at the risk of the owner or shipper;

(2) That the common carrier will not be liable for any loss, destruction, or

deterioration of the goods;

(3) That the common carrier need not observe any diligence in the custody of

the goods;

(4) That the common carrier shall exercise a degree of diligence less than that

of a good father of a family, or of a man of ordinary prudence in the vigilance

over the movables transported;

(5) That the common carrier shall not be responsible for the acts or omission

of his or its employees;(6) That the common carriers liability for acts committed by thieves, or of

robbers who do not act with grave or irresistible threat, violence or force, is

dispensed with or diminished;

(7) That the common carrier is not responsible for the loss, destruction, or

deterioration of goods on account of the defective condition of the car,

vehicle, ship, airplane or other equipment used in the contract of carriage.


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Sweet Lines v. Teves, 83 SCRA 361 (1978)

Considered in the light of circumstances prevailing in the inter-island shipping industry in thecountry today, We find and hold that Condition No. 14 printed at the back of the passage tickets should beheld as void and unenforceable for the following reasons first, under circumstances obligation in the inter-island shipping industry, it is not just and fair to bind passengers to the terms of the conditions printed at the

back of the passage tickets, on which Condition No. 14 is Printed in fine letters, and second, Condition No.14 subverts the public policy on transfer of venue of proceedings of this nature, since the same will prejudicerights and interests of innumerable passengers located in different places of the country who, underCondition No. 14, will have to file suits against petitioner only in the City of Cebu. Considering the expenseand trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of Cebu,he would most probably decide not to file the action at all. The condition will thus defeat, instead of enhance,the ends of justice. Upon the other hand, petitioner has branches or offices in the respective ports of call ofits vessels and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI of MisamisOriental, as was done in the instant case, will not cause inconvenience to, much less prejudice, petitioner.

Under Art. 2220 of the Civil Code, moral damages are justly due in breaches of contract where thedefendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate Court found that therewas bad faith on the part of petitioner in that:

(1) Defendants- Appellants did not give notice to plaintiffs-appellates as to the change of scheduledof the vessel;

(2) Knowing fully well that it would take no less than fifteen hours to effect the repairs of thedamaged engine, defendants- appellants instead made announce ment of assurance that the vessel wouldleave within a short period of time, and when plaintiff-appellees wanted to leave the port and gave up thetrip, defendants- appellants employees would come and say, we are leaving already.

(3) Defendants- appellants did not offer to refund plaintiffs-appellees tickets nor provide them withtransportation form Tacloban to Catbalogan.

5. Passengers baggage (Art. 1754)

ARTICLE 1754. The provisions of articles 1733 to 1753 shall apply to the

passengers baggage which is not in his personal custody or in that of his

employee. As to other baggage, the rules in articles 1998 and 2000 to 2003concerning the responsibility of hotel-keepers shall be applicable.

B. Safety of passengers1. Utmost diligence required of common carriers (Art. 1755)

ARTICLE 1755. A common carrier is bound to carry the passengers safely as far

as human care and foresight can provide, using the utmost diligence of very

cautious persons, with a due regard for all the circumstances.

Nocum v. Laguna Tayabas Bus. Co. v. Court of Appeals, 83 SCRA 386 (1978)

Fairness demands that in measuring a common carrier's duty towards its passengers, allowancemust be given to the reliance that should be reposed on the sense of responsibility of all the passengers inregard to their common safety. It is to be presumed that a passenger will not take with him anythingdangerous to the lives and limbs of his co-passengers, not to speak of his own. Not to be lightly consideredmust be the right to privacy to which each passenger is entitled. He cannot be subjected to any unusualsearch, when he protests the innocuousness of his baggage and nothing appears to indicate the contrary,as in the case at bar. In other words, inquiry may be verbally made as to the nature of a passenger'sbaggage when such is not outwardly perceptible, but beyond this, constitutional boundaries are already indanger of being transgressed. Calling a policeman to his aid, as suggested by the service manual invokedby the trial judge, in compelling the passenger to submit to more rigid inspection, after the passenger hadalready declared that the box contained mere clothes and other miscellaneous, could not have justifiedinvasion of a constitutionally protected domain.

Mecenas v. CA, 180 SCRA 83 (1989)

The behaviour of the captain of the "Don Juan" in tills instance-playing mahjong "before and up tothe time of collision constitutes behaviour that is simply unacceptable on the part of the master of a vessel towhose hands the lives and welfare of at least seven hundred fifty (750) passengers had been entrusted.Whether or not Capt. Santisteban was "off-duty" or "on-duty" at or around the time of actual collision is quiteimmaterial; there is, both realistically speaking and in contemplation of law, no such thing as "off-duty" hoursfor the master of a vessel at sea that is a common carrier upon whom the law imposes the duty ofextraordinary diligence.


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The record shows that the "Don Juan" sank within ten (10) to fifteen (15) minutes after initialcontact with the "Tacloban City. While the failure of Capt. Santisteban to supervise his officers and crew inthe process of abandoning the ship and his failure to avail of measures to prevent the too rapid sinking of hisvessel after collision, did not cause the collision by themselves, such failures doubtless contributedmaterially to the consequent loss of life and, moreover, were indicative of the kind and level of diligenceexercised by Capt. Santisteban in respect of his vessel and his officers and men prior to actual contact

between the two (2) vessels. The officer-on-watch in the "Don Juan" admitted that he had failed to informCapt. Santisteban not only of the "imminent danger of collision" but even of "the actual collision itself " Thereis also evidence that the "Don Juan" was carrying more passengers than she had been certified as allowedto carry.

