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San Beda College of Law

54
MEMORY AID IN COMMERCIAL LAW

TRANSPORTATION LAWS
CONTRACT OF TRANSPORTATION/ CARRIAGE
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 compensation.
Classifications:
1. Common or Private
2. Goods or Passengers
3. For a fee (for hire) or Gratuitous
4. Land, Water/maritime, or Air
5. Domestic/inter-island/coastwise or
International/foreign
It is a relationship which is imbued with the
public interest.
COMMON CARRIER
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 (Art. 1732, Civil Code).
Art. 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 (sideline).
It also avoids a 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 the law distinguish between a
carrier offering its services to the general public that
is the general community or population and one
who offers services or solicits business only from a
narrow segment of the general population.
A person or entity is a common carrier even if
he did not secure a Certificate of Public Convenience
(De Guzman vs. CA, 168 SCRA 612).
It makes no distinction as to the means of
transporting, as long as it is by land, water or air. It
does not provide that the transportation should be
by motor vehicle.
(First Philippine Industrial
Corporation vs. CA)
One is a common carrier even if he has no fixed
and publicly known route, maintains no terminals,
and issues no tickets (Asia Lighterage Shipping, Inc.
vs. CA).
Characteristics:
1. Undertakes to carry for all people indifferently
and thus is liable for refusal without
sufficient reason (Lastimoso vs. Doliente,
October 20, 1961);
2. Cannot lawfully decline to accept a particular
class of goods for carriage to the prejudice
of the traffic in these goods;
3. No monopoly is favored (Batangas Trans.
vs. Orlanes, 52 PHIL 455);
4. Provides public convenience.
5. Is imbued with public interest.

compensation. (Home Insurance Co. vs. American


Steamship Agency, 23 SCRA 24)
TESTS WHETHER CARRIER IS COMMON OR
PRIVATE:
The SC in First Philippine Industrial Corporation
vs. CA (1995) reiterated the following tests:
1. It must be engaged in the business of
carrying goods for others as a public
employment and must hold itself out as
ready to engage in the transportation of
goods generally as a business and not as
a casual occupation;
2. It must undertake to carry goods of the
kind to which its business in confined;
3. It must undertake to carry by the method
by which his business is conducted and
over its established roads; and
4. The transportation must be for hire.
In National Steel Corp. vs. CA (1997) the SC held
that the true test of a common carrier is the
carriage of goods or passengers provided it has
space for all who opt to avail themselves of its
transportation for a fee.
COMMON CARRIER

PRIVATE
CARRIER

1. As to availability
Holds himself out for all Contracts with particular
people indiscriminately
individuals or groups
only
2. As to required diligence
Extraordinary diligence is Ordinary diligence is
required
required
3. As to regulation
Subject
to
State Not subject to State
regulation
regulation
4. Stipulation limiting liability
Parties may not agree on Parties may limit the
limiting
the
carriers carriers
liability,
liability except when provided it is not
provided by law
contrary to law, morals
or good customs
5. Exempting circumstance
Prove
extraordinary Caso fortuito, Art. 1174
diligence and Art. 1733, NCC
NCC
(Any event which could
not be foreseen, or
which though foreseen
is inevitable)
6.Presumption of negligence
There is a presumption
of fault or negligence

No presumption of fault
or negligence

7.Governing law
Law on common carriers
Law on obligations and
contracts

PRIVATE CARRIER
One which, without being engaged in the
business of carrying as a public employment,
undertakes to deliver goods or passengers for

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)

San Beda College of Law

55
MEMORY AID IN COMMERCIAL LAW

GOVERNING LAWS
A. Domestic/inter-island/coastwise
Applicable to Land, Water, and Air transportation
1. Civil Code - primary
2. Code of Commerce (Arts. 349, 379, 573734, 580, 806-845) suppletory
Article 349 A contract of transportation by
land or water ways of any kind shall be
considered commercial:
1. When it has for its object merchandise or
any Article of commerce.
2. When, whatever its object may be, the
carrier is a merchant or is habitually
engaged in transportation for the public.
Article 379 - Thee provisions contained in
Articles 349 and following shall be
understood as equally applicable to those
who, although they do not personally
effect
the
transportation
of
the
merchandise, contract to do so through
others, either as contractors for a
particular and definite operation, or as
agents
for
transportations
and
conveyances.
In either case they shall be subrogated in the
place of the carriers themselves, with
respect
to
the
obligations
and
responsibility of the latter, as well as with
regard to their rights.
B. 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 - primary
2. Code of Commerce - suppletory
3. Others - suppletory
a. Water/maritime: Carriage of Goods by
Sea Act (COGSA)
b. Air: Warsaw Convention
I. NEW CIVIL CODE
(Arts. 1732-1766)
REQUIREMENT
OF
EXTRAORDINARY
DILIGENCE
Rendition of service with the greatest skill and
utmost foresight. (Davao Stevedore Co. v.
Fernandez)
Rationale:
1. From the nature of the business and for
reasons of public policy (Art. 1733)
2. Relationship of trust
3. Business is impressed with a special
public duty
4. Possession of the goods
5. Preciousness of human life
A common carrier is not an absolute insurer of all
risks of travel.

COVERAGE
1. Vigilance over goods (Arts. 1734-1754); and
2. Safety of passengers (Arts. 1755-1763).
PASSENGER
A person who has entered into a contract of
carriage, express or implied, with the carrier. They
are entitled to extraordinary diligence from the
common carrier.
The following are not considered passengers, and
are entitled to ordinary diligence only:
a. One who has not yet boarded any part of
a vehicle regardless of whether or not he
has purchased a ticket;
b. One who remains on a carrier for an
unreasonable length of time after he has
been afforded every safe opportunity to
alight;
c. One who has boarded by fraud, stealth,
or deceit;
d. One who attempts to board a moving
vehicle, although he has a ticket, unless
the attempt be with the knowledge and
consent of the carrier;
e. One who has boarded a wrong vehicle,
has been properly informed of such fact,
and on alighting, is injured by the carrier;
f.
Invited guests and accommodation
passengers. (Lara vs. Valencia)
Those who ride for free
g. One who rides any part of the vehicle
which is unsuitable or dangerous or which
he knows is not designed or intended for
passengers.
DEFENSES OF A COMMON CARRIER IN THE
CARRIAGE OF GOODS
1. CASO FORTUITO/FORCE MAJEURE
Requisites:
a. Must be the proximate and only cause of
the loss
b. Exercise of due diligence to prevent or
minimize the loss before, during or after the
occurrence of the disaster (Art. 1739)
c. Carrier has not negligently incurred in
delay in transporting the goods (Art. 1740)
Fire is not considered a natural disaster or
calamity as it arises almost invariably from some act
of man. (Eastern Shipping Lines Inc. vs. IAC)
Mechanical defects are not force majeure if the
same was discoverable by regular and adequate
inspections. (Notes and Cases on the Law on

Transportation and Public Utilities, Aquino, T. &


Hernando, R.P. 2004 ed. p.120-122)

2. ACTS OF PUBLIC ENEMY


Requisites:
a. Must be the proximate and only cause of
the loss
b. Exercise of due diligence to prevent or
minimize the loss before, during or after the
act causing the loss, deterioration or
destruction of the goods (Art. 1739)
3. NEGLIGENCE OF THE SHIPPER OR OWNER
a. Sole and proximate cause: absolute defense
b. Contributory: partial defense. (Art. 1741)

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)

San Beda College of Law

56
MEMORY AID IN COMMERCIAL LAW

4. CHARACTER OF THE GOODS OR DEFECTS IN


THE PACKING OR IN THE CONTAINER
Even if the damage should be caused by the
inherent defect/character of the goods, the common
carrier must exercise due diligence to forestall or
lessen the loss. (Art. 1742)
The carrier which, knowing the fact of improper
packing of the goods upon ordinary observation, still
accepts the goods notwithstanding such condition,
is not relieved of liability or loss or injury resulting
therefrom. (Southern Lines, Inc. v. CA, 4 SCRA 258)

LIABILITY OF A COMMON CARRIER FOR


DEATH OR INJURIES TO PASSENGERS DUE TO
ACTS OF ITS EMPLOYEES AND OTHER
PASSENGERS OR STRANGERS
FOR ACTS OF ITS
EMPLOYEES

FOR ACTS OF OTHER


PASSENGERS OR
STRANGERS

Required diligence and defense


Extraordinary diligence
Ordinary diligence
Nature of liability
Tort; however,
Not absolute; limited
The employee must be by Art. 1763
on duty at the time of
the act. (Maranan v.
Perez)

5. ORDER OR ACT OF PUBLIC AUTHORITY


Said public authority must have the power to
issue the order (Art. 1743). Consequently, where
the officer acts without legal process, the common
carrier will be held liable. (Ganzon v. CA 161 SCRA
646)
Diligence in the selection and supervision of
employees under Article 2180 of the Civil Code
cannot be interposed as a defense by the common
carrier because the liability of the carriers arises
from the breach of the contract of carriage. The
defense under said articles is applicable to
negligence in quasi-delicts under Art. 2176. (Del
Prado v. Manila Electric Co., 52 Phil 900)

The carrier is liable when its personnel allowed a


passenger to drive the vehicle causing it to collide
with another vehicle resulting to the injuries
suffered by the other passengers. (MRR vs.
Ballesteros, 16 SCRA 641)

CARRIAGE OF GOODS

CARRIAGE OF PASSENGERS
Parties

1.
2.
3.

Common carrier
Shipper
Consignee

1.
2.

Common carrier
Passenger

Cause of liability
Delay in delivery, loss, destruction, or deterioration of
Death or injury to the passengers
the goods
Duration of liability
From the time the goods are unconditionally placed in
the possession of, and received by the carrier for
transportation until the same are delivered actually or
constructively by the carrier to the consignee or to the
person who has the right to receive them. (Art. 1736)
It 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. 1737)
It continues to be operative even during the time
the goods are stored in a warehouse of the carrier at
the place of destination until the consignee has been
advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or
otherwise dispose of them. (Art. 1738)
Delivery of goods to the custom authorities is not
delivery to the consignee. (Lu Do v. Binamira, 101 Phil
120)

The duty of a common carrier to provide safety to its


passengers so obligates it not only during the course
of the trip, but for so long as the passengers are
within its premises and where they ought to be in
pursuance to the contract of carriage. (LRTA v.
Navidad, [2003])
All persons who remain on the premises within a
reasonable time after leaving the conveyance are to
be deemed passengers, and what is a reasonable
time or a reasonable delay within this rule is to be
determined from all the circumstances, and includes a
reasonable time to see after his baggage and prepare
for his departure. (La Mallorca v. CA, 17 SCRA 739 ;
Abiotiz Shipping Corporation v. CA, 179 SCRA 95)
It is the duty of common carriers of passengers to
stop their conveyances a reasonable length of time in
order to afford passengers an opportunity to enter,
and they are liable for injuries suffered from the
sudden starting up or jerking of their conveyances
while doing so. The duty which the carrier of
passengers owes to its patrons extends to persons
boarding the cars as well as to those alighting
therefrom (Dangwa Trans Co., Inc. vs. CA 202 SCRA
574).
Presumption of negligence

Art.1735 Civil Code

Art.1755 Civil Code

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)

San Beda College of Law

57
MEMORY AID IN COMMERCIAL LAW

Reason: As to when and how goods were damaged in Reason: The contract between the passenger and the
transit is a matter peculiarly within the knowledge of carrier imposes on the latter the duty to transport the
the carrier and its employees. (Mirasol v. Dollar, 53 passenger safely; hence the burden of explaining
PHIL 124)
should fall on the carrier.
Mere proof of delivery of goods to a carrier in good
order and the subsequent arrival of the same goods at
the place of destination in bad order makes for a prima
facie case against the carrier. (Coastwise Lighterage
Corp. v. CA, 245 SCRA 796)
Defenses
1.
2.

Ordinary
circumstance:
Exercise
of
1. Exercise of extraordinary diligence (Art.
extraordinary diligence (Art. 1735)
1756)
Special circumstances:
2. Caso fortuito
a. Flood, storm, earthquake, lighting, or
other natural disaster or calamity (plus
force majeure)
b. Act of the public enemy in war,
whether international or civil
c. Act or omission of the shipper or the
owner of goods
d. The character of the goods or defects
in the packing or in the containers
e. Order or act of competent public
authority (Art. 1734)
Valid stipulations

1. Reduction of degree of diligence to ordinary


diligence, provided it be:
a) In writing, signed by the shipper or owner;
b) Supported by a valuable consideration other
than the service rendered by the carriers;
and
c) Reasonable, just and not contrary to public
policy. (Art. 1744)
2. Fixed amount of liability: A contract fixing the sum
to be recovered by the owner or shipper for the loss,
destruction or deterioration of the goods, if it is
reasonable and just under the circumstances and has
been fairly and freely agreed upon. (Art. 1750)
3. Limited liability for delay: An agreement limiting the
common carriers liability for delay on account of
strikes or riots (Art. 1748)
4. Stipulation limiting liability to the value of the goods
appearing in the bill of lading, unless the shipper or
owner declares a greater value. (Art. 1749)

Stipulation limiting liability when a passenger is


carried gratuitously, but not for willful acts or gross
negligence. (Art. 1758)

The diligence required in the carriage of the goods


may be reduced by only one degree, from
extraordinary to ordinary diligence or diligence of a
good father of a family. (Art. 1744, Art. 1745, no. 4)

Void stipulations
1. That the goods are transported at the risk of the
owner or shipper;
2. That carrier will not be liable for any loss,
destruction or deterioration of the goods;
3. That the carrier need not observe any diligence
in the custody of the goods;
4. That the carrier shall exercise a degree of
diligence less than that of a good father of a family

Dispensing with or lessening the extraordinary


responsibility of a common carrier for the safety of
passengers imposed by law by stipulation, by posting
of notices, by statements on tickets or otherwise.
(Art. 1757)

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)

San Beda College of Law

58
MEMORY AID IN COMMERCIAL LAW

over the movable transported;


5. That the carrier shall not be responsible for the
acts or omissions of his or its employees;
6. That the carriers liability for acts committed by
thieves or robbers who do not act with grave or
irresistible threat, violence or force is dispensed with
or diminished;
7. That the carrier is not responsible for the loss,
destruction or deterioration of the goods on account
of the defective condition of the car, vehicle, ship or
other equipment used in the contract of carriage.
(Art. 1745)

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)

San Beda College of Law

59
MEMORY AID IN COMMERCIAL LAW

RULES ON PASSENGERS BAGGAGE


IN THE CUSTODY OF
IN THE CUSTODY
THE PASSENGERS
OF THE COMMON
(HAND-CARRIED)
CARRIER
(CHECKED-IN)
Legal nature of the baggage
Necessary deposit
Considered
as
goods
Required diligence by the common carrier
Diligence of a depositary Extraordinary
(ordinary diligence)
diligence
Applicable rules
Arts. 1998 and 2000-2003
Arts. 1733-1753
CONCURRING CAUSES OF ACTION ARISING
FROM THE NEGLIGENT ACT OF THE COMMON
CARRIER
1. Culpa contractual (breach of contract)
Only the carrier is primarily liable and not the
driver, because there is no privity between the
driver and the passenger.
Basis: Art.1759, NCC.
No defense of due diligence in the selection and
supervision of employees.
2. Culpa aquiliana (quasi-delict)
The carrier and driver are solidarily liable as joint
tortfeasors.
Basis: Art. 2180, NCC.
Defense of due diligence in the selection and
supervision of employees is available. Exception:
maritime tort resulting in collision. (See notes on
Collision)
3. Culpa criminal (criminal negligence)
The driver is primarily liable. The carrier is
subsidiarily liable only if the driver is convicted and
declared insolvent.
Basis: Art. 100, RPC.
In case of injury to a passenger due to the
negligence of the driver of the bus on which he is
riding and of the driver of another vehicle, the
drivers as well as the owners of the two vehicles are
jointly and severally liable for damages. It makes
no difference that the liability of the bus driver and
owner springs from contract while that of the owner
and driver of the other vehicle arises from quasidelict. (Fabre vs. CA)
LIMITATIONS AS TO CARRIERS LIABILITY
INVALID AS BEING
VALID &
CONTRARY TO PUBLIC
ENFORCEABLE
POLICY
1. One exempting the 1. One limiting the
carrier from any and all liability of the carrier to
liability
for
loss
or an agreed valuation,
damage occasioned by its unless the shipper
own negligence.
declares a higher value
2.
An
unqualified and pays a higher rate
limitation of liability to an of freight
agreed valuation.
(H.E.
Heacock
Company
vs.
Macondray & Company
Inc.)

However, the carrier cannot limit its liability for


injury to, or loss of, goods shipped where such
injury or loss was caused by its own negligence.
(Shewaram vs. PAL, 17 SCRA 606)
SPECIAL RULES ON LIABILITES OF AIRLINE
CARRIERS
1. In case of flight diversion due to bad weather or
other circumstances beyond the pilots control, the
relation between the carrier and the passenger
continues until the latter has been landed at the
port of destination and has left the carriers
premises. The carrier should necessarily exercise
extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers
until they have reached their final destination.
(Philippine Airlines vs. CA, 226 SCRA 423)
2. Even where overbooking of passengers is allowed
as a commercial practice, the airline company would
still be guilty of bad faith and still be liable for
damages if it did not properly inform passenger that
it could breach the contract of carriage even if they
were confirmed passengers. (Zalamea vs. CA, 228
SCRA 23)
3. An open-dated ticket constitutes a complete
contract between the carrier and passenger. Hence,
the airline company is liable if it refused to confirm a
passengers flight reservation. (Singson vs. CA, 282
SCRA 149)
4. An airline company which issued a confirmed
ticket to a passenger covering successive trips on
different airlines can be held liable for damages
occasioned by bumping off by one of the
successive airlines. (Lufthansa German Airlines vs.
CA, 238 SCRA 290)
5. An airline ticket providing that carriage by
successive air carriers is to be regarded as a single
operation is to make the issuing carrier liable for
the tortuous conduct of the other carrier. A printed
provision in the ticket limiting liability only to its own
conduct is not enough to rebut that liability. (KLM
Royal Dutch Airlines vs. CA, 65 SCRA 237)
II. CODE OF COMMERCE

A.

OVERLAND TRANSPORTATION
(Arts. 349-379)

Applicability
1. Domestic land and water/maritime transportation.

(Pandect of Commercial Law and Jurisprudence,


Justice Jose Vitug, 1997 ed.)
2. Domestic Air Transportation. (Commercial Law
Review, Cesar Villanueva, 2004 ed.)
IMPORTANT CONCEPTS:
1. Bill of lading
2. Obligations of the carrier
3. Right of abandonment
4. Notice of damage
5. Combined carrier agreement
BILL OF LADING
The written acknowledgment of receipt of goods
and agreement to transport them to a specific place
to a person named or to his order.

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)

San Beda College of Law

60
MEMORY AID IN COMMERCIAL LAW

Rules:
1. It is not indispensable for the creation of a
contract of carriage. (Compania Maritima vs.
Insurance Company of North America, 12 SCRA
213) IN SHORT: DISPENSABLE.
2. Ambiguity is construed against the carrier, the
contract being one of adhesion.
3. The consignee, although the instrument is
oftentimes drawn up only by the consignor and
carrier, becomes bound by all the stipulations
contained therein by making a claim for loss on the
basis of said bill of lading. (Sea-Land Services Inc.
vs. IAC)
4. The right of a party to recover for loss of
shipment consigned to him under a bill of lading
drawn up only by and between the shipper and the
carrier, springs from either a relation of agency
between him and the shipper, or his status as
stranger in whose favor some stipulation is made in
said contract, and who becomes a party thereto
when he demands fulfillment of that stipulation.
(Art. 1311 (2), (Mendoza vs. PAL Inc.)
5. Acceptance of the bill of lading without dissent
raises the presumption that all the terms therein
where brought to the knowledge of the shipper and
agreed to by him and, in the absence of fraud or
mistake; he is estopped from thereafter denying
that he assented to such terms. (Notes and Cases

on the Law on Transportation and Public Utilities,


Aquino, T. & Hernando, R.P. 2004 ed. p.261)

Kinds:
1. On board - issued when the goods have
been actually placed aboard the ship with
very reasonable expectation that the
shipment is as good as on its way.
2. Received - one in which it is stated that the
goods have been received for shipment with
or without specifying the vessel by which the
goods are to be shipped.
3. Negotiable - one in which it is stated that
the goods referred to therein will be
delivered to the bearer or to the order of
any person named therein.
4. Non-negotiable - One in which it is stated
that the goods referred to therein will be
delivered to a specified person.
5. Clean One which does not indicate any
defect in the goods.
6. Foul One which contains a notation
thereon indicating that the goods covered by
it are in bad condition.
7. Spent One which covers goods that
already have been delivered by the carrier
without a surrender of a signed copy of the
bill.
8. Through One issued by the carrier who is
obliged to use the facilities of other carriers
as well as his own facilities for the purpose
of transporting the goods from the city of
the seller to the city of the buyer, which bill
of lading is honored by the second and other
interested carriers who do not issue their

9.

own bills.