Under these circumstances, a presumption of gross negligence on the part of the vessel (herofficers and crew) and of its ship-owner arises.

Negros Navigation Co., Inc. v. Court of Appeals, 281 SCRA 717 (1997)

The Duty to exercise due diligence includes the duty to take passengers or cargoes that are withinthe carrying capacity of the vessel. (Same Ruling with Mecenas)

Korean Airlines Co. Ltd. v. Court of Appeals, 234 SCRA 14 (1999)

The status of Lapuz as standby passenger was changed to that of a confirmed passenger when hisname was entered in the passenger manifest of KAL for its Flight No. KE 903. His clearance throughimmigration and customs clearly shows that he had indeed been confirmed as a passenger of KAL in thatflight. KAL thus committed a breach of the contract of carriage between them when it failed to bring Lapuz tohis destination.

This Court has held that a contract to transport passengers is different in kind and degree from anyother contractual relation. The business of the carrier is mainly with the traveling public. It invites people toavail themselves of the comforts and advantages it offers. The contract of air carriage generates a relationattended with a public duty. Passengers have the right to be treated by the carrier's employees withkindness, respect, courtesy and due consideration. They are entitled to be protected against personalmisconduct, injurious language, indignities and abuses from such employees. So it is that any discourteousconduct on the part of these employees toward a passenger gives the latter an action for damages againstthe carrier.

Fortune Express, Inc. v. Court of Appeals, 305 SCRA 14 (1999)

Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by apassenger on account of wilfull acts of other passengers, if the employees of the common carrier could haveprevented the act through the exercise of the diligence of a good father of a family. In the present case, it isclear that because of the negligence of petitioner's employees, the seizure of the bus by Mananggolo andhis men was made possible.

Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos wereplanning to take revenge on the petitioner by burning some of its buses and the assurance of petitioner'soperation manager, Diosdado Bravo, that the necessary precautions would be taken, petitioner did nothingto protect the safety of its passengers. Had petitioner and its employees been vigilant they would not havefailed to see that the malefactors had a large quantity of gasoline with them. Under the circumstances,

simple precautionary measures to protect the safety of passengers, such as frisking passengers andinspecting their baggages, preferably with non-intrusive gadgets such as metal detectors, before allowingthem on board could have been employed without violating the passenger's constitutional rights.

The acts of Maranaos could not be considered as caso fortuito because there was already awarning by the PC.

No contributory negligence could be attributed to the deceased. The assailant's motive was toretaliate for the loss of life of two Maranaos as a result of the collision between petitioner's bus and thejeepney in which the two Maranaos were riding. The armed men actually allowed deceased to retrievesomething from the bus. What apparently angered them was his attempt to help the driver of the bus bypleading for his life.

Gatchalian v. Delim, 203 SCRA 126 (1991)

The record yields affirmative evidence of fault or negligence on the part of respondent commoncarrier. The driver did not stop to check if anything had gone wrong with the bus when the snapping soundwas heard and made known to him by the passengers, instead told them that it was normal. The driver'sreply necessarily indicated that the same "snapping sound" had been heard in the bus on previousoccasions. This could only mean that the bus had not been checked physically or mechanically to determinewhat was causing the "snapping sound" which had occurred so frequently that the driver had gottenaccustomed to it. Such a sound is obviously alien to a motor vehicle in good operating condition, and even amodicum of concern for life and limb of passengers dictated that the bus be checked and repaired. Theobvious continued failure of respondent to look after the roadworthiness and safety of the bus, coupled with


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the driver's refusal or neglect to stop the mini-bus after he had heard once again the "snapping sound" andthe cry of alarm from one of the passengers, constituted wanton disregard of the physical safety of thepassengers, and hence gross negligence on the part of respondent and his driver.

Because what is involved here is the liability of a common carrier for injuries sustained bypassengers in respect of whose safety a common carrier must exercise extraordinary diligence, we must

construe any such purported waiver most strictly against the common carrier. For a waiver to be valid andeffective, it must not be contrary to law, morals, public policy or good customs. A cursory examination of thepurported waiver will readily show that appellees did not actually waive their right to claim damages fromappellant for the latter's failure to comply with their contract of carriage. All that said document proves is thatthey expressed a "desire" to make the waiver which obviously is not the same as making an actual waiver oftheir right. A waiver of the kind invoked by appellant must be clear and unequivocal.

A person is entitled to the physical integrity of his or her body; if that integrity is violated ordiminished, actual injury is suffered for which actual or compensatory damages are due and assessable.Petitioner Gatchalian is entitled to be placed as nearly as possible in the condition that she was beforemishap. A scar, especially one on the face of the woman, resulting from the infliction of injury upon her, is aviolation of bodily integrity, giving raise to a legitimate claim for restoration to her condition ante.

Del Castillo v. Jaymalin, 112 SCRA 629 (1982)

Common carriers are responsible for the death of their passengers (Articles 1764 and 2206 of theCivil Code). This liability includes the loss of the earning capacity of the deceased.

Transportation Law Outline with Statutory Provisions and Case Doctrines

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