Custody One wherein the goods are

already received by the carrier but the


vessel indicated therein has not yet arrived
in the port.
10. Port One which is issued by the carrier to
whom the goods have been delivered, and
the vessel indicated in the bill of lading by
which the goods are to be shipped is already
in the port where the goods are held for
shipment.
Functions:
1. Best evidence of the existence of the
contract of carriage of cargo (Art. 353)
2. Document of title
3. Receipt of cargo
4. Contract to transport and deliver goods as
stipulated
5. Symbol of the goods
OBLIGATIONS OF THE CARRIER
A. Duty to accept the goods
GENERAL RULE: A common carrier cannot
ordinarily refuse to carry a particular class of goods.
EXCEPTION: For some sufficient reason the
discrimination against the traffic in such goods is
reasonable and necessary. (Fisher vs. Yangco
Steamship Co. 31 Phil 1).
Instances when the carrier may validly refuse to
accept the goods include the ff:
1.) Goods sought to be transported are dangerous
objects, or substances including dynamite and other
explosives
2.) Goods are unfit for transportation
3.) Acceptance would result in overloading
4.) Contrabands or illegal goods
5.) Goods are injurious to health
6.) Goods will be exposed to untoward danger like
flood, capture by enemies and the like
7.) Goods like livestock will be exposed to disease
8.) Strike
9.) Failure to tender goods on time. (Notes and

Cases on the Law on Transportation and Public


Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.68)

In case of carriage by railway, the carrier is


exempted from liability if carriage is insisted upon
by the shipper, provided its objections are stated in
the bill of lading.
However, when a common carrier accepts cargo
for shipment for valuable consideration, it takes the
risk of delivering it in good condition as when it was
loaded. (PAL vs. CA)
B. Duty to deliver the goods
Not only to transport the goods safely but to the
person indicated in the bill of lading. The goods
should be delivered to the consignee or any other
person to whom the bill of lading was validly
transferred or negotiated.
Time of delivery
Stipulated in
Contract/Bill of
Lading
1. Carrier is bound to
fulfill the contract and is
liable for any delay; no

No stipulation
1. Within a reasonable
time.
2. Carrier is bound to

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matter from what cause


it may have arisen.

forward them in the 1st


shipment of the same or
similar goods which he
may make to the point
of delivery. (ART. 358
Code of Commerce)

Effects of delay
a. Merely suspends and generally does not
terminate the contract of carriage
b. Carrier remains duty bound to exercise
extraordinary diligence
c. Natural disaster shall not free the carrier from
responsibility (Art.1740)
d. If delay is without just cause, the contract
limiting the common carriers liability cannot be
availed of in case of loss or deterioration of the
goods (Art.1747)
RIGHT OF CONSIGNEE TO ABANDON GOODS
Instances:
1. Partial non-delivery, where the goods are
useless without the others (Art. 363);
2. Goods are rendered useless for sale or
consumption for the purposes for which they are
properly destined (Art. 365); and
3. In case of delay through the fault of the carrier
(Art. 371).
NOTICE OF DAMAGE (ART. 366)
Requisites for applicability:
1. Domestic/inter-island/coastwise transportation
2. Land/water/air transportation
3. Carriage of goods
4. Goods shipped are damaged
Rules:
a. Patent damage: shipper must file a claim against
the carrier immediately upon delivery (it may be
oral or written)
b. Latent damage: shipper should file a claim
against the carrier within 24 hours from
delivery.
Note: These rules does not apply to misdelivery of
goods. (Roldan vs. Lim Ponzo)
Purpose of notice: To inform the carrier that the
shipment has been damaged, and it is charged with
liability therefore, and to give it an opportunity to
make an investigation and fix responsibility while
the matter is fresh.
The filing of notice of claim is a condition
precedent for recovery.
Shorter period may be stipulated by the parties
because it merely affects the shippers remedy and
does not affect the liability of the carrier.
(PHILAMGEN vs. Sweetlines, Inc.)
Prescriptive Period
Not provided by Article 366. Thus, in such
absence, Civil Code rules on prescription apply.
If despite the notice of claim, the carrier refuses
to pay, action must be filed in court.
1. No bill of lading was issued:
within 6 years
2. Bill of lading was issued: within
10 years.

ARTICLE 366
COGSA Sec.3 (6)
Applicability
1. Domestic/inter1. International/
island/coastwise
overseas/foreign (from
transportation
foreign
country
to
2. Land,
water,
air Phils.)
transportation
Note: subject to the
3. Carriage of goods
rule on Paramount
Clause
2. Water/maritime
transportation
3. Carriage of goods
Notice of damage
1. Condition precedent
1. Not a condition
2. 24-hour period for
precedent
claiming latent damage
2. 3-day period for
claiming latent damage
Prescriptive period
None provided; Civil One year from the date
Code applies.
of delivery (delivered
but damaged goods),
or date when the
vessel left port or from
the date of delivery to
the
arrastre
(nondelivery or loss).
COMBINED CARRIER AGREEMENT (ART. 373)
GENERAL RULE: In case of a contract of
transportation of several legs, each carrier is
responsible for its particular leg in the contract.
EXCEPTION: A combined carrier agreement where
a carrier makes itself liable assuming the obligations
and acquiring as well the rights and causes of action
of those which preceded it.

B.

MARITIME COMMERCE
(Arts. 573-869)

IMPORTANT CONCEPTS:
1. Merchant vessel
2. Maritime lien and Preference of Credit
3. Doctrine of limited liability
4. Causes of revocation of voyage
5. Participants in maritime commerce
6. Charter party
7. Loans on bottomry and respondentia
8. Accidents in maritime commerce
MARITIME/ADMIRALTY LAW
It is the system of laws which particularly relates
to the affairs and business of the sea, to ships, their
crews and navigation, and to maritime conveyance
of persons and property. (Notes and Cases on the

Law on Transportation and Public Utilities, Aquino &


Hernando, citing Francisco, p.254)

Maritime laws apply only to maritime trade and


sea voyages. (Pandect of Commercial Law and

Jurisprudence, Justice Jose Vitug, 1997 ed.)

Arrastre service is not maritime in character. It


refers to a contract for the unloading of goods from
a vessel. (ICTSI vs. Prudential Guarantee, 320 SCRA
244)

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CHARACTERISTICS
OF
MARITIME
TRANSACTION
1. Real - similar to transactions over real property
with respect to effectivity against third persons
which is done through registration. (Rubiso vs.
Rivera, 37 Phil. 72). The evidence of real nature is
shown by: 1) the limitation of the liability of the
agents to the actual value of the vessel and the
freight money; and 2) the right to retain the cargo
and embargo and detention of the vessel (Luzon
Stevedoring Corp v. CA, 156 SCRA 169);
2. Hypothecary - the liability of the owner of the
value of the vessel is limited to the vessel itself
(Doctrine of Limited Liability).
The real and hypothecary nature of maritime law
simply means that the liability of the carrier in
connection with losses related to maritime contracts
is confined to the vessel, which stands as the
guaranty for their settlement. (Aboitiz Shipping
Corp. vs. General Accident Fire and Life Assurance
Corp. 217 SCRA 359).
MERCHANT VESSEL
Vessel engaged in maritime commerce, whether
foreign or otherwise. (Bar Review Materials in

Commercial Law, Jorge Miravite, 2002 ed.)

Constitutes property which may be acquired and


transferred by any of the means recognized by law.
They shall continue to be considered as personal
property. (Arts. 573, 585)
They are susceptible to maritime liens such as for
the repair, equipping and provisioning of the vessel
in the preparation of a voyage, as well as mortgage
liabilities, in satisfaction of which a vessel may be
validly arrested and sold. (Ship Mortgage Decree of
1978)
MARITIME LIEN
It constitutes a present right of property in the
ship, a jus in re, to be afterward enforced in
admiralty by process in rem. (PNB vs. CA, 337 SCRA
381)
If the maritime lien arose prior to the recording
of a preferred mortgage, it shall have priority over
the said mortgage lien. (PNB vs. CA, 337 SCRA 381)
ORDER OF PREFERENCE IN CASE OF SALE OF
VESSEL
R.A. 6106
P.D. 1521
Effectivity date
1969
1978
Applicability
Overseas shipping only
Both domestic and
overseas shipping
Kind of sale
Judicial
Judicial and
extrajudicial
Order of Preference
A preferred mortgage The
preferred
shall have priority over mortgage lien shall
all claims against the have priority over all
vessel,
except
the claims
against
the
following preferences in vessel,
except
the
the order stated:
following preferences

1. Judicial costs of the


proceedings;
2. Taxes due the
Philippine Government;
3. Salaries and wages
of the Captain and
Crew of the vessel
during its last voyage;
4. General average or
salvage
including
contract
salvage,
bottomry loans, and
indemnity due shippers
for the value of goods
transported but which
were not delivered to
the consignee;
5. Costs of repair and
equipment
of
the
vessel, and provisioning
of food, supplies and
fuel during its last
voyage; and
6. Preferred mortgages
registered prior in time.

in the order stated:


1. Expenses and fees
allowed
and
costs
taxed by the court and
taxes due to the
Government;
2. Crews wages;
3. General average;
4. Salvage, including
contract salvage;
5.
Maritime
liens
arising prior in time to
the recording of the
preferred mortgage;
6. Damages arising out
of tort; and
7. Preferred mortgage
registered prior in time.

Effect of sale: All pre-existing claims in the vessel


are terminated. They will then be satisfied from the
proceeds of the sale subject to the order of
preference.
DOCTRINE OF LIMITED LIABILITY
(HYPOTHECARY RULE)
Cases where applicable:
1. Art. 587 civil liability for indemnities to
third persons
2. Art. 590 indemnities from negligent acts
of the captain (not the shipowner or ship
agent)
3. Art. 837 collision
4. Art. 643 liability for wages of the
captain and the crew and for advances
made by the ship agent if the vessel is
lost by shipwreck or capture

GENERAL RULE: The liability of shipowner and

ship agent is limited to the amount of interest in


said vessel such that where vessel is entirely lost,
the obligation is extinguished. (Luzon Stevedoring v.
Escano, 156 SCRA 169) The interest extends to: 1)
the vessel itself; 2) equipments; 3) freightage; and
4) insurance proceeds. (Chua v. IAC, 166 SCRA 183)

EXCEPTIONS:
1.
2.
3.
4.
5.
6.

Claims under Workmens Compensation (Abueg


vs. San Diego 77 Phil 730);
Injury or damage due to shipowner or to the
concurring negligence of the shipowner and
the captain;
The vessel is insured (Vasquez vs. CA 138
SCRA 553).
Expenses for repair on vessel completed before
loss;
In case there is no total loss and the vessel is
not abandoned;
Collision between two negligent vessels;

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Laws);
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MEMORY AID IN COMMERCIAL LAW

Abandonment of the vessel is necessary to limit


the liability of the shipowner. The only instance
were abandonment is dispensed with is when the
vessel is entirely lost (Luzon Stevedoring vs. CA 156
SCRA 169).
RIGHT OF SHIPOWNER OR SHIP AGENT TO
ABANDON VESSEL
Instances:
1. In case of civil liability from indemnities to third
persons (Art. 587);
2. In case of leakage of at least of the contents
of a cargo containing liquids (Art. 687); and
3. In case of constructive loss of the vessel (Sec.
138, Insurance Code).
RIGHT OF ABANDONMENT
SHIPOWNER OR SHIP
CONSIGNEE
AGENT
What may be abandoned
Vessel
Goods shipped
Instances
1. In case of civil liability 1. Partial non-delivery,
from indemnities to third where the goods are
persons (Art. 587);
useless without the
2. Sec. 138, Insurance others (Art. 363);
Code;
2. Goods are rendered
3. In case of leakage of useless for sale or
at least of the consumption for the
contents of a cargo purposes for which
containing liquids (Art. they
are
properly
687)
destined (Art. 365);
and
3. In case of delay
through the fault of the
carrier (Art. 371).
Effects
1. Transfer of ownership 1. Transfer
of
of the vessel from the ownership
on
the
shipowner
to
the goods from the shipper
shippers or insurer.
to the carrier.
2. In case of (2), the 2. Carrier should pay
insurer must pay the the shipper the market
insured as if there was value of the goods at
actual total loss of the the
point
of
vessel.
destination.
CAUSES OF REVOCATION OF VOYAGE
1. War or interdiction of commerce;
2. Blockade; effort to cut off food, supplies, war
material or communications from a particular
area by force, either in part or totally
3. Prohibition to receive cargo at destination;
4. Embargo; is the partial or complete prohibition
of commerce and trade with a particular
country or a group of countries
5. Inability of the vessel to navigate. (Art. 640)
Terms:
1. Interdiction of commerce A governmental
prohibition of commercial intercourse intended
to bring about an entire cessation for the time
being of all trade whatever.
2. Blockade A sort of circumvallation of a place
by which all foreign connection and

3.

correspondence is, as far as human power can


effect it, to be cut off.
Embargo A proclamation or order of a state,
usually issued in time of war or threatened
hostilities, prohibiting the departure of ships or
goods from some or all the ports of such state
until further order.

PARTICIPANTS IN MARITIME COMMERCE


A. Shipowners and ship agents
B. Captains and masters of the vessel
C. Officers and crew of the vessel
D. Supercargoes
E. Pilot
A. SHIPOWNERS AND SHIP AGENTS
Shipowner (proprietario)
Person who has possession, control and
management of the vessel and the consequent right
to direct her navigation and receive freight earned
and paid, while his possession continues.
Ship agent (naviero)
Person entrusted with provisioning and
representing the vessel in the port in which it may
be found; also includes the shipowner.
Not a mere agent under civil law; he is solidarily
liable with the ship owner.
Powers and functions:
1. Capacity to trade;
2. Discharge duties of the captain, subject to
Art.609;
3. Contract in the name of the owners with
respect to repairs, details of equipment,
armament, provisions of food and fuel, and
freight of the vessel, and all that relate to the
requirements of navigation;
4. Order a new voyage, make a new charter or
insure the vessel after obtaining authorization
from the shipowner or if granted in certificate
of appointment.
Civil Liabilities of the Shipowner And Ship
Agent
1. All contracts of the captain, whether authorized
or not, to repair, equip and provision the
vessel; (Art. 586)
2. Loss and damage to the goods loaded on the
vessel without prejudice to their right to free
themselves from liability by abandoning the
vessel to the creditors. (Art. 587)
Duty of Ship Agent to Discharge the Captain
and Members of the Crew
If the seamen contract is not for a definite period
or voyage, he may discharge them at his discretion.
(Art. 603)
If for a definite period, he may not discharge
them until after the fulfillment of their contracts,
except on the following grounds:
a. Insubordination in serious matters;
b. Robbery;
c. Theft;
d. Habitual drunkenness;
e. Damage caused to the vessel or to its
cargo through malice or manifest or proven
negligence. (Art. 605)

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
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MEMORY AID IN COMMERCIAL LAW

B. CAPTAINS AND MASTERS


They are the chiefs or commanders of ships.
The terms have the same meaning, but are
particularly used in accordance with the size of the
vessel governed and the scope of transportation,
i.e., large and overseas, and small and coastwise,
respectively.
Nature of position (3-fold character):
1. General agent of the shipowner;
2. Technical director of the vessel;
3. Representative of the government of the
country under whose flag he navigates.
Qualifications:
1. Filipino citizen;
2. Legal capacity to contract;
3. Must have passed the required physical
and mental examinations required for
licensing him as such. (Art. 609)
Inherent powers:
1. Appoint crew in the absence of ship
agent;
2. Command the crew and direct the vessel
to its port of destination;
3. Impose correctional punishment on those
who, while on board vessel, fail to comply
with his orders or are wanting in
discipline;
4. Make contracts for the charter of vessel in
the absence of ship agent.
5. Supply, equip, and provision the vessel;
and
6. Order repair of vessel to enable it to
continue its voyage. (Art. 610)
Sources of funds to comply with the inherent
powers of the captain (in successive order):
1. From the consignee of the vessel;
2. From the consignee of the cargo;
3. By drawing on the ship agent;
4. By a loan on bottomry;
5. By sale of part of the cargo. (Art. 611)
Duties:
1. Bring on board the proper certificate and
documents and a copy of the Code of
Commerce;
2. Keep a Log Book, Accounting Book and
Freight Book;
3. Examine the ship before the voyage;
4. Stay on board during the loading and
unloading of the cargo;
5. Be on deck while leaving or entering the
port;
6. Protest arrivals under stress and in case
of shipwreck;
7. Follow instructions of and render an
accounting to the ship agent;
8. Leave the vessel last in case of wreck;
9. Hold in custody properties left by
deceased passengers and crew members;
10. Comply with the requirements of customs,
health, etc. at the port of arrival;
11. Observe rules to avoid collision;
12. Demand a pilot while entering or leaving a
port. (Art. 612)
A ships captain must be accorded a reasonable
measure of discretionary authority to decide what
the safety of the ship and of its crew and cargo

specifically requires on a stipulated ocean voyage


(Inter-Orient Maritime Enterprises Inc. vs. CA).
No liability for the following:
1. Damages caused to the vessel or to the
cargo by force majeure;
2. Obligations contracted for the repair,
equipment, and provisioning of the vessel
unless he has expressly bound himself
personally or has signed a bill of
exchange or promissory note in his name.
(Art. 620)
Solidary
Liabilities
of
the
Ship
Agent/Shipowner for Acts Done by the
Captain towards Passengers and Cargoes
1. Damages to vessel and to cargo due to
lack of skill and negligence;
2. Thefts and robberies of the crew;
3. Losses and fines for violation of laws;
4. Damages due to mutinies;
5. Damages due to misuse of power;
6. For deviations;
7. For arrivals under stress;
8. Damages due to non-observance of
marine regulations. (Art. 618)
C. OFFICERS AND CREW
1. Sailing Mate/First Mate
2. Second Mate
3. Engineers
4. Crew
No liability under the following circumstances:
1. If, before beginning voyage, captain attempts
to change it, or a naval war with the power to
which the vessel was destined occurs;
2. If a disease breaks out and be officially
declared an epidemic in the port of destination;
3. If the vessel should change owner or captain.
(Art. 647)
Sailing Mate/First Mate
Second chief of the vessel who takes the place of
the captain in case of absence, sickness, or death
and shall assume all of his duties, powers and
responsibilities. (Art. 627)
Duties:
1. Provide himself with maps and charts with
astronomical tables necessary for the
discharge of his duties;
2. Keep the Binnacle Book;
3. Change the course of the voyage on
consultation with the captain and the
officers of the boat, following the decision
of the captain in case of disagreement;
4. Responsible for all the damages caused to
the vessel and the cargo by reason of his
negligence. (Arts. 628 - 631)
Second Mate
Takes command of the vessel in case of the
inability or disqualification of the captain and the
sailing mate, assuming in such case their powers
and responsibilities.
Third in command
Duties:

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MEMORY AID IN COMMERCIAL LAW

1.
2.
3.
4.
5.

Preserve the hull and rigging of the


vessel;
Arrange well the cargo;
Discipline the crew;
Assign work to crew members;
Inventory the rigging and equipment of
the vessel, if laid up. (Art. 632)

Engineers
Officers of the vessel but have no authority
except in matters referring to the motor apparatus.
When two or more are hired, one of them shall be
the chief engineer.
Duties:
1. In charge of the motor apparatus, spare
parts, and other instruments pertaining to
the engines;
2. Keep the engines and boilers in good
condition;
3. Not to change or repair the engine
without authority of the captain;
4. Inform the captain of any damage to the
motor apparatus;
5. Keep an Engine Book;
6. Supervise all personnel maintaining the
engine. (Art. 632)
Crew
The aggregate of seamen who man a ship, or the
ships company.
Hired by the ship agent, where he is present and
in his absence, the captain hires them, preferring
Filipinos, and in their absence, he may take in
foreigners, but not exceeding 1/5 of the crew. (Art.
634)
Classes of Seamans Contracts
1. By the voyage;
2. By the month; and
3. By share of profits or freightage.
Just Causes for the Discharge of Seaman
While Contract Subsists
1. Perpetration of a crime;
2. Repeated insubordination, want of discipline;
3. Repeated incapacity and negligence;
4. Habitual drunkenness;
5. Physical incapacity;
6. Desertion. (Art. 637)
Rules in case of Death of a Seaman
The seamans heirs are entitled to payment as
follows:
1. If death is natural:
a. compensation up to time of death if
engaged on wage
b. if by voyage - half of amount if death
occurs on voyage out; and full, if on
voyage in
c. if by shares - none, if before departure;
full, if after departure
2. if death is due to defense of vessel - full
payment;
3. if captured in defense of vessel - full payment;
4. if captured due to carelessness - wages up to
the date of the capture. (Art. 645)

Complement of the Vessel


All persons on board, from the captain to the
cabin boy, necessary for the management,
maneuvers, and service, thus including the crew,
the sailing mates, engineers, stokers and other
employees on board not having specific
designations.
Does not include the passengers or the persons
whom the vessel is transporting.
D. SUPERCARGOES
Persons who discharges administrative duties
assigned to him by ship agent or shippers, keeping
an account and record of transaction as required in
the accounting book of the captain. (Art. 649)
E. PILOT
A person duly qualified, and licensed, to conduct
a vessel into or out of ports, or in certain waters.
The term generally connotes a person taken on
board at a particular place for the purpose of
conducting a ship through a river, road or channel,
or from a port.
Master pro hac vice for the time being in the
command and navigation of the ship.
While in exercising his functions a pilot is in sole
command of the ship and supersedes the master for
the time being in the command and navigation of
the ship, the master does not surrender his vessel
to the pilot and the pilot is not the master. There
are occasions when the master may and should
interfere and even displace the pilot, as when the
pilot is obviously incompetent or intoxicated (Far
Eastern Shipping Company vs. CA).
Compulsory Pilotage States possessing harbors
have enacted laws or promulgated rules requiring
vessels approaching their ports to take on board
pilots licensed under the local laws. (Notes and

Cases on the Law on Transportation and Public


Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.
518)
Liablity of Pilot

GENERAL RULE: On compulsory pilotage grounds,


the Harbor Pilot is responsible for damage to a
vessel or to life or property due to his negligence.

EXCEPT:

1. Accident caused by force majeure or natural


calamity provided the pilot exercised prudence and
extra diligence to prevent or minimize damages.
2. Countermand or overrule by the master of the
vessel in which case the registered owner of the
vessel is liable. (Sec.11, Art.III PPA Admin Order 0385)
SPECIAL
CONTRACTS
OF
MARITIME
COMMERCE
1. Charter party
2. Bill of lading
3. Contract of transportation of passengers
on sea voyages
4. Loan on bottomry
5. Loan on respondentia
6. Marine insurance

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Laws);
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CHARTER PARTY
A contract by virtue of which the owner or agent
binds himself to transport merchandise or persons
for a fixed price.
A contract by which an entire ship, or some
principal part thereof is let/leased by the owner to
another person for a specified time or use. (Planters
Products, Inc. vs. CA, 226 SCRA 476)
Parties:
1. Ship owner or ship agent
2. Charterer
Classes:
1. Bareboat or demise The charterer provides
crew, food and fuel. The charterer is liable as if he
were the owner, except when the cause arises from
the unworthiness of the vessel. The shipowner
leases to the charterer the whole vessel,
transferring to the latter the entire command,
possession and consequent control over the vessels
navigation, including the master and the crew, who
thereby become the charters servants.
It transforms a common carrier into a private
carrier.
The charterer becomes the owner of the
vessel pro hac vice, just for that one particular
purpose only. Because the charterer is treated
as owner pro hac vice, the charterer assumes
the customary rights and liabilities of the
shipowner to third persons and is held liable
for the expense of the voyage and the wages
of the seamen.
2. Contract of Affreightment A contract whereby
the owner of the vessel leases part or all of its
space to haul goods for others.
The shipowner retains the possession,
command and navigation of the ship, the
charterer merely having use of the space in the
vessel in return for his payment of the charter
hired.
Kinds:
a. Time charter vessel is chartered for a
fixed period of time or duration of voyage.
b. Voyage or trip charter the vessel is
leased for one or series of voyages
usually for purposes of transporting goods
for charterer.
LEASE
If for a definite period,
lessee cannot give up
the lease by paying a
portion of the amount
agreed upon.
If the leased property is
sold to one who knows
of the existence of the
lease, the new owner
must respect the lease.
Civil law concept

CHARTER PARTY
An entire or complete
contract.

CHARTER PARTY
Charterer may rescind
charter party by paying
half of the freightage
agreed upon.
The new owner is not
compelled to respect the
charter party so long as
he can load the vessel
with his own cargo. (Art.
689)
Commercial law concept

Consensual contract
BAREBOAT OR
DEMISE CHARTER
Charterer
becomes
liable to others caused
by its negligence
Charterer regarded as
owner pro hac vice for
the voyage
Owner
of
vessel
relinquishes possession,
command
and
navigation to charterer
Common
converted
carrier.

carrier
is
to private

goods received
persons
Real contract

from

CONTRACT OF
AFFREIGHTMENT
(TIME OR VOYAGE
CHARTER)
Owner remains liable as
carrier and must answer
for any breach of duty
Charterer
is
not
regarded as owner.
The
vessel
owner
retains
possession,
command
and
navigation of the ship
Common carrier is not
converted to a private
carrier.

PERSONS WHO MAY MAKE A CHARTER


1. Owner or owners of the vessel, either in
whole or in majority part, who have legal
control and possession of the vessel
2. Charterer may subcharter entire vessel to
3rd person only if not prohibited in original
charter. (Art.679)
3. Ship agent if authorized by the owner/s or
given such power in the certificate of
appointment. (Art.598)
4. Captain in the absence of the ship agent
or consignee and only if he acts in
accordance with the instructions of the
agent or owner and protects the latters
interests. (Art.609)
REQUISITES OF A VALID CHARTER PARTY
1. Consent of the contracting parties
2. Existing vessel which should be placed at
the disposition of the shipper
3. Freight
4. Compliance with Art. 652 of the Code of
Commerce
ARTICLE 652. A charter party must be drawn in
duplicate and signed by the contracting parties,
and when either does not know how or is not able
to do so, by two witnesses at his request.

BILL OF LADING
More like a private
receipt
which
the
captain gives to accredit

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Clauses Which May Be Included In a Charter


Party
Jason clause
A stipulation in a charter
party that in case of a
maritime accident for
which the shipowner is
not responsible by law,
contract or otherwise,
the
cargo
shippers,
consignees or owners
shall contribute with the
shipowner in general
average. (Pandect of
Commercial Law and
Jurisprudence,
Justice
Jose Vitug, 1997 ed.)

Clause paramount or
paramount clause
A clause in a charter
party providing that the
COGSA shall apply, even
though
the
transportation
is
domestic, subject to the
extent that any term of
the bill of lading is
repugnant to the COGSA
or applicable law, then
to the extent thereof the
provision of the bill of
lading is void. (Pandect
of Commercial Law and
Jurisprudence,
Justice
Jose Vitug, 1997 ed.)

Rights and Obligations of Parties


SHIPOWNER OR
SHIP AGENT
1. If the vessel is
chartered wholly, not to
accept
cargo
from
others;
2. To
observe
represented capacity;
3. To unload cargo
clandestinely placed
4. To
substitute
another vessel if load is
less
than
3/5
of
capacity;
5. To leave the port if
the charterer does not
bring the cargo within
the lay days and extra
lay days allowed;
6. To place in a vessel
in
a
condition
to
navigate;
7. to bring cargo to
nearest neutral port in
case of war or blockade.
(Arts. 669-678)

CHARTERER
1. To pay the agreed
charter price;
2. To pay freightage
on unboarded cargo;
3. To pay losses to
others
for
loading
uncontracted cargo and
illicit cargo;
4. To wait if the
vessel needs repair;
5. To pay expenses
for deviation. (Arts.
679-687)

Rescission of a Charter Party


At charterers
At
request
shipowners
(Art 688)
request
(Art. 689)
1.
By 1. If the extra
abandoning
lay
days
the charter and terminate
paying half of without
the

Fortuitous
causes
(Art. 690)
1. War or
interdiction of
commerce;
2. Blockade;

the freightage;
2.
Error
in
tonnage
or
flag;
3. Failure to
place
the
vessel at the
charterers
disposal;
4. Return of
the vessel due
to
pirates,
enemies or bad
weather;
5. Arrival at a
port
for
repairs.

cargo
being
placed
alongside the
vessel;
2. Sale by the
owner of the
vessel before
loading by the
charterer;

3. Prohibition
to receive
cargo;
4. Embargo;
and
5. Inability of
the vessel to
navigate.

Terms:
1. Primage - bonus to be paid to the captain after
the successful voyage.
2. Demurrage the sum fixed in the charter party
as a remuneration to the owner of the ship for
the detention of his vessel beyond the number
of days allowed by the charter party for loading
or unloading or for sailing.
3. Deadfreight the amount paid by or
recoverable from a charterer of a ship for the
portion of the ships capacity the latter
contracted for but failed to occupy.
4.
5. Lay Days - days allowed to charter parties for
loading and unloading the cargo.
6. Extra Lay Days days which follow after the
lay days have elapsed.
USUAL
FORMS
OF
CONSUMMATING
CONTRACTS
1. C.I.F. cost, insurance and freight;
2. F.O.B. - free on board;
3. F.A.S. - free alongside ship; and
4. C. & F. - cost and freight.
TRANSSHIPMENT OF GOODS
The act of taking cargo out of one ship and
loading it in another, or the transfer of goods from
the vessel stipulated in the contract of affreightment
to another vessel before the place of destination
named in the contract has been reached, or the
transfer for further transportation from one ship or
conveyance to another.
It is not dependent on the ownership of the
transporting ships or in the change of carriers, but
rather on the fact of actual physical transfer of
cargo from one vessel to another.
If done without legal excuse, however competent
and safe the vessel into which the transfer is made,
is a violation of contract and infringement of right of
shipper and subjects carrier to liability if freight is
lost event by cause otherwise excepted. (Magellan
Manufacturing vs. CA, 201 SCRA 102)
LOAN ON BOTTOMRY AND RESPONDENTIA
A real, unilateral, aleatory contract, by virtue of
which one person lends to another a certain amount
of money or goods on things exposed to maritime
risks, which amount, with its earnings, is to be

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MEMORY AID IN COMMERCIAL LAW

returned if the things are safely transported, and


which is lost if the latter are lost.
3.
LOAN ON
BOTTOMRY

LOAN ON
RESPONDENTIA
Definition
Loan
made
by Loan taken on security
shipowner
or
ship of the cargo laden on a
agent guaranteed by vessel, and repayable
vessel
itself
and upon safe arrival of
repayable upon arrival cargo at destination.
of
vessel
at (Art. 719)
destination. (Art. 719)
Who may contract
Shipowner
or
ship Only the owner of the
agent. Outside of the cargo.
residence
of
the
owners - the captain.
1.
2.

1.
2.
3.
1.
2.
3.
4.
5.
6.
7.

Common elements:
Exposure of security to marine peril;
Obligation of the debtor conditioned only
upon safe arrival of the security at the point
of destination.
Forms:
Public instrument
Policy signed by the contracting parties and
the broker taking part therein
Private instrument (Art. 720)
Contents:
Kind, name and registry of the vessel;
Name, surname and domicile of the captain;
Names, surnames and domiciles of the
borrower and the lender;
Amount of the loan and the premium
stipulated;
Time for repayment;
Goods pledged to secure repayment;
Voyage during which the risk is run (Art.721)

BOTTOMRY/
RESPONDENTIA

ORDINARY LOAN
(MUTUUM)

Not subject to Usury


Law

Subject to Usury Law

Liability
of
the
borrower is contingent
on the safe arrival of
the vessel or cargo at
destination

Not subject to any


contingency (absolute
liability)

The last lender is a


preferred creditor

The first lender is a


preferred creditor

WHEN
LOAN
ON
BOTTOMRY
OR
RESPONDENTIA REGARDED AS SIMPLE LOAN
1. Lender loaned an amount larger than the
value of the object due to fraudulent
means employed by the borrower.
(ART.726)
2. Full amount of the loan is not used for the
cargo or given on the goods if all of them

could not have been loaded, the balance


will be considered a simple loan.
(ART.727)
If the effects on which the money is taken
is not subjected to any risk. (ART.729)

Note: Under existing laws, the parties to a loan,


whether ordinary or maritime, may agree on any
rate of interest. (CB Circular 905)
MARINE INSURANCE
Indemnity is paid after the
loss has occurred
In case of loss of the vessel
due to a risk insured
against, the obligation of
the
insurer
becomes
absolute
Consensual contract
Hypothecary
Respondentia

Nature

LOAN ON
BOTTOMRY OR
RESPONDENTIA
Indemnity is paid in
advance by way of
a loan
In case of loss of
the vessel due to a
marine peril, the
obligation of the
borrower to pay is
extinguished
Real contract
of

Bottomry/

GENERAL RULE: The obligation of the borrower to

pay the loan is extinguished if the goods given as


security are absolutely lost by reason of an accident
of the sea, during the voyage designated, and if it is
proven that the goods were on board.

EXCEPTIONS:
1.
2.
3.
4.
5.

Loss due to inherent defect;


Loss due to the barratry (misconduct) on the
part of the captain;
Loss due to the fault or malice of the borrower;
The vessel was engaged in contraband; and
The cargo loaded on the vessel be different in
from that agreed upon.

Concurrence of Marine Insurance and Loan on


Bottomry/Respondentia
1. The insurable interest of the owner of a
ship hypothecated by bottomry is only the
excess of the value over the amount
secured by bottomry. (Sec. 101,
Insurance Code)
2. The value of what may be saved in case
of shipwreck shall be divided between the
lender and the insurer in proportion to the
interest of each one. (Art. 735)
Note: If a vessel is hypothecated by bottomry only
the excess is insurable, since a loan on bottomry
partakes of the nature likewise of an insurance
coverage to the extent of the loan accommodation.
The same rule would apply to the hypothecation of
the cargo by respondentia. (Pandect of Commercial

Law and Jurisprudence, Justice Jose Vitug, 1997


ed.)
ACCIDENTS IN MARITIME COMMERCE
1. Averages
2. Arrival Under Stress
3. Collision
4. Shipwreck

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MEMORY AID IN COMMERCIAL LAW

AVERAGE
An extraordinary or accidental expense incurred
during the voyage in order to preserve the cargo,
vessel or both, and all damages or deterioration
suffered by the vessel from departure to the port of
destination, and to the cargo from the port of
loading to the port of consignment. (Art. 806)
The person whose property has been saved must
contribute to reimburse the damage caused or
expense incurred if the situation constitutes general
average.
Classes:
1. Particular or Simple Average
2. Gross or General Average
Where both vessel and cargo are saved, it is
general average; where only the vessel or only the
cargo is saved, it is particular average.
Expenses incurred to refloat a vessel, which
accidentally ran aground, in order to continue its
voyage, do not constitute general average. Not only
is there absence of a marine peril, common safety
factor, and deliberateness. It is the safety of the
property, and not the voyage, which constitutes the
true foundation of general average. (A. Magsaysay,
Inc. vs. Agan, G.R.No. L-6393, Jan. 31, 1955)

PARTICULAR OR
GROSS OR GENERAL
SIMPLE
Definition
Damages or expenses Damages or expenses
caused to the vessel or deliberately caused in
cargo that did not inure order to save the
to the common benefit, vessel, its cargo or
and borne by respective both from real and
owners. (Art. 809)
known risk. (Art. 811)
Requisites
1. common danger;
2. deliberate
sacrifice;
3. success;
4. proper formalities
and legal steps.
Liability
The owner of the goods All the persons having
which gave rise to the an interest in the
expense or suffered the vessel and the cargo
damage shall bear this therein at the time of
average. (Art. 810)
the occurrence of the
average
shall
contribute to satisfy
this average. (Art. 812)

The
insurers
(Art.859) and lenders
on
bottomry
and
respondentia
shall
likewise
contribute.
(Art.732).
Number of interests involved
Only
one
interest Several
interests
involved
involved
Share in the damage or expense
100% share
In proportion to the
value of the owners
property saved

Right to recover
No reimbursement
There
may
be
reimbursement
Kinds (not exclusive)
Art. 809
Art. 811
Procedure for recovery
1. Assembly
and
deliberation
2. Resolution of the
captain
3. Entry
of
the
resolution
in
the
logbook
4. Detailed minutes
5. Delivery
of
the
minutes
to
the
maritime
judicial
authority of the first
port, within 24 hours
from arrival,
6. Ratification
by
captain under oath.
(Arts. 813-814)
GOODS NOT COVERED BY GENERAL AVERAGE
EVEN IF SACRIFICED
1. Goods carried on deck. (ART.855)
2. Goods not recorded in the books or
records of the vessel. (ART.855 (2))
3. Fuel for the vessel if there is more than
sufficient fuel for the voyage. (Rule IX,
York-Antwerp Rule)
Jettison
Act of throwing cargo overboard in order to
lighten the vessel.
Order of goods to be cast overboard:
1. Those which are on the deck, preferring
the heaviest one with the least utility and
value;
2. Those which are below the upper deck,
beginning with the one with greatest
weight and smallest value. (Art. 815)
Jettisoned goods are not res nullius nor deemed
abandoned within the meaning of civil law so as to
be the object of occupation by salvage. (Pandect of

Commercial Law and Jurisprudence, Justice Jose


Vitug, 1997 ed.)

In order that the jettisoned goods may be


included in the gross or general average, the
existence of the cargo on board should be proven
by means of the bill of lading. (Art. 816)
York-Antwerp (Y-A) Rules on Determining
Liability for Averages With Regard To Deck
Cargo
1. Deck
cargo
is
allowed
only
in
domestic/coastwise/inter-island shipping, and is
prohibited
in
international/overseas/foreign
shipping.
2. If deck cargo is loaded with the consent of the
shipper on overseas trade, it must always contribute
to general average, but should the same be
jettisoned, it would not be entitled to
reimbursement because there is violation of the Y-A
Rules.

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MEMORY AID IN COMMERCIAL LAW

3. If deck cargo is loaded with the consent of the


shipper on coastwise shipping, it must always
contribute to general average and if jettisoned
would be entitled to reimbursement.
Reason: In domestic shipping, voyages are
usually short and the seas are generally not rough.
In overseas shipping, the vessel is exposed for
many days to perils of the sea.
DOMESTIC
Deck cargo is allowed

INTERNATIONAL
Deck cargo is not
allowed
With shippers consent
General average
Particular average
Without shippers consent
Captain is liable
Captain is liable

ARRIVAL UNDER STRESS (ARRIBADA)


The arrival of a vessel at the nearest and most
convenient port instead of the port of destination, if
during the voyage the vessel cannot continue the
trip to the port of destination.
When lawful

When
unlawful

Who
bears
expenses:

The inability to
continue
voyage is due
to
lack
of
provisions,
well-founded
fear of seizure,
privateers,
pirates,
or
accidents
of
the
sea
disabling it to
navigate. (Art.
819)

1. Lack
of
provisions due
to negligence to
carry according
to usage and
customs;
2. Risk
of
enemy not well
known
or
manifest
3. Defect of
vessel due to
improper
repair; and
4. Malice,
negligence, lack
of foresight or
skill of captain.
(Art. 820)

The shipowner
or ship agent
is liable in case
of
unlawful
arrival under
stress.
But
they shall not
be liable for
the damages
caused
by
reason of a
lawful arrival.
(Art. 821)

* Privateer - A ship privately owned and crewed


but authorized by a government during wartime to
attack and capture enemy vessels.
It is the duty of the captain to continue the
voyage without delay after the cause of the arrival
under stress has ceased failing in such duty renders
him liable. However, in case the cause has been risk
of enemies, there must first be an assembly before
departure. (Art. 825)
Steps:
1. Captain should determine during the
voyage if there is well founded fear of
seizure, privateers and other valid
grounds;
2. Captain shall assemble the officers and
summon the persons interested in the
cargo who may attend the meeting but
without a right to vote;
3. The officers shall determine and agree if
there is well-founded reason after

4.
5.

examining the circumstances.


The
captain shall have the deciding vote;
The agreement shall be drafted and the
proper minutes shall be signed and
entered in the log book;
Objections and protests shall likewise be
entered in the minutes.

COLLISION
Impact of two vessels both of which are moving.
Allision
Impact between a moving vessel and a stationary
one.
Nautical Rules to Determine Negligence
1. When two vessels are about to enter a port,
the farther one must allow the nearer to enter
first; if they collide, the fault is presumed to be
imputable to the one who arrived later, unless
it can be proved that there was no fault on its
part.
2. When two vessels meet, the smaller should
give the right of way to the larger one.
3. A vessel leaving port should leave the way
clear for another which may be entering the
same port.
4. The vessel which leaves later is presumed to
have collided against one which has left earlier.
5. There is a presumption against the vessel
which sets sail in the night.
6. There is a presumption against the vessel with
spread sails which collides with another which
is at anchor and cannot move, even when the
crew of the latter has received word to lift
anchor, when there was not sufficient time to
do so or there was fear of a greater damage or
other legitimate reason.
7. There is a presumption against an improperly
moored vessel.(Moor: to secure in a place)
8. There is a presumption against a vessel which
has no buoys to indicate the location of its
anchors to prevent damage to vessels which
may approach it.
9. Vessels must have proper look-outs or
persons trained as such and who have no
other duty aside therefrom. (Smith Bell v. CA)
Nautical Rules as to Sailing Vessel and
Steamship
1. Where a steamship and a sailing vessel are
approaching each other from opposite
directions, or on intersecting lines, the
steamship from the moment the sailing vessel
is seen, shall watch with the highest diligence
her course and movements so as to be able to
adopt such timely means of precaution as will
necessarily prevent the two boats from coming
in contact.
2. The sailing vessel is required to keep her
course unless the circumstances require
otherwise.
Zones of Time in the Collision of Vessels
1. First zone all time up to the moment when risk
of collision begins.
No rule is as yet applicable for none is necessary.

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2. Second zone time between moment when risk


of collision begins and moment it becomes a
practical certainty.
It is in this period where conduct of the vessels is
primordial (point of existence). It is in this zone that
vessels must strictly observe nautical rules, unless a
departure therefrom becomes necessary to avoid
imminent danger.
3. Third zone time when collision is certain and
time of impact.
An error in this zone would no longer be legally
consequential.
Error in Extremis - sudden movement made by a
faultless vessel during the third zone of collision
with another vessel which is at fault during the 2nd
zone. Even if such sudden movement is wrong, no
responsibility will fall on said faultless vessel.
(Urrutia and Co. v. Baco River Plantation Co., 26
PHIL 632)
Cases Covered By Collision and Allision
1. One vessel at fault
Vessel at fault is liable for damage caused to
innocent vessel as well as damages suffered by the
owners of cargo of both vessels. (Art. 826)
2. Both vessels at fault
Each vessel must bear its own loss, but the
shippers of both vessels may go against the
shipowners who will be solidarily liable. (Art. 827)
3. Vessel at fault not known
Each vessel must bear its own loss, but the
shippers of both vessels may go against the
shipowners who will be solidarily liable. (Art. 828)
Doctrine of Inscrutable Fault In case of
collision where it cannot be determined which
between the two vessels was at fault, both
vessels bear their respective damage, but both
should be solidarily liable for damage to the
cargo of both vessels.
4. Third vessel at fault
The third vessel will be liable for losses and
damages. (Art. 831)
5. Fortuitous event/force majeure
No liability. Each bears its own loss. (Art. 830)
The doctrine of res ipsa loquitur applies in case a
moving vessel strikes a stationary object, such as a
bridge post, dock, or navigational aid. (Far Eastern
Shipping v. CA, Luzon Stevedoring vs. CA)
Even if the cause of action against the common
carrier is based on quasi-delict, the defense of due
diligence in the selection and supervision of
employees is unavailing in case of a maritime tort
resulting in collision. It is not a civil tort governed by
the Civil Code but a maritime one governed by Arts.
826-839 of the Code of Commerce. (Manila
Steamship vs. Insa Abdulhaman)
Doctrine of Last Clear Chance and Rule
Contributory Negligence cannot be applied
collision cases because of Art.827 of the Code
Commerce. (Notes and Cases on the Law

on
in
of

on
Transportation and Public Utilities, Aquino, T. &
Hernando, R.P. 2004 ed.)

ARTICLE 827. If the collision is imputable to both


vessels, each one shall suffer its own damages, and
both shall be solidarily responsible for the losses
and damages occasioned to their cargoes.
MARITIME PROTEST
Condition precedent or prerequisite to recovery
of damages arising from collisions and other
maritime accidents.
It is a written statement made under oath by the
captain of a vessel after the occurrence of an
accident or disaster in which the vessel or cargo is
lost or damaged, with respect to the circumstances
attending such occurrence, for the purpose of
recovering losses and damages.
Excuses for not filing protest: 1) where the
interested person is not on board the vessel; and 2)
on collision time, need not be protested. (Art. 836)
Cases applicable:
1. Collision (Art. 835);
2. Arrival under stress (Art. 612(8));
3. Shipwrecks (Arts. 612(15), 843);
4. Where the vessel has gone through a
hurricane or when the captain believes
that the cargo has suffered damages or
averages (Art. 624).
Who makes: Captain
When made: within 24 hours from the time the
collision took place.
Before whom made: competent authority at the
point of collision or at the first port of arrival, if in
the Philippines and to the Philippine consul, if the
collision took place abroad. (Art. 835)
SHIPWRECK
It is the loss of the vessel at sea as a
consequence of its grounding, or running against an
object in sea or on the coast. It occurs when the
vessel sustains injuries due to a marine peril
rendering her incapable of navigation.
If the wreck was due to malice, negligence or
lack of skill of the captain, the owner of the vessel
may demand indemnity from said captain. (Art. 841)
The rules on collision or allision, as may be
pertinent, can equally apply to shipwrecks.
SPECIAL CONCEPTS
ARRASTRE SERVICE
A contract for the unloading of goods from a
vessel.
Applicability: Overseas trade only. (Commercial

Law Review, C. Villanueva, 2004 ed.)

Significance: When a person brings in cargo


from abroad, he cannot unload and deliver the
cargo by himself. The unloading must be done by
the arrastre operator, which will then deliver the
cargo to the importer. (Commercial Law Review, C.

Villanueva, 2004 ed.)

Nature of business: It is a public utility,


discharging functions which are heavily invested
with public interest.
Liability:
1. Similar to a warehouseman (Lua Kian v. Manila
Railroad)
2. Similar to a common carrier (Northern Motors
v. Prince Line)
3. Solidary liability with the common carrier

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MEMORY AID IN COMMERCIAL LAW

Note: In order that the arrastre operator may be


held liable, the consignee must prove that the
damage was due to the negligence and while the
goods are in the custody of the arrastre operator.
(Hartford Fire Insurance v. E. Razon, Inc.)
STEVEDORING SERVICE
The carriage of goods from the warehouse or
pier to the holds of the vessel. (Chief of Staff vs.
CIR)
As understood in the port business, the term
consists of the handling of cargo from the hold of
the ship to the dock, in case of pier-side unloading;
or to a barge, in case of unloading at sea. (Anglo-Fil
Trading Corp. vs. Lazaro)
The loading on the ship of outgoing cargo is also
part of stevedoring work. (Ibid.)
CONTAINERIZATION/ SAID-TO-CONTAIN/
SHIPPERS LOAD AND COUNT SYSTEM
System whereby the shipper loads his cargoes in
a specially designed container, seals the container
and delivers it to the carrier for transportation. The
carrier does not participate in the counting of the
merchandise for loading into the container, the
actual loading, and the sealing of the container. (US
Lines v. Comm. Of Customs, ICTSI v. Prudential
Guarantee)
The matter of quantity, description and
conditions of the cargo inside the container is the
sole responsibility of the shipper, unless there is
stipulation to the contrary. (US Lines vs. Comm. Of
Customs, Reyma Brokerage v. Phil. Home
Assurance)
Note: In order to attribute to the carrier any
damage to the shipment that may be found,
inspection of the goods should be done at pier-side.
(Bankers vs. CA)
III. CARRIAGE OF GOODS BY SEA ACT/COGSA
(C.A. No. 65)
APPLICABILITY
The transportation must be:
1. Water/maritime transportation;
2. for the carriage of goods; and
3. overseas/international/foreign (from
foreign port to Philippine port).
It can be applied in domestic sea transportation if
agreed upon by the parties. (Clause paramount or
paramount clause)
IMPORTANT FEATURES:
1. Amount of carriers liability
2. Notice of damage
3. Prescriptive period
AMOUNT OF CARRIERS LIABILITY
Under the Sec. 4(5), the liability limit is set at
$500 per package or customary freight unit unless
the nature and value of such goods is declared by
the shipper. This is deemed incorporated in the bill
of lading even if not mentioned in it. (Eastern
Shipping vs. IAC, 150 SCRA 463)

Note that Art. 1749, NCC


domestic/inter-island/coastwise trade.

applies

to

NOTICE OF DAMAGE (SEC. 3(6))


Rules:
a. Patent damage: shipper should file a claim with
the carrier immediately upon delivery
b. Latent damage: shipper should file a claim with
the carrier within three days from delivery.
Note: The filing of a notice of claim is not a
condition precedent.
PRESCRIPTIVE PERIOD
Action for loss or damage to the cargo should be
brought within one year after:
a. Delivery of the goods (delivered but
damaged goods); or
b. The date when the goods should have
been delivered (non-delivery). (Sec. 3[6])
Loss or Damage as applied to the COGSA
contemplates a situation where no delivery at all
was made by the shipper of the goods because the
same had perished, gone out of commerce, or
disappeared in such a way that their existence is
unknown or they cannot be recovered. Thus, it is
inapplicable in case of misdelivery or conversion.
(Ang vs. American Steamship Agencies Inc.) and
damage arising from delay or late delivery (Mitsui
O.S.K. Lines Ltd. vs. CA). In such instance the, Civil
Code rules on prescription shall apply.
The one-year prescriptive period is suspended
by:
1. The express agreement of the parties
(Universal Shipping Lines, Inc. vs. IAC,
188 SCRA 170)
2. The filing of an action in court until it is
dismissed.
(Stevens
&
Co.
vs.
Nordeutscher Lloyd, 6 SCRA 180)
The one-year period shall run from delivery of
the last package and is not suspended by
extrajudicial demand. (Dole Phils.,Inc. vs. Maritime
Co.,148 SCRA 118)
The one-year period shall run from delivery to
the arrastre operator and not to the consignee.
(Union Carbide Phils, Inc. vs. Manila Railroad
Co.,SCRA 359)
The insurer exercising its right of subrogation is
bound by the one-year prescriptive period.
However, it does not apply to the claim against the
insurer for the insurance proceeds. (Fil. Merchants
Ins. Co. vs. Alejandro; Mayer Steel Pipe Corp. vs.
CA)
IV. WARSAW CONVENTION OF 1929 (WC)
PURPOSE: To protect the emerging air
transportation industry and to secure the uniformity
of recovery by the passengers.
APPLICABILITY
The transportation must be:
1. International transportation;

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Laws);
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MEMORY AID IN COMMERCIAL LAW

2.
3.

Air transportation; and


Carriage of passengers, baggage or
goods.
The WC shall also apply to fortuitous
transportation by aircraft performed by an air
transportation enterprise.
International transportation - any transportation
in which the place of departure and the place of
destination are situated either:
1. Within the territories of two High
Contracting Parties regardless of whether or
not there be a break in the transportation or
transshipment, or
2. Within the territory of a single High
Contracting Party, if there is an agreed
stopping place within a territory subject to the
sovereignty, mandate or authority of another
power, even though that power is not a party
to the Convention. (round trip, Am. Jur.)
Transportation to be performed by several
successive air carriers shall be deemed to be one
undivided transportation, if it has been regarded by
the parties as a single operation, whether it has
been agreed upon under the form of a single
contract or of a series of contracts, and it shall not
lose its international character merely because one
contract or a series of contracts is to be performed
entirely within a territory subject to the sovereignty,
suzerainty, mandate, or authority of the same High
Contracting Party. (Art. 1 Sec.3)
WHEN INAPPLICABLE
1. When public policy is contradicted;
2. If the requirements under the Convention
are not complied with.
IMPORTANT CONCEPTS:
1. Transportation documents
a. Passenger ticket
b. Baggage check
c. Air way bill
2. Liability of the carrier for damages
a. Death or injury to passengers
b. Loss or damage to baggage or goods
c. Delay
3. Successive carrier agreement
4. Jurisdiction
5. Combined transportation agreement
PASSENGER
TICKET
Passenger

BAGGAGE
CHECK
Checked-in
baggage

AIR
WAYBILL
Goods to be
shipped

LIABILITY OF CARRIER FOR DAMAGES


1. Death or injury of a passenger if the accident
causing it took place on board the aircraft or in the
course of its operations of embarking or
disembarking; (Art. 17)
2. Destruction, loss or damage to any baggage or
goods, if it took place during the transportation by
air; (Art. 18) and
Transportation by air The period during which
the baggage or goods are in the charge of the
carrier, whether in an airport or on board an

aircraft, or, in case of a landing outside an airport,


in any place whatsoever.
It includes any transportation by land or water
outside an airport if such takes place in the
performance of a contract for transportation by air,
for the purpose of loading, delivery, or
transshipment.
3. Delay in the transportation of passengers,
baggage or goods. (Art. 19)
Note: The Hague Protocol amended the WC by
removing the provision that if the airline took all
necessary steps to avoid the damage, it could
exculpate itself completely (Art. 20(1)). (Alitalia vs.
IAC, 192 SCRA 9)
LIMIT OF LIABILITY (Art. 22, as amended by
Guatemala Protocol, 1971; Alitalia vs. IAC)
1. Passengers
GENERAL RULE: $100,000 per passenger
EXCEPTION: Agreement to a higher limit

2. Checked-in baggage
GENERAL RULE: $20 per kilogram
EXCEPTION: In case of special declaration of
value and payment of a supplementary sum by
consignor, carrier is liable to not more than the
declared sum unless it proves the sum is greater
than actual value.
3. Hand-carried baggage
$1000/passenger
4. Goods to be shipped
GENERAL RULE: $20 per kilogram
EXCEPTION: In case of special declaration of
value and payment of a supplementary sum by
consignor, carrier is liable to not more than the
declared sum unless it proves the sum is greater
than actual value.
An agreement relieving the carrier from liability
or fixing a lower limit is null and void. (Art. 23)
Carrier is not entitled to the foregoing limit if the
damage is caused by willful misconduct or default
on its part. (Art. 25)
Thus, the WC does not operate as an exclusive
enumeration of the instances of an absolute limit of
the extent of liability. It does not preclude the
application of the Civil Code and other pertinent
local laws. It does not regulate or exclude liability
for other breaches of contract by the carrier, or
misconduct of its employees, or for some particular
or exceptional type of damage. (Alitalia vs. CA)
In PanAm v. IAC, the WC was applied as regards
the limitation on the carriers liability, there being a
simple loss of baggage without any improper
conduct on the part of the officials or employees of
the airline or other special injury sustained by the
passenger.
In KLM Royal v. Tuller, the WC has invariably
been held inapplicable, or as not restrictive of the
carriers liability, where there was satisfactory

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
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74
MEMORY AID IN COMMERCIAL LAW

evidence of malice or bad faith attributable to its


officers and employees. (Alitalia vs. IAC)
ACTION FOR DAMAGES
1. Notice of claim
A written complaint must me made within:
a. 3 days from receipt of baggage
b. 7 days from receipt of goods
c. In case of delay, 14 days from receipt of
baggage/goods
The complaint is a condition precedent. Without
the complaint, the action is barred except in case of
fraud on the part of the carrier. (Art. 26)
2. Prescriptive period
Action must be filed within 2 years from:
a. date of arrival at the destination
b. date of expected arrival
c. date on which the transportation stopped.
(Art. 29)
In United Airlines vs. Uy the two-year prescriptive
period was not applied where the airline employed
delaying tactics.
RULE IN CASE OF VARIOUS SUCCESSIVE
CARRIERS
1. Carriage of passengers
GENERAL RULE: Action is filed only against the
carrier in which the accident or delay occurred.
EXCEPTION: Agreement or contract whereby the
first carrier assumed liability for the whole journey.
2. Carriage of baggage or goods
a. Passenger or consignor can file an action
against the first carrier and the carrier in
which the damage occurred
b. Passenger or consignee can file an action
against the last carrier and the carrier in
which the damage occurred.
These carriers are jointly and severally
liable. (Art. 30)
A contract of international carriage by air,
although performed by different carriers under a
series of airline tickets constitutes a single
operation. Members of the International Air
Transportation Association (IATA) are under a
general pool partnership agreement wherein they
act as agent of each other in the issuance of tickets
to contracted passengers to boost ticket sales
worldwide and at the same time provide passengers
easy access to airlines which are otherwise
inaccessible in some parts of the world. (American
Airlines vs. CA)
Under a general pool partnership agreement, the
ticket-issuing airline is the principal in a contract of
carriage while the endorsee-airline is the agent.
The obligation of the former remained and did not
cease even when the breach occurred not on its
own flight but on that of another airline which had
undertaken to carry the passengers to one of their
destinations. (China Airlines vs. Chiok)

JURISDICTION
At the option of the plaintiff, the action for
damages may be filed in the:
a. Court of domicile of the carrier;
b. Court of its principal place of business;
c. Court where it has a place of business
through which the contract has been
made; or
d. Court of the place of destination. (Art.
28(1))
NOTE: It is the passengers ultimate destination
not an agreed stopping place that determines the
country where suit is to be filed.
The forum of action provided in Art. 28(1) is a
matter of jurisdiction rather than of venue. (Santos
III vs. Northwest; 2A C.J.S.)
V. SALVAGE LAW (Act No. 2616)
SALVAGE
Two concepts:
1. Services one person renders to the owner of a
ship or goods, by his own labor, preserving the
goods or the ship which the owner or those
entrusted with the care of them have either
abandoned in distress at sea, or are unable to
protect or secure.
2. Compensation allowed to persons by whose
voluntary assistance a ship at sea or her cargo or
both have been saved in whole or in part from
impending sea peril, or such property recovered
from actual peril or loss, as in cases of shipwreck,
derelict or recapture.
Requisites:
1. Valid object of salvage;
2. Object must have been exposed to marine
peril (not perils of the ship);
3. Services rendered voluntarily (neither an
existing duty nor out of a pre-existing
contract);
4. Services are successful, total or partial.
Subjects of Salvage:
1. Ship itself;
2. Jetsam goods which are cast into the sea, and
there sink and remain under water;
3. Floatsam or Flotsam goods which float upon
the sea when cast overboard;
4. Ligan or Lagan goods cast into the sea tied to a
buoy, so that they may be found again by the
owners (p.173, Judge Diaz).
Persons who have no right to a reward for
salvage:
1. Crew of the vessel saved;
2. Person who commenced Salvage in spite of
opposition of the Captain or his representative;
3. In accordance with Sec. 3 of the Salvage Law,
a person who fails to deliver a salvaged vessel or
cargo to the Collector of Customs.
Derelict a ship or her cargo which is
abandoned and deserted at sea by those who are in
charge of it, without any hope of recovering it, or
without any intention of returning to it.
The intention of those in charge must be
ascertained. If those in charge left with the
intention of returning, or of procuring assistance,

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
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MEMORY AID IN COMMERCIAL LAW

the property is not derelict, but if they quitted the


property with the intention of finally leaving it, it is
derelict and a change of their intention and an
attempt to return will not change its nature
(Erlanger & Galinger vs. Swedish East Asiatic Co.
Ltd.).
If it is clear that the intention to return is slight,
the salvage which was done thereafter is considered
valid. (Notes and Cases on the Law on

Transportation and Public Utilities, Aquino, T. &


Hernando, R.P. 2004 ed. p. 616)
CONTRACT OF TOWAGE
A contract whereby one vessel, usually
motorized, pulls another, whether loaded or not
with merchandise, from one place to another, for a
compensation. It is a contract for services rather
than a contract of carriage.

VI. PUBLIC SERVICE ACT


(C.A. No. 146)
PURPOSES:
1. To secure adequate, sustained service for
the public at the least possible cost;
2. To
protect
the
public
against
unreasonable
charges
and
poor,
inefficient service;
3. To protect and secure investments in
public services;
4. To prevent ruinous competition.
AUTHORITY TO OPERATE PUBLIC SERVICES
GENERAL RULE: No public service shall operate
without having been issued a certificate of public
convenience or a certificate of public convenience
and necessity.

EXCEPTIONS:

SALVAGE

TOWAGE

Governed by special
law (Act No. 2616)

Governed by Civil Code


on contract of lease

Requires success,
otherwise no payment

Success is not required

Must be done with the


consent of the
captain/crewmen

Only the consent of


the tugboat owner is
needed

Vessel must be
involved in an accident

Vessel need not be


involved in an accident

Fees distributed
among crewmen

Fees belong to the


tugboat owner

1.
2.
3.
4.
5.

RULES ON SALVAGE REWARD


1. The reward is fixed by the RTC judge in the
absence of agreement or where the latter is
excessive. (Sec. 9)
2. The reward should constitute a sufficient
compensation for the outlay and effort of the
salvors and should be liberal enough to offer
an inducement to others to render services in
similar emergencies in the future.
3. If sold (no claim being made within 3 months
from publication), the proceeds, after
deducting expenses and the salvage claim,
shall go to the owner; if the latter does not
claim it within 3 years, 50% of the said
proceeds shall go to the salvors, who shall
divide it equitably, and the other half to the
government. (Secs. 11-12)
4. If a vessel is the salvor, the reward shall be
distributed as follows:
a. 50% to the shipowner;
b. 25% to the captain; and
c.

salvage service, being a duty of humanity and not


for reward.

25% to the officers and crew


proportion to their salaries. (Sec. 13)

in

6.
7.

Warehouses;
Animal drawn vehicles and bancas moved
by oar or sail;
Airships, except for the fixing of maximum
rates for fare and freight;
Radio companies, except for rates fixing;
Public services owned or operated by the
government, except as to rates fixing;
Ice plants; and
Public markets.

PUBLIC SERVICE
A person who owns, operates, manages or
controls 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 or
public utility, ice plants, power and water supplies,
communication and similar public services. (Sec.
13b, CA 146)
A casual or incidental service devoid of public
character and interest is not brought within the
category. The question depends on such factors as
the extent of services, whether such person or
company has held himself or itself out as ready to
serve the public or a portion of the public generally.
(Luzon Stevedoring vs. PSC)
NOTE: The Public Service Commission created
under the Public Service Law has already been
abolished under P.D. No. 1 and other issuances. It
has been replaced by the following government
agencies: LTO; LTFRB; ATO; BOE; NTC; NEA; ERB;
NWRC; CAB; and MIA.
CERTIFICATE OF
PUBLIC
CONVENIENCE
(CPC)

CERTIFICATE
OF
PUBLIC
CONVENIENCE AND
NECESSITY (CPCN)

Taking passengers from a sinking ship, without


rendering any service in rescuing the vessel, is not a

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Laws);
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MEMORY AID IN COMMERCIAL LAW

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.

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.

A CPC or a CPCN constitutes neither a franchise


nor a contract, confers no property right, and is a
mere license or a privilege. The holder of said
certificate does not acquire a property right in the
route covered thereby. Nor does it confer upon the
holder any proprietary right or interest or franchise
in the public highways. Revocation of this certificate
deprives him of no vested right. New and additional
burdens, alteration of the certificate, or even
revocation or annulment thereof is reserved to the
State. (Luque vs. Villegas, 30 SCRA 408)
It is a property and has a considerable value
and can be the subject of sale or attachment.
(Cogeo-Cubao Operators and Drivers Assn. vs. CA,
207 SCRA 343, Raymundo vs. Luneta Motor Co.)
REQUREMENTS FOR GRANTING CPC OR CPCN
1. 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.

POWERS
REQUIRING PRIOR
NOTICE AND
HEARING

POWERS
EXERCISABLE
WITHOUT PRIOR
NOTICE AND
HEARING

1. Issuance of CPC
or CPCN;
2. Fixing of rates,
tolls, and charges;
3. Setting up of
standards
and
classifications;
4. Establishment of
rules
to
secure
accuracy of all meters
and all measuring
appliances;
5. Issuance
of
orders
requiring
establishment
or

1. Investigation any
matter
concerning
public service;
2. Requiring
operators to furnish
safe, adequate, and
proper service;
3. Requiring public
services
to
pay
expenses
of
investigation;
4. Valuation
of
properties of public
utilities;
5. Examination and

maintenance
of
extension of facilities;
6. Revocation,
or
modification of CPC or
CPCN;
7. Suspension of CPC
or CPCN, except when
it is necessary to
avoid serious and
irreparable damage or
inconvenience to the
public
or
private
interest, in which
case, a suspension
not more than 30
days may be ordered,
prior to the hearing.
(Soriano v. Medina,
164 SCRA 36)

test
of
measuring
appliances;
6. Grant of special
permits to make extra
or special trips in
territories specified in
the certificate;
7. Uniform
accounting system and
furnishing of annual
reports;
8. Compelling
compliance with the
laws and regulations.

UNLAWFUL ACTS OF PUBLIC UTILITY


COMPANIES
1. Engagement in public service business without
first securing the proper certificate;
2. Providing or maintaining unsafe, improper or
inadequate service as determined by the
proper authority;
3. Committing any act of unreasonable and unjust
preferential treatment to any particular person,
corporation or entity as determined by the
proper authority;
4. Refusing or neglecting to carry public mail
upon request. (Secs. 18 and 19)
ACTS REQUIRING PRIOR APPROVAL
1. Establish and maintain individual or joint rates;
2. Establish and operate new units;
3. Issue free tickets;
4. Issue any stock or stock certificates
representing an increase of capital;
5. Capitalize any franchise in excess of the
amount actually paid to the Government;
6. Sell, alienate, mortgage or lease property,
certificates or franchise.
Under Sec. 20(g) of C.A. No. 146, the sale, etc.
may be negotiated and completed before the
approval by the proper authority. Its approval is not
a condition precedent to the validity of the contract.
The approval is necessary only to protect public
interest.
PRIOR OPERATOR/OLD OPERATOR RULE
The rule allowing an existing franchised operator
to invoke a preferential right within the authorized
territory as long as he renders satisfactory and
economical service.
The policy is not to issue a certificate to a second
operator to cover the same field and in competition
with a first operator who is rendering sufficient,
adequate and satisfactory service.
The prior
operator must first be given an opportunity to
improve its service, if inadequate or deficient.
Purpose: To prevent ruinous and wasteful
competition in order that the interests of the public
would be conserved and preserved.

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
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MEMORY AID IN COMMERCIAL LAW

It subordinates the prior applicant rule which


gives the first applicant priority only if things and
circumstances are equal.
Where the operator either fails or neglects to
make the improvement or effect the increase in
services, especially when given the opportunity, new
operators should be given the chance to give the
services needed by the public.
PRIOR APPLICANT RULE
Presupposes a situation when two interested
persons apply for a certificate to operate a public
utility in the same community over which no person
has as yet granted any certificate. If it turns out,
after the hearing, that the circumstances between
the two applicants are more or less equal, then the
applicant who applied ahead of the other, will be
granted the certificate.
RATE-FIXING POWER
The rate to be fixed must be just, founded upon
conditions which are fair and reasonable to both the
owner and the public.
A rate is just and reasonable if it conforms to the
following requirements:
1. One which yields to the carrier a fair
return upon the value of the property
employed in performing the service; and
2. One which is fair to the public for the
service rendered.
REGISTERED OWNER RULE
The registered owner of a certificate of public
convenience is liable to the public for the injuries or
damages suffered by third persons caused by the
operation of said vehicle, even though the same had
been transferred to a third person.
The registered owner is not allowed to escape
responsibility by proving that a third person is the
actual and real owner Reason: It would be easy for
him, by collusion with others or otherwise, to
transfer the responsibility to an indefinite person, or
to one who possesses no property with which to
respond financially for the damage or injury done.
(Erezo, et al. vs. Jepte 102 Phil 103).

2.

3.

4.

5.

The registered owner is primarily liable for all


the consequences flowing from the operations
of the carrier.
The public has the right to assume that the
registered owner is the actual or lawful owner
thereof. It would be very difficult and often
impossible, as a practical matter, for the public
to enforce their rights of action that they may
have for injuries inflicted by the vehicle if they

should be required to prove who the actual


owner is. (Benedicto vs. IAC, 187 SCRA 547)

The thrust of the law in enjoining the kabit


system is to identify the person upon whom
responsibility may be fixed with the end in view
of protecting the riding public (Lim vs. CA 373
SCRA 394).
The registered owner cannot recover from the
actual owner and the latter cannot obtain
transfer of the vehicle to himself, both being in
pari delicto. (Teja Marketing vs. IAC)
For the better protection of the public, both the
registered owner and the actual owner are
jointly and severally liable with the driver.
(Zamboanga Transportation Co. vs. CA)

KABIT SYSTEM
A system whereby a person who has been
granted a certificate of public convenience allows
other persons who own motor vehicles to operate
under such license, for a fee or percentage of such
earnings. It is void and inexistent under Art. 1409,
Civil Code.
Effects:
1. The transfer, sale, lease or assignment of the
privilege granted is valid between the
contracting parties but not upon the public or
third persons. (Gelisan vs. Alday, 154 SCRA
388)

COMMERCIAL LAW COMMITTEE


CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation
Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